2019 Annual Report
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2019 WAS A
DYNAMIC AND
TRANSFORMATIONAL
YEAR FOR MASCO
AS WE SOLIDIFIED
OUR VISION FOR
THE FUTURE.
In 2019, Masco’s leadership team and Board of
Directors made the decision that the best path to
create long-term value for our shareholders was to
focus our efforts and capital on our higher margin,
less cyclical Plumbing Products and Decorative
Architectural Products segments. To create a more
resilient portfolio, we made the decision to divest the
business units in our Cabinetry Products and Windows
and Other Specialty Products segments, which
included Masco Cabinetry, Milgard Windows & Doors
and the UK Window Group.
We initiated our transformative plan and while the
preparation, marketing and execution took several
months, by November 2019 we had completed the
sale of our Windows businesses and in February
2020, we completed the sale of our Cabinetry
business.
Today, Masco consists of two business
segments with significant similarities
that complement and strengthen each
other.
Our Plumbing Products and Decorative Architectural
Products segments serve common channels and
customers where we can leverage our consumer
insight and expertise. These segments have similar
margins and growth profiles. Both have strong brands
and are innovation leaders focused on homeowners
and professionals, consumers we know very well. We
believe that Masco is now positioned for long-term
growth with a high-quality resilient portfolio, industry-
leading positions and a strong focus on repair and
remodeling.
During 2019, we also executed and delivered on
commitments in other areas of our business. We
achieved sales growth of one percent and earnings
per share growth from continuing operations of
seven percent, despite slower overall end markets
and higher input costs for many of our products. Our
team demonstrated agility and responsiveness and
mitigated significant tariff headwinds faced by our
plumbing, lighting and hardware businesses. Delta
Faucet Company, Hansgrohe, Behr Paint Company
and Watkins Wellness each achieved record sales in
2019. We continued to gain share in the professional
and do-it-yourself paint channels through our well-
known and respected Behr® and Kilz®brands. And,
importantly, we continued to execute on our capital
allocation strategy and deployed over $1.2 billion
of capital in 2019 by repurchasing over 20 million
shares, reducing our debt by approximately $200
million and increasing our dividend by 12.5 percent.
This marks the sixth consecutive year we have
increased our dividend.
In addition to these accomplishments, we continue to
have a robust innovation pipeline and approximately
30 percent of our Plumbing Products and Decorative
Architectural Products revenue comes from
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products introduced in the last three years. Our
innovation excellence was demonstrated at the
recent Kitchen and Bath Industry Trade Show as
our Brizo® brand received top recognition for its
Kintsu™ Bath Collection, a bath suite that blends
Scandinavian and Japanese influences with our
Brilliance® black onyx finish. Our Hansgrohe® brand
received accolades for its Rainfinity™ shower
system, which offers a more luxurious showering
experience. Watkins Wellness recently introduced
the Freshwater® Salt System,
a breakthrough innovation that
makes spa ownership easier
than ever by removing the
guesswork and hassle of water
care maintenance. And Behr Paint
Company continued its history
of innovation with the recent
introductions of an eco-friendly
Simple Pour Lid and Ultra Scuff
Defense™ stain-blocking paint +
primer.
2019 marked the fifth
year that we have been executing
on our strategy to drive the full
potential of our businesses, leverage
opportunities across our organization
and actively manage our portfolio to
drive shareholder value.
As I look back, I believe we have effectively
navigated significant challenges while making
Masco a better company for the long term. Our
businesses are performing well, and the Masco
Operating System is building a winning organization
with continued cross-business unit leverage of
our brands, people and best practices. And,
importantly, our employees across the globe are
focused on delivering better living possibilities for
themselves, our consumers, our shareholders and
the communities where they live and work.
In 2020, we will continue to drive
the full potential of our business by
investing in our well-known brands,
innovation and operational excellence.
We see opportunities for continued growth in North
American and international plumbing and related
fields, e-commerce penetration and share gains in
architectural coatings products in both the do-it-
yourself and professional paint
channels. When we combine
our high-quality portfolio with
the strong fundamentals of the
repair and remodel industry, which
now represents approximately
90 percent of our business, we
believe we are well positioned for
profitable growth going forward.
I am proud of the hard work and
accomplishments of the Masco
team and pleased to be able to
say that our strategy and execution have driven
long-term value for our shareholders. We have made
substantial changes at Masco over the past five
years, and 2020 begins another exciting chapter in
our storied history.
KEITH J. ALLMAN
President and Chief
Executive Officer
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P L U M B I N G
P R O D U C T S
We are a leading provider of decorative and functional
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, bath hardware and
accessories, bathtubs, shower bases and enclosures,
toilets, spas, exercise pools and fitness systems, and
water handling systems.
KEY STRENGTHS
• Strong brands with industry-leading positions
• Broad product range with design and
innovation leadership
• Solid track record of execution
OUR BRANDS
Axor®
BrassCraft®
Bristan™
Brizo®
Cadence®
CalderaSpas®
Freeflow Spas®
Hüppe®
Peerless®
Cobra®
Delta®
Endless Pools®
Fantasy Spas®
Ginger®
Hansgrohe®
Heritage™
HotSpring®
Master Plumber®
Plumb Shop®
Mercury Plastics®
VaporTech®
Mirolin®
Waltec®
Newport Brass®
Featured Products: Hotspring® Highlife® Envoy® Tub, Hüppe® Cari™ Tub, Brizo® Rook® Articulating Bridge Faucet With Finished Hose
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D E C O R AT 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
coatings 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
• A market leader with long record of innovation
• Comprehensive product and service offerings
for professional and do-it-yourself painters
• Finish, design and category management
expertise in builders’ hardware and lighting
OUR BRANDS
BEHR®
Brainerd®
Élan®
Kichler®
Franklin Brass®
KILZ®
Liberty®
Vortex®
Featured Products: BEHR® Paint Charismatic PPUG-14, Kichler® Ellerbeck™ 1 Light Wall Sconce in Black, Liberty Hardware® Elegant Bail Cabinet Pulls in Champagne Bronze
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L E A D E R S H I P T E A M
B O A R D O F D I R E C T O R S
Front Row
Reginald M. Turner, Jr.1, 3
Attorney and Member,
Clark Hill PLC
Keith J. Allman
President and Chief
Executive Officer,
Masco Corporation
Richard A. Manoogian
Chairman Emeritus,
Masco Corporation
John C. Plant 1, 3
Chairman of the Board
and Co-Chief Executive
Officer,
Howmet Aerospace Inc.
(effective April 1, 2020)
Marie A. Ffolkes 1, 2
Chief Executive Officer,
TriMark USA, LLC
Donald R. Parfet 1, 2
Managing Director,
Apjohn Group, LLC
General Partner,
Apjohn Ventures Fund,
Limited Partnership
Back Row
J. Michael Losh 2, 3
Retired Chief Financial
Officer and Executive Vice
President,
General Motors Corporation
Chairman of the Board,
Masco Corporation
Lisa A. Payne 1, 2
Former Vice Chairman and
Chief Financial Officer,
Taubman Centers, Inc.
Charles K. Stevens, III1, 3
Retired Executive Vice
President and Chief
Financial Officer,
General Motors Company
Christopher A. O’Herlihy 1, 2
Vice Chairman,
Illinois Tool Works Inc.
Mark R. Alexander 1, 3
Chief Executive Officer,
Icelandic Provisions, Inc.
1 Member, Audit Committee 2 Member, Organization and Compensation Committee 3 Member, Corporate Governance and Nominating Committee
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C O R P O R AT E O F F I C E R S
Keith J. Allman
President and
Chief Executive Officer
Richard A. O’Reagan
Group President
David A. Chaika
Vice President, Treasurer and
Investor Relations
Darius Padler
Group Vice President, Europe
Kenneth G. Cole
Vice President, General
Counsel and Secretary
Jai Shah
Group President
John P. Lindow
Vice President, Controller and
Chief Accounting Officer
Renee Straber
Vice President, Chief
Human Resource Officer
Scott E. McDowell
Vice President,
Masco Operating System
John G. Sznewajs
Vice President,
Chief Financial Officer
B U S I N E S S U N I T E X E C U T I V E S
Imran Ahmad
Masco Canada
Jeffrey D. Filley
Behr Paint Company
David B. Humenik
Vapor Technologies
Jeff Slutz
Hüppe GmbH
Thomas S. Assante
Brasscraft Manufacturing
Company
John V. Halso
Brasstech Inc.
Hans-Jürgen Kalmbach
Hansgrohe SE
Mark A. Stull
Liberty Hardware Manufacturing
Jeffrey J. Burnett
Mercury Plastics LLC
Steven M. Hammock
Watkins Wellness
Kenneth W. Roberts
Delta Faucet Company
Irene Tasi
Kichler Lighting LLC
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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 innovative products,
our ability to maintain our competitive position in our
industries, our reliance on key customers, the cost and
availability of materials and the imposition of tariffs, our
dependence on third-party suppliers, risks associated
with our 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 and in
other filings we make with the Securities and Exchange
Commission. 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.
Featured Products: Endless Pools® E500 – 15’ Fitness System, BEHR® Paint Rumba Orange M230-7, Brizo® Invari™ Two-Handle Wall Mount Tub Filler Wall Mount
Handle Kit - Lever
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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, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
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
Trading Symbol
MAS
Name of Each Exchange
On Which Registered
New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an 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
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, 2019 (based
on the closing sale price of $39.24 of the Registrant's Common Stock, as reported by the New York Stock Exchange on such
date) was approximately $11,280,228,700.
Number of shares outstanding of the Registrant's Common Stock at January 31, 2020:
277,735,100 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 2020 Annual Meeting of Stockholders are incorporated
by reference into Part III of this Form 10-K.
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Masco Corporation
2019 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
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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 associated with our continuing operations includes
BEHR® paint; DELTA® and HANSGROHE® faucets and bath and shower fixtures; 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 2019 resulted from our focus on our three
strategic pillars:
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•
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drive the full potential of our core businesses;
leverage opportunities across our enterprise; and
actively manage our portfolio.
In 2019, we also continued to focus on our capital allocation strategy to enhance shareholder value by repurchasing
over 20 million shares of our common stock and increasing our quarterly dividend by 12.5 percent. We will continue
the disciplined execution of our strategy in 2020.
In addition, in 2019, we completed the divestitures of our Milgard Windows and Doors business ("Milgard") and
our UK Windows Group business ("UKWG"), and in November we entered into a definitive agreement to sell our Masco
Cabinetry business, which we expect to close in the first quarter of 2020. As a result, our Windows and Other Specialty
Products segment and our Cabinetry Products segment are accounted for as discontinued operations in our
consolidated financial statements. The following discussion in this "Item 1." relates only to our continuing operations
unless otherwise noted.
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 from continuing operations in two segments, our Plumbing Products segment and
our Decorative Architectural Products segment, which are aggregated by product similarity. Our Decorative
Architectural Products segment is impacted by seasonality and normally experiences stronger sales during the second
and third calendar quarters, corresponding with the peak season for repair and remodel activity.
Plumbing Products
The businesses in our Plumbing Products segment sell a wide variety of products that are manufactured or
sourced by us.
• Our 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.The majority of our faucet, 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.
• 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.
• 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.
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• 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 solutions, extruded plastic profiles and specialized
fabrications, as well as PEX tubing, 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 Fortune Brands Home & Security, Inc.'s Moen, Rohl and Riobel
brands, Kohler Co., Lixil Group Corporation’s American Standard and Grohe brands and Spectrum Brands
Holdings, Inc.’s Pfister faucets. Competitors of our spas and exercise pools and systems include Artesian Spas, Jacuzzi
and Master Spas brands. Foreign manufacturers competing with us are located primarily in Europe 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 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 have been and may in the future 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 31 percent , 30 percent and 32 percent of our consolidated
net sales from our continuing operations in 2019, 2018, and 2017, respectively. 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.'s Glidden, Olympic, Pittsburgh Paints and PPG brands, The Sherwin Williams Company's Minwax,
Sherwin-Williams, Thompson’s Water Seal and Valspar brands and RPM International, Inc.'s 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 principal 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
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.
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Our Decorative Architectural Products segment includes branded cabinet and door hardware, functional
hardware, wall plates, hook and hook 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. Our key competitors in North America include Amerock Hardware, Richelieu Hardware Ltd.,
Top Knobs 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 Fortune Brands Home & Security, Inc.'s
Moen brand, Gatco Fine Bathware, Kohler Co. and private label brands.
This segment also includes 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, Generation Brands, Hinkley Lighting, Inc., Hubbell Incorporated's
Progress Lighting brand, Hunter Fan Company and private label brands.
We import certain materials and products for this segment that have been and may in the future be subject to
duties and tariffs.
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.
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 either of our segments.
Employees
At December 31, 2019, our continuing operations employed approximately 18,000 people. In addition, our Masco
Cabinetry business employed approximately 4,000 people whose employment with us will terminate upon completion
of the divestiture. 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.
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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 impacted by a number of economic factors and the housing market.
Our business relies on residential repair and remodeling activity and, to a lesser extent, on new home construction
activity. A number of factors impact 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 impacted by 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 innovative 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. Our initiatives to invest in brand building, brand awareness and product
innovation may not be successful. The uncertainties associated with developing and introducing innovative and
improved products, such as gauging changing consumer demands and preferences and successfully developing,
manufacturing, marketing and selling these products, may impact the success of our product introductions. If the
products we introduce do not gain widespread acceptance or if our competitors improve their products more rapidly
or effectively than we do, we could lose market share or be required to reduce our prices, which could adversely impact
our results of operations and financial position.
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 preferences, including a shift in
consumer purchasing practices toward e-commerce, our relationships with our customers and with consumers could
be harmed, the demand for our brands and products could be reduced and our results of operations and financial
position could be adversely affected.
Our public image and reputation are important to maintaining our strong brands and could be adversely affected
by various factors, including product quality and service, claims and comments in social media or the press, or negative
publicity regarding disputes or legal action against us, even if unfounded. Damage to our public image or reputation
could adversely affect our sales and results of operations and financial position.
5
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, innovation, 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.
Certain of our customers are increasingly selling products sourced from low cost foreign manufacturers under
their own private label brands, which directly compete with our brands. As this trend continues, we may experience
lower demand for our products or a shift in the mix of some products we sell toward more value priced or opening
price point products, which may affect our profitability.
In addition, we face competitive pricing pressure in the marketplace, including sales promotion programs, that
could affect our market share or result in price reductions, which could adversely impact our results of operations and
financial position.
Further, the growing e commerce channel brings an increased number of competitors and greater pricing
transparency for consumers, as well as conflicts between our existing distribution channels and a need for different
distribution methods. These factors 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.
As a result of the divestiture of our windows business in 2019 and the expected divestiture of our cabinetry
business, the mix of our business operations has changed and the concentration of our sales to our two largest
customers has increased and may continue to increase. In 2019, our net sales from our continuing operations to The
Home Depot were $2.5 billion (approximately 37 percent of our consolidated net sales), and our net sales from our
continuing operations to Lowe’s were less than 10 percent of our consolidated net sales. 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 the cost of our raw materials, component parts and finished goods, including the imposition of
tariffs could affect our results of operations and financial position.
We purchase substantial amounts of raw materials, component parts and finished goods from outside sources,
including international sources, and we manufacture certain of our products outside of the United States. Increases
in the cost of the materials we purchase have in the past and may in the future increase the prices for our products,
including as a result of new significant tariffs. For example, the recent trade dispute between the United States and
China has resulted in increased tariffs which raised the cost of certain of our materials. There is a risk that additional
tariffs on imports from China or new tariffs could be imposed, which could further increase the cost of the materials
we purchase or import or the products we manufacture internationally. Further, our production could be affected if we
or our suppliers are unable to procure our requirements for various commodities, including, among others, brass,
resins, titanium dioxide and zinc, or if a shortage of these commodities results in significantly increased costs. Rising
energy costs could also 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.
6
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
material and production costs, including the impact of increasing tariffs, our results of operations and financial position
could be adversely affected. Increased selling prices for our products have and may in the future lead to sales declines
and loss of market share, particularly if those prices are not competitive. When our material costs 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 the commodities we require to produce our products 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 alternate suppliers, including suppliers from new geographic regions,
is time-consuming and costly and could result in inefficiencies or delays in our business operations. 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 2019, 21 percent of our sales from continuing operations were made outside of North America (principally in
Europe) and 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 domestic and international laws applicable to companies doing business abroad or
importing and exporting 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 is 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 continues
to develop, 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.
7
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. 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 within a
desired time frame or at acceptable terms and prices, our long term competitive positioning may be affected. Even if
we are successful in acquiring businesses, the businesses we acquire may not be able to achieve the revenue,
profitability or growth we anticipate, or we may experience challenges and risks in integrating these businesses into
our existing business. Such risks include:
• difficulties realizing expected synergies and economies of scale;
• diversion of management attention and 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 invest significant resources to attract, develop and retain highly qualified, talented
and diverse employees at all levels, who have the experience, knowledge and expertise to implement our strategic
initiatives. We compete for employees with a broad range of employers in many different industries, including large
multinational firms, and we may fail in recruiting, developing, motivating and retaining them, particularly with low
unemployment levels in the United States. 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 employees.
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 may in the future be damaged, disrupted, or shut
down due to cybersecurity attacks by unauthorized access, malware, ransomware, undetected intrusion, hardware
failures, or other events, and in these circumstances our disaster recovery plans may be ineffective or inadequate.
These breaches or intrusions have led and could in the future lead to business interruption, production or operational
downtime, product shipment delays, exposure or loss of proprietary, confidential, personal or financial information,
data corruption, an inability to report our financial results in a timely manner, damage to the reputation of our brands,
damage to our relationships with our customers and suppliers, exposure to litigation, and increased costs associated
with the remediation and mitigation of such attacks. Such events could adversely affect our results of operations and
8
financial position. In addition, we could be adversely affected if any of our significant customers or suppliers experiences
any similar events that disrupt their business operations or damage their reputation.
We may not 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, and we have experienced, and may continue to experience, unanticipated expenses and
interruptions to our operations during these implementations. Our results of operations and financial position, as well
as the effectiveness of our internal controls over financial reporting, 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, mass torts 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, product 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;
• minimum wage requirements;
• 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 or channels or for new applications,
we are subject to the requirements applicable to those sales. 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. These compliance activities
are costly and require significant management attention and resources. If we do not effectively and timely comply with
such regulations and industry standards, our results of operations and financial position could be adversely affected.
9
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 has been and may again 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, customers or suppliers have or may have had access to proprietary or confidential information regarding
our business operations that could harm us if used by them, 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 principal North American properties used by our continuing operations.
Business Segment
Plumbing Products
Decorative Architectural Products
Totals
Manufacturing
20
8
28
Warehouse
and
Distribution
7
16
23
Most of our North American facilities used by our continuing operations 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.
Our Masco Cabinetry business uses 8 manufacturing facilities and 3 warehouse buildings, each located within
North America.
The table below lists principal properties used by our continuing operations outside of North America.
Business Segment
Plumbing Products
Decorative Architectural Products
Totals
Manufacturing
10
—
10
Warehouse
and
Distribution
18
—
18
Most of our international facilities used by our continuing operations are 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.
There are no international properties associated with our Masco Cabinetry business.
10
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.
11
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, 2020, there were approximately 3,100 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 September 2019, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of
shares of our common stock in open-market transactions or otherwise, replacing the previous authorization established
by our Board of Directors in 2017. During 2019, we repurchased and retired 20.1 million shares of our common stock
(including 0.6 million shares to offset the dilutive impact of long-term stock awards granted during the year), for
approximately $896 million. At December 31, 2019, we had $1.5 billion remaining under the 2019 authorization. The
following table provides information regarding the repurchase of our common stock for the three-month period ended
December 31, 2019.
Period
10/1/19 - 10/31/19
11/1/19 - 11/30/19 (A)
12/1/19 - 12/31/19
Total for the quarter
_____________________________
Total Number
of Shares
Purchased
Average Price
Paid Per
Common Share
726,500 $
7,869,212 $
— $
8,595,712
42.52
54.03
—
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs
Maximum Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
726,500 $ 1,926,741,040
7,869,212 $ 1,501,539,755
— $ 1,501,539,755
8,595,712 $ 1,501,539,755
(A)
In November 2019, we entered into an accelerated stock repurchase transaction whereby we agreed to
repurchase a total of $400 million of our common stock with an initial delivery of 7.3 million shares. This
transaction will be completed in February 2020, at which time we anticipate we will receive, at no additional
cost, 1.2 million additional shares of our common stock resulting from expected changes in the volume weighted
average stock price of our common stock over the term of the transaction. The average price paid per common
share does not reflect the holdback shares that we expect to receive upon completion of the accelerated stock
repurchase transaction. If we had received the expected additional 1.2 million shares at inception of the
accelerated stock repurchase transaction, the total number of shares purchased under this transaction would
have been approximately 8.5 million with an average price paid per common share of approximately $47.25.
12
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, 2014 through December 31, 2019, when the closing price of our
common stock was $47.99. The graph assumes investments of $100 on December 31, 2014 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, 2014 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 $
2015
129.60 $
101.38 $
97.47 $
99.25 $
2016
146.62 $
2017
206.07 $
2018
138.69 $
2019
230.60
113.51 $
138.29 $
132.23 $
115.85 $
140.22 $
121.58 $
93.48 $
110.85 $
97.60 $
173.86
157.29
131.17
13
Item 6. Selected Financial Data.
Net sales (1)(2)
Operating profit (1)(2)(3)
Income from continuing operations attributable
to Masco Corporation (1)(2)
Income per common share from continuing
operations (1)(2):
Basic
Diluted
Dividends declared
Dividends paid
At December 31:
Total assets (2)
Long-term debt
Shareholders' (deficit) equity (2)
Dollars in Millions (Except Per Common Share Data)
2019
2018
2017
2016
2015
$
6,707 $
6,654 $
6,014 $
5,754 $
5,513
1,088
1,077
1,029
639
636
426
986
426
$
2.21 $
2.06 $
1.34 $
1.29 $
2.20
0.510
0.495
2.05
0.450
0.435
1.33
0.410
0.405
1.28
0.390
0.385
$
5,027 $
5,393 $
5,534 $
5,164 $
2,771
(56)
2,971
69
2,969
183
2,995
(96)
798
282
0.82
0.81
0.370
0.365
5,664
2,403
58
(1) Amounts exclude discontinued operations for all periods presented. Refer to Note B to the consolidated financial
statements for further details.
(2) Net sales, operating profit, income from continuing operations attributable to Masco Corporation, income per
common share from continuing operations, total assets and shareholders' equity for 2015 has not been recast for
the impact of the adoption of Accounting Standards Codification 606.
(3) Operating profit for 2015 has not been recast for the impact of the adoption of Accounting Standards Update
2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension
Cost and Net Periodic Postretirement Benefit Cost."
14
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 innovative products, our ability to maintain our competitive position in our industries, our reliance on key
customers, the cost and availability of materials and the imposition of tariffs, our dependence on third-party suppliers,
risks associated with our international operations and global strategies, our ability to achieve the anticipated benefits
of our strategic initiatives, including the pending divestiture of our Masco Cabinetry business, 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, to a lesser extent, new home construction. We sell our products
through home center retailers, online retailers, mass merchandisers, hardware stores, homebuilders, distributors, and
direct to the consumer.
2019 Results
Net sales were positively impacted by increased net selling prices across our two segments and the acquisition
of The L.D. Kichler Co. ("Kichler") in March 2018. Such increases were partially offset by a decrease in volume, primarily
in our Decorative Architectural Products segment and unfavorable foreign currency translation.
Our Plumbing Products segment was negatively impacted by an increase in other expenses (such as salaries,
marketing spend and severance charges), an increase in commodity costs, unfavorable foreign currency translation,
and higher depreciation expense. These negative impacts were partially offset by increased net selling prices and the
benefits associated with cost savings initiatives. Our Decorative Architectural Products segment was positively impacted
by increased net selling prices across the segment, the absence of the recognition of the inventory step-up adjustment
established as part of the 2018 Kichler acquisition, and the benefits associated with cost savings initiatives. These
positive impacts were partially offset by an increase in commodity costs and lower sales volume across the segment,
an increase in strategic growth investments and a non-cash impairment charge related to an other indefinite-lived
intangible asset for a trademark associated with lighting products.
15
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. 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 exposure for credit losses on 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. 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.
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 primarily 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. For our Masco
Cabinetry reporting unit, we utilized a market approach to determine its fair value instead of the discounted cash flow
method, as we were actively marketing the Masco Cabinetry business for sale and on November 14, 2019 we entered
into a definitive agreement to sell the business. 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
stable U.S. Gross Domestic Product growing at approximately 1.9 percent per annum and a eurozone Gross Domestic
Product growing at approximately 1.0 percent per annum over the five-year forecast.
16
We utilize our weighted average cost of capital of approximately 8.0 percent as the basis to determine the discount
rate to apply to the estimated future cash flows. Our weighted average cost of capital decreased in 2019 as compared
to 2018, primarily due to declining interest rates and lower long-term market growth outlooks. In 2019, based upon
our assessment of the risks impacting each of our businesses, we applied a risk premium to increase the discount
rate to a range of 10.0 percent to 12.0 percent for our reporting units.
If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized to the extent
that a reporting unit's recorded carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in
that reporting unit.
In the fourth quarter of 2019, 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 have resulted in a $35 million impairment
to one of our reporting units.
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 utilize 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 8.0 percent as the basis to determine the discount
rate to apply to the estimated future cash flows. In 2019, 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 13.0 percent for
our other indefinite-lived intangible assets.
In the fourth quarter of 2019, 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 $3 million impairment for one of our trade names.
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 2019, our Board of Directors approved the termination of our qualified domestic defined-benefit
pension plans. As a result of this decision, the projected benefit obligations for these plans were increased to reflect
the incremental costs to terminate the plans. Upon termination in 2021, we expect to recognize from accumulated
other comprehensive loss approximately $420 million of pre-tax actuarial losses and approximately $90 million of
income tax benefit, which includes approximately $11 million of tax expense from the elimination of a disproportionate
tax effect.
In December 2019, our discount rate for obligations decreased to a weighted average of 2.5 percent from
3.8 percent. The discount rate for obligations is based primarily upon the expected duration of each defined-benefit
pension plan's liabilities matched to the December 31, 2019 Willis Towers Watson Rate Link Curve. For our qualified
domestic defined-benefit pension plans, the projected benefit obligations include the estimated incremental cost related
to the termination. For these plans, the discount rate was then set equal to the discount rate that results in the same
projected benefit obligation resulting from the normal projected benefit obligation calculation plus the estimated
incremental cost to terminate. The discount rates we use for our defined-benefit pension plans ranged from 1.1 percent
to 3.0 percent, with the most significant portion of the liabilities having a discount rate for obligations of 2.4 percent or
17
higher. The assumed asset return was primarily 3.0 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.
The net underfunded amount for our qualified defined-benefit pension plans, which is the difference between the
projected benefit obligation and plan assets, increased to $254 million at December 31, 2019 from $226 million at
December 31, 2018. Our projected benefit obligation for our unfunded, non-qualified, defined-benefit pension plans
increased to $161 million at December 31, 2019 from $155 million at December 31, 2018. 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 119 percent.
The increase in our qualified defined-benefit pension plan projected benefit obligation was primarily impacted by
a decrease in the discount rate. During 2019, we contributed $56 million to our qualified defined-benefit pension plans,
and our qualified defined-benefit pension plan assets had a positive return of 17.7 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 $30 million in 2020 compared
with $16 million in 2019. 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 2020 pension expense would increase by $5 million.
Assuming a 0 percent asset return for our qualified domestic defined-benefit pension plans, projected 2020 total
qualified defined-benefit pension plan expenses are expected to be approximately $37 million. We expect pension
expense for our non-qualified defined-benefit pension plans to be $8 million in 2020, consistent with the pension
expense recognized in 2019.
We anticipate that we will be required to contribute approximately $23 million in 2020 to our qualified and non-
qualified defined-benefit plans; however, we currently anticipate contributing approximately $64 million in 2020. 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, 2019.
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 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.
18
Corporate Development Strategy
We expect to maintain a balanced growth strategy pursuing organic growth by maximizing the full potential of
our existing businesses and, as appropriate, 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.
During 2019, we completed the divestitures of our UKWG and Milgard businesses and entered into a definitive
agreement to sell our Masco Cabinetry business. 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 102 percent and 98 percent at December 31, 2019 and
2018, respectively. Refer to Note K to the consolidated financial statements for additional information.
During 2019, we completed the divestitures of our UKWG and Milgard businesses and entered into a definitive
agreement to sell our Masco Cabinetry business. With the combined proceeds of $722 million for the UKWG and
Milgard divestitures, we executed an accelerated stock repurchase agreement to repurchase $400 million of our
common stock. This repurchase is under Masco's existing share repurchase authorization of $2.0 billion of shares of
our common stock, which was approved in September 2019. During 2019, including the accelerated stock repurchase
agreement, we repurchased 20.1 million shares of our common stock for cash aggregating $896 million.
Additionally, we redeemed and retired $201 million of our 7.125% Notes due March 15, 2020 on December 19,
2019. In connection with this early retirement, we incurred a loss on debt extinguishment of $2 million, which was
recorded as interest expense in our consolidated statement of operations.
In the third quarter of 2019, we increased our quarterly dividend to $.135 per common share from $.12 per
common share.
On March 13, 2019, we entered into a credit agreement (the "Credit Agreement") with an aggregate commitment
of $1.0 billion and a maturity date of March 13, 2024. Under the Credit Agreement, at our request and subject to certain
conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or
new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with
an aggregate commitment of $750 million, was terminated. See Note K to the consolidated financial statements.
The Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted
for certain items, not exceeding 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items,
not less than 2.5 to 1.0. We were in compliance with all covenants and no borrowings were outstanding under our
Credit Agreement at December 31, 2019.
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.
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.
19
As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize
our terms and conditions, including extending payment terms. We also facilitate a voluntary supply chain finance
program (the "program") to provide certain of our suppliers with the opportunity to sell receivables due from us to
participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third party
administers the program; our responsibility is limited to making payment on the terms originally negotiated with our
supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements
with any of the participating financial institutions in connection with the program. The range of payment terms we
negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program.
All outstanding payments owed under the program are recorded within accounts payable in our consolidated
balance sheets. The amounts owed to participating financial institutions under the program and included in accounts
payable for our continuing operations were $29 million and $35 million at December 31, 2019 and 2018, respectively.
We account for all payments made under the program as a reduction to our cash flows from operations and reported
within our (decrease) increase in accounts payable and accrued liabilities, net, line within our consolidated statements
of cash flows. The amounts settled through the program and paid to participating financial institutions were $164 million,
$117 million, and $186 million for our continuing operations during the years ended December 31, 2019, 2018, and
2017, respectively. A downgrade in our credit rating or changes in the financial markets could limit the financial
institutions’ willingness to commit funds to, and participate in, the program. We do not believe such risk would have a
material impact on our working capital or cash flows, as substantially all of our payments are made outside of the
program.
We had cash and cash investments of approximately $697 million at December 31, 2019. 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.
Of the $697 million and $552 million of cash and cash investments we held at December 31, 2019 and 2018,
respectively, $297 million and $270 million, respectively, was 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 1.8 to 1 and 1.6 to 1 at December 31, 2019 and 2018, respectively. The increase in our
current ratio is due primarily to the cash received from the divestiture of our Milgard business less cash used for the
accelerated stock repurchase agreement and to repay and retire our 7.125% Notes due March 15, 2020.
20
Cash Flows
Significant sources and (uses) of cash in the past three years are summarized as follows, in millions:
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 increase (decrease)
Our working capital days were as follows:
Receivable days
Inventory days
Accounts Payable days
2019
2018
2017
$
833 $
1,032 $
(201)
(896)
(144)
(42)
(162)
(2)
—
—
(23)
722
34
1
(8)
—
14
12
(114)
(654)
(134)
(89)
(219)
—
(549)
—
(42)
—
14
5
(1)
108
4
4
$
138 $
(635) $
At December 31,
2019
2018
54
67
68
751
(535)
(331)
(129)
(35)
(173)
(104)
(89)
593
(33)
128
24
7
(3)
112
55
(34)
204
54
71
69
Working capital (receivables plus inventories, less accounts payable) as a
percentage of net sales
15.7%
15.8%
Net cash provided by operations of $833 million consisted primarily of net income adjusted for certain non-cash
items, including depreciation and amortization expense of $159 million, stock-based compensation expense and
amortization expense related to in-store displays, as well as employee withholding taxes paid on stock-based
compensation, which is classified as a financing activity. These amounts were partially offset by the net gain on the
sale of Milgard and UKWG as well as contributions to our defined-benefit pension plans.
Net cash used for financing activities was $1,291 million, primarily due to $896 million for the repurchase and
retirement of Company common stock (as part of our strategic initiative to drive shareholder value), $201 million for
the early retirement of our 7.125% Notes due March 15, 2020, $144 million for the payment of cash dividends, $42
million for dividends paid to noncontrolling interests and $23 million for employee withholding taxes paid on stock-
based compensation. These uses of cash were slightly offset by $27 million of proceeds from the exercise of stock
options.
21
In September 2019, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of
shares of our common stock in open-market transactions or otherwise, replacing the previous authorization established
by our Board of Directors in 2017. During 2019, we repurchased and retired 20.1 million shares of our common stock,
(including 0.6 million shares repurchased to offset the dilutive impact of long-term stock awards granted in 2019). At
December 31, 2019, we had $1.5 billion remaining under the authorization. Consistent with past practice and as part
of our strategic initiative to drive shareholder value, we anticipate using approximately $1.2 billion 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 2020.
Net cash provided by investing activities was $582 million, primarily driven by $720 million of proceeds from the
sale of Milgard, net of cash disposed, partially offset by $162 million for capital expenditures.
We continue to invest in our manufacturing and distribution operations to increase our productivity, improve
customer service and support product innovation. Capital expenditures for 2019 were $162 million, compared with
$219 million for 2018 and $173 million for 2017. For 2020, capital expenditures of our continuing operations, excluding
any potential acquisitions, are expected to be approximately $150 million. Depreciation and amortization expense for
2019 totaled $159 million, compared with $156 million for 2018 and $127 million for 2017. For 2020, depreciation and
amortization expense of our continuing operations, excluding any potential 2020 acquisitions, is expected to be
approximately $140 million. Amortization expense totaled $27 million in 2019, compared with $24 million and
$11 million in 2018 and 2017, 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 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 2019 were $6.7 billion, which increased one percent compared to 2018. Excluding acquisitions and
the effect of currency translation, net sales increased one percent. The following table reconciles reported net sales
to net sales excluding acquisitions and the effect of currency translation, in millions:
Net sales, as reported
Acquisitions
Net sales, excluding acquisitions
Currency translation
Net sales, excluding acquisitions and the effect of currency translation
Year Ended
December 31
2019
2018
$
$
6,707 $
(65)
6,642
77
6,719 $
6,654
—
6,654
—
6,654
22
Net sales for 2019 increased one percent primarily due to increased net selling prices of our plumbing products
and paints and other coating products, which, in aggregate, increased sales by two percent. The acquisition of Kichler
in March 2018 increased sales by one percent. Net sales for 2019 were negatively impacted by decreased sales
volume of our lighting products which decreased sales by one percent. Foreign currency translation also decreased
sales by one percent.
Net sales for 2018 increased 11 percent primarily due to the acquisition of Kichler in March 2018 and Mercury
Plastics, Inc. ("Mercury") in December 2017, which increased sales by six percent. Net sales were also positively
impacted by increased sales volume of plumbing products, which increased sales by three percent, and net selling
price increases of paints and other coating products, and plumbing products, 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 Fastener Co., LLC ("Arrow") and Moores Furniture Group Limited ("Moores")
businesses, which, in aggregate, decreased sales by one percent.
Our gross profit margins were 35.4 percent, 35.0 percent and 36.9 percent in 2019, 2018 and 2017, respectively.
The 2019 gross profit margin was positively impacted by increased net selling prices and the absence of the recognition
of the inventory step up adjustment established as part of the acquisition of Kichler. Such increases were partially
offset by an increase in commodity costs including tariffs. 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
acquisition of Kichler, an increase in other expenses (such as salaries and logistics costs) and unfavorable sales mix.
These negative impacts were partially offset by an increase in net selling prices, increased sales volume, and the
benefits associated with cost savings initiatives.
Selling, general and administrative expenses as a percent of sales were 19.0 percent in 2019 compared with
18.8 percent in 2018 and 19.8 percent in 2017. The increase in selling, general, and administrative expenses as a
percentage of sales in 2019 was primarily driven by an increase in marketing spend. The decrease in selling, general,
and administrative expenses as a percentage of sales in 2018 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
Impairment charge for other intangible assets
Operating profit, as adjusted
Operating profit margins, as reported
Operating profit margins, as adjusted
2019
2018
2017
$
1,088
$
1,077
$
1,029
13
—
9
9
40
—
2
—
—
$
1,110
$
1,126
$
1,031
16.2%
16.5%
16.2%
16.9%
17.1%
17.1%
Operating profit in 2019 was positively affected by increased net selling prices, the absence of the recognition
of the Kichler inventory step up adjustment and benefits associated with cost savings initiatives. These positive impacts
were partially offset by an increase in commodity costs including tariffs and an increase in other expenses (such as
salaries). Operating profit in 2018 was positively affected by increased net selling prices, increased sales volume, and
benefits associated with cost savings initiatives. These positive impacts were partially offset by an increase in
commodity costs, the recognition of the Kichler inventory step up adjustment and an increase in other expenses (such
as salaries, logistics costs, and ERP costs).
Other Income (Expense), Net
Other, net, for 2019 included $21 million of net periodic pension and post-retirement benefit cost, partially offset
by $2 million of realized foreign currency transaction gains and $1 million of earnings related to equity method
investments.
Other, net, for 2018 included $14 million of net periodic pension and post-retirement benefit cost and $8 million
of realized foreign currency transaction losses. These expenses were partially offset by $3 million of earnings related
to equity method investments and $1 million related related to distributions from private equity funds.
23
Interest expense was $159 million, $156 million and $279 million in 2019, 2018 and 2017, 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.
Income and Income Per Common Share from Continuing Operations (Attributable to Masco
Corporation)
Income and diluted income per common share from continuing operations for 2019 were $639 million and $2.20
per common share, respectively. Income and diluted income per common share from continuing operations for 2018
were $636 million and $2.05 per common share, respectively. Income and diluted income per common share from
continuing operations for 2017 were $426 million and $1.33 per common share, respectively.
Our effective tax rate was 25 percent, 24 percent and 34 percent in 2019, 2018 and 2017, 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 26 percent for both 2019 and 2018 and 34 percent for 2017.
Our effective tax rate in 2019 and 2018 was lower than our normalized of 26 percent due primarily to a $3 million
income tax benefit from a change in judgment regarding the realizability of certain deferred tax assets in our state and
foreign jurisdictions recognized in 2019 and a $4 million and $14 million tax benefit from stock-based compensation
payments recognized in 2019 and 2018, respectively.
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 $18 million tax benefit from
stock-based compensation payments recognized in 2017.
Refer to Note R to the consolidated financial statements for additional information.
Outlook for the Company
We continue to execute our long-term growth strategies by leveraging our strong brand portfolio, industry-leading
positions and Masco Operating System, our methodology to drive growth and productivity. We remain confident in
the fundamentals of our business and will continue to execute on our strategies to create shareholder value. 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 value for shareholders. Additionally, we completed the divestitures of Milgard and UKWG, as well as, entered
into a definitive agreement to sell our Masco Cabinetry business. The closing of the sale of our Masco Cabinetry
business is expected during the first quarter of 2020, subject to customary closing conditions.
24
Business Segment and Geographic Area Results
The following table sets forth our net sales and operating profit information for our continuing operations by
business segment and geographic area, dollars in millions.
2019
2018
2017
Net Sales:
Plumbing Products
Decorative Architectural Products
Total
North America
International, principally Europe
Total
Divestitures not included in discontinued operations
(A)
Total net sales
$
$
$
$
$
3,984 $
2,723
6,707 $
5,328 $
1,379
6,707 $
—
6,707 $
Operating Profit: (B)
Plumbing Products
Decorative Architectural Products
Total
North America
International, principally Europe
Total
General corporate expense, net
Divestitures not included in discontinued operations (A)
Percent
Change
2019 vs.
2018
2018 vs.
2017
— %
3 %
1 %
2 %
(5)%
1 %
7%
20%
12%
14%
6%
12%
3,998 $
2,656
6,654 $
5,208 $
1,446
6,654 $
3,732
2,206
5,938
4,568
1,370
5,938
—
76
6,654 $
6,014
1 %
11%
2019
2018
2017
$
$
$
708 $
480
715 $
456
702
438
1,188 $
1,171 $
1,140
987 $
954 $
201
1,188
(100)
—
217
1,171
(94)
—
924
216
1,140
(105)
(6)
Total operating profit
$
1,088 $
1,077 $
1,029
(A) Divestitures not included in discontinued operations, refer to Note P to the consolidated financial statements for
additional information.
(B) Before general corporate expense, net; refer to Note P to the consolidated financial statements for additional
information.
25
Business Segment Results Discussion
Changes in operating profit 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.
Description of changes to sales and operating profit between 2018 and 2017 for the Plumbing Products and
Decorative Architectural Products segments were excluded as there were no changes from what was disclosed in the
December 31, 2018 Form 10-K.
Plumbing Products
Sales
Net sales in the Plumbing Products segment were flat in 2019. Net selling price increases of North American
operations increased sales by two percent. This increase was offset by foreign currency translation, which decreased
sales by two percent.
Operating Results
Operating profit in the Plumbing Products segment in 2019 was negatively impacted by an increase in other
expenses (such as salaries, marketing spend and severance charges), an increase in commodity costs including tariffs,
unfavorable foreign currency translation, and unfavorable mix. These negative impacts were partially offset by increased
net selling prices and benefits associated with cost savings initiatives.
Decorative Architectural Products
Sales
Net sales of Decorative Architectural Products increased three percent in 2019. The acquisition of Kichler
increased sales by two percent. Net selling price increases of paints and other coating products and to a lesser extent,
lighting products and builders' hardware also increased sales. Such increases were partially offset by lower sales
volume, primarily related to our lighting products.
Operating Results
Operating profit in the Decorative Architectural Products segment in 2019 was positively impacted by increased
net selling prices, the absence of the recognition of the Kichler inventory step up adjustment, and the benefits associated
with cost savings initiatives. These positive impacts were partially offset by an increase in commodity costs including
tariffs, lower sales volume, an increase in strategic growth investments and a non-cash impairment charge related to
an other indefinite-lived intangible asset for a trademark associated with lighting products.
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, headcount reductions and other cost savings initiatives.
In 2019, 2018 and 2017, we incurred net pre-tax costs and charges related to these initiatives of $13 million, $9 million,
and $2 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 2019, 2018 and 2017, our Plumbing Products segment incurred costs and charges of $13 million, $9
million and $2 million, respectively. The 2019 costs primarily related to severance and plant consolidation costs in
North America. The 2018 costs primarily related to plant closure costs in North America.
26
Geographic Area Results Discussion
North America
Sales
North American net sales in 2019 increased two percent. Net selling price increases of plumbing products and
paints and other coating products, in aggregate, increased sales by two percent. The acquisition of Kichler in March
2018 increased sales by one percent. Such increases were partially offset by lower sales volume of lighting products,
which decreased sales by one percent.
North American net sales in 2018 increased 14 percent. Net sales were positively impacted by the acquisitions
of Kichler and Mercury which, in aggregate, increased sales by eight percent. Net sales were also positively impacted
by increased sales volume of plumbing products, which increased sales by four percent, and increased net selling
prices of paints and other coating products, which increased sales by two percent.
Operating Results
Operating profit from North American operations in 2019 was positively affected by net selling price increases of
plumbing products and paints and other coating products, the absence of the Kichler inventory step-up adjustment,
and benefits associated with cost savings initiatives. The positive impacts were partially offset by increased commodity
costs and lower volume.
Operating profit from North American operations in 2018 was positively affected by increased net selling prices,
higher sales volume, and the benefits associated with cost savings initiatives. These positive impacts were partially
offset by an increase in commodity costs, the recognition of the Kichler inventory step up adjustment and an increase
in other expenses (such as salaries, logistics costs, and ERP costs).
International, Principally Europe
Sales
Net sales from International operations in 2019 decreased five percent. In local currencies (including sales in
foreign currencies outside their respective functional currencies), net sales were flat with favorable net selling prices
of plumbing products being offset by unfavorable sales mix.
Net sales from International operations in 2018 increased six percent. In local currencies, net sales increased
two percent, primarily due to higher sales volume of plumbing products, which increased sales by two percent, and
net selling price increases, which increased sales by two percent. Such increases were partially offset by an unfavorable
sales mix, which decreased sales by one percent.
Operating Results
Operating profit from International operations in 2019 was negatively impacted by other expenses (such as
salaries and marketing spend), unfavorable foreign currency translation and an increase in commodity costs, partially
offset by increased net selling prices.
Operating profit from International operations in 2018 was positively impacted by increased net selling prices,
higher sales volume and favorable foreign currency translation, mostly offset by an increase in other expenses (such
as salaries and logistic costs), an increase in commodity costs and unfavorable sales mix.
27
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.
28
Contractual Obligations
The following table provides payment obligations related to current contracts at December 31, 2019, in millions:
2020
2021-2022
2023-2024
Beyond
2024
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)
$
2 $
731 $
5 $
2,052 $
— $
134
45
10
—
240
—
236
200
70
—
—
1
—
37
—
—
—
—
576
101
—
—
—
—
—
—
—
4
—
73
2,790
1,146
253
10
4
241
73
Total
$
431 $
1,038 $
242 $
2,729 $
77 $
4,517
(A) We assume that all debt would be held to maturity. Amounts include finance 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.
29
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 insignificant involvement with derivative financial instruments
and use such instruments to the extent necessary to manage exposure to foreign currency fluctuations.
At December 31, 2019, 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.
30
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.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2019 using the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal
Control – Integrated Framework (2013). Based on this assessment, we have determined that our internal control over
financial reporting was effective as of December 31, 2019.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness
of our internal control over financial reporting as of December 31, 2019, as stated in their report, which is presented
herein. Their report expressed an unqualified opinion on the effectiveness of our internal control over financial reporting
as of December 31, 2019 and expressed an unqualified opinion on our 2019 consolidated financial statements. This
report appears under 'Item 8. Financial Statements and Supplementary Data' under the heading "Report of Independent
Registered Public Accounting Firm."
31
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, 2019 and 2018, and the related consolidated statements of operations, of
comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period
ended December 31, 2019, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2019 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, 2019, 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 the accompanying Management’s Report on Internal Control over Financial Reporting. Our
responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's
internal control over financial reporting based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of
the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
32
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.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated
financial statements that was communicated or required to be communicated to the audit committee and that (i)
relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the
accounts or disclosures to which it relates.
Goodwill Impairment Assessments
As described in Notes A and H to the consolidated financial statements, the Company’s consolidated goodwill
balance was $509 million as of December 31, 2019. Management performs an annual impairment test of goodwill in
the fourth quarter of each year, or as events occur or circumstances change that would indicate the carrying value
of goodwill may be impaired. Potential impairment is identified by comparing the fair value of a reporting unit to its
carrying value, including goodwill. Management estimates fair value by using a discounted cash flow model or a
market approach. The determination of fair value using the discounted cash flow model requires management to
make significant estimates and assumptions related to forecasted sales and operating profits, and the discount rate.
The principal considerations for our determination that performing procedures relating to the goodwill impairment
assessments is a critical audit matter are there was significant judgment by management when developing the fair
value measurements of the reporting units. This in turn led to a high degree of auditor judgment, subjectivity, and
effort in performing procedures to evaluate management’s discounted cash flow model, including significant
assumptions related to forecasted sales and the discount rates. In addition, the audit effort involved the use of
professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit
evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of
controls relating to management’s goodwill impairment assessments, including controls over the valuation of the
Company’s reporting units. These procedures also included, among others, testing management’s process for
developing the fair value estimates; evaluating the appropriateness of the model; testing the completeness,
accuracy, and relevance of underlying data used in the model; and, evaluating the significant assumptions used by
management, including forecasted sales and the discount rates. Professionals with specialized skill and knowledge
were used to assist in evaluating the Company’s discount rate assumptions. Evaluating management’s assumption
related to forecasted sales involved evaluating whether the assumptions used were reasonable considering (i) the
current and past performance of the reporting units, (ii) the consistency with external market and industry data as
relates to forecasted sales, and (iii) whether they were consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 11, 2020
We have served as the Company’s auditor since 1959.
33
Financial Statements and Supplementary Data
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 2019 and 2018
(In Millions, Except Share Data)
ASSETS
2019
2018
Current Assets:
Cash and cash investments
Receivables
Inventories
Prepaid expenses and other
Assets held for sale
Total current assets
Property and equipment, net
Goodwill
Other intangible assets, net
Operating lease right-of-use assets
Other assets
Assets held for sale
Total assets
Current Liabilities:
Accounts payable
Notes payable
Accrued liabilities
Liabilities held for sale
Total current liabilities
Long-term debt
Other liabilities
Liabilities held for sale
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: 2019 – 275,600,000; 2018 – 293,900,000
Preferred shares authorized: 1,000,000;
Issued and outstanding: 2019 and 2018 – 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.
34
$
$
$
$
697 $
997
754
90
173
2,711
878
509
259
176
139
355
5,027 $
697 $
2
700
149
1,548
2,771
751
13
5,083
552
990
798
84
342
2,766
885
511
288
—
90
853
5,393
736
8
645
295
1,684
2,971
549
120
5,324
276
294
—
—
(332)
(179)
(235)
179
(56)
5,027 $
—
—
(278)
(127)
(111)
180
69
5,393
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2019, 2018 and 2017
(In Millions, Except Per Common Share Data)
2019
2018
2017
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Impairment charge for other intangible assets
Operating profit
Other income (expense), net:
Interest expense
Other, net
Income from continuing operations before income taxes
Income tax expense
Income from continuing operations
Income from discontinued operations, net
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Masco Corporation
Income per common share attributable to Masco Corporation:
Basic:
Income from continuing operations
Income from discontinued operations, net
Net income
Diluted:
Income from continuing operations
Income from discontinued operations, net
Net income
Amounts attributable to Masco Corporation:
Income from continuing operations
Income from discontinued operations, net
Net income
$
6,707 $
6,654 $
4,336
2,371
1,274
9
1,088
(159)
(15)
(174)
914
230
684
296
980
45
4,327
2,327
1,250
—
1,077
(156)
(14)
(170)
907
221
686
98
784
50
$
$
$
$
$
$
$
935 $
734 $
2.21 $
2.06 $
1.03
0.32
3.24 $
2.38 $
2.20 $
2.05 $
1.02
0.32
3.22 $
2.37 $
639 $
296
935 $
636 $
98
734 $
6,014
3,794
2,220
1,191
—
1,029
(279)
(32)
(311)
718
245
473
107
580
47
533
1.34
0.34
1.68
1.33
0.33
1.66
426
107
533
See notes to consolidated financial statements.
35
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2019, 2018 and 2017
(In Millions)
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
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
$
$
$
$
$
$
$
2019
2018
2017
980 $
784 $
45
50
935 $
734 $
6 $
(31) $
2
(64)
(56)
(1) $
(3)
(4)
(52) $
924 $
2
9
(20)
(15) $
(2)
(17)
(3) $
764 $
41
33
883 $
731 $
580
47
533
133
3
63
199
28
1
29
170
779
76
703
See notes to consolidated financial statements.
36
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019, 2018 and 2017
(In Millions)
2019
2018
2017
$
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
(Gain) loss on disposition of businesses, net
Pension and other postretirement benefits
Impairment of financial investments
Impairment of goodwill and other intangible assets
Stock-based compensation
Increase in receivables
Decrease (increase) in inventories
(Decrease) 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
Proceeds from the exercise of stock options
Employee withholding taxes paid on stock-based compensation
Payment of debt
Credit Agreement and other financing costs
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 from (for) investing activities
Effect of exchange rate changes on cash and cash investments
CASH AND CASH INVESTMENTS:
Increase (decrease) for the year
At January 1
At December 31
980 $
159
12
(41)
23
(1)
(298)
(45)
—
16
35
(37)
58
(27)
2
(3)
833
(201)
(896)
(144)
(42)
—
(2)
—
27
(23)
(8)
(2)
(1,291)
(162)
—
722
—
34
1
—
(13)
582
14
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
138
559
697 $
(635)
1,194
559 $
204
990
1,194
$
See notes to consolidated financial statements.
37
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2019, 2018 and 2017
(In Millions, Except Per Common Share Data)
Balance, January 1, 2017
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 O)
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
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, 2019
$
Common
Shares
($1 par value)
Paid-In
Capital
Retained
(Deficit)
Earnings
Total
Accumulated
Other
Comprehensive
(Loss) Income
Noncontrolling
Interest
(96) $
779
(19)
(331)
(15)
(129)
(35)
29
318 $
— $
(374) $
(235) $
533
170
2
(9)
(1)
(21)
(8)
29
(314)
(14)
(129)
195
76
(35)
$
183 $
310 $
— $
(298) $
(65) $
236
—
764
(9)
(654)
(19)
(137)
(89)
30
69 $
924
15
(896)
(10)
(146)
(42)
30
(56) $
(59)
(3)
33
3
(4)
(19)
(26)
59
734
(8)
(609)
(19)
(137)
30
294 $
— $
(278) $
(127) $
935
(52)
3
(20)
(1)
12
(42)
30
(834)
(9)
(146)
(89)
180
41
(42)
276 $
— $
(332) $
(179) $
179
See notes to consolidated financial statements.
38
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. 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.
Short-Term Bank Deposits. Occasionally, 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 approximate their fair value. 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.
39
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Continued)
Receivables. We do significant business with a number of customers, including certain home center retailers.
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 for estimated losses resulting
from the inability of our customers to make required payments. 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 $36 million and $33 million at December 31, 2019 and 2018, 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 its 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, including discontinued operations, was $132 million in 2019 and 2018 and $116 million in 2017.
Leases. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease
right-of-use assets (“ROU assets”), accrued liabilities and other liabilities on our consolidated balance sheet. Finance
lease ROU assets are included in property and equipment, net, notes payable, and long-term debt on our consolidated
balance sheet.
ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities
represent our obligation to make lease payments in exchange for the right to use an underlying asset. ROU assets
and lease liabilities are measured based on the present value of fixed lease payments over the lease term at the
commencement date. The ROU asset also includes any lease payments made prior to the commencement date and
initial direct costs incurred, and is reduced by any lease incentives received. We review our ROU assets as events
occur or circumstances change that would indicate the carrying amount of the ROU assets are not recoverable and
exceed their fair values. If the carrying amount of the ROU asset 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.
As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate on the
commencement date of the lease as the discount rate in determining the present value of future lease payments. We
determine the incremental borrowing rate for each lease by using the current yields of our uncollateralized, publicly
traded debts with maturity periods similar to the respective lease term, adjusted to a collateralized basis based on
third-party data. Our lease terms may include options to extend or terminate the lease when there are relevant economic
incentives present that make it reasonably certain that we will exercise that option. We account for any non-lease
components separately from lease components.
For operating leases, lease expense for future fixed lease payments is recognized on a straight-line basis over
the lease term. For finance leases, lease expense for future fixed lease payments is recognized using the effective
interest rate method over the lease term. Variable lease payments are recognized as lease expense in the period
incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease
expense for these leases on a straight-line basis over the lease term.
40
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Continued)
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
primarily 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 8.0 percent as the basis to determine the discount rate to apply to the estimated
future cash flows. In 2019, based upon our assessment of the risks impacting each of our businesses, we applied a
risk premium to increase the discount rate to a range of 10.0 percent to 12.0 percent for our reporting units. For our
Masco Cabinetry reporting unit, we utilized a market approach to determine its fair value instead of the discounted
cash flow method, as we were actively marketing the Masco Cabinetry business for sale and on November 14, 2019
we entered into a definitive agreement to sell the business. 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 utilize 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 8.0 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In
2019, 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 13.0 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 its 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.
41
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Continued)
Warranty. We offer 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, mass torts 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.
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 five 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 five 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, 2019 and 2018. The
aggregate noncontrolling interest, net of dividends, at December 31, 2019 and 2018 has been recorded as a component
of equity on our consolidated balance sheets.
42
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Continued)
Discontinued Operations. We report financial results for discontinued operations separately from continuing
operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations
reporting occurs only when the disposal of a component or a group of components represents a strategic shift that will
have a major effect on our operations and financial results. In our consolidated statements of cash flows, the cash
flow from discontinued operations are not separately classified. Refer to Note B for further information regarding our
discontinued operations.
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.
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 2019 presentation in
the consolidated financial statements.
43
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A. ACCOUNTING POLICIES (Concluded)
Recently Adopted Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board
("FASB") issued a new standard for leases, ASC 842, which changes the accounting model for identifying and accounting
for leases. We adopted ASC 842 on January 1, 2019 using the optional transition method, which allows for initial
application of the new standard beginning at the adoption date. We elected the package of practical expedients that
allows us to forgo reassessing a) whether any existing contracts are or contain leases, b) the lease classification for
any existing leases, and c) whether initial direct costs for any existing leases are capitalized. We also elected the
practical expedient to use hindsight with respect to lease renewals, terminations, and purchase options when
determining the lease term and in assessing impairment of the assets related to leases existing at the time of adoption.
As a result of the standard, we recorded $236 million of operating lease ROU assets, $45 million of short-term operating
lease liabilities, and $214 million of long-term operating lease liabilities on the date of adoption which includes assets
and liabilities that have subsequently been reclassified as held for sale or disposed of. Our accounting for finance
leases remained unchanged. The standard did not impact our consolidated statements of operations or statements of
cash flows.
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. We adopted
ASU 2017-12 on January 1, 2019. The adoption of the standard did not 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.
We adopted ASU 2018-07 on January 1, 2019. The adoption of the standard did not impact our financial position or
results of operations.
Recently Issued Accounting Pronouncements. 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. This standard will impact the valuation
of our credit losses relating to our receivables, however, we do not expect the standard to have a material impact on
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. We plan to adopt this standard prospectively effective for
annual periods beginning January 1, 2020 and do not expect that the adoption of this new standard will have a material
impact on our financial position or results of operations.
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes," which simplifies the accounting for income taxes by removing certain exceptions to the general principles
in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740
by clarifying and amending existing guidance. ASU 2019-12 is effective for us for annual periods beginning January
1, 2021. Early adoption is permitted. We are currently reviewing the provisions of this new pronouncement and the
impact, if any, the adoption of this guidance has on our financial position and results of operations.
44
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. DIVESTITURES
On September 6, 2019, we completed the divestiture of our UK Window Group business ("UKWG"), a
manufacturer and distributor of windows and doors, for proceeds of approximately $8 million, of which $2 million net
of cash disposed was received upon sale. The remaining $6 million was accounted for as a note receivable that is
expected to be collected within the next two years. In connection with the sale, we recognized a loss of $70 million
for the year ended December 31, 2019, which is included in income from discontinued operations, net in the consolidated
statements of operations.
On November 6, 2019, we completed the divestiture of our Milgard Windows and Doors business ("Milgard"),
a manufacturer and distributor of windows and doors for proceeds of approximately $720 million, net of cash disposed,
subject to final working capital adjustments. In connection with the sale, we recognized a gain on the divestiture of
$368 million for the year ended December 31, 2019, which is included in income from discontinued operations, net in
the consolidated statement of operations.
In 2019, we determined that the previously reported Windows and Other Specialty Products segment met the
criteria to be classified as a discontinued operation as a result of the combined sale of UKWG and Milgard. These
businesses represented all of our windows businesses and all remaining businesses in the Windows and Other Specialty
Products segment.
Additionally, on November 14, 2019, we entered into a definitive agreement to sell Masco Cabinetry LLC
("Cabinetry"), a manufacturer of cabinetry products, for approximately $1.0 billion, consisting of $850 million in cash
at closing and preferred stock issued by a holding company of the buyer with a liquidation preference of $150 million.
The preferred stock will have a coupon of 8 percent until the first anniversary of issuance, 9 percent after the first
anniversary and until the second anniversary of issuance,10 percent after the second anniversary of issuance and
until the seventh anniversary of issuance, after which the rate will increase by 50 basis points up to a maximum of 15
percent for each period occurring during and after the seventh anniversary until all shares have been redeemed in full.
The closing of the sale is expected during the first quarter of 2020, subject to customary closing conditions, and we
expect to recognize a gain on the divestiture of approximately $600 million. We determined that the previously reported
Cabinetry Products segment met the criteria to be classified as a discontinued operation as Cabinetry represents all
of our cabinet businesses and all remaining businesses in the Cabinetry Products segment.
We determined that the assets and liabilities for Cabinetry, Milgard and UKWG met the held for sale criteria
in accordance with ASC 205-20, Discontinued Operations, during 2019. Accordingly, these businesses' held for sale
assets and liabilities were reclassified in the consolidated balance sheets at December 31, 2019 and 2018 to assets
held for sale or liabilities held for sale. We ceased recording depreciation and amortization for the held for sale assets
upon meeting the held for sale criteria.
As the combined sale of UKWG and Milgard and the planned disposition of Cabinetry each represented a
strategic shift that will have a major effect on our operations and financial results, these businesses were presented
in discontinued operations separate from continuing operations for all periods presented. In addition, depreciation and
amortization, capital expenditures, and significant non-cash operating and investing activities related to discontinued
operations were separately disclosed.
The results of the windows businesses recorded in income from discontinued operations before income tax
was a loss of $1 million for the year ended December 31, 2019 and income of $40 million and $57 million for the years
ended December 31, 2018 and 2017, respectively. The results of the cabinetry business recorded in income from
discontinued operations before income tax were income of $107 million, $95 million and $109 million for the years
ended December 31, 2019, 2018 and 2017, respectively.
45
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. DIVESTITURES (Continued)
The major classes of line items constituting income from discontinued operations, net, in millions:
For the Years Ended December 31,
2019
2018
2017
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Impairment charge for goodwill (A)
Other income (expense), net
Income from discontinued operations
Gain on disposal of discontinued operations, net
Income before income tax
Income tax expense
Income from discontinued operations, net
$
$
1,528 $
1,705 $
1,343
1,628
1,236
1,184
344
232
7
1
106
298
404
362
228
—
1
135
—
135
(108)
296 $
(37)
98 $
392
227
—
1
166
—
166
(59)
107
(A)
In the first quarter of 2019, we recognized a $7 million non-cash goodwill impairment charge related to a decline in the long-
term outlook of our windows and doors business in the United Kingdom.
The windows businesses included assets classified as held for sale of $660 million and liabilities classified as
held for sale of $257 million in the consolidated balance sheet at December 31, 2018. The cabinetry business included
assets classified as held for sale of $528 million and $535 million and liabilities classified as held for sale of $162 million
and $158 million in the consolidated balance sheets at December 31, 2019 and 2018, respectively.
The carrying amount of major classes of assets and liabilities included as part of the Cabinetry, Milgard, and
UKWG discontinued operations, were as follows, in millions:
Cash and cash investments
Receivables
Prepaid expenses and other
Inventories
Property and equipment, net
Operating lease right-of-use assets
Goodwill
Other intangible assets, net
Other assets
Total assets classified as held for sale
Accounts payable
Accrued liabilities
Other liabilities
Total liabilities classified as held for sale
46
December 31, 2019
$
— $
December 31, 2018
7
76
7
90
157
4
181
1
12
163
24
148
338
—
387
118
10
$
$
$
528 $
1,195
103 $
46
13
162 $
190
105
120
415
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. DIVESTITURES (Concluded)
Assets and liabilities classified as held for sale were required to be recorded at the lower of its carrying value
or fair value less costs to sell. The estimated fair value less costs to sell of the held for sale businesses exceeded
their carrying value, and therefore no adjustment to these long-lived assets was necessary.
Other selected financial information for Cabinetry, Milgard and UKWG during the period owned by us, were
as follows, in millions:
Depreciation and amortization
Capital expenditures
ROU assets obtained in exchange for new lease obligations
For the Years Ended December 31,
2019
2018
2017
$
29 $
36 $
34
3
38
—
34
26
—
In conjunction with the divestiture of Milgard, we have entered into a Transition Services Agreement to provide
administrative services subsequent to the separation. The fees for services rendered under the Transition Services
Agreement are not expected to be material to our results of operations.
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. This divestiture was not accounted for as a discontinued operation.
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. This divestiture was not accounted for as a discontinued operation.
47
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.
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 in the year after acquisition. The initial and final
allocations 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
Final
$
101 $
173
5
33
46
243
(24)
(25)
(4)
$
548 $
100
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.
48
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, 2019
Plumbing Products
Decorative
Architectural
Products
Total
$
$
2,605 $
1,379
3,984 $
2,723 $
—
2,723 $
Year Ended December 31, 2018
Plumbing Products
Decorative
Architectural
Products
Total
$
$
2,552 $
1,446
3,998 $
2,656 $
—
2,656 $
Year Ended December 31, 2017
Plumbing Products
Decorative
Architectural
Products
Total (A)
$
$
2,362 $
1,370
3,732 $
2,206 $
—
2,206 $
5,328
1,379
6,707
5,208
1,446
6,654
4,568
1,370
5,938
(A)
Total net sales for 2017 excludes net sales of $76 million relating to divestitures not included in discontinued operations.
Divestitures not included in discontinued operations consists of our previously owned Arrow and Moores businesses which
were disposed of in 2017.
We recognized increases to revenue of $2 million, $4 million, and $9 million in 2019, 2018, and 2017, 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 $2 million at both December 31, 2019 and 2018.
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 $40 million and $39 million at December 31, 2019 and
2018, respectively.
49
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
E. INVENTORIES
Finished goods
Raw materials
Work in process
Total
(In Millions)
At December 31
2019
2018
$
$
485 $
211
58
754 $
508
237
53
798
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. LEASES
We have operating and finance leases primarily for corporate offices, manufacturing facilities, warehouses,
vehicles, and equipment. Our leases have remaining lease terms up to 23 years, some of which may include one or
more renewal options with terms to extend the lease for up to an additional 20 years, and some of which may include
options to terminate the leases prior to their expiration.
The components of lease cost included in income from continuing operations were as follows, in millions:
Operating lease cost
Short-term lease cost
Variable lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Supplemental cash flow information related to leases was as follows, in millions:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
ROU assets obtained in exchange for new lease obligations:
Operating leases
Finance leases
Certain other information related to leases was as follows:
Weighted-average remaining lease term:
Operating leases
Finance leases
Weighted-average discount rate:
Operating leases
Finance leases
50
2019
2019
$
$
49
6
3
3
1
58
1
8
27
—
At December 31,
2019
10 years
11 years
4.6%
3.4%
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. LEASES (Concluded)
Supplemental balance sheet information related to leases was as follows, in millions:
Property and equipment, net
Notes payable
Accrued liabilities
Long-term debt
Other liabilities
At December 31, 2019
Operating Leases
Finance Leases
$
— $
—
38
—
162
29
2
—
28
—
Gross ROU assets under finance leases recorded within property and equipment, net were $42 million, and
accumulated amortization associated with these leases was $13 million, at December 31, 2019.
At December 31, 2019, future maturities of lease liabilities (under ASC 842) were as follows, in millions:
Operating Leases
Finance Leases
Year ending December 31,
2020
2021
2022
2023
2024
Thereafter
Total lease payments
Less: imputed interest
Total
$
$
45 $
39
31
21
16
101
253
(53)
200 $
3
3
3
3
4
20
36
(6)
30
Rental expense (under ASC 840) recorded in the consolidated statements of operations totaled approximately
$63 million and $49 million during 2018 and 2017, respectively.
At December 31, 2018, future minimum operating lease payments (under ASC 840), including discontinued
operations, were as follows, in millions: 2019 – $55 million; 2020 – $47 million; 2021 – $40 million; 2022 – $30 million;
2023 – $20 million; 2024 and beyond – $99 million.
G. PROPERTY AND EQUIPMENT
Land and improvements
Buildings
Computer hardware and software
Machinery and equipment
Less: Accumulated depreciation
Total
(In Millions)
At December 31
2019
2018
$
64 $
497
232
1,103
1,896
(1,018)
$
878 $
64
470
220
1,088
1,842
(957)
885
51
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
Total
Gross Goodwill At
December 31, 2019
$
566 $
Accumulated
Impairment
Losses
Net Goodwill At
December 31, 2019
226
(340) $
$
358
924 $
(75)
(415) $
283
509
Gross
Goodwill At
December
31, 2018
Accumulated
Impairment
Losses
Net Goodwill
At December
31, 2018
Additions (A)
Other (B)
Net Goodwill
At December
31, 2019
Plumbing Products
Decorative Architectural
Products
Total
$
$
568 $
(340) $
228 $
— $
(2) $
358
(75)
283
926 $
(415) $
511 $
—
— $
—
(2) $
226
283
509
Gross
Goodwill At
December
31, 2017
Accumulated
Impairment
Losses
Net Goodwill
At December
31, 2017
Additions (A)
Other (B)
Net Goodwill
At December
31, 2018
Plumbing Products
Decorative Architectural
Products
Total
$
$
574 $
(340) $
234 $
— $
(6) $
294
(75)
219
868 $
(415) $
453 $
64
64 $
—
(6) $
228
283
511
(A) Additions consist of acquisitions.
(B) Other consists of the effect of foreign currency translation.
Other indefinite-lived intangible assets were $76 million and $86 million at December 31, 2019 and 2018,
respectively, and principally included registered trademarks. During the first quarter of 2019, we recognized a $9 million
impairment charge related to a registered trademark in our Decorative Architectural Products segment due to a change
in the long-term net sales projections of lighting products. As a result of our 2018 acquisition, other indefinite-lived
intangible assets increased by $59 million as of the acquisition date.
We completed our annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth
quarters of 2019, 2018 and 2017. 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, other than as disclosed above.
The carrying value of our definite-lived intangible assets was $183 million (net of accumulated amortization of
$48 million) at December 31, 2019 and $202 million (net of accumulated amortization of $26 million) at December 31,
2018 and principally included customer relationships with a weighted average amortization period of 17 years in 2019
and 16 years in 2018. Amortization expense, including discontinued operations, related to the definite-lived intangible
assets was $23 million, $20 million and $4 million in 2019, 2018 and 2017, respectively. As a result of our 2018
acquisition, definite-lived intangible assets increased by $181 million, as of the acquisition date.
At December 31, 2019, amortization expense related to the definite-lived intangible assets during each of the
next five years was as follows: 2020 – $24 million; 2021 – $16 million; 2022 – $12 million, 2023 – $11 million and
2024 –$11 million.
52
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
2019
2018
$
$
11 $
—
5
99
24
139 $
11
1
10
42
26
90
We recognized amortization expense, including discontinued operations, related to in-store displays of $12 million,
$21 million and $25 million in 2019, 2018 and 2017, respectively. Cash spent for displays was $11 million, $10 million
and $14 million in 2019, 2018 and 2017, 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
Operating lease liabilities
Other
Total
(In Millions)
At December 31
2019
2018
$
141 $
189
36
31
41
37
18
37
40
25
38
67
143
170
40
29
40
31
14
36
39
22
—
81
$
700 $
645
53
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. DEBT
Notes and debentures:
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
2019
2018
$
— $
399
326
500
498
300
235
200
299
30
201
399
326
500
498
300
235
200
299
38
(14)
2,773
2
(17)
2,979
8
$
2,771 $
2,971
All of the notes and debentures above are senior indebtedness and, other than the 7.75% Notes due 2029, are
redeemable at our option.
On December 19, 2019, proceeds from the UKWG and Milgard divestitures were used to repay and early retire
$201 million of our 7.125% Notes due March 15, 2020. In connection with this early retirement, we incurred a loss on
debt extinguishment of $2 million for the year ended 2019, which was recorded in interest expense.
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 13, 2019, we entered into a credit agreement (the “Credit Agreement”) with an aggregate commitment
of $1.0 billion and a maturity date of March 13, 2024. Under the Credit Agreement, at our request and subject to certain
conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or
new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with
an aggregate commitment of $750 million, was terminated.
The Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign
subsidiaries, in U.S. dollars, European euros, British Pounds Sterling, Canadian dollars and certain other currencies
for revolving credit loans, swingline loans and letters of credit. Borrowings under the revolving credit loans denominated
in any agreed upon currency other than U.S. dollars are limited to $500 million, equivalent. We can also borrow swingline
loans up to $100 million and obtain letters of credit of up to $25 million; outstanding letters of credit under the Credit
Agreement reduce our borrowing capacity. At December 31, 2019, we had no outstanding standby letters of credit
under the Credit Agreement.
54
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
K. DEBT (Concluded)
Revolving credit loans bear interest under the Credit Agreement, at our option, at (A) a rate per annum equal to
the greater of (i) the JPMorgan Chase Bank, N.A. prime rate, (ii) the Federal Reserve Bank of New York effective rate
plus 0.50% and (iii) if available, adjusted LIBO Rate plus 1.0% (the "Alternative Base Rate"); plus an applicable margin
based upon our then-applicable corporate credit ratings; or (B) if available, adjusted LIBO Rate 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 adjusted LIBO Rate, if available, plus an applicable margin based upon our then-applicable corporate
credit ratings.
The Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted
for certain items, not exceeding 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items,
not less than 2.5 to 1.0.
In order for us to borrow under the Credit Agreement, there must not be any default in our covenants in the 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 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, 2018, no
material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all
covenants and no borrowings were outstanding at December 31, 2019.
At December 31, 2019, the debt maturities during each of the next five years were as follows: 2020 – $2 million;
2021– $402 million; 2022 – $329 million; 2023 – $3 million and 2024 – $3 million.
Interest paid was $157 million, $155 million and $175 million in 2019, 2018 and 2017, respectively. These amounts
exclude $2 million and $104 million of debt extinguishment costs related to the early retirement of debt, which were
recorded as interest expense and paid in 2019 and 2017, respectively.
Fair Value of Debt. The fair value of our short-term and long-term fixed-rate debt instruments is based principally
upon modeled market prices for the same or similar issues, which are Level 1 inputs. The aggregate estimated market
value of our short-term and long-term debt at December 31, 2019 was approximately $3.0 billion, compared with the
aggregate carrying value of $2.8 billion. 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.
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, 2019, outstanding stock-based
incentives were in the form of long-term stock awards, stock options, restricted stock units, and phantom stock awards.
Pre-tax compensation expense (income) included in income from continuing operations 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
2019
2018
2017
20 $
20 $
4
3
4
3
4
(2)
31 $
25 $
21
3
2
8
34
$
$
At December 31, 2019, 13.9 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.
55
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 636,030 shares of long-term stock awards during 2019.
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
2019
2018
2017
2
30 $
1
36 $
1
25 $
—
35 $
2
34 $
3
24 $
1
41 $
2
21 $
—
31 $
2
30 $
4
20
1
34
2
18
—
24
3
24
$
$
$
$
$
At December 31, 2019, 2018 and 2017, there was $41 million, $46 million and $46 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, 2019, 2018 and 2017.
The total market value (at the vesting date) of stock award shares which vested during 2019, 2018 and 2017 was
$31 million, $56 million and $45 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 561,280 shares of stock options during 2019 with a grant date weighted-average exercise price of
approximately $36 per share. During 2019, 108,086 stock option shares were forfeited (including options that expired
unexercised).
56
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)
2019
4
21
1
36
2
2018
5
16
—
42
1
$
$
2017
7
15
—
34
2
$
$
33 million $
55 million $
47 million
13
—
34
3
27
6
3
27
$
$
$
11
—
31
4
21
5
4
$
15
—
$ —
$
5
16
4
5
$
21
$
16
63 million $
36 million $ 147 million
6
2
21
5
3
4
4
$
16
$
13
47 million $
34 million $ 123 million
4
4
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, 2019, 2018 and 2017, there was $9 million, $8 million and $7 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,
2019, 2018 and 2017.
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:
2019
2018
2017
Weighted average grant date fair value
$
8.81
$
12.34
$
Risk-free interest rate
Dividend yield
Volatility factor
Expected option life
2.57%
1.35%
25.00%
6 years
2.72%
1.02%
29.00%
6 years
9.68
2.16%
1.19%
30.00%
6 years
57
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,
2019, shares in millions:
Option Shares Outstanding
Option Shares Exercisable
Range of
Prices
10 - 12
18 - 26
30 - 42
10 - 42
$
$
$
$
Number of
Shares
—
2
1
3
Weighted
Average
Remaining
Option Term
1 year
4 years
8 years
6 years
Weighted
Average
Exercise
Price
$11
$21
$37
$27
Number of
Shares
—
2
—
2
Weighted
Average
Exercise
Price
$11
$20
$36
$21
Restricted Stock Units. Under our Long Term Incentive 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% of the target number. During 2019, we granted 126,680
restricted stock units with a grant date fair value of approximately $39 per share, and 15,600 restricted stock units
were forfeited. At December 31, 2019, there were 147,199 shares vested, but unissued. 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 expense of $4 million in 2019, income of $1 million in 2018, and expense of $6 million in 2017
related to phantom stock awards. In 2019, 2018 and 2017, we granted 79,500, 98,140, and 104,580 shares, respectively,
of phantom stock awards with an aggregate fair value of $3 million in 2019 and $4 million in both 2018 and 2017, and
paid cash of $3 million in 2019, $6 million in 2018, and $5 million in 2017 to settle phantom stock awards.
We recognized income of $1 million in 2018 and expense of $2 million in 2017 related to SARs. During 2019,
2018 and 2017, we did not grant any SARs. We paid cash of $2 million, $5 million, and $4 million in 2019, 2018, and
2017, respectively, to settle SARs. At December 31, 2019, there were no outstanding 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,
2019
2018
2019
2018
$
$
5 $
3 $
—
4 $
2 $
—
— $
— $
—
2
—
—
58
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 included in income from continuing operations related to our retirement plans was as follows,
in millions:
Defined-contribution plans
Defined-benefit pension plans
2019
2018
2017
$
$
40 $
24
64 $
37 $
17
54 $
43
29
72
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. In December 2019, our Board of Directors approved a
resolution to terminate our qualified domestic defined-benefit pension plans. As a result of this decision, the projected
benefit obligations for these plans were increased to reflect the incremental cost to terminate the plans.
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:
Changes in projected benefit obligation:
Projected benefit obligation at January 1
Service cost
Interest cost
Actuarial loss (gain), net
Foreign currency exchange
Benefit payments
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
Fair value of plan assets at December 31
Funded status at December 31
2019
2018
Qualified
Non-Qualified
Qualified
Non-Qualified
$
896 $
155 $
961 $
170
3
33
149
(3)
(44)
1,034 $
—
6
13
—
(13)
161 $
3
30
(48)
(7)
(43)
896 $
670 $
— $
695 $
105
(1)
56
(6)
(44)
780 $
(254) $
—
—
13
—
(13)
— $
(161) $
(25)
(4)
52
(5)
(43)
670 $
(226) $
—
6
(9)
—
(12)
155
—
—
—
12
—
(12)
—
(155)
$
$
$
$
59
Non-Qualified
—
(13)
(142)
(155)
1 $
(1)
(226)
(226) $
Non-Qualified
47
448 $
3
451 $
—
47
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, 2019
At December 31, 2018
Qualified
Non-Qualified
Qualified
Other assets
Accrued liabilities
Other liabilities
Total net liability
$
$
1 $
(1)
(254)
(254) $
— $
(13)
(148)
(161) $
Unrealized loss included in accumulated other comprehensive loss before income taxes was as follows, in millions:
At December 31, 2019
At December 31, 2018
Qualified
Non-Qualified
Qualified
Net loss
Net prior service cost
Total
$
$
520 $
4
524 $
57 $
—
57 $
Information for defined-benefit pension plans with an accumulated benefit obligation in excess of plan assets
was as follows, in millions:
At December 31
2019
2018
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
Qualified
Non-Qualified
Qualified
$
1,019 $
161 $
Non-Qualified
155
882 $
1,019
763
161
—
882
655
155
—
The projected benefit obligation was in excess of plan assets for all of our qualified defined-benefit pension plans
at December 31, 2019 and 2018 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:
2019
2018
Qualified
Non-Qualified
Qualified
Non-Qualified
Qualified
2017
Non-Qualified
—
3 $
Service cost
Interest cost
Expected return on plan assets
Recognized net loss
Net periodic pension cost
$
$
3 $
39
(44)
18
16 $
— $
6
—
2
8 $
3 $
— $
36
(48)
17
6
—
3
44
(46)
19
8 $
9 $
20 $
6
—
3
9
We expect to recognize $26 million of pre-tax net loss from accumulated other comprehensive loss into net
periodic pension cost in 2020 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.
60
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
2019
2018
41%
54%
5%
100%
34%
49%
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, 2019 compared to December 31, 2018.
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. As there are no remaining
investments valued at NAV, there are no unfunded commitments or other restrictions associated with these investments.
Corporate, Government and Other Debt Securities: Valued based on either the closing price reported on the active
market on which the individual securities are traded or using pricing models maximizing the use of observable inputs
for similar securities. This includes basing value on yields currently available on comparable securities of issuers with
similar credit ratings. Certain investments are valued based on NAV, which approximates fair value. Such basis is
determined by referencing the respective fund's underlying assets. There are no unfunded commitments or 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, 2019 and 2018, as well as those valued at NAV using the practical expedient,
which approximates fair value, in millions.
61
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, 2019
Level 1
Level 2
Level 3
Valued at
NAV
Total
$
85 $
— $
— $
82 $
47
—
—
74
—
—
29
—
—
2
2
—
—
—
—
1
3
38
4
12
—
—
—
2
17
—
—
—
—
—
—
—
—
110
—
—
124
—
148
—
—
—
—
—
167
157
2
17
198
1
151
67
4
12
2
2
$
239 $
58 $
19 $
464 $
780
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
62
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 (losses) gains
Fair Value, December 31
2019
2018
$
$
59 $
4
(41)
(3)
19 $
60
6
(12)
5
59
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
2019
2018
2017
2.50%
3.00%
—%
3.80%
3.80%
7.00%
—%
3.30%
3.30%
7.25%
—%
3.50%
The discount rate for obligations for 2019, 2018 and 2017 is based primarily upon the expected duration of each
defined-benefit pension plan's liabilities matched to the December 31, 2019, 2018 and 2017 Willis Towers Watson
Rate Link Curve. At December 31, 2019, such rates for our defined-benefit pension plans ranged from 1.1 percent to
3.0 percent, with the most significant portion of the liabilities having a discount rate for obligations of 2.4 percent or
higher. 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. The decrease
in the weighted average discount rate from 2019 to 2018 is principally the corresponding cost to terminate the domestic
qualified defined-benefit pension plans, as well as, lower long-term interest rates in the bond markets. 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.
For 2019, we determined the expected long-term rate of return on plan assets of 3.00 percent for our domestic
qualified defined-benefit pension plans 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 and the decision to terminate
these plans in 2021. For 2019 our weighted average projected long-term rate of return on plan assets for the foreign
qualified defined-benefit pension plans was 3.9 percent. For 2018 and 2017, our projected long-term rate of return on
plan assets were 7.00 percent and 7.25 percent, respectively. The projected asset return at December 31, 2019, 2018
and 2017 considered near term returns, including current market conditions as well as that pension assets are long-
term in nature. The actual annual rate of return on our pension plan assets was positive 17.7 percent, negative 4.9
percent and positive 13.9 percent in 2019, 2018 and 2017, respectively. For the 10-year period ended December 31,
2019, the actual annual rate of return on our pension plan assets was 7.4 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 2019, we made substantial progress toward achieving
our targeted asset allocation: 30 percent equities, 65 percent fixed-income, and 5 percent alternative investments (such
as private equity, commodities and hedge funds).
63
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. EMPLOYEE RETIREMENT PLANS (Concluded)
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 3.00
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. In
anticipation of our decision to terminate the domestic qualified defined-benefit pension plans, we sold the majority of
our alternative investments. Plan assets associated with private equity and hedge funds were $19 million at December
31, 2019, compared to $93 million at December 31, 2018.
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 significant portion of plan assets are allocated to
fixed-income investments that are exposed to interest rate risk. Rate increases generally will result in a decline in fixed-
income assets, while reducing the present value of the liabilities. Conversely, rate decreases will increase fixed income
assets, partially offsetting the related increase in the liabilities.
Potential events or circumstances that could have a negative effect on estimated fair value include the risks of
inadequate diversification and other operating risks. To mitigate these risks, investments are diversified across and
within asset classes in support of investment objectives. Policies and practices to address operating risks include
ongoing manager oversight, plan and asset class investment guidelines and instructions that are communicated to
managers, and periodic compliance and audit reviews to ensure adherence to these policies. In addition, we periodically
seek the input of our independent advisor to ensure the investment policy is appropriate.
Other. We sponsor certain post-retirement benefit plans that provide medical, dental and life insurance coverage
for eligible retirees and dependents based upon age and length of service. Substantially all of these plans were frozen
as of January 1, 2010. The aggregate present value of the unfunded accumulated post-retirement benefit obligation
was $10 million and $9 million at December 31, 2019 and 2018, respectively.
Cash Flows. At December 31, 2019, we expect to contribute approximately $50 million to our domestic qualified
defined-benefit pension plans in 2020, which will exceed ERISA requirements. We also expect to contribute
approximately $1 million and $13 million in 2020 to our foreign and non-qualified (domestic) defined-benefit pension
plans, respectively.
At December 31, 2019, 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:
2020
2021
2022
2023
2024
2025 - 2029
Qualified
Plans
Non-Qualified
Plans
$
49 $
834
5
5
6
32
13
12
12
12
12
53
64
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
N. SHAREHOLDERS' EQUITY
In September 2019, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares
of our common stock in open-market transactions or otherwise, replacing the previous authorization established by
our Board of Directors in 2017. In November 2019, we entered into an accelerated stock repurchase transaction
whereby we agreed to repurchase a total of $400 million of our common stock with an initial delivery of 7.3 million
shares. This transaction will be completed in February 2020, at which time we anticipate we will receive, at no additional
cost, 1.2 million additional shares of our common stock resulting from expected changes in the volume weighted
average stock price of our common stock over the term of the transaction.
During 2019, we repurchased and retired 20.1 million shares of our common stock (including 0.6 million shares
to offset the dilutive impact of long-term stock awards granted in 2019), for cash aggregating $896 million. At December
31, 2019, we had $1.5 billion remaining under the 2019 authorization. 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. 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.
On the basis of amounts paid (declared), cash dividends per common share were $0.495 ($0.510) in 2019, $0.435
($0.450) in 2018 and $0.405 ($0.410) in 2017.
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
2019
2018
$
$
273 $
(8)
(444)
(179) $
266
(10)
(383)
(127)
The cumulative translation adjustment, net, is reported net of income tax benefit of $1 million and $2 million at
December 31, 2019 and 2018, respectively. The unrealized loss on interest rate swaps, net, is reported net of income
tax expense of $4 million at both December 31, 2019 and 2018. The unrecognized net loss and prior service cost, net,
is reported net of income tax benefit of $117 million and $98 million at December 31, 2019 and 2018, respectively.
65
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
O. RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE LOSS
The reclassifications from accumulated other comprehensive loss to the consolidated statements of operations
were as follows, in millions:
Accumulated Other
Comprehensive 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
2019
2018
2017
Statement of Operations Line Item
$
$
$
$
20 $
(5)
15 $
2 $
—
2 $
20 $
(5)
15 $
2 $
—
2 $
86 Other income (expense), net
(13)
73
4 Interest expense
(1)
3
(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.
In addition to the above amounts, we reclassified $14 million of deferred currency translation losses from
accumulated other comprehensive loss to the consolidated statement of operations in conjunction with the disposition
of UKWG in September 2019. In addition, as of March 31, 2018, we adopted ASU 2018-02, "Income Statement-
Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other
Comprehensive Income." As a result of the adoption, we reclassified $59 million of the disproportionate tax benefit
related to various defined-benefit plans from accumulated other comprehensive loss to retained deficit.
P. SEGMENT INFORMATION
Our reportable segments are as follows:
Plumbing Products – principally includes faucets, plumbing system components and valves, showerheads and
handheld showers, tubs and shower bases and 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.
The above products are sold to the residential repair and remodel and to a lesser extent the new home construction
markets through home center retailers, online retailers, mass merchandisers, hardware stores, homebuilders,
distributors 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.
Other than those assets specifically identified within a segment, corporate assets consist primarily of property
and equipment, right-of-use assets, deferred tax assets, 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 and, other than general
corporate expense, allocate specific corporate overhead to each segment.
As described in Note B, our previously reported Windows and Other Specialty Products as well as Cabinetry
Products segments have been classified as discontinued operations, which required retrospective application to the
balance sheets and statements of operations, as well as, additional disclosures of certain cash flow financial information
for all periods presented. Amounts for shared general and administrative operating expenses that were allocated to
these businesses in prior periods have been re-allocated to general corporate expense.
66
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
P. SEGMENT INFORMATION (Continued)
Divestitures not included in discontinued operations consists of our previously owned Arrow and Moores
businesses which were disposed of in 2017, but were not accounted for as discontinued operations.
Information by segment and geographic area was as follows, in millions:
Net Sales
(1)(2)(3)(4)
Operating Profit
(5)
Assets at
December 31 (6)
2019
2018
2017
2019
2018
2017
2019
2018
2017
Our operations by segment were:
Plumbing Products
$ 3,984
$ 3,998
$ 3,732
$
Decorative Architectural Products
2,723
2,656
2,206
$
708
480
$
715
456
702
438
$ 2,375
$ 2,253
$ 2,298
1,526
1,534
965
Total
$ 6,707
$ 6,654
$ 5,938
$ 1,188
$ 1,171
$ 1,140
$ 3,901
$ 3,787
$ 3,263
Our operations by geographic area
were:
North America
$ 5,328
$ 5,208
$ 4,568
$
International, principally Europe
Total, as above
Divestitures not included in
discontinued operations
1,379
6,707
—
1,446
6,654
1,370
5,938
$
987
201
$
954
217
924
216
1,188
1,171
1,140
$ 2,785
$ 2,729
$ 2,131
1,116
3,901
1,058
3,787
1,132
3,263
—
76
—
—
(6)
Net sales, as reported
$ 6,707
$ 6,654
$ 6,014
General corporate expense, net (5)
Operating profit, as reported
Other income (expense), net
Income from continuing operations
before income taxes
Corporate assets
Assets held for sale
Total assets
(100)
(94)
(105)
1,088
1,077
1,029
(174)
(170)
(311)
$
914
$
907
$
718
598
528
411
1,195
1,069
1,202
$ 5,027
$ 5,393
$ 5,534
67
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
P. SEGMENT INFORMATION (Concluded)
Our operations by segment were:
Plumbing Products
Decorative Architectural Products
Unallocated amounts, principally related to corporate
assets
Divestitures not included in discontinued operations
Discontinued operations
Total
Property Additions (7)
Depreciation and
Amortization
2019
2018
2017
2019
2018
2017
$
108
$
120
$
115
$
18
126
2
—
34
54
174
7
—
38
19
134
12
1
26
$
80
41
121
9
—
29
$
77
35
112
8
—
36
63
16
79
13
1
34
$
162
$
219
$
173
$
159
$
156
$
127
(1)
(2)
(3)
(4)
Included in net sales were export sales from the U.S. of $244 million, $237 million and $207 million in 2019, 2018 and 2017,
respectively.
Excluded from net sales were intra-company sales between segments of less than one percent in 2019, 2018 and 2017.
Included in net sales were sales to one customer of $2,481 million, $2,457 million and $2,341 million in 2019, 2018 and 2017,
respectively. Such net sales were included in each of our segments.
Net sales from our operations in the U.S. were $5,127 million, $5,034 million and $4,352 million in 2019, 2018 and 2017,
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 $1,198 million and $470 million, $1,119 million and $446
million, and $777 million and $431 million at December 31, 2019, 2018 and 2017, 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 private equity funds
Impairment of private equity funds
Foreign currency transaction gains (losses)
Net periodic pension and post-retirement benefit cost
Other items, net
Total other, net
2019
2018
2017
$
— $
— $
(13)
3
1
—
—
2
(21)
—
5
3
1
—
(8)
(14)
(1)
$
(15) $
(14) $
4
1
3
(2)
—
(26)
1
(32)
(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 continuing operations 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
Tax credit carryforward
Valuation allowance
Deferred tax liabilities at December 31:
Property and equipment
Operating lease right-of-use assets
Intangibles
Investment in foreign subsidiaries
Other
Net deferred tax asset at December 31
2019
2018
2017
(In Millions)
684 $
230
914 $
670 $
237
907 $
155 $
115 $
46
70
(23)
(15)
(3)
29
74
12
—
(9)
230 $
221 $
562
156
718
142
22
67
12
—
2
245
$
$
$
$
$
7 $
15
15
48
176
63
9
333
(38)
295
73
42
71
10
22
218
77 $
$
3
16
23
58
149
51
9
309
(43)
266
87
—
139
9
14
249
17
The net deferred tax asset consisted of net deferred tax assets (included in other assets) of $99 million and
$42 million, and net deferred tax liabilities (included in other liabilities) of $22 million and $25 million, at December 31,
2019 and 2018, respectively.
We continue to maintain a valuation allowance on certain state and foreign deferred tax assets as of
December 31, 2019. 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, $8 million and $5 million tax benefit
from the reversal of an accrual for uncertain tax positions resulting primarily from the expiration of applicable statutes
of limitations in 2019, 2018 and 2017, respectively. The deferred portion of the state and local taxes includes a $1
million tax benefit in 2019, 2018 and 2017, resulting from changes in valuation allowances against state and local
deferred tax assets. The deferred portion of the foreign taxes includes a $4 million and $2 million tax benefit in 2019
and 2018, respectively, from a change in the valuation allowances against foreign deferred tax assets.
Due to the enactment of the Tax Cuts and Jobs Act of 2017 ("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 did not pay 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.
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 $72 million and $60 million deferred tax assets related to the net operating loss and tax credit carryforwards
at December 31, 2019 and 2018, respectively, $44 million and $32 million, respectively, will expire between 2021 and
2036 and $28 million has no expiration.
A reconciliation of the U.S. Federal statutory tax rate to the income tax expense on income from continuing
operations 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
2019
2018
2017
21%
21%
35%
3
2
1
—
(1)
—
—
(1)
3
2
1
—
(2)
—
—
(1)
2
(1)
1
(1)
(3)
5
(3)
(1)
25%
24%
34%
Income taxes paid were $384 million, $231 million and $258 million in 2019, 2018 and 2017, respectively.
70
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
R. INCOME TAXES (Concluded)
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, 2018
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
Balance at December 31, 2018
Current year tax positions:
Additions
Reductions
Prior year tax positions:
Additions
Lapse of applicable statute of limitations
Interest and penalties recognized in income tax expense
Uncertain
Tax Positions
$
54 $
Interest and
Penalties
8 $
Total
13
(1)
1
(1)
(8)
—
—
—
—
—
—
1
$
58 $
9 $
14
(1)
1
(9)
—
—
—
—
—
1
Balance at December 31, 2019
$
63 $
10 $
62
13
(1)
1
(1)
(8)
1
67
14
(1)
1
(9)
1
73
If recognized, $50 million and $46 million of the liability for uncertain tax positions at December 31, 2019 and
2018, respectively, net of any U.S. Federal tax benefit, would impact our effective tax rate.
Of the $73 million and $67 million total liability for uncertain tax positions (including related interest and penalties)
at December 31, 2019 and 2018, respectively, $68 million and $64 million are recorded in other liabilities, respectively,
and $5 million and $3 million are recorded as a net offset to other assets, respectively.
We file income tax returns in the U.S. Federal jurisdiction, and various local, state and foreign jurisdictions. We
continue to participate in the Compliance Assurance Process ("CAP"). CAP is a real-time audit of the U.S. Federal
income tax return that allows the Internal Revenue Service ("IRS"), working in conjunction with us, to determine tax
return compliance with the U.S. Federal tax law prior to filing the return. This program provides us with greater certainty
about our tax liability for a given year within months, rather than years, of filing our annual tax return and greatly reduces
the need for recording a liability for U.S. Federal uncertain tax positions. The IRS has completed their examination of
our consolidated U.S. Federal tax returns through 2018. With few exceptions, we are no longer subject to state or
foreign income tax examinations on filed returns for years before 2016.
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.
71
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
Income from continuing operations
2019
2018
2017
$
639 $
636 $
Less: Allocation to unvested restricted stock awards
Income from continuing operations attributable to common
shareholders
Income from discontinued operations, net
Less: Allocation to unvested restricted stock awards
Income from discontinued operations, net attributable to common
shareholders
4
635
296
2
294
6
630
98
1
97
Net income attributable to common shareholders
$
929 $
727 $
Denominator:
Basic common shares (based upon weighted average)
Add: Stock option dilution
Diluted common shares
287
1
288
305
2
307
426
4
422
107
1
106
528
314
4
318
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, 2019, 2018 and 2017, we allocated dividends and
undistributed earnings to the participating securities.
Additionally, 854,000, 710,000 and 354,000 common shares for 2019, 2018 and 2017, 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 at both December 31, 2019 and 2018); 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, mass torts 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
Other, net (including currency translation)
Balance at December 31
2019
2018
$
$
81 $
34
1
(31)
(1)
84 $
78
34
(2)
(29)
—
81
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:
Quarters Ended
(In Millions, Except Per Common Share Data)
Total Year
December 31
September 30
June 30
March 31
2019
Net sales
Gross profit
Income from continuing operations
Net income (1)
Income per common share:
Basic:
$
$
$
$
6,707 $
2,371 $
639 $
935 $
Income from continuing operations $
Net income
Diluted:
$
Income from continuing operations $
Net income
2018
Net sales
Gross profit
Income from continuing operations
Net income
Income per common share:
Basic:
$
$
$
$
$
Income from continuing operations $
Net income
Diluted:
$
Income from continuing operations $
Net income
$
2.21 $
3.24 $
2.20 $
3.22 $
6,654 $
2,327 $
636 $
734 $
2.06 $
2.38 $
2.05 $
2.37 $
1,639 $
1,716 $
1,839 $
1,513
565 $
158 $
453 $
611 $
163 $
126 $
673 $
211 $
240 $
0.56 $
1.60 $
0.56 $
1.59 $
0.57 $
0.44 $
0.56 $
0.44 $
0.73 $
0.82 $
0.72 $
0.82 $
522
107
116
0.36
0.39
0.36
0.39
1,635 $
1,665 $
1,838 $
1,516
568 $
172 $
194 $
570 $
150 $
180 $
648 $
178 $
211 $
0.57 $
0.65 $
0.57 $
0.64 $
0.49 $
0.59 $
0.49 $
0.58 $
0.58 $
0.69 $
0.57 $
0.68 $
541
136
149
0.43
0.48
0.43
0.47
(1)
Net income includes $295 million and $(37) million of income (loss) from discontinued operations, net for the quarters ended
December 31, 2019 and September 30, 2019, respectively, which includes the gain (loss) on the sale of the Milgard and
UKWG divestitures, respectively.
Income per common share amounts for the four quarters of December 31, 2019 and 2018 may not total to the
income per common share amounts for the years ended December 31, 2019 and 2018 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, 2019, 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, 2019, 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 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 2020 Annual
Meeting of Stockholders, to be filed before April 29, 2020, 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 2020 Annual Meeting
of Stockholders, to be filed before April 29, 2020 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, 2019 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
3,005,824 $
26.84
Number of
Securities
Remaining
Available for Future
Issuance Under
Equity
Compensation
Plans (Excluding
Securities Reflected
in the First Column)
13,913,842
The remaining information required by this Item will be contained in our definitive Proxy Statement for our 2020
Annual Meeting of Stockholders, to be filed before April 29, 2020, 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 2020 Annual Meeting
of Stockholders, to be filed before April 29, 2020, 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 2020 Annual Meeting
of Stockholders, to be filed before April 29, 2020, 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, 2019 and 2018, and for the years ended December 31, 2019, 2018 and 2017, 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
34
35
36
37
38
39
(2) Financial Statement Schedule.
a. Our Financial Statement Schedule appended hereto, as required for the years ended December 31, 2019,
2018 and 2017, consists of the following:
II. Valuation and Qualifying Accounts
(3) Exhibits.
Exhibit
No.
2.a
2.b
Incorporated By Reference
Exhibit Description
Form
Exhibit
Stock Purchase Agreement, dated September 29,
2019, by and between Masco Corporation and
MIWD Holding Company LLC.
Securities Purchase Agreement, dated November
14, 2019, by and between Masco Corporation and
ACP Products, Inc.
8-K
8-K
2.1
2.1
Filing Date
10/03/2019
11/18/2019
83
Filed
Herewith
Note 1: Disclosure schedules and certain exhibits have been omitted from Exhibit No. 2.a and 2.b pursuant to
Item 601(b)(2) of Regulation S-K. Each Agreement as filed identifies such schedules and exhibits,
including the general nature of their contents. Masco agrees to furnish a copy of any omitted attachment
to the Securities Exchange Commission on a confidential basis upon request.
3.a
3.b
4.a
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
02/12/2016
2016 10-K 3.b
02/09/2017
2016 10-K 4.a
02/09/2017
4.a.i
7-3/4% Debentures Due August 1, 2029.
2014 10-K 4.a.i(ii)
02/13/2015
77
Exhibit
No.
4.b
4.b.i
4.b.ii
4.b.iii
4.b.iv
4.b.v
4.b.vi
Incorporated By Reference
Form
Exhibit
2016 10-K 4.b
Filing Date
02/09/2017
Filed
Herewith
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:
6-1/2% Notes Due August 15, 2032;
5.950% Notes Due March 15, 2022;
2017 10-K 4.b.i
2016 10-K 4.b(iii)
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
8-K
8-K
8-K
8-K
4.1
4.1
4.2
4.1
02/08/2018
02/09/2017
03/23/2015
03/16/2016
03/16/2016
06/15/2017
4.500% Notes Due May 15, 2047.
4.b.vii
Note 2: 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.
Description of securities.
06/15/2017
8-K
4.2
4.c
X
8-K
10
03/19/2019
10.a
Credit Agreement dated as of March 13, 2019 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. and PNC
Bank, National Association, as Co-Syndication
Agents, and Deutsche Bank Securities, Inc., Royal
Bank of Canada, SunTrust Bank, Bank of
America, N.A., Fifth Third Bank and Wells Fargo
Bank, National Association, as Co-Documentation
Agents.
Note 3: Exhibits 10.b through 10.l 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):
10.b.i
10.b.ii
10.b.iii
Form of Stock Option Grant Agreements:
for grants on or after January 1, 2013;
for grants during 2012; and
for grants prior to 2012.
2015 10-K 10.b.i
02/12/2016
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
78
Exhibit
No.
10.c
10.c.i
10.c.ii
10.c.iii
10.c.iv
10.c.v
10.c.vi
10.c.vii
Exhibit Description
Masco Corporation 2014 Long Term Stock Incentive
Plan (Amended and Restated May 9, 2016):
Form of Restricted Stock Award Agreements:
for awards prior to July 1, 2018; and
for awards on or after July 1, 2018.
Form of Restricted Stock Unit Award Agreement for
awards granted on or after December 17, 2019.
Form of Stock Option Grant Agreements:
for grants prior to July 1, 2018;
for grants between July 1, 2018 and
December 17, 2019; and
for grants on or after December 17, 2019.
Form of Long Term Incentive Program Award
Agreement for awards prior to December 17, 2019.
10.c.viii Long-Term Incentive Program under Masco
Corporation's 2014 Long Term Stock Incentive Plan
(December 17, 2019).
10.c.ix
10.c.x
Form of Performance Restricted Stock Unit Award
Agreement for awards on or after December 17,
2019.
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:
10.c.xi
10.c.xii
for Non-Employee Directors for awards prior to
July 1, 2018; and
for Non-Employee Directors for awards after
July 1, 2018.
10.c.xiii Non-Employee Directors Equity Program under
Masco Corporation's 2014 Long Term Stock
Incentive Plan (Amended and Restated February 7,
2020).
10.c.xiv Form of Restricted Stock Unit Award Agreement for
10.d
10.e
10.f
10.g
10.h
10.i.i
10.i.ii
Non-Employee Directors for grants on or after
February 7, 2020.
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 June 26,
2019 between Richard A. Manoogian and Masco
Corporation.
79
Incorporated By Reference
Form
Exhibit
10-Q
10.a
Filing Date
07/26/2016
Filed
Herewith
8-K
2018 10-K 10.c.ii
10.b
05/06/2014
02/07/2019
8-K
2018 10-K 10.c.iv
10.d
05/06/2014
02/07/2019
2018
10.c.v
02/07/2019
10-Q
10.b
07/26/2016
8-K
10.c
05/06/2014
2018 10-K 10.c.viii
02/07/2019
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
X
X
X
X
X
X
X
X
Exhibit
No.
10.j
10.k
10.l
21
23
31.a
31.b
32
101
Exhibit Description
Employment Offer Letter dated July 27, 2018
between Scott McDowell and Masco Corporation.
Agreement dated June 18, 2019 between Joe Gross
and Masco Corporation.
Separation and Release Agreement dated July 19,
2019, between Amit Bhargava 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.
The following financial information from Masco
Corporation's Annual Report on Form 10-K for the
year ended December 31, 2019, formatted in Inline
XBRL: (i) the Consolidated Balance Sheets, (ii) the
Consolidated Statements of Operations, (iii) the
Consolidated Statements of Comprehensive Income
(Loss), (iv) the Consolidated Statements of Cash
Flows, (v) the Consolidated Statements of
Shareholders' Equity, and (vi) Notes to Consolidated
Financial Statements.
104
Cover Page Interactive Data File (formatted in Inline
XBRL and contained in Exhibit 101)
Incorporated By Reference
Form
10-Q
10-Q
10-Q
Exhibit
10
10
10
Filing Date
10/30/2018
07/25/2019
10/30/2019
Filed
Herewith
X
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 11, 2020
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 11, 2020
/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, 2019, 2018 and 2017
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 (d):
2019
2018
2017
Valuation allowance on deferred tax
assets:
2019
2018
2017
$
$
$
$
$
$
5 $
4 $
5 $
43 $
47 $
45 $
1 $
3 $
1 $
— $
— $
— $
—
—
—
—
—
2
$
$
$
$
$
(d) $
(2)
(2)
(2)
(a) $
(a) $
(a) $
(5)
(4)
—
(b) $
(c) $
$
4
5
4
38
43
47
(a) Deductions, representing uncollectible accounts written off, less recoveries of accounts written off in prior years.
(b) $5 million net reduction to valuation allowance recorded as an income tax benefit.
(c) $3 million net reduction to valuation allowance recorded as an income tax benefit and $1 million reduction recorded
primarily in other comprehensive income (loss).
(d) $2 million adjustment to the valuation allowance was recorded primarily in other comprehensive income (loss).
83
EXECUTIVE OFFICE
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 2020 Annual Meeting of Shareholders of
Masco Corporation will be held Wednesday, May 13,
2020 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.
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
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www.masco.com