Company Quick10K Filing
Quick10K
Masco
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$37.83 293 $11,100
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-10 Shareholder Vote
8-K 2019-04-25 Earnings, Exhibits
8-K 2019-03-19 Enter Agreement, Leave Agreement, Off-BS Arrangement, Exhibits
8-K 2019-02-07 Earnings, Exhibits
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-07-31 Earnings, Exhibits
8-K 2018-05-11 Shareholder Vote
8-K 2018-04-03 Officers
8-K 2018-03-09 Regulation FD, Exhibits
8-K 2018-01-26 Officers
8-K 2018-01-08 Regulation FD, Exhibits
UNP Union Pacific 124,320
CQP Cheniere Energy Partners 20,710
BTU Peabody Energy 3,110
EGBN Eagle Bancorp 1,950
DIN Dine Brands Global 1,530
BSET Bassett Furniture Industries 185
OSS One Stop Systems 35
SGRP Spar Group 14
TWER Towerstream 0
PNTTE Punto Group 0
MAS 2019-03-31
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
Part II. Other Information, Concluded
EX-31.A exhibit31a03312019.htm
EX-31.B exhibit31b03312019.htm
EX-32 exhibit3203312019.htm

Masco Earnings 2019-03-31

MAS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
 
 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

Commission file number: 1-5794
 
Masco Corporation
(Exact name of Registrant as Specified in its Charter) 
Delaware
 
38-1794485
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
17450 College Parkway, Livonia, Michigan
 
48152
(Address of Principal Executive Offices)
 
(Zip Code)

(313) 274-7400
(Registrant's telephone number, including area code)
 
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. 
x Yes   o 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). 
x Yes   o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
Emerging growth company o
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
o Yes   x No
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 

Class
 
Shares Outstanding at March 31, 2019
Common stock, par value $1.00 per share
 
293,548,874
 
 
 
 
 
 



MASCO CORPORATION

INDEX


 
 
Page No.
 
 
 
 
 
 
 
 
 






MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


March 31, 2019 and December 31, 2018
(In Millions, Except Share Data)
 
 
March 31, 2019
 
December 31, 2018
ASSETS
 

 
 

Current Assets:
 

 
 

Cash and cash investments
$
316

 
$
559

Receivables
1,321

 
1,153

Prepaid expenses and other
110

 
108

Inventories:
 

 
 

Finished goods
592

 
520

Raw material
319

 
325

Work in process
100

 
101

 
1,011

 
946

Total current assets
2,758

 
2,766

Property and equipment, net
1,222

 
1,223

Operating lease right-of-use assets
225

 

Goodwill
889

 
898

Other intangible assets, net
392

 
406

Other assets
116

 
100

Total assets
$
5,602

 
$
5,393

 
 
 
 
LIABILITIES
 

 
 

Current Liabilities:
 

 
 

Accounts payable
$
954

 
$
926

Notes payable
295

 
8

Accrued liabilities
680

 
750

Total current liabilities
1,929

 
1,684

Long-term debt
2,771

 
2,971

Other liabilities
860

 
669

Total liabilities
5,560

 
5,324

 
 
 
 
Commitments and contingencies (Note O)


 


 
 
 
 
EQUITY
 

 
 

Masco Corporation's shareholders' equity:
 

 
 

Common shares, par value $1 per share
Authorized shares: 1,400,000,000;
Issued and outstanding: 2019 – 291,500,000; 2018 – 293,900,000
291

 
294

Preferred shares authorized: 1,000,000;
Issued and outstanding: 2019 and 2018 – None

 

Paid-in capital

 

Retained deficit
(314
)
 
(278
)
Accumulated other comprehensive loss
(123
)
 
(127
)
Total Masco Corporation's shareholders' deficit
(146
)
 
(111
)
Noncontrolling interest
188

 
180

Total equity
42

 
69

Total liabilities and equity
$
5,602

 
$
5,393




See notes to condensed consolidated financial statements.

1


MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


For the Three Months Ended March 31, 2019 and 2018
(In Millions, Except Per Common Share Data)
 
 
Three Months Ended March 31,
 
2019
 
2018
Net sales
$
1,908

 
$
1,920

Cost of sales
1,309

 
1,301

Gross profit
599

 
619

Selling, general and administrative expenses
372

 
375

Impairment charges for goodwill and other intangible assets
16

 

Operating profit
211

 
244

Other income (expense), net:
 

 
 

Interest expense
(39
)
 
(41
)
Other, net
(4
)
 
(3
)
 
(43
)
 
(44
)
Income before income taxes
168

 
200

Income tax expense
41

 
39

Net income
127

 
161

Less: Net income attributable to noncontrolling interest
11

 
12

Net income attributable to Masco Corporation
$
116

 
$
149

 
 
 
 
Income per common share attributable to Masco Corporation:
 

 
 

Basic:
 

 
 

Net income
$
.39

 
$
.48

Diluted:
 

 
 

Net income
$
.39

 
$
.47

 























See notes to condensed consolidated financial statements.

2


MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)


For the Three Months Ended March 31, 2019 and 2018
(In Millions)
 
 
Three Months Ended March 31,
 
2019
 
2018
Net income
$
127

 
$
161

Less: Net income attributable to noncontrolling interest
11

 
12

Net income attributable to Masco Corporation
$
116

 
$
149

Other comprehensive income (loss), net of tax (Note K):
 

 
 

Cumulative translation adjustment
$
(3
)
 
$
42

Pension and other post-retirement benefits
4

 
5

Other comprehensive income, net of tax
1

 
47

Less: Other comprehensive (loss) income attributable to noncontrolling interest
(3
)
 
7

Other comprehensive income attributable to Masco Corporation
$
4

 
$
40

Total comprehensive income
$
128

 
$
208

Less: Total comprehensive income attributable to noncontrolling interest
8

 
19

Total comprehensive income attributable to Masco Corporation
$
120

 
$
189

 










































See notes to condensed consolidated financial statements.

3


MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


For the Three Months Ended March 31, 2019 and 2018
(In Millions) 
 
 
Three Months Ended March 31,
 
2019
 
2018
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
 

 
 

Cash provided by operations
$
183

 
$
210

Increase in receivables
(181
)
 
(216
)
Increase in inventories
(65
)
 
(87
)
(Decrease) increase in accounts payable and accrued liabilities, net
(68
)
 
38

Net cash for operating activities
(131
)
 
(55
)
 
 
 
 
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
 

 
 

Purchase of Company common stock
(116
)
 
(150
)
Proceeds from revolving credit borrowings, net
87

 

Cash dividends paid
(35
)
 
(33
)
Proceeds from the exercise of stock options
9

 

Employee withholding taxes paid on stock-based compensation
(14
)
 
(32
)
Payment of debt
(1
)
 

Credit Agreement and other financing costs
(2
)
 

Net cash for financing activities
(72
)
 
(215
)
 
 
 
 
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(38
)
 
(40
)
Acquisition of business, net of cash acquired

 
(548
)
Proceeds from disposition of:
 

 
 

Short-term bank deposits

 
13

Property and equipment
5

 
1

Other, net
(5
)
 

Net cash for investing activities
(38
)
 
(574
)
 
 
 
 
Effect of exchange rate changes on cash and cash investments
(2
)
 
20

 
 
 
 
CASH AND CASH INVESTMENTS:
 

 
 

Decrease for the period
(243
)
 
(824
)
At January 1
559

 
1,194

At March 31
$
316

 
$
370

 












See notes to condensed consolidated financial statements.

4


MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)


For the Three Months Ended March 31, 2019 and 2018
(In Millions, Except Per Common Share Data)
 
 
 
Total
 
Common
Shares
($1 par value)
 
Paid-In
Capital
 
Retained (Deficit) Earnings
 
Accumulated
Other
Comprehensive
 (Loss) Income
 
Noncontrolling
Interest
Balance, January 1, 2018
$
183

 
$
310

 
$

 
$
(298
)
 
$
(65
)
 
$
236

Reclassification of disproportionate tax effects (Refer to Note K)

 


 


 
59

 
(59
)
 


Total comprehensive income
208

 
 

 
 

 
149

 
40

 
19

Shares issued
(13
)
 
2

 
(7
)
 
(8
)
 
 

 
 

Shares retired:
 

 
 

 
 

 
 

 
 

 
 

Repurchased
(150
)
 
(4
)
 


 
(146
)
 
 

 
 

Surrendered (non-cash)
(19
)
 


 


 
(19
)
 
 

 
 

Cash dividends declared
(33
)
 
 

 
 

 
(33
)
 
 

 
 

Stock-based compensation
7

 
 

 
7

 
 

 
 

 
 

Balance, March 31, 2018
$
183

 
$
308

 
$

 
$
(296
)
 
$
(84
)
 
$
255

 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2019
$
69

 
$
294

 
$

 
$
(278
)
 
$
(127
)
 
$
180

Total comprehensive income
128

 
 

 
 

 
116

 
4

 
8

Shares issued
5

 
1

 
4

 


 
 

 
 

Shares retired:
 

 
 

 
 

 
 

 
 

 
 

Repurchased
(122
)
 
(3
)
 
(11
)
 
(108
)
 
 

 
 

Surrendered (non-cash)
(10
)
 
(1
)
 


 
(9
)
 
 

 
 

Cash dividends declared
(35
)
 
 

 
 

 
(35
)
 
 

 
 

Stock-based compensation
7

 
 

 
7

 
 

 
 

 
 

Balance, March 31, 2019
$
42

 
$
291

 
$

 
$
(314
)
 
$
(123
)
 
$
188

 





















See notes to condensed consolidated financial statements.

5


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


A. ACCOUNTING POLICIES
 
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to fairly state our financial position at March 31, 2019, and our results of operations, comprehensive income (loss), cash flows and changes in shareholders' equity for the three-month periods ended March 31, 2019 and 2018. The condensed consolidated balance sheet at December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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 condensed consolidated balance sheet. Finance lease ROU assets are included in property and equipment, net, notes payable, and long-term debt on our condensed 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.
 
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. Our accounting for finance leases remained unchanged. The standard did not impact our condensed 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.



6


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


A. ACCOUNTING POLICIES (Concluded)

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. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. ASU 2018-15 is effective for us for annual periods beginning January 1, 2020. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

B. 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 condensed 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 revised the allocation of the purchase price to identifiable assets and liabilities based on analysis of information as of the acquisition date that was 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.
 
Initial
 
Final
Receivables
$
101

 
$
100

Inventories
173

 
166

Other current assets
5

 
5

Property and equipment
33

 
33

Goodwill
46

 
64

Other intangible assets
243

 
240

Accounts payable
(24
)
 
(24
)
Accrued liabilities
(25
)
 
(30
)
Other liabilities
(4
)
 
(5
)
Total
$
548

 
$
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 3 years.

7


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


C. 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:

 
Three Months Ended March 31, 2019
 
Plumbing Products
 
Decorative Architectural Products
 
Cabinetry Products
 
Windows and Other Specialty Products
 
Total
Primary geographic markets:
 
 
 
 
 
 
 
 
 
North America
$
598

 
$
573

 
$
237

 
$
127

 
$
1,535

International, principally Europe
342

 

 

 
31

 
373

Total
$
940

 
$
573

 
$
237

 
$
158

 
$
1,908


 
Three Months Ended March 31, 2018
 
Plumbing Products
 
Decorative Architectural Products
 
Cabinetry Products
 
Windows and Other Specialty Products
 
Total
Primary geographic markets:
 
 
 
 
 
 
 
 
 
North America
$
605

 
$
545

 
$
217

 
$
149

 
$
1,516

International, principally Europe
366

 

 

 
38

 
404

Total
$
971

 
$
545

 
$
217

 
$
187

 
$
1,920



Our contract asset balance was $13 million and $14 million at March 31, 2019 and December 31, 2018, respectively. Our contract liability balance was $13 million and $41 million at March 31, 2019 and December 31, 2018, respectively.


8


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


D. LEASES
We have operating and finance leases primarily for corporate offices, manufacturing facilities, warehouses, vehicles, and equipment. Our leases have remaining lease terms of 1 year to 14 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 were as follows, in millions:
 
 
Three Months Ended March 31, 2019
Operating lease cost
 
$
16

Short-term lease cost
 
2

Variable lease cost
 
1

Finance lease cost:
 
 
Amortization of right-of-use assets
 
1

Interest on lease liabilities
 


Supplemental cash flow information related to leases was as follows, in millions:
 
Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows for operating leases
$
15

Operating cash flows for finance leases

Financing cash flows for finance leases
1

 
 
ROU assets obtained in exchange for new lease obligations:
 
Operating leases
$
2

Finance leases


    
Certain other information related to leases was as follows:
 
At March 31, 2019
Weighted-average remaining lease term:
 
Operating leases
9 years

Finance leases
10 years

 
 
Weighted-average discount rate:
 
Operating leases
4.5
%
Finance leases
3.3
%

Supplemental balance sheet information related to leases was as follows, in millions:
 
At March 31, 2019
 
Operating Leases
 
Finance Leases
Property and equipment, net
$

 
$
37

Notes payable

 
8

Accrued liabilities
45

 

Long-term debt

 
29

Other liabilities
205

 


Gross ROU assets under finance leases recorded within property and equipment, net were $48 million, and accumulated amortization associated with these leases was $11 million, at March 31, 2019.

9


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


D. LEASES (Concluded)
At March 31, 2019, future maturities of lease liabilities (under ASC 842) were as follows, in millions:
 
Operating Leases
 
Finance Leases
Year ending December 31,
 
 
 
2019 (excluding the three-months ended March 31, 2019)
$
41

 
$
8

2020
50

 
3

2021
43

 
3

2022
34

 
3

2023
23

 
4

Thereafter
122

 
23

Total lease payments
313

 
44

Less: imputed interest
(63
)
 
(7
)
Total
$
250

 
$
37


At December 31, 2018, future minimum operating lease payments (under ASC 840) 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.

E. DEPRECIATION AND AMORTIZATION
 
Depreciation and amortization expense was $40 million and $34 million for the three-month periods ended March 31, 2019 and 2018, respectively. 

F. GOODWILL AND OTHER INTANGIBLE ASSETS
 
The changes in the carrying amount of goodwill for the three-month period ended March 31, 2019, by segment, were as follows, in millions: 
 
Gross Goodwill At March 31, 2019
 
Accumulated
Impairment
Losses
 
Net Goodwill At March 31, 2019
Plumbing Products
$
566

 
$
(340
)
 
$
226

Decorative Architectural Products
358

 
(75
)
 
283

Cabinetry Products
181

 

 
181

Windows and Other Specialty Products
717

 
(518
)
 
199

Total
$
1,822

 
$
(933
)
 
$
889

 
Gross Goodwill At December 31, 2018
 
Accumulated
Impairment
Losses
 
Net Goodwill At December 31, 2018
 
Pre-Tax Impairment Charges
 
Other (A)
 
Net Goodwill At March 31, 2019
Plumbing Products
$
568

 
$
(340
)
 
$
228

 
$

 
$
(2
)
 
$
226

Decorative Architectural Products
358

 
(75
)
 
283

 

 

 
283

Cabinetry Products
181

 

 
181

 

 

 
181

Windows and Other Specialty Products
717

 
(511
)
 
206

 
(7
)
 

 
199

Total
$
1,824

 
$
(926
)
 
$
898

 
$
(7
)
 
$
(2
)
 
$
889

 
 

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


10


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


F. GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)

In the first quarter of 2019 we recognized a $7 million non-cash goodwill impairment charge in our Windows and Other Specialty Products segment, related to a decline in the long-term outlook of our windows and doors business in the United Kingdom. We did not recognize a tax benefit as a result of this impairment.

The carrying value of our other indefinite-lived intangible assets was $190 million and $199 million at March 31, 2019 and December 31, 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. The carrying value of our definite-lived intangible assets was $202 million (net of accumulated amortization of $35 million) and $207 million (net of accumulated amortization of $29 million) at March 31, 2019 and December 31, 2018, respectively, and principally included customer relationships.

G. WARRANTY LIABILITY
 
Changes in our warranty liability were as follows, in millions: 
 
Three Months Ended
March 31, 2019
 
Twelve Months Ended December 31, 2018
Balance at January 1
$
217

 
$
205

Accruals for warranties issued during the period
19

 
78

Accruals related to pre-existing warranties

 
(1
)
Settlements made (in cash or kind) during the period
(18
)
 
(65
)
Balance at end of period
$
218

 
$
217




11


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


H. DEBT

On March 13, 2019, we entered into a credit agreement (the “Credit Agreement”) with a bank group, 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 bank group 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 March 31, 2019, we had no outstanding standby letters of credit under the Credit Agreement.

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) adjusted LIBO Rate plus 1.0% (the "Alternative Base Rate"); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) 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 plus an applicable margin based upon our then-applicable corporate credit ratings.

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

In order for us to borrow under the 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 $87 million was borrowed and outstanding at March 31, 2019

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 March 31, 2019 was approximately $3.2 billion, compared with the aggregate carrying value of $3.1 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.


12


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


I. STOCK-BASED COMPENSATION
 
Our 2014 Long Term Stock Incentive Plan provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors. At March 31, 2019, outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, phantom stock awards and stock appreciation rights.
    
Pre-tax compensation expense for these stock-based incentives was as follows, in millions: 
 
Three Months Ended March 31,
 
2019
 
2018
Long-term stock awards
$
5

 
$
5

Stock options
1

 
1

Restricted stock units
1

 
1

Phantom stock awards and stock appreciation rights
1

 

Total
$
8

 
$
7


    
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 inasmuch as we continue the practice of repurchasing and retiring an equal number of shares in the open market. We granted 580,090 shares of long-term stock awards in the three-month period ended March 31, 2019.

Our long-term stock award activity was as follows, shares in millions: 
 
Three Months Ended March 31,
 
2019
 
2018
Unvested stock award shares at January 1
2

 
3

Weighted average grant date fair value
$
30

 
$
24

 
 
 
 
Stock award shares granted
1

 
1

Weighted average grant date fair value
$
36

 
$
42

 
 
 
 
Stock award shares vested
1

 
1

Weighted average grant date fair value
$
24

 
$
21

 
 
 
 
Stock award shares forfeited

 

Weighted average grant date fair value
$
29

 
$
30

 
 
 
 
Unvested stock award shares at March 31
2

 
3

Weighted average grant date fair value
$
34

 
$
30



At March 31, 2019 and 2018, there was $61 million and $64 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of four years at both March 31, 2019 and 2018.

The total market value (at the vesting date) of stock award shares which vested during the three-month periods ended March 31, 2019 and 2018 was $29 million and $52 million, respectively.

    




13


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


I. STOCK-BASED COMPENSATION (Continued)

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 in the three-month period ended March 31, 2019 with a grant date weighted average exercise price of approximately $36 per share. In the three-month period ended March 31, 2019, no stock options were forfeited (including options that expired unexercised).

Our stock option activity was as follows, shares in millions: 
 
 
Three Months Ended March 31,
 
 
2019
 
 
2018
Option shares outstanding, January 1
 
4

 
 
5

Weighted average exercise price
$
21

 
$
16

 
 
 
 
 
 
Option shares granted
 
1

 
 

Weighted average exercise price
$
36

 
$
42

 
 
 
 
 
 
Option shares exercised
 
1

 
 

Aggregate intrinsic value on date of exercise (A)
$
13 million

 
$
33 million

Weighted average exercise price
$
11

 
$
11

 
 
 
 
 
 
Option shares forfeited
 

 
 

Weighted average exercise price
$

 
$

 
 
 
 
 
 
Option shares outstanding, March 31
 
4

 
 
5

Weighted average exercise price
$
25

 
$
19

Weighted average remaining option term (in years)
 
6

 
 
5

 
 
 
 
 
 
Option shares vested and expected to vest, March 31
 
4

 
 
5

Weighted average exercise price
$
25

 
$
19

Aggregate intrinsic value (A)
$
57 million

 
$
98 million

Weighted average remaining option term (in years)
 
6

 
 
5

 
 
 
 
 
 
Option shares exercisable (vested), March 31
 
2

 
 
3

Weighted average exercise price
$
19

 
$
15

Aggregate intrinsic value (A)
$
50 million

 
$
88 million

Weighted average remaining option term (in years)
 
4

 
 
4

 
 
(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.

    






14


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


I. STOCK-BASED COMPENSATION (Concluded)

At March 31, 2019 and 2018, there was $12 million and $11 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 four years and three years at March 31, 2019 and 2018, respectively.

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: 
 
Three Months Ended March 31,
 
2019
 
2018
Weighted average grant date fair value
$
8.81

 
$
12.52

Risk-free interest rate
2.57
%
 
2.71
%
Dividend yield
1.35
%
 
1.00
%
Volatility factor
25.00
%
 
29.00
%
Expected option life
6 years

 
6 years



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 for the performance period and the recipient's continued employment through the share award date. We granted 124,450 restricted stock units in the three-month period ended March 31, 2019, with a grant date fair value of approximately $39 per share, and 113,260 restricted stock units in the three-month period ended March 31, 2018, with a grant date fair value of approximately $42 per share. No restricted stock units were forfeited in either period.

J. EMPLOYEE RETIREMENT PLANS
 
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 condensed consolidated statement of operations. Net periodic pension cost for our defined-benefit pension plans was as follows, in millions: 
 
Three Months Ended March 31,
 
2019
 
2018
 
Qualified
 
Non-Qualified
 
Qualified
 
Non-Qualified
Service cost
$
1

 
$

 
$
1

 
$

Interest cost
10

 
1

 
10

 
1

Expected return on plan assets
(11
)
 

 
(12
)
 

Amortization of net loss
4

 
1

 
4

 
1

Net periodic pension cost
$
4

 
$
2

 
$
3

 
$
2


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


15


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


K. RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE LOSS
 
The reclassifications from accumulated other comprehensive loss to the condensed consolidated statements of operations were as follows, in millions: 
 
Amounts Reclassified
 
 
Accumulated Other Comprehensive Loss
Three Months Ended March 31,
 
Statement of Operations Line Item
2019
 
2018
 
Amortization of defined-benefit pension and other post-retirement benefits:
 

 
 

 
 
Actuarial losses, net
$
5

 
$
5

 
Other income (expense), net
Tax (benefit)
(1
)
 

 
 
Net of tax
$
4

 
$
5

 
 

 
In addition to the above amounts, 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 relating to various defined-benefit plans from accumulated other comprehensive loss to retained deficit.

L. SEGMENT INFORMATION
 
Information by segment and geographic area was as follows, in millions: 
 
Three Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
 
Net Sales(A)
 
Operating Profit (Loss)
Operations by segment:
 

 
 

 
 

 
 

Plumbing Products
$
940

 
$
971

 
$
153

 
$
163

Decorative Architectural Products
573

 
545

 
73

 
89

Cabinetry Products
237

 
217

 
20

 
6

Windows and Other Specialty Products
158

 
187

 
(11
)
 
4

Total
$
1,908

 
$
1,920

 
$
235

 
$
262

Operations by geographic area:
 
 
 
 
 
 
 
North America
$
1,535

 
$
1,516

 
$
202

 
$
218

International, principally Europe
373

 
404

 
33

 
44

Total
$
1,908

 
$
1,920

 
235

 
262

General corporate expense, net
 
 
 
 
(24
)
 
(18
)
Operating profit
 
 
 
 
211

 
244

Other income (expense), net
 
 
 
 
(43
)
 
(44
)
Income before income taxes
 
 
 
 
$
168

 
$
200

 
 
(A)
Inter-segment sales were not material.


16


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


M. OTHER INCOME (EXPENSE), NET
 
Other, net, which is included in other income (expense), net, was as follows, in millions:
 
Three Months Ended March 31,
 
2019
 
2018
Income from cash and cash investments and short-term bank deposits
$
1

 
$
2

Foreign currency transaction losses

 
(1
)
Net periodic pension and post-retirement benefit cost
(5
)
 
(4
)
Total other, net
$
(4
)
 
$
(3
)


N. INCOME PER COMMON SHARE
 
Reconciliations of the numerators and denominators used in the computations of basic and diluted income per common share were as follows, in millions: 
 
Three Months Ended March 31,
 
2019
 
2018
Numerator (basic and diluted):
 

 
 

Net income
$
116

 
$
149

Less: Allocation to unvested restricted stock awards
1

 
1

Net income available to common shareholders
$
115

 
$
148