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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2021
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)
Delaware38-1794485
(State of Incorporation)(I.R.S. Employer Identification No.)
17450 College Parkway, Livonia,Michigan48152
(Address of Principal Executive Offices)(Zip Code)

Registrant's telephone number, including area code: (313) 274-7400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Trading SymbolName of Each Exchange
On Which Registered
Common Stock, $1.00 par valueMASNew York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No þ
The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on June 30, 2021 (based on the closing sale price of $58.91 of the Registrant's Common Stock, as reported by the New York Stock Exchange on such date) was approximately $14,501,171,300.
Number of shares outstanding of the Registrant's Common Stock at January 31, 2022:
239,926,257 shares of Common Stock, par value $1.00 per share

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement to be filed for its 2022 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.




Masco Corporation
2021 Annual Report on Form 10-K

TABLE OF CONTENTS
Item   Page
  
  
  
  
 

1


Cautionary Statement Concerning 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 to a lesser extent, new home construction, our ability to maintain our strong brands and reputation and to develop innovative products, our ability to maintain our competitive position in our industries, our reliance on key customers, the duration of the ongoing COVID-19 pandemic, including its impact on domestic and international economic activity, consumer discretionary spending, our employees and our supply chain, the cost and availability of materials, our dependence on third-party suppliers and service providers, extreme weather events and changes in climate, risks associated with our international operations and global strategies, our ability to achieve the anticipated benefits of our strategic initiatives, 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 and diverse personnel, risks associated with our reliance on information systems and technology and risks associated with cybersecurity vulnerabilities, threats and attacks.

These and other factors are discussed in detail in Item 1A. "Risk Factors" of this Report. Any forward-looking statement made by us speaks only as of the date on which it was made. 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.

PART I

Item 1.Business.
Masco Corporation and its subsidiaries (the “Company”) is a global leader in the design, manufacture and distribution of branded home improvement and building products. Our portfolio of industry-leading brands includes BEHR® paint; DELTA® and HANSGROHE® faucets, bath and shower fixtures; KICHLER® decorative and outdoor lighting; LIBERTY® branded decorative and functional hardware; and HOT SPRING® spas. We leverage our powerful brands across product categories, sales channels and geographies to create value for our customers and shareholders.
We believe that our solid results of operations and financial position for 2021 resulted from strong consumer demand for our lower ticket, repair and remodel-oriented products along with our continued focus on our three strategic pillars:
drive the full potential of our core businesses;
leverage opportunities across our enterprise; and
actively manage our portfolio.
In 2021, we completed the divestiture of our Hüppe GmbH ("Hüppe") business. We also completed the purchase of a 75.1 percent equity interest in Easy Sanitary Solutions B.V. ("ESS") and all of the share capital of Steamist, Inc. ("Steamist"). Additionally, we continued to return value to our shareholders by repurchasing approximately 17.6 million shares of our common stock and increasing our quarterly dividend by approximately 68 percent.



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Our Business Segments
We report our financial results in two segments, our Plumbing Products segment and our Decorative Architectural Products segment, which are aggregated by product similarity. Our Decorative Architectural Products segment is impacted by seasonality and normally experiences stronger sales during the second and third calendar quarters, corresponding with the peak season for repair and remodel activity.
Plumbing Products
The businesses in our Plumbing Products segment sell a wide variety of products that are manufactured or sourced by us.
Our plumbing products include faucets, showerheads, handheld showers, valves, bath hardware and accessories, bathing units, shower bases and enclosures, shower drains, steam shower systems, sinks, kitchen accessories and toilets. We primarily sell these products to home center retailers, online retailers, mass merchandisers, wholesalers and distributors that, in turn, sell them to plumbers, building contractors, remodelers, smaller retailers and consumers. The majority of our faucet, bathing and showering products are sold primarily in North America, Europe and China under the brand names DELTA®, BRIZO®, PEERLESS®, HANSGROHE®, AXOR®, KRAUS®, EASY DRAIN®, STEAMIST®, ELITESTEAM®, GINGER®, NEWPORT BRASS®, BRASSTECH® and WALTEC®. Our BRISTAN™ and HERITAGE™ products are sold primarily in the United Kingdom.
We manufacture acrylic tubs, bath and shower enclosure units, and shower bases and trays. Our DELTA, PEERLESS and MIROLIN® products are sold primarily to home center retailers in North America. Our MIROLIN products are also sold to wholesalers and distributors in Canada.
Our spas, exercise pools and fitness systems are manufactured and sold under our HOT SPRING®, CALDERA®, FREEFLOW SPAS®, FANTASY SPAS® and ENDLESS POOLS® brands, as well as under other trademarks. Our spa and exercise pools are sold worldwide to independent specialty retailers and distributors and to online mass merchant retailers. Certain exercise pools are also available on a consumer-direct basis in North America and Europe, while our fitness systems are sold through independent specialty retailers as well as on a consumer-direct basis in some areas.
Included in our Plumbing Products segment are brass, copper and composite plumbing system components and other non-decorative plumbing products that are sold to plumbing, heating and hardware wholesalers, home center and online retailers, hardware stores, building supply outlets and other mass merchandisers. These products are marketed primarily in North America under our BRASSCRAFT®, PLUMB SHOP®, COBRA®, COBRA PRO™ and MASTER PLUMBER® brands and are also sold under private label.
Within our Plumbing Products segment we develop connected water products that enhance the experience with water in homes and businesses. These systems include touchless activation, voice activation, controlled volume dispensing and provide for monitoring and controlling the temperature and flow of water and are compatible with a range of faucets, showerheads and other showering components.
We also supply high-quality, custom thermoplastic solutions, extruded plastic profiles and specialized fabrications, as well as PEX tubing, to manufacturers, distributors and wholesalers for use in diverse applications that include faucets and plumbing supplies, appliances, oil and gas equipment, building products and medical equipment components.





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We believe that our plumbing products are among the leaders in sales in North America and Europe. Competitors of the majority of our products in this segment include Dornbracht AG & Co. KG, Elkay Manufacturing Company, Fortune Brands Home & Security, Inc.'s Moen, Rohl and Riobel brands, Kohler Co., Lixil Group Corporation’s American Standard and Grohe brands, Spectrum Brands Holdings, Inc.'s Pfister faucets and private label brands. Competitors of our spas and exercise pools and systems include Artesian Spas, Jacuzzi and Master Spas brands, among others. Foreign manufacturers competing with us are located primarily in Europe and China. Additionally, we face significant competition from private label products and digitally native brands. The businesses in our Plumbing Products segment manufacture products primarily in North America and Europe as well as in Asia and source products from Asia and other regions. Competition for our plumbing products is based largely on brand reputation, product features and innovation, product quality, customer service, breadth of product offering and price. Many of the faucet and showering products with which our products compete are manufactured by low-cost foreign manufacturers that contribute to price competition.
Many of our plumbing products contain brass, the major components of which are copper and zinc. We have multiple sources, both domestic and foreign, for our raw materials used in this segment. We have encountered price volatility for brass, brass components and any components containing copper and zinc. To help reduce the impact of this volatility, from time to time we may enter into long-term agreements with certain significant suppliers. In addition, some of the products in this segment that we import have been and may in the future be subject to duties and tariffs.
Decorative Architectural Products
Our Decorative Architectural Products segment primarily includes architectural coatings, including paints, primers, specialty coatings, stains and waterproofing products, as well as paint applicators and accessories. These products are sold in North America, South America and China under the brand names BEHR®, KILZ®, WHIZZ®, Elder & Jenks® and other trademarks to “do‑it‑yourself” and professional customers through home center retailers and other retailers. Net sales of architectural coatings comprised approximately 30 percent, 33 percent and 31 percent of our consolidated net sales from our continuing operations in 2021, 2020, and 2019, respectively. Our BEHR products are sold through The Home Depot, our largest customer overall, as well as this segment’s largest customer. Our Behr business grants Behr brand exclusivity in the retail sales channel in North America to The Home Depot. The granting of exclusivity affects our ability to sell those products and brands to other customers, and the loss of this segment’s sales to The Home Depot would have a material adverse effect on this segment’s business and on our consolidated business as a whole.
Our competitors in this segment include large national and international brands such as Benjamin Moore & Co., PPG Industries, Inc.'s Glidden, Olympic, Pittsburgh Paints and PPG brands, The Sherwin‑Williams Company's Minwax, Sherwin-Williams, Thompson’s Water Seal, Valspar and Purdy brands, RPM International, Inc.'s Rust-Oleum and Zinsser brands and the Wooster Brush Company, as well as many regional and other national brands. We believe that brand reputation is an important factor in consumer selection, and that competition in this industry is also based largely on product features and innovation, product quality, customer service, breadth of product offering and price.
Acrylic resins and titanium dioxide are principal raw materials in the manufacture of architectural coatings. The price of acrylic resins fluctuates based on the price of its components, which can have a material impact on our costs and results of operations in this segment. The price for titanium dioxide can fluctuate as a result of global supply and demand dynamics and production capacity limitations, which can have a material impact on our costs and results of operations in this segment. In addition, the prices of crude oil, natural gas, propylene, methyl methacrylate (MMA), zinc and certain petroleum by-products can impact our costs and results of operations in this segment. We have multiple sources, both domestic and foreign, for the raw materials used in this segment. We have encountered price volatility for propylene and MMA and, to a lesser extent, zinc. To help reduce the impact of this price volatility, we have and may in the future enter into long-term agreements with certain significant suppliers. We import certain materials and products for this segment that have been and may in the future be subject to duties and tariffs. We also have agreements with certain significant suppliers for this segment that are intended to help assure continued supply.


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Our Decorative Architectural Products segment includes branded cabinet and door hardware, functional hardware, wall plates, hook and hook rail products, closet organization systems and picture hanging accessories, which are manufactured for us and sold to home center retailers, mass retailers, online retailers, other specialty retailers, original equipment manufacturers and wholesalers. These products are sold under the LIBERTY®, BRAINERD®, FRANKLIN BRASS® and other trademarks. Our key competitors in North America include Amerock Hardware, Richelieu Hardware Ltd., Top Knobs and private label brands. Decorative bath hardware, shower accessories, mirrors and shower doors are sold under the brand names DELTA® and FRANKLIN BRASS® and other trademarks to home center retailers, mass retailers, online retailers, other specialty retailers and wholesalers. Competitors for these products include Fortune Brands Home & Security, Inc.'s Moen brand, Gatco Fine Bathware, Kohler Co. and private label brands.
This segment also includes decorative indoor and outdoor lighting fixtures, ceiling fans, landscape lighting and LED lighting systems. These products are sold to home center retailers, online retailers, electrical distributors, landscape distributors and lighting showrooms under the brand names KICHLER® and ÉLAN® and under other trademarks. Competitors of these products include Acuity, FX Luminaire, Generation Brands, Hinkley Lighting, Inc., Hubbell Incorporated's Progress Lighting brand, Hunter Fan Company and private label brands.
Additional Information
Intellectual Property
We hold numerous U.S. and foreign patents, patent applications, licenses, trademarks, trade names, trade secrets and proprietary manufacturing processes. We view our trademarks and other intellectual property rights as important, but do not believe that there is any reasonable likelihood of a loss of such rights that would have a material adverse effect on our present business as a whole.
Laws and Regulations Affecting Our Business
We are subject to federal, state, local and foreign government laws and regulations. For a more detailed description of the various laws and regulations that impact our business, see Item 1A. Risk Factors.
We monitor applicable laws and regulations and incur ongoing expense relating to compliance, however we do not expect that compliance with federal, state, local and foreign regulations, will result in material capital expenditures or have a material adverse effect on our results of operations and financial position.
Human Capital Management
We believe the performance of our Company is impacted by our human capital management, and as a result we are focused on attracting, developing and retaining highly qualified, engaged and diverse employees. We have developed three strategic talent priorities: leadership, diversity, equity and inclusion, and future workforce. Our Chief Human Resources Officer is responsible for developing and executing our human capital strategy and provides regular updates to our Board of Directors’ Organization and Compensation Committee on our progress toward the achievement of these strategic initiatives. We believe that our human capital initiatives work together to help our employees grow and thrive, cultivate a culture where our employees feel like they belong and keep our employees healthy and safe in the workplace.
Leadership
We support and foster the growth of our employees by providing development opportunities and tools that build and strengthen leadership capabilities. We use our Leadership Framework, which is our internal leadership evaluation framework, to define the capabilities and attributes and behaviors that serve as the foundation for how we select, develop and measure the performance of our leaders.
To develop a sustainable pipeline of leaders, we have robust and proactive talent management and succession planning processes to support our businesses. In addition, our Board of Directors and executive management team regularly review our Company’s critical leadership roles and succession plans.
We are focused on building a continuous learning culture by enabling frequent and candid feedback discussions about performance and development between employees and their managers, across peers, and within teams.
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Diversity, Equity and Inclusion ("DE&I")
We believe a workplace that encourages different voices, perspectives and backgrounds creates better teams, better solutions and more innovation. We strive to cultivate a sense of belonging for our employees. We are focused on the following three key areas:
Our workplace: who we are and how it feels to work at Masco
Our marketplace: how we deliver innovative solutions that meet the needs of all our consumers and customers
Our communities: how we can help increase access, equity, and inclusion through strong community partners and business partnerships
Each strategic focus area has a series of enterprise-wide initiatives, and our businesses have aligned plans that are tailored to meet their specific needs. Our enterprise DE&I Council along with business unit councils and employee resource groups serve as advisors, ambassadors and change agents in implementing our enterprise-wide initiatives and their business unit plans.
Our workforce representation statistics are one indicator of our performance in advancing a diverse workforce. Following is our workforce representation statistics as of December 31, 2021:
In the U.S., our leadership team is comprised of 31 percent women and 26 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 24 percent and 20 percent, respectively. The EEO-1 leadership benchmark includes executive-level/senior-officials and managers, and first-level officials and managers.
In the U.S., our salaried workforce is comprised of approximately 36 percent women and 29 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 27 percent and 26 percent, respectively. The EEO-1 salaried employees benchmark includes leadership, professionals and technicians.
In the U.S., our hourly workforce, which includes hourly and exception hourly, is comprised of 38 percent women and 53 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 28 percent and 37 percent, respectively. The EEO-1 hourly employees benchmark includes all other EEO categories we did not include in the EEO-1 leadership and salaried benchmark.
We have established specific aspirational workforce representation goals for our U.S. workforce along with goals linked to employees’ experiences related to inclusion and belonging. Progress towards these goals is measured on an annual basis and is reviewed by our Organization and Compensation Committee of our Board of Directors and executive management team. We describe those goals in our Corporate Social Responsibility report, which is not incorporated by reference into this Annual Report on Form 10-K.
Future Workforce
There are critical capabilities that our employees and our organization need to help us achieve our businesses objectives. We leverage our Masco Operating System, our methodology to drive growth and productivity, to ensure that our businesses are focused on building these critical organizational capabilities by ensuring they have the right structure, talent, tools, and training in place.
Employee Engagement

In order to engage and retain our employees, we listen to our employees to understand their perspectives, needs and ideas by leveraging various forums, tools, and methods including surveys to measure key insights related to employee engagement, inclusion, well-being, and leadership, among others.






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Employee Health and Safety
The safety of our employees is integral to our company. In support of our safety efforts, we identify, assess, and investigate incidents and injury data, and each year set a goal to improve key safety performance indicators. We communicate and train our workforce on the importance of safe work practices. We also regularly consult with our employees on safety-related improvements to our operations. Throughout 2021, our cross-functional Infectious Illness Response Team updated protocols and procedures to continue to help keep our employees safe during the ongoing COVID-19 pandemic. We continued to implement the best practices and recommendations from the World Health Organization, the Centers for Disease Control, and the Department of Labor (OSHA). We encouraged our employees to receive COVID-19 vaccinations across our organization through educational outreach, on-site vaccination clinics, and paid time off to receive the COVID-19 vaccine.
Our Workforce
At December 31, 2021, we employed approximately 20,000 people.
Available Information
Our website is www.masco.com. Our periodic reports and all amendments to those reports required to be filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website as soon as reasonably practicable after those reports are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). This Report is being posted on our website concurrently with its filing with the SEC. Material contained on our website is not incorporated by reference into this Report. Our reports filed with the SEC also may be found on the SEC’s website at www.sec.gov.
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Item 1A.    Risk Factors.
There are a number of business risks and uncertainties that could affect our business. These risks and uncertainties could cause our actual results to differ from past performance or expected results. We consider the following risks and uncertainties to be most relevant to our specific business activities. Additional risks and uncertainties not presently known to us, or that we currently believe to be immaterial, also may adversely impact our business, results of operations and financial position.
Coronavirus Disease Risks

The ongoing COVID-19 pandemic has and may continue to impact our operations, which may impact our results and our financial condition.

The spread of COVID-19 created a global health crisis that resulted in widespread disruption to economic activity, both in the U.S. and globally.
We operate facilities in the United States and around the world which have been and may continue to be adversely affected by this pandemic, including the closure or reduced capacity of certain of our facilities; delays or disruptions in our ability to source raw materials, components and products; constraints in shipping, transportation and logistics; and decreased employee availability. Due to the uncertain duration of the COVID-19 pandemic, we are unable to fully estimate the extent of the impact it may have on the markets in which we operate or our business. The extent of such impact will depend on a number of factors, including the duration of the COVID-19 pandemic, its effect on our customers, suppliers and employees, its effect on domestic and international economies and markets, including consumer discretionary spending, and the response of governmental authorities. A prolonged disruption of our operations or slowdown in domestic and international economic activity could materially and adversely affect our results of operations and financial condition.
To the extent COVID-19 continues to impact our business and our operations, it may also have the effect of heightening certain of the other risks described in this Annual Report on Form 10-K, such as those relating to our international operations and global strategies and our dependence on third-party suppliers.

Strategic Risks

Our business strategy is focused on residential repair and remodeling activity and, to a lesser extent, on new home construction activity, both of which are impacted by a number of economic factors and other factors.

Our business relies on residential repair and remodeling activity and, to a lesser extent, on new home construction activity. A number of factors impact consumers’ spending on home improvement projects as well as new home construction activity, including:
consumer confidence levels;
fluctuations in home prices;
existing home sales;
unemployment and underemployment levels;
consumer income and debt levels;
household formation;
the availability of skilled tradespeople for repair and remodeling work;
the availability of home equity loans and mortgages and the interest rates for and tax deductibility of such loans;
trends in lifestyle and housing design; and
natural disasters, terrorist acts, pandemics or other catastrophic events.
The fundamentals driving our business are impacted by economic cycles. Adverse changes or uncertainty involving the factors listed above, an economic contraction or inflationary pressures could result in a decline in residential repair and remodeling activity or in demand for new home construction, which could adversely affect our results of operations and financial position.

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We may not achieve all of the anticipated benefits of our strategic initiatives.

We continue to pursue our strategic initiatives of investing in our brands, developing innovative products, and focusing on operational excellence through the Masco Operating System, our methodology to drive growth and productivity. These initiatives are designed to grow revenue, improve profitability and increase shareholder value over the mid- to long-term. Our business performance and results could be adversely affected if we are unable to successfully execute these initiatives or if we are unable to execute these initiatives in a timely and efficient manner. We could also be adversely affected if we have not appropriately prioritized and balanced our initiatives or if we are unable to effectively manage change throughout our organization.

We may not be able to successfully execute our acquisition strategy or integrate businesses that we acquire.

Pursuing the acquisition of businesses complementary to our portfolio is a component of our strategy for future growth. If we are not able to identify suitable acquisition candidates or consummate potential acquisitions within a desired time frame or at acceptable terms and prices, our long-term competitive positioning may be affected. Even if we are successful in acquiring businesses, the businesses we acquire may not be able to achieve the revenue, profitability or growth we anticipate, or we may experience challenges and risks in integrating these businesses into our existing business. Such risks include:
difficulties realizing expected synergies and economies of scale;
diversion of management attention and our resources;
unforeseen liabilities;
issues or conflicts with our new or existing customers or suppliers; and
difficulties in retaining critical employees of the acquired businesses.
International acquisitions that we have made, and international acquisitions that we may make in the future may continue to increase our exposure to foreign currency risks and risks associated with interpretation and enforcement of foreign regulations. Our failure to address these risks could cause us to incur additional costs and fail to realize the anticipated benefits of our acquisitions and could adversely affect our results of operations and financial position.

Business and Operational Risks

Variability in the cost and availability of our raw materials, component parts and finished goods could affect our results of operations and financial position.

We purchase substantial amounts of raw materials, component parts and finished goods from outside sources, including international sources, and we manufacture certain of our products outside of the United States. Increases in the cost of the materials we purchase, including as a result of availability, tariffs and inflation, have in the past and may in the future increase the prices for our products. Further, our production could be affected if we or our suppliers are unable to procure our requirements for various commodities, including, among others, brass, resins, titanium dioxide and zinc, or if a shortage of these commodities results in significantly increased costs. Rising energy costs could also increase our production and transportation costs. In addition, water is a significant component of our architectural coatings products and may be subject to shortages and restrictions on supply in certain regions, due to climate-related and other influences. These factors could adversely affect our results of operations and financial position.
It can be difficult for us to pass on to customers our cost increases. Our existing arrangements with customers, competitive considerations and customer resistance to price increases may delay or make us unable to adjust selling prices. If we are not able to sufficiently increase the prices of our products or achieve cost savings to offset increased material and production costs, our results of operations and financial position could be adversely affected. Increased selling prices for our products have and may in the future lead to sales declines and loss of market share, particularly if those prices are not competitive. When our material costs decline, we have experienced and may in the future receive pressure from our customers to reduce our prices. Such reductions could adversely affect our results of operations and financial position.

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From time to time we enter into long-term agreements with certain significant suppliers to help ensure continued availability of the commodities we require to produce our products and to establish firm pricing, but at times these contractual commitments may result in our paying above market prices for commodities during the term of the contract. Occasionally, we may also use derivative instruments, including commodity futures and swaps. This strategy increases the possibility that we may make commitments for these commodities at prices that subsequently exceed their market prices, which has occurred and could occur in the future and may adversely affect our results of operations and financial position.

We are dependent on third-party suppliers and service providers.

We are dependent on third parties for many of our products and components and for certain services. Our ability to offer a wide variety of products and provide high levels of service to our customers depend on our ability to obtain an adequate and timely supply of products and components. Failure of our suppliers to timely provide us quality products or services on commercially reasonable terms or to comply with applicable legal and regulatory requirements or our supplier business practices policies, could have a material adverse effect on our results of operations and financial position or could damage our reputation. The operations of the third parties we depend on could be impacted by changing laws, regulations and policies, including those related to climate change, labor availability and by adverse weather conditions, pandemics, and other force majeure events, any of which could result in disruptions to their operations and result in shortages of supply, assertion of force majeure contract provisions and increases in the prices they charge for the raw materials, components and products they produce. Sourcing these products and components from alternate suppliers, including suppliers from new geographic regions, or re-engineering our products as a result of supplier disruptions, is time-consuming and costly and could result in inefficiencies or delays in our business operations or could negatively impact the quality of our products. In addition, the loss of critical suppliers, or a substantial decrease in the availability of products or components from our suppliers, has and could continue to disrupt our business and may adversely affect our results of operations and financial position.
Many of the suppliers we rely upon are located in foreign countries, primarily China. The differences in business practices, shipping and delivery requirements, changes in economic conditions and trade policies and laws and regulations, together with the limited number of suppliers, have increased the complexity of our supply chain logistics and the potential for interruptions in our production scheduling. We have experienced and may continue to experience constraints on and disruptions to transporting our raw materials, components and products from our international suppliers and have had to pay higher transportation costs. If we are unable to effectively manage our supply chain or if we continue to experience such transportation constraints, disruptions and higher costs for timely delivery of our products or components, our results of operations and financial position could be adversely affected.

There are risks associated with our international operations and global strategies.

In 2021, 21 percent of our sales from continuing operations were made outside of North America (principally in Europe) and transacted in currencies other than the U.S. dollar. In addition to our European operations, we manufacture products in Asia and source products and components from third parties globally. Risks associated with our international operations include:
differences in culture, economic and labor conditions and practices;
the policies of the U.S. and foreign governments;
disruptions in trade relations and economic instability;
differences in enforcement of contract and intellectual property rights;
timeliness of transportation and port congestion;
social and political unrest; and
natural disasters, terrorist attacks, pandemics or other catastrophic events.



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We are also affected by domestic and international laws and regulations applicable to companies doing business abroad or importing and exporting goods and materials. These include tax laws, laws regulating competition, anti-bribery/anti-corruption and other business practices, and trade regulations, including duties and tariffs. Compliance with these laws is costly, and future changes to these laws may require significant management attention and disrupt our operations. Additionally, while it is difficult to assess what changes may occur and the relative effect on our international tax structure, significant changes in how U.S. and foreign jurisdictions tax cross-border transactions could adversely affect our results of operations and financial position.

Our results of operations and financial position are also impacted by changes in currency exchange rates. Unfavorable currency exchange rates, particularly the euro, the Chinese Yuan renminbi, the Canadian dollar and the British pound sterling, have in the past adversely affected us, and could adversely affect us in the future. Fluctuations in currency exchange rates may present challenges in comparing operating performance from period to period.
Additionally, as a result of the United Kingdom's exit from the European Union, we could experience volatility in the currency exchange rates or a change in the demand for our products and services, particularly in our U.K. and European markets, or there could be disruption of our operations and our customers’ and suppliers’ businesses.

The long-term performance of our businesses relies on our ability to attract, develop and retain talented and diverse personnel.

To be successful, we must invest significant resources to attract, develop and retain highly qualified, talented and diverse employees at all levels, who have the experience, knowledge and expertise to implement our strategic and business initiatives. We compete for employees with a broad range of employers in many different industries, including large multinational firms, and we may fail in recruiting, developing, motivating and retaining them, particularly when there are low unemployment levels. We have been and continue to be affected by a shortage of qualified personnel in certain geographic areas. Our growth, competitive position, results of operations and financial position could be adversely affected by our failure to attract, develop and retain key employees and diverse talent, to build strong leadership teams, to successfully implement our talent strategies or to develop effective succession planning to assure smooth transitions of those employees and the knowledge and expertise they possess.

Extreme weather events and changes in climate could adversely impact our results of operations and financial position.

Extreme weather events, such as severe winter and other storms, hurricanes, fires, floods, tornados and droughts, as a result of climate change or other factors, have negatively impacted and may continue to negatively impact our business. These types of events can be disruptive to our operations and may impact consumer spending. In addition, we have certain suppliers located in areas that have experienced extreme weather events which have impacted and may continue to impact the availability and cost of some of our raw materials, components and products from time to time. If the frequency or severity of extreme weather increases, we may experience interruptions to our operations, further impact on our supply chain, increased operating costs or loss or damage to our property or inventory, which could adversely affect our results of operations and financial position.

Restrictive covenants in our credit agreement could limit our financial flexibility.

We must comply with both financial and nonfinancial covenants in our credit agreement, and in order to borrow under it, we cannot be in default with any of those provisions. Our ability to borrow under the credit agreement could be affected if our earnings significantly decline to a level where we are not in compliance with the financial covenants or if we default on any nonfinancial covenants. In the past, we have been able to amend the covenants in our credit agreement, but there can be no assurance that in the future we would be able to further amend them. If we were unable to borrow under our credit agreement, our financial flexibility could be restricted.


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Competitive Risks

We could lose market share if we do not maintain our strong brands, develop innovative products or respond to changing purchasing practices and consumer preferences or if our reputation is damaged.

Our competitive advantage is due, in part, to our ability to maintain our strong brands and to develop and introduce innovative new and improved products. Our initiatives to invest in brand building, brand awareness and product innovation may not be successful. The uncertainties associated with developing and introducing innovative and improved products, such as gauging changing consumer demands and preferences and successfully developing, manufacturing, marketing, selling and servicing these products, may impact the success of our product introductions. If the products we introduce do not gain widespread acceptance or if our competitors improve their products more rapidly or effectively than we do, we could lose market share or be required to reduce our prices, which could adversely impact our results of operations and financial position.

In recent years, consumer purchasing practices and preferences have shifted and our customers’ business models and strategies have changed. As our customers execute their strategies to reach end consumers through multiple channels, they rely on us to support their efforts with our infrastructure, including maintaining robust and user-friendly websites with sufficient content for consumer research and providing comprehensive supply chain solutions and differentiated product development. If we are unable to successfully provide this support to our customers or if our customers are unable to successfully execute their strategies, our brands may lose market share.
If we do not timely and effectively identify and respond to changing consumer preferences, including, among others, a continued shift in consumer purchasing practices toward e-commerce and increased consumer demand for products with potential desired attributes, such as connected products and sustainable products, our relationships with our customers and with consumers could be harmed, our ability to retain our customers and consumers may be negatively impacted, the demand for our brands and products could be reduced and our results of operations and financial position could be adversely affected.
Our public image and reputation are important to maintaining our strong brands and could be adversely affected by various factors, including product quality and service, claims and comments in social media or the press, or a negative perception regarding our company practices, positions or public statements, including regarding disputes or legal action against us, even if unfounded. Damage to our public image or reputation could adversely affect our results of operations and financial position.

We face significant competition and operate in an evolving competitive landscape.

Our products face significant competition. We believe that brand reputation is an important factor affecting product selection and that we compete on the basis of product features, innovation, quality, customer service, warranty and price. We sell many of our products through home center retailers, online retailers, distributors and independent dealers and rely on these customers to market and promote our products to consumers. Our success with our customers is dependent on our ability to provide quality products and timely delivery. In addition, home center retailers, which have historically concentrated their sales efforts on retail consumers and remodelers, are increasingly selling directly to professional contractors and installers. This shift may adversely affect our margins on our products that contractors and installers would otherwise buy through our dealers and wholesalers, and as home center retailers develop customer experience programs to attract and retain contractors and installers, they may rely on us to support their efforts, which may affect our growth and operating results.
Certain of our customers are selling products sourced from low-cost foreign manufacturers under their own private label brands, which directly compete with our brands. As a result of this trend, we have and we may in the future experience lower demand for our products or a shift in the mix of some products we sell toward more value-priced or opening price point products, which may affect our operating results.
In addition, we face competitive pricing pressure in the marketplace, including sales promotion programs, that could affect our market share or result in price reductions, which could adversely impact our results of operations and financial position.

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Further, the growing e-commerce channel brings an increased number of competitors and greater pricing transparency for consumers, as well as conflicts between our existing distribution channels and a need for different distribution methods. These factors could affect our results of operations and financial position. In addition, our relationships with our customers, including our home center customers, may be affected if we increase the amount of business we transact in the e-commerce channel.

If we are unable to maintain our competitive position in our industries, our results of operations and financial position could be adversely affected.

Our sales are concentrated with three significant customers and this concentration may continue to increase. In 2021, our net sales from our continuing operations to The Home Depot were $3.0 billion (approximately 36 percent of our consolidated net sales), and our net sales from our continuing operations to Ferguson and Lowe’s were each less than 10 percent of our consolidated net sales. These customers can significantly affect the prices we receive for our products and the terms and conditions on which we do business with them. Additionally, these customers have in the past and may in the future reduce the number of vendors from which they purchase and could make significant changes in their volume of purchases from us. Although other retailers, dealers, distributors and homebuilders represent other channels of distribution for our products and services, we might not be able to quickly replace, if at all, the loss of a substantial portion of our sales to The Home Depot or the loss of all of our sales to either Ferguson or Lowe’s, and any such loss would have a material adverse effect on our business, results of operations and financial position.
In addition, our Behr business grants Behr brand exclusivity in the retail sales channel in North America to The Home Depot, and from time to time, certain of our other businesses grant product and/or brand exclusivity to our customers. The granting of exclusivity affects our ability to sell those products and brands to other customers and can increase the complexity of our product offerings and can increase our costs.

Technology and Intellectual Property Risks

We rely on information systems and technology, and a breakdown of these systems or interruptions resulting from our implementation of new systems could adversely affect our results of operations and financial position.

We rely on many information systems and technology to process, transmit, store and manage information to support our business activities. We may be adversely affected if our information systems breakdown, fail, or are no longer supported. In addition to the consequences that may occur from interruptions in our current systems, we continue to invest in new technology systems throughout our company, including implementations of and upgrades to Enterprise Resource Planning (“ERP”) systems at our business units. ERP implementations and upgrades are complex and require significant management oversight, and we have experienced, and may continue to experience, unanticipated expenses and interruptions to our operations during these implementations. Our results of operations and financial position, as well as the effectiveness of our internal controls over financial reporting, could be adversely affected if we do not appropriately select, implement, maintain and upgrade our technology systems in a timely manner or if we experience significant unanticipated expenses or disruptions in connection with the implementation and upgrade of ERP systems.















13


We have been and may continue to be subject to cybersecurity attacks, which could adversely affect our results of operations and financial position.

Global cybersecurity vulnerabilities, threats and more frequent, sophisticated and targeted attacks pose a risk to our information technology systems. We have implemented security policies, processes and layers of defense designed to help identify and protect against intentional and unintentional misappropriation or corruption of our systems and information and disruption of our operations. Despite these efforts, our systems have been and may in the future be damaged, disrupted, or shut down due to cybersecurity attacks by unauthorized access, malware, ransomware, undetected intrusion, hardware failures, or other events, and in these circumstances our disaster recovery plans may be ineffective or inadequate. These breaches or intrusions have led and could in the future lead to business interruption, production or operational downtime, product shipment delays, exposure or loss of proprietary confidential or financial information or the personal information of our employees or customers, data corruption, an inability to report our financial results in a timely manner, damage to the reputation of our brands, damage to our relationships with our customers and suppliers, exposure to litigation, and increased costs associated with the remediation and mitigation of such attacks. In addition, we could be adversely affected if any of our significant customers, third-party suppliers or service providers experiences any similar events that disrupt their business operations or damage their reputation. Such events could adversely affect our results of operations and financial position.

We may not be able to adequately protect or prevent the unauthorized use of our intellectual property.

Protecting our intellectual property is important to our growth and innovation efforts. We own a number of patents, trade names, brand names and other forms of intellectual property in our products and manufacturing processes throughout the world. There can be no assurance that our efforts to protect our intellectual property rights will prevent violations. Our intellectual property has been and may again be challenged or infringed upon by third parties, particularly in countries where property rights are not highly developed or protected. In addition, the global nature of our business increases the risk that we may be unable to obtain or maintain our intellectual property rights on reasonable terms. Furthermore, others may assert intellectual property infringement claims against us. Current and former employees, contractors, customers or suppliers have or may have had access to proprietary or confidential information regarding our business operations that could harm us if used by them, or disclosed to others, including our competitors. Protecting and preventing the unauthorized use of our intellectual property could be costly, time consuming and require significant resources. If we are not able to protect our existing intellectual property rights, or prevent unauthorized use of our intellectual property, sales of our products may be affected and we may experience reputational damage to our brand names, increased litigation costs and adverse impact to our competitive position, which could adversely affect our results of operations and financial position.

Litigation and Regulatory Risks

Claims and litigation could be costly.

We are involved in various claims and litigation, including class actions, mass torts and regulatory proceedings, that arise in the ordinary course of our business and that could have a material adverse effect on us. The types of matters may include, among others: competition, product liability, employment, warranty, advertising, contract, personal injury, environmental, intellectual property, product compliance and insurance coverage. The outcome and effect of these matters are inherently unpredictable, and defending and resolving them can be costly and can divert management’s attention. We have and may continue to incur significant costs as a result of claims and litigation.
We are also subject to product safety regulations, product recalls and direct claims for product liability that can result in significant costs and, regardless of the ultimate outcome, create adverse publicity and damage the reputation of our brands and business. Also, we rely on third-party suppliers to provide products or components for products that we sell. Due to the difficulty of controlling the quality of products and components we source from these suppliers, we are exposed to risks relating to the quality of such products and to limitations on our recourse against such suppliers.

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We maintain insurance against some, but not all, of the risks of loss resulting from claims and litigation. The levels of insurance we maintain may not be adequate to fully cover our losses or liabilities. If any significant accident, judgment, claim or other event is not fully insured or indemnified against, it could adversely affect our results of operations and financial position.
Refer to Note U to the consolidated financial statements included in Item 8 of this Report for additional information about litigation involving our businesses.

Our failure to comply with laws, government regulations and other requirements could adversely affect our results of operations and financial position.

We are subject to a wide variety of federal, state, local and foreign laws and regulations pertaining to:
securities matters;
taxation;
anti-bribery/anti-corruption;
employment and labor matters;
wage and hour matters;
environment, health and safety matters;
the protection of employees and consumers;
product safety and performance;
competition practices;
trade, including duties and tariffs;
data privacy and the collection and storage of information; and
climate change and protection of the environment.
In addition to complying with current requirements and known future requirements, we will be subject to new or more stringent requirements in the future.
As we sell new types of products or existing products in new geographic areas or channels or for new applications, we are subject to the requirements applicable to those sales. Additionally, some of our products must be certified by industry organizations. Compliance with new or changed laws, regulations and other requirements, including as a part of government or industry response to climate change, may require us to alter our product designs, our manufacturing processes, our packaging or our sourcing. These compliance activities are costly and require significant management attention and resources. If we do not effectively and timely comply with such regulations and other requirements, our results of operations and financial position could be adversely affected.

Item 1B.    Unresolved Staff Comments.

None.
Item 2.Properties.

The table below lists principal North American properties as of December 31, 2021.
Business SegmentManufacturingWarehouse and
Distribution
Plumbing Products22 11 
Decorative Architectural Products19 
Totals30 30 
Most of our North American facilities range from single warehouse buildings to complex manufacturing facilities. We own most of our North American manufacturing facilities, none of which is subject to significant encumbrances. A substantial number of our warehouse and distribution facilities are leased.


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The table below lists principal properties outside of North America as of December 31, 2021.
Business SegmentManufacturingWarehouse and
Distribution
Plumbing Products10 17 
Decorative Architectural Products— — 
Totals10 17 
Most of our international facilities are in China, Germany and the United Kingdom. We own most of our international manufacturing facilities, none of which is subject to significant encumbrances. A substantial number of our international warehouse and distribution facilities are leased.
We lease our corporate headquarters in Livonia, Michigan, and we own a building in Taylor, Michigan that is used by our Masco Technical Services (research and development) department. We also lease an office facility in Luxembourg, which serves as a headquarters for most of our foreign operations.
Each of our operating divisions assesses the manufacturing, distribution and other facilities needed to meet its operating requirements. We regularly review our anticipated requirements for facilities and, on the basis of that review, may from time to time build, acquire or lease additional facilities, or expand additional facilities.
Item 3.Legal Proceedings.

Information regarding legal proceedings involving us is set forth in Note U to the consolidated financial statements included in Item 8 of this Report and is incorporated herein by reference.
Item 4.Mine Safety Disclosures.

Not applicable.
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PART II

Item 5.Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The New York Stock Exchange is the principal market on which our common stock is traded, under the ticker symbol MAS. On January 31, 2022, there were approximately 2,700 holders of record of our common stock.
We expect that our practice of paying quarterly dividends on our common stock will continue, although the payment of future dividends is at the discretion of our Board of Directors and will depend upon our earnings, capital requirements, financial condition and other factors. The Board of Directors declared a quarterly dividend of $0.28 per share in the first quarter of 2022 with the intention to increase the annual dividend to $1.12 per share.
Effective February 10, 2021, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2019. We repurchased and retired 17.6 million shares of our common stock for the year ended December 31, 2021 for approximately $1,026 million. This included 0.7 million shares to offset the dilutive impact of restricted stock units granted in 2021. At December 31, 2021, we had $1,128 million remaining under the 2021 authorization.
The following table provides information regarding the repurchase of our common stock for the three-month period ended December 31, 2021.
PeriodTotal Number
of Shares
Purchased
Average Price
Paid Per
Common Share
Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs
Maximum Value of
Shares That May
Yet Be Purchased
Under the Plans
or Programs
10/1/21 - 10/31/21886,339 $56.42 886,339 $1,226,445,766 
11/1/21 - 11/30/21479,801 $66.70 479,801 $1,194,441,196 
12/1/21 - 12/31/21978,015 $67.49 978,015 $1,128,431,724 
Total for the quarter2,344,155 $63.15 2,344,155 $1,128,431,724 






















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Performance Graph

The table below compares the cumulative total shareholder return on our common stock with the cumulative total return of (i) the Standard & Poor's 500 Composite Stock Index ("S&P 500 Index"), (ii) The Standard & Poor's Industrials Index ("S&P Industrials Index") and (iii) the Standard & Poor's Consumer Durables & Apparel Index ("S&P Consumer Durables & Apparel Index"), from December 31, 2016 through December 31, 2021, when the closing price of our common stock was $70.22. The graph assumes investments of $100 on December 31, 2016 in our common stock and in each of the three indices and the reinvestment of dividends.
mas-20211231_g1.jpg
The table below sets forth the value, as of December 31 for each of the years indicated, of a $100 investment made on December 31, 2016 in each of our common stock, the S&P 500 Index, the S&P Industrials Index and the S&P Consumer Durables & Apparel Index and includes the reinvestment of dividends.
20172018201920202021
Masco$138.96 $92.47 $151.77 $173.72 $222.07 
S&P 500 Index$119.42 $111.97 $144.31 $167.77 $212.89 
S&P Industrials Index$118.54 $100.76 $127.79 $139.30 $166.33 
S&P Consumer Durables & Apparel Index$116.59 $101.07 $133.69 $158.30 $191.45 

Item 6. [Reserved]



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Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements (and notes related thereto) and other more detailed financial information appearing elsewhere in this Report. Further, you should read the following discussion and analysis of our financial condition and results of operations together with the “Risk Factors” included elsewhere in this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See also “Cautionary Statement Concerning Forward-Looking Statements” at the beginning of this report.
Overview

We design, manufacture and distribute branded home improvement and building products. These products are sold primarily for repair and remodeling activity and, to a lesser extent, new home construction. We sell our products through home center retailers, online retailers, wholesalers and distributors, mass merchandisers, hardware stores, direct to the consumer, professional contractors and homebuilders.
We continue to execute our strategy of leveraging our strong brand portfolio, industry-leading positions and the Masco Operating System, our methodology to drive growth and productivity, to create long-term shareholder value. We remain confident in the fundamentals of our business and long-term strategy. We believe that our strong financial position and cash flow generation, together with our investments in our industry-leading branded building products, our continued focus on innovation and disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders.
We continue to leverage the Masco Operating System and continuous improvement initiatives across our enterprise to identify additional opportunities to improve our business operations. From time to time, we may take actions to drive efficiency in the business focused on the strategic rationalization of our businesses, including business consolidations, plant closures, headcount reductions and other cost savings initiatives.

Recent Trends

COVID-19 Impact and General Business Conditions
The COVID-19 pandemic has significantly disrupted global economic activity, including our workforce and operations, as well as the operations of our customers and suppliers. There remains substantial uncertainty regarding the global economic impact of, and the speed and shape of the recovery from, the ongoing COVID-19 pandemic and the resulting impact on our future operations and financial results. We are experiencing, and may continue to experience, higher commodity and transportation costs, and supply chain disruptions, particularly disruptions related to our ability to source products, components and raw materials. We are also experiencing and may continue to experience labor cost inflation and constraints in hiring qualified employees. We aim to offset the potential unfavorable impact of these items with productivity improvement and other initiatives.
















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Consolidated Results of Operations

We report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). 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. These include the disclosure of net sales, operating profit and operating profit margins adjusted for certain items. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results under GAAP.
We discuss our consolidated results as well as our Business Segment and Geographic Area results of operations for the year ended December 31, 2021 versus December 31, 2020. A detailed discussion of our consolidated, Business Segment and Geographic Area results of operations for the years ended December 31, 2020 compared to the year ended December 31, 2019 can be found under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 9, 2021.

Sales and Operations

Net Sales
Below is a summary of our net sales, in millions, for the years ended December 31, 2021 and 2020:
 Year Ended
December 31,
 20212020Favorable / (Unfavorable)
Net sales, as reported$8,375 $7,188 $1,187 
Acquisitions(231)— (231)
Divestitures— (43)43 
Net sales, excluding acquisitions and divestitures8,144 7,145 999 
Currency translation(98)— (98)
Net sales, excluding acquisitions, divestitures and the effect of currency translation$8,046 $7,145 $901 

Net sales for 2021 were $8.4 billion, which increased 17 percent compared to 2020. Excluding acquisitions, divestitures and the effect of currency translation, net sales increased 13 percent.
Net sales for 2021 increased primarily due to:
Higher sales volume of plumbing products which increased sales by nine percent.
Favorable net selling prices of paints and other coating products and plumbing products increased sales by three percent.
The acquisitions of Kraus USA Inc. ("Kraus"), Easy Sanitary Solutions B.V. ("ESS"), Work Tools International Inc. and Elder & Jenks, LLC (collectively, "Work Tools") and Steamist, Inc. ("Steamist") increased sales by three percent.
Favorable foreign currency translation increased sales by one percent.
Favorable sales mix of plumbing products increased sales by one percent.

These amounts were slightly offset by:

The divestiture of our Hüppe GmbH ("Hüppe") business decreased sales one percent.







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Gross Profit and Gross Margin
Below is a summary of our gross profit, in millions, and gross margin for the years ended December 31, 2021 and 2020:
 Year Ended
December 31,
 20212020Favorable / (Unfavorable)
Gross profit$2,863$2,587$276
Gross margin34.2 %36.0 %(180) bps

The 2021 gross profit margin was negatively impacted by:
Increased commodity, transportation and labor costs.
These amounts were partially offset by:
Increased sales volume.
Favorable net selling prices.
Cost savings initiatives.
Favorable sales mix.

Selling, General and Administrative Expenses
Below is a summary of our selling, general and administrative expenses, in millions, and selling, general and administrative expenses as a percentage of net sales for the years ended December 31, 2021 and 2020:
 Year Ended
December 31,
 20212020(Favorable) / Unfavorable
Selling, general and administrative expenses$1,413$1,292$121
Selling, general and administrative expenses as percentage of net sales16.9 %18.0 %(110) bps
The improvement in selling, general, and administrative expenses as a percentage of sales in 2021 was primarily driven by:
Cost savings initiatives.
Leverage of fixed expenses due primarily to increased sales volume.
These amounts were partially offset by:
Increase in other expenses (such as labor and marketing costs).









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Operating Profit
Below is a summary of our operating profit, in millions, and operating profit margins for the years ended December 31, 2021 and 2020:
Year Ended
December 31,
20212020Favorable / (Unfavorable)
Operating profit, as reported$1,405$1,295$110
Rationalization charges411(7)
Impairment charge for goodwill4545
Operating profit, excluding rationalization charges and impairment charge$1,454$1,306$148
Operating profit margins, as reported16.8 %18.0 %(120) bps
Operating profit margins, excluding rationalization charges and impairment charge17.4 %18.2 %(80) bps
Operating profit in 2021 was positively affected by:
Increased sales volume.
Favorable net selling prices.
Cost savings initiatives.
Favorable sales mix.
Favorable foreign currency translation.
These positive impacts were partially offset by:
Increased commodity costs.
Increased other costs including transportation and marketing costs as well as increased labor costs.
Goodwill impairment charge in our lighting business.

Interest Expense

Below is a summary of our interest expense, in millions, for the years ended December 31, 2021 and 2020:

 Year Ended
December 31,
 20212020Favorable / (Unfavorable)
Interest expense$(278)$(144)$(134)

The increase in interest expense is primarily due to the $168 million loss on debt extinguishment, which was recorded as additional interest expense in connection with the early retirement of debt in the first quarter of 2021, partially offset by interest savings related to debt refinancing in the first quarter of 2021.










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Other, net

Below is a summary of our other, net, in millions, for the years ended December 31, 2021 and 2020:
 Year Ended
December 31,
 20212020Favorable / (Unfavorable)
Other, net$(439)$(20)$(419)

Other, net, for 2021 included:
$430 million of net periodic pension and post-retirement benefit expense, which includes $399 million of net settlement loss related to the termination of our qualified domestic defined-benefit pension plans.
$18 million loss related to the divestiture of Hüppe.
$16 million expense from the revaluation of contingent consideration related to a prior acquisition.
These amounts were partially offset by:
$14 million gain recognized on the redemption of the preferred stock of ACProducts Holding, Inc. and $6 million of related dividend income.
$11 million of earnings related to equity method investments.
Other, net, for 2020 included:
$35 million of net periodic pension and post-retirement benefit expense.
$10 million of realized foreign currency transaction losses.
These amounts were partially offset by:
$10 million of dividend income related to preferred stock of ACProducts Holding, Inc.
$9 million of income due from an escrow settlement.

Income Tax Expense

Below is a summary of our income tax expense, in millions, and our effective tax rate for the years ended December 31, 2021 and 2020:
 Year Ended
December 31,
 20212020(Favorable) / Unfavorable
Income tax expense$210$269$(59)
Effective tax rate31 %24 %%
Our effective tax rate in 2021 was higher than our normalized tax rate of 25 percent due primarily to:
$18 million additional income tax expense primarily from the loss on the termination of our qualified domestic defined-benefit pension plans providing no tax benefit in certain state jurisdictions and a shift in pre-tax income from the lower-taxed U.S. jurisdiction to higher-taxed foreign jurisdictions.
$4 million additional income tax expense from a loss providing no tax benefit in certain foreign jurisdictions related to the divestiture of Hüppe.
$16 million income tax expense from the elimination of disproportionate tax effects from accumulated other comprehensive income (loss) related to our interest rate swap following the retirement of the related debt, and the termination of our qualified domestic defined-benefit pension plans.
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Our effective tax rate in 2020 was lower than our normalized tax rate of 25 percent due primarily to:
$5 million income tax benefit from a change in judgment regarding the realizability of certain deferred tax assets in our foreign jurisdictions.
$4 million tax benefit from stock-based compensation payments.
$6 million tax benefit due to an anticipated refund claim from the retroactive application of the exclusion of certain high-taxed foreign income from the U.S. tax effects on Global Intangible Low-taxed Income back to 2018.
Refer to Note S to the consolidated financial statements for additional information.

Income and Income Per Common Share from Continuing Operations (Attributable to Masco Corporation)

Below is a summary of our income and diluted income per common share from continuing operations, in millions, except per share data, for the years ended December 31, 2021 and 2020:

 Year Ended
December 31,
 20212020Favorable / (Unfavorable)
Income from continuing operations$410 $810 $(400)
Diluted income per common share from continuing operations$1.62 $3.04 $(1.42)
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Business Segment and Geographic Area Results

The following table sets forth our net sales and operating profit information for our continuing operations by Business Segment and Geographic Area, dollars in millions.
 Year Ended December 31,
Percent
Change
 202120202021 vs.
2020
Net Sales:   
Plumbing Products$5,135 $4,136 24 %
Decorative Architectural Products3,240 3,052 %
Total$8,375 $7,188 17 %
North America$6,624 $5,805 14 %
International, principally Europe1,751 1,383 27 %
Total$8,375 $7,188 17 %
Year Ended December 31,
Percent
Change
 202120202021 vs.
2020
Operating Profit: (A)  
Plumbing Products$929 $806 15 %
Decorative Architectural Products581 583 — %
Total$1,510 $1,389 %
North America$1,214 $1,167 %
International, principally Europe296 222 33 %
Total1,510 1,389 %
General corporate expense, net(105)(94)12 %
Total operating profit$1,405 $1,295 %
(A)Before general corporate expense, net; refer to Note Q to the consolidated financial statements for additional information.
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Business Segment Results Discussion

Changes in operating profit in the following Business Segment and Geographic Area Results discussion exclude general corporate expense, net, and compares each respective period to the same period of the immediately preceding year.
Plumbing Products
Sales
Net sales in the Plumbing Products segment increased 24 percent in 2021 due primarily to higher sales volume, which increased sales by 15 percent. The acquisitions of Kraus, ESS and Steamist increased sales by five percent. Additionally, favorable foreign currency translation and higher net selling prices both increased sales by two percent and positive sales mix increased sales by one percent. Such increases were slightly offset by the divestiture of Hüppe, which decreased sales by one percent.
Operating Results
Operating profit in the Plumbing Products segment in 2021 was positively impacted by higher sales volume, favorable net selling prices, positive sales mix, cost savings initiatives and favorable currency translation. These positive impacts were partially offset by increased commodity costs and an increase in other expenses (such as transportation and labor costs).
Decorative Architectural Products
Sales
Net sales in the Decorative Architectural Products segment increased six percent in 2021, primarily due to favorable net selling prices of paints and other coating products and to a lesser extent higher volume of builders' hardware products. The Work Tools acquisition increased sales by one percent.
Operating Results
Operating profit in the Decorative Architectural Products segment in 2021 was positively impacted by favorable net selling prices as well as cost savings initiatives and lower fixed expenses in our lighting business. These positive impacts were partially offset by higher commodity costs and an increase in other expenses (such as transportation and marketing costs), as well as a goodwill impairment charge in our lighting business.
    

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Geographic Area Results Discussion

North America
Sales
North American net sales in 2021 increased 14 percent. Higher sales volume of plumbing products, and to a lesser extent, builders' hardware, in aggregate, increased sales by seven percent. The acquisitions of Kraus, Work Tools and Steamist increased sales by three percent and favorable net selling prices of paints and other coating and plumbing products increased sales by three percent.
Operating Results
Operating profit from North American operations in 2021 was positively affected by favorable net selling prices, higher sales volume, cost savings initiatives, and lower fixed expenses in our lighting business. These positive impacts were partially offset by increased commodity costs and an increase in other expenses (such as transportation and labor costs) as well as a goodwill impairment charge in our lighting business.
International, Principally Europe
Sales
Net sales from International operations in 2021 increased 27 percent. In local currencies (including sales in foreign currencies outside their respective functional currencies), net sales increased 21 percent. Higher sales volume and, to a lesser extent, favorable sales mix and net selling prices of plumbing products increased sales by 21 percent and the acquisition of ESS increased sales by three percent. Such increases were slightly offset by the divestiture of Hüppe that decreased sales by three percent.
Operating Results
Operating profit from International operations in 2021 was positively impacted by higher sales volume, favorable net selling prices, positive sales mix, and favorable foreign currency translation. These positive impacts were partially offset by an increase in other expenses (such as marketing, transportation and labor costs) and increased commodity costs.

Liquidity and Capital Resources

Overview of Capital Structure
Historically, we have largely funded our growth through cash provided by our operations, the issuance of notes in the financial markets, bank borrowings and the issuance of our common stock, including issuances for certain mergers and acquisitions. Maintaining high levels of liquidity and focusing on cash generation are among our financial strategies. Our capital allocation strategy includes reinvesting in our business, balancing share repurchases with potential acquisitions and maintaining a meaningful dividend.
We had cash and cash investments of approximately $926 million and $1.3 billion at December 31, 2021 and 2020, 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. While we attempt to diversify these investments in a prudent manner to minimize risk, it is possible that future changes in the financial markets could affect the security or availability of these investments. Of the cash and cash investments we held at December 31, 2021 and 2020, respectively, $490 million and $385 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.
Our current ratio was 1.8 to 1 at both December 31, 2021 and 2020.
Our total debt as a percent of total capitalization was 98 percent and 87 percent at December 31, 2021 and 2020, respectively. Refer to Note L to the consolidated financial statements for additional information.
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Costs of environmental responsibilities and compliance with existing environmental laws and regulations have not had, nor do we expect them to have, a material effect on our capital expenditures, financial position or results of operations.
We believe that our present cash balance and cash flows from operations, and borrowing availability under our Amended 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. However, due to the highly uncertain nature and duration or resurgence of the COVID-19 pandemic and its impact on our customer, suppliers and employees, we are unable to fully estimate the extent of the impact it may have on our future financial condition.
Capital Expenditures
We continue to invest in our manufacturing and distribution operations of those businesses that align with our long-term growth strategy to increase our productivity, improve customer service and support product innovation. Capital expenditures for 2021 were $128 million, compared with $114 million for 2020. For 2022, capital expenditures, excluding any potential future acquisitions, are expected to be approximately $250 million. Depreciation and amortization expense for 2021 totaled $151 million, compared with $133 million for 2020. For 2022, depreciation and amortization expense, excluding any potential future acquisitions, is expected to be approximately $150 million. Amortization expense totaled $40 million in 2021, compared with $28 million in 2020.
Senior Indebtedness
On March 4, 2021, we issued $600 million of 1.500% Notes due February 15, 2028, $600 million of 2.000% Notes due February 15, 2031 and $300 million of 3.125% Notes due February 15, 2051. We received proceeds of $1,495 million, net of discount, for the issuance of these Notes. The Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. On March 22, 2021, proceeds from the debt issuances, together with cash on hand, were used to repay and early retire our $326 million 5.950% Notes due March 15, 2022, $500 million 4.450% Notes due April 1, 2025, and $500 million 4.375% Notes due April 1, 2026. In connection with these early retirements, we incurred a loss on debt extinguishment of $168 million, which was recorded as interest expense in the consolidated statements of operations.
On September 18, 2020, we issued $300 million of 2.000% Notes due October 1, 2030 (the "2030 Notes") and received proceeds of $300 million, net of discount, for the issuance of the 2030 Notes. Also on September 18, 2020, we issued an incremental $100 million on our existing 4.500% Notes due May 15, 2047 (the "2047 Notes") and received proceeds of $119 million, including a premium, for the issuance of the 2047 Notes. The incremental $100 million formed a single series with the existing $300 million of 4.500% Notes due May 15, 2047. The 2030 Notes and 2047 Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. On September 29, 2020, proceeds from the debt issuances were used to repay and early retire our $400 million 3.500% Notes due April 1, 2021. In connection with this early retirement, we incurred a loss on debt extinguishment of $6 million, which was recorded as interest expense in our consolidated statements of operations.
Credit Agreement
On March 13, 2019, we entered into a credit agreement (the "Credit Agreement") with an aggregate commitment of $1.0 billion and a maturity date of March 13, 2024. On December 22, 2021, we amended the Credit Agreement with the bank group (the "Amended Credit Agreement"). The Credit Agreement was amended to (i) expand the “Agreed Currencies” for which loans thereunder may be denominated outside of the swingline facility to include British Pounds Sterling and Canadian Dollars, together with their applicable interest rate benchmark, (ii) replace the London Interbank Offering Rate (“LIBOR”) with the Euro Interbank Offered Rate (“EURIBOR”) as the interest rate benchmark for purposes of loans denominated in Euros and (iii) provide mechanics for the replacement of a benchmark for an applicable Agreed Currency upon the occurrence of certain specified events.
 Under the Amended Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or new lenders. See Note L to the consolidated financial statements for additional information.
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The Amended Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0. We were in compliance with all covenants and no borrowings were outstanding under our Amended Credit Agreement at December 31, 2021.
Corporate Development Strategy
We expect to maintain a balanced growth strategy pursuing organic growth by maximizing the full potential of our existing businesses and, as appropriate, complementing our existing business with strategic acquisitions.
In addition, we actively manage our portfolio of companies by divesting of those businesses that do not align with our long-term growth strategy. We will continue to review all of our businesses to determine which businesses, if any, may not align with our long-term growth strategy.
Acquisitions
During 2021, we acquired a 75.1 percent equity interest in ESS, a manufacturer of shower channel drains and offers a wide range of products for barrier-free showering and bathroom wall niches, for approximately €47 million ($58 million), including $52 million of cash and $6 million of debt that will be paid out over two years. We also acquired all of the share capital of Steamist, a manufacturer of residential steam bath products that are complementary to many of our plumbing products, for approximately $56 million in cash.
During 2020, we acquired substantially all of the net assets of Kraus, a designer and distributor of sinks, faucets and accessories for the kitchen and bathroom, as well as Work Tools, a leading manufacturer of high-quality precision painting tools and accessories including brushes, rollers and mini rollers for DIY and professionals. Additionally, we acquired all of the share capital of SmarTap A.Y Ltd. ("SmarTap"), a developer of a smart bathing system that monitors and controls the temperature and flow of water. We acquired these businesses for a combined $175 million of cash and $5 million of debt.
Divestitures
During 2021, we completed the divestiture of our Hüppe business, a manufacturer of shower enclosures and shower trays. In connection with the divestiture, we recognized a loss of $18 million.
During 2020, we completed the divestiture of our Masco Cabinetry LLC ("Cabinetry") business, a manufacturer of cabinetry products, for proceeds of approximately $989 million, including $853 million, net of cash disposed. In connection with the divestiture, we recognized a gain of $585 million.
Share Repurchases
We repurchased and retired 17.6 million shares of our common stock in 2021 for approximately $1,026 million. This included 0.7 million shares to offset the dilutive impact of restricted stock units granted in 2021. At December 31, 2021, we had $1,128 million remaining under the 2021 authorization. Consistent with past practice and as part of our long-term capital allocation strategy, we anticipate using approximately $600 million of cash for share repurchases (including shares which will be purchased to offset any dilution from restricted stock units granted as part of our compensation programs) in 2022. Refer to Note O to the consolidated financial statements for additional information.
During 2020, we repurchased and retired 18.8 million shares of our common stock (including 0.4 million shares to offset the dilutive impact of restricted stock units granted during the year), for approximately $727 million.
Dividend to holders of our Common Shares
In the second quarter of 2021 we increased our quarterly dividend to $0.235 per common share from $0.14 per common share in order to increase the annual dividend to $0.94 per share.
As part of our capital allocation strategy, the Board of Directors declared a quarterly dividend of $0.28 per share in the first quarter of 2022 with the intention to increase the annual dividend to $1.12 per share.


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Other Liquidity and Capital Resource Activities
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 consolidated balance sheets. The amounts owed to participating financial institutions under the program and included in accounts payable for our continuing operations were $43 million and $45 million at December 31, 2021 and 2020, respectively. We account for all payments made under the program as a reduction to our cash flows from operations and reported within our increase (decrease) in accounts payable and accrued liabilities, net, line within our consolidated statements of cash flows. The amounts settled through the program and paid to participating financial institutions were $220 million and $146 million for our continuing operations during the years ended December 31, 2021 and 2020, 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 utilize derivative and hedging instruments to manage our exposure to currency fluctuations, primarily related to the European euro, British pound, the Chinese renminbi and the U.S. dollar; occasionally, we have also used derivative and hedging instruments to manage interest rate fluctuations, primarily related to debt issuances. We review our hedging program, derivative positions and overall risk management on a regular basis. We currently do not have any derivative instruments for which we have designated hedge accounting.


















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Cash Flows
Significant sources and (uses) of cash for the years ended December 31, 2021 and 2020 are summarized as follows, in millions:
 20212020
Net cash from operating activities$930 $953 
Retirement of notes(1,326)(400)
Purchase of Company common stock(1,026)(727)
Cash dividends paid(211)(145)
Dividends paid to noncontrolling interest(43)(23)
Capital expenditures(128)(114)
Debt extinguishment costs(160)(5)
Proceeds from the exercise of stock options26 
Acquisition of businesses, net of cash acquired(57)(227)
Issuance of notes, net of issuance costs1,481 415 
Employee withholding taxes paid on stock-based compensation(15)(25)
Proceeds from disposition of:  
Businesses, net of cash disposed870 
Property and equipment— 
Financial investments171 
Payment of debt(3)(2)
Effect of exchange rate changes on cash and cash investments(20)31 
Other, net(3)(2)
Cash (decrease) increase $(400)$629 
Our working capital days were as follows:
 At December 31,
 20212020
Receivable days51 54 
Inventory days85 72 
Accounts payable days66 71 
Working capital (receivables plus inventories, less accounts payable) as a percentage of net sales16.0 %15.6 %
Operating Activities
Net cash provided by operations of $930 million primarily benefited from higher operating profit, partially offset by changes in working capital, pension contributions related to the settlement of our qualified domestic defined-benefit pension plans and deferred income taxes.
Financing Activities
Net cash used for financing activities was $1,298 million, which included $1,326 million for the early retirement of our 5.950% Notes due March 15, 2022, 4.450% Notes due April 1, 2025, and 4.375% Notes due April 1, 2026 and $160 million of related debt extinguishment costs. Net cash used for financing activities was also impacted by $1,026 million for the repurchase and retirement of our common stock (including 0.7 million shares repurchased to offset the dilutive impact of restricted stock units granted in 2021), $211 million for the payment of cash dividends, $43 million for dividends paid to noncontrolling interest and $15 million for employee withholding taxes paid on stock-based compensation. These uses of cash were partially offset by proceeds, net of issuance costs, of $1,481 million due to the issuances of $600 million of 1.500% Notes due February 15, 2028, $600 million of 2.000% Notes due February 15, 2031 and $300 million of 3.125% Notes due February 15, 2051.
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Investing Activities
Net cash used for investing activities was $12 million, primarily driven by $128 million of capital expenditures and $56 million for the acquisition of Steamist, partially offset by the $166 million received, in cash, for the redemption of the preferred stock of ACProducts Holding Inc.

Commitments and Contingencies

Litigation
Information regarding our legal proceedings is set forth in Note U to the consolidated financial statements, which is incorporated herein by reference.
Other Commitments
We enter into contracts, which include reasonable and customary indemnifications that are standard for the industries in which we operate. Such indemnifications include claims made against builders by homeowners for issues relating to our products and workmanship. In conjunction with divestitures and other transactions, we occasionally provide reasonable and customary indemnifications. We have not paid a material amount related to these indemnifications, and we evaluate the probability that amounts may be incurred and record an estimated liability when probable and reasonably estimable.

Contractual Obligations

The following table provides payment obligations related to current contracts at December 31, 2021, in millions:
 Payments Due by Period
 20222023-20242025-2026Beyond
2026
OtherTotal
Debt (A)
$10 $$$2,947 $— $2,970 
Interest (A)
97 194 193 833 — 1,317 
Operating leases44 68 49 95 — 256 
Currently payable income taxes34 — — — — 34 
Purchase commitments (B)
486 49 49 — — 584 
Uncertain tax positions, including interest and penalties (C)
— — — — 92 92 
Total$671 $319 $296 $3,875 $92 $5,253 
______________________________
(A)We assume that all debt would be held to maturity. Amounts include finance lease obligations.
(B)Excludes contracts that do not require volume commitments and open or pending purchase orders.
(C)Due to the high degree of uncertainty regarding the timing of future cash outflows associated with uncertain tax positions, we are unable to make a reasonable estimate for the year in which cash settlements may occur with applicable tax authorities.
Refer to Note N to the consolidated financial statements for defined-benefit pension plan obligations.









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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make certain estimates and assumptions that affect or could have affected the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We regularly review our estimates and assumptions, which are based upon historical experience, as well as current economic conditions and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities and related disclosures, and future revenues and expenses, that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.
Note A to the consolidated financial statements includes our accounting policies, estimates and methods used in the preparation of our consolidated financial statements.
We believe that the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition and Receivables
We recognize revenue as control of our products is transferred to our customers, which is generally at the time of shipment or upon delivery based on the contractual terms with our customers. We provide customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. These customer programs and incentives are considered variable consideration. We include in revenue variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to our volume-based incentives. This determination is updated each reporting period.
We monitor our exposure for credit losses on customer receivable balances and the credit worthiness of customers on an on-going basis and maintain allowances for doubtful accounts receivable for estimated losses resulting from the inability of our customers to make required payments. Allowances are estimated based upon specific customer balances, where a risk of loss has been identified, and also include a provision for losses based upon historical collection experience and write-off activity as well as reasonable and supportable forecast information that considers macro-economic factors and industry-specific trends associated with our businesses, among others. A separate allowance is recorded for customer incentive rebates and is generally based upon sales activity.
Goodwill and Other Intangible Assets
We record the excess of purchase cost over the fair value of net tangible assets of acquired companies as goodwill or other identifiable intangible assets. In the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, we complete the impairment testing of goodwill utilizing a discounted cash flow method. We selected the discounted cash flow methodology because we believe that it is comparable to what would be used by market participants. We have defined our reporting units and completed the impairment testing of goodwill at the operating segment level.





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Determining market values using a discounted cash flow method requires us to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Our judgments are based upon historical experience, current market trends, consultations with external valuation specialists and other information. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different estimates and assumptions could result in different outcomes. In estimating future cash flows, we rely on internally generated five-year forecasts for sales and operating profits, and, currently, a two percent to three percent long-term assumed annual growth rate of cash flows for periods after the five-year forecast. We generally develop these forecasts based upon, among other things, recent sales data for existing products, planned timing of new product launches, estimated repair and remodel activity and, to a lesser extent, estimated housing starts. Our assumptions included U.S. and Eurozone Gross Domestic Product growing at approximately 3.8 percent and 4.5 percent, respectively, in 2022 and per annum over the five-year forecast.
We utilize our weighted average cost of capital of approximately 7.5 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2021, based upon our assessment of the risks impacting each of our businesses, we applied a risk premium to increase the discount rate to a range of 9.0 percent to 11.5 percent for our reporting units.
If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized to the extent that a reporting unit's recorded carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.
In the fourth quarter of 2021, we recognized a $45 million non-cash goodwill impairment charge related to a reporting unit within our Decorative Architectural Products segment due to competitive market conditions and higher inflationary costs in our lighting business. As of December 31, 2021, the impaired reporting unit had a remaining net goodwill balance of $19 million. A 10 percent decrease in the estimated fair value of our other reporting units would not have resulted in any additional goodwill impairment.
We review our other indefinite-lived intangible assets for impairment annually, in the fourth quarter, or as events occur or circumstances change that indicate the assets may be impaired without regard to the business unit. Potential impairment is identified by comparing the fair value of an other indefinite-lived intangible asset to its carrying value. We utilize a relief-from-royalty model to estimate the fair value of other indefinite-lived intangible assets. We consider the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near- and long-term. We also consider the profitability of the business, among other factors, to determine the royalty rate for use in the impairment assessment.
We utilize our weighted average cost of capital of approximately 7.5 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2021, based upon our assessment of the risks impacting each of our businesses and the nature of the trade name, we applied a risk premium to increase the discount rate to a range of 10.0 percent to 15.5 percent for our other indefinite-lived intangible assets.
In the fourth quarter of 2021, we estimated that future discounted cash flows projected for our other indefinite-lived intangible assets were greater than the carrying values. Accordingly, we did not recognize any impairment charges for other indefinite-lived intangible assets. A 10 percent decrease in the estimated fair value of our other indefinite-lived intangibles assets would not have resulted in an impairment for any of our other indefinite-lived intangible assets.
Refer to Note H for additional information.
Income Taxes
Deferred taxes are recognized based on the future tax consequences of differences between the financial statement carrying value of assets and liabilities and their respective tax basis. The future realization of deferred tax assets depends on the existence of sufficient taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains in excess of anticipated losses in the carryforward period and projected future taxable income.
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If, based upon all available evidence, both positive and negative, it is more likely than not (more than 50 percent likely) such deferred tax assets will not be realized, a valuation allowance is recorded. The need to maintain a valuation allowance against deferred tax assets may cause greater volatility in our effective tax rate. Significant weight is given to positive and negative evidence that is objectively verifiable. A company's three-year cumulative loss position is significant negative evidence in considering whether deferred tax assets are realizable, and the accounting guidance restricts the amount of reliance we can place on projected taxable income to support the recovery of the deferred tax assets.
Based upon all available evidence, primarily three-year cumulative loss positions in certain state and foreign tax jurisdictions, we determined that it is more likely than not certain deferred tax assets will not be realized. As a result, we maintain a $17 million valuation allowance on certain state and foreign deferred tax assets as of December 31, 2021.
Recently Adopted and Issued Accounting Pronouncements
Refer to Note A to the consolidated financial statements for discussion of recently adopted and issued accounting pronouncements, which is incorporated herein by reference.
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Item 7A.    Quantitative and Qualitative Disclosures about Market Risk.

We have considered the provisions of accounting guidance regarding disclosure of accounting policies for derivative financial instruments and disclosure of quantitative and qualitative information about market risk inherent in derivative financial instruments and other financial instruments.
We are exposed to the impact of changes in interest rates and foreign currency exchange rates, particularly changes between the U.S. dollar and the European euro, British pound, Canadian dollar and Chinese renminbi, and to market price fluctuations related to our financial investments. We have insignificant involvement with derivative financial instruments and use such instruments to the extent necessary to manage exposure to foreign currency fluctuations.
At December 31, 2021, we performed sensitivity analyses to assess the potential loss in the fair values of market risk sensitive instruments resulting from a hypothetical change of 10 percent in foreign currency exchange rates, a 10 percent decline in the market value of our long-term investments, or a 100 basis point change in interest rates. Based upon the analyses performed, such changes would not be expected to materially affect our consolidated financial position, results of operations or cash flows.
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Item 8.Financial Statements and Supplementary Data.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
We assessed the effectiveness of our internal control over financial reporting as of December 31, 2021 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control – Integrated Framework (2013). Based on this assessment, we have determined that our internal control over financial reporting was effective as of December 31, 2021.
PricewaterhouseCoopers LLP (PCAOB ID 238), an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2021, as stated in their report, which is presented herein. Their report expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2021 and expressed an unqualified opinion on our 2021 consolidated financial statements. This report appears under 'Item 8. Financial Statements and Supplementary Data' under the heading "Report of Independent Registered Public Accounting Firm."
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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Masco Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Masco Corporation and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
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company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessments

As described in Notes A and H to the consolidated financial statements, the Company’s consolidated goodwill balance was $568 million as of December 31, 2021. Management performs an annual impairment test of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would indicate the carrying value of goodwill may be impaired. In connection with its annual assessment, management recorded a $45 million non-cash goodwill impairment charge within their Decorative Architectural Products segment. Potential impairment is identified by comparing the fair value of a reporting unit to its carrying value, including goodwill. Management estimates fair value by using a discounted cash flow model. The determination of fair value using the discounted cash flow model requires management to make significant estimates and assumptions related to forecasted sales and operating profits, and the discount rate.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments is a critical audit matter are (i) the significant judgment by management when developing the fair value measurements of the reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s discounted cash flow model, including significant assumptions related to forecasted sales and the discount rates, as applicable; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Company’s reporting units. These procedures also included, among others, testing management’s process for developing the fair value estimates; evaluating the appropriateness of the discounted cash flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and, evaluating the significant assumptions used by management, including forecasted sales and the discount rates, as applicable. Professionals with specialized skill and knowledge were used to assist in evaluating the Company’s discount rate assumptions, as applicable. Evaluating management’s assumption related to forecasted sales involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with external market and industry data as relates to forecasted sales, and (iii) whether they were consistent with evidence obtained in other areas of the audit.

/s/ PricewaterhouseCoopers LLP

Detroit, Michigan
February 8, 2022
We have served as the Company’s auditor since 1959.
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Financial Statements and Supplementary Data

MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS

December 31, 2021 and 2020
(In Millions, Except Share Data)
 20212020
ASSETS  
Current Assets:  
Cash and cash investments$926 $1,326 
Receivables1,171 1,138 
Inventories1,216 876 
Prepaid expenses and other109 149 
Total current assets3,422 3,489 
Property and equipment, net896 908 
Goodwill568 563 
Other intangible assets, net388 357 
Operating lease right-of-use assets187 166 
Other assets114 294 
Total assets$5,575 $5,777 
LIABILITIES
Current Liabilities:
Accounts payable$1,045 $893 
Notes payable10 3 
Accrued liabilities884 1,038 
Total current liabilities1,939 1,934 
Long-term debt2,949 2,792 
Noncurrent operating lease liabilities172 149 
Other liabilities437 481 
Total liabilities$5,497 $5,356 
Commitments and contingencies (Note U)
Redeemable noncontrolling interest22  
EQUITY
Masco Corporation's shareholders' equity:
 Common shares, par value $1 per share
    Authorized shares: 1,400,000,000;
    Issued and outstanding: 2021 – 241,200,000; 2020 – 258,200,000
241 258 
  Preferred shares authorized: 1,000,000;
    Issued and outstanding: 2021 and 2020 – None
  
  Paid-in capital  
  Retained (deficit) earnings (652)79 
  Accumulated other comprehensive income (loss)232 (142)
Total Masco Corporation's shareholders' (deficit) equity(179)195 
  Noncontrolling interest235 226 
Total equity56 421 
Total liabilities and equity$5,575 $5,777 

See notes to consolidated financial statements.
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MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2021, 2020 and 2019
(In Millions, Except Per Common Share Data)
 202120202019
Net sales$8,375 $7,188 $6,707 
Cost of sales5,512 4,601 4,336 
Gross profit2,863 2,587 2,371 
Selling, general and administrative expenses1,413 1,292 1,274 
Impairment charges for goodwill and other intangible assets45  9 
Operating profit1,405 1,295 1,088 
Other income (expense), net:   
Interest expense(278)(144)(159)
Other, net(439)(20)(15)
(717)(164)(174)
Income from continuing operations before income taxes688 1,131 914 
Income tax expense210 269 230 
Income from continuing operations478 862 684 
Income from discontinued operations, net 414 296 
Net income478 1,276 980 
Less: Net income attributable to noncontrolling interest68 52 45 
Net income attributable to Masco Corporation$410 $1,224 $935 
Income per common share attributable to Masco Corporation:  
Basic:   
Income from continuing operations$1.63 $3.05 $2.21 
Income from discontinued operations, net 1.55 1.03 
Net income$1.63 $4.60 $3.24 
Diluted:   
Income from continuing operations$1.62 $3.04 $2.20 
Income from discontinued operations, net 1.55 1.02 
Net income$1.62 $4.59 $3.22 
Amounts attributable to Masco Corporation:   
Income from continuing operations$410 $810 $639 
Income from discontinued operations, net 414 296 
Net income$410 $1,224 $935 
   






See notes to consolidated financial statements.
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MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Years Ended December 31, 2021, 2020 and 2019
(In Millions)
 202120202019
Net income$478 $1,276 $980 
Less: Net income attributable to noncontrolling interest68 52 45 
Net income attributable to Masco Corporation$410 $1,224 $935 
Other comprehensive income (loss), net of tax (Note P):   
Cumulative translation adjustment$(32)$72 $6 
Interest rate swaps7 1 2 
Pension and other post-retirement benefits384 (18)(64)
Other comprehensive income (loss), net of tax359 55 (56)
Less: Other comprehensive income (loss) attributable to the noncontrolling interest:   
Cumulative translation adjustment$(19)$20 $(1)
Pension and other post-retirement benefits4 (2)(3)
(15)18 (4)
Other comprehensive income (loss) attributable to Masco Corporation$374 $37 $(52)
Total comprehensive income$837 $1,331 $924 
Less: Total comprehensive income attributable to noncontrolling interest          
53 70 41 
Total comprehensive income attributable to Masco Corporation$784 $1,261 $883 
   




























See notes to consolidated financial statements.
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MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2021, 2020 and 2019
(In Millions)
 202120202019
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:   
Net income$478 $1,276 $980 
Depreciation and amortization151 133 159 
Fair value adjustment to contingent earnout obligation16   
Display amortization 2 12 
Deferred income taxes(68)(3)(41)
Employee withholding taxes paid on stock-based compensation15 25 23 
Gain on disposition of investments, net(25)(3)(1)
Loss (gain) on disposition of businesses, net18 (602)(298)
Pension and other post-retirement benefits312 (32)(45)
Impairment of goodwill and other intangible assets45  16 
Stock-based compensation61 45 35 
Dividends paid-in-kind(6)(10)