What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-08 compared with 2021-02-09 · 348 added, 383 removed, 1122 unchanged (39% of the section changed)

5 unchanged sentences

Based on this assessment, we have determined that our internal control over financial reporting was effective as of December 31, 2021.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2020, as stated in their report, which is presented herein.

PricewaterhouseCoopers LLP (PCAOB ID 238 ), an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2021, 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, 2021 and expressed an unqualified opinion on our 2021 consolidated financial statements.

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A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable

assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

6 unchanged sentences

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.

In connection with its annual assessment, management recorded a $45 million non-cash goodwill impairment charge within their Decorative Architectural Products segment.

Potential impairment is identified by comparing the fair value of a reporting unit to its carrying value, including goodwill.

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The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments is a critical audit matter are (i) the significant judgment by management when developing the fair value measurements of the reporting units;

(ii) 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;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

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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.

and, evaluating the significant assumptions used by management, including forecasted sales and the discount rates, as applicable.

Professionals with specialized skill and knowledge were used to assist in evaluating the Company’s discount rate assumptions, as applicable.

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.

13 unchanged sentences

Prepaid expenses and other 109 149

Assets held for sale — 173

Total current assets 3,422 3,489

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Other assets 114 294

Assets held for sale — 355

Total assets $ 5,575 $ 5,777

3 unchanged sentences

Accrued liabilities 884 1,038

Liabilities held for sale — 149

Total current liabilities 1,939 1,934

2 unchanged sentences

Other liabilities 437 481

Liabilities held for sale — 13

Total liabilities $ 5,497 $ 5,356

Commitments and contingencies (Note U)

Redeemable noncontrolling interest 22 —

Masco Corporation's shareholders' equity:

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Paid-in capital — —

Retained earnings (deficit) 79 ( 332 )

Accumulated other comprehensive loss ( 142 ) ( 179 )

Total Masco Corporation's shareholders' equity (deficit) 195 ( 235 )

Retained (deficit) earnings ( 652 ) 79

Accumulated other comprehensive income (loss) 232 ( 142 )

Total Masco Corporation's shareholders' (deficit) equity ( 179 ) 195

Noncontrolling interest 235 226

11 unchanged sentences

Selling, general and administrative expenses 1,413 1,292 1,274

Impairment charge for other intangible assets — 9 —

Impairment charges for goodwill and other intangible assets 45 — 9

Operating profit 1,405 1,295 1,088

52 unchanged sentences

Depreciation and amortization 151 133 159

Fair value adjustment to contingent earnout obligation 16 — —

Display amortization — 2 12

2 unchanged sentences

Gain on disposition of investments, net ( 25 ) ( 3 ) ( 1 )

Gain on disposition of businesses, net ( 602 ) ( 298 ) —

Loss (gain) on disposition of businesses, net 18 ( 602 ) ( 298 )

Pension and other post-retirement benefits 312 ( 32 ) ( 45 )

5 unchanged sentences

Increase (decrease) in accounts payable and accrued liabilities, net 190 332 ( 27 )

Debt extinguishment costs 160 5 2

Other, net ( 3 ) 15 ( 3 )

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Businesses, net of cash disposed 5 870 722

Short-term bank deposits — — 108

Property and equipment — 1 34

Other financial investments 3 1 5

Financial investments 171 3 1

Other, net ( 3 ) ( 2 ) ( 13 )

Net cash from (for) investing activities 531 582 ( 651 )

Net cash (for) from investing activities ( 12 ) 531 582

Effect of exchange rate changes on cash and cash investments ( 20 ) 31 14

CASH AND CASH INVESTMENTS:

Increase (decrease) for the year 629 138 ( 635 )

(Decrease) increase for the year ( 400 ) 629 138

At January 1 1,326 697 559

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Balance, January 1, 2019 $ 69 $ 294 $ — $ ( 278 ) $ ( 127 ) $ 180

Reclassification of disproportionate tax effects (Refer to Note P) — 59 ( 59 )

Total comprehensive income (loss) 924 — — 935 ( 52 ) 41

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Balance, December 31, 2019 $ ( 56 ) $ 276 $ — $ ( 332 ) $ ( 179 ) $ 179

Total comprehensive income (loss) 924 935 ( 52 ) 41

Cumulative effect of adoption of new credit loss standard ( 1 ) — — ( 1 ) — —

Balance, January 1, 2020 $ ( 57 ) $ 276 $ — $ ( 333 ) $ ( 179 ) $ 179

Total comprehensive income 1,331 — — 1,224 37 70

Shares issued 14 2 12 — — —

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Balance, December 31, 2020 $ 421 $ 258 $ — $ 79 $ ( 142 ) $ 226

Cumulative effect of adoption of new credit loss standard (refer to

Note A) ( 1 ) ( 1 )

Balance, January 1, 2020 $ ( 57 ) $ 276 $ — $ ( 333 ) $ ( 179 ) $ 179

Total comprehensive income 836 — — 410 374 52

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( 43 ) — — — — ( 43 )

Redeemable noncontrolling interest - redemption adjustment ( 2 ) — — ( 2 ) — —

Stock-based compensation 55 — 55 — — —

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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.

Our customers' payment terms generally range from 30 to 65 days.

We provide customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives.

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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.

The resulting cumulative translation adjustments have been recorded in accumulated other comprehensive income (loss) in the consolidated balance sheets.

Realized foreign currency transaction gains and losses are included in other income (expense), net in the consolidated statements of operations.

Cash and Cash Investments.

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ACCOUNTING POLICIES (Continued)

We do business with a number of customers, including certain home center retailers.

We do business with home center retailers, plumbing wholesalers and a number of other customers.

We monitor our exposure for credit losses on customer receivable balances and other financial investments measured at amortized cost and the credit worthiness of customers on an on-going basis, including requiring the completion of credit applications and performing periodic reviews of our open accounts receivable.

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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 $ 105 million in 2020 and $ 132 million in both 2019 and 2018.

Depreciation expense, including discontinued operations, was $ 111 million in 2021, $ 105 million in 2020 and $ 132 million in 2019.

We determine if an arrangement is a lease at inception.

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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.

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 or a comparable market alternative, 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.

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Refer to Note B for additional information regarding acquisitions.

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.

Fair Value of Financial Instruments.

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.

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Refer to Note I for additional information regarding fair value of financial instruments.

We offer limited warranties on certain products with warranty periods ranging up to the lifetime of the product to the original consumer purchaser.

We offer limited warranties on certain products with warranty periods lasting 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.

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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.

The disproportionate tax effects 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, was eliminated from accumulated other comprehensive income (loss) upon the early retirement of the related debt in March 2021.

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 2020 presentation in the consolidated financial statements.

Recently Adopted 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.

We adopted ASU 2016-13 and recorded a cumulative-effect adjustment to opening retained earnings on January 1, 2020.

The adoption of the standard did not have a material effect 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.

We adopted ASU 2018-15 prospectively beginning on January 1, 2020.

The adoption of the standard did not have an impact on our financial position or results of operations.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ACCOUNTING POLICIES (Concluded)

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.

We early adopted ASU 2019-12 on January 1, 2020.

The adoption of the standard did not have an impact on our financial position or results of operations.

Recently Issued Accounting Pronouncements.

In January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities (Topic 321)," "Investments—Equity Method and Joint Ventures (Topic 323)," and "Derivatives and Hedging (Topic 815):

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ASU 2020-01 clarifies that for certain forward contracts or purchased options to acquire investments, an entity should not consider whether, upon settlement of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method or the fair value option.

ASU 2020-01 is effective for us for annual periods beginning January 1, 2021.

Early adoption is permitted.

We adopted ASU 2020-01 prospectively beginning on January 1, 2021.

The adoption of the standard did not have a material effect on our financial position or results of operations.

Recently Issued Accounting Pronouncements.

In August 2020, the 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 plan to adopt this standard for annual periods beginning January 1, 2022 and do not anticipate that the adoption of this new standard will have a material impact on our financial position or results of operations.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional guidance and expedients for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments are intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments in this update are elective and are effective upon issuance.

As of December 31, 2020 we have not elected any of the expedients set out in ASU 2020-04.

To the extent we modify a contract going forward during the transition period we would consider applying the new standard.

We consider the applicability and impact of all ASUs.

ASUs not listed above were assessed and determined not to be applicable.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In the first quarter of 2020, we acquired all of the share capital of SmarTap A.Y Ltd.

("SmarTap") for approximately $ 24 million in cash.

SmarTap is a developer of a smart bathing system that monitors and controls the temperature and flow of water.

This acquisition provides an adaptable solution for a wide range of products as it is compatible with showerheads, hand showers, spouts and shower jets.

This business is included in the Plumbing Products segment.

In connection with this acquisition, we recognized $ 10 million of definite-lived intangible assets, primarily related to technology, which is being amortized on a straight-line basis over a weighted average amortization period of 5 years.

ACCOUNTING POLICIES (Concluded)

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.

In the third quarter of 2021, we acquired all of the share capital of Steamist, Inc.

("Steamist") for approximately $ 56 million in cash.

This amount is subject to working capital and other adjustments.

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.

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.

Working capital and other adjustments were finalized with the seller in the fourth quarter of 2021, resulting in no significant changes.

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 consolidated balance sheet at December 31, 2021.

We elected to adjust the redeemable noncontrolling interest to its full redemption amount directly into retained (deficit) earnings.

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 contingent upon the achievement of certain financial performance metrics for the year ending December 31, 2022.

The range of the undiscounted amounts we could be required to pay is between $ 0 and $ 50 million.

("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.

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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.

The working capital adjustments were finalized with the seller in the second quarter of 2021, resulting in no significant changes.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ACQUISITIONS (Concluded)

In the fourth quarter of 2020, we acquired substantially all of the net assets of Work Tools International Inc.

and Elder & Jenks, LLC (collectively, "Work Tools") for approximately $ 53 million, including $ 48 million of cash and $ 5 million of debt that will be paid out in 18 months less any pending or settled indemnity matters.

Work Tools will expand our product offering to our customers as it is a leading manufacturer of high-quality precision painting tools and accessories including brushes, rollers and mini rollers for DIY and professionals.

Work Tools expands our product offering to our customers as it is a leading manufacturer of high-quality precision painting tools and accessories including brushes, rollers and mini rollers for DIY and professionals.

This business is included in the Decorative Architectural Products segment.

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We also recognized $ 7 million of goodwill, which is generally tax deductible, and is related primarily to the expected synergies from combining the operations into our business.

On November 10, 2020, we entered into an agreement to acquire a 75.1 % equity interest in Easy Sanitary Solutions B.V.

("ESS"), for approximately € 45 million ($ 55 million) subject to working capital and other adjustments.

ESS is the inventor, developer and manufacturer of Easy Drain shower channels and offers a wide range of products for barrier-free showering and bathroom wall niches.

A cash payment was made to a third-party notary for $ 52 million on December 29, 2020 for the acquisition of this equity interest in advance of the transaction closing on January 4, 2021.

The cash payment was accounted for as prepaid expenses and other in the consolidated balance sheet and included in investing cash flows for the year ended December 31, 2020.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ACQUISITIONS (Concluded)

On March 9, 2018, we acquired substantially all of the net assets of The L.D.

("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.

Initial Final

Receivables $ 101 $ 100

Inventories 173 166

Prepaid expenses and other 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 three years .

The working capital adjustments were finalized with the seller in the first quarter of 2021, resulting in no significant changes.

In the first quarter of 2020, we acquired all of the share capital of SmarTap A.Y Ltd.

("SmarTap") for approximately $ 24 million in cash.

SmarTap is a developer of a smart bathing system that monitors and controls the temperature and flow of water.

This acquisition provides an adaptable solution for a wide range of products as it is compatible with showerheads, hand showers, spouts and shower jets.

This business is included in the Plumbing Products segment.

We also recognized $ 14 million of goodwill, which is not tax deductible, and is related primarily to the expected synergies from combining the operations into our business.

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 year ended December 31, 2021, which is included in other, net in our 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 (loss).

The sale of Hüppe does 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.

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 two years of the divestiture.

The remaining $ 6 million was accounted for as a note receivable that was collected in the third quarter of 2021.

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.

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.

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DIVESTITURES (Continued)

During the second quarter of 2020, a $ 17 million pre-tax post-closing adjustment related to the finalization of working capital items was recorded to income from discontinued operations, net in the consolidated statement of operations, as a gain on the divestiture of Milgard.

As of December 31, 2020, we have received the $ 17 million in cash, which is presented in investing activities on the consolidated statement of cash flow as proceeds from disposition of businesses, net of cash disposed.

During the second quarter of 2020, a $ 17 million pre-tax post-closing adjustment related to the finalization of working capital items was recorded to income from discontinued operations, net in the consolidated statements of operations, as a gain on the divestiture of Milgard.

As of December 31, 2020, we received $ 17 million in cash, which was presented in investing activities on the consolidated statement of cash flow as proceeds from disposition of businesses, net of cash disposed.

All post-closing adjustments related to our divestiture of Milgard were finalized with the buyer in the second quarter of 2020.

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The working capital adjustment was finalized with the buyer in the second quarter of 2020, resulting in no significant changes to net proceeds.

In connection with the sale, we recognized a gain on the divestiture of $ 585 million for the year ended December 31, 2020, which is included in income from discontinued operations, net in the consolidated statement of operations.

In connection with the sale, we recognized a gain on the divestiture of $ 585 million for the year ended December 31, 2020, which was included in income from discontinued operations, net in the consolidated statements of operations.

We determined that the previously reported Cabinetry Products segment met the criteria to be classified as a discontinued operation as Cabinetry represented all of our cabinet businesses and all remaining businesses in the Cabinetry Products segment.

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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 (loss) income from discontinued operations before income tax was income of $ 2 million and $ 40 million for the years ended December 31, 2020 and 2018, respectively and a loss of $ 1 million for the year ended December 31, 2019.

The results of the cabinetry business recorded in (loss) income from discontinued operations before income tax was a loss of $ 7 million for the year ended December 31, 2020 and income of $ 107 million and $ 95 million for the years ended December 31, 2019 and 2018, respectively.

The results of the windows businesses recorded in income from discontinued operations before income tax was income of $ 2 million for the year ended December 31, 2020, and a loss of $ 1 million for the year ended December 31, 2019.

The results of the cabinetry business recorded in income from discontinued operations before income tax was a loss of $ 7 million for the year ended December 31, 2020 and income of $ 107 million the year ended December 31, 2019.

The major classes of line items constituting income from discontinued operations, net, in millions:

For the Years Ended December 31,

Year Ended December 31,

2021 2020 2019

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DIVESTITURES (Concluded)

The carrying amount of major classes of assets and liabilities included as part of the Cabinetry discontinued operations and reported as held for sale, were as follows, in millions:

December 31, 2019

Receivables $ 76

Prepaid expenses and other 7

Inventories 90

Property and equipment, net 157

Operating lease right-of-use assets 4

Other intangible assets, net 1

Other assets 12

Total assets classified as held for sale $ 528

Accounts payable $ 103

Accrued liabilities 46

Noncurrent operating lease liabilities 3

Other liabilities 10

Total liabilities classified as held for sale $ 162

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:

For the Years Ended December 31,

Year Ended December 31,

2021 2020 2019

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ROU assets obtained in exchange for new lease obligations — — 3

In conjunction with the divestiture of Milgard and Cabinetry, we entered into Transition Services Agreements to provide administrative services to the buyers.

As of December 31, 2020, our Transition Service Agreement with Milgard and Cabinetry concluded.

The fees for services rendered under each of the Transition Service Agreements were not material to our results of operations.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Our revenues are derived primarily from sales to customers in North America and Internationally, principally Europe.

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Total $ 3,984 $ 2,723 $ 6,707

We recognized increases to revenue o f $ 7 million, $ 2 million, and $ 4 million in 2020, 2019, and 2018, respectively, for variable consideration related to performance obligations settled in previous periods.

We recognized increases t o revenue o f $ 9 million, $ 7 million, and $ 2 million in 2021, 2020, and 2019, 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.

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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, 2020 and 2019.

Our contract asset balance was $ 1 million and $ 2 million at December 31, 2021 and 2020, respectively.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

REVENUE (Concluded)

We record contract liabilities primarily for deferred revenue.

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Changes in the allowance for credit losses deducted from accounts receivable were as follows, in millions:

December 31, 2020

Balance at January 1 (after adopting ASU 2016-13) $ 5

Balance at January 1 $ 7 $ 5

Provision for expected credit losses during the period 1 3

2 unchanged sentences

Balance at end of year $ 6 $ 7

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(In Millions)

______________________________

(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.

The components of inventory were as follows, in millions:

At December 31,

4 unchanged sentences

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.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

We have operating and finance leases primarily for corporate offices, manufacturing facilities, warehouses, vehicles, and equipment.

1 unchanged sentence

The components of lease cost included in income from continuing operations were as follows, in millions:

2021 2020 2019

Operating lease cost $ 48 $ 47 $ 49

5 unchanged sentences

Supplemental cash flow information related to leases was as follows, in millions:

2021 2020 2019

Cash paid for amounts included in the measurement of lease liabilities:

6 unchanged sentences

______________________________

(A) Includes $ 9 million of ROU assets obtained in exchange for new lease obligations related to the acquisitions of Kraus and Work Tools in the fourth quarter of 2020.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LEASES (Concluded)

(A) Includes $ 2 million of ROU assets obtained in exchange for new lease obligations related to the acquisitions of ESS and Steamist in 2021.

Includes $ 9 million of ROU assets obtained in exchange for new lease obligations related to the acquisitions of Kraus and Work Tools in the fourth quarter of 2020.

Certain other information related to leases was as follows:

At December 31,

2021 2020 2019

Weighted-average remaining lease term:

Operating leases 10 years 10 years

Finance leases 10 years 11 years

Operating leases 9 years 10 years 10 years

Finance leases 9 years 10 years 11 years

Weighted-average discount rate:

1 unchanged sentence

Finance leases 3.3 % 3.3 % 3.4 %

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LEASES (Concluded)

Supplemental balance sheet information related to leases was as follows, in millions:

At December 31, 2020 At December 31, 2019

At December 31,

Operating Leases Finance Leases Operating Leases Finance Leases

3 unchanged sentences

Long-term debt — 23 — 26

Gross ROU assets under finance leases recorded within property and equipment, net were $ 42 million at both December 31, 2020 and 2019, and accumulated amortization associated with these leases was $ 15 million and $ 13 million, at December 31, 2020 and 2019, respectively.

Gross ROU assets under finance leases recorded within property and equipment, net was $ 42 million at both December 31, 2021 and 2020, and accumulated amortization associated with these leases was $ 18 million and $ 15 million, at December 31, 2021 and 2020, respectively.

At December 31, 2021, future maturities of lease liabilities were as follows, in millions:

6 unchanged sentences

Total $ 210 $ 26

Rental expense (under ASC 840) recorded in the consolidated statement of operations totaled approximately $ 63 million during 2018.

PROPERTY AND EQUIPMENT

(In Millions)

The components of property and equipment, net were as follows, in millions:

At December 31,

8 unchanged sentences

GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill, by segment, were as follows, in millions:

Goodwill at December 31, 2021, by segment, was as follows, in millions:

Gross Goodwill At December 31, 2021 Accumulated

Losses Net Goodwill At December 31, 2021

Plumbing Products $ 613 $ ( 340 ) $ 273

Plumbing Products (A)

$ 662 $ ( 340 ) $ 322

Decorative Architectural Products 366 ( 120 ) 246

Total $ 1,028 $ ( 460 ) $ 568

______________________________

(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.

The changes in the carrying amount of goodwill for years ended December 31, 2021 and 2020, by segment, were as follows, in millions:

Gross Goodwill At December 31, 2020 Accumulated

Losses Net Goodwill At December 31, 2019 Acquisitions Other (A) Net Goodwill At December 31, 2020

Losses Net Goodwill At December 31, 2020 Acquisitions Pre-tax

Charge Other (B) Net Goodwill At December 31, 2021

Plumbing Products $ 613 $ ( 340 ) $ 273 $ 63 $ — $ ( 14 ) $ 322

3 unchanged sentences

Gross Goodwill At December 31, 2019 Accumulated

Losses Net Goodwill At December 31, 2018 Acquisitions Other (A) Net Goodwill At December 31, 2019

Losses Net Goodwill At December 31, 2019 Acquisitions Pre-tax

Charge Other (B) Net Goodwill At December 31, 2020

Plumbing Products $ 566 $ ( 340 ) $ 226 $ 34 $ — $ 13 $ 273

3 unchanged sentences

______________________________

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

Other indefinite-lived intangible assets were $ 109 million and $ 76 million at December 31, 2020 and 2019, respectively, and principally included registered trademarks.

As a result of our 2020 acquisitions, other indefinite-lived intangible assets increased by $ 32 million as of the acquisition dates.

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.

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

In the fourth quarter of 2021, we recognized a $ 45 million non-cash goodwill impairment charge within our Decorative Architectural Products segment due to competitive market conditions and higher inflationary costs in our lighting business.

Other indefinite-lived intangible assets were $ 109 million at both December 31, 2021 and 2020, respectively, and principally included registered trademarks.

In 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.

We completed our annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth quarters of 2021, 2020 and 2019.

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 wa s $ 248 million (net of accumulated amortization o f $ 73 million) at December 31, 2020 and $ 183 million (net of accumulated amortization of $ 48 million) at December 31, 2019 and principally included customer relationships with a weighted average amortization period of 15 years in 2020 and 17 years in 2019.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)

The carrying value of our definite-lived intangible assets wa s $ 279 million (net of accumulated amortization o f $ 75 million) at December 31, 2021 and $ 248 million (net of accumulated amortization of $ 73 million) at December 31, 2020 and principally included customer relationships with a weighted average amortization period of 15 years in both 2021 and 2020.

Amortization expense, including discontinued operations, related to the definite-lived intangible assets wa s $ 31 million, $ 24 million and $ 23 million in 2021, 2020 and 2019, respectively.

As a result of our 2020 acquisitions, definite-lived intangible assets increased by $ 86 million, as of the acquisition dates.

At December 31, 2020, amortization expense related to the definite-lived intangible assets during each of the next five years was as follows:

The increase in our definite-lived intangible assets is primarily a result of our acquisitions of Steamist and ESS.

At December 31, 2021, amortization expense related to the definite-lived intangible assets during each of the next five years will be as follows:

2022 – $ 30 million;

1 unchanged sentence

2024 – $ 28 million, 2025 – $ 23 million and 2026 – $ 22 million

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FAIR VALUE OF FINANCIAL INSTRUMENTS

Preferred Stock of ACProducts Holding, Inc.

In conjunction with our divestiture of Cabinetry, we received preferred stock of ACProducts Holding, Inc., the holding company of the buyer, with a liquidation preference of $ 150 million.

The preferred stock has a coupon of 8 percent until the first anniversary of issuance, 9 percent after the first anniversary and until the second anniversary of issuance, and 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 annual period occurring during and after the seventh anniversary until all shares have been redeemed in full.

We do not have the ability to exercise significant influence, and the fair value of the preferred stock is not readily available.

As described in Note C, in conjunction with our divestiture of Cabinetry, we received preferred stock of ACProducts Holding, Inc., the holding company of the buyer, with a liquidation preference of $ 150 million.

We did not have the ability to exercise significant influence, and the fair value of the preferred stock was not readily available.

We elected to measure this investment at cost (less impairment, if any) adjusted for observable price changes in orderly transactions for the identical or similar investments of the same issuer for subsequent measurements of fair value.

As the preferred stock was received in conjunction with the sale of Cabinetry, we determined the cost to be the fair value of the preferred stock at the time of sale.

The fair value of the preferred stock was measured on a non-recurring basis, and estimated using discounted cash flow and option pricing models (Level 3 inputs).

The significant unobservable inputs used to value the preferred stock included:

time to exit (deemed maturity) since the preferred stock is not mandatorily redeemable, discount rate used to determine the present value of expected cash flows, which included the spread on company specific debt and the risk-free rate of return, the liquidation preference and the coupon rate.

On the date of acquisition, the fair value of this investment was determined to be $ 136 million and was included in other assets in our consolidated balance sheet.

Dividends earned on this investment are included within other income (expense), net in our consolidated statement of operations with a corresponding increase to our basis in the investment.

We had dividend income of $ 10 million for the year ended December 31, 2020.

As such, the preferred stock was reported at the carrying value of $ 146 million in other assets in our consolidated balance sheet at December 31, 2020.

As the preferred stock was received in conjunction with the sale of Cabinetry, we determined the cost to be the fair value of the preferred stock at the time of sale, which was determined to be $ 136 million and was included in other assets in our consolidated balance sheet.

In May 2021, we received, in cash, $ 166 million for the redemption of the preferred stock, including all accrued but unpaid dividends, and recognized a gain of $ 14 million, which was included within other, net in our consolidated statements of operations.

Prior to the redemption, dividends earned on this investment were included within other, net in our consolidated statements of operations with a corresponding increase to our basis in the investment.

We had dividend income of $ 6 million and $ 10 million for the years ended December 31, 2021 and 2020, respectively.

The preferred stock was reported at the carrying value of $ 146 million in other assets in our consolidated balance sheet at December 31, 2020.

Kraus Acquisition Contingent Consideration.

As described in Note B, we may be obligated to pay up to an additional $ 50 million for the Kraus acquisition.

The fair value of the liability was estimated to be $ 8 million as of December 31, 2020, the acquisition date, 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.

This amount was included within the purchase consideration and will be remeasured at fair value as of each reporting date until the obligation is settled.

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 is therefore classified as Level 3 inputs.

1 unchanged sentence

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.

Any subsequent remeasurement of the estimate will be recorded in other, net within other income (expense), net in the consolidated statement of operations.

All subsequent remeasurements from the initial estimate at the time of acquisition are recorded in other, net in the consolidated statements of operations, as described in Note R.

The fair value of the liability was estimated to be $ 24 million and $ 8 million as of December 31, 2021, and 2020, respectively, 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.

Fair Value of Debt.

4 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(In Millions)

The components of other assets were as follows, in millions:

At December 31,

Deferred tax assets (Note S) $ 57 $ 109

Equity method investments 18 11

Other investments 7 —

Preferred stock of ACProducts Holding, Inc.

(Note I) — 146

Equity method investments 11 11

In-store displays, net 1 5

Deferred tax assets (Note S) 109 99

Total $ 114 $ 294

We recognized amortization expense, including discontinued operations, related to in-store displays of $ 2 million, $ 12 million and $ 21 million in 2020, 2019 and 2018, respectively.

Cash spent for displays was $ 11 million and $ 10 million in 2019 and 2018, respectively, and is included in other, net within investing activities on the consolidated statements of cash flows.

We recognized amortization expense, including discontinued operations, related to in-store displays of $ 2 million and $ 12 million in 2020 and 2019, respectively.

Cash spent for displays was $ 11 million in 2019 and is included in other, net within investing activities on the consolidated statements of cash flows.

ACCRUED LIABILITIES

(In Millions)

The components of accrued liabilities were as follows, in millions:

At December 31,

13 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(In Millions)

The carrying value of outstanding debt was as follows, in millions:

At December 31,

Notes and debentures:

3.500 %, due April 1, 2021

5.950 %, due March 15, 2022

2 unchanged sentences

3.500 %, due November 15, 2027

1.500 %, due February 15, 2028

7.750 %, due August 1, 2029

2.000 %, due October 1, 2030

2.000 %, due February 15, 2031

6.500 %, due August 15, 2032

4.500 %, due May 15, 2047

3.125 %, due February 15, 2051

Prepaid debt issuance costs ( 23 ) ( 15 )

2 unchanged sentences

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 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 year ended December 31, 2021, which was recorded as interest expense in the consolidated statements of operations.

On September 18, 2020, we issued $ 300 million of 2.000 % Notes due October 1, 2030 (the "2030 Notes") and received proceeds of $ 300 million, net of discount, for the issuance of the 2030 Notes.

2 unchanged sentences

The 2030 Notes and 2047 Notes are senior indebtedness and are redeemable at our option at the applicable redemption price.

On September 29, 2020, proceeds from the debt issuances were used to repay and early retire $ 400 million of our 3.5 % Notes due April 1, 2021.

In connection with this early retirement, we incurred a loss on debt extinguishment of $ 6 million, which was recorded as interest expense in our consolidated statement of operations.

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 December 31, 2019, which was recorded as interest expense in our consolidated statement of operations.

On April 16, 2018, we repaid and retired all of our $ 114 million, 6.625 % Notes on the scheduled repayment date.

On September 29, 2020, proceeds from the debt issuances were used to repay and early retire our $ 400 million 3.500 % Notes due April 1, 2021.

In connection with this early retirement, we incurred a loss on debt extinguishment of $ 6 million, which was recorded as interest expense in our consolidated statements of operations.

On December 19, 2019, proceeds from the UKWG and Milgard divestitures were used to repay and early retire our $ 201 million 7.125 % Notes due March 15, 2020.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DEBT (Continued)

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.

On December 22, 2021, we amended the Credit Agreement with the bank group (the "Amended Credit Agreement").

The Credit Agreement was amended to (i) expand the “Agreed Currencies” for which loans thereunder may be denominated outside of the swingline facility to include British Pounds Sterling and Canadian Dollars, together with their applicable interest rate benchmark, (ii) replace the London Interbank Offering Rate (“LIBOR”) with the Euro Interbank Offered Rate (“EURIBOR”) as the interest rate benchmark for purposes of loans denominated in Euros and (iii) provide mechanics for the replacement of a benchmark for an applicable Agreed Currency upon the occurrence of certain specified events.

Under the Amended Credit Agreement, the replacement reference interest rate benchmark for loans denominated in U.S.

dollars upon the eventual discontinuation of LIBOR will have a benchmark adjustment applied based on its historical relationship to LIBOR, which can be either the term Secured Overnight Financing Rate (“SOFR”) plus a spread, daily simple SOFR plus a spread, or another alternative interest rate index selected by the Administrative Agent and us.

Under the Amended 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.

The Amended Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries, in U.S.

dollars, European euros, British Pounds sterling, Canadian dollars and certain other currencies for revolving credit loans, swingline loans and letters of credit.

2 unchanged sentences

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, 2020, we had no outstanding standby letters of credit under the Credit Agreement.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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");

outstanding letters of credit under the Amended Credit Agreement reduce our borrowing capacity.

At December 31, 2021, we had no outstanding standby letters of credit under the Amended Credit Agreement.

Revolving credit loans denominated in U.S.

Dollars bear interest under the Amended Credit Agreement at 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 %;

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).

Foreign currency revolving credit loans denominated in Canadian Dollars bear interest under the Amended Credit Agreement 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 Pounds Sterling bear interest under the Amended Credit Agreement at a rate per annum equal to the Daily Simple SONIA plus 0.0326 %.

Foreign currency revolving credit loans denominated in 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 as specified in the Amended Credit Agreement.

The Amended Credit Agreement also provides mechanics for the replacement of a benchmark upon the occurrence of certain specified events.

The Amended 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 Amended Credit Agreement, there must not be any default in our covenants in the Amended Credit Agreement (i.e., in addition to the two financial covenants, principally limitations on subsidiary debt, negative pledge restrictions, legal compliance requirements and maintenance of properties and insurance) and our representations and warranties in the Amended Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since December 31, 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, 2021.

4 unchanged sentences

2025 – $ 3 million and 2026 – $ 2 million.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DEBT (Concluded)

Interest paid was $ 114 million , $ 136 million and $ 157 million in 2021, 2020 and 2019, respectively.

These amounts exclude $ 5 million and $ 2 million of debt extinguishment costs related to the early retirement of debt, which were recorded as interest expense and paid in 2020 and 2019, respectively.

These amounts exclude $ 160 million, $ 5 million and $ 2 million of debt extinguishment costs related to the early retirement of debt, which were recorded as interest expense and paid in 2021, 2020 and 2019, respectively.

STOCK-BASED COMPENSATION

1 unchanged sentence

At December 31, 2021, outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, performance 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:

Pre-tax compensation expense included in income from continuing operations for these stock-based incentives was as follows, in millions:

Year Ended December 31,

2021 2020 2019

3 unchanged sentences

Performance restricted stock units 10 5 3

Phantom stock awards and stock appreciation rights 4 4 ( 2 )

Phantom stock awards 6 4 4

Total $ 61 $ 43 $ 31

At December 31, 2021, 12.9 million shares of our common stock were available under the 2014 Plan for the granting of long-term stock awards, stock options, restricted stock units and performance restricted stock units.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

STOCK-BASED COMPENSATION (Continued)

Long-Term Stock Awards.

3 unchanged sentences

Our long-term stock award activity was as follows, shares in millions:

Year Ended December 31,

2021 2020 2019

10 unchanged sentences

At December 31, 2021, 2020 and 2019, there was $ 10 million, $ 21 million and $ 41 million, respectively, of total unrecognized compensation expense related to unvested stock awards;

such awards had a weighted average remaining vesting period of two years at December 31, 2020 and three years at both December 31, 2019 and 2018.

The total market value (at the vesting date) of stock award shares which vested during both 2020 and 2019 was $ 31 million and during 2018 was $ 56 million.

such awards had a weighted average remaining vesting period of two years at both December 31, 2021 and 2020, and three years at December 31, 2019.

MASCO CORPORATION

1 unchanged sentence

STOCK-BASED COMPENSATION (Continued)

The total market value (at the vesting date) of stock award shares which vested was $ 28 million during 2021 and $ 31 million during both 2020 and 2019.

Stock Options.

2 unchanged sentences

We granted 331,970 shares of stock options during 2021 with a grant date weighted-average exercise price of approximately $ 56 per share.

During 2020, 60,838 stock option shares were forfeited (including options that expired unexercised).

Our stock option activity was as follows, shares in millions:

Year Ended December 31,

2021 2020 2019

25 unchanged sentences

At December 31, 2021, 2020 and 2019, there was $ 4 million, $ 6 million and $ 9 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 December 31, 2020 and three years at both December 31, 2019 and 2018.

such options had a weighted average remaining vesting period of two years at both December 31, 2021 and 2020, and three years at December 31, 2019.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

STOCK-BASED COMPENSATION (Continued)

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:

Year Ended December 31,

2021 2020 2019

4 unchanged sentences

Expected option life 6 years 6 years 6 years

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

STOCK-BASED COMPENSATION (Concluded)

The following table summarizes information for stock option shares outstanding and exercisable at December 31, 2020, shares in millions:

The following table summarizes information for stock option shares outstanding and exercisable, shares in millions:

At December 31, 2021

Option Shares Outstanding Option Shares Exercisable

4 unchanged sentences

Shares Weighted

— 2 years $ 18 — $ 18

1 5 years $ 26 1 $ 25

1 8 years $ 41 — $ 39

2 6 years $ 33 1 $ 28

— 2 $ 20 — $ 20

1 4 $ 24 1 $ 24

1 6 $ 35 1 $ 34

1 8 $ 49 — $ 44

3 6 $ 37 2 $ 31

Restricted Stock Units.

1 unchanged sentence

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.

The grant date fair value is based on the fair value of our common stock.

We granted 445,670 restricted stock units during 2020 with a weighted average grant date fair value of $ 47 per share.

In 2020, 11,100 restricted stock units were forfeited.

At December 31, 2020, there was $ 7 million of unrecognized compensation expense related to unvested restricted stock units;

such units had a weighted average remaining vesting period of two years .

We granted 669,980 restricted stock units in the year ended December 31, 2021 with a weighted average grant date fair value of $ 57 per share.

In the year ended December 31, 2021, 141,461 shares were issued and 29,125 restricted stock units were forfeited.

During the year ended December 31, 2020, we granted 445,670 restricted stock units with a weighted average grant date fair value of $ 47 per share and 11,100 restricted stock units were forfeited.

At December 31, 2021, and 2020 there was $ 15 million and $ 7 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 December 31, 2021 and 2020.

The total market value (at the vesting date) of restricted stock units which vested was $ 8 million during the year ended December 31, 2021.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

STOCK-BASED COMPENSATION (Concluded)

Performance Restricted Stock Units.

3 unchanged sentences

Performance restricted stock units are granted at a target number;

based on our performance, the number of performance restricted stock units that vest can be adjusted downward to zero and upward to a maximum of 200 % of the target number.

During 2020, we granted 133,390 performance restricted stock units with a grant date fair value of approximately $ 34 per share, 151,724 performance restricted stock units were issued and 10,680 performance restricted stock units were forfeited.

based on our performance, the number of performance restricted stock units that vest can be adjusted downward to zero and upward to a maximum of 200 percent of the target number.

During 2021, we granted 85,360 performance restricted stock units with a grant date fair value of approximately $ 53 per share, 104,757 performance restricted stock units were issued.

No performance restricted stock units were forfeited.

At December 31, 2021, there were 186,304 shares vested, but unissued.

During 2019, we granted 126,680 performance restricted stock units with a grant date fair value of approximately $ 39 per share, and 15,600 performance restricted stock units were forfeited.

Phantom Stock Awards and Stock Appreciation Rights.

Phantom Stock Awards.

Certain non-U.S.

employees are granted phantom stock awards and historically have been granted SARs.

We recognized expense of $ 4 million in both 2020 and 2019, and income of $ 1 million in 2018 related to phantom stock awards.

In 2020, 2019 and 2018, we granted 82,630 , 79,500 , and 98,140 shares, respectively, of phantom stock awards with an aggregate fair value of $ 3 million in both 2020 and 2019 and $ 4 million in 2018, and paid cash of $ 3 million in both 2020 and 2019, and $ 6 million in 2018 to settle phantom stock awards.

employees are granted phantom stock awards.

We recognized expense of $ 6 million in 2021, and expense of $ 4 million in both 2020 and 2019 related to phantom stock awards.

In 2021, 2020 and 2019, we granted 82,160 , 82,630 , and 79,500 shares, respectively, of phantom stock awards with an aggregate fair value of $ 5 million in 2021 and $ 3 million in both 2020 and 2019, and paid cash of $ 3 million in 2021, 2020 and 2019, to settle phantom stock awards.

Information related to phantom stock awards was as follows, in millions:

3 unchanged sentences

Equivalent common shares — —

We recognized income of $ 1 million in 2018 related to SARs.

During 2020, 2019 and 2018, we did no t grant any SARs.

We paid cash of $ 2 million, and $ 5 million in 2019, and 2018, respectively, to settle SARs.

At December 31, 2020 and 2019, there were no outstanding SARs.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS

3 unchanged sentences

Pre-tax expense included in income from continuing operations related to our retirement plans was as follows, in millions:

Year Ended December 31,

2021 2020 2019

2 unchanged sentences

$ 492 $ 84 $ 64

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

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.

In the second quarter of 2021, we settled these plans and made a final contribution of $ 101 million.

The settlement loss included $ 447 million of pre-tax actuarial losses that were reclassified out of accumulated other comprehensive income (loss) for the year ended December 31, 2021.

In the fourth quarter of 2021, we recognized a $ 7 million reduction in pension expense related to the reversion of excess pension plan assets for the settlement of such 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:

Year Ended December 31,

Qualified Non-Qualified Qualified Non-Qualified

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Divestitures ( 14 ) — — ( 1 )

Settlements ( 594 ) — — —

Projected benefit obligation at December 31 $ 178 $ 148 $ 1,118 $ 162

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Benefit payments ( 230 ) ( 12 ) ( 45 ) ( 13 )

Settlements ( 594 ) — — —

Fair value of plan assets at December 31 $ 99 $ — $ 863 $ —

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Amounts in our consolidated balance sheets were as follows, in millions:

At December 31, 2020 At December 31, 2019

At December 31,

Qualified Non-Qualified Qualified Non-Qualified

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___________________________

(A) As a result of the planned termination of the qualified domestic defined-benefit pension plans in 2021, the liabilities associated with these plans have been reported as current liabilities at December 31, 2020.

Unrealized loss included in accumulated other comprehensive loss before income taxes was as follows, in millions:

At December 31, 2020 At December 31, 2019

(A) As a result of the termination of the qualified domestic defined-benefit pension plans in 2021, the liabilities associated with these plans were reported as current liabilities at December 31, 2020.

Unrealized loss included in accumulated other comprehensive income (loss) before income taxes was as follows, in millions:

At December 31,

Qualified Non-Qualified Qualified Non-Qualified

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The projected benefit obligation was in excess of plan assets for all of our qualified defined-benefit pension plans at December 31, 2021 and 2020 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.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

Net periodic pension cost for our defined-benefit pension plans, with the exception of service cost, is recorded in other net, in our consolidated statements of operations.

Net periodic pension cost for our defined-benefit pension plans was as follows, in millions:

Year Ended December 31,

2021 2020 2019

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Expected return on plan assets ( 9 ) — ( 24 ) — ( 44 ) —

Settlement loss 404 — — — — —

Recognized prior service cost 1 — 1 — — —

1 unchanged sentence

Net periodic pension cost $ 429 $ 6 $ 30 $ 8 $ 16 $ 8

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

We expect to recognize $ 464 million of pre-tax net loss from accumulated other comprehensive loss into net periodic pension cost in 2021 related to our defined-benefit pension plans.

This includes the full recognition of accumulated actuarial losses for our qualified domestic defined-benefit pension plans upon its expected termination.

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.

We expect to recognize $ 7 million of pre-tax net loss from accumulated other comprehensive income (loss) into net periodic pension cost in 2022 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 income (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 income (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.

Our qualified defined-benefit pension plan weighted average asset allocation, which is based upon fair value, was as follows:

At December 31,

Equity securities 38 % 15 %

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Due to the significant unobservable inputs, the fair value measurements used to estimate fair value are a Level 3 input.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

Corporate, Government and Other Debt Securities:

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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.

Real Estate consists of Real Estate Investment Trusts and property funds.

Real Estate Investment Trusts are 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.

Real Estate property funds are valued based on the underlying investments, which include inputs such as cost, discounted future cash flows, independent appraisals and market based comparable data.

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.

Common Collective Trust Fund:

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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.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

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, 2021 and 2020, as well as those valued at NAV using the practical expedient, which approximates fair value, in millions.

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International 13 — — — 13

Private Equity and Hedge Funds – International

Corporate Debt Securities:

4 unchanged sentences

International — 36 — — 36

Common Collective Trust Fund – United States

— 292 — — 292

Buy-in Annuity - International

United States 3 — — — 3

International 2 — 6 — 8

Short-Term and Other Investments – International

Total Plan Assets $ 46 $ 47 $ 6 $ — $ 99

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

At December 31, 2020

3 unchanged sentences

International 15 — — — 15

Private Equity and Hedge Funds:

United States — — 2 — 2

International — — 17 — 17

Private Equity and Hedge Funds – International

Corporate Debt Securities:

5 unchanged sentences

Common Collective Trust Fund – United States

— 292 — — 292

Buy-in Annuity - International

Short-Term and Other Investments:

United States 2 — — — 2

International 2 — — — 2

Short-Term and Other Investments – International

Total Plan Assets $ 43 $ 732 $ 1 $ 87 $ 863

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

Changes in the fair value of the qualified defined-benefit pension plan Level 3 assets, were as follows, in millions:

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Sales — ( 18 )

Unrealized losses — ( 3 )

Fair Value, December 31 $ 6 $ 1

Weighted average major assumptions used in accounting for our defined-benefit pension plans were as follows:

At December 31,

2021 2020 2019

3 unchanged sentences

Discount rate for net periodic pension cost 1.70 % 2.50 % 3.80 %

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

The discount rate for obligations for 2021, 2020 and 2019 is based primarily upon the expected duration of each defined-benefit pension plan's liabilities matched to the December 31, 2021, 2020 and 2019 Willis Towers Watson Rate Link Curve.

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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.

The increase in the weighted average discount rate from 2020 to 2021 is principally the result of higher long-term interest rates in the bond markets.

The decrease in the weighted average discount rate from 2019 to 2020 is principally due to lower long-term interest rates in the bond markets.

The decrease in the weighted average discount rate from 2018 to 2019 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.

For 2020, we chose to set the expected long-term rate of return on plan assets equal to the discount rate for each domestic qualified defined-benefit pension plan, net of investment fees but not administrative expenses.

The discount rate approximated the long-term expected rate of return provided by our investment consultants as a result of the decision to terminate these plans in 2021 and the plan assets comprised mostly of fixed income and cash.

For 2020 our weighted average projected long-term rate of return on plan assets for the foreign qualified defined-benefit pension plans was 2.9 percent.

For 2019 and 2018, our projected long-term rate of return on plan assets were 3.00 percent and 7.00 percent, respectively.

The actual annual rate of return on our pension plan assets was positive 9.7 percent, positive 17.7 percent and negative 4.9 percent in 2020, 2019 and 2018, respectively.

For the 10-year period ended December 31, 2020, the actual annual rate of return on our pension plan assets was 7.2 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 2020, we made substantial progress toward achieving our targeted asset allocation:

60 percent fixed-income and 40 percent cash, as we prepare to distribute funds for the upcoming settlement of the qualified domestic defined-benefit pension plans.

In the first quarter of 2021 we anticipate that a lump sum payment window will open and following that any remaining liabilities of the plan are anticipated to be transferred to an insurer through the purchase of an annuity contract by a third party administrator.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Concluded)

Our weighted average projected long-term rate of return on plan assets for the foreign qualified defined-benefit pension plans was 3.0 percent, 2.9 percent and 3.9 percent for 2021, 2020 and 2019, respectively.

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.

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Although we would expect alternative investments to yield a higher rate of return than the targeted overall long-term return, these investments are subject to greater volatility and would be less liquid than financial instruments that trade on public markets.

As such, and as a result of the decision to terminate the domestic qualified defined-benefit pension plans, we sold most of our alternative investments.

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 our foreign qualified plans' assets are 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.

In order to ensure plan assets are sufficient to pay benefits, a portion of our foreign qualified plans' assets are allocated to equity investments and real assets 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.

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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 at both December 31, 2020 and 2019.

At December 31, 2020, we expect to contribute approximately $ 140 million to our domestic qualified defined-benefit pension plans in 2021, which will exceed ERISA requirements and effectively settle these plans.

We also expect to contribute approximately $ 1 million and $ 12 million in 2021 to our foreign and non-qualified (domestic) defined-benefit pension plans, respectively.

The aggregate present value of the unfunded accumulated post-retirement benefit obligation was $ 9 million and $ 10 million at December 31, 2021 and 2020, respectively.

At December 31, 2021, we expect to contribute approximately $ 12 million in 2022 to our non-qualified (domestic) defined-benefit pension plans.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Concluded)

At December 31, 2021, 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:

2 unchanged sentences

2027 - 2031 31 48

(A) The qualified benefit payments include the projected benefit obligations of the qualified domestic defined-benefit pension plans we plan to settle in 2021.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

Effective February 10, 2021, 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 Board of Directors authorization established in 2019.

During 2021, we repurchased and retired 17.6 million shares of our common stock (including 0.7 million shares to offset the dilutive impact of restricted stock units granted in 2021), for cash aggregating $ 1,026 million.

At December 31, 2021, we had $ 1,128 million remaining under the 2021 authorization.

Our Board of Directors authorized the repurchase, for retirement, of up to $ 2.0 billion shares of our common stock in open-market transactions or otherwise, effective February 10, 2021, replacing the 2019 authorization.

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.

During 2020, we repurchased and retired 18.8 million shares of our common stock (including 0.4 million shares to offset the dilutive impact of restricted stock units granted in 2020), for cash aggregating $ 727 million.

On the basis of amounts paid (declared), cash dividends per common share were $ 0.845 ($ 0.705 ) in 2021, $ 0.545 ($ 0.550 ) in 2020 and $ 0.495 ($ 0.510 ) in 2019.

Accumulated Other Comprehensive Loss.

The components of accumulated other comprehensive loss attributable to Masco Corporation were as follows, in millions:

Accumulated Other Comprehensive Income (Loss).

The components of accumulated other comprehensive income (loss) attributable to Masco Corporation were as follows, in millions:

At December 31,

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Unrecognized net loss and prior service cost, net ( 80 ) ( 460 )

Accumulated other comprehensive loss $ ( 142 ) $ ( 179 )

Accumulated other comprehensive income (loss) $ 232 $ ( 142 )

The cumulative translation adjustment, net, is reported net of income tax benefit of $ 1 million at both December 31, 2021 and 2020.

The unrealized loss on interest rate swaps, net, is reported net of income tax expense of $ 5 million and $ 4 million at December 31, 2020 and 2019, respectively.

The unrealized loss on interest rate swaps, net, is reported net of income tax expense of $ 5 million at December 31, 2020.

The unrecognized net loss and prior service cost, net, is reported net of income tax benefit of $ 20 million and $ 124 million at December 31, 2021 and 2020, respectively.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE LOSS

The reclassifications from accumulated other comprehensive loss to the consolidated statements of operations were as follows, in millions:

RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The reclassifications from accumulated other comprehensive income (loss) to the consolidated statements of operations were as follows, in millions:

Year Ended December 31,

Accumulated Other

Comprehensive Loss

2020 2019 2018 Statement of Operations Line Item

Amortization of defined-benefit pension and other post-retirement benefits:

Actuarial losses, net and prior service cost $ 26 $ 20 $ 20 Other income (expense), net

Comprehensive Income (Loss) 2021 2020 2019 Statement of Operations Line Item

Settlement and amortization of defined-benefit pension and other post-retirement benefits (A):

Actuarial losses, net and prior service cost $ 18 $ 26 $ 20 Other, net

Settlement loss 451 — —

Tax (benefit) ( 104 ) ( 7 ) ( 5 )

Net of tax $ 365 $ 19 $ 15

Interest rate swaps $ 2 $ 2 $ 2 Interest expense

Tax (benefit) ( 1 ) — —

Interest rate swaps (B)

$ 2 $ 2 $ 2 Interest expense

Tax expense (benefit) 5 ( 1 ) —

Net of tax $ 7 $ 1 $ 2

In addition to the above amounts, we reclassified $ 9 million of deferred currency translation losses from accumulated other comprehensive loss to the consolidated statement of operations in conjunction with the liquidation of certain UK dormant entities upon receiving final regulatory approval in 2020.

Additionally, 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 earnings (deficit).

(A) In the second quarter of 2021, we settled our qualified domestic defined-benefit pension plans and recognized $ 447 million of pre-tax actuarial losses from accumulated other comprehensive income (loss) and $ 96 million of income tax benefit, which included $ 11 million of related disproportionate tax expense.

Additionally, the amortization of defined-benefit pension and post-retirement benefits included $ 3 million, net of tax, due to the disposition of pension plans in connection with the divestiture of Hüppe.

(B) Upon full repayment and retirement of the 5.950 % Notes due March 15, 2022 in the first quarter of 2021, we recognized the remaining interest rate swap loss and related disproportionate tax expense.

In addition to the above amounts, we reclassified $ 23 million of currency translation losses from accumulated other comprehensive income (loss) to the consolidated statements of operations in conjunction with the divestiture of Hüppe in the second quarter of 2021.

Also, we reclassified $ 9 million of deferred currency translation losses from accumulated other comprehensive income (loss) to the consolidated statements of operations in conjunction with the liquidation of certain UK dormant entities upon receiving final regulatory approval in 2020.

Additionally, we reclassified $ 14 million of deferred currency translation losses from accumulated other comprehensive income (loss) to the consolidated statements of operations in conjunction with the disposition of UKWG in the third quarter of 2019.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SEGMENT INFORMATION

Our reportable segments are as follows:

Plumbing Products – principally includes faucets, plumbing system components and valves, showerheads and handheld showers, bath hardware and accessories, bath units, tubs and shower bases and enclosures, sinks, toilets, spas, exercise pools and fitness systems and water handling systems.

Plumbing Products – principally includes faucets, plumbing system components and valves, showerheads and handheld showers, bath hardware and accessories, bath units, tubs and shower bases and enclosures, shower drains, steam shower systems, sinks, kitchen accessories, toilets, spas, exercise pools and fitness systems and water handling systems.

Decorative Architectural Products – principally includes paints and other coating products, paint applicators and accessories, lighting fixtures, ceiling fans, landscape lighting and LED lighting systems, and cabinet and other hardware.

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Information by segment and Geographic Area was as follows, in millions:

Year Ended December 31, At December 31,

Operating Profit

(5) Assets at

December 31 (6)

2021 2020 2019 2021 2020 2019 2021 2020 2019

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Total assets $ 5,575 $ 5,777 $ 5,027

Property Additions (7) Depreciation and

Year Ended December 31,

Property Additions

(7) Depreciation and

2021 2020 2019 2021 2020 2019

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(7) Property additions exclude amounts paid for long-lived assets as part of acquisitions.

Refer to Note B for further information.

(8) Related to the divestiture of our Cabinetry business.

MASCO CORPORATION

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Other, net, which is included in other income (expense), net, was as follows, in millions:

Year Ended December 31,

2021 2020 2019

Income from cash and cash investments and short-term bank deposits

Equity investment income, net 3 1 3

Realized gains from private equity funds — — 1

Foreign currency transaction (losses) gains (1)

Net periodic pension and post-retirement benefit expense (A)

$ ( 430 ) $ ( 35 ) $ ( 21 )

Net periodic pension and post-retirement benefit cost ( 35 ) ( 21 ) ( 14 )

Loss on sale of business ( 18 ) — —

Contingent consideration (B)

Gain on preferred stock redemption 14 — —

Equity investment income, net 11 3 1

Dividend income 6 10 —

Other items, net (2)

Foreign currency transaction (losses) gains (C)

( 4 ) ( 10 ) 2

Income from cash and cash investments 1 3 3

Other items, net (D)

Total other, net $ ( 439 ) $ ( 20 ) $ ( 15 )

_________________________________________________

(1) Included in foreign currency transaction (losses) gains for 2020 was a $ 9 million deferred currency translation loss reclassified from accumulated other comprehensive loss in conjunction with the liquidation of certain UK dormant entities upon receiving final regulatory approval in 2020.

(2) Included in other items, net for 2020 was $ 9 million of miscellaneous income related to an escrow settlement.

(A) In the second quarter of 2021, we settled our qualified domestic defined-benefit pension plans and recognized $ 406 million of additional pension expense.

In the fourth quarter of 2021, we recognized a $ 7 million reduction in pension expense related to the reversion of excess pension plan assets for the settlement of such plans.

Refer to Note N for additional information.

(B) In 2021, we recognized $ 16 million of expense from the revaluation of contingent consideration related to a prior acquisition.

Refer to Note I for additional information.

(C) Included in foreign currency transaction (losses) gains for 2020 was a $ 9 million deferred currency translation loss reclassified from accumulated other comprehensive income (loss) in conjunction with the liquidation of certain UK dormant entities upon receiving final regulatory approval in 2020.

(D) Included in other items, net for 2020 was $ 9 million of miscellaneous income related to an escrow settlement.

MASCO CORPORATION

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The net deferred tax asset consisted of net deferred tax assets (included in other assets) of $ 57 million and $ 109 million, and net deferred tax liabilities (included in other liabilities) of $ 20 million and $ 20 million, at December 31, 2021 and 2020, respectively.

We continue to maintain a valuation allowance on certain state and foreign deferred tax assets as of December 31, 2020.

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.

MASCO CORPORATION

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INCOME TAXES (Continued)

We continue to maintain a valuation allowance on certain state and foreign deferred tax assets as of December 31, 2021.

The current portion of the state and local income tax includes a $ 10 million, $ 9 million and $ 8 million tax benefit from the reversal of an accrual for uncertain tax positions resulting primarily from the expiration of applicable statutes of limitations in 2021, 2020 and 2019, respectively.

The deferred portion of the state and local taxes includes a $ 1 million tax benefit in 2019 and 2018, resulting from changes in valuation allowances against state and local deferred tax assets.

The deferred portion of the foreign taxes includes a $ 5 million, $ 4 million and $ 2 million tax benefit in 2020, 2019 and 2018, respectively, from a change in the valuation allowances against foreign deferred tax assets.

Our capital allocation strategy includes reinvesting in our business, balancing share repurchases with potential acquisitions and maintaining an appropriate dividend.

The deferred portion of the state and local taxes includes a $ 3 million tax expense in 2021 and a $ 1 million tax benefit in 2019, resulting from changes in valuation allowances against state and local deferred tax assets.

The deferred portion of the foreign taxes includes a $ 2 million tax expense in 2021 and a $ 5 million and $ 4 million tax benefit in 2020 and 2019, respectively, from a change in the valuation allowances against foreign deferred tax assets.

We incurred a $ 14 million state income tax expense in 2021 resulting from the loss on the termination of our qualified domestic defined-benefit pension plans providing no tax benefit in certain state jurisdictions.

The loss from the divestiture of Hüppe provided no tax benefit in certain foreign jurisdictions resulting in a $ 4 million foreign income tax expense in 2021.

We recorded a $ 16 million income tax expense due to the elimination of disproportionate tax effects from accumulated other comprehensive income (loss) relating to our interest rate swap following the retirement of the related debt, and the termination of our qualified domestic defined-benefit pension plans in 2021.

Our capital allocation strategy includes reinvesting in our business, balancing share repurchases with potential acquisitions and maintaining a meaningful 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, and consists primarily of foreign withholding taxes.

Of the $ 65 million and $ 72 million deferred tax assets related to the net operating loss and tax credit carryforwards at December 31, 2020 and 2019, respectively, $ 35 million and $ 44 million, respectively, will expire between 2021 and 2036 and $ 30 million and $ 28 million, respectively, have no expiration.

Of the $ 37 million and $ 65 million deferred tax assets related to the net operating loss and tax credit carryforwards at December 31, 2021 and 2020, respectively, $ 25 million and $ 35 million, respectively, will expire within approximately 15 years and $ 12 million and $ 30 million, respectively, have 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:

Year Ended December 31,

2021 2020 2019

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Stock-based compensation ( 1 ) ( 1 ) ( 1 )

Business divestiture with no tax impact 1 — —

Disproportionate tax effects 2 — —

Other, net 1 — ( 1 )

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Additions 2 — 2

Reductions ( 2 ) — ( 2 )

Lapse of applicable statute of limitations ( 9 ) — ( 9 )

Interest and penalties recognized in income tax expense — 1 1

Balance at December 31, 2020 $ 74 $ 10 $ 84

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Lapse of applicable statute of limitations ( 10 ) — ( 10 )

Interest and penalties recognized in income tax expense — 1 1

Balance at December 31, 2021 $ 81 $ 11 $ 92

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Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions:

Year Ended December 31,

2021 2020 2019

1 unchanged sentence

Income from continuing operations $ 410 $ 810 $ 639

Allocation to redeemable noncontrolling interest 2 — —

Allocation to unvested restricted stock awards 2 6 4

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For the years ended December 31, 2021, 2020 and 2019, we allocated dividends and undistributed earnings to the participating securities.

Additionally, 374,000 , 854,000 and 710,000 common shares for 2020, 2019 and 2018, respectively, related to stock options and 20,000 common shares for 2018 related to performance restricted stock units were excluded from the computation of diluted income per common share due to their antidilutive effect.

Additionally, 296,000 , 374,000 and 854,000 common shares for 2021, 2020 and 2019, respectively, related to stock options.

Common shares outstanding included on our balance sheet and for the calculation of income per common share do not include unvested stock awards ( 0.6 million and 1 million common shares at December 31, 2021 and 2020, respectively);

1 unchanged sentence

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)

OTHER COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

The types of matters may include, among others:

competition, product liability, employment, warranty, advertising, contract, personal injury, environmental, intellectual property, and insurance coverage.

competition, product liability, employment, warranty, advertising, contract, personal injury, environmental, intellectual property, product compliance and insurance coverage.

We believe we have adequate defenses in these matters.

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Changes in our warranty liability were as follows, in millions:

Year Ended December 31,

Balance at January 1 $ 83 $ 84

8 unchanged sentences

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.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

Net sales $ 7,188 $ 1,860 $ 1,983 $ 1,764 $ 1,581

Gross profit $ 2,587 $ 660 $ 752 $ 628 $ 547

Income from continuing operations $ 810 $ 192 $ 275 $ 210 $ 133

Net income (1)

$ 1,224 $ 195 $ 275 $ 224 $ 530

Income per common share:

Income from continuing operations $ 3.05 $ 0.74 $ 1.05 $ 0.80 $ 0.49

Net income $ 4.60 $ 0.75 $ 1.05 $ 0.85 $ 1.93

Income from continuing operations $ 3.04 $ 0.73 $ 1.05 $ 0.80 $ 0.48

Net income $ 4.59 $ 0.74 $ 1.05 $ 0.85 $ 1.92

Net sales $ 6,707 $ 1,639 $ 1,716 $ 1,839 $ 1,513

Gross profit $ 2,371 $ 565 $ 611 $ 673 $ 522

Income from continuing operations $ 639 $ 158 $ 163 $ 211 $ 107

Net income (2)

$ 935 $ 453 $ 126 $ 240 $ 116

Income per common share:

Income from continuing operations $ 2.21 $ 0.56 $ 0.57 $ 0.73 $ 0.36

Net income $ 3.24 $ 1.60 $ 0.44 $ 0.82 $ 0.39

Income from continuing operations $ 2.20 $ 0.56 $ 0.56 $ 0.72 $ 0.36

Net income $ 3.22 $ 1.59 $ 0.44 $ 0.82 $ 0.39

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(1) Net income includes $ 397 million of income from discontinued operations, net for the quarter ended March 31, 2020, which includes the gain on the sale of the Cabinetry divestiture.

(2) 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, 2020 and 2019 may not total to the income per common share amounts for the years ended December 31, 2020 and 2019 due to the allocation of income to participating securities.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)

SUBSEQUENT EVENTS

On January 4, 2021, we acquired a 75.1% equity interest in ESS, for approximately € 45 million ($ 55 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.

These amounts are subject to working capital and other adjustments.

This business will be included in the Plumbing Products segment.

In connection with this acquisition, we currently anticipate recognizing approximately $ 30 million of definite-lived intangible assets, primarily related to customer relationships.

We also anticipate recognizing approximately $ 25 million of goodwill, which is not tax deductible and is related primarily to the expected synergies from combining the operations into our business.

Refer to Note B for further information related to this acquisition.

We have not paid 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.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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What changed 10-K

Item 8. Financial Statements and Supplementary Data