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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.
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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 $17 million.
We have accounted for Tvilum as a discontinued operation. Losses from this discontinued operation were included in (loss) income from discontinued operations, net, in the consolidated statements of operations.
The major classes of line items constituting pre-tax (loss) profit of the discontinued operations, in millions:
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Year Ended December 31 |
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2015 |
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2014 |
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2013 |
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Net sales (1) |
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$ |
762 |
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$ |
1,515 |
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$ |
1,412 |
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Cost of sales (1) |
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603 |
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1,188 |
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1,116 |
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Gross profit (1) |
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159 |
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327 |
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296 |
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Selling, general and administrative expenses (1) |
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148 |
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259 |
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232 |
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Income from discontinued operations |
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$ |
11 |
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$ |
68 |
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$ |
64 |
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Other discontinued operations results: |
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(Loss) gain on disposal of discontinued operations, net (2) |
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(1 |
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(6 |
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3 |
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Operating loss from discontinued operations (3) |
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— |
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— |
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(7 |
) |
Impairment of assets held for sale (4) |
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— |
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— |
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(10 |
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Income before income tax |
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10 |
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62 |
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50 |
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Income tax expense (5) |
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(12 |
) |
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(27 |
) |
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(21 |
) |
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(Loss) income from discontinued operations, net |
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$ |
(2 |
) |
$ |
35 |
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$ |
29 |
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(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 $10 million in 2013. |
(5) |
The unusual relationship between income tax expense and income before income tax for 2015 resulted primarily from certain non-deductible transaction costs related to the spin off of TopBuild. |
The carrying amount of major classes of assets and liabilities included as part of the TopBuild discontinued operations, in millions:
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At December 31, |
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2015 |
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2014 |
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Cash |
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$ |
— |
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$ |
4 |
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Receivables |
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— |
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220 |
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Inventories |
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— |
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107 |
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Prepaid expenses and other |
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— |
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4 |
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Property and equipment, net |
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— |
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93 |
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Goodwill |
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— |
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1,044 |
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Other intangible assets, net |
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— |
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3 |
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Other assets |
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— |
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1 |
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Total assets classified as held for sale |
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$ |
— |
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$ |
1,476 |
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Accounts payable |
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— |
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$ |
229 |
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Accrued liabilities |
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— |
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71 |
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Other liabilities |
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— |
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40 |
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Deferred income taxes |
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— |
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129 |
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Total liabilities classified as held for sale |
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$ |
— |
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$ |
469 |
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Other selected financial information for TopBuild during the period owned by us, were as follows, in millions:
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Year Ended Dec. 31 |
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2015 |
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2014 |
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2013 |
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Depreciation and amortization |
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$ |
6 |
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$ |
26 |
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$ |
27 |
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Capital expenditures |
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$ |
7 |
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$ |
13 |
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$ |
14 |
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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.
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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 $4 million.
These acquisitions are not material to us. The results of these acquisitions are included in the consolidated financial statements from the date of their respective acquisition.
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D. INVENTORIES
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(In Millions) |
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At December 31 |
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2015 |
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2014 |
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Finished goods |
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$ |
358 |
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$ |
361 |
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Raw material |
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238 |
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251 |
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Work in process |
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91 |
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100 |
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Total |
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$ |
687 |
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$ |
712 |
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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.
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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:
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At December 31 |
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2015 |
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2014 |
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Auction rate securities |
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$ |
22 |
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$ |
22 |
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Total recurring investments |
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22 |
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22 |
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Equity method investments |
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13 |
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11 |
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Private equity funds |
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10 |
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14 |
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Other investments |
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3 |
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3 |
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Total |
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$ |
48 |
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$ |
50 |
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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:
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2015 |
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2014 |
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2013 |
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Equity investment income (loss), net |
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$ |
2 |
|
$ |
(2 |
) |
$ |
16 |
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Realized gains from private equity funds |
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|
6 |
|
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4 |
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|
11 |
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Income from financial investments, net |
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$ |
8 |
|
$ |
2 |
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$ |
27 |
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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.
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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 |
|
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 |
|
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.
|
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.
|
H. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill, by segment, were as follows, in millions:
|
|
Gross Goodwill |
|
Accumulated |
|
Net Goodwill |
|
|||
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 |
|
Accumulated |
|
Net Goodwill |
|
Additions (A) |
|
Other (B) |
|
Net Goodwill |
|
||||||
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 |
|
Accumulated |
|
Net Goodwill |
|
Additions (A) |
|
Other (B) |
|
Net Goodwill |
|
||||||
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.
|
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.
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
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 |
|
|
5 |
|
|
4 |
|
|
12 |
|
Phantom stock awards and stock appreciation rights |
|
|
11 |
|
|
6 |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
6 |
|
|
8 |
|
|
8 |
|
Weighted average grant date fair value |
|
$ |
18 |
|
$ |
17 |
|
$ |
16 |
|
Stock award shares granted |
|
|
1 |
|
|
1 |
|
|
2 |
|
Weighted average grant date fair value |
|
$ |
26 |
|
$ |
22 |
|
$ |
20 |
|
Stock award shares vested |
|
|
2 |
|
|
2 |
|
|
2 |
|
Weighted average grant date fair value |
|
$ |
17 |
|
$ |
17 |
|
$ |
17 |
|
Stock award shares forfeited |
|
|
|
|
|
1 |
|
|
|
|
Weighted average grant date fair value |
|
$ |
18 |
|
$ |
19 |
|
$ |
16 |
|
Forfeitures upon spin off (A) |
|
|
1 |
|
|
|
|
|
|
|
Weighted average grant date fair value |
|
$ |
20 |
|
$ |
— |
|
$ |
— |
|
Modification upon spin off (B) |
|
|
1 |
|
|
|
|
|
|
|
Unvested stock award shares at December 31 |
|
|
5 |
|
|
6 |
|
|
8 |
|
Weighted average grant date fair value |
|
$ |
17 |
|
$ |
18 |
|
$ |
17 |
|
|
|
(A) |
In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards. |
(B) |
Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee directors such that all individuals received an equivalent fair value both before and after the separation. The modification to the outstanding stock awards was made pursuant to existing anti-dilution provisions in our 2014 Plan and 2005 Long Term Incentive Plan. |
At December 31, 2015, 2014 and 2013, there was $42 million, $60 million and $69 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, 2015, 2014 and 2013.
The total market value (at the vesting date) of stock award shares which vested during 2015, 2014 and 2013 was $54 million, $50 million and $38 million, respectively.
Stock Options. Stock options are granted to our 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 452,380 shares of stock options during 2015 with a grant date weighted-average exercise price of approximately $26 per share. During 2015, 3.2 million stock option shares were forfeited (including options that expired unexercised).
Our stock option activity was as follows, shares in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Option shares outstanding, January 1 |
|
|
18 |
|
|
24 |
|
|
30 |
|
Weighted average exercise price |
|
$ |
21 |
|
$ |
22 |
|
$ |
21 |
|
Option shares granted |
|
|
|
|
|
|
|
|
1 |
|
Weighted average exercise price |
|
$ |
26 |
|
$ |
22 |
|
$ |
20 |
|
Option shares exercised |
|
|
5 |
|
|
2 |
|
|
3 |
|
Aggregate intrinsic value on date of exercise (A) |
|
$ |
50 million |
|
$ |
22 million |
|
$ |
23 million |
|
Weighted average exercise price |
|
$ |
17 |
|
$ |
16 |
|
$ |
12 |
|
Option shares forfeited |
|
|
3 |
|
|
4 |
|
|
4 |
|
Weighted average exercise price |
|
$ |
29 |
|
$ |
28 |
|
$ |
26 |
|
Forfeitures upon spin off (B) |
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price |
|
$ |
19 |
|
$ |
— |
|
$ |
— |
|
Modifications upon spin off (C) |
|
|
2 |
|
|
|
|
|
|
|
Option shares outstanding, December 31 |
|
|
12 |
|
|
18 |
|
|
24 |
|
Weighted average exercise price |
|
$ |
17 |
|
$ |
21 |
|
$ |
22 |
|
Weighted average remaining option term (in years) |
|
|
3 |
|
|
4 |
|
|
4 |
|
Option shares vested and expected to vest, December 31 |
|
|
12 |
|
|
18 |
|
|
24 |
|
Weighted average exercise price |
|
$ |
17 |
|
$ |
21 |
|
$ |
22 |
|
Aggregate intrinsic value (A) |
|
$ |
133 million |
|
$ |
110 million |
|
$ |
109 million |
|
Weighted average remaining option term (in years) |
|
|
3 |
|
|
4 |
|
|
4 |
|
Option shares exercisable (vested), December 31 |
|
|
10 |
|
|
15 |
|
|
20 |
|
Weighted average exercise price |
|
$ |
18 |
|
$ |
22 |
|
$ |
24 |
|
Aggregate intrinsic value (A) |
|
$ |
113 million |
|
$ |
84 million |
|
$ |
62 million |
|
Weighted average remaining option term (in years) |
|
|
3 |
|
|
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. |
(B) |
In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards. |
(C) |
Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee directors such that all individuals received an equivalent fair value both before and after the separation. The modification to the outstanding options was made pursuant to existing anti-dilution provisions in our 2014 Plan and 2005 Long Term Incentive Plan. |
At December 31, 2015, 2014 and 2013, there was $6 million, $6 million and $9 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 two years at December 31, 2015, 2014 and 2013.
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:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Weighted average grant date fair value |
|
$ |
9.67 |
|
$ |
9.53 |
|
$ |
8.35 |
|
Risk-free interest rate |
|
|
1.75 |
% |
|
1.91 |
% |
|
1.22 |
% |
Dividend yield |
|
|
1.32 |
% |
|
1.34 |
% |
|
1.47 |
% |
Volatility factor |
|
|
42.00 |
% |
|
49.00 |
% |
|
49.07 |
% |
Expected option life |
|
|
6 years |
|
|
6 years |
|
|
6 years |
|
The following table summarizes information for stock option shares outstanding and exercisable at December 31, 2015, shares in millions:
Option Shares Outstanding |
|
Option Shares Exercisable |
|
|||||||||||||
Range of |
|
Number of |
|
Weighted |
|
Weighted |
|
Number of |
|
Weighted |
|
|||||
$ |
7 - 18 |
|
|
7 |
|
4 Years |
|
$ |
12 |
|
|
6 |
|
$ |
12 |
|
$ |
20 - 23 |
|
|
2 |
|
3 Years |
|
$ |
23 |
|
|
1 |
|
$ |
23 |
|
$ |
25 - 27 |
|
|
3 |
|
1 Years |
|
$ |
27 |
|
|
3 |
|
$ |
27 |
|
$ |
28 - 29 |
|
|
— |
|
- Years |
|
$ |
29 |
|
|
— |
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7 - 29 |
|
|
12 |
|
3 Years |
|
$ |
17 |
|
|
10 |
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Phantom Stock Awards and Stock Appreciation Rights ("SARs"). We grant phantom stock awards and SARs to certain non-U.S. employees.
Phantom stock awards are linked to the value of our common stock on the date of grant and are settled in cash upon vesting, typically over 5 to 10 years. We account for phantom stock awards as liability-based awards; the compensation expense is initially measured as the market price of our common stock at the grant date and is recognized over the vesting period. 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 recognized expense of $5 million related to the valuation of phantom stock awards in 2015, 2014 and 2013. In 2015, 2014 and 2013, we granted 134,560 shares, 183,530 shares and 165,180 shares, respectively, of phantom stock awards with an aggregate fair value of $4 million, $4 million and $3 million, respectively, and paid $6 million, $5 million and $4 million of cash in 2015, 2014 and 2013, respectively, to settle phantom stock awards.
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 and valued using a Black-Scholes option pricing model at the grant date; such fair value is recognized as compensation expense over the vesting period, typically five years. 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. We recognized expense of $6 million, $1 million and $2 million related to the valuation of SARs for 2015, 2014 and 2013, respectively. During 2015, 2014 and 2013, we did not grant any SARs.
Information related to phantom stock awards and SARs was as follows, in millions:
|
|
Phantom |
|
Stock |
|
||||||||
|
|
At December 31, |
|
At December 31, |
|
||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
||||
Accrued compensation cost liability |
|
$ |
13 |
|
$ |
13 |
|
$ |
10 |
|
$ |
7 |
|
Unrecognized compensation cost |
|
$ |
4 |
|
$ |
4 |
|
$ |
— |
|
$ |
— |
|
Equivalent common shares |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
M. EMPLOYEE RETIREMENT PLANS
We sponsor qualified defined-benefit and defined-contribution retirement plans for most of our employees. In addition to our qualified defined-benefit pension plans, we have unfunded non-qualified defined-benefit pension plans covering certain employees, which provide for benefits in addition to those provided by the qualified pension plans. Substantially all salaried employees participate in non-contributory defined-contribution retirement plans, to which payments are determined annually by the Organization and Compensation Committee of the Board of Directors.
In addition, we participate in one regional multi-employer pension plan, principally related to building trades, which is not considered significant to us.
Pre-tax expense related to our retirement plans was as follows, in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Defined-contribution plans |
|
$ |
52 |
|
$ |
43 |
|
$ |
51 |
|
Defined-benefit plans |
|
|
32 |
|
|
25 |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
84 |
|
$ |
68 |
|
$ |
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In March 2009, based on management's recommendation, the Board of Directors approved a plan to freeze all future benefit accruals under substantially all of our domestic qualified and non-qualified defined-benefit pension plans. The freeze was effective January 1, 2010.
Changes in the projected benefit obligation and fair value of plan assets, and the funded status of our defined-benefit pension plans were as follows, in millions:
|
|
2015 |
|
2014 |
|
||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||
Changes in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at January 1 |
|
$ |
1,145 |
|
$ |
190 |
|
$ |
983 |
|
$ |
163 |
|
Service cost |
|
|
3 |
|
|
— |
|
|
3 |
|
|
— |
|
Interest cost |
|
|
41 |
|
|
7 |
|
|
41 |
|
|
7 |
|
Actuarial (gain) loss, net |
|
|
(61 |
) |
|
(11 |
) |
|
184 |
|
|
32 |
|
Foreign currency exchange |
|
|
(23 |
) |
|
— |
|
|
(24 |
) |
|
— |
|
Benefit payments |
|
|
(46 |
) |
|
(12 |
) |
|
(42 |
) |
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at December 31 |
|
$ |
1,059 |
|
$ |
174 |
|
$ |
1,145 |
|
$ |
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1 |
|
$ |
691 |
|
$ |
— |
|
$ |
659 |
|
$ |
— |
|
Actual return on plan assets |
|
|
(12 |
) |
|
— |
|
|
38 |
|
|
— |
|
Foreign currency exchange |
|
|
(7 |
) |
|
— |
|
|
(8 |
) |
|
— |
|
Company contributions |
|
|
38 |
|
|
12 |
|
|
49 |
|
|
12 |
|
Expenses, other |
|
|
(6 |
) |
|
— |
|
|
(5 |
) |
|
— |
|
Benefit payments |
|
|
(46 |
) |
|
(12 |
) |
|
(42 |
) |
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31 |
|
$ |
658 |
|
$ |
— |
|
$ |
691 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at December 31: |
|
$ |
(401 |
) |
$ |
(174 |
) |
$ |
(454 |
) |
$ |
(190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in our consolidated balance sheets were as follows, in millions:
|
|
At December 31, 2015 |
|
At December 31, 2014 |
|
||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||
Other assets |
|
$ |
1 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
Accrued liabilities |
|
|
(3 |
) |
|
(12 |
) |
|
(2 |
) |
|
(12 |
) |
Other liabilities |
|
|
(399 |
) |
|
(162 |
) |
|
(452 |
) |
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net liability |
|
$ |
(401 |
) |
$ |
(174 |
) |
$ |
(454 |
) |
$ |
(190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss included in accumulated other comprehensive income (loss) before income taxes was as follows, in millions:
|
|
At December 31, 2015 |
|
At December 31, 2014 |
|
||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||
Net loss |
|
$ |
501 |
|
$ |
56 |
|
$ |
524 |
|
$ |
68 |
|
Net transition obligation |
|
|
1 |
|
|
— |
|
|
1 |
|
|
— |
|
Net prior service cost |
|
|
2 |
|
|
— |
|
|
2 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
504 |
|
$ |
56 |
|
$ |
527 |
|
$ |
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information for defined-benefit pension plans with an accumulated benefit obligation in excess of plan assets was as follows, in millions:
|
|
At December 31 |
|
||||||||||
|
|
2015 |
|
2014 |
|
||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||
Projected benefit obligation |
|
$ |
1,045 |
|
$ |
174 |
|
$ |
1,132 |
|
$ |
190 |
|
Accumulated benefit obligation |
|
$ |
1,045 |
|
$ |
174 |
|
$ |
1,132 |
|
$ |
190 |
|
Fair value of plan assets |
|
$ |
643 |
|
$ |
— |
|
$ |
677 |
|
$ |
— |
|
The projected benefit obligation was in excess of plan assets for all of our qualified defined-benefit pension plans at December 31, 2015 and 2014 which had an accumulated benefit obligation in excess of plan assets.
Net periodic pension cost for our defined-benefit pension plans was as follows, in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
||||||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||||
Service cost |
|
$ |
3 |
|
$ |
— |
|
$ |
3 |
|
$ |
— |
|
$ |
3 |
|
$ |
— |
|
Interest cost |
|
|
47 |
|
|
7 |
|
|
47 |
|
|
7 |
|
|
44 |
|
|
6 |
|
Expected return on plan assets |
|
|
(46 |
) |
|
— |
|
|
(45 |
) |
|
— |
|
|
(40 |
) |
|
— |
|
Recognized net loss |
|
|
18 |
|
|
3 |
|
|
11 |
|
|
2 |
|
|
16 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
22 |
|
$ |
10 |
|
$ |
16 |
|
$ |
9 |
|
$ |
23 |
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We expect to recognize $19 million of pre-tax net loss from accumulated other comprehensive income (loss) into net periodic pension cost in 2016 related to our defined-benefit pension plans.
Plan Assets. Our qualified defined-benefit pension plan weighted average asset allocation, which is based upon fair value, was as follows:
|
|
2015 |
|
2014 |
|
||
Equity securities |
|
|
49 |
% |
|
46 |
% |
Debt securities |
|
|
32 |
% |
|
34 |
% |
Other |
|
|
19 |
% |
|
20 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For our qualified defined-benefit pension plans, we have adopted accounting guidance that defines fair value, establishes a framework for measuring fair value and prescribes disclosures about fair value measurements. Accounting 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."
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2015 compared to December 31, 2014.
Common and Preferred Stocks: Valued at the closing price on the active market on which the individual securities are traded, or based on the active market for similar securities.
Private Equity and Hedge Funds: Valued based on an estimated fair value using either a market approach or an income approach, each of which requires a significant degree of judgment. There is no active trading market for these investments and they are generally illiquid. Due to the significant unobservable inputs, the fair value measurements used to estimate fair value are a Level 3 input.
Corporate Debt Securities: Valued based on the active market for similar securities or on estimated fair value.
Government and Other Debt Securities: Valued based on either the closing price reported on the active market on which the individual securities are traded, the market for similar securities or estimated fair value based on a model for similar securities.
Common Collective Trust Fund: Valued based on a unit value basis, which approximates fair value. Such basis is determined by reference to the respective fund's underlying assets, which are primarily marketable equity and fixed income securities. There are no unfunded commitments or other restrictions associated with this fund.
Short-Term and Other Investments: Valued based on a net asset value (NAV), which approximates fair value. Such basis is determined by referencing the respective fund's underlying assets. There are no unfunded commitments or other restrictions associated with these investments.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
The following table sets forth, by level within the fair value hierarchy, the qualified defined-benefit pension plan assets at fair value as of December 31, 2015 and 2014, in millions.
|
|
At December 31, 2015 |
|
||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Common and Preferred Stocks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
127 |
|
$ |
126 |
|
$ |
— |
|
$ |
253 |
|
International |
|
|
55 |
|
|
14 |
|
|
— |
|
|
69 |
|
Private Equity and Hedge Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
— |
|
|
— |
|
|
52 |
|
|
52 |
|
International |
|
|
— |
|
|
— |
|
|
24 |
|
|
24 |
|
Corporate Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
18 |
|
|
26 |
|
|
— |
|
|
44 |
|
International |
|
|
— |
|
|
48 |
|
|
— |
|
|
48 |
|
Government and Other Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
64 |
|
|
3 |
|
|
— |
|
|
67 |
|
International |
|
|
23 |
|
|
30 |
|
|
— |
|
|
53 |
|
Common Collective Trust Fund – United States |
|
|
— |
|
|
4 |
|
|
— |
|
|
4 |
|
Short-Term and Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
2 |
|
|
— |
|
|
— |
|
|
2 |
|
International |
|
|
2 |
|
|
21 |
|
|
19 |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at Fair Value |
|
$ |
291 |
|
$ |
272 |
|
$ |
95 |
|
$ |
658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2014 |
|
||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Common and Preferred Stocks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
136 |
|
$ |
116 |
|
$ |
— |
|
$ |
252 |
|
International |
|
|
50 |
|
|
15 |
|
|
— |
|
|
65 |
|
Private Equity and Hedge Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
— |
|
|
— |
|
|
59 |
|
|
59 |
|
International |
|
|
— |
|
|
— |
|
|
27 |
|
|
27 |
|
Corporate Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
15 |
|
|
33 |
|
|
— |
|
|
48 |
|
International |
|
|
— |
|
|
75 |
|
|
— |
|
|
75 |
|
Government and Other Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
64 |
|
|
2 |
|
|
— |
|
|
66 |
|
International |
|
|
24 |
|
|
27 |
|
|
— |
|
|
51 |
|
Common Collective Trust Fund – United States |
|
|
— |
|
|
5 |
|
|
— |
|
|
5 |
|
Short-Term and Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
International |
|
|
3 |
|
|
21 |
|
|
18 |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at Fair Value |
|
$ |
292 |
|
$ |
295 |
|
$ |
104 |
|
$ |
691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair value of the qualified defined-benefit pension plan Level 3 assets, were as follows, in millions:
|
|
2015 |
|
2014 |
|
||
Fair Value, January 1 |
|
$ |
104 |
|
$ |
93 |
|
Purchases |
|
|
4 |
|
|
13 |
|
Sales |
|
|
(11 |
) |
|
(9 |
) |
Transfers, net |
|
|
— |
|
|
— |
|
Unrealized (losses) gains |
|
|
(2 |
) |
|
7 |
|
|
|
|
|
|
|
|
|
Fair Value, December 31 |
|
$ |
95 |
|
$ |
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions. Weighted-average major assumptions used in accounting for our defined-benefit pension plans were as follows:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Discount rate for obligations |
|
|
4.00 |
% |
|
3.80 |
% |
|
4.40 |
% |
Expected return on plan assets |
|
|
7.25 |
% |
|
7.25 |
% |
|
7.25 |
% |
Rate of compensation increase |
|
|
— |
% |
|
— |
% |
|
— |
% |
Discount rate for net periodic pension cost |
|
|
3.80 |
% |
|
4.40 |
% |
|
3.80 |
% |
The discount rate for obligations for 2015 and 2014 was based upon the expected duration of each defined-benefit pension plan's liabilities matched to the December 31, 2015 and 2014 Towers Watson Rate Link Curve. At December 31, 2015, such rates for our defined-benefit pension plans ranged from 2.0 percent to 4.3 percent, with the most significant portion of the liabilities having a discount rate for obligations of 4.0 percent or higher. At December 31, 2014, such rates for our defined-benefit pension plans ranged from 2.0 percent to 4.0 percent, with the most significant portion of the liabilities having a discount rate for obligations of 3.70 percent or higher. The increase in the weighted average discount rate over the last year is principally the result of higher long-term interest rates in the bond markets.
For 2015 and 2014, we determined the expected long-term rate of return on plan assets of 7.25 percent based upon an analysis of expected and historical rates of return of various asset classes utilizing the current and long-term target asset allocation of the plan assets. The projected asset return at both December 31, 2015 and 2014 also considered near term returns, including current market conditions as well as that pension assets are long-term in nature. The actual annual rate of return on our pension plan assets was negative 1.8 percent in 2015, and positive 3.6 percent and 13.6 percent in 2014 and 2013, respectively. For the 10-year period ended December 31, 2015, the actual annual rate of return on our pension plan assets was 3.9 percent. Although this rate of return is less than our current expected long-term rate of return on plan assets, we note that the 10-year period ended December 31, 2015 includes one significant decline in the equity markets in 2008 (of negative 32.1 percent). Accordingly, we believe a 7.25 percent expected long-term rate of return is reasonable.
The investment objectives seek to minimize the volatility of the value of our plan assets relative to pension liabilities and to ensure plan assets are sufficient to pay plan benefits. In 2015, we substantially achieved targeted asset allocation: 50 percent equities, 30 percent fixed-income, and 20 percent alternative investments (such as private equity, commodities and hedge funds). The asset allocation of the investment portfolio was developed with the objective of achieving our expected rate of return and reducing volatility of asset returns, and considered the freezing of future benefits. The equity portfolios are invested in individual securities or funds that are expected to mirror broad market returns for equity securities. The fixed-income portfolio is invested in corporate bonds, bond index funds and U.S. Treasury securities. It is expected that the alternative investments would have a higher rate of return than the targeted overall long-term return of 7.25 percent. However, these investments are subject to greater volatility, due to their nature, than a portfolio of equities and fixed-income investments, and would be less liquid than financial instruments that trade on public markets. This portfolio is expected to yield a long-term rate of return of 7.25 percent.
The fair value of our plan assets is subject to risk including significant concentrations of risk in our plan assets related to equity, interest rate and operating risk. In order to ensure plan assets are sufficient to pay benefits, a portion of plan assets is allocated to equity investments that are expected, over time, to earn higher returns with more volatility than fixed-income investments which more closely match pension liabilities. Within equity, risk is mitigated by targeting a portfolio that is broadly diversified by geography, market capitalization, manager mandate size, investment style and process.
In order to minimize asset volatility relative to the liabilities, a portion of plan assets are allocated to fixed-income investments that are exposed to interest rate risk. Rate increases generally will result in a decline in fixed-income assets, while reducing the present value of the liabilities. Conversely, rate decreases will increase fixed income assets, partially offsetting the related increase in the liabilities.
Potential events or circumstances that could have a negative effect on estimated fair value include the risks of inadequate diversification and other operating risks. To mitigate these risks, investments are diversified across and within asset classes in support of investment objectives. Policies and practices to address operating risks include ongoing manager oversight, plan and asset class investment guidelines and instructions that are communicated to managers, and periodic compliance and audit reviews to ensure adherence to these policies. In addition, we periodically seek the input of our independent advisor to ensure the investment policy is appropriate.
Other. We sponsor certain post-retirement benefit plans that provide medical, dental and life insurance coverage for eligible retirees and dependents in the United States based upon age and length of service. The aggregate present value of the unfunded accumulated post-retirement benefit obligation was $10 million and $12 million at December 31, 2015 and 2014, respectively.
Cash Flows. At December 31, 2015, we expected to contribute approximately $45 million to our qualified defined-benefit pension plans in 2016, which will exceed ERISA requirements in 2016. We also expected to pay benefits of $8 million and $12 million to participants of our foreign and non-qualified (domestic) defined-benefit pension plans, respectively, in 2016.
At December 31, 2015, the benefits expected to be paid in each of the next five years, and in aggregate for the five years thereafter, relating to our defined-benefit pension plans, were as follows, in millions:
|
|
Qualified |
|
Non-Qualified |
|
||
2016 |
|
$ |
49 |
|
$ |
12 |
|
2017 |
|
$ |
50 |
|
$ |
12 |
|
2018 |
|
$ |
51 |
|
$ |
12 |
|
2019 |
|
$ |
52 |
|
$ |
12 |
|
2020 |
|
$ |
53 |
|
$ |
12 |
|
2021 - 2025 |
|
$ |
280 |
|
$ |
58 |
|
|
N. SHAREHOLDERS' EQUITY
On September 30, 2014, we announced that our Board of Directors authorized the repurchase of up to 50 million shares for retirement of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2007. At December 31, 2015, we have 27.8 million shares remaining under the authorization.
During 2015, we repurchased and retired 17.2 million shares of our common stock for cash aggregating $456 million (including 741 thousand shares to offset the dilutive impact of long-term stock awards granted in 2015). During 2014, we repurchased and retired 6.7 million shares of our common stock for cash aggregating $158 million (including 1.7 million shares to offset the dilutive impact of long-term stock awards granted in 2014). During 2013, we repurchased and retired 1.7 million shares of our common stock for cash aggregating $35 million to offset the dilutive impact of long-term stock awards granted in 2013.
On June 30, 2015, we completed the spin off of Top Build as an independent publicly traded company. As a result of the separation, our retained earnings decreased by $828 million in 2015.
On the basis of amounts paid (declared), cash dividends per common share were $.365 ($.370) in 2015, $.330 ($.345) in 2014 and $.300 ($.300) in 2013.
Accumulated Other Comprehensive Loss. The components of accumulated other comprehensive loss attributable to Masco Corporation were as follows, in millions:
|
|
At December 31 |
|
||||
|
|
2015 |
|
2014 |
|
||
Cumulative translation adjustments |
|
$ |
245 |
|
$ |
325 |
|
Unrealized loss on marketable securities, net |
|
|
(12 |
) |
|
(12 |
) |
Unrealized loss on interest rate swaps |
|
|
(16 |
) |
|
(18 |
) |
Unrecognized net loss and prior service cost, net |
|
|
(382 |
) |
|
(406 |
) |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(165 |
) |
$ |
(111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The unrealized loss on marketable securities, net, is reported net of income tax expense of $14 million at both December 31, 2015 and 2014. The unrealized loss on interest rate swaps is reported net of income tax benefit of $1 million at both December 31, 2015 and 2014. The unrecognized net loss and prior service cost, net, is reported net of income tax benefit of $186 million and $199 million at December 31, 2015 and 2014, respectively.
|
O. RECLASSIFICATIONS FROM OTHER COMPREHENSIVE (LOSS) INCOME
The reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of operations were as follows, in millions:
Accumulated Other |
|
2015 |
|
2014 |
|
2013 |
|
Statement of Operations Line Item |
|||
Amortization of defined benefit pension: |
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses, net |
|
$ |
21 |
|
$ |
13 |
|
$ |
18 |
|
Selling, general and administrative expenses |
Tax (benefit) expense |
|
|
(8 |
) |
|
(5 |
) |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax |
|
$ |
13 |
|
$ |
8 |
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
2 |
|
$ |
2 |
|
$ |
2 |
|
Interest expense |
Tax (benefit) |
|
|
— |
|
|
(1 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax |
|
$ |
2 |
|
$ |
1 |
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
P. SEGMENT INFORMATION
Our reportable segments are as follows:
Cabinets and Related Products – principally includes assembled kitchen and bath cabinets; home office workstations; entertainment centers; storage products; bookcases; and kitchen utility products.
Plumbing Products – principally includes faucets; plumbing fittings and valves; showerheads and hand showers; bathtubs and shower enclosures; toilets; spas; and, exercise pools.
Decorative Architectural Products – principally includes paints and stains; and cabinet, door, window and other hardware.
Other Specialty Products – principally includes windows, window frame components and patio doors; staple gun tackers, staples and other fastening tools.
The above products and services are sold to the home improvement and new home construction markets through home center retailers, mass merchandisers, hardware stores, homebuilders, distributors and other outlets for consumers and contractors and direct to the customer.
Our operations are principally located in North America and Europe. Our country of domicile is the United States of America.
Corporate assets consist primarily of real property, equipment, cash and cash investments and other investments.
Our segments are based upon similarities in products and services and represent the aggregation of operating units, for which financial information is regularly evaluated by our corporate operating executive in determining resource allocation and assessing performance, and is periodically reviewed by the Board of Directors. Accounting policies for the segments are the same as those for us. We primarily evaluate performance based upon operating profit (loss) and, other than general corporate expense, allocate specific corporate overhead to each segment. The evaluation of segment operating profit (loss) also excludes the income from litigation settlements.
Information by segment and geographic area was as follows, in millions:
|
|
Net Sales |
|
Operating Profit |
|
Assets at |
|
|||||||||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
|||||||||
Our operations by segment were: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabinets and Related Products |
|
$ |
1,025 |
|
$ |
999 |
|
$ |
1,014 |
|
$ |
51 |
|
$ |
(62 |
) |
$ |
(10 |
) |
$ |
567 |
|
$ |
608 |
|
$ |
659 |
|
Plumbing Products |
|
|
3,341 |
|
|
3,308 |
|
|
3,183 |
|
|
512 |
|
|
512 |
|
|
394 |
|
|
1,972 |
|
|
1,989 |
|
|
2,040 |
|
Decorative Architectural Products |
|
|
2,020 |
|
|
1,998 |
|
|
1,927 |
|
|
403 |
|
|
360 |
|
|
351 |
|
|
874 |
|
|
857 |
|
|
812 |
|
Other Specialty Products |
|
|
756 |
|
|
701 |
|
|
637 |
|
|
57 |
|
|
47 |
|
|
35 |
|
|
748 |
|
|
702 |
|
|
693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,142 |
|
$ |
7,006 |
|
$ |
6,761 |
|
$ |
1,023 |
|
$ |
857 |
|
$ |
770 |
|
$ |
4,161 |
|
$ |
4,156 |
|
$ |
4,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operations by geographic area were: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
5,645 |
|
$ |
5,377 |
|
$ |
5,222 |
|
$ |
841 |
|
$ |
643 |
|
$ |
612 |
|
$ |
2,925 |
|
$ |
2,861 |
|
$ |
2,830 |
|
International, principally Europe |
|
|
1,497 |
|
|
1,629 |
|
|
1,539 |
|
|
182 |
|
|
214 |
|
|
158 |
|
|
1,236 |
|
|
1,295 |
|
|
1,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, as above |
|
$ |
7,142 |
|
$ |
7,006 |
|
$ |
6,761 |
|
|
1,023 |
|
|
857 |
|
|
770 |
|
|
4,161 |
|
|
4,156 |
|
|
4,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expense, net (6) |
|
|
(109 |
) |
|
(145 |
) |
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|||||||||
Income from litigation settlements (7) |
|
|
— |
|
|
9 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit, as reported |
|
|
914 |
|
|
721 |
|
|
612 |
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
(225 |
|
|
(214 |
|
|
(226 |
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
$ |
689 |
|
$ |
507 |
|
$ |
386 |
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate assets |
|
|
|
|
|
|
|
|
|
|
|
1,519 |
|
|
1,576 |
|
|
1,214 |
|
|||||||||
Assets held for sale |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
1,476 |
|
|
1,467 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
$ |
5,680 |
|
$ |
7,208 |
|
$ |
6,885 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Additions (5) |
|
Depreciation and |
|
||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
||||||
Our operations by segment were: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabinets and Related Products |
|
$ |
6 |
|
$ |
9 |
|
$ |
9 |
|
$ |
24 |
|
$ |
33 |
|
$ |
42 |
|
Plumbing Products |
|
|
87 |
|
|
65 |
|
|
71 |
|
|
56 |
|
|
63 |
|
|
65 |
|
Decorative Architectural Products |
|
|
16 |
|
|
12 |
|
|
16 |
|
|
16 |
|
|
16 |
|
|
17 |
|
Other Specialty Products |
|
|
41 |
|
|
28 |
|
|
10 |
|
|
18 |
|
|
18 |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150 |
|
|
114 |
|
|
106 |
|
|
114 |
|
|
130 |
|
|
146 |
|
Unallocated amounts, principally related to corporate assets |
|
|
1 |
|
|
1 |
|
|
4 |
|
|
13 |
|
|
11 |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
151 |
|
$ |
115 |
|
$ |
110 |
|
$ |
127 |
|
$ |
141 |
|
$ |
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included in net sales were export sales from the U.S. of $217 million, $228 million and $227 million in 2015, 2014 and 2013, respectively. |
(2) |
Excluded from net sales were intra-company sales between segments of less than one percent in 2015, 2014 and 2013. |
(3) |
Included in net sales were sales to one customer of $2,378 million, $2,310 million and $2,275 million in 2015, 2014 and 2013, respectively. Such net sales were included in each of our segments. |
(4) |
Net sales from our operations in the U.S. were $5,407 million, $5,112 million and $4,947 million in 2015, 2014 and 2013, respectively. |
(5) |
Net sales, operating profit (loss), property additions and depreciation and amortization expense for 2015, 2014 and 2013 excluded the results of businesses reported as discontinued operations. |
(6) |
General corporate expense, net included those expenses not specifically attributable to our segments. |
(7) |
The income from litigation settlements in 2014 relates to a business in our Decorative Architectural Products segment. |
(8) |
Long-lived assets of our operations in the U.S. and Europe were $1,487 million and $427 million, $1,470 million and $428 million, and $1,530 million and $481 million at December 31, 2015, 2014 and 2013, respectively. |
|
Q. SEVERANCE COSTS
As part of our continuing review of our operations, actions were taken during 2015, 2014 and 2013 to respond to market conditions. We recorded charges related to severance and early retirement programs of $12 million, $27 million and $19 million for the years ended December 31, 2015, 2014 and 2013, respectively. Such charges are principally reflected in the consolidated statements of operations in selling, general and administrative expenses and were primarily paid when incurred.
|
R. OTHER INCOME (EXPENSE), NET
Other, net, which is included in other income (expense), net, was as follows, in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Income from cash and cash investments |
|
$ |
3 |
|
$ |
3 |
|
$ |
3 |
|
Income from financial investments, net (Note E) |
|
|
8 |
|
|
2 |
|
|
27 |
|
Foreign currency transaction (losses) gains |
|
|
(14 |
) |
|
5 |
|
|
(21 |
) |
Other items, net |
|
|
3 |
|
|
1 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total other, net |
|
$ |
— |
|
$ |
11 |
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2013, in conjunction with the transaction to sell the Danish ready-to-assemble cabinet business (included in discontinued operations), we also disposed of a related Danish holding company. This disposition triggered the settlement of loans, which resulted in the recognition of $18 million of currency translation expense.
|
S. INCOME TAXES
|
|
|
|
(In Millions) |
|
|||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Income from continuing operations before income taxes: |
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
496 |
|
$ |
270 |
|
$ |
231 |
|
Foreign |
|
|
193 |
|
|
237 |
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
689 |
|
$ |
507 |
|
$ |
386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) on income from continuing operations: |
|
|
|
|
|
|
|
|
|
|
Currently payable: |
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
10 |
|
$ |
3 |
|
$ |
3 |
|
State and local |
|
|
27 |
|
|
1 |
|
|
2 |
|
Foreign |
|
|
56 |
|
|
67 |
|
|
58 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
192 |
|
|
(401 |
) |
|
22 |
|
State and local |
|
|
3 |
|
|
(21 |
) |
|
3 |
|
Foreign |
|
|
5 |
|
|
(10 |
) |
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
293 |
|
$ |
(361 |
) |
$ |
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets at December 31 (1): |
|
|
|
|
|
|
|
|
|
|
Receivables |
|
$ |
9 |
|
$ |
9 |
|
|
|
|
Inventories |
|
|
17 |
|
|
25 |
|
|
|
|
Other assets, principally stock-based Compensation |
|
|
78 |
|
|
77 |
|
|
|
|
Accrued liabilities |
|
|
118 |
|
|
102 |
|
|
|
|
Long-term liabilities |
|
|
225 |
|
|
284 |
|
|
|
|
Net operating loss carryforward |
|
|
39 |
|
|
194 |
|
|
|
|
Tax credit carryforward |
|
|
55 |
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
541 |
|
|
735 |
|
|
|
|
Valuation allowance |
|
|
(49 |
) |
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
492 |
|
|
669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities at December 31 (1): |
|
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
104 |
|
|
118 |
|
|
|
|
Intangibles |
|
|
212 |
|
|
387 |
|
|
|
|
Investment in foreign subsidiaries |
|
|
8 |
|
|
4 |
|
|
|
|
Other |
|
|
1 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325 |
|
|
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset at December 31 |
|
$ |
167 |
|
$ |
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
2014 amounts have not been recasted to exclude discontinued operations. |
The net deferred tax asset consisted of net long-term deferred tax liabilities (included in other liabilities) of $17 million and $17 million, and net long-term deferred tax assets (included in other assets) of $184 million and $293 million, at December 31, 2015 and 2014, respectively, and net long-term liabilities (included in liabilities held for sale) of $129 million at December 31, 2014.
The tax benefit from certain stock-based compensation is not recognized as a deferred tax asset until the tax deduction reduces cash taxes. During 2015, we recorded a $53 million deferred tax asset to paid-in capital related to additional net operating losses, previously not recognized, that were used to reduce cash taxes on our 2015 taxable income.
As a result of recording the separation of TopBuild due to its spin off, as of June 30, 2015, our net deferred tax asset increased by $190 million.
The current portion of the state and local income tax includes a $5 million, $8 million and $8 million tax benefit from the reversal of an accrual for uncertain tax positions resulting primarily from the expiration of applicable statutes of limitations and favorable settlements on state audits in 2015, 2014 and 2013, respectively. The deferred portion of the state and local taxes includes a $(1) million, $(29) million and $19 million tax (benefit) expense resulting from a change in the valuation allowance against state and local deferred tax assets in 2015, 2014 and 2013, respectively. The deferred portion of the foreign taxes includes $12 million and $(6) million tax expense (benefit) from a change in the valuation allowance against foreign deferred tax assets in 2015 and 2014, respectively.
During 2015 we recorded a $21 million valuation allowance against certain deferred tax assets related to TopBuild as a non-cash charge to income tax expense. The TopBuild deferred tax assets have been impaired by our decision to spin off TopBuild into a separate company that on a stand-alone basis as of June 30, 2015, the spin off date, will unlikely be able to realize the value of such deferred tax assets as a result of its history of losses.
Our capital management strategy includes the repurchase of Masco common stock, the payment of dividends, the pay-down of debt and the funding of potential acquisitions both within and outside the U.S. In order to provide greater flexibility in the execution of our capital management strategy, we determined in the fourth quarter of 2015 that we may repatriate earnings from certain foreign subsidiaries that were previously considered permanently reinvested. As a result, we recorded a $19 million charge to income tax expense in 2015 to recognize the required taxes on foreign earnings, including those previously considered permanently reinvested. Our December 31, 2015 deferred tax balance on investment in foreign subsidiaries reflects the impact of all taxable temporary differences, including those related to substantially all undistributed foreign earnings, except those that are legally restricted.
The accounting guidance for income taxes requires that 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 the company can place on projected taxable income to support the recovery of the deferred tax assets.
In 2010, we recorded a $372 million valuation allowance against our U.S. Federal deferred tax assets as a non-cash charge to income tax expense. In reaching this conclusion, we considered the weaker retail sales of certain of our building products and the slower than anticipated recovery in the U.S. housing market which led to U.S. operating losses and significant U.S. goodwill impairment charges, that primarily occurred in the fourth quarter of 2010, causing us to be in a three-year cumulative U.S. loss position.
During 2012 and 2011, objective and verifiable negative evidence, such as U.S. operating losses and significant impairment charges for U.S. goodwill and other intangible assets, continued to outweigh positive evidence necessary to reduce the valuation allowance. As a result, we recorded increases of $65 million and $87 million in the valuation allowance related to our U.S. Federal deferred tax assets in 2012 and 2011, respectively.
In the third quarter of 2014, we recorded a $517 million tax benefit from the release of the valuation allowance against our U.S. Federal and certain state deferred tax assets due primarily to a return to sustainable profitability in our U.S. operations. In reaching this conclusion, we considered the continued improvement in both the new home construction market and repair and remodel activity in the U.S. and our progress on strategic initiatives to reduce costs and expand our product leadership positions which contributed to the continued improvement in our U.S. operations over the past few years.
In the fourth quarter of 2014, we recorded an additional $12 million tax benefit from the release of the valuation allowances against certain U.K. and Mexican deferred tax assets primarily resulting from a return to sustainable profitability in these jurisdictions.
We continue to maintain a valuation allowance on certain state and foreign deferred tax assets as of December 31, 2015. Should we determine that we would not be able to realize our remaining deferred tax assets in these jurisdictions in the future, an adjustment to the valuation allowance would be recorded in the period such determination is made.
Of the $94 million and $238 million deferred tax asset related to the net operating loss and tax credit carryforwards at December 31, 2015 and December 31, 2014, $67 million and $233 million will expire between 2021 and 2033 and $27 million and $5 million are unlimited, respectively.
A reconciliation of the U.S. Federal statutory tax rate to the income tax expense (benefit) on income from continuing operations was as follows:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
U.S. Federal statutory tax rate – expense |
|
|
35 |
% |
|
35 |
% |
|
35 |
% |
State and local taxes, net of U.S. Federal tax benefit |
|
|
3 |
|
|
(2 |
) |
|
1 |
|
Lower taxes on foreign earnings |
|
|
(1 |
) |
|
(5 |
) |
|
— |
|
U.S. and foreign taxes on distributed and undistributed foreign earnings |
|
|
3 |
|
|
— |
|
|
— |
|
U.S. Federal valuation allowance |
|
|
3 |
|
|
(98 |
) |
|
(13 |
) |
Other, net |
|
|
— |
|
|
(1 |
) |
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate – expense (benefit) |
|
|
43 |
% |
|
(71 |
)% |
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid were $107 million, $80 million and $77 million in 2015, 2014 and 2013, respectively.
A reconciliation of the beginning and ending liability for uncertain tax positions, including related interest and penalties, is as follows, in millions:
|
|
Uncertain |
|
Interest and |
|
Total |
|
|||
Balance at January 1, 2014 |
|
$ |
46 |
|
$ |
13 |
|
$ |
59 |
|
Current year tax positions: |
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
9 |
|
|
— |
|
|
9 |
|
Reductions |
|
|
(1 |
) |
|
— |
|
|
(1 |
) |
Prior year tax positions: |
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
1 |
|
|
— |
|
|
1 |
|
Reductions |
|
|
(5 |
) |
|
— |
|
|
(5 |
) |
Settlements with tax authorities |
|
|
(1 |
) |
|
— |
|
|
(1 |
) |
Lapse of applicable statute of limitations |
|
|
(10 |
) |
|
— |
|
|
(10 |
) |
Interest and penalties recognized in income tax expense |
|
|
— |
|
|
(4 |
) |
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
|
$ |
39 |
|
$ |
9 |
|
$ |
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year tax positions: |
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
10 |
|
|
— |
|
|
10 |
|
Prior year tax positions: |
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
1 |
|
|
— |
|
|
1 |
|
Reductions |
|
|
(1 |
) |
|
— |
|
|
(1 |
) |
Lapse of applicable statute of limitations |
|
|
(6 |
) |
|
— |
|
|
(6 |
) |
Interest and penalties recognized in income tax expense |
|
|
— |
|
|
1 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015 |
|
$ |
43 |
|
$ |
10 |
|
$ |
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
If recognized, $28 million and $26 million of the liability for uncertain tax positions at December 31, 2015 and 2014, respectively, net of any U.S. Federal tax benefit, would impact our effective tax rate.
Of the $53 million and $48 million total liability for uncertain tax positions (including related interest and penalties) at December 31, 2015 and 2014, $52 million and $48 million are recorded in other liabilities, respectively, and $1 million is recorded as a net offset to other assets at December 31, 2015.
We file income tax returns in the U.S. Federal jurisdiction, and various local, state and foreign jurisdictions. We continue to participate in the Compliance Assurance Program ("CAP"). CAP is a real-time audit of the U.S. Federal income tax return that allows the Internal Revenue Service ("IRS"), working in conjunction with us, to determine tax return compliance with the U.S. Federal tax law prior to filing the return. This program provides us with greater certainty about our tax liability for a given year within months, rather than years, of filing our annual tax return and greatly reduces the need for recording a liability for U.S. Federal uncertain tax positions. The IRS has completed their examination of our consolidated U.S. Federal tax returns through 2014. With few exceptions, we are no longer subject to state or foreign income tax examinations on filed returns for years before 2005.
As a result of tax audit closings, settlements and the expiration of applicable statutes of limitations in various jurisdictions within the next 12 months, we anticipate that it is reasonably possible the liability for uncertain tax positions could be reduced by approximately $8 million.
|
T. EARNINGS PER COMMON SHARE
Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Numerator (basic and diluted): |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
357 |
|
$ |
821 |
|
$ |
259 |
|
Less: Allocation to unvested restricted stock awards |
|
|
5 |
|
|
16 |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common shareholders |
|
|
352 |
|
|
805 |
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net |
|
|
(2 |
) |
|
35 |
|
|
29 |
|
Less: Allocation to unvested restricted stock awards |
|
|
— |
|
|
(1 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations attributable to common shareholders |
|
|
(2 |
) |
|
34 |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
350 |
|
$ |
839 |
|
$ |
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
Basic common shares (based upon weighted average) |
|
|
338 |
|
|
349 |
|
|
350 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
Stock option dilution |
|
|
3 |
|
|
3 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares |
|
|
341 |
|
|
352 |
|
|
352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We follow accounting guidance regarding determining whether instruments granted in share-based payment transactions are participating securities. This accounting guidance clarifies that share-based payment awards that entitle their holders to receive non-forfeitable dividends prior to vesting should be considered participating securities. We have granted restricted stock awards that contain non-forfeitable rights to dividends on unvested shares; such unvested restricted stock awards are considered participating securities. As participating securities, the unvested shares are required to be included in the calculation of our basic earnings per common share, using the "two-class method." The two-class method of computing earnings per common share is an allocation method that calculates earnings per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. For the years ended December 31, 2015, 2014 and 2013, we allocated dividends and undistributed earnings to the participating securities.
Additionally, 5 million common shares, 7 million common shares and 12 million common shares for 2015, 2014 and 2013, respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect.
Common shares outstanding included on our balance sheet and for the calculation of earnings per common share do not include unvested stock awards (5 million common shares and 6 million common shares at December 31, 2015 and 2014, respectively); shares outstanding for legal requirements included all common shares that have voting rights (including unvested stock awards).
|
U. OTHER COMMITMENTS AND CONTINGENCIES
Litigation. We are subject to claims, charges, litigation and other proceedings in the ordinary course of our business, including those arising from or related to contractual matters, intellectual property, personal injury, environmental matters, product liability, product recalls, construction defect, insurance coverage, personnel and employment disputes, anti-trust issues and other matters, including class actions. We believe we have adequate defenses in these matters and that the likelihood that the outcome of these matters would have a material adverse effect on us is remote. However, there is no assurance that we will prevail in these matters, and we could, in the future, incur judgments, enter into settlements of claims or revise our expectations regarding the outcome of these matters, which could materially impact our results of operations.
Warranty. Changes in our warranty liability were as follows, in millions:
|
|
2015 |
|
2014 |
|
||
Balance at January 1 |
|
$ |
135 |
|
$ |
124 |
|
Accruals for warranties issued during the year |
|
|
56 |
|
|
51 |
|
Accruals related to pre-existing warranties |
|
|
15 |
|
|
11 |
|
Settlements made (in cash or kind) during the year |
|
|
(50 |
) |
|
(46 |
) |
Other, net (including currency translation) |
|
|
(4 |
) |
|
(5 |
) |
|
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
152 |
|
$ |
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments. With respect to our investments in private equity funds, we had, at December 31, 2015, commitments to contribute up to $6 million of additional capital to such funds representing our aggregate capital commitment to such funds less capital contributions made to date. We are contractually obligated to make additional capital contributions to certain of our private equity funds upon receipt of a capital call from the private equity fund. We have no control over when or if the capital calls will occur. Capital calls are funded in cash and generally result in an increase in the carrying value of our investment in the private equity fund when paid.
Other Matters. We enter into contracts, which include reasonable and customary indemnifications that are standard for the industries in which we operate. Such indemnifications include customer claims against builders for issues relating to our products and workmanship. In conjunction with divestitures and other transactions, we occasionally provide reasonable and customary indemnifications relating to various items including: the enforceability of trademarks; legal and environmental issues; provisions for sales returns; and asset valuations. We have never had to pay a material amount related to these indemnifications and we evaluate the probability that amounts may be incurred and appropriately record an estimated liability when probable.
|
V. INTERIM FINANCIAL INFORMATION (UNAUDITED)
|
|
|
|
Quarters Ended |
|
|||||||||||
|
|
|
|
(In Millions, Except Per Common Share Data) |
|
|||||||||||
|
|
Total |
|
December 31 |
|
September 30 |
|
June 30 |
|
March 31 |
|
|||||
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
7,142 |
|
$ |
1,715 |
|
$ |
1,839 |
|
$ |
1,929 |
|
$ |
1,659 |
|
Gross profit |
|
$ |
2,253 |
|
$ |
532 |
|
$ |
589 |
|
$ |
637 |
|
$ |
495 |
|
Income from continuing operations |
|
$ |
357 |
|
$ |
76 |
|
$ |
111 |
|
$ |
109 |
|
$ |
61 |
|
Net income |
|
$ |
355 |
|
$ |
75 |
|
$ |
111 |
|
$ |
105 |
|
$ |
64 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.04 |
|
$ |
.23 |
|
$ |
.33 |
|
$ |
.32 |
|
$ |
.17 |
|
Net income |
|
$ |
1.03 |
|
$ |
.22 |
|
$ |
.33 |
|
$ |
.30 |
|
$ |
.18 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.03 |
|
$ |
.22 |
|
$ |
.32 |
|
$ |
.31 |
|
$ |
.17 |
|
Net income |
|
$ |
1.02 |
|
$ |
.22 |
|
$ |
.32 |
|
$ |
.30 |
|
$ |
.18 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
7,006 |
|
$ |
1,666 |
|
$ |
1,834 |
|
$ |
1,876 |
|
$ |
1,630 |
|
Gross profit |
|
$ |
2,060 |
|
$ |
481 |
|
$ |
522 |
|
$ |
575 |
|
$ |
482 |
|
Income from continuing operations |
|
$ |
821 |
|
$ |
86 |
|
$ |
533 |
|
$ |
124 |
|
$ |
78 |
|
Net income |
|
$ |
856 |
|
$ |
100 |
|
$ |
543 |
|
$ |
139 |
|
$ |
74 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.31 |
|
$ |
.24 |
|
$ |
1.49 |
|
$ |
.35 |
|
$ |
.22 |
|
Net income |
|
$ |
2.40 |
|
$ |
.28 |
|
$ |
1.52 |
|
$ |
.39 |
|
$ |
.21 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.28 |
|
$ |
.24 |
|
$ |
1.48 |
|
$ |
.35 |
|
$ |
.22 |
|
Net income |
|
$ |
2.38 |
|
$ |
.28 |
|
$ |
1.51 |
|
$ |
.39 |
|
$ |
.21 |
|
Earnings per common share amounts for the four quarters of 2015 and 2014 may not total to the earnings per common share amounts for the years ended December 31, 2015 and 2014 due to the allocation of income to participating securities.
In the third quarter of 2014, we recorded a $517 million tax benefit from the release of the valuation allowance against our U.S. Federal and certain state deferred tax assets.
|
|
|
(In Millions) |
|
|||||||||||||||||||
Column A |
|
Column B |
|
Column C |
|
|
|
Column D |
|
|
|
Column E |
|
|||||||||
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
|||||||||
Description |
|
Balance at |
|
Charged to |
|
Charged |
|
|
|
Deductions |
|
|
|
Balance at |
|
|||||||
Allowances for doubtful accounts, deducted from accounts receivable in the balance sheet (e): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
$ |
14 |
|
$ |
4 |
|
$ |
— |
|
|
|
|
$ |
(7 |
) |
|
(a |
) |
$ |
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
$ |
22 |
|
$ |
3 |
|
$ |
— |
|
|
|
|
$ |
(11 |
) |
|
(a |
) |
$ |
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
$ |
26 |
|
$ |
5 |
|
$ |
— |
|
|
|
|
$ |
(9 |
) |
|
(a |
) |
$ |
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation Allowance on deferred tax assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
$ |
66 |
|
$ |
36 |
|
$ |
(53 |
) |
|
(b |
) |
$ |
— |
|
|
|
|
$ |
49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
$ |
662 |
|
$ |
(539 |
) |
$ |
(57 |
) |
|
(c |
) |
$ |
— |
|
|
|
|
$ |
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
$ |
785 |
|
$ |
(36 |
) |
$ |
(87 |
) |
|
(d |
) |
$ |
— |
|
|
|
|
$ |
662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
Deductions, representing uncollectible accounts written off, less recoveries of accounts written off in prior years. |
(b) |
Valuation allowance on deferred tax assets allocated to TopBuild due to its spin off into a separate stand-alone company on June 30, 2015. |
(c) |
Write off of a $55 million deferred tax asset on certain net operating loss carryforward against the valuation allowance as it was determined that there was only a remote likelihood that such a carryforward could be utilized; and $2 million valuation allowance on deferred tax assets recorded primarily in other comprehensive income. |
(d) |
Valuation allowance on deferred tax assets recorded primarily in other comprehensive income and paid in capital. |
(e) |
Amounts exclude discontinued operations. |
|
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.
|
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.
|
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 |
|
$ |
— |
|
$ |
4 |
|
Receivables |
|
|
— |
|
|
220 |
|
Inventories |
|
|
— |
|
|
107 |
|
Prepaid expenses and other |
|
|
— |
|
|
4 |
|
Property and equipment, net |
|
|
— |
|
|
93 |
|
Goodwill |
|
|
— |
|
|
1,044 |
|
Other intangible assets, net |
|
|
— |
|
|
3 |
|
Other assets |
|
|
— |
|
|
1 |
|
|
|
|
|
|
|
|
|
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 |
|
$ |
6 |
|
$ |
26 |
|
$ |
27 |
|
Capital expenditures |
|
$ |
7 |
|
$ |
13 |
|
$ |
14 |
|
|
|
|
(In Millions) |
|
||||
|
|
At December 31 |
|
||||
|
|
2015 |
|
2014 |
|
||
Finished goods |
|
$ |
358 |
|
$ |
361 |
|
Raw material |
|
|
238 |
|
|
251 |
|
Work in process |
|
|
91 |
|
|
100 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
687 |
|
$ |
712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
3 |
|
|
3 |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
48 |
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The notional amounts being hedged and the fair value of those derivative instruments are as follows, in millions:
|
|
At December 31, 2015 |
|
||||
|
|
Notional |
|
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 |
|
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 |
) |
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
The changes in the carrying amount of goodwill, by segment, were as follows, in millions:
|
|
Gross Goodwill |
|
Accumulated |
|
Net Goodwill |
|
|||
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 |
|
Accumulated |
|
Net Goodwill |
|
Additions (A) |
|
Other (B) |
|
Net Goodwill |
|
||||||
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 |
|
Accumulated |
|
Net Goodwill |
|
Additions (A) |
|
Other (B) |
|
Net Goodwill |
|
||||||
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. |
|
|
|
(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 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
5 |
|
|
4 |
|
|
12 |
|
Phantom stock awards and stock appreciation rights |
|
|
11 |
|
|
6 |
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
39 |
|
$ |
43 |
|
$ |
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit (37 percent tax rate) |
|
$ |
14 |
|
$ |
16 |
|
$ |
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our long-term stock award activity was as follows, shares in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Unvested stock award shares at January 1 |
|
|
6 |
|
|
8 |
|
|
8 |
|
Weighted average grant date fair value |
|
$ |
18 |
|
$ |
17 |
|
$ |
16 |
|
Stock award shares granted |
|
|
1 |
|
|
1 |
|
|
2 |
|
Weighted average grant date fair value |
|
$ |
26 |
|
$ |
22 |
|
$ |
20 |
|
Stock award shares vested |
|
|
2 |
|
|
2 |
|
|
2 |
|
Weighted average grant date fair value |
|
$ |
17 |
|
$ |
17 |
|
$ |
17 |
|
Stock award shares forfeited |
|
|
|
|
|
1 |
|
|
|
|
Weighted average grant date fair value |
|
$ |
18 |
|
$ |
19 |
|
$ |
16 |
|
Forfeitures upon spin off (A) |
|
|
1 |
|
|
|
|
|
|
|
Weighted average grant date fair value |
|
$ |
20 |
|
$ |
— |
|
$ |
— |
|
Modification upon spin off (B) |
|
|
1 |
|
|
|
|
|
|
|
Unvested stock award shares at December 31 |
|
|
5 |
|
|
6 |
|
|
8 |
|
Weighted average grant date fair value |
|
$ |
17 |
|
$ |
18 |
|
$ |
17 |
|
|
|
(A) |
In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards. |
(B) |
Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee directors such that all individuals received an equivalent fair value both before and after the separation. The modification to the outstanding stock awards was made pursuant to existing anti-dilution provisions in our 2014 Plan and 2005 Long Term Incentive Plan. |
Our stock option activity was as follows, shares in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Option shares outstanding, January 1 |
|
|
18 |
|
|
24 |
|
|
30 |
|
Weighted average exercise price |
|
$ |
21 |
|
$ |
22 |
|
$ |
21 |
|
Option shares granted |
|
|
|
|
|
|
|
|
1 |
|
Weighted average exercise price |
|
$ |
26 |
|
$ |
22 |
|
$ |
20 |
|
Option shares exercised |
|
|
5 |
|
|
2 |
|
|
3 |
|
Aggregate intrinsic value on date of exercise (A) |
|
$ |
50 million |
|
$ |
22 million |
|
$ |
23 million |
|
Weighted average exercise price |
|
$ |
17 |
|
$ |
16 |
|
$ |
12 |
|
Option shares forfeited |
|
|
3 |
|
|
4 |
|
|
4 |
|
Weighted average exercise price |
|
$ |
29 |
|
$ |
28 |
|
$ |
26 |
|
Forfeitures upon spin off (B) |
|
|
|
|
|
|
|
|
|
|
Weighted average exercise price |
|
$ |
19 |
|
$ |
— |
|
$ |
— |
|
Modifications upon spin off (C) |
|
|
2 |
|
|
|
|
|
|
|
Option shares outstanding, December 31 |
|
|
12 |
|
|
18 |
|
|
24 |
|
Weighted average exercise price |
|
$ |
17 |
|
$ |
21 |
|
$ |
22 |
|
Weighted average remaining option term (in years) |
|
|
3 |
|
|
4 |
|
|
4 |
|
Option shares vested and expected to vest, December 31 |
|
|
12 |
|
|
18 |
|
|
24 |
|
Weighted average exercise price |
|
$ |
17 |
|
$ |
21 |
|
$ |
22 |
|
Aggregate intrinsic value (A) |
|
$ |
133 million |
|
$ |
110 million |
|
$ |
109 million |
|
Weighted average remaining option term (in years) |
|
|
3 |
|
|
4 |
|
|
4 |
|
Option shares exercisable (vested), December 31 |
|
|
10 |
|
|
15 |
|
|
20 |
|
Weighted average exercise price |
|
$ |
18 |
|
$ |
22 |
|
$ |
24 |
|
Aggregate intrinsic value (A) |
|
$ |
113 million |
|
$ |
84 million |
|
$ |
62 million |
|
Weighted average remaining option term (in years) |
|
|
3 |
|
|
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. |
(B) |
In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards. |
(C) |
Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee directors such that all individuals received an equivalent fair value both before and after the separation. The modification to the outstanding options was made pursuant to existing anti-dilution provisions in our 2014 Plan and 2005 Long Term Incentive Plan. |
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Weighted average grant date fair value |
|
$ |
9.67 |
|
$ |
9.53 |
|
$ |
8.35 |
|
Risk-free interest rate |
|
|
1.75 |
% |
|
1.91 |
% |
|
1.22 |
% |
Dividend yield |
|
|
1.32 |
% |
|
1.34 |
% |
|
1.47 |
% |
Volatility factor |
|
|
42.00 |
% |
|
49.00 |
% |
|
49.07 |
% |
Expected option life |
|
|
6 years |
|
|
6 years |
|
|
6 years |
|
The following table summarizes information for stock option shares outstanding and exercisable at December 31, 2015, shares in millions:
Option Shares Outstanding |
|
Option Shares Exercisable |
|
|||||||||||||
Range of |
|
Number of |
|
Weighted |
|
Weighted |
|
Number of |
|
Weighted |
|
|||||
$ |
7 - 18 |
|
|
7 |
|
4 Years |
|
$ |
12 |
|
|
6 |
|
$ |
12 |
|
$ |
20 - 23 |
|
|
2 |
|
3 Years |
|
$ |
23 |
|
|
1 |
|
$ |
23 |
|
$ |
25 - 27 |
|
|
3 |
|
1 Years |
|
$ |
27 |
|
|
3 |
|
$ |
27 |
|
$ |
28 - 29 |
|
|
— |
|
- Years |
|
$ |
29 |
|
|
— |
|
$ |
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7 - 29 |
|
|
12 |
|
3 Years |
|
$ |
17 |
|
|
10 |
|
$ |
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information related to phantom stock awards and SARs was as follows, in millions:
|
|
Phantom |
|
Stock |
|
||||||||
|
|
At December 31, |
|
At December 31, |
|
||||||||
|
|
2015 |
|
2014 |
|
2015 |
|
2014 |
|
||||
Accrued compensation cost liability |
|
$ |
13 |
|
$ |
13 |
|
$ |
10 |
|
$ |
7 |
|
Unrecognized compensation cost |
|
$ |
4 |
|
$ |
4 |
|
$ |
— |
|
$ |
— |
|
Equivalent common shares |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
Pre-tax expense related to our retirement plans was as follows, in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Defined-contribution plans |
|
$ |
52 |
|
$ |
43 |
|
$ |
51 |
|
Defined-benefit plans |
|
|
32 |
|
|
25 |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
84 |
|
$ |
68 |
|
$ |
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the projected benefit obligation and fair value of plan assets, and the funded status of our defined-benefit pension plans were as follows, in millions:
|
|
2015 |
|
2014 |
|
||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||
Changes in projected benefit obligation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at January 1 |
|
$ |
1,145 |
|
$ |
190 |
|
$ |
983 |
|
$ |
163 |
|
Service cost |
|
|
3 |
|
|
— |
|
|
3 |
|
|
— |
|
Interest cost |
|
|
41 |
|
|
7 |
|
|
41 |
|
|
7 |
|
Actuarial (gain) loss, net |
|
|
(61 |
) |
|
(11 |
) |
|
184 |
|
|
32 |
|
Foreign currency exchange |
|
|
(23 |
) |
|
— |
|
|
(24 |
) |
|
— |
|
Benefit payments |
|
|
(46 |
) |
|
(12 |
) |
|
(42 |
) |
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at December 31 |
|
$ |
1,059 |
|
$ |
174 |
|
$ |
1,145 |
|
$ |
190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in fair value of plan assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1 |
|
$ |
691 |
|
$ |
— |
|
$ |
659 |
|
$ |
— |
|
Actual return on plan assets |
|
|
(12 |
) |
|
— |
|
|
38 |
|
|
— |
|
Foreign currency exchange |
|
|
(7 |
) |
|
— |
|
|
(8 |
) |
|
— |
|
Company contributions |
|
|
38 |
|
|
12 |
|
|
49 |
|
|
12 |
|
Expenses, other |
|
|
(6 |
) |
|
— |
|
|
(5 |
) |
|
— |
|
Benefit payments |
|
|
(46 |
) |
|
(12 |
) |
|
(42 |
) |
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at December 31 |
|
$ |
658 |
|
$ |
— |
|
$ |
691 |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at December 31: |
|
$ |
(401 |
) |
$ |
(174 |
) |
$ |
(454 |
) |
$ |
(190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts in our consolidated balance sheets were as follows, in millions:
|
|
At December 31, 2015 |
|
At December 31, 2014 |
|
||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||
Other assets |
|
$ |
1 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
Accrued liabilities |
|
|
(3 |
) |
|
(12 |
) |
|
(2 |
) |
|
(12 |
) |
Other liabilities |
|
|
(399 |
) |
|
(162 |
) |
|
(452 |
) |
|
(178 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net liability |
|
$ |
(401 |
) |
$ |
(174 |
) |
$ |
(454 |
) |
$ |
(190 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss included in accumulated other comprehensive income (loss) before income taxes was as follows, in millions:
|
|
At December 31, 2015 |
|
At December 31, 2014 |
|
||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||
Net loss |
|
$ |
501 |
|
$ |
56 |
|
$ |
524 |
|
$ |
68 |
|
Net transition obligation |
|
|
1 |
|
|
— |
|
|
1 |
|
|
— |
|
Net prior service cost |
|
|
2 |
|
|
— |
|
|
2 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
504 |
|
$ |
56 |
|
$ |
527 |
|
$ |
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information for defined-benefit pension plans with an accumulated benefit obligation in excess of plan assets was as follows, in millions:
|
|
At December 31 |
|
||||||||||
|
|
2015 |
|
2014 |
|
||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||
Projected benefit obligation |
|
$ |
1,045 |
|
$ |
174 |
|
$ |
1,132 |
|
$ |
190 |
|
Accumulated benefit obligation |
|
$ |
1,045 |
|
$ |
174 |
|
$ |
1,132 |
|
$ |
190 |
|
Fair value of plan assets |
|
$ |
643 |
|
$ |
— |
|
$ |
677 |
|
$ |
— |
|
Net periodic pension cost for our defined-benefit pension plans was as follows, in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
||||||||||||
|
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
Qualified |
|
Non-Qualified |
|
||||||
Service cost |
|
$ |
3 |
|
$ |
— |
|
$ |
3 |
|
$ |
— |
|
$ |
3 |
|
$ |
— |
|
Interest cost |
|
|
47 |
|
|
7 |
|
|
47 |
|
|
7 |
|
|
44 |
|
|
6 |
|
Expected return on plan assets |
|
|
(46 |
) |
|
— |
|
|
(45 |
) |
|
— |
|
|
(40 |
) |
|
— |
|
Recognized net loss |
|
|
18 |
|
|
3 |
|
|
11 |
|
|
2 |
|
|
16 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
22 |
|
$ |
10 |
|
$ |
16 |
|
$ |
9 |
|
$ |
23 |
|
$ |
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 |
|
2014 |
|
||
Equity securities |
|
|
49 |
% |
|
46 |
% |
Debt securities |
|
|
32 |
% |
|
34 |
% |
Other |
|
|
19 |
% |
|
20 |
% |
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth, by level within the fair value hierarchy, the qualified defined-benefit pension plan assets at fair value as of December 31, 2015 and 2014, in millions.
|
|
At December 31, 2015 |
|
||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Common and Preferred Stocks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
127 |
|
$ |
126 |
|
$ |
— |
|
$ |
253 |
|
International |
|
|
55 |
|
|
14 |
|
|
— |
|
|
69 |
|
Private Equity and Hedge Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
— |
|
|
— |
|
|
52 |
|
|
52 |
|
International |
|
|
— |
|
|
— |
|
|
24 |
|
|
24 |
|
Corporate Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
18 |
|
|
26 |
|
|
— |
|
|
44 |
|
International |
|
|
— |
|
|
48 |
|
|
— |
|
|
48 |
|
Government and Other Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
64 |
|
|
3 |
|
|
— |
|
|
67 |
|
International |
|
|
23 |
|
|
30 |
|
|
— |
|
|
53 |
|
Common Collective Trust Fund – United States |
|
|
— |
|
|
4 |
|
|
— |
|
|
4 |
|
Short-Term and Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
2 |
|
|
— |
|
|
— |
|
|
2 |
|
International |
|
|
2 |
|
|
21 |
|
|
19 |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at Fair Value |
|
$ |
291 |
|
$ |
272 |
|
$ |
95 |
|
$ |
658 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2014 |
|
||||||||||
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||
Common and Preferred Stocks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
136 |
|
$ |
116 |
|
$ |
— |
|
$ |
252 |
|
International |
|
|
50 |
|
|
15 |
|
|
— |
|
|
65 |
|
Private Equity and Hedge Funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
— |
|
|
— |
|
|
59 |
|
|
59 |
|
International |
|
|
— |
|
|
— |
|
|
27 |
|
|
27 |
|
Corporate Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
15 |
|
|
33 |
|
|
— |
|
|
48 |
|
International |
|
|
— |
|
|
75 |
|
|
— |
|
|
75 |
|
Government and Other Debt Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
64 |
|
|
2 |
|
|
— |
|
|
66 |
|
International |
|
|
24 |
|
|
27 |
|
|
— |
|
|
51 |
|
Common Collective Trust Fund – United States |
|
|
— |
|
|
5 |
|
|
— |
|
|
5 |
|
Short-Term and Other Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
International |
|
|
3 |
|
|
21 |
|
|
18 |
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at Fair Value |
|
$ |
292 |
|
$ |
295 |
|
$ |
104 |
|
$ |
691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the fair value of the qualified defined-benefit pension plan Level 3 assets, were as follows, in millions:
|
|
2015 |
|
2014 |
|
||
Fair Value, January 1 |
|
$ |
104 |
|
$ |
93 |
|
Purchases |
|
|
4 |
|
|
13 |
|
Sales |
|
|
(11 |
) |
|
(9 |
) |
Transfers, net |
|
|
— |
|
|
— |
|
Unrealized (losses) gains |
|
|
(2 |
) |
|
7 |
|
|
|
|
|
|
|
|
|
Fair Value, December 31 |
|
$ |
95 |
|
$ |
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average major assumptions used in accounting for our defined-benefit pension plans were as follows:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Discount rate for obligations |
|
|
4.00 |
% |
|
3.80 |
% |
|
4.40 |
% |
Expected return on plan assets |
|
|
7.25 |
% |
|
7.25 |
% |
|
7.25 |
% |
Rate of compensation increase |
|
|
— |
% |
|
— |
% |
|
— |
% |
Discount rate for net periodic pension cost |
|
|
3.80 |
% |
|
4.40 |
% |
|
3.80 |
% |
At December 31, 2015, the benefits expected to be paid in each of the next five years, and in aggregate for the five years thereafter, relating to our defined-benefit pension plans, were as follows, in millions:
|
|
Qualified |
|
Non-Qualified |
|
||
2016 |
|
$ |
49 |
|
$ |
12 |
|
2017 |
|
$ |
50 |
|
$ |
12 |
|
2018 |
|
$ |
51 |
|
$ |
12 |
|
2019 |
|
$ |
52 |
|
$ |
12 |
|
2020 |
|
$ |
53 |
|
$ |
12 |
|
2021 - 2025 |
|
$ |
280 |
|
$ |
58 |
|
|
The components of accumulated other comprehensive loss attributable to Masco Corporation were as follows, in millions:
|
|
At December 31 |
|
||||
|
|
2015 |
|
2014 |
|
||
Cumulative translation adjustments |
|
$ |
245 |
|
$ |
325 |
|
Unrealized loss on marketable securities, net |
|
|
(12 |
) |
|
(12 |
) |
Unrealized loss on interest rate swaps |
|
|
(16 |
) |
|
(18 |
) |
Unrecognized net loss and prior service cost, net |
|
|
(382 |
) |
|
(406 |
) |
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss |
|
$ |
(165 |
) |
$ |
(111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of operations were as follows, in millions:
Accumulated Other |
|
2015 |
|
2014 |
|
2013 |
|
Statement of Operations Line Item |
|||
Amortization of defined benefit pension: |
|
|
|
|
|
|
|
|
|
|
|
Actuarial losses, net |
|
$ |
21 |
|
$ |
13 |
|
$ |
18 |
|
Selling, general and administrative expenses |
Tax (benefit) expense |
|
|
(8 |
) |
|
(5 |
) |
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax |
|
$ |
13 |
|
$ |
8 |
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
2 |
|
$ |
2 |
|
$ |
2 |
|
Interest expense |
Tax (benefit) |
|
|
— |
|
|
(1 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of tax |
|
$ |
2 |
|
$ |
1 |
|
$ |
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information by segment and geographic area was as follows, in millions:
|
|
Net Sales |
|
Operating Profit |
|
Assets at |
|
|||||||||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
|||||||||
Our operations by segment were: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabinets and Related Products |
|
$ |
1,025 |
|
$ |
999 |
|
$ |
1,014 |
|
$ |
51 |
|
$ |
(62 |
) |
$ |
(10 |
) |
$ |
567 |
|
$ |
608 |
|
$ |
659 |
|
Plumbing Products |
|
|
3,341 |
|
|
3,308 |
|
|
3,183 |
|
|
512 |
|
|
512 |
|
|
394 |
|
|
1,972 |
|
|
1,989 |
|
|
2,040 |
|
Decorative Architectural Products |
|
|
2,020 |
|
|
1,998 |
|
|
1,927 |
|
|
403 |
|
|
360 |
|
|
351 |
|
|
874 |
|
|
857 |
|
|
812 |
|
Other Specialty Products |
|
|
756 |
|
|
701 |
|
|
637 |
|
|
57 |
|
|
47 |
|
|
35 |
|
|
748 |
|
|
702 |
|
|
693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,142 |
|
$ |
7,006 |
|
$ |
6,761 |
|
$ |
1,023 |
|
$ |
857 |
|
$ |
770 |
|
$ |
4,161 |
|
$ |
4,156 |
|
$ |
4,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our operations by geographic area were: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
5,645 |
|
$ |
5,377 |
|
$ |
5,222 |
|
$ |
841 |
|
$ |
643 |
|
$ |
612 |
|
$ |
2,925 |
|
$ |
2,861 |
|
$ |
2,830 |
|
International, principally Europe |
|
|
1,497 |
|
|
1,629 |
|
|
1,539 |
|
|
182 |
|
|
214 |
|
|
158 |
|
|
1,236 |
|
|
1,295 |
|
|
1,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, as above |
|
$ |
7,142 |
|
$ |
7,006 |
|
$ |
6,761 |
|
|
1,023 |
|
|
857 |
|
|
770 |
|
|
4,161 |
|
|
4,156 |
|
|
4,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expense, net (6) |
|
|
(109 |
) |
|
(145 |
) |
|
(158 |
) |
|
|
|
|
|
|
|
|
|
|||||||||
Income from litigation settlements (7) |
|
|
— |
|
|
9 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit, as reported |
|
|
914 |
|
|
721 |
|
|
612 |
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
(225 |
|
|
(214 |
|
|
(226 |
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
$ |
689 |
|
$ |
507 |
|
$ |
386 |
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate assets |
|
|
|
|
|
|
|
|
|
|
|
1,519 |
|
|
1,576 |
|
|
1,214 |
|
|||||||||
Assets held for sale |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
1,476 |
|
|
1,467 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
$ |
5,680 |
|
$ |
7,208 |
|
$ |
6,885 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property Additions (5) |
|
Depreciation and |
|
||||||||||||||
|
|
2015 |
|
2014 |
|
2013 |
|
2015 |
|
2014 |
|
2013 |
|
||||||
Our operations by segment were: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabinets and Related Products |
|
$ |
6 |
|
$ |
9 |
|
$ |
9 |
|
$ |
24 |
|
$ |
33 |
|
$ |
42 |
|
Plumbing Products |
|
|
87 |
|
|
65 |
|
|
71 |
|
|
56 |
|
|
63 |
|
|
65 |
|
Decorative Architectural Products |
|
|
16 |
|
|
12 |
|
|
16 |
|
|
16 |
|
|
16 |
|
|
17 |
|
Other Specialty Products |
|
|
41 |
|
|
28 |
|
|
10 |
|
|
18 |
|
|
18 |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150 |
|
|
114 |
|
|
106 |
|
|
114 |
|
|
130 |
|
|
146 |
|
Unallocated amounts, principally related to corporate assets |
|
|
1 |
|
|
1 |
|
|
4 |
|
|
13 |
|
|
11 |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
151 |
|
$ |
115 |
|
$ |
110 |
|
$ |
127 |
|
$ |
141 |
|
$ |
157 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Included in net sales were export sales from the U.S. of $217 million, $228 million and $227 million in 2015, 2014 and 2013, respectively. |
(2) |
Excluded from net sales were intra-company sales between segments of less than one percent in 2015, 2014 and 2013. |
(3) |
Included in net sales were sales to one customer of $2,378 million, $2,310 million and $2,275 million in 2015, 2014 and 2013, respectively. Such net sales were included in each of our segments. |
(4) |
Net sales from our operations in the U.S. were $5,407 million, $5,112 million and $4,947 million in 2015, 2014 and 2013, respectively. |
(5) |
Net sales, operating profit (loss), property additions and depreciation and amortization expense for 2015, 2014 and 2013 excluded the results of businesses reported as discontinued operations. |
(6) |
General corporate expense, net included those expenses not specifically attributable to our segments. |
(7) |
The income from litigation settlements in 2014 relates to a business in our Decorative Architectural Products segment. |
(8) |
Long-lived assets of our operations in the U.S. and Europe were $1,487 million and $427 million, $1,470 million and $428 million, and $1,530 million and $481 million at December 31, 2015, 2014 and 2013, respectively. |
|
Other, net, which is included in other income (expense), net, was as follows, in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Income from cash and cash investments |
|
$ |
3 |
|
$ |
3 |
|
$ |
3 |
|
Income from financial investments, net (Note E) |
|
|
8 |
|
|
2 |
|
|
27 |
|
Foreign currency transaction (losses) gains |
|
|
(14 |
) |
|
5 |
|
|
(21 |
) |
Other items, net |
|
|
3 |
|
|
1 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Total other, net |
|
$ |
— |
|
$ |
11 |
|
$ |
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions) |
|
|||||
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Income from continuing operations before income taxes: |
|
|
|
|
|
|
|
|
|
|
U.S. |
|
$ |
496 |
|
$ |
270 |
|
$ |
231 |
|
Foreign |
|
|
193 |
|
|
237 |
|
|
155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
689 |
|
$ |
507 |
|
$ |
386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) on income from continuing operations: |
|
|
|
|
|
|
|
|
|
|
Currently payable: |
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
$ |
10 |
|
$ |
3 |
|
$ |
3 |
|
State and local |
|
|
27 |
|
|
1 |
|
|
2 |
|
Foreign |
|
|
56 |
|
|
67 |
|
|
58 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
U.S. Federal |
|
|
192 |
|
|
(401 |
) |
|
22 |
|
State and local |
|
|
3 |
|
|
(21 |
) |
|
3 |
|
Foreign |
|
|
5 |
|
|
(10 |
) |
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
293 |
|
$ |
(361 |
) |
$ |
86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets at December 31 (1): |
|
|
|
|
|
|
|
|
|
|
Receivables |
|
$ |
9 |
|
$ |
9 |
|
|
|
|
Inventories |
|
|
17 |
|
|
25 |
|
|
|
|
Other assets, principally stock-based Compensation |
|
|
78 |
|
|
77 |
|
|
|
|
Accrued liabilities |
|
|
118 |
|
|
102 |
|
|
|
|
Long-term liabilities |
|
|
225 |
|
|
284 |
|
|
|
|
Net operating loss carryforward |
|
|
39 |
|
|
194 |
|
|
|
|
Tax credit carryforward |
|
|
55 |
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
541 |
|
|
735 |
|
|
|
|
Valuation allowance |
|
|
(49 |
) |
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
492 |
|
|
669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities at December 31 (1): |
|
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
104 |
|
|
118 |
|
|
|
|
Intangibles |
|
|
212 |
|
|
387 |
|
|
|
|
Investment in foreign subsidiaries |
|
|
8 |
|
|
4 |
|
|
|
|
Other |
|
|
1 |
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325 |
|
|
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset at December 31 |
|
$ |
167 |
|
$ |
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
2014 amounts have not been recasted to exclude discontinued operations. |
|
|
2015 |
|
2014 |
|
2013 |
|
|||
U.S. Federal statutory tax rate – expense |
|
|
35 |
% |
|
35 |
% |
|
35 |
% |
State and local taxes, net of U.S. Federal tax benefit |
|
|
3 |
|
|
(2 |
) |
|
1 |
|
Lower taxes on foreign earnings |
|
|
(1 |
) |
|
(5 |
) |
|
— |
|
U.S. and foreign taxes on distributed and undistributed foreign earnings |
|
|
3 |
|
|
— |
|
|
— |
|
U.S. Federal valuation allowance |
|
|
3 |
|
|
(98 |
) |
|
(13 |
) |
Other, net |
|
|
— |
|
|
(1 |
) |
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate – expense (benefit) |
|
|
43 |
% |
|
(71 |
)% |
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the beginning and ending liability for uncertain tax positions, including related interest and penalties, is as follows, in millions:
|
|
Uncertain |
|
Interest and |
|
Total |
|
|||
Balance at January 1, 2014 |
|
$ |
46 |
|
$ |
13 |
|
$ |
59 |
|
Current year tax positions: |
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
9 |
|
|
— |
|
|
9 |
|
Reductions |
|
|
(1 |
) |
|
— |
|
|
(1 |
) |
Prior year tax positions: |
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
1 |
|
|
— |
|
|
1 |
|
Reductions |
|
|
(5 |
) |
|
— |
|
|
(5 |
) |
Settlements with tax authorities |
|
|
(1 |
) |
|
— |
|
|
(1 |
) |
Lapse of applicable statute of limitations |
|
|
(10 |
) |
|
— |
|
|
(10 |
) |
Interest and penalties recognized in income tax expense |
|
|
— |
|
|
(4 |
) |
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
|
$ |
39 |
|
$ |
9 |
|
$ |
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year tax positions: |
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
10 |
|
|
— |
|
|
10 |
|
Prior year tax positions: |
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
1 |
|
|
— |
|
|
1 |
|
Reductions |
|
|
(1 |
) |
|
— |
|
|
(1 |
) |
Lapse of applicable statute of limitations |
|
|
(6 |
) |
|
— |
|
|
(6 |
) |
Interest and penalties recognized in income tax expense |
|
|
— |
|
|
1 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015 |
|
$ |
43 |
|
$ |
10 |
|
$ |
53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions:
|
|
2015 |
|
2014 |
|
2013 |
|
|||
Numerator (basic and diluted): |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
357 |
|
$ |
821 |
|
$ |
259 |
|
Less: Allocation to unvested restricted stock awards |
|
|
5 |
|
|
16 |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to common shareholders |
|
|
352 |
|
|
805 |
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations, net |
|
|
(2 |
) |
|
35 |
|
|
29 |
|
Less: Allocation to unvested restricted stock awards |
|
|
— |
|
|
(1 |
) |
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from discontinued operations attributable to common shareholders |
|
|
(2 |
) |
|
34 |
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income available to common shareholders |
|
$ |
350 |
|
$ |
839 |
|
$ |
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
Basic common shares (based upon weighted average) |
|
|
338 |
|
|
349 |
|
|
350 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
Stock option dilution |
|
|
3 |
|
|
3 |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares |
|
|
341 |
|
|
352 |
|
|
352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in our warranty liability were as follows, in millions:
|
|
2015 |
|
2014 |
|
||
Balance at January 1 |
|
$ |
135 |
|
$ |
124 |
|
Accruals for warranties issued during the year |
|
|
56 |
|
|
51 |
|
Accruals related to pre-existing warranties |
|
|
15 |
|
|
11 |
|
Settlements made (in cash or kind) during the year |
|
|
(50 |
) |
|
(46 |
) |
Other, net (including currency translation) |
|
|
(4 |
) |
|
(5 |
) |
|
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
152 |
|
$ |
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarters Ended |
|
|||||||||||
|
|
|
|
(In Millions, Except Per Common Share Data) |
|
|||||||||||
|
|
Total |
|
December 31 |
|
September 30 |
|
June 30 |
|
March 31 |
|
|||||
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
7,142 |
|
$ |
1,715 |
|
$ |
1,839 |
|
$ |
1,929 |
|
$ |
1,659 |
|
Gross profit |
|
$ |
2,253 |
|
$ |
532 |
|
$ |
589 |
|
$ |
637 |
|
$ |
495 |
|
Income from continuing operations |
|
$ |
357 |
|
$ |
76 |
|
$ |
111 |
|
$ |
109 |
|
$ |
61 |
|
Net income |
|
$ |
355 |
|
$ |
75 |
|
$ |
111 |
|
$ |
105 |
|
$ |
64 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.04 |
|
$ |
.23 |
|
$ |
.33 |
|
$ |
.32 |
|
$ |
.17 |
|
Net income |
|
$ |
1.03 |
|
$ |
.22 |
|
$ |
.33 |
|
$ |
.30 |
|
$ |
.18 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
1.03 |
|
$ |
.22 |
|
$ |
.32 |
|
$ |
.31 |
|
$ |
.17 |
|
Net income |
|
$ |
1.02 |
|
$ |
.22 |
|
$ |
.32 |
|
$ |
.30 |
|
$ |
.18 |
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
7,006 |
|
$ |
1,666 |
|
$ |
1,834 |
|
$ |
1,876 |
|
$ |
1,630 |
|
Gross profit |
|
$ |
2,060 |
|
$ |
481 |
|
$ |
522 |
|
$ |
575 |
|
$ |
482 |
|
Income from continuing operations |
|
$ |
821 |
|
$ |
86 |
|
$ |
533 |
|
$ |
124 |
|
$ |
78 |
|
Net income |
|
$ |
856 |
|
$ |
100 |
|
$ |
543 |
|
$ |
139 |
|
$ |
74 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.31 |
|
$ |
.24 |
|
$ |
1.49 |
|
$ |
.35 |
|
$ |
.22 |
|
Net income |
|
$ |
2.40 |
|
$ |
.28 |
|
$ |
1.52 |
|
$ |
.39 |
|
$ |
.21 |
|
Diluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.28 |
|
$ |
.24 |
|
$ |
1.48 |
|
$ |
.35 |
|
$ |
.22 |
|
Net income |
|
$ |
2.38 |
|
$ |
.28 |
|
$ |
1.51 |
|
$ |
.39 |
|
$ |
.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|