MASCO CORP /DE/, 10-Q filed on 10/30/2019
Quarterly Report
v3.19.3
Cover Page
9 Months Ended
Sep. 30, 2019
shares
Cover page.  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Sep. 30, 2019
Document Transition Report false
Entity File Number 1-5794
Entity Registrant Name MASCO CORP /DE/
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 38-1794485
Entity Address, Address Line One 17450 College Parkway,
Entity Address, City or Town Livonia,
Entity Address, State or Province MI
Entity Address, Postal Zip Code 48152
City Area Code 313
Local Phone Number 274-7400
Title of 12(b) Security Common Stock, $1.00 par value
Trading Symbol MAS
Security Exchange Name NYSE
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Common Stock, Shares Outstanding (in shares) 286,073,341
Entity Central Index Key 0000062996
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2019
Document Fiscal Period Focus Q3
Amendment Flag false
v3.19.3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Millions
Sep. 30, 2019
Dec. 31, 2018
Current Assets:    
Cash and cash investments $ 475 $ 553
Receivables 1,177 1,068
Prepaid expenses and other 105 90
Assets held for sale 111 151
Inventories:    
Finished goods 558 516
Raw material 277 302
Work in process 89 86
Total inventories 924 904
Total current assets 2,792 2,766
Property and equipment, net 1,017 1,037
Operating lease right-of-use assets 183  
Goodwill 687 692
Other intangible assets, net 264 289
Other assets 85 100
Assets held for sale 492 509
Total assets 5,520 5,393
Current Liabilities:    
Accounts payable 879 851
Notes payable 208 8
Accrued liabilities 682 676
Liabilities held for sale 140 149
Total current liabilities 1,909 1,684
Long-term debt 2,771 2,971
Other liabilities 684 561
Liabilities held for sale 133 108
Total liabilities 5,497 5,324
Commitments and contingencies (Note P)
Masco Corporation's shareholders' equity:    
Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2019 – 284,100,000; 2018 – 293,900,000 284 294
Preferred shares authorized: 1,000,000; Issued and outstanding: 2019 and 2018 – None 0 0
Paid-in capital 0 0
Retained deficit (309) (278)
Accumulated other comprehensive loss (118) (127)
Total Masco Corporation's shareholders' deficit (143) (111)
Noncontrolling interest 166 180
Total equity 23 69
Total liabilities and equity $ 5,520 $ 5,393
v3.19.3
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
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) 284,100,000 293,900,000
Common shares, shares outstanding (in shares) 284,100,000 293,900,000
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
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Income Statement [Abstract]        
Net sales $ 1,947 $ 1,904 $ 5,787 $ 5,743
Cost of sales 1,282 1,281 3,813 3,832
Gross profit 665 623 1,974 1,911
Selling, general and administrative expenses 349 337 1,047 1,041
Impairment charge for other intangible assets 0 0 9 0
Operating profit 316 286 918 870
Other income (expense), net:        
Interest expense (39) (38) (119) (117)
Other, net (8) 0 (16) (12)
Total other income (expense), net (47) (38) (135) (129)
Income from continuing operations before income taxes 269 248 783 741
Income tax expense 73 67 202 188
Income from continuing operations 196 181 581 553
(Loss) income from discontinued operations, net (58) 10 (64) 23
Net income 138 191 517 576
Less: Net income attributable to noncontrolling interest 12 11 35 36
Net income attributable to Masco Corporation $ 126 $ 180 $ 482 $ 540
Basic:        
Income from continuing operations (in dollars per share) $ 0.64 $ 0.56 $ 1.88 $ 1.67
(Loss) income from discontinued operations, net (in dollars per share) (0.20) 0.03 (0.22) 0.07
Net income (in dollars per share) 0.44 0.59 1.66 1.74
Diluted:        
Income from continuing operations (in dollars per share) 0.64 0.55 1.87 1.66
(Loss) income from discontinued operations, net (in dollars per share) (0.20) 0.03 (0.22) 0.07
Net income (in dollars per share) $ 0.44 $ 0.58 $ 1.65 $ 1.73
Amounts attributable to Masco Corporation:        
Income from continuing operations $ 184 $ 170 $ 546 $ 517
(Loss) income from discontinued operations, net $ (58) $ 10 $ (64) $ 23
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($)
$ in Millions
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net income $ 138 $ 191 $ 517 $ 576
Less: Net income attributable to noncontrolling interest 12 11 35 36
Net income attributable to Masco Corporation 126 180 482 540
Other comprehensive income (loss), net of tax (Note L):        
Cumulative translation adjustment (13) 1 (11) (14)
Interest rate swaps 0   1  
Interest rate swaps   0   1
Pension and other post-retirement benefits 4 4 12 12
Other comprehensive (loss) income, net of tax (9) 5 2 (1)
Less: Other comprehensive (loss) income attributable to noncontrolling interest (8) 0 (7) (12)
Other comprehensive (loss) income attributable to Masco Corporation (1) 5 9 11
Total comprehensive income 129 196 519 575
Less: Total comprehensive income attributable to noncontrolling interest 4 11 28 24
Total comprehensive income attributable to Masco Corporation $ 125 $ 185 $ 491 $ 551
v3.19.3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Millions
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:    
Cash provided by operations $ 754 $ 729
Increase in receivables (136) (182)
Increase in inventories (27) (62)
Increase in accounts payable and accrued liabilities, net 14 169
Net cash from operating activities 605 654
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:    
Retirement of notes 0 (114)
Purchase of Company common stock (440) (354)
Cash dividends paid (105) (98)
Dividends paid to noncontrolling interest (42) (89)
Proceeds from the exercise of stock options 23 8
Employee withholding taxes paid on stock-based compensation (21) (38)
Decrease in debt, net (3) (1)
Credit Agreement and other financing costs (2) 0
Net cash for financing activities (590) (686)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:    
Capital expenditures (111) (160)
Acquisition of business, net of cash acquired 0 (549)
Proceeds from disposition of:    
Business, net of cash disposed 2 0
Short-term bank deposits 0 108
Other financial investments 1 4
Property and equipment 15 3
Other, net (11) (7)
Net cash for investing activities (104) (601)
Effect of exchange rate changes on cash and cash investments 10 8
CASH AND CASH INVESTMENTS:    
Decrease for the period (79) (625)
At January 1 559 1,194
At September 30 $ 480 $ 569
v3.19.3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) - USD ($)
$ in Millions
Total
Common Shares ($1 par value)
Paid-In Capital
Retained (Deficit) Earnings
Accumulated Other Comprehensive (Loss) Income
Noncontrolling Interest
Balance at Dec. 31, 2017 $ 183 $ 310 $ 0 $ (298) $ (65) $ 236
Increase (Decrease) in Stockholders' Equity            
Reclassification of disproportionate tax effects (Refer to Note K) 0     59 (59)  
Total comprehensive income 208     149 40 19
Shares issued (13) 2 (7) (8)    
Shares retired:            
Repurchased (150) (4)   (146)    
Surrendered (non-cash) (19)     (19)    
Cash dividends declared (33)     (33)    
Stock-based compensation 7   7      
Balance at Mar. 31, 2018 183 308 0 (296) (84) 255
Balance at Dec. 31, 2017 183 310 0 (298) (65) 236
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income 575          
Balance at Sep. 30, 2018 207 303 0 (154) (113) 171
Balance at Mar. 31, 2018 183 308 0 (296) (84) 255
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income 171     211 (34) (6)
Shares issued (1)   (1)      
Shares retired:            
Repurchased (115) (3) (8) (104)    
Cash dividends declared (32)     (32)    
Dividends paid to noncontrolling interest (89)         (89)
Stock-based compensation 9   9      
Balance at Jun. 30, 2018 126 305 0 (221) (118) 160
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income 196     180 5 11
Shares issued 3   3      
Shares retired:            
Repurchased (89) (2) (10) (77)    
Cash dividends declared (36)     (36)    
Stock-based compensation 7   7      
Balance at Sep. 30, 2018 207 303 0 (154) (113) 171
Balance at Dec. 31, 2018 69 294 0 (278) (127) 180
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income 128     116 4 8
Shares issued 5 1 4      
Shares retired:            
Repurchased (122) (3) (11) (108)    
Surrendered (non-cash) (10) (1)   (9)    
Cash dividends declared (35)     (35)    
Stock-based compensation 7   7      
Balance at Mar. 31, 2019 42 291 0 (314) (123) 188
Balance at Dec. 31, 2018 69 294 0 (278) (127) 180
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income 519          
Shares retired:            
Repurchased (440)          
Balance at Sep. 30, 2019 23 284 0 (309) (118) 166
Balance at Mar. 31, 2019 42 291 0 (314) (123) 188
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income 262     240 6 16
Shares issued 2 1 1      
Shares retired:            
Repurchased (167) (5) (10) (152)    
Cash dividends declared (35)     (35)    
Dividends paid to noncontrolling interest (42)         (42)
Stock-based compensation 9   9      
Balance at Jun. 30, 2019 71 287 0 (261) (117) 162
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income 129     126 (1) 4
Shares issued 5   5      
Shares retired:            
Repurchased (151) (3) (12) (136)    
Cash dividends declared (38)     (38)    
Stock-based compensation 7   7      
Balance at Sep. 30, 2019 $ 23 $ 284 $ 0 $ (309) $ (118) $ 166
v3.19.3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Parenthetical) - $ / shares
Sep. 30, 2019
Dec. 31, 2018
Sep. 30, 2018
Statement of Stockholders' Equity [Abstract]      
Common share, par value (in dollars per share) $ 1 $ 1 $ 1
v3.19.3
Accounting Policies
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Accounting Policies ACCOUNTING POLICIES
 
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to fairly state our financial position at September 30, 2019, our results of operations and comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2019 and 2018, cash flows for the nine-month periods ended September 30, 2019 and 2018, and changes in shareholders' equity for the three-month and nine-month periods ended September 30, 2019 and 2018. The condensed consolidated balance sheet at December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Reclassifications. Certain prior year amounts have been reclassified to conform to the 2019 presentation in the condensed consolidated financial statements. In our condensed consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified.

Leases. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets (“ROU assets”), accrued liabilities and other liabilities on our condensed consolidated balance sheet. Finance lease ROU assets are included in property and equipment, net, notes payable, and long-term debt on our condensed consolidated balance sheet.
ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities represent our obligation to make lease payments in exchange for the right to use an underlying asset. ROU assets and lease liabilities are measured based on the present value of fixed lease payments over the lease term at the commencement date. The ROU asset also includes any lease payments made prior to the commencement date and initial direct costs incurred, and is reduced by any lease incentives received. We review our ROU assets as events occur or circumstances change that would indicate the carrying amount of the ROU assets are not recoverable and exceed their fair values. If the carrying amount of the ROU asset is not recoverable from its undiscounted cash flows, then we would recognize an impairment loss for the difference between the carrying amount and the current fair value.
As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments. We determine the incremental borrowing rate for each lease by using the current yields of our uncollateralized, publicly traded debts with maturity periods similar to the respective lease term, adjusted to a collateralized basis based on third-party data. Our lease terms may include options to extend or terminate the lease when there are relevant economic incentives present that make it reasonably certain that we will exercise that option. We account for any non-lease components separately from lease components.
For operating leases, lease expense for future fixed lease payments is recognized on a straight-line basis over the lease term. For finance leases, lease expense for future fixed lease payments is recognized using the effective interest rate method over the lease term. Variable lease payments are recognized as lease expense in the period incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

Recently Adopted Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board ("FASB") issued a new standard for leases, ASC 842, which changes the accounting model for identifying and accounting for leases. We adopted ASC 842 on January 1, 2019 using the optional transition method, which allows for initial application of the new standard beginning at the adoption date. We elected the package of practical expedients that allows us to forgo reassessing a) whether any existing contracts are or contain leases, b) the lease classification for any existing leases, and c) whether initial direct costs for any existing leases are capitalized. We also elected the practical expedient to use hindsight with respect to lease renewals, terminations, and purchase options when determining the lease term and in assessing impairment of the assets related to leases existing at the time of adoption. As a result of the standard, we recorded $236 million of operating lease ROU assets, $45 million of short-term operating lease liabilities, and $214 million of long-term operating lease liabilities on the date of adoption which includes assets and liabilities that have subsequently been reclassified as held for sale or disposed of. Our accounting for finance leases remained unchanged. The standard did not impact our condensed consolidated statements of operations or statements of cash flows.

    
A. ACCOUNTING POLICIES (Concluded)

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which improves and simplifies accounting rules around hedge accounting and
better portrays the economic results of an entity's risk management activities in its financial statements. We adopted ASU 2017-12 on January 1, 2019. The adoption of the standard did not impact our financial position or results of operations.

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees.
We adopted ASU 2018-07 on January 1, 2019. The adoption of the standard did not impact our financial position or results of operations.

Recently Issued Accounting Pronouncements.  In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which modifies the methodology for recognizing loss impairments on certain types of financial instruments, including receivables. The new methodology requires an entity to estimate the credit losses expected over the life of an exposure. Additionally, ASU 2016-13 amends the current available-for-sale security other-than-temporary impairment model for debt securities. ASU 2016-13 is effective for us for annual periods beginning January 1, 2020. This standard will impact the valuation of our credit losses relating to our receivables, however, we do not anticipate a material effect on our financial position or results of operations.

In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. We plan to adopt this standard prospectively effective for annual periods beginning January 1, 2020 and do not anticipate that the adoption of this new standard will have a material impact on our financial position or results of operations.
v3.19.3
Acquisitions
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Acquisitions ACQUISITIONS

On March 9, 2018, we acquired substantially all of the net assets of The L.D. Kichler Co. ("Kichler"), a leader in decorative residential and light commercial lighting products, ceiling fans and LED lighting systems. This business expands our product offerings to our customers. The results of this acquisition for the period from the acquisition date are included in the condensed consolidated financial statements and are reported in the Decorative Architectural Products segment. The purchase price, net of $2 million cash acquired, consisted of $549 million paid with cash on hand. Since the acquisition, we revised the allocation of the purchase price to identifiable assets and liabilities based on analysis of information as of the acquisition date that was made available in the year after acquisition. The initial and final allocations of the fair value of the acquisition of Kichler is summarized in the following table, in millions.
 
Initial
 
Final
Receivables
$
101

 
$
100

Inventories
173

 
166

Other current assets
5

 
5

Property and equipment
33

 
33

Goodwill
46

 
64

Other intangible assets
243

 
240

Accounts payable
(24
)
 
(24
)
Accrued liabilities
(25
)
 
(30
)
Other liabilities
(4
)
 
(5
)
Total
$
548

 
$
549




B. ACQUISITIONS (Concluded)

The goodwill acquired, which is generally tax deductible, is related primarily to the operational and financial synergies we expect to derive from combining Kichler's operations into our business, as well as the assembled workforce. The other intangible assets acquired consist of $59 million of indefinite-lived intangible assets, which is
related to trademarks, and $181 million of definite-lived intangible assets. The definite-lived intangible assets consist of $145 million related to customer relationships, which is being amortized on a straight-line basis over 20 years, and $36 million of other definite-lived intangible assets, which is being amortized over a weighted average amortization period of 3 years.
v3.19.3
Discontinued Operations
9 Months Ended
Sep. 30, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations
C. DISCONTINUED OPERATIONS

On September 6, 2019, we completed the sale of UK Window Group ("UKWG"), a manufacturer and distributor of windows and doors, for proceeds of approximately $8 million, of which $2 million net of cash disposed was received upon sale. The remaining $6 million was accounted for as a note receivable that is expected to be collected within the next two years. In connection with the sale, we recognized a loss of $70 million for both the three-month and nine-month periods ended September 30, 2019, which is included in (loss) income from discontinued operations, net in the condensed consolidated statements of operations.

Additionally, on September 29, 2019, we entered into a definitive agreement to sell Milgard Manufacturing Incorporated ("Milgard"), a manufacturer and distributor of windows and doors, for approximately $725 million. The closing of the sale is expected to occur during the fourth quarter of 2019, subject to customary closing conditions and regulatory review, and we expect to recognize a gain on the divestiture of approximately $395 million.
    
We determined that the assets and liabilities for Milgard and UKWG met the held for sale criteria in accordance with ASC 205-20, Discontinued Operations, as of September 30, 2019. Accordingly, these businesses' held for sale assets and liabilities were reclassified in the condensed consolidated balance sheets at September 30, 2019 and December 31, 2018 to assets held for sale or liabilities held for sale. We ceased recording depreciation for the held for sale assets upon meeting the held for sale criteria.
    
Furthermore, we determined that the combined sale of UKWG and the planned disposition of Milgard represents a strategic shift that will have a major effect on our operations and financial results. These businesses represented all of our window businesses and all remaining businesses in the Windows and Other Specialty Products segment. As a result, these businesses are presented in discontinued operations separate from continuing operations for all periods presented. In addition, depreciation and amortization, capital expenditures, and significant non-cash operating and investing activities related to discontinued operations are separately disclosed.





















C. DISCONTINUED OPERATIONS (Concluded)
    
The major classes of line items constituting (loss) income from discontinued operations, net, in millions:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Net sales
$
172

 
$
197

 
$
515

 
$
575

Cost of sales
137

 
153

 
408

 
450

Gross profit
35

 
44

 
107

 
125

Selling, general and administrative expenses
29

 
30

 
93

 
93

Impairment charge for goodwill (A)

 

 
7

 

Other income (expense), net

 

 

 
1

Income from discontinued operations
6

 
14

 
7

 
33

(Loss) on disposal of discontinued
   operations
(70
)
 

 
(70
)
 

(Loss) income before income tax
(64
)
 
14

 
(63
)
 
33

Income tax benefit (expense) (B)
6

 
(4
)
 
(1
)
 
(10
)
(Loss) income from discontinued
    operations, net
$
(58
)
 
$
10

 
$
(64
)
 
$
23


 
(A)
In the first quarter of 2019, we recognized a $7 million non-cash goodwill impairment charge related to a decline in the long-term outlook of our windows and doors business in the United Kingdom.

(B)     The unusual relationship between income tax benefit (expense) and (loss) income before income tax for 2019 resulted primarily from a loss
on the sale of UKWG providing no foreign tax benefit.

The carrying amount of major classes of assets and liabilities included as part of the Milgard and UKWG discontinued operations, were as follows, in millions:
 
September 30, 2019
December 31, 2018
Cash and cash investments
$
5

$
6

Receivables
60

85

Prepaid expenses and other
13

18

Inventories
33

42

Property and equipment, net
151

186

Operating lease right-of-use assets
30


Goodwill
199

206

Other intangible assets, net
112

117

Total assets classified as held for sale
$
603

$
660

 
 
 
 
 
 
Accounts payable
$
66

$
75

Accrued liabilities
74

74

Other liabilities
133

108

Total liabilities classified as held for sale
$
273

$
257


    
Other selected financial information for Milgard and UKWG during the period owned by us, were as follows, in millions:
 
Nine Months Ended
 
September 30, 2019
 
September 30, 2018
Depreciation and amortization
$
17

 
$
17

Capital expenditures
15

 
15

ROU assets obtained in exchange for new lease obligations
3

 


v3.19.3
Revenue
9 Months Ended
Sep. 30, 2019
Revenues [Abstract]  
Revenue REVENUE

Our revenues are derived primarily from sales to customers in North America and Internationally, principally Europe. Net sales from these geographic markets, by segment, were as follows, in millions:
 
Three Months Ended September 30, 2019
 
Plumbing Products
 
Decorative Architectural Products
 
Cabinetry Products
 
Total
Primary geographic markets:
 
 
 
 
 
 
 
North America
$
664

 
$
710

 
$
231

 
$
1,605

International, principally Europe
342

 

 

 
342

Total
$
1,006

 
$
710

 
$
231

 
$
1,947


 
Nine Months Ended September 30, 2019
 
Plumbing Products
 
Decorative Architectural Products
 
Cabinetry Products
 
Total
Primary geographic markets:
 
 
 
 
 
 
 
North America
$
1,923

 
$
2,110

 
$
719

 
$
4,752

International, principally Europe
1,035

 

 

 
1,035

Total
$
2,958

 
$
2,110

 
$
719

 
$
5,787


 
Three Months Ended September 30, 2018
 
Plumbing Products
 
Decorative Architectural Products
 
Cabinetry Products
 
Total
Primary geographic markets:
 
 
 
 
 
 
 
North America
$
653

 
$
673

 
$
239

 
$
1,565

International, principally Europe
339

 

 

 
339

Total
$
992

 
$
673

 
$
239

 
$
1,904


 
Nine Months Ended September 30, 2018
 
Plumbing Products
 
Decorative Architectural Products
 
Cabinetry Products
 
Total
Primary geographic markets:
 
 
 
 
 
 
 
North America
$
1,905

 
$
2,024

 
$
724

 
$
4,653

International, principally Europe
1,090

 

 

 
1,090

Total
$
2,995

 
$
2,024

 
$
724

 
$
5,743



Our contract asset balance was $2 million at both September 30, 2019 and December 31, 2018. Our contract liability balance was $16 million and $39 million at September 30, 2019 and December 31, 2018, respectively.

We (reversed) recognized $(2) million and $2 million of revenue for the three-month periods ended September 30, 2019 and 2018, respectively, related to performance obligations settled in previous quarters of the same year. We recognized $1 million of revenue for the nine-month period ended September 30, 2019, and $1 million and $4 million of revenue for the three-month and nine-month periods ended September 30, 2018, respectively, related to performance obligations settled in previous years.
v3.19.3
Leases (Notes)
9 Months Ended
Sep. 30, 2019
Leases [Abstract]  
Leases LEASES

We have operating and finance leases primarily for corporate offices, manufacturing facilities, warehouses, vehicles, and equipment. Our leases have remaining lease terms up to 13 years, some of which may include one or more renewal options with terms to extend the lease for up to an additional 20 years, and some of which may include options to terminate the leases prior to their expiration.
The components of lease cost included in income from continuing operations were as follows, in millions:
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost
$
13

 
$
39

Short-term lease cost
2

 
5

Variable lease cost
1

 
2

Finance lease cost:
 
 
 
Amortization of right-of-use assets
1

 
2

Interest on lease liabilities

 
1


Supplemental cash flow information related to leases was as follows, in millions:
 
Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
43

Operating cash flows for finance leases
1

Financing cash flows for finance leases
2

 
 
ROU assets obtained in exchange for new lease obligations:
 
Operating leases
$
20

Finance leases


    
Certain other information related to leases was as follows:
 
At September 30, 2019
Weighted-average remaining lease term:
 
Operating leases
10 years

Finance leases
10 years

 
 
Weighted-average discount rate:
 
Operating leases
4.6
%
Finance leases
3.5
%

Supplemental balance sheet information related to leases was as follows, in millions:
 
At September 30, 2019
 
Operating Leases
 
Finance Leases
Property and equipment, net
$

 
$
35

Notes payable

 
7

Accrued liabilities
38

 

Long-term debt

 
28

Other liabilities
168

 


Gross ROU assets under finance leases recorded within property and equipment, net were $47 million, and accumulated amortization associated with these leases was $12 million, at September 30, 2019.
E. LEASES (Concluded)    

At September 30, 2019, future maturities of lease liabilities (under ASC 842) were as follows, in millions:
 
Operating Leases
 
Finance Leases
Year ending December 31,
 
 
 
2019 (excluding the nine months ended September 30, 2019)
$
11

 
$
6

2020
45

 
3

2021
39

 
3

2022
31

 
3

2023
21

 
4

Thereafter
114

 
23

Total lease payments
261

 
42

Less: imputed interest
(55
)
 
(7
)
Total
$
206

 
$
35


At December 31, 2018, future minimum operating lease payments (under ASC 840), including discontinued operations, were as follows, in millions: 2019 – $55 million; 2020 – $47 million; 2021 – $40 million; 2022 – $30 million; 2023 – $20 million; 2024 and beyond – $99 million.
Leases LEASES

We have operating and finance leases primarily for corporate offices, manufacturing facilities, warehouses, vehicles, and equipment. Our leases have remaining lease terms up to 13 years, some of which may include one or more renewal options with terms to extend the lease for up to an additional 20 years, and some of which may include options to terminate the leases prior to their expiration.
The components of lease cost included in income from continuing operations were as follows, in millions:
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
Operating lease cost
$
13

 
$
39

Short-term lease cost
2

 
5

Variable lease cost
1

 
2

Finance lease cost:
 
 
 
Amortization of right-of-use assets
1

 
2

Interest on lease liabilities

 
1


Supplemental cash flow information related to leases was as follows, in millions:
 
Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
43

Operating cash flows for finance leases
1

Financing cash flows for finance leases
2

 
 
ROU assets obtained in exchange for new lease obligations:
 
Operating leases
$
20

Finance leases


    
Certain other information related to leases was as follows:
 
At September 30, 2019
Weighted-average remaining lease term:
 
Operating leases
10 years

Finance leases
10 years

 
 
Weighted-average discount rate:
 
Operating leases
4.6
%
Finance leases
3.5
%

Supplemental balance sheet information related to leases was as follows, in millions:
 
At September 30, 2019
 
Operating Leases
 
Finance Leases
Property and equipment, net
$

 
$
35

Notes payable

 
7

Accrued liabilities
38

 

Long-term debt

 
28

Other liabilities
168

 


Gross ROU assets under finance leases recorded within property and equipment, net were $47 million, and accumulated amortization associated with these leases was $12 million, at September 30, 2019.
E. LEASES (Concluded)    

At September 30, 2019, future maturities of lease liabilities (under ASC 842) were as follows, in millions:
 
Operating Leases
 
Finance Leases
Year ending December 31,
 
 
 
2019 (excluding the nine months ended September 30, 2019)
$
11

 
$
6

2020
45

 
3

2021
39

 
3

2022
31

 
3

2023
21

 
4

Thereafter
114

 
23

Total lease payments
261

 
42

Less: imputed interest
(55
)
 
(7
)
Total
$
206

 
$
35


At December 31, 2018, future minimum operating lease payments (under ASC 840), including discontinued operations, were as follows, in millions: 2019 – $55 million; 2020 – $47 million; 2021 – $40 million; 2022 – $30 million; 2023 – $20 million; 2024 and beyond – $99 million.
v3.19.3
Depreciation and Amortization
9 Months Ended
Sep. 30, 2019
Depreciation, Depletion and Amortization [Abstract]  
Depreciation and Amortization DEPRECIATION AND AMORTIZATION
 
Depreciation and amortization expense, including discontinued operations, was $124 million and $115 million for the nine-month periods ended September 30, 2019 and 2018, respectively.
v3.19.3
Goodwill and Other Intangible Assets
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets GOODWILL AND OTHER INTANGIBLE ASSETS
 
The changes in the carrying amount of goodwill for the nine-month period ended September 30, 2019, by segment, were as follows, in millions: 
 
Gross Goodwill At September 30, 2019
 
Accumulated
Impairment
Losses
 
Net Goodwill At September 30, 2019
Plumbing Products
$
563

 
$
(340
)
 
$
223

Decorative Architectural Products
358

 
(75
)
 
283

Cabinetry Products
181

 

 
181

Total
$
1,102

 
$
(415
)
 
$
687


 
Gross Goodwill At December 31, 2018
 
Accumulated
Impairment
Losses
 
Net Goodwill At December 31, 2018
 
Other
(A)
 
Net Goodwill At September 30, 2019
Plumbing Products
$
568

 
$
(340
)
 
$
228

 
$
(5
)
 
$
223

Decorative Architectural Products
358

 
(75
)
 
283

 

 
283

Cabinetry Products
181

 

 
181

 

 
181

Total
$
1,107

 
$
(415
)
 
$
692

 
$
(5
)
 
$
687


 
(A)     Other consists of the effect of foreign currency translations.







G. GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)

The carrying value of our other indefinite-lived intangible assets was $76 million and $86 million at September 30, 2019 and December 31, 2018, respectively, and principally included registered trademarks. During the first quarter of 2019, we recognized a $9 million impairment charge related to a registered trademark in our Decorative Architectural Products segment due to a change in the long-term net sales projections of lighting products. The carrying value of our definite-lived intangible assets was $188 million (net of accumulated amortization of $44 million) and $203 million (net of accumulated amortization of $27 million) at September 30, 2019 and December 31, 2018, respectively, and principally included customer relationships.
v3.19.3
Warranty Liability
9 Months Ended
Sep. 30, 2019
Product Warranties Disclosures [Abstract]  
Warranty Liability WARRANTY LIABILITY
 
Changes in our warranty liability were as follows, in millions: 
 
Nine Months Ended
September 30, 2019
 
Twelve Months Ended December 31, 2018
Balance at January 1
$
90

 
$
87

Accruals for warranties issued during the period
30

 
39

Accruals related to pre-existing warranties
(2
)
 
(2
)
Settlements made (in cash or kind) during the period
(27
)
 
(34
)
Other, net (including currency translation)
(1
)
 

Balance at end of period
$
90

 
$
90


v3.19.3
Debt
9 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Debt DEBT

On April 16, 2018, we repaid and retired all of our $114 million, 6.625% Notes on the scheduled repayment date.

On March 13, 2019, we entered into a credit agreement (the “Credit Agreement”) with a bank group, with an aggregate commitment of $1.0 billion and a maturity date of March 13, 2024. Under the Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current bank group or new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with an aggregate commitment of $750 million, was terminated.

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, British Pounds Sterling, Canadian dollars and certain other currencies for revolving credit loans, swingline loans and letters of credit. Borrowings under the revolving credit loans denominated in any agreed upon currency other than U.S. dollars are limited to $500 million, equivalent. We can also borrow swingline loans up to $100 million and obtain letters of credit of up to $25 million; outstanding letters of credit under the Credit Agreement reduce our borrowing capacity. At September 30, 2019, we had no outstanding standby letters of credit under the Credit Agreement.

Revolving credit loans bear interest under the Credit Agreement, at our option, at (A) a rate per annum equal to the greater of (i) the JPMorgan Chase Bank, N.A. prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50% and (iii) adjusted LIBO Rate plus 1.0% (the "Alternative Base Rate"); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) adjusted LIBO Rate 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 adjusted LIBO Rate plus an applicable margin based upon our then-applicable corporate credit ratings.

The 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.




I. DEBT (Concluded)

In order for us to borrow under the Credit Agreement, there must not be any default in our 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 our 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, 2018, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and no borrowings were outstanding at September 30, 2019

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, which are Level 1 inputs. The aggregate estimated market value of our short-term and long-term debt at September 30, 2019 was approximately $3.2 billion, compared with the aggregate carrying value of $3.0 billion. The aggregate estimated market value was approximately $3.0 billion at December 31, 2018, which equaled the aggregate carrying value of short-term and long-term debt at that date.
v3.19.3
Stock-Based Compensation
9 Months Ended
Sep. 30, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
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 September 30, 2019, outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, and phantom stock awards.

Pre-tax compensation expense included in income from continuing operations for these stock-based incentives was as follows, in millions: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Long-term stock awards
$
5

 
$
5

 
$
16

 
$
16

Stock options
1

 
1

 
3

 
3

Restricted stock units

 
1

 
2

 
3

Phantom stock awards and stock appreciation rights
1

 
1

 
3

 

Total
$
7

 
$
8

 
$
24

 
$
22


    
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 636,030 shares of long-term stock awards in the nine-month period ended September 30, 2019.
    
    
















J. STOCK-BASED COMPENSATION (Continued)

Our long-term stock award activity was as follows, shares in millions: 
 
Nine Months Ended September 30,
 
2019
 
2018
Unvested stock award shares at January 1
2

 
3

Weighted average grant date fair value
$
30

 
$
24

 
 
 
 
Stock award shares granted
1

 
1

Weighted average grant date fair value
$
36

 
$
42

 
 
 
 
Stock award shares vested
1

 
2

Weighted average grant date fair value
$
25

 
$
21

 
 
 
 
Stock award shares forfeited

 

Weighted average grant date fair value
$
32

 
$
31

 
 
 
 
Unvested stock award shares at September 30
2

 
2

Weighted average grant date fair value
$
34

 
$
30



At September 30, 2019 and 2018, there was $49 million and $50 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of three years at both September 30, 2019 and 2018.

The total market value (at the vesting date) of stock award shares which vested during the nine-month periods ended September 30, 2019 and 2018 was $31 million and $56 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 561,280 shares of stock options in the nine-month period ended September 30, 2019 with a grant date weighted average exercise price of approximately $36 per share. In the nine-month period ended September 30, 2019, 108,086 stock options were forfeited (including options that expired unexercised).



















J. STOCK-BASED COMPENSATION (Continued)

Our stock option activity was as follows, shares in millions: 
 
 
Nine Months Ended September 30,
 
 
2019
 
 
2018
Option shares outstanding, January 1
 
4

 
 
5

Weighted average exercise price
$
21

 
$
16

 
 
 
 
 
 
Option shares granted
 
1

 
 

Weighted average exercise price
$
36

 
$
42

 
 
 
 
 
 
Option shares exercised
 
2

 
 
1

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

 
$
47 million

Weighted average exercise price
$
12

 
$
11

 
 
 
 
 
 
Option shares forfeited
 

 
 

Weighted average exercise price
$
34

 
$
31

 
 
 
 
 
 
Option shares outstanding, September 30
 
3

 
 
4

Weighted average exercise price
$
26

 
$
20

Weighted average remaining option term (in years)
 
6

 
 
5

 
 
 
 
 
 
Option shares vested and expected to vest, September 30
 
3

 
 
4

Weighted average exercise price
$
26

 
$
20

Aggregate intrinsic value (A)
$
48 million

 
$
69 million

Weighted average remaining option term (in years)
 
6

 
 
5

 
 
 
 
 
 
Option shares exercisable (vested), September 30
 
2

 
 
3

Weighted average exercise price
$
21

 
$
15

Aggregate intrinsic value (A)
$
39 million

 
$
62 million

Weighted average remaining option term (in years)
 
4

 
 
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 both September 30, 2019 and 2018, there was $9 million 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 September 30, 2019 and 2018.












J. 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: 
 
Nine Months Ended September 30,
 
2019
 
2018
Weighted average grant date fair value
$
8.81

 
$
12.52

Risk-free interest rate
2.57
%
 
2.71
%
Dividend yield
1.35
%
 
1.00
%
Volatility factor
25.00
%
 
29.00
%
Expected option life
6 years

 
6 years



Restricted Stock Units. Under our Long Term Incentive Program, we grant restricted stock units to certain senior executives. These restricted stock units will vest and share awards will be issued at no cost to the employees, subject to our achievement of specified return on invested capital performance goals over a three-year period that have been established by our Organization and Compensation Committee of the Board of Directors for the performance period and the recipient's continued employment through the share award date. During the nine-month period ended September 30, 2019, we granted 126,680 restricted stock units with a grant date fair value of approximately $39 per share and 15,600 restricted stock units were forfeited. During the nine-month period ended September 30, 2018, we granted 113,260 restricted stock units with a grant date fair value of approximately $42 per share and 11,600 restricted stock units were forfeited.
v3.19.3
Employee Retirement Plans
9 Months Ended
Sep. 30, 2019
Retirement Benefits [Abstract]  
Employee Retirement Plans EMPLOYEE RETIREMENT PLANS
 
Net periodic pension cost for our defined-benefit pension plans, with the exception of service cost, is recorded in other income (expense), net, in our condensed consolidated statement of operations. Net periodic pension cost for our defined-benefit pension plans was as follows, in millions: 
 
Three Months Ended September 30,
 
2019
 
2018
 
Qualified
 
Non-Qualified
 
Qualified
 
Non-Qualified
Service cost
$
1

 
$

 
$
1

 
$

Interest cost
11

 
2

 
8

 
1

Expected return on plan assets
(12
)
 

 
(12
)
 

Amortization of net loss
4

 
1

 
4

 
1

Net periodic pension cost
$
4

 
$
3

 
$
1

 
$
2


 
Nine Months Ended September 30,
 
2019
 
2018
 
Qualified
 
Non-Qualified
 
Qualified
 
Non-Qualified
Service cost
$
2

 
$

 
$
2

 
$

Interest cost
30

 
5

 
28

 
4

Expected return on plan assets
(34
)
 

 
(36
)
 

Amortization of net loss
14

 
2

 
13

 
2

Net periodic pension cost
$
12

 
$
7

 
$
7

 
$
6


As of January 1, 2010, substantially all of our domestic and foreign qualified and domestic non-qualified defined-benefit pension plans were frozen to future benefit accruals.
v3.19.3
Reclassifications From Accumulated Other Comprehensive Loss
9 Months Ended
Sep. 30, 2019
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]  
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 September 30,
 
Nine Months Ended September 30,
 
Statement of Operations Line Item
2019
 
2018
 
2019
 
2018
 
Amortization of defined-benefit pension and other post-retirement benefits:
 

 
 

 
 

 
 

 
 
Actuarial losses, net
$
5

 
$
5

 
$
16

 
$
15

 
Other income (expense), net
Tax (benefit)
(1
)
 
(1
)
 
(4
)
 
(3
)
 
 
Net of tax
$
4

 
$
4

 
$
12

 
$
12

 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
$

 
$

 
$
1

 
$
1

 
Interest expense
Tax (benefit)

 

 

 

 
 
Net of tax
$

 
$

 
$
1

 
$
1

 
 

 
In addition to the above amounts, we reclassified $14 million of deferred currency translation losses from accumulated other comprehensive loss to the condensed consolidated statement of operations in conjunction with the disposition of UKWG in September 2019. In addition, as of March 31, 2018, we adopted ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." As a result of the adoption, we reclassified $59 million of the disproportionate tax benefit related to various defined-benefit plans from accumulated other comprehensive loss to retained deficit.
v3.19.3
Segment Information
9 Months Ended
Sep. 30, 2019
Segment Reporting [Abstract]  
Segment Information SEGMENT INFORMATION

Information by segment and geographic area was as follows, in millions: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
2019
 
2018
 
Net Sales (A)
 
Operating Profit (Loss)
 
Net Sales (A)
 
Operating Profit (Loss)
Operations by segment:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Plumbing Products
$
1,006

 
$
992

 
$
179

 
$
177

 
$
2,958

 
$
2,995

 
$
530

 
$
534

Decorative Architectural Products
710

 
673

 
134

 
104

 
2,110

 
2,024

 
380

 
338

Cabinetry Products
231

 
239

 
26

 
23

 
719

 
724

 
79

 
62

Total