UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

	

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________

Commission file number: 1-5794
Masco Corporation
(Exact name of Registrant as Specified in its Charter)

			
Delaware	 	38-1794485	
(State or Other Jurisdiction of
Incorporation or Organization)	 	(I.R.S. Employer Identification No.)	

					
17450 College Parkway,	Livonia,	Michigan	48152	
(Address of Principal Executive Offices)	(Zip Code)	
(313) 274-7400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

			
Title of each class	Trading Symbol	Name of each exchange on which registered	
Common Stock, $1.00 par value	MAS	New York Stock Exchange	

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒ Yes   ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  ☒ Yes   ☐ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

					
Large accelerated filer	☒	 	Accelerated filer	☐	
Non-accelerated filer 	☐	 	Smaller reporting company 	☐	
 	 	 	Emerging growth company	☐	

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
☐ Yes   ☒ No

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 

			
Class	 	Shares Outstanding at September 30, 2019	
Common stock, par value $1.00 per share	 	286,073,341	

MASCO CORPORATION

INDEX

	
			
 	 	Page No.	
PART I.	FINANCIAL INFORMATION	 	
Item 1.	Financial Statements (Unaudited):	 	
 	Condensed Consolidated Balance Sheets — as at September 30, 2019 and December 31, 2018	1	
 	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018	2	
 	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018	3	
 	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	4	
 	Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018	5	
 	Notes to Condensed Consolidated Financial Statements	7	
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22	
Item 4.	Controls and Procedures	28	
PART II.	OTHER INFORMATION	29	
Item 1.	Legal Proceedings	29	
Item 1A.	Risk Factors	29	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29	
Item 6.	Exhibits	30	
 	Signature	31	

MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

September 30, 2019 and December 31, 2018
(In Millions, Except Share Data)

	

	
								
 	September 30, 2019	 	December 31, 2018	
ASSETS	 		 	 		
Current Assets:	 		 	 		
Cash and cash investments	$	475		 	$	553		
Receivables	1,177		 	1,068		
Prepaid expenses and other	105		 	90		
Assets held for sale	111		 	151		
Inventories:	 		 	 		
Finished goods	558		 	516		
Raw material	277		 	302		
Work in process	89		 	86		
 	924		 	904		
Total current assets	2,792		 	2,766		
Property and equipment, net	1,017		 	1,037		
Operating lease right-of-use assets	183		 	—		
Goodwill	687		 	692		
Other intangible assets, net	264		 	289		
Other assets	85		 	100		
Assets held for sale	492		 	509		
Total assets	$	5,520		 	$	5,393		
 	 	 	 	
LIABILITIES	 		 	 		
Current Liabilities:	 		 	 		
Accounts payable	$	879		 	$	851		
Notes payable	208		 	8		
Accrued liabilities	682		 	676		
Liabilities held for sale	140		 	149		
Total current liabilities	1,909		 	1,684		
Long-term debt	2,771		 	2,971		
Other liabilities	684		 	561		
Liabilities held for sale	133		 	108		
Total liabilities	5,497		 	5,324		
 	 	 	 	
Commitments and contingencies (Note P)			 			
 	 	 	 	
EQUITY	 		 	 		
Masco Corporation's shareholders' equity:	 		 	 		
Common shares, par value $1 per share
Authorized shares: 1,400,000,000;
Issued and outstanding: 2019 – 284,100,000; 2018 – 293,900,000	284		 	294		
Preferred shares authorized: 1,000,000;
Issued and outstanding: 2019 and 2018 – None	—		 	—		
Paid-in capital	—		 	—		
Retained deficit	(309	)	 	(278	)	
Accumulated other comprehensive loss	(118	)	 	(127	)	
Total Masco Corporation's shareholders' deficit	(143	)	 	(111	)	
Noncontrolling interest	166		 	180		
Total equity	23		 	69		
Total liabilities and equity	$	5,520		 	$	5,393		

See notes to condensed consolidated financial statements.
1

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three and Nine Months Ended September 30, 2019 and 2018
(In Millions, Except Per Common Share Data)

	

	
																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2019	 	2018	 	2019	 	2018	
Net sales	$	1,947		 	$	1,904		 	$	5,787		 	$	5,743		
Cost of sales	1,282		 	1,281		 	3,813		 	3,832		
Gross profit	665		 	623		 	1,974		 	1,911		
Selling, general and administrative expenses	349		 	337		 	1,047		 	1,041		
Impairment charge for other intangible assets	—		 	—		 	9		 	—		
Operating profit	316		 	286		 	918		 	870		
Other income (expense), net:	 		 	 		 	 		 	 		
Interest expense	(39	)	 	(38	)	 	(119	)	 	(117	)	
Other, net	(8	)	 	—		 	(16	)	 	(12	)	
 	(47	)	 	(38	)	 	(135	)	 	(129	)	
Income from continuing operations before
    income taxes	269		 	248		 	783		 	741		
Income tax expense	73		 	67		 	202		 	188		
Income from continuing operations	196		 	181		 	581		 	553		
(Loss) income from discontinued operations, net	(58	)	 	10		 	(64	)	 	23		
Net income	138		 	191		 	517		 	576		
Less: Net income attributable to noncontrolling
interest	12		 	11		 	35		 	36		
Net income attributable to Masco
    Corporation	$	126		 	$	180		 	$	482		 	$	540		
 	 	 	 	 	 	 	 	
Income (loss) per common share attributable to Masco Corporation:	 	 	 		 	 		 	 		
Basic:	 		 	 		 	 		 	 		
Income from continuing operations	$	.64		 	$	.56		 	$	1.88		 	$	1.67		
(Loss) income from discontinued
    operations, net	(.20	)	 	.03		 	(.22	)	 	.07		
Net income	$	.44		 	$	.59		 	$	1.66		 	$	1.74		
Diluted:	 		 	 		 	 		 	 		
Income from continuing operations	$	.64		 	$	.55		 	$	1.87		 	$	1.66		
(Loss) income from discontinued
    operations, net	(.20	)	 	.03		 	(.22	)	 	.07		
Net income	$	.44		 	$	.58		 	$	1.65		 	$	1.73		
 	 	 	 	 	 	 	 	
Amounts attributable to Masco Corporation:	 		 	 		 	 		 	 		
Income from continuing operations	$	184		 	$	170		 	$	546		 	$	517		
(Loss) income from discontinued
    operations, net	(58	)	 	10		 	(64	)	 	23		
Net income	$	126		 	$	180		 	$	482		 	$	540		

See notes to condensed consolidated financial statements.
2

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

For the Three and Nine Months Ended September 30, 2019 and 2018
(In Millions)

	

	
																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2019	 	2018	 	2019	 	2018	
Net income	$	138		 	$	191		 	$	517		 	$	576		
Less: Net income attributable to
   noncontrolling interest	12		 	11		 	35		 	36		
Net income attributable to Masco
   Corporation	$	126		 	$	180		 	$	482		 	$	540		
Other comprehensive income (loss), net of tax (Note L):	 		 	 		 	 		 	 		
Cumulative translation adjustment	$	(13	)	 	$	1		 	$	(11	)	 	$	(14	)	
Interest rate swaps	—		 	—		 	1		 	1		
Pension and other post-retirement benefits	4		 	4		 	12		 	12		
Other comprehensive (loss) income, net of tax	(9	)	 	5		 	2		 	(1	)	
Less: Other comprehensive (loss) income attributable to noncontrolling interest	(8	)	 	—		 	(7	)	 	(12	)	
Other comprehensive (loss) income attributable to Masco Corporation	$	(1	)	 	$	5		 	$	9		 	$	11		
Total comprehensive income	$	129		 	$	196		 	$	519		 	$	575		
Less: Total comprehensive income attributable to noncontrolling interest	4		 	11		 	28		 	24		
Total comprehensive income attributable to Masco Corporation	$	125		 	$	185		 	$	491		 	$	551		

See notes to condensed consolidated financial statements.
3

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Nine Months Ended September 30, 2019 and 2018
(In Millions) 

	

	
								
 	Nine Months Ended September 30,	
 	2019	 	2018	
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:	 		 	 		
Cash provided by operations	$	754		 	$	729		
Increase in receivables	(136	)	 	(182	)	
Increase in inventories	(27	)	 	(62	)	
Increase in accounts payable and accrued liabilities, net	14		 	169		
Net cash from operating activities	605		 	654		
 	 	 	 	
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:	 		 	 		
Retirement of notes	—		 	(114	)	
Purchase of Company common stock	(440	)	 	(354	)	
Cash dividends paid	(105	)	 	(98	)	
Dividends paid to noncontrolling interest	(42	)	 	(89	)	
Proceeds from the exercise of stock options	23		 	8		
Employee withholding taxes paid on stock-based compensation	(21	)	 	(38	)	
Decrease in debt, net	(3	)	 	(1	)	
Credit Agreement and other financing costs	(2	)	 	—		
Net cash for financing activities	(590	)	 	(686	)	
 	 	 	 	
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:	 		 	 		
Capital expenditures	(111	)	 	(160	)	
Acquisition of business, net of cash acquired	—		 	(549	)	
Proceeds from disposition of:	 		 	 		
Business, net of cash disposed	2		 	—		
Short-term bank deposits	—		 	108		
Other financial investments	1		 	4		
Property and equipment	15		 	3		
Other, net	(11	)	 	(7	)	
Net cash for investing activities	(104	)	 	(601	)	
 	 	 	 	
Effect of exchange rate changes on cash and cash investments	10		 	8		
 	 	 	 	
CASH AND CASH INVESTMENTS:	 		 	 		
Decrease for the period	(79	)	 	(625	)	
At January 1	559		 	1,194		
At September 30	$	480		 	$	569		

See notes to condensed consolidated financial statements.
4

MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

For the Three and Nine Months Ended September 30, 2019 and 2018
(In Millions, Except Per Common Share Data)

	

	
																								
 	Total	 	Common
Shares
($1 par value)	 	Paid-In
Capital	 	Retained (Deficit) Earnings	 	Accumulated
Other
Comprehensive
 (Loss) Income	 	Noncontrolling
Interest	
Balance, January 1, 2018	$	183		 	$	310		 	$	—		 	$	(298	)	 	$	(65	)	 	$	236		
Reclassification of disproportionate tax effects (Refer to Note L)	—		 	 	 	 	 	59		 	(59	)	 	 	
Total comprehensive income	208		 	 	 	 	 	149		 	40		 	19		
Shares issued	(13	)	 	2		 	(7	)	 	(8	)	 	 	 	 	
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	(150	)	 	(4	)	 			 	(146	)	 	 	 	 	
Surrendered (non-cash)	(19	)	 	 	 	 	 	(19	)	 	 	 	 	
Cash dividends declared	(33	)	 	 	 	 	 	(33	)	 	 	 	 	
Stock-based compensation	7		 	 	 	7		 	 	 	 	 	 	
Balance, March 31, 2018	$	183		 	$	308		 	$	—		 	$	(296	)	 	$	(84	)	 	$	255		
Total comprehensive income (loss)	171		 			 			 	211		 	(34	)	 	(6	)	
Shares issued	(1	)	 			 	(1	)	 			 			 			
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	(115	)	 	(3	)	 	(8	)	 	(104	)	 			 			
Cash dividends declared	(32	)	 			 			 	(32	)	 			 			
Dividends paid to noncontrolling interest	(89	)	 			 			 			 			 	(89	)	
Stock-based compensation	9		 			 	9		 			 			 			
Balance, June 30, 2018	$	126		 	$	305		 	$	—		 	$	(221	)	 	$	(118	)	 	$	160		
Total comprehensive income	196		 			 			 	180		 	5		 	11		
Shares issued	3		 			 	3		 			 			 			
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	(89	)	 	(2	)	 	(10	)	 	(77	)	 			 			
Cash dividends declared	(36	)	 			 			 	(36	)	 			 			
Stock-based compensation	7		 			 	7		 			 			 			
Balance, September 30, 2018	$	207		 	$	303		 	$	—		 	$	(154	)	 	$	(113	)	 	$	171		

5

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

For the Three and Nine Months Ended September 30, 2019 and 2018
(In Millions, Except Per Common Share Data)

	

	
																								
 	Total	 	Common
Shares
($1 par value)	 	Paid-In
Capital	 	Retained (Deficit) Earnings	 	Accumulated
Other
Comprehensive
 (Loss) Income	 	Noncontrolling
Interest	
Balance, January 1, 2019	$	69		 	$	294		 	$	—		 	$	(278	)	 	$	(127	)	 	$	180		
Total comprehensive income	128		 	 	 	 	 	116		 	4		 	8		
Shares issued	5		 	1		 	4		 		 	 	 	 	
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	(122	)	 	(3	)	 	(11	)	 	(108	)	 	 	 	 	
Surrendered (non-cash)	(10	)	 	(1	)	 	 	 	(9	)	 	 	 	 	
Cash dividends declared	(35	)	 	 	 	 	 	(35	)	 	 	 	 	
Stock-based compensation	7		 	 	 	7		 	 	 	 	 	 	
Balance, March 31, 2019	$	42		 	$	291		 	$	—		 	$	(314	)	 	$	(123	)	 	$	188		
Total comprehensive income	262		 	 	 	 	 	240		 	6		 	16		
Shares issued	2		 	1		 	1		 	 	 	 	 			
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	(167	)	 	(5	)	 	(10	)	 	(152	)	 	 	 	 	
Cash dividends declared	(35	)	 	 	 	 	 	(35	)	 	 	 	 	
Dividends paid to noncontrolling interest	(42	)	 	 	 	 	 	 	 	 	 	(42	)	
Stock-based compensation	9		 	 	 	9		 	 	 	 	 	 	
Balance, June 30, 2019	$	71		 	$	287		 	$	—		 	$	(261	)	 	$	(117	)	 	$	162		
Total comprehensive income
  (loss)	129		 	 	 	 	 	126		 	(1	)	 	4		
Shares issued	5		 	 	 	5		 		 	 	 	 	
Shares retired:	 	 	 	 	 	 	 	 	 	 	 	
Repurchased	(151	)	 	(3	)	 	(12	)	 	(136	)	 	 	 	 	
Cash dividends declared	(38	)	 	 	 	 	 	(38	)	 	 	 	 	
Stock-based compensation	7		 	 	 	7		 	 	 	 	 	 	
Balance, September 30, 2019	$	23		 	$	284		 	$	—		 	$	(309	)	 	$	(118	)	 	$	166		

See notes to condensed consolidated financial statements.
6

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

A. ACCOUNTING POLICIES
 
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to fairly state our financial position at September 30, 2019, our results of operations and comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2019 and 2018, cash flows for the nine-month periods ended September 30, 2019 and 2018, and changes in shareholders' equity for the three-month and nine-month periods ended September 30, 2019 and 2018. The condensed consolidated balance sheet at December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

Reclassifications. Certain prior year amounts have been reclassified to conform to the 2019 presentation in the condensed consolidated financial statements. In our condensed consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified.

Leases. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets (“ROU assets”), accrued liabilities and other liabilities on our condensed consolidated balance sheet. Finance lease ROU assets are included in property and equipment, net, notes payable, and long-term debt on our condensed consolidated balance sheet.
ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities represent our obligation to make lease payments in exchange for the right to use an underlying asset. ROU assets and lease liabilities are measured based on the present value of fixed lease payments over the lease term at the commencement date. The ROU asset also includes any lease payments made prior to the commencement date and initial direct costs incurred, and is reduced by any lease incentives received. We review our ROU assets as events occur or circumstances change that would indicate the carrying amount of the ROU assets are not recoverable and exceed their fair values. If the carrying amount of the ROU asset is not recoverable from its undiscounted cash flows, then we would recognize an impairment loss for the difference between the carrying amount and the current fair value.
As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments. We determine the incremental borrowing rate for each lease by using the current yields of our uncollateralized, publicly traded debts with maturity periods similar to the respective lease term, adjusted to a collateralized basis based on third-party data. Our lease terms may include options to extend or terminate the lease when there are relevant economic incentives present that make it reasonably certain that we will exercise that option. We account for any non-lease components separately from lease components.
For operating leases, lease expense for future fixed lease payments is recognized on a straight-line basis over the lease term. For finance leases, lease expense for future fixed lease payments is recognized using the effective interest rate method over the lease term. Variable lease payments are recognized as lease expense in the period incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.

Recently Adopted Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board ("FASB") issued a new standard for leases, ASC 842, which changes the accounting model for identifying and accounting for leases. We adopted ASC 842 on January 1, 2019 using the optional transition method, which allows for initial application of the new standard beginning at the adoption date. We elected the package of practical expedients that allows us to forgo reassessing a) whether any existing contracts are or contain leases, b) the lease classification for any existing leases, and c) whether initial direct costs for any existing leases are capitalized. We also elected the practical expedient to use hindsight with respect to lease renewals, terminations, and purchase options when determining the lease term and in assessing impairment of the assets related to leases existing at the time of adoption. As a result of the standard, we recorded $236 million of operating lease ROU assets, $45 million of short-term operating lease liabilities, and $214 million of long-term operating lease liabilities on the date of adoption which includes assets and liabilities that have subsequently been reclassified as held for sale or disposed of. Our accounting for finance leases remained unchanged. The standard did not impact our condensed consolidated statements of operations or statements of cash flows.

7

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

A. ACCOUNTING POLICIES (Concluded)

In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which improves and simplifies accounting rules around hedge accounting and
better portrays the economic results of an entity's risk management activities in its financial statements. We adopted ASU 2017-12 on January 1, 2019. The adoption of the standard did not impact our financial position or results of operations.

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees.
We adopted ASU 2018-07 on January 1, 2019. The adoption of the standard did not impact our financial position or results of operations.

Recently Issued Accounting Pronouncements.  In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which modifies the methodology for recognizing loss impairments on certain types of financial instruments, including receivables. The new methodology requires an entity to estimate the credit losses expected over the life of an exposure. Additionally, ASU 2016-13 amends the current available-for-sale security other-than-temporary impairment model for debt securities. ASU 2016-13 is effective for us for annual periods beginning January 1, 2020. This standard will impact the valuation of our credit losses relating to our receivables, however, we do not anticipate a material effect on our financial position or results of operations.

In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. We plan to adopt this standard prospectively effective for annual periods beginning January 1, 2020 and do not anticipate that the adoption of this new standard will have a material impact on our financial position or results of operations.

B. ACQUISITIONS

On March 9, 2018, we acquired substantially all of the net assets of The L.D. Kichler Co. ("Kichler"), a leader in decorative residential and light commercial lighting products, ceiling fans and LED lighting systems. This business expands our product offerings to our customers. The results of this acquisition for the period from the acquisition date are included in the condensed consolidated financial statements and are reported in the Decorative Architectural Products segment. The purchase price, net of $2 million cash acquired, consisted of $549 million paid with cash on hand. Since the acquisition, we revised the allocation of the purchase price to identifiable assets and liabilities based on analysis of information as of the acquisition date that was made available in the year after acquisition. The initial and final allocations of the fair value of the acquisition of Kichler is summarized in the following table, in millions.

								
 	Initial	 	Final	
Receivables	$	101		 	$	100		
Inventories	173		 	166		
Other current assets	5		 	5		
Property and equipment	33		 	33		
Goodwill	46		 	64		
Other intangible assets	243		 	240		
Accounts payable	(24	)	 	(24	)	
Accrued liabilities	(25	)	 	(30	)	
Other liabilities	(4	)	 	(5	)	
Total	$	548		 	$	549		

8

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

B. ACQUISITIONS (Concluded)

The goodwill acquired, which is generally tax deductible, is related primarily to the operational and financial synergies we expect to derive from combining Kichler's operations into our business, as well as the assembled workforce. The other intangible assets acquired consist of $59 million of indefinite-lived intangible assets, which is
related to trademarks, and $181 million of definite-lived intangible assets. The definite-lived intangible assets consist of $145 million related to customer relationships, which is being amortized on a straight-line basis over 20 years, and $36 million of other definite-lived intangible assets, which is being amortized over a weighted average amortization period of 3 years.

C. DISCONTINUED OPERATIONS

On September 6, 2019, we completed the sale of UK Window Group ("UKWG"), a manufacturer and distributor of windows and doors, for proceeds of approximately $8 million, of which $2 million net of cash disposed was received upon sale. The remaining $6 million was accounted for as a note receivable that is expected to be collected within the next two years. In connection with the sale, we recognized a loss of $70 million for both the three-month and nine-month periods ended September 30, 2019, which is included in (loss) income from discontinued operations, net in the condensed consolidated statements of operations.

Additionally, on September 29, 2019, we entered into a definitive agreement to sell Milgard Manufacturing Incorporated ("Milgard"), a manufacturer and distributor of windows and doors, for approximately $725 million. The closing of the sale is expected to occur during the fourth quarter of 2019, subject to customary closing conditions and regulatory review, and we expect to recognize a gain on the divestiture of approximately $395 million.
    
We determined that the assets and liabilities for Milgard and UKWG met the held for sale criteria in accordance with ASC 205-20, Discontinued Operations, as of September 30, 2019. Accordingly, these businesses' held for sale assets and liabilities were reclassified in the condensed consolidated balance sheets at September 30, 2019 and December 31, 2018 to assets held for sale or liabilities held for sale. We ceased recording depreciation for the held for sale assets upon meeting the held for sale criteria.
    
Furthermore, we determined that the combined sale of UKWG and the planned disposition of Milgard represents a strategic shift that will have a major effect on our operations and financial results. These businesses represented all of our window businesses and all remaining businesses in the Windows and Other Specialty Products segment. As a result, these businesses are 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 are separately disclosed.

9

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

C. DISCONTINUED OPERATIONS (Concluded)
    
The major classes of line items constituting (loss) income from discontinued operations, net, in millions:

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2019	 	2018	 	2019	 	2018	
Net sales	$	172		 	$	197		 	$	515		 	$	575		
Cost of sales	137		 	153		 	408		 	450		
Gross profit	35		 	44		 	107		 	125		
Selling, general and administrative expenses	29		 	30		 	93		 	93		
Impairment charge for goodwill (A)	—		 	—		 	7		 	—		
Other income (expense), net	—		 	—		 	—		 	1		
Income from discontinued operations	6		 	14		 	7		 	33		
(Loss) on disposal of discontinued
   operations	(70	)	 	—		 	(70	)	 	—		
(Loss) income before income tax	(64	)	 	14		 	(63	)	 	33		
Income tax benefit (expense) (B)	6		 	(4	)	 	(1	)	 	(10	)	
(Loss) income from discontinued
    operations, net	$	(58	)	 	$	10		 	$	(64	)	 	$	23		

	

		
(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.	

(B)     The unusual relationship between income tax benefit (expense) and (loss) income before income tax for 2019 resulted primarily from a loss
on the sale of UKWG providing no foreign tax benefit.

The carrying amount of major classes of assets and liabilities included as part of the Milgard and UKWG discontinued operations, were as follows, in millions:

							
 	September 30, 2019	December 31, 2018	
Cash and cash investments	$	5		$	6		
Receivables	60		85		
Prepaid expenses and other	13		18		
Inventories	33		42		
Property and equipment, net	151		186		
Operating lease right-of-use assets	30		—		
Goodwill	199		206		
Other intangible assets, net	112		117		
Total assets classified as held for sale	$	603		$	660		

Accounts payable	$	66		$	75		
Accrued liabilities	74		74		
Other liabilities	133		108		
Total liabilities classified as held for sale	$	273		$	257		

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

								
 	Nine Months Ended	
 	September 30, 2019	 	September 30, 2018	
Depreciation and amortization	$	17		 	$	17		
Capital expenditures	15		 	15		
ROU assets obtained in exchange for new lease obligations	3		 	—		

10

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

D. REVENUE

Our revenues are derived primarily from sales to customers in North America and Internationally, principally Europe. Net sales from these geographic markets, by segment, were as follows, in millions:

																
 	Three Months Ended September 30, 2019	
 	Plumbing Products	 	Decorative Architectural Products	 	Cabinetry Products	 	Total	
Primary geographic markets:	 	 	 	 	 	 	 	
North America	$	664		 	$	710		 	$	231		 	$	1,605		
International, principally Europe	342		 	—		 	—		 	342		
Total	$	1,006		 	$	710		 	$	231		 	$	1,947		

	
																
 	Nine Months Ended September 30, 2019	
 	Plumbing Products	 	Decorative Architectural Products	 	Cabinetry Products	 	Total	
Primary geographic markets:	 	 	 	 	 	 	 	
North America	$	1,923		 	$	2,110		 	$	719		 	$	4,752		
International, principally Europe	1,035		 	—		 	—		 	1,035		
Total	$	2,958		 	$	2,110		 	$	719		 	$	5,787		

	
																
 	Three Months Ended September 30, 2018	
 	Plumbing Products	 	Decorative Architectural Products	 	Cabinetry Products	 	Total	
Primary geographic markets:	 	 	 	 	 	 	 	
North America	$	653		 	$	673		 	$	239		 	$	1,565		
International, principally Europe	339		 	—		 	—		 	339		
Total	$	992		 	$	673		 	$	239		 	$	1,904		

	
																
 	Nine Months Ended September 30, 2018	
 	Plumbing Products	 	Decorative Architectural Products	 	Cabinetry Products	 	Total	
Primary geographic markets:	 	 	 	 	 	 	 	
North America	$	1,905		 	$	2,024		 	$	724		 	$	4,653		
International, principally Europe	1,090		 	—		 	—		 	1,090		
Total	$	2,995		 	$	2,024		 	$	724		 	$	5,743		

Our contract asset balance was $2 million at both September 30, 2019 and December 31, 2018. Our contract liability balance was $16 million and $39 million at September 30, 2019 and December 31, 2018, respectively.

We (reversed) recognized $(2) million and $2 million of revenue for the three-month periods ended September 30, 2019 and 2018, respectively, related to performance obligations settled in previous quarters of the same year. We recognized $1 million of revenue for the nine-month period ended September 30, 2019, and $1 million and $4 million of revenue for the three-month and nine-month periods ended September 30, 2018, respectively, related to performance obligations settled in previous years.

11

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

E. LEASES

We have operating and finance leases primarily for corporate offices, manufacturing facilities, warehouses, vehicles, and equipment. Our leases have remaining lease terms up to 13 years, some of which may include one or more renewal options with terms to extend the lease for up to an additional 20 years, and some of which may include options to terminate the leases prior to their expiration.
The components of lease cost included in income from continuing operations were as follows, in millions:

								
 	Three Months Ended September 30, 2019	 	Nine Months Ended September 30, 2019	
Operating lease cost	$	13		 	$	39		
Short-term lease cost	2		 	5		
Variable lease cost	1		 	2		
Finance lease cost:	 	 	 	
Amortization of right-of-use assets	1		 	2		
Interest on lease liabilities	—		 	1		

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

				
 	Nine Months Ended September 30, 2019	
Cash paid for amounts included in the measurement of lease liabilities:	 	
Operating cash flows for operating leases	$	43		
Operating cash flows for finance leases	1		
Financing cash flows for finance leases	2		
 	 	
ROU assets obtained in exchange for new lease obligations:	 	
Operating leases	$	20		
Finance leases	—		

Certain other information related to leases was as follows:

			
 	At September 30, 2019	
Weighted-average remaining lease term:	 	
Operating leases	10 years		
Finance leases	10 years		
 	 	
Weighted-average discount rate:	 	
Operating leases	4.6	%	
Finance leases	3.5	%	

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

								
 	At September 30, 2019	
 	Operating Leases	 	Finance Leases	
Property and equipment, net	$	—		 	$	35		
Notes payable	—		 	7		
Accrued liabilities	38		 	—		
Long-term debt	—		 	28		
Other liabilities	168		 	—		

Gross ROU assets under finance leases recorded within property and equipment, net were $47 million, and accumulated amortization associated with these leases was $12 million, at September 30, 2019.

12

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

E. LEASES (Concluded)    

At September 30, 2019, future maturities of lease liabilities (under ASC 842) were as follows, in millions:

								
 	Operating Leases	 	Finance Leases	
Year ending December 31,	 	 	 	
2019 (excluding the nine months ended September 30, 2019)	$	11		 	$	6		
2020	45		 	3		
2021	39		 	3		
2022	31		 	3		
2023	21		 	4		
Thereafter	114		 	23		
Total lease payments	261		 	42		
Less: imputed interest	(55	)	 	(7	)	
Total	$	206		 	$	35		

At December 31, 2018, future minimum operating lease payments (under ASC 840), including discontinued operations, were as follows, in millions: 2019 – $55 million; 2020 – $47 million; 2021 – $40 million; 2022 – $30 million; 2023 – $20 million; 2024 and beyond – $99 million.

F. DEPRECIATION AND AMORTIZATION
 
Depreciation and amortization expense, including discontinued operations, was $124 million and $115 million for the nine-month periods ended September 30, 2019 and 2018, respectively.

G. GOODWILL AND OTHER INTANGIBLE ASSETS
 
The changes in the carrying amount of goodwill for the nine-month period ended September 30, 2019, by segment, were as follows, in millions: 

												
 	Gross Goodwill At September 30, 2019	 	Accumulated
Impairment
Losses	 	Net Goodwill At September 30, 2019	
Plumbing Products	$	563		 	$	(340	)	 	$	223		
Decorative Architectural Products	358		 	(75	)	 	283		
Cabinetry Products	181		 	—		 	181		
Total	$	1,102		 	$	(415	)	 	$	687		

	
																				
 	Gross Goodwill At December 31, 2018	 	Accumulated
Impairment
Losses	 	Net Goodwill At December 31, 2018	 	Other
(A)	 	Net Goodwill At September 30, 2019	
Plumbing Products	$	568		 	$	(340	)	 	$	228		 	$	(5	)	 	$	223		
Decorative Architectural Products	358		 	(75	)	 	283		 	—		 	283		
Cabinetry Products	181		 	—		 	181		 	—		 	181		
Total	$	1,107		 	$	(415	)	 	$	692		 	$	(5	)	 	$	687		

	

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

13

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

G. GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)

The carrying value of our other indefinite-lived intangible assets was $76 million and $86 million at September 30, 2019 and December 31, 2018, respectively, and principally included registered trademarks. During the first quarter of 2019, we recognized a $9 million impairment charge related to a registered trademark in our Decorative Architectural Products segment due to a change in the long-term net sales projections of lighting products. The carrying value of our definite-lived intangible assets was $188 million (net of accumulated amortization of $44 million) and $203 million (net of accumulated amortization of $27 million) at September 30, 2019 and December 31, 2018, respectively, and principally included customer relationships.

H. WARRANTY LIABILITY
 
Changes in our warranty liability were as follows, in millions: 

								
 	Nine Months Ended
September 30, 2019	 	Twelve Months Ended December 31, 2018	
Balance at January 1	$	90		 	$	87		
Accruals for warranties issued during the period	30		 	39		
Accruals related to pre-existing warranties	(2	)	 	(2	)	
Settlements made (in cash or kind) during the period	(27	)	 	(34	)	
Other, net (including currency translation)	(1	)	 	—		
Balance at end of period	$	90		 	$	90		

I. DEBT

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

On March 13, 2019, we entered into a credit agreement (the “Credit Agreement”) with a bank group, with an aggregate commitment of $1.0 billion and a maturity date of March 13, 2024. Under the Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current bank group or new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with an aggregate commitment of $750 million, was terminated.

The Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries, in U.S. dollars, European euros, British Pounds Sterling, Canadian dollars and certain other currencies for revolving credit loans, swingline loans and letters of credit. Borrowings under the revolving credit loans denominated in any agreed upon currency other than U.S. dollars are limited to $500 million, equivalent. We can also borrow swingline loans up to $100 million and obtain letters of credit of up to $25 million; outstanding letters of credit under the Credit Agreement reduce our borrowing capacity. At September 30, 2019, we had no outstanding standby letters of credit under the Credit Agreement.

Revolving credit loans bear interest under the Credit Agreement, at our option, at (A) a rate per annum equal to the greater of (i) the JPMorgan Chase Bank, N.A. prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50% and (iii) adjusted LIBO Rate plus 1.0% (the "Alternative Base Rate"); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) adjusted LIBO Rate plus an applicable margin based upon our then-applicable corporate credit ratings. The foreign currency revolving credit loans bear interest at a rate equal to adjusted LIBO Rate plus an applicable margin based upon our then-applicable corporate credit ratings.

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

14

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

I. DEBT (Concluded)

In order for us to borrow under the Credit Agreement, there must not be any default in our covenants in the Credit Agreement (i.e., in addition to the two financial covenants, principally limitations on subsidiary debt, negative pledge restrictions, legal compliance requirements and maintenance of properties and insurance) and our representations and warranties in the Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since December 31, 2018, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and no borrowings were outstanding at September 30, 2019. 

Fair Value of Debt. The fair value of our short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues, which are Level 1 inputs. The aggregate estimated market value of our short-term and long-term debt at September 30, 2019 was approximately $3.2 billion, compared with the aggregate carrying value of $3.0 billion. The aggregate estimated market value was approximately $3.0 billion at December 31, 2018, which equaled the aggregate carrying value of short-term and long-term debt at that date.

J. STOCK-BASED COMPENSATION
 
Our 2014 Long Term Stock Incentive Plan provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors. At September 30, 2019, outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, and phantom stock awards.

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

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2019	 	2018	 	2019	 	2018	
Long-term stock awards	$	5		 	$	5		 	$	16		 	$	16		
Stock options	1		 	1		 	3		 	3		
Restricted stock units	—		 	1		 	2		 	3		
Phantom stock awards and stock appreciation rights	1		 	1		 	3		 	—		
Total	$	7		 	$	8		 	$	24		 	$	22		

Long-Term Stock Awards. Long-term stock awards are granted to our key employees and non-employee Directors and do not cause net share dilution inasmuch as we continue the practice of repurchasing and retiring an equal number of shares in the open market. We granted 636,030 shares of long-term stock awards in the nine-month period ended September 30, 2019.

15

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

J. STOCK-BASED COMPENSATION (Continued)

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

								
 	Nine Months Ended September 30,	
 	2019	 	2018	
Unvested stock award shares at January 1	2		 	3		
Weighted average grant date fair value	$	30		 	$	24		
 	 	 	 	
Stock award shares granted	1		 	1		
Weighted average grant date fair value	$	36		 	$	42		
 	 	 	 	
Stock award shares vested	1		 	2		
Weighted average grant date fair value	$	25		 	$	21		
 	 	 	 	
Stock award shares forfeited	—		 	—		
Weighted average grant date fair value	$	32		 	$	31		
 	 	 	 	
Unvested stock award shares at September 30	2		 	2		
Weighted average grant date fair value	$	34		 	$	30		

At September 30, 2019 and 2018, there was $49 million and $50 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of three years at both September 30, 2019 and 2018.

The total market value (at the vesting date) of stock award shares which vested during the nine-month periods ended September 30, 2019 and 2018 was $31 million and $56 million, respectively.

Stock Options. Stock options are granted to certain key employees. The exercise price equals the market price of our common stock at the grant date. These options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date.

We granted 561,280 shares of stock options in the nine-month period ended September 30, 2019 with a grant date weighted average exercise price of approximately $36 per share. In the nine-month period ended September 30, 2019, 108,086 stock options were forfeited (including options that expired unexercised).

16

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

J. STOCK-BASED COMPENSATION (Continued)

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

								
 	 	Nine Months Ended September 30,	
 	 	2019	 	 	2018	
Option shares outstanding, January 1	 	4		 	 	5		
Weighted average exercise price	$	21		 	$	16		
 	 	 	 	 	 	
Option shares granted	 	1		 	 	—		
Weighted average exercise price	$	36		 	$	42		
 	 	 	 	 	 	
Option shares exercised	 	2		 	 	1		
Aggregate intrinsic value on date of exercise (A)	$	29 million		 	$	47 million		
Weighted average exercise price	$	12		 	$	11		
 	 	 	 	 	 	
Option shares forfeited	 	—		 	 	—		
Weighted average exercise price	$	34		 	$	31		
 	 	 	 	 	 	
Option shares outstanding, September 30	 	3		 	 	4		
Weighted average exercise price	$	26		 	$	20		
Weighted average remaining option term (in years)	 	6		 	 	5		
 	 	 	 	 	 	
Option shares vested and expected to vest, September 30	 	3		 	 	4		
Weighted average exercise price	$	26		 	$	20		
Aggregate intrinsic value (A)	$	48 million		 	$	69 million		
Weighted average remaining option term (in years)	 	6		 	 	5		
 	 	 	 	 	 	
Option shares exercisable (vested), September 30	 	2		 	 	3		
Weighted average exercise price	$	21		 	$	15		
Aggregate intrinsic value (A)	$	39 million		 	$	62 million		
Weighted average remaining option term (in years)	 	4		 	 	3		

	

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

At both September 30, 2019 and 2018, there was $9 million of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of three years at both September 30, 2019 and 2018.

17

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

J. STOCK-BASED COMPENSATION (Concluded)

The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows: 

								
 	Nine Months Ended September 30,	
 	2019	 	2018	
Weighted average grant date fair value	$	8.81		 	$	12.52		
Risk-free interest rate	2.57	%	 	2.71	%	
Dividend yield	1.35	%	 	1.00	%	
Volatility factor	25.00	%	 	29.00	%	
Expected option life	6 years		 	6 years		

Restricted Stock Units. Under our Long Term Incentive Program, we grant restricted stock units to certain senior executives. These restricted stock units will vest and share awards will be issued at no cost to the employees, subject to our achievement of specified return on invested capital performance goals over a three-year period that have been established by our Organization and Compensation Committee of the Board of Directors for the performance period and the recipient's continued employment through the share award date. During the nine-month period ended September 30, 2019, we granted 126,680 restricted stock units with a grant date fair value of approximately $39 per share and 15,600 restricted stock units were forfeited. During the nine-month period ended September 30, 2018, we granted 113,260 restricted stock units with a grant date fair value of approximately $42 per share and 11,600 restricted stock units were forfeited.

K. EMPLOYEE RETIREMENT PLANS
 
Net periodic pension cost for our defined-benefit pension plans, with the exception of service cost, is recorded in other income (expense), net, in our condensed consolidated statement of operations. Net periodic pension cost for our defined-benefit pension plans was as follows, in millions: 

																
 	Three Months Ended September 30,	
 	2019	 	2018	
 	Qualified	 	Non-Qualified	 	Qualified	 	Non-Qualified	
Service cost	$	1		 	$	—		 	$	1		 	$	—		
Interest cost	11		 	2		 	8		 	1		
Expected return on plan assets	(12	)	 	—		 	(12	)	 	—		
Amortization of net loss	4		 	1		 	4		 	1		
Net periodic pension cost	$	4		 	$	3		 	$	1		 	$	2		

	
																
 	Nine Months Ended September 30,	
 	2019	 	2018	
 	Qualified	 	Non-Qualified	 	Qualified	 	Non-Qualified	
Service cost	$	2		 	$	—		 	$	2		 	$	—		
Interest cost	30		 	5		 	28		 	4		
Expected return on plan assets	(34	)	 	—		 	(36	)	 	—		
Amortization of net loss	14		 	2		 	13		 	2		
Net periodic pension cost	$	12		 	$	7		 	$	7		 	$	6		

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

18

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

L. RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE LOSS
 
The reclassifications from accumulated other comprehensive loss to the condensed consolidated statements of operations were as follows, in millions: 

																		
 	Amounts Reclassified	 	 	
Accumulated Other Comprehensive Loss	Three Months Ended September 30,	 	Nine Months Ended September 30,	 	Statement of Operations Line Item	
	2019	 	2018	 	2019	 	2018	 		
Amortization of defined-benefit pension and other post-retirement benefits:	 		 	 		 	 		 	 		 	 	
Actuarial losses, net	$	5		 	$	5		 	$	16		 	$	15		 	Other income (expense), net	
Tax (benefit)	(1	)	 	(1	)	 	(4	)	 	(3	)	 	 	
Net of tax	$	4		 	$	4		 	$	12		 	$	12		 	 	
 	 	 	 	 	 	 	 	 	 	
Interest rate swaps	$	—		 	$	—		 	$	1		 	$	1		 	Interest expense	
Tax (benefit)	—		 	—		 	—		 	—		 	 	
Net of tax	$	—		 	$	—		 	$	1		 	$	1		 	 	

In addition to the above amounts, we reclassified $14 million of deferred currency translation losses from accumulated other comprehensive loss to the condensed consolidated statement of operations in conjunction with the disposition of UKWG in September 2019. In addition, as of March 31, 2018, we adopted ASU 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." As a result of the adoption, we reclassified $59 million of the disproportionate tax benefit related to various defined-benefit plans from accumulated other comprehensive loss to retained deficit.

M. SEGMENT INFORMATION

Information by segment and geographic area was as follows, in millions: 

																																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2019	 	2018	 	2019	 	2018	 	2019	 	2018	 	2019	 	2018	
 	Net Sales (A)	 	Operating Profit (Loss)	 	Net Sales (A)	 	Operating Profit (Loss)	
Operations by segment:	 		 	 		 	 		 	 		 	 		 	 		 	 		 	 		
Plumbing Products	$	1,006		 	$	992		 	$	179		 	$	177		 	$	2,958		 	$	2,995		 	$	530		 	$	534		
Decorative Architectural Products	710		 	673		 	134		 	104		 	2,110		 	2,024		 	380		 	338		
Cabinetry Products	231		 	239		 	26		 	23		 	719		 	724		 	79		 	62		
Total	$	1,947		 	$	1,904		 	$	339		 	$	304		 	$	5,787		 	$	5,743		 	$	989		 	$	934		
Operations by geographic area:	 		 	 		 	 		 	 		 	 	 	 	 	 	 	 	
North America	$	1,605		 	$	1,565		 	$	288		 	$	253		 	$	4,752		 	$	4,653		 	$	838		 	$	773		
International, principally Europe	342		 	339		 	51		 	51		 	1,035		 	1,090		 	151		 	161		
Total	$	1,947		 	$	1,904		 	339		 	304		 	$	5,787		 	$	5,743		 	989		 	934		
General corporate expense, net	 		 	 		 	(23	)	 	(18	)	 	 	 	 	 	(71	)	 	(64	)	
Operating profit	 		 	 		 	316		 	286		 	 	 	 	 	918		 	870		
Other income (expense), net	 		 	 		 	(47	)	 	(38	)	 	 	 	 	 	(135	)	 	(129	)	
Income from continuing operations before income taxes	 		 	 		 	$	269		 	$	248		 	 	 	 	 	$	783		 	$	741		

	

		
(A)	Inter-segment sales were not material.	

19

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

N. OTHER INCOME (EXPENSE), NET
 
Other, net, which is included in other income (expense), net, was as follows, in millions:

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2019	 	2018	 	2019	 	2018	
Income from cash and cash investments and short-term bank deposits	$	1		 	$	1		 	$	2		 	$	3		
Equity investment income, net	1		 	—		 	1		 	2		
Foreign currency transaction (losses) gains	(4	)	 	1		 	(2	)	 	(5	)	
Net periodic pension and post-retirement benefit cost	(6	)	 	(2	)	 	(17	)	 	(11	)	
Other items, net	—		 	—		 	—		 	(1	)	
Total other, net	$	(8	)	 	$	—		 	$	(16	)	 	$	(12	)	

O. INCOME PER COMMON SHARE
 
Reconciliations of the numerators and denominators used in the computations of basic and diluted income per common share were as follows, in millions: 

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2019	 	2018	 	2019	 	2018	
Numerator (basic and diluted):	 		 	 		 	 		 	 		
Income from continuing operations	$	184		 	$	170		 	$	546		 	$	517		
Less: Allocation to unvested restricted stock awards	1		 	1		 	4		 	5		
Income from continuing operations attributable to common shareholders	183		 	169		 	542		 	512		
 	 	 	 	 	 	 	 	
(Loss) income from discontinued operations, net	(58	)	 	10		 	(64	)	 	23		
Less: Allocation to unvested restricted stock awards	—		 	—		 	—		 	—		
(Loss) income from discontinued operations attributable to common shareholders	(58	)	 	10		 	(64	)	 	23		
 	 	 	 	 	 	 	 	
Net income available to common shareholders	$	125		 	$	179		 	$	478		 	$	535		
 	 	 	 	 	 	 	 	
Denominator:	 		 	 		 	 		 	 		
Basic common shares (based upon weighted average)	286		 	304		 	289		 	307		
Add: Stock option dilution	1		 	2		 	1		 	2		
Diluted common shares	287		 	306		 	290		 	309		

For the three-month and nine-month periods ended September 30, 2019 and 2018, we allocated dividends and undistributed earnings to the unvested restricted stock awards.
 
Additionally, 855,000 and 1.2 million common shares for the three-month and nine-month periods ended September 30, 2019, respectively, and 668,000 and 627,000 common shares for the three-month and nine-month periods ended September 30, 2018, respectively, related to stock options and 20,000 common shares related to restricted stock units for the three-month and nine-month periods ended September 30, 2019 were excluded from the computation of diluted income per common share due to their antidilutive effect.

20

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

O. INCOME PER COMMON SHARE (Concluded)

In September 2019, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2017. In the first nine months of 2019, we repurchased and retired 11.5 million shares of our common stock (including 0.6 million shares to offset the dilutive impact of long-term stock awards granted in the first nine months of the year), for approximately $440 million. At September 30, 2019, we had $1.96 billion remaining under the 2019 authorization.

On the basis of amounts paid (declared), cash dividends per common share were $0.120 ($0.135) and $0.360 ($0.375) for the three-month and nine-month periods ended September 30, 2019, respectively, and $0.105 ($0.120) and $0.315 ($0.330) for the three-month and nine-month periods ended September 30, 2018, respectively.

P. OTHER COMMITMENTS AND CONTINGENCIES
 
We are involved in claims and litigation, including class actions and regulatory proceedings, which arise in the ordinary course of our business. The types of matters may include, among others: competition, product liability, employment, warranty, advertising, contract, personal injury, environmental, intellectual property, and insurance coverage. We believe we have adequate defenses in these matters and that the likelihood that the outcome of these matters would have a material adverse effect on us is remote. However, there is no assurance that we will prevail in these matters, and we could, in the future, incur judgments, enter into settlements of claims or revise our expectations regarding the outcome of these matters, which could materially impact our results of operations.

Q. INCOME TAXES

Our effective tax rate was 27 percent for both of the three-month periods ended September 30, 2019 and 2018.

Our effective tax rate was 26 percent and 25 percent for the nine-month periods ended September 30, 2019 and 2018, respectively. The increase in the rate was primarily due to an additional $9 million income tax benefit on stock-based compensation recognized in the nine-month period ended September 30, 2018.

21

	
		
MASCO CORPORATION	
Item 2.
	 	
MANAGEMENT'S DISCUSSION AND ANALYSIS OF	
FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
 	 	
THIRD QUARTER 2019 AND THE FIRST NINE MONTHS 2019 VERSUS
THIRD QUARTER 2018 AND THE FIRST NINE MONTHS 2018	

SALES AND OPERATIONS
 
The following table sets forth our net sales and operating profit (loss) by business segment and geographic area, dollars in millions:

													
 	Three Months Ended September 30,	 	Percent Change	
 	2019	 	2018	 	2019	vs.	2018	
Net Sales:	 		 	 		 	 	 	 	
Plumbing Products	$	1,006		 	$	992		 	1	%	
Decorative Architectural Products	710		 	673		 	5	%	
Cabinetry Products	231		 	239		 	(3	)%	
Total	$	1,947		 	$	1,904		 	2	%	
 	 	 	 	 	 	
North America	$	1,605		 	$	1,565		 	3	%	
International, principally Europe	342		 	339		 	1	%	
Total	$	1,947		 	$	1,904		 	2	%	

													
 	Nine Months Ended September 30,	 	Percent Change	
 	2019		2018	 	2019	vs.	2018	
Net Sales:	 		 	 		 	 	 	 	
Plumbing Products	$	2,958		 	$	2,995		 	(1	)%	
Decorative Architectural Products	2,110		 	2,024		 	4	%	
Cabinetry Products	719		 	724		 	(1	)%	
Total	$	5,787		 	$	5,743		 	1	%	
 	 	 	 	 	 	
North America	$	4,752		 	$	4,653		 	2	%	
International, principally Europe	1,035		 	1,090		 	(5	)%	
Total	$	5,787		 	$	5,743		 	1	%	

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2019	 	2018	 	2019	 	2018	
Operating Profit (Loss): (A)	 		 	 		 	 	 	 	
Plumbing Products	$	179		 	$	177		 	$	530		 	$	534		
Decorative Architectural Products	134		 	104		 	380		 	338		
Cabinetry Products	26		 	23		 	79		 	62		
Total	$	339		 	$	304		 	$	989		 	$	934		
 	 	 	 	 	 	 	 	
North America	$	288		 	$	253		 	$	838		 	$	773		
International, principally Europe	51		 	51		 	151		 	161		
Total	339		 	304		 	989		 	934		
General corporate expense, net	(23	)	 	(18	)	 	(71	)	 	(64	)	
Operating profit	$	316		 	$	286		 	$	918		 	$	870		

	
 	
(A)    Before general corporate expense, net; see Note M to the condensed consolidated financial statements.

22

We report our financial results in accordance with generally accepted accounting principles ("GAAP") in the United States. However, we believe that certain non-GAAP performance measures and ratios used in managing the business may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results under GAAP.
    
The following discussion of consolidated results of operations and segment and geographic results refers to the three-month and nine-month periods ended September 30, 2019 compared to the same periods of 2018.

NET SALES
 
Net sales increased two percent and one percent for the three-month and nine-month periods ended September 30, 2019, respectively. Excluding acquisitions and the effect of currency translation, net sales increased three percent and one percent for the three-month and nine-month periods ended September 30, 2019, respectively. The following table reconciles reported net sales to net sales, excluding acquisitions and the effect of currency translation, in millions:

																
 	Three Months Ended September 30,	 	Nine Months Ended September 30,	
 	2019	 	2018	 	2019	 	2018	
Net sales, as reported	$	1,947		 	$	1,904		 	$	5,787		 	$	5,743		
Acquisitions	—		 	—		 	(65	)	 	—		
Net sales, excluding acquisitions	1,947		 	1,904		 	5,722		 	5,743		
Currency translation	15		 	—		 	70		 	—		
Net sales, excluding acquisitions and the effect of currency translation	$	1,962		 	$	1,904		 	$	5,792		 	$	5,743		
 
North American net sales increased three percent and two percent for the three-month and nine-month periods ended September 30, 2019, respectively. Higher sales volumes of paints and other coatings increased sales by two percent for the three-month period only. Net selling price increases of plumbing products, paints and other coating products, and lighting products, in aggregate, increased sales by two percent for both the three-month and nine-month periods. The acquisition of Kichler in March 2018 increased sales by one percent for the nine-month period only. Such increases were partially offset by lower sales volume of lighting products which decreased sales by one percent for the three-month period only. Lower sales volume of lighting and plumbing products, in aggregate, decreased sales by one percent for the nine-month period only.

International net sales increased one percent for the three-month period ended September 30, 2019. In local currencies (including sales in currencies outside their respective functional currencies), net sales increased five percent. Higher sales volume and net selling prices of plumbing products, in aggregate, increased sales by six percent. Such increases were partially offset by unfavorable sales mix of plumbing products which decreased sales by one percent. International net sales decreased five percent for nine-month period ended September 30, 2019. In local currencies, net sales increased one percent primarily due to favorable net selling prices of plumbing products.

Net sales in the Plumbing Products segment increased one percent for the three-month period ended September 30, 2019. Higher sales volume of International operations increased sales by two percent and net selling prices of North American operations increased sales by two percent. Such increases were partially offset by foreign currency translation which decreased sales by two percent. Lower sales volume of North American operations decreased sales by one percent. Net sales in the Plumbing Products segment decreased one percent for the nine-month period ended September 30, 2019. Foreign currency translation decreased sales by two percent. Lower sales volume of North American operations further decreased sales by one percent. Such decreases were partially offset by favorable net selling prices of North American operations which increased sales by two percent.

Net sales in the Decorative Architectural Products segment increased five percent for the three-month period ended September 30, 2019. Net sales increased due to higher sales volume of paints and other coating products and net selling price increases of paints and other coating products and lighting products. Such increases were partially offset by lower sales volume of lighting products and builders' hardware. Net sales in the Decorative Architectural Products segment increased four percent for the nine-month period ended September 30, 2019. The acquisition of Kichler increased sales by three percent. Net selling price increases of paints and other coating products and lighting products also increased sales. Such increases were partially offset by lower sales volume of lighting products and paints and other coating products.

23

Net sales in the Cabinetry Products segment decreased three percent and one percent for the three-month and nine-month periods ended September 30, 2019, respectively. Unfavorable sales mix and lower sales volume, in aggregate, decreased sales by five percent and three percent for the three-month and nine-month periods, respectively. Such decreases were partially offset by net selling price increases which increased sales by two percent and three percent for the three-month and nine-month periods, respectively.

OPERATING PROFIT
 
Our gross profit margins were 34.2 percent and 34.1 percent for the three-month and nine-month periods ended September 30, 2019, respectively, compared with 32.7 percent and 33.3 percent for the comparable periods of 2018. Gross profit margins were positively impacted by increased net selling prices and the absence of the recognition of the inventory step up adjustment established as part of the acquisition of Kichler in 2018. Such increases were partially offset by an increase in commodity costs including tariffs.
 
Selling, general and administrative expenses, as a percentage of sales, were 17.9 percent and 18.1 percent for the three-month and nine-month periods ended September 30, 2019, respectively, compared to 17.7 percent and 18.1 percent for the comparable periods of 2018.

Operating profit in the Plumbing Products segment for the three-month period ended September 30, 2019 was positively impacted by increased net selling prices, the benefits associated with cost savings initiatives, and higher sales volumes. These positive impacts were partially offset by an increase in commodity costs and severance charges. Operating profit in the Plumbing Products segment for the nine-month period ended September 30, 2019 was negatively impacted by an increase in other expenses (such as trade show costs and severance charges), an increase in commodity costs, and lower sales volume. These negative impacts were partially offset by increased net selling prices and benefits associated with cost savings initiatives.

Operating profit in the Decorative Architectural Products segment for the three-month and nine-month periods ended September 30, 2019 was positively impacted by increased net selling prices of paints and other coating products and lighting products, the absence of the recognition of the inventory step up adjustment established as part of the acquisition of Kichler in 2018, the benefits associated with cost savings initiatives and, for the three-month period only, higher sales volume of paints and other coating products. These positive impacts were partially offset by an increase in commodity costs across the segment and lower sales volume of lighting products, and, for the nine-month period only, lower sales volume of paints and other coating products and a non-cash impairment charge related to an other indefinite-lived intangible asset for a trademark associated with lighting products.

Operating profit in the Cabinetry Products segment for the three-month and nine-month periods ended September 30, 2019 was positively impacted by increased net selling prices, the benefits associated with cost savings initiatives and, for the nine-month period only, a decrease in program launch and display expenses. These positive impacts were primarily offset by unfavorable sales mix and higher variable expenses, including professional fees to support the potential divestiture of the business.

OTHER INCOME (EXPENSE), NET
 
Interest expense for the three-month and nine-month periods ended September 30, 2019 was $39 million and $119 million, respectively, compared to $38 million and $117 million for the three-month and nine-month periods ended September 30, 2018.
 
Other, net, for the three-month and nine-month periods ended September 30, 2019 included $6 million and $17 million, respectively, of net periodic pension and post-retirement benefit cost, $4 million and $2 million, respectively, of foreign currency transaction losses, and $1 million of earnings related to equity method investments in both periods. Other, net, for the three-month and nine-month periods ended September 30, 2018 included $2 million and $11 million, respectively, of net periodic pension and post-retirement benefit cost, and $1 million of foreign currency transaction gains and $5 million of foreign currency transaction losses, respectively. The nine-month period ended September 30, 2018 also included $2 million of earnings related to equity method investments.

24

INCOME AND INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS — ATTRIBUTABLE TO MASCO CORPORATION
 
Income from continuing operations for the three-month and nine-month periods ended September 30, 2019 was $184 million and $546 million, respectively, compared to $170 million and $517 million, respectively, for the comparable periods of 2018. Diluted income per common share for the three-month and nine-month periods ended September 30, 2019 was 0.64 and 1.87, respectively, per common share, compared with $.55 and $1.66, respectively, per common share for the comparable periods of 2018.

Our effective tax rate was 27 percent and 26 percent for the three-month and nine-month periods ended September 30, 2019, respectively, which were both higher than our normalized tax rate of 25 percent due primarily to losses in certain foreign jurisdictions providing no income tax benefit and a change in mix of earnings from lower to higher tax jurisdictions.

Our effective tax rate was 27 percent and 25 percent for the three-month and nine-month periods ended September 30, 2018, respectively. Our effective tax rate for the three-month period was higher than our normalized tax rate of 25 percent, primarily due to a $3 million income tax expense for non-deductible compensation resulting from IRS guidance issued related to the application of the Tax Cuts and Jobs Act of 2017.

OTHER FINANCIAL INFORMATION
 
Our current ratio was 1.5 to 1 and 1.6 to 1 at September 30, 2019 and December 31, 2018, respectively. The decrease in our current ratio is due primarily to the reclassification of our $201 million, 7.125% Notes due March 15, 2020 to short-term notes payable, as well as the adoption of ASC 842, which added $45 million of short-term operating lease liabilities to our balance sheet in the first quarter of 2019.
 
For the nine-month period ended September 30, 2019, net cash provided by operating activities was $605 million.

For the nine-month period ended September 30, 2019, net cash used for financing activities was $590 million, primarily due to $440 million for the repurchase and retirement of our common stock (including 0.6 million shares repurchased to offset the dilutive impact of long-term stock awards granted in 2019), $105 million for the payment of cash dividends, $42 million for dividends paid to noncontrolling interests, and $21 million for employee withholding taxes paid on stock-based compensation. These uses of cash were slightly offset by $23 million of proceeds from the exercise of stock options.

For the nine-month period ended September 30, 2019, net cash used for investing activities was $104 million, primarily for capital expenditures.
 
Our cash and cash investments were $475 million and $553 million at September 30, 2019 and December 31, 2018, respectively. Our cash and cash investments consist of overnight interest bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations.

Of the $475 million and $553 million of cash and cash investments held at September 30, 2019 and December 31, 2018, $254 million and $270 million, respectively, was held in our foreign subsidiaries. If these funds were needed for our operations in the U.S., their repatriation into the U.S. would not result in significant additional U.S. income tax or foreign withholding tax, as we have recorded such taxes on substantially all undistributed foreign earnings, except for those that are legally restricted.

On March 13, 2019, we entered into a credit agreement (the "Credit Agreement") with a bank group, with an aggregate commitment of $1.0 billion and a maturity date of March 13, 2024. Under the Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current bank group or new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with an aggregate commitment of $750 million, was terminated. See Note I to the condensed consolidated financial statements.

25

The Credit Agreement contains financial covenants requiring us to maintain (A) a maximum net leverage ratio, as adjusted for certain items, of 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, equal to or greater than 2.5 to 1.0.  We were in compliance with all covenants and no borrowings were outstanding under our Credit Agreement at September 30, 2019.

As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including extending payment terms. We also facilitate a voluntary supply chain finance program (the "program") to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements with any of the participating financial institutions in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program.
    
All outstanding payments owed under the program are recorded within accounts payable in our condensed consolidated balance sheets. The amounts owed to participating financial institutions under the program and included in accounts payable for our continuing operations were $55 million and $71 million at September 30, 2019 and December 31, 2018, respectively. We account for all payments made under the program as a reduction to our cash flows from operations and reported within our increase in accounts payable and accrued liabilities, net, line within our condensed consolidated statements of cash flows. The amounts settled through the program and paid to participating financial institutions were $181 million and $188 million for our continuing operations during the nine-month periods ended September 30, 2019 and 2018, respectively. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions’ willingness to commit funds to, and participate in, the program. We do not believe such risk would have a material impact on our working capital or cash flows, as substantially all of our payments are made outside of the program.

We believe that our present cash balance, cash flows from operations, and the ability to utilize our Credit Agreement are sufficient to fund our near-term working capital and other investment needs. We believe that our longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings and future financial market activities.

OUTLOOK FOR THE COMPANY
 
We continue to successfully execute our long-term growth strategies by leveraging our strong brand portfolio, industry-leading positions and Masco Operating System, our methodology to drive growth and productivity. We remain confident in the fundamentals of our business and will continue to execute on our strategies to create shareholder value. We believe that our strong financial position and cash flow generation, together with our current strategy of investing in our industry-leading branded building products, our continued focus on innovation and our commitment to operational excellence, the active management of our portfolio and disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders. Additionally, we have entered into a definitive agreement to sell Milgard Manufacturing Incorporated and are pursuing the sale of our Cabinetry business. We expect these sales to conclude in the next three to six months, assuming they can be completed on acceptable terms and conditions.

26

FORWARD-LOOKING STATEMENTS
 
This report contains statements that reflect our views about our future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "outlook," "believe," "anticipate," "appear," "may," "will," "should," "intend," "plan," "estimate," "expect," "assume," "seek," "forecast," and similar references to future periods. Our views about future performance involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. We caution you against relying on any of these forward-looking statements. Our future performance may be affected by the levels of residential repair and remodel activity and new home construction, our ability to maintain our strong brands and reputation and to develop new products, our ability to maintain our competitive position in our industries, our reliance on key customers, the cost and availability of raw materials and increasing tariffs, our dependence on third-party suppliers, risks associated with international operations and global strategies, our ability to achieve the anticipated benefits of our strategic initiatives, including the potential divestitures of our Cabinetry and Windows businesses, our ability to successfully execute our acquisition strategy and integrate businesses that we have and may acquire, our ability to attract, develop and retain talented personnel, risks associated with our reliance on information systems and technology, and our ability to achieve the anticipated benefits from our investments in new technology. These and other factors are discussed in detail in Item 1A, "Risk Factors" in our most recent Annual Report on Form 10-K, as well as in other filings we make with the Securities and Exchange Commission.  The forward-looking statements in this report speak only as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.

27

	
		
MASCO CORPORATION	
Item 4.	 	
CONTROLS AND PROCEDURES	

a.     Evaluation of Disclosure Controls and Procedures.
 
The Company’s principal executive officer and principal financial officer have concluded, based on an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 that, as of September 30, 2019, the Company's disclosure controls and procedures were effective.
 
b.     Changes in Internal Control over Financial Reporting.
 
In connection with the evaluation of the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2019, which is required under the Securities Exchange Act of 1934 by paragraph (d) of Exchange Rules 13a-15 or 15d-15 (as defined in paragraph (f) of Rule 13a-15), management determined that there was no change that materially affected or is reasonably likely to materially affect internal control over financial reporting.

28

MASCO CORPORATION
 
PART II.  OTHER INFORMATION

 
Item 1. Legal Proceedings
 
Information regarding legal proceedings involving us is set forth in Note P to our condensed consolidated financial statements included in Part I, Item 1 of this Report and is incorporated herein by reference.
 
Item 1A. Risk Factors
 
There have been no material changes to the risk factors of the Company set forth in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information regarding the repurchase of our common stock for the three-month period ended September 30, 2019 under the 2017 share repurchase authorization: 

														
Period	Total Number 
Of Shares
Purchased	 	Average Price
Paid Per
Common Share	 	Total Number Of
Shares Purchased
As Part Of
Publicly Announced
Plans or Programs (A)	 	Maximum Value Of
Shares That May
Yet Be Purchased
Under The Plans Or Programs	
7/1/19-7/31/19	1,389,703		 	$	38.98		 	1,389,703		 	$	292,622,693		
8/1/19-8/31/19	816,083		 	$	39.22		 	816,083		 	$	260,615,521		
9/1/19-9/17/19	532,678		 	$	41.99		 	532,678		 	$	238,247,676		
Total for the quarter	2,738,464		 	$	39.64		 	2,738,464		 	$	238,247,676		

	

(A)	In May 2017, our Board of Directors authorized the repurchase, for retirement, of up to $1.5 billion of shares of our common stock in open-market transactions or otherwise. This authorization was replaced in September 2019.	

The following table provides information regarding the repurchase of our common stock for the three-month period ended September 30, 2019 under the 2019 share repurchase authorization: 

														
Period	Total Number 
Of Shares
Purchased	 	Average Price
Paid Per
Common Share	 	Total Number Of
Shares Purchased
As Part Of
Publicly Announced
Plans or Programs (A)	 	Maximum Value Of
Shares That May
Yet Be Purchased
Under The Plans Or Programs	
9/18/19-9/30/19	1,034,800		 	$	40.94		 	1,034,800		 	$	1,957,633,549		
Total for the quarter	1,034,800		 	$	40.94		 	1,034,800		 	$	1,957,633,549		

	

(A)	In September 2019, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2017.	

29

MASCO CORPORATION
 
PART II.  OTHER INFORMATION, Continued

 
Item 6. Exhibits 

				
 	 	 	 	
 	2.1	–	Stock Purchase Agreement, dated September 29, 2019, by and between Masco Corporation and MIWD Holding Company LLC. Disclosure schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Stock Purchase Agreement as filed identifies such schedules and exhibits, including the general nature of their contents. Masco agrees to furnish a copy of any omitted attachment to the Securities and Exchange Commission on a confidential basis upon request. Incorporated by reference to Exhibit 2.1 to Masco Corporation’s Current Report on Form 8-K dated September 29, 2019 and filed on October 3, 2019.	
 	 	 	 	
 	10	–	Separation and Release Agreement dated July 19, 2019 between Amit Bhargava and Masco Corporation	
 	 	 	 	
 	31a	–	Certification by Chief Executive Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934	
 	 	 	 	
 	31b	–	Certification by Chief Financial Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934	
 	 	 	 	
 	32	–	Certification Required by Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code	
 	 	 	 	
 	101	–	The following financial information from Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity, and (vi) Notes to Condensed Consolidated Financial Statements.	
 	 	 	 	
 	104	–	Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)	

30

MASCO CORPORATION
 
PART II.  OTHER INFORMATION, Concluded

SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

			
 	MASCO CORPORATION	
 	 	
 	By:	/s/ John G. Sznewajs	
 	Name: John G. Sznewajs	
 	Title: Vice President, Chief Financial Officer	
 
October 30, 2019

31

SEPARATION AND RELEASE AGREEMENT

This Separation and Release Agreement (the “Agreement”) is dated as of July 19, 2019 and is between Amit Bhargava (the “Employee”) and Masco Corporation, (a Delaware corporation) with a business address of 17450 College Parkway, Livonia, MI 48152 (the “Company”).
WHEREAS, Employee has been the Vice President of Strategy and Corporate Development of the Company;
WHEREAS, Employee has established close business relationships with executives and other employees of the Company, including the Company’s corporate development and strategic functions;
WHEREAS, Employee has gained detailed knowledge of the Company’s operations, processes, finances, products, services and information, computer, business and legal strategies;
WHEREAS, Employee’s position was eliminated and his employment with the Company will terminate effective July 19, 2019;
WHEREAS, Employee has been given the opportunity to review this Agreement, and has been advised to consult with an attorney regarding the terms of this Agreement; and
WHEREAS, Employee and the Company, without any admission of liability, desire to settle with finality, compromise, dispose of, and release any claims and demands of Employee which have been or could be asserted, whether arising out of Employee’s employment by or termination from the Company or otherwise;
NOW THEREFORE, in exchange for the consideration and mutual promises identified below (the adequacy and sufficiency of which being duly acknowledged), Employee and the Company agree as follows:
1.Termination of Employment and Separation Benefits. Effective July 19, 2019 (“Termination Date”), Employee’s employment with the Company shall be terminated and in exchange for the covenants hereunder and Employee’s compliance therewith, Employee shall be entitled to the payments and benefits described in Sections 1(a)-(c) below.
(a)     The Company agrees to pay Employee (i) a total of $1,130,000 in 52 equal bi-weekly installments commencing on August 15, 2019 and continuing at two-week intervals thereafter; and (ii) the sum of $27,800 as reimbursement for 18 months of health care coverage, in 36 equal bi-weekly installments commencing on August 15, 2019 and continuing at two-week intervals thereafter. Notwithstanding the foregoing, if the expiration of the revocation period under Paragraph 13 occurs after August 15, 2019, then retroactive payments (with no provision for interest) in respect of all bi-weekly payments that would otherwise have been made on and after August 15, 2019 through the expiration of the revocation period shall be made to Employee in conjunction with the next bi-weekly payment due to him thereafter.

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(b)As of the Termination Date, Employee holds stock options and restricted stock awards under the 2014 Masco Corporation Long-Term Stock Incentive Plan (the “Plan”) that are outstanding and unvested (together, the “Outstanding Awards”). To the extent the following is inconsistent with the award agreements evidencing the Outstanding Awards, Employee and Masco agree (i) that the vested portion of each option award will be exercisable for 90 days after the Termination Date, and the unvested portion of all option awards shall be forfeited to the Company on the Termination Date; and (ii) the award agreements for all unvested restricted stock awards shall be amended to reflect that, as of the Termination Date, all vesting-related restrictions on unvested shares will continue to lapse as if Employee had continued his employment with the Company through each of the remaining vesting dates applicable to such unvested restricted stock award, subject to Employee’s continued compliance with his obligations under the Agreement, including Section 4, below.
(c)    Employee shall be paid for any accrued but unused vacation time as of the Termination Date.
(d) Employee recognizes that the consideration to be provided pursuant to Paragraphs 1(a), 1(b) and 1(c) is in each case stated as or describes a gross amount or value before applicable payroll tax withholding and is in excess of any earned wages or benefits due and owing Employee by virtue of his employment with the Company or otherwise.
(e)    Other than benefits accrued under the Company’s benefit plans through the Termination Date, Employee shall not receive any other compensation from the Company nor shall he participate in or receive benefits under any of the Company’s employee fringe benefit programs or receive any other fringe benefits from the Company (including without limitation health, disability, life insurance, retirement, pension and profit sharing benefits).
(f)     In the case of Employee’s death, to the extent then not paid to Employee, the payments under Paragraphs 1(a) and 1(c) shall be made to Employee’s estate. Survivor rights with respect to the stock described in Paragraph 1(b) shall be as determined under applicable beneficiary and other provisions embodied in the Plan and Outstanding Awards.

2. Cooperation & Disclosure of Known Claims. Employee agrees to cooperate with the Company or any of the Released Parties (as hereinafter defined) regarding any information or the giving of any testimony in any threatened, pending or future legal action (e.g., any judicial, administrative, or alternative dispute resolution proceeding). Employee agrees, except as otherwise required or prohibited by law, not to voluntarily provide any information to any person or entity about the business, products, or employees of the Released Parties. Employee further agrees that if approached informally or subpoenaed by any person, company, attorney or agent for any party or witness at any time in any matter, currently litigated or otherwise in dispute, involving any of the Released Parties, their employees, products or business, Employee will give immediate notice to Company of such formal or informal contact. Such immediate notice shall be by overnight mail and directed to the attention of the Vice President, General Counsel and Secretary (“General Counsel”) of Masco Corporation, 17450 College Parkway, Livonia, MI 48152. In any event, Employee represents and warrants that he has disclosed to the Company any and all facts within his knowledge concerning any actual or potential claim against the Company, including but not limited to any and all claims arising out of federal, state or local law, or any claim resulting in or from a loss, theft or fraud against the Company. Notwithstanding the foregoing, Employee has the right under federal law to certain protections for cooperating with or reporting legal violations to

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the Securities and Exchange Commission (the “SEC”) and/or its Office of the Whistleblower, as well as certain other governmental entities and self-regulatory organizations. As such, nothing in this Agreement or otherwise prohibits or limits Employee from disclosing this Agreement to, or from cooperating with or reporting violations to or initiating communications with, the SEC or any other such governmental entity or self-regulatory organization, and Employee may do so without notifying the Company. The Company may not retaliate against Employee for any of these activities, and nothing in this Agreement or otherwise requires Employee to waive any monetary award or other payment that Employee might become entitled to from the SEC or any other governmental entity or self-regulatory organization.
        
3. Disclosure of Information. Employee acknowledges and agrees to comply with the Proprietary Confidential Information and Invention Assignment Agreement (the “Proprietary Agreement”). That Proprietary Agreement, a copy of which has been provided to Employee, shall continue in full force and effect. By executing this Agreement, Employee certifies that all confidential, proprietary or trade secret information has been returned as required by Paragraph 2 of the Proprietary Agreement.

4. Non-Competition. In consideration for the amounts payable to Employee under this Agreement, Employee reaffirms his restrictive covenants obligations under the Outstanding Awards and any other agreement containing similar restrictive covenants and further agrees that the period during which he may not engage in any Business Activities in a Prohibited Capacity (each as defined in the Outstanding Awards) or similar competitive activity (as described under any other agreement) shall be extended (but not shortened, if longer) to be the three-year period following the Termination Date. Notwithstanding the foregoing, Employee shall not be treated as engaging in Business Activities in a Prohibited Capacity by virtue of Employee commencing employment with, or providing services to, a private equity, financial investor, or advisor that owns, invests in, operates, or advises a business that engages in any Business Activities that, if engaged in by Employee, would be treated as Employee engaging in Business Activities in a Prohibited Capacity, so long as Employee does not perform services, directly or indirectly, for the entity that is engaged in such Business Activities and that Employee does not reveal any confidential information of the Company, in any capacity whatsoever, to such private equity, financial investor, or advisor, its respective Subsidiaries, including any business owned, invested in, operated or advised by the foregoing, or any of their respective directors, officers, employees, advisors or other service providers.
It is expressly understood and agreed that although Employee and the Company consider the restrictions contained in the Outstanding Awards, as extended above, to be reasonable for the purpose of preserving for the Company and its affiliates their goodwill, trade secrets, proprietary rights and ongoing business value, if a final judicial determination is made by a court having jurisdiction that the time, territory, activities (i.e., type of employment or line of business), or any other restriction contained in this paragraph is an unenforceable restriction on the activities of Employee, the provisions of this paragraph and the related provisions in the Outstanding Awards or any other agreement containing similar restrictive covenant obligations shall not be rendered void but shall be deemed amended to apply as to such maximum time, territory and activities as such court may judicially determine or indicate to be reasonable. Alternatively, if the court referred to above finds that any restriction contained above is an unenforceable restriction on the activities of Employee, and such restrictions cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained in this Agreement.

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5. Remedies.

(a)    Employee acknowledges and agrees that the Company’s remedy at law for a breach or threatened breach of any of the provisions of Paragraphs 3 or 4 of this Agreement would be inadequate and, in recognition of this fact, in the event of a breach by Employee of any of the provisions of Paragraphs 3 or 4 of this Agreement, Employee agrees that, in addition to the Company’s other remedies at law, at the Company’s option, all rights of Employee under this Agreement, the Plan and the Outstanding Awards may be terminated, and the Company shall be entitled without posting any bond to obtain, and Employee agrees not to oppose (except to the extent that Employee maintains that Employee did not, in fact, engage in any activity in breach of this Agreement) a request for, equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available, relating to the conduct prohibited under either paragraphs 3 or 4 hereof. Employee acknowledges that the granting of a temporary injunction, temporary restraining order or permanent injunction merely prohibiting the use of Proprietary Information would not be an adequate remedy upon breach or threatened breach hereof. Nothing herein contained shall be construed as prohibiting the Company from pursuing, in addition, any other remedies available to it for such (or any other) breach or threatened breach.
(b)In addition to the remedies set forth herein or available to the Company, if Employee, in the Company’s good faith judgment, reasonably exercised, at any time during the three-year period following the Termination Date, breaches any obligation under this Agreement, the Plan or the Outstanding Awards, the Company may immediately terminate any remaining payments and the provision of any other benefits which might otherwise be required this Agreement, the Plans or the Outstanding Awards otherwise due Employee and any restricted stock awards for which the restrictions have not yet lapsed will be immediately forfeited. Upon any breach, the Company may also recover from Employee any payments made under Paragraphs 1(a) and/or 1(c) hereof, together with any proceeds from exercise of any Options or sale of restricted stock for which restrictions have lapsed at any time within two years following the Termination Date, in each case (cash and stock) net of any state and federal income taxes paid by Employee; provided, however, Employee will be paid or allowed to retain $1,000 of the amounts paid. Any such termination or recovery by the Company shall not impair the validity or enforceability of the release provision of this Agreement. The Company may also recover all cost and expenses incurred in any efforts to enforce its rights under this Agreement. The Company shall have the right to set off any amount owed to Employee against any amount owed by Employee hereunder.
6. Return of Property. Employee agrees to return immediately all Company property (and property of its affiliates) of whatsoever kind and character, including, without limitation, keys, documents, computer software and hardware, discs and media, and policy and procedures manuals.

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7. Notices. Any notice required or permitted to be given under this Agreement shall be deemed properly given if in writing and delivered by hand and receipt is acknowledged by the party to whom said notice shall be directed, or if mailed by certified or registered mail, postage prepaid with return receipt requested, or sent by express courier service, charges prepaid by shipper, to the addresses of each party stated above and, in the case of notices to the Company, to the attention of its General Counsel at Masco Corporation, 17450 College Parkway, Livonia, MI 48152 (or to such other address as a party is directed pursuant to written notice from the other party).

8. Assignment. This Agreement shall not be assignable by either party except by the Company to any affiliate of the Company or to any successor in interest to the Company’s business.

9. Entire Agreement. This instrument and the Plan, the Outstanding Awards, Proprietary Agreement and the Dispute Resolution Policy (further referenced below) contain the entire agreement of the parties relating to the subject of employment and termination of Employee’s employment, supersede and replace in their entirety any existing employment agreement or consulting agreement of Employee and may not be waived, changed, modified, extended or discharged orally but only by agreement in writing signed by the party against whom enforcement of any such waiver, change, modification, extension or discharge is sought. The waiver by the Company of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of a breach of any other provision or of any subsequent breach by Employee.
10. No Disparagement. Employee agrees not to criticize, disparage or otherwise demean in any way the Company or its affiliates or its or their products, services, technologies, strategies, officers, directors or employees. This includes, but is not limited to, directly or indirectly providing disparaging comments to the media or disseminating them electronically, such as via social media or on any website or blog.
11. Release.

(a)    In consideration of the payments to be made and the agreements and consideration provided by the Company hereunder Employee, on Employee’s own behalf and on behalf of Employee’s heirs, executors, agents, successors and assigns, releases and forever discharges the Company, its affiliates and their respective directors, officers, agents, current and former employees, successors, predecessors and assigns and any other person, firm, corporation or legal entity in any way related to the Company or its affiliates (the “Released Parties”), of and from all claims, demands, actions, causes of action, statutory rights, duties, debts, sums of money, suits, reckonings, contracts, agreements, controversies, promises, damages, obligations, responsibilities, liabilities and accounts of whatsoever kind, nature or description, direct or indirect, in law or in equity, in contract or in tort or otherwise, which Employee ever had or which Employee now has or hereafter can, shall or may have, against any of the Released Parties, for or by reason of any matter, cause, or thing whatsoever up to the present time, whether known or unknown, suspected or unsuspected at the present time, or which may be based upon pre-existing acts, claims or events occurring at any time up to the date hereof which may result in future damages, including without limitation all direct or indirect claims either for direct or consequential damages of any kind whatsoever and rights or claims arising under Title VII, any state civil-rights legislation, claims of disability discrimination, claims relating to the termination of employment as referred to herein, and claims of age discrimination under the Age Discrimination in Employment Act of 1967, as amended (ADEA), against any of the Released Parties, other than (a) claims arising under the express provisions of this Agreement, (b) the right to receive benefits accrued through the end of

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the employment period under the Company’s benefit plans and (c) claims arising under any applicable worker’s compensation statute. It is the intention of the parties that this general release by Employee will be construed as broadly as possible. Nothing in this Agreement, however, prohibits or prevents Employee from filing a charge with or participating, testifying or assisting in any investigation, hearing, whistleblower action or other proceeding, which cannot be waived, before any federal, state or local government agency (e.g., EEOC, NLRB, SEC, etc.), nor does anything in this Agreement preclude, prohibit or otherwise limit, in any way, Employee rights and abilities to contact, communicate with, report matters to or otherwise participate in any whistleblower program administered by any such agencies. However, to the maximum extent permitted by law, Employee agrees that if such an administrative claim is made, Employee shall not be entitled to recover any individual monetary relief or other individual remedies (which, for the avoidance of doubt, excludes any waiver by Employee of the right to receive SEC whistleblower awards).
(b)    Employee has: (i) the sole right, title, and interest to the claims released under this Agreement, (ii) neither assigned or transferred, nor purported to assign or transfer, to any person or entity, any claim released by this Agreement, and (iii) neither assigned or transferred, nor purported to assign or transfer, to any person or entity, the right to the monies, in whole or in part, being paid pursuant to this Agreement.
(c)       Employee affirms that as of the date Employee signs this Agreement, (i) Employee is not Medicare eligible (i.e., is not 65 years of age or older; is not suffering from end-stage renal failure; has not received Social Security Disability Insurance benefits for 24 months or longer, etc.) or (ii) if eligible, Employee has no outstanding claims for Medicare benefits.  Nonetheless, if the Centers for Medicare & Medicaid Services (the “CMS”) (this term includes any related agency representing Medicare’s interests) determines that Medicare has an interest in the payment to Employee under this Settlement Agreement, Employee agrees to indemnify, defend and hold Employer harmless from any action by the CMS relating to medical expenses of Employee.  Employee agrees to reasonably cooperate with Employer upon request with respect to any claim the CMS may make and for which Employee is required to indemnify Employer under this paragraph.  Further, Employee agrees to waive any and all future actions against Employer for any private cause of action for damages pursuant to 42 U.S.C. § 1395y(b)(3)(A).

12. Non-Disclosure. Other than to the extent required by applicable securities laws, if and until such time as this Agreement becomes publicly disclosed by the Company in its required securities filings or otherwise, Employee shall not disclose the fact of this Agreement or any of its terms to any third parties other than to Employee’s spouse, tax and financial advisors, banks, creditors, or attorneys, each of whom, in turn shall be bound by this paragraph not to further disclose this Agreement. Employee agrees that any violation of this confidentiality provision will result in substantial and irreparable injury to Company. In the event of such a violation, in addition to the Company’s right to terminate any further payment or benefits as permitted under Paragraph 5, Employee will also be liable to Company for such economic damages and equitable relief as a Court may deem appropriate.

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13. Execution and Revocation.
(a) This Agreement was first communicated to Employee on July 18, 2019. Employee is not required to, but may, accept this Agreement by signing and dating this Agreement on or before August 15, 2019, which is more than twenty-one (21) days from the date this Agreement was first communicated to Employee. If this Agreement is not accepted by Employee on or before August 15, 2019, it shall be withdrawn by the Company and become null and void.
(b) Employee understands that this Agreement may be revoked for a period of seven (7) calendar days following Employee’s execution of this Agreement. The Agreement is not effective until this revocation period has expired. Employee understands that any revocation to be effective must be in writing and either postmarked within seven (7) days of the execution of this Agreement and addressed to Kenneth G. Cole, General Counsel, Masco Corporation, 17450 College Parkway, Livonia, MI 48152 or hand delivered within seven (7) days to Kenneth G. Cole at the address listed above. If revocation is by mail, certified mail, return receipt requested is required to show proof of mailing.
14. No Payment. No payments or benefits under this Agreement shall be made to Employee until the seven (7) day revocation period has expired. If Employee does not revoke this Agreement within the seven (7) day revocation period, then this Agreement shall become binding on the Company and Employee as otherwise provided herein, and the payments and benefits provided in Paragraph 1 will commence.
15. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained in this Agreement, while giving maximum effort to the intent of the parties as reflected in this Agreement.
16. Dispute Resolution Policy. The terms of the Dispute Resolution Policy (a copy of which has previously been provided Employee), as well as the terms of the Dispute Resolution Policy as amended in the Outstanding Awards, are incorporated into this Agreement. The parties agree that any dispute in any way involving this Agreement may only be commenced before the American Arbitration Association and that Michigan law will govern the resolution of any such disputes.

17. Headings and Construction. The headings of the Paragraphs are for convenience only and shall not control or affect the meaning or construction or limit the scope or intent of any of the provisions of this Agreement. The terms “and” and “or” herein shall each be interpreted to include the other, i.e. “and/or.”

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18. Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. A facsimile signature, whether by fax or other electronic form, shall be deemed an original and shall bind the signing Party.

19. Tax Matters. The Company will withhold required federal, state and local taxes from any and all payments to Employee. Other than the Company’s obligation and right to withhold federal, state and local taxes, Employee will be responsible for any and all taxes, interest, and penalties that may be imposed with respect to the Retention Incentives, including but not limited to, those imposed under Internal Revenue Code Section 409A (“Section 409A”). To the extent that this Agreement is subject to Section 409A, Employee and the Company agree that the terms and conditions of this Agreement will be construed and interpreted to the maximum extent reasonably possible to comply with and avoid the imputation of any tax, penalty or interest under Section 409A.

Notwithstanding any provision of this Agreement to the contrary, if Employee is a “specified employee” as defined in Section 409A, and if any payments hereunder are considered deferred compensation subject to Section 409A, Employee will not be entitled to any such payments in connection with the termination of his employment until the date which is six months and one day after the Termination Date (or, if earlier, the date of Employee’s death) and any payment otherwise due in such period will be made within the 30 day period following the six month anniversary of the Termination Date (or, if earlier, the date of Employee’s death). Each installment amount to be paid or benefit to be provided under this Agreement shall be construed as a separate identified payment for purposes of Section 409A. The provisions of this paragraph will only apply if, and to the extent, required to comply with Section 409A. For purposes of Section 409A, each payment made under this letter is designated as a “separate payment” within the meaning of Section 409A. Payments made with respect to reimbursements of expenses shall be made or provided in accordance with the requirements of Section 409A, including, where applicable, the requirement that the reimbursement be made on or before the last day of the calendar year following the calendar year in which the relevant expense is incurred. The amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year.
  
20. Governing Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by and construed in accordance with the domestic laws of the State of Michigan, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Michigan or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Michigan.

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

MASCO CORPORATION
/S/ RENEE STRABER 
By: _____________________________________
Renee Straber
Its: Vice President, Chief Human Resources Officer

/S/ AMIT BHARGAVA 
_________________________________________
Amit Bhargava

Dated:      August 8, 2019

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Exhibit 31a
MASCO CORPORATION
Certification Required by Rule 13a-14(a) or 15d-14(a)
of the Securities Exchange Act of 1934

I, Keith J. Allman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Masco Corporation ("the registrant");	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and	

d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;	

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
					
Date:	October 30, 2019	 	By:	/s/ Keith J. Allman	
 	 	 	 	Keith J. Allman	
 	 	 	 	President and Chief Executive Officer	

1

	

Exhibit 31b
MASCO CORPORATION
Certification Required by Rule 13a-14(a) or 15d-14(a)
of the Securities Exchange Act of 1934

I, John G. Sznewajs, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Masco Corporation ("the registrant");	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and	

d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;	

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
					
Date:	October 30, 2019	 	By:	/s/ John G. Sznewajs	
 	 	 	 	John G. Sznewajs	
 	 	 	 	Vice President, Chief Financial Officer	

1

	

Exhibit 32
MASCO CORPORATION
Certification Required by Rule 13a-14(b) or 15d-14(b)
of the Securities Exchange Act of 1934 and
Section 1350 of Chapter 63 of Title 18 of the
United States Code

The certification set forth below is being submitted in connection with the Masco Corporation Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
 
Keith J. Allman, the President and Chief Executive Officer, and John G. Sznewajs, the Vice President, Chief Financial Officer, of Masco Corporation, each certifies that, to the best of his knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

2.	The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of Masco Corporation.	

	
					
Date:	 	October 30, 2019	 	/s/ Keith J. Allman	
 	 	 	 	Keith J. Allman	
 	 	 	 	President and Chief Executive Officer	
 	 	 	 	 	
Date:	 	October 30, 2019	 	/s/ John G. Sznewajs	
 	 	 	 	John G. Sznewajs	
 	 	 	 	Vice President, Chief Financial Officer	

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