# UNITED	STATES	SECURITIES	AND	EXCHANGE	COMMISSION

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF

# THE	SECURITIES	EXCHANGE	ACT	OF	1934

# MASCO	CORPORATION

(Exact	name	of	Registrant	as	Specified	in	its	Charter)

Delaware

(State	of	Incorporation)

17450	College	Parkway,	Livonia,	Michigan

(Address	of	Principal	Executive	Offices)

(I.R.S.	Employer	Identification	No.)

(Zip	Code)

Registrant's	telephone	number,	including	area	code:	313-274-7400

Securities	Registered	Pursuant	to	Section	12(b)	of	the	Act:

# Name	of	Each	Exchange

Securities	Registered	Pursuant	to	Section	12(g)	of	the	Act:	None

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.	Yes	 þ	No	o

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.	Yes o	No	þ

Indicate	by	check	mark	whether	the	Registrant:	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934 during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing requirements	for	the	past	90	days.	Yes	þ	No	o

Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Web	site,	if	any,	every	Interactive	Data	File required	to	be	submitted	and	posted	pursuant	to	Rule	405	of	Regulation	S-T	during	the	preceding	12	months	(or	such	shorter	period	that	the	registrant was	required	to	submit	and	post	such	files).	Yes	þ	No	o

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the best	of	Registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to this	Form	10-K.	þ

Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	a	non-accelerated	filer,	a	smaller	reporting	company,	or emerging	growth	company.	See	the	definitions	of	"large	accelerated	filer,"	"accelerated	filer,"	"smaller	reporting	company,"and	"emerging	growth

company"	in	Rule	12b-2	of	the	Exchange	Act.

Large	accelerated	filer	x

Non-accelerated	filer	o

(Do	not	check	if	a	smaller	reporting	company)

Accelerated	filer	o

Smaller	reporting	company	o

Emerging	growth	company	o

If	an	emerging	growth	company,	indicate	by	check	mark	if	the	registrant	has	elected	not	to	use	the	extended	transition	period	for	complying	with	any	new or	revised	financial	accounting	standards	provided	pursuant	to	Section	13(a)	of	the	Exchange	Act.	o

Indicate	by	check	mark	whether	the	registrant	is	a	shell	company	(as	defined	in	Rule	12b-2	of	the	Exchange	Act).	Yes o	No	þ

The	aggregate	market	value	of	the	Registrant's	Common	Stock	held	by	non-affiliates	of	the	Registrant	on	 June	30,	2017	(based	on	the	closing	sale	price of	$38.21	of	the	Registrant's	Common	Stock,	as	reported	by	the	New	York	Stock	Exchange	on	such	date)	was	approximately	$12,100,656,000.

Number	of	shares	outstanding	of	the	Registrant's	Common	Stock	at	 January	31,	2018:

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Portions	of	the	Registrant's	definitive	Proxy	Statement	to	be	filed	for	its	 2018	Annual	Meeting	of	Stockholders	are	incorporated	by	reference	into	Part	III	of this	Form	10-K.

# TABLE	OF	CONTENTS

| Item |  | Page |
| :--- | :--- | :--- |
|  | PART\tI |  |
| 1. | \t Business | 2 |
| 1A. | \t Risk\tFactors | 7 |
| 1B. | \t Unresolved\tStaff\tComments | 12 |
| 2. | \t Properties | 12 |
| 3. | Legal\tProceedings | 13 |
| 4. | \t Mine\tSafety\tDisclosures | 13 |
|  | PART\tII |  |
| 5. | \t Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 14 |
| 6. | \t Selected\tFinancial\tData | 16 |
| 7. | \t Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 17 |
| 7A. | \t Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 34 |
| 8. | Financial\tStatements\tand\tSupplementary\tData | 35 |
| 9. | \t Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 75 |
| 9A. | \t Controls\tand\tProcedures | 75 |
| 9B. | \t Other\tInformation | 75 |
|  | PART\tIII |  |
| 10. | \t Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 76 |
| 11. | \t Executive\tCompensation | 76 |
| 12. | \t Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 76 |
| 13. | \t Certain\tRelationships\tand\tRelated\tTransactions,\tand\tDirector\tIndependence | 76 |
| 14. | \t Principal\tAccountant\tFees\tand\tServices | 76 |
|  | PART\tIV |  |
| 15. | \t Exhibits\tand\tFinancial\tStatement\tSchedules | 77 |
| 16. | Form\t10-K\tSummary | 80 |
|  | \t Signatures | 81 |

# PART	I

# Item	1. Business.

Masco	Corporation	is	a	global	leader	in	the	design,	manufacture	and	distribution	of	branded	home	improvement	and	building	products.	Our	portfolio of	industry-leading	brands	includes	BEHR®	paint;	DELTA®	and	HANSGROHE®	faucets	and	bath	and	shower	fixtures;	KRAFTMAID®	and	MERILLAT® cabinets;	MILGARD®	windows	and	doors;	and	HOT	SPRING®	spas.	We	leverage	our	powerful	brands	across	product	categories,	sales	channels	and geographies	to	create	value	for	our	customers	and	shareholders.

We	believe	that	our	solid	results	of	operations	and	financial	position	for	 2017	resulted	from	our	continued	focus	on	our	three	strategic	pillars:	driving the	full	potential	of	our	core	businesses,	leveraging	opportunities	across	our	businesses,	and	actively	managing	our	portfolio.

To	drive	the	full	potential	of	our	core	businesses	during	 2017,	we	continued	to	pursue	sales	growth	opportunities	by	introducing	new	products, enhancing	services	and	penetrating	adjacent	markets.	In	addition,	we	continued	to	reduce	costs	and	capitalize	on	synergies	across	our	businesses	with standardized	 operating	 tools,	 cost	 saving	 initiatives	 and	 the	 implementation	 of	 lean	 principles	 and	 process	 improvements	 in	 many	 areas,	 including production	and	functional	support	processes.	As	a	result,	we	grew	both	our	top	and	bottom	lines.

We	also	continued	to	leverage	the	collective	strength	of	our	enterprise,	the	second	pillar	of	our	strategy.	We	provided	new	assignments	to	selected leaders	across	our	business	units	to	further	develop	talent	and	facilitate	operational	improvements.	We	continued	to	realize	supply	chain	efficiencies through	strategic	sourcing	and	to	share	best	practices	across	all	of	our	functional	departments	to	enhance	productivity.	We	believe	this	contributed	to	our results	of	operations	improving	as	compared	to	the	prior	year.

Additionally,	we	continued	to	actively	manage	our	portfolio,	the	third	pillar	of	our	strategy,	and	remain	committed	to	making	selective	acquisitions	in attractive	end	markets.	During	2017,	we	acquired	a	U.S.	plastics	processor	and	manufacturer	of	water	handling	systems	in	our	Plumbing	Products segment	and	signed	a	definitive	agreement	to	acquire	The	L.D.	Kichler	Co.,	a	leader	in	decorative	residential	and	light	commercial	lighting	products, ceiling	fans	and	LED	lighting	systems,	which	is	expected	to	close	in	the	first	quarter	of	2018.	We	also	divested	our	U.S.	fastener	and	tool	business	and our	U.K.	manufacturer	of	kitchen	and	bathroom	furniture	business.	In	addition,	we	repurchased	over	9	million	shares	of	our	common	stock	and	increased our	quarterly	dividend	by	5	percent,	which	further	enhanced	value	for	our	shareholders.

We	believe	that	the	actions	we	have	taken	over	the	last	few	years,	combined	with	the	Masco	Operating	System,	our	methodology	to	drive	growth and	productivity,	have	positioned	us	to	further	enhance	shareholder	value	through	strong	and	consistent	growth.		We	will	continue	to	actively	manage	our portfolio,	 identify	 growth	 opportunities	 in	 key	 industries	 and	 create	 new	 products	 that	 differentiate	 us	 in	 the	 marketplace	 by	 combining	 design	 and innovation.	By	focusing	on	our	disciplined	execution	of	our	strategy,	we	believe	that	our	positive	momentum	will	continue.

# Our	Business	Segments

We	report	our	financial	results	in	four	business	segments	aggregated	by	similarity	in	products.	The	following	tables	set	forth	the	contribution	of	our segments	to	net	sales	and	operating	profit	(loss)	for	the	three-year	period	ended	December	31,	2017.	Additional	financial	information	concerning	our operations	by	segment	and	by	geographic	regions,	as	well	as	general	corporate	expense,	net,	as	of	and	for	the	three-year	period	ended	December	31, 2017,	is	set	forth	in	Note	O	to	the	consolidated	financial	statements	included	in	Item	8	of	this	Report.

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Plumbing\tProducts | $3,735 | $3,526 | $3,341 |
| Decorative\tArchitectural\tProducts | 2,205 | 2,092 | 2,020 |
| Cabinetry\tProducts | 934 | 970 | 1,025 |
| Windows\tand\tOther\tSpecialty\tProducts | 770 | 769 | 756 |
| Total | $7,644 | $7,357 | $7,142 |

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Plumbing\tProducts | $698 | $642 | $512 |
| Decorative\tArchitectural\tProducts | 434 | 430 | 403 |
| Cabinetry\tProducts | 90 | 93 | 51 |
| Windows\tand\tOther\tSpecialty\tProducts | 52 | (3) | 57 |
| Total | $1,274 | $1,162 | $1,023 |

(1) Amounts	exclude	discontinued	operations.

(2) Operating	profit	(loss)	is	before	general	corporate	expense,	net.	Refer	to	Note	O	to	the	consolidated	financial	statements	for	additional	information.

All	of	our	operating	segments,	except	the	Plumbing	Products	segment,	normally	experience	stronger	sales	during	the	second	and	third	calendar quarters,	corresponding	with	the	peak	season	for	repair	and	remodel	activity	and	new	home	construction.

# Plumbing	Products

The	businesses	in	our	Plumbing	Products	segment	sell	a	wide	variety	of	products	that	are	manufactured	or	sourced	by	us.

•The	majority	of	our	faucet,	sink,	bathing	and	showering	products	are	sold	in	North	America	and	Europe	under	the	brand	names	DELTA ®, BRIZO®,	PEERLESS®,	HANSGROHE®,	AXOR ®,	GINGER®,	NEWPORT	BRASS®,	BRASSTECH®	and	WALTEC ®.	 Our	 BRISTAN™	 and HERITAGE™	products	are	sold	primarily	in	the	United	Kingdom.	These	plumbing	products	include	faucets,	showerheads,	handheld	showers, valves,	bath	hardware	and	accessories,	bathing	units,	shower	enclosures	and	toilets.	We	sell	these	products	to	home	center	and	online retailers	and	 to	wholesalers	and	distributors	 that,	 in	 turn,	sell	 them	 to	plumbers,	building	contractors,	remodelers,	smaller	retailers	and consumers.

•We	manufacture	acrylic	tubs,	bath	and	shower	enclosure	units,	and	shower	trays.	Our	DELTA,	PEERLESS	and	MIROLIN ®	products	are	sold primarily	to	home	center	retailers	in	North	America.	Our	MIROLIN	products	are	also	sold	to	wholesalers	and	distributors	in	Canada.	Our HÜPPE®	shower	enclosures	and	shower	trays	are	sold	through	wholesale	channels	primarily	in	Europe.

•Our	 spas	 and	 exercise	 pools	 and	 systems	 are	 manufactured	 and	 sold	 under	 our	 HOT	 SPRING ®,	 CALDERA®,	 FREEFLOW	 SPAS ®, FANTASY	SPAS ®	and	ENDLESS	POOLS®	 brands,	 as	 well	 as	 under	 other	 trademarks.	 Our	 spa	 products	 and	 exercise	 pools	 are	 sold worldwide	to	independent	specialty	retailers	and	distributors	and	to	online	mass	merchant	retailers.	Certain	exercise	pools	are	also	available on	a	consumer-direct	basis	in	North	America	and	Europe,	while	our	fitness	systems	are	sold	through	independent	specialty	retailers	as	well as	on	a	consumer-direct	basis.

•Also	included	in	our	Plumbing	Products	segment	are	brass ,	copper	and	composite	plumbing	system	components	and	other	non-decorative plumbing	products	that	are	sold	to	plumbing,	heating	and	hardware	wholesalers,	home	center	and	e-commerce	retailers,	hardware	stores, building	supply	outlets	and	other	mass	merchandisers.	These	products	are	marketed	primarily	in	North	America	under	our	BRASSCRAFT®, PLUMB	SHOP®,	COBRA®,	COBRA	PRO™,	and	MASTER	PLUMBER ®	brands	and	are	also	sold	under	private	label.

We	believe	that	our	plumbing	products	are	among	the	leaders	in	sales	in	North	America	and	Europe.	Competitors	of	the	majority	of	our	products	in this	segment	include	Lixil	Group	Corporation's	American	Standard	Brands	and	Grohe	products,	Kohler	Co.,	Fortune	Brands	Home	&	Security	Inc.'s Moen,	Rohl	and	Riobel	brands	and	Spectrum	Brands	Holdings,	LLC's	Pfister	faucets.	Competitors	of	our	spas	and	exercise	pools	and	systems	include Jacuzzi,	Master	Spas	and	Dynasty	Spas.	Foreign	manufacturers	competing	with	us	are	located	primarily	in	Germany	and	China.	We	face	significant competition	from	private	label	products.	Many	of	the	faucet	and	showering	products	with	which	our	products	compete	are	manufactured	by	foreign manufacturers	that	are	putting	downward	pressure	on	price.	The	businesses	in

our	Plumbing	Products	segment	manufacture	products	in	North	America,	Europe	and	Asia	and	source	products	from	Asia	and	other	regions.	Competition for	our	plumbing	products	is	based	largely	on	brand	reputation,	product	features	and	innovation,	product	quality,	customer	service,	breadth	of	product offering	and	price.

Many	of	our	plumbing	products	contain	brass,	the	major	components	of	which	are	copper	and	zinc.	We	have	multiple	sources,	both	domestic	and foreign,	for	the	raw	materials	used	in	this	segment,	and	sufficient	raw	materials	have	been	available	for	our	needs.	We	have	encountered	price	volatility for	brass,	brass	components	and	any	components	containing	copper	and	zinc.	To	help	reduce	the	impact	of	this	volatility,	from	time	to	time	we	may	enter into	long-term	agreements	with	certain	significant	suppliers	or,	occasionally,	use	derivative	instruments.

In	the	fourth	quarter	of	2017,	we	acquired	Mercury	Plastics,	Inc.	("Mercury"),	a	U.S.	plastics	processor	and	manufacturer	of	water	handling	systems. This	acquisition	enhances	our	ability	to	develop	faucet	technology	and	provides	continuity	of	supply	of	quality	faucet	components.

# Decorative	Architectural	Products

We	produce	architectural	coatings,	including	paints,	primers,	specialty	paints,	stains	and	waterproofing	products.	These	products	are	sold	in	North America,	South	America	and	China	under	the	brand	names	BEHR®,	KILZ®	and	other	trademarks	to	"do-it-yourself"	and	professional	customers	through home	center	retailers	and	other	retailers.	Net	sales	of	architectural	coatings	comprised	approximately	25	percent	of	our	consolidated	net	sales	in	2017, 2016	and	2015.	Our	BEHR	products	are	sold	through	The	Home	Depot,	our	largest	customer	overall,	as	well	as	this	segment's	largest	customer.	The loss	of	this	segment's	sales	to	The	Home	Depot	would	have	a	material	adverse	effect	on	this	segment's	business	and	on	our	consolidated	business	as	a whole.

Our	 competitors	 in	 this	 segment	 include	 large	 national	 and	 international	 brands	 such	 as	 Benjamin	 Moore,	 Glidden,	 Olympic,	 PPG, Sherwin-Williams,	Valspar	and	Zinsser,	as	well	as	many	regional	and	other	national	brands.	We	believe	that	brand	reputation	is	an	important	factor	in consumer	selection,	and	that	competition	in	this	industry	is	also	based	largely	on	product	features	and	innovation,	product	quality,	customer	service	and price.

Titanium	dioxide	is	a	major	ingredient	in	the	manufacture	of	architectural	coatings.	The	price	for	titanium	dioxide	can	fluctuate	as	a	result	of	global supply	and	demand	dynamics	and	production	capacity	 limitations,	which	can	have	a	material	 impact	on	our	costs	and	results	of	operations	 in	 this segment.	Natural	gas	derivatives	and	acrylic	resins	derived	from	crude	oil	are	also	used	in	the	manufacture	of	architectural	coatings.	Significant	price fluctuations	in	either	natural	gas	derivatives	or	crude	oil	can	also	impact	our	costs	in	this	segment.	We	have	agreements	with	certain	significant	suppliers for	this	segment	that	are	intended	to	help	assure	continued	supply.

Our	Decorative	Architectural	Products	segment	also	includes	branded	cabinet,	door	and	window	hardware,	functional	hardware,	glass	shower doors,	wall	plates,	hook	and	rail	products,	and	picture	hanging	accessories,	which	are	manufactured	for	us	and	sold	to	home	center	retailers,	mass retailers,	 e-commerce	 retailers,	 other	 specialty	 retailers,	 original	 equipment	 manufacturers	 and	 wholesalers.	 These	 products	 are	 sold	 under	 the LIBERTY®,	BRAINERD®	and	other	trademarks,	and	our	key	competitors	in	North	America	include	Amerock,	Top	Knobs,	Richelieu	and	private	label brands.	 Decorative	 bath	 hardware,	 shower	 accessories,	 and	 shower	 doors	 are	 sold	 under	 the	 brand	 names	 DELTA®	 and	 FRANKLIN	 BRASS®	 to wholesalers,	home	center	retailers,	mass	retailers	and	other	specialty	retailers.	Competitors	for	these	products	include	Moen,	Kohler,	Gatco	and	private label	brands.

# Cabinetry	Products

In	North	America,	we	manufacture	and	sell	semi-custom,	stock	and	value-priced	assembled	cabinetry	for	kitchen,	bath,	storage,	home	office	and home	entertainment	applications	in	a	broad	range	of	styles	and	price	points	to	address	consumer	preferences.	Our	KRAFTMAID®	and	CARDELL® products	are	sold	primarily	to	dealers	and	home	center	retailers,	and	our	MERILLAT ®	and	QUALITY	CABINETS™	products	are	sold	primarily	to	dealers and	homebuilders	for	both	home	improvement	and	new	home	construction.	Cabinet	sales	are	significantly	affected	by	levels	of	activity	in	both	retail consumer	spending	and	new	home	construction,	particularly	spending	for	major	kitchen	and	bathroom	renovation	projects.	A	significant	portion	of	our cabinetry	sales	for	home	improvement	projects	are	made	through	home	center	retailers.

The	cabinet	manufacturing	industry	in	the	United	States	includes	several	large	companies	and	numerous	local	and	regional	businesses	with	whom we	compete.	We	believe	that	competition	in	this	industry	is	based	largely	on	product	features	and	selection,	product	quality,	and	price.	Our	competitors	in this	segment	include	American	Woodmark	Corporation,	Fortune	Brands	Home	&	Security,	Inc.	and	Elkay.

The	raw	materials	used	in	this	segment	are	primarily	hardwood	lumber,	plywood	and	particleboard,	and	are	available	from	multiple	sources,	both domestic	and	foreign.	Some	of	the	materials	we	import	may	be	subject	to	customs	duties.

In	the	fourth	quarter	of	2017,	we	divested	Moores	Furniture	Group	Limited	("Moores"),	a	manufacturer	of	kitchen	and	bathroom	furniture	in	the United	Kingdom.

# Windows	and	Other	Specialty	Products

We	manufacture	and	sell	vinyl,	fiberglass	and	aluminum	windows	and	patio	doors,	which	are	sold	under	the	MILGARD ®	brand	name	for	home improvement	and	new	home	construction,	principally	in	the	western	United	States.	MILGARD	products	are	sold	primarily	through	dealers	and,	to	a	lesser extent,	directly	to	production	homebuilders	and	through	lumber	yards	and	home	center	retailers.	Our	North	American	competitors	for	these	products include	national	brands,	such	as	Jeld-Wen,	Marvin,	Pella,	Ply	Gem	and	Andersen,	and	numerous	regional	brands.

In	the	United	Kingdom,	we	manufacture	and	sell	vinyl	windows,	composite	and	panel	doors,	related	products	and	components	under	several	brand names,	including	DURAFLEX™,	GRIFFIN™,	PREMIER™	and	EVOLUTION™.	Sales	are	primarily	through	dealers	and	wholesalers	to	the	repair	and remodeling	markets,	although	our	DURAFLEX	products	are	also	sold	to	other	window	fabricators.	United	Kingdom	competitors	include	many	small	and mid-sized	firms	and	a	few	large,	vertically	integrated	competitors.

In	addition	to	price,	we	believe	that	brand	reputation	is	an	important	factor	in	consumer	selection	and	that	competition	in	this	industry	in	both	the domestic	and	international	markets	is	based	largely	on	product	quality,	innovative	products	and	customer	and	warranty	services.

The	raw	materials	used	in	this	segment	are	available	from	multiple	sources.

In	the	second	quarter	of	2017,	we	divested	Arrow	Fastener	Co.,	LLC	("Arrow"),	a	manufacturer	and	distributor	of	fastening	tools.

# Additional	Information

# Intellectual	Property

We	hold	numerous	U.S.	and	foreign	patents,	patent	applications,	licenses,	trademarks,	trade	names,	trade	secrets	and	proprietary	manufacturing processes.	We	view	our	trademarks	and	other	intellectual	property	rights	as	important,	but	do	not	believe	that	there	is	any	reasonable	likelihood	of	a	loss of	such	rights	that	would	have	a	material	adverse	effect	on	our	present	business	as	a	whole.

# Environmental	Laws	and	Regulations	Affecting	Our	Business

We	 are	 subject	 to	 federal,	 state,	 local	 and	 foreign	 government	 regulations	 regarding	 the	 protection	 of	 the	 environment,	 and	 we	 have	 certain responsibilities	for	environmental	remediation.	We	monitor	applicable	laws	and	regulations	relating	to	the	protection	of	the	environment	and	incur	ongoing expense	relating	to	compliance.	Compliance	with	these	laws	and	regulations	may	affect	our	product	and	production	costs.

•Many	products	in	our	Plumbing	Products	segment	are	subject	to	restrictions	on	the	amount	of	certain	materials	and	chemicals,	including	lead and	mercury,	that	can	be	in	the	product,	and	on	water	flow	rates.

•Our	Decorative	Architectural	Products	segment	is	subject	to	requirements	relating	to	the	emission	of	volatile	organic	compounds,	which	has required	us	to	reformulate	paint	products	and	may	require	further	reformulation	in	the	future.

•Our	Cabinetry	Products	segment	is	also	subject	to	requirements	relating	to	the	emission	of	volatile	organic	compounds,	which	may	impact our	sourcing	of	particleboard	and	may	require	us	to	install	special	equipment	in	manufacturing	facilities.

We	do	not	expect	 that	compliance	with	 the	 federal,	state	and	 local	regulations	relating	 to	 the	discharge	of	materials	 into	 the	environment,	or otherwise	relating	to	the	protection	of	the	environment,	will	result	in	material	capital	expenditures	or	have	a	material	adverse	effect	on	our	competitive position	or	results	of	operations	and	financial	position.

# Backlog

We	do	not	consider	backlog	orders	to	be	material	in	any	of	our	segments.

# Employees

At	December	31,	2017,	we	employed	approximately	26,000	people.	We	have	generally	experienced	satisfactory	relations	with	our	employees.

# Available	Information

Our	 website	 is	 www.masco.com.	 Our	 periodic	 reports	 and	 all	 amendments	 to	 those	 reports	 required	 to	 be	 filed	 or	 furnished	 pursuant	 to Section	13(a)	or	Section	15(d)	of	the	Securities	Exchange	Act	of	1934	are	available	free	of	charge	through	our	website	as	soon	as	reasonably	practicable after	those	reports	are	electronically	filed	with	or	furnished	to	the	Securities	and	Exchange	Commission	("SEC").	This	Report	is	being	posted	on	our website	concurrently	with	its	filing	with	the	SEC.	Material	contained	on	our	website	is	not	incorporated	by	reference	into	this	Report.	Our	reports	filed	with the	SEC	also	may	be	found	on	the	SEC's	website	at	www.sec.gov.

There	are	a	number	of	business	risks	and	uncertainties	that	could	affect	our	business.	These	risks	and	uncertainties	could	cause	our	actual	results	to differ	from	past	performance	or	expected	results.	We	consider	the	following	risks	and	uncertainties	to	be	most	relevant	to	our	specific	business	activities. Additional	risks	and	uncertainties	not	presently	known	to	us,	or	that	we	currently	believe	to	be	immaterial,	also	may	adversely	impact	our	business,	results of	operations	and	financial	position.

# Our	business	relies	on	residential	repair	and	remodeling	activity	and,	to	a	lesser	extent,	on	new	home	construction	activity,	both	of	which	are	cyclical.

Our	business	relies	on	residential	repair	and	remodeling	activity	and,	to	a	lesser	extent,	on	new	home	construction	activity.	A	number	of	factors affect	consumers'	spending	on	home	improvement	projects	as	well	as	new	home	construction	activity,	including:

•consumer	confidence	levels;

•fluctuations	in	home	prices;

•existing	home	sales;

•unemployment	and	underemployment	levels;

•consumer	income	and	debt	levels;

•household	formation;

•the	availability	of	home	equity	loans	and	mortgages	and	the	interest	rates	for	and	tax	deductibility	of	such	loans;

•the	availability	of	skilled	tradespeople	for	repair	and	remodeling	work;

•trends	in	lifestyle	and	housing	design;	and

•weather	and	natural	disasters.

The	fundamentals	driving	our	business	are	cyclical,	and	adverse	changes	or	uncertainty	involving	the	factors	listed	above	could	result	in	a decline	in	spending	on	residential	repair	and	remodeling	activity	and	a	decline	in	demand	for	new	home	construction,	which	could	adversely	affect	our results	of	operations	and	financial	position.

# We	could	lose	market	share	if	we	do	not	maintain	our	strong	brands,	develop	new	products	or	respond	to	changing	purchasing	practices	and	consumer	preferences or	if	our	reputation	is	damaged.

Our	competitive	advantage	is	due,	in	part,	to	our	ability	to	maintain	our	strong	brands	and	to	develop	and	introduce	innovative	new	and	improved products.	While	we	continue	to	invest	in	brand	building	and	brand	awareness,	these	initiatives	may	not	be	successful.	The	uncertainties	associated	with developing	and	introducing	new	and	improved	products,	such	as	gauging	changing	consumer	preferences	and	successfully	developing,	manufacturing, marketing	and	selling	these	products,	may	impact	the	success	of	our	product	introductions.	If	we	do	not	introduce	new	or	improved	products	in	a	timely manner	or	if	these	products	do	not	gain	widespread	acceptance,	we	could	lose	market	share,	which	could	adversely	impact	our	results	of	operations	and financial	position.	It	is	also	possible	that	our	competitors	may	improve	their	products	more	rapidly	or	effectively	than	we	do,	which	could	adversely	affect our	market	share.

In	recent	years,	consumer	purchasing	practices	and	preferences	have	shifted	and	our	customers'	business	models	and	strategies	have	changed.	As our	customers	execute	their	strategies	to	reach	end	consumers	through	multiple	channels,	they	rely	on	us	to	support	their	efforts	with	our	infrastructure, including	 maintaining	 robust	 and	 user-friendly	 websites	 with	 sufficient	 content	 for	 consumer	 research	 and	 to	 provide	 comprehensive	 supply	 chain solutions	and	differentiated	product	development.	If	we	are	unable	to	successfully	provide	this	support	to	our	customers,	our	brands	may	lose	market share.

If	we	do	not	timely	and	effectively	identify	and	respond	to	these	changing	purchasing	practices	and	consumer	preferences,	our	relationships	with	our customers	and	with	consumers	could	be	harmed,	the	demand	for	our	brands	and	products	could	be	reduced	and	our	results	of	operations	and	financial position	could	be	adversely	affected.

Our	public	image	and	reputation	are	important	to	maintaining	our	strong	brands	and	could	be	adversely	affected	by	various	factors,	including	product quality	and	service,	claims	and	comments	 in	social	media	or	 the	press,	or	negative	publicity	regarding	disputes	or	 legal	action	against	us,	even	 if unfounded.	Damage	to	our	public	image	or	reputation	could	adversely	affect	our	sales	and	results	of	operations	and	financial	position.

# We	face	significant	competition.

Our	products	face	significant	competition.	We	believe	that	brand	reputation	is	an	important	factor	affecting	product	selection	and	that	we	compete	on the	basis	of	product	features	and	innovation,	product	quality,	customer	service,	warranty	and	price.	We	sell	many	of	our	products	through	home	center retailers,	online	retailers,	distributors	and	independent	dealers	and	rely	on	these	customers	to	market	and	promote	our	products	to	consumers.	Our success	with	our	customers	is	dependent	on	our	ability	to	provide	quality	products	and	timely	delivery.	In	addition,	home	center	retailers,	which	have historically	 concentrated	 their	 sales	 efforts	 on	 retail	 consumers	 and	 remodelers,	 are	 increasingly	 marketing	 directly	 to	 professional	 contractors	 and installers,	which	may	affect	our	margins	on	our	products	that	contractors	and	installers	would	otherwise	buy	through	our	dealers	and	wholesalers.

We	also	compete	with	low-cost	foreign	manufacturers	and	private	label	brands	sold	by	our	customers	in	a	variety	of	our	product	groups.	As	market dynamics	change,	we	may	experience	a	shift	in	the	mix	of	some	products	we	sell	toward	more	value-priced	or	opening	price	point	products,	which	may affect	our	ability	to	maintain	or	gain	market	share	and/or	our	profitability.

If	we	are	unable	to	maintain	our	competitive	position	in	our	industries ,	our	results	of	operations	and	financial	position	could	be	adversely	affected.

# Our	sales	are	concentrated	with	two	significant	customers.

Our	sales	are	concentrated	with	our	two	largest	customers.	In	2017,	our	net	sales	to	The	Home	Depot	were	$2.5	billion	(approximately	33	percent	of our	consolidated	net	sales),	and	our	net	sales	to	Lowe's	were	less	than	10	percent	of	our	consolidated	net	sales.	Our	reliance	on	these	significant customers	may	further	increase	if	the	mix	of	our	business	operations	changes,	including	as	a	result	of	acquisitions	or	divestitures.	These	home	center retailers	can	significantly	affect	the	prices	we	receive	for	our	products	and	the	terms	and	conditions	on	which	we	do	business	with	them.	Additionally, these	home	center	retailers	may	reduce	 the	number	of	vendors	 from	which	 they	purchase	and	could	make	significant	changes	 in	 their	volume	of purchases	from	us.	Although	other	retailers,	dealers,	distributors	and	homebuilders	represent	other	channels	of	distribution	for	our	products	and	services, we	might	not	be	able	to	quickly	replace,	if	at	all,	the	loss	of	a	substantial	portion	of	our	sales	to	The	Home	Depot	or	the	loss	of	all	of	our	sales	to	Lowe's, and	any	such	loss	would	have	a	material	adverse	effect	on	our	business,	results	of	operations	and	financial	position.

Further,	 as	 these	 home	 center	 retailers	 expand	 their	 markets	 and	 targeted	 customers	 and	 as	 consumer	 purchasing	 practices	 change	 and e-commerce	increases,	conflicts	between	our	existing	distribution	channels	have	and	will	continue	to	occur,	which	could	affect	our	results	of	operations and	financial	position.	Our	relationships	with	these	customers	may	be	affected	if	we	increase	the	amount	of	business	we	transact	directly	with	consumers and	professionals.	In	addition,	these	home	center	retailers	are	granted	product	exclusivity	from	time	to	time,	which	increases	the	complexity	of	our product	offerings	and	our	costs	and	may	affect	our	ability	to	offer	products	to	other	customers.

# Variability	in	commodity	costs	or	limited	availability	of	commodities	could	affect	our	results	of	operations	and	financial	position.

Various	commodities,	including,	among	others,	brass,	resins,	titanium	dioxide,	zinc,	wood	and	glass,	are	used	to	produce	our	products.	Fluctuations in	the	availability	and	prices	of	these	commodities	could	increase	the	costs	of	our	products.	Our	production	of	products	could	also	be	affected	if	we	or	our suppliers	are	unable	to	procure	our	requirements	for	these	commodities	or	if	a	shortage	of	these	commodities	drives	their	prices	to	levels	that	are	not commercially	 feasible.	Further,	 increases	 in	energy	costs	could	 increase	our	production	and	 transportation	costs.	 In	 addition,	 water	 is	 a	 significant component	of	many	of	our	architectural	coatings	products	and	may	be	subject	to	restrictions	in	certain	regions.	These	factors	could	adversely	affect	our results	of	operations	and	financial	position.

It	can	be	difficult	for	us	to	pass	on	to	customers	cost	increases	to	cover	our	increased	commodity	and	production	costs.	Our	existing	arrangements with	customers,	competitive	considerations	and	customer	resistance	to	price	increases	may	delay	or	make	us	unable	to	adjust	selling	prices.	If	we	are	not able	to	increase	the	prices	of	our	products	or	achieve	cost	savings	to	offset	increased	commodity	and	production	costs,	our	results	of	operations	and financial	position	could	be	adversely	affected.	If	we	are	able	to	increase	our	selling	prices,	sustained	price	increases	for	our	products	may	lead	to	sales declines	and	loss	of	market	share,	particularly	if	our	competitors	do	not	increase	their	prices.	When	commodity	prices	decline,	we	have	experienced	and may	in	the	future	receive	pressure	from	our	customers	to	reduce	our	prices.	Such	reductions	could	adversely	affect	our	results	of	operations	and	financial position.

From	time	to	time	we	enter	into	long-term	agreements	with	certain	significant	suppliers	to	help	ensure	continued	availability	of	key	commodities	and to	establish	firm	pricing,	but	at	times	these	contractual	commitments	may	result	in	our	paying	above	market	prices	for	commodities	during	the	term	of	the contract.	Occasionally,	we	also	may	use	derivative	instruments,	including	commodity	futures	and	swaps.	This	strategy	increases	the	possibility	that	we may	make	commitments	for	these	commodities	at	prices	that	subsequently	exceed	their	market	prices,	which	has	occurred	and	could	occur	in	the	future and	may	adversely	affect	our	results	of	operations	and	financial	position.

# We	are	dependent	on	third-party	suppliers.

We	are	dependent	on	third-party	suppliers	for	many	of	our	products	and	components,	and	our	ability	to	offer	a	wide	variety	of	products	depends	on our	ability	to	obtain	an	adequate	and/or	timely	supply	of	these	products	and	components.	Failure	of	our	suppliers	to	timely	provide	us	quality	products	on commercially	reasonable	terms,	or	to	comply	with	applicable	legal	and	regulatory	requirements,	could	have	a	material	adverse	effect	on	our	results	of operations	 and	 financial	 position.	 Resourcing	 these	 products	 and	 components	 to	 another	 supplier	 could	 take	 time	 and	 involve	 significant	 costs. Accordingly,	the	loss	of	critical	suppliers,	or	a	substantial	decrease	in	the	availability	of	products	or	components	from	our	suppliers,	could	disrupt	our business	and	adversely	affect	our	results	of	operations	and	financial	position.

Many	of	the	suppliers	upon	whom	we	rely	are	located	in	foreign	countries.	The	differences	in	business	practices,	shipping	and	delivery	requirements and	laws	and	regulations,	together	with	the	limited	number	of	suppliers,	have	increased	the	complexity	of	our	supply	chain	logistics	and	the	potential	for interruptions	in	our	production	scheduling.	If	we	are	unable	to	effectively	manage	our	supply	chain	or	if	there	is	a	disruption	in	transporting	the	products	or components,	our	results	of	operations	and	financial	position	could	be	adversely	affected.

# There	are	risks	associated	with	International	operations	and	global	strategies.

Approximately	21	percent	of	our	sales	are	made	outside	of	North	America	(principally	in	Europe)	and	are	transacted	in	currencies	other	than	the	U.S. dollar.	In	addition	to	our	European	operations,	we	manufacture	products	in	Asia	and	source	products	and	components	from	third	parties	globally.	Risks associated	with	our	international	operations	include	changes	in	political,	monetary	and	social	environments,	labor	conditions	and	practices,	the	laws, regulations	and	policies	of	foreign	governments,	social	and	political	unrest,	terrorist	attacks,	cultural	differences	and	differences	in	enforcement	of	contract and	intellectual	property	rights.

Our	results	of	operations	and	financial	position	are	also	affected	by	international	economic	conditions,	primarily	in	Europe.	Unfavorable	currency conversion	rates,	particularly	the	Euro,	the	British	pound	sterling,	the	Canadian	dollar	and	the	Chinese	Yuan	Renminbi,	have	in	the	past	adversely affected	 us,	 and	 could	 adversely	 affect	 us	 in	 the	 future.	 Fluctuations	 in	 currency	 exchange	 rates	 may	 present	 challenges	 in	 comparing	 operating performance	from	period	to	period.

As	the	situation	involving	the	United	Kingdom's	decision	to	exit	from	the	European	Union	develops,	we	could	experience	volatility	in	the	currency exchange	rates	and/or	a	change	in	the	demand	for	our	products	and	services,	particularly	in	our	U.K.	and	European	markets,	or	there	could	be	disruption of	our	operations	and	our	customers'	and	suppliers'	businesses.

We	are	also	affected	by	laws	applicable	to	U.S.	companies	doing	business	abroad	or	importing	goods	and	materials.	These	include	tax	laws,	laws regulating	competition,	anti-bribery/anti-corruption	and	other	business	practices,	and	trade	regulations,	which	may	include	duties	and	tariffs.	While	it	is difficult	 to	 assess	 what	 changes	 may	 occur	 and	 the	 relative	 effect	 on	 our	 international	 tax	 structure,	 significant	 changes	 in	 how	 U.S.	 and	 foreign jurisdictions	tax	cross-border	transactions	could	adversely	affect	our	results	of	operations	and	financial	position.

# We	may	not	achieve	all	of	the	anticipated	benefits	of	our	strategic	initiatives.

We	continue	to	pursue	our	strategic	initiatives	of	investing	in	our	brands,	developing	innovative	products,	and	focusing	on	operational	excellence through	our	continued	deployment	of	the	Masco	Operating	System,	our	methodology	to	drive	growth	and	productivity	into	our	business	units.	All	of	these initiatives	are	designed	to	grow	revenue,	improve	profitability	and	increase	shareholder	value	over	the	mid-	to	long-term.	Our	business	performance	and results	could	be	adversely	affected	if	we	are	unable	to	successfully	execute	these	initiatives	or	if	we	are	unable	to	execute	these	initiatives	in	a	timely	and efficient	manner.	We	could	also	be	adversely	affected	if	we	have	not	appropriately	prioritized	and	balanced	our	initiatives	or	if	we	are	unable	to	effectively manage	change	throughout	our	organization.

# We	may	not	be	able	to	successfully	execute	our	acquisition	strategy	or	integrate	businesses	that	we	acquire.

Pursuing	the	acquisition	of	businesses	complementary	to	our	portfolio	is	a	component	of	our	strategy	for	future	growth.	If	we	are	not	able	to	identify suitable	acquisition	candidates	or	consummate	potential	acquisitions	at	acceptable	 terms	and	prices,	our	 long-term	 competitive	 positioning	 may	 be affected.	Even	if	we	are	successful	in	acquiring	businesses,	we	may	experience	risks	in	integrating	these	businesses	into	our	existing	business.	Such risks	include	difficulties	realizing	expected	synergies	and	economies	of	scale,	diversion	of	our	resources,	unforeseen	liabilities,	issues	with	the	new	or existing	customers	or	suppliers,	and	difficulties	in	retaining	critical	employees	of	the	acquired	businesses.	Future	foreign	acquisitions	may	also	increase our	exposure	to	foreign	currency	risks	and	risks	associated	with	interpretation	and	enforcement	of	foreign	regulations.	Our	failure	to	address	these	risks could	cause	us	to	incur	additional	costs	and/or	fail	to	realize	the	anticipated	benefits	of	our	acquisitions	and	could	adversely	affect	our	results	of	operations and	financial	position.

# The	long-term	performance	of	our	businesses	relies	on	our	ability	to	attract,	develop	and	retain	talented	personnel.

To	be	successful,	we	must	attract,	develop	and	retain	highly	qualified ,	talented	and	diverse	personnel	who	have	the	experience,	knowledge	and expertise	to	successfully	implement	our	key	strategic	initiatives.	We	compete	for	employees	with	a	broad	range	of	employers	in	many	different	industries, including	large	multinational	firms,	and	we	invest	significant	resources	in	recruiting,	developing,	motivating	and	retaining	them.	We	have	been	affected	by a	shortage	of	qualified	personnel	in	certain	geographic	areas.	Our	growth,	competitive	position	and	results	of	operations	and	financial	position	could	be adversely	affected	by	our	failure	to	attract,	develop	and	retain	key	employees,	to	build	strong	leadership	teams,	or	to	develop	effective	succession planning	to	assure	smooth	transitions	of	those	employees	and	the	knowledge	and	expertise	they	possess,	or	by	a	shortage	of	qualified	personnel.

# We	may	not	experience	the	anticipated	benefits	from	our	investments	in	new	technology.

We	are	making	significant	investments	in	new	technology	systems	throughout	our	company,	including	concurrent	implementations	of	Enterprise Resource	Planning	("ERP")	systems	at	our	larger	business	units.	ERP	implementations	are	complex	and	require	significant	management	oversight.	While we	are	leveraging	our	experience	and	engaging	consultants	to	assist	as	we	deploy	ERP	systems,	we	have	experienced,	and	may	continue	to	experience, unanticipated	expenses	and	interruptions	to	our	operations	during	these	implementations.	These	interruptions	could	affect	our	ability	to	produce	and	ship goods	to	our	customers	or	to	timely	report	financial	results.	Our	results	of	operations	and	financial	position	could	be	adversely	affected	if	we	do	not appropriately	select	and	implement	our	new	technology	systems	in	a	timely	manner	or	if	we	experience	significant	unanticipated	expenses	or	disruptions in	connection	with	the	implementation	of	ERP	systems.

# We	rely	on	information	systems	and	technology,	and	a	breakdown	of	these	systems	could	adversely	affect	our	results	of	operations	and	financial	position.

We	rely	on	many	information	systems	and	technology	to	process,	transmit,	store	and	manage	information	to	support	our	business	activities.	We	may be	adversely	affected	if	our	information	systems	breakdown,	fail,	or	are	no	longer	supported.	In	addition	to	the	consequences	that	may	occur	from interruptions	 in	 our	 systems,	 increased	 global	 cybersecurity	 vulnerabilities,	 threats	 and	 more	 sophisticated	 and	 targeted	 attacks	 pose	 a	 risk	 to	 our information	technology	systems,	and	a	cybersecurity	breach	could	disrupt	our	operations.	We	have	established	security	policies,	processes	and	layers	of defense	designed	to	help	identify	and	protect	against	intentional	and	unintentional	misappropriation	or	corruption	of	our	systems	and	information	and disruption	of	our	operations.

Despite	these	efforts,	our	systems	may	be	damaged,	disrupted,	or	shut	down	due	to	attacks	by	unauthorized	access,	malicious	software,	undetected intrusion,	hardware	failures,	or	other	events,	and	in	these	circumstances	our	disaster	recovery	plans	may	be	ineffective	or	inadequate.	These	breaches	or intrusions	could	lead	to	business	interruption,	exposure	of	proprietary	or	confidential	information,	data	corruption,	damage	to	our	reputation	and	the reputation	of	our	brands,	exposure	to	litigation,	and	increased	operational	costs.	Such	events	could	adversely	affect	our	results	of	operations	and	financial position.

In	addition,	we	could	be	adversely	affected	if	any	of	our	significant	customers	or	suppliers	experiences	any	similar	events	that	disrupt	their	business operations	or	damage	their	reputation.

# We	may	not	be	able	to	sustain	the	improved	results	of	our	U.S.	window	business.

Our	U.S.	window	business,	Milgard	Manufacturing	Incorporated	("Milgard"),	has	experienced	operational	issues	and	production	inefficiencies.	In addition,	Milgard's	phased	deployment	of	a	new	ERP	system	to	improve	its	business	processes	has	been	complex	and	requires	significant	management oversight	and	resources.	While	Milgard's	results	are	 improving,	 there	 is	no	assurance	 that	we	will	be	able	 to	sustain	 this	 improvement	or	 that	our turnaround	plan	will	continue	to	be	successful.	Milgard	has	also	been	affected	by	a	shortage	of	qualified	personnel	in	certain	geographic	areas.	If	Milgard experiences	 unanticipated	 expenses,	 setbacks	 or	 additional	 disruptions	 to	 its	 operations,	 our	 results	 of	 operations	 and	 financial	 position	 could	 be adversely	affected.

# Claims	and	litigation	could	be	costly.

We	are	involved	in	various	claims	and	litigation,	including	class	actions	and	regulatory	proceedings,	that	arise	in	the	ordinary	course	of	our	business and	 that	could	have	a	material	adverse	effect	on	us.	The	 types	of	matters	may	 include,	among	others:	competition,	product	 liability,	employment, warranty,	advertising,	contract,	personal	injury,	environmental,	intellectual	property,	and	insurance	coverage.	Given	the	inherently	unpredictable	nature	of claims	and	litigation,	we	cannot	predict	with	certainty	the	outcome	or	effect	of	any	such	matter.	Defending	and	resolving	claims	and	litigation	can	be	costly and	can	divert	management's	attention.	We	have	and	may	continue	to	incur	significant	costs	as	a	result	of	claims	and	litigation.

We	are	also	subject	to	product	safety	regulations,	recalls	and	direct	claims	for	product	liability	that	can	result	in	significant	costs	and,	regardless	of the	ultimate	outcome,	create	adverse	publicity	and	damage	the	reputation	of	our	brands	and	business.	Also,	we	rely	on	other	manufacturers	to	provide products	 or	 components	 for	 products	 that	 we	 sell.	 Due	 to	 the	 difficulty	 of	 controlling	 the	 quality	 of	 products	 and	 components	 sourced	 from	 other manufacturers,	we	are	exposed	to	risks	relating	to	the	quality	of	such	products	and	to	limitations	on	our	recourse	against	such	suppliers.

We	maintain	insurance	against	some,	but	not	all,	of	the	risks	of	loss	resulting	from	claims	and	litigation.	The	levels	of	insurance	we	maintain	may not	be	adequate	to	fully	cover	any	and	all	losses	or	liabilities.	If	any	significant	accident,	judgment,	claim	or	other	event	is	not	fully	insured	or	indemnified against,	it	could	adversely	affect	our	results	of	operations	and	financial	position.

Refer	to	Note	S	to	the	consolidated	financial	statements	included	in	Item	8	of	this	Report	for	additional	information	about	litigation	involving	our businesses.

# Compliance	with	laws,	government	regulation	and	industry	standards	could	adversely	affect	our	results	of	operations	and	financial	position.

We	are	subject	to	a	wide	variety	of	federal,	state,	local	and	foreign	government	laws	and	regulations,	including	securities	laws,	tax	laws,	anti- bribery/anti-corruption	laws	and	employment	laws,	as	well	as	those	pertaining	to	health	and	safety	(including	protection	of	employees	and	consumers), product	compliance,	competition	practices,	import	and	export	regulations,	data	privacy	and	the	collection	and	storage	of	information,	climate	change	and environmental	issues.	In	addition	to	complying	with	current	requirements	and	requirements	that	will	become	effective	at	a	future	date,	even	more	stringent requirements	could	be	imposed	on	us	in	the	future.	As	we	sell	new	types	of	products	or	existing	products	in	new	geographic	areas,	our	failure	to	comply with	the	requirements	applicable	to	those	products	or	regions	could	adversely	affect	our	results	of	operations	and	financial	position.	Additionally,	some	of our	products	must	be	certified	by	industry	organizations.	Compliance	with	these	laws,	regulations	and	industry	standards	may	require	us	to	alter	our product	designs,	our	manufacturing	processes,	our	packaging	or	our	sourcing.	Compliance	activities	are	costly	and	require	significant	management attention	and	resources.	If	we	do	not	effectively	and	timely	comply	with	such	regulations	and	industry	standards,	our	results	of	operations	and	financial position	could	be	adversely	affected.

# We	may	not	be	able	to	adequately	protect	or	prevent	the	unauthorized	use	of	our	intellectual	property.

Protecting	our	intellectual	property	is	important	to	our	growth	and	innovation	efforts.	We	own	a	number	of	patents,	trade	names,	brand	names	and other	forms	of	intellectual	property	in	our	products	and	manufacturing	processes	throughout	the	world.	There	can	be	no	assurance	that	our	efforts	to protect	our	intellectual	property	rights	will	prevent	violations.	Our	intellectual	property	may	be	challenged	or	infringed	upon	by	third	parties,	particularly	in countries	where	property	rights	are	not	highly	developed	or	protected.	In	addition,	the	global	nature	of	our	business	increases	the	risk	that	we	may	be unable	to	obtain	or	maintain	our	intellectual	property	rights	on	reasonable	terms.	Furthermore,	others	may	assert	intellectual	property	infringement	claims against	us.	Current	and	former	employees,	contractors	or	suppliers

have	or	may	have	had	access	to	proprietary	or	confidential	information	regarding	our	business	operations	that	could	harm	us	if	used	by,	or	disclosed	to others,	including	our	competitors.	Protecting	and	defending	our	intellectual	property	could	be	costly,	time	consuming	and	require	significant	resources.	If we	are	not	able	to	protect	our	existing	intellectual	property	rights,	or	prevent	unauthorized	use	of	our	intellectual	property,	sales	of	our	products	may	be affected	and	we	may	experience	reputational	damage	to	our	brand	names,	increased	litigation	costs	and	adverse	impact	to	our	competitive	position, which	could	adversely	affect	our	results	of	operations	and	financial	position.

# Restrictive	covenants	in	our	credit	agreement	could	limit	our	financial	flexibility.

We	must	comply	with	both	financial	and	nonfinancial	covenants	in	our	credit	agreement,	and	in	order	to	borrow	under	it,	we	cannot	be	in	default	with any	of	those	provisions.	Our	ability	to	borrow	under	the	credit	agreement	could	be	affected	if	our	earnings	significantly	decline	to	a	level	where	we	are	not in	compliance	with	the	financial	covenants	or	if	we	default	on	any	nonfinancial	covenants.	In	the	past,	we	have	been	able	to	amend	the	covenants	in	our credit	agreement,	but	there	can	be	no	assurance	that	in	the	future	we	would	be	able	to	further	amend	them.	If	we	were	unable	to	borrow	under	our	credit agreement,	our	financial	flexibility	could	be	restricted.

# Item	1B.				Unresolved	Staff	Comments.

None.

# Item	2. Properties.

The	table	below	lists	our	principal	North	American	properties.

| Business	Segment | Manufacturing | Warehouse	and<br>Distribution |
| :--- | :--- | :--- |
| Plumbing\tProducts | 22 | 7 |
| Decorative\tArchitectural\tProducts | 8 | 11 |
| Cabinetry\tProducts | 8 | 4 |
| Windows\tand\tOther\tSpecialty\tProducts | 10 | 3 |
| Totals | 48 | 25 |

Most	of	our	North	American	facilities	range	from	single	warehouse	buildings	to	complex	manufacturing	facilities.	We	own	most	of	our	North	American manufacturing	facilities,	none	of	which	is	subject	to	significant	encumbrances.	A	substantial	number	of	our	warehouse	and	distribution	facilities	are	leased.

The	table	below	lists	our	principal	properties	outside	of	North	America.

| Business	Segment | Manufacturing | Distribution |
| :--- | :--- | :--- |
| Plumbing\tProducts | 11 | 20 |
| Decorative\tArchitectural\tProducts | — | — |
| Cabinetry\tProducts | — | — |
| Windows\tand\tOther\tSpecialty\tProducts | 9 | — |
| Totals | 20 | 20 |

Most	of	our	international	facilities	are	located	in	China,	Germany	and	the	United	Kingdom.	We	own	most	of	our	international	manufacturing	facilities, none	of	which	is	subject	to	significant	encumbrances.	A	substantial	number	of	our	international	warehouse	and	distribution	facilities	are	leased.

We	lease	our	corporate	headquarters	in	Livonia,	Michigan,	and	we	own	a	building	in	Taylor,	Michigan	that	is	used	by	our	Masco	Technical	Services (research	and	development)	department.	We	continue	to	lease	an	office	facility	in	Luxembourg,	which	serves	as	a	headquarters	for	most	of	our	foreign operations.

Each	 of	 our	 operating	 divisions	 assesses	 the	 manufacturing,	 distribution	 and	 other	 facilities	 needed	 to	 meet	 its	 operating	 requirements.	 Our buildings,	machinery	and	equipment	have	been	generally	well	maintained	and	are	in	good	operating	condition.	We	believe	our	facilities	have	sufficient capacity	and	are	adequate	for	our	production	and	distribution	requirements.

# Item	3. Legal

# Proceedings.

Information	regarding	legal	proceedings	involving	us	is	set	forth	in	Note	S	to	the	consolidated	financial	statements	included	in	Item	8	of	this	Report and	is	incorporated	herein	by	reference.

# Item	4. Mine	Safety	Disclosures.

Not	applicable.

# PART	II

# Item	5. Market for	 Registrant's	 Common	 Equity,	 Related Stockholder	 Matters and Issuer	 Purchases of	 Equity Securities.

The	New	York	Stock	Exchange	is	the	principal	market	on	which	our	common	stock	is	traded.	The	following	table	indicates	the	high	and	low	sales prices	of	our	common	stock	as	reported	by	the	New	York	Stock	Exchange	and	the	cash	dividends	declared	per	common	share	for	the	periods	indicated:

| Quarter | Market	Price<br>High | Low | Dividends<br>Declared |
| :--- | :--- | :--- | :--- |
| 2017 |  |  |  |
| Fourth | $44.44 | $38.34 | $0.105 |
| Third | 39.15 | 36.08 | 0.105 |
| Second | 39.37 | 32.97 | 0.100 |
| First | 34.92 | 31.29 | 0.100 |
| Total |  |  | $0.410 |
| 2016 |  |  |  |
| Fourth | $35.07 | $29.38 | $0.100 |
| Third | 37.38 | 30.31 | 0.100 |
| Second | 32.92 | 29.11 | 0.095 |
| First | 31.71 | 23.10 | 0.095 |
| Total |  |  | $0.390 |

On	January	31,	2018,	there	were	approximately	3,700	holders	of	record	of	our	common	stock.

We	expect	that	our	practice	of	paying	quarterly	dividends	on	our	common	stock	will	continue,	although	the	payment	of	future	dividends	is	at	the discretion	of	our	Board	of	Directors	and	will	depend	upon	our	earnings,	capital	requirements,	financial	condition	and	other	factors.

In	May	2017,	our	Board	of	Directors	authorized	the	repurchase,	for	retirement,	of	up	to	$1.5	billion	of	shares	of	our	common	stock	in	open-market transactions	or	otherwise,	replacing	the	previous	Board	of	Directors	authorization	established	in	2014.	During	2017,	we	repurchased	and	retired	 9.2 million	shares	of	our	common	stock	(including	 0.9	million	shares	to	offset	the	dilutive	impact	of	long-term	stock	awards	granted	during	the	year),	for approximately	$331	million.	At	December	31,	2017,	we	had	approximately	 $1.3	billion	remaining	under	 the	2017	authorization.	The	 following	 table provides	information	regarding	the	repurchase	of	our	common	stock	for	the	three-month	period	ended	December	31,	2017.

| Period | Total	Number<br>of	Shares<br>Purchased | Average	Price<br>Paid	Per<br>Common	Share | Total	Number	of<br>Shares	Purchased<br>as	Part	of<br>Publicly	Announced<br>Plans	or	Programs | Maximum	Value	of<br>Shares	That	May<br>Yet	Be	Purchased<br>Under	the	Plans<br>or	Programs |
| :--- | :--- | :--- | :--- | :--- |
| 10/1/17\t-\t10/31/17\t(A) | 718,997 | — | 718,997 | $1,308,607,235 |
| 11/1/17\t-\t11/30/17 | 487,316 | $39.04 | 487,316 | $1,289,581,762 |
| 12/1/17\t-\t12/31/17 | — | — | — | $1,289,581,762 |
| Total\tfor\tthe\tquarter | 1,206,313 |  | 1,206,313 | $1,289,581,762 |

(A) In	August	2017,	we	entered	into	an	accelerated	stock	repurchase	transaction	whereby	we	agreed	to	repurchase	a	total	of	$150	million	of	our common	stock	with	an	immediate	delivery	of	3.3	million	shares.	This	transaction	was	completed	in	October	2017,	at	which	time	we	received,	at	no additional	cost,	0.7	million	additional	shares	of	our	common	stock	resulting	from	changes	in	the	volume	weighted	average	stock	price	of	our common	stock	over	the	term	of	the	transaction.

# Performance	Graph

The	table	below	compares	the	cumulative	total	shareholder	return	on	our	common	stock	with	the	cumulative	total	return	of	(i)	the	Standard	&	Poor's 500	Composite	Stock	Index	("S&P	500	Index"),	(ii)	The	Standard	&	Poor's	Industrials	Index	("S&P	Industrials	Index")	and	(iii)	the	Standard	&	Poor's Consumer	Durables	&	Apparel	Index	("S&P	Consumer	Durables	&	Apparel	Index"),	from	December	31,	2012	 through	December	31,	2017,	when	the closing	price	of	our	common	stock	was	$43.94.	The	graph	assumes	investments	of	$100	on	December	31,	2012	in	our	common	stock	and	in	each	of	the three	indices	and	the	reinvestment	of	dividends.

The	table	below	sets	forth	the	value,	as	of	December	31	for	each	of	the	years	indicated,	of	a	$100	investment	made	on	 December	31,	2012	in	each of	our	common	stock,	the	S&P	500	Index,	the	S&P	Industrials	Index	and	the	S&P	Consumer	Durables	&	Apparel	Index	and	includes	the	reinvestment	of dividends.

|  | 2013 | 2014 | 2015 | 2016 | 2017 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Masco | $138.48 | $155.26 | $200.79 | $227.08 | $318.46 |
| S&amp;P\t500\tIndex | $132.04 | $149.89 | $151.94 | $169.82 | $206.49 |
| S&amp;P\tIndustrials\tIndex | $140.18 | $153.73 | $149.83 | $177.65 | $214.55 |
| S&amp;P\tConsumer\tDurables\t&amp;\tApparel\tIndex | $135.84 | $148.31 | $147.23 | $138.82 | $164.39 |

# Item	6. Selected	Financial	Data.

|  |  | Dollars	in	Millions	(Except	Per	Common	Share	Data) | Dollars	in	Millions	(Except	Per	Common	Share	Data) | Dollars	in	Millions	(Except	Per	Common	Share	Data) |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2017 | 2016 | 2015 | 2014 | 2013 |
| Net\tSales\t(1) | $7,644 | $7,357 | $7,142 | $7,006 | $6,761 |
| Operating\tprofit\t(1) | 1,169 | 1,053 | 914 | 721 | 612 |
| Income\tfrom\tcontinuing\toperations\tattributable\tto\tMasco\nCorporation\t(1)(2) | 533 | 491 | 357 | 821 | 259 |
| Income\tper\tcommon\tshare\tfrom\tcontinuing\toperations: |  |  |  |  |  |
| Basic | $1.68 | $1.49 | $1.04 | $2.31 | $0.72 |
| Diluted | 1.66 | 1.47 | 1.03 | 2.28 | 0.72 |
| Dividends\tdeclared | 0.410 | 0.390 | 0.370 | 0.345 | 0.300 |
| Dividends\tpaid | 0.405 | 0.385 | 0.365 | 0.330 | 0.300 |
| At\tDecember\t31: |  |  |  |  |  |
| Total\tassets\t(3) | $5,488 | $5,137 | $5,664 | $7,208 | $6,885 |
| Long-term\tdebt\t(3) | 2,969 | 2,995 | 2,403 | 2,919 | 3,421 |
| Shareholders'\tequity\t(deficit)\t(4) | 176 | (103) | 58 | 1,128 | 787 |

(1) Amounts	exclude	discontinued	operations.	Refer	to	Note	B	to	the	consolidated	financial	statements	for	additional	information.

(2) The	year	2014	includes	a	$529	million	tax	benefit	from	the	release	of	the	valuation	allowance	on	deferred	tax	assets.

(3) Total	assets	and	long-term	debt	for	the	years	2013	and	2014	have	not	been	recasted	for	the	impact	of	the	adoption	of	Accounting	Standards	Update 2015-03	"Interest	-	Imputation	of	Interest	(Subtopic	835-30)	-	Simplifying	the	Presentation	of	Debt	Issuance	Costs,"	as	amended	by	Accounting Standards	Update	2015-15,	which	required	the	reclassification	of	certain	debt	issuance	costs	from	an	asset	to	a	liability.

(4) The	decrease	in	shareholder's	equity	(deficit)	from	2014	to	2015	relates	primarily	to	the	spin	off	of	TopBuild	Corp.

# Item	7. Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of Operations.

The	 financial	 and	 business	 analysis	 below	 provides	 information	 which	 we	 believe	 is	 relevant	 to	 an	 assessment	 and	 understanding	 of	 our consolidated	 financial	 position,	 results	 of	 operations	 and	 cash	 flows.	 This	 financial	 and	 business	 analysis	 should	 be	 read	 in	 conjunction	 with	 the consolidated	financial	statements	and	related	notes.

The	following	discussion	and	certain	other	sections	of	this	Report	contain	statements	that	reflect	our	views	about	our	future	performance	and constitute	"forward-looking	statements"	under	the	Private	Securities	Litigation	Reform	Act	of	1995.	Forward-looking	statements	can	be	identified	by	words such	as	"believe,"	"anticipate,"	"appear,"	"may,"	"will,"	"should,"	"intend,"	"plan,"	"estimate,"	"expect,"	"assume,"	"seek,"	"forecast"	and	similar	references to	future	periods.	Our	views	about	future	performance	involve	risks	and	uncertainties	that	are	difficult	to	predict	and,	accordingly,	our	actual	results	may differ	materially	from	the	results	discussed	in	our	forward-looking	statements.	We	caution	you	against	relying	on	any	of	these	forward-looking	statements.

In	addition	to	the	various	factors	included	in	the	"Executive	Level	Overview,"	"Critical	Accounting	Policies	and	Estimates"	and	"Outlook	for	the Company"	sections,	our	future	performance	may	be	affected	by	the	levels	of	residential	repair	and	remodel	activity	and	new	home	construction,	our	ability to	maintain	our	strong	brands	and	reputation	and	to	develop	new	products,	our	ability	to	maintain	our	competitive	position	in	our	industries,	our	reliance	on key	customers,	the	cost	and	availability	of	raw	materials,	our	dependence	on	third-party	suppliers,	risks	associated	with	international	operations	and global	strategies,	our	ability	to	achieve	the	anticipated	benefits	of	our	strategic	initiatives,	our	ability	to	successfully	execute	our	acquisition	strategy	and integrate	businesses	that	we	have	and	may	acquire,	our	ability	to	attract,	develop	and	retain	talented	personnel,	our	ability	to	achieve	the	anticipated benefits	from	our	investments	in	new	technology,	risks	associated	with	our	reliance	on	information	systems	and	technology,	and	our	ability	to	sustain	the improved	results	of	our	U.S.	window	business.	These	and	other	factors	are	discussed	in	detail	in	Item	1A	"Risk	Factors"	of	this	Report.	Any	forward- looking	statement	made	by	us	speaks	only	as	of	the	date	on	which	it	was	made.	Factors	or	events	that	could	cause	our	actual	results	to	differ	may emerge	from	time	to	time,	and	it	is	not	possible	for	us	to	predict	all	of	them.	Unless	required	by	law,	we	undertake	no	obligation	to	update	publicly	any forward-looking	statements	as	a	result	of	new	information,	future	events	or	otherwise.

# Executive	Level	Overview

We	 design,	 manufacture	 and	 distribute	 branded	 home	 improvement	 and	 building	 products.	 These	 products	 are	 sold	 primarily	 for	 repair	 and remodeling	activity	and	new	home	construction	through	home	center	retailers,	mass	merchandisers,	hardware	stores,	homebuilders,	distributors,	online retailers,	and	direct	to	the	consumer.

Net	sales	were	positively	affected	by	increased	sales	volume	resulting	from	increased	repair	and	remodel	activity	and	new	home	construction,	net selling	price	increases	in	Europe	and	the	U.S.,	and	favorable	sales	mix	in	the	U.S.	Such	increases	were	partially	offset	by	the	divestitures	of	Arrow	and Moores,	and	unfavorable	sales	mix	in	Europe.	Our	results	of	operations	were	positively	affected	by	increased	sales	volume,	cost	savings	initiatives	and	a more	favorable	relationship	between	net	selling	prices	and	commodity	costs	in	Europe.	Such	increases	were	partially	offset	by	an	increase	in	strategic growth	investments	and	certain	other	expenses,	including	stock-based	compensation,	health	insurance	costs,	trade	show	costs	and	increased	head count.

Our	Plumbing	Products	segment	benefited	from	increased	sales	volume,	cost	savings	initiatives	and	a	favorable	relationship	between	net	selling prices	and	commodity	costs,	and	was	negatively	 impacted	by	an	 increase	 in	 investments	 in	strategic	growth	 initiatives	and	certain	other	expenses (including	 trade	show	costs	and	 increased	head	count).	Our	Decorative	Architectural	Products	segment	was	negatively	affected	by	an	unfavorable relationship	between	net	selling	prices	and	commodity	costs	of	paints	and	other	coating	products,	and	an	increase	in	strategic	growth	investments	to support	the	expansion	of	pro	paint	sales	and	new	programs	in	builder's	hardware,	and	was	positively	impacted	by	increased	sales	volume	and	cost savings	initiatives.	Our	Cabinetry	Products	segment	was	positively	affected	by	cost	savings	initiatives	as	well	as	favorable	sales	mix	and	was	negatively affected	 by	 decreased	 sales	 volume,	 costs	 to	 support	 new	 product	 launches	 in	 North	 America,	 anti-dumping	 and	 countervailing	 duties,	 and	 an unfavorable	relationship	between	net	selling	prices	and	commodity	costs.	Our	Windows	and	Other	Specialty	Products	segment	benefited	from	a	decrease in	warranty	adjustments,	as	well	as	cost	savings	initiatives	and	a	favorable	relationship	between	net	selling	prices	and	commodity	costs.

# Critical	Accounting	Policies	and	Estimates

Our	discussion	and	analysis	of	our	financial	condition	and	results	of	operations	is	based	upon	our	consolidated	financial	statements,	which	have been	prepared	in	accordance	with	accounting	principles	generally	accepted	in	the	United	States	of	America	("GAAP").	The	preparation	of	these	financial statements	requires	us	to	make	certain	estimates	and	assumptions	that	affect	the	reported	amounts	of	assets	and	liabilities,	disclosure	of	any	contingent assets	and	liabilities	at	the	date	of	the	financial	statements	and	the	reported	amounts	of	revenues	and	expenses	during	the	reporting	periods.	We regularly	review	our	estimates	and	assumptions,	which	are	based	upon	historical	experience,	as	well	as	current	economic	conditions	and	various	other factors	that	we	believe	to	be	reasonable	under	the	circumstances,	the	results	of	which	form	the	basis	for	making	judgments	about	the	carrying	values	of certain	assets	and	liabilities	that	are	not	readily	apparent	from	other	sources.	Actual	results	may	differ	from	these	estimates	and	assumptions.

Note	A	to	the	consolidated	financial	statements	includes	our	accounting	policies,	estimates	and	methods	used	in	the	preparation	of	our	consolidated financial	statements.

We	 believe	 that	 the following	 critical	 accounting	 policies	 are	 affected	 by	 significant judgments	 and	 estimates	 used in the	 preparation	 of	 our consolidated	financial	statements.

# Revenue	Recognition	and	Receivables

We	recognize	revenue	as	 title	 to	 products	 and	 risk	 of	 loss	 is	 transferred	 to	 customers	 or	 when	 services	 are	 rendered.	 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.	We	monitor	our	customer	receivable	balances	and	the	credit	worthiness	of	our	customers	on	an	on-going	basis	and maintain	allowances	for	doubtful	accounts	receivable	for	estimated	losses	resulting	from	the	inability	of	customers	to	make	required	payments.	During downturns	in	our	markets,	declines	in	the	financial	condition	and	creditworthiness	of	customers	impact	the	credit	risk	of	the	receivables	involved,	and	we have	incurred	additional	bad	debt	expense	related	to	customer	defaults.	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.

# Goodwill	and	Other	Intangible	Assets

We	record	the	excess	of	purchase	cost	over	the	fair	value	of	net	tangible	assets	of	acquired	companies	as	goodwill	or	other	identifiable	intangible assets.	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	complete	the	impairment	testing	of	goodwill	utilizing	a	discounted	cash	flow	method.	We	selected	the	discounted	cash flow	methodology	because	we	believe	that	it	is	comparable	to	what	would	be	used	by	market	participants.	We	have	defined	our	reporting	units	and completed	the	impairment	testing	of	goodwill	at	the	operating	segment	level.

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	two	percent	long-term	assumed	annual growth	rate	of	cash	flows	for	periods	after	the	five-year	forecast.	We	generally	develop	these	forecasts	based	upon,	among	other	things,	recent	sales	data for	existing	products,	planned	timing	of	new	product	launches,	estimated	repair	and	remodel	activity	and	estimated	housing	starts.	Our	assumptions included	a	relatively	stable	U.S.	Gross	Domestic	Product	growing	at	approximately	2.3	percent	per	annum	and	a	euro	zone	Gross	Domestic	Product growing	at	approximately	1.5	to	1.7	percent	per	annum	over	the	five-year	forecast.

We	utilize	our	weighted	average	cost	of	capital	of	approximately	8.0	percent	as	the	basis	to	determine	the	discount	rate	to	apply	to	the	estimated future	cash	flows.	Our	weighted	average	cost	of	capital	decreased	in	2017	as	compared	to	2016,	primarily	due	to	reductions	in	the	risk	free	rate.	In	 2017, based	upon	our	assessment	of	the	risks	impacting	each	of	our	businesses,	we	applied	a	risk	premium	to	increase	the	discount	rate	to	a	range	of 10.0	percent	to	13.0	percent	for	our	reporting	units.

If	the	carrying	amount	of	a	reporting	unit	exceeds	its	fair	value,	an	impairment	loss	is	recognized	to	the	extent	that	a	reporting	unit's	recorded carrying	value	exceeds	its	fair	value,	not	to	exceed	the	carrying	amount	of	goodwill	in	that	reporting	unit.

In	the	fourth	quarter	of	2017,	we	estimated	that	future	discounted	cash	flows	projected	for	all	of	our	reporting	units	were	greater	than	the	carrying values.	Accordingly,	we	did	not	recognize	any	impairment	charges	for	goodwill.	A	10	percent	decrease	in	the	estimated	fair	value	of	our	reporting	units would	not	have	resulted	in	an	impairment	for	any	reporting	unit.

We	review	our	other	indefinite-lived	intangible	assets	for	impairment	annually,	in	the	fourth	quarter,	or	as	events	occur	or	circumstances	change	that indicate	the	assets	may	be	impaired	without	regard	to	the	business	unit.	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.	In	2017,	we	did	not	recognize	any	impairment	charges	for	other	indefinite-lived	intangible	assets.

# Employee	Retirement	Plans

As	of	January	1,	2010,	substantially	all	of	our	domestic	and	foreign	qualified	and	domestic	non-qualified	defined-benefit	pension	plans	were	frozen to	future	benefit	accruals.

Accounting	for	defined-benefit	pension	plans	involves	estimating	the	cost	of	benefits	to	be	provided	in	the	future,	based	upon	vested	years	of service,	and	attributing	those	costs	over	the	time	period	each	employee	works.	We	develop	our	pension	costs	and	obligations	from	actuarial	valuations. Inherent	 in	 these	 valuations	 are	 key	 assumptions	 regarding	 expected	 return	 on	 plan	 assets,	 mortality	 rates	 and	 discount	 rates	 for	 obligations	 and expenses.	 We	 consider	 current	 market	 conditions,	 including	 changes	 in	 interest	 rates,	 in	 selecting	 these	 assumptions.	 While	 we	 believe	 that	 the estimates	and	assumptions	underlying	the	valuation	methodology	are	reasonable,	different	estimates	and	assumptions	could	result	in	different	reported pension	costs	and	obligations	within	our	consolidated	financial	statements.

In	 December	2017,	our	discount	rate	 for	obligations	decreased	 to	a	weighted	average	of	 3.3	 percent	 from	3.5	percent.	The	discount	rate	for obligations	 is	based	upon	 the	expected	duration	of	each	defined-benefit	pension	plan's	 liabilities	matched	 to	 the	December	31,	2017	Willis	Towers Watson	 Rate	 Link	 curve.	The	 discount	 rates	 we	 use	 for	 our	 defined-benefit	 pension	 plans	 ranged	 from	1.5	 percent	 to	3.6	 percent,	 with	 the	 most significant	portion	of	the	liabilities	having	a	discount	rate	for	obligations	of	3.4	percent	or	higher.	The	assumed	asset	return	was	primarily	 7.25	percent, reflecting	the	expected	long-term	return	on	plan	assets	based	upon	an	analysis	of	expected	and	historical	rates	of	return	of	various	asset	classes	utilizing the	current	and	long-term	asset	allocation	of	the	plan	assets.

Our	net	underfunded	amount	for	our	qualified	defined-benefit	pension	plans,	which	is	the	difference	between	the	projected	benefit	obligation	and plan	assets,	decreased	to	$266	million	at	December	31,	2017	from	$338	million	at	December	31,	2016.	Our	projected	benefit	obligation	for	our	unfunded, non-qualified,	defined-benefit	pension	plans	was	$170	million	at	both	December	31,	2017	and	2016.	These	unfunded	plans	are	not	subject	to	the	funding requirements	of	the	Pension	Protection	Act	of	2006.	In	accordance	with	the	Pension	Protection	Act,	the	Adjusted	Funding	Target	Attainment	Percentage for	the	various	defined-benefit	pension	plans	ranges	from	80	percent	to	108	percent.

The	decrease	in	our	qualified	defined-benefit	pension	plan	projected	benefit	obligation	was	impacted	primarily	by	the	divestiture	of	Moores,	due	to the	 transfer	 of	 $144	 million	 of	 plan	 obligations	 to	 the	 purchaser	 in	 connection	 with	 the	 sale	 of	 the	 business.	A	 change	 to	 the	 MP	 2017	 Mortality Improvement	Scale	also	decreased	our	long-term	pension	liabilities.	The	decrease	was	partially	offset	by	a	lower	discount	rate	compared	to	the	prior	year. During	2017,	we	contributed	$52	million	to	our	qualified	defined-benefit	pension	plans.	Additionally,	our	qualified	defined-benefit	pension	plan	assets	had a	net	gain	of	13.9	percent	in	2017.	Refer	to	Note	L	to	the	consolidated	financial	statements	for	additional	information.

We	expect	pension	expense	for	our	qualified	defined-benefit	pension	plans	to	be	$12	million	in	 2018	compared	with	$20	million	 in	2017.	If	we assumed	that	the	future	return	on	plan	assets	was	one-half	percent	lower	than	the	assumed	asset	return	and	the	discount	rate	decreased	by	50	basis points,	the	2018	pension	expense	would	increase	by	$4	million.	We	expect	pension	expense	for	our	non-qualified	defined-benefit	pension	plans	to	be $8	million	in	2018,	compared	to	$9	million	in	2017.

We	anticipate	that	we	will	be	required	to	contribute	approximately	$25	million	in	 2018	to	our	qualified	and	non-qualified	defined-benefit	plans; however,	we	currently	anticipate	contributing	approximately	$61	million	in	2018.	Refer	to	Note	L	to	the	consolidated	financial	statements	for	further information	regarding	the	funding	of	our	plans.

# Income	Taxes

Deferred	taxes	are	recognized	based	on	the	future	tax	consequences	of	differences	between	the	financial	statement	carrying	value	of	assets	and liabilities	and	their	respective	tax	basis.	The	future	realization	of	deferred	tax	assets	depends	on	the	existence	of	sufficient	taxable	income	in	future periods.	Possible	sources	of	taxable	income	include	taxable	income	in	carryback	periods,	the	future	reversal	of	existing	taxable	temporary	differences recorded	as	a	deferred	tax	liability,	tax-planning	strategies	that	generate	future	income	or	gains	in	excess	of	anticipated	losses	in	the	carryforward	period and	projected	future	taxable	income.

If,	based	upon	all	available	evidence,	both	positive	and	negative,	it	is	more	likely	than	not	(more	than	50	percent	likely)	such	deferred	tax	assets	will not	be	realized,	a	valuation	allowance	is	recorded.	Significant	weight	is	given	to	positive	and	negative	evidence	that	is	objectively	verifiable.	A	company's three-year	 cumulative	 loss	 position	 is	 significant	 negative	 evidence	 in	 considering	 whether	 deferred	 tax	 assets	 are	 realizable,	 and	 the	 accounting guidance	restricts	the	amount	of	reliance	we	can	place	on	projected	taxable	income	to	support	the	recovery	of	the	deferred	tax	assets.

We	maintain	a	valuation	allowance	on	certain	state	and	foreign	deferred	tax	assets	as	of	December	31,	2017.	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.	The	need	to	maintain	a	valuation	allowance	against	deferred	tax	assets	may	cause	greater	volatility	in	our effective	tax	rate.

The	current	accounting	guidance	allows	the	recognition	of	only	those	income	tax	positions	that	have	a	greater	than	50	percent	likelihood	of	being sustained	upon	examination	by	the	taxing	authorities.	We	believe	that	there	is	an	increased	potential	for	volatility	in	our	effective	tax	rate	because	this threshold	allows	changes	in	the	income	tax	environment	and	the	inherent	complexities	of	income	tax	law	in	a	substantial	number	of	jurisdictions	to	affect the	computation	of	our	liability	for	uncertain	tax	positions	to	a	greater	extent.

While	we	believe	we	have	adequately	provided	for	our	uncertain	tax	positions,	amounts	asserted	by	taxing	authorities	could	vary	from	our	liability	for uncertain	 tax	positions.	Accordingly,	additional	provisions	 for	 tax-related	matters,	 including	 interest	and	penalties,	could	be	recorded	 in	 income	 tax expense	in	the	period	revised	estimates	are	made	or	the	underlying	matters	are	settled	or	otherwise	resolved.

The	comprehensive	U.S.	tax	reform,	which	is	generally	effective	in	2018,	is	expected	to	have	a	significant	impact	on	our	effective	tax	rate	and	taxes paid	primarily	due	to	the	reduction	in	the	U.S.	Federal	corporate	tax	rate	from	35	percent	to	21	percent	and	the	additional	U.S.	and	foreign	taxes	on	our foreign	earnings.	The	impact	from	U.S.	tax	reform	may	differ	from	our	current	estimates	due	to	the	issuance	of	future	regulatory	guidance	that	differs	from our	current	interpretation.	As	a	result	of	this	new	legislation,	we	currently	anticipate	our	effective	tax	rate	in	2018	to	be	approximately	26	percent.		We intend	to	allocate	the	benefit	from	lower	cash	tax	payments	to	our	existing	capital	allocation	strategy.

# Warranty

We	offer	full	and	limited	warranties	on	certain	products,	with	warranty	periods	ranging	up	to	the	lifetime	of	the	product	to	the	original	consumer purchaser.	At	the	time	of	sale,	we	accrue	a	warranty	liability	for	the	estimated	future	cost	to	provide	products,	parts	or	services	to	repair	or	replace products	to	satisfy	our	warranty	obligations.	Our	estimate	of	future	costs	to	service	our	warranty	obligations	is	based	upon	the	information	available	and includes	a	number	of	factors,	such	as	the	warranty	coverage,	the	warranty	period,	historical	experience	specific	to	the	nature,	frequency	and	average	cost to	service	the	claim,	along	with	industry	and	demographic	trends.

Certain	factors	and	related	assumptions	in	determining	our	warranty	liability	involve	judgments	and	estimates	and	are	sensitive	to	changes	in	the factors	described	above.	We	believe	that	the	warranty	accrual	is	appropriate;	however,	actual	claims	incurred	could	differ	from	our	original	estimates, which	would	require	us	to	adjust	our	previously	established	accruals.	Refer	to	Note	S	to	the	consolidated	financial	statements	for	additional	information.

A	significant	portion	of	our	business	is	at	the	consumer	retail	level	through	home	center	retailers	and	other	major	retailers.	A	consumer	may	return	a product	to	a	retail	outlet	that	is	a	warranty	return.	However,	certain	retail	outlets	do	not	distinguish	between	warranty	and	other	types	of	returns	when	they claim	a	return	deduction	from	us.	Our	revenue	recognition	policy	takes	into	account	this	type	of	return	when	recognizing	revenue,	and	an	estimate	of these	amounts	is	recorded	as	a	deduction	to	net	sales	at	the	time	of	sale.

# Litigation

We	are	involved	in	claims	and	litigation,	including	class	actions	and	regulatory	proceedings,	which	arise	in	the	ordinary	course	of	our	business. Liabilities	and	costs	associated	with	these	matters	require	estimates	and	judgments	based	upon	our	professional	knowledge	and	experience	and	that	of our	legal	counsel.	When	estimates	of	our	exposure	in	these	matters	meet	the	criteria	for	recognition	under	accounting	guidance,	amounts	are	recorded	as charges	to	earnings.	The	ultimate	resolution	of	these	exposures	may	differ	due	to	subsequent	developments.

# Corporate	Development	Strategy

We	expect	to	maintain	a	balanced	growth	strategy	pursuing	organic	growth	by	maximizing	the	full	potential	of	our	existing	core	businesses	and complementing	our	existing	business	with	strategic	acquisitions,	particularly	in	the	Plumbing	Products	and	Decorative	Architectural	Products	segments.

In	addition,	we	actively	manage	our	portfolio	of	companies	by	divesting	of	those	businesses	that	do	not	align	with	our	long-term	growth	strategy.	We will	continue	to	review	all	of	our	businesses	to	determine	which	businesses,	if	any,	may	not	be	core	to	our	long-term	growth	strategy.

# Liquidity	and	Capital	Resources

Historically,	we	have	largely	funded	our	growth	through	cash	provided	by	our	operations,	the	issuance	of	notes	in	the	financial	markets,	long-term bank	debt	and	the	issuance	of	our	common	stock,	including	issuances	for	certain	mergers	and	acquisitions.	Maintaining	high	levels	of	liquidity	and focusing	on	cash	generation	are	among	our	financial	strategies.	Our	capital	allocation	strategy	includes	reinvesting	in	our	business,	balancing	share repurchases	with	potential	acquisitions	and	maintaining	an	appropriate	dividend.

Our	total	debt	as	a	percent	of	total	capitalization	was 95	percent	and	104	percent	at	December	31,	2017	and	2016,	respectively.	Refer	to	Note	J	to the	consolidated	financial	statements	for	additional	information.

On	June	21,	2017,	we	issued	$300	million	of	3.5%	Notes	due	November	15,	2027	and	$300	million	of	4.5%	Notes	due	May	15,	2047.	We	received proceeds	of	$599	million,	net	of	discount,	for	the	issuance	of	these	Notes.	The	Notes	are	senior	indebtedness	and	are	redeemable	at	our	option	at	the applicable	redemption	price.	On	June	27,	2017,	proceeds	from	the	debt	issuances,	together	with	cash	on	hand,	were	used	to	repay	and	early	retire	$299 million	of	our	7.125%	Notes	due	March	15,	2020,	$74	million	of	our	5.95%	Notes	due	March	15,	2022,	$62	million	of	our	7.75%	Notes	due	August	1,	2029, and	$100	million	of	our	6.5%	Notes	due	August	15,	2032.	In	connection	with	these	early	retirements,	we	incurred	a	loss	on	debt	extinguishment	of	$107 million,	which	was	recorded	as	interest	expense.

On	March	17,	2016,	we	issued	$400	million	of	3.5%	Notes	due	April	1,	2021	and	 $500	million	of	4.375%	Notes	due	April	1,	2026.	We	received proceeds	of	$896	million,	net	of	discount,	for	the	issuance	of	these	Notes.	The	Notes	are	senior	indebtedness	and	are	redeemable	at	our	option	at	the applicable	redemption	price.	On	April	15,	2016,	proceeds	from	the	debt	issuances,	together	with	cash	on	hand,	were	used	to	repay	and	early	retire	all	of our	$1	billion,	6.125%	Notes	which	were	due	on	October	3,	2016	and	all	of	our	 $300	million,	 5.85%	Notes	which	were	due	on	March	15,	2017.	In connection	with	these	early	retirements,	we	incurred	a	loss	on	debt	extinguishment	of	$40	million,	which	was	recorded	as	interest	expense.

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

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.	Refer	to	Note	J	to	the	consolidated	financial	statements	for	additional	information.

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.	We	were	in	compliance with	all	covenants	and	had	no	borrowings	under	our

Amended	Credit	Agreement	at	 December	31,	2017.	We	expect	to	remain	in	compliance	with	these	covenants	through	at	least	the	next	year.

We	had	cash,	cash	investments	and	short-term	bank	deposits	of	approximately	 $1.3	billion	at	December	31,	2017.	Our	cash	and	cash	investments consist	of	overnight	interest	bearing	money	market	demand	accounts,	time	deposit	accounts,	and	money	market	mutual	funds	containing	government securities	and	treasury	obligations.	While	we	attempt	to	diversify	these	investments	in	a	prudent	manner	to	minimize	risk,	it	is	possible	that	future	changes in	the	financial	markets	could	affect	the	security	or	availability	of	these	investments.	Our	short-term	bank	deposits	consist	of	time	deposits	with	maturities of	12	months	or	less.

Of	the	$1.3	billion	and	$1.2	billion	of	cash,	cash	investments	and	short-term	bank	deposits	we	held	at	 December	31,	2017	and	2016,	respectively, $759	million	and	$618	million,	respectively,	is	held	in	our	foreign	subsidiaries.	If	these	funds	were	needed	for	our	operations	in	the	U.S.,	their	repatriation into	the	U.S.	would	not	result	in	significant	additional	U.S.	income	tax	or	foreign	withholding	tax,	as	we	have	recorded	such	taxes	on	substantially	all undistributed	foreign	earnings,	except	for	those	that	are	legally	restricted.

We	utilize	derivative	and	hedging	instruments	to	manage	our	exposure	to	currency	fluctuations,	primarily	related	to	the	European	euro,	British	pound and	 the	U.S.	dollar;	occasionally,	we	have	also	used	derivative	and	hedging	 instruments	 to	manage	our	exposure	 to	commodity	cost	 fluctuations, primarily	zinc	and	copper,	and	interest	rate	fluctuations,	primarily	related	to	debt	issuances.	We	review	our	hedging	program,	derivative	positions	and overall	risk	management	on	a	regular	basis.	We	currently	do	not	have	any	derivative	instruments	for	which	we	have	designated	hedge	accounting.

In	the	third	quarter	of	2017,	we	increased	our	quarterly	dividend	to	$.105	per	common	share	from	$.10	per	common	share.	During	2017,	we repurchased	9.2	million	shares	of	our	common	stock	for	cash	aggregating	 $331	million.

In	 December	 2017,	 we	 signed	 a	 definitive	 agreement	 to	 acquire	The	 L.D.	 Kichler	 Co.	 ("Kichler"),	 a	 leader	 in	 decorative	 residential	 and	 light commercial	lighting	products,	ceiling	fans	and	LED	lighting	systems.	This	business	will	expand	our	product	offerings	to	repair	and	remodel	customers.	We expect	this	transaction	to	close	in	the	first	quarter	of	2018,	at	which	time	we	expect	to	pay	approximately	$550	million	for	the	business,	using	cash	on hand.	We	intend	to	report	this	business	in	our	Decorative	Architectural	Products	segment.

# Cash	Flows

Significant	sources	and	(uses)	of	cash	in	the	past	three	years	are	summarized	as	follows,	in	millions:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Net\tcash\tfrom\toperating\tactivities | $751 | $789 | $810 |
| Retirement\tof\tnotes | (535) | (1,300) | (500) |
| Purchase\tof\tCompany\tcommon\tstock | (331) | (459) | (456) |
| Cash\tdividends\tpaid | (129) | (128) | (126) |
| Dividends\tpaid\tto\tnoncontrolling\tinterest | (35) | (31) | (36) |
| Capital\texpenditures | (173) | (180) | (158) |
| Debt\textinguishment\tcosts | (104) | (40) | — |
| Acquisition\tof\tbusinesses,\tnet\tof\tcash\tacquired | (89) | — | (41) |
| Cash\tdistributed\tto\tTopBuild\tCorp. | — | — | (63) |
| Issuance\tof\tTopBuild\tCorp.\tdebt | — | — | 200 |
| Issuance\tof\tnotes,\tnet\tof\tissuance\tcosts | 593 | 889 | 497 |
| Employee\twithholding\ttaxes\tpaid\ton\tstock-based\tcompensation | (33) | (40) | (36) |
| Proceeds\tfrom\tdisposition\tof: |  |  |  |
| Businesses,\tnet\tof\tcash\tdisposed | 128 | — | — |
| Property\tand\tequipment | 24 | — | 18 |
| Financial\tinvestments | 7 | 32 | 10 |
| Decrease\tin\tdebt,\tnet | (3) | (1) | — |
| Proceeds\tof\tshort-term\tbank\tdeposits,\tnet | 112 | 40 | 26 |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tcash\tinvestments | 55 | (34) | (15) |
| Other,\tnet | (34) | (15) | (45) |
| Cash\tincrease\t(decrease) | $204 | $(478) | $85 |

Our	working	capital	days	were	as	follows:

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Receivable\tdays | 51 | 49 |
| Inventory\tdays | 59 | 54 |
| Accounts\tPayable\tdays | 72 | 70 |
| Working\tcapital\t(receivables\tplus\tinventories,\tless\taccounts\tpayable)\tas\ta\tpercentage\tof\tnet\tsales | 13.0% | 11.3% |

Net	cash	provided	by	operations	of	 $751	million	consisted	primarily	of	net	income	adjusted	for	certain	non-cash	items,	including	depreciation	and amortization	expense	of	$127	million,	stock-based	compensation	expense	and	amortization	expense	related	to	in-store	displays,	as	well	as	cash	items which	are	classified	as	financing	activities,	including	debt	extinguishment	costs	of	$104	million	and	employee	withholding	taxes	paid	on	stock-based compensation.	These	amounts	were	partially	offset	by	changes	in	working	capital,	resulting	primarily	from	an	increase	in	inventory	levels	to	support	our growth	and	new	programs	and	changes	in	contract	terms	with	certain	customers.	Net	cash	provided	by	operations	was	also	impacted	by	contributions	to our	defined-benefit	pension	plans.

Net	cash	used	for	financing	activities	was	$577	million,	primarily	due	to	the	early	retirement	of	$299	million	of	our	7.125%	Notes	due	March	15, 2020,	$74	million	of	our	5.95%	Notes	due	March	15,	2022,	$62	million	of	our	7.75%	Notes	due	August	1,	2029,	and	$100	million	of	our	6.5%	Notes	due August	15,	2032,	and	related	extinguishment	costs	of	$104	million.	Net	cash	used	for	financing	activities	was	also	impacted	by	$331	million	for	the repurchase	and	retirement	of	Company	common	stock	(as	part	of	our	strategic	initiative	to	drive	shareholder	value),	$129	million	for	cash	dividends	paid, $35	million	for	dividends	paid	to	noncontrolling	interests	and	 $33	million	for	employee	withholding	taxes	paid	on	stock-based	compensation.	These amounts	were	partially	offset	by	the	issuance	of	$300	million	of	3.5%	Notes	due	November	15,	2027	and	$300	million	of	4.5%	Notes	due	May	15,	2047.

In	May	2017,	our	Board	of	Directors	authorized	the	repurchase,	for	retirement,	of	up	to	$1.5	billion	of	shares	of	our	common	stock	in	open-market transactions	or	otherwise,	replacing	the	previous	Board	of	Directors	authorization	established	in	2014.	During	2017,	we	repurchased	and	retired	9.2 million	shares	of	our	common	stock,	(including	0.9	million	shares	repurchased	to	offset	the	dilutive	impact	of	long-term	stock	awards	granted	in	2017).	At December	31,	2017,	we	had	approximately	$1.3	billion	remaining	under	the	2017	authorization.	Consistent	with	past	practice	and	as	part	of	our	strategic initiative,	we	anticipate	using	$200	to	$300	million	of	cash	for	share	repurchases	(including	shares	which	will	be	purchased	to	offset	any	dilution	from	long- term	stock	awards	granted	as	part	of	our	compensation	programs)	or	acquisitions	in	2018,	in	addition	to	our	expected	acquisition	of	Kichler	in	the	first quarter	of	2018.

Net	cash	used	for	investing	activities	was	$25	million,	primarily	driven	by	$173	million	for	capital	expenditures	and	$89	million	for	the	acquisition	of Mercury,	partially	offset	by	$128	million	from	the	sale	of	Arrow	and	 $112	million	net	proceeds	from	the	disposition	of	short-term	bank	deposits.

We	continue	to	invest	in	our	manufacturing	and	distribution	operations	to	increase	our	productivity,	improve	customer	service	and	support	new product	innovation.	Capital	expenditures	for	2017	were	$173	million,	compared	with	$180	million	for	2016	and	$158	million	for	2015.	For	2018,	capital expenditures,	excluding	any	acquisitions,	are	expected	to	be	approximately	$220	million.	Depreciation	and	amortization	expense	for	2017	totaled	$127 million,	compared	with	$134	million	for	2016	and	$133	million	for	2015.	For	2018,	depreciation	and	amortization	expense,	excluding	any	potential	 2018 acquisitions,	is	expected	to	be	approximately	$135	million.	Amortization	expense	totaled	$11	million,	$10	million	and	$11	million	in	2017,	2016	and	2015, respectively.

Costs	of	environmental	responsibilities	and	compliance	with	existing	environmental	laws	and	regulations	have	not	had,	nor	do	we	expect	them	to have,	a	material	effect	on	our	capital	expenditures,	financial	position	or	results	of	operations.

We	believe	that	our	present	cash	balance	and	cash	flows	from	operations	are	sufficient	to	fund	our	near-term	working	capital	and	other	investment needs.	We	believe	that	our	longer-term	working	capital	and	other	general	corporate	requirements	will	be	satisfied	through	cash	flows	from	operations	and, to	the	extent	necessary,	from	bank	borrowings	and	future	financial	market	activities.

# Consolidated	Results	of	Operations

We	report	our	financial	results	in	accordance	with	GAAP	in	the	United	States.	However,	we	believe	that	certain	non-GAAP	performance	measures and	ratios,	used	in	managing	the	business,	may	provide	users	of	this	financial	information	with	additional	meaningful	comparisons	between	current results	and	results	in	prior	periods.	Non-GAAP	performance	measures	and	ratios	should	be	viewed	in	addition	to,	and	not	as	an	alternative	for,	our reported	results	under	GAAP.

# Sales	and	Operations

Net	 sales	 for	2017	 were	$7.6	billion,	 which	increased	 four	 percent	 compared	 with	2016.	Excluding	acquisitions,	divestitures	and	 the	effect	of currency	 translation,	 net	 sales	 increased	 four	 percent	 compared	 to	2016.	The	 following	 table	 reconciles	 reported	 net	 sales	 to	 net	 sales	 excluding acquisitions,	divestitures	and	the	effect	of	currency	translation,	in	millions:

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Net\tsales,\tas\treported | $7,644 | $7,357 |
| Acquisitions | (3) | — |
| Divestitures | — | (44) |
| Net\tsales,\texcluding\tacquisitions\tand\tdivestitures | 7,641 | 7,313 |
| Currency\ttranslation | 1 | — |
| Net\tsales,\texcluding\tacquisitions,\tdivestitures\tand\tthe\teffect\tof\tcurrency\ttranslation | $7,642 | $7,313 |

Net	 sales	 for	2017	were	positively	affected	by	 increased	sales	 volume	 of	 plumbing	 products,	 paints	 and	 other	 coating	 products	 and	 builders' hardware,	which,	in	aggregate,	increased	sales	by	approximately	four	percent	compared	to	2016.	Net	sales	for	2017	were	also	positively	affected	by favorable	sales	mix	of	cabinets,	North	American	plumbing	products,	North	American	windows,	and	net	selling	price	increases	of	windows	and	international plumbing	products,	which,	in	aggregate,	increased	sales	approximately	two	percent	compared	to	2016.	Net	sales	for	2017	were	negatively

affected	by	lower	sales	volume	of	cabinets,	the	divestiture	of	our	Arrow	and	Moores	businesses,	and	an	unfavorable	sales	mix	of	international	plumbing products,	which,	in	aggregate,	decreased	sales	by	approximately	two	percent	compared	to	2016.

Net	sales	 for	2016	were	positively	affected	by	 increased	sales	volume	of	plumbing	products,	paints	and	other	coating	products	and	builders' hardware,	which,	in	aggregate,	increased	sales	by	approximately	five	percent	compared	to	2015.	Net	sales	for	2016	were	also	positively	affected	by favorable	sales	mix	of	cabinets	and	windows,	and	net	selling	price	increases	of	North	American	windows	and	North	American	and	international	plumbing products,	which,	in	aggregate,	increased	sales	approximately	one	percent.	Net	sales	for	2016	were	negatively	affected	by	lower	sales	volume	of	cabinets and	lower	net	selling	prices	of	paints	and	other	coating	products,	which,	in	aggregate,	decreased	sales	by	approximately	two	percent.

Net	sales	for	2015	were	positively	affected	by	increased	sales	volume	of	plumbing	products,	paints	and	other	coating	products,	windows	and builders'	hardware.	Net	sales	for	2015	were	also	positively	affected	by	net	selling	price	increases	of	plumbing	products,	cabinets	and	windows,	as	well	as sales	mix	of	North	American	cabinets	and	windows.	Net	sales	for	2015	were	negatively	affected	by	lower	sales	volume	of	cabinets	and	lower	net	selling prices	of	paints	and	other	coating	products.

Our	gross	profit	margins	were	34.2	percent,	33.4	percent	and	31.5	percent	in	2017,	2016	and	2015,	respectively.	The	2017	and	2016	gross	profit margins	were	positively	impacted	by	increased	sales	volume,	a	more	favorable	relationship	between	net	selling	prices	and	commodity	costs,	and	cost savings	initiatives.	2016	gross	profit	margins	were	negatively	impacted	by	an	increase	in	warranty	costs	resulting	from	a	change	in	our	estimate	of expected	future	warranty	claim	costs.

Selling,	general	and	administrative	expenses	as	a	percent	of	sales	were	 18.9	percent	in	2017	compared	with	19.1	percent	in	2016	and	18.7	percent in	2015.	Selling,	general	and	administrative	expenses	as	a	percent	of	sales	in	 2017	reflect	increased	sales	and	the	effect	of	cost	containment	measures, partially	offset	by	an	increase	in	strategic	growth	investments,	stock-based	compensation,	health	insurance	costs	and	trade	show	costs.	Selling,	general and	administrative	expenses	as	a	percent	of	sales	in	2016	reflect	strategic	growth	investments,	ERP	system	implementation	costs	and	higher	insurance costs.

The	following	table	reconciles	reported	operating	profit	to	operating	profit,	as	adjusted	to	exclude	certain	items,	dollars	in	millions:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Operating\tprofit,\tas\treported | $1,169 | $1,053 | $914 |
| Rationalization\tcharges | 4 | 22 | 18 |
| Gain\tfrom\tsale\tof\tproperty\tand\tequipment | — | — | (5) |
| Operating\tprofit,\tas\tadjusted | $1,173 | $1,075 | $927 |
| Operating\tprofit\tmargins,\tas\treported | 15.3% | 14.3% | 12.8% |
| Operating\tprofit\tmargins,\tas\tadjusted | 15.3% | 14.6% | 13.0% |

Operating	 profit	 margins	 in	2017	 and	2016	were	positively	affected	by	increased	sales	volume,	cost	savings	initiatives,	and	a	more	favorable relationship	between	net	selling	prices	and	commodity	costs.	Operating	profit	margin	in	2017	was	negatively	impacted	by	an	increase	in	strategic	growth investments	and	certain	other	expenses,	including	stock-based	compensation,	health	insurance	costs,	trade	show	costs	and	increased	head	count. Operating	profit	margin	in	2016	was	negatively	impacted	by	an	increase	in	warranty	costs	by	a	business	in	our	Windows	and	Other	Specialty	Products segment	and	an	increase	in	strategic	growth	investments,	as	well	as	ERP	system	implementation	costs	and	higher	insurance	costs.

# Other	Income	(Expense),	Net

Other,	net,	for	2017	included	net	losses	of	 $13	million	related	to	the	divestitures	of	Arrow	and	Moores	and	 $2	million	related	to	the	impairment	of	a private	equity	fund,	partially	offset	by	$3	million	related	to	distributions	from	private	equity	funds	and	 $1	million	of	earnings	related	to	equity	investments.

Other,	net,	for	2016	included	net	gains	of	$5	million	from	distributions	from	private	equity	funds,	$3	million	from	the	redemption	of	auction	rate securities	and	$2	million	of	earnings	from	equity	investments.	Other,	net	for	2016	also	included	realized	foreign	currency	losses	of	$3	million	and	other miscellaneous	items.

Other,	net,	for	2015	included	net	gains	of	$6	million	from	distributions	from	private	equity	funds	and	$2	million	of	earnings	from	equity	investments. Other,	net,	for	2015	also	included	realized	foreign	currency	losses	of	$14	million	and	other	miscellaneous	items.

Interest	expense	was	$278	million,	$229	million	and	$225	million	in	2017,	2016	and	2015,	respectively.	Interest	expense	 increased	in	2017	and 2016	due	primarily	to	the	$107	million	and	$40	million	losses	on	debt	extinguishment	which	were	recorded	as	additional	interest	expense	in	connection with	the	early	retirement	of	debt	in	2017	and	2016,	respectively.	These	increases	were	partially	offset	by	the	discharge	of	indebtedness	(2016	only)	as well	as	refinancing	certain	debt	at	more	favorable	interest	rates.

# Income	and	Earnings	Per	Common	Share	from	Continuing	Operations	(Attributable	to	Masco	Corporation)

Income	and	diluted	income	per	common	share	from	continuing	operations	for	 2017	were	$533	million	and	$1.66	per	common	share,	respectively. Income	and	diluted	income	per	common	share	from	continuing	operations	for	2016	were	$491	million	and	$1.47	per	common	share,	respectively.	Income and	diluted	income	per	common	share	from	continuing	operations	for	2015	were	$357	million	and	$1.03	per	common	share,	respectively.

Our	effective	tax	rate	was	34	percent,	36	percent	and	43	percent	in	 2017,	2016	and	2015,	respectively.	Effective	January	1,	2017	we	adopted	ASU 2016-09,	which	requires	the	tax	effects	related	to	employee	stock-based	payments	to	be	recorded	to	income	tax	expense,	thus	increasing	the	volatility	in our	effective	tax	rate.	Our	normalized	tax	rate	was	34	percent	in	2017,	compared	to	36	percent	in	2016	and	2015.

Our	2017	effective	tax	rate	was	impacted	by	divestitures	of	businesses	with	no	tax	impact.	This	impact	was	offset	by	a	$17	million	net	tax	benefit from	the	impact	of	changes	in	the	U.S.	Federal	tax	law	and	a	$20	million	tax	benefit	from	stock-based	compensation	payments	recognized	in	2017.

Our	2016	effective	tax	rate	includes	a	$14	million	charge	to	tax	expense	from	the	elimination	of	a	disproportionate	tax	effect	resulting	from	our auction	rate	securities	being	called	by	our	counterparty	during	2016.	This	charge	was	offset	by	a	$13	million	tax	benefit	from	the	recognition	of	a	deferred tax	asset	on	certain	German	net	operating	losses	primarily	resulting	from	a	return	to	sustainable	profitability.

Compared	to	our	normalized	tax	rate	of	36	percent,	the	variance	in	 2015	is	due	primarily	to	a	$21	million	valuation	allowance	against	certain deferred	tax	assets	of	TopBuild	recorded	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,	was	unlikely	to	be	able	to	realize the	value	of	such	deferred	tax	assets	as	a	result	of	its	history	of	losses.

The	2015	 effective	 tax	 rate	 also	 includes	 a	 $19	 million	 charge	 to	 income	 tax	 expense	 to	 recognize	 the	 required	 taxes	 on	 substantially	 all undistributed	foreign	earnings,	except	for	those	that	are	legally	restricted.	This	charge	was	the	result	of	our	determination	that	we	may	need	to	repatriate earnings	from	certain	foreign	subsidiaries	that	were	previously	considered	permanently	reinvested	in	order	to	provide	greater	flexibility	in	the	execution	of our	capital	management	strategy.

Refer	to	Note	Q	to	the	consolidated	financial	statements	for	additional	information.

# Outlook	for	the	Company

We	continue	to	successfully	execute	our	long-term	growth	strategies	by	leveraging	our	strong	brand	portfolio,	industry-leading	positions	and	Masco Operating	System,	our	methodology	to	drive	growth	and	productivity.	We	believe	the	fundamentals	of	our	industry	remain	strong	and	support	long-term growth	of	our	products.	We	believe	that	our	strong	financial	position,	together	with	our	current	strategy	of	investing	in	our	industry-leading	branded building	 products,	 our	 continued	 focus	 on	 innovation	 and	 our	 commitment	 to	 operational	 excellence,	 the	 active	 management	 of	 our	 portfolio	 and disciplined	capital	allocation	will	allow	us	to	drive	long-term	growth	and	create	value	for	our	shareholders.

# Business	Segment	and	Geographic	Area	Results

The	following	table	sets	forth	our	net	sales	and	operating	profit	(loss)	information	by	business	segment	and	geographic	area,	dollars	in	millions.

(A) Before	general	corporate	expense,	net;	refer	to	Note	O	to	the	consolidated	financial	statements	for	additional	information.

# Business	Segment	Results	Discussion

Changes in	 operating	 profit	 margins in the following	 Business	 Segment	 and	 Geographic	Area	 Results	 discussion	 exclude	 general	 corporate expense,	net.

# Sales

Net	sales	of	Plumbing	Products	increased	six	percent	in	2017	compared	to	2016,	primarily	due	to	increased	sales	volume	of	both	North	American and	International	operations,	net	selling	price	increases	of	International	operations	and	a	favorable	sales	mix	of	North	American	operations,	which,	in aggregate,	 increased	sales	by	seven	percent	compared	 to	2016.	These	increases	were	partially	offset	by	an	unfavorable	sales	mix	of	International operations,	which	decreased	sales	by	one	percent	compared	to	2016.

Net	sales	in	this	segment	increased	six	percent	in	2016	compared	to	2015,	primarily	due	to	increased	sales	volume	of	both	North	American	and international	operations,	partially	offset	by	foreign	currency	translation,	which	reduced	sales	by	one	percent	compared	to	2015.

Net	sales	in	this	segment	increased	in	2015	primarily	due	to	increased	sales	volume	of	both	North	American	and	international	operations,	and	net selling	price	increases	primarily	related	to	international	operations.	This	segment's	sales	were	also	positively	impacted	by	an	acquisition	that	occurred	in 2015.	Foreign	currency	translation	reduced	sales	primarily	due	to	the	stronger	U.S.	dollar.

# Operating	Results

Operating	margins	in	the	Plumbing	Products	segment	in	2017	were	positively	impacted	by	increased	sales	volume,	cost	savings	initiatives,	and	a favorable	relationship	between	net	selling	prices	and	commodity	costs,	partially	offset	by	an	increase	in	strategic	growth	initiatives	and	certain	other expenses	(including	trade	show	costs	and	higher	head	count).

Operating	margins	in	this	segment	in	2016	were	positively	impacted	by	increased	sales	volume,	a	favorable	relationship	between	net	selling	prices and	commodity	costs	(including	the	positive	impact	of	metal	hedge	contracts),	and	the	benefits	associated	with	business	rationalization	and	other	cost savings	initiatives.	Such	increases	were	partially	offset	by	an	increase	in	strategic	growth	investments,	higher	insurance	costs,	and	unfavorable	sales	mix.

Operating	margins	in	this	segment	in	2015	were	negatively	impacted	by	unfavorable	sales	mix,	as	well	as	an	increase	in	certain	variable	expenses, such	as	trade	show	and	marketing	expenses	and	legal-related	expenses.	Such	decreases	were	partially	offset	by	increased	sales	volume	and	a	favorable relationship	between	net	selling	prices	and	commodity	costs	(including	the	negative	impact	of	the	metal	hedge	contracts).

Net	sales	of	Decorative	Architectural	Products	increased	five	percent	in	 2017	compared	to	2016	primarily	due	to	increased	sales	volume	of	paints and	other	coating	products	and	builders'	hardware,	resulting	from	growth	in	our	BEHR	PRO®	business	and	the	expansion	of	our	shower	door	and	cabinet hardware	programs,	as	well	as	net	selling	price	increases	of	paints	and	other	coating	products.

Net	sales	in	this	segment	increased	four	percent	in	2016	compared	to	2015.	Net	sales	increased	primarily	due	to	increased	sales	volume	of	paints and	other	coating	products	related	to	our	BEHR	PRO	business	and	core-DIY	products,	as	well	as	builder's	hardware.	Such	increases	were	partially	offset by	lower	net	selling	prices	of	paints	and	other	coating	products.

Net	sales	in	this	segment	increased	in	2015,	primarily	due	to	increased	sales	volume	of	paints	and	other	coating	products	related	to	the	expansion	of the	BEHR	PRO	business	and	increased	sales	volume	of	builders'	hardware.	Such	increases	were	partially	offset	by	lower	net	selling	prices	of	paints	and other	coating	products	and	an	unfavorable	currency	impact	of	Canadian	paints	and	other	coating	products	sales.

Operating	margins	in	the	Decorative	Architectural	Products	segment	in	2017	were	negatively	affected	by	an	unfavorable	relationship	between	net selling	prices	and	commodity	costs	of	paints	and	other	coating	products,	and	an

increase	in	strategic	growth	investments	to	support	the	expansion	of	pro	paint	sales	and	new	programs	in	builders'	hardware.	Such	cost	increases	were partially	offset	by	increased	sales	volume	and	cost	savings	initiatives.

Operating	margins	in	this	segment	in	2016	reflect	increased	sales	volume	of	paints	and	other	coating	products	and	builders'	hardware,	partially offset	by	an	unfavorable	relationship	between	net	selling	prices	and	commodity	costs	of	paints	and	other	coating	products.

Operating	margins	in	this	segment	in	2015	reflect	operational	efficiencies	due	to	benefits	associated	with	cost	savings	initiatives,	a	more	favorable relationship	between	net	selling	prices	and	commodity	costs	and	increased	sales	volume	of	paints	and	other	coating	products	and	builders'	hardware. Such	increases	were	partially	offset	by	an	increase	in	advertising	and	display	expenses.	Operating	margins	were	also	negatively	impacted	by	unfavorable currency	effects	from	our	Canadian	operating	results	due	to	the	stronger	U.S.	dollar	in	2015.

Net	sales	of	Cabinetry	Products	decreased	four	percent	in	2017	compared	to	2016	primarily	due	to	lower	sales	volume	of	North	American	cabinets, mainly	 due	 to	 decreased	 sales	 to	 our	 builder	 customers	 in	 the	 U.S.,	 which	 decreased	 sales	 by	 five	 percent	 compared	 to	 2016.	Additionally,	 our international	cabinet	business	experienced	lower	sales	volume	due	to	the	continued	exit	of	certain	accounts	in	the	U.K.,	which,	combined	with	our divestiture	of	the	same	business	in	the	fourth	quarter,	decreased	sales	by	two	percent	compared	to	2016.	Such	decreases	were	partially	offset	by	a positive	sales	mix	of	North	American	cabinets,	which	increased	sales	by	three	percent	compared	to	2016.

Net	sales	in	this	segment	decreased	five	percent	in	2016	compared	to	2015.	Net	sales	decreased	primarily	due	to	lower	sales	volume	of	cabinets resulting	from	our	deliberate	exit	of	certain	lower	margin	business	in	the	direct-to-builder	channel	in	the	U.S.	and	other	accounts	in	the	U.K.,	which,	in aggregate,	decreased	sales	by	10	percent	compared	to	2015,	and	a	stronger	U.S.	dollar,	which	decreased	sales	by	one	percent	compared	to	2015.	Such decreases	were	partially	offset	by	a	favorable	sales	mix	of	North	American	and	international	cabinets	and	net	selling	price	increases	of	North	American cabinets,	which,	in	aggregate,	increased	sales	by	six	percent	compared	to	2015.

Net	 sales	 in	 this	 segment	 increased	 in	 2015	 primarily	 due	 to	 a	 favorable	 sales	 mix	 and	 net	 selling	 price	 increases	 of	 North	American	 and international	cabinets.	Net	sales	decreased	due	to	decreased	sales	volumes	in	both	North	America	and	international	cabinets.

Operating	margins	in	the	Cabinetry	Products	segment	in	 2017	were	flat	compared	to	2016.	Cost	savings	initiatives	as	well	as	positive	sales	mix	of North	 American	 cabinets	 were	 offset	 by	 decreased	 sales	 volume,	 costs	 to	 support	 new	 product	 launches	 in	 North	 America,	 anti-dumping	 and countervailing	duties,	and	an	unfavorable	relationship	between	net	selling	prices	and	commodity	costs	of	North	American	cabinets.

Operating	 margins	 in	 this	 segment	 in	 2016	 were	 positively	 affected	 by	 operational	 efficiencies	 due	 to	 the	 benefits	 associated	 with	 business rationalization	activities	and	other	cost	savings	 initiatives,	a	 favorable	sales	mix,	and	a	more	 favorable	relationship	between	net	selling	prices	and commodity	costs,	primarily	at	our	North	American	cabinets	business.	This	increase	was	partially	offset	by	decreased	sales	volume	in	North	American	and international	cabinets.

Operating	 margins	 in	 this	 segment	 in	 2015	 were	 positively	 affected	 by	 operational	 efficiencies	 due	 to	 the	 benefits	 associated	 with	 business rationalization	activities	and	other	cost	savings	 initiatives	and	decreased	business	rationalization	expenses.	Operating	margins	were	also	positively affected	by	a	more	favorable	relationship	between	net	selling	prices	and	commodity	costs	and	a	favorable	sales	mix.

Net	sales	of	Windows	and	Other	Specialty	Products	were	flat	in	2017	compared	to	2016.	Excluding	the	divestiture	of	Arrow,	sales	increased	five percent	compared	to	2016.	Net	selling	price	increases	of	North	American	and	international	windows,	increased	sales	volume	of	North	American	windows, and	a	favorable	sales	mix	of	North	American	windows,	in	aggregate,	increased	sales	by	seven	percent	compared	to	2016.	These	increases	were	partially offset	by	decreased	sales	volume	of	international	windows,	which	decreased	sales	by	one	percent	compared	to	2016.	Foreign	currency	translation	also decreased	sales	by	one	percent	compared	to	2016,	due	to	a	weaker	U.S.	dollar.

Net	sales	in	this	segment	increased	two	percent	in	2016	compared	to	2015.	Net	sales	increased	primarily	due	to	increased	net	selling	prices	of North	American	windows	and	a	favorable	sales	mix	of	North	American	and	international	windows,	which,	on	a	combined	basis,	increased	sales	by	four percent	compared	to	2015.	An	acquisition	positively	impacted	sales	by	one	percent	compared	to	2015.	These	increases	were	partially	offset	by	a	stronger U.S.	dollar	which	decreased	sales	by	three	percent	compared	to	2015.

Net	sales	in	this	segment	increased	in	2015	primarily	due	to	increased	sales	volume	and	a	favorable	sales	mix	of	North	American	windows	in	the Western	U.S.	This	segment's	sales	were	also	positively	impacted	by	an	acquisition	that	occurred	in	2015,	net	selling	price	increases,	increased	sales volume	and	a	favorable	sales	mix	of	our	U.K.	windows	business.	A	stronger	U.S.	dollar	decreased	sales.

Operating	margins	in	the	Windows	and	Other	Specialty	Products	segment	in	2017	were	positively	affected	by	a	decrease	in	warranty	adjustments, cost	savings	initiatives	and	a	favorable	relationship	between	net	selling	prices	and	commodity	costs	of	North	American	windows.

Operating	margins	in	this	segment	decreased	in	2016	due	to	a	$31	million	increase	in	our	estimate	of	expected	future	warranty	claims	relating	to previously	sold	windows	and	doors.	The	change	in	estimate	resulted	from	the	adoption	of	an	improved	warranty	valuation	model	and	the	availability	of additional	information	used	to	support	the	estimate	of	costs	to	service	claims	and	recent	warranty	claim	trends,	including	a	shift	to	increased	costs	to repair.	Operating	margins	also	decreased	due	to	increases	in	certain	other	expenses,	such	as	higher	labor	costs	and	ERP	system	implementation	costs at	our	North	American	windows	business.	Such	costs	were	partially	offset	by	a	more	favorable	relationship	between	net	selling	prices	and	commodity costs	of	U.S.	windows.

Operating	margins	in	this	segment	in	2015	reflect	higher	sales	volume	and	favorable	sales	mix	of	windows	in	the	Western	U.S.,	and	a	more favorable	relationship	between	net	selling	prices	and	commodity	costs	of	windows	in	the	U.S.	and	U.K.	Such	increases	were	partially	offset	by	an	increase in	certain	expenses,	such	as	advertising	and	ERP	system	implementation	costs	in	2015.

# Business	Rationalizations	and	Other	Initiatives

Over	 the	 last	 several	 years,	 we	 have	 taken	 several	 actions	 focused	 on	 the	 strategic	 rationalization	 of	 our	 businesses	 including	 business consolidations,	plant	closures,	head	count	reductions	and	other	cost	savings	initiatives.	For	the	years	ended	December	31,	2017,	2016	 and	2015,	we incurred	net	pre-tax	costs	and	charges	related	to	these	initiatives	of	$4	million,	$22	million,	and	$18	million,	respectively.

We	continue	to	realize	the	benefits	of	our	business	rationalizations	and	continuous	improvement	initiatives	across	our	enterprise	and	expect	to identify	additional	opportunities	to	improve	our	business	operations,	although	we	do	not	anticipate	that	the	costs	and	charges	related	to	our	ongoing commitment	to	continuous	improvement	will	be	as	significant	as	they	have	been	in	prior	years.

During	2017,	our	Plumbing	Products	segment	incurred	costs	of	 $2	million	primarily	related	to	plant	closure	costs	and	severance	in	North	America. Our	Cabinetry	Products	segment	incurred	costs	and	charges	of	$2	million	primarily	related	to	plant	closure	costs	in	North	America.

During	2016,	our	Plumbing	Products	segment	incurred	costs	of	 $13	million	primarily	related	to	plant	closure	costs	in	Canada	and	at	our	international operations,	as	well	as	severance	costs	across	multiple	businesses.	Our	Cabinetry	Products	segment	incurred	costs	and	charges	of	$8	million	primarily related	to	cost	savings	initiatives	in	North	America.	Lastly,	our	Windows	and	Other	Specialty	Products	segment	incurred	costs	of	$1	million	related	to severance	at	our	U.S.	windows	business.

During	2015,	our	Plumbing	Products	segment	incurred	costs	of	 $9	million	primarily	related	to	severance	and	other	cost	savings	initiatives	across multiple	 businesses.	 Our	 Cabinetry	 Products	 segment	incurred	 costs	 and	 charges	 of	$5	million	primarily	related	 to	cost	savings	 initiatives	 in	North America.	Our	corporate	office	incurred	$4	million	in	costs	primarily	related	to	severance	actions.

# Geographic	Area	Results	Discussion

# North	America

North	American	net	sales	in	 2017	increased	four	percent	compared	to	2016.	Net	sales	were	positively	impacted	by	increased	sales	volume	of plumbing	products,	paints	and	other	coating	products,	builders'	hardware	and	windows,	which	more	than	offset	decreased	sales	volume	of	cabinets.	In aggregate,	sales	volume	increased	sales	by	three	percent	compared	to	2016.	Favorable	sales	mix	of	cabinets,	plumbing	products	and	windows,	and	net selling	price	increases	of	windows	and	paints	and	other	coating	products,	in	aggregate,	increased	sales	by	two	percent	compared	to	2016.	The	divestiture of	Arrow	decreased	sales	by	one	percent	compared	to	2016.

North	American	net	sales	in	2016	were	positively	impacted	by	increased	sales	volume	of	paints	and	other	coating	products,	plumbing	products	and builders'	hardware,	which	more	than	offset	decreased	sales	volume	of	cabinets.	In	aggregate,	sales	volume	increased	sales	by	three	percent	compared	to 2015.	A	favorable	sales	mix	of	cabinets	and	windows,	in	aggregate,	increased	sales	by	one	percent	compared	to	2015.	Increased	net	selling	prices	of windows,	plumbing	products	and	cabinets,	in	aggregate,	also	increased	sales	by	one	percent	compared	to	2015.	Such	increases	were	partially	offset	by lower	net	selling	prices	of	paints	and	other	coating	products.

North	American	net	sales	in	2015	were	positively	impacted	by	increased	sales	volume	of	plumbing	products,	paints	and	other	coating	products, windows	and	builders'	hardware	which	more	than	offset	negative	sales	volume	of	cabinets.	Net	sales	were	also	positively	impacted	by	a	favorable	sales mix	of	cabinets	and	windows	and	increased	net	selling	prices	of	cabinets,	plumbing	products	and	windows.	An	acquisition	also	positively	impacted	sales. Such	increases	were	partially	offset	by	foreign	currency	translation,	primarily	due	to	the	stronger	U.S.	dollar	and	lower	net	selling	prices	of	paints	and other	coating	products.

Operating	margins	 from	North	American	operations	 in	 2017	were	positively	impacted	by	cost	savings	initiatives,	increased	sales	volume,	and favorable	sales	mix,	partially	offset	by	increases	in	strategic	growth	initiatives,	an	unfavorable	relationship	between	net	selling	prices	and	commodity costs,	and	certain	other	expenses,	including	increased	head	count.

Operating	margins	from	North	American	operations	in	2016	were	positively	affected	by	the	benefits	associated	with	business	rationalization	and other	cost	savings	initiatives.	North	American	operations	were	also	positively	affected	by	increased	sales	volume,	a	more	favorable	relationship	between net	selling	prices	and	commodity	costs,	as	well	as	a	favorable	sales	mix.	Such	increases	were	partially	offset	by	an	increase	in	warranty	costs	and	certain other	expenses,	such	as	higher	labor	costs,	ERP	system	implementation	costs,	strategic	growth	investments	and	insurance	costs.

Operating	margins	 from	North	American	operations	 in	2015	were	positively	affected	by	 increased	sales	volume,	as	well	as	a	more	 favorable relationship	between	net	selling	prices	and	commodity	costs.	North	American	operations	were	also	positively	affected	by	the	benefits	associated	with	past business	rationalization	and	other	cost	savings	initiatives	and	decreased	business	rationalization	expenses.

# International,	Principally	Europe

Net	sales	from	International	operations	in	2017	increased	three	percent	compared	to	2016.	In	local	currencies	(including	sales	in	foreign	currencies outside	their	respective	functional	currencies),	net	sales	increased	four	percent	compared	to	2016.	Net	sales	were	positively	impacted	by	increased	sales volume	of	plumbing	products	and	net	selling	price	increases	of	plumbing	products	and	windows,	which,	in	aggregate,	increased	sales	by	seven	percent compared	to	2016.	Such	increases	were	partially	offset	by	an	unfavorable	sales	mix	of	plumbing	products	and	lower	sales	volume	of	cabinets	and windows,	which,	in	aggregate,	decreased	sales	by	three	percent	compared	to	2016.	The	divestiture	of	Moores	also	decreased	sales	by	one	percent compared	to	2016.

Net	sales	from	International	operations	increased	by	two	percent	in	2016	compared	to	2015.	In	local	currencies,	net	sales	increased	six	percent compared	to	2015,	due	primarily	to	increased	sales	volume	of	plumbing	products,	which	increased	sales	by	six	percent	compared	to	2015.	Net	sales	were also	positively	impacted	by	a	favorable	sales	mix	of	cabinets	and	windows,	and	increased	net	selling	prices	for	plumbing	products,	which,	in	aggregate, increased	sales	by	one	percent	compared	to	2015.	These	increases	were	partially	offset	by	lower	sales	volume	for	cabinets,	which	decreased	sales	by one	percent	compared	to	2015.

Net	sales	from	International	operations	decreased	in	2015	primarily	due	to	a	stronger	U.S.	dollar.	In	local	currencies,	net	sales	increased	primarily due	to	increased	net	selling	prices	and	sales	volume	for	plumbing	products.	An	acquisition	also	positively	impacted	net	sales,	partially	offset	by	lower sales	volumes	for	cabinets.

Operating	margins	from	International	operations	in	2017	were	negatively	impacted	by	unfavorable	sales	mix,	increases	in	certain	other	expenses (including	trade	show	costs	and	increased	head	count)	and	investments	in	strategic	growth	initiatives,	partially	offset	by	a	favorable	relationship	between net	selling	prices	and	commodity	costs	and	increased	sales	volume.

Operating	margins	from	International	operations	in	2016	were	positively	affected	by	increased	sales	volume	and	a	more	favorable	relationship between	net	selling	prices	and	commodity	costs	of	plumbing	products.	These	increases	were	partially	offset	by	strategic	growth	investments.

Operating	margins	from	International	operations	in	2015	were	negatively	affected	by	unfavorable	sales	mix	and	increased	costs	to	support	future sales	growth	initiatives,	partially	offset	by	a	more	favorable	relationship	between	net	selling	prices	and	commodity	costs,	primarily	related	to	plumbing products.	Although	operating	margins	were	not	significantly	impacted,	foreign	currency	translation,	primarily	due	to	a	stronger	U.S.	dollar,	negatively impacted	operating	profit.

# Other	Matters

# Commitments	and	Contingencies

Information regarding	 our legal	 proceedings is	 set forth in	 Note	 S to the	 consolidated financial	 statements,	 which is incorporated	 herein	 by reference.

# Other	Commitments

We	enter	into	contracts,	which	include	reasonable	and	customary	indemnifications	that	are	standard	for	the	industries	in	which	we	operate.	Such indemnifications	 include	 claims	 made	 against	 builders	 by	 homeowners	 for	 issues	 relating	 to	 our	 products	 and	 workmanship.	 In	 conjunction	 with divestitures	and	other	transactions,	we	occasionally	provide	reasonable	and	customary	indemnifications.	We	have	never	had	to	pay	a	material	amount related	to	these	indemnifications,	and	we	evaluate	the	probability	that	amounts	may	be	incurred	and	record	an	estimated	liability	when	probable	and reasonably	estimable.

# Recently	Adopted	and	Issued	Accounting	Pronouncements

Refer	to	Note	A	to	the	consolidated	financial	statements	for	discussion	of	recently	adopted	and	issued	accounting	pronouncements,	which	is incorporated	herein	by	reference.

# Contractual	Obligations

The	following	table	provides	payment	obligations	related	to	current	contracts	at	 December	31,	2017,	in	millions:

|  | 2018 | 2019-2020 | 2021-2022 | 2022 | Other | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Debt\t(A) | $116 | $205 | $731 | $2,057 | $— | $3,109 |
| Interest\t(A) | 152 | 288 | 236 | 776 | — | 1,452 |
| Operating\tleases | 50 | 71 | 45 | 91 | — | 257 |
| Currently\tpayable\tincome\ttaxes | 6 | — | — | — | — | 6 |
| Private\tequity\tfunds\t(B) | — | — | — | — | 5 | 5 |
| Purchase\tcommitments\t(C) | 269 | — | — | — | — | 269 |
| Uncertain\ttax\tpositions,\tincluding\tinterest\nand\tpenalties\t(D) | — | — | — | — | 62 | 62 |
| Total | $593 | $564 | $1,012 | $2,924 | $67 | $5,160 |

(A) We	assume	that	all	debt	would	be	held	to	maturity.	Amounts	include	capital	lease	obligations.

(B) There	is	no	schedule	for	the	capital	commitments	to	the	private	equity	funds;	accordingly,	we	are	unable	to	make	a	reasonable	estimate	as	to	when capital	commitments	may	be	paid.

(C) Excludes	contracts	that	do	not	require	volume	commitments	and	open	or	pending	purchase	orders.

(D) Due	to	the	high	degree	of	uncertainty	regarding	the	timing	of	future	cash	outflows	associated	with	uncertain	tax	positions,	we	are	unable	to	make	a reasonable	estimate	for	the	period	beyond	the	next	year	in	which	cash	settlements	may	occur	with	applicable	tax	authorities.

Refer	to	Note	L	to	the	consolidated	financial	statements	for	defined-benefit	pension	plan	obligations.

# Item	7A.				Quantitative	and	Qualitative	Disclosures	about	Market	Risk.

We	have	considered	the	provisions	of	accounting	guidance	regarding	disclosure	of	accounting	policies	for	derivative	financial	instruments	and disclosure	of	quantitative	and	qualitative	information	about	market	risk	inherent	in	derivative	financial	instruments	and	other	financial	instruments.

We	are	exposed	to	the	impact	of	changes	in	interest	rates	and	foreign	currency	exchange	rates,	particularly	changes	between	the	U.S.	dollar	and the	European	euro,	British	pound,	and	Canadian	dollar,	and	to	market	price	fluctuations	related	to	our	financial	investments.	We	have	involvement	with derivative	financial	instruments	and	use	such	instruments	to	the	extent	necessary	to	manage	exposure	to	foreign	currency	fluctuations.	Refer	to	Note	E	to the	consolidated	financial	statements	for	additional	information	regarding	our	derivative	instruments.

At	December	31,	2017,	we	performed	sensitivity	analyses	to	assess	the	potential	loss	in	the	fair	values	of	market	risk	sensitive	instruments	resulting from	a	hypothetical	change	of	10	percent	in	foreign	currency	exchange	rates,	a	10	percent	decline	in	the	market	value	of	our	long-term	investments,	or	a 100	basis	point	change	in	interest	rates.	Based	upon	the	analyses	performed,	such	changes	would	not	be	expected	to	materially	affect	our	consolidated financial	position,	results	of	operations	or	cash	flows.

# Item	8. Financial	Statements	and	Supplementary

# Data.

# Management's	Report	on	Internal	Control	Over	Financial	Reporting

The	management	of	Masco	Corporation	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting.	Masco Corporation's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with	accounting	principles	generally	accepted	in	the	United	States	of America.

The	management	of	Masco	Corporation	assessed	the	effectiveness	of	the	Company's	internal	control	over	financial	reporting	as	of	 December	31, 2017	using	the	criteria	set	forth	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(COSO)	in	"Internal	Control	–	Integrated Framework."	Based	on	this	assessment,	management	has	determined	that	the	Company's	internal	control	over	financial	reporting	was	effective	as	of December	31,	2017.

PricewaterhouseCoopers	 LLP,	 an	 independent	 registered	 public	 accounting	 firm,	 performed	 an	 audit	 of	 the	 Company's	 consolidated	 financial statements	and	of	the	effectiveness	of	Masco	Corporation's	internal	control	over	financial	reporting	as	of	December	31,	2017.	Their	report	expressed	an unqualified	opinion	on	the	effectiveness	of	Masco	Corporation's	internal	control	over	financial	reporting	as	of	December	31,	2017	and	expressed	an unqualified	 opinion	 on	 the	 Company's	2017	 consolidated	 financial	 statements.	 This	 report	 appears	 under	 'Item 8. Financial	 Statements	 and Supplementary	Data'	under	the	heading	"Report	of	Independent	Registered	Public	Accounting	Firm."

# Report	of	Independent	Registered	Public	Accounting	Firm

To	the	Board	of	Directors	and	Shareholders

of	Masco	Corporation:

# Opinions	on	the	Financial	Statements	and	Internal	Control	over	Financial	Reporting

We	have	audited	the	accompanying	consolidated	balance	sheets	of	Masco	Corporation	and	its	subsidiaries 	as	of	December	31,	2017	and	2016, 	and	the related	consolidated	statements	of	operations,	comprehensive	income	(loss),	cash	flows,	and	shareholders'	equity	for	each	of	the	three	years	in	the period	ended	December	31,	2017,	including	the	related	notes	and	the	financial	statement	schedule	listed	in	the	index	appearing	under	Item	15(a)(2) (collectively	referred	to	as	the	"consolidated	financial	statements").	We	also	have	audited	the	Company's	internal	control	over	financial	reporting	as	of December	 31,	 2017,	 based	 on	 criteria	 established in	Internal	 Control - Integrated	 Framework (2013)	 issued	 by	 the	 Committee	 of	 Sponsoring Organizations	of	the	Treadway	Commission	(COSO).

In	our	opinion,	the	consolidated	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	financial	position	of	the	Company	as	of December	31,	2017	and	2016,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2017 in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	of	America.	Also	in	our	opinion,	the	Company	maintained,	in	all	material respects,	 effective	 internal	 control	 over	 financial	 reporting	 as	 of	 December	 31,	 2017,	 based	 on	 criteria	 established in	Internal	 Control-Integrated Framework	(2013)	issued	by	the	COSO.

# Basis	for	Opinions

The	Company's	management	is	responsible	for	these	consolidated	financial	statements,	for	maintaining	effective	internal	control	over	financial	reporting and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting,	included	in	Management's	Report	on	Internal	Control	Over	Financial Reporting	appearing	under	Item	8.	Our	responsibility	is	to	express	opinions	on	the	Company's	consolidated	financial	statements	and	on	the	Company's internal	control	over	financial	reporting	based	on	our	audits.	We	are	a	public	accounting	firm	registered	with	the	Public	Company	Accounting	Oversight Board	(United	States)	("PCAOB")	and	are	required	to	be	independent	with	respect	to	the	Company	in	accordance	with	the	U.S.	federal	securities	laws and	the	applicable	rules	and	regulations	of	the	Securities	and	Exchange	Commission	and	the	PCAOB.

We	conducted	our	audits	 in	accordance	with	 the	standards	of	 the	PCAOB.	Those	standards	require	that	we	plan	and	perform	the	audits	to	obtain reasonable	assurance	about	whether	the	consolidated	financial	statements	are	free	of	material	misstatement,	whether	due	to	error	or	fraud,	and	whether effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.

Our	audits	of	the	consolidated	financial	statements	included	performing	procedures	to	assess	the	risks	of	material	misstatement	of	the	consolidated financial	statements,	whether	due	to	error	or	fraud,	and	performing	procedures	that	respond	to	those	risks.	Such	procedures	included	examining,	on	a test	basis,	evidence	regarding	the	amounts	and	disclosures	in	the	consolidated	financial	statements.	Our	audits	also	included	evaluating	the	accounting principles	used	and	significant	estimates	made	by	management,	as	well	as	evaluating	the	overall	presentation	of	the	consolidated	financial	statements. Our	audit	of	internal	control	over	financial	reporting	included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	assessing	the	risk	that a	material	weakness	exists,	and	testing	and	evaluating	the	design	and	operating	effectiveness	of	internal	control	based	on	the	assessed	risk.	Our	audits also	included	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe	that	our	audits	provide	a	reasonable	basis for	our	opinions.

# Definition	and	Limitations	of	Internal	Control	over	Financial	Reporting

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting and	the	preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal control	over	financial	reporting	includes	those	policies	and	procedures	that	(i)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately and	fairly	reflect	the	transactions	and	dispositions	of	the	assets	of	the	company;	(ii)	provide	reasonable	assurance	that	transactions	are	recorded	as necessary	to	permit	preparation	of	financial	statements	in	accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of the	company	are	being	made	only	in	accordance	with	authorizations	of	management	and	directors	of	the	company;	and	(iii)	provide	reasonable	assurance regarding

prevention	or	timely	detection	of	unauthorized	acquisition,	use,	or	disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of effectiveness	to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of compliance	with	the	policies	or	procedures	may	deteriorate.

# /s/	PricewaterhouseCoopers	LLP

PricewaterhouseCoopers	LLP Detroit,	Michigan February	8,	2018

We	have	served	as	the	Company's	auditor	since	1959.

# Financial	Statements	and	Supplementary	Data

# MASCO	CORPORATION	and	Consolidated	Subsidiaries

# CONSOLIDATED	BALANCE	SHEETS

| ASSETS | 2017 | 2016 |
| :--- | :--- | :--- |
| Current\tAssets: |  |  |
| Cash\tand\tcash\tinvestments | $1,194 | $990 |
| Short-term\tbank\tdeposits | 108 | 201 |
| Receivables | 1,021 | 917 |
| Inventories | 796 | 712 |
| Prepaid\texpenses\tand\tother | 96 | 114 |
| Total\tcurrent\tassets | 3,215 | 2,934 |
| Property\tand\tequipment,\tnet | 1,129 | 1,060 |
| Goodwill | 841 | 832 |
| Other\tintangible\tassets,\tnet | 187 | 154 |
| Other\tassets | 116 | 157 |
| Total\tassets | $5,488 | $5,137 |
| LIABILITIES |  |  |
| Current\tLiabilities: |  |  |
| Accounts\tpayable | $824 | $800 |
| Notes\tpayable | 116 | 2 |
| Accrued\tliabilities | 688 | 658 |
| Total\tcurrent\tliabilities | 1,628 | 1,460 |
| Long-term\tdebt | 2,969 | 2,995 |
| Other\tliabilities | 715 | 785 |
| Total\tliabilities | 5,312 | 5,240 |
| Commitments\tand\tcontingencies\t(Note\tS) |  |  |
| EQUITY |  |  |
| Masco\tCorporation's\tshareholders'\tequity: |  |  |
| \t\tCommon\tshares,\tpar\tvalue\t$1\tper\tshare |  |  |
| \t\t\t\tAuthorized\tshares:\t1,400,000,000; |  |  |
| \t\t\t\tIssued\tand\toutstanding:\t2017\t–\t310,400,000;\t2016\t–\t318,000,000 | 310 | 318 |
| \t\tPreferred\tshares\tauthorized:\t1,000,000;\n\t\t\t\tIssued\tand\toutstanding:\t2017\tand\t2016\t–\tNone | — | — |
| \t\tPaid-in\tcapital | — | — |
| \t\tRetained\tdeficit | (305) | (381) |
| \t\tAccumulated\tother\tcomprehensive\tloss | (65) | (235) |
| Total\tMasco\tCorporation's\tshareholders'\tdeficit | (60) | (298) |
| \t\tNoncontrolling\tinterest | 236 | 195 |
| Total\tequity\t(deficit) | 176 | (103) |
| Total\tliabilities\tand\tequity | $5,488 | $5,137 |

# CONSOLIDATED	STATEMENTS	OF	OPERATIONS

# (In	Millions,	Except	Per	Common	Share	Data)

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Net\tsales | $7,644 | $7,357 | $7,142 |
| Cost\tof\tsales | 5,033 | 4,901 | 4,889 |
| Gross\tprofit | 2,611 | 2,456 | 2,253 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 1,442 | 1,403 | 1,339 |
| Operating\tprofit | 1,169 | 1,053 | 914 |
| Other\tincome\t(expense),\tnet: |  |  |  |
| Interest\texpense | (278) | (229) | (225) |
| Other,\tnet | (6) | 6 | — |
|  | (284) | (223) | (225) |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes | 885 | 830 | 689 |
| Income\ttax\texpense | 305 | 296 | 293 |
| Income\tfrom\tcontinuing\toperations | 580 | 534 | 396 |
| Loss\tfrom\tdiscontinued\toperations,\tnet | — | — | (2) |
| Net\tincome | 580 | 534 | 394 |
| Less:\tNet\tincome\tattributable\tto\tnoncontrolling\tinterest | 47 | 43 | 39 |
| Net\tincome\tattributable\tto\tMasco\tCorporation | $533 | $491 | $355 |
| Income\t(loss)\tper\tcommon\tshare\tattributable\tto\tMasco\tCorporation: |  |  |  |
| Basic: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $1.68 | $1.49 | $1.04 |
| Loss\tfrom\tdiscontinued\toperations,\tnet | — | — | (0.01) |
| Net\tincome | $1.68 | $1.49 | $1.03 |
| Diluted: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $1.66 | $1.47 | $1.03 |
| Loss\tfrom\tdiscontinued\toperations,\tnet | — | — | (0.01) |
| Net\tincome | $1.66 | $1.47 | $1.02 |
| Amounts\tattributable\tto\tMasco\tCorporation: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $533 | $491 | $357 |
| Loss\tfrom\tdiscontinued\toperations,\tnet | — | — | (2) |
| Net\tincome | $533 | $491 | $355 |

See	notes	to	consolidated	financial	statements.

# CONSOLIDATED	STATEMENTS	OF	COMPREHENSIVE	INCOME	(LOSS)

# (In	Millions)

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $580 | $534 | $394 |
| Less:\tNet\tincome\tattributable\tto\tnoncontrolling\tinterest | 47 | 43 | 39 |
| Net\tincome\tattributable\tto\tMasco\tCorporation | $533 | $491 | $355 |
| Other\tcomprehensive\tincome\t(loss),\tnet\tof\ttax\t(Note\tN): |  |  |  |
| Cumulative\ttranslation\tadjustment | $133 | $(78) | $(96) |
| Interest\trate\tswaps | 3 | 1 | 2 |
| Pension\tand\tother\tpost-retirement\tbenefits | 63 | (15) | 26 |
| Realized\tloss\ton\tavailable-for-sale\tsecurities | — | 12 | — |
| Other\tcomprehensive\tincome\t(loss) | 199 | (80) | (68) |
| Less:\tOther\tcomprehensive\tincome\t(loss)\tattributable\tto\tthe\tnoncontrolling\tinterest: |  |  |  |
| Cumulative\ttranslation\tadjustment | $28 | $(10) | $(16) |
| Pension\tand\tother\tpost-retirement\tbenefits | 1 | — | 2 |
|  | 29 | (10) | (14) |
| Other\tcomprehensive\tincome\t(loss)\tattributable\tto\tMasco\tCorporation | $170 | $(70) | $(54) |
| Total\tcomprehensive\tincome | $779 | $454 | $326 |
| Less:\tTotal\tcomprehensive\tincome\tattributable\tto\tnoncontrolling\tinterest | 76 | 33 | 25 |
| Total\tcomprehensive\tincome\tattributable\tto\tMasco\tCorporation | $703 | $421 | $301 |

# CONSOLIDATED	STATEMENTS	OF	CASH	FLOWS

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| CASH\tFLOWS\tFROM\t(FOR)\tOPERATING\tACTIVITIES: |  |  |  |
| Net\tincome | $580 | $534 | $394 |
| Depreciation\tand\tamortization | 127 | 134 | 133 |
| Display\tamortization | 25 | 25 | 20 |
| Deferred\tincome\ttaxes | 10 | 130 | 212 |
| Employee\twithholding\ttaxes\tpaid\ton\tstock-based\tcompensation | 33 | 40 | 36 |
| (Gain)\ton\tdisposition\tof\tinvestments,\tnet | (4) | (4) | (7) |
| Loss\ton\tdisposition\tof\tbusinesses,\tnet | 13 | — | — |
| Pension\tand\tother\tpostretirement\tbenefits | (38) | (78) | (18) |
| Impairment\tof\tfinancial\tinvestments,\tnet | 2 | — | — |
| Impairment\tof\tproperty\tand\tequipment,\tnet | — | — | 2 |
| Stock-based\tcompensation | 38 | 29 | 41 |
| Increase\tin\treceivables | (127) | (120) | (104) |
| (Increase)\tdecrease\tin\tinventories | (76) | (39) | 17 |
| Increase\tin\taccounts\tpayable\tand\taccrued\tliabilities,\tnet | 53 | 71 | 82 |
| Debt\textinguishment\tcosts | 104 | 40 | — |
| Other,\tnet | 11 | 27 | 2 |
| Net\tcash\tfrom\toperating\tactivities | 751 | 789 | 810 |
| CASH\tFLOWS\tFROM\t(FOR)\tFINANCING\tACTIVITIES: |  |  |  |
| Retirement\tof\tnotes | (535) | (1,300) | (500) |
| Purchase\tof\tCompany\tcommon\tstock | (331) | (459) | (456) |
| Cash\tdividends\tpaid | (129) | (128) | (126) |
| Dividends\tpaid\tto\tnoncontrolling\tinterest | (35) | (31) | (36) |
| Cash\tdistributed\tto\tTopBuild\tCorp. | — | — | (63) |
| Issuance\tof\tTopBuild\tCorp.\tdebt | — | — | 200 |
| Issuance\tof\tnotes,\tnet\tof\tissuance\tcosts | 593 | 889 | 497 |
| Debt\textinguishment\tcosts | (104) | (40) | — |
| Increase\tin\tdebt | 2 | 3 | 4 |
| Issuance\tof\tCompany\tcommon\tstock | — | 1 | 2 |
| Employee\twithholding\ttaxes\tpaid\ton\tstock-based\tcompensation | (33) | (40) | (36) |
| Payment\tof\tdebt | (5) | (4) | (4) |
| Credit\tAgreement\tand\tother\tfinancing\tcosts | — | — | (3) |
| Net\tcash\tfor\tfinancing\tactivities | (577) | (1,109) | (521) |
| CASH\tFLOWS\tFROM\t(FOR)\tINVESTING\tACTIVITIES: |  |  |  |
| Capital\texpenditures | (173) | (180) | (158) |
| Acquisition\tof\tbusinesses,\tnet\tof\tcash\tacquired | (89) | — | (41) |
| Proceeds\tfrom\tdisposition\tof: |  |  |  |
| Businesses,\tnet\tof\tcash\tdisposed | 128 | — | — |
| Short-term\tbank\tdeposits | 218 | 251 | 279 |
| Property\tand\tequipment | 24 | — | 18 |
| Other\tfinancial\tinvestments | 7 | 32 | 10 |
| Purchases\tof\tshort-term\tbank\tdeposits | (106) | (211) | (253) |
| Other,\tnet | (34) | (16) | (44) |
| Net\tcash\tfor\tinvesting\tactivities | (25) | (124) | (189) |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tcash\tinvestments | 55 | (34) | (15) |
| CASH\tAND\tCASH\tINVESTMENTS: |  |  |  |
| Increase\t(decrease)\tfor\tthe\tyear | 204 | (478) | 85 |
| At\tJanuary\t1 | 990 | 1,468 | 1,383 |
| At\tDecember\t31 | $1,194 | $990 | $1,468 |

# CONSOLIDATED	STATEMENTS	OF	SHAREHOLDERS'	EQUITY

|  | Total | Common<br>Shares<br>($1	par	value) | Paid-In<br>Capital | Retained<br>Earnings	(Deficit) | Accumulated<br>Other<br>Comprehensive<br>(Loss)	Income | Noncontrolling<br>Interest |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance,\tJanuary\t1,\t2015 | $1,128 | $345 | $— | $690 | $(111) | $204 |
| Total\tcomprehensive\tincome\t(loss) | 326 |  |  | 355 | (54) | 25 |
| Shares\tissued | (15) | 3 | (18) |  |  |  |
| Shares\tretired: |  |  |  |  |  |  |
| Repurchased | (456) | (17) | (65) | (374) |  |  |
| Surrendered\t(non-cash) | (18) | (1) |  | (17) |  |  |
| Cash\tdividends\tdeclared | (126) |  |  | (126) |  |  |
| Dividends\tpaid\tto\tnoncontrolling\tinterest | (36) |  |  |  |  | (36) |
| Separation\tof\tTopBuild\tCorp. | (828) |  |  | (828) |  |  |
| Stock-based\tcompensation | 83 |  | 83 |  |  |  |
| Balance,\tDecember\t31,\t2015 | $58 | $330 | $— | $(300) | $(165) | $193 |
| Total\tcomprehensive\tincome\t(loss) | 454 |  |  | 491 | (70) | 33 |
| Shares\tissued | (24) | 3 | (27) |  |  |  |
| Shares\tretired: |  |  |  |  |  |  |
| Repurchased | (459) | (15) | (14) | (430) |  |  |
| Surrendered\t(non-cash) | (14) |  |  | (14) |  |  |
| Cash\tdividends\tdeclared | (128) |  |  | (128) |  |  |
| Dividends\tpaid\tto\tnoncontrolling\tinterest | (31) |  |  |  |  | (31) |
| Stock-based\tcompensation | 41 |  | 41 |  |  |  |
| Balance,\tDecember\t31,\t2016 | $(103) | $318 | $— | $(381) | $(235) | $195 |
| Total\tcomprehensive\tincome | 779 |  |  | 533 | 170 | 76 |
| Shares\tissued | (19) | 2 | (21) |  |  |  |
| Shares\tretired: |  |  |  |  |  |  |
| Repurchased | (331) | (9) | (8) | (314) |  |  |
| Surrendered\t(non-cash) | (15) | (1) |  | (14) |  |  |
| Cash\tdividends\tdeclared | (129) |  |  | (129) |  |  |
| Dividends\tpaid\tto\tnoncontrolling\tinterest | (35) |  |  |  |  | (35) |
| Stock-based\tcompensation | 29 |  | 29 |  |  |  |
| Balance,\tDecember\t31,\t2017 | $176 | $310 | $— | $(305) | $(65) | $236 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# 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	certain	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	statement	of	operations.

Foreign	Currency.				The	financial	statements	of	our	foreign	subsidiaries	are	measured	using	the	local	currency	as	the	functional	currency.	Assets and	liabilities	of	these	subsidiaries	are	translated	at	exchange	rates	as	of	the	balance	sheet	dates.	Revenues	and	expenses	are	translated	at	average exchange	rates	in	effect	during	the	year.	The	resulting	cumulative	translation	adjustments	have	been	recorded	in	the	accumulated	other	comprehensive loss	component	of	shareholders'	equity.	Realized	foreign	currency	transaction	gains	and	losses	are	included	in	the	consolidated	statements	of	operations in	other	income	(expense),	net.

Cash	and	Cash	Investments.				We	consider	all	highly	liquid	investments	with	an	initial	maturity	of	three	months	or	less	to	be	cash	and	cash investments.

Short-Term	Bank	Deposits.				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,	2017	and	2016.	These	short- term	bank	deposits	are	classified	in	the	current	assets	section	of	our	consolidated	balance	sheets,	and	interest	income	related	to	short-term	bank	deposits is	recorded	in	our	consolidated	statements	of	operations	in	other	income	(expense),	net.

Receivables.				We	do	significant	business	with	a	number	of	customers,	including	certain	home	center	retailers	and	homebuilders.	We	monitor	our exposure	for	credit	losses	on	our	customer	receivable	balances	and	the	credit	worthiness	of	our	customers	on	an	on-going	basis	and	record	related allowances	for	doubtful	accounts.	Allowances	are	estimated	based	upon	specific	customer	balances,	where	a	risk	of	default	has	been	identified,	and	also include	a	provision	for	non-customer	specific	defaults	based	upon	historical	collection,	return	and	write-off	activity.	A	separate	allowance	is	recorded	for customer	incentive	rebates	and	is	generally	based	upon	sales	activity.	Receivables	are	presented	net	of	certain	allowances	(including	allowances	for doubtful	accounts)	of	$44	million	and	$40	million	at	December	31,	2017	and	2016,	respectively.

Property	and	Equipment.				Property	and	equipment,	including	significant	improvements	to	existing	facilities,	are	recorded	at	cost.	Upon	retirement or	disposal,	the	cost	and	accumulated	depreciation	are	removed	from	the	accounts	and	any	gain	or	loss	is	included	in	the	consolidated	statements	of operations.	Maintenance	and	repair	costs	are	charged	against	earnings	as	incurred.

We	review	our	property	and	equipment	as	events	occur	or	circumstances	change	that	would	more	likely	than	not	reduce	the	fair	value	of	the property	and	equipment	below	the	carrying	amount.	If	the	carrying	amount	of	property	and	equipment	is	not	recoverable	from	its	undiscounted	cash flows,	then	we	would	recognize	an	impairment	loss	for	the	difference	between	the	carrying	amount	and	the	current	fair	value.	Further,	we	evaluate	the remaining	useful	lives	of	property	and	equipment	at	each	reporting	period	to	determine	whether	events	and	circumstances	warrant	a	revision	to	the remaining	depreciation	periods.

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS	(CONTINUED)

# A.	ACCOUNTING	POLICIES	(Continued)

Depreciation.				Depreciation	expense	is	computed	principally	using	the	straight-line	method	over	the	estimated	useful	lives	of	the	assets.	Annual depreciation	rates	are	as	follows:	buildings	and	land	improvements,	2	to	10	percent,	computer	hardware	and	software,	 17	to	33	percent,	and	machinery and	equipment,	5	to	33	percent.	Depreciation	expense	was	$116	million,	$124	million	and	$116	million	in	2017,	2016	and	2015,	respectively.

Goodwill	and	Other	Intangible	Assets.				We	perform	our	annual	impairment	testing	of	goodwill	in	the	fourth	quarter	of	each	year,	or	as	events occur	or	circumstances	change	that	would	more	likely	than	not	reduce	the	fair	value	of	a	reporting	unit	below	its	carrying	amount.	We	have	defined	our reporting	units	and	completed	the	impairment	testing	of	goodwill	at	the	operating	segment	level.	Our	operating	segments	are	reporting	units	that	engage in	business	activities,	for	which	discrete	financial	information,	including	five-year	forecasts,	are	available.	We	compare	the	fair	value	of	the	reporting	units to	the	carrying	value	of	the	reporting	units	for	goodwill	impairment	testing.	Fair	value	is	determined	using	a	discounted	cash	flow	method,	which	includes significant	unobservable	inputs	(Level	3	inputs),	and	requires	us	to	make	significant	estimates	and	assumptions,	including	long-term	projections	of	cash flows,	market	conditions	and	appropriate	discount	rates.	Our	judgments	are	based	upon	historical	experience,	current	market	trends,	consultations	with external	valuation	specialists	and	other	information.	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	two	percent	long-term	assumed	annual	growth	rate	of	cash flows	for	periods	after	the	five-year	forecast.	We	utilize	our	weighted	average	cost	of	capital	of	approximately	 8.0	percent	as	the	basis	to	determine	the discount	rate	to	apply	to	the	estimated	future	cash	flows.	In	2017,	based	upon	our	assessment	of	the	risks	impacting	each	of	our	businesses,	we	applied	a risk	premium	to	increase	the	discount	rate	to	a	range	of	10.0	percent	to	13.0	percent	for	our	reporting	units.

If	the	carrying	amount	of	a	reporting	unit	exceeds	its	fair	value,	an	impairment	loss	is	recognized	to	the	extent	that	a	reporting	unit's	carrying	value exceeds	its	fair	value,	not	to	exceed	the	carrying	amount	of	goodwill	in	that	reporting	unit.

We	review	our	other	indefinite-lived	intangible	assets	for	impairment	annually,	in	the	fourth	quarter,	or	as	events	occur	or	circumstances	change	that indicate	the	assets	may	be	impaired	without	regard	to	the	business	unit.	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.	Refer	to	Note	G	to	the	consolidated	financial	statements	for	additional	information	regarding	goodwill	and	other	intangible	assets.

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

Warranty.				We	offer	full	and	limited	warranties	on	certain	products	with	warranty	periods	ranging	up	to	the	lifetime	of	the	product	to	the	original consumer	purchaser.	At	the	time	of	sale,	we	accrue	a	warranty	liability	for	the	estimated	future	cost	to	provide	products,	parts	or	services	to	repair	or replace	 products	 to	 satisfy	 our	 warranty	 obligations.	Our	estimate	of	future	costs	to	service	our	warranty	obligations	is	based	upon	the	information available	and	includes	a	number	of	factors,	such	as	the	warranty	coverage,	the	warranty	period,	historical	experience	specific	to	the	nature,	frequency and	average	cost	to	service	the	claim,	along	with	industry	and	demographic	trends.

Certain	factors	and	related	assumptions	in	determining	our	warranty	liability	involve	judgments	and	estimates	and	are	sensitive	to	changes	in	the factors	described	above.	We	believe	that	the	warranty	accrual	is	appropriate;	however,	actual	claims	incurred	could	differ	from	our	original	estimates which	would	require	us	to	adjust	our	previously	established	accruals.	Refer	to	Note	S	to	the	consolidated	financial	statements	for	additional	information	on our	warranty	accrual.

Insurance	Reserves.				We	provide	for	expenses	associated	with	workers'	compensation	and	product	liability	obligations	when	such	amounts	are probable	and	can	be	reasonably	estimated.	The	accruals	are	adjusted	as	new	information	develops	or	circumstances	change	that	would	affect	the estimated	liability.	Any	obligations	expected	to	be	settled	within	12	months	are	recorded	in	accrued	liabilities;	all	other	obligations	are	recorded	in	other liabilities.

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	 or	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	recognize	forfeitures	related	to	stock	awards	and	stock	options	as	they	occur.

Noncontrolling	Interest.				We	owned	68	percent	of	Hansgrohe	SE	at	both	 December	31,	2017	and	2016.	The	aggregate	noncontrolling	interest, net	of	dividends,	at	December	31,	2017	and	2016	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).

Accounting for	 Global Intangible	 Low-taxed Income ("GILTI").	We record the tax	 effects	 of	 GILTI related to	 our foreign	 operations	 as	 a component	of	income	tax	expense	(benefit)	in	the	period	the	tax	arises.

Reclassifications. 	 Certain	 prior	 year	 amounts	 have	 been	 reclassified	 to	 conform	 to	 the	 2017	 presentation	 in	 the	 consolidated financial statements.	In	our	consolidated	statements	of	cash	flows,	the	cash	flows	from	discontinued	operations	are	not	separately	classified.

Recently	Adopted	Accounting	Pronouncements.	In	July	2015,	the	Financial	Accounting	Standards	Board	("FASB")	issued	Accounting	Standards Update	 ("ASU")	 2015-11,	 "Inventory	 (Topic	 330):	 Simplifying	 the	 Measurement	 of	 Inventory,"	 which	 requires	 that	 inventory	 within	 the	 scope	 of	 the guidance	be	measured	at	the	lower	of	cost	and	net	realizable	value,	as	opposed	to	the	lower	of	cost	or	market.	We	adopted	ASU	2015-11	on	January	1, 2017.	The	adoption	of	the	new	standard	did	not	have	an	impact	on	our	financial	position	or	results	of	operations.

In	 March	 2016,	 the	 FASB	 issued	 ASU	 2016-09,	 "Compensation-Stock	 Compensation	 (Topic	 718):	 Improvements	 to	 Employee	 Share-Based Payment	Accounting,"	which	requires	 the	 tax	effects	related	 to	share-based	payments	 to	be	recorded	 through	 the	 income	statement,	simplifies	 the accounting	requirements	for	forfeitures	and	employers'	tax	withholding	requirements,	and	modifies	the	presentation	of	certain	items	on	the	statement	of cash	 flows.	 We	 adopted	ASU	 2016-09	 on	 January	 1,	 2017,	 using	 the	 retrospective	 options	 for	 reclassifying	 excess	 tax	 benefit	 from	 stock-based compensation	and	employee	withholding	taxes	paid	on	stock-based	compensation	within	our	statements	of	cash	flows.	The	adoption	of	the	remaining requirements	did	not	have	an	impact	on	our	financial	position	or	results	of	operations.	As	a	result	of	this	adoption,	we	increased	cash	flows	from	(for) operating	activities	and	decreased	cash	flows	from	(for)	financing	activities	by	$63	million	and	$111	million	for	the	years	ended	December	31,	2016	and 2015,	respectively.	Subsequent	to	adoption,	tax	effects	related	to	employee	share-based	payments	were	recorded	to	income	tax	expense,	thus	increasing the	volatility	in	our	effective	tax	rate.

In	January	2017,	the	FASB	issued	ASU	2017-01,	"Business	Combinations	(Topic	805):	Clarifying	the	Definition	of	a	Business,"	which	narrows	the definition	of	what	constitutes	a	business	for	acquisition	and	divestiture	purposes.	We	early	adopted	ASU	2017-01	effective	October	1,	2017.	The	adoption of	the	new	standard	did	not	have	an	impact	on	our	financial	position	or	results	of	operations.

In	January	2017,	the	FASB	issued	ASU	2017-04,	"Intangibles-Goodwill	and	Other	(Topic	350):	Simplifying	the	Test	for	Goodwill	Impairment,"	which removes	Step	2	of	the	goodwill	impairment	test.	A	goodwill	impairment	will	now	be	the	amount	by	which	a	reporting	unit's	carrying	value	exceeds	its	fair value,	not	to	exceed	the	carrying	amount	of	goodwill	in	the	reporting	unit.	We	early	adopted	ASU	2017-04	effective	January	1,	2017.	The	adoption	of	the new	standard	did	not	have	an	impact	on	our	financial	position	or	results	of	operations.

Recently	Issued	Accounting	Pronouncements.			In	May	2014,	the	FASB	issued	a	new	standard	for	revenue	recognition,	Accounting	Standards Codification	("ASC")	606.	The	purpose	of	ASC	606	is	to	provide	a	single,	comprehensive	revenue	recognition	model	for	all	contracts	with	customers	to improve	comparability	across	industries.	The	standard	allows	for	either	a	full	retrospective	or	modified	retrospective	method	of	adoption.	We	will	adopt this	standard	on	its	effective	date,	January	1,	2018,	under	the	full	retrospective	method	of	adoption.	The	adoption	of	the	standard	will	not	have	a	material impact	on	our	financial	position	or	results	of	operations.	We	have	finalized	our	accounting	policy,	trained	our	business	units	on	the	new	standard	and finalized	our	internal	controls	under	the	new	standard.	We	did	not	experience	significant	issues	in	our	implementation	process.

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

In	February	2016,	the	FASB	issued	a	new	standard	for	leases,	ASC	842,	which	changes	the	accounting	model	for	identifying	and	accounting	for leases.	ASC	842	is	effective	for	us	for	annual	periods	beginning	January	1,	2019	and	currently	requires	retrospective	application.	We	expect	this	standard to	increase	our	total	assets	and	total	liabilities;	however,	we	are	currently	evaluating	the	magnitude	of	the	impact	the	adoption	of	this	new	standard	will have	on	our	financial	position	and	results	of	operations.

In	June	2016,	 the	FASB	 issued	ASU	2016-13,	"Financial	 Instruments-Credit	Losses	(Topic	326):	Measurement	of	Credit	Losses	on	Financial Instruments,"	which	modifies	the	methodology	for	recognizing	loss	impairments	on	certain	types	of	financial	instruments.	The	new	methodology	requires an	entity	to	estimate	the	credit	losses	expected	over	the	life	of	an	exposure.	Additionally,	ASU	2016-13	amends	the	current	available-for-sale	security other-than-temporary	 impairment	model	 for	debt	securities.	ASU	2016-13	 is	effective	 for	us	 for	annual	periods	beginning	January	1,	2020.	We	are currently	evaluating	the	impact	the	adoption	of	this	new	standard	will	have	on	our	financial	position	and	results	of	operations.

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

In	 March	 2017,	 the	 FASB	 issued	ASU	 2017-07,	 "Compensation-Retirement	 Benefits	 (Topic	 715):	 Improving	 the	 Presentation	 of	 Net	 Periodic Pension	Cost	and	Net	Periodic	Postretirement	Benefit	Cost,"	which	modifies	the	presentation	of	net	periodic	pension	and	post-retirement	benefit	cost ("net	benefit	cost")	in	the	income	statement	and	the	components	eligible	for	capitalization	as	assets.	ASU	2017-07	is	effective	for	us	for	annual	periods beginning	January	1,	2018.	The	adoption	of	the	new	standard	will	not	have	a	material	impact	on	our	financial	position	or	results	of	operations.	For	full	year 2017	and	2016,	we	expect	$26	million	and	$32	million	of	expense	to	be	retrospectively	reclassified	from	operating	profit	to	other	income	(expense),	net, within	our	results	of	operations.

In	May	2017,	the	FASB	issued	ASU	2017-09,	"Compensation-Stock	Compensation	(Topic	718):	Scope	of	Modification	Accounting,"	which	clarifies when	to	account	for	a	change	to	the	terms	or	conditions	of	a	share-based	payment	award	as	a	modification.	ASU	2017-09	is	effective	for	us	for	annual periods	beginning	January	1,	2018,	and	is	applied	prospectively.	Upon	adoption,	modification	accounting	is	required	only	if	the	fair	value,	the	vesting conditions,	or	the	classification	of	the	award	(as	equity	or	liability)	changes	as	a	result	of	the	change	in	terms	or	conditions.

# A.	ACCOUNTING	POLICIES	(Concluded)

In	August	 2017,	 the	 FASB	 issued	ASU	 2017-12,	 "Derivatives	 and	 Hedging	 (Topic	 815):	 Targeted	 Improvements	 to	Accounting	 for	 Hedging Activities,"	 which	 improves	 and	 simplifies	 accounting	 rules	 around	 hedge	 accounting	 and	 better	 portrays	 the	 economic	 results	 of	 an	 entity's	 risk management	activities	 in	 its	 financial	statements.	ASU	2017-12	 is	effective	 for	us	 for	annual	periods	beginning	January	1,	2019.	We	are	currently evaluating	the	impact	the	adoption	of	this	new	standard	will	have	on	our	financial	position	and	results	of	operations.

# B.	DIVESTITURES

In	the	fourth	quarter	of	2017	we	divested	Moores	Furniture	Group	Limited	("Moores"),	a	manufacturer	of	kitchen	and	bathroom	furniture	in	the	United Kingdom.	In	connection	with	the	divestiture	we	recognized	a	loss	of	$64	million	for	the	year	ended	December	31,	2017,	included	in	other,	net,	within	other income	(expense),	net	in	our	consolidated	statement	of	operations.	This	loss	resulted	primarily	from	the	recognition	of	$58	million	of	defined-benefit pension	plan	actuarial	losses,	net	of	tax,	that	were	previously	included	within	accumulated	other	comprehensive	loss,	due	to	the	transfer	of	the	plan assets	and	obligations	to	the	purchaser	in	connection	with	the	sale	of	the	business.	Prior	to	divestiture,	the	results	of	this	business	are	included	within income	from	continuing	operations	before	income	taxes	in	the	consolidated	statement	of	operations	and	reported	as	part	of	our	Cabinetry	Products segment.

In	the	second	quarter	of	2017	we	divested	Arrow	Fastener	Co.,	LLC	("Arrow"),	a	manufacturer	and	distributor	of	fastening	tools,	for	proceeds	of $128 million.	In	connection	with	the	divestiture	we	recognized	a	gain	of	 $51	million	for	the	year	ended	December	31,	2017,	included	in	other,	net,	within	other income	(expense),	net	in	our	consolidated	statement	of	operations.	Prior	to	divestiture,	the	results	of	this	business	are	included	within	income	from continuing	operations	before	income	taxes	in	the	consolidated	statement	of	operations	and	reported	as	part	of	our	Windows	and	Other	Specialty	Products segment.

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	from	this	discontinued	operation	were	included	in	loss	from	discontinued	operations,	net,	in	the	consolidated	statement	of operations.

# B.	DIVESTITURES	(Concluded)

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

| B.	DIVESTITURES	(Concluded) |  |
| :--- | :--- |
| The\tmajor\tclasses\tof\tline\titems\tconstituting\tpre-tax\t(loss)\tprofit\tof\tthe\tdiscontinued\toperation,\tin\tmillions: |  |
|  | Year\tEnded\tDecember\t31,\t2015 |
| Net\tsales | $762 |
| Cost\tof\tsales | 603 |
| Gross\tprofit | 159 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 148 |
| Income\tfrom\tdiscontinued\toperations | $11 |
| Other\tdiscontinued\toperations\tresults: |  |
| Loss\ton\tdisposal\tof\tdiscontinued\toperations,\tnet | (1) |
| Income\tbefore\tincome\ttax | 10 |
| Income\ttax\texpense\t(1) | (12) |
| Loss\tfrom\tdiscontinued\toperations,\tnet | $(2) |

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

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

In	conjunction	with	the	spin	off,	we	entered	into	a	Transition	Services	Agreement	with	TopBuild	under	which	we	provided	administrative	services	to TopBuild	subsequent	to	the	separation.	This	agreement	terminated	on	June	30,	2016.	The	fees	for	services	rendered	under	the	Transition	Services Agreement	are	not	material	to	our	results	of	operations.

# C.	ACQUISITIONS

In	the	fourth	quarter	of	2017,	we	acquired	Mercury	Plastics,	Inc.,	a	plastics	processor	and	manufacturer	of	water	handling	systems	for	appliance	and faucet	applications,	for	approximately	$89	million	in	cash.	This	business	is	included	in	the	Plumbing	Products	segment.	This	acquisition	enhances	our ability	to	develop	faucet	technology	and	provides	continuity	of	supply	of	quality	faucet	components.	In	connection	with	this	acquisition,	we	recognized	$38 million	of	goodwill,	which	is	tax	deductible,	and	is	related	primarily	to	the	expected	synergies	from	combining	the	operations	into	our	business.

In	the	second	quarter	of	2015,	we	acquired	a	U.K.	window	business	for	approximately	 $16	million	in	cash	in	the	Windows	and	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.

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.

# C.	ACQUISITIONS	(Concluded)

In	December	2017,	we	signed	a	definitive	agreement	to	acquire	The	L.D.	Kichler	Co.,	a	leader	in	decorative	residential	and	light	commercial	lighting products,	ceiling	 fans	and	LED	 lighting	systems.	This	business	will	expand	our	product	offerings	 to	repair	and	remodel	customers.	We	expect	 this transaction	to	close	in	the	first	quarter	of	2018,	at	which	time	we	expect	to	pay	approximately	$550	million	for	the	business,	using	cash	on	hand.	We intend	to	report	this	business	in	our	Decorative	Architectural	Products	segment.

# D.	INVENTORIES

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Finished\tgoods | $414 | $366 |
| Raw\tmaterials | 277 | 254 |
| Work\tin\tprocess | 105 | 92 |
| Total | $796 | $712 |

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

# E.	DERIVATIVE	INSTRUMENTS	AND	HEDGING	ACTIVITIES

We	are	exposed	to	global	market	risk	as	part	of	our	normal,	daily	business	activities.	To	manage	these	risks,	we	enter	into	various	derivative contracts.	These	contracts	may	include	interest	rate	swap	agreements,	foreign	currency	contracts	and	metals	contracts.	We	review	our	hedging	program, derivative	positions	and	overall	risk	management	on	a	regular	basis.

Interest	Rate	Swap	Agreements.				In	2012,	in	connection	with	the	issuance	of	$400	million	of	debt,	we	terminated	the	interest	rate	swap	hedge relationships	that	we	had	entered	into	in	2011.	These	interest	rate	swaps	were	designated	as	cash	flow	hedges	and	effectively	fixed	interest	rates	on	the forecasted	debt	issuance	to	variable	rates	based	on	3-month	LIBOR.	Upon	termination,	the	ineffective	portion	of	the	cash	flow	hedges	of	an	approximate $2	million	loss	was	recognized	in	our	consolidated	statement	of	operations	in	other,	net,	within	other	income	(expense),	net.	The	remaining	loss	of approximately	$23	million	from	the	termination	of	these	swaps	is	being	amortized	as	an	increase	to	interest	expense	over	the	remaining	term	of	the	debt, through	March	2022.	At	December	31,	2017,	the	balance	remaining	in	accumulated	other	comprehensive	loss	was	 $8	million	(pre-tax).

Foreign	Currency	Contracts.				Our	net	cash	inflows	and	outflows	exposed	to	the	risk	of	changes	in	foreign	currency	exchange	rates	arise	from the	sale	of	products	in	countries	other	than	the	manufacturing	source,	foreign	currency	denominated	supplier	payments,	debt	and	other	payables,	and investments	in	subsidiaries.	To	mitigate	this	risk,	we,	including	certain	European	operations,	enter	into	foreign	currency	forward	contracts	and	foreign currency	exchange	contracts.

Gains	(losses)	related	to	foreign	currency	forward	and	exchange	contracts	are	recorded	in	our	consolidated	statements	of	operations	in	other income	(expense),	net.	In	the	event	that	the	counterparties	fail	to	meet	the	terms	of	the	foreign	currency	forward	or	exchange	contracts,	our	exposure	is limited	to	the	aggregate	foreign	currency	rate	differential	with	such	institutions.

Metals	Contracts.				From	time	to	time,	we	have	entered	into	contracts	to	manage	our	exposure	to	increases	in	the	price	of	copper	and	zinc.	Gains (losses)	related	to	these	contracts	are	recorded	in	our	consolidated	statements	of	operations	in	cost	of	sales.

# E.	DERIVATIVE	INSTRUMENTS	AND	HEDGING	ACTIVITIES	(Concluded)

The	pre-tax	(losses)	gains	included	in	our	consolidated	statements	of	operations	are	as	follows,	in	millions:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Foreign\tcurrency\tcontracts: |  |  |  |
| Exchange\tcontracts | $(1) | $— | $4 |
| Forward\tcontracts | 1 | — | (3) |
| Metals\tcontracts | — | 5 | (17) |
| Interest\trate\tswaps | (4) | (2) | (2) |
| Total | $(4) | $3 | $(18) |

We	present	our	derivatives	net	by	counterparty,	due	to	the	right	of	offset	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:

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

# F.	PROPERTY	AND	EQUIPMENT

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Land\tand\timprovements | $110 | $111 |
| Buildings | 681 | 712 |
| Computer\thardware\tand\tsoftware | 327 | 315 |
| Machinery\tand\tequipment | 1,547 | 1,480 |
|  | 2,665 | 2,618 |
| Less:\tAccumulated\tdepreciation | (1,536) | (1,558) |
| Total | $1,129 | $1,060 |

We	lease	certain	equipment	and	plant	facilities	under	noncancellable	operating	leases.	Rental	expense	recorded	in	the	consolidated	statements	of operations	totaled	approximately	$66	million,	$63	million	and	$60	million	during	2017,	2016	and	2015,	respectively.

At	December	31,	2017,	future	minimum	lease	payments	were	as	follows,	in	millions:

| 2018 | $50 |
| :--- | :--- |
| 2019 | 39 |
| 2020 | 32 |
| 2021 | 25 |
| 2022 | 20 |
| 2023\tand\tbeyond | 91 |

# G.	GOODWILL	AND	OTHER	INTANGIBLE	ASSETS

The	changes	in	the	carrying	amount	of	goodwill,	by	segment,	were	as	follows,	in	millions:

|  | Gross	Goodwill	At<br>December	31,	2017 | Accumulated<br>Impairment<br>Losses | Net	Goodwill	At<br>December	31,	2017 |
| :--- | :--- | :--- | :--- |
| Plumbing\tProducts | $574 | $(340) | $234 |
| Decorative\tArchitectural\tProducts | 294 | (75) | 219 |
| Cabinetry\tProducts | 181 | — | 181 |
| Windows\tand\tOther\tSpecialty\tProducts | 718 | (511) | 207 |
| Total | $1,767 | $(926) | $841 |

|  | Gross	Goodwill	At<br>December	31,	2016 | Accumulated<br>Impairment<br>Losses | Net	Goodwill	At<br>December	31,	2016 | Additions	(A) | Divestitures	(B) | Other	(C) | Net	Goodwill	At<br>December	31,	2017 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Plumbing\tProducts | $519 | $(340) | $179 | $38 | $— | $17 | $234 |
| Decorative\tArchitectural\nProducts | 294 | (75) | 219 | — | — | — | 219 |
| Cabinetry\tProducts | 240 | (59) | 181 | — | — | — | 181 |
| Windows\tand\tOther\tSpecialty\nProducts | 987 | (734) | 253 | — | (47) | 1 | 207 |
| Total | $2,040 | $(1,208) | $832 | $38 | $(47) | $18 | $841 |

|  | Gross	Goodwill	At<br>December	31,	2015 | Impairment<br>Losses | Net	Goodwill	At<br>December	31,	2015 | Other	(C) | Net	Goodwill	At<br>December	31,	2016 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Plumbing\tProducts | $525 | $(340) | $185 | $(6) | $179 |
| Decorative\tArchitectural\tProducts | 294 | (75) | 219 | — | 219 |
| Cabinetry\tProducts | 240 | (59) | 181 | — | 181 |
| Windows\tand\tOther\tSpecialty\tProducts | 988 | (734) | 254 | (1) | 253 |
| Total | $2,047 | $(1,208) | $839 | $(7) | $832 |

# (A) Additions	consist	of	acquisitions.

(B) Included	within	divestitures	is	the	disposition	of	Moores	in	the	Cabinetry	Products	segment,	which	includes	 $59	million	of	both	gross	goodwill	and accumulated	impairment	losses,	and	the	disposition	of	Arrow	in	the	Windows	and	Other	Specialty	Products	segment,	which	includes	$270	million	of gross	goodwill	and	$223	million	of	accumulated	impairment	losses.

(C) Other	consists	of	the	effect	of	foreign	currency	translation.

We	completed	our	annual	impairment	testing	of	goodwill	and	other	indefinite-lived	intangible	assets	in	the	fourth	quarters	of 2017,	2016	and	2015. There	was	no	impairment	of	goodwill	for	any	of	our	reporting	units	for	any	of	these	years.

Other	indefinite-lived	intangible	assets	were	$140	million	and	$136	million	at	December	31,	2017	and	2016,	respectively,	and	principally	included registered	trademarks.	In	2017,	2016	and	2015,	the	impairment	test	indicated	there	was	no	impairment	of	other	indefinite-lived	intangible	assets	for	any of	our	business	units.	As	a	result	of	our	2017	and	2015	acquisitions,	other	indefinite	lived	intangible	assets	increased	by	$5	million	 and	$7	million, respectively,	as	of	the	acquisition	dates.

# G.	GOODWILL	AND	OTHER	INTANGIBLE	ASSETS	(Concluded)

The	carrying	value	of	our	definite-lived	intangible	assets	was	 $47	million	(net	of	accumulated	amortization	of	 $10	million)	at	December	31,	2017	and $18	million	(net	of	accumulated	amortization	of	 $16	million)	 at	December	31,	2016	and	principally	included	customer	relationships	with	a	weighted average	amortization	period	of	12	years	in	2017	and	10	years	in	2016.	Amortization	expense	related	to	the	definite-lived	intangible	assets	of	continuing operations	was	$4	million,	$4	million	and	$6	million	in	2017,	2016	and	2015,	respectively.	As	a	result	of	our	2017	and	2015	acquisitions,	definite-lived intangible	assets	increased	by	$26	million	and	$17	million,	respectively,	as	of	the	acquisition	dates.

# H.	OTHER	ASSETS

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Equity\tmethod\tinvestments | $11 | $13 |
| Private\tequity\tfunds | 2 | 5 |
| In-store\tdisplays,\tnet | 31 | 42 |
| Deferred\ttax\tassets\t(Note\tQ) | 48 | 68 |
| Other | 24 | 29 |
| Total | $116 | $157 |

In-store	displays	are	amortized	using	the	straight-line	method	over	the	expected	useful	life	of	 three	to	five	years,	and	we	recognized	amortization expense	related	to	in-store	displays	of	$25	million,	$25	million	and	$20	million	in	2017,	2016	and	2015,	respectively.	Cash	spent	for	displays	was	 $14 million,	$11	million	 and	$43	million	 in	2017,	2016	 and	2015,	respectively,	and	is	included	in	other,	net	within	investing	activities	on	the	consolidated statements	of	cash	flows.

# I.	ACCRUED	LIABILITIES

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Salaries,\twages\tand\tcommissions | $196 | $191 |
| Advertising\tand\tsales\tpromotion | 157 | 146 |
| Interest | 42 | 51 |
| Warranty\t(Note\tS) | 59 | 56 |
| Employee\tretirement\tplans | 50 | 52 |
| Insurance\treserves | 40 | 41 |
| Property,\tpayroll\tand\tother\ttaxes | 27 | 19 |
| Dividends\tpayable | 33 | 32 |
| Other | 84 | 70 |
| Total | $688 | $658 |

# J.	DEBT

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Notes\tand\tdebentures: |  |  |
| 6.625%,\tdue\tApril\t15,\t2018 | $114 | $114 |
| 7.125%,\tdue\tMarch\t15,\t2020 | 201 | 500 |
| 3.500%,\tdue\tApril\t1,\t2021 | 399 | 399 |
| 5.950%,\tdue\tMarch\t15,\t2022 | 326 | 400 |
| 4.450%,\tdue\tApril\t1,\t2025 | 500 | 500 |
| 4.375%,\tdue\tApril\t1,\t2026 | 498 | 498 |
| 3.500%,\tdue\tNovember\t15,\t2027 | 300 | — |
| 7.750%,\tdue\tAugust\t1,\t2029 | 234 | 296 |
| 6.500%,\tdue\tAugust\t15,\t2032 | 200 | 300 |
| 4.500%,\tdue\tMay\t15,\t2047 | 299 | — |
| Other | 33 | 9 |
| Prepaid\tdebt\tissuance\tcosts | (19) | (19) |
|  | 3,085 | 2,997 |
| Less:\tCurrent\tportion | 116 | 2 |
| Total\tlong-term\tdebt | $2,969 | $2,995 |

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	March	17,	2016,	we	issued	$400	million	of	3.5%	Notes	due	April	1,	2021	and	 $500	million	of	4.375%	Notes	due	April	1,	2026.	We	received proceeds	of	$896	million,	net	of	discount,	for	the	issuance	of	these	Notes.	The	Notes	are	senior	indebtedness	and	are	redeemable	at	our	option	at	the applicable	redemption	price.	On	April	15,	2016,	proceeds	from	the	debt	issuances,	together	with	cash	on	hand,	were	used	to	repay	and	early	retire	all	of our	$1	billion,	6.125%	Notes	which	were	due	on	October	3,	2016	and	all	of	our	 $300	million,	 5.85%	Notes	which	were	due	on	March	15,	2017.	In connection	with	these	early	retirements,	we	incurred	$40	million	of	debt	extinguishment	costs,	which	we	recorded	as	interest	expense.

On	March	28,	2013,	we	entered	into	a	credit	agreement	(the	"Credit	Agreement")	with	a	bank	group,	with	an	aggregate	commitment	of $1.25	billion and	a	maturity	date	of	March	28,	2018.	On	May	29,	2015	and	August	28,	2015,	we	amended	the	Credit	Agreement	with	the	bank	group	(the	"Amended Credit	Agreement").	The	Amended	Credit	Agreement	reduces	the	aggregate	commitment	to	 $750	million	and	extends	the	maturity	date	to	May	29,	2020. Under	the	Amended	Credit	Agreement,	at	our	request	and	subject	to	certain	conditions,	we	can	increase	the	aggregate	commitment	up	to	an	additional $375	million	with	the	current	bank	group	or	new	lenders.

# J.	DEBT	(Concluded)

The	Amended	Credit	Agreement	provides	for	an	unsecured	revolving	credit	facility	available	to	us	and	one	of	our	foreign	subsidiaries,	in	U.S.	dollars, European	euros	and	certain	other	currencies.	Borrowings	under	the	revolver	denominated	in	euros	are	limited	to	$500	million,	equivalent.	We	can	also borrow	swingline	loans	up	to	$75	million	and	obtain	letters	of	credit	of	up	to	 $100	million;	any	outstanding	letters	of	credit	under	the	Amended	Credit Agreement	 reduce	 our	 borrowing	 capacity.	At	December	31,	2017,	 we	 had	no	 of	 outstanding	 standby	 letters	 of	 credit	 under	 the	Amended	 Credit Agreement.

Revolving	credit	loans	bear	interest	under	the	Amended	Credit	Agreement,	at	our	option,	at	(A)	a	rate	per	annum	equal	to	the	greater	of	(i)	the	 prime rate,	(ii)	the	Federal	Funds	effective	rate	plus	0.50%	and	(iii)	LIBOR	plus	1.0%	(the	"Alternative	Base	Rate");	plus	an	applicable	margin	based	upon	our then-applicable	corporate	credit	ratings;	or	(B)	LIBOR	plus	an	applicable	margin	based	upon	our	then-applicable	corporate	credit	ratings.	The	foreign currency	revolving	credit	loans	bear	interest	at	a	rate	equal	to	LIBOR	plus	an	applicable	margin	based	upon	our	then-applicable	corporate	credit	ratings.

The	Amended	Credit	Agreement	contains	financial	covenants	requiring	us	to	maintain	(A)	a	maximum	net	leverage	ratio,	as	adjusted	for	certain items,	of	4.0	to	1.0,	and	(B)	a	minimum	interest	coverage	ratio,	as	adjusted	for	certain	items,	equal	to	or	greater	than	 2.5	to	1.0.

In	order	for	us	to	borrow	under	the	Amended	Credit	Agreement,	there	must	not	be	any	default	in	our	covenants	in	the	Amended	Credit	Agreement (i.e.,	in	addition	to	the	two	financial	covenants,	principally	limitations	on	subsidiary	debt,	negative	pledge	restrictions,	legal	compliance	requirements	and maintenance	of	properties	and	insurance)	and	our	representations	and	warranties	in	the	Amended	Credit	Agreement	must	be	true	in	all	material	respects on	the	date	of	borrowing	(i.e.,	principally	no	material	adverse	change	or	litigation	likely	to	result	in	a	material	adverse	change,	since	December	31,	2014, in	each	case,	no	material	ERISA	or	environmental	non-compliance,	and	no	material	tax	deficiency).	We	were	in	compliance	with	all	covenants	and	no borrowings	have	been	made	at	December	31,	2017.

Interest	paid	was	$175	million,	$198	million	and	$216	million	in	2017,	2016	and	2015,	respectively.	These	amounts	exclude	$104	million	and	$40 million	of	debt	extinguishment	costs	related	 to	 the	early	retirement	of	debt,	which	were	recorded	as	 interest	expense	and	paid	 in	2017	and	2016, respectively.

Fair	Value	of	Debt.				The	fair	value	of	our	short-term	and	long-term	fixed-rate	debt	instruments	is	based	principally	upon	modeled	market	prices for	the	same	or	similar	issues,	which	are	Level	1	inputs.	The	aggregate	estimated	market	value	of	short-term	and	long-term	debt	at	December	31,	2017 was	approximately	$3.3	billion,	compared	with	the	aggregate	carrying	value	of	 $3.1	billion.	The	aggregate	estimated	market	value	of	short-term	and	long- term	debt	at	December	31,	2016	was	approximately	$3.3	billion,	compared	with	the	aggregate	carrying	value	of	 $3.0	billion.

# K.	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,	2017,	outstanding stock-based	incentives	were	in	the	form	of	long-term	stock	awards,	stock	options,	restricted	stock	units,	phantom	stock	awards	and	stock	appreciation rights.

Pre-tax	compensation	expense	for	these	stock-based	incentives	were	as	follows,	in	millions:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Long-term\tstock\tawards | $24 | $23 | $23 |
| Stock\toptions | 3 | 2 | 5 |
| Restricted\tstock\tunits | 2 | — | — |
| Phantom\tstock\tawards\tand\tstock\tappreciation\trights | 9 | 4 | 11 |
| Total | $38 | $29 | $39 |

# K.	STOCK-BASED	COMPENSATION	(Continued)

At	December	31,	2017,	15.4	million	shares	of	our	common	stock	were	available	under	the	2014	Plan	for	the	granting	of	long-term	stock	incentive awards,	stock	options	and	restricted	stock	units.

Long-Term	Stock	Awards.				Long-term	stock	awards	are	granted	to	our	key	employees	and	non-employee	Directors	and	do	not	cause	net	share dilution,	as	we	repurchase	and	retire	an	equal	number	of	shares	in	the	open	market.	We	granted	853,690	shares	of	long-term	stock	awards	during	 2017.

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

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Unvested\tstock\taward\tshares\tat\tJanuary\t1 | 4 | 5 | 6 |
| Weighted\taverage\tgrant\tdate\tfair\tvalue | $20 | $17 | $18 |
| Stock\taward\tshares\tgranted | 1 | 1 | 1 |
| Weighted\taverage\tgrant\tdate\tfair\tvalue | $34 | $26 | $26 |
| Stock\taward\tshares\tvested | 2 | 2 | 2 |
| Weighted\taverage\tgrant\tdate\tfair\tvalue | $18 | $16 | $17 |
| Stock\taward\tshares\tforfeited | — | — | — |
| Weighted\taverage\tgrant\tdate\tfair\tvalue | $24 | $20 | $18 |
| Forfeitures\tupon\tspin\toff\t(A) | — | — | 1 |
| Weighted\taverage\tgrant\tdate\tfair\tvalue | $— | $— | $20 |
| Modification\tupon\tspin\toff\t(B) | — | — | 1 |
| Unvested\tstock\taward\tshares\tat\tDecember\t31 | 3 | 4 | 5 |
| Weighted\taverage\tgrant\tdate\tfair\tvalue | $24 | $20 | $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,	2017,	 2016	 and	2015,	 there	 was	$46	million,	 $43	million	 and	$42	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,	2017,	2016 and	2015.

The	total	market	value	(at	the	vesting	date)	of	stock	award	shares	which	vested	during 2017,	2016	and	2015	was	$45	million,	$43	million	and	$54 million,	respectively.

Stock	Options.				Stock	options	are	granted	to	certain	key	employees.	The	exercise	price	equals	the	market	price	of	our	common	stock	at	the	grant date.	These	options	generally	become	exercisable	(vest	ratably)	over	five	years	beginning	on	the	first	anniversary	from	the	date	of	grant	and	expire	no later	than	10	years	after	the	grant	date.

We	granted	397,350	shares	of	stock	options	during	2017	with	a	grant	date	weighted-average	exercise	price	of	approximately	 $34	per	share.	During 2017,	no	stock	option	shares	were	forfeited	(including	options	that	expired	unexercised).

Our	stock	option	activity	was	as	follows,	shares	in	millions:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Option\tshares\toutstanding,\tJanuary\t1 | 7 | 12 | 18 |
| Weighted\taverage\texercise\tprice | $15 | $17 | $21 |
| Option\tshares\tgranted | — | — | — |
| Weighted\taverage\texercise\tprice | $34 | $26 | $26 |
| Option\tshares\texercised | 2 | 5 | 5 |
| Aggregate\tintrinsic\tvalue\ton\tdate\tof\texercise\t(A) | $47\tmillion | $64\tmillion | $50\tmillion |
| Weighted\taverage\texercise\tprice | $15 | $21 | $17 |
| Option\tshares\tforfeited | — | — | 3 |
| Weighted\taverage\texercise\tprice | $— | $— | $29 |
| Forfeitures\tupon\tspin\toff\t(B) | — | — | — |
| Weighted\taverage\texercise\tprice | $— | $— | $19 |
| Modifications\tupon\tspin\toff\t(C) | — | — | 2 |
| Option\tshares\toutstanding,\tDecember\t31 | 5 | 7 | 12 |
| Weighted\taverage\texercise\tprice | $16 | $15 | $17 |
| Weighted\taverage\tremaining\toption\tterm\t(in\tyears) | 4 | 4 | 3 |
| Option\tshares\tvested\tand\texpected\tto\tvest,\tDecember\t31 | 5 | 7 | 12 |
| Weighted\taverage\texercise\tprice | $16 | $15 | $17 |
| Aggregate\tintrinsic\tvalue\t(A) | $147\tmillion | $118\tmillion | $133\tmillion |
| Weighted\taverage\tremaining\toption\tterm\t(in\tyears) | 4 | 4 | 3 |
| Option\tshares\texercisable\t(vested),\tDecember\t31 | 4 | 6 | 10 |
| Weighted\taverage\texercise\tprice | $13 | $13 | $18 |
| Aggregate\tintrinsic\tvalue\t(A) | $123\tmillion | $102\tmillion | $113\tmillion |
| Weighted\taverage\tremaining\toption\tterm\t(in\tyears) | 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,	2017,	2016	and	2015,	there	was	$7	million,	$6	million	and	$6	million,	respectively,	of	unrecognized	compensation	expense	(using the	Black-Scholes	option	pricing	model	at	the	grant	date)	related	to	unvested	stock	options;	such	options	had	a	weighted	average	remaining	vesting period	of	three	years	at	December	31,	2017	and	2016	and	two	years	at	December	31,	2015.

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:

The	following	table	summarizes	information	for	stock	option	shares	outstanding	and	exercisable	at	 December	31,	2017,	shares	in	millions:

|  | Option	Shares	Outstanding | Option	Shares	Outstanding |  | Option	Shares	Exercisable | Option	Shares	Exercisable |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Weighted | Weighted | Weighted | Weighted | Weighted |
|  | Average | Average | Average | Average | Average |
| Range\tof\nPrices | Number\tof\nShares | Remaining\nOption\tTerm | Exercise\nPrice | Number\tof\nShares | Exercise\nPrice |
| $7\t-\t18 | 3 | 3\tYears | $12 | 4 | $12 |
| $20\t-\t23 | 1 | 7\tYears | $22 | — | $22 |
| $26\t-\t34 | 1 | 9\tYears | $29 | — | $26 |
| $7\t-\t34 | 5 | 4\tYears | $16 | 4 | $13 |

Restricted	Stock	Units.	In	March	2017,	our	Organization	and	Compensation	Committee	("Compensation	Committee")	of	the	Board	of	Directors approved	a	Long	Term	Incentive	Program	("LTIP	Program"),	replacing	our	previous	Long	Term	Cash	Incentive	Plan.	Under	 the	LTIP	Program,	we granted	restricted	stock	units	 to	certain	senior	executives.	These	restricted	stock	units	will	vest	and	share	awards	will	be	 issued	at	no	cost	 to	 the recipients,	subject	to	our	achievement	of	specified	return	on	invested	capital	performance	goals	over	a	three-year	period	that	have	been	established	by the	Compensation	Committee	for	the	performance	period	and	the	recipient's	continued	employment	through	the	share	award	date.	Restricted	stock	units are	granted	at	a	target	number;	based	on	our	performance,	the	number	of	restricted	stock	units	that	vest	can	be	adjusted	downward	to	zero	and	upward to	a	maximum	of	200%.	We	granted	124,780	restricted	stock	units	during	2017,	with	a	grant	date	fair	value	of	approximately	 $34	per	share.	No	restricted stock	units	were	forfeited	during	2017.

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	$6	million,	$2	million	and	$5	million	related	to	phantom	stock awards	in	2017,	2016	and	2015,	respectively.	In	2017,	2016	and	2015,	we	granted	104,580	shares,	140,710	shares	and	134,560	shares,	respectively,	of phantom	stock	awards	with	an	aggregate	fair	value	of	$4	million	each	year,	and	paid	cash	of	 $5	million	in	both	2017	and	2016	and	$6	million	in	2015	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 $3	million,	$2	million	and	$6	million	related	to	SARs	in	2017,	2016	and	2015,	respectively.	During	2017,	2016	and	2015,	we	did	not	grant	any	SARs.

# K.	STOCK-BASED	COMPENSATION	(Concluded)

Information	related	to	phantom	stock	awards	and	SARs	was	as	follows,	in	millions:

|  | Phantom	Stock	Awards | Phantom	Stock	Awards | Stock	Appreciation	Rights | Stock	Appreciation	Rights |
| :--- | :--- | :--- | :--- | :--- |
|  | At\tDecember\t31, | At\tDecember\t31, | At\tDecember\t31, |  |
|  | 2017 | 2016 | 2017 | 2016 |
| Accrued\tcompensation\tcost\tliability | $12 | $10 | $7 | $8 |
| Unrecognized\tcompensation\tcost | $4 | $4 | $— | $— |
| Equivalent\tcommon\tshares | — | — | — | 1 |

# L.	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	Compensation	Committee.

Pre-tax	expense	related	to	our	retirement	plans	was	as	follows,	in	millions:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Defined-contribution\tplans | $55 | $58 | $52 |
| Defined-benefit\tpension\tplans | 29 | 34 | 32 |
|  | $84 | $92 | $84 |

In	addition	to	the	pre-tax	expense	related	to	our	defined-benefit	pension	plans,	we	recognized	 $58	million	of	actuarial	losses,	net	of	tax,	that	were previously	included	within	accumulated	other	comprehensive	loss	due	to	the	disposition	of	a	pension	plan	in	connection	with	the	divestiture	of	Moores, which	was	recorded	within	other	income	(expense),	net.

As	of	January	1,	2010,	substantially	all	our	domestic	and	foreign	qualified	and	domestic	non-qualified	defined-benefit	pension	plans	were	frozen	to future	benefit	accruals.

# L.	EMPLOYEE	RETIREMENT	PLANS	(Continued)

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:

|  | Qualified | 2017<br>Non-Qualified | Qualified | 2016<br>Non-Qualified |
| :--- | :--- | :--- | :--- | :--- |
| Changes\tin\tprojected\tbenefit\tobligation: |  |  |  |  |
| Projected\tbenefit\tobligation\tat\tJanuary\t1 | $1,055 | $170 | $1,059 | $174 |
| Service\tcost | 3 | — | 3 | — |
| Interest\tcost | 36 | 6 | 41 | 7 |
| Actuarial\tloss,\tnet | 34 | 7 | 50 | 1 |
| Foreign\tcurrency\texchange | 20 | — | (29) | — |
| Benefit\tpayments | (43) | (13) | (69) | (12) |
| Divestitures | (144) | — | — | — |
| Projected\tbenefit\tobligation\tat\tDecember\t31 | $961 | $170 | $1,055 | $170 |
| Changes\tin\tfair\tvalue\tof\tplan\tassets: |  |  |  |  |
| Fair\tvalue\tof\tplan\tassets\tat\tJanuary\t1 | $717 | $— | $658 | $— |
| Actual\treturn\ton\tplan\tassets | 77 | — | 58 | — |
| Foreign\tcurrency\texchange | 8 | — | (20) | — |
| Company\tcontributions | 52 | 13 | 100 | 12 |
| Expenses,\tother | (7) | — | (10) | — |
| Benefit\tpayments | (43) | (13) | (69) | (12) |
| Divestitures | (109) | — | — | — |
| Fair\tvalue\tof\tplan\tassets\tat\tDecember\t31 | $695 | $— | $717 | $— |
| Funded\tstatus\tat\tDecember\t31 | $(266) | $(170) | $(338) | $(170) |

Amounts	in	our	consolidated	balance	sheets	were	as	follows,	in	millions:

|  | At	December	31,	2017 | At	December	31,	2017 | At	December	31,	2016 | At	December	31,	2016 |
| :--- | :--- | :--- | :--- | :--- |
|  | Qualified | Non-Qualified | Qualified | Non-Qualified |
| Other\tassets | $1 | $— | $2 | $— |
| Accrued\tliabilities | (1) | (13) | (1) | (12) |
| Other\tliabilities | (266) | (157) | (339) | (158) |
| Total\tnet\tliability | $(266) | $(170) | $(338) | $(170) |

Unrealized	loss	included	in	accumulated	other	comprehensive	loss	before	income	taxes	was	as	follows,	in	millions:

|  | At	December	31,	2017 |  | At	December	31,	2016 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Qualified | Non-Qualified | Qualified | Non-Qualified |
| Net\tloss | $442 | $59 | $519 | $54 |
| Net\ttransition\tobligation | — | — | 1 | — |
| Net\tprior\tservice\tcost | 3 | — | 3 | — |
| Total | $445 | $59 | $523 | $54 |

Information	for	defined-benefit	pension	plans	with	an	accumulated	benefit	obligation	in	excess	of	plan	assets	was	as	follows,	in	millions:

|  | Qualified | Non-Qualified | Qualified | Non-Qualified |
| :--- | :--- | :--- | :--- | :--- |
| Projected\tbenefit\tobligation | $945 | $170 | $1,044 | $170 |
| Accumulated\tbenefit\tobligation | $945 | $170 | $1,044 | $170 |
| Fair\tvalue\tof\tplan\tassets | $679 | $— | $704 | $— |

The	projected	benefit	obligation	was	in	excess	of	plan	assets	for	all	of	our	qualified	defined-benefit	pension	plans	at December	31,	2017	and	2016 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:

|  |  | 2017 |  | 2016 |  | 2015 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Qualified | Non-Qualified | Qualified | Non-Qualified | Qualified | Non-Qualified |
| Service\tcost | $3 | $— | $3 | $— | $3 | $— |
| Interest\tcost | 44 | 6 | 49 | 7 | 47 | 7 |
| Expected\treturn\ton\tplan\tassets | (46) | — | (44) | — | (46) | — |
| Recognized\tnet\tloss | 19 | 3 | 17 | 2 | 18 | 3 |
| Net\tperiodic\tpension\tcost | $20 | $9 | $25 | $9 | $22 | $10 |

We	expect	to	recognize	$20	million	of	pre-tax	net	loss	from	accumulated	other	comprehensive	loss	into	net	periodic	pension	cost	in	 2018	related	to our	 defined-benefit	 pension	 plans.	 For	 plans	 in	 which	 almost	 all	 of	 the	 plan's	 participants	 are	 inactive,	 pre-tax	 net	 loss	 within	 accumulated	 other comprehensive	loss	is	amortized	using	the	straight-line	method	over	the	remaining	life	expectancy	of	the	inactive	plan	participants.	For	plans	which	do not	have	almost	all	inactive	participants,	pre-tax	net	loss	within	accumulated	other	comprehensive	loss	is	amortized	using	the	straight-line	method	over the	average	remaining	service	period	of	the	active	employees	expected	to	receive	benefits	from	the	plan.

Plan	Assets.				Our	qualified	defined-benefit	pension	plan	weighted	average	asset	allocation,	which	is	based	upon	fair	value,	was	as	follows:

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Equity\tsecurities | 55% | 49% |
| Debt\tsecurities | 28% | 32% |
| Other | 17% | 19% |
| 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,	2017	compared	to	December	31,	2016.

Common	and	Preferred	Stocks	and	Short-Term	and	Other	Investments:	Valued	at	the	closing	price	reported	on	the	active	market	on	which	the individual	securities	are	traded	or	based	on	the	active	market	for	similar	securities.	Certain	investments	are	valued	based	on	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.

								 Private	Equity	and	Hedge	Funds:	Valued	based	on	an	estimated	fair	value	using	either	a	market	approach	or	an	income	approach,	both	of	which require	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.	Certain	investments	are	valued	based	on	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.

								 Corporate,	Government	and	Other	Debt	Securities:	Valued	based	on	either	the	closing	price	reported	on	the	active	market	on	which	the	individual securities	are	traded	or	using	pricing	models	maximizing	the	use	of	observable	inputs	for	similar	securities.	This	includes	basing	value	on	yields	currently available	on	comparable	securities	of	issuers	with	similar	credit	ratings.	Certain	investments	are	valued	based	on	NAV,	which	approximates	fair	value. Such	basis	is	determined	by	referencing	the	respective	fund's	underlying	assets.	There	are	unfunded	commitments	of	$2	million	and	no	other	restrictions associated	with	these	investments.

								Common	Collective	Trust	Fund:	Valued	based	on	an	amortized	cost	basis,	which	approximates	fair	value.	Such	basis	is	determined	by	reference	to the	respective	fund's	underlying	assets,	which	are	primarily	cash	equivalents.	There	are	no	unfunded	commitments	or	other	restrictions	associated	with this	fund.

								 Buy-in	Annuity:	Valued	based	on	the	associated	benefit	obligation	for	which	the	buy-in	annuity	covers	the	benefits,	which	approximates	fair	value. Such	basis	is	determined	based	on	various	assumptions,	including	the	discount	rate,	long-term	rate	of	return	on	plan	assets	and	mortality	rate.

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	 tables	 set	 forth,	 by	 level	 within	 the	 fair	 value	 hierarchy,	 the	 qualified	 defined-benefit	 pension	 plan	 assets	 at fair	 value	 as	 of December	31,	2017	and	2016,	as	well	as	those	valued	at	NAV	using	the	practical	expedient,	which	approximates	fair	value,	in	millions.

|  | Level	1 | Level	2 | Level	3 | Valued	at	NAV | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Plan\tAssets |  |  |  |  |  |
| Common\tand\tPreferred\tStocks: |  |  |  |  |  |
| United\tStates | $144 | $— | $— | $47 | $191 |
| International | 66 | — | — | 125 | 191 |
| Private\tEquity\tand\tHedge\tFunds: |  |  |  |  |  |
| United\tStates | — | — | 36 | — | 36 |
| International | — | — | 24 | 35 | 59 |
| Corporate\tDebt\tSecurities: |  |  |  |  |  |
| United\tStates | 31 | 26 | — | — | 57 |
| International | — | 7 | — | 21 | 28 |
| Government\tand\tOther\tDebt\tSecurities: |  |  |  |  |  |
| United\tStates | 15 | 7 | — | 31 | 53 |
| International | 31 | 28 | — | — | 59 |
| Common\tCollective\tTrust\tFund\t–\tUnited\tStates | — | 6 | — | — | 6 |
| Buy-in\tAnnuity\t-\tInternational | — | 12 | — | — | 12 |
| Short-Term\tand\tOther\tInvestments: |  |  |  |  |  |
| United\tStates | 2 | — | — | — | 2 |
| International | — | 1 | — | — | 1 |
| Total\tPlan\tAssets | $289 | $87 | $60 | $259 | $695 |

|  | Level	1 | Level	2 | Level	3 | Valued	at	NAV | Total |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Plan\tAssets |  |  |  |  |  |
| Common\tand\tPreferred\tStocks: |  |  |  |  |  |
| United\tStates | $142 | $— | $— | $118 | $260 |
| International | 74 | — | — | 16 | 90 |
| Private\tEquity\tand\tHedge\tFunds: |  |  |  |  |  |
| United\tStates | — | — | 37 | — | 37 |
| International | — | — | 24 | 32 | 56 |
| Corporate\tDebt\tSecurities: |  |  |  |  |  |
| United\tStates | 27 | 28 | — | 2 | 57 |
| International | — | 26 | — | 17 | 43 |
| Government\tand\tOther\tDebt\tSecurities: |  |  |  |  |  |
| United\tStates | 46 | 4 | — | — | 50 |
| International | 27 | 53 | — | — | 80 |
| Common\tCollective\tTrust\tFund\t–\tUnited\tStates | — | 4 | — | — | 4 |
| Short-Term\tand\tOther\tInvestments: |  |  |  |  |  |
| United\tStates | 2 | — | — | — | 2 |
| International | 5 | 15 | 18 | — | 38 |
| Total\tPlan\tAssets | $323 | $130 | $79 | $185 | $717 |

Changes	in	the	fair	value	of	the	qualified	defined-benefit	pension	plan	Level	3	assets,	were	as	follows,	in	millions:

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Fair\tValue,\tJanuary\t1 | $79 | $88 |
| Purchases | 6 | 6 |
| Sales | (31) | (19) |
| Unrealized\tgains | 6 | 4 |
| Fair\tValue,\tDecember\t31 | $60 | $79 |

Assumptions.				Weighted	average	major	assumptions	used	in	accounting	for	our	defined-benefit	pension	plans	were	as	follows:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Discount\trate\tfor\tobligations | 3.30% | 3.50% | 4.00% |
| Expected\treturn\ton\tplan\tassets | 7.25% | 7.25% | 7.25% |
| Rate\tof\tcompensation\tincrease | —% | —% | —% |
| Discount\trate\tfor\tnet\tperiodic\tpension\tcost | 3.50% | 4.00% | 3.80% |

The	discount	rate	for	obligations	for	2017,	2016	and	2015	was	based	upon	the	expected	duration	of	each	defined-benefit	pension	plan's	liabilities matched	to	the	December	31,	2017,	2016	and	2015	Willis	Towers	Watson	Rate	Link	Curve.	At	 December	31,	2017,	such	rates	for	our	defined-benefit pension	plans	ranged	 from	1.5	percent	 to	3.6	percent,	with	the	most	significant	portion	of	the	liabilities	having	a	discount	rate	for	obligations	of 3.4 percent	 or	 higher.	At	 December	31,	2016,	such	rates	 for	our	defined-benefit	pension	plans	ranged	 from	 1.5	 percent	 to	4.0	percent,	 with	 the	 most significant	portion	of	the	liabilities	having	a	discount	rate	for	obligations	of	3.8	percent	or	higher.	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.	The	decreases	in	the	weighted	average	discount	rates	from	2015	to	2016,	and	from	2016	to	2017,	are	principally	the	result	of	lower long-term	interest	rates	in	the	bond	markets.

For	2017,	2016	and	2015,	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	December	31,	2017,	2016	and	2015	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	positive	13.9	percent,	positive	8.3	percent	and	negative	1.8	percent in	2017,	2016	and	2015,	respectively.	For	the	10-year	period	ended	December	31,	2017,	the	actual	annual	rate	of	return	on	our	pension	plan	assets	was 4.3	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,	2017	includes	one	significant	decline	in	the	equity	markets	in	 2008	(of	negative	32.1	percent).	Accordingly,	and	based	on	our	target allocation,	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	2017,	 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.

# L.	EMPLOYEE	RETIREMENT	PLANS	(Concluded)

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	based	upon	age	and	length	of	service.	Substantially	all	of	these	plans	were	frozen	as	of	January	1,	2010.	The	aggregate	present	value	of	the unfunded	accumulated	post-retirement	benefit	obligation	was	$10	million	and	$9	million	at	December	31,	2017	and	2016,	respectively.

Cash	Flows.				At	December	31,	2017,	we	expect	to	contribute	approximately	 $45	million	to	our	domestic	qualified	defined-benefit	pension	plans	in 2018,	which	will	exceed	ERISA	requirements.	We	also	expect	to	contribute	approximately	 $3	million	 and	$13	million	to	our	foreign	and	non-qualified (domestic)	defined-benefit	pension	plans,	respectively,	in	2018.

At	December	31,	2017,	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<br>Plans | Non-Qualified<br>Plans |
| :--- | :--- | :--- |
| 2018 | $47 | $13 |
| 2019 | $48 | $12 |
| 2020 | $49 | $12 |
| 2021 | $50 | $12 |
| 2022 | $50 | $13 |
| 2023\t-\t2027 | $262 | $56 |

# M.	SHAREHOLDERS'	EQUITY

In	May	2017,	our	Board	of	Directors	authorized	the	repurchase,	for	retirement,	of	up	to	 $1.5	billion	of	shares	of	our	common	stock	in	open-market transactions	or	otherwise,	replacing	the	previous	Board	of	Directors'	authorization	established	in	2014.	During	2017,	we	repurchased	and	retired	 9.2 million	shares	of	our	common	stock	(including	 0.9	million	shares	to	offset	the	dilutive	impact	of	long-term	stock	awards	granted	in	2017),	for	cash aggregating	$331	million.	At	December	31,	2017,	we	had	$1.3	billion	remaining	under	the	2017	authorization.	During	2016,	we	repurchased	and	retired 14.9	million	shares	of	our	common	stock	for	cash	aggregating	 $459	million	(including	1.1	million	shares	to	offset	the	dilutive	impact	of	long-term	stock awards	granted	in	2016).	During	2015,	we	repurchased	and	retired	 17.2	million	shares	of	our	common	stock	for	cash	aggregating	 $456	million	(including 0.7	million	shares	to	offset	the	dilutive	impact	of	long-term	stock	awards	granted	in	 2015).

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.

# M.	SHAREHOLDERS'	EQUITY	(Concluded)

Accumulated	Other	Comprehensive	Loss.				The	components	of	accumulated	other	comprehensive	loss	attributable	to	Masco	Corporation	were as	follows,	in	millions:

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Cumulative\ttranslation\tadjustments,\tnet | $282 | $177 |
| Unrealized\tloss\ton\tinterest\trate\tswaps,\tnet | (12) | (15) |
| Unrecognized\tnet\tloss\tand\tprior\tservice\tcost,\tnet | (335) | (397) |
| Accumulated\tother\tcomprehensive\tloss | $(65) | $(235) |

The	cumulative	translation	adjustment,	net,	is	reported	net	of	income	tax	benefit	of	 $2	million	at	December	31,	2016.	The	unrealized	loss	on	interest rate	swaps,	net,	is	reported	net	of	income	tax	expense	of	$4	million	and	$2	million	at	December	31,	2017	and	2016,	respectively.	The	unrecognized	net loss	and	prior	service	cost,	net,	is	reported	net	of	income	tax	benefit	of	$154	million	and	$164	million	at	December	31,	2017	and	2016,	respectively.

# N.	RECLASSIFICATIONS	FROM	OTHER	COMPREHENSIVE	INCOME	(LOSS)

The	reclassifications	from	accumulated	other	comprehensive	income	(loss)	to	the	consolidated	statements	of	operations	were	as	follows,	in	millions:

| Comprehensive	Income	(Loss) | 2017 | 2016 | 2015 | Statement	of	Operations	Line	Item |
| :--- | :--- | :--- | :--- | :--- |
| Amortization\tof\tdefined\tbenefit\tpension\tand\tother\npostretirement\tbenefits: |  |  |  |  |
|  |  |  |  | Other\tincome\t(expense),\tnet\tand\tselling, |
| Actuarial\tlosses,\tnet | $86 | $19 | $21 | general\tand\tadministrative\texpenses |
| Tax\t(benefit) | (13) | (7) | (8) |  |
| Net\tof\ttax\t(A) | $73 | $12 | $13 |  |
| Interest\trate\tswaps | $4 | $2 | $2 | Interest\texpense |
| Tax\t(benefit) | (1) | (1) | — |  |
| Net\tof\ttax | $3 | $1 | $2 |  |
| Available-for-sale\tsecurities | $— | $(3) | $— | \t Other,\tnet |
| Tax\texpense\t(B) | — | 15 | — |  |
| Net\tof\ttax | $— | $12 | $— |  |

(A)	The	2017	amortization	of	defined	benefit	pension	and	other	postretirement	benefits	includes	 $58	million,	net	of	tax,	due	to	the	disposition	of	a	pension plan	in	connection	with	the	divestiture	of	Moores	and	was	recorded	within	other	income	(expense),	net.	Other	costs	were	primarily	recorded	in	selling, general	and	administrative	expenses.

(B)	The	tax	expense	related	to	the	available-for-sale	securities	in	2016	includes	 $14	million	related	to	the	disproportionate	tax	effect	that	we	recognized	as a	result	of	the	redemption	of	all	of	our	auction	rate	securities.	Refer	to	Note	Q	to	the	consolidated	financial	statements	for	additional	information.

# O.	SEGMENT	INFORMATION

Our	reportable	segments	are	as	follows:

Plumbing	Products	–		principally	includes	faucets,	plumbing	fittings	and	valves,	showerheads	and	hand	showers,	bathtubs	and	shower	enclosures, toilets,	spas,	exercise	pools	and	water	handling	systems.

Decorative	Architectural	Products	–		principally	includes	paints	and	other	coating	products,	cabinet	door,	window	and	other	hardware	and	glass shower	doors.

Cabinetry	Products	– 	 principally includes	 assembled	 kitchen	 and	 bath	 cabinets,	 home	 office	 workstations,	 entertainment	 centers	 and	 storage products.

Windows	and	Other	Specialty	Products	–		principally	includes	windows,	window	frame	components,	patio	doors,	and,	until	the	divestiture	of	Arrow, staple	gun	tackers,	staples	and	other	fastening	tools.

The	above	products	are	sold	 to	 the	residential	repair	and	remodel	and	new	home	construction	markets	 through	home	center	retailers,	online 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	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.

Information	by	segment	and	geographic	area	was	as	follows,	in	millions:

|  | 2017 | Net	Sales<br>(1)(2)(3)(4)(5)<br>2016 | 2015 | 2017 | Operating	Profit<br>(Loss)	(5)(6)<br>2016 | 2015 | 2017 | Assets	at<br>December	31	(7)<br>2016 | 2015 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Our\toperations\tby\tsegment\twere: |  |  |  |  |  |  |  |  |  |
| Plumbing\tProducts | $3,735 | $3,526 | $3,341 | $698 | $642 | $512 | $2,260 | $2,009 | $1,972 |
| Decorative\tArchitectural\tProducts | 2,205 | 2,092 | 2,020 | 434 | 430 | 403 | 961 | 894 | 874 |
| Cabinetry\tProducts | 934 | 970 | 1,025 | 90 | 93 | 51 | 524 | 537 | 567 |
| Windows\tand\tOther\tSpecialty\tProducts | 770 | 769 | 756 | 52 | (3) | 57 | 673 | 743 | 748 |
| Total | $7,644 | $7,357 | $7,142 | $1,274 | $1,162 | $1,023 | $4,418 | $4,183 | $4,161 |
| Our\toperations\tby\tgeographic\tarea\twere: |  |  |  |  |  |  |  |  |  |
| North\tAmerica | $6,069 | $5,834 | $5,645 | $1,072 | $961 | $841 | $3,211 | $3,001 | $2,925 |
| International,\tprincipally\tEurope | 1,575 | 1,523 | 1,497 | 202 | 201 | 182 | 1,207 | 1,182 | 1,236 |
| Total,\tas\tabove | $7,644 | $7,357 | $7,142 | 1,274 | 1,162 | 1,023 | 4,418 | 4,183 | 4,161 |
| General\tcorporate\texpense,\tnet\t(6) |  |  |  | (105) | (109) | (109) |  |  |  |
| Operating\tprofit,\tas\treported |  |  |  | 1,169 | 1,053 | 914 |  |  |  |
| Other\tincome\t(expense),\tnet |  |  |  | (284) | (223) | (225) |  |  |  |
| Income\tfrom\tcontinuing\toperations\tbefore\nincome\ttaxes |  |  |  | $885 | $830 | $689 |  |  |  |
| Corporate\tassets |  |  |  |  |  |  | 1,070 | 954 | 1,503 |
| Total\tassets |  |  |  |  |  |  | $5,488 | $5,137 | $5,664 |

# O.	SEGMENT	INFORMATION	(Concluded)

|  | 2017 | Property	Additions	(5)<br>2016 | 2015 | 2017 | Depreciation	and<br>Amortization	(5)<br>2016 | 2015 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Our\toperations\tby\tsegment\twere: |  |  |  |  |  |  |
| Plumbing\tProducts | $115 | $110 | $87 | $63 | $57 | $56 |
| Decorative\tArchitectural\tProducts | 19 | 22 | 16 | 16 | 16 | 16 |
| Cabinetry\tProducts | 14 | 8 | 6 | 14 | 21 | 24 |
| Windows\tand\tOther\tSpecialty\tProducts | 13 | 30 | 41 | 21 | 21 | 18 |
|  | 161 | 170 | 150 | 114 | 115 | 114 |
| Unallocated\tamounts,\tprincipally\trelated\tto\tcorporate\tassets | 12 | 10 | 1 | 13 | 19 | 13 |
| Total | $173 | $180 | $151 | $127 | $134 | $127 |

(2) Excluded	from	net	sales	were	intra-company	sales	between	segments	of	less	than	 one	percent	in	2017,	2016	and	2015.

(5) Net	sales,	operating	profit	(loss),	property	additions	and	depreciation	and	amortization	expense	 for	 2015	excluded	 the	results	of	businesses reported	as	discontinued	operations.

(6) General	corporate	expense,	net	included	those	expenses	not	specifically	attributable	to	our	segments.

# P.	OTHER	INCOME	(EXPENSE),	NET

Other,	net,	which	is	included	in	other	income	(expense),	net,	was	as	follows,	in	millions:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Loss\ton\tsales\tof\tbusinesses,\tnet\t(A)\nIncome\tfrom\tcash\tand\tcash\tinvestments\tand\tshort-term\tbank\tdeposits | $(13) | $— | $— |
|  | 4 | 4 | 3 |
| Equity\tinvestment\tincome,\tnet | 1 | 2 | 2 |
| Realized\tgain\tfrom\tauction\trate\tsecurities | — | 3 | — |
| Realized\tgains\tfrom\tprivate\tequity\tfunds | 3 | 5 | 6 |
| Impairment\tof\tprivate\tequity\tfunds | (2) | — | — |
| Foreign\tcurrency\ttransaction\tlosses | — | (3) | (14) |
| Other\titems,\tnet | 1 | (5) | 3 |
| Total\tother,\tnet | $(6) | $6 | $— |

(A)	Included	in	loss	on	sales	of	businesses,	net	is	a	loss	of	 $64	million	related	to	the	divestiture	of	Moores	and	a	gain	of $51	million	related	to	the divestiture	of	Arrow.

# Q.	INCOME	TAXES

|  | 2017 | 2016 | (In	Millions)<br>2015 |
| :--- | :--- | :--- | :--- |
| Income\tfrom\tcontinuing\toperations\tbefore\tincome\ttaxes: |  |  |  |
| U.S. | $731 | $614 | $496 |
| Foreign | 154 | 216 | 193 |
|  | $885 | $830 | $689 |
| Income\ttax\texpense\ton\tincome\tfrom\tcontinuing\toperations: |  |  |  |
| Currently\tpayable: |  |  |  |
| U.S.\tFederal | $196 | $73 | $10 |
| State\tand\tlocal | 31 | 24 | 27 |
| Foreign | 68 | 69 | 56 |
| Deferred: |  |  |  |
| U.S.\tFederal | 10 | 140 | 192 |
| State\tand\tlocal | (1) | 2 | 3 |
| Foreign | 1 | (12) | 5 |
|  | $305 | $296 | $293 |
| Deferred\ttax\tassets\tat\tDecember\t31: |  |  |  |
| Receivables | $8 | $10 |  |
| Inventories | 13 | 17 |  |
| Other\tassets,\tincluding\tstock-based\tcompensation | 36 | 58 |  |
| Accrued\tliabilities | 45 | 53 |  |
| Long-term\tliabilities | 169 | 280 |  |
| Net\toperating\tloss\tcarryforward | 53 | 51 |  |
| Capital\tloss\tcarryforward | 1 | — |  |
| Tax\tcredit\tcarryforward | 8 | 9 |  |
|  | 333 | 478 |  |
| Valuation\tallowance | (47) | (45) |  |
|  | 286 | 433 |  |
| Deferred\ttax\tliabilities\tat\tDecember\t31: |  |  |  |
| Property\tand\tequipment | 98 | 127 |  |
| Intangibles | 139 | 222 |  |
| Investment\tin\tforeign\tsubsidiaries | 7 | 15 |  |
| Other | 20 | 21 |  |
|  | 264 | 385 |  |
| Net\tdeferred\ttax\tasset\tat\tDecember\t31 | $22 | $48 |  |

The	net	deferred	tax	asset	consisted	of	net	deferred	tax	assets	(included	in	other	assets)	of	 $48	million	 and	$68	million,	and	net	deferred	tax liabilities	(included	in	other	liabilities)	of	$26	million	and	$20	million,	at	December	31,	2017	and	2016,	respectively.

The	current	portion	of	the	state	and	local	income	tax	includes	a	 $5	million,	$8	million	and	$5	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	2017,	2016 and	2015,	respectively.	The	deferred	portion	of	the	state	and	local	taxes	includes	a	 $(1)	million,	$5	million	and	$(1)	million	tax	(benefit)	expense	resulting from	a	change	in	the	valuation	allowance	against	state	and	local	deferred	tax	assets	in	2017,	2016	and	2015,	respectively.	The	deferred	portion	of	the foreign	taxes	includes	$6	million	and	$12	million	tax	expense	from	a	change	in	the	valuation	allowance	against	foreign	deferred	tax	assets	in	 2016	and 2015,	respectively.

# Q.	INCOME	TAXES	(Continued)

Due	to	the	enactment	of	the	Tax	Cuts	and	Jobs	Act	("Tax	Act")	on	December	22,	2017,	we	recorded	a	 $20	million	tax	benefit	from	the	elimination	of a	deferred	tax	liability	previously	recorded	on	undistributed	foreign	earnings	as	a	result	of	the	change	from	a	worldwide	to	a	territorial	system	of	taxation. This	tax	benefit	was	offset	by	a	$3	million	tax	charge	resulting	from	the	re-measurement	of	our	remaining	net	deferred	tax	assets	due	to	a	reduction	in	the U.S.	Federal	corporate	tax	rate	from	35	percent	to	21	percent.

In	addition,	the	Tax	Act	requires	a	mandatory	deemed	repatriation	of	undistributed	foreign	earnings	resulting	in	a	toll	charge	of	 15.5	percent	on earnings	related	to	cash	and	liquid	assets	and	8	percent	on	earnings	for	non-liquid	assets.	Due	to	the	ability	to	offset	positive	foreign	earnings	with existing	foreign	deficits,	we	do	not	anticipate	paying	any	toll	charge	related	to	our	undistributed	foreign	earnings.

The	$64	million	loss	from	the	divestiture	of	Moores	that	was	recorded	in	the	fourth	quarter	of	2017	provided	no	tax	benefit.

The	accounting	guidance	for	income	taxes	requires	us	to	allocate	our	provision	for	income	taxes	between	continuing	operations	and	other	categories of	earnings,	such	as	other	comprehensive	income	(loss).		Subsequent	adjustments	to	deferred	taxes	originally	recorded	to	other	comprehensive	income (loss)	may	reverse	in	a	different	category	of	earnings,	such	as	continuing	operations	resulting	in	a	disproportionate	tax	effect	within	accumulated	other comprehensive	loss.

We	created	a	$14	million	disproportionate	tax	effect	in	prior	years	as	the	result	of	allocating	a	deferred	tax	charge	to	other	comprehensive	income (loss)	on	 the	unrealized	gain	of	certain	available-for-sale	securities	 that	was	 later	reversed	 through	continuing	operations	by	a	valuation	allowance adjustment,	followed	by	the	disposition	of	the	securities	while	in	a	full	valuation	allowance	position.		Such	disproportionate	tax	effect	has	remained	in accumulated	other	comprehensive	loss	until	such	time	as	we	cease	to	have	an	available-for-sale	securities	portfolio.		In	the	fourth	quarter	of	2016	as	a result	of	our	final	auction	rate	securities	being	called	by	our	counterparty	and	redeemed ,	the	disproportionate	tax	effect	was	eliminated	by	recording	a	 $14 million	charge	to	income	tax	expense	included	in	continuing	operations	that	was	offset	by	a	corresponding	tax	benefit	included	in	other	comprehensive income	(loss).

In	the	fourth	quarter	of	2016,	we	recorded	a	 $13	million	tax	benefit	from	the	recognition	of	a	deferred	tax	asset	on	certain	German	net	operating losses	primarily	resulting	from	a	return	to	sustainable	profitability.

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,	was	unlikely	to	be	able	to	realize	the	value	of	such	deferred	tax	assets	as	a	result	of	its	history	of	losses.

Our	capital	allocation	strategy	includes	reinvesting	in	our	business,	balancing	share	repurchases	with	potential	acquisitions	and	maintaining	an appropriate	dividend.	In	order	to	provide	greater	flexibility	in	the	execution	of	our	capital	allocation	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,	2016,	deferred	tax	balance	on	investments	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.	As	a	result	of	the	enactment	of	the	Tax Act,	no	deferred	tax	is	required	at	December	31,	2017	on	our	foreign	taxable	temporary	differences,	other	than	foreign	withholding	taxes.

During	2015,	the	tax	benefit	from	certain	stock-based	compensation	was	not	recognized	as	a	deferred	tax	asset	until	the	tax	deduction	reduces cash	taxes.	We	recorded	deferred	tax	assets	of	$53	million	to	paid-in	capital	in	2015	related	to	additional	net	operating	losses,	previously	not	recognized, that	were	used	to	reduce	cash	taxes	on	our	2015	taxable	income.

We	continue	to	maintain	a	valuation	allowance	on	certain	state	and	foreign	deferred	tax	assets	as	of	 December	31,	2017.	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	$61	million	and	$60	million	deferred	tax	asset	related	to	the	net	operating	loss	and	tax	credit	carryforwards	at	 December	31,	2017	and	2016, respectively,	$33	million	and	$35	million	will	expire	between	2021	and	2036	and	 $28	million	and	 $25	million	are	unlimited,	respectively.

A	reconciliation	of	the	U.S.	Federal	statutory	tax	rate	to	the	income	tax	expense	on	income	from	continuing	operations	was	as	follows:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| U.S.\tFederal\tstatutory\ttax\trate | 35\t% | 35\t% | 35\t% |
| State\tand\tlocal\ttaxes,\tnet\tof\tU.S.\tFederal\ttax\tbenefit | 2 | 2 | 3 |
| Lower\ttaxes\ton\tforeign\tearnings | (1) | (2) | (1) |
| U.S.\tand\tforeign\ttaxes\ton\tdistributed\tand\tundistributed\tforeign\tearnings | 1 | 1 | 3 |
| Domestic\tproduction\tdeduction | (2) | (1) | — |
| Stock-based\tcompensation | (2) | — | — |
| Business\tdivestitures\twith\tno\ttax\timpact | 4 | — | — |
| Change\tin\tU.S.\tFederal\ttax\tlaw | (2) | — | — |
| U.S.\tFederal\tvaluation\tallowance | — | — | 3 |
| Other,\tnet | (1) | 1 | — |
| Effective\ttax\trate | 34\t% | 36\t% | 43\t% |

A	reconciliation	of	the	beginning	and	ending	liability	for	uncertain	tax	positions,	including	related	interest	and	penalties,	is	as	follows,	in	millions:

|  | Uncertain<br>Tax	Positions | Interest	and<br>Penalties | Total |
| :--- | :--- | :--- | :--- |
| Balance\tat\tJanuary\t1,\t2016 | $43 | $10 | $53 |
| Current\tyear\ttax\tpositions: |  |  |  |
| Additions | 11 | — | 11 |
| Reductions | (1) | — | (1) |
| Prior\tyear\ttax\tpositions: |  |  |  |
| Additions | 1 | — | 1 |
| Reductions | (2) | — | (2) |
| Lapse\tof\tapplicable\tstatute\tof\tlimitations | (6) | — | (6) |
| Interest\tand\tpenalties\trecognized\tin\tincome\ttax\texpense | — | (1) | (1) |
| Balance\tat\tDecember\t31,\t2016 | $46 | $9 | $55 |
| Current\tyear\ttax\tpositions: |  |  |  |
| Additions | 13 | — | 13 |
| Reductions | — | — | — |
| Prior\tyear\ttax\tpositions: |  |  |  |
| Additions | 3 | — | 3 |
| Reductions | (1) | — | (1) |
| Lapse\tof\tapplicable\tstatute\tof\tlimitations | (7) | — | (7) |
| Interest\tand\tpenalties\trecognized\tin\tincome\ttax\texpense | — | (1) | (1) |
| Balance\tat\tDecember\t31,\t2017 | $54 | $8 | $62 |

# Q.	INCOME	TAXES	(Concluded)

If	recognized,	$43	million	and	$30	million	of	the	liability	for	uncertain	tax	positions	at	 December	31,	2017	and	2016,	respectively,	net	of	any	U.S. Federal	tax	benefit,	would	impact	our	effective	tax	rate.

Of	the	$62	million	and	$55	million	total	liability	for	uncertain	tax	positions	(including	related	interest	and	penalties)	at	 December	31,	2017	and	2016, respectively,	$59	million	and	$54	million	are	recorded	in	other	liabilities,	respectively,	and	 $3	million	and	$1	million	is	recorded	as	a	net	offset	to	other assets	at	December	31,	2017	and	2016,	respectively.

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	Process	("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	2016.	With	few	exceptions,	we	are	no	longer	subject	to	state	or	foreign	income	tax	examinations	on	filed	returns	for	years	before	2006.

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.

# R.	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:

|  | 2017 | 2016 | 2015 |
| :--- | :--- | :--- | :--- |
| Numerator\t(basic\tand\tdiluted): |  |  |  |
| Income\tfrom\tcontinuing\toperations | $533 | $491 | $357 |
| Less:\tAllocation\tto\tunvested\trestricted\tstock\tawards | 5 | 6 | 5 |
| Income\tfrom\tcontinuing\toperations\tattributable\tto\tcommon\tshareholders | 528 | 485 | 352 |
| Loss\tfrom\tdiscontinued\toperations,\tnet | — | — | (2) |
| Less:\tAllocation\tto\tunvested\trestricted\tstock\tawards | — | — | — |
| Loss\tfrom\tdiscontinued\toperations\tattributable\tto\tcommon\tshareholders | — | — | (2) |
| Net\tincome\tavailable\tto\tcommon\tshareholders | $528 | $485 | $350 |
| Denominator: |  |  |  |
| Basic\tcommon\tshares\t(based\tupon\tweighted\taverage) | 314 | 326 | 338 |
| Add:\tStock\toption\tdilution | 4 | 4 | 3 |
| Diluted\tcommon\tshares | 318 | 330 | 341 |

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,	2017,	2016	and	2015,	we	allocated	dividends	and	undistributed	earnings to	the	participating	securities.

# R.	EARNINGS	PER	COMMON	SHARE	(Concluded)

Additionally,	354,000,	338,000	and	5	million	common	shares	for	2017,	2016	and	2015,	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	(3	million	common	shares	and	4	million	common	shares	at	December	31,	2017	and	2016,	respectively);	shares	outstanding	for	legal	requirements included	all	common	shares	that	have	voting	rights	(including	unvested	stock	awards).

# S.	OTHER	COMMITMENTS	AND	CONTINGENCIES

Litigation.				We	are	are	involved	in	claims	and	litigation,	including	class	actions	and	regulatory	proceedings,	which	arise	in	the	ordinary	course	of our	business.	The	types	of	matters	may	include,	among	others:	competition,	product	liability,	employment,	warranty,	advertising,	contract,	personal	injury, environmental,	intellectual	property,	and	insurance	coverage.	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:

|  | 2017 | 2016 |
| :--- | :--- | :--- |
| Balance\tat\tJanuary\t1 | $192 | $152 |
| Accruals\tfor\twarranties\tissued\tduring\tthe\tyear | 63 | 66 |
| Accruals\trelated\tto\tpre-existing\twarranties | 9 | 33 |
| Settlements\tmade\t(in\tcash\tor\tkind)\tduring\tthe\tyear | (59) | (56) |
| Other,\tnet\t(including\tcurrency\ttranslation) | — | (3) |
| Balance\tat\tDecember\t31 | $205 | $192 |

During	2016,	a	business	in	the	Windows	and	Other	Specialty	Products	segment	recorded	 $31	million	for	increases	in	its	estimate	of	expected	future warranty	claims	relating	to	previously	sold	windows	and	doors.	The	change	in	estimate	resulted	from	the	adoption	of	an	improved	warranty	valuation model	and	the	availability	of	additional	information	used	to	support	the	estimate	of	costs	to	service	claims	and	recent	warranty	claims	trends,	including	a shift	to	increased	cost	to	repair.

Investments.				With	respect	to	our	investments	in	private	equity	funds,	we	had,	at	 December	31,	2017,	commitments	to	contribute	up	to	$5	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	claims	made	against	builders	by	homeowners	for	issues	relating	to	our	products	and	workmanship.	In	conjunction with	divestitures	and	other	transactions,	we	occasionally	provide	reasonable	and	customary	indemnifications.	We	have	never	had	to	pay	a	material amount	related	to	these	indemnifications,	and	we	evaluate	the	probability	that	amounts	may	be	incurred	and	record	an	estimated	liability	when	it	is probable	and	reasonably	estimable.

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS	(CONCLUDED)

# T.	INTERIM	FINANCIAL	INFORMATION	(UNAUDITED)

Our	quarterly	results	attributable	to	Masco	Corporation	were	as	follows:

|  | Total<br>Year | December	31 | September	30 | June	30 | March	31 |
| :--- | :--- | :--- | :--- | :--- | :--- |
| 2017 |  |  |  |  |  |
| Net\tsales | $7,644 | $1,874 | $1,936 | $2,057 | $1,777 |
| Gross\tprofit | $2,611 | $616 | $650 | $737 | $608 |
| Net\tincome | $533 | $87 | $148 | $158 | $140 |
| Earnings\tper\tcommon\tshare: |  |  |  |  |  |
| Basic: |  |  |  |  |  |
| Net\tincome | $1.68 | $0.28 | $0.47 | $0.50 | $0.44 |
| Diluted: |  |  |  |  |  |
| Net\tincome | $1.66 | $0.27 | $0.46 | $0.49 | $0.43 |
| 2016 |  |  |  |  |  |
| Net\tsales | $7,357 | $1,759 | $1,877 | $2,001 | $1,720 |
| Gross\tprofit | $2,456 | $573 | $614 | $700 | $569 |
| Net\tincome | $491 | $98 | $134 | $150 | $109 |
| Earnings\tper\tcommon\tshare: |  |  |  |  |  |
| Basic: |  |  |  |  |  |
| Net\tincome | $1.49 | $0.30 | $0.41 | $0.45 | $0.33 |
| Diluted: |  |  |  |  |  |
| Net\tincome | $1.47 | $0.30 | $0.40 | $0.45 | $0.32 |

Earnings	per	common	share	amounts	for	the	four	quarters	of	 December	31,	2017	 and	2016	may	not	total	to	the	earnings	per	common	share amounts	for	the	years	ended	December	31,	2017	and	2016	due	to	the	allocation	of	income	to	participating	securities.

# Item	9.	Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure.

# Item	9A.				Controls	and	Procedures.

a. Evaluation	of	Disclosure	Controls	and	Procedures.

The	Company's	Principal	Executive	Officer	and	Principal	Financial	Officer	have	concluded,	based	on	an	evaluation	of	the	Company's	disclosure controls	and	procedures	(as	defined	in	the	Securities	Exchange	Act	of	1934	Rules	13a-15(e)	or	15d-15(e))	as	required	by	paragraph	(b)	of	Exchange Act	Rules	13a-15	or	15d-15	that,	as	of	December	31,	2017,	the	Company's	disclosure	controls	and	procedures	were	effective.

b. Management's	Report	on	Internal	Control	over	Financial	Reporting.

Management's	report	on	the	Company's	internal	control	over	financial	reporting	(as	such	term	is	defined	in	Rules	13a-15(f)	and	15d-15(f)	under	the Exchange	Act)	is	included	in	this	Report	under	Item	8.	Financial	Statements	and	Supplementary	Data,	under	the	heading,	"Management's	Report	on Internal	Control	over	Financial	Reporting"	and	is	incorporated	herein	by	reference.	The	report	of	our	independent	registered	public	accounting	firm	is also	included	under	Item	8,	under	the	heading,	"Report	of	Independent	Registered	Public	Accounting	Firm"	and	is	incorporated	herein	by	reference.

c. Changes	in	Internal	Control	over	Financial	Reporting.

In	connection	with	the	evaluation	of	the	Company's	internal	control	over	financial	reporting	that	occurred	during	the	quarter	ended	 December	31, 2017,	which	is	required	under	the	Securities	Exchange	Act	of	1934	by	paragraph	(d)	of	Exchange	Rules	13a-15	or	15d-15	(as	defined	in	paragraph	(f) of	Rule	13a-15),	management	determined	that	there	was	no	change	that	materially	affected	or	is	reasonably	likely	to	materially	affect	internal	control over	financial	reporting.

During	the	second	quarter	of	2018,	we	will	implement	a	new	Enterprise	Resource	Planning	("ERP")	system	at	Delta	Faucet	Company	("Delta").	The system	implementation	is	designed,	in	part,	to	enhance	the	overall	system	of	internal	control	over	financial	reporting	through	further	automation	and improve	 business	 processes,	 and	 is	 not	 in	 response	 to	 any	 identified	 deficiency	 or	 weakness	 in	 the	 Company's	 internal	 control	 over	 financial reporting.	However,	this	system	implementation	is	significant	in	scale	and	complexity	and	will	result	in	modification	to	certain	internal	controls	at Delta.

# Item	9B.				Other	Information.

# PART	III

# Item	10.Directors,	Executive	Officers	and	Corporate

# Governance.

Our	Code	of	Business	Ethics	applies	to	all	employees,	officers	and	directors	including	our	Principal	Executive	Officer,	Principal	Financial	Officer	and Principal	Accounting	Officer,	and	is	posted	on	our	website	at	www.masco.com.	Amendments	to	or	waivers	of	our	Code	of	Business	Ethics	for	directors and	executive	officers,	if	any,	will	be	posted	on	our	website.

Other	information	required	by	this	Item	will	be	contained	in	our	definitive	Proxy	Statement	for	the	 2018	Annual	Meeting	of	Stockholders,	to	be	filed on	or	before	May	1,	2018,	and	such	information	is	incorporated	herein	by	reference.

# Item	11.Executive

# Compensation.

Information	required	by	this	Item	will	be	contained	in	our	definitive	Proxy	Statement	for	the 2018	Annual	Meeting	of	Stockholders,	to	be	filed	on	or before	May	1,	2018	and	such	information	is	incorporated	herein	by	reference.

# Item	12. 			Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder Matters.

# Equity	Compensation	Plan	Information

We	grant	equity	under	our	2014	Long	Term	Stock	Incentive	Plan	(the	"2014	Plan").	The	following	table	sets	forth	information	as	of	 December	31, 2017	concerning	the	2014	Plan,	which	was	approved	by	our	stockholders.	We	do	not	have	any	equity	compensation	plans	that	have	not	been	approved by	our	stockholders.

| Plan	Category | Number	of	Securities	to<br>be	Issued	Upon	Exercise<br>of	Outstanding	Options,<br>Warrants	and	Rights | Weighted-Average<br>Exercise	Price	of<br>Outstanding	Options,<br>Warrants	and	Rights | Number	of	Securities<br>Remaining	Available	for<br>Future	Issuance	Under<br>Equity	Compensation<br>Plans	(Excluding<br>Securities	Reflected	in<br>the	First	Column) |
| :--- | :--- | :--- | :--- |
| Equity\tcompensation\tplans\tapproved\tby\tstockholders | 5,275,505 | $16.10 | 15,389,166 |

The	remaining	information	required	by	this	Item	will	be	contained	in	our	definitive	Proxy	Statement	for	our 2018	Annual	Meeting	of	Stockholders,	to be	filed	on	or	before	May	1,	2018,	and	such	information	is	incorporated	herein	by	reference.

# Item	13. 		Certain	Relationships	and	Related	Transactions,	and	Director Independence.

# Item	14. 	Principal	Accountant	Fees	and	Services.

# PART	IV

# Item	15. 		Exhibits	and	Financial	Statement

# Schedules.

# a.				Listing	of	Documents.

(1) Financial	Statements.				Our	consolidated	financial	statements	included	in	Item	8	hereof,	as	required	at	 December	31,	2017	and	2016,	and	for	the years	ended	December	31,	2017,	2016	and	2015,	consist	of	the	following:

# (2) Financial	Statement	Schedule.

a.	Our	Financial	Statement	Schedule	appended	hereto,	as	required	for	the	years	ended	December	31,	2017,	2016	 and	2015,	consists	of	the following:

1 The	schedules	to	this	agreement	are	omitted	pursuant	to	Item	601(b)(2)	of	Regulation	S-K.	The	Company	agrees	to	supplementally	furnish	to	the Securities	and	Exchange	Commission,	upon	request,	a	copy	of	any	omitted	schedule.

| No. | Exhibit	Description | Form | Exhibit | Filing	Date |
| :--- | :--- | :--- | :--- | :--- |
| 4.b | Indenture\tdated\tas\tof\tFebruary\t12,\t2001\tbetween\tMasco\tCorporation |  |  |  |
|  | successor\ttrustee\tunder\tagreement\toriginally\twith\tBank\tOne\tTrust |  |  |  |
|  | Company,\tNational\tAssociation,\tas\tTrustee,\tand\tSupplemental | 2016\t10-K | 4.b | 02/09/2017 |
|  | Indenture\tthereto\tdated\tas\tof\tNovember\t30,\t2006;\tand\tDirectors' |  |  |  |
|  | Resolutions\testablishing\tMasco\tCorporation's: |  |  |  |
| 4.b.i | 6-1/2%\tNotes\tDue\tAugust\t15,\t2032; |  |  |  |
| 4.b.ii | 7.125%\tNotes\tDue\tMarch\t15,\t2020; | 2015\t10-K | 4.b.i(iv) | 02/12/2016 |
| 4.b.iii | 5.950%\tNotes\tDue\tMarch\t15,\t2022; | 2016\t10-K | 4.b(iii) | 02/09/2017 |
| 4.b.iv | 4.450%\tNotes\tDue\tApril\t1,\t2025; | 8-K | 4.1 | 03/23/2015 |
| 4.b.v | 3.500%\tNotes\tDue\tApril\t1,\t2021; | 8-K | 4.1 | 03/16/2016 |
| 4.b.vi | 4.375%\tNotes\tDue\tApril\t1,\t2026; | 8-K | 4.2 | 03/16/2016 |
| 4.b.vii | 3.500%\tNotes\tDue\tNovember\t15,\t2027;\tand | 8-K | 4.1 | 06/15/2017 |
| 4.b.viii | 4.500%\tNotes\tDue\tMay\t15,\t2047. | 8-K | 4.2 | 06/15/2017 |

Note	1: Other	instruments,	notes	or	extracts	from	agreements	defining	the	rights	of	holders	of	long-term	debt	of	Masco	Corporation	or	its	subsidiaries have	not	been	filed	since	(i)	in	each	case	the	total	amount	of	long-term	debt	permitted	thereunder	does	not	exceed	10	percent	of	Masco Corporation's	consolidated	assets,	and	(ii)	such	instruments,	notes	and	extracts	will	be	furnished	by	Masco	Corporation	to	the	Securities	and

|  | Directors	and	executive	officers	of	the	Company	participate. |  |  |  |
| :--- | :--- | :--- | :--- | :--- |
| 10.b | Masco\tCorporation\t2005\tLong\tTerm\tStock\tIncentive\tPlan\t(Amended | 2015\t10-K | 10.b.i | 02/12/2016 |
|  | and\tRestated\tMay\t11,\t2010): |  |  |  |
|  | Form\tof\tRestricted\tStock\tAward\tAgreements: |  |  |  |
| 10.b.i | for\tawards\ton\tor\tafter\tJanuary\t1,\t2013;\tand |  |  | \t X |
| 10.b.ii | for\tawards\tprior\tto\t2012. | 2015\t10-K | 10.b.i(i)(C) | 02/12/2016 |
|  | Form\tof\tStock\tOption\tGrant\tAgreements: |  |  |  |
| 10.b.iii | for\tgrants\ton\tor\tafter\tJanuary\t1,\t2013; |  |  | \t X |
| 10.b.iv | for\tgrants\tduring\t2012;\tand |  |  | \t X |
| 10.b.v | for\tgrants\tprior\tto\t2012. | 2015\t10-K | 10.b.i(ii)(C) | 02/12/2016 |
| 10.b.vi | Non-Employee\tDirectors\tEquity\tProgram\tunder\tMasco\tCorporation's | 2015\t10-K | 10.b.iii | 02/12/2016 |

| No. | Exhibit	Description | Form | Exhibit | Filing	Date |
| :--- | :--- | :--- | :--- | :--- |
| 10.b.vii | Form\tof\tRestricted\tStock\tAward\tfor\tawards\t2010\tthrough\t2012. |  |  | \t X |
| 10.b.viii | Non-Employee\tDirectors\tEquity\tProgram\tunder\tMasco\tCorporation's |  |  |  |
|  | 2005\tLong\tTerm\tStock\tIncentive\tPlan\t(for\tawards\tprior\tto\t2010): |  |  | X |
| 10.b.ix | Form\tof\tStock\tOption\tGrant\tAgreement. |  |  | \t X |
| 10.c | Masco\tCorporation\t2014\tLong\tTerm\tStock\tIncentive\tPlan\t(Amended | 10-Q | 10.a | 07/26/2016 |
|  | and\tRestated\tMay\t9,\t2016): |  |  |  |
| 10.c.i | Form\tof\tRestricted\tStock\tAward\tAgreement;\tand | 8-K | 10.b | 05/06/2014 |
| 10.c.ii | Form\tof\tStock\tOption\tGrant\tAgreement;\tand | 8-K | 10.d | 05/06/2014 |
| 10.c.iii | Form\tof\tLong\tTerm\tIncentive\tProgram\tAward. | 10-Q | 10 | 04/25/2017 |
| 10.c.iv | Non-Employee\tDirectors\tEquity\tProgram\tunder\tMasco\tCorporation's | 10-Q | 10.b | 07/26/2016 |
|  | 2014\tLong\tTerm\tStock\tIncentive\tPlan\t(Amended\tand\tRestated\tMay\t9, |  |  |  |
|  | 2016): |  |  |  |
| 10.c.v | Form\tof\tRestricted\tStock\tAward\tAgreement\tfor\tNon-Employee | 8-K | 10.c | 05/06/2014 |
|  | Directors. |  |  |  |
| 10.d | Form\tof\taward\tletter\tfor\tthe\tMasco\tCorporation\tLong-Term\tCash |  |  |  |
|  | Incentive\tProgram. |  |  | X |
| 10.e | Form\tof\tMasco\tCorporation\tSupplemental\tExecutive\tRetirement\tand | 2015\t10-K | 10.d(i) | 02/12/2016 |
|  | Disability\tPlan\tand\tamendments\tthereto\tfor\tRichard\tA.\tManoogian. |  |  |  |
| 10.f | Form\tof\tMasco\tCorporation\tSupplemental\tExecutive\tRetirement\tand | 2015\t10-K | 10.d(ii) | 02/12/2016 |
|  | Disability\tPlan\tand\tamendments\tthereto\t(includes\tamendment\tfreezing |  |  |  |
|  | benefit\taccruals)\tfor\tJohn\tG.\tSznewajs. |  |  |  |
| 10.g | \t Other\tcompensatory\tarrangements\tfor\texecutive\tofficers. | 2016\t10-K | 10.f | 02/09/2017 |
| 10.h | \t Compensation\tof\tNon-Employee\tDirectors. | 2016\t10-K | 10.h | 02/09/2017 |
| 10.i | Masco\tCorporation\tRetirement\tBenefit\tRestoration\tPlan\teffective | 2016\t10-K | 10.i | 02/09/2017 |
|  | January\t1,\t1995\t(as\tamended\tand\trestated\tDecember\t22,\t2010),\tand |  |  |  |
|  | amendments\tthereto\teffective\tFebruary\t6,\t2012\tand\tJanuary\t1,\t2014. |  |  |  |
| 10.j.i | Letter\tAgreement\tdated\tJune\t29,\t2009\tbetween\tRichard\tA.\tManoogian | 2014\t10-K | 10.k.i | 02/13/2015 |
|  | and\tMasco\tCorporation. |  |  |  |
| 10.j.ii | Aircraft\tTime\tSharing\tAgreement\tdated\tOctober\t1,\t2012\tbetween |  |  |  |
|  | Richard\tA.\tManoogian\tand\tMasco\tCorporation. |  |  | X |
| 10.k | Employment\tOffer\tLetter\tdated\tOctober\t23,\t2014\tbetween\tChristopher | 2014\t10-K | 10.m | 02/13/2015 |
|  | Kastner\tand\tMasco\tCorporation. |  |  |  |
| 10.l | Employment\tOffer\tLetter\tdated\tNovember\t1,\t2014\tbetween\tAmit | 2014\t10-K | 10.n | 02/13/2015 |

# The	Company	will	furnish	to its	stockholders	a	copy	of	any	of	the	above	exhibits	not included	herein	upon	the	written	request	of	such stockholder	and	the	payment	to	the	Company	of	the	reasonable	expenses	incurred	by	the	Company	in	furnishing	such	copy	or	copies.

# Summary

The	optional	summary	in	Item	16	has	not	been	included	in	this	Form	10-K.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	Registrant	has	duly	caused	this	Report	to	be	signed on	its	behalf	by	the	undersigned,	thereunto	duly	authorized.

By: /s/	John	G.	Sznewajs

John	G.	Sznewajs

Vice	President,	Chief	Financial	Officer

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	Report	has	been	signed	below	by	the	following	persons	on	behalf	of	the Registrant	and	in	the	capacities	and	on	the	date	indicated.

# Principal	Executive	Officer:

/s/	Keith	Allman

Keith	Allman

# Principal	Financial	Officer:

/s/	John	G.	Sznewajs

# Principal	Accounting	Officer:

/s/	John	P.	Lindow

President,	and	Chief	Executive

Officer	and	Director

Vice	President,	Controller and	Chief	Accounting	Officer

# SCHEDULE	II.	VALUATION	AND	QUALIFYING	ACCOUNTS

| Description | Balance	at<br>Beginning<br>of	Period | Charged	to<br>Costs	and<br>Expenses | Charged<br>to	Other<br>Accounts | Deductions | Deductions |  |  | Balance	at<br>End	of<br>Period |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Allowances\tfor\tdoubtful\taccounts,\tdeducted |  |  |  |  |  |  |  |  |
| from\taccounts\treceivable\tin\tthe\tbalance |  |  |  |  |  |  |  |  |
| sheet\t(e): |  |  |  |  |  |  |  |  |
| 2017 | $11 | $5 | $— | \t $(3) | \t $(3) | (a) $ | (a) $ | 13 |
| 2016 | $11 | $4 | $— | \t $(4) | \t $(4) | (a) | $ | 11 |
| 2015 | $14 | $4 | $— | \t $(7) | \t $(7) | (a) $ | (a) $ | 11 |
| Valuation\tallowance\ton\tdeferred\ttax\tassets: |  |  |  |  |  |  |  |  |
| 2017 | $45 | $— | $2 | (b) $ | — |  | \t $47 | \t $47 |
| 2016 | $49 | $11 | $— |  | $(15) | (c) | $ | 45 |
| 2015 | $66 | $36 | $— |  | $(53) | (d) $ | (d) $ | 49 |

(a) Deductions,	representing	uncollectible	accounts	written	off,	less	recoveries	of	accounts	written	off	in	prior	years.

(b) $2	million	adjustment	to	the	valuation	allowance	was	recorded	primarily	in	other	comprehensive	income	(loss).

(c) Write	 off	$13	million	of	deferred	tax	assets	on	certain	state	and	local	net	operating	loss	carryforwards	against	the	valuation	allowance,	as	it	was determined	that	there	was	only	a	remote	likelihood	that	such	carryforwards	could	be	utilized;	and,	$2	million	adjustment	to	the	valuation	allowance was	recorded	primarily	in	other	comprehensive	income	(loss).

(d) Valuation	allowance	on	deferred	tax	assets	allocated	to	TopBuild	due	to	its	spin	off	into	a	separate	stand-alone	company	on	June	30,	2015.

(e) Amounts	exclude	discontinued	operations.



Question: what was the percentage of the growth of the s&p 500 index from 2016 to 2017
Calculation: s_p_500_index = 206.49
s_p_industrials_index = 169.82
percent_change = (s_p_500_index - s_p_industrials_index) / s_p_industrials_index
answer = percent_change * 100
Answer: 21.6%