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.

2017 Results

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

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

Our current ratio was 2.0 to 1 at both December 31, 2017 and 2016.

Cash Flows

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

	2017				2016				2015
Net cash from operating activities	$	751			$	789			$	810
Retirement of notes	(535		)		(1,300		)		(500		)
Purchase of Company common stock	(331		)		(459		)		(456		)
Cash dividends paid	(129		)		(128		)		(126		)
Dividends paid to noncontrolling interest	(35		)		(31		)		(36		)
Capital expenditures	(173		)		(180		)		(158		)
Debt extinguishment costs	(104		)		(40		)		—
Acquisition of businesses, net of cash acquired	(89		)		—				(41		)
Cash distributed to TopBuild Corp.	—				—				(63		)
Issuance of TopBuild Corp. debt	—				—				200
Issuance of notes, net of issuance costs	593				889				497
Employee withholding taxes paid on stock-based compensation	(33		)		(40		)		(36		)
Proceeds from disposition of:
Businesses, net of cash disposed	128				—				—
Property and equipment	24				—				18
Financial investments	7				32				10
Decrease in debt, net	(3		)		(1		)		—
Proceeds of short-term bank deposits, net	112				40				26
Effect of exchange rate changes on cash and cash investments	55				(34		)		(15		)
Other, net	(34		)		(15		)		(45		)
Cash increase (decrease)	$	204			$	(478	)		$	85

Our working capital days were as follows:

	At December 31,
	2017			2016
Receivable days	51			49
Inventory days	59			54
Accounts Payable days	72			70
Working capital (receivables plus inventories, less accounts payable) as a percentage of net sales	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:

	Year Ended December 31
	2017				2016
Net sales, as reported	$	7,644			$	7,357
Acquisitions	(3		)		—
Divestitures	—				(44		)
Net sales, excluding acquisitions and divestitures	7,641				7,313
Currency translation	1				—
Net sales, excluding acquisitions, divestitures and the effect of currency translation	$	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 profit, as reported	$	1,169			$	1,053			$	914
Rationalization charges	4				22				18
Gain from sale of property and equipment	—				—				(5		)
Operating profit, as adjusted	$	1,173			$	1,075			$	927
Operating profit margins, as reported	15.3		%		14.3		%		12.8		%
Operating profit margins, as adjusted	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.

													Percent Change
	2017				2016				2015				2017 vs. 2016			2016 vs. 2015
Net Sales:
Plumbing Products	$	3,735			$	3,526			$	3,341			6	%		6	%
Decorative Architectural Products	2,205				2,092				2,020				5	%		4	%
Cabinetry Products	934				970				1,025				(4	)%		(5	)%
Windows and Other Specialty Products	770				769				756				—	%		2	%
Total	$	7,644			$	7,357			$	7,142			4	%		3	%
North America	$	6,069			$	5,834			$	5,645			4	%		3	%
International, principally Europe	1,575				1,523				1,497				3	%		2	%
Total	$	7,644			$	7,357			$	7,142			4	%		3	%

	2017				2016				2015
Operating Profit (Loss): (A)
Plumbing Products	$	698			$	642			$	512
Decorative Architectural Products	434				430				403
Cabinetry Products	90				93				51
Windows and Other Specialty Products	52				(3		)		57
Total	$	1,274			$	1,162			$	1,023
North America	$	1,072			$	961			$	841
International, principally Europe	202				201				182
Total	1,274				1,162				1,023
General corporate expense, net	(105		)		(109		)		(109		)
Total operating profit	$	1,169			$	1,053			$	914

	2017			2016			2015
Operating Profit (Loss) Margin: (A)
Plumbing Products	18.7	%		18.2	%		15.3	%
Decorative Architectural Products	19.7	%		20.6	%		20.0	%
Cabinetry Products	9.6	%		9.6	%		5.0	%
Windows and Other Specialty Products	6.8	%		(0.4	)%		7.5	%
North America	17.7	%		16.5	%		14.9	%
International, principally Europe	12.8	%		13.2	%		12.2	%
Total	16.7	%		15.8	%		14.3	%
Total operating profit margin, as reported	15.3	%		14.3	%		12.8	%

(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.

Plumbing Products

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).

Decorative Architectural Products

Sales

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 Results

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.

Cabinetry Products

Sales

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 Results

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.

Windows and Other Specialty Products

Sales

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 Results

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

Sales

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 Results

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

Sales

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 Results

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

Litigation

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:

	Payments Due by Period
	2018				2019-2020				2021-2022				Beyond 2022				Other				Total
Debt (A)	$	116			$	205			$	731			$	2,057			$	—			$	3,109
Interest (A)	152				288				236				776				—				1,452
Operating leases	50				71				45				91				—				257
Currently payable income taxes	6				—				—				—				—				6
Private equity funds (B)	—				—				—				—				5				5
Purchase commitments (C)	269				—				—				—				—				269
Uncertain tax positions, including interest and penalties (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.