MASCO CORP /DE/, 10-K filed on 2/12/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2015
Jan. 31, 2016
Jun. 30, 2015
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
MASCO CORP /DE/ 
 
 
Entity Central Index Key
0000062996 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2015 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 9,059,896,000 
Entity Common Stock, Shares Outstanding
 
333,931,600 
 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
FY 
 
 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash investments
$ 1,468 
$ 1,379 
Short-term bank deposits
248 
306 
Receivables
853 
820 
Inventories
687 
712 
Prepaid expenses and other
72 
68 
Assets held for sale
 
335 
Total current assets
3,328 
3,620 
Property and equipment, net
1,027 
1,046 
Goodwill
839 
840 
Other intangible assets, net
160 
142 
Other assets
326 
419 
Assets held for sale
 
1,141 
Total Assets
5,680 
7,208 
Current Liabilities:
 
 
Accounts payable
749 
721 
Notes payable
1,005 
505 
Accrued liabilities
752 
685 
Liabilities held for sale
 
300 
Total current liabilities
2,506 
2,211 
Long-term debt
2,418 
2,919 
Other liabilities
698 
781 
Liabilities held for sale
 
169 
Total Liabilities
5,622 
6,080 
Commitments and contingencies (Note U)
   
   
Masco Corporation's shareholders' equity
 
 
Common shares authorized: 1,400,000,000; issued and outstanding: 2015 - 000,000,000; 2014 - 345,000,000
330 
345 
Preferred shares authorized: 1,000,000; issued and outstanding: 2015 - None; 2014 - None
   
   
Retained (deficit) earnings
(300)
690 
Accumulated other comprehensive loss
(165)
(111)
Total Masco Corporation's shareholders' (deficit) equity
(135)
924 
Noncontrolling interest
193 
204 
Total Equity
58 
1,128 
Total Liabilities and Equity
$ 5,680 
$ 7,208 
CONSOLIDATED BALANCE SHEETS (Parenthetical)
Dec. 31, 2015
Dec. 31, 2014
CONSOLIDATED BALANCE SHEETS
 
 
Common shares, shares authorized
1,400,000,000 
1,400,000,000 
Common shares, shares issued
330,500,000 
345,000,000 
Common shares, shares outstanding
330,500,000 
345,000,000 
Preferred shares, shares authorized
1,000,000 
1,000,000 
Preferred shares, shares issued
Preferred shares, shares outstanding
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
Net sales
$ 7,142 
$ 7,006 
$ 6,761 
Cost of sales
4,889 
4,946 
4,802 
Gross profit
2,253 
2,060 
1,959 
Selling, general and administrative expenses
1,339 
1,347 
1,347 
Income from litigation settlements
 
(9)
 
Impairment charges for other intangible assets
 
 
Operating profit
914 
721 
612 
Other income (expense), net:
 
 
 
Interest expense
(225)
(225)
(235)
Other, net
 
11 
Total other income (expense), net
(225)
(214)
(226)
Income from continuing operations before income taxes
689 
507 
386 
Income tax expense (benefit)
293 
(361)
86 
Income from continuing operations
396 
868 
300 
(Loss) income from discontinued operations, net
(2)
35 
29 
Net income
394 
903 
329 
Less: Net income attributable to noncontrolling interest
39 
47 
41 
Net income attributable to Masco Corporation
355 
856 
288 
Basic:
 
 
 
Income from continuing operations (in dollars per share)
$ 1.04 
$ 2.31 
$ 0.72 
(Loss) income from discontinued operations, net
$ (0.01)
$ 0.10 
$ 0.08 
Net income (in dollars per share)
$ 1.03 
$ 2.40 
$ 0.80 
Diluted:
 
 
 
Income from continuing operations (in dollars per share)
$ 1.03 
$ 2.28 
$ 0.72 
(Loss) income from discontinued operations, net
$ (0.01)
$ 0.10 
$ 0.08 
Net income (in dollars per share)
$ 1.02 
$ 2.38 
$ 0.80 
Amounts attributable to Masco Corporation:
 
 
 
Income from continuing operations
357 
821 
259 
(Loss) income from discontinued operations, net
(2)
35 
29 
Net income attributable to Masco Corporation
$ 355 
$ 856 
$ 288 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
 
Net income
$ 394 
$ 903 
$ 329 
Less: Net income attributable to noncontrolling interest
39 
47 
41 
Net income attributable to Masco Corporation
355 
856 
288 
Other comprehensive (loss) income, net of tax (see Note O):
 
 
 
Cumulative translation adjustment
(96)
(124)
(75)
Interest rate swaps
Pension and other post-retirement benefits
26 
(140)
138 
Other comprehensive (loss) income
(68)
(263)
65 
Less: Other comprehensive (loss) income attributable to the noncontrolling interest:
 
 
 
Cumulative translation adjustment
(16)
(31)
Pension and other post-retirement benefits
(6)
Less: Other comprehensive (loss) income attributable to noncontrolling interest
(14)
(37)
Other comprehensive (loss) income attributable to Masco Corporation
(54)
(226)
56 
Total comprehensive income (loss)
326 
640 
394 
Less: Total comprehensive income attributable to noncontrolling interests
25 
10 
50 
Total comprehensive income attributable to Masco Corporation
$ 301 
$ 630 
$ 344 
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
 
 
 
Net income (loss)
$ 394 
$ 903 
$ 329 
Depreciation and amortization
133 
167 
186 
Display amortization
20 
15 
19 
Deferred income taxes
212 
(406)
42 
Non-cash loss on disposition of businesses, net
 
15 
(Gain) on disposition of investments, net
(7)
(2)
(10)
Pension and other postretirement benefits
(18)
(36)
(23)
Impairment of property and equipment, net
27 
 
Stock-based compensation
41 
47 
54 
(Increase) in receivables
(104)
(81)
(85)
Decrease (increase) in inventories
17 
(75)
(24)
Increase in accounts payable and accrued liabilities, net
82 
63 
147 
Other items, net
(73)
(22)
(5)
Net cash from operating activities
699 
602 
645 
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
 
 
 
Retirement of notes
(500)
 
(200)
Purchase of Company common stock
(456)
(158)
(35)
Cash dividends paid
(126)
(117)
(107)
Dividends paid to noncontrolling interest
(36)
(34)
(34)
Cash distributed to TopBuild Corp.
(63)
 
 
Issuance of TopBuild Corp. debt
200 
 
 
Issuance of notes, net of issuance costs
497 
 
 
Increase in debt
Issuance of Company common stock
 
Excess tax benefit from stock-based compensation
75 
13 
 
Payment of debt
(4)
(6)
(5)
Credit Agreement and other financing costs
(3)
 
(4)
Net cash for financing activities
(410)
(297)
(382)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(158)
(128)
(126)
Acquisition of businesses, net of cash acquired
(41)
(2)
(7)
Proceeds from disposition of:
 
 
 
Short-term bank deposits
279 
379 
411 
Businesses, net of cash disposed
 
 
17 
Property and equipment
18 
16 
27 
Other financial investments
10 
64 
16 
Purchases of:
 
 
 
Other financial investments
(1)
(1)
(1)
Short-term bank deposits
(253)
(399)
(409)
Other, net
(43)
(29)
(5)
Net cash for investing activities
(189)
(100)
(77)
Effect of exchange rate changes on cash and cash investments
(15)
(45)
(3)
CASH AND CASH INVESTMENTS:
 
 
 
Increase for the year
85 
160 
183 
At January 1
1,383 
1,223 
1,040 
At December 31
$ 1,468 
$ 1,383 
$ 1,223 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $)
In Millions, unless otherwise specified
Common Shares ($1 par value)
Paid-In Capital
Retained Earnings (Deficit)
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interest
Total
Balance at Dec. 31, 2012
$ 349 
$ 16 
$ (94)
$ 59 
$ 212 
$ 542 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Total comprehensive income (loss)
 
 
288 
56 
50 
394 
Shares issued
(11)
 
 
 
(8)
Shares retired:
 
 
 
 
 
 
Repurchased
(2)
(11)
(22)
 
 
(35)
Surrendered (non-cash)
(1)
(11)
 
 
 
(12)
Cash dividends declared
 
(14)
(93)
 
 
(107)
Dividends paid to noncontrolling interest
 
 
 
 
(34)
(34)
Stock-based compensation
 
47 
 
 
 
47 
Balance at Dec. 31, 2013
349 
16 
79 
115 
228 
787 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Total comprehensive income (loss)
 
 
856 
(226)
10 
640 
Shares issued
(9)
 
 
 
(6)
Shares retired:
 
 
 
 
 
 
Repurchased
(7)
(28)
(123)
 
 
(158)
Surrendered (non-cash)
 
(15)
 
 
 
(15)
Cash dividends declared
 
 
(122)
 
 
(122)
Dividends paid to noncontrolling interest
 
 
 
 
(34)
(34)
Stock-based compensation
 
36 
 
 
 
36 
Balance at Dec. 31, 2014
345 
 
690 
(111)
204 
1,128 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Total comprehensive income (loss)
 
 
355 
(54)
25 
326 
Shares issued
(18)
 
 
 
(15)
Shares retired:
 
 
 
 
 
 
Repurchased
(17)
(65)
(374)
 
 
(456)
Surrendered (non-cash)
(1)
 
(17)
 
 
(18)
Cash dividends declared
 
 
(126)
 
 
(126)
Dividends paid to noncontrolling interest
 
 
 
 
(36)
(36)
Separation of TopBuild Corp.
 
 
(828)
 
 
(828)
Stock-based compensation
 
83 
 
 
 
83 
Balance at Dec. 31, 2015
$ 330 
 
$ (300)
$ (165)
$ 193 
$ 58 
ACCOUNTING POLICIES
ACCOUNTING POLICIES

A. ACCOUNTING POLICIES 

        Principles of Consolidation.    The consolidated financial statements include the accounts of Masco Corporation and all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. 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 and disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions.

        Revenue Recognition.    We recognize revenue as title to products and risk of loss is transferred to customers or when services are rendered, net of applicable provisions for discounts, returns and allowances. Amounts billed for shipping and handling are included in net sales, while costs incurred for shipping and handling are included in cost of sales.

        Customer Promotion Costs.    We record estimated reductions to revenue for customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. In-store displays that are owned by 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 statements 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 income (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.    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 approximates fair value at December 31, 2015 and 2014. 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. During downturns in our markets, declines in the financial condition and creditworthiness of customers impacts the credit risk of the receivables involved and we have incurred additional bad debt expense related to customer defaults. A separate allowance is recorded for customer incentive rebates and is generally based upon sales activity. Receivables are presented net of certain allowances (including allowances for doubtful accounts) of $41 million at both December 31, 2015 and 2014.

        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 an event occurs or circumstances change that would more likely than not reduce the fair value of the property and equipment below the carrying amount. If the carrying amount of property and equipment is not recoverable from its undiscounted cash flows, then 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, and machinery and equipment, 5 to 33 percent. Depreciation expense was $116 million, $132 million and $147 million in 2015, 2014 and 2013, respectively. Such depreciation expense included accelerated depreciation of $1 million (in the Cabinets and Related Products segment) and $13 million (primarily in the Cabinets and Related Products and Plumbing Products segments) in 2014 and 2013, 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).

        Determining market values using a discounted cash flow method 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. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different estimates and assumptions could result in different outcomes. In estimating future cash flows, we rely on internally generated five-year forecasts for sales and operating profits, including capital expenditures, and, currently, a one 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 8.5 percent as the basis to determine the discount rate to apply to the estimated future cash flows. Our weighted average cost of capital decreased in 2015 as compared to 2014 due to less risk associated with our stock in relation to the capital markets. In 2015, 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 10.5 percent to 12.5 percent for our reporting units.

        If the carrying amount of a reporting unit exceeds its fair value, we measure the possible goodwill impairment based upon an allocation of the estimate of fair value of the reporting unit to all of the underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible assets (Step Two Analysis). The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the extent that a reporting unit's recorded goodwill exceeds the implied fair value of goodwill.

        We review our other indefinite-lived intangible assets for impairment annually in the fourth quarter of each year, or as events occur or circumstances change that indicate the assets may be impaired without regard to the business unit. 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.

        Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful lives. We evaluate the remaining useful lives of amortizable intangible assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining periods of amortization. See Note H for additional information regarding Goodwill and Other intangible assets.

        Fair Value Accounting.    We follow accounting guidance for our financial investments and liabilities, which defines fair value, establishes a framework for measuring fair value and prescribes disclosures about fair value measurements. We also follow this guidance for our non-financial investments and liabilities.

        The fair value of financial investments and liabilities is determined at each balance sheet date and future declines in market conditions, the future performance of the underlying investments or new information could affect the recorded values of our investments in marketable securities, private equity funds and other private investments.

        We use derivative financial instruments to manage certain exposure to fluctuations in earnings and cash flows resulting from changes in foreign currency exchange rates, commodity costs and interest rate exposures. Derivative financial instruments are recorded in the consolidated balance sheets as either an asset or liability measured at fair value, netted by counterparty, where the right of offset exists. For derivative instruments not designated as hedging instruments, the gain or loss is recognized in determining current earnings during the period of the change in fair value.

        Warranty.    At the time of sale, we accrue a warranty liability for the estimated cost to provide products, parts or services to repair or replace products in satisfaction of warranty obligations. Our estimate of 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 aforementioned factors. We believe that the warranty accrual is appropriate; however, actual claims incurred could differ from the original estimates thereby requiring adjustments to previously established accruals.

        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 deductions are recorded 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.

        Stock-Based Compensation.    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 to 10 years, or the length of time until the grantee becomes retirement-eligible 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 at age 65. We utilize the shortcut method to determine the tax windfall pool associated with stock options.

        Noncontrolling Interest.    We own 68 percent of Hansgrohe SE at both December 31, 2015 and 2014. The aggregate noncontrolling interest, net of dividends, at December 31, 2015 and 2014 has been recorded as a component of equity on our consolidated balance sheets.

        Interest and Penalties on Uncertain Tax Positions.    We record interest and penalties on our uncertain tax positions in income tax expense (benefit).

        Reclassifications.    Certain prior year amounts have been reclassified to conform to the 2015 presentation in the consolidated financial statements. In our consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified.

        Recently Issued Accounting Pronouncements.    In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-8 ("ASU 2014-08"), "Reporting of Discontinued Operations and Disclosure of Disposals of Components of an Entity," which changes the criteria for determining which disposals can be presented as discontinued operations and modifies the related disclosure requirements. We adopted this guidance beginning January 1, 2015. The adoption of this new guidance did not have a material impact on our financial position or our results of operations.

        In November 2015, the FASB issued Accounting Standards Update 2015-17 ("ASU 2015-17"), "Balance Sheet Classification of Deferred Taxes," which changes the criteria for classifying deferred tax balances by requiring all deferred taxes be presented as noncurrent on the balance sheet. We retrospectively adopted this guidance on December 31, 2015. As a result of the retrospective adoption of this standard, current assets decreased by $244 million, non-current assets increased by $219 million and non-current liabilities decreased by $25 million as of December 31, 2014.

        In May 2014, FASB issued a new standard for revenue recognition, Accounting Standards Codification 606 ("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. ASC 606 is effective for us for annual periods beginning January 1, 2018. We are currently evaluating the impact the adoption of this new standard will have on our results of operations.

        In February 2015, the FASB issued Accounting Standards Update 2015-02 ("ASU 2015-02") "Consolidation (Topic 810) – Amendments to the Consolidations Analysis," which modifies certain aspects of both the variable interest entities and voting interest entities models. ASU 2015-02 is effective for us for annual periods beginning January 1, 2016. We do not expect that the adoption will have a significant impact on our financial position or our results of operations.

        In April 2015, the FASB issued Accounting Standards Update 2015-03 ("ASU 2015-03") "Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs," that requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. In August 2015, the FASB issued ASU 2015-15 to clarify that debt issuance costs related to line-of-credit arrangements may remain classified as an asset. Both ASU 2015-03 and ASU 2015-15 are effective for us for annual periods beginning January 1, 2016. We do not expect that the adoptions will have a significant impact on our financial position.

DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS

B. DISCONTINUED OPERATIONS 

        The presentation of discontinued operations includes a component or group of components that we have or intend to dispose of, and represents a strategic shift that has (or will have) a major effect on our operations and financial results. For spin off transactions, discontinued operations treatment is appropriate following the completion of the spin off.

        On September 30, 2014, we announced a plan to spin off 100 percent of our Installation and Other Services businesses into an independent, publicly-traded company named TopBuild Corp. ("TopBuild") through a tax-free distribution of the stock of TopBuild to our stockholders. We initiated the spin off as TopBuild was no longer considered core to our long-term growth strategy in branded building products. On June 30, 2015, immediately prior to the effective time of the spin off, TopBuild paid a cash distribution to us of $200 million using the proceeds of its new debt financing arrangement. This transaction was reported as a financing activity in the consolidated statements of cash flows.

        We have accounted for the spin off of TopBuild as a discontinued operation. (Losses) gains from this discontinued operation were included in (loss) income from discontinued operations, net, in the consolidated statements of operations.

        In February 2013, we determined that Tvilum, our Danish ready-to-assemble cabinet business, was no longer core to our long-term growth strategy and, accordingly, we embarked on a plan for disposition. In December 2013, we completed the disposition of this business and a related Danish holding company for net proceeds of $17 million.

        We have accounted for Tvilum as a discontinued operation. Losses from this discontinued operation were included in (loss) income from discontinued operations, net, in the consolidated statements of operations.

        The major classes of line items constituting pre-tax (loss) profit of the discontinued operations, in millions:

                                                                                                                                                                                    

 

 

Year Ended December 31

 

 

 

2015

 

2014

 

2013

 

Net sales (1)

 

$

762

 

$

1,515

 

$

1,412

 

Cost of sales (1)

 

 

603

 

 

1,188

 

 

1,116

 

​  

​  

​  

​  

​  

​  

Gross profit (1)

 

 

159

 

 

327

 

 

296

 

Selling, general and administrative expenses (1)

 

 

148

 

 

259

 

 

232

 

​  

​  

​  

​  

​  

​  

Income from discontinued operations

 

$

11

 

$

68

 

$

64

 

Other discontinued operations results:

 

 


 

 

 


 

 

 


 

 

(Loss) gain on disposal of discontinued operations, net (2)

 

 

(1

)

 

(6

)

 

3

 

Operating loss from discontinued operations (3)

 

 

 

 

 

 

(7

)

Impairment of assets held for sale (4)

 

 

 

 

 

 

(10

)

​  

​  

​  

​  

​  

​  

Income before income tax

 

 

10

 

 

62

 

 

50

 

Income tax expense (5)

 

 

(12

)

 

(27

)

 

(21

)

​  

​  

​  

​  

​  

​  

(Loss) income from discontinued operations, net

 

$

(2

)

$

35

 

$

29

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  


 

 

(1)          

Net sales, cost of sales, gross profit, and selling, general and administrative expenses reflect the results of TopBuild.

(2)          

Included in (loss) gain on disposal of discontinued operations, net in 2014 are additional costs and charges related to the 2013 sale of Tvilum.

(3)          

Operating loss from discontinued operations reflects the results of Tvilum, including net sales of $265 million in 2013.

(4)          

Included in impairment of assets held for sale in 2013 is the impairment of fixed assets. During 2013, we estimated the fair value of the Tvilum business held for sale, using unobservable inputs (Level 3). After considering the currency translation gains reported in accumulated other comprehensive income (loss), we recorded an impairment of $10 million in 2013.

(5)          

The unusual relationship between income tax expense and income before income tax for 2015 resulted primarily from certain non-deductible transaction costs related to the spin off of TopBuild.

 

        The carrying amount of major classes of assets and liabilities included as part of the TopBuild discontinued operations, in millions:

                                                                                                                                                                                    

 

 

At December 31,

 

 

 

2015

 

2014

 

Cash

 

$

 

$

 

Receivables

 

 

 

 

220 

 

Inventories

 

 

 

 

107 

 

Prepaid expenses and other

 

 

 

 

 

Property and equipment, net

 

 

 

 

93 

 

Goodwill

 

 

 

 

1,044 

 

Other intangible assets, net

 

 

 

 

 

Other assets

 

 

 

 

 

​  

​  

​  

​  

Total assets classified as held for sale

 

$

 

$

1,476 

 

​  

​  

​  

​  

​  

​  

​  

​  

Accounts payable

 

 

 

$

229 

 

Accrued liabilities

 

 

 

 

71 

 

Other liabilities

 

 

 

 

40 

 

Deferred income taxes

 

 

 

 

129 

 

​  

​  

​  

​  

Total liabilities classified as held for sale

 

$

 

$

469 

 

​  

​  

​  

​  

​  

​  

​  

​  

        Other selected financial information for TopBuild during the period owned by us, were as follows, in millions:

                                                                                                                                                                                    

 

 

Year Ended Dec. 31

 

 

 

2015

 

2014

 

2013

 

Depreciation and amortization

 

$

 

$

26 

 

$

27 

 

Capital expenditures

 

$

 

$

13 

 

$

14 

 

        In conjunction with the spin off, we have entered into a Transition Services Agreement with TopBuild to provide TopBuild 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.

ACQUISITIONS
ACQUISITIONS

C. ACQUISITIONS 

        In the second quarter of 2015, we acquired a U.K. window business for approximately $16 million in cash in the Other Specialty Products segment. This acquisition will support our U.K. window business' growth strategy by expanding its product offerings into timber-alternative windows and doors.

        In the first quarter of 2015, we acquired an aquatic fitness business for approximately $25 million in cash in the Plumbing Products segment. This acquisition will allow our spa business to expand its wellness products platform, open new channels of distribution and access a new customer base.

        In the first quarter of 2013, we acquired a small U.K. door business in the Other Specialty Products segment. The total net cash purchase price was $4 million.

        These acquisitions are not material to us. The results of these acquisitions are included in the consolidated financial statements from the date of their respective acquisition.

INVENTORIES
INVENTORIES

D. INVENTORIES 

                                                                                                                                                                                    

 

 

(In Millions)

 

 

 

At December 31

 

 

 

2015

 

2014

 

Finished goods

 

$

358 

 

$

361 

 

Raw material

 

 

238 

 

 

251 

 

Work in process

 

 

91 

 

 

100 

 

​  

​  

​  

​  

Total

 

$

687 

 

$

712 

 

​  

​  

​  

​  

​  

​  

​  

​  

        Inventories, which include purchased parts, materials, direct labor and applied manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined by use of the first-in, first-out method.

FAIR VALUE OF FINANCIAL INVESTMENTS AND LIABILITIES
FAIR VALUE OF FINANCIAL INVESTMENTS AND LIABILITIES

E. FAIR VALUE OF FINANCIAL INVESTMENTS AND LIABILITIES 

        Accounting Policy.    We follow accounting guidance that defines fair value, establishes a framework for measuring fair value and prescribes disclosures about fair value measurements for financial investments and liabilities. The guidance defines fair value as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date." Further, it defines a fair value hierarchy, as follows: Level 1 inputs as quoted prices in active markets for identical assets or liabilities; Level 2 inputs as observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities or other inputs that are observable or can be corroborated by market data; and Level 3 inputs as unobservable inputs that are supported by little or no market activity and that are financial instruments whose value is determined using pricing models or instruments for which the determination of fair value requires significant management judgment or estimation.

        Financial investments that are available to be traded on readily accessible stock exchanges (domestic or foreign) are considered to have active markets and have been valued using Level 1 inputs. Financial investments that are not available to be traded on a public market or have limited secondary markets, or contain provisions that limit the ability to sell the investment are considered to have inactive markets and have been valued using Level 2 or 3 inputs. We incorporated credit risk into the valuations of financial investments by estimating the likelihood of non-performance by the counterparty to the applicable transactions. The estimate included the length of time relative to the contract, financial condition of the counterparty and current market conditions. The criteria for determining if a market was active or inactive were based on the individual facts and circumstances.

        Financial Investments.    We have maintained investments in available-for-sale securities, equity method investments, and a number of private equity funds and other private investments, principally as part of our tax planning strategies, as any gains enhance the utilization of any current and future tax capital losses.

        Financial investments included in other assets were as follows, in millions:

                                                                                                                                                                                    

 

 

At December 31

 

 

 

2015

 

2014

 

Auction rate securities

 

$

22 

 

$

22 

 

​  

​  

​  

​  

Total recurring investments

 

 

22 

 

 

22 

 

Equity method investments

 

 

13 

 

 

11 

 

Private equity funds

 

 

10 

 

 

14 

 

Other investments

 

 

 

 

 

​  

​  

​  

​  

Total

 

$

48 

 

$

50 

 

​  

​  

​  

​  

​  

​  

​  

​  

        Auction Rate Securities.    Our investments in available-for-sale securities included cost basis of $19 million and pre-tax unrealized gains of $3 million and had a recorded basis of $22 million at both December 31, 2015 and 2014.

        Equity Method Investments.    Investments in private equity fund partnerships, joint ventures and less than majority-owned subsidiaries in which we have significant influence are accounted for under the equity method. Our consolidated statements of operations include our proportionate share of the net income (loss) of our equity method investees. When we record our proportionate share of net income (loss), it increases (decreases) our equity income in our consolidated statement of operations and our carrying value of that investment on our consolidated balance sheet.

        During the fourth quarter of 2014, we sold our investment in the private equity fund, Long Point Capital Fund II L.P. (accounted for as an equity method investment) for proceeds of $48 million, which approximated net book value. Such proceeds are included in the consolidated statements of cash flows in proceeds from other financial investments, in the investing activities section.

        Private Equity Funds and Other Investments.    Our investments in private equity funds and other private investments, where we do not have significant influence, are carried at cost.

        Recurring Fair Value Measurements.    For financial investments measured at fair value on a recurring basis at each reporting period, the unrealized gains or losses (that are deemed to be temporary) are recognized, net of tax effect, through shareholders' equity, as a component of other comprehensive income (loss). Realized gains and losses and charges for other-than-temporary impairments are included in determining net income, with related purchase costs based upon specific identification.

        In the past, we invested excess cash in auction rate securities. Auction rate securities are investment securities that have interest rates which are reset every 7, 28 or 35 days. The fair values of the auction rate securities held by us have been estimated, on a recurring basis, using a discounted cash flow model (Level 3 input). The significant inputs in the discounted cash flow model used to value the auction rate securities include: expected maturity of auction rate securities, discount rate used to determine the present value of expected cash flows and assumptions for credit defaults, since the auction rate securities are backed by credit default swap agreements.

        There were no changes in the fair value of Level 3 financial investments for the years ended December 31, 2015 or 2014.

        Non-Recurring Fair Value Measurements.    It is not practicable for us to estimate the fair value of equity method investments or private equity funds and other private investments where we do not have significant influence, because there are no quoted market prices and sufficient information is not readily available for us to utilize a valuation model to determine the fair value for each fund. Due to the significant unobservable inputs, the fair value measurements used to evaluate impairment are a Level 3 input. These investments are evaluated, on a non-recurring basis, for potential other-than-temporary impairment when impairment indicators are present, or when an event or change in circumstances has occurred, that may have a significant adverse effect on the fair value of the investment.

        There were no financial investments measured for impairment on a non-recurring basis during 2015, 2014 or 2013.

        We did not have any transfers between Level 1 and Level 2 financial assets in 2015 or 2014.

        Realized Gains (Losses).    Income from financial investments, net, included in other, net, within other income (expense), net, was as follows, in millions:

                                                                                                                                                                                    

 

 

2015

 

2014

 

2013

 

Equity investment income (loss), net

 

$

2

 

$

(2

)

$

16

 

Realized gains from private equity funds

 

 

6

 

 

4

 

 

11

 

​  

​  

​  

​  

​  

​  

Income from financial investments, net

 

$

8

 

$

2

 

$

27

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        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 or the current rates available to us for debt with similar terms and remaining maturities. The aggregate estimated market value of short-term and long-term debt at December 31, 2015 was approximately $3.6 billion, compared with the aggregate carrying value of $3.4 billion. The aggregate estimated market value of short-term and long-term debt at December 31, 2014 was approximately $3.7 billion, compared with the aggregate carrying value of $3.4 billion.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

F. 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 include interest rate swap agreements, foreign currency exchange contracts and contracts intended to hedge our exposure to copper and zinc. 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 approximately $2 million loss was recognized in our consolidated statement of operations in other, net. The remaining loss of approximately $23 million from the termination of these swaps is being amortized as an increase to interest expense over the remaining term of the debt, through March 2022. At December 31, 2015, the balance remaining in accumulated other comprehensive loss was $16 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, entered 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.    We have entered into several 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,

 

 

 

2015

 

2014

 

2013

 

Foreign currency contracts

 

 

 

 

 

 

 

 

 

 

Exchange contracts

 

$

4

 

$

5

 

$

2

 

Forward contracts

 

 

(3

)

 

 

 

1

 

Metals contracts

 

 

(17


)

 

(3


)

 

(7


)

Interest rate swaps

 

 

(2

)

 

(2

)

 

(2

)

​  

​  

​  

​  

​  

​  

Total

 

$

(18

)

$

 

$

(6

)

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

 

        We present our net derivatives due to the right of offset by our counterparties under master netting arrangements in the consolidated balance sheets. The notional amounts being hedged and the fair value of those derivative instruments are as follows, in millions:

                                                                                                                                                                                    

 

 

At December 31, 2015

 

 

 

Notional
Amount

 

Balance Sheet

 

Foreign currency contracts

 

 

 

 

 

 

 

Exchange contracts

 

$

39

 

 

 

 

Receivables

 

 

 

 

$

1

 

Forward contracts

 

 

30

 

 

 

 

Accrued liabilities

 

 

 

 

 

(2

)

Other liabilities

 

 

 

 

 

(1

)

Metals contracts

 

 

50

 

 

 

 

Accrued liabilities

 

 

 

 

 

(10

)

 

                                                                                                                                                                                    

 

 

At December 31, 2014

 

 

 

Notional
Amount

 

Balance Sheet

 

Foreign currency contracts

 

 

 

 

 

 

 

Exchange contracts

 

$

55

 

 

 

 

Receivables

 

 

 

 

$

6

 

Forward contracts

 

 

79

 

 

 

 

Other assets

 

 

 

 

 

2

 

Accrued liabilities

 

 

 

 

 

(1

)

Metals contracts

 

 

70

 

 

 

 

Accrued liabilities

 

 

 

 

 

(2

)

        The fair value of all foreign currency and metals derivative contracts is estimated on a recurring basis, quarterly, using Level 2 inputs.

PROPERTY AND EQUIPMENT
PROPERTY AND EQUIPMENT

G. PROPERTY AND EQUIPMENT 

                                                                                                                                                                                    

 

 

(In Millions)

 

 

 

At December 31

 

 

 

2015

 

2014

 

Land and improvements

 

$

115

 

$

122

 

Buildings

 

 

672

 

 

715

 

Machinery and equipment

 

 

1,787

 

 

1,790

 

​  

​  

​  

​  

 

 

 

2,574

 

 

2,627

 

Less: Accumulated depreciation

 

 

(1,547

)

 

(1,581

)

​  

​  

​  

​  

Total

 

$

1,027

 

$

1,046

 

​  

​  

​  

​  

​  

​  

​  

​  

 

        We lease certain equipment and plant facilities under noncancellable operating leases. Rental expense recorded in the consolidated statements of operations totaled approximately $60 million, $63 million and $59 million during 2015, 2014 and 2013, respectively.

        At December 31, 2015, future minimum lease payments were as follows, in millions:

                                                                                                                                                                                    

2016

 

$

38 

 

2017

 

 

27 

 

2018

 

 

20 

 

2019

 

 

16 

 

2020

 

 

11 

 

2021 and beyond

 

 

65 

 

        As a result of our business rationalization activities, over the last several years we were holding several facilities for sale. The net book value of facilities held for sale was approximately $2 million and $17 million, included in property and equipment, net, in the consolidated balance sheets, as of December 31, 2015 and 2014, respectively.

        During 2014, we decided to sell two facilities in our Cabinets and Related Products segment, and we recorded a charge of $28 million, included in cost of sales in the consolidated statement of operations, to reflect the estimated fair value of those two facilities. Fair value was estimated using a market approach, considering the estimated fair values for other comparable buildings in the areas where the facilities are located (Level 3 inputs). These facilities were considered held for sale as of December 31, 2014 and were sold in 2015.

GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL AND OTHER INTANGIBLE ASSETS

H. 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,
2015

 

Accumulated
Impairment
Losses

 

Net Goodwill
At December 31,
2015

 

Cabinets and Related Products

 

$

240

 

$

(59

)

$

181

 

Plumbing Products

 

 

525

 

 

(340

)

 

185

 

Decorative Architectural Products

 

 

294

 

 

(75

)

 

219

 

Other Specialty Products

 

 

988

 

 

(734

)

 

254

 

​  

​  

​  

​  

​  

​  

Total

 

$

2,047

 

$

(1,208

)

$

839

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

 

                                                                                                                                                                                    

 

 

Gross Goodwill
At December 31,
2014

 

Accumulated
Impairment
Losses

 

Net Goodwill
At December 31,
2014

 

Additions (A)

 

Other (B)

 

Net Goodwill
At December 31,
2015

 

Cabinets and Related Products

 

$

240

 

$

(59

)

$

181

 

$

 

$

 

$

181

 

Plumbing Products

 

 

531

 

 

(340

)

 

191

 

 

8

 

 

(14

)

 

185

 

Decorative Architectural Products

 

 

294

 

 

(75

)

 

219

 

 

 

 

 

 

219

 

Other Specialty Products

 

 

983

 

 

(734

)

 

249

 

 

6

 

 

(1

)

 

254

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Total

 

$

2,048

 

$

(1,208

)

$

840

 

$

14

 

$

(15

)

$

839

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

 

                                                                                                                                                                                    

 

 

Gross Goodwill
At December 31,
2013

 

Accumulated
Impairment
Losses

 

Net Goodwill
At December 31,
2013

 

Additions (A)

 

Other (B)

 

Net Goodwill
At December 31,
2014

 

Cabinets and Related Products

 

$

240

 

$

(59

)

$

181

 

$

 

$

 

$

181

 

Plumbing Products

 

 

550

 

 

(340

)

 

210

 

 

 

 

(19

)

 

191

 

Decorative Architectural Products

 

 

294

 

 

(75

)

 

219

 

 

 

 

 

 

219

 

Other Specialty Products

 

 

983

 

 

(734

)

 

249

 

 

 

 

 

 

249

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Total

 

$

2,067

 

$

(1,208

)

$

859

 

$

 

$

(19

)

$

840

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  


 

 

(A)          

Additions consist of acquisitions.

(B)          

Other principally includes the effect of foreign currency translation.

        We completed our annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth quarters of 2015, 2014 and 2013. There was no impairment of goodwill for any of our reporting units for any of these years.

        Other indefinite-lived intangible assets were $137 million and $130 million at December 31, 2015 and 2014, respectively, and principally included registered trademarks. In 2015 and 2013, the impairment test indicated there was no impairment of other indefinite-lived intangible assets for any of our business units. In 2014, we recognized an insignificant impairment charge for other indefinite-lived intangible assets. As a result of our 2015 acquisitions, other indefinite lived intangible assets increased by $7 million as of the acquisition dates.

        The carrying value of our definite-lived intangible assets was $23 million (net of accumulated amortization of $49 million) at December 31, 2015 and $12 million (net of accumulated amortization of $48 million) at December 31, 2014 and principally included customer relationships with a weighted average amortization period of 6 years in both 2015 and 2014. Amortization expense related to the definite-lived intangible assets of continuing operations was $6 million in 2015 and $4 million in both 2014 and 2013. As a result of our 2015 acquisitions, definite-lived intangible assets increased by $17 million as of the acquisition dates.

        At December 31, 2015, amortization expense related to the definite-lived intangible assets during each of the next five years was as follows: 2016 – $4 million; 2017 – $2 million; 2018 – $2 million, 2019 – $2 million and 2020 – $2 million.

OTHER ASSETS
OTHER ASSETS

I. OTHER ASSETS 

                                                                                                                                                                                    

 

 

(In Millions)

 

 

 

At December 31

 

 

 

2015

 

2014

 

Financial investments (Note E)

 

$

48 

 

$

50 

 

In-store displays, net

 

 

56 

 

 

36 

 

Debenture expense

 

 

20 

 

 

19 

 

Deferred tax assets

 

 

184 

 

 

293 

 

Other

 

 

18 

 

 

21 

 

​  

​  

​  

​  

Total

 

$

326 

 

$

419 

 

​  

​  

​  

​  

​  

​  

​  

​  

        In-store displays are amortized using the straight-line method over the expected useful life of three to five years; we recognized amortization expense related to in-store displays of $20 million, $15 million and $19 million in 2015, 2014 and 2013, respectively. Cash spent for displays was $43 million, $30 million and $5 million in 2015, 2014 and 2013, respectively, and are included in other, net within investing activities on the consolidated statements of cash flows.

ACCRUED LIABILITIES
ACCRUED LIABILITIES

J. ACCRUED LIABILITIES 

                                                                                                                                                                                    

 

 

(In Millions)

 

 

 

At December 31

 

 

 

2015

 

2014

 

Salaries, wages and commissions

 

$

171 

 

$

164 

 

Warranty (Note U)

 

 

152 

 

 

135 

 

Advertising and sales promotion

 

 

132 

 

 

111 

 

Insurance reserves

 

 

44 

 

 

39 

 

Interest

 

 

62 

 

 

57 

 

Employee retirement plans

 

 

48 

 

 

40 

 

Property, payroll and other taxes

 

 

25 

 

 

25 

 

Dividends payable

 

 

32 

 

 

32 

 

Other

 

 

86 

 

 

82 

 

​  

​  

​  

​  

Total

 

$

752 

 

$

685 

 

​  

​  

​  

​  

​  

​  

​  

​  

 

DEBT
DEBT

K. DEBT 

                                                                                                                                                                                    

 

 

(In Millions)

 

 

 

At December 31

 

 

 

2015

 

2014

 

Notes and debentures:

 

 

 

 

 

 

 

4.800%, due June 15, 2015

 

$

 

$

500 

 

6.125%, due October 3, 2016

 

 

1,000 

 

 

1,000 

 

5.850%, due March 15, 2017

 

 

300 

 

 

300 

 

6.625%, due April 15, 2018

 

 

114 

 

 

114 

 

7.125%, due March 15, 2020

 

 

500 

 

 

500 

 

5.950%, due March 15, 2022

 

 

400 

 

 

400 

 

4.450%, due April 1, 2025

 

 

500 

 

 

 

7.750%, due August 1, 2029

 

 

296 

 

 

296 

 

6.500%, due August 15, 2032

 

 

300 

 

 

300 

 

Other

 

 

13 

 

 

14 

 

​  

​  

​  

​  

 

 

 

3,423 

 

 

3,424 

 

Less: Current portion

 

 

1,005 

 

 

505 

 

​  

​  

​  

​  

Total long-term debt

 

$

2,418 

 

$

2,919 

 

​  

​  

​  

​  

​  

​  

​  

​  

        All of the notes and debentures above are senior indebtedness and, other than the 6.625% notes due 2018 and the 7.75% notes due 2029, are redeemable at our option.

        On June 15, 2015, we repaid and retired all of our $500 million, 4.8% Notes on the scheduled retirement date.

        On March 24, 2015, we issued $500 million of 4.45% Notes due April 1, 2025.

        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.

        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, 2015, we had $5 million of outstanding standby letters of credit.

        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, 2015.

        At December 31, 2015, the debt maturities during each of the next five years were as follows: 2016 – $1,005 million; 2017 – $301 million; 2018 – $115 million; 2019 – $1 million and 2020 – $501 million.

        Interest paid was $216 million, $220 million and $232 million in 2015, 2014 and 2013, respectively.

STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

L. STOCK-BASED COMPENSATION 

        Our 2014 Long Term Stock Incentive Plan (the "2014 Plan") replaced the 2005 Long Term Stock Incentive Plan in May 2014 and provides for the issuance of stock-based incentives in various forms to employees and non-employee Directors of the Company. At December 31, 2015, outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom stock awards and stock appreciation rights.

        Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions:

                                                                                                                                                                                    

 

 

2015

 

2014

 

2013

 

Long-term stock awards

 

$

23 

 

$

33 

 

$

31 

 

Stock options

 

 

 

 

 

 

12 

 

Phantom stock awards and stock appreciation rights

 

 

11 

 

 

 

 

 

​  

​  

​  

​  

​  

​  

Total

 

$

39 

 

$

43 

 

$

50 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Income tax benefit (37 percent tax rate)

 

$

14 

 

$

16 

 

$

19 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        At December 31, 2015, a total of 17.1 million shares of our common stock were available under the 2014 Plan for the granting of stock options and other long-term stock incentive awards.

        Long-Term Stock Awards.    Long-term stock awards are granted to our key employees and non-employee Directors and do not cause net share dilution inasmuch as we continue the practice of repurchasing and retiring an equal number of shares in the open market. We granted 741,040 shares of long-term stock awards during 2015.

        Our long-term stock award activity was as follows, shares in millions:

                                                                                                                                                                                    

 

 

2015

 

2014

 

2013

 

Unvested stock award shares at January 1

 

 

 

 

 

 

 

Weighted average grant date fair value

 

$

18 

 

$

17 

 

$

16 

 

Stock award shares granted

 

 

 

 

 

 

 

Weighted average grant date fair value

 

$

26 

 

$

22 

 

$

20 

 

Stock award shares vested

 

 

 

 

 

 

 

Weighted average grant date fair value

 

$

17 

 

$

17 

 

$

17 

 

Stock award shares forfeited

 

 


 

 

 

 


 

Weighted average grant date fair value

 

$

18 

 

$

19 

 

$

16 

 

Forfeitures upon spin off (A)

 

 

 

 


 

 


 

Weighted average grant date fair value

 

$

20 

 

$

 

$

 

Modification upon spin off (B)

 

 

 

 


 

 


 

Unvested stock award shares at December 31

 

 

 

 

 

 

 

Weighted average grant date fair value

 

$

17 

 

$

18 

 

$

17