MASCO CORP /DE/, 10-K filed on 2/7/2019
Annual Report
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Document and Entity Information - USD ($)
12 Months Ended
Dec. 31, 2018
Jan. 31, 2019
Jun. 30, 2018
Document and Entity Information [Abstract]      
Entity Registrant Name MASCO CORP /DE/    
Entity Central Index Key 0000062996    
Current Fiscal Year End Date --12-31    
Entity Filer Category Large Accelerated Filer    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Common Stock, Shares Outstanding   294,492,500  
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Public Float     $ 11,345,157,000
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CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Dec. 31, 2018
Dec. 31, 2017
Current Assets:    
Cash and cash investments $ 559 $ 1,194
Short-term bank deposits 0 108
Receivables 1,153 1,066
Inventories 946 784
Prepaid expenses and other 108 111
Total current assets 2,766 3,263
Property and equipment, net 1,223 1,129
Goodwill 898 841
Other intangible assets, net 406 187
Other assets 100 114
Total assets 5,393 5,534
Current Liabilities:    
Accounts payable 926 824
Notes payable 8 116
Accrued liabilities 750 727
Total current liabilities 1,684 1,667
Long-term debt 2,971 2,969
Other liabilities 669 715
Total liabilities 5,324 5,351
Commitments and contingencies (Note T)
Masco Corporation's shareholders' equity    
Masco Corporation's shareholders' equity: Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2018 – 293,900,000; 2017 – 310,400,000 294 310
Preferred shares authorized: 1,000,000; Issued and outstanding: 2018 and 2017 – None 0 0
Paid-in capital 0 0
Retained deficit (278) (298)
Accumulated other comprehensive loss (127) (65)
Total Masco Corporation's shareholders' deficit (111) (53)
Noncontrolling interest 180 236
Total equity 69 183
Total liabilities and equity $ 5,393 $ 5,534
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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Common shares, par value (in dollars per share) $ 1 $ 1
Common shares, shares authorized 1,400,000,000 1,400,000,000
Common shares, shares issued 293,900,000 310,400,000
Common shares, shares outstanding 293,900,000 310,400,000
Preferred shares, shares authorized 1,000,000 1,000,000
Preferred shares, shares issued 0 0
Preferred shares, shares outstanding 0 0
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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Net sales $ 8,359 $ 7,642 $ 7,361
Cost of sales 5,670 5,030 4,899
Gross profit 2,689 2,612 2,462
Selling, general and administrative expenses 1,478 1,418 1,375
Operating profit 1,211 1,194 1,087
Other income (expense), net:      
Interest expense (156) (278) (229)
Other, net (13) (32) (26)
Total other income (expense), net (169) (310) (255)
Income before income taxes 1,042 884 832
Income tax expense 258 304 296
Net income 784 580 536
Less: Net income attributable to noncontrolling interest 50 47 43
Net income attributable to Masco Corporation $ 734 $ 533 $ 493
Basic:      
Net income, basic (in dollars per share) $ 2.38 $ 1.68 $ 1.49
Diluted:      
Net income, diluted (in dollars per share) $ 2.37 $ 1.66 $ 1.48
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net income $ 784 $ 580 $ 536
Less: Net income attributable to noncontrolling interest 50 47 43
Net income attributable to Masco Corporation 734 533 493
Other comprehensive (loss) income, net of tax (Note O):      
Cumulative translation adjustment (31) 133 (78)
Interest rate swaps 2 3 1
Pension and other post-retirement benefits 9 63 (15)
Realized loss on available-for-sale securities 0 0 12
Other comprehensive (loss) income, net of tax (20) 199 (80)
Less: Other comprehensive (loss) income attributable to the noncontrolling interest:      
Cumulative translation adjustment (15) 28 (10)
Pension and other post-retirement benefits (2) 1 0
Less: Other comprehensive (loss) income attributable to noncontrolling interest (17) 29 (10)
Other comprehensive (loss) income attributable to Masco Corporation (3) 170 (70)
Total comprehensive income 764 779 456
Less: Total comprehensive income attributable to noncontrolling interest 33 76 33
Total comprehensive income attributable to Masco Corporation $ 731 $ 703 $ 423
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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:      
Net income (loss) $ 784 $ 580 $ 536
Depreciation and amortization 156 127 134
Display amortization 21 25 25
Deferred income taxes 4 13 130
Employee withholding taxes paid on stock-based compensation 42 33 40
Gain on disposition of investments, net (4) (4) (4)
Loss on disposition of businesses, net 0 13 0
Pension and other postretirement benefits (47) (38) (78)
Impairment of financial investments 0 2 0
Stock-based compensation 27 38 29
Increase in receivables (46) (140) (132)
Increase in inventories (11) (78) (37)
Increase in accounts payable and accrued liabilities, net 108 67 79
Debt extinguishment costs 0 104 40
Other, net (2) 9 27
Net cash from operating activities 1,032 751 789
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:      
Retirement of notes (114) (535) (1,300)
Purchase of Company common stock (654) (331) (459)
Cash dividends paid (134) (129) (128)
Dividends paid to noncontrolling interest (89) (35) (31)
Issuance of notes, net of issuance costs 0 593 889
Debt extinguishment costs 0 (104) (40)
Increase in debt 0 2 3
Issuance of Company common stock 0 0 1
Proceeds from the exercise of stock options 14 0 0
Employee withholding taxes paid on stock-based compensation 42 33 40
Payment of debt (1) (5) (4)
Net cash for financing activities (1,020) (577) (1,109)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:      
Capital expenditures (219) (173) (180)
Acquisition of businesses, net of cash acquired (549) (89) 0
Proceeds from disposition of:      
Businesses, net of cash disposed 0 128 0
Short-term bank deposits 108 218 251
Property and equipment 14 24 0
Other financial investments 5 7 32
Purchases of short-term bank deposits 0 (106) (211)
Other, net (10) (34) (16)
Net cash for investing activities (651) (25) (124)
Effect of exchange rate changes on cash and cash investments 4 55 (34)
CASH AND CASH INVESTMENTS:      
(Decrease) increase for the year (635) 204 (478)
At January 1 1,194 990 1,468
At December 31 $ 559 $ 1,194 $ 990
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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
Increase (Decrease) in Stockholders' Equity            
Cumulative effect of new accounting principle in period of adoption | Accounting Standards Update 2014-09 $ 5     $ 5    
Balance at Dec. 31, 2015 58 $ 330 $ 0 (300) $ (165) $ 193
Balance (Accounting Standards Update 2014-09) at Dec. 31, 2015 63 330 0 (295) (165) 193
Increase (Decrease) in Stockholders' Equity            
Total comprehensive income (loss) 456     493 (70) 33
Shares issued (24) 3 (27)      
Shares retired:            
Repurchased (459) (15) (14) (430)    
Surrendered (non-cash) (14)   (14)    
Cash dividends declared (128)     (128)    
Dividends paid to noncontrolling interest (31)         (31)
Stock-based compensation 41   41      
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            
Cumulative effect of new accounting principle in period of adoption | Accounting Standards Update 2018-02 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
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ACCOUNTING POLICIES
12 Months Ended
Dec. 31, 2018
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, or when services are completed. Control over certain of our custom-made window products transfers to our customers as production is completed, and revenue is recognized over the production period for these products, as our products do not have an alternative use and we have an enforceable right to payment during the production period. The production period of our custom-made window products generally does not lapse days, and for these products we currently recognize revenue based on the output of production, which is a faithful depiction of the transfer of these products to 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.

A. ACCOUNTING POLICIES (Continued)
Short-Term Bank Deposits.    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 approximated fair value at December 31, 2018 and 2017. 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.
Receivables.    We do significant business with a number of customers, including certain home center retailers and homebuilders. 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. 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 $46 million and $36 million at December 31, 2018 and 2017, 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 the 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 was $132 million, $116 million and $124 million in 2018, 2017 and 2016, respectively.
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 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 9.0 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2018, 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 13.5 percent for our reporting units. 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 utilized 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
A. ACCOUNTING POLICIES (Continued)
approximately 9.0 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2018, 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 12.0 percent to 13.5 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 the 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.
Warranty.    We offer full and 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 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.






A. ACCOUNTING POLICIES (Continued)
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 5 or 10 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 5 to 10 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, 2018 and 2017. The aggregate noncontrolling interest, net of dividends, at December 31, 2018 and 2017 has been recorded as a component of equity on our consolidated balance sheets.
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.
    

A. ACCOUNTING POLICIES (Continued)

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 2018 presentation in the consolidated financial statements.
Recently Adopted Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board ("FASB") issued a new standard for revenue recognition, Accounting Standards Codification ("ASC") 606. The purpose of ASC 606 is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability across industries. We adopted ASC 606 on January 1, 2018, under the full retrospective method of adoption. As a result of this adoption, net sales decreased by $2 million and increased by $4 million in 2017 and 2016, respectively, and operating profit (and income before income taxes) decreased by $1 million and increased by $2 million in 2017 and 2016, respectively, from what was previously reported. We additionally have recast our previously reported segment operating results at the end of this section.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities," which primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. We adopted ASU 2016-01 on January 1, 2018. The adoption of this standard did not have a material impact on our financial position or results of operations.

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Asset Transfers of Assets Other than Inventory," which no longer allows the tax effects of intra-entity asset transfers (intercompany sales) of assets other than inventory to be deferred until the transferred asset is sold to a third party or otherwise recovered through use. The new standard requires the tax expense from the sale of the asset in the seller's tax jurisdiction and the corresponding basis differences in the buyer's jurisdiction to be recognized when the transfer occurs even though the pre-tax effects of the transaction are eliminated in consolidation. We adopted ASU 2016-16 on January 1, 2018. The adoption of this standard did not have a material impact on our financial position or results of operations.

In March 2017, the FASB issued ASU 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which modifies the presentation of net periodic pension and post-retirement benefit cost ("net benefit cost") in the income statement and the components eligible for capitalization as assets. ASU 2017-07 requires retrospective application for certain aspects of the standard. We adopted ASU 2017-07 on January 1, 2018. As a result of the adoption, we reclassified $26 million and $32 million of net benefit cost from operating profit to other income (expense), net, within our results of operations in 2017 and 2016, respectively. We additionally have recast our previously reported segment operating results at the end of this section. The adoption of the standard did not impact income before income taxes.
    
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting," which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. We adopted ASU 2017-09 on January 1, 2018. The adoption of this standard did not impact our financial position or results of operations; however, modification accounting is now required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.

In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which permits a company to reclassify from accumulated other comprehensive income (loss) to retained earnings the disproportionate tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). We early adopted ASU 2018-02 on March 31, 2018. As a result of the adoption, we decreased accumulated other comprehensive income (loss) and increased retained earnings (deficit) by the $59 million disproportionate tax effect caused by the 2017 Tax Act.
A. ACCOUNTING POLICIES (Continued)
Impact of Adoption of ASC 606 and ASU 2017-07. The impact to our previously reported operating results and basic and diluted income per share due to the adoptions of ASC 606 and ASU 2017-07 was as follows, in millions (except per common share data):
 
Year Ended December 31, 2016
 
Net Sales
 
Operating Profit (Loss)
 
As Reported
 
As Recast
 
As Reported
 
As Recast
Operations by segment:
 
 
 
 
 
 
 
Plumbing Products
$
3,526

 
$
3,529

 
$
642

 
$
654

Decorative Architectural Products
2,092

 
2,092

 
430

 
433

Cabinetry Products
970

 
970

 
93

 
97

Windows and Other Specialty Products
769

 
770

 
(3
)
 
(3
)
Total
$
7,357

 
$
7,361

 
1,162

 
1,181

General corporate expense, net
 
 
 
 
(109
)
 
(94
)
Operating profit
 
 
 
 
$
1,053

 
$
1,087

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
December 31, 2016
 
 
 
 
 
As Reported
 
As Recast
Net income attributable to Masco Corporation
 
 
 
 
$
491

 
$
493

Income per common share attributable to Masco Corporation:
 
 
 
 
Basic:
 
 
 
 
$
1.49

 
$
1.49

Diluted:
 
 
 
 
$
1.47

 
$
1.48

 
Year Ended December 31, 2017
 
Net Sales
 
Operating Profit (Loss)
 
As Reported
 
As Recast
 
As Reported
 
As Recast
Operations by segment:
 
 
 
 
 
 
 
Plumbing Products
$
3,735

 
$
3,732

 
$
698

 
$
702

Decorative Architectural Products
2,205

 
2,206

 
434

 
438

Cabinetry Products
934

 
934

 
90

 
92

Windows and Other Specialty Products
770

 
770

 
52

 
54

Total
$
7,644

 
$
7,642

 
1,274

 
1,286

General corporate expense, net
 
 
 
 
(105
)
 
(92
)
Operating profit
 
 
 
 
$
1,169

 
$
1,194

 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended
December 31, 2017
 
 
 
 
 
As Reported
 
As Recast
Net income attributable to Masco Corporation
 
 
 
 
$
533

 
$
533

Income per common share attributable to Masco Corporation:
 
 
 
 
Basic:
 
 
 
 
$
1.68

 
$
1.68

Diluted:
 
 
 
 
$
1.66

 
$
1.66






A. ACCOUNTING POLICIES (Concluded)
Recently Issued Accounting Pronouncements. In February 2016, the FASB issued a new standard for leases, ASC 842, which changes the accounting model for identifying and accounting for leases. ASC 842 is effective for us for annual periods beginning January 1, 2019. We currently anticipate adopting the new standard using the optional transition method which allows for initial application of the new standard beginning at the adoption date. We expect this standard to increase our total assets and total liabilities by approximately five percent. We do not expect the standard to have a material impact on our results of operations. In preparation for the adoption of the standard, we have procured a third-party software to track and manage our leases, loaded lease data into the software, authored our accounting policy, trained our business units on the new standard and policy and the use of the software, and modified our control environment accordingly. We have not experienced significant issues in our implementation process.
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. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.
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. ASU 2017-12 is effective for us for annual periods beginning January 1, 2019. We do not expect the adoption of the standard will 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. ASU 2018-07 is effective for us for annual periods beginning January 1, 2019. We do not expect the adoption of the standard will impact 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. ASU 2018-15 is effective for us for annual periods beginning January 1, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.
v3.10.0.1
DIVESTITURES
12 Months Ended
Dec. 31, 2018
Discontinued Operations and Disposal Groups [Abstract]  
DIVESTITURES
DIVESTITURES
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 and reported as part of our Cabinetry Products segment.
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 and reported as part of our Windows and Other Specialty Products segment.
v3.10.0.1
(Notes)
12 Months Ended
Dec. 31, 2018
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. We recorded $346 million of net sales as a result of this acquisition during 2018. 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 through December 31, 2018.  The allocation will continue to be updated through the measurement period, if necessary. The preliminary allocation of the fair value of the acquisition of Kichler is summarized in the following table, in millions.
 
Initial
 
Revised
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.
v3.10.0.1
REVENUE
12 Months Ended
Dec. 31, 2018
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, 2018
 
Plumbing Products
 
Decorative Architectural Products
 
Cabinetry Products
 
Windows and Other Specialty Products
 
Total
Primary geographic markets:
 
 
 
 
 
 
 
 
 
North America
$
2,552

 
$
2,656

 
$
950

 
$
605

 
$
6,763

International, principally Europe
1,446

 

 

 
150

 
1,596

Total
$
3,998

 
$
2,656

 
$
950

 
$
755

 
$
8,359

 
Year Ended December 31, 2017
 
Plumbing Products
 
Decorative Architectural Products
 
Cabinetry Products
 
Windows and Other Specialty Products
 
Total
Primary geographic markets:
 
 
 
 
 
 
 
 
 
North America
$
2,362

 
$
2,206

 
$
891

 
$
608

 
$
6,067

International, principally Europe
1,370

 

 
43

 
162

 
1,575

Total
$
3,732

 
$
2,206

 
$
934

 
$
770

 
$
7,642

 
Year Ended December 31, 2016
 
Plumbing Products
 
Decorative Architectural Products
 
Cabinetry Products
 
Windows and Other Specialty Products
 
Total
Primary geographic markets:
 
 
 
 
 
 
 
 
 
North America
$
2,238

 
$
2,092

 
$
908

 
$
600

 
$
5,838

International, principally Europe
1,291

 

 
62

 
170

 
1,523

Total
$
3,529

 
$
2,092

 
$
970

 
$
770

 
$
7,361



We recognized increases to revenue of $4 million, $9 million, and $6 million in 2018, 2017, and 2016, 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 $14 million and $11 million at December 31, 2018 and 2017, respectively.

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 $41 million and $32 million at December 31, 2018 and 2017, respectively.
v3.10.0.1
INVENTORIES
12 Months Ended
Dec. 31, 2018
Inventory Disclosure [Abstract]  
INVENTORIES
INVENTORIES
 
(In Millions)
At December 31
 
2018
 
2017
Finished goods
$
520

 
$
402

Raw materials
325

 
277

Work in process
101

 
105

Total
$
946

 
$
784



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.
v3.10.0.1
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to global market risk as part of our normal, daily business activities. To manage these risks, we enter into various derivative contracts. These contracts may include interest rate swap agreements, foreign currency contracts and metals contracts. We review our hedging program, derivative positions and overall risk management on a regular basis.
Interest Rate Swap Agreements.    In 2012, in connection with the issuance of $400 million of debt, we terminated the interest rate swap hedge relationships that we had entered into in 2011. These interest rate swaps were designated as cash flow hedges and effectively fixed interest rates on the forecasted debt issuance to variable rates based on 3-month LIBOR. Upon termination, the ineffective portion of the cash flow hedges of an approximate $2 million loss was recognized in our consolidated statement of operations in other, net, within other income (expense), net. The remaining loss of approximately $23 million from the termination of these swaps is being amortized as an increase to interest expense over the remaining term of the debt, through March 2022. At December 31, 2018, the remaining pre-tax balance in accumulated other comprehensive loss was $6 million.
Foreign Currency Contracts.    Our net cash inflows and outflows exposed to the risk of changes in foreign currency exchange rates arise from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments, debt and other payables, and investments in subsidiaries. To mitigate this risk, we, including certain European operations, enter into foreign currency forward contracts and foreign currency exchange contracts.
Gains (losses) related to foreign currency forward and exchange contracts are recorded in our consolidated statements of operations in other income (expense), net. In the event that the counterparties fail to meet the terms of the foreign currency forward or exchange contracts, our exposure is limited to the aggregate foreign currency rate differential with such institutions.
Metals Contracts.    Occasionally, we have entered into contracts to manage our exposure to increases in the price of copper and zinc. Gains (losses) related to these contracts are recorded in our consolidated statements of operations in cost of sales.
The pre-tax (losses) gains included in our consolidated statements of operations are as follows, in millions:
 
Year Ended December 31,
 
2018
 
2017
 
2016
Foreign currency contracts:
 

 
 

 
 

Exchange contracts
$
1

 
$
(1
)
 
$

Forward contracts

 
1

 

Metals contracts

 

 
5

Interest rate swaps
(2
)
 
(4
)
 
(2
)
Total
$
(1
)
 
$
(4
)
 
$
3





F. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Concluded)
We present our derivatives net by counterparty in the consolidated balance sheets, due to the right of offset under master netting arrangements. The notional amounts being hedged and the fair value of those derivative instruments are as follows, in millions:
 
At December 31, 2018
 
Notional Amount
 
Balance Sheet
Foreign currency contracts:
 
 
 

Forward contracts
$
74

 
 
Receivables
 
 
$

Accrued liabilities
 
 

Other liabilities
 
 

 
At December 31, 2017
 
Notional Amount
 
Balance Sheet
Foreign currency contracts:
 

 
 

Exchange contracts
$
14

 
 

Accrued liabilities
 

 
$

Forward contracts
43

 
 

Receivables
 

 

Accrued liabilities
 

 


The fair value of all foreign currency and metals derivative contracts is estimated on a recurring basis, quarterly, using Level 2 inputs (significant other observable inputs).
v3.10.0.1
PROPERTY AND EQUIPMENT
12 Months Ended
Dec. 31, 2018
Property, Plant and Equipment [Abstract]  
PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT
 
(In Millions)
At December 31
 
2018
 
2017
Land and improvements
$
107

 
$
110

Buildings
699

 
681

Computer hardware and software
367

 
327

Machinery and equipment
1,625

 
1,547

 
2,798

 
2,665

Less: Accumulated depreciation
(1,575
)
 
(1,536
)
Total
$
1,223

 
$
1,129


We lease certain equipment and plant facilities under noncancellable operating leases. Rental expense recorded in the consolidated statements of operations totaled approximately $80 million, $66 million and $63 million during 2018, 2017 and 2016, respectively.
At December 31, 2018, future minimum lease payments were as follows, in millions:
2019
$
55

2020
47

2021
40

2022
30

2023
20

2024 and beyond
99

v3.10.0.1
GOODWILL AND OTHER INTANGIBLE ASSETS
12 Months Ended
Dec. 31, 2018
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, 2018
 
Accumulated
Impairment
Losses
 
Net Goodwill At December 31, 2018
Plumbing Products
$
568

 
$
(340
)
 
$
228

Decorative Architectural Products
358

 
(75
)
 
283

Cabinetry Products
181

 

 
181

Windows and Other Specialty Products
717

 
(511
)
 
206

Total
$
1,824

 
$
(926
)
 
$
898

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

 
$
(340
)
 
$
234

 
$

 
$
(6
)
 
$
228

Decorative Architectural Products
294

 
(75
)
 
219

 
64

 

 
283

Cabinetry Products
181

 

 
181

 

 

 
181

Windows and Other Specialty Products
718

 
(511
)
 
207

 

 
(1
)
 
206

Total
$
1,767

 
$
(926
)
 
$
841

 
$
64

 
$
(7
)
 
$
898

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

 
$
(340
)
 
$
179

 
$
38

 
$

 
$
17

 
$
234

Decorative Architectural Products
294

 
(75
)
 
219

 

 

 

 
219

Cabinetry Products
240

 
(59
)
 
181

 

 

 

 
181

Windows and Other Specialty Products
987

 
(734
)
 
253

 

 
(47
)
 
1

 
207

Total
$
2,040

 
$
(1,208
)
 
$
832

 
$
38

 
$
(47
)
 
$
18

 
$
841

                                                             
(A)
Additions consist of acquisitions.
(B)
Included within divestitures is the disposition of Moores in the Cabinetry Products segment, which includes $59 million of both gross goodwill and accumulated impairment losses, and the disposition of Arrow in the Windows and Other Specialty Products segment, which includes $270 million of gross goodwill and $223 million of accumulated impairment losses.
(C)
Other consists of the effect of foreign currency translation.
Other indefinite-lived intangible assets were $199 million and $140 million at December 31, 2018 and 2017, respectively, and principally included registered trademarks. As a result of our 2018 and 2017 acquisitions, other indefinite-lived intangible assets increased by $59 million and $5 million, respectively, as of the acquisition dates.
We completed our annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth quarters of 2018, 2017 and 2016. 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.



H. GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)
The carrying value of our definite-lived intangible assets was $207 million (net of accumulated amortization of $29 million) at December 31, 2018 and $47 million (net of accumulated amortization of $10 million) at December 31, 2017 and principally included customer relationships with a weighted average amortization period of 16 years in 2018 and 12 years in 2017. Amortization expense related to the definite-lived intangible assets was $20 million, $4 million and $4 million in 2018, 2017 and 2016, respectively. As a result of our 2018 and 2017 acquisitions, definite-lived intangible assets increased by $181 million and $26 million, respectively, as of the acquisition dates.
At December 31, 2018, amortization expense related to the definite-lived intangible assets during each of the next five years was as follows: 2019 – $24 million; 2020 – $23 million; 2021 – $16 million, 2022 – $12 million and 2023 –$11 million.
v3.10.0.1
OTHER ASSETS
12 Months Ended
Dec. 31, 2018
Other Assets, Noncurrent Disclosure [Abstract]  
OTHER ASSETS
OTHER ASSETS
 
(In Millions)
At December 31
 
2018
 
2017
Equity method investments
$
11

 
$
11

Private equity funds
1

 
2

In-store displays, net
20

 
31

Deferred tax assets (Note R)
42

 
45

Other
26

 
25

Total
$
100

 
$
114


We recognized amortization expense related to in-store displays of $21 million, $25 million and $25 million in 2018, 2017 and 2016, respectively. Cash spent for displays was $10 million, $14 million and $11 million in 2018, 2017 and 2016, respectively, and is included in other, net within investing activities on the consolidated statements of cash flows.
v3.10.0.1
ACCRUED LIABILITIES
12 Months Ended
Dec. 31, 2018
Accrued Liabilities, Current [Abstract]  
ACCRUED LIABILITIES
ACCRUED LIABILITIES
 
(In Millions)
At December 31
 
2018
 
2017
Salaries, wages and commissions
$
170

 
$
196

Advertising and sales promotion
173

 
158

Interest
40

 
42

Warranty (Note T)
65

 
59

Employee retirement plans
42

 
50

Insurance reserves
41

 
40

Property, payroll and other taxes
25

 
27

Dividends payable
36

 
33

Deferred revenue
41

 
32

Product returns
26

 
17

Other
91

 
73

Total
$
750

 
$
727

v3.10.0.1
DEBT
12 Months Ended
Dec. 31, 2018
Debt Disclosure [Abstract]  
DEBT
DEBT
 
(In Millions)
At December 31
 
2018
 
2017
Notes and debentures:
 

 
 

6.625%, due April 15, 2018
$

 
$
114

7.125%, due March 15, 2020
201

 
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

 
234

6.500%, due August 15, 2032
200

 
200

4.500%, due May 15, 2047
299

 
299

Other
38

 
33

Prepaid debt issuance costs
(17
)
 
(19
)
 
2,979

 
3,085

Less: Current portion
8

 
116

Total long-term debt
$
2,971

 
$
2,969


All of the notes and debentures above are senior indebtedness and, other than the 7.75% note due 2029, are redeemable at our option.
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 17, 2016, we issued $400 million of 3.5% Notes due April 1, 2021 and $500 million of 4.375% Notes due April 1, 2026. We received proceeds of $896 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 April 15, 2016, proceeds from the debt issuances, together with cash on hand, were used to repay and early retire all of our $1 billion, 6.125% Notes which were due on October 3, 2016 and all of our $300 million, 5.85% Notes which were due on March 15, 2017. In connection with these early retirements, we incurred a loss on debt extinguishment of $40 million, which was recorded as interest expense.
On March 28, 2013, we entered into a credit agreement (the "Credit Agreement") with a bank group, with an aggregate commitment of $1.25 billion and a maturity date of March 28, 2018. On May 29, 2015 and August 28, 2015, we amended the Credit Agreement with the bank group (the "Amended Credit Agreement"). The Amended Credit Agreement reduces the aggregate commitment to $750 million and extends the maturity date to May 29, 2020. Under the Amended Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $375 million with the current bank group or new lenders.



K. DEBT (Concluded)
The Amended Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries, in U.S. dollars, European euros and certain other currencies. Borrowings under the revolver denominated in euros are limited to $500 million, equivalent. We can also borrow swingline loans up to $75 million and obtain letters of credit of up to $100 million; any outstanding letters of credit under the Amended Credit Agreement reduce our borrowing capacity. At December 31, 2018, we had no of outstanding standby letters of credit under the Amended Credit Agreement.
Revolving credit loans bear interest under the Amended Credit Agreement, at our option, at (A) a rate per annum equal to the greater of (i) the prime rate, (ii) the Federal Funds effective rate plus 0.50% and (iii) LIBOR plus 1.0% (the "Alternative Base Rate"); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) LIBOR plus an applicable margin based upon our then-applicable corporate credit ratings. The foreign currency revolving credit loans bear interest at a rate equal to LIBOR plus an applicable margin based upon our then-applicable corporate credit ratings.
The Amended Credit Agreement contains financial covenants requiring us to maintain (A) a maximum net leverage ratio, as adjusted for certain items, of 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, equal to or greater than 2.5 to 1.0.
In order for us to borrow under the Amended Credit Agreement, there must not be any default in our covenants in the Amended Credit Agreement (i.e., in addition to the two financial covenants, principally limitations on subsidiary debt, negative pledge restrictions, legal compliance requirements and maintenance of properties and insurance) and our representations and warranties in the Amended Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since December 31, 2014, in each case, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and no borrowings have been made at December 31, 2018.
At December 31, 2018, the debt maturities during each of the next five years were as follows: 2019 – $8 million; 2020$203 million; 2021 – $402 million; 2022 – $329 million and 2023 – $3 million.
Interest paid was $155 million, $175 million and $198 million in 2018, 2017 and 2016, respectively. These amounts exclude $104 million and $40 million of debt extinguishment costs related to the early retirement of debt, which were recorded as interest expense and paid in 2017 and 2016, 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 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. The aggregate estimated market value of our short-term and long-term debt at December 31, 2017 was approximately $3.3 billion, compared with the aggregate carrying value of $3.1 billion.
v3.10.0.1
STOCK-BASED COMPENSATION
12 Months Ended
Dec. 31, 2018
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, 2018, outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, phantom stock awards and stock appreciation rights.
Pre-tax compensation expense (income) for these stock-based incentives was as follows, in millions:
 
2018
 
2017
 
2016
Long-term stock awards
$
23

 
$
24

 
$
23

Stock options
3

 
3

 
2

Restricted stock units
4

 
2

 

Phantom stock awards and stock appreciation rights
(3
)
 
9

 
4

Total
$
27

 
$
38

 
$
29


At December 31, 2018, 14.7 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 715,380 shares of long-term stock awards during 2018.
Our long-term stock award activity was as follows, shares in millions:

 
2018
 
2017
 
2016
Unvested stock award shares at January 1
3

 
4

 
5

Weighted average grant date fair value
$
24

 
$
20

 
$
17

Stock award shares granted
1

 
1

 
1

Weighted average grant date fair value
$
41

 
$
34

 
$
26

Stock award shares vested
2

 
2

 
2

Weighted average grant date fair value
$
21

 
$
18

 
$
16

Stock award shares forfeited

 

 

Weighted average grant date fair value
$
31

 
$
24

 
$
20

Unvested stock award shares at December 31
2

 
3

 
4

Weighted average grant date fair value
$
30

 
$
24

 
$
20


At December 31, 2018, 2017 and 2016, there was $46 million, $46 million and $43 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, 2018, 2017 and 2016.
The total market value (at the vesting date) of stock award shares which vested during 2018, 2017 and 2016 was $56 million, $45 million and $43 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 400,220 shares of stock options during 2018 with a grant date weighted-average exercise price of approximately $42 per share. During 2018, 68,927 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:
 
2018
 
2017
 
2016
Option shares outstanding, January 1
5

 
7

 
12

Weighted average exercise price
$
16

 
$
15

 
$
17

Option shares granted

 

 

Weighted average exercise price
$
42

 
$
34

 
$
26

Option shares exercised
1

 
2

 
5

Aggregate intrinsic value on date of exercise (A)
$
55
 million
 
$
47
 million
 
$
64
 million
Weighted average exercise price
$
11

 
$
15

 
$
21

Option shares forfeited

 

 

Weighted average exercise price
$
31

 
$

 
$

Option shares outstanding, December 31
4

 
5

 
7

Weighted average exercise price
$
21

 
$
16

 
$
15

Weighted average remaining option term (in years)
5
 
4
 
4
Option shares vested and expected to vest, December 31
4

 
5

 
7

Weighted average exercise price
$
21

 
$
16

 
$
15

Aggregate intrinsic value (A)
$
36
 million
 
$
147
 million
 
$
118
 million
Weighted average remaining option term (in years)
5
 
4
 
4
Option shares exercisable (vested), December 31
3

 
4

 
6

Weighted average exercise price
$
16

 
$
13

 
$
13

Aggregate intrinsic value (A)
$
34
 million
 
$
123
 million
 
$
102
 million
Weighted average remaining option term (in years)
4
 
3
 
3
                                                                     
(A)
Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.
At December 31, 2018, 2017 and 2016, there was $8 million, $7 million and $6 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of three years at December 31, 2018, 2017 and 2016.
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:
 
2018
 
2017
 
2016
Weighted average grant date fair value
$
12.34

 
$
9.68

 
$
6.43

Risk-free interest rate
2.72
%
 
2.16
%
 
1.41
%
Dividend yield
1.02
%
 
1.19
%
 
1.49
%
Volatility factor
29.00
%
 
30.00
%