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C O M P A N Y P R O F I L E
Masco Corporation is a global leader in the design,
manufacture and distribution of branded home improvement
and building products.
FRONT COVER FEATURED PRODUCT: KICHLER® MOORGATE COLLECTION MOORGATE 7 LIGHT LINEAR CHANDELIER BK
T O O U R
S H A R E H O L D E R S
Across Masco, we are driving growth and value
creation for our shareholders through our high-
performance culture that leverages the Masco
Operating System, our strong brands, broad
distribution, innovative products and talent. While
2018 was a dynamic year with commodity inflation
and global trade challenges, the fundamentals of
our markets remained strong and we continued to
execute our long-term growth and capital allocation
strategies to deliver sales, operating profit and
earnings per share growth. I would like to recap our
key accomplishments that helped us deliver this
solid performance.
In 2018, we achieved 9% year-over-year sales growth
and 43% growth in earnings per share through a
combination of continued focus on cost control,
balanced capital allocation, favorable tax rate
changes, acquisitions and new product and program
launches.
We also achieved strong free cash flow of over
$800 million and deployed that cash to reduce
debt by $106 million, increase our dividend for the
fifth year in a row, repurchase $654 million of our
shares, and complete the $549 million acquisition
of Kichler Lighting, a leader in decorative residential
and light commercial lighting products, ceiling fans
and LED lighting systems across both consumer
and professional distribution channels. Now part of
our Decorative Architectural Products segment, this
acquisition establishes Masco as a key player in
the $6 billion U.S. lighting industry. As we continue
to integrate Kichler Lighting fully into Masco, we
expect to leverage our operational capabilities and
coordinate our design expertise to further strengthen
our position and profitably grow with our many shared
customers.
In our Plumbing Products segment, Delta Faucet
Company and Watkins Wellness posted record
annual sales and profit. Delta Faucet Company
achieved strong sales growth across its entire brand
portfolio—from its high-end Brizo® brand to its entry-
level Peerless® brand. In our Decorative Architectural
Products segment, Behr Paint Company continued
its outstanding performance in the do-it-yourself
channel, while posting its fifth consecutive year of
share gain in the professional paint channel. Our
Cabinetry Products segment experienced 2% sales
growth, driven largely by the launch of our exclusive
Cardell® cabinetry line at Menards. Our Windows
and Other Specialty Products segment experienced a
slight decline in sales due to continued softness in
the U.K. market.
Masco’s focus on innovation continued to
differentiate us to our customers and end
consumers. Delta Faucet Company recently
introduced ShieldSpray® Technology, which is
available on its pull-down kitchen faucets and
provides a concentrated jet of water that powers
away stubborn messes with less splatter than a
standard spray. Behr Paint Company’s Premium®
Quick-Dry™ Oil-Based Wood Finish, which provides
rain-resistant coverage in a unique formula that
dries just one hour after application, was a finalist
for The Home Depot’s 2018 Innovation Awards. This
great customer partnership carried over to Liberty
Hardware, which was named The Home Depot Vendor
of the Year in the Kitchen and Bath Department.
We are pleased with our 2018 results. The
macroeconomic fundamentals remain supportive
of Masco’s long-term growth. The age of housing
stock, demographics, GDP, unemployment rates and
consumer confidence point to a favorable repair and
remodel market. We believe these fundamentals,
combined with our focus on continuous improvement
through deployment of our Masco Operating System
and talent development initiatives, position Masco
for profitable growth and continued value creation for
our stakeholders.
KEITH J. ALLMAN
President and Chief
Executive Officer
FEATURED PRODUCT:
DELTA®
PIVOTAL™ EXPOSED HOSE KITCHEN FAUCET
FEATURED PRODUCT:
BRIZO®
SOLNA® SMARTTOUCH® ARTICULATING KITCHEN FAUCET
48%
84%
% OF TOTAL
NET SALES
REPAIR AND REMODEL %
VS. NEW CONSTRUCTION
64%
NORTH AMERICA % VS.
INTERNATIONAL
FEATURED PRODUCT:
BRISTAN®
GRANLEY™ FREESTANDING BATHTUB
P L U M B I N G
P R O D U C T S
We are a leader in manufactured plumbing products,
with broad distribution channels worldwide. Through our
premier brands, we offer an array of products, including
faucets, plumbing fittings and valves, showerheads and
handheld showers, bathtubs and shower enclosures,
toilets, spas, exercise pools and fitness systems, and
water handling systems.
KEY STRENGTHS
• Strong brands with industry leading positions
• Broad product range and innovation leadership
• Solid track record of execution
OUR BRANDS
Axor®
Cadence™
Fantasy Spas®
HotSpring®
Newport Brass®
BrassCraft®
CalderaSpas®
Freeflow Spas®
Hüppe®
Brasstech®
Bristan™
Brizo®
2
Cobra®
Delta®
Endless Pools®
Ginger®
Hansgrohe®
Heritage™
Master Plumber®
Mercury Plastics®
Mirolin®
Peerless®
Plumb Shop®
Waltec®
FEATURED PRODUCT:
DELTA®
PIVOTAL™ EXPOSED HOSE KITCHEN FAUCET
FEATURED PRODUCT:
KICHLER®
CUYAHOGA MILL CHANDELIER
FEATURED PRODUCT:
LIBERTY HARDWARE®
REGAL SQUARE COLLECTION CABINET PULL
D E C O R A T I V E
A R C H I T E C T U R A L
P R O D U C T S
We are one of the largest suppliers of
architectural paint and exterior wood
care products to the United States and
Canadian do-it-yourself channels. This
segment also includes glass shower
doors, shower accessories, decorative and
outdoor lighting, cabinet, door and window
hardware, and functional hardware.
KEY STRENGTHS
• Market leader with long record of
innovation
• Comprehensive product and service
offerings for professional painters
• Finish, design and category
management expertise in builders’
hardware and lighting
OUR BRANDS
Behr®
Brainerd®
Élan®
Franklin Brass®
Kichler®
Kilz®
Liberty®
32%
96%
% OF TOTAL
NET SALES
REPAIR AND REMODEL %
VS. NEW CONSTRUCTION
FEATURED PRODUCT:
BEHR®
MARQUEE® PAINT
100%
NORTH AMERICA % VS.
INTERNATIONAL
3
FEATURED PRODUCT:
MILGARD®
TUSCANY® SERIES
FEATURED PRODUCT:
DURAFLEX™
FLUSH CEMENT WINDOWS
9%
69%
% OF TOTAL
NET SALES
REPAIR AND REMODEL %
VS. NEW CONSTRUCTION
80%
NORTH AMERICA % VS.
INTERNATIONAL
FEATURED PRODUCT:
MILGARD®
ESSENCE SERIES®
W I N D O W S A N D
O T H E R S P E C I A L T Y
P R O D U C T S
We are one of the leading manufacturers of vinyl and
fiberglass windows in the western United States. This
segment includes windows, window frame components
and patio doors, both in the United States and the
United Kingdom.
KEY STRENGTHS
• Market leader in the western U.S.
• Ability to expand into multiple channels
and geographies
• U.K. leader for vinyl and composite windows
OUR BRANDS
Duraflex™
Evolution™
Griffin™
Milgard®
Premier™
4
C A B I N E T R Y
P R O D U C T S
We are one of the largest manufacturers
of kitchen and bath cabinetry in the United
States. This segment includes assembled
cabinetry for kitchen, bath, storage, home
office and home entertainment applications.
KEY STRENGTHS
• Leading brands that are among the most
recognized in the industry
• Brands favored by builders, dealers,
distributors and home centers throughout
North America
• Unmatched selection of stylish, high-quality
products at a variety of price levels
OUR BRANDS
Cardell®
KraftMaid®
Merillat®
Quality Cabinets®
FEATURED PRODUCT:
MERILLAT®
MASTERPIECE® COLLECTION
LUCCA PEBBLE GREY MAPLE CABINETRY
FEATURED PRODUCT:
QUALITY CABINETS®
WOODSTAR®
KITTERY BIRCH COTTON CABINETRY
11%
69%
% OF TOTAL
NET SALES
REPAIR AND REMODEL %
VS. NEW CONSTRUCTION
FEATURED PRODUCT:
KRAFTMAID®
HAILEY SQUARE™
WOOD-GRAIN FOIL CANNON GREY CABINETRY
100%
NORTH AMERICA % VS.
INTERNATIONAL
5
BOARD OF DIRECTORS
Mark R. Alexander 1, 3
Chief Executive Officer,
Icelandic Provisions, Inc.
Donald R. Parfet 1, 2
Managing Director, Apjohn Group, LLC
General Partner, Apjohn Ventures Fund,
Limited Partnership
Keith J. Allman
President and Chief Executive Officer,
Masco Corporation
Lisa A. Payne 1, 2
Former Vice Chairman and Chief Financial
Officer, Taubman Centers, Inc.
Marie A. Ffolkes 1,2
President, Industrial Gases, Americas,
Air Products & Chemicals, Inc.
John C. Plant 1, 3
Chairman and Chief Executive Officer,
Arconic Inc.
J. Michael Losh 2, 3
Retired Chief Financial Officer and
Executive Vice President,
General Motors Corporation
Chairman of the Board,
Masco Corporation
Charles K. Stevens, III 1, 3
Retired Executive Vice President and
Chief Financial Officer,
General Motors Company
Richard A. Manoogian
Chairman Emeritus, Masco Corporation
Reginald M. Turner, Jr. 1, 3
Attorney and Member,
Clark Hill PLC
Christopher A. O’Herlihy 1, 2
Vice Chairman, Illinois Tool Works Inc.
1 Member, Audit Committee 2 Member, Organization and Compensation Committee 3 Member, Corporate Governance and Nominating Committee
6
CORPORATE OFFICERS
Keith J. Allman
President and
Chief Executive Officer
Joseph B. Gross
Group President
Darius Padler
Group Vice President,
Europe
Amit Bhargava
Vice President,
Strategy and
Corporate Development
John P. Lindow
Vice President,
Controller and Chief
Accounting Officer
Jai Shah
Group President
David A. Chaika
Vice President,
Treasurer and Investor
Relations
Scott E. McDowell
Vice President,
Masco Operating
System
Renee Straber
Vice President, Chief
Human Resource Officer
Kenneth G. Cole
Vice President, General
Counsel and Secretary
Richard A. O’Reagan
Group President
John G. Sznewajs
Vice President,
Chief Financial Officer
BUSINESS UNIT EXECUTIVES
Imran Ahmad
Masco Canada, Mirolin
Thomas S. Assante
Brasscraft Manufacturing
Company
Jeffrey J. Burnett
Mercury Plastics
Jeffrey D. Filley
Behr Paint Company
John V. Halso
Brasstech
Steven M. Hammock
Watkins Wellness
David B. Humenik
Vapor Technologies
Hans-Jürgen Kalmbach
Hansgrohe SE
Andre Kellinghaus
Hüppe GmbH
Kenneth W. Roberts
Delta Faucet Company
Matthew Scoffield
Masco UK Window Group
Vishal Singh
Milgard Windows & Doors
Mark A. Stull
Liberty Hardware
Irene Tasi
Kichler Lighting
7
FORWARD-LOOKING STATEMENTS
This Annual Report contains 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 “outlook,”“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.
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 and increasing tariffs, 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 acquired or may acquire, our
ability to attract, develop and retain talented personnel,
risks associated with our reliance on information systems
and technology and our ability to achieve the anticipated
benefits from our investments in new technology. These
and other factors are discussed in detail in Item 1A, “Risk
Factors” in our most recent Annual Report on Form 10-K,
as well as in our Quarterly Reports on Form 10-Q and in
other filings we make with the Securities and Exchange
Commission. The forward-looking statements in this Annual
Report speak only as of the date of this Annual Report.
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.
FEATURED PRODUCT:
PEERLESS®
SINGLE HANDLE BATHROOM FAUCET
FEATURED PRODUCT:
HÜPPE®
BLACK EDITIONS SHOWER ENCLOSURE
FEATURED PRODUCT:
ENDLESS POOLS®
FITNESS SYSTEM SWIM SPA
8
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2018 Commission File Number 1-5794
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)
38-1794485
(I.R.S. Employer Identification No.)
48152
(Zip Code)
Registrant's telephone number, including area code: 313-274-7400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $1.00 par value
Name of Each Exchange
On Which Registered
New York Stock Exchange, Inc.
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
No
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
No
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
No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes
No
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.
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
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on June 30, 2018 (based
on the closing sale price of $37.42 of the Registrant's Common Stock, as reported by the New York Stock Exchange on such
date) was approximately $11,345,157,000.
Number of shares outstanding of the Registrant's Common Stock at January 31, 2019:
294,492,500 shares of Common Stock, par value $1.00 per share
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed for its 2019 Annual Meeting of Stockholders are incorporated
by reference into Part III of this Form 10-K.
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Masco Corporation
2018 Annual Report on Form 10-K
TABLE OF CONTENTS
PART I
PART II
Item
1.
Business
1A.
Risk Factors
1B.
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
2.
3.
4.
5.
6.
7.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
7A.
Quantitative and Qualitative Disclosures About Market Risk
8.
9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A.
Controls and Procedures
9B.
Other Information
10.
Directors, Executive Officers and Corporate Governance
11.
Executive Compensation
PART III
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
13.
14.
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
15.
Exhibits and Financial Statement Schedules
16. Form 10-K Summary
Signatures
PART IV
1
Item 1. Business.
PART I
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;
KICHLER® decorative and outdoor lighting; 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 2018 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, 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.
• We also continued to leverage the collective strength of our enterprise as we developed talent, facilitated
operational improvements and realized supply chain efficiencies through strategic sourcing and sharing best
practices across all of our functional departments.
• We actively managed our portfolio and completed the acquisition of The L.D. Kichler Co. ("Kichler") in 2018,
and we remain committed to making selective acquisitions in attractive end markets. In addition, we
repurchased over 18 million shares of our common stock and increased our quarterly dividend by 14
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. We will
continue to focus on our disciplined execution of our strategy in 2019.
Masco was incorporated under the laws of Michigan in 1929 and was reincorporated under the laws of Delaware
in 1968.
Our Business Segments
We report our financial results in four segments aggregated by similarity in products. All of our 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 bases and 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 bases and 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.
2
• Our spas, exercise pools and fitness 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 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 in some areas.
• 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 online 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 also supply high-quality, custom thermoplastic extrusions, extruded plastic profiles and specialized
fabrications to manufacturers, distributors and wholesalers for use in diverse applications that include
faucets and plumbing supplies, appliances, oil and gas equipment, building products and automotive
components.
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 Artesian, Jacuzzi
and Master Spas brands. 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 addition,
some of the products in this segment that we import may be subject to duties and tariffs.
Decorative Architectural Products
We produce architectural coatings, including paints, primers, specialty coatings, 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 24 percent of our consolidated net sales in 2018 and
25 percent of our consolidated net sales in 2017 and 2016. 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 & Co.,
PPG Industries, Inc. (with its Glidden, Olympic, PPG, and Pittsburgh Paint brands), The Sherwin Williams Company
(with its Sherwin-Williams and Valspar brands as well as Thompson’s Water Seal, and Minwax brands) and RPM
International, Inc. (with its Rust-Oleum and Zinsser brands), 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 and acrylic resins are major raw materials 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. The price of acrylic
resins fluctuates based on the price of its components, which can also have a material impact on our costs and results
of operations in this segment. In addition, the prices of crude oil, natural gas and certain petroleum by-products can
3
also impact our costs and results of operations 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 and door hardware, functional
hardware, wall plates, hook and rail products, and picture hanging accessories, which are manufactured for us and
sold to home center retailers, mass retailers, online retailers, other specialty retailers, original equipment manufacturers
and wholesalers. These products are sold under the LIBERTY®, BRAINERD®, FRANKLIN BRASS® 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® and other trademarks to wholesalers, home center retailers, mass retailers and other specialty
retailers. Competitors for these products include Kohler, Moen and private label brands.
During 2018, we expanded this segment with our acquisition of Kichler lighting products, which include decorative
indoor and outdoor lighting fixtures, ceiling fans, landscape lighting and LED lighting systems. These products are sold
to home center retailers, online retailers, electrical distributors, landscape distributors and lighting showrooms under
the brand names KICHLER® and ÉLAN® and under other trademarks. Competitors of these products include FX
Luminaire, Hinkley Lighting, Inc., Hunter Fan Company, Progress Lighting, Inc. and private label brands.
We import certain materials and products for this segment that may be subject to duties and tariffs.
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, Elkay Manufacturing Company, Inc. and Fortune Brands Home & Security, Inc.
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 duties
and tariffs.
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 Andersen, Jeld Wen, Marvin, Pella, and Ply Gem, 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.
4
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, local and foreign 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, 2018, 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.
5
Item 1A. Risk Factors.
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, fluctuating with economic cycles. Adverse changes or
uncertainty involving the factors listed above or an economic downturn in the United States or worldwide 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 providing comprehensive supply chain solutions and
differentiated product development. If we are unable to successfully provide this support to our customers or if our
customers are unable to successfully execute their strategies, our brands may lose market share.
If we do not timely and effectively identify and respond to changing consumer purchasing practices, including an
increase in e-commerce, 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.
6
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 and operate in an evolving competitive landscape.
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
selling directly to professional contractors and installers, which may adversely 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 profitability.
Further, as the e commerce channel expands, greater pricing transparency for consumers, continuing conflicts
between our existing distribution channels and a need for different distribution methods could affect our results of
operations and financial position. In addition, our relationships with our customers, including our home center customers,
may be affected if we increase the amount of business we transact in the e-commerce channel.
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 2018, our net sales to The Home Depot were
$2.7 billion (approximately 32 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.
In addition, these home center retailers are granted product exclusivity from time to time, which affects our ability
to sell products to other customers and increases the complexity of our product offerings and our costs.
Variability in commodity costs, limited availability of commodities and increasing tariffs 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 have in the past and could
increase the costs of our products. Our production of products could 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, the cost of certain of our raw materials and finished goods is increasing as a
result of new tariffs. Tariffs and rising energy costs could increase our production and transportation costs. In addition,
water is a significant component 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.
7
It can be difficult for us to pass on to customers our cost increases. 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 sufficiently increase the prices of our products or achieve cost savings to offset increased
commodity and production costs, including the impact of increasing tariffs, 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 may also 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 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, or our policies regarding our supplier business practices,
could have a material adverse effect on our results of operations and financial position or could damage our reputation.
Sourcing these products and components from another supplier is time-consuming and costly. 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 we rely upon are located in foreign countries. The differences in business practices, shipping
and delivery requirements, changes in economic conditions and trade policies 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 our international operations and global strategies.
In 2018, 19 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, economic conditions, 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.
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, including duties and tariffs. Compliance with these laws are costly, and future changes to these
laws may require significant management attention and disrupt our operations. Additionally, 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.
Our results of operations and financial position are also impacted by changes in currency exchange rates.
Unfavorable currency exchange 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.
Additionally, 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 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.
8
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 the Masco Operating System, our methodology to drive growth and
productivity. 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 or conflicts with our 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 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. From time to time, 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 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.
We have implemented 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 have been and in the future may be damaged, disrupted, or shut
down due to cybersecurity 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 the reputation of our brands, damage to our relationships with our customers and suppliers,
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.
9
We may not experience the anticipated benefits from our investments in new technology.
We continue to invest in new technology systems throughout our company, including implementations of Enterprise
Resource Planning (“ERP”) systems at our 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 and the effectiveness of our internal controls. 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.
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, product compliance and insurance coverage. The outcome and effect of these
matters are inherently unpredictable, and defending and resolving them 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 we source 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 our 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 T 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 is costly, and our failure to comply
could adversely affect our results of operations and financial position.
We are subject to a wide variety of federal, state, local and foreign laws and regulations pertaining to:
• securities matters;
• taxation;
• anti-bribery/anti-corruption;
• employment matters;
• health and safety;
• the protection of employees and consumers;
• product compliance;
• competition practices;
• trade, including duties and tariffs;
• data privacy and the collection and storage of information; and
• climate change and environmental issues.
In addition to complying with current requirements and known future requirements, 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 new or changed 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
10
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
Plumbing Products
Decorative Architectural Products
Cabinetry Products
Windows and Other Specialty Products
Totals
Manufacturing
22
8
8
10
48
Warehouse
and
Distribution
7
18
4
3
32
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
Plumbing Products
Decorative Architectural Products
Cabinetry Products
Windows and Other Specialty Products
Totals
11
Manufacturing
10
—
—
9
19
Warehouse
and
Distribution
19
—
—
—
19
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 T 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.
12
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, under the ticker
symbol MAS. On January 31, 2019, there were approximately 3,400 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. During 2018, we repurchased and retired 18.6 million
shares of our common stock (including 0.7 million shares to offset the dilutive impact of long-term stock awards
granted during the year), for approximately $654 million. At December 31, 2018, we had $636 million 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, 2018.
Period
10/1/18 - 10/31/18
11/1/18 - 11/30/18
12/1/18 - 12/31/18
Total for the quarter
Total Number
of Shares
Purchased
Average Price
Paid Per
Common Share
2,305,692 $
5,635,262 $
1,652,685 $
9,593,639
32.54
31.24
29.79
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs
2,305,692 $
Maximum Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
860,879,098
5,635,262 $
684,831,947
1,652,685 $
635,603,772
9,593,639 $
635,603,772
13
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, 2013 through December 31, 2018, when the closing price of our
common stock was $29.24. The graph assumes investments of $100 on December 31, 2013 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, 2013 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.
Masco
S&P 500 Index
S&P Industrials Index
$
$
$
S&P Consumer Durables & Apparel Index $
2014
112.29 $
113.69 $
109.83 $
109.32 $
2015
145.52 $
2016
164.64 $
2017
231.40 $
2018
155.74
115.26 $
129.05 $
157.22 $
107.04 $
127.23 $
153.99 $
108.49 $
102.19 $
121.18 $
150.33
133.53
106.69
14
Item 6. Selected Financial Data.
Net sales (1) (2)
Operating profit (1) (2) (3)
Income from continuing operations attributable
to Masco Corporation (1)(2) (4)
Income per common share from continuing
operations (2):
Basic
Diluted
Dividends declared
Dividends paid
At December 31:
Dollars in Millions (Except Per Common Share Data)
2018
2017
2016
2015
2014
$
8,359 $
7,642 $
7,361 $
7,142 $
7,006
1,211
1,194
1,087
734
533
493
914
357
$
2.38 $
1.68 $
1.49 $
1.04 $
2.37
0.450
0.435
1.66
0.410
0.405
1.48
0.390
0.385
1.03
0.370
0.365
721
821
2.31
2.28
0.345
0.330
7,208
2,919
1,128
Total assets (2) (5)
Long-term debt (5)
Shareholders' equity (deficit) (2) (6)
$
5,393 $
5,534 $
5,164 $
5,664 $
2,971
69
2,969
183
2,995
(96)
2,403
58
(1) Amounts exclude discontinued operations in the year 2014 and 2015.
(2) Net sales, operating profit, income from continuing operations attributable to Masco Corporation, income per
common share from continuing operations, total assets and shareholder's equity for 2014 and 2015 have not been
recast for the impact of the adoption of Accounting Standards Codification 606. Refer to Note A to the consolidated
financial statements for further information on the adoption of this standard.
(3) Operating profit for 2014 and 2015 has not been recast for the impact of the adoption of Accounting Standards
Update ("ASU") 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net
Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." Refer to Note A to the consolidated financial
statements for further information on the adoption of this standard.
(4) The year 2014 includes a $529 million tax benefit from the release of the valuation allowance on deferred tax
assets.
(5) Total assets and long-term debt for 2014 has not been recast for the impact of the adoption of ASU 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.
(6) The decrease in shareholder's equity from 2014 to 2015 relates primarily to the spin off of TopBuild Corp.
15
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 "outlook," "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 and increasing tariffs, 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, risks associated with our reliance on information
systems and technology, and our ability to achieve the anticipated benefits from our investments in new technology.
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.
2018 Results
Net sales were positively impacted by the acquisition of The L.D. Kichler Co. ("Kichler") in March 2018 and
Mercury Plastics, Inc. ("Mercury") in December 2017. Net sales were also positively impacted by increased sales
volume resulting from increased repair and remodel activity and new home construction in the U.S., and net selling
price increases primarily in the U.S. Such increases were partially offset by the divestiture of Moores Furniture Group
Limited ("Moores") in the fourth quarter of 2017 and Arrow Fastener Co., LLC ("Arrow") in the second quarter of 2017.
Our results of operations were negatively impacted by increased other expenses, such as logistics costs, salaries,
and Enterprise Resource Planning System ("ERP") costs, and the recognition of the inventory step up adjustment
established as part of the acquisition of Kichler. Such negative impacts were partially offset by benefits associated
with cost savings initiatives and increased sales volume.
Our Plumbing Products segment was negatively impacted by an increase in commodity costs, unfavorable sales
mix, and an increase in other expenses (such as salaries, logistics costs and ERP costs). These negative impacts
were partially offset by increased sales volume, the benefits associated with cost savings initiatives and increased net
selling prices. Our Decorative Architectural Products segment was negatively impacted by an increase in commodity
costs, the recognition of the inventory step up adjustment established as part of the acquisition of Kichler, and increased
depreciation and amortization expense. These negative impacts were partially offset by increased net selling prices
of paints and other coating products, benefits associated with cost savings initiatives and increased sales volume. Our
Cabinetry Products segment was negatively impacted by an increase in other expenses (such as logistics costs),
program launch and display expenses, and unfavorable sales mix. These negative impacts were partially offset by
benefits associated with cost savings initiatives, increased sales volume and the divestiture of Moores. Our Windows
and Other Specialty Products segment was negatively impacted by an increase in other expenses (such as warranty-
related costs and higher labor costs), an increase in commodity costs, decreased sales volume and the divestiture of
Arrow. These negative impacts were partially offset by increased net selling prices and the benefits associated with
cost savings initiatives.
16
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 control of our products is transferred to our customers, which is generally at the time
of shipment or upon delivery based on the contractual terms with our customers, or when services are completed.
Control over certain of our custom-made window products transfers to our customers as production is completed, and
revenue is recognized over the production period for these products, as our products do not have an alternative use
and we have an enforceable right to payment during the production period. The production period of our custom-made
window products generally does not lapse days, and for these products we currently recognize revenue based on the
output of production, which is a faithful depiction of the transfer of these products to our customers. We provide
customer programs and incentive offerings, including special pricing and co-operative advertising arrangements,
promotions and other volume-based incentives. These customer programs and incentives are considered variable
consideration. We include in revenue variable consideration only to the extent that it is probable that a significant
reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved.
This determination is made based upon known customer program and incentive offerings at the time of sale, and
expected sales volume forecasts as it relates to our volume-based incentives. This determination is updated each
reporting period.
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, and, currently, a two to three 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
17
stable U.S. Gross Domestic Product growing at approximately 2.5 percent per annum and a eurozone Gross Domestic
Product growing at approximately 1.9 percent per annum over the five-year forecast.
We utilize our weighted average cost of capital of approximately 9.0 percent as the basis to determine the discount
rate to apply to the estimated future cash flows. Our weighted average cost of capital increased in 2018 as compared
to 2017, primarily due to an increased market required rate of return on equity, as well as an increase in the after-tax
cost of debt, which was driven by a reduction in the effective tax rate. In 2018, based upon our assessment of the
risks impacting each of our businesses, we applied a risk premium to increase the discount rate to a range of 11.0 percent
to 13.5 percent for our reporting units.
If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized to the extent
that a reporting unit's recorded carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in
that reporting unit.
In the fourth quarter of 2018, 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. Potential
impairment is identified by comparing the fair value of an other indefinite-lived intangible asset to its carrying value.
We utilized a relief-from-royalty model to estimate the fair value of other indefinite-lived intangible assets. We consider
the implications of both external (e.g., market growth, competition and local economic conditions) and internal
(e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the
intangible asset in both the near- and long-term. We also consider the profitability of the business, among other factors,
to determine the royalty rate for use in the impairment assessment.
We utilize our weighted average cost of capital of approximately 9.0 percent as the basis to determine the discount
rate to apply to the estimated future cash flows. In 2018, based upon our assessment of the risks impacting each of
our businesses, we applied a risk premium to increase the discount rate to a range of 12.0 percent to 13.5 percent for
our other indefinite-lived intangible assets.
In the fourth quarter of 2018, we estimated that future discounted cash flows projected for our other indefinite-
lived intangible assets were greater than the carrying values. Accordingly, we did not recognize any impairment charges
for other indefinite-lived intangible assets. A 10 percent decrease in the estimated fair value of our other indefinite-
lived intangible assets would have resulted in a $4 million impairment for trade names related to businesses acquired
within the past two years.
Employee Retirement Plans
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.
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 2018, our discount rate for obligations increased to a weighted average of 3.8 percent from
3.3 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, 2018 Willis Towers Watson Rate Link Curve. The discount rates we use
for our defined-benefit pension plans ranged from 1.5 percent to 4.2 percent, with the most significant portion of the
liabilities having a discount rate for obligations of 4.1 percent or higher. The assumed asset return was primarily
7.0 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 target 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 $226 million at December 31, 2018 from $266 million at
18
December 31, 2017. Our projected benefit obligation for our unfunded, non-qualified, defined-benefit pension plans
decreased to $155 million at December 31, 2018 from $170 million at December 31, 2017. 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
90 percent to 115 percent.
The decrease in our qualified defined-benefit pension plan projected benefit obligation was primarily impacted
by an increase in the discount rate. During 2018, we contributed $52 million to our qualified defined-benefit pension
plans, and our qualified defined-benefit pension plan assets had a return of negative 4.9 percent. Refer to Note M to
the consolidated financial statements for additional information.
We expect pension expense for our qualified defined-benefit pension plans to be $16 million in 2019 compared
with $8 million in 2018. If we assumed that the future return on plan assets was 50 basis points lower than the assumed
asset return and the discount rate decreased by 50 basis points, the 2019 pension expense would increase by $4 million.
We expect pension expense for our non-qualified defined-benefit pension plans to be $8 million in 2019, compared to
$9 million in 2018.
We anticipate that we will be required to contribute approximately $15 million in 2019 to our qualified and non-
qualified defined-benefit plans; however, we currently anticipate contributing approximately $66 million in 2019. Refer
to Note M 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, 2018.
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 for changes in the income tax
environment and, to a greater extent, the inherent complexities of income tax law in a substantial number of jurisdictions,
which may affect the computation of our liability for uncertain tax positions.
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 generally became effective in 2018 has had 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. taxes on our foreign earnings. The continued impact from U.S. tax reform may
differ from our current estimates due to the issuance and finalization of future regulatory guidance.
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
19
cost to provide products, parts or services to repair or replace products to satisfy our warranty obligations. Our estimate
of future costs to service our warranty obligations is based upon the information available and includes a number of
factors, such as the warranty coverage, the warranty period, historical experience specific to the nature, frequency
and average cost to service the claim, along with industry and demographic trends.
Certain factors and related assumptions in determining our warranty liability involve judgments and estimates
and are sensitive to changes in the factors described above. We believe that the warranty accrual is appropriate;
however, actual claims incurred could differ from our original estimates, which would require us to adjust our previously
established accruals. Refer to Note T to the consolidated financial statements for additional information on our warranty
accrual.
A significant portion of our business is at the consumer retail level through home center retailers and other major
retailers. A consumer may return a product to a retail outlet that is a warranty return. However, certain retail outlets do
not distinguish between warranty and other types of returns when they claim a return deduction from us. Our revenue
recognition policy takes into account this type of return when recognizing revenue, and an estimate of these amounts
is recorded as a deduction to net sales at the time of sale.
Litigation
We are involved in claims and litigation, including class actions and regulatory proceedings, which arise in the
ordinary course of our business. Liabilities and costs associated with these matters require estimates and judgments
based upon our professional knowledge and experience and that of our legal counsel. When a liability is probable of
being incurred and our exposure in these matters is reasonably estimable, amounts are recorded as charges to
earnings. The ultimate resolution of these exposures may differ due to subsequent developments.
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.
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 align with 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, bank borrowings 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 98 percent and 94 percent at December 31, 2018 and 2017,
respectively. Refer to Note K to the consolidated financial statements for additional information.
On April 16, 2018, we repaid and retired all of our $114 million, 6.625% Notes on the scheduled repayment date.
On June 21, 2017, we issued $300 million of 3.5% Notes due November 15, 2027 and $300 million of 4.5%
Notes due May 15, 2047. We received proceeds of $599 million, net of discount, for the issuance of these Notes.
The Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. On June
27, 2017, proceeds from the debt issuances, together with cash on hand, were used to repay and early retire $299
million of our 7.125% Notes due March 15, 2020, $74 million of our 5.95% Notes due March 15, 2022, $62 million of
our 7.75% Notes due August 1, 2029, and $100 million of our 6.5% Notes due August 15, 2032. In connection with
these early retirements, we incurred a loss on debt extinguishment of $107 million, which was recorded as interest
expense.
On March 17, 2016, we issued $400 million of 3.5% Notes due April 1, 2021 and $500 million of 4.375% Notes
due April 1, 2026. We received proceeds of $896 million, net of discount, for the issuance of these Notes. The Notes
are senior indebtedness and are redeemable at our option at the applicable redemption price. On April 15, 2016,
proceeds from the debt issuances, together with cash on hand, were used to repay and early retire all of our $1 billion,
6.125% Notes which were due on October 3, 2016 and all of our $300 million, 5.85% Notes which were due on March
15, 2017. In connection with these early retirements, we incurred a loss on debt extinguishment of $40 million, which
was recorded as interest expense.
20
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 K 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, 2018. We expect to remain in compliance with these covenants through
at least the next year.
On March 9, 2018, we acquired substantially all of the net assets of Kichler. The purchase price, net of $2 million
cash acquired, consisted of $549 million paid with cash on hand.
In the third quarter of 2018, we increased our quarterly dividend to $.12 per common share from $.105 per
common share. During 2018, we repurchased 18.6 million shares of our common stock for cash aggregating $654
million.
We had cash, cash investments and short-term bank deposits of approximately $559 million at December 31,
2018. 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 $559 million and $1.3 billion of cash, cash investments and short-term bank deposits we held at
December 31, 2018 and 2017, respectively, $270 million and $759 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.
Our current ratio was 1.6 to 1 and 2.0 to 1 at December 31, 2018 and 2017, respectively. The decrease in our
current ratio is due primarily to the cash on hand we paid for our acquisition of Kichler, partially offset by the acquired
working capital.
21
Cash Flows
Significant sources and (uses) of cash in the past three years are summarized as follows, in millions:
2018
2017
2016
Net cash from operating activities
Retirement of notes
Purchase of Company common stock
Cash dividends paid
Dividends paid to noncontrolling interest
Capital expenditures
Debt extinguishment costs
Acquisition of businesses, net of cash acquired
Issuance of notes, net of issuance costs
Employee withholding taxes paid on stock-based compensation
Proceeds from disposition of:
Businesses, net of cash disposed
Property and equipment
Financial investments
Decrease in debt, net
Proceeds of short-term bank deposits, net
Effect of exchange rate changes on cash and cash investments
Other, net
Cash (decrease) increase
Our working capital days were as follows:
$
1,032 $
751 $
(114)
(654)
(134)
(89)
(219)
—
(549)
—
(42)
—
14
5
(1)
108
4
4
(535)
(331)
(129)
(35)
(173)
(104)
(89)
593
(33)
128
24
7
(3)
112
55
(34)
789
(1,300)
(459)
(128)
(31)
(180)
(40)
—
889
(40)
—
—
32
(1)
40
(34)
(15)
$
(635) $
204 $
(478)
Receivable days
Inventory days
Accounts Payable days
Working capital (receivables plus inventories, less accounts payable) as a
percentage of net sales
At December 31,
2018
2017
53
64
71
51
59
72
14.0%
13.4%
Net cash provided by operations of $1,032 million consisted primarily of net income adjusted for certain non-
cash items, including depreciation and amortization expense of $156 million, stock-based compensation expense and
amortization expense related to in-store displays, changes in working capital amounts, as well as employee withholding
taxes paid on stock-based compensation, which is classified as a financing activity. These amounts were partially
offset by contributions to our defined-benefit pension plans.
Net cash used for financing activities was $1,020 million, primarily due to $654 million for the repurchase and
retirement of Company common stock (as part of our strategic initiative to drive shareholder value), $134 million for
the payment of cash dividends, $114 million for the retirement of our 6.625% of Notes due April 15, 2018, $89 million
for dividends paid to noncontrolling interests and $42 million for employee withholding taxes paid on stock-based
compensation.
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. During 2018, we repurchased and retired 18.6 million
shares of our common stock, (including 0.7 million shares repurchased to offset the dilutive impact of long-term stock
awards granted in 2018). At December 31, 2018, we had $636 million remaining under the authorization. Consistent
with past practice and as part of our strategic initiative to drive shareholder value, we anticipate using approximately
$600 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) in 2019.
22
Net cash used for investing activities was $651 million, primarily driven by $549 million for the acquisition of
Kichler, net of cash acquired, and $219 million for capital expenditures, partially offset by $108 million of 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 2018 were $219 million, compared
with $173 million for 2017 and $180 million for 2016. For 2019, capital expenditures, excluding any potential acquisitions,
are expected to be approximately $200 million. Depreciation and amortization expense for 2018 totaled $156 million,
compared with $127 million for 2017 and $134 million for 2016. For 2019, depreciation and amortization expense,
excluding any potential 2019 acquisitions, is expected to be approximately $175 million. Amortization expense totaled
$24 million in 2018, compared with $11 million and $10 million in 2017 and 2016, 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, and our ability to utilize our Amended
Credit Agreement 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.
The following discussion of consolidated results of operations compares each respective period to the same
period of the immediately preceding year.
Sales and Operations
Net sales for 2018 were $8.4 billion, which increased nine percent compared to 2017. Excluding acquisitions,
divestitures and the effect of currency translation, net sales increased five percent. 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
2018
2017
$
8,359 $
7,642
(377)
—
7,982
(47)
—
(72)
7,570
—
7,570
Net sales, as reported
Acquisitions
Divestitures
Net sales, excluding acquisitions and divestitures
Currency translation
Net sales, excluding acquisitions, divestitures and the effect of currency translation
$
7,935 $
Net sales for 2018 increased five percent due to the acquisition of Kichler in March 2018 and Mercury in December
2017. Net sales were also positively impacted by increased sales volume of plumbing products and cabinetry, which,
in aggregate, increased sales by three percent, and net selling price increases of paints and other coating products,
plumbing products and windows, which, in aggregate, increased sales by two percent. Foreign currency translation
also increased sales by one percent. Net sales for 2018 were negatively affected by the divestiture of our Arrow and
Moores businesses, which, in aggregate, decreased sales by one percent.
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 four percent. Net sales for 2017
were also positively affected by favorable sales mix of cabinets, North American plumbing products and North American
windows, as well as net selling price increases of windows and international plumbing products, which, in aggregate,
increased sales two percent. Net sales for 2017 were negatively affected by lower sales volume of cabinets, the
23
divestiture of our Arrow and Moores businesses, and an unfavorable sales mix of international plumbing products,
which, in aggregate, decreased sales by two percent.
Net sales for 2016 were positively affected by increased sales volume of plumbing products, paints and other
coating products and builders' hardware. 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. Net sales for 2016 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 32.2 percent, 34.2 percent and 33.4 percent in 2018, 2017 and 2016, respectively.
The 2018 gross profit margin was negatively impacted by an increase in commodity costs, the recognition of the
inventory step up adjustment established as a part of the the acquisition of Kichler, an increase in other expenses
(such as logistics costs and salaries) and unfavorable sales mix. These negative impacts were partially offset by an
increase in net selling prices, the benefits associated with cost savings initiatives, and increased sales volume. The
2017 gross profit margin was positively impacted by increased sales volume, a more favorable relationship between
net selling prices and commodity costs, and cost savings initiatives.
Selling, general and administrative expenses as a percent of sales were 17.7 percent in 2018 compared with
18.6 percent in 2017 and 18.7 percent in 2016. The decrease in selling, general and administrative expenses, as a
percentage of sales, was driven by leverage of fixed expenses, due primarily to increased sales volume, and improved
cost control.
The following table reconciles reported operating profit to operating profit, as adjusted to exclude certain items,
dollars in millions:
Operating profit, as reported
Rationalization charges
Kichler inventory step up adjustment
Operating profit, as adjusted
Operating profit margins, as reported
Operating profit margins, as adjusted
$
$
2018
2017
2016
1,211
$
1,194
$
1,087
14
40
4
—
22
—
1,265
$
1,198
$
1,109
14.5%
15.1%
15.6%
15.7%
14.8%
15.1%
Operating profit margin in 2018 was negatively affected by an increase in commodity costs, the recognition of
the inventory step up adjustment established as a part of the the acquisition of Kichler and an increase in other expenses
(such as logistics costs, salaries and ERP costs). These negative impacts were partially offset by increased net selling
prices, benefits associated with cost savings initiatives and increased sales volume. Operating profit margin in 2017
was positively impacted 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.
Due to the recently-announced increase in tariffs on imported materials from China, and assuming tariffs rise
to 25 percent in 2019, we could be exposed to approximately $150 million of potential annual direct cost increases.
We will work to mitigate the impact of these tariffs through a combination of price increases, supplier negotiations,
supply chain repositioning and other internal productivity measures.
Other Income (Expense), Net
Other, net, for 2018 included $14 million of net periodic pension and post-retirement benefit cost and $8 million
of realized foreign currency losses. These expenses were partially offset by $3 million of earnings related to equity
method investments and $1 million related to distributions from private equity funds.
Other, net, for 2017 included $26 million related to periodic pension and post-retirement benefit costs, $13 million
net loss related to the divestitures of Moores and Arrow 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 method investments.
24
Other, net, for 2016 included $32 million related to periodic pension and post-retirement benefit costs and $3
million of realized foreign currency losses, partially offset by $5 million related to distributions from private equity funds,
$3 million from the redemption of auction rate securities and $2 million of earnings from equity method investments.
Interest expense was $156 million, $278 million and $229 million in 2018, 2017 and 2016, respectively. The
decrease in interest expense from 2017 to 2018 is primarily the result of a loss on debt extinguishment of $107 million
which was recorded as additional interest expense in connection with the early retirement of debt in 2017, the discharge
of indebtedness in 2018 and refinancing certain debt at more favorable interest rates in 2017. The increase in interest
expense from 2016 to 2017 is primarily the result of 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. The increase was partially offset by the discharge of indebtedness in 2016 as well as refinancing certain
debt at more favorable interest rates.
Net Income and Income Per Common Share (Attributable to Masco Corporation)
Net income and diluted income per common share for 2018 were $734 million and $2.37 per common share,
respectively. Net income and diluted income per common share for 2017 were $533 million and $1.66 per common
share, respectively. Net income and diluted income per common share for 2016 were $493 million and $1.48 per
common share, respectively.
Our effective tax rate was 25 percent, 34 percent and 36 percent in 2018, 2017 and 2016, respectively. U.S. tax
reform, which generally became effective in 2018, reduced the U.S. Federal tax rate from 35 percent to 21 percent.
Additionally, 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 25 percent, 34 percent and 36 percent in 2018, 2017 and 2016, respectively.
In the fourth quarter of 2018, our normalized rate was changed from 26 percent to 25 percent primarily due to a
reduction in our U.S. tax on foreign earnings attributable to Global Intangible Low-taxed Income as a result of recently
issued IRS regulatory guidance. Our 2018 effective tax rate equaled our normalized rate.
The 2017 effective tax rate was impacted by divestiture of businesses with no tax impact. This impact was offset
by a $17 million net tax benefit from the impact of changes in U.S. Federal tax law and a $20 million tax benefit from
stock-based compensation payments recognized in 2017.
The 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.
Refer to Note R to the consolidated financial statements for additional information.
Outlook for the Company
We continue to successfully execute our long-term growth and capital allocation strategies by leveraging our
strong brand portfolio, industry-leading positions and Masco Operating System, our methodology to drive growth and
productivity. Although we have experienced commodity and logistics cost pressures, the fundamentals of the repair
and remodel industry remain strong. We believe that our strong financial position and cash flow generation, 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 shareholder value.
25
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.
Net Sales:
Plumbing Products
Decorative Architectural Products
Cabinetry Products
Windows and Other Specialty Products
Total
North America
International, principally Europe
Total
Operating Profit (Loss): (A)
Plumbing Products
Decorative Architectural Products
Cabinetry Products
Windows and Other Specialty Products
Total
North America
International, principally Europe
Total
General corporate expense, net
Total operating profit
Operating Profit (Loss) Margin: (A)
Plumbing Products
Decorative Architectural Products
Cabinetry Products
Windows and Other Specialty Products
North America
International, principally Europe
Total
Percent
Change
2018 vs.
2017
2017 vs.
2016
2018
2017
2016
$
3,998 $
3,732 $
2,656
950
755
2,206
934
770
$
$
$
8,359 $
7,642 $
6,763 $
6,067 $
1,596
1,575
8,359 $
7,642 $
3,529
2,092
970
770
7,361
5,838
1,523
7,361
7 %
20 %
2 %
(2)%
9 %
11 %
1 %
9 %
6 %
5 %
(4)%
— %
4 %
4 %
3 %
4 %
654
433
97
(3)
$
$
$
$
2018
2017
2016
715 $
702 $
456
86
34
438
92
54
1,291 $
1,286 $
1,181
1,094 $
1,080 $
197
1,291
(80)
206
1,286
(92)
973
208
1,181
(94)
1,211 $
1,194 $
1,087
2018
2017
2016
17.9%
17.2%
9.1%
4.5%
16.2%
12.3%
15.4%
18.8%
19.9%
9.9%
7.0%
17.8%
13.1%
16.8%
18.5 %
20.7 %
10.0 %
(0.4)%
16.7 %
13.7 %
16.0 %
Total operating profit margin, as reported
14.5%
15.6%
14.8 %
(A) Before general corporate expense, net; refer to Note P to the consolidated financial statements for additional
information.
26
Business Segment Results Discussion
Changes in operating profit margins in the following Business Segment and Geographic Area Results discussion
exclude general corporate expense, net, and compares each respective period to the same period of the immediately
preceding year.
Plumbing Products
Sales
Net sales of Plumbing Products increased seven percent in 2018 due primarily to higher sales volume of North
American and International operations, which, in aggregate, increased sales by five percent, and net selling price
increases of International and North American operations, which in aggregate, increased sales by one percent. The
acquisition of Mercury and foreign currency translation each increased sales by one percent. Such increases were
partially offset by unfavorable sales mix of North American and International operations which, in aggregate, decreased
sales by one percent.
Net sales in this segment increased six percent in 2017, primarily due to higher 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. These increases were
partially offset by an unfavorable sales mix of International operations, which decreased sales by one percent.
Net sales in this segment increased in 2016, primarily due to higher sales volume of both North American and
International operations, partially offset by foreign currency translation.
Operating Results
Operating margins in the Plumbing Products segment in 2018 were negatively impacted by an increase in
commodity costs, unfavorable sales mix, an increase in other expenses (such as salaries, logistics, and ERP system
costs), and higher depreciation expense. These negative impacts were partially offset by increased sales volume, the
benefit associated with cost savings initiatives and increased net selling prices.
Operating margins in this 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 headcount).
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.
Decorative Architectural Products
Sales
Net sales of Decorative Architectural Products increased 20 percent in 2018 due primarily to the acquisition of
Kichler in March 2018, which increased sales by 16 percent. Net sales also increased due to net selling price increases
of paints and other coating products and increased sales volume of builders' hardware and paints and other coating
products.
Net sales in this segment increased five percent in 2017 primarily due to higher 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 in 2016 primarily due to higher 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.
Operating Results
Operating margins in the Decorative Architectural Products segment in 2018 were negatively impacted by an
increase in commodity costs of paints and other coating products and builders' hardware, the recognition of the inventory
step up adjustment established as part of the acquisition of Kichler, increased depreciation and amortization expense
and an increase in strategic growth investments. These negative impacts were partially offset by increased net selling
27
prices of paints and other coating products, benefits associated with cost savings initiatives, increased sales volume
of builders' hardware and paints and other coating products, and a gain on the sale of a building.
Operating margins in this 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.
Cabinetry Products
Sales
Net sales in the Cabinetry Products segment increased two percent in 2018 due primarily to higher sales volume
to home centers and dealers, which increased sales four percent. Net selling price increases and favorable sales mix,
in aggregate, increased sales by two percent. These increases were partially offset by the divestiture of Moores, which
decreased sales by five percent.
Net sales in this segment decreased four percent in 2017 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.
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. Such decreases were partially offset by a positive sales mix of North American cabinets, which increased
sales by three percent.
Net sales in this segment decreased in 2016 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., and a stronger U.S. dollar. 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.
Operating Results
Operating margins in the Cabinetry Products segment in 2018 were negatively impacted by an increase in other
expenses (such as logistics costs), program launch and display expenses, commodity costs and unfavorable sales
mix. These negative impacts were partially offset by increased net selling prices, benefits associated with cost savings
initiatives, increased sales volume and the divestiture of Moores.
Operating margins in this segment were slightly lower in 2017 due to 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 which were mostly offset by cost savings
initiatives as well as positive sales mix 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.
Windows and Other Specialty Products
Sales
Net sales of Windows and Other Specialty Products decreased two percent in 2018. The divestiture of Arrow in
the second quarter of 2017 decreased sales by four percent. Lower sales volume of international windows further
decreased sales by four percent. Such decreases were partially offset by net selling price increases of North American
and international windows, which, in aggregate, increased sales by three percent, favorable sales mix of North American
windows, which increased sales by two percent, and foreign currency translation, which increased sales one percent.
Net sales of Windows and Other Specialty Products were flat in 2017. Excluding the divestiture of Arrow, sales
increased five percent. 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. These increases were partially offset by decreased sales volume of international windows,
28
which decreased sales by one percent. Foreign currency translation also decreased sales by one percent, due to a
weaker U.S. dollar.
Net sales in this segment increased in 2016 primarily due to improved net selling prices of North American
windows, a favorable sales mix of North American and international windows, and the impact from acquiring a U.K.
window business. These increases were partially offset by foreign currency translation due to a stronger U.S. dollar.
Operating Results
Operating margins in the Windows and Other Specialty Products segment in 2018 were negatively impacted by
an increase in other expenses (such as warranty-related costs and higher labor costs), increased commodity costs,
decreased sales volume of international windows, and the divestiture of Arrow. These negative impacts were partially
offset by increased net selling prices and benefits associated with costs savings initiatives.
Operating margins in this 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 North American windows.
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.
In 2018, 2017 and 2016, we incurred net pre-tax costs and charges related to these initiatives of $14 million, $4 million,
and $22 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 related costs will be as significant as they have been historically.
During 2018, our Plumbing Products segment incurred costs and charges of $9 million primarily related to plant
closure costs in North America. Our Windows and Other Specialty Products segment incurred costs of $5 million
primarily related to plant closure costs and severance in the United Kingdom.
During 2017, our Plumbing Products segment incurred costs and charges of $2 million primarily related to plant
closure costs and severance in North America. Our Cabinetry Products segment incurred costs 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.
29
Geographic Area Results Discussion
North America
Sales
North American net sales in 2018 increased 11 percent. Net sales were positively impacted by the acquisitions
of Kichler and Mercury which, in aggregate, increased sales by six percent. Net sales were also positively impacted
by increased sales volume of plumbing products and cabinets, which, in aggregate, increased sales by three percent,
and increased net selling prices of paints and other coating products, which increased sales by one percent.
North American net sales in 2017 increased four percent. 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. 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. The divestiture of Arrow decreased sales by one
percent.
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. A
favorable sales mix of cabinets and windows and increased net selling prices of windows, plumbing products and
cabinets also increased sales. Such increases were partially offset by lower net selling prices of paints and other
coating products.
Operating Results
Operating margins from North American operations in 2018 were negatively affected by an increase in commodity
costs, the recognition of the inventory step up adjustment established as part of the acquisition of Kichler and an
increase in other expenses (such as logistics costs, salaries and ERP costs). These negative impacts were partially
offset by increased net selling prices, the benefits associated with cost savings initiatives and higher sales volume.
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 headcount.
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.
International, Principally Europe
Sales
Net sales from International operations in 2018 increased one percent. In local currencies (including sales in
foreign currencies outside their respective functional currencies), net sales decreased two percent. The divestiture of
Moores in the fourth quarter of 2017 decreased sales by three percent, lower sales volume of windows decreased
sales by two percent, and unfavorable sales mix of plumbing products decreased sales by one percent. These decreases
were partially offset by increased net selling prices and higher sales volume of plumbing products, which increased
sales, in aggregate, by three percent.
Net sales from International operations in 2017 increased three percent. In local currencies, net sales increased
four percent. 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. 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. The divestiture of Moores also decreased sales by one percent.
Net sales from International operations increased in 2016 due primarily to increased sales volume of plumbing
products. Net sales were also positively impacted by a favorable sales mix of cabinets and windows, and increased
net selling prices for plumbing products. These increases were partially offset by lower sales volume for cabinets and
unfavorable foreign currency translation due to the stronger U.S. dollar.
30
Operating Results
Operating margins from International operations in 2018 were negatively impacted by an increase in other
expenses (such as salaries from increased headcount), an increase in commodity costs and unfavorable sales mix,
partially offset by increased net selling prices, benefits associated with cost savings initiatives and the divestiture of
Moores.
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 headcount) 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.
Other Matters
Commitments and Contingencies
Litigation
Information regarding our legal proceedings is set forth in Note T 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.
31
Contractual Obligations
The following table provides payment obligations related to current contracts at December 31, 2018, in millions:
2019
2020-2021
2022-2023
Beyond
2023
Other
Total
Payments Due by Period
Debt (A)
Interest (A)
Operating leases
Currently payable income taxes
Private equity funds (B)
Purchase commitments (C)
Uncertain tax positions, including
interest and penalties (D)
$
8 $
605 $
332 $
2,054 $
— $
148
55
11
—
258
—
267
209
676
87
—
—
—
—
50
—
—
—
—
99
—
—
—
—
—
—
—
4
—
67
2,999
1,300
291
11
4
258
67
Total
$
480 $
959 $
591 $
2,829 $
71 $
4,930
(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 year in which cash settlements may occur
with applicable tax authorities.
Refer to Note M to the consolidated financial statements for defined-benefit pension plan obligations.
32
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 F to the
consolidated financial statements for additional information regarding our derivative instruments.
At December 31, 2018, 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.
33
Item 8. Financial Statements and Supplementary Data.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Our 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.
On March 9, 2018, we completed the acquisition of The L.D. Kichler Co. ("Kichler"). In connection with the
integration of Kichler, we are in the process of analyzing and evaluating Kichler's internal control over financial reporting.
This process may result in additions or changes to our internal control over financial reporting. In accordance with the
Securities and Exchange Commission guidance, we have excluded the Kichler operations from the scope of our annual
assessment of the effectiveness of internal control over financial reporting for the year ended December 31, 2018.
Such guidance allows for the omission of an assessment of an acquired business' internal control over financial
reporting from the assessment of internal control over financial reporting for a period not to exceed one year. Kichler
is a wholly-owned subsidiary whose total assets and net sales excluded from our assessment represent approximately
5% and 4%, respectively, as of and for the year ended December 31, 2018.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2018 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, we have determined that our internal control over financial
reporting was effective as of December 31, 2018.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, performed an audit of our
consolidated financial statements and of the effectiveness of our internal control over financial reporting as of
December 31, 2018. Their report expressed an unqualified opinion on the effectiveness of our internal control over
financial reporting as of December 31, 2018 and expressed an unqualified opinion on our 2018 consolidated financial
statements. This report appears under 'Item 8. Financial Statements and Supplementary Data' under the heading
"Report of Independent Registered Public Accounting Firm."
34
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 (the
“Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations,
comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2018, including the related notes and 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2018 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, 2018, 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.
As described in Management’s Report on Internal Control over Financial Reporting appearing under Item 8,
management has excluded The L.D. Kichler Co. (Kichler) from its assessment of internal control over financial
reporting as of December 31, 2018 because it was acquired by the Company in a purchase business combination
during 2018. We have also excluded Kichler from our audit of internal control over financial reporting. Kichler is a
wholly-owned subsidiary whose total assets and net sales excluded from management’s assessment and our audit
of internal control over financial reporting represent approximately 5% and 4%, respectively, of the related
consolidated financial statement amounts as of and for the year ended December 31, 2018.
35
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 7, 2019
We have served as the Company’s auditor since 1959.
36
Financial Statements and Supplementary Data
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 2018 and 2017
(In Millions, Except Share Data)
ASSETS
Current Assets:
Cash and cash investments
Short-term bank deposits
Receivables
Inventories
Prepaid expenses and other
Total current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
Current Liabilities:
Accounts payable
Notes payable
Accrued liabilities
Total current liabilities
Long-term debt
Other liabilities
Total liabilities
LIABILITIES
Commitments and contingencies (Note T)
EQUITY
Masco Corporation's shareholders' equity:
Common shares, par value $1 per share
Authorized shares: 1,400,000,000;
Issued and outstanding: 2018 – 293,900,000; 2017 – 310,400,000
Preferred shares authorized: 1,000,000;
Issued and outstanding: 2018 and 2017 – None
Paid-in capital
Retained deficit
Accumulated other comprehensive loss
Total Masco Corporation's shareholders' deficit
Noncontrolling interest
Total equity
Total liabilities and equity
See notes to consolidated financial statements.
37
2018
2017
$
559 $
—
1,153
946
108
2,766
1,223
898
406
100
1,194
108
1,066
784
111
3,263
1,129
841
187
114
$
$
5,393 $
5,534
926 $
8
750
1,684
2,971
669
5,324
824
116
727
1,667
2,969
715
5,351
294
—
—
(278)
(127)
(111)
180
69
310
—
—
(298)
(65)
(53)
236
183
$
5,393 $
5,534
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2018, 2017 and 2016
(In Millions, Except Per Common Share Data)
2018
2017
2016
$
8,359 $
7,642 $
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Other income (expense), net:
Interest expense
Other, net
Income before income taxes
Income tax expense
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Masco Corporation
Income per common share attributable to Masco Corporation:
Basic:
Net income
Diluted:
Net income
$
$
$
5,670
2,689
1,478
1,211
(156)
(13)
(169)
1,042
258
784
50
5,030
2,612
1,418
1,194
(278)
(32)
(310)
884
304
580
47
734 $
533 $
7,361
4,899
2,462
1,375
1,087
(229)
(26)
(255)
832
296
536
43
493
2.38 $
1.68 $
1.49
2.37 $
1.66 $
1.48
See notes to consolidated financial statements.
38
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2018, 2017 and 2016
(In Millions)
2018
2017
2016
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Masco Corporation
Other comprehensive (loss) income, net of tax (Note O):
Cumulative translation adjustment
Interest rate swaps
Pension and other post-retirement benefits
Realized loss on available-for-sale securities
Other comprehensive (loss) income, net of tax
Less: Other comprehensive (loss) income attributable to the
noncontrolling interest:
Cumulative translation adjustment
Pension and other post-retirement benefits
Other comprehensive (loss) income attributable to Masco
Corporation
Total comprehensive income
Less: Total comprehensive income attributable to noncontrolling
interest
Total comprehensive income attributable to Masco Corporation
$
$
$
$
$
$
$
784 $
580 $
50
47
734 $
533 $
(31) $
133 $
2
9
—
(20)
3
63
—
199
(15) $
28 $
(2)
(17)
(3) $
764 $
1
29
170 $
779 $
33
76
731 $
703 $
536
43
493
(78)
1
(15)
12
(80)
(10)
—
(10)
(70)
456
33
423
See notes to consolidated financial statements.
39
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2018, 2017 and 2016
(In Millions)
2018
2017
2016
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Net income
Depreciation and amortization
Display amortization
Deferred income taxes
Employee withholding taxes paid on stock-based compensation
Gain on disposition of investments, net
Loss on disposition of businesses, net
Pension and other postretirement benefits
Impairment of financial investments
Stock-based compensation
Increase in receivables
Increase in inventories
Increase in accounts payable and accrued liabilities, net
Debt extinguishment costs
Other, net
Net cash from operating activities
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Retirement of notes
Purchase of Company common stock
Cash dividends paid
Dividends paid to noncontrolling interest
Issuance of notes, net of issuance costs
Debt extinguishment costs
Increase in debt
Issuance of Company common stock
Proceeds from the exercise of stock options
Employee withholding taxes paid on stock-based compensation
Payment of debt
Net cash for financing activities
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Capital expenditures
Acquisition of businesses, net of cash acquired
Proceeds from disposition of:
Businesses, net of cash disposed
Short-term bank deposits
Property and equipment
Other financial investments
Purchases of short-term bank deposits
Other, net
Net cash for investing activities
Effect of exchange rate changes on cash and cash investments
CASH AND CASH INVESTMENTS:
(Decrease) increase for the year
At January 1
At December 31
$
784 $
156
21
4
42
(4)
—
(47)
—
27
(46)
(11)
108
—
(2)
1,032
(114)
(654)
(134)
(89)
—
—
—
—
14
(42)
(1)
(1,020)
(219)
(549)
—
108
14
5
—
(10)
(651)
4
580 $
127
25
13
33
(4)
13
(38)
2
38
(140)
(78)
67
104
9
751
(535)
(331)
(129)
(35)
593
(104)
2
—
—
(33)
(5)
(577)
(173)
(89)
128
218
24
7
(106)
(34)
(25)
55
536
134
25
130
40
(4)
—
(78)
—
29
(132)
(37)
79
40
27
789
(1,300)
(459)
(128)
(31)
889
(40)
3
1
—
(40)
(4)
(1,109)
(180)
—
—
251
—
32
(211)
(16)
(124)
(34)
(635)
1,194
$
559 $
204
990
1,194 $
(478)
1,468
990
See notes to consolidated financial statements.
40
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2018, 2017 and 2016
(In Millions, Except Per Common Share Data)
Common
Shares
($1 par value)
Paid-In
Capital
Retained
Earnings
(Deficit)
Total
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interest
$
58 $
330 $
— $
(300) $
(165) $
193
Balance, January 1, 2016
Cumulative effect of adoption of
new revenue recognition
accounting standard
Balance, January 1, 2016
Total comprehensive income (loss)
Shares issued
Shares retired:
Repurchased
Surrendered (non-cash)
Cash dividends declared
Dividends paid to noncontrolling
interest
Stock-based compensation
Balance, December 31, 2016
Total comprehensive income
$
Shares issued
Shares retired:
Repurchased
Surrendered (non-cash)
Cash dividends declared
Dividends paid to noncontrolling
interest
Stock-based compensation
Balance, December 31, 2017
Reclassification of
disproportionate tax effects
(Refer to Note A)
Total comprehensive income (loss)
Shares issued
Shares retired:
Repurchased
Surrendered (non-cash)
Cash dividends declared
Dividends paid to noncontrolling
interest
Stock-based compensation
Balance, December 31, 2018
$
5
63
456
(24)
(459)
(14)
(128)
(31)
41
(96) $
779
(19)
(331)
(15)
(129)
(35)
29
(165)
(70)
193
33
5
(295)
493
(430)
(14)
(128)
330
3
(15)
—
(27)
(14)
41
318 $
— $
(374) $
(235) $
533
170
2
(9)
(1)
(21)
(8)
29
(314)
(14)
(129)
(31)
195
76
(35)
$
183 $
310 $
— $
(298) $
(65) $
236
—
764
(9)
(654)
(19)
(137)
(89)
30
69 $
(59)
(3)
33
3
(4)
(19)
(26)
59
734
(8)
(609)
(19)
(137)
30
294 $
— $
(278) $
(127) $
180
(89)
See notes to consolidated financial statements.
41
MASCO CORPORATION
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, disclosure of any
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from these estimates and assumptions.
Revenue Recognition. We recognize revenue as control of our products is transferred to our customers, which
is generally at the time of shipment or upon delivery based on the contractual terms with our customers, or when
services are completed. Control over certain of our custom-made window products transfers to our customers as
production is completed, and revenue is recognized over the production period for these products, as our products do
not have an alternative use and we have an enforceable right to payment during the production period. The production
period of our custom-made window products generally does not lapse days, and for these products we currently
recognize revenue based on the output of production, which is a faithful depiction of the transfer of these products to
our customers. Our customers' payment terms generally range from 30 to 65 days of fulfilling our performance obligations
and recognizing revenue.
We provide customer programs and incentive offerings, including special pricing and co-operative advertising
arrangements, promotions and other volume-based incentives. These customer programs and incentives are
considered variable consideration. We include in revenue variable consideration only to the extent that it is probable
that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration
is resolved. This determination is made based upon known customer program and incentive offerings at the time of
sale, and expected sales volume forecasts as it relates to our volume-based incentives. This determination is updated
each reporting period.
Certain product sales include a right of return. We estimate future product returns at the time of sale based on
historical experience and record a corresponding refund liability. We additionally record an asset, based on historical
experience, for the amount of product we expect to return to inventory as a result of the return, which is recorded in
prepaid expenses and other in the consolidated balance sheets.
We consider shipping and handling activities performed by us as activities to fulfill the sales of our products.
Amounts billed for shipping and handling are included in net sales, while costs incurred for shipping and handling are
included in cost of sales. We capitalize incremental costs of obtaining a contract and expense the costs on a straight-
line basis over the contractual period if the cost is recoverable, the cost would not have been incurred without the
contract and the term of the contract is greater than one year; otherwise, we expense the amounts as incurred. We
do not adjust the promised amount of consideration for the effects of a financing component if the period between
when we transfer our products or services and when our customers pay for our products or services is expected to be
one year or less.
Customer Displays. In-store displays that are owned by us and used to market our products are included in
other assets in the consolidated balance sheets and are amortized using the straight-line method over the expected
useful life of three to five years; related amortization expense is classified as a selling expense in the consolidated
statement of operations.
Foreign Currency. The financial statements of our foreign subsidiaries are measured using the local currency
as the functional currency. Assets and liabilities of these subsidiaries are translated at exchange rates as of the balance
sheet dates. Revenues and expenses are translated at average exchange rates in effect during the year. The resulting
cumulative translation adjustments have been recorded in the accumulated other comprehensive loss component of
shareholders' equity. Realized foreign currency transaction gains and losses are included in the consolidated statements
of operations in other income (expense), net.
Cash and Cash Investments. We consider all highly liquid investments with an initial maturity of three months
or less to be cash and cash investments.
42
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Continued)
Short-Term Bank Deposits. We invest a portion of our foreign excess cash in short-term bank deposits. These
highly liquid investments have original maturities between three and twelve months and are valued at cost, which
approximated fair value at December 31, 2018 and 2017. These short-term bank deposits are classified in the current
assets section of our consolidated balance sheets, and interest income related to short-term bank deposits is recorded
in our consolidated statements of operations in other income (expense), net.
Receivables. We do significant business with a number of customers, including certain home center retailers
and homebuilders. We monitor our exposure for credit losses on our customer receivable balances and the credit
worthiness of our customers on an on-going basis and record related allowances for doubtful accounts. Allowances
are estimated based upon specific customer balances, where a risk of default has been identified, and also include a
provision for non-customer specific defaults based upon historical collection, return and write-off activity. A separate
allowance is recorded for customer incentive rebates and is generally based upon sales activity. Receivables are
presented net of certain allowances (including allowances for doubtful accounts) of $46 million and $36 million at
December 31, 2018 and 2017, respectively.
Property and Equipment. Property and equipment, including significant improvements to existing facilities,
are recorded at cost. Upon retirement or disposal, the cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in the consolidated statements of operations. Maintenance and repair costs
are charged against earnings as incurred.
We review our property and equipment as events occur or circumstances change that would more likely than not
reduce the fair value of the property and equipment below the carrying amount. If the carrying amount of property and
equipment is not recoverable from its undiscounted cash flows, then we would recognize an impairment loss for the
difference between the carrying amount and the current fair value. Further, we evaluate the remaining useful lives of
property and equipment at each reporting period to determine whether events and circumstances warrant a revision
to the remaining depreciation periods.
Depreciation. Depreciation expense is computed principally using the straight-line method over the estimated
useful lives of the assets. Annual depreciation rates are as follows: buildings and land improvements, 2 to 10 percent,
computer hardware and software, 17 to 33 percent, and machinery and equipment, 5 to 33 percent. Depreciation
expense was $132 million, $116 million and $124 million in 2018, 2017 and 2016, respectively.
Goodwill and Other Intangible Assets. We perform our annual impairment testing of goodwill in the fourth
quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value
of a reporting unit below its carrying amount. We have defined our reporting units and completed the impairment testing
of goodwill at the operating segment level. Our operating segments are reporting units that engage in business activities,
for which discrete financial information, including five-year forecasts, are available. We compare the fair value of the
reporting units to the carrying value of the reporting units for goodwill impairment testing. Fair value is determined
using a discounted cash flow method, which includes significant unobservable inputs (Level 3 inputs), and requires us
to make significant estimates and assumptions, including long-term projections of cash flows, market conditions
and appropriate discount rates. Our judgments are based upon historical experience, current market trends,
consultations with external valuation specialists and other information. In estimating future cash flows, we rely on
internally generated five-year forecasts for sales and operating profits, and, currently, a two percent to three percent
long-term assumed annual growth rate of cash flows for periods after the five-year forecast. We utilize our weighted
average cost of capital of approximately 9.0 percent as the basis to determine the discount rate to apply to the estimated
future cash flows. In 2018, based upon our assessment of the risks impacting each of our businesses, we applied a
risk premium to increase the discount rate to a range of 11.0 percent to 13.5 percent for our reporting units. If the
carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized to the extent that a reporting
unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.
We review our other indefinite-lived intangible assets for impairment annually in the fourth quarter, or as events
occur or circumstances change that indicate the assets may be impaired without regard to the business unit. Potential
impairment is identified by comparing the fair value of an other indefinite-lived intangible asset to its carrying value.
We utilized a relief-from-royalty model to estimate the fair value of other indefinite-lived intangible assets. We consider
the implications of both external (e.g., market growth, competition and local economic conditions) and internal
(e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the
intangible asset in both the near- and long-term. We also consider the profitability of the business, among other factors,
to determine the royalty rate for use in the impairment assessment. We utilize our weighted average cost of capital of
43
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Continued)
approximately 9.0 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In
2018, based upon our assessment of the risks impacting each of our businesses, we applied a risk premium to increase
the discount rate to a range of 12.0 percent to 13.5 percent for our other indefinite-lived intangible assets.
While we believe that the estimates and assumptions underlying the valuation methodologies are reasonable,
different estimates and assumptions could result in different outcomes.
Intangible assets with finite useful lives are amortized using the straight-line method over their estimated useful
lives. We review our intangible assets with finite useful lives as events occur or circumstances change that would more
likely than not reduce the fair value of the assets below the carrying amount. If the carrying amount of the assets is
not recoverable from the undiscounted cash flows, then we would recognize an impairment loss for the difference
between the carrying amount and the current fair value. We evaluate the remaining useful lives of amortizable intangible
assets at each reporting period to determine whether events or circumstances warrant a revision to the remaining
periods of amortization.
Refer to Note H for additional information regarding goodwill and other intangible assets.
Fair Value Accounting. We use derivative financial instruments to manage certain exposure to fluctuations in
earnings and cash flows resulting from changes in foreign currency exchange rates, and occasionally from changes
in commodity costs and interest rate exposures. Derivative financial instruments are recorded in the consolidated
balance sheets as either an asset or liability measured at fair value, netted by counterparty, where the right of offset
exists. The gain or loss is recognized in determining current earnings during the period of the change in fair value. We
currently do not have any derivative instruments for which we have designated hedge accounting.
Warranty. We offer full and limited warranties on certain products with warranty periods ranging up to the lifetime
of the product to the original consumer purchaser. At the time of sale, we accrue a warranty liability for the estimated
future cost to provide products, parts or services to repair or replace products to satisfy our warranty obligations. Our
estimate of future costs to service our warranty obligations is based upon the information available and includes a
number of factors, such as the warranty coverage, the warranty period, historical experience specific to the nature,
frequency and average cost to service the claim, along with industry and demographic trends.
Certain factors and related assumptions in determining our warranty liability involve judgments and estimates
and are sensitive to changes in the factors described above. We believe that the warranty accrual is appropriate;
however, actual claims incurred could differ from our original estimates which would require us to adjust our previously
established accruals. Refer to Note T for additional information on our warranty accrual.
A significant portion of our business is at the consumer retail level through home center retailers and other major
retailers. A consumer may return a product to a retail outlet that is a warranty return. However, certain retail outlets do
not distinguish between warranty and other types of returns when they claim a return deduction from us. Our revenue
recognition policy takes into account this type of return when recognizing revenue, and an estimate of these amounts
is recorded as a deduction to net sales at the time of sale.
Insurance Reserves. We provide for expenses associated with workers' compensation and product liability
obligations when such amounts are probable and can be reasonably estimated. The accruals are adjusted as new
information develops or circumstances change that would affect the estimated liability. Any obligations expected to
be settled within 12 months are recorded in accrued liabilities; all other obligations are recorded in other liabilities.
Litigation. We are involved in claims and litigation, including class actions and regulatory proceedings,
which arise in the ordinary course of our business. Liabilities and costs associated with these matters require
estimates and judgments based upon our professional knowledge and experience and that of our legal counsel.
When a liability is probable of being incurred and our exposure in these matters is reasonably estimable, amounts
are recorded as charges to earnings. The ultimate resolution of these exposures may differ due to subsequent
developments.
44
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Continued)
Stock-Based Compensation. We issue stock-based incentives in various forms to our employees and non-
employee Directors. Outstanding stock-based incentives were in the form of long-term stock awards, stock options,
restricted stock units ("RSUs"), phantom stock awards and stock appreciation rights ("SARs"). We measure
compensation expense for stock awards at the market price of our common stock at the grant date. Such expense is
recognized ratably over the shorter of the vesting period of the stock awards, typically 5 or 10 years, or the length of
time until the grantee becomes retirement-eligible, generally at age 65. We measure compensation expense for stock
options using a Black-Scholes option pricing model. Such expense is recognized ratably over the shorter of the vesting
period of the stock options, typically five years, or the length of time until the grantee becomes retirement-eligible,
generally at age 65. We measure compensation expense for RSUs at the expected payout of the awards. Such
expense is recognized ratably over the three-year vesting period of the units. We recognize forfeitures related to stock
awards, stock options and RSUs as they occur.
We initially measure compensation expense for phantom stock awards at the market price of our common stock
at the grant date. Such expense is recognized ratably over the vesting period, typically 5 to 10 years. Phantom stock
awards are linked to the value of our common stock on the date of grant and are settled in cash upon vesting. We
account for phantom stock awards as liability-based awards; the liability is remeasured and adjusted at the end of each
reporting period until the awards are fully-vested and paid to the employees. We measure compensation expense for
SARs using a Black-Scholes option pricing model; such expense is recognized ratably over the vesting period, typically
five years. SARs are linked to the value of our common stock on the date of grant and are settled in cash upon exercise.
We account for SARs using the fair value method, which requires outstanding SARs to be classified as liability-based
awards. The liability is remeasured and adjusted at the end of each reporting period until the SARs are exercised and
payment is made to the employees or the SARs expire. Refer to Note L for additional information on stock-based
compensation.
Noncontrolling Interest. We owned 68 percent of Hansgrohe SE at both December 31, 2018 and 2017. The
aggregate noncontrolling interest, net of dividends, at December 31, 2018 and 2017 has been recorded as a component
of equity on our consolidated balance sheets.
Income Taxes. Deferred taxes are recognized based on the future tax consequences of differences between
the financial statement carrying value of assets and liabilities and their respective tax basis. The future realization of
deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable
income include taxable income in carryback periods, the future reversal of existing taxable temporary differences
recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated
losses in the carryforward period and projected future taxable income.
If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent
likely) such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to
positive and negative evidence that is objectively verifiable. A company's three-year cumulative loss position is
significant negative evidence in considering whether deferred tax assets are realizable, and the accounting guidance
restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax
assets.
The current accounting guidance allows the recognition of only those income tax positions that have a greater
than 50 percent likelihood of being sustained upon examination by the taxing authorities. We believe that there is an
increased potential for volatility in our effective tax rate because this threshold allows for changes in the income tax
environment and, to a greater extent, the inherent complexities of income tax law in a substantial number of jurisdictions,
which may affect the computation of our liability for uncertain tax positions.
We record interest and penalties on our uncertain tax positions in income tax expense.
The accounting guidance for income taxes requires us to allocate our provision for income taxes between
continuing operations and other categories of earnings, such as other comprehensive income (loss). Subsequent
adjustments to deferred taxes originally recorded to other comprehensive income (loss) may reverse in a different
category of earnings, such as continuing operations, resulting in a disproportionate tax effect within accumulated other
comprehensive income (loss). Generally, a disproportionate tax effect will be eliminated and recognized in income tax
expense when the circumstances upon which it is premised cease to exist.
45
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Continued)
The disproportionate tax effect related to various defined-benefit pension plans will be eliminated from accumulated
other comprehensive income (loss) at the termination of the related pension plans. The disproportionate tax effect
relating to our interest rate swap hedge, which was terminated in 2012, will be eliminated from accumulated other
comprehensive income (loss) upon the maturity of the related debt in March 2022.
We record the tax effects of Global Intangible Low-taxed Income related to our foreign operations as a component
of income tax expense in the period the tax arises.
Reclassifications. Certain prior year amounts have been reclassified to conform to the 2018 presentation in
the consolidated financial statements.
Recently Adopted Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board
("FASB") issued a new standard for revenue recognition, Accounting Standards Codification ("ASC") 606. The purpose
of ASC 606 is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve
comparability across industries. We adopted ASC 606 on January 1, 2018, under the full retrospective method of
adoption. As a result of this adoption, net sales decreased by $2 million and increased by $4 million in 2017 and 2016,
respectively, and operating profit (and income before income taxes) decreased by $1 million and increased by $2
million in 2017 and 2016, respectively, from what was previously reported. We additionally have recast our previously
reported segment operating results at the end of this section.
In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall: Recognition and Measurement
of Financial Assets and Financial Liabilities," which primarily affects the accounting for equity investments, financial
liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. We
adopted ASU 2016-01 on January 1, 2018. The adoption of this standard did not have a material impact on our financial
position or results of operations.
In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Asset Transfers of Assets
Other than Inventory," which no longer allows the tax effects of intra-entity asset transfers (intercompany sales) of
assets other than inventory to be deferred until the transferred asset is sold to a third party or otherwise recovered
through use. The new standard requires the tax expense from the sale of the asset in the seller's tax jurisdiction and
the corresponding basis differences in the buyer's jurisdiction to be recognized when the transfer occurs even though
the pre-tax effects of the transaction are eliminated in consolidation. We adopted ASU 2016-16 on January 1, 2018.
The adoption of this standard did not have a material impact on our financial position or results of operations.
In March 2017, the FASB issued ASU 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which modifies the
presentation of net periodic pension and post-retirement benefit cost ("net benefit cost") in the income statement and
the components eligible for capitalization as assets. ASU 2017-07 requires retrospective application for certain aspects
of the standard. We adopted ASU 2017-07 on January 1, 2018. As a result of the adoption, we reclassified $26 million
and $32 million of net benefit cost from operating profit to other income (expense), net, within our results of operations
in 2017 and 2016, respectively. We additionally have recast our previously reported segment operating results at the
end of this section. The adoption of the standard did not impact income before income taxes.
In May 2017, the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of
Modification Accounting," which clarifies when to account for a change to the terms or conditions of a share-based
payment award as a modification. We adopted ASU 2017-09 on January 1, 2018. The adoption of this standard did
not impact our financial position or results of operations; however, modification accounting is now required only if the
fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the
change in terms or conditions.
In February 2018, the FASB issued ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic
220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," which permits a
company to reclassify from accumulated other comprehensive income (loss) to retained earnings the disproportionate
tax effects resulting from the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). We early adopted ASU 2018-02 on
March 31, 2018. As a result of the adoption, we decreased accumulated other comprehensive income (loss) and
increased retained earnings (deficit) by the $59 million disproportionate tax effect caused by the 2017 Tax Act.
46
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Continued)
Impact of Adoption of ASC 606 and ASU 2017-07. The impact to our previously reported operating results and
basic and diluted income per share due to the adoptions of ASC 606 and ASU 2017-07 was as follows, in millions
(except per common share data):
Year Ended December 31, 2016
Net Sales
Operating Profit (Loss)
As Reported
As Recast
As Reported
As Recast
$
3,526 $
3,529 $
642 $
2,092
970
769
2,092
970
770
$
7,357 $
7,361
430
93
(3)
1,162
(109)
654
433
97
(3)
1,181
(94)
$
1,053 $
1,087
Year Ended
December 31, 2016
As Reported
$
491 $
$
$
1.49 $
1.47 $
As Recast
493
1.49
1.48
Year Ended December 31, 2017
Net Sales
Operating Profit (Loss)
As Reported
As Recast
As Reported
As Recast
$
3,735 $
3,732 $
698 $
2,205
934
770
2,206
934
770
$
7,644 $
7,642
434
90
52
1,274
(105)
702
438
92
54
1,286
(92)
$
1,169 $
1,194
Year Ended
December 31, 2017
As Reported
$
533 $
$
$
1.68 $
1.66 $
As Recast
533
1.68
1.66
Operations by segment:
Plumbing Products
Decorative Architectural Products
Cabinetry Products
Windows and Other Specialty Products
Total
General corporate expense, net
Operating profit
Net income attributable to Masco Corporation
Income per common share attributable to Masco Corporation:
Basic:
Diluted:
Operations by segment:
Plumbing Products
Decorative Architectural Products
Cabinetry Products
Windows and Other Specialty Products
Total
General corporate expense, net
Operating profit
Net income attributable to Masco Corporation
Income per common share attributable to Masco Corporation:
Basic:
Diluted:
47
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Concluded)
Recently Issued Accounting Pronouncements. In February 2016, the FASB issued a new standard for leases,
ASC 842, which changes the accounting model for identifying and accounting for leases. ASC 842 is effective for us
for annual periods beginning January 1, 2019. We currently anticipate adopting the new standard using the optional
transition method which allows for initial application of the new standard beginning at the adoption date. We expect
this standard to increase our total assets and total liabilities by approximately five percent. We do not expect the
standard to have a material impact on our results of operations. In preparation for the adoption of the standard, we
have procured a third-party software to track and manage our leases, loaded lease data into the software, authored
our accounting policy, trained our business units on the new standard and policy and the use of the software, and
modified our control environment accordingly. We have not experienced significant issues in our implementation
process.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments," which modifies the methodology for recognizing loss impairments on certain
types of financial instruments, including receivables. The new methodology requires an entity to estimate the credit
losses expected over the life of an exposure. Additionally, ASU 2016-13 amends the current available-for-sale security
other-than-temporary impairment model for debt securities. ASU 2016-13 is effective for us for annual periods beginning
January 1, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial
position and results of operations.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements
to Accounting for Hedging Activities," which improves and simplifies accounting rules around hedge accounting and
better portrays the economic results of an entity's risk management activities in its financial statements. ASU 2017-12
is effective for us for annual periods beginning January 1, 2019. We do not expect the adoption of the standard will
impact our financial position or results of operations.
In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements
to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards
issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees.
ASU 2018-07 is effective for us for annual periods beginning January 1, 2019. We do not expect the adoption of the
standard will impact our financial position or results of operations.
In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic
350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a
Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement
that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all
implementation costs incurred after the date of adoption. ASU 2018-15 is effective for us for annual periods beginning
January 1, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial
position and results of operations.
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 before income taxes in the consolidated statement of operations
and reported as part of our Cabinetry Products segment.
In the second quarter of 2017 we divested Arrow Fastener Co., LLC ("Arrow"), a manufacturer and distributor of
fastening tools, for proceeds of $128 million. In connection with the divestiture we recognized a gain of $51 million for
the year ended December 31, 2017, included in other, net, within other income (expense), net in our consolidated
statement of operations. Prior to divestiture, the results of this business are included within income before income
taxes in the consolidated statement of operations and reported as part of our Windows and Other Specialty Products
segment.
48
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. ACQUISITIONS
On March 9, 2018, we acquired substantially all of the net assets of The L.D. Kichler Co. ("Kichler"), a leader in
decorative residential and light commercial lighting products, ceiling fans and LED lighting systems. This business
expands our product offerings to our customers. The results of this acquisition for the period from the acquisition date
are included in the consolidated financial statements and are reported in the Decorative Architectural Products segment.
We recorded $346 million of net sales as a result of this acquisition during 2018. The purchase price, net of $2 million
cash acquired, consisted of $549 million paid with cash on hand.
Since the acquisition, we have revised the allocation of the purchase price to identifiable assets and liabilities
based on analysis of information as of the acquisition date that has been made available through December 31, 2018.
The allocation will continue to be updated through the measurement period, if necessary. The preliminary allocation
of the fair value of the acquisition of Kichler is summarized in the following table, in millions.
Receivables
Inventories
Prepaid expenses and other
Property and equipment
Goodwill
Other intangible assets
Accounts payable
Accrued liabilities
Other liabilities
Total
Initial
$
101 $
Revised
100
173
5
33
46
243
(24)
(25)
(4)
$
548 $
166
5
33
64
240
(24)
(30)
(5)
549
The goodwill acquired, which is generally tax deductible, is related primarily to the operational and financial
synergies we expect to derive from combining Kichler's operations into our business, as well as the assembled
workforce. The other intangible assets acquired consist of $59 million of indefinite-lived intangible assets, which is
related to trademarks, and $181 million of definite-lived intangible assets. The definite-lived intangible assets consist
of $145 million related to customer relationships, which is being amortized on a straight-line basis over 20 years, and
$36 million of other definite-lived intangible assets, which is being amortized over a weighted average amortization
period of three years.
In the fourth quarter of 2017, we acquired Mercury Plastics, Inc., a plastics processor and manufacturer of water
handling systems for appliance and faucet applications, for approximately $89 million in cash. This business is included
in the Plumbing Products segment. This acquisition enhances our ability to develop faucet technology and provides
continuity of supply of quality faucet components. In connection with this acquisition, we recognized $38 million of
goodwill, which is tax deductible, and is related primarily to the expected synergies from combining the operations into
our business.
49
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. REVENUE
Our revenues are derived primarily from sales to customers in North America and Internationally, principally
Europe. Net sales from these geographic markets, by segment, were as follows, in millions:
Primary geographic markets:
North America
International, principally Europe
Total
Primary geographic markets:
North America
International, principally Europe
Total
Primary geographic markets:
North America
International, principally Europe
Total
Year Ended December 31, 2018
Plumbing
Products
Decorative
Architectural
Products
Cabinetry
Products
Windows and
Other
Specialty
Products
Total
2,552 $
1,446
3,998 $
2,656 $
950 $
—
—
2,656 $
950 $
605 $
150
755 $
6,763
1,596
8,359
Year Ended December 31, 2017
Plumbing
Products
Decorative
Architectural
Products
Cabinetry
Products
Windows and
Other
Specialty
Products
Total
2,362 $
1,370
3,732 $
2,206 $
891 $
—
43
2,206 $
934 $
608 $
162
770 $
6,067
1,575
7,642
Year Ended December 31, 2016
Plumbing
Products
Decorative
Architectural
Products
Cabinetry
Products
Windows and
Other
Specialty
Products
Total
2,238 $
1,291
3,529 $
2,092 $
908 $
—
62
2,092 $
970 $
600 $
170
770 $
5,838
1,523
7,361
$
$
$
$
$
$
We recognized increases to revenue of $4 million, $9 million, and $6 million in 2018, 2017, and 2016, respectively,
for variable consideration related to performance obligations settled in previous periods.
We record contract assets for items for which we have satisfied our performance obligation but our receipt of
payment is contingent upon delivery or other circumstances other than the passage of time. Our contract assets are
recorded in prepaid expenses and other in our consolidated balance sheets. Our contract assets generally become
unconditional and are reclassified to receivables in the quarter subsequent to each balance sheet date. Our contract
asset balance was $14 million and $11 million at December 31, 2018 and 2017, respectively.
We record contract liabilities primarily for deferred revenue. Our contract liabilities are recorded in accrued liabilities
in our consolidated balance sheets. Our contract liabilities are generally recognized to net sales in the immediately
subsequent reporting period. Our contract liability balance was $41 million and $32 million at December 31, 2018 and
2017, respectively.
50
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. INVENTORIES
Finished goods
Raw materials
Work in process
Total
(In Millions)
At December 31
2018
2017
$
$
520 $
325
101
946 $
402
277
105
784
Inventories, which include purchased parts, materials, direct labor and applied overhead, are stated at the lower
of cost or net realizable value, with cost determined by use of the first-in, first-out method.
F. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to global market risk as part of our normal, daily business activities. To manage these risks, we
enter into various derivative contracts. These contracts may include interest rate swap agreements, foreign currency
contracts and metals contracts. We review our hedging program, derivative positions and overall risk management on
a regular basis.
Interest Rate Swap Agreements. In 2012, in connection with the issuance of $400 million of debt, we terminated
the interest rate swap hedge relationships that we had entered into in 2011. These interest rate swaps were designated
as cash flow hedges and effectively fixed interest rates on the forecasted debt issuance to variable rates based on 3-
month LIBOR. Upon termination, the ineffective portion of the cash flow hedges of an approximate $2 million loss was
recognized in our consolidated statement of operations in other, net, within other income (expense), net. The remaining
loss of approximately $23 million from the termination of these swaps is being amortized as an increase to interest
expense over the remaining term of the debt, through March 2022. At December 31, 2018, the remaining pre-tax
balance in accumulated other comprehensive loss was $6 million.
Foreign Currency Contracts. Our net cash inflows and outflows exposed to the risk of changes in foreign
currency exchange rates arise from the sale of products in countries other than the manufacturing source, foreign
currency denominated supplier payments, debt and other payables, and investments in subsidiaries. To mitigate this
risk, we, including certain European operations, enter into foreign currency forward contracts and foreign currency
exchange contracts.
Gains (losses) related to foreign currency forward and exchange contracts are recorded in our consolidated
statements of operations in other income (expense), net. In the event that the counterparties fail to meet the terms of
the foreign currency forward or exchange contracts, our exposure is limited to the aggregate foreign currency rate
differential with such institutions.
Metals Contracts. Occasionally, we have entered into contracts to manage our exposure to increases in the
price of copper and zinc. Gains (losses) related to these contracts are recorded in our consolidated statements of
operations in cost of sales.
The pre-tax (losses) gains included in our consolidated statements of operations are as follows, in millions:
Foreign currency contracts:
Exchange contracts
Forward contracts
Metals contracts
Interest rate swaps
Total
Year Ended December 31,
2018
2017
2016
$
$
1 $
—
—
(2)
(1) $
(1) $
1
—
(4)
(4) $
—
—
5
(2)
3
51
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Concluded)
We present our derivatives net by counterparty in the consolidated balance sheets, due to the right of offset under
master netting arrangements. The notional amounts being hedged and the fair value of those derivative instruments
are as follows, in millions:
Foreign currency contracts:
Forward contracts
Receivables
Accrued liabilities
Other liabilities
Foreign currency contracts:
Exchange contracts
Accrued liabilities
Forward contracts
Receivables
Accrued liabilities
At December 31, 2018
Notional Amount
Balance Sheet
$
74
$
—
—
—
At December 31, 2017
Notional Amount
Balance Sheet
$
14
43
$
—
—
—
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).
G. PROPERTY AND EQUIPMENT
Land and improvements
Buildings
Computer hardware and software
Machinery and equipment
Less: Accumulated depreciation
Total
(In Millions)
At December 31
2018
2017
$
107 $
699
367
1,625
2,798
(1,575)
$
1,223 $
110
681
327
1,547
2,665
(1,536)
1,129
We lease certain equipment and plant facilities under noncancellable operating leases. Rental expense recorded
in the consolidated statements of operations totaled approximately $80 million, $66 million and $63 million during 2018,
2017 and 2016, respectively.
At December 31, 2018, future minimum lease payments were as follows, in millions:
2019
2020
2021
2022
2023
2024 and beyond
52
$
55
47
40
30
20
99
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill, by segment, were as follows, in millions:
Plumbing Products
Decorative Architectural Products
Cabinetry Products
Windows and Other Specialty Products
Total
Gross
Goodwill At
December
31, 2018
Accumulated
Impairment
Losses
Net Goodwill
At December
31, 2018
$
568 $
(340) $
358
181
717
(75)
—
(511)
$
1,824 $
(926) $
228
283
181
206
898
Gross
Goodwill At
December
31, 2017
Accumulated
Impairment
Losses
Net Goodwill
At December
31, 2017
Additions (A)
Other (C)
Net Goodwill
At December
31, 2018
Plumbing Products
$
574 $
(340) $
234 $
— $
(6) $
Decorative Architectural
Products
Cabinetry Products
Windows and Other Specialty
Products
Total
294
181
718
1,767 $
$
(75)
—
(511)
219
181
207
64
—
—
(926) $
841 $
64 $
—
—
(1)
(7) $
228
283
181
206
898
Gross
Goodwill At
December 31,
2016
Accumulated
Impairment
Losses
Net Goodwill
At December
31, 2016
Additions
(A)
Divestitures
(B)
Other
(C)
Net Goodwill
At December
31, 2017
Plumbing Products
$
519 $
(340) $
179 $
38 $
— $
17 $
Decorative Architectural
Products
Cabinetry Products
Windows and Other
Specialty Products
Total
294
240
(75)
(59)
987
2,040 $
(734)
(1,208) $
$
219
181
253
—
—
—
—
—
(47)
—
—
1
832 $
38 $
(47) $
18 $
234
219
181
207
841
(A) Additions consist of acquisitions.
(B) Included within divestitures is the disposition of Moores in the Cabinetry Products segment, which includes $59
million of both gross goodwill and accumulated impairment losses, and the disposition of Arrow in the Windows
and Other Specialty Products segment, which includes $270 million of gross goodwill and $223 million of
accumulated impairment losses.
(C) Other consists of the effect of foreign currency translation.
Other indefinite-lived intangible assets were $199 million and $140 million at December 31, 2018 and 2017,
respectively, and principally included registered trademarks. As a result of our 2018 and 2017 acquisitions, other
indefinite-lived intangible assets increased by $59 million and $5 million, respectively, as of the acquisition dates.
We completed our annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth
quarters of 2018, 2017 and 2016. There was no impairment of goodwill for any of our reporting units or of our other
indefinite-lived intangible assets in any of these years.
53
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
H. GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)
The carrying value of our definite-lived intangible assets was $207 million (net of accumulated amortization of
$29 million) at December 31, 2018 and $47 million (net of accumulated amortization of $10 million) at December 31,
2017 and principally included customer relationships with a weighted average amortization period of 16 years in 2018
and 12 years in 2017. Amortization expense related to the definite-lived intangible assets was $20 million, $4 million
and $4 million in 2018, 2017 and 2016, respectively. As a result of our 2018 and 2017 acquisitions, definite-lived
intangible assets increased by $181 million and $26 million, respectively, as of the acquisition dates.
At December 31, 2018, amortization expense related to the definite-lived intangible assets during each of the
next five years was as follows: 2019 – $24 million; 2020 – $23 million; 2021 – $16 million, 2022 – $12 million and
2023 –$11 million.
I. OTHER ASSETS
Equity method investments
Private equity funds
In-store displays, net
Deferred tax assets (Note R)
Other
Total
(In Millions)
At December 31
2018
2017
11 $
1
20
42
26
11
2
31
45
25
100 $
114
$
$
We recognized amortization expense related to in-store displays of $21 million, $25 million and $25 million in
2018, 2017 and 2016, respectively. Cash spent for displays was $10 million, $14 million and $11 million in 2018, 2017
and 2016, respectively, and is included in other, net within investing activities on the consolidated statements of cash
flows.
J. ACCRUED LIABILITIES
Salaries, wages and commissions
Advertising and sales promotion
Interest
Warranty (Note T)
Employee retirement plans
Insurance reserves
Property, payroll and other taxes
Dividends payable
Deferred revenue
Product returns
Other
Total
54
(In Millions)
At December 31
2018
2017
$
170 $
173
40
65
42
41
25
36
41
26
91
196
158
42
59
50
40
27
33
32
17
73
$
750 $
727
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. DEBT
Notes and debentures:
6.625%, due April 15, 2018
7.125%, due March 15, 2020
3.500%, due April 1, 2021
5.950%, due March 15, 2022
4.450%, due April 1, 2025
4.375%, due April 1, 2026
3.500%, due November 15, 2027
7.750%, due August 1, 2029
6.500%, due August 15, 2032
4.500%, due May 15, 2047
Other
Prepaid debt issuance costs
Less: Current portion
Total long-term debt
(In Millions)
At December 31
2018
2017
$
— $
201
399
326
500
498
300
235
200
299
38
(17)
2,979
8
$
2,971 $
114
201
399
326
500
498
300
234
200
299
33
(19)
3,085
116
2,969
All of the notes and debentures above are senior indebtedness and, other than the 7.75% note due 2029, are
redeemable at our option.
On April 16, 2018, we repaid and retired all of our $114 million, 6.625% Notes on the scheduled repayment date.
On June 21, 2017, we issued $300 million of 3.5% Notes due November 15, 2027 and $300 million of 4.5% Notes
due May 15, 2047. We received proceeds of $599 million, net of discount, for the issuance of these Notes. The Notes
are senior indebtedness and are redeemable at our option at the applicable redemption price. On June 27, 2017,
proceeds from the debt issuances, together with cash on hand, were used to repay and early retire $299 million of our
7.125% Notes due March 15, 2020, $74 million of our 5.95% Notes due March 15, 2022, $62 million of our 7.75%
Notes due August 1, 2029, and $100 million of our 6.5% Notes due August 15, 2032. In connection with these early
retirements, we incurred a loss on debt extinguishment of $107 million, which was recorded as interest expense.
On March 17, 2016, we issued $400 million of 3.5% Notes due April 1, 2021 and $500 million of 4.375% Notes
due April 1, 2026. We received proceeds of $896 million, net of discount, for the issuance of these Notes. The Notes
are senior indebtedness and are redeemable at our option at the applicable redemption price. On April 15, 2016,
proceeds from the debt issuances, together with cash on hand, were used to repay and early retire all of our $1 billion,
6.125% Notes which were due on October 3, 2016 and all of our $300 million, 5.85% Notes which were due on March
15, 2017. In connection with these early retirements, we incurred a loss on debt extinguishment of $40 million, which
was recorded as interest expense.
On March 28, 2013, we entered into a credit agreement (the "Credit Agreement") with a bank group, with an
aggregate commitment of $1.25 billion and a maturity date of March 28, 2018. On May 29, 2015 and August 28, 2015,
we amended the Credit Agreement with the bank group (the "Amended Credit Agreement"). The Amended Credit
Agreement reduces the aggregate commitment to $750 million and extends the maturity date to May 29, 2020. Under
the Amended Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate
commitment up to an additional $375 million with the current bank group or new lenders.
55
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. DEBT (Concluded)
The Amended Credit Agreement provides for an unsecured revolving credit facility available to us and one of our
foreign subsidiaries, in U.S. dollars, European euros and certain other currencies. Borrowings under the revolver
denominated in euros are limited to $500 million, equivalent. We can also borrow swingline loans up to $75 million and
obtain letters of credit of up to $100 million; any outstanding letters of credit under the Amended Credit Agreement
reduce our borrowing capacity. At December 31, 2018, we had no of outstanding standby letters of credit under the
Amended Credit Agreement.
Revolving credit loans bear interest under the Amended Credit Agreement, at our option, at (A) a rate per annum
equal to the greater of (i) the prime rate, (ii) the Federal Funds effective rate plus 0.50% and (iii) LIBOR plus 1.0% (the
"Alternative Base Rate"); plus an applicable margin based upon our then-applicable corporate credit ratings; or
(B) LIBOR plus an applicable margin based upon our then-applicable corporate credit ratings. The foreign currency
revolving credit loans bear interest at a rate equal to LIBOR plus an applicable margin based upon our then-applicable
corporate credit ratings.
The Amended Credit Agreement contains financial covenants requiring us to maintain (A) a maximum net leverage
ratio, as adjusted for certain items, of 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain
items, equal to or greater than 2.5 to 1.0.
In order for us to borrow under the Amended Credit Agreement, there must not be any default in our covenants
in the Amended Credit Agreement (i.e., in addition to the two financial covenants, principally limitations on subsidiary
debt, negative pledge restrictions, legal compliance requirements and maintenance of properties and insurance) and
our representations and warranties in the Amended Credit Agreement must be true in all material respects on the date
of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since
December 31, 2014, in each case, no material ERISA or environmental non-compliance, and no material tax deficiency).
We were in compliance with all covenants and no borrowings have been made at December 31, 2018.
At December 31, 2018, the debt maturities during each of the next five years were as follows: 2019 – $8 million;
2020– $203 million; 2021 – $402 million; 2022 – $329 million and 2023 – $3 million.
Interest paid was $155 million, $175 million and $198 million in 2018, 2017 and 2016, respectively. These amounts
exclude $104 million and $40 million of debt extinguishment costs related to the early retirement of debt, which were
recorded as interest expense and paid in 2017 and 2016, respectively.
Fair Value of Debt. The fair value of our short-term and long-term fixed-rate debt instruments is based principally
upon modeled market prices for the same or similar issues, which are Level 1 inputs. The aggregate estimated market
value was approximately $3.0 billion, at December 31, 2018, which equaled the aggregate carrying value of short-
term and long-term debt at that date. The aggregate estimated market value of our short-term and long-term debt at
December 31, 2017 was approximately $3.3 billion, compared with the aggregate carrying value of $3.1 billion.
L. STOCK-BASED COMPENSATION
Our 2014 Long Term Stock Incentive Plan (the "2014 Plan") provides for the issuance of stock-based incentives
in various forms to our employees and non-employee Directors. At December 31, 2018, outstanding stock-based
incentives were in the form of long-term stock awards, stock options, restricted stock units, phantom stock awards and
stock appreciation rights.
Pre-tax compensation expense (income) for these stock-based incentives was as follows, in millions:
Long-term stock awards
Stock options
Restricted stock units
Phantom stock awards and stock appreciation rights
Total
2018
2017
2016
23 $
24 $
3
4
(3)
3
2
9
27 $
38 $
23
2
—
4
29
$
$
At December 31, 2018, 14.7 million shares of our common stock were available under the 2014 Plan for the
granting of long-term stock awards, stock options and restricted stock units.
56
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. STOCK-BASED COMPENSATION (Continued)
Long-Term Stock Awards. Long-term stock awards are granted to our key employees and non-employee
Directors and do not cause net share dilution, as we repurchase and retire at least an equal number of shares in the
open market. We granted 715,380 shares of long-term stock awards during 2018.
Our long-term stock award activity was as follows, shares in millions:
Unvested stock award shares at January 1
Weighted average grant date fair value
Stock award shares granted
Weighted average grant date fair value
Stock award shares vested
Weighted average grant date fair value
Stock award shares forfeited
Weighted average grant date fair value
Unvested stock award shares at December 31
Weighted average grant date fair value
2018
2017
2016
3
24 $
1
41 $
2
21 $
—
31 $
2
30 $
4
20 $
1
34 $
2
18 $
—
24 $
3
24 $
5
17
1
26
2
16
—
20
4
20
$
$
$
$
$
At December 31, 2018, 2017 and 2016, there was $46 million, $46 million and $43 million, respectively, of total
unrecognized compensation expense related to unvested stock awards; such awards had a weighted average
remaining vesting period of three years at December 31, 2018, 2017 and 2016.
The total market value (at the vesting date) of stock award shares which vested during 2018, 2017 and 2016 was
$56 million, $45 million and $43 million, respectively.
Stock Options. Stock options are granted to certain key employees. The exercise price equals the market
price of our common stock at the grant date. These options generally become exercisable (vest ratably) over five years
beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date.
We granted 400,220 shares of stock options during 2018 with a grant date weighted-average exercise price of
approximately $42 per share. During 2018, 68,927 stock option shares were forfeited (including options that expired
unexercised).
57
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. STOCK-BASED COMPENSATION (Continued)
Our stock option activity was as follows, shares in millions:
Option shares outstanding, January 1
Weighted average exercise price
Option shares granted
Weighted average exercise price
Option shares exercised
Aggregate intrinsic value on date of exercise (A)
Weighted average exercise price
Option shares forfeited
Weighted average exercise price
Option shares outstanding, December 31
Weighted average exercise price
Weighted average remaining option term (in years)
Option shares vested and expected to vest, December 31
Weighted average exercise price
Aggregate intrinsic value (A)
Weighted average remaining option term (in years)
Option shares exercisable (vested), December 31
Weighted average exercise price
Aggregate intrinsic value (A)
Weighted average remaining option term (in years)
2018
5
16
—
42
1
2017
7
15
—
34
2
$
$
2016
12
17
—
26
5
$
$
55 million $
47 million $
64 million
11
—
31
4
21
5
4
21
$
15
—
$
21
—
$ —
$ —
$
5
16
4
5
$
7
15
4
7
$
16
$
15
36 million $ 147 million $ 118 million
5
3
16
4
4
4
6
$
13
$
13
34 million $ 123 million $ 102 million
4
3
3
$
$
$
$
$
$
$
$
$
$
(A) Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant
date price) multiplied by the number of shares.
At December 31, 2018, 2017 and 2016, there was $8 million, $7 million and $6 million, respectively, of
unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to
unvested stock options; such options had a weighted average remaining vesting period of three years at December 31,
2018, 2017 and 2016.
The weighted average grant date fair value of option shares granted and the assumptions used to estimate
those values using a Black-Scholes option pricing model were as follows:
2018
2017
2016
Weighted average grant date fair value
$
12.34
$
9.68
$
Risk-free interest rate
Dividend yield
Volatility factor
Expected option life
2.72%
1.02%
29.00%
6 years
2.16%
1.19%
30.00%
6 years
6.43
1.41%
1.49%
29.00%
6 years
58
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
L. STOCK-BASED COMPENSATION (Concluded)
The following table summarizes information for stock option shares outstanding and exercisable at December 31,
2018, shares in millions:
Option Shares Outstanding
Option Shares Exercisable
Range of
Prices
7 - 13
17 - 26
30 - 43
7 - 43
$
$
$
$
Number of
Shares
1
2
1
4
Weighted
Average
Remaining
Option Term
2 years
5 years
9 years
5 years
Weighted
Average
Exercise
Price
$11
$21
$38
$21
Number of
Shares
1
2
—
3
Weighted
Average
Exercise
Price
$11
$20
$34
$16
Restricted Stock Units. Under our Long Term Incentive Program ("LTIP Program"), we grant restricted stock
units to certain senior executives. These restricted stock units will vest and share awards will be issued at no cost to
the employees, subject to our achievement of specified return on invested capital performance goals over a three-year
period that have been established by our Organization and Compensation Committee of the Board of Directors
("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%. During 2018, we granted
113,260 restricted stock units with a grant date fair value of approximately $42 per share, and 11,600 restricted stock
units were forfeited. During 2017, we granted 124,780 restricted stock units with a grant date fair value of approximately
$34 per share.
Phantom Stock Awards and Stock Appreciation Rights. Certain non-U.S. employees are granted phantom
stock awards and historically have been granted SARs.
We recognized income of $2 million in 2018 and expense of $6 million and $2 million in 2017 and 2016, respectively,
related to phantom stock awards. In 2018, 2017 and 2016, we granted 98,140 shares, 104,580 shares and 140,710
shares, respectively, of phantom stock awards with an aggregate fair value of $4 million each year, and paid cash of
$6 million in 2018 and $5 million in both 2017 and 2016 to settle phantom stock awards.
We recognized income of $1 million in 2018 and expense of $3 million and $2 million in 2017 and 2016, respectively,
related to SARs. During 2018, 2017 and 2016, we did not grant any SARs. We paid cash of $5 million in 2018 and $4
million in both 2017 and 2016 to settle SARs.
Information related to phantom stock awards and SARs was as follows, in millions:
Accrued compensation cost liability
Unrecognized compensation cost
Equivalent common shares
Phantom Stock Awards
Stock Appreciation Rights
At December 31,
At December 31,
2018
2017
2018
2017
$
$
4 $
2 $
—
12 $
4 $
—
2 $
— $
—
7
—
—
59
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. EMPLOYEE RETIREMENT PLANS
We sponsor qualified defined-benefit and defined-contribution retirement plans for most of our employees. In
addition to our qualified defined-benefit pension plans, we have unfunded non-qualified defined-benefit pension plans
covering certain employees, which provide for benefits in addition to those provided by the qualified pension plans.
Substantially all salaried employees participate in non-contributory defined-contribution retirement plans, to which
payments are determined annually by the Compensation Committee.
Pre-tax expense related to our retirement plans was as follows, in millions:
Defined-contribution plans
Defined-benefit pension plans
2018
2017
2016
$
$
49 $
17
66 $
55 $
29
84 $
58
34
92
In addition to the pre-tax expense related to our defined-benefit pension plans, in 2017 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.
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:
2018
2017
Qualified
Non-Qualified
Qualified
Non-Qualified
Changes in projected benefit obligation:
Projected benefit obligation at January 1
$
961 $
170 $
1,055 $
Service cost
Interest cost
Actuarial (gain) loss, net
Foreign currency exchange
Benefit payments
Divestitures
Projected benefit obligation at December 31
Changes in fair value of plan assets:
Fair value of plan assets at January 1
Actual return on plan assets
Foreign currency exchange
Company contributions
Expenses, other
Benefit payments
Divestitures
Fair value of plan assets at December 31
Funded status at December 31
3
30
(48)
(7)
(43)
—
—
6
(9)
—
(12)
—
3
36
34
20
(43)
(144)
896 $
155 $
961 $
695 $
— $
717 $
(25)
(4)
52
(5)
(43)
—
—
—
12
—
(12)
—
77
8
52
(7)
(43)
(109)
670 $
(226) $
— $
(155) $
695 $
(266) $
$
$
$
$
60
170
—
6
7
—
(13)
—
170
—
—
—
13
—
(13)
—
—
(170)
Non-Qualified
—
(13)
(157)
(170)
1 $
(1)
(266)
(266) $
Non-Qualified
59
442 $
3
445 $
—
59
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. EMPLOYEE RETIREMENT PLANS (Continued)
Amounts in our consolidated balance sheets were as follows, in millions:
At December 31, 2018
At December 31, 2017
Qualified
Non-Qualified
Qualified
Other assets
Accrued liabilities
Other liabilities
Total net liability
$
$
1 $
(1)
(226)
(226) $
— $
(13)
(142)
(155) $
Unrealized loss included in accumulated other comprehensive loss before income taxes was as follows, in millions:
At December 31, 2018
At December 31, 2017
Qualified
Non-Qualified
Qualified
Net loss
Net prior service cost
Total
$
$
448 $
3
451 $
47 $
—
47 $
Information for defined-benefit pension plans with an accumulated benefit obligation in excess of plan assets
was as follows, in millions:
At December 31
2018
2017
Qualified
Non-Qualified
Qualified
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
$
$
$
882 $
882 $
655 $
155 $
155 $
— $
Non-Qualified
170
945 $
945 $
679 $
170
—
The projected benefit obligation was in excess of plan assets for all of our qualified defined-benefit pension plans
at December 31, 2018 and 2017 which had an accumulated benefit obligation in excess of plan assets.
Net periodic pension cost for our defined-benefit pension plans, with the exception of service cost, is recorded
in other income (expense), net, in our consolidated statement of operations. Net periodic pension cost for our defined-
benefit pension plans was as follows, in millions:
2018
2017
Qualified
Non-Qualified
Qualified
Non-Qualified
Qualified
2016
Non-Qualified
—
3 $
Service cost
Interest cost
Expected return on plan assets
Recognized net loss
Net periodic pension cost
$
$
3 $
36
(48)
17
8 $
— $
6
—
3
9 $
3 $
— $
44
(46)
19
6
—
3
49
(44)
17
20 $
9 $
25 $
7
—
2
9
We expect to recognize $21 million of pre-tax net loss from accumulated other comprehensive loss into net
periodic pension cost in 2019 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.
61
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. EMPLOYEE RETIREMENT PLANS (Continued)
Plan Assets. Our qualified defined-benefit pension plan weighted average asset allocation, which is based
upon fair value, was as follows:
Equity securities
Debt securities
Other
Total
2018
2017
34%
49%
17%
100%
55%
28%
17%
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, 2018 compared to December 31, 2017.
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 net asset value ("NAV"), which approximates fair value. Such basis is
determined by referencing the respective fund's underlying assets. There are no unfunded commitments or other
restrictions associated with these investments.
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 the investments valued at NAV.
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 $1 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, 2018 and 2017, as well as those valued at NAV using the practical expedient,
which approximates fair value, in millions.
62
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. EMPLOYEE RETIREMENT PLANS (Continued)
Plan Assets
Common and Preferred Stocks:
United States
International
Private Equity and Hedge Funds:
United States
International
Corporate Debt Securities:
United States
International
Government and Other Debt Securities:
United States
International
Common Collective Trust Fund – United
States
Buy-in Annuity - International
Short-Term and Other Investments:
United States
International
Total Plan Assets
Plan Assets
Common and Preferred Stocks:
United States
International
Private Equity and Hedge Funds:
United States
International
Corporate Debt Securities:
United States
International
Government and Other Debt Securities:
United States
International
Common Collective Trust Fund – United
States
Buy-in Annuity - International
Short-Term and Other Investments:
United States
International
Total Plan Assets
At December 31, 2018
Level 1
Level 2
Level 3
Valued at
NAV
Total
$
81 $
— $
— $
21 $
37
—
—
34
—
—
29
—
—
1
2
—
—
—
—
1
2
33
4
11
—
—
—
32
27
—
—
—
—
—
—
—
—
89
—
34
102
—
130
—
—
—
—
—
102
126
32
61
136
1
132
62
4
11
1
2
$
184 $
51 $
59 $
376 $
670
At December 31, 2017
Level 1
Level 2
Level 3
Valued at
NAV
Total
$
144 $
— $
— $
47 $
66
—
—
31
—
15
31
—
—
2
—
—
—
—
26
7
7
28
6
12
—
1
—
36
24
—
—
—
—
—
—
—
—
125
—
35
—
21
31
—
—
—
—
—
191
191
36
59
57
28
53
59
6
12
2
1
$
289 $
87 $
60 $
259 $
695
63
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. EMPLOYEE RETIREMENT PLANS (Continued)
Changes in the fair value of the qualified defined-benefit pension plan Level 3 assets, were as follows, in millions:
Fair Value, January 1
Purchases
Sales
Unrealized gains
Fair Value, December 31
2018
2017
$
$
60 $
6
(12)
5
59 $
79
6
(31)
6
60
Assumptions. Weighted average major assumptions used in accounting for our defined-benefit pension plans
were as follows:
Discount rate for obligations
Expected return on plan assets
Rate of compensation increase
Discount rate for net periodic pension cost
2018
2017
2016
3.80%
7.00%
—%
3.30%
3.30%
7.25%
—%
3.50%
3.50%
7.25%
—%
4.00%
The discount rate for obligations for 2018, 2017 and 2016 is based upon the expected duration of each defined-
benefit pension plan's liabilities matched to the December 31, 2018, 2017 and 2016 Willis Towers Watson Rate Link
Curve. At December 31, 2018, such rates for our defined-benefit pension plans ranged from 1.5 percent to 4.2 percent,
with the most significant portion of the liabilities having a discount rate for obligations of 4.1 percent or higher. 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. The increase in the weighted
average discount rate from 2017 to 2018 is principally the result of higher long-term interest rates in the bond markets.
The decrease in the weighted average discount rates from 2016 to 2017 is principally the result of lower long-term
interest rates in the bond markets.
For 2018, we determined the expected long-term rate of return on plan assets of 7.00 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. For 2017 and 2016, our projected long-term rate of return on plan assets was 7.25
percent. The decrease in our expected long-term rate of return from 2017 to 2018 is due to a shift in our investment
objectives as our defined-benefit pension plans became increasingly funded. The projected asset return at
December 31, 2018, 2017 and 2016 considered near term returns, including current market conditions as well as that
pension assets are long-term in nature. The actual annual rate of return on our pension plan assets was negative 4.9
percent in 2018 and positive 13.9 percent and 8.3 percent in 2017 and 2016, respectively. For the 10-year period ended
December 31, 2018, the actual annual rate of return on our pension plan assets was 7.9 percent.
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 2018, we substantially achieved targeted asset
allocation: 35 percent equities, 45 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 7.00
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.
64
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. 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 $9 million and $10 million at December 31, 2018 and 2017, respectively.
Cash Flows. At December 31, 2018, we expect to contribute approximately $50 million to our domestic qualified
defined-benefit pension plans in 2019, which will exceed ERISA requirements. We also expect to contribute
approximately $3 million and $13 million in 2019 to our foreign and non-qualified (domestic) defined-benefit pension
plans, respectively.
At December 31, 2018, 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:
2019
2020
2021
2022
2023
2024 - 2028
Qualified
Plans
Non-Qualified
Plans
$
$
$
$
$
$
48 $
49 $
50 $
51 $
52 $
263 $
13
13
12
12
12
55
N. 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. During 2018, we repurchased and retired 18.6 million
shares of our common stock (including 0.7 million shares to offset the dilutive impact of long-term stock awards granted
in 2018), for cash aggregating $654 million. At December 31, 2018, we had $636 million remaining under the 2017
authorization. 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.
During 2016, we repurchased and retired 14.9 million shares of our common stock (including 1.1 million shares to
offset the dilutive impact of long-term stock awards granted in 2016) for cash aggregating $459 million.
On the basis of amounts paid (declared), cash dividends per common share were $0.435 ($0.450) in 2018, $0.405
($0.410) in 2017 and $0.385 ($0.390) in 2016.
65
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
N. SHAREHOLDERS' EQUITY (Concluded)
Accumulated Other Comprehensive Loss. The components of accumulated other comprehensive loss
attributable to Masco Corporation were as follows, in millions:
Cumulative translation adjustments, net
Unrealized loss on interest rate swaps, net
Unrecognized net loss and prior service cost, net
Accumulated other comprehensive loss
At December 31
2018
2017
$
$
266 $
(10)
(383)
(127) $
282
(12)
(335)
(65)
The cumulative translation adjustment, net, is reported net of income tax benefit of $2 million at December 31,
2018. The unrealized loss on interest rate swaps, net, is reported net of income tax expense of $4 million at both
December 31, 2018 and 2017. The unrecognized net loss and prior service cost, net, is reported net of income tax
benefit of $98 million and $154 million at December 31, 2018 and 2017, respectively.
O. 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:
Accumulated Other
Comprehensive Income (Loss)
Amortization of defined benefit pension
and other postretirement benefits:
Actuarial losses, net
Tax (benefit)
Net of tax (A)
Interest rate swaps
Tax (benefit)
Net of tax
Available-for-sale securities
Tax expense (B)
Net of tax
2018
2017
2016
Statement of Operations Line Item
$
$
$
$
$
$
20 $
(5)
15 $
2 $
—
2 $
— $
—
— $
86 $
(13)
73 $
4 $
(1)
3 $
— $
—
— $
19 Other income (expense), net
(7)
12
2 Interest expense
(1)
1
(3) Other, net
15
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.
(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 R to the consolidated financial statements for additional information.
In addition to the amounts reclassified above, upon adopting ASU 2018-02 in the first quarter of 2018, we
reclassified $59 million of the disproportionate tax benefit relating to various defined-benefit plans from accumulated
other comprehensive loss to retained deficit. Refer to Note A for additional information.
66
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
P. 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, lighting fixtures
and LED lighting systems, and cabinet and other hardware.
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 in 2017, 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:
Net Sales
(1)(2)(3)(4)
Operating Profit
(Loss) (5)
Assets at
December 31 (6)
2018
2017
2016
2018
2017
2016
2018
2017
2016
Our operations by segment were:
Plumbing Products
$ 3,998
$ 3,732
$ 3,529
$
Decorative Architectural Products
2,656
2,206
2,092
Cabinetry Products
Windows and Other Specialty
Products
950
755
934
770
970
770
$
715
456
86
34
702
438
92
54
$
654
433
97
1,534
537
(3)
660
$ 2,253
$ 2,298
$ 2,028
965
526
677
900
539
746
Total
$ 8,359
$ 7,642
$ 7,361
$ 1,291
$ 1,286
$ 1,181
$ 4,984
$ 4,466
$ 4,213
Our operations by geographic area
were:
North America
$ 6,763
$ 6,067
$ 5,838
$ 1,094
$ 1,080
$
International, principally Europe
1,596
1,575
1,523
197
206
973
208
Total, as above
$ 8,359
$ 7,642
$ 7,361
1,291
1,286
1,181
$ 3,832
$ 3,236
$ 3,029
1,152
4,984
1,230
4,466
1,184
4,213
General corporate expense, net (6)
Operating profit, as reported
Other income (expense), net
Income before income taxes
Corporate assets
Total assets
(80)
(92)
(94)
1,211
1,194
1,087
(169)
(310)
(255)
$ 1,042
$
884
$
832
409
1,068
951
$ 5,393
$ 5,534
$ 5,164
67
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
P. SEGMENT INFORMATION (Concluded)
Property Additions (7)
Depreciation and
Amortization
2018
2017
2016
2018
2017
2016
Our operations by segment were:
Plumbing Products
$
120 $
115 $
110 $
77 $
63 $
Decorative Architectural Products
Cabinetry Products
Windows and Other Specialty Products
Unallocated amounts, principally related to
corporate assets
54
18
20
212
7
19
14
13
161
12
22
8
30
170
10
35
13
23
148
8
16
14
21
114
13
Total
$
219 $
173 $
180 $
156 $
127 $
57
16
21
21
115
19
134
(1)
Included in net sales were export sales from the U.S. of $259 million, $232 million and $226 million in 2018,
2017 and 2016, respectively.
(2) Excluded from net sales were intra-company sales between segments of less than one percent in 2018, 2017
and 2016.
(3)
Included in net sales were sales to one customer of $2,670 million, $2,535 million and $2,480 million in 2018,
2017 and 2016, respectively. Such net sales were included in each of our segments.
(4) Net sales from our operations in the U.S. were $6,587 million, $5,819 million and $5,609 million in 2018, 2017
and 2016, respectively.
(5) General corporate expense, net included those expenses not specifically attributable to our segments.
(6)
Long-lived assets of our operations in the U.S. and Europe were $1,928 million and $492 million, $1,582 million
and $482 million, and $1,508 million and $417 million at December 31, 2018, 2017 and 2016, respectively.
(7) Property additions exclude amounts paid for long-lived assets as part of acquisitions. Refer to Note C for further
information.
Q. OTHER INCOME (EXPENSE), NET
Other, net, which is included in other income (expense), net, was as follows, in millions:
Loss on sales of businesses, net (A)
Income from cash and cash investments and short-term bank
deposits
Equity investment income, net
Realized gains from auction rate securities
Realized gains from private equity funds
Impairment of private equity funds
Foreign currency transaction losses
Net periodic pension and post-retirement benefit cost
Other items, net
Total other, net
2018
2017
2016
$
— $
(13) $
5
3
—
1
—
(8)
(14)
—
4
1
—
3
(2)
—
(26)
1
$
(13) $
(32) $
—
4
2
3
5
—
(3)
(32)
(5)
(26)
(A) Included in loss on sales of businesses, net for 2017 is a loss of $64 million related to the divestiture of Moores
and a gain of $51 million related to the divestiture of Arrow.
68
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$
$
$
$
$
R. INCOME TAXES
Income from before income taxes:
U.S.
Foreign
Income tax expense:
Currently payable:
U.S. Federal
State and local
Foreign
Deferred:
U.S. Federal
State and local
Foreign
Deferred tax assets at December 31:
Receivables
Inventories
Other assets, including stock-based compensation
Accrued liabilities
Long-term liabilities
Net operating loss carryforward
Capital loss carryforward
Tax credit carryforward
Valuation allowance
Deferred tax liabilities at December 31:
Property and equipment
Intangibles
Investment in foreign subsidiaries
Other
2018
2017
2016
(In Millions)
821 $
221
1,042 $
730 $
154
884 $
144 $
193 $
36
74
12
—
(8)
30
68
12
—
1
258 $
304 $
616
216
832
73
24
69
140
2
(12)
296
3 $
16
23
58
149
51
—
9
309
(43)
266
87
139
9
14
249
4
13
34
49
169
53
1
8
331
(47)
284
98
139
7
21
265
19
Net deferred tax asset at December 31
$
17 $
The net deferred tax asset consisted of net deferred tax assets (included in other assets) of $42 million and
$45 million, and net deferred tax liabilities (included in other liabilities) of $25 million and $26 million, at December 31,
2018 and 2017, respectively.
We continue to maintain a valuation allowance on certain state and foreign deferred tax assets as of
December 31, 2018. Should we determine that we would not be able to realize our remaining deferred tax assets, or
the deferred tax assets that currently have a valuation allowance become realizable in these jurisdictions in the future,
an adjustment to the valuation allowance would be recorded in the period such determination is made.
69
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
R. INCOME TAXES (Continued)
The current portion of the state and local income tax includes an $8 million, $5 million and $8 million tax benefit
from the reversal of an accrual for uncertain tax positions resulting primarily from the expiration of applicable statutes
of limitations in 2018, 2017 and 2016, respectively. The deferred portion of the state and local taxes includes a $1
million tax benefit in both 2018 and 2017 and a $5 million tax expense in 2016, resulting from changes in valuation
allowances against state and local deferred tax assets. The deferred portion of the foreign taxes includes a $2 million
tax benefit in 2018 and $6 million tax expense in 2016, from a change in the valuation allowance against foreign
deferred tax assets.
Due to the enactment of the 2017 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 2017 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.
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 income tax expense in the consolidated results of 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 the consolidated results of 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.
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 may repatriate earnings from certain foreign subsidiaries. Our deferred tax balance on investment
in foreign subsidiaries reflects the impact of all taxable temporary differences, including those related to substantially
all undistributed foreign earnings, except those that are legally restricted. As a result of the enactment of the 2017 Tax
Act, our deferred tax balance on investment in foreign subsidiaries consists primarily of foreign withholding taxes.
Of the $60 million and $61 million deferred tax asset related to the net operating loss and tax credit carryforwards
at December 31, 2018 and 2017, respectively, $32 million and $33 million, respectively, will expire between 2021 and
2036 and $28 million has no expiration.
70
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
R. INCOME TAXES (Continued)
A reconciliation of the U.S. Federal statutory tax rate to the income tax expense on income before income taxes
was as follows:
U.S. Federal statutory tax rate
State and local taxes, net of U.S. Federal tax benefit
Higher (lower) taxes on foreign earnings
U.S. and foreign taxes on distributed and undistributed foreign
earnings
Domestic production deduction
Stock-based compensation
Business divestitures with no tax impact
Change in U.S. Federal tax law
Other, net
Effective tax rate
2018
2017
2016
21%
35%
35%
3
2
1
—
(2)
—
—
—
2
(1)
1
(2)
(2)
4
(2)
(1)
2
(2)
1
(1)
—
—
—
1
25%
34%
36%
Income taxes paid were $231 million, $258 million and $190 million in 2018, 2017 and 2016, respectively.
A reconciliation of the beginning and ending liability for uncertain tax positions, including related interest and
penalties, is as follows, in millions:
Balance at January 1, 2017
Current year tax positions:
Additions
Prior year tax positions:
Additions
Reductions
Lapse of applicable statute of limitations
Interest and penalties recognized in income tax expense
Balance at December 31, 2017
Current year tax positions:
Additions
Reductions
Prior year tax positions:
Additions
Reductions
Lapse of applicable statute of limitations
Interest and penalties recognized in income tax expense
Uncertain
Tax Positions
$
46 $
Interest and
Penalties
9 $
Total
13
3
(1)
(7)
—
$
54 $
13
(1)
1
(1)
(8)
—
—
—
—
—
(1)
8 $
—
—
—
—
—
1
Balance at December 31, 2018
$
58 $
9 $
55
13
3
(1)
(7)
(1)
62
13
(1)
1
(1)
(8)
1
67
If recognized, $46 million and $43 million of the liability for uncertain tax positions at December 31, 2018 and
2017, respectively, net of any U.S. Federal tax benefit, would impact our effective tax rate.
Of the $67 million and $62 million total liability for uncertain tax positions (including related interest and penalties)
at December 31, 2018 and 2017, respectively, $64 million and $59 million are recorded in other liabilities, respectively,
and $3 million is recorded as a net offset to other assets at both December 31, 2018 and 2017.
71
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
R. INCOME TAXES (Concluded)
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 2017. 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 $9 million.
S. INCOME 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:
Numerator (basic and diluted):
Net income
Less: Allocation to unvested restricted stock awards
Net income available to common shareholders
Denominator:
Basic common shares (based upon weighted average)
Add: Stock option dilution
Diluted common shares
2018
2017
2016
$
$
734 $
533 $
7
5
727 $
528 $
305
2
307
314
4
318
493
6
487
326
4
330
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 income per common share, using the "two-class
method." The two-class method of computing income per common share is an allocation method that calculates income
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, 2018, 2017 and 2016, we allocated dividends and
undistributed earnings to the participating securities.
Additionally, 710,000, 354,000 and 338,000 common shares for 2018, 2017 and 2016, respectively, related to
stock options and 20,000 common shares for 2018 related to restricted stock units were excluded from the computation
of diluted income per common share due to their antidilutive effect.
Common shares outstanding included on our balance sheet and for the calculation of income per common share
do not include unvested stock awards (2 million common shares and 3 million common shares at December 31, 2018
and 2017, respectively); shares outstanding for legal requirements included all common shares that have voting rights
(including unvested stock awards).
72
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
T. OTHER COMMITMENTS AND CONTINGENCIES
Litigation. We 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:
Balance at January 1
Accruals for warranties issued during the year
Accruals related to pre-existing warranties
Settlements made (in cash or kind) during the year
Balance at December 31
2018
2017
$
$
205 $
78
(1)
(65)
217 $
192
63
9
(59)
205
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.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
MASCO CORPORATION
U. INTERIM FINANCIAL INFORMATION (UNAUDITED)
Our quarterly results attributable to Masco Corporation were as follows:
2018
Net sales
Gross profit
Net income
Income per common share:
Basic:
Net income
Diluted:
Net income
2017
Net sales
Gross profit
Net income
Income per common share:
Basic:
Net income
Diluted:
Net income
Quarters Ended
(In Millions, Except Per Common Share Data)
Total Year
December 31
September 30
June 30
March 31
8,359 $
2,689 $
734 $
2,041 $
2,101 $
2,297 $
1,920
653 $
194 $
667 $
180 $
750 $
211 $
619
149
2.38 $
0.65 $
0.59 $
0.69 $
0.48
2.37 $
0.64 $
0.58 $
0.68 $
0.47
7,642 $
2,612 $
533 $
1,853 $
1,945 $
2,066 $
1,778
604 $
80 $
657 $
152 $
746 $
163 $
605
138
1.68 $
0.25 $
0.48 $
0.51 $
0.43
1.66 $
0.25 $
0.48 $
0.51 $
0.43
$
$
$
$
$
$
$
$
$
$
Income per common share amounts for the four quarters of December 31, 2018 and 2017 may not total to the
income per common share amounts for the years ended December 31, 2018 and 2017 due to the allocation of income
to participating securities.
74
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
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, 2018, 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, 2018, 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.
Item 9B. Other Information.
Not applicable.
75
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
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 2019 Annual
Meeting of Stockholders, to be filed before May 1, 2019, 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 2019 Annual Meeting
of Stockholders, to be filed before May 1, 2019 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, 2018 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
Equity compensation plans approved by stockholders
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options, Warrants
and Rights
Weighted-Average
Exercise Price of
Outstanding
Options, Warrants
and Rights
3,740,874 $
21.25
Number of
Securities
Remaining
Available for Future
Issuance Under
Equity
Compensation
Plans (Excluding
Securities Reflected
in the First Column)
14,733,746
The remaining information required by this Item will be contained in our definitive Proxy Statement for our 2019
Annual Meeting of Stockholders, to be filed before May 1, 2019, and such information is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required by this Item will be contained in our definitive Proxy Statement for the 2019 Annual Meeting
of Stockholders, to be filed before May 1, 2019, and such information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
Information required by this Item will be contained in our definitive Proxy Statement for the 2019 Annual Meeting
of Stockholders, to be filed before May 1, 2019, and such information is incorporated herein by reference.
76
Item 15. Exhibits and Financial Statement Schedules.
PART IV
a. Listing of Documents.
(1) Financial Statements. Our consolidated financial statements included in Item 8 hereof, as required at
December 31, 2018 and 2017, and for the years ended December 31, 2018, 2017 and 2016, consist of the
following:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
37
38
39
40
41
42
(2) Financial Statement Schedule.
a. Our Financial Statement Schedule appended hereto, as required for the years ended December 31, 2018,
2017 and 2016, consists of the following:
II. Valuation and Qualifying Accounts
(3) Exhibits.
Exhibit
No.
3.a
3.b
4.a
Exhibit Description
Form
Exhibit
Filing Date
Incorporated By Reference
Restated Certificate of Incorporation of Masco
Corporation.
Bylaws of Masco Corporation, as Amended and
Restated May 8, 2012.
Indenture dated as of December 1, 1982 between
Masco Corporation and The Bank of New York
Mellon Trust Company, N.A., as successor trustee
under agreement originally with Morgan Guaranty
Trust Company of New York, as Trustee, and
Supplemental Indenture thereto dated as of July 26,
1994; and Directors' resolutions establishing Masco
Corporation's:
2015 10-K 3.i
2016 10-K 3.b
2016 10-K 4.a
02/12/2016
02/09/2017
02/09/2017
4.a.i
7-3/4% Debentures Due August 1, 2029.
2014 10-K 4.a.i(ii)
02/13/2015
83
Filed
Herewith
77
Exhibit
No.
4.b
4.b.i
4.b.ii
4.b.iii
4.b.iv
4.b.v
4.b.vi
4.b.vii
Exhibit Description
Indenture dated as of February 12, 2001 between
Masco Corporation and The Bank of New York
Mellon Trust Company, N.A., as successor trustee
under agreement originally with Bank One Trust
Company, National Association, as Trustee, and
Supplemental Indenture thereto dated as of
November 30, 2006; and Directors' Resolutions
establishing Masco Corporation's:
Incorporated By Reference
Form
Exhibit
Filing Date
Filed
Herewith
2016 10-K 4.b
02/09/2017
6-1/2% Notes Due August 15, 2032;
7.125% Notes Due March 15, 2020;
5.950% Notes Due March 15, 2022;
4.450% Notes Due April 1, 2025;
3.500% Notes Due April 1, 2021;
4.375% Notes Due April 1, 2026;
3.500% Notes Due November 15, 2027; and
2017 10-K 4.b.i
2015 10-K 4.b.i(iv)
2016 10-K 4.b(iii)
8-K
8-K
8-K
8-K
4.1
4.1
4.2
4.1
02/08/2018
02/12/2016
02/09/2017
03/23/2015
03/16/2016
03/16/2016
06/15/2017
4.2
8-K
10.a
06/15/2017
4.500% Notes Due May 15, 2047.
4.b.viii
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 Exchange Commission upon request.
Credit Agreement dated as of March 28, 2013 by
and among Masco Corporation and Masco
Europe S. à r.l. as borrowers, the lenders party
thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, Citibank, N.A., as
Syndication Agent, and Royal Bank of Canada,
Deutsche Bank Securities, Inc., PNC Bank,
National Association, and SunTrust Bank as Co-
Documentation Agents, as amended by
Amendment No. 1 dated as of May 29, 2015, and
Amendment No. 2 dated as of August 28, 2015.
2017 10-K 10.a
02/08/2018
Note 2: Exhibits 10.b through 10.m constitute the management contracts and executive compensatory plans or
arrangements in which certain of the Directors and executive officers of the Company participate.
10.b
Masco Corporation 2005 Long Term Stock
Incentive Plan (Amended and Restated May 11,
2010):
Form of Restricted Stock Award Agreements:
2015 10-K 10.b.i
02/12/2016
10.b.i
10.b.ii
10.b.iii
10.b.iv
10.b.v
10.b.vi
for awards on or after January 1, 2013; and
2017 10-K 10.b.i
02/08/2018
for awards prior to 2012.
2015 10-K 10.b.i(i)(C)
02/12/2016
Form of Stock Option Grant Agreements:
for grants on or after January 1, 2013;
for grants during 2012; and
for grants prior to 2012.
Non-Employee Directors Equity Program under
Masco Corporation's 2005 Long Term Stock
Incentive Plan (for awards prior to 2010):
2017 10-K 10.b.iii
2017 10-K 10.b.iv
02/08/2018
02/08/2018
2015 10-K 10.b.i(ii)(C)
02/12/2016
2017 10-K 10.b.viii
02/08/2018
78
Exhibit
No.
10.b.vii
10.c
10.c.i
10.c.ii
10.c.iii
10.c.iv
10.c.v
10.c.vi
10.c.vii
10.c.viii
10.d
10.e
10.f
10.g
10.h
10.i
10.j.i
10.j.ii
10.k
10.l
Exhibit Description
Form of Stock Option Grant Agreement for
Non-Employee Directors.
Masco Corporation 2014 Long Term Stock Incentive
Plan (Amended and Restated May 9, 2016):
Form of Restricted Stock Award Agreements:
Incorporated By Reference
Form
Exhibit
2017 10-K 10.b.ix
Filing Date
02/08/2018
Filed
Herewith
10-Q
10.a
07/26/2016
X
X
X
X
X
for awards prior to July 1, 2018; and
8-K
10.b
05/06/2014
for awards on or after July 1, 2018.
Form of Stock Option Grant Agreements
for grants prior to July 1, 2018; and
8-K
10.d
05/06/2014
for grants on or after July 1, 2018.
Form of Long Term Incentive Program Award
Non-Employee Directors Equity Program under
Masco Corporation's 2014 Long Term Stock
Incentive Plan (Amended and Restated May 9,
2016):
Form of Restricted Stock Award Agreement for
Non-Employee Directors for awards prior to
July 1, 2018; and
Form of Restricted Stock Award Agreement for
Non-Employee Directors for awards after July
1, 2018.
Form of award letter for the Masco Corporation
Long-Term Cash Incentive Program.
Form of Masco Corporation Supplemental
Executive Retirement and Disability Plan and
amendments thereto for Richard A. Manoogian.
Form of Masco Corporation Supplemental
Executive Retirement and Disability Plan and
amendments thereto (includes amendment freezing
benefit accruals) for John G. Sznewajs.
Other compensatory arrangements for executive
officers.
Compensation of Non-Employee Directors.
Masco Corporation Retirement Benefit Restoration
Plan effective January 1, 1995 (as amended and
restated December 22, 2010), and amendments
thereto effective February 6, 2012 and January 1,
2014.
Letter Agreement dated June 29, 2009 between
Richard A. Manoogian and Masco Corporation.
Aircraft Time Sharing Agreement dated October 1,
2012 between Richard A. Manoogian and Masco
Corporation.
Employment Offer Letter dated October 23, 2014
between Christopher Kastner and Masco
Corporation.
Employment Offer Letter dated November 1, 2014
between Amit Bhargava and Masco Corporation.
10-Q
10.b
07/26/2016
8-K
10.c
05/06/2014
2017 10-K 10.d
02/08/2018
2015 10-K 10.d.i(i)
02/12/2016
2015 10-K 10.d.i(ii)
02/12/2016
2016 10-K 10.f
02/09/2017
2016 10-K 10.i
02/09/2017
2014 10-K 10.k.i
02/13/2015
2017 10-K 10.j.ii
02/08/2018
2014 10-K 10.m
02/13/2015
2014 10-K 10.n
02/13/2015
79
Exhibit
No.
10.m
21
23
31.a
31.b
32
Exhibit Description
Employment Offer Letter dated July 27, 2018
between Scott McDowell and Masco Corporation.
List of Subsidiaries.
Consent of Independent Registered Public
Accounting Firm relating to Masco Corporation's
Consolidated Financial Statements and Financial
Statement Schedule.
Certification by Chief Executive Officer required by
Rule 13a-14(a)/15d-14(a).
Certification by Chief Financial Officer required by
Rule 13a-14(a)/15d-14(a).
Certifications required by Rule 13a-14(b) or
Rule 15d-14(b) and Section 1350 of Chapter 63 of
Title 18 of the United States Code.
101
Interactive Date File.
Incorporated By Reference
Form
10-Q
Exhibit
10
Filing Date
10/30/2018
Filed
Herewith
X
X
X
X
X
X
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.
Item 16. Form 10-K Summary
The optional summary in Item 16 has not been included in this Form 10-K.
80
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.
MASCO CORPORATION
By:
/s/ John G. Sznewajs
John G. Sznewajs
Vice President, Chief Financial Officer
February 7, 2019
81
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 J. Allman
Keith J. Allman
President and Chief Executive
Officer and Director
Principal Financial Officer:
/s/ John G. Sznewajs
John G. Sznewajs
Vice President, Chief
Financial Officer
Principal Accounting Officer:
/s/ John P. Lindow
John P. Lindow
/s/ J. Michael Losh
J. Michael Losh
/s/ Richard A. Manoogian
Richard A. Manoogian
/s/ Mark R. Alexander
Mark R. Alexander
/s/ Marie A. Ffolkes
Marie A. Ffolkes
Vice President, Controller
and Chief Accounting Officer
Chairman of the Board
Chairman Emeritus
Director
Director
/s/ Christopher A. O'Herlihy
Christopher A. O'Herlihy
Director
February 7, 2019
/s/ Donald R. Parfet
Donald R. Parfet
/s/ Lisa A. Payne
Lisa A. Payne
/s/ John C. Plant
John C. Plant
/s/ Charles K. Stevens, III
Charles K. Stevens, III
/s/ Reginald M. Turner, Jr.
Reginald M. Turner, Jr.
Director
Director
Director
Director
Director
82
MASCO CORPORATION
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2018, 2017 and 2016
Column A
Column B
Column C
Additions
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Charged
to Other
Accounts
Column D
Deductions
(In Millions)
Column E
Balance at
End of
Period
Description
Allowances for doubtful accounts,
deducted from accounts receivable in
the balance sheet:
2018
2017
2016
Valuation allowance on deferred tax
assets:
2018
2017
2016
$
$
$
$
$
$
13 $
11 $
11 $
47 $
45 $
49 $
6 $
5 $
4 $
— $
— $
11 $
—
—
—
—
2
—
$
$
$
(5)
(3)
(4)
(a) $
(a) $
(a) $
$
(c) $
$
(4)
—
(15)
(b) $
$
(d) $
14
13
11
43
47
45
(a) Deductions, representing uncollectible accounts written off, less recoveries of accounts written off in prior years.
(b) $3 million net reduction to valuation allowance recorded as an income tax benefit and $1 million reduction recorded
primarily in other comprehensive income (loss).
(c) $2 million adjustment to the valuation allowance was recorded primarily in other comprehensive income (loss).
(d) 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).
83
EXECUTIVE OFFICES
Masco Corporation
17450 College Parkway
Livonia, MI 48152
Phone: 313-274-7400
Fax: 313-792-4177
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
500 Woodward Avenue
Detroit, MI 48226
STOCK EXCHANGE INFORMATION
Masco Corporation’s common stock is traded on the New
York Stock Exchange under the symbol MAS.
INTERNET CONTACT
Current information about Masco Corporation can be
found by visiting our website at masco.com or you may
contact us via e-mail at webmaster@mascohq.com.
INVESTOR RELATIONS CONTACT
Additional information about the Company is available
without charge to shareholders who direct a request to:
David A. Chaika, Investor Relations
Masco Corporation
17450 College Parkway
Livonia, MI 48152
Phone: 313-792-5500
ANNUAL MEETING OF SHAREHOLDERS
The 2019 Annual Meeting of Shareholders of
Masco Corporation will be held Friday, May 10, 2019 at
9:30 a.m., EDT at our corporate office in
Livonia, Michigan.
DUPLICATE MAILINGS AND OTHER INQUIRIES
Multiple shareholders residing at one address and
holding shares through a bank or broker may receive
only one Annual Report and Proxy Statement. This
“householding” procedure reduces duplicate mailings
and Company expenses. Shareholders who wish to opt
out of householding should contact their bank or broker.
Shares owned by one person, but held in different forms
of the same name, may result in duplicate mailings of
shareholder information at added expense to us. Please
notify Computershare to eliminate such duplication.
TRANSFER AGENT, REGISTRAR AND DIVIDEND
DISBURSING AGENT
Answers to many of your shareholder questions
and requests for forms are available by visiting
the Computershare website at:
www.computershare.com/investor
Certificates for transfer, inquiries about our
Dividend Reinvestment Plan, inquiries regarding lost
certificates, address changes and all other general
shareholder correspondence should be mailed to:
Computershare
P.O. Box 505000
Louisville, KY 40233
Overnight correspondence should be sent to:
Computershare
462 South 4th Street
Louisville, KY 40202
Phone:
866-230-0666 (in the U.S.)
201-680-6578 (outside the U.S.)
800-231-5469
(hearing impaired–TTD phone)
E-mail Address:
shareholder@computershare.com
Shareholder Online Inquiries:
www-us.computershare.com/investor/contact
FEATURED PRODUCT:
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