10-Q 1 mas-20220630.htm 10-Q mas-20220630
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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 June 30, 2022
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 38-1794485
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer Identification No.)
17450 College Parkway,Livonia,Michigan48152
(Address of Principal Executive Offices)(Zip Code)
(313) 274-7400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $1.00 par valueMASNew York Stock Exchange

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, 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 Accelerated filer
Non-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

    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 June 30, 2022
Common stock, par value $1.00 per share 225,519,663



MASCO CORPORATION

INDEX

  Page No.
 
 
 
 
 
 
 
 
 





MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

June 30, 2022 and December 31, 2021
(In Millions, Except Share Data)
June 30, 2022December 31, 2021
ASSETS
Current Assets:  
Cash and cash investments$440 $926 
Receivables1,434 1,171 
Prepaid expenses and other131 109 
Inventories:  
Finished goods
823 702 
Raw material
411 383 
Work in process
120 131 
 1,354 1,216 
Total current assets3,359 3,422 
Property and equipment, net884 896 
Goodwill554 568 
Other intangible assets, net369 388 
Operating lease right-of-use assets198 187 
Other assets103 114 
Total assets$5,467 $5,575 
LIABILITIES
Current Liabilities:  
Accounts payable$1,128 $1,045 
Notes payable508 10 
Accrued liabilities831 884 
Total current liabilities2,467 1,939 
Long-term debt2,946 2,949 
Noncurrent operating lease liabilities185 172 
Other liabilities410 437 
Total liabilities6,008 5,497 
Commitments and contingencies (Note P)
Redeemable noncontrolling interest2222 
EQUITY
Masco Corporation's shareholders' equity:  
Common shares, par value $1 per share
  Authorized shares: 1,400,000,000;
  Issued and outstanding: 2022 – 225,200,000; 2021 – 241,200,000
225 241 
Preferred shares authorized: 1,000,000;
  Issued and outstanding: 2022 and 2021 – None
  
Paid-in capital7  
Retained deficit(1,154)(652)
Accumulated other comprehensive income 180 232 
Total Masco Corporation's shareholders' (deficit) (742)(179)
Noncontrolling interest179 235 
Total equity(563)56 
Total liabilities and equity$5,467 $5,575 
See notes to condensed consolidated financial statements.
1


MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three and Six Months Ended June 30, 2022 and 2021
(In Millions, Except Per Common Share Data)
Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Net sales$2,352 $2,179 $4,553 $4,149 
Cost of sales1,583 1,388 3,080 2,658 
Gross profit769 791 1,473 1,491 
Selling, general and administrative expenses361 354 712 689 
Operating profit408 437 761 802 
Other income (expense), net:    
Interest expense(28)(25)(53)(227)
Other, net17 (415)16 (421)
 (11)(440)(37)(648)
Income (loss) before income taxes397 (3)724 154 
Income tax expense 103 12 178 55 
Net income (loss)294 (15)546 99 
Less: Net income attributable to noncontrolling interest16 21 35 41 
Net income (loss) attributable to Masco Corporation$278 $(36)$511 $58 
 Income (loss) per common share attributable to Masco Corporation:   
Basic:    
Net income (loss)$1.19 $(0.14)$2.17 $0.21 
Diluted:    
Net income (loss)$1.18 $(0.14)$2.15 $0.20 
See notes to condensed consolidated financial statements.
2


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

For the Three and Six Months Ended June 30, 2022 and 2021
(In Millions)
Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Net income (loss) $294 $(15)$546 $99 
Less: Net income attributable to noncontrolling interest
16 21 35 41 
Net income (loss) attributable to Masco Corporation$278 $(36)$511 $58 
Other comprehensive (loss) income, net of tax (Note L):    
Cumulative translation adjustment$(55)$37 $(66)$1 
Interest rate swaps   7 
Pension and other post-retirement benefits1 358 2 363 
Other comprehensive (loss) income, net of tax(54)395 (64)371 
Less: Other comprehensive (loss) income attributable to noncontrolling interest(8)2 (12)(10)
Other comprehensive (loss) income attributable to Masco Corporation$(46)$393 $(52)$381 
Total comprehensive income$240 $380 $482 $470 
Less: Total comprehensive income attributable to noncontrolling interest
8 23 23 31 
Total comprehensive income attributable to Masco Corporation
$232 $357 $459 $439 
 



See notes to condensed consolidated financial statements.
3


MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Six Months Ended June 30, 2022 and 2021
(In Millions) 
Six Months Ended June 30,
 20222021
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:  
Cash provided by operations$662 $610 
Increase in receivables(296)(238)
Increase in inventories(159)(147)
(Decrease) increase in accounts payable and accrued liabilities, net(33)14 
Net cash from operating activities174 239 
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:  
Retirement of notes (1,326)
Purchase of Company common stock(914)(750)
Cash dividends paid(131)(96)
Dividends paid to noncontrolling interest (43)
Issuance of notes, net of issuance costs 1,481 
Proceeds from term loan
500  
Debt extinguishment costs (160)
Proceeds from the exercise of stock options1 1 
Employee withholding taxes paid on stock-based compensation(17)(14)
Decrease in debt, net(7)(2)
Net cash for financing activities(568)(909)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:  
Capital expenditures(70)(53)
Acquisition of businesses, net of cash acquired (1)
Proceeds from disposition of:  
Businesses, net of cash disposed 5 
Other financial investments1 168 
Other, net(5)3 
Net cash (for) from investing activities(74)122 
Effect of exchange rate changes on cash and cash investments(18)(9)
CASH AND CASH INVESTMENTS:  
Decrease for the period(486)(557)
At January 1926 1,326 
At June 30$440 $769 
See notes to condensed consolidated financial statements.
4


MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

For the Three and Six Months Ended June 30, 2022 and 2021
(In Millions, Except Per Common Share Data)
 
Total
Common
Shares
($1 par value)
Paid-In
Capital
Retained Earnings
(Deficit)
Accumulated
Other
Comprehensive
 (Loss) Income
Noncontrolling
Interest
Balance, January 1, 2021$421 $258 $ $79 $(142)$226 
Total comprehensive income (loss)90 — — 94 (12)8 
Shares issued 1 (1)— — — 
Shares retired:
Repurchased(303)(6)(27)(270)— — 
Surrendered (non-cash)(13)— — (13)— — 
Redeemable noncontrolling interest - redemption adjustment(6)— — (6)— — 
Stock-based compensation28 — 28 — — — 
Balance, March 31, 2021$217 $253 $ $(116)$(154)$234 
Total comprehensive income (loss)380 — — (36)393 23 
Shares retired:
Repurchased(447)(6)(12)(429)— — 
Cash dividends declared(59)— — (59)— — 
Dividends declared to noncontrolling interest(43)— — — — (43)
Stock-based compensation12 — 12 — — — 
Balance, June 30, 2021$60 $247 $ $(640)$239 $214 
 


























5


MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Concluded)


For the Three and Six Months Ended June 30, 2022 and 2021
(In Millions, Except Per Common Share Data)

Total
Common
Shares
($1 par value)
Paid-In
Capital
Retained
(Deficit) Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Noncontrolling
Interest
Balance, January 1, 2022$56 $241 $ $(652)$232 $235 
Total comprehensive income (loss)242 — — 233 (6)15 
Shares issued1 1 — — — — 
Shares retired:
Repurchased(364)(6)(27)(331)— — 
Surrendered (non-cash)(17)— — (17)— — 
Cash dividends declared(67)— — (67)— — 
Redeemable noncontrolling interest - redemption adjustment1 — — 1 — — 
Stock-based compensation27 — 27 — — — 
Balance, March 31, 2022$(121)$236 $ $(833)$226 $250 
Total comprehensive income (loss)240 — — 278 (46)8 
Shares retired:
Repurchased(550)(11)(5)(534)— — 
Cash dividends declared(64)— — (64)— — 
Dividends declared to noncontrolling interest(79)— — — — (79)
Redeemable noncontrolling interest - redemption adjustment(1)— — (1)— — 
Stock-based compensation12 — 12 — — — 
Balance, June 30, 2022$(563)$225 $7 $(1,154)$180 $179 
See notes to condensed consolidated financial statements.
6


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 June 30, 2022, our results of operations and comprehensive income (loss) for the three and six months ended June 30, 2022 and 2021, cash flows for the six months ended June 30, 2022 and 2021 and changes in shareholders' equity for the three and six months ended June 30, 2022 and 2021. The condensed consolidated balance sheet at December 31, 2021 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted ("GAAP") in the United States of America.
Recently Adopted Accounting Pronouncements. In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. We adopted this standard for annual periods beginning January 1, 2022. The adoption of this new standard did not impact our financial position or results of operations.
In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Acquired Contract Assets and Contract Liabilities from Contracts with Customers.” ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. We adopted this standard for annual periods beginning January 1, 2022. The adoption of this new standard did not impact our financial position or results of operations.

B. ACQUISITIONS

In the third quarter of 2021, we acquired all of the share capital of Steamist, Inc. ("Steamist") for approximately $56 million in cash. Steamist is a manufacturer of residential steam bath products that are complementary to many of our plumbing products. This business is included in our Plumbing Products segment. In connection with this acquisition, we recognized $31 million of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of 11 years. We also recognized $29 million of goodwill, which is not tax deductible, and is related primarily to the expected synergies from combining the operations into our business. Working capital and other adjustments were finalized with the seller in the fourth quarter of 2021, resulting in no significant changes.
In the first quarter of 2021, we acquired a 75.1 percent equity interest in Easy Sanitary Solutions B.V. ("ESS"), for approximately €47 million ($58 million), including $52 million of cash and $6 million of debt that will be paid out over two years less any pending or settled indemnity matters. The cash payment was made to a third-party notary on December 29, 2020 for the acquisition of this equity interest in advance of the transaction closing on January 4, 2021. ESS is a manufacturer of shower channel drains and offers a wide range of products for barrier-free showering and bathroom wall niches. This business is included in our Plumbing Products segment. In connection with this acquisition, we recognized $32 million of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of 10 years. We also recognized $35 million of goodwill, which is not tax deductible, and is related primarily to the expected synergies from combining the operations into our business.
The remaining 24.9 percent equity interest in ESS is subject to a call and put option that is exercisable by us or the sellers, respectively, any time after December 31, 2023. The redemption value of the call and put option is the same and based on a floating EBITDA value. The call and put options were determined to be embedded within the redeemable noncontrolling interest and were recorded as temporary equity in the condensed consolidated balance sheet. We elected to adjust the redeemable noncontrolling interest to its full redemption amount directly into retained deficit.








7



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

B. ACQUISITIONS, Concluded

In the fourth quarter of 2020, we acquired substantially all of the net assets of Kraus USA Inc. ("Kraus"), a designer and distributor of sinks, faucets and accessories for the kitchen and bathroom, for approximately $103 million and an additional cash payment of up to $50 million to be paid in 2023, contingent upon the achievement of certain financial performance metrics for the year ending December 31, 2022. As of the closing date of the acquisition, the contingent consideration was assigned a fair value of approximately $8 million. Refer to Note G for additional information regarding the measurement of the contingent consideration liability. This business expands our product offerings to our customers and our online presence under the Kraus brand. This business is included in our Plumbing Products segment. In connection with this acquisition, we recognized $25 million of indefinite-lived intangible assets, which is related to trademarks, and $49 million of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of 10 years. We also recognized $20 million of goodwill, which is generally tax deductible, and is related primarily to the expected synergies from combining the operations into our business. During the first quarter of 2021, we revised the allocation of the purchase price to certain identifiable assets and liabilities based on analysis of information as of the acquisition date, which resulted in a $1 million decrease to goodwill.

C. DIVESTITURES
On May 31, 2021, we completed the divestiture of our Hüppe GmbH ("Hüppe") business, a manufacturer of shower enclosures and shower trays. In connection with the divestiture, we recognized a loss of $18 million for the three and six months ended June 30, 2021, which is included in other, net in our condensed consolidated statements of operations. This loss resulted primarily from the recognition of $23 million of currency translation losses that were previously included within accumulated other comprehensive income. During the six months ended June 30, 2022, we recorded a $2 million pre-tax post-closing gain related to the finalization of working capital items in other, net in our condensed consolidated statement of operations. The sale of Hüppe did not represent a strategic shift that will have a major effect on our operations and financial results and therefore was not presented as discontinued operations. Prior to the divestiture, the results of the business were included in our Plumbing Products segment.

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:
Three Months Ended June 30, 2022
Plumbing ProductsDecorative Architectural ProductsTotal
Primary geographic markets:
North America$926 $979 $1,905 
International, principally Europe447  447 
Total$1,373 $979 $2,352 

Six Months Ended June 30, 2022
Plumbing ProductsDecorative Architectural ProductsTotal
Primary geographic markets:
North America$1,818 $1,821 $3,639 
International, principally Europe914  914 
Total$2,732 $1,821 $4,553 




8



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

D. REVENUE, Concluded
Three Months Ended June 30, 2021
Plumbing ProductsDecorative Architectural ProductsTotal
Primary geographic markets:
North America$867 $850 $1,717 
International, principally Europe462  462 
Total$1,329 $850 $2,179 
Six Months Ended June 30, 2021
Plumbing ProductsDecorative Architectural ProductsTotal
Primary geographic markets:
North America$1,675 $1,571 $3,246 
International, principally Europe903  903 
Total$2,578 $1,571 $4,149 

Our contract asset balance was $2 million and $1 million at June 30, 2022 and December 31, 2021, respectively. Our contract liability balance was $25 million and $67 million at June 30, 2022 and December 31, 2021, respectively.
We recognized $8 million of revenue for the three months ended June 30, 2022 and we reversed $1 million of revenue for the three months ended June 30, 2021 related to performance obligations settled in previous quarters of the same year. We recognized $8 million and $13 million of revenue for the three and six months ended June 30, 2022, respectively, and $3 million and $4 million of revenue for the three and six months ended June 30, 2021, respectively, related to performance obligations settled in previous years.
Changes in the allowance for credit losses deducted from accounts receivable were as follows, in millions: 
Six Months Ended
June 30, 2022
Twelve Months Ended December 31, 2021
Balance at January 1$6 $7 
Provision for expected credit losses during the period2 1 
Write-offs charged against the allowance(1)(2)
Recoveries of amounts previously written off1 1 
Other (A)
 (1)
Balance at end of period$8 $6 
(A)    As a result of Hüppe being divested in May 2021, $1 million for the year ended December 31, 2021 was removed from allowance for credit losses.

E. DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $71 million and $78 million for the six months ended June 30, 2022 and 2021, respectively.

F. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill at June 30, 2022, by segment, was as follows, in millions:
Gross Goodwill At June 30, 2022Accumulated
Impairment
Losses
Net Goodwill At June 30, 2022
Plumbing Products$609 $(301)$308 
Decorative Architectural Products366 (120)246 
Total$975 $(421)$554 

9



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

F. GOODWILL AND OTHER INTANGIBLE ASSETS, Concluded

The changes in the carrying amount of goodwill for the six months ended June 30, 2022, by segment, were as follows, in millions: 
 Gross Goodwill At December 31, 2021Accumulated
Impairment
Losses
Net Goodwill At December 31, 2021Other (B)Net Goodwill At June 30, 2022
Plumbing Products (A)
$623 $(301)$322 $(14)$308 
Decorative Architectural Products
366 (120)246  246 
Total$989 $(421)$568 $(14)$554 
(A)     As a result of Hüppe being divested in May 2021, both gross goodwill and accumulated impairment losses for the Plumbing Products segment were reduced by $39 million.
(B)    Other consists of the effect of foreign currency translation.
    
The carrying value of our other indefinite-lived intangible assets was $108 million and $109 million at June 30, 2022 and December 31, 2021, respectively, and principally included registered trademarks. The carrying value of our definite-lived intangible assets was $261 million (net of accumulated amortization of $79 million) and $279 million (net of accumulated amortization of $75 million) at June 30, 2022 and December 31, 2021, respectively, and principally included customer relationships.

G. FAIR VALUE OF FINANCIAL INSTRUMENTS
Kraus Acquisition Contingent Consideration. As described in Note B, we may be obligated to pay up to an additional $50 million in 2023 for the Kraus acquisition contingent upon the achievement of certain financial performance metrics for the year ending December 31, 2022. The measurement of the liability for contingent consideration is based on significant inputs that are not observable in the market, and are therefore classified as Level 3 inputs. Examples of utilized unobservable inputs are estimated future revenues and earnings of the acquired business and an applicable discount rate. The estimate of the liability may fluctuate if there are changes in the forecast of the acquired business' future revenues and earnings, as a result of actual levels achieved, or in the discount rate used to determine the present value of contingent future cash flows. All subsequent remeasurements from the initial estimate at the time of acquisition are recorded in other, net in our condensed consolidated statements of operations, as described in Note N. As of June 30, 2022, we do not believe the financial performance metrics will be met and the fair value of the liability was estimated to be nil, using probability weighted discounted cash flows and a discount rate that reflects the uncertainty surrounding the expected outcomes, which we believe is appropriate and representative of a market participant assumption. The fair value of the liability was estimated to be $24 million as of December 31, 2021.

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 364-day term loan has an interest rate that resets monthly and the fair value of this instrument approximates the carrying value at June 30, 2022. The aggregate estimated market value of our short-term and long-term debt at June 30, 2022 was approximately $3.1 billion, compared with the aggregate carrying value of $3.5 billion. The aggregate estimated market value of our short-term and long-term debt at December 31, 2021 was approximately $3.2 billion, compared with the aggregate carrying value of $3.0 billion.













10



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

H. WARRANTY LIABILITY
Changes in our warranty liability were as follows, in millions: 
Six Months Ended
June 30, 2022
Twelve Months Ended December 31, 2021
Balance at January 1$80 $83 
Accruals for warranties issued during the period19 38 
Accruals related to pre-existing warranties2 (8)
Settlements made (in cash or kind) during the period(16)(31)
Other, net (including currency translation and acquisitions)(2)(2)
Balance at end of period$83 $80 

I. DEBT
On April 26, 2022, we entered into a revolving credit agreement (the “2022 Credit Agreement”) with an aggregate commitment of $1.0 billion and a maturity date of April 26, 2027. Under the 2022 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 2022 Credit Agreement, our credit agreement dated March 13, 2019, as amended, with an aggregate commitment of $1.0 billion, was terminated.

The 2022 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 the equivalent of $500 million. We can also borrow swingline loans up to $125 million and obtain letters of credit of up to $25 million. Outstanding letters of credit under the 2022 Credit Agreement reduce our borrowing capacity and we had no outstanding letters of credit at June 30, 2022.
Revolving credit loans denominated in U.S. dollars bear interest under the 2022 Credit Agreement at our option, at (A) SOFR rate for the interest period in effect for the borrowing, plus 0.1%, plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) a rate per annum equal to the greatest of (i) the U.S. prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50% and (iii) the adjusted term SOFR rate for a one month interest period, plus 1.0%; plus an applicable margin based upon our then-applicable corporate credit ratings. Foreign currency revolving credit loans denominated in Canadian dollars bear interest at a rate per annum equal to the greater of (i) the rate equal to the PRIMCAN Index rate and (ii) the CDOR rate for a one month interest period, plus 1.0%; plus an applicable margin based upon our then-applicable corporate credit ratings. Foreign currency revolving credit loans denominated in British Pounds Sterling bear interest at a rate per annum equal to the Daily Simple SONIA, plus an applicable margin based upon our then-applicable corporate credit ratings. Foreign currency revolving credit loans denominated in European euros bear interest at the adjusted EURIBOR rate, plus an applicable margin based upon our then-applicable corporate credit ratings. The various benchmarks are subject to applicable floors.

The 2022 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) an interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0.
In order for us to borrow under the 2022 Credit Agreement, there must not be any default in our covenants in the 2022 Credit Agreement (i.e., in addition to the two financial covenants described above, principally limitations on subsidiary debt, negative pledge restrictions, and requirements relating to legal compliance, maintenance of our properties and insurance) and our representations and warranties in the 2022 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, 2021, 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 June 30, 2022. 




11



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

I. DEBT, Concluded

On April 26, 2022, we entered into a 364-day $500 million senior unsecured delayed draw term loan due April 26, 2023 with a syndicate of lenders. The senior unsecured term loan and commitments thereunder are subject to prepayment or termination at our option and the loans will bear interest at SOFR plus a spread adjustment and 0.70%. The covenants, including the financial covenants, are substantially the same as those in the 2022 Credit Agreement.

On March 4, 2021, we issued $600 million of 1.500% Notes due February 15, 2028, $600 million of 2.000% Notes due February 15, 2031 and $300 million of 3.125% Notes due February 15, 2051. We received proceeds of $1,495 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 March 22, 2021, proceeds from the debt issuances, together with cash on hand, were used to repay and early retire our $326 million 5.950% Notes due March 15, 2022, $500 million 4.450% Notes due April 1, 2025, and $500 million 4.375% Notes due April 1, 2026. In connection with these early retirements, we incurred a loss on debt extinguishment of $168 million for the six months ended June 30, 2021, which was recorded as interest expense in the condensed consolidated statement of operations.

J. 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 June 30, 2022, outstanding stock-based incentives were in the form of restricted stock units, performance restricted stock units, stock options, long-term stock awards and phantom stock awards.

Pre-tax compensation expense for these stock-based incentives was as follows, in millions: 
Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Restricted stock units$6 $4 $25 $23 
Performance restricted stock units3 4 4 6 
Stock options1 1 6 5 
Long-term stock awards2 3 4 6 
Phantom stock awards   2 
Total$12 $12 $39 $42 
Restricted Stock Units. Restricted stock units are granted to our key employees and non-employee Directors. These grants did not cause net share dilution due to our practice of repurchasing and retiring an equal number of shares in the open market.
We granted 605,100 restricted stock units in the six months ended June 30, 2022 with a weighted average grant date fair value of $59 per share.

12



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

J. STOCK-BASED COMPENSATION, Continued
Our restricted stock unit activity was as follows, units in millions: 
Six Months Ended June 30,
 20222021
Unvested restricted stock units at January 11  
Weighted average grant date fair value$54 $47 
Restricted stock units granted1 1 
Weighted average grant date fair value$59 $57 
Restricted stock units vested1  
Weighted average grant date fair value$53 $47 
Restricted stock units forfeited  
Weighted average grant date fair value$56 $54 
Unvested restricted stock units at June 301 1 
Weighted average grant date fair value$57 $54 

At June 30, 2022 and 2021, there was $25 million and $20 million, respectively, of unrecognized compensation expense related to unvested restricted stock units; such units had a weighted average remaining vesting period of two years at both June 30, 2022 and 2021.

The total market value (at the vesting date) of restricted stock units which vested was $19 million and $7 million during the six months ended June 30, 2022 and 2021, respectively.

Performance Restricted Stock Units. Under our Long Term Incentive Program, we grant performance restricted stock units to certain senior executives. These performance restricted stock units will vest and share awards will be issued at no cost to the employees, subject to our achievement of specified performance metrics established by our Compensation Committee over a three-year performance period and the recipient's continued employment through the share award date.
During the six months ended June 30, 2022, we granted 91,820 performance restricted stock units with a grant date fair value of approximately $55 per share and 167,903 shares were issued. No performance restricted stock units were forfeited during the six months ended June 30, 2022. During the six months ended June 30, 2021, we granted 85,360 performance restricted stock units with a grant date fair value of approximately $53 per share and 104,757 shares were issued. No performance restricted stock units were forfeited during the six months ended June 30, 2021.
Stock Options. Stock options are granted to certain key employees.
We granted 337,790 shares of stock options in the six months ended June 30, 2022 with a grant date weighted average exercise price of approximately $59 per share.

13



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

J. STOCK-BASED COMPENSATION, Continued

Our stock option activity was as follows, shares in millions: 
Six Months Ended June 30,
 20222021
Option shares outstanding, January 13 2 
Weighted average exercise price$37 $33 
Option shares granted 1 
Weighted average exercise price$59 $56 
Option shares exercised  
Aggregate intrinsic value on date of exercise (A)
$ $
1 million
Weighted average exercise price$38 $20 
Option shares forfeited  
Weighted average exercise price$37 $11 
Option shares outstanding, June 303 3 
Weighted average exercise price$39 $36 
Weighted average remaining option term (in years)66
Option shares vested and expected to vest, June 303 3 
Weighted average exercise price$39 $36 
Aggregate intrinsic value (A)
$
39 million
$
62 million
Weighted average remaining option term (in years)66
Option shares exercisable (vested), June 302 2 
Weighted average exercise price$34 $30 
Aggregate intrinsic value (A)
$
35 million
$
49 million
Weighted average remaining option term (in years)55
(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 June 30, 2022 and 2021, there was $3 million and $5 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 two years at both June 30, 2022 and 2021.

14



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

J. STOCK-BASED COMPENSATION, Concluded
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: 
Six Months Ended June 30,
 20222021
Weighted average grant date fair value$14.66 $13.61 
Risk-free interest rate1.90 %0.75 %
Dividend yield1.89 %1.67 %
Volatility factor29.00 %30.00 %
Expected option life6 years6 years
    
Long-Term Stock Awards. Prior to the amendment of our 2014 Long Term Stock Incentive Plan in December 2019, we granted long-term stock awards to our key employees and non-employee Directors. We did not grant shares of long-term stock awards in the six months ended June 30, 2022 and 2021.
    
Our long-term stock award activity was as follows, shares in millions: 
Six Months Ended June 30,
 20222021
Unvested stock award shares at January 11 1 
Weighted average grant date fair value$37 $36 
Stock award shares vested1  
Weighted average grant date fair value$37 $