What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-09 compared with 2022-02-08 · 329 added, 417 removed, 1053 unchanged (41% of the section changed)

7 unchanged sentences

Their report expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2022 and expressed an unqualified opinion on our 2022 consolidated financial statements.

This report appears under 'Item 8.

Financial Statements and Supplementary Data' under the heading "Report of Independent Registered Public Accounting Firm."

This report is included herein under the heading "Report of Independent Registered Public Accounting Firm."

Report of Independent Registered Public Accounting Firm

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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, as applicable;

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

and (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, as applicable.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

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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, 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.

and, evaluating the significant assumptions used by management related to forecasted sales, as applicable.

Evaluating management’s assumptions 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 it relates to forecasted sales, and (iii) whether they were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

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Paid-in capital 16 —

Retained (deficit) earnings ( 652 ) 79

Accumulated other comprehensive income (loss) 232 ( 142 )

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

Retained deficit ( 947 ) ( 652 )

Accumulated other comprehensive income 226 232

Total Masco Corporation's shareholders' deficit ( 480 ) ( 179 )

Noncontrolling interest 218 235

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Net income attributable to Masco Corporation $ 844 $ 410 $ 1,224

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

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

Cumulative translation adjustment $ ( 60 ) $ ( 32 ) $ 72

1 unchanged sentence

Pension and other post-retirement benefits 54 384 ( 18 )

Other comprehensive income (loss), net of tax 359 55 ( 56 )

Other comprehensive income (loss) attributable to the noncontrolling interest:

Other comprehensive (loss) income, net of tax ( 6 ) 359 55

Other comprehensive (loss) income attributable to the noncontrolling interest:

Cumulative translation adjustment $ ( 9 ) $ ( 19 ) $ 20

Pension and other post-retirement benefits 9 4 ( 2 )

( 15 ) 18 ( 4 )

Other comprehensive income (loss) attributable to Masco Corporation $ 374 $ 37 $ ( 52 )

Other comprehensive (loss) income attributable to Masco Corporation $ ( 6 ) $ 374 $ 37

Total comprehensive income $ 899 $ 837 $ 1,331

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Employee withholding taxes paid on stock-based compensation 17 15 25

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

Loss (gain) on investments, net 5 ( 25 ) ( 3 )

Loss (gain) on disposition of businesses, net 1 18 ( 602 )

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Increase in receivables ( 15 ) ( 64 ) ( 141 )

(Increase) decrease in inventories ( 350 ) ( 89 ) 58

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

Increase in inventories ( 43 ) ( 350 ) ( 89 )

(Decrease) increase in accounts payable and accrued liabilities, net ( 225 ) 190 332

Debt extinguishment costs — 160 5

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Issuance of notes, net of issuance costs — 1,481 415

Proceeds from term loan 500 — —

Payment of term loan ( 300 ) — —

Debt extinguishment costs — ( 160 ) ( 5 )

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Payment of debt ( 10 ) ( 3 ) ( 2 )

Credit Agreement and other financing costs — — ( 2 )

Net cash for financing activities ( 1,066 ) ( 1,298 ) ( 886 )

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

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

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

Shares issued 14 2 12 — — —

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Cash dividends declared ( 144 ) — — ( 144 ) — —

Dividends paid to noncontrolling interest

( 42 ) — — — — ( 42 )

Dividends declared to noncontrolling interest ( 23 ) — — — — ( 23 )

Stock-based compensation 41 — 41 — — —

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

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

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

Total comprehensive income 836 — — 410 374 52

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Cash dividends declared ( 175 ) — — ( 175 ) — —

Dividends paid to noncontrolling interest

( 23 ) — — — — ( 23 )

Dividends declared to noncontrolling interest ( 43 ) — — — — ( 43 )

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

Stock-based compensation 55 — 55 — — —

Balance, December 31, 2021 $ 56 $ 241 $ — $ ( 652 ) $ 232 $ 235

Total comprehensive income 836 — — 410 374 52

Total comprehensive income (loss) 900 — — 844 ( 6 ) 62

Shares issued 1 1 — — — —

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Cash dividends declared ( 259 ) — — ( 259 ) — —

Dividends paid to noncontrolling interest

( 43 ) — — — — ( 43 )

Dividends declared to noncontrolling interest ( 79 ) — — — — ( 79 )

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

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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 accumulated other comprehensive income (loss) in the consolidated balance sheets.

The resulting cumulative translation adjustments have been recorded in accumulated other comprehensive income 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.

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ACCOUNTING POLICIES (Continued)

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

We do business with home center retailers, 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.

We record allowances for doubtful accounts for estimated losses resulting from the inability of our customers to fulfill their required payment obligation to us.

We record allowances for credit losses for estimated losses resulting from the inability of our customers to fulfill their required payment obligation to us.

Allowances are estimated based upon specific customer balances, where a risk of loss has been identified, and also include a provision for losses based upon historical collection experience and write-off activity as well as reasonable and supportable forecast information that considers macro-economic factors and industry-specific trends associated with our businesses, among others.

A separate allowance is recorded for customer incentive rebates and is generally based upon sales activity.

Receivables are presented net of certain allowances (including allowances for doubtful accounts) of $ 67 million and $ 48 million at December 31, 2021 and 2020, respectively.

Receivables are presented net of certain allowances (including allowances for credit losses) of $ 53 million and $ 67 million at December 31, 2022 and 2021, respectively.

Our receivables balances are generally due in less than one year.

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Operating leases are included in operating lease right-of-use assets (“ROU assets”), accrued liabilities and noncurrent operating lease liabilities on our consolidated balance sheet.

Finance lease ROU assets are included in property and equipment, net, notes payable, and long-term debt on our consolidated balance sheet.

Finance lease ROU assets are included in property and equipment, net, notes payable, and long-term debt on our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities represent our obligation to make lease payments in exchange for the right to use an underlying asset.

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If the carrying amount of the ROU asset is not recoverable from its undiscounted cash flows, then we would recognize an impairment loss for the difference between the carrying amount and the current fair value.

As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments.

As most of our leases do not provide an implicit discount 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 or a comparable market alternative, adjusted to a collateralized basis based on third-party data.

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Variable lease payments are recognized as lease expense in the period incurred.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets;

we recognize lease expense for these leases on a straight-line basis over the lease term.

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We have defined our reporting units and completed the impairment testing of goodwill at the operating segment level.

Our operating segments are reporting units that engage in business activities, for which discrete financial information, including five-year forecasts, are available.

Our operating segments are reporting units that engage in business activities, for which discrete financial information, including five-year forecasts, is available.

We compare the fair value of the reporting units to the carrying value of the reporting units for goodwill impairment testing.

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We utilize our weighted average cost of capital of approximately 8.75 percent as the basis to determine the discount rate to apply to the estimated future cash flows.

In 2021, based upon our assessment of the risks impacting each of our businesses and the nature of the trade name, we applied a risk premium to increase the discount rate to a range of 10.0 percent to 15.5 percent for our other indefinite-lived intangible assets.

In 2022, based upon our assessment of the risks impacting each of our businesses and the nature of the other indefinite-lived intangible asset (i.e., trade name), we applied a risk premium to increase the discount rate to a range of 11.25 percent to 13.75 percent for our other indefinite-lived intangible assets.

While we believe that the estimates and assumptions underlying the valuation methodologies are reasonable, different estimates and assumptions could result in different outcomes.

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Acquisitions.

In accordance with accounting guidance for the provisions in Financial Accounting Standards Board ("FASB") ASC 805, "Business Combinations," we allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values.

We allocate the purchase price of an acquired business to its identifiable assets and liabilities based on estimated fair values.

The excess of the purchase price over the amount allocated to the assets and liabilities, if any, is recorded as goodwill.

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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.

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, or refunds to satisfy our warranty obligations.

Our estimate of future costs to service our warranty obligations is based upon the information available and includes a number of factors, such as the warranty coverage, the warranty period, historical experience specific to the nature, frequency and average cost to service the claim, along with industry and demographic trends.

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We issue stock-based incentives in various forms to our employees and non-employee Directors.

Outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units ("RSUs"), performance restricted stock units ("PRSUs") and phantom stock awards.

We measure compensation expense for stock awards and RSUs at the market price of our common stock at the grant date.

We measure compensation expense for stock options using a Black-Scholes option pricing model.

Outstanding stock-based incentives were in the form of restricted stock units ("RSUs"), performance restricted stock units ("PRSUs"), stock options, long-term stock awards and phantom stock awards.

We measure compensation expense for RSUs and long-term stock awards at the market price of our common stock at the grant date.

We measure compensation expense for PRSUs at the expected payout of the awards.

We recognize forfeitures related to stock awards, stock options, RSUs and PRSUs as they occur.

We measure compensation expense for stock options using a Black-Scholes option pricing model.

We recognize forfeitures related to RSUs, PRSUs, stock options and long-term stock awards as they occur.

We initially measure compensation expense for phantom stock awards at the market price of our common stock at the grant date.

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the liability is remeasured and adjusted at the end of each reporting period until the awards are fully-vested and paid to the employees.

In December 2019, our Organization and Compensation Committee of the Board of Directors (the "Compensation Committee") amended the terms of equity awards under our 2014 Long Term Stock Incentive Plan to provide that newly issued stock options, RSUs and phantom stock awards vest over a three-year period and redefined retirement-eligibility as age 65 or age 55 with at least 10 years of continuous service.

In December 2019, our Compensation and Talent Committee of the Board of Directors (the "Compensation Committee") amended the terms of equity awards under our 2014 Long Term Stock Incentive Plan to provide that newly issued RSUs, stock options and phantom stock awards vest over a three-year period and redefined retirement-eligibility as age 65 or age 55 with at least 10 years of continuous service.

As such, compensation expense for equity awards granted in 2020 and thereafter is recognized ratably over the shorter of the vesting period, typically three years , or the length of time until the grantee becomes retirement eligible.

For prior year grants, expense was recognized ratably over the shorter of the vesting period of the stock awards, stock options and phantom stock awards, typically five years , or the length of time until the grantee became retirement-eligible, generally at age 65.

For prior year grants, expense was recognized ratably over the shorter of the vesting period of the long-term stock awards, stock options and phantom stock awards, typically five years , or the length of time until the grantee became retirement-eligible, generally at age 65.

Expense for PRSUs is recognized ratably over the three-year vesting period of the units.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ACCOUNTING POLICIES (Continued)

ACCOUNTING POLICIES (Concluded)

Income Taxes.

Deferred taxes are recognized based on the future tax consequences of differences between the financial statement carrying value of assets and liabilities and their respective tax basis.

The future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods.

Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income.

If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent likely) such deferred tax assets will not be realized, a valuation allowance is recorded.

Significant weight is given to positive and negative evidence that is objectively verifiable.

A company's three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable, and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets.

The current accounting guidance allows the recognition of only those income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities.

We believe that there is an increased potential for volatility in our effective tax rate because this threshold allows for changes in the income tax environment and, to a greater extent, the inherent complexities of income tax law in a substantial number of jurisdictions, which may affect the computation of our liability for uncertain tax positions.

We record deferred taxes on the future tax consequences of differences between the financial statement carrying value of our assets and liabilities and their respective tax basis.

The realization of deferred tax assets depends on sufficient sources of taxable income in future periods.

If, based upon all available evidence, both positive and negative, it is more likely than not our deferred tax assets will not be realized, a valuation allowance is recorded.

We only recognize the tax benefits from income tax positions that have a greater than 50 percent likelihood of being sustained upon examination by the taxing authorities.

A liability is recorded for uncertain tax positions where it is more likely than not the position may not be sustained based on its technical merits.

We record interest and penalties on our uncertain tax positions in income tax expense.

The accounting guidance for income taxes requires us to allocate our provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income (loss).

Subsequent adjustments to deferred taxes originally recorded to other comprehensive income (loss) may reverse in a different category of earnings, such as continuing operations, resulting in a disproportionate tax effect within accumulated other comprehensive income (loss).

We record the tax effects of Global Intangible Low-taxed Income related to our foreign operations, if applicable, as a component of income tax expense in the period the tax arises.

We allocate our provision for income taxes between continuing operations and other categories of earnings.

Adjustments to deferred taxes originally recorded to other comprehensive income (loss) may reverse in a different category of earnings, such as continuing operations, resulting in a disproportionate tax effect within accumulated other comprehensive income.

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 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.

The disproportionate tax effects related to our various qualified domestic defined-benefit pension plans were eliminated from accumulated other comprehensive income at the termination of the related pension plans in 2021.

The disproportionate tax effect relating to our interest rate swap hedge, which was terminated in 2012, was eliminated from accumulated other comprehensive income upon the early retirement of the related debt in March 2021.

Recently Adopted 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):

Clarifying the Interactions between Topic 321, Topic 323, and Topic 815," which clarifies that an entity should consider observable transactions when either applying or discontinuing the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321.

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.

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):

In August 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 simplifies the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock.

We 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.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ACCOUNTING POLICIES (Concluded)

We adopted this standard for annual periods beginning January 1, 2022.

The adoption of this new standard did not impact our financial position or results of operations.

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805):

Accounting for Acquired Contract Assets and Contract Liabilities from Contracts with Customers.” ASU 2021-08 requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts.

We adopted this standard for annual periods beginning January 1, 2022.

The adoption of this new standard did not impact our financial position or results of operations.

Recently Issued Accounting Pronouncements.

In September 2022, the FASB issued ASU 2022-04, "Liabilities – Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations,” which requires that an entity that uses a supplier finance program in connection with the purchase of goods or services disclose information about the program’s nature, activity during the period, changes from period to period, and potential magnitude.

ASU 2022-04 is effective for annual periods on a retrospective basis, including interim periods within those annual periods, beginning January 1, 2023, except for the amendment on rollforward information, which is effective prospectively for annual periods beginning January 1, 2024.

The adoption of this guidance will modify our disclosures, but will not have a material impact on our financial statements.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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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.

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

In the first quarter of 2021, our Hansgrohe SE subsidiary 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.

ESS is a manufacturer of shower channel drains that offers a wide range of products for barrier-free showering and bathroom wall niches.

This business is included in our Plumbing Products segment.

3 unchanged sentences

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 remaining 24.9 percent equity interest in ESS is subject to a call and put option that is exercisable by Hansgrohe SE 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.

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 sheets.

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

In the fourth quarter of 2020, we acquired substantially all of the net assets of Kraus USA Inc.

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This business expands our product offerings to our customers and our online presence under the Kraus brand.

This business is included in the Plumbing Products segment.

This business is included in our Plumbing Products segment.

In connection with this acquisition, we recognized $ 25 million of indefinite-lived intangible assets, which is related to trademarks, and $ 49 million of definite-lived intangible assets, primarily related to customer relationships.

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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.

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

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.

This business is included in our Decorative Architectural Products segment.

In connection with this acquisition, we recognized $ 7 million of indefinite-lived intangible assets, which is related to trademarks, and $ 27 million of definite-lived intangible assets, primarily related to customer relationships.

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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.

This business is included in our 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.

1 unchanged sentence

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.

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 statement of operations.

This loss resulted primarily from the recognition of $ 23 million of currency translation losses that were previously included within accumulated other comprehensive income.

During the first quarter of 2022, we recorded a $ 2 million pre-tax post-closing gain related to the finalization of working capital items in other, net in our consolidated statement of operations.

The sale of Hüppe did not represent a strategic shift that will have a major effect on our operations and financial results and therefore was not presented as discontinued operations.

Prior to the divestiture, the results of the business were included in our Plumbing Products segment.

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 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 statements of operations.

In 2019, we determined that the previously reported Windows and Other Specialty Products segment met the criteria to be classified as a discontinued operation as a result of the combined sale of UKWG and Milgard.

These businesses represented all of our windows businesses and all remaining businesses in the Windows and Other Specialty Products segment.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 statements of operations, as a gain on the divestiture of Milgard.

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 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.

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We completed the divestiture of Cabinetry on February 18, 2020 for proceeds of approximately $ 989 million, including $ 853 million, net of cash disposed.

The remaining $ 136 million was accounted for as preferred stock issued by a holding company of the buyer;

refer to Note I for additional information.

The remaining $ 136 million was accounted for as preferred stock issued by ACProducts Holding, Inc., a holding company of the buyer;

refer to Note R for additional information.

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 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.

We determined that the assets and liabilities for Cabinetry, Milgard and UKWG met the held for sale criteria in accordance with ASC 205-20, Discontinued Operations, during 2019.

We ceased recording depreciation and amortization for the held for sale assets upon meeting the held for sale criteria.

As the combined sale of UKWG and Milgard and the sale of Cabinetry each represented a strategic shift that will have a major effect on our operations and financial results, these businesses were presented in discontinued operations separate from continuing operations for all periods presented.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DIVESTITURES (Concluded)

As the sale of Milgard and Cabinetry represented a strategic shift that will have a major effect on our operations and financial results, these businesses were presented in discontinued operations separate from continuing operations for all periods presented.

In addition, depreciation and amortization, capital expenditures, and significant non-cash operating and investing activities related to discontinued operations were separately disclosed.

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

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

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

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Selling, general and administrative expenses — — 28

Impairment charge for goodwill (A)

Other income (expense), net

(Loss) income from discontinued operations — ( 5 ) 106

Loss from discontinued operations — — ( 5 )

Gain on disposal of discontinued operations, net — — 602

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Income from discontinued operations, net $ — $ — $ 414

(A) In the first quarter of 2019, we recognized a $ 7 million non-cash goodwill impairment charge related to a decline in the long-term outlook of our windows and doors business in the United Kingdom.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DIVESTITURES (Concluded)

Other selected financial information for Cabinetry, Milgard and UKWG during the period owned by us, were as follows, in millions:

Year Ended December 31,

2021 2020 2019

Depreciation and amortization $ — $ — $ 29

Capital expenditures — 1 34

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

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

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

Net sales from these geographic markets, by segment, were as follows, in millions:

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Total $ 5,135 $ 3,240 $ 8,375

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

REVENUE (Concluded)

Year Ended December 31, 2020

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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 $ 1 million and $ 2 million at December 31, 2021 and 2020, respectively.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

REVENUE (Concluded)

Our contract asset balance was $ 1 million at both December 31, 2022 and 2021.

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:

Year Ended December 31,

Balance at January 1 $ 6 $ 7

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(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.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The components of inventory were as follows, in millions:

4 unchanged sentences

Total $ 1,236 $ 1,216

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)

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 primarily by use of the first-in, first-out method, and to a lesser extent the average cost method.

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:

Year Ended December 31,

2022 2021 2020

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

Year Ended December 31,

2022 2021 2020

9 unchanged sentences

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)

Certain other information related to leases was as follows:

7 unchanged sentences

Finance leases 3.3 % 3.3 % 3.3 %

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

LEASES (Concluded)

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

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Long-term debt — 20 — 23

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.

Gross ROU assets under finance leases recorded within property and equipment, net was $ 41 million and $ 42 million at December 31, 2022 and 2021, respectively, and accumulated amortization associated with these leases was $ 20 million and $ 18 million, at December 31, 2022 and 2021, respectively.

At December 31, 2022, future maturities of lease liabilities were as follows, in millions:

6 unchanged sentences

Total $ 294 $ 23

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PROPERTY AND EQUIPMENT

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Total $ 975 $ 896

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

GOODWILL AND OTHER INTANGIBLE ASSETS

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Losses Net Goodwill At December 31, 2022

Plumbing Products (A)

$ 662 $ ( 340 ) $ 322

Plumbing Products $ 611 $ ( 301 ) $ 310

Decorative Architectural Products 366 ( 139 ) 227

Total $ 977 $ ( 440 ) $ 537

______________________________

(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, 2022 and 2021, by segment, were as follows, in millions:

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Charge Other (B) Net Goodwill At December 31, 2022

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

Plumbing Products (A)

$ 623 $ ( 301 ) $ 322 $ — $ — $ ( 12 ) $ 310

Decorative Architectural Products

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______________________________

(A) As a result of Hüppe being divested in May 2021, both gross goodwill and accumulated impairment losses for the Plumbing Products segment were reduced by $ 39 million.

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

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.

MASCO CORPORATION

1 unchanged sentence

GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)

Other indefinite-lived intangible assets were $ 102 million and $ 109 million at December 31, 2022 and 2021, respectively, and principally included registered trademarks.

We completed our annual impairment testing of goodwill and other indefinite-lived intangible assets in the fourth quarters of 2022, 2021 and 2020.

We recognized a $ 19 million and $ 7 million non-cash impairment charge within our Decorative Architectural Products segment to goodwill and other indefinite-lived intangible assets, respectively, in the fourth quarter of 2022 due to competitive market conditions, higher inflationary costs and increased cost of capital in our lighting business.

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

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 $ 94 million) at December 31, 2022 and $ 279 million (net of accumulated amortization of $ 75 million) at December 31, 2021 and principally included customer relationships with a weighted average amortization period of 15 years in both 2022 and 2021.

Amortization expense, including discontinued operations, related to the definite-lived intangible assets wa s $ 29 million, $ 31 million and $ 24 million in 2022, 2021 and 2020, respectively.

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

At December 31, 2022, amortization expense related to the definite-lived intangible assets during each of the next five years will be as follows:

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FAIR VALUE OF FINANCIAL INSTRUMENTS

Preferred Stock of ACProducts Holding, Inc.

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, 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 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.

Examples of utilized unobservable inputs are estimated future revenues and earnings of the acquired business and an applicable discount rate.

The estimate of the liability may fluctuate if there are changes in the forecast of the acquired business' future revenues and earnings, as a result of actual levels achieved or in the discount rate used to determine the present value of contingent future cash flows.

All subsequent remeasurements from the initial estimate at the time of acquisition are recorded in other, net in 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.

As described in Note B, an additional cash payment of up to $ 50 million related to the Kraus acquisition was contingent upon the achievement of certain financial performance metrics for the year ended December 31, 2022.

The measurement of the liability for contingent consideration was based on significant inputs that were not observable in the market, and were therefore classified as Level 3 inputs.

Examples of utilized unobservable inputs were estimated future revenues and earnings of the acquired business and an applicable discount rate.

The estimate of the liability fluctuated for changes in the forecast of the acquired business' future revenues and earnings, as a result of actual levels achieved, or in the discount rate used to determine the present value of contingent future cash flows.

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

The financial performance metrics were not met and the fair value of the liability was nil as of December 31, 2022.

The fair value of the liability was estimated to be $ 24 million as of December 31, 2021, using probability weighted discounted cash flows and a discount rate that reflected the uncertainty surrounding the expected outcomes, which we believe was appropriate and representative of a market participant assumption.

Fair Value of Debt.

The fair value of our short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues, which are Level 1 inputs.

The 364-day term loan has an interest rate that resets monthly and the fair value of this instrument approximates the carrying value at December 31, 2022.

The aggregate estimated market value of our short-term and long-term debt at December 31, 2022 was approximately $ 2.7 billion, compared with the aggregate carrying value of $ 3.2 billion.

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Other investments 12 7

Preferred stock of ACProducts Holding, Inc.

(Note I) — 146

Total $ 113 $ 114

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

1 unchanged sentence

At December 31,

Salaries, wages and commissions $ 195 $ 193

Advertising and sales promotion $ 295 $ 297

Interest 29 35

Warranty (Note U) 31 34

Salaries, wages and commissions 136 195

Deferred revenue 61 67

Income taxes payable 48 34

Employee retirement plans 41 49

Operating lease liabilities (Note F) 39 38

Warranty (Note U) 34 31

Interest 30 29

Product returns 25 23

Insurance reserves 20 27

Property, payroll and other taxes 16 32

Dividends payable — 36

Deferred revenue 67 62

Product returns 23 23

Operating lease liabilities (Note F) 38 39

Total $ 807 $ 884

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Notes and debentures:

5.950 %, due March 15, 2022

4.450 %, due April 1, 2025

4.375 %, due April 1, 2026

3.500 %, due November 15, 2027

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3.125 %, due February 15, 2051

364-day term loan, due April 26, 2023 200 —

Prepaid debt issuance costs ( 20 ) ( 23 )

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All of the notes and debentures above are senior indebtedness and, other than the 7.75 % Notes due 2029, are redeemable at our option.

At December 31, 2022, the debt maturities during each of the next five years were as follows:

2023 – $ 205 million;

2024 – $ 3 million;

2025 – $ 3 million;

2026 – $ 2 million and 2027 – $ 302 million.

On April 26, 2022, we entered into a revolving credit agreement (the “2022 Credit Agreement”) with an aggregate commitment of $ 1.0 billion and a maturity date of April 26, 2027.

Under the 2022 Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $ 500 million with the current lenders or new lenders.

Upon entry into the 2022 Credit Agreement, our credit agreement dated March 13, 2019, as amended, with an aggregate commitment of $ 1.0 billion, was terminated.

The 2022 Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries in U.S.

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

Borrowings under the revolving credit loans denominated in any agreed upon currency other than U.S.

dollars are limited to the equivalent of $ 500 million.

We can also borrow swingline loans up to $ 125 million and obtain letters of credit of up to $ 25 million.

Outstanding letters of credit under the 2022 Credit Agreement reduce our borrowing capacity and we had no outstanding letters of credit at December 31, 2022.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DEBT (Continued)

Revolving credit loans denominated in U.S.

dollars bear interest under the 2022 Credit Agreement at our option, at (A) SOFR rate for the interest period in effect for the borrowing, plus 0.1 %, plus an applicable margin based upon our then-applicable corporate credit ratings;

or (B) a rate per annum equal to the greatest of (i) the U.S.

prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50 % and (iii) the adjusted term SOFR rate for a one month interest period, plus 1.0 %;

plus an applicable margin based upon our then-applicable corporate credit ratings.

Foreign currency revolving credit loans denominated in Canadian dollars bear interest at a rate per annum equal to the greater of (i) the rate equal to the PRIMCAN Index rate and (ii) the CDOR rate for a one month interest period, plus 1.0 %;

plus an applicable margin based upon our then-applicable corporate credit ratings.

Foreign currency revolving credit loans denominated in British pounds sterling bear interest at a rate per annum equal to the Daily Simple SONIA, plus an applicable margin based upon our then-applicable corporate credit ratings.

Foreign currency revolving credit loans denominated in European euros bear interest at the adjusted EURIBOR rate, plus an applicable margin based upon our then-applicable corporate credit ratings.

The various benchmarks are subject to applicable floors.

The 2022 Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) an interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0.

In order for us to borrow under the 2022 Credit Agreement, there must not be any default in our covenants in the 2022 Credit Agreement (i.e., in addition to the two financial covenants described above, principally limitations on subsidiary debt, negative pledge restrictions, and requirements relating to legal compliance, maintenance of our properties and insurance) and our representations and warranties in the 2022 Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since December 31, 2021, no material ERISA or environmental non-compliance, and no material tax deficiency).

We were in compliance with all covenants and no borrowings were outstanding at December 31, 2022.

As of the date of this report, $ 69 million was borrowed and outstanding at a weighted average interest rate of 5.800 %.

On April 26, 2022, we entered into a 364-day $ 500 million senior unsecured delayed draw term loan due April 26, 2023 with a syndicate of lenders.

The senior unsecured term loan and commitments thereunder are subject to prepayment or termination at our option and the loans will bear interest at SOFR plus a spread adjustment and 0.70 %.

The covenants, including the financial covenants, are substantially the same as those in the 2022 Credit Agreement.

We repaid $ 300 million during 2022.

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.

2 unchanged sentences

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.

4 unchanged sentences

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.

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 statements of operations.

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.

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 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.

Borrowings under the revolving credit loans denominated in any agreed upon currency other than U.S.

dollars are limited to $ 500 million, equivalent.

We can also borrow swingline loans up to $ 100 million and obtain letters of credit of up to $ 25 million;

outstanding letters of credit under the 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.

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.

At December 31, 2021, the debt maturities during each of the next five years were as follows:

2022 – $ 10 million;

2023– $ 5 million;

2024 – $ 3 million;

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

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

DEBT (Concluded)

Interest paid was $ 107 million , $ 114 million and $ 136 million in 2022, 2021 and 2020, 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.

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

STOCK-BASED COMPENSATION

Our 2014 Long Term Stock Incentive Plan (the "2014 Plan") provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors.

At December 31, 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.

At December 31, 2022, outstanding stock-based incentives were in the form of restricted stock units, performance restricted stock units, stock options, long-term stock awards and phantom stock awards.

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

1 unchanged sentence

2022 2021 2020

Long-term stock awards $ 10 $ 14 $ 20

Stock options 7 7 4

Restricted stock units $ 32 $ 28 $ 13

Performance restricted stock units 3 10 5

Stock options 7 7 7

Long-term stock awards 6 10 14

Phantom stock awards 1 6 4

Total $ 49 $ 61 $ 43

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.

Long-Term Stock Awards.

Prior to the amendment of our 2014 Plan in December 2019, we granted long-term stock awards to our key employees and non-employee Directors.

At December 31, 2022, 11.7 million shares of our common stock were available under the 2014 Plan for the granting of restricted stock units, performance restricted stock units, stock options and long-term stock awards.

Restricted Stock Units.

Restricted stock units are granted to our key employees and non-employee Directors.

These grants did not cause net share dilution due to our practice of repurchasing and retiring an equal number of shares in the open market.

We did not grant shares of long-term stock awards during 2021.

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

Our restricted stock unit activity was as follows, units in thousands:

Year Ended December 31,

2022 2021 2020

Unvested stock award shares at January 1 1 2 2

Weighted average grant date fair value $ 36 $ 34 $ 30

Stock award shares granted — — 1

Weighted average grant date fair value $ — $ — $ 36

Stock award shares vested — 1 1

Weighted average grant date fair value $ 34 $ 32 $ 25

Stock award shares forfeited — — —

Weighted average grant date fair value $ 36 $ 35 $ 35

Unvested stock award shares at December 31 1 1 2

Weighted average grant date fair value $ 37 $ 36 $ 34

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 both December 31, 2021 and 2020, and three years at December 31, 2019.

Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value

Unvested restricted stock units at January 1 934 $ 54 435 $ 47 — $ —

Granted 621 59 670 57 446 47

Vested ( 351 ) 53 ( 142 ) 47 — —

Forfeited ( 50 ) 54 ( 29 ) 54 ( 11 ) 48

Unvested restricted stock units at December 31 1,154 $ 57 934 $ 54 435 $ 47

At December 31, 2022, 2021, and 2020 there was $ 17 million, $ 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 December 31, 2022, 2021, and 2020.

The total market value (at the vesting date) of restricted stock units which vested was $ 20 million and $ 8 million during 2022 and 2021, respectively.

MASCO CORPORATION

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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.

Performance Restricted Stock Units.

Under our Long Term Incentive Program, we grant performance restricted stock units to certain senior executives.

These performance restricted stock units will vest and share awards will be issued at no cost to the employees, subject to our achievement of specified return on invested capital performance goals, and beginning with the 2020 grant, an additional earning per share metric over a three -year period that have been established by our Compensation Committee for the performance period.

To receive the award, the recipient must be employed through the share award date.

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 percent of the target number.

During 2022, we granted approximately 92,000 performance restricted stock units with a grant date fair value of approximately $ 55 per share, approximately 168,000 performance restricted stock units were issued.

No performance restricted stock units were forfeited.

At December 31, 2022, there were approximately 255,000 shares vested but unissued.

During 2021, we granted approximately 85,000 performance restricted stock units with a grant date fair value of approximately $ 53 per share, approximately 105,000 performance restricted stock units were issued and no performance restricted stock units were forfeited.

At December 31, 2021, there were approximately 186,000 shares vested but unissued.

During 2020, we granted approximately 133,000 performance restricted stock units with a grant date fair value of approximately $ 34 per share, approximately 152,000 performance restricted stock units were issued and approximately 11,000 performance restricted stock units were forfeited.

At December 31, 2020, there were approximately 103,000 shares vested but unissued.

Stock Options.

Stock options are granted to certain key employees.

The exercise price equals the market price of our common stock at the grant date and expire no later than 10 years after the grant date.

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

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

The exercise price equals the market price of our common stock at the grant date and the stock options expire no later than 10 years after the grant date.

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

Year Ended December 31,

2022 2021 2020

Option shares outstanding, January 1 2 3 4

Weighted average exercise price $ 33 $ 27 $ 21

Option shares granted 1 1 1

Weighted average exercise price $ 56 $ 48 $ 36

Option shares exercised — 2 2

Aggregate intrinsic value on date of exercise (A)

$ 5 million $ 29 million $ 33 million

Weighted average exercise price $ 25 $ 17 $ 13

Option shares forfeited — — —

Weighted average exercise price $ 11 $ 40 $ 34

Option shares outstanding, December 31 3 2 3

Weighted average exercise price $ 37 $ 33 $ 27

Weighted average remaining option term (in years) 6 6 6

Option shares vested and expected to vest, December 31 3 2 3

Weighted average exercise price $ 36 $ 33 $ 27

Aggregate intrinsic value (A)

$ 89 million $ 51 million $ 63 million

Weighted average remaining option term (in years) 6 6 6

Option shares exercisable (vested), December 31 2 1 2

Weighted average exercise price $ 31 $ 28 $ 21

Aggregate intrinsic value (A)

$ 63 million $ 35 million $ 47 million

Weighted average remaining option term (in years) 5 5 4

______________________________

(A) Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.

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 both December 31, 2021 and 2020, and three years at December 31, 2019.

Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price Number of Shares Weighted Average Exercise Price

Outstanding stock options at January 1 2,692 $ 37 2,488 $ 33 3,006 $ 27

Granted 338 59 332 56 421 48

Exercised ( 32 ) 34 ( 128 ) 25 ( 878 ) 17

Forfeited ( 10 ) 37 — 11 ( 61 ) 40

Outstanding stock options at December 31 2,988 $ 39 2,692 $ 37 2,488 $ 33

Vested and expected to vest stock options at December 31 2,966 $ 39 2,617 $ 36 2,338 $ 33

Exercisable (vested) stock options at December 31 2,051 $ 34 1,606 $ 31 1,283 $ 28

The aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.

The aggregate intrinsic value for options exercised during 2022, 2021 and 2020 was $ 1 million, $ 5 million and $ 29 million, respectively.

The aggregate intrinsic value for options vested and expected to vest at December 31, 2022, 2021 and 2020 was $ 30 million, $ 89 million and $ 51 million, respectively.

The aggregate intrinsic value for options exercisable (vested) at December 31, 2022, 2021 and 2020 was $ 28 million, $ 63 million and $ 35 million, respectively.

The weighted-average remaining term for options outstanding was 5 years at December 31, 2022 and 6 years at both December 31, 2021 and 2020.

The weighted-average remaining term for options vested and expected to vest was 5 years at December 31, 2022 and 6 years at both December 31, 2021 and 2020.

The weighted-average remaining term for options exercisable (vested) was 4 years at December 31, 2022 and 5 years at both December 31, 2021 and 2020.

MASCO CORPORATION

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STOCK-BASED COMPENSATION (Continued)

At December 31, 2022, 2021 and 2020, there was $ 1 million, $ 4 million and $ 6 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options;

such options had a weighted average remaining vesting period of one year at December 31, 2022 and two years at both December 31, 2021 and 2020.

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:

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Expected option life 6 years 6 years 6 years

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

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

At December 31, 2022

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2,988 5 $ 39 2,051 $ 34

Restricted Stock Units.

Restricted stock units are granted to our key employees and non-employee Directors.

These grants did not cause net share dilution due to our practice of repurchasing and retiring an equal number of shares in the open market.

We granted 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.

Long-Term Stock Awards.

Prior to the amendment of our 2014 Plan in December 2019, we granted long-term stock awards to our key employees and non-employee Directors.

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

Year Ended December 31,

2022 2021 2020

Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value

Unvested stock award shares at January 1 608 $ 37 1,125 $ 36 1,910 $ 34

Vested ( 324 ) 37 ( 491 ) 34 ( 655 ) 32

Forfeited ( 11 ) 38 ( 26 ) 36 ( 130 ) 35

Unvested stock award shares at December 31 273 $ 38 608 $ 37 1,125 $ 36

At December 31, 2022, 2021 and 2020, there was $ 3 million, $ 10 million and $ 21 million, respectively, of total unrecognized compensation expense related to unvested stock awards;

such awards had a weighted average remaining vesting period of one year at December 31, 2022 and two years at both December 31, 2021 and 2020.

MASCO CORPORATION

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STOCK-BASED COMPENSATION (Concluded)

Performance Restricted Stock Units.

Under our Long Term Incentive Program, we grant performance restricted stock units to certain senior executives.

These performance restricted stock units will vest and share awards will be issued at no cost to the employees, subject to our achievement of specified return on invested capital performance goals, and beginning with the 2020 grant, an additional earning per share metric over a three-year period that have been established by our Compensation Committee for the performance period.

To receive the award, the recipient must be employed through the share award date.

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 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 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.

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.

The total market value (at the vesting date) of stock award shares which vested was $ 21 million, $ 28 million and $ 31 million during 2022, 2021 and 2020, respectively.

Phantom Stock Awards.

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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:

We recognized expense of $ 1 million, $ 6 million and $ 4 million in 2022, 2021 and 2020, respectively, related to phantom stock awards.

In 2022, 2021 and 2020, we granted approximately 74,000 , 82,000 , and 83,000 shares, respectively, of phantom stock awards with an aggregate fair value of $ 4 million, $ 5 million and $ 3 million in 2022, 2021 and 2020, respectively, and paid cash of $ 4 million in 2022 and $ 3 million in both 2021 and 2020, to settle phantom stock awards.

Information related to phantom stock awards was as follows, dollars in millions and shares in thousands:

At December 31,

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EMPLOYEE RETIREMENT PLANS

We sponsor qualified defined-benefit and defined-contribution retirement plans for most of our employees.

In addition to our qualified defined-benefit pension plans, we have unfunded non-qualified defined-benefit pension plans covering certain employees and former employees, which provide for benefits in addition to those provided by the qualified pension plans.

Substantially all salaried employees participate in non-contributory defined-contribution retirement plans, to which payments are determined annually by the Compensation Committee.

We also sponsor qualified defined-benefit and non-qualified defined-benefit pension plans covering certain employees and former employees.

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

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$ 51 $ 492 $ 84

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.

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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.

The settlement loss included $ 447 million of pre-tax actuarial losses that were reclassified out of accumulated other comprehensive income 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.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

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:

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Interest cost 2 3 15 4

Actuarial loss, net ( 105 ) ( 6 ) 85 10

Actuarial (gain), net ( 54 ) ( 27 ) ( 105 ) ( 6 )

Foreign currency exchange ( 11 ) — ( 16 ) —

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Company contributions 3 12 107 12

Expenses, other — — ( 4 ) —

Benefit payments ( 3 ) ( 12 ) ( 230 ) ( 12 )

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Funded status at December 31 $ ( 37 ) $ ( 112 ) $ ( 79 ) $ ( 148 )

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

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

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Other assets $ 2 $ — $ 1 $ —

Accrued liabilities (A)

— ( 12 ) ( 135 ) ( 12 )

Other liabilities (A)

( 80 ) ( 136 ) ( 121 ) ( 150 )

Accrued liabilities — ( 12 ) — ( 12 )

Other liabilities ( 39 ) ( 100 ) ( 80 ) ( 136 )

Total net liability $ ( 37 ) $ ( 112 ) $ ( 79 ) $ ( 148 )

___________________________

(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:

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

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

At December 31,

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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, 2022 and 2021 which had an accumulated benefit obligation in excess of plan assets.

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.

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Settlement loss — — 404 — — —

Recognized prior service cost 1 — 1 — — —

Recognized net loss 3 3 14 2 22 3

Recognized prior service cost 1 — 1 — 1 —

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

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.

We expect to recognize $ 1 million of pre-tax net loss from accumulated other comprehensive income into net periodic pension cost in 2023 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 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 is amortized using the straight-line method over the average remaining service period of the active employees expected to receive benefits from the plan.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

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

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Common and Preferred Stocks and Short-Term and Other Investments:

Valued at the closing price reported on the active market on which the individual securities are traded or based on the active market for similar securities.

Certain investments are valued based on net asset value ("NAV"), which approximates fair value.

Such basis is determined by referencing the respective fund's underlying assets.

There are no unfunded commitments or other restrictions associated with these investments.

Private Equity and Hedge Funds:

Valued based on an estimated fair value using either a market approach or an income approach, both of which require a significant degree of judgment.

There is no active trading market for these investments and they are generally illiquid.

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

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

Valued at the closing price reported on the active market on which the individual securities are traded.

Other investments include liability-driven investments in interest rate swap funds that are priced daily based on the use of observable inputs.

Corporate, Government and Other Debt Securities:

Valued based on either the closing price reported on the active market on which the individual securities are traded or using pricing models maximizing the use of observable inputs for similar securities.

Valued based on using pricing models maximizing the use of observable inputs for similar securities.

This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.

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 Investment Trusts are valued at the closing price reported on the active market on which the individual securities are traded.

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.

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

Common Collective Trust Fund:

Valued based on an amortized cost basis, which approximates fair value.

Such basis is determined by reference to the respective fund's underlying assets, which are primarily cash equivalents.

There are no unfunded commitments or other restrictions associated with this fund.

Buy-in Annuity:

Valued based on the associated benefit obligation for which the buy-in annuity covers the benefits, which approximates fair value.

Such basis is determined based on various assumptions, including the discount rate, long-term rate of return on plan assets and mortality rate.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.

Furthermore, while we believe our valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

The following tables set forth, by level within the fair value hierarchy, the qualified defined-benefit pension plan assets at fair value as of December 31, 2021 and 2020, as well as those valued at NAV using the practical expedient, which approximates fair value, in millions.

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, 2022 and 2021, in millions.

At December 31, 2022

Level 1 Level 2 Level 3 Valued at NAV Total

Level 1 Level 2 Level 3 Total

Common and Preferred Stocks:

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Total Plan Assets $ 29 $ 37 $ 12 $ 78

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

At December 31, 2021

Level 1 Level 2 Level 3 Valued at NAV Total

Level 1 Level 2 Level 3 Total

Common and Preferred Stocks:

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International 13 — — 13

Private Equity and Hedge Funds – International

Corporate Debt Securities:

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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)

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

Year Ended December 31,

Fair Value, January 1 $ 6 $ 1

Purchases 6 5

Sales — ( 18 )

Fair Value, December 31 $ 12 $ 6

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Discount rate for net periodic pension cost 1.80 % 1.70 % 2.50 %

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Continued)

The discount rate for obligations for 2022, 2021 and 2020 is based primarily upon the expected duration of each defined-benefit pension plan's liabilities matched to the December 31, 2022, 2021 and 2020 Willis Towers Watson Rate Link Curve.

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At December 31, 2020, such rates for our defined‑benefit pension plans ranged from 0.7 percent to 2.1 percent, with the most significant portion of the liabilities having a discount rate for obligations of 1.6 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 increase in the weighted average discount rate from 2021 to 2022 and 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.

Our weighted average projected long-term rate of return on plan assets for the foreign qualified defined-benefit pension plans was 4.5 percent, 3.0 percent and 2.9 percent for 2022, 2021 and 2020, respectively.

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Conversely, rate decreases will increase fixed income assets, partially offsetting the related increase in the liabilities.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Concluded)

Potential events or circumstances that could have a negative effect on estimated fair value include the risks of inadequate diversification and other operating risks.

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At December 31, 2022, we expect to contribute approximately $ 12 million in 2023 to our non-qualified (domestic) defined-benefit pension plans.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

EMPLOYEE RETIREMENT PLANS (Concluded)

At December 31, 2022, 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:

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SHAREHOLDERS' EQUITY

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 2022, we repurchased and retired 16.6 million shares of our common stock (including 0.6 million shares to offset the dilutive impact of restricted stock units granted in 2022), for cash aggregating $ 914 million.

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

Effective October 20, 2022, 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 2021.

At December 31, 2022, we had $ 2.0 billion remaining under the 2022 authorization.

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.

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 $ 1.120 ($ 1.120 ) in 2022, $ 0.845 ($ 0.705 ) in 2021 and $ 0.545 ($ 0.550 ) in 2020.

Accumulated Other Comprehensive Income (Loss).

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

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

SHAREHOLDERS' EQUITY (Concluded)

Accumulated Other Comprehensive Income.

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

At December 31,

Cumulative translation adjustments, net $ 261 $ 312

Unrealized loss on interest rate swaps, net — ( 7 )

Unrecognized net loss and prior service cost, net ( 35 ) ( 80 )

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 at December 31, 2020.

Accumulated other comprehensive income $ 226 $ 232

The cumulative translation adjustment, net, is reported net of income tax benefit of $ 2 million and $ 1 million at December 31, 2022 and 2021, respectively.

The unrecognized net loss and prior service cost, net, is reported net of income tax benefit of $ 4 million and $ 20 million at December 31, 2022 and 2021, respectively.

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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:

RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE INCOME

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

Year Ended December 31,

Accumulated Other

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

Accumulated Other Comprehensive Income 2022 2021 2020 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 $ 6 $ 18 $ 26 Other, net

Settlement loss 451 — —

Settlement loss — 451 — Other, net

Tax (benefit) ( 2 ) ( 104 ) ( 7 )

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Net of tax $ — $ 7 $ 1

(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.

(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 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.

In addition to the above amounts, we reclassified $ 23 million of currency translation losses from accumulated other comprehensive income to the consolidated statement 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 to the consolidated statement of operations in conjunction with the liquidation of certain UK dormant entities upon receiving final regulatory approval in 2020.

MASCO CORPORATION

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We primarily evaluate performance based upon operating profit and, other than general corporate expense, allocate specific corporate overhead to each segment.

As described in Note C, our previously reported Windows and Other Specialty Products as well as Cabinetry Products segments were classified as discontinued operations in 2019.

MASCO CORPORATION

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Decorative Architectural Products 3,428 3,240 3,052 565 581 583 1,780 1,781 1,633

3,240 3,052 2,723 581 583 480 1,781 1,633 1,526

Total $ 8,680 $ 8,375 $ 7,188 $ 1,384 $ 1,510 $ 1,389 $ 4,876 $ 4,976 $ 4,455

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Income from continuing operations before income taxes $ 1,193 $ 688 $ 1,131

$ 688 $ 1,131 $ 914

Corporate assets 311 599 1,322

Assets held for sale (8)

Total assets $ 5,187 $ 5,575 $ 5,777

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Discontinued operations

— 1 34 — — 29

Total $ 224 $ 128 $ 114 $ 145 $ 151 $ 133

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

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

MASCO CORPORATION

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2022 2021 2020

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

Contingent consideration (A)

$ 24 $ ( 16 ) $ —

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 —

Foreign currency transaction (losses) gains (C)

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

( 10 ) ( 430 ) ( 35 )

Equity investment (loss) income, net ( 6 ) 11 3

Foreign currency transaction losses (C)

( 3 ) ( 4 ) ( 10 )

Income from cash and cash investments 2 1 3

Other items, net (D)

Loss on sale of business, net ( 1 ) ( 18 ) —

Gain on preferred stock redemption (D)

Dividend income — 6 10

Other items, net (E)

( 2 ) ( 3 ) 9

Total other, net $ 4 $ ( 439 ) $ ( 20 )

_________________________________________________

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

(A) We recognized $ 24 million of income in 2022 and $ 16 million of expense in 2021 from the revaluation of contingent consideration related to a prior acquisition.

Refer to Note I for additional information.

(B) 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.

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

(D) In May 2021, we received, in cash, $ 166 million for the redemption of the ACProducts Holding, Inc.

preferred stock, including all accrued but unpaid dividends, and recognized a gain of $ 14 million.

Refer to Note C for additional information.

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

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(In Millions)

Components of income taxes on income from continuing operations and the components of deferred tax assets and liabilities were as follows, in millions:

2022 2021 2020

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Other long-term liabilities 51 79

Capitalized research expenditures 20 5

Net operating loss carryforward 21 26

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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.

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.

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 $ 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.

We continue to maintain a valuation allowance of $ 15 million and $ 17 million on certain state and foreign deferred tax assets as of December 31, 2022 and 2021, respectively, due primarily to cumulative loss positions in those jurisdictions.

We recorded a $ 5 million income tax benefit in 2020 due to changes in judgment regarding the realizability of deferred tax assets in certain foreign jurisdictions.

Our capital allocation strategy includes reinvesting in our business, balancing share repurchases with potential acquisitions and maintaining a relevant 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 $ 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.

Of the $ 32 million and $ 37 million deferred tax assets related to the net operating loss and tax credit carryforwards at December 31, 2022 and 2021, respectively, $ 20 million and $ 25 million, respectively, will expire within approximately 15 years and $ 12 million, for both years, have no expiration.

A reconciliation of the U.S.

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Higher taxes on foreign earnings 2 3 1

and foreign taxes on distributed and undistributed foreign earnings

Stock-based compensation — ( 1 ) ( 1 )

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Effective tax rate 24 % 31 % 24 %

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 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.

Income taxes paid were $ 281 million, $ 246 million and $ 442 million in 2022, 2021 and 2020, respectively.

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INCOME TAXES (Concluded)

A reconciliation of the beginning and ending liability for uncertain tax positions, including related interest and penalties, is as follows, in millions:

Tax Positions Interest and

Penalties Total

A reconciliation of the beginning and ending liability for uncertain tax positions, is as follows, in millions:

Balance at January 1 $ 81 $ 74

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Reductions ( 3 ) ( 1 )

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

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

Current year tax positions:

Additions 19 — 19

Reductions ( 2 ) — ( 2 )

Prior year tax positions:

Additions 1 — 1

Reductions ( 1 ) — ( 1 )

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

Interest and penalties recognized in income tax expense — 1 1

Lapse of applicable statutes of limitation ( 11 ) ( 10 )

Balance at December 31 $ 83 $ 81

Liability for interest and penalties 11 11

Balance at December 31, including interest and penalties $ 94 $ 92

If recognized, $ 66 million and $ 64 million of the liability for uncertain tax positions at December 31, 2022 and 2021, respectively, net of any U.S.

Federal tax benefit, would impact our effective tax rate.

Interest and penalties recognized in income tax expense were insignificant in years ended December 31, 2022, 2021 and 2020.

Of the $ 94 million and $ 92 million total liability for uncertain tax positions (including related interest and penalties) at December 31, 2022 and 2021, respectively, $ 92 million and $ 88 million are recorded in other liabilities, respectively, and $ 2 million and $ 4 million are recorded as a net offset to other assets, respectively.

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This accounting guidance clarifies that share-based payment awards that entitle their holders to receive non-forfeitable dividends prior to vesting should be considered participating securities.

In 2020, we began granting restricted stock units.

The dividends associated with the unvested restricted stock units are forfeitable, and consequently, the restricted stock units are not considered a participating security and are not accounted for under the two-class method.

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For the years ended December 31, 2022, 2021 and 2020, we allocated dividends and undistributed earnings to the participating securities.

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);

shares outstanding for legal requirements included all common shares that have voting rights (including unvested stock awards).

The following stock options, restricted stock units and performance restricted stock units were excluded from the computation of weighted-average diluted common shares outstanding due to their anti-dilutive effect, in thousands:

Year Ended December 31,

2022 2021 2020

Number of stock options 635 296 374

Number of restricted stock units 20 — —

Number of performance restricted stock units 15 — —

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)

INCOME PER COMMON SHARE (Concluded)

Common shares outstanding included on our balance sheet and for the calculation of income per common share do not include unvested stock awards ( 273,000 and 608,000 common shares at December 31, 2022 and 2021, respectively);

shares outstanding for legal requirements included all common shares that have voting rights (including unvested stock awards).

OTHER COMMITMENTS AND CONTINGENCIES

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The types of matters may include, among others:

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

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

We believe we have adequate defenses in these matters.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data