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Måsøval

mas · NYSE Consumer Cyclical
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Ticker mas
Exchange NYSE
Sector Consumer Cyclical
Industry Furnishings, Fixtures & Appliances
Employees 1001-5000
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FY2018 Annual Report · Måsøval
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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.

 
 
 
 
 
 
 
 
 
Page

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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:  
HANSGROHE®  
TALIS SELECT S SINGLE-HOLE FAUCET 190

 
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www.masco.com

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