MASCO CORP /DE/, 10-K filed on 2/11/2020
Annual Report
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Cover Page - USD ($)
12 Months Ended
Dec. 31, 2019
Jan. 31, 2020
Jun. 30, 2019
Cover page.      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2019    
Document Transition Report false    
Entity File Number 1-5794    
Entity Registrant Name MASCO CORPORATION    
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 Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
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 Public Float     $ 11,280,228,700
Entity Common Stock, Shares Outstanding   277,735,100  
Documents Incorporated by Reference
Portions of the Registrant's definitive Proxy Statement to be filed for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.
   
Entity Central Index Key 0000062996    
Current Fiscal Year End Date --12-31    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Amendment Flag false    
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CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Current Assets:    
Cash and cash investments $ 697 $ 552
Receivables 997 990
Inventories 754 798
Prepaid expenses and other 90 84
Assets held for sale 173 342
Total current assets 2,711 2,766
Property and equipment, net 878 885
Goodwill 509 511
Other intangible assets, net 259 288
Operating lease right-of-use assets 176  
Other assets 139 90
Assets held for sale 355 853
Total assets 5,027 5,393
Current Liabilities:    
Accounts payable 697 736
Notes payable 2 8
Accrued liabilities 700 645
Liabilities held for sale 149 295
Total current liabilities 1,548 1,684
Long-term debt 2,771 2,971
Other liabilities 751 549
Liabilities held for sale 13 120
Total liabilities 5,083 5,324
Commitments and contingencies (Note T)
Masco Corporation's shareholders' equity    
Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2019 – 275,600,000; 2018 – 293,900,000 276 294
Preferred shares authorized: 1,000,000; Issued and outstanding: 2019 and 2018 – None 0 0
Paid-in capital 0 0
Retained deficit (332) (278)
Accumulated other comprehensive loss (179) (127)
Total Masco Corporation's shareholders' deficit (235) (111)
Noncontrolling interest 179 180
Total equity (56) 69
Total liabilities and equity $ 5,027 $ 5,393
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Common shares, 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) 275,600,000 293,900,000
Common shares, shares outstanding (in shares) 275,600,000 293,900,000
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
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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Net sales $ 6,707 $ 6,654 $ 6,014
Cost of sales 4,336 4,327 3,794
Gross profit 2,371 2,327 2,220
Selling, general and administrative expenses 1,274 1,250 1,191
Impairment charge for other intangible assets 9 0 0
Operating profit 1,088 1,077 1,029
Other income (expense), net:      
Interest expense (159) (156) (279)
Other, net (15) (14) (32)
Total other income (expense), net (174) (170) (311)
Income from continuing operations before income taxes 914 907 718
Income tax expense 230 221 245
Income from continuing operations 684 686 473
Income from discontinued operations, net 296 98 107
Net income 980 784 580
Less: Net income attributable to noncontrolling interest 45 50 47
Net income attributable to Masco Corporation $ 935 $ 734 $ 533
Basic:      
Income from continuing operations (in dollars per share) $ 2.21 $ 2.06 $ 1.34
Income from discontinued operations, net (in dollars per share) 1.03 0.32 0.34
Net income, basic (in dollars per share) 3.24 2.38 1.68
Diluted:      
Income from continuing operations (in dollars per share) 2.20 2.05 1.33
Income from discontinued operations, net (in dollars per share) 1.02 0.32 0.33
Net income, diluted (in dollars per share) $ 3.22 $ 2.37 $ 1.66
Amounts attributable to Masco Corporation:      
Income from continuing operations $ 639 $ 636 $ 426
Income from discontinued operations, net $ 296 $ 98 $ 107
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net income $ 980 $ 784 $ 580
Less: Net income attributable to noncontrolling interest 45 50 47
Net income attributable to Masco Corporation 935 734 533
Other comprehensive (loss) income, net of tax (Note O):      
Cumulative translation adjustment 6 (31) 133
Interest rate swaps 2    
Interest rate swaps   2 3
Pension and other post-retirement benefits (64) 9 63
Other comprehensive (loss) income, net of tax (56) (20) 199
Less: Other comprehensive (loss) income attributable to the noncontrolling interest:      
Cumulative translation adjustment (1) (15) 28
Pension and other post-retirement benefits (3) (2) 1
Less: Other comprehensive (loss) income attributable to noncontrolling interest (4) (17) 29
Other comprehensive (loss) income attributable to Masco Corporation (52) (3) 170
Total comprehensive income 924 764 779
Less: Total comprehensive income attributable to noncontrolling interest 41 33 76
Total comprehensive income attributable to Masco Corporation $ 883 $ 731 $ 703
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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:      
Net income (loss) $ 980 $ 784 $ 580
Depreciation and amortization 159 156 127
Display amortization 12 21 25
Deferred income taxes (41) 4 13
Employee withholding taxes paid on stock-based compensation 23 42 33
Gain on disposition of investments, net (1) (4) (4)
(Gain) loss on disposition of businesses, net (298) 0 13
Pension and other postretirement benefits (45) (47) (38)
Impairment of financial investments 0 0 2
Impairment of goodwill and other intangible assets 16 0 0
Stock-based compensation 35 27 38
Increase in receivables (37) (46) (140)
Decrease (increase) in inventories 58 (11) (78)
(Decrease) increase in accounts payable and accrued liabilities, net (27) 108 67
Debt extinguishment costs 2 0 104
Other, net (3) (2) 9
Net cash from operating activities 833 1,032 751
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:      
Retirement of notes (201) (114) (535)
Purchase of Company common stock (896) (654) (331)
Cash dividends paid (144) (134) (129)
Dividends paid to noncontrolling interest (42) (89) (35)
Issuance of notes, net of issuance costs 0 0 593
Debt extinguishment costs (2) 0 (104)
Increase in debt 0 0 2
Proceeds from the exercise of stock options 27 14 0
Employee withholding taxes paid on stock-based compensation 23 42 33
Payment of debt (8) (1) (5)
Credit Agreement and other financing costs 2 0 0
Net cash for financing activities (1,291) (1,020) (577)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:      
Capital expenditures (162) (219) (173)
Acquisition of businesses, net of cash acquired 0 (549) (89)
Proceeds from disposition of:      
Businesses, net of cash disposed 722 0 128
Short-term bank deposits 0 108 218
Property and equipment 34 14 24
Other financial investments 1 5 7
Purchases of short-term bank deposits 0 0 (106)
Other, net (13) (10) (34)
Net cash from (for) investing activities 582 (651) (25)
Effect of exchange rate changes on cash and cash investments 14 4 55
CASH AND CASH INVESTMENTS:      
Increase (decrease) for the year 138 (635) 204
At January 1 559 1,194 990
At December 31 $ 697 $ 559 $ 1,194
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
$ in Millions
Total
Common Shares ($1 par value)
Paid-In Capital
Retained Earnings (Deficit)
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interest
Balance at Dec. 31, 2016 $ (96) $ 318 $ 0 $ (374) $ (235) $ 195
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income (loss) 779     533 170 76
Shares issued (19) 2 (21)      
Shares retired:            
Repurchased (331) (9) (8) (314)    
Surrendered (non-cash) (15) (1)   (14)    
Cash dividends declared (129)     (129)    
Dividends paid to noncontrolling interest (35)         (35)
Stock-based compensation 29   29      
Balance at Dec. 31, 2017 183 310 0 (298) (65) 236
Increase (Decrease) in Stockholders' Equity            
Reclassification of disproportionate tax effects (Refer to Note O) 0     59 (59)  
Total comprehensive income (loss) 764     734 (3) 33
Shares issued (9) 3 (4) (8)    
Shares retired:            
Repurchased (654) (19) (26) (609)    
Surrendered (non-cash) (19)     (19)    
Cash dividends declared (137)     (137)    
Dividends paid to noncontrolling interest (89)         (89)
Stock-based compensation 30   30      
Balance at Dec. 31, 2018 69 294 0 (278) (127) 180
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income (loss) 924     935 (52) 41
Shares issued 15 3 12      
Shares retired:            
Repurchased (896) (20) (42) (834)    
Surrendered (non-cash) (10) (1)   (9)    
Cash dividends declared (146)     (146)    
Dividends paid to noncontrolling interest (42)         (42)
Stock-based compensation 30   30      
Balance at Dec. 31, 2019 $ (56) $ 276 $ 0 $ (332) $ (179) $ 179
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Stockholders' Equity [Abstract]      
Common Stock, Par or Stated Value Per Share $ 1 $ 1 $ 1
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ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
ACCOUNTING POLICIES ACCOUNTING POLICIES
Principles of Consolidation.    The consolidated financial statements include the accounts of Masco Corporation and all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. We consolidate the assets, liabilities and results of operations of variable interest entities for which we are the primary beneficiary.
Use of Estimates and Assumptions in the Preparation of Financial Statements.    The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions.
Revenue Recognition.    We recognize revenue as control of our products is transferred to our customers, which is generally at the time of shipment or upon delivery based on the contractual terms with our customers. Our customers' payment terms generally range from 30 to 65 days of fulfilling our performance obligations and recognizing revenue.
We provide customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. These customer programs and incentives are considered variable consideration. We include in revenue variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to our volume-based incentives. This determination is updated each reporting period.
Certain product sales include a right of return. We estimate future product returns at the time of sale based on historical experience and record a corresponding refund liability. We additionally record an asset, based on historical experience, for the amount of product we expect to return to inventory as a result of the return, which is recorded in prepaid expenses and other in the consolidated balance sheets.
We consider shipping and handling activities performed by us as activities to fulfill the sales of our products. Amounts billed for shipping and handling are included in net sales, while costs incurred for shipping and handling are included in cost of sales. We capitalize incremental costs of obtaining a contract and expense the costs on a straight-line basis over the contractual period if the cost is recoverable, the cost would not have been incurred without the contract and the term of the contract is greater than one year; otherwise, we expense the amounts as incurred. We do not adjust the promised amount of consideration for the effects of a financing component if the period between when we transfer our products or services and when our customers pay for our products or services is expected to be one year or less.
Customer Displays.    In-store displays that are owned by us and used to market our products are included in other assets in the consolidated balance sheets and are amortized using the straight-line method over the expected useful life of three to five years; related amortization expense is classified as a selling expense in the consolidated statement of operations.
Foreign Currency.    The financial statements of our foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at exchange rates as of the balance sheet dates. Revenues and expenses are translated at average exchange rates in effect during the year. The resulting cumulative translation adjustments have been recorded in the accumulated other comprehensive loss component of shareholders' equity. Realized foreign currency transaction gains and losses are included in the consolidated statements of operations in other income (expense), net.
Cash and Cash Investments.    We consider all highly liquid investments with an initial maturity of three months or less to be cash and cash investments.
Short-Term Bank Deposits.    Occasionally, we invest a portion of our foreign excess cash in short-term bank deposits. These highly liquid investments have original maturities between three and twelve months and are valued at cost, which approximate their fair value. These short-term bank deposits are classified in the current assets section of our consolidated balance sheets, and interest income related to short-term bank deposits is recorded in our consolidated statements of operations in other income (expense), net.

A. ACCOUNTING POLICIES (Continued)
Receivables.    We do significant business with a number of customers, including certain home center retailers. We monitor our exposure for credit losses on our customer receivable balances and the credit worthiness of our customers on an on-going basis and record related allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Allowances are estimated based upon specific customer balances, where a risk of default has been identified, and also include a provision for non-customer specific defaults based upon historical collection, return and write-off activity. A separate allowance is recorded for customer incentive rebates and is generally based upon sales activity. Receivables are presented net of certain allowances (including allowances for doubtful accounts) of $36 million and $33 million at December 31, 2019 and 2018, respectively.
Property and Equipment.    Property and equipment, including significant improvements to existing facilities, are recorded at cost. Upon retirement or disposal, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the consolidated statements of operations. Maintenance and repair costs are charged against earnings as incurred.
We review our property and equipment as events occur or circumstances change that would more likely than not reduce the fair value of the property and equipment below its carrying amount. If the carrying amount of property and equipment 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. Further, we evaluate the remaining useful lives of property and equipment at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.
Depreciation.    Depreciation expense is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: buildings and land improvements, 2 to 10 percent, computer hardware and software, 17 to 33 percent, and machinery and equipment, 5 to 33 percent. Depreciation expense, including discontinued operations, was $132 million in 2019 and 2018 and $116 million in 2017.
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 consolidated balance sheet. Finance lease ROU assets are included in property and equipment, net, notes payable, and long-term debt on our 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.



A. ACCOUNTING POLICIES (Continued)
Goodwill and Other Intangible Assets.    We perform our annual impairment testing of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We have defined our reporting units and completed the impairment testing of goodwill at the operating segment level. Our operating segments are reporting units that engage in business activities, for which discrete financial information, including five-year forecasts, are available. We compare the fair value of the reporting units to the carrying value of the reporting units for goodwill impairment testing. Fair value is determined primarily using a discounted cash flow method, which includes significant unobservable inputs (Level 3 inputs), and requires us to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Our judgments are based upon historical experience, current market trends, consultations with external valuation specialists and other information. In estimating future cash flows, we rely on internally generated five-year forecasts for sales and operating profits, and, currently, a two percent to three percent long-term assumed annual growth rate of cash flows for periods after the five-year forecast. We utilize our weighted average cost of capital of approximately 8.0 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2019, based upon our assessment of the risks impacting each of our businesses, we applied a risk premium to increase the discount rate to a range of 10.0 percent to 12.0 percent for our reporting units. For our Masco Cabinetry reporting unit, we utilized a market approach to determine its fair value instead of the discounted cash flow method, as we were actively marketing the Masco Cabinetry business for sale and on November 14, 2019 we entered into a definitive agreement to sell the business. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized to the extent that a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.
We review our other indefinite-lived intangible assets for impairment annually in the fourth quarter, or as events occur or circumstances change that indicate the assets may be impaired without regard to the business unit. Potential impairment is identified by comparing the fair value of an other indefinite-lived intangible asset to its carrying value. We utilize a relief-from-royalty model to estimate the fair value of other indefinite-lived intangible assets. We consider the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near- and long-term. We also consider the profitability of the business, among other factors, to determine the royalty rate for use in the impairment assessment. We utilize our weighted average cost of capital of approximately 8.0 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2019, based upon our assessment of the risks impacting each of our businesses, we applied a risk premium to increase the discount rate to a range of 11.0 percent to 13.0 percent for our other indefinite-lived intangible assets.
While we believe that the estimates and assumptions underlying the valuation methodologies are reasonable, different estimates and assumptions could result in different outcomes.
Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. We review our intangible assets with finite useful lives as events occur or circumstances change that would more likely than not reduce the fair value of the assets below its carrying amount. If the carrying amount of the assets is not recoverable from the undiscounted cash flows, then we would recognize an impairment loss for the difference between the carrying amount and the current fair value. We evaluate the remaining useful lives of amortizable intangible assets at each reporting period to determine whether events or circumstances warrant a revision to the remaining periods of amortization.
Refer to Note H for additional information regarding goodwill and other intangible assets.
Fair Value Accounting.    We use derivative financial instruments to manage certain exposure to fluctuations in earnings and cash flows resulting from changes in foreign currency exchange rates, and occasionally from changes in commodity costs and interest rate exposures. Derivative financial instruments are recorded in the consolidated balance sheets as either an asset or liability measured at fair value, netted by counterparty, where the right of offset exists. The gain or loss is recognized in determining current earnings during the period of the change in fair value. We currently do not have any derivative instruments for which we have designated hedge accounting.




A. ACCOUNTING POLICIES (Continued)
Warranty.    We offer limited warranties on certain products with warranty periods ranging up to the lifetime of the product to the original consumer purchaser. At the time of sale, we accrue a warranty liability for the estimated future cost to provide products, parts or services to repair or replace products to satisfy our warranty obligations. Our estimate of future costs to service our warranty obligations is based upon the information available and includes a number of factors, such as the warranty coverage, the warranty period, historical experience specific to the nature, frequency and average cost to service the claim, along with industry and demographic trends.
Certain factors and related assumptions in determining our warranty liability involve judgments and estimates and are sensitive to changes in the factors described above. We believe that the warranty accrual is appropriate; however, actual claims incurred could differ from our original estimates which would require us to adjust our previously established accruals. Refer to Note T for additional information on our warranty accrual.
A significant portion of our business is at the consumer retail level through home center retailers and other major retailers. A consumer may return a product to a retail outlet that is a warranty return. However, certain retail outlets do not distinguish between warranty and other types of returns when they claim a return deduction from us. Our revenue recognition policy takes into account this type of return when recognizing revenue, and an estimate of these amounts is recorded as a deduction to net sales at the time of sale.
Insurance Reserves.    We provide for expenses associated with workers' compensation and product liability obligations when such amounts are probable and can be reasonably estimated. The accruals are adjusted as new information develops or circumstances change that would affect the estimated liability. Any obligations expected to be settled within 12 months are recorded in accrued liabilities; all other obligations are recorded in other liabilities.
Litigation. We are involved in claims and litigation, including class actions, mass torts and regulatory proceedings, which arise in the ordinary course of our business. Liabilities and costs associated with these matters require estimates and judgments based upon our professional knowledge and experience and that of our legal counsel. When a liability is probable of being incurred and our exposure in these matters is reasonably estimable, amounts are recorded as charges to earnings. The ultimate resolution of these exposures may differ due to subsequent developments.
Stock-Based Compensation.   We issue stock-based incentives in various forms to our employees and non-employee Directors. Outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units ("RSUs"), phantom stock awards and stock appreciation rights ("SARs"). We measure compensation expense for stock awards at the market price of our common stock at the grant date. Such expense is recognized ratably over the shorter of the vesting period of the stock awards, typically five years, or the length of time until the grantee becomes retirement-eligible, generally at age 65. We measure compensation expense for stock options using a Black-Scholes option pricing model. Such expense is recognized ratably over the shorter of the vesting period of the stock options, typically five years, or the length of time until the grantee becomes retirement-eligible, generally at age 65. We measure compensation expense for RSUs at the expected payout of the awards. Such expense is recognized ratably over the three-year vesting period of the units. We recognize forfeitures related to stock awards, stock options and RSUs as they occur.
We initially measure compensation expense for phantom stock awards at the market price of our common stock at the grant date. Such expense is recognized ratably over the vesting period, typically five years. Phantom stock awards are linked to the value of our common stock on the date of grant and are settled in cash upon vesting. We account for phantom stock awards as liability-based awards; the liability is remeasured and adjusted at the end of each reporting period until the awards are fully-vested and paid to the employees. We measure compensation expense for SARs using a Black-Scholes option pricing model; such expense is recognized ratably over the vesting period, typically five years. SARs are linked to the value of our common stock on the date of grant and are settled in cash upon exercise. We account for SARs using the fair value method, which requires outstanding SARs to be classified as liability-based awards. The liability is remeasured and adjusted at the end of each reporting period until the SARs are exercised and payment is made to the employees or the SARs expire. Refer to Note L for additional information on stock-based compensation.
Noncontrolling Interest.    We owned 68 percent of Hansgrohe SE at both December 31, 2019 and 2018. The aggregate noncontrolling interest, net of dividends, at December 31, 2019 and 2018 has been recorded as a component of equity on our consolidated balance sheets.

A. ACCOUNTING POLICIES (Continued)
Discontinued Operations. We report financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs only when the disposal of a component or a group of components represents a strategic shift that will have a major effect on our operations and financial results. In our consolidated statements of cash flows, the cash flow from discontinued operations are not separately classified. Refer to Note B for further information regarding our discontinued operations.
Income Taxes.    Deferred taxes are recognized based on the future tax consequences of differences between the financial statement carrying value of assets and liabilities and their respective tax basis. The future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income.
If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent likely) such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to positive and negative evidence that is objectively verifiable. A company's three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable, and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets.
The current accounting guidance allows the recognition of only those income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities. We believe that there is an increased potential for volatility in our effective tax rate because this threshold allows for changes in the income tax environment and, to a greater extent, the inherent complexities of income tax law in a substantial number of jurisdictions, which may affect the computation of our liability for uncertain tax positions.
We record interest and penalties on our uncertain tax positions in income tax expense.
The accounting guidance for income taxes requires us to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income (loss). Subsequent adjustments to deferred taxes originally recorded to other comprehensive income (loss) may reverse in a different category of earnings, such as continuing operations, resulting in a disproportionate tax effect within accumulated other comprehensive income (loss). Generally, a disproportionate tax effect will be eliminated and recognized in income tax expense when the circumstances upon which it is premised cease to exist.
The disproportionate tax effect related to various defined-benefit pension plans will be eliminated from accumulated other comprehensive income (loss) at the termination of the related pension plans. The disproportionate tax effect relating to our interest rate swap hedge, which was terminated in 2012, will be eliminated from accumulated other comprehensive income (loss) upon the maturity of the related debt in March 2022.
We record the tax effects of Global Intangible Low-taxed Income related to our foreign operations as a component of income tax expense in the period the tax arises.
Reclassifications.    Certain prior year amounts have been reclassified to conform to the 2019 presentation in the consolidated financial statements.







A. ACCOUNTING POLICIES (Concluded)
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 consolidated statements of operations or statements of cash flows.
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 expect the standard to have a material impact 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 expect that the adoption of this new standard will have a material impact on our financial position or results of operations.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for us for annual periods beginning January 1, 2021. Early adoption is permitted. We are currently reviewing the provisions of this new pronouncement and the impact, if any, the adoption of this guidance has on our financial position and results of operations.
v3.19.3.a.u2
DIVESTITURES
12 Months Ended
Dec. 31, 2019
Discontinued Operations and Disposal Groups [Abstract]  
DIVESTITURES DIVESTITURES
    On September 6, 2019, we completed the divestiture of our UK Window Group business ("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 the year ended December 31, 2019, which is included in income from discontinued operations, net in the consolidated statements of operations.
On November 6, 2019, we completed the divestiture of our Milgard Windows and Doors business ("Milgard"), a manufacturer and distributor of windows and doors for proceeds of approximately $720 million, net of cash disposed, subject to final working capital adjustments. In connection with the sale, we recognized a gain on the divestiture of $368 million for the year ended December 31, 2019, which is included in income from discontinued operations, net in the consolidated statement of operations.
In 2019, we determined that the previously reported Windows and Other Specialty Products segment met the criteria to be classified as a discontinued operation as a result of the combined sale of UKWG and Milgard. These businesses represented all of our windows businesses and all remaining businesses in the Windows and Other Specialty Products segment.
Additionally, on November 14, 2019, we entered into a definitive agreement to sell Masco Cabinetry LLC ("Cabinetry"), a manufacturer of cabinetry products, for approximately $1.0 billion, consisting of $850 million in cash at closing and preferred stock issued by a holding company of the buyer with a liquidation preference of $150 million. The preferred stock will have a coupon of 8 percent until the first anniversary of issuance, 9 percent after the first anniversary and until the second anniversary of issuance,10 percent after the second anniversary of issuance and until the seventh anniversary of issuance, after which the rate will increase by 50 basis points up to a maximum of 15 percent for each period occurring during and after the seventh anniversary until all shares have been redeemed in full. The closing of the sale is expected during the first quarter of 2020, subject to customary closing conditions, and we expect to recognize a gain on the divestiture of approximately $600 million. We determined that the previously reported Cabinetry Products segment met the criteria to be classified as a discontinued operation as Cabinetry represents all of our cabinet businesses and all remaining businesses in the Cabinetry Products segment.
We determined that the assets and liabilities for Cabinetry, Milgard and UKWG met the held for sale criteria in accordance with ASC 205-20, Discontinued Operations, during 2019. Accordingly, these businesses' held for sale assets and liabilities were reclassified in the consolidated balance sheets at December 31, 2019 and 2018 to assets held for sale or liabilities held for sale. We ceased recording depreciation and amortization for the held for sale assets upon meeting the held for sale criteria.
As the combined sale of UKWG and Milgard and the planned disposition of Cabinetry each represented a strategic shift that will have a major effect on our operations and financial results, these businesses were 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 were separately disclosed.
The results of the windows businesses recorded in income from discontinued operations before income tax was a loss of $1 million for the year ended December 31, 2019 and income of $40 million and $57 million for the years ended December 31, 2018 and 2017, respectively. The results of the cabinetry business recorded in income from discontinued operations before income tax were income of $107 million, $95 million and $109 million for the years ended December 31, 2019, 2018 and 2017, respectively.






B. DIVESTITURES (Continued)
The major classes of line items constituting income from discontinued operations, net, in millions:
 
For the Years Ended December 31,
 
2019
 
2018
 
2017
Net sales
$
1,528

 
$
1,705

 
$
1,628

Cost of sales
1,184

 
1,343

 
1,236

Gross profit
344

 
362


392

Selling, general and administrative expenses
232

 
228

 
227

Impairment charge for goodwill (A)
7

 

 

Other income (expense), net
1

 
1

 
1

Income from discontinued operations
106

 
135

 
166

Gain on disposal of discontinued operations, net
298

 

 

Income before income tax
404

 
135

 
166

Income tax expense
(108
)
 
(37
)
 
(59
)
Income from discontinued operations, net
$
296

 
$
98

 
$
107

 
(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.
The windows businesses included assets classified as held for sale of $660 million and liabilities classified as held for sale of $257 million in the consolidated balance sheet at December 31, 2018. The cabinetry business included assets classified as held for sale of $528 million and $535 million and liabilities classified as held for sale of $162 million and $158 million in the consolidated balance sheets at December 31, 2019 and 2018, respectively.
The carrying amount of major classes of assets and liabilities included as part of the Cabinetry, Milgard, and UKWG discontinued operations, were as follows, in millions:
 
December 31, 2019
 
December 31, 2018
Cash and cash investments
$

 
$
7

Receivables
76

 
163

Prepaid expenses and other
7

 
24

Inventories
90

 
148

Property and equipment, net
157

 
338

Operating lease right-of-use assets
4

 

Goodwill
181

 
387

Other intangible assets, net
1

 
118

Other assets
12

 
10

Total assets classified as held for sale
$
528

 
$
1,195

 
 
 
 
Accounts payable
$
103

 
$
190

Accrued liabilities
46

 
105

Other liabilities
13

 
120

Total liabilities classified as held for sale
$
162

 
$
415


    


B. DIVESTITURES (Concluded)
Assets and liabilities classified as held for sale were required to be recorded at the lower of its carrying value or fair value less costs to sell. The estimated fair value less costs to sell of the held for sale businesses exceeded their carrying value, and therefore no adjustment to these long-lived assets was necessary.
Other selected financial information for Cabinetry, Milgard and UKWG during the period owned by us, were as follows, in millions:
 
For the Years Ended December 31,
 
2019
 
2018
 
2017
Depreciation and amortization
$
29

 
$
36

 
$
34

Capital expenditures
34

 
38

 
26

ROU assets obtained in exchange for new lease obligations
3

 

 


In conjunction with the divestiture of Milgard, we have entered into a Transition Services Agreement to provide administrative services subsequent to the separation. The fees for services rendered under the Transition Services Agreement are not expected to be material to our results of operations.     
In the fourth quarter of 2017, we divested Moores Furniture Group Limited ("Moores"), a manufacturer of kitchen and bathroom furniture in the United Kingdom. In connection with the divestiture we recognized a loss of $64 million for the year ended December 31, 2017, included in other, net, within other income (expense), net in our consolidated statement of operations. This loss resulted primarily from the recognition of $58 million of defined-benefit pension plan actuarial losses, net of tax, that were previously included within accumulated other comprehensive loss, due to the transfer of the plan assets and obligations to the purchaser in connection with the sale of the business. Prior to divestiture, the results of this business are included within income before income taxes in the consolidated statement of operations. This divestiture was not accounted for as a discontinued operation.
In the second quarter of 2017, we divested Arrow Fastener Co., LLC ("Arrow"), a manufacturer and distributor of fastening tools, for proceeds of $128 million. In connection with the divestiture we recognized a gain of $51 million for the year ended December 31, 2017, included in other, net, within other income (expense), net in our consolidated statement of operations. Prior to divestiture, the results of this business are included within income before income taxes in the consolidated statement of operations. This divestiture was not accounted for as a discontinued operation.
v3.19.3.a.u2
ACQUISITIONS
12 Months Ended
Dec. 31, 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 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 have revised the allocation of the purchase price to identifiable assets and liabilities based on analysis of information as of the acquisition date that has been 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

Prepaid expenses and other
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


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 three years.
In the fourth quarter of 2017, we acquired Mercury Plastics, Inc., a plastics processor and manufacturer of water handling systems for appliance and faucet applications, for approximately $89 million in cash. This business is included in the Plumbing Products segment. This acquisition enhances our ability to develop faucet technology and provides continuity of supply of quality faucet components. In connection with this acquisition, we recognized $38 million of goodwill, which is tax deductible, and is related primarily to the expected synergies from combining the operations into our business.
v3.19.3.a.u2
REVENUE
12 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
REVENUE
D. 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:
 
Year Ended December 31, 2019
 
Plumbing Products
 
Decorative Architectural Products
 
Total
Primary geographic markets:
 
 
 
 
 
North America
$
2,605

 
$
2,723

 
$
5,328

International, principally Europe
1,379

 

 
1,379

Total
$
3,984

 
$
2,723

 
$
6,707

 
Year Ended December 31, 2018
 
Plumbing Products
 
Decorative Architectural Products
 
Total
Primary geographic markets:
 
 
 
 
 
North America
$
2,552

 
$
2,656

 
$
5,208

International, principally Europe
1,446

 

 
1,446

Total
$
3,998

 
$
2,656

 
$
6,654

 
Year Ended December 31, 2017
 
Plumbing Products
 
Decorative Architectural Products
 
Total (A)
Primary geographic markets:
 
 
 
 
 
North America
$
2,362

 
$
2,206

 
$
4,568

International, principally Europe
1,370

 

 
1,370

Total
$
3,732

 
$
2,206

 
$
5,938


 
(A)
Total net sales for 2017 excludes net sales of $76 million relating to divestitures not included in discontinued operations. Divestitures not included in discontinued operations consists of our previously owned Arrow and Moores businesses which were disposed of in 2017.

We recognized increases to revenue of $2 million, $4 million, and $9 million in 2019, 2018, and 2017, respectively, for variable consideration related to performance obligations settled in previous periods.

We record contract assets for items for which we have satisfied our performance obligation but our receipt of payment is contingent upon delivery or other circumstances other than the passage of time. Our contract assets are recorded in prepaid expenses and other in our consolidated balance sheets. Our contract assets generally become unconditional and are reclassified to receivables in the quarter subsequent to each balance sheet date. Our contract asset balance was $2 million at both December 31, 2019 and 2018.

We record contract liabilities primarily for deferred revenue. Our contract liabilities are recorded in accrued liabilities in our consolidated balance sheets. Our contract liabilities are generally recognized to net sales in the immediately subsequent reporting period. Our contract liability balance was $40 million and $39 million at December 31, 2019 and 2018, respectively.
v3.19.3.a.u2
INVENTORIES
12 Months Ended
Dec. 31, 2019
Inventory Disclosure [Abstract]  
INVENTORIES INVENTORIES
 
(In Millions)
At December 31
 
2019
 
2018
Finished goods
$
485

 
$
508

Raw materials
211

 
237

Work in process
58

 
53

Total
$
754

 
$
798



Inventories, which include purchased parts, materials, direct labor and applied overhead, are stated at the lower of cost or net realizable value, with cost determined by use of the first-in, first-out method.
v3.19.3.a.u2
LEASES
12 Months Ended
Dec. 31, 2019
Leases [Abstract]  
LEASES
F. 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 23 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:
 
2019
Operating lease cost
$
49

Short-term lease cost
6

Variable lease cost
3

Finance lease cost:
 
Amortization of right-of-use assets
3

Interest on lease liabilities
1


Supplemental cash flow information related to leases was as follows, in millions:
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
58

Operating cash flows for finance leases
1

Financing cash flows for finance leases
8

 
 
ROU assets obtained in exchange for new lease obligations:
 
Operating leases
27

Finance leases


    
Certain other information related to leases was as follows:
 
At December 31, 2019
Weighted-average remaining lease term:
 
Operating leases
10 years

Finance leases
11 years

 
 
Weighted-average discount rate:
 
Operating leases
4.6
%
Finance leases
3.4
%

F. LEASES (Concluded)
Supplemental balance sheet information related to leases was as follows, in millions:
 
At December 31, 2019
 
Operating Leases
 
Finance Leases
Property and equipment, net
$

 
$
29

Notes payable

 
2

Accrued liabilities
38

 

Long-term debt

 
28

Other liabilities
162

 


Gross ROU assets under finance leases recorded within property and equipment, net were $42 million, and accumulated amortization associated with these leases was $13 million, at December 31, 2019.

At December 31, 2019, future maturities of lease liabilities (under ASC 842) were as follows, in millions:
 
Operating Leases
 
Finance Leases
Year ending December 31,
 
 
 
2020
$
45

 
$
3

2021
39

 
3

2022
31

 
3

2023
21

 
3

2024
16

 
4

Thereafter
101

 
20

Total lease payments
253

 
36

Less: imputed interest
(53
)
 
(6
)
Total
$
200

 
$
30


Rental expense (under ASC 840) recorded in the consolidated statements of operations totaled approximately $63 million and $49 million during 2018 and 2017, respectively.
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
F. 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 23 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:
 
2019
Operating lease cost
$
49

Short-term lease cost
6

Variable lease cost
3

Finance lease cost:
 
Amortization of right-of-use assets
3

Interest on lease liabilities
1


Supplemental cash flow information related to leases was as follows, in millions:
 
2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
58

Operating cash flows for finance leases
1

Financing cash flows for finance leases
8

 
 
ROU assets obtained in exchange for new lease obligations:
 
Operating leases
27

Finance leases


    
Certain other information related to leases was as follows:
 
At December 31, 2019
Weighted-average remaining lease term:
 
Operating leases
10 years

Finance leases
11 years

 
 
Weighted-average discount rate:
 
Operating leases
4.6
%
Finance leases
3.4
%

F. LEASES (Concluded)
Supplemental balance sheet information related to leases was as follows, in millions:
 
At December 31, 2019
 
Operating Leases
 
Finance Leases
Property and equipment, net
$

 
$
29

Notes payable

 
2

Accrued liabilities
38

 

Long-term debt

 
28

Other liabilities
162

 


Gross ROU assets under finance leases recorded within property and equipment, net were $42 million, and accumulated amortization associated with these leases was $13 million, at December 31, 2019.

At December 31, 2019, future maturities of lease liabilities (under ASC 842) were as follows, in millions:
 
Operating Leases
 
Finance Leases
Year ending December 31,
 
 
 
2020
$
45

 
$
3

2021
39

 
3

2022
31

 
3

2023
21

 
3

2024
16

 
4

Thereafter
101

 
20

Total lease payments
253

 
36

Less: imputed interest
(53
)
 
(6
)
Total
$
200

 
$
30


Rental expense (under ASC 840) recorded in the consolidated statements of operations totaled approximately $63 million and $49 million during 2018 and 2017, respectively.
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.a.u2
PROPERTY AND EQUIPMENT
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT PROPERTY AND EQUIPMENT
 
(In Millions)
At December 31
 
2019
 
2018
Land and improvements
$
64

 
$
64

Buildings
497

 
470

Computer hardware and software
232

 
220

Machinery and equipment
1,103

 
1,088

 
1,896

 
1,842

Less: Accumulated depreciation
(1,018
)
 
(957
)
Total
$
878

 
$
885


v3.19.3.a.u2
GOODWILL AND OTHER INTANGIBLE ASSETS
12 Months Ended
Dec. 31, 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, by segment, were as follows, in millions:
 
Gross Goodwill At December 31, 2019
 
Accumulated
Impairment
Losses
 
Net Goodwill At December 31, 2019
Plumbing Products
$
566

 
$
(340
)
 
$
226

Decorative Architectural Products
358

 
(75
)
 
283

Total
$
924

 
$
(415
)
 
$
509

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

 
$
(340
)
 
$
228

 
$

 
$
(2
)
 
$
226

Decorative Architectural Products
358

 
(75
)
 
283

 

 

 
283

Total
$
926

 
$
(415
)
 
$
511

 
$

 
$
(2
)
 
$
509

 
Gross Goodwill At December 31, 2017
 
Accumulated
Impairment
Losses
 
Net Goodwill At December 31, 2017
 
Additions (A)
 
Other (B)
 
Net Goodwill At December 31, 2018
Plumbing Products
$
574

 
$
(340
)
 
$
234

 
$

 
$
(6
)
 
$
228

Decorative Architectural Products
294

 
(75
)
 
219

 
64

 

 
283

Total
$
868

 
$
(415
)
 
$
453

 
$
64

 
$
(6
)
 
$
511

                                                             
(A)
Additions consist of acquisitions.
(B)Other consists of the effect of foreign currency translation.
Other indefinite-lived intangible assets were $76 million and $86 million at December 31, 2019 and 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. As a result of our 2018 acquisition, other indefinite-lived intangible assets increased by $59 million as of the acquisition date.
We completed our annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth quarters of 2019, 2018 and 2017. There was no impairment of goodwill for any of our reporting units or of our other indefinite-lived intangible assets in any of these years, other than as disclosed above.
The carrying value of our definite-lived intangible assets was $183 million (net of accumulated amortization of $48 million) at December 31, 2019 and $202 million (net of accumulated amortization of $26 million) at December 31, 2018 and principally included customer relationships with a weighted average amortization period of 17 years in 2019 and 16 years in 2018. Amortization expense, including discontinued operations, related to the definite-lived intangible assets was $23 million, $20 million and $4 million in 2019, 2018 and 2017, respectively. As a result of our 2018 acquisition, definite-lived intangible assets increased by $181 million, as of the acquisition date.
At December 31, 2019, amortization expense related to the definite-lived intangible assets during each of the next five years was as follows: 2020 – $24 million; 2021 – $16 million; 2022 – $12 million, 2023 – $11 million and 2024 –$11 million.
v3.19.3.a.u2
OTHER ASSETS
12 Months Ended
Dec. 31, 2019
Other Assets, Noncurrent Disclosure [Abstract]  
OTHER ASSETS OTHER ASSETS
 
(In Millions)
At December 31
 
2019
 
2018
Equity method investments
$
11

 
$
11

Private equity funds

 
1

In-store displays, net
5

 
10

Deferred tax assets (Note R)
99

 
42

Other
24

 
26

Total
$
139

 
$
90


We recognized amortization expense, including discontinued operations, related to in-store displays of $12 million, $21 million and $25 million in 2019, 2018 and 2017, respectively. Cash spent for displays was $11 million, $10 million and $14 million in 2019, 2018 and 2017, respectively, and is included in other, net within investing activities on the consolidated statements of cash flows.
v3.19.3.a.u2
ACCRUED LIABILITIES
12 Months Ended
Dec. 31, 2019
Accrued Liabilities, Current [Abstract]  
ACCRUED LIABILITIES ACCRUED LIABILITIES
 
(In Millions)
At December 31
 
2019
 
2018
Salaries, wages and commissions
$
141

 
$
143

Advertising and sales promotion
189

 
170

Interest
36

 
40

Warranty (Note T)
31

 
29

Employee retirement plans
41

 
40

Insurance reserves
37

 
31

Property, payroll and other taxes
18

 
14

Dividends payable
37

 
36

Deferred revenue
40

 
39

Product returns
25

 
22

Operating lease liabilities
38

 

Other
67

 
81

Total
$
700

 
$
645


v3.19.3.a.u2
DEBT
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
DEBT DEBT
 
(In Millions)
At December 31
 
2019
 
2018
Notes and debentures:
 

 
 

7.125%, due March 15, 2020
$

 
$
201

3.500%, due April 1, 2021
399

 
399

5.950%, due March 15, 2022
326

 
326

4.450%, due April 1, 2025
500

 
500

4.375%, due April 1, 2026
498

 
498

3.500%, due November 15, 2027
300

 
300

7.750%, due August 1, 2029
235

 
235

6.500%, due August 15, 2032
200

 
200

4.500%, due May 15, 2047
299

 
299

Other
30

 
38

Prepaid debt issuance costs
(14
)
 
(17
)
 
2,773

 
2,979

Less: Current portion
2

 
8

Total long-term debt
$
2,771

 
$
2,971


All of the notes and debentures above are senior indebtedness and, other than the 7.75% Notes due 2029, are redeemable at our option.
On December 19, 2019, proceeds from the UKWG and Milgard divestitures were used to repay and early retire $201 million of our 7.125% Notes due March 15, 2020. In connection with this early retirement, we incurred a loss on debt extinguishment of $2 million for the year ended 2019, which was recorded in interest expense.
On April 16, 2018, we repaid and retired all of our $114 million, 6.625% Notes on the scheduled repayment date.
On June 21, 2017, we issued $300 million of 3.5% Notes due November 15, 2027 and $300 million of 4.5% Notes due May 15, 2047. We received proceeds of $599 million, net of discount, for the issuance of these Notes. The Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. On June 27, 2017, proceeds from the debt issuances, together with cash on hand, were used to repay and early retire $299 million of our 7.125% Notes due March 15, 2020, $74 million of our 5.95% Notes due March 15, 2022, $62 million of our 7.75% Notes due August 1, 2029, and $100 million of our 6.5% Notes due August 15, 2032. In connection with these early retirements, we incurred a loss on debt extinguishment of $107 million, which was recorded as interest expense.    
On March 13, 2019, we entered into a credit agreement (the “Credit Agreement”) 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 lenders 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 December 31, 2019, we had no outstanding standby letters of credit under the Credit Agreement.



K. DEBT (Concluded)
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) if available, adjusted LIBO Rate plus 1.0% (the "Alternative Base Rate"); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) if available, 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, if available, plus an applicable margin based upon our then-applicable corporate credit ratings.
The Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0.
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 December 31, 2019
At December 31, 2019, the debt maturities during each of the next five years were as follows: 2020 – $2 million; 2021$402 million; 2022 – $329 million; 2023 – $3 million and 2024 – $3 million.
Interest paid was $157 million, $155 million and $175 million in 2019, 2018 and 2017, respectively. These amounts exclude $2 million and $104 million of debt extinguishment costs related to the early retirement of debt, which were recorded as interest expense and paid in 2019 and 2017, respectively.
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 December 31, 2019 was approximately $3.0 billion, compared with the aggregate carrying value of $2.8 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.a.u2
STOCK-BASED COMPENSATION
12 Months Ended
Dec. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION
Our 2014 Long Term Stock Incentive Plan (the "2014 Plan") provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors. At December 31, 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 (income) included in income from continuing operations for these stock-based incentives was as follows, in millions:
 
2019
 
2018
 
2017
Long-term stock awards
$
20

 
$
20

 
$
21

Stock options
4

 
3

 
3

Restricted stock units
3

 
4

 
2

Phantom stock awards and stock appreciation rights
4

 
(2
)
 
8

Total
$
31

 
$
25

 
$
34


At December 31, 2019, 13.9 million shares of our common stock were available under the 2014 Plan for the granting of long-term stock awards, stock options and restricted stock units.





L. STOCK-BASED COMPENSATION (Continued)
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, as we repurchase and retire at least an equal number of shares in the open market. We granted 636,030 shares of long-term stock awards during 2019.
Our long-term stock award activity was as follows, shares in millions:

 
2019
 
2018
 
2017
Unvested stock award shares at January 1
2

 
3

 
4

Weighted average grant date fair value
$
30

 
$
24

 
$
20

Stock award shares granted
1

 
1

 
1

Weighted average grant date fair value
$
36

 
$
41

 
$
34

Stock award shares vested
1

 
2

 
2

Weighted average grant date fair value
$
25

 
$
21

 
$
18

Stock award shares forfeited

 

 

Weighted average grant date fair value
$
35

 
$
31

 
$
24

Unvested stock award shares at December 31
2

 
2

 
3

Weighted average grant date fair value
$
34

 
$
30

 
$
24


At December 31, 2019, 2018 and 2017, there was $41 million, $46 million and $46 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 December 31, 2019, 2018 and 2017.
The total market value (at the vesting date) of stock award shares which vested during 2019, 2018 and 2017 was $31 million, $56 million and $45 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 during 2019 with a grant date weighted-average exercise price of approximately $36 per share. During 2019, 108,086 stock option shares were forfeited (including options that expired unexercised).





















L. STOCK-BASED COMPENSATION (Continued)

Our stock option activity was as follows, shares in millions:
 
2019
 
2018
 
2017
Option shares outstanding, January 1
4

 
5

 
7

Weighted average exercise price
$
21

 
$
16

 
$
15

Option shares granted
1

 

 

Weighted average exercise price
$
36

 
$
42

 
$
34

Option shares exercised
2

 
1

 
2

Aggregate intrinsic value on date of exercise (A)
$
33
 million
 
$
55
 million
 
$
47
 million
Weighted average exercise price
$
13

 
$
11

 
$
15

Option shares forfeited

 

 

Weighted average exercise price
$
34

 
$
31

 
$

Option shares outstanding, December 31
3

 
4

 
5

Weighted average exercise price
$