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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, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 1-5794
Masco Corporation
(Exact name of Registrant as Specified in its Charter)
| | | | | | | | | | | | | | |
Delaware | | 38-1794485 |
(State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
17450 College Parkway, | Livonia, | Michigan | | 48152 |
(Address of Principal Executive Offices) | | (Zip Code) |
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 Symbol | | Name of Each Exchange On Which Registered |
Common Stock, $1.00 par value | | MAS | | New 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 ☑ No ☐
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 ☐ No ☑
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. ☐
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. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on June 30, 2023 (based on the closing sale price of $57.38 of the Registrant's Common Stock, as reported by the New York Stock Exchange on such date) was approximately $12,869,087,500.
Number of shares outstanding of the Registrant's Common Stock at January 31, 2024:
219,764,935 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 2024 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K.
Masco Corporation
2023 Annual Report on Form 10-K
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, to develop innovative products and respond to changing consumer purchasing practices and preferences, our ability to maintain our public image and reputation, our ability to maintain our competitive position in our industries, our reliance on key customers, the cost and availability of materials, our dependence on 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 acquired and may in the future acquire, our ability to attract, develop and retain a talented and diverse workforce, risks associated with cybersecurity vulnerabilities, threats and attacks and risks associated with our reliance on information systems and technology.
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 2023 resulted from 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 2023, we acquired all of the share capital of Sauna360 Group Oy ("Sauna360") for approximately €124 million ($136 million), net of cash acquired. In addition, we continued to return value to our shareholders by repurchasing approximately 6.2 million shares of our common stock and increasing our quarterly dividend by approximately two percent compared to 2022.
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, and homebuilders. 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®, 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, aquatic fitness systems and saunas are manufactured and sold under our HOT SPRING®, CALDERA®, FREEFLOW SPAS®, FANTASY SPAS®, ENDLESS POOLS®, TYLO and FINNLEO brands, as well as under other trademarks. Our spas, exercise pools and saunas are sold worldwide to independent specialty retailers and distributors and our spas and exercise pools are also sold to online mass merchant retailers. Certain exercise pools are also available on a consumer-direct basis in North America and Europe, while our aquatic 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®, PLUMBSHOP® 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 and building products.
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, Zurn Elkay Water Solutions Corporation, Fortune Brands Innovations, 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 as well as private label and digitally native brands. Competitors of our spas, exercise pools, aquatic fitness systems and saunas include Artesian Spas, Harvia, Jacuzzi and Master Spas brands, among others. Foreign manufacturers competing with us are located primarily in Europe, China and Canada. 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 and South America 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 32 percent, 32 percent and 30 percent of our consolidated net sales in 2023, 2022, and 2021, 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, RPM International, Inc.'s Rust-Oleum and Zinsser brands, The Sherwin‑Williams Company's Minwax, Sherwin-Williams, Thompson’s Water Seal, Valspar and Purdy 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 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 certain petroleum by-products. 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.
Our Decorative Architectural Products segment includes branded cabinet and door hardware, functional hardware, wall plates, hook and hook rail products, and outdoor living hardware, 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 American Bath Group, LLC's Dreamline brand, Fortune Brands Innovations, 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., Hunter Fan Company, Progress Lighting brand 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, including environmental 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
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 employees, who have diverse experiences and backgrounds. 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’ Compensation and Talent 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, and cultivate a culture where our employees feel like they belong. We are also committed to keeping our employees healthy and safe in the workplace.
Leadership
We support and foster the growth of our employees by providing development opportunities, experiences and tools that build and strengthen leadership capabilities. Our Leadership Profile, which is how we internally describe the capabilities and behaviors that we believe make great leaders, serves 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 improvement and learning culture. This is supported by frequent and candid feedback discussions about performance and development between employees and their managers, across peers, and within teams.
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
We have developed enterprise-wide initiatives in each strategic focus area and our businesses have developed plans designed to meet their specific needs that are aligned with these initiatives. Our executive leadership team, DE&I 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, 2023:
•In the U.S., our leadership team is comprised of 34 percent women and 26 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 26 percent and 23 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 30 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 28 percent and 29 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 37 percent women and 54 percent racially / ethnically diverse individuals, as compared to the EEO-1 benchmark of 29 percent and 40 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.
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.
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.
Our Workforce
At December 31, 2023, we employed approximately 18,000 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.
Item 1A. Risk Factors.
There are a number of business risks and uncertainties that could impact 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.
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 and other factors.
Our business performance 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;
•consumer income and debt levels;
•unemployment and underemployment levels;
•the availability of home equity loans and mortgages and the interest rates for and tax deductibility of such loans;
•inflationary pressures;
•changing government policies and programs;
•existing home sales;
•age of the housing stock;
•fluctuations in home prices;
•household formation;
•trends in lifestyle and housing design;
•the availability of skilled tradespeople for repair and remodeling work; and
•natural disasters, terrorist acts, pandemics, wars or conflicts or other catastrophic events.
We have been and may in the future be negatively impacted by adverse changes or uncertainty involving one or more of the factors listed above. In addition, the fundamentals driving our business are impacted by economic cycles. Economic contractions or recessions have resulted in and could in the future result in a decline in residential repair and remodeling activity or in demand for new home construction, adversely impacting our results of operations and financial position.
We may not achieve all of the anticipated benefits of our strategic initiatives.
We continue to pursue our strategy of driving the full potential of our core businesses, leveraging opportunities across our enterprise, and actively managing our portfolio. Our strategy is designed to grow revenue, improve profitability and increase shareholder value over the mid- to long-term. We execute our strategy by investing in our brands, developing innovative products, making capital investments, and focusing on continuous productivity improvement and operational excellence, among other initiatives. Our business performance and results of operations could be adversely impacted if we are unable to timely and effectively execute our strategy. We could also be adversely impacted if we have not appropriately prioritized and balanced our strategic 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 impacted. 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 in retaining critical employees of the acquired businesses;
•difficulties realizing expected synergies and economies of scale;
•diversion of management attention and our resources;
•issues or conflicts with our new or existing customers or suppliers; and
•unforeseen liabilities.
International acquisitions that we have made, and those 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 international regulations and the policies of other governments. 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 impact 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 products could impact our results of operations and financial position.
We purchase substantial amounts of raw materials, component parts and finished products 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 diminished availability, increased tariffs and inflation or unfavorable fluctuations in currency exchange rates have increased and may in the future increase the prices for our products and negatively impact our results of operations and financial position. Further, our production has been and may in the future be impacted 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. Energy prices have also increased and, this coupled with potential energy supply shortages, has resulted in increased production and transportation costs, which may continue in the future. 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 impact our results of operations and financial position.
It can be difficult for us to pass our cost increases on to our customers. 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, production, transportation and labor costs, our results of operations and financial position could be adversely impacted. Increased selling prices for our products have led 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 received and may in the future receive pressure from our customers to reduce our prices. Such reductions have had and could in the future have an adverse impact on our results of operations and financial position.
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 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 has had and may in the future have an adverse impact on our results of operations and financial position.
We are dependent on suppliers and service providers.
We are dependent on third parties for our raw materials, many of our components and finished products and for certain services. Our ability to offer a wide variety of products and provide high levels of service to our customers depends on whether we can obtain an adequate and timely supply of these goods and services. Failure of our suppliers to timely provide us goods and services on commercially reasonable terms or to comply with applicable contractual, legal and regulatory requirements or our supplier business practices policy could have an adverse impact on our results of operations and financial position or could damage our reputation.
The operations of the third parties on which we depend have been and could in the future be impacted by: changing laws, regulations and policies, including those related to climate change; cybersecurity breaches; labor availability; raw material shortages; energy availability; supply disruptions; and adverse weather conditions, pandemics, wars or conflicts and other force majeure events. Any of these factors could disrupt our third parties’ operations and result in shortages of supply, assertion of force majeure and increases in the prices charged to us for the raw materials, components and finished products they produce or services they provide. Sourcing these goods and services from alternate suppliers, including suppliers from new geographic regions, or re-engineering our products as a result of supplier disruptions, can be 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 supply, has disrupted and could in the future disrupt our business and has had and may in the future have an adverse impact on our results of operations and financial position.
Many of the suppliers we rely upon are located in countries outside of the United States. The differences in business practices, shipping and delivery requirements and costs, changes in economic conditions and trade policies and laws and regulations, together with the limited number of suppliers available to us, have increased the complexity of our supply chain logistics and the potential for interruptions in our production scheduling. We have experienced and may in the future experience constraints on and disruptions to transporting our raw materials, components and finished products from our international and domestic suppliers as well as higher transportation costs. If we are unable to effectively manage our supply chain our results of operations and financial position could be adversely impacted.
There are risks associated with our international operations and global strategies.
In 2023, 20 percent of our sales were made outside of North America (particularly in Europe) and transacted in currencies other than the U.S. dollar. In addition to our European operations, we manufacture products in other locations, including Asia and Mexico 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;
•differences in enforcement of contract and intellectual property rights;
•differences in the policies of the U.S. and foreign governments;
•disruptions in trade relations and economic instability;
•natural disasters, terrorist attacks, pandemics, wars or conflicts or other catastrophic events;
•social and political unrest; and
•timeliness of transportation and port congestion.
We have been and may in the future be negatively impacted by adverse changes or uncertainty involving one or more of the factors listed above.
We are also affected by domestic and international laws and regulations applicable to companies doing business outside of the U.S., or importing and exporting goods and materials. These include anti-bribery/anti-corruption laws, laws regulating competition, sanctions, tax laws, trade regulations, including duties and tariffs, and other business practices. 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 international jurisdictions tax cross-border transactions could adversely impact 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 renminbi, the Canadian dollar, the British pound sterling and the Mexican peso, have in the past adversely impacted us, and could adversely impact us in the future. Fluctuations in currency exchange rates may also present challenges in comparing our operating performance from period to period.
The long-term performance of our businesses relies on our ability to attract, develop and retain a talented and diverse workforce.
For our businesses to be successful, we must invest significant resources to attract, develop and retain highly qualified, talented and diverse employees, 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. We have faced and may continue to face challenges in recruiting, developing, motivating and retaining employees, particularly when the labor market is experiencing low unemployment levels, increasing compensation and increasing competition.
If we are unable to successfully implement our talent strategies, including attracting, developing and retaining key employees, building strong and diverse leadership teams, developing effective succession planning and successfully executing organizational change and leadership transition, our results of operations and financial position could be adversely impacted.
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 in the future negatively impact our business. These types of events can be disruptive to our operations and may impact consumer spending. In addition, some of our suppliers are located in areas that have experienced extreme weather events which have impacted and may in the future impact the availability and cost of some of our raw materials, components and finished products. 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 impact 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.
Competitive Risks
We could lose market share if we do not maintain our strong brands, develop innovative products or respond to changing consumer purchasing practices and preferences.
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, which could adversely impact our results of operations and financial position.
Consumer preferences are also changing, including a continued shift in consumer purchasing practices toward e-commerce and a potential increase in consumer demand for products with certain attributes, such as connected products and sustainable products. If we do not timely and effectively identify and respond to these changes 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 impacted.
Damage to our public image and reputation could adversely impact our results of operations and financial position.
Our public image and reputation are important to maintaining our strong brands. Our results of operations and financial position could be adversely impacted by a negative perception regarding our products or company practices, positions or public statements, even if unfounded, negative claims and comments in social media or the press or a data breach.
Furthermore, stakeholders are increasingly scrutinizing companies' environmental, social and governance (“ESG”) practices, and stakeholders’ expectations regarding ESG practices are diverse and rapidly changing. We may not be able to align our ESG practices with such evolving expectations within the timeframes expected by stakeholders or without incurring significant costs. In addition, we may not be able to achieve our aspirational goals related to our ESG initiatives, which are and may continue to be impacted by many complexities and variables, such as renewable energy infrastructure and availability, changes to the labor market, a challenging economic environment, changes to our operations, changes to our portfolio of businesses via acquisitions or divestitures, and adjustments to our job levels and managerial headcount. A failure or perceived failure by us in this regard may damage our reputation and adversely impact 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 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, among other things, our ability to provide quality products with desired features at acceptable prices with timely delivery and a high level of customer service. Home center retailers, which have historically concentrated their sales efforts on retail consumers and remodelers, are increasingly selling directly to professional contractors and installers, which may adversely impact our margins on our products that contractors and installers would otherwise buy through our dealers and wholesalers. In addition, as home center retailers develop customer experience programs to attract and retain contractors and installers, they are relying on us to support their efforts. Such support has been and could continue to be time-consuming and costly and these efforts may not be successful, which may impact our growth, results of operations and financial position.
Certain of our customers sell 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 experienced and 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 has impacted and may in the future impact our results of operations and financial position.
In addition, we face competitive pricing pressure in the marketplace, including sales promotion programs, that could impact our market share or result in price reductions, which could adversely impact our results of operations and financial position.
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 have impacted and could in the future impact our results of operations and financial position. In addition, our relationships with our customers, including our home center customers, may be impacted 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 impacted.
Our sales are concentrated with three significant customers and this concentration may continue to increase. In 2023, our net sales to The Home Depot were $3.1 billion (approximately 39 percent of our consolidated net sales), and our net sales to Ferguson and Lowe’s were each less than 10 percent of our consolidated net sales. These customers can significantly impact the prices we receive for our products and the terms and conditions on which we do business with them. Additionally, these customers have reduced 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, or replace 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. Any such loss would have a material adverse impact 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 impacts our ability to sell those products and brands to other customers and can increase the complexity of our product offerings and our costs.
Technology and Intellectual Property Risks
We are subject to cybersecurity attacks, which could adversely impact 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 and to critical third-party information technology platforms we utilize. We have implemented security policies, processes and layers of defense designed to help identify and protect against misappropriation or corruption of our systems and information and disruption of our operations. Despite these efforts, systems we utilize have been and may in the future be damaged, disrupted, ransomed 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 attacks could have the following impacts on our business, some of which we have experienced:
•business interruption;
•damage to our relationships with our employees, suppliers, customers and consumers;
•damage to the reputation of our brands;
•data corruption;
•exposure or loss of proprietary confidential or financial information or the personal information of our employees, suppliers, customers or consumers;
•exposure to litigation;
•inability to report our financial results in a timely manner;
•increased costs associated with the remediation and mitigation of such attacks;
•product shipment delays;
•production or operational downtime; and
•theft of our assets.
In addition, we could be adversely impacted if any of our significant customers, suppliers or service providers experiences any similar events that disrupt their business operations or damage their reputation. Such events could adversely impact our results of operations and financial position.
We rely on information systems and technology, and a breakdown or interruption of these systems could adversely impact our results of operations and financial position.
We rely on many on-site and cloud-based information systems and technology to process, transmit, store and manage information to support our business activities. We may be adversely impacted if these information systems breakdown, fail, or are no longer supported by third-party service providers, including cloud platform providers.
In addition to the consequences that may occur from interruptions in the current systems we utilize, we continue to invest in new technology systems throughout our company, including implementations of and upgrades to critical systems at our business units. System implementations and upgrades are complex and require significant management oversight, and we have experienced, and in the future experience, unanticipated expenses and interruptions to our operations during these implementations and upgrades. Our results of operations and financial position, as well as the effectiveness of our internal controls over financial reporting, could be adversely impacted if we do not appropriately select, implement, maintain or upgrade our critical systems in a timely manner or if we experience significant unanticipated expenses or disruptions in connection with the implementation, upgrade or update of such systems.
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 have asserted and may in the future 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 is 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 impacted and we may experience reputational damage to our brand names, increased litigation costs and adverse impact to our competitive position, which could adversely impact 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 an adverse impact on us. The types of matters may include, among others: advertising, competition, contract, data privacy, employment, environmental, insurance coverage, intellectual property, personal injury, product compliance, product liability, securities and warranty. 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 in the future 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 suppliers to provide finished products and components for products that we sell. Due to the difficulty of controlling the quality of finished products and components we source from these suppliers, we are exposed to risks relating to the quality of such finished products and components and to limitations on our recourse against such suppliers.
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 impact our results of operations and financial position.
Refer to Note T 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 impact our results of operations and financial position.
We are subject to a wide variety of federal, state, local and foreign laws and regulations, including those pertaining to:
•anti-bribery/anti-corruption;
•climate change and protection of the environment;
•competition practices;
•data privacy;
•employment and labor matters;
•environment, health and safety matters;
•product safety and performance;
•protection of employees and consumers;
•securities matters;
•sanctions;
•taxation;
•trade, including duties and tariffs; and
•wage and hour matters.
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 geographies 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 or may result in restrictions on our operations. 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 impacted.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Cybersecurity risk is a part of our overall enterprise risk management assessment. Our cybersecurity program is modeled on the National Institute of Security Technology Cybersecurity Framework (NIST CSF) which provides the governance structure for our identification of, protection against, detection of, response to and recovery from cybersecurity threats and incidents, including those associated with our use of third-party applications and service providers.
Key components of our cybersecurity program include:
•an enterprise organizational framework that consists of enterprise leaders that oversee our cybersecurity governance, including policies and standards, and functional business unit leaders that implement our cybersecurity policies;
•the identification of our cybersecurity risks and vulnerabilities and the implementation of protections against cybersecurity threats and incidents, including regular training to our employees;
•continual global threat monitoring and detection, in partnership with third-party service providers;
•a process for assessing the severity of cybersecurity threats, identifying whether the cybersecurity threats are associated with a third-party service provider, and implementing an appropriate response and resolution to cybersecurity incidents, as necessary; and
•risk-based cybersecurity audits led by our internal audit function, which include cybersecurity control maturity assessments (based on NIST CSF), as well as attack simulations and penetration testing performed by third-party service providers.
Our Board of Directors has overall oversight responsibility for our enterprise risk management and compliance programs, including cybersecurity. Our Board is responsible for ensuring that management has processes in place designed to identify and assess cybersecurity risks to which we are exposed, implement the appropriate protections to address such risks, identify cybersecurity threats and respond to and resolve cybersecurity incidents.
Management is responsible for identifying and assessing material cybersecurity risks on an ongoing basis and for developing, managing and implementing our cybersecurity program to assure that our potential cybersecurity risk exposures are monitored and appropriate mitigation measures are implemented. Our cybersecurity program is overseen by our Vice President, Information Technology and our Director, Enterprise Security. Our Vice President, Information Technology has significant professional experience in leading the information technology function and our Director, Enterprise Security has held various roles in cybersecurity and is an ISC2 Certified Information Security Professional (CISSP®). Each periodically participates in various industry cyber forums and communicates industry best practices to the appropriate internal information security professionals.
Our cybersecurity program is managed and implemented by a team of enterprise level and business unit level information security professionals, partnering with third party advisory services, as needed. The team’s focus is on our operational response to cybersecurity threats, exposure analysis, security governance and the design and implementation of our security controls. Our Incident Response Plan, developed by management, governs our process to respond to, remediate and resolve material cybersecurity incidents, including providing appropriate internal and external communication of such incidents.
At least annually, our Vice President, Information Technology discusses with our Board a report on cybersecurity, including an update regarding our cybersecurity risks, mitigation activities and industry developments. In addition, our internal audit function provides regular updates to our Audit Committee on the results of our cybersecurity audits and related mitigation activities. In 2023, as part of our enterprise risk management update to our Board, our Vice President, Information Technology discussed risks and trends associated with information technology, including cyber-attacks, and current and future planned actions to mitigate such risks. In addition, in 2023, our Vice President, Information Technology reviewed with our Board updates related to our operational and resource readiness with respect to cyber incidents, our incident response processes and emerging cybersecurity risks.
In 2023, we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have not experienced an undetected cybersecurity incident. For more information about these risks, please see “Risk Factors – We are subject to cybersecurity attacks, which could adversely impact our results of operations and financial position” in this annual report on Form 10-K.
Item 2.Properties.
The table below lists principal North American properties as of December 31, 2023.
| | | | | | | | | | | | | | |
Business Segment | | Manufacturing | | Warehouse and Distribution |
Plumbing Products | | 22 | | | 10 | |
Decorative Architectural Products | | 8 | | | 17 | |
Totals | | 30 | | | 27 | |
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.
The table below lists principal properties outside of North America as of December 31, 2023.
| | | | | | | | | | | | | | |
Business Segment | | Manufacturing | | Warehouse and Distribution |
Plumbing Products | | 12 | | | 17 | |
Decorative Architectural Products | | — | | | — | |
Totals | | 12 | | | 17 | |
Most of our international facilities are in Europe and China. 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, have and may in the future, 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 T to the consolidated financial statements included in Item 8 of this Report and is incorporated herein by reference.
f
Item 4.Mine Safety Disclosures.
Not applicable.
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, 2024, there were approximately 2,500 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 $0.29 per share in the first quarter of 2024 with the intention to increase the annual dividend 2 percent to $1.16 per share.
Effective October 20, 2022, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock, exclusive of excise tax, in open-market transactions or otherwise. We repurchased and retired 6.2 million shares of our common stock for the year ended December 31, 2023 for approximately $356 million, inclusive of excise tax of $3 million. This included 0.2 million shares to offset the dilutive impact of restricted stock units granted in 2023. At December 31, 2023, we had $1.6 billion remaining under the 2022 authorization.
The following table provides information regarding the repurchase of our common stock for the three-month period ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number Of Shares Purchased | | Average Price Paid Per Common Share | | Total Number Of Shares Purchased As Part Of Publicly Announced Plans or Programs | | Maximum Value Of Shares That May Yet Be Purchased Under The Plans Or Programs |
10/1/23 - 10/31/23 | | 505,966 | | | $ | 51.49 | | | 505,966 | | | $ | 1,847,945,558 | |
11/1/23 - 11/30/23 | | 2,061,426 | | | $ | 57.25 | | | 2,061,426 | | | $ | 1,729,925,568 | |
12/1/23 - 12/31/23 | | 1,274,183 | | | $ | 65.15 | | | 1,274,183 | | | $ | 1,646,913,344 | |
Total for the quarter | | 3,841,575 | | | $ | 59.11 | | | 3,841,575 | | | $ | 1,646,913,344 | |
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, 2018 through December 31, 2023, when the closing price of our common stock was $66.98. The graph assumes investments of $100 on December 31, 2018 in our common stock and in each of the three indices and the reinvestment of dividends.
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, 2018 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.
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| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
Masco | $ | 164.12 | | | $ | 187.86 | | | $ | 240.15 | | | $ | 159.61 | | | $ | 229.07 | |
S&P 500 Index | $ | 128.88 | | | $ | 149.83 | | | $ | 190.13 | | | $ | 153.16 | | | $ | 190.27 | |
S&P Industrials Index | $ | 126.83 | | | $ | 138.25 | | | $ | 165.07 | | | $ | 153.35 | | | $ | 177.94 | |
S&P Consumer Durables & Apparel Index | $ | 132.28 | | | $ | 156.63 | | | $ | 189.42 | | | $ | 131.58 | | | $ | 153.72 | |
Item 6. [Reserved]
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. Amounts may not add due to rounding.
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 pursue our strategy of driving the full potential of our core businesses, leveraging opportunities across our enterprise, and actively managing our portfolio. We remain confident in the fundamentals of our business and long-term strategy. We execute our strategy by investing in our brands, developing innovative products, making capital investments, and focusing on continuous productivity improvement and operational excellence, among other initiatives. 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, our approach to drive growth and productivity, 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
Due to changing market conditions, we are experiencing, and may continue to experience, lower market demand for our products. We have been experiencing, and may continue to experience, elevated commodity and other input costs, as well as employee-related cost inflation. While still elevated, we have recently seen some reduction of certain costs, and we aim to offset the potential unfavorable impact of our costs and lower demand for our products with productivity improvement, pricing, and other initiatives.
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, 2023 versus December 31, 2022. A detailed discussion of our consolidated, Business Segment and Geographic Area results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 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, 2022, which was filed with the SEC on February 9, 2023.
SALES AND OPERATIONS
Net Sales
Below is a summary of our net sales, in millions, for the years ended December 31, 2023 and 2022:
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| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Net sales, as reported | $ | 7,967 | | | $ | 8,680 | | | $ | (713) | |
Acquisitions | (28) | | | — | | | (28) | |
| | | | | |
Net sales, excluding acquisitions | 7,939 | | | 8,680 | | | (741) | |
Currency translation | 8 | | | — | | | 8 | |
Net sales, excluding acquisitions and the effect of currency translation | $ | 7,947 | | | $ | 8,680 | | | $ | (733) | |
Our net sales for 2023 were $7,967 million, which decreased eight percent compared to 2022. Excluding acquisitions and the effect of currency translation, net sales decreased eight percent.
| | | | | | | | | | | | | | | | | | | | |
| Our net sales for 2023 decreased primarily due to: | |
| • | Lower sales volume across the entire company which decreased sales by 11 percent. |
| • | Unfavorable sales mix of plumbing products which decreased sales by one percent. |
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| These amounts were partially offset by: | |
| • | Higher net selling prices across the entire company which increased sales by three 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, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Favorable / (Unfavorable) |
Gross profit | $ | 2,836 | | | $ | 2,713 | | | $ | 123 | |
Gross margin | 35.6 | % | | 31.3 | % | | 430 bps |
| | | | | | | | | | | | | | | | | |
| Our 2023 gross profit margin was positively impacted by: |
| • | Higher net selling prices. |
| • | Cost savings initiatives. |
| • | Lower transportation costs. |
| • | Receipt of an insurance settlement payment. |
| • | Lower excess and obsolete inventory charges. |
| | | | | |
| These amounts were partially offset by: |
| • | Lower sales volume. |
| • | Unfavorable sales mix. |
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| | |
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, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Favorable / (Unfavorable) |
Selling, general and administrative expenses | $ | (1,473) | | | $ | (1,390) | | | $ | (83) | |
Selling, general and administrative expenses as a percentage of net sales | (18.5) | % | | (16.0) | % | | (250) bps |
| | | | | | | | | | | | | | | | | |
| Our 2023 selling, general and administrative expenses as a percentage of net sales was negatively impacted by: |
| • | Increased employee-related costs. |
| • | Increased marketing costs. |
| • | Lower net sales resulting from lower volumes. |
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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, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Operating profit, as reported | $ | 1,348 | | | $ | 1,297 | | | $ | 51 | |
Rationalization charges | 13 | | | 32 | | | (19) | |
Impairment charges for goodwill and other intangible assets | 15 | | | 26 | | | (11) | |
Insurance settlement | (40) | | | — | | | (40) | |
Operating profit, excluding rationalization charges, impairment charges and insurance settlement | $ | 1,336 | | | $ | 1,355 | | | $ | (19) | |
Operating profit margin, as reported | 16.9 | % | | 14.9 | % | | 200 bps |
Operating profit margin, excluding rationalization charges, impairment charges and insurance settlement | 16.8 | % | | 15.6 | % | | 120 bps |
| | | | | | | | | | | | | | | | | |
| Our 2023 operating profit was positively impacted by: |
| • | Higher net selling prices. |
| • | Cost savings initiatives. |
| • | Lower transportation costs. |
| • | Receipt of an insurance settlement payment. |
| • | Lower excess and obsolete inventory charges. |
| • | Lower goodwill and other intangible assets impairment charges in our lighting business. |
| | | | | |
| These amounts were partially offset by: |
| • | Lower sales volume. |
| • | Increased employee-related costs. |
| • | Unfavorable sales mix. |
| • | Increased marketing costs. |
| • | Unfavorable foreign currency translation. |
| | |
OTHER INCOME (EXPENSE), NET
Interest Expense
Below is a summary of our interest expense, in millions, for the years ended December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Favorable / (Unfavorable) |
Interest expense | $ | (106) | | | $ | (108) | | | $ | 2 | |
Other, net
Below is a summary of our other, net, in millions, for the years ended December 31, 2023 and 2022:
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| Year Ended December 31, |
| 2023 | | 2022 | | Favorable / (Unfavorable) |
Other, net | $ | (4) | | | $ | 4 | | | $ | (8) | |
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Other, net, for 2022 included $24 million of income from the revaluation of contingent consideration related to the acquisition of Kraus USA Inc.
INCOME TAXES
Below is a summary of our income tax expense, in millions, and our effective tax rate for the years ended December 31, 2023 and 2022:
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| Year Ended December 31, |
| 2023 | | 2022 | | Favorable / (Unfavorable) |
Income tax expense | $ | (278) | | | $ | (288) | | | $ | 10 | |
Effective tax rate | (22) | % | | (24) | % | | 2 | % |
Our 2023 income tax expense included a $29 million state income tax benefit, net of federal expense, from the recognition of certain state deferred tax assets due to a legal restructuring of certain U.S. businesses that will occur in early 2024.
Refer to Note R to the consolidated financial statements for additional information.
NET INCOME AND INCOME PER COMMON SHARE - ATTRIBUTABLE TO MASCO CORPORATION
Below is a summary of our net income, in millions, and diluted income per common share for the years ended December 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Favorable / (Unfavorable) |
Net income | $ | 908 | | | $ | 844 | | | $ | 64 | |
Diluted income per common share | $ | 4.02 | | | $ | 3.63 | | | $ | 0.39 | |
Business Segment and Geographic Area Results
The following table sets forth our net sales and operating profit information by Business Segment and Geographic Area, dollars in millions. | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Percent Change |
| 2023 | | 2022 | | 2023 vs. 2022 |
Net Sales: | | | | | |
Plumbing Products | $ | 4,842 | | | $ | 5,252 | | | (8) | % |
Decorative Architectural Products | 3,125 | | | 3,428 | | | (9) | % |
Total | $ | 7,967 | | | $ | 8,680 | | | (8) | % |
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North America | $ | 6,384 | | | $ | 6,978 | | | (9) | % |
International, particularly Europe | 1,583 | | | 1,702 | | | (7) | % |
Total | $ | 7,967 | | | $ | 8,680 | | | (8) | % |
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| Year Ended December 31, | | Percent Change |
| 2023 | | 2022 | | 2023 vs. 2022 |
Operating Profit (A): | | | | | |
Plumbing Products | $ | 861 | | | $ | 819 | | | 5 | % |
Decorative Architectural Products | 578 | | | 565 | | | 2 | % |
Total | $ | 1,439 | | | $ | 1,384 | | | 4 | % |
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North America | $ | 1,210 | | | $ | 1,116 | | | 8 | % |
International, particularly Europe | 229 | | | 268 | | | (15) | % |
Total | 1,439 | | | 1,384 | | | 4 | % |
General corporate expense, net | (91) | | | (87) | | | 5 | % |
Total operating profit | $ | 1,348 | | | $ | 1,297 | | | 4 | % |
(A)Before general corporate expense, net; refer to Note P to the consolidated financial statements for additional information.
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 decreased eight percent in 2023. In local currencies (including sales in currencies outside their respective functional currencies), net sales decreased seven percent in 2023. Lower sales volume decreased sales by 11 percent and unfavorable sales mix decreased sales by one percent. These amounts were partially offset by higher net selling prices, which increased sales by four percent and the acquisition of Sauna360 which increased sales by one percent.
Operating Results
Operating profit in the Plumbing Products segment in 2023 was positively impacted by higher net selling prices, lower transportation and commodity costs, cost savings initiatives, and lower excess and obsolete inventory charges. These amounts were partially offset by lower sales volume, increased employee-related costs, unfavorable sales mix, unfavorable foreign currency translation and increased marketing costs.
Decorative Architectural Products
Sales
Net sales in the Decorative Architectural Products segment decreased nine percent in 2023, primarily due to lower sales volume, partially offset by higher net selling prices.
Operating Results
Operating profit in the Decorative Architectural Products segment in 2023 was positively impacted by higher net selling prices, cost savings initiatives, receipt of an insurance settlement payment, lower transportation costs, lower excess and obsolete inventory charges, and lower goodwill and other intangible assets impairment charges in our lighting business. These amounts were partially offset by lower sales volume, increased commodity costs and increased employee-related costs.
GEOGRAPHIC AREA RESULTS DISCUSSION
North America
Sales
North America net sales decreased nine percent in 2023. Lower sales volume decreased sales by 11 percent and unfavorable sales mix decreased sales by one percent. These amounts were partially offset by higher net selling prices, which increased sales by two percent.
Operating Results
North America operating profit in 2023 was positively impacted by higher net selling prices, cost savings initiatives, lower transportation costs, receipt of an insurance settlement payment, lower excess and obsolete inventory charges, and lower goodwill and other intangible assets impairment charges in our lighting business. These amounts were partially offset by lower sales volume, increased employee-related costs, unfavorable sales mix and increased marketing costs.
International, Particularly Europe
Sales
International net sales decreased seven percent in 2023. In local currencies (including sales in currencies outside their respective functional currencies), net sales decreased six percent. Lower sales volume decreased sales by 11 percent and unfavorable sales mix decreased sales by one percent. These amounts were partially offset by higher net selling prices which increased sales by five percent.
Operating Results
International operating profit in 2023 was negatively impacted by lower sales volume, unfavorable sales mix and unfavorable foreign currency translation. These amounts were partially offset by higher net selling prices and lower transportation and 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, to a lesser extent, 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, maintaining an investment grade credit rating, maintaining a relevant dividend and deploying excess free cash flow to share repurchases or acquisitions.
We had cash and cash investments of approximately $634 million and $452 million at December 31, 2023 and 2022, 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, 2023 and 2022, $323 million and $321 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 1.7 to 1 and 1.6 to 1 at December 31, 2023 and 2022, respectively. The increase in our current ratio is primarily due to the repayment of the 364-day term loan during 2023.
Our total debt as a percent of total capitalization was 97 percent and 109 percent at December 31, 2023 and 2022, respectively. Refer to Note K to the consolidated financial statements for additional information.
We believe that our present cash balance and cash flows from operations, and borrowing availability under our revolving 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 changing market conditions and its impact on our customers and suppliers, we are unable to fully estimate the extent of the impact that the changing market conditions may have on our future financial condition.
Capital Expenditures
We continue to invest in our manufacturing and distribution operations to increase our productivity, improve customer service and support product innovation. Capital expenditures for 2023 were $243 million, compared with $224 million for 2022. The increase in capital expenditures in 2023 was primarily due to capacity expansion plans in our Plumbing Products and Decorative Architectural Products segments. For 2024, capital expenditures, excluding any potential future acquisitions, are expected to be approximately $200 million. Depreciation and amortization expense for 2023 totaled $149 million, compared with $145 million for 2022. For 2024, depreciation and amortization expense, excluding any potential future acquisitions, is expected to be approximately $160 million. Amortization expense totaled $34 million in 2023, compared with $33 million in 2022.
Credit Agreement
On April 26, 2022, we entered into a revolving credit agreement (the “2022 Credit Agreement”) with an aggregate commitment of $1.0 billion and a maturity date of April 26, 2027.
Under the 2022 Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or new lenders. See Note K to the consolidated financial statements for additional information.
The 2022 Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) an interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0. We were in compliance with all covenants and no borrowings were outstanding under our 2022 Credit Agreement as of December 31, 2023.
Short-term Borrowings
On May 9, 2023, our Hansgrohe SE subsidiary entered into €70 million ($77 million) of short-term borrowings to support working capital needs. The loans contained no financial covenants and the entire balance was repaid as of December 31, 2023.
364-day Term Loan
On April 26, 2022, we entered into a 364-day $500 million senior unsecured delayed draw term loan (the "term loan") due April 26, 2023 with a syndicate of lenders. The term loan and commitments thereunder were subject to prepayment or termination at our option and the loans bore interest at SOFR plus a spread adjustment and 0.70%. The covenants, including the financial covenants, were substantially the same as those in the 2022 Credit Agreement. We repaid $300 million during 2022 and the remaining $200 million upon the maturity of the term loan on April 26, 2023.
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 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
In the third quarter of 2023, we acquired all of the share capital of Sauna360 for approximately €124 million ($136 million), net of cash acquired. Sauna360 has a portfolio of products that includes traditional, infrared, and wood-burning saunas as well as steam showers.
Share Repurchases
Effective October 20, 2022, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock, exclusive of excise tax, in open-market transactions or otherwise. We repurchased and retired 6.2 million shares of our common stock in 2023 for approximately $356 million, inclusive of excise tax of $3 million. This included 0.2 million shares to offset the dilutive impact of restricted stock units granted in 2023. At December 31, 2023, we had $1.6 billion remaining under the 2022 authorization. Consistent with past practice and as part of our long-term capital allocation strategy, outside of any potential acquisitions, 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 2024. Refer to Note N to the consolidated financial statements for additional information.
During 2022, we repurchased and retired 16.6 million shares of our common stock (including 0.6 million shares to offset the dilutive impact of restricted stock units granted during the year), for approximately $914 million.
Dividend to holders of our Common Shares
We paid a quarterly dividend of $0.285 per common share for an annual dividend of $1.14 per share.
As part of our capital allocation strategy, the Board of Directors declared a quarterly dividend of $0.29 per share in the first quarter of 2024 with the intention to increase the annual dividend 2 percent to $1.16 per share.
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. The amounts confirmed as valid under the program and included in accounts payable were $53 million and $50 million at December 31, 2023 and 2022, respectively. Of the amounts confirmed as valid under the program, the amounts owed to participating financial institutions were $28 million and $29 million at December 31, 2023 and 2022, respectively. All payments made under the program are recorded as a decrease in accounts payable and accrued liabilities, net, in our consolidated statements of cash flows. 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 sterling, 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.
Cash Flows
Significant sources and (uses) of cash for the years ended December 31, 2023 and 2022 are summarized as follows, in millions: | | | | | | | | | | | |
| 2023 | | 2022 |
Net cash from operating activities | $ | 1,413 | | | $ | 840 | |
| | | |
Purchase of Company common stock | (353) | | | (914) | |
Cash dividends paid | (257) | | | (258) | |
Dividends paid to noncontrolling interest | (49) | | | (68) | |
| | | |
| | | |
Proceeds from short-term borrowings | 77 | | | — | |
Payment of short-term borrowings | (77) | | | — | |
Proceeds from term loan | — | | | 500 | |
Payment of term loan | (200) | | | (300) | |
| | | |
Proceeds from the exercise of stock options | 38 | | | 1 | |
Employee withholding taxes paid on stock-based compensation | (29) | | | (17) | |
| | | |
Payment of debt | (5) | | | (10) | |
| | | |
Capital expenditures | (243) | | | (224) | |
Acquisition of business, net of cash acquired | (136) | | | — | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Effect of exchange rate changes on cash and cash investments | 6 | | | (18) | |
Other, net | (4) | | | (6) | |
Cash increase (decrease) | $ | 182 | | | $ | (474) | |
Our working capital days were as follows: | | | | | | | | | | | |
| At December 31, |
| 2023 | | 2022 |
Receivable days | 52 | | | 53 | |
Inventory days | 77 | | | 80 | |
Accounts payable days | 70 | | | 68 | |
Working capital (receivables plus inventories, less accounts payable) as a percentage of net sales | 16.0 | % | | 17.4 | % |
Operating Activities
Net cash provided by operations was $1,413 million, primarily driven by operating profit and changes in working capital, mostly attributable to lower inventory.
Financing Activities
Net cash used for financing activities was $854 million, primarily due to $353 million for the repurchase and retirement of our common stock (including 0.2 million shares repurchased to offset the dilutive impact of restricted stock units granted in 2023), $257 million for the payment of cash dividends, $200 million for the repayment of the 364-day term loan, $49 million for dividends paid to noncontrolling interest and $29 million for employee withholding taxes paid on stock-based compensation. These uses of cash were partially offset by $38 million of proceeds from the exercise of stock options.
Investing Activities
Net cash used for investing activities was $383 million, primarily driven by $243 million of capital expenditures and $136 million for the acquisition of Sauna360.
Commitments and Contingencies
Litigation
Information regarding our legal proceedings is set forth in Note T 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, 2023, in millions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Payments Due by Period |
| 2024 | | 2025-2026 | | 2027-2028 | | Beyond 2028 | | Other | | Total |
Debt (A) | $ | 3 | | | $ | 5 | | | $ | 904 | | | $ | 2,042 | | | $ | — | | | $ | 2,954 | |
Interest (A) | 98 | | | 193 | | | 178 | | | 656 | | | — | | | 1,125 | |
Operating leases | 57 | | | 101 | | | 65 | | | 167 | | | — | | | 390 | |
Currently payable income taxes | 32 | | | — | | | — | | | — | | | — | | | 32 | |
Purchase commitments (B) | 327 | | | 81 | | | 4 | | | — | | | — | | | 412 | |
Uncertain tax positions, including interest and penalties (C) | — | | | — | | | — | | | — | | | 93 | | | 93 | |
Total | $ | 517 | | | $ | 379 | | | $ | 1,152 | | | $ | 2,866 | | | $ | 93 | | | $ | 5,006 | |
______________________________(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 M to the consolidated financial statements for defined-benefit pension plan obligations.
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
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.
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.
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 both growing at approximately 1.0 percent in 2024, and 2.0 percent and 1.5 percent, respectively, per annum over the remainder of the five-year forecast.
We utilize our weighted average cost of capital of approximately 9.50 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2023, 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 11.50 percent to 13.50 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 2023, we estimated that future discounted cash flows projected for all of our reporting units were greater than the carrying values. Accordingly, we did not recognize any impairment charges for goodwill. A 10 percent decrease in the estimated fair value of our reporting units would not have resulted in any 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 9.50 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2023, based upon our assessment of the risks impacting each of our businesses and the nature of the other indefinite-lived intangible assets (i.e., trade name), we applied a risk premium to increase the discount rate to a range of 12.25 percent to 14.50 percent for our other indefinite-lived intangible assets.
If the carrying amount of an other indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized to the extent that an other indefinite-lived intangible asset's recorded carrying value exceeds its fair value, not to exceed the carrying amount of the other indefinite-lived intangible asset.
In the fourth quarter of 2023, we recognized a $15 million non-cash impairment charge related to a registered trademark within our Decorative Architectural Products segment due to competitive market conditions and increased cost of capital in our lighting business. As of December 31, 2023, the impaired other indefinite-lived intangible asset had a remaining net carrying value of $28 million. A 10 percent decrease in the estimated fair value of our other indefinite-lived intangibles assets would have resulted in a $2 million impairment for another one of our other indefinite-lived intangible assets.
Refer to Note H for additional information.
Income Taxes
We record deferred taxes on the future tax consequences of differences between the financial statement carrying value of our assets and liabilities and their respective tax basis. The realization of deferred tax assets depends on sufficient sources of taxable income in future periods. 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 and projected future taxable income.
If, based upon all available evidence, both positive and negative, it is more likely than not such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to evidence that is objectively verifiable such as cumulative losses in recent years, however, some evidence may be based on estimates and assumptions regarding potential sources of future taxable income. Changes in these estimates and assumptions may result in a change in judgment regarding the realizability of deferred tax assets.
We have loss carryforwards in certain state jurisdictions resulting from perpetual losses for which deferred tax assets were not recognized as the likelihood of utilization was remote. Due to a legal restructuring of certain U.S. businesses that will occur in early 2024, it is more likely than not a significant portion of these loss carryforwards will be utilized. As a result, we recognized a $29 million state income tax benefit, net of federal expense, in the fourth quarter of 2023.
Refer to Note R for additional information.
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.
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 sterling, Canadian dollar, Chinese renminbi, and Mexican peso, 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, 2023, 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.
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, 2023 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, 2023.
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, 2023, 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, 2023 and expressed an unqualified opinion on our 2023 consolidated financial statements. This report is included herein under the heading "Report of Independent Registered Public Accounting Firm."
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, 2023 and 2022, 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, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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, 2023, 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 Management’s Report on Internal Control over Financial Reporting appearing under Item 8. 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 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 $604 million as of December 31, 2023. Management performs an annual impairment test of goodwill 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. Management compares the fair value of the reporting units to the carrying value of the reporting units for goodwill impairment testing. 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 carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit. Management determines fair value using a discounted cash flow method, which requires management to make significant estimates and assumptions related to forecasted sales and operating profits, long-term assumed annual growth rate, 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 estimate of the reporting units and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumption related to forecasted sales for certain reporting units.
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 reporting units. These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the reporting units; (ii) evaluating the appropriateness of the discounted cash flow method; (iii) testing the completeness and accuracy of underlying data used in the discounted cash flow method; and (iv) evaluating the reasonableness of the significant assumption used by management related to forecasted sales for certain reporting units. Evaluating management’s assumption related to forecasted sales for certain reporting units involved evaluating whether the assumption used was reasonable considering (i) the current and past performance of certain reporting units; (ii) the consistency with external market and industry data; and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
February 8, 2024
We have served as the Company’s auditor since 1959.
Financial Statements and Supplementary Data
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 2023 and 2022
(In Millions, Except Share Data)
| | | | | | | | | | | |
| 2023 | | 2022 |
ASSETS |
Current assets: | | | |
Cash and cash investments | $ | 634 | | | $ | 452 | |
| | | |
Receivables | 1,090 | | | 1,149 | |
Inventories | 1,022 | | | 1,236 | |
Prepaid expenses and other | 110 | | | 109 | |
| | | |
Total current assets | 2,856 | | | 2,946 | |
Property and equipment, net | 1,121 | | | 975 | |
Goodwill | 604 | | | 537 | |
Other intangible assets, net | 377 | | | 350 | |
Operating lease right-of-use assets | 268 | | | 266 | |
Other assets | 139 | | | 113 | |
| | | |
Total assets | $ | 5,363 | | | $ | 5,187 | |
| | | |
LIABILITIES |
Current liabilities: | | | |
Accounts payable | $ | 840 | | | $ | 877 | |
Notes payable | 3 | | | 205 | |
Accrued liabilities | 852 | | | 807 | |
| | | |
Total current liabilities | 1,695 | | | 1,889 | |
Long-term debt | 2,945 | | | 2,946 | |
Noncurrent operating lease liabilities | 258 | | | 255 | |
Other liabilities | 349 | | | 339 | |
| | | |
Total liabilities | $ | 5,247 | | | $ | 5,429 | |
| | | |
Commitments and contingencies (Note T) | | | |
Redeemable noncontrolling interest | 18 | | | 20 | |
| | | |
EQUITY |
Masco Corporation's shareholders' equity: | | | |
Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2023 – 220,600,000; 2022 – 225,300,000 | 221 | | | 225 | |
Preferred shares authorized: 1,000,000; Issued and outstanding: 2023 and 2022 – None | — | | | — | |
Paid-in capital | — | | | 16 | |
Retained deficit | (596) | | | (947) | |
Accumulated other comprehensive income | 249 | | | 226 | |
Total Masco Corporation's shareholders' deficit | (126) | | | (480) | |
Noncontrolling interest | 224 | | | 218 | |
Total equity | 98 | | | (262) | |
Total liabilities and equity | $ | 5,363 | | | $ | 5,187 | |
See notes to consolidated financial statements.
Amounts may not add due to rounding.
36
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2023, 2022 and 2021
(In Millions, Except Per Common Share Data)
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Net sales | $ | 7,967 | | | $ | 8,680 | | | $ | 8,375 | |
Cost of sales | 5,131 | | | 5,967 | | | 5,512 | |
Gross profit | 2,836 | | | 2,713 | | | 2,863 | |
Selling, general and administrative expenses | 1,473 | | | 1,390 | | | 1,413 | |
| | | | | |
Impairment charges for goodwill and other intangible assets | 15 | | | 26 | | | 45 | |
Operating profit | 1,348 | | | 1,297 | | | 1,405 | |
Other income (expense), net: | | | | | |
Interest expense | (106) | | | (108) | | | (278) | |
Other, net | (4) | | | 4 | | | (439) | |
| (110) | | | (104) | | | (717) | |
Income before income taxes | 1,238 | | | 1,193 | | | 688 | |
Income tax expense | 278 | | | 288 | | | 210 | |
Net income | 960 | | | 905 | | | 478 | |
| | | | | |
| | | | | |
Less: Net income attributable to noncontrolling interest | 52 | | | 61 | | | 68 | |
Net income attributable to Masco Corporation | $ | 908 | | | $ | 844 | | | $ | 410 | |
| | | | | |
Income per common share attributable to Masco Corporation: | | | | |
Basic: | | | | | |
| | | | | |
| | | | | |
Net income | $ | 4.03 | | | $ | 3.65 | | | $ | 1.63 | |
Diluted: | | | | | |
| | | | | |
| | | | | |
Net income | $ | 4.02 | | | $ | 3.63 | | | $ | 1.62 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See notes to consolidated financial statements.
Amounts may not add due to rounding.
37
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31, 2023, 2022 and 2021
(In Millions)
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
Net income | $ | 960 | | | $ | 905 | | | $ | 478 | |
Less: Net income attributable to noncontrolling interest | 52 | | | 61 | | | 68 | |
Net income attributable to Masco Corporation | $ | 908 | | | $ | 844 | | | $ | 410 | |
Other comprehensive income (loss), net of tax (Note O) | | | | | |
Cumulative translation adjustment | $ | 35 | | | $ | (60) | | | $ | (32) | |
Interest rate swaps | — | | | — | | | 7 | |
Pension and other post-retirement benefits | (8) | | | 54 | | | 384 | |
| | | | | |
Other comprehensive income (loss), net of tax | 27 | | | (6) | | | 359 | |
Less: Other comprehensive income (loss) attributable to noncontrolling interest: | | | | | |
Cumulative translation adjustment | $ | 5 | | | $ | (9) | | | $ | (19) | |
Pension and other post-retirement benefits | (2) | | | 9 | | | 4 | |
| 3 | | | — | | | (15) | |
Other comprehensive income (loss) attributable to Masco Corporation | $ | 24 | | | $ | (6) | | | $ | 374 | |
Total comprehensive income | $ | 987 | | | $ | 899 | | | $ | 837 | |
Total comprehensive income attributable to noncontrolling interest | 55 | | | 61 | | | 53 | |
Total comprehensive income attributable to Masco Corporation | $ | 932 | | | $ | 838 | | | $ | 784 | |
See notes to consolidated financial statements.
Amounts may not add due to rounding.
38
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2023, 2022 and 2021
(In Millions)
| | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 |
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: | | | | | |
Net income | $ | 960 | | | $ | 905 | | | $ | 478 | |
Depreciation and amortization | 149 | | | 145 | | | 151 | |
Fair value adjustment to contingent earnout obligation | — | | | (24) | | | 16 | |
| | | | | |
Deferred income taxes | (32) | | | (15) | | | (68) | |
Employee withholding taxes paid on stock-based compensation | 29 | | | 17 | | | 15 | |
Loss (gain) on investments, net | — | | | 5 | | | (25) | |
Loss on disposition of businesses, net | — | | | 1 | | | 18 | |
Pension and other post-retirement benefits | (6) | | | (3) | | | 312 | |
| | | | | |
Impairment of goodwill and other intangible assets | 15 | | | 26 | | | 45 | |
Stock-based compensation | 31 | | | 49 | | | 61 | |
Dividends paid-in-kind | — | | | — | | | (6) | |
Decrease (increase) in receivables | 42 | | | (15) | | | (64) | |
Decrease (increase) in inventories | 233 | | | (43) | | | (350) | |
(Decrease) increase in accounts payable and accrued liabilities, net | (34) | | | (225) | | | 190 | |
Debt extinguishment costs | — | | | — | | | 160 | |
Other, net | 27 | | | 17 | | | (3) | |
Net cash from operating activities | 1,413 | | | 840 | | | 930 | |
| | | | | |
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: | | | | | |
Retirement of notes | — | | | — | | | (1,326) | |
Purchase of Company common stock | (353) | | | (914) | | | (1,026) | |
Cash dividends paid | (257) | | | (258) | | | (211) | |
Dividends paid to noncontrolling interest | (49) | | | (68) | | | (43) | |
Issuance of notes, net of issuance costs | — | | | — | | | 1,481 | |
| | | | | |
Proceeds from short-term borrowings | 77 | | | — | | | — | |
Payment of short-term borrowings | (77) | | | — | | | — | |
Proceeds from term loan | — | | | 500 | | | — | |
Payment of term loan | (200) | | | (300) | | | — | |
Debt extinguishment costs | — | | | — | | | (160) | |
Proceeds from the exercise of stock options | 38 | | | 1 | | | 5 | |
Employee withholding taxes paid on stock-based compensation | (29) | | | (17) | | | (15) | |
| | | | | |
Payment of debt | (5) | | | (10) | | | (3) | |
| | | | | |
| | | | | |
Net cash for financing activities | (854) | | | (1,066) | | | (1,298) | |
| | | | | |
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: | | | | | |
Capital expenditures | (243) | | | (224) | | | (128) | |
Acquisition of businesses, net of cash acquired | (136) | | | — | | | (57) | |
Proceeds from disposition of: | | | | | |
Businesses, net of cash disposed | — | | | — | | | 5 | |
| | | | | |
| | | | | |
Financial investments | 2 | | | 1 | | | 171 | |
| | | | | |
| | | | | |
| | | | | |
Other, net | (6) | | | (7) | | | (3) | |
Net cash for investing activities | (383) | | | (230) | | | (12) | |
| | | | | |
Effect of exchange rate changes on cash and cash investments | 6 | | | (18) | | | (20) | |
| | | | | |
CASH AND CASH INVESTMENTS: | | | | | |
Increase (decrease) for the year | 182 | | | (474) | | | (400) | |
At January 1 | 452 | | | 926 | | | 1,326 | |
At December 31 | $ | 634 | | | $ | 452 | | | $ | 926 | |
See notes to consolidated financial statements.
Amounts may not add due to rounding.
39
MASCO CORPORATION and Consolidated Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2023, 2022 and 2021
(In Millions, Except Per Common Share Data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Common Shares ($1 par value) | | Paid-In Capital | | Retained Earnings (Deficit) | | Accumulated Other Comprehensive (Loss) Income | | Noncontrolling Interest |
Balance, January 1, 2021 | $ | 421 | | | $ | 258 | | | $ | — | | | $ | 79 | | | $ | (142) | | | $ | 226 | |
Total comprehensive income | 836 | | | — | | | — | | | 410 | | | 374 | | | 52 | |
Shares issued | 3 | | | 1 | | | 2 | | | — | | | — | | | — | |
Shares retired: | | | | | | | | | | | |
Repurchased | (1,026) | | | (18) | | | (57) | | | (951) | | | — | | | — | |
Surrendered (non-cash) | (13) | | | — | | | — | | | (13) | | | — | | | — | |
Cash dividends declared | (175) | | | — | | | — | | | (175) | | | — | | | — | |
Dividends declared to noncontrolling interest | (43) | | | — | | | — | | | — | | | — | | | (43) | |
Redeemable noncontrolling interest - redemption adjustment | (2) | | | — | | | — | | | (2) | | | — | | | — | |
Stock-based compensation | 55 | | | — | | | 55 | | | — | | | — | | | — | |
Balance, December 31, 2021 | $ | 56 | | | $ | 241 | | | $ | — | | | $ | (652) | | | $ | 232 | | | $ | 235 | |
Total comprehensive income (loss) | 900 | | | — | | | — | | | 844 | | | (6) | | | 62 | |
Shares issued | 1 | | | 1 | | | — | | | — | | | — | | | — | |
Shares retired: | | | | | | | | | | | |
Repurchased | (914) | | | (17) | | | (32) | | | (865) | | | — | | | — | |
Surrendered (non-cash) | (17) | | | — | | | — | | | (17) | | | — | | | — | |
Cash dividends declared | (259) | | | — | | | — | | | (259) | | | — | | | — | |
Dividends declared to noncontrolling interest | (79) | | | — | | | — | | | — | | | — | | | (79) | |
Redeemable noncontrolling interest - redemption adjustment | 2 | | | — | | | — | | | 2 | | | — | | | — | |
Stock-based compensation | 48 | | | — | | | 48 | | | — | | | — | | | — | |
Balance, December 31, 2022 | $ | (262) | | | $ | 225 | | | $ | 16 | | | $ | (947) | | | $ | 226 | | | $ | 218 | |
Total comprehensive income | 987 | | | — | | | — | | | 908 | | | 24 | | | 55 | |
Shares issued | 27 | | | 2 | | | 25 | | | — | | | — | | | — | |
Shares retired: | | | | | | | | | | | |
Repurchased | (356) | | | (6) | | | (67) | | | (282) | | | — | | | — | |
Surrendered (non-cash) | (17) | | | — | | | — | | | (17) | | | — | | | — | |
Cash dividends declared | (257) | | | — | | | — | | | (257) | | | — | | | — | |
Dividends declared to noncontrolling interest | (49) | | | — | | | — | | | — | | | — | | | (49) | |
| | | | | | | | | | | |
Stock-based compensation | 26 | | | — | | | 26 | | | — | | | — | | | — | |
|