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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549 
FORM 10-Q

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________

Commission file number: 1-5794
Masco Corporation
(Exact name of Registrant as Specified in its Charter)
Delaware 38-1794485
(State or Other Jurisdiction of
Incorporation or Organization)
 (I.R.S. Employer Identification No.)
17450 College Parkway,Livonia,Michigan48152
(Address of Principal Executive Offices)(Zip Code)
(313) 274-7400
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $1.00 par valueMASNew York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes    No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 Emerging growth company
    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
    
    Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
     Yes    No

    Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 
Class Shares Outstanding at March 31, 2021
Common stock, par value $1.00 per share 253,785,852



MASCO CORPORATION

INDEX

  Page No.
 
 
 
 
 
 
 
 
 





MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

March 31, 2021 and December 31, 2020
(In Millions, Except Share Data)
March 31, 2021December 31, 2020
ASSETS  
Current Assets:  
Cash and cash investments$838 $1,326 
Receivables1,305 1,138 
Prepaid expenses and other97 149 
Assets held for sale18  
Inventories:  
Finished goods
601 552 
Raw material
252 242 
Work in process
95 82 
 948 876 
Total current assets3,206 3,489 
Property and equipment, net894 908 
Operating lease right-of-use assets173 166 
Goodwill588 563 
Other intangible assets, net378 357 
Other assets326 294 
Assets held for sale9  
Total assets$5,574 $5,777 
LIABILITIES  
Current Liabilities:  
Accounts payable$925 $893 
Notes payable6 3 
Accrued liabilities803 1,038 
Liabilities held for sale14  
Total current liabilities1,748 1,934 
Long-term debt2,955 2,792 
Noncurrent operating lease liabilities157 149 
Other liabilities458 481 
Liabilities held for sale14  
Total liabilities5,332 5,356 
Commitments and contingencies (Note P)
Redeemable noncontrolling interest25 
EQUITY  
Masco Corporation's shareholders' equity:  
Common shares, par value $1 per share
  Authorized shares: 1,400,000,000;
  Issued and outstanding: 2021 – 253,100,000; 2020 – 258,200,000
253 258 
Preferred shares authorized: 1,000,000;
  Issued and outstanding: 2021 and 2020 – None
  
Paid-in capital  
Retained (deficit) earnings(116)79 
Accumulated other comprehensive loss(154)(142)
Total Masco Corporation's shareholders' (deficit) equity(17)195 
Noncontrolling interest234 226 
Total equity217 421 
Total liabilities and equity$5,574 $5,777 
See notes to condensed consolidated financial statements.
1


MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months Ended March 31, 2021 and 2020
(In Millions, Except Per Common Share Data)
Three Months Ended March 31,
 20212020
Net sales$1,970 $1,581 
Cost of sales1,270 1,034 
Gross profit700 547 
Selling, general and administrative expenses335 322 
Operating profit365 225 
Other income (expense), net:  
Interest expense(202)(35)
Other, net(6)(16)
 (208)(51)
Income from continuing operations before income taxes
157 174 
Income tax expense 43 33 
Income from continuing operations114 141 
Income from discontinued operations, net 397 
Net income114 538 
Less: Net income attributable to noncontrolling interest
20 8 
Net income attributable to Masco Corporation
$94 $530 
Income per common share attributable to Masco Corporation:  
Basic:  
Income from continuing operations$.34 $.49 
Income from discontinued operations, net 1.44 
Net income$.34 $1.93 
Diluted:  
Income from continuing operations$.34 $.48 
Income from discontinued operations, net 1.44 
Net income$.34 $1.92 
Amounts attributable to Masco Corporation:  
Income from continuing operations$94 $133 
Income from discontinued operations, net 397 
Net income$94 $530 
See notes to condensed consolidated financial statements.
2


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

For the Three Months Ended March 31, 2021 and 2020
(In Millions)
Three Months Ended March 31,
 20212020
Net income$114 $538 
Less: Net income attributable to noncontrolling interest
20 8 
Net income attributable to Masco Corporation$94 $530 
Other comprehensive income (loss), net of tax (Note L):
  
Cumulative translation adjustment$(36)$(29)
Interest rate swaps7  
Pension and other post-retirement benefits5 5 
Other comprehensive (loss), net of tax(24)(24)
Less: Other comprehensive (loss) attributable to noncontrolling interest(12)(4)
Other comprehensive (loss) attributable to Masco Corporation$(12)$(20)
Total comprehensive income$90 $514 
Less: Total comprehensive income attributable to noncontrolling interest
8 4 
Total comprehensive income attributable to Masco Corporation
$82 $510 
 



See notes to condensed consolidated financial statements.
3


MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended March 31, 2021 and 2020
(In Millions) 
Three Months Ended March 31,
 20212020
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:  
Cash provided by operations$323 $7 
Increase in receivables(195)(183)
Increase in inventories(78)(21)
(Decrease) increase in accounts payable and accrued liabilities, net(139)105 
Net cash for operating activities(89)(92)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:  
Retirement of notes(1,326) 
Purchase of Company common stock(303)(602)
Cash dividends paid(36)(37)
Issuance of notes, net of issuance costs1,481  
Debt extinguishment costs(160) 
Proceeds from the exercise of stock options 20 
Employee withholding taxes paid on stock-based compensation(14)(22)
(Decrease) increase in debt, net(1)2 
Net cash for financing activities(359)(639)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:  
Capital expenditures(30)(24)
Acquisition of business, net of cash acquired (24)
Proceeds from disposition of:  
Businesses, net of cash disposed 853 
Other financial investments1 1 
Other, net4 1 
Net cash (for) from investing activities(25)807 
Effect of exchange rate changes on cash and cash investments(13)(6)
CASH AND CASH INVESTMENTS:  
(Decrease) increase for the period(486)70 
At January 11,326 697 
At March 31$840 $767 
See notes to condensed consolidated financial statements.
4


MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

For the Three Months Ended March 31, 2021 and 2020
(In Millions, Except Per Common Share Data)
 
Total
Common
Shares
($1 par value)
Paid-In
Capital
Retained (Deficit) EarningsAccumulated
Other
Comprehensive
 (Loss)
Noncontrolling
Interest
Balance, January 1, 2020$(56)$276 $ $(332)$(179)$179 
Cumulative effect of adoption of new credit loss standard(1)(1)
Adjusted balance, January 1, 2020
$(57)$276 $ $(333)$(179)$179 
Total comprehensive income (loss)514 530 (20)4 
Shares issued11 1 10 
Shares retired:
Repurchased(602)(14)(28)(560)
Surrendered (non-cash)(13)(13)
Cash dividends declared(36)(36)
Stock-based compensation18 18 
Balance, March 31, 2020$(165)$263 $ $(412)$(199)$183 
Balance, January 1, 2021$421 $258 $ $79 $(142)$226 
Total comprehensive income (loss)
90 94 (12)8 
Shares issued 1 (1)
Shares retired:
Repurchased(303)(6)(27)(270)
Surrendered (non-cash)(13)(13)
Redeemable noncontrolling interest - redemption adjustment(6)(6)
Stock-based compensation
28 28 
Balance, March 31, 2021$217 $253 $ $(116)$(154)$234 
 




See notes to condensed consolidated financial statements.
5


MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

A. ACCOUNTING POLICIES
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to fairly state our financial position at March 31, 2021, our results of operations, comprehensive income (loss), cash flows and changes in shareholders' equity for the three-month period ended March 31, 2021 and 2020. The condensed consolidated balance sheet at December 31, 2020 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted ("GAAP") in the United States of America.
Recently Adopted Accounting Pronouncements. In January 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-01, "Investments—Equity Securities (Topic 321)," "Investments—Equity Method and Joint Ventures (Topic 323)," and "Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815," which clarifies that an entity should consider observable transactions when either applying or discontinuing the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321. ASU 2020-01 clarifies that for certain forward contracts or purchased options to acquire investments, an entity should not consider whether, upon settlement of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method or the fair value option. We adopted ASU 2020-01 prospectively beginning on January 1, 2021. The adoption of the standard did not have a material effect on our financial position or results of operations.

B. ACQUISITIONS
In the first quarter of 2021, we acquired a 75.1% equity interest in Easy Sanitary Solutions B.V. ("ESS"), for approximately €47 million ($58 million), including $52 million of cash and $6 million of debt that will be paid out over two years less any pending or settled indemnity matters. These amounts are subject to working capital and other adjustments. The cash payment was made to a third-party notary on December 29, 2020 for the acquisition of this equity interest in advance of the transaction closing on January 4, 2021. ESS is a manufacturer of shower channel drains and offers a wide range of products for barrier-free showering and bathroom wall niches. This business is included in our Plumbing Products segment. In connection with this acquisition, we recognized $32 million of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of 10 years. We also recognized $35 million of goodwill, which is not tax deductible, and is related primarily to the expected synergies from combining the operations into our business.
The remaining 24.9% equity interest in ESS is subject to a call and put option that is exercisable by us or the sellers, respectively, any time after December 31, 2023. The redemption value of the call and put option is the same and based on a floating EBITDA value. The call and put options were determined to be embedded within the redeemable noncontrolling interest and was recorded as temporary equity in the condensed consolidated balance sheet as of March 31, 2021. We elected to adjust the redeemable noncontrolling interest to its full redemption amount directly into retained earnings.

In the fourth quarter of 2020, we acquired substantially all of the net assets of Kraus USA Inc. ("Kraus"), a designer and distributor of sinks, faucets and accessories for the kitchen and bathroom, for approximately $103 million and an additional cash payment of up to $50 million contingent upon the achievement of certain financial performance metrics for the year ending December 31, 2022. As of the closing date of the acquisition, the contingent consideration was assigned a fair value of approximately $8 million. This business expands our product offerings to our customers and our online presence under the Kraus brand. This business is included in our Plumbing Products segment. In connection with this acquisition, we recognized $25 million of indefinite-lived intangible assets, which is related to trademarks, and $49 million of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of 10 years. We also recognized $20 million of goodwill, which is generally tax deductible, and is related primarily to the expected synergies from combining the operations into our business. During the three-month period ended March 31, 2021, we revised the allocation of the purchase price to certain identifiable assets and liabilities based on analysis of information as of the acquisition date that has been made available through March 31, 2021, which resulted in a $1 million decrease to goodwill.



6



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

B. ACQUISITIONS (Concluded)
In the fourth quarter of 2020, we acquired substantially all of the net assets of Work Tools International Inc. and Elder & Jenks, LLC (collectively, "Work Tools") for approximately $53 million, including $48 million of cash and $5 million of debt that will be paid out in 18 months less any pending or settled indemnity matters. Work Tools will expand our product offering to our customers as it is a leading manufacturer of high-quality precision painting tools and accessories including brushes, rollers and mini rollers for DIY and professionals. This business is included in our Decorative Architectural Products segment. In connection with this acquisition, we recognized $7 million of indefinite-lived intangible assets, which is related to trademarks, and $27 million of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of 12 years. We also recognized $7 million of goodwill, which is generally tax deductible, and is related primarily to the expected synergies from combining the operations into our business. The working capital adjustments were finalized with the seller in the first quarter of 2021, resulting in no significant changes.
In the first quarter of 2020, we acquired all of the share capital of SmarTap A.Y Ltd. ("SmarTap") for approximately $24 million in cash. SmarTap is a developer of a smart bathing system that monitors and controls the temperature and flow of water. This acquisition provides an adaptable solution for a wide range of products as it is compatible with showerheads, hand showers, spouts and shower jets. This business is included in our Plumbing Products segment. In connection with this acquisition, we recognized $10 million of definite-lived intangible assets, primarily related to technology, which is being amortized on a straight-line basis over a weighted average amortization period of 5 years. We also recognized $14 million of goodwill, which is not tax deductible, and is related primarily to the expected synergies from combining the operations into our business.

C. DIVESTITURES
In March 2021, we entered into a definitive agreement to sell Hüppe GmbH ("Hüppe"), a manufacturer of shower enclosures and shower trays. The closing of the sale is expected during the second quarter of 2021, subject to customary closing conditions and regulatory approval. We determined that the assets and liabilities for Hüppe met the held for sale criteria. Accordingly, Hüppe's assets and liabilities were classified in the condensed consolidated balance sheet at March 31, 2021 as assets held for sale or liabilities held for sale. Additionally, we ceased recording depreciation and amortization for the held for sale assets upon meeting the held for sale criteria. The sale of Hüppe does not represent a strategic shift that will have a major effect on our operations and financial results so it was not presented as discontinued operations. This business is included in our Plumbing Products segment.
The carrying amount of major classes of assets and liabilities included as part of Hüppe being reported as held for sale, were as follows, in millions:
March 31, 2021
Cash and cash investments$2 
Receivables7 
Prepaid expenses and other1 
Inventories8 
Property and equipment, net7 
Operating lease right-of-use assets2 
Total assets classified as held for sale$27 
Accounts payable$7 
Accrued liabilities7 
Noncurrent operating lease liabilities1 
Other liabilities13 
Total liabilities classified as held for sale$28 



7



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

C. DIVESTITURES (Concluded)
On November 14, 2019, we entered into a definitive agreement to sell Masco Cabinetry LLC ("Cabinetry"), a manufacturer of cabinetry products. We completed the divestiture of Cabinetry on February 18, 2020 for proceeds of approximately $989 million, including $853 million, net of cash disposed. The remaining $136 million was accounted for as preferred stock issued by a holding company of the buyer; refer to Note G for additional information. In connection with the sale, we recognized a gain on the divestiture of $585 million for the three months ended March 31, 2020, which is included in income from discontinued operations, net in the condensed consolidated statement of operations.
As the sale of Cabinetry represented a strategic shift having a major effect on our operations and financial results, the business was presented in discontinued operations separate from continuing operations for the three months ended March 31, 2020.
The major classes of line items constituting income from discontinued operations, net, in millions:
Three Months Ended March 31,
 20212020
Net sales$ $101 
Cost of sales 78 
Gross profit 23 
Selling, general and administrative expenses 32 
(Loss) from discontinued operations (9)
Gain on disposal of discontinued operations 585 
Income before income tax 576 
Income tax expense (179)
Income from discontinued operations, net$ $397 

D. REVENUE
Our revenues are derived primarily from sales to customers in North America and Internationally, principally Europe. Net sales from these geographic markets, by segment, were as follows, in millions:
Three Months Ended March 31, 2021
Plumbing ProductsDecorative Architectural ProductsTotal
Primary geographic markets:
North America$808 $721 $1,529 
International, principally Europe441  441 
Total$1,249 $721 $1,970 
Three Months Ended March 31, 2020
Plumbing ProductsDecorative Architectural ProductsTotal
Primary geographic markets:
North America$632 $626 $1,258 
International, principally Europe323  323 
Total$955 $626 $1,581 








8



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

D. REVENUE (Concluded)

Our contract asset balance was $2 million at both March 31, 2021 and December 31, 2020. Our contract liability balance was $27 million and $62 million at March 31, 2021 and December 31, 2020, respectively.
We recognized $1 million and $3 million of revenue for the three-month periods ended March 31, 2021 and 2020, respectively, related to performance obligations settled in previous years.
Changes in the allowance for credit losses deducted from accounts receivable were as follows, in millions: 
Three Months Ended
March 31, 2021
Twelve Months Ended December 31, 2020
Balance at January 1$7 $5 
Provision for expected credit losses during the period1 3 
Write-offs charged against the allowance(1)(2)
Recoveries of amounts previously written off1 1 
Other (A)
(1) 
Balance at end of period$7 $7 
(A)    As a result of Hüppe being considered held for sale, $1 million for the three month period ended March 31, 2021 was removed from allowance for credit losses.

E. DEPRECIATION AND AMORTIZATION
 Depreciation and amortization expense was $43 million and $33 million for the three-month periods ended March 31, 2021 and 2020, respectively.

F. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the three-month period ended March 31, 2021, by segment, were as follows, in millions: 
Gross Goodwill At March 31, 2021Accumulated
Impairment
Losses
Net Goodwill At March 31, 2021
Plumbing Products (A)
$598 $(301)$297 
Decorative Architectural Products366 (75)291 
Total$964 $(376)$588 
(A)    As a result of Hüppe being considered held for sale, both gross goodwill and accumulated impairment losses for the Plumbing Products segment were reduced by $39 million.
 Gross Goodwill At December 31, 2020Accumulated
Impairment
Losses
Net Goodwill At December 31, 2020Acquisitions Other (B)Net Goodwill At March 31, 2021
Plumbing Products$613 $(340)$273 $34 $(10)$297 
Decorative Architectural Products
365 (75)290 1  291 
Total$978 $(415)$563 $35 $(10)$588 
(B)    Other consists of the effect of foreign currency translation.
    
The carrying value of our other indefinite-lived intangible assets was $109 million at both March 31, 2021 and December 31, 2020 and principally included registered trademarks. The carrying value of our definite-lived intangible assets was $269 million (net of accumulated amortization of $79 million) and $248 million (net of accumulated amortization of $73 million) at March 31, 2021 and December 31, 2020, respectively, and principally included customer relationships. The increase in our definite-lived intangible assets is primarily a result of our acquisition of ESS.


9



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

G. FAIR VALUE OF FINANCIAL INVESTMENTS
Preferred Stock of ACProducts Holding, Inc. In conjunction with our divestiture of Cabinetry, we received preferred stock of ACProducts Holding, Inc., the holding company of the buyer, with a liquidation preference of $150 million. We do not have the ability to exercise significant influence, and the fair value of this security is not readily available. We have elected to measure this investment at cost (less impairment, if any) adjusted for observable price changes in orderly transactions for the identical or similar investments of the same issuer for subsequent measurements of fair value.

As the preferred stock was received in conjunction with the sale of Cabinetry, we determined the cost to be the fair value of the preferred stock at the time of sale. The fair value of the preferred stock was measured on a non-recurring basis, and estimated using discounted cash flow and option pricing models (Level 3 inputs). The significant unobservable inputs used to value the preferred stock included: time to exit (deemed maturity) since the preferred stock is not mandatorily redeemable, discount rate used to determine the present value of expected cash flows, which included the spread on company specific debt and the risk-free rate of return, the liquidation preference and the coupon rate. On the date of acquisition, the fair value of this investment was determined to be $136 million and was included in other assets in our condensed consolidated balance sheet.

Dividends earned on this investment are included within other income (expense), net in our condensed consolidated statement of operations with a corresponding increase to our basis in the investment. We had dividend income of $3 million for the three-month period ended March 31, 2021. The preferred stock was reported at the carrying value of $149 million and $146 million in other assets in our condensed consolidated balance sheet at March 31, 2021 and December 31, 2020, respectively.

Fair Value of Debt. The fair value of our short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues, which are Level 1 inputs. The aggregate estimated market value of our short-term and long-term debt at March 31, 2021 was approximately $3.1 billion, compared with the aggregate carrying value of $3.0 billion. The aggregate estimated market value of our short-term and long-term debt at December 31, 2020 was approximately $3.3 billion, compared with the aggregate carrying value of $2.8 billion.

H. WARRANTY LIABILITY
Changes in our warranty liability were as follows, in millions: 
Three Months Ended
March 31, 2021
Twelve Months Ended December 31, 2020
Balance at January 1$83 $84 
Accruals for warranties issued during the period8 34 
Accruals related to pre-existing warranties (3)
Settlements made (in cash or kind) during the period(8)(33)
Other, net (including currency translation and acquisitions)(1)1 
Balance at end of period$82 $83 















10



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

I. DEBT
On March 4, 2021, we issued $600 million of 1.500% Notes due February 15, 2028, $600 million of 2.000% Notes due February 15, 2031 and $300 million of 3.125% Notes due February 15, 2051. We received proceeds of $1,495 million, net of discount, for the issuance of these Notes. The Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. On March 22, 2021, proceeds from the debt issuances, together with cash on hand, were used to repay and early retire our $326 million 5.950% Notes due March 15, 2022, $500 million 4.450% Notes due April 1, 2025, and $500 million 4.375% Notes due April 1, 2026. In connection with these early retirements, we incurred a loss on debt extinguishment of $168 million, which was recorded as interest expense.

On March 13, 2019, we entered into a credit agreement (the “Credit Agreement”) with an aggregate commitment of $1.0 billion and a maturity date of March 13, 2024. Under the Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with an aggregate commitment of $750 million, was terminated.
The Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries, in U.S. dollars, European euros, British Pounds Sterling, Canadian dollars and certain other currencies for revolving credit loans, swingline loans and letters of credit. Borrowings under the revolving credit loans denominated in any agreed upon currency other than U.S. dollars are limited to $500 million, equivalent. We can also borrow swingline loans up to $100 million and obtain letters of credit of up to $25 million; outstanding letters of credit under the Credit Agreement reduce our borrowing capacity. At March 31, 2021, we had no outstanding standby letters of credit under the Credit Agreement.
    Revolving credit loans bear interest under the Credit Agreement, at our option, at (A) a rate per annum equal to the greater of (i) the JPMorgan Chase Bank, N.A. prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50% and (iii) if available, adjusted LIBO Rate plus 1.0% (the "Alternative Base Rate"); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) if available, adjusted LIBO Rate plus an applicable margin based upon our then-applicable corporate credit ratings. The foreign currency revolving credit loans bear interest at a rate equal to adjusted LIBO Rate, if available, plus an applicable margin based upon our then-applicable corporate credit ratings.
The Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0.
In order for us to borrow under the Credit Agreement, there must not be any default in our covenants in the Credit Agreement (i.e., in addition to the two financial covenants, principally limitations on subsidiary debt, negative pledge restrictions, legal compliance requirements and maintenance of properties and insurance) and our representations and warranties in the Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since December 31, 2018, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and no borrowings were outstanding at March 31, 2021. 
















11



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

J. STOCK-BASED COMPENSATION
 
Our 2014 Long Term Stock Incentive Plan provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors. At March 31, 2021, outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, performance restricted stock units, and phantom stock awards.

Pre-tax compensation expense included in income from continuing operations for these stock-based incentives was as follows, in millions: 
Three Months Ended March 31,
 20212020
Long-term stock awards$3 $4 
Stock options4 3 
Restricted stock units19 8 
Performance restricted stock units2 1 
Phantom stock awards2  
Total$30 $16 
    
Long-Term Stock Awards. Prior to the amendment of our 2014 Long Term Stock Incentive Plan in December 2019, we granted long-term stock awards to our key employees and non-employee Directors. We did not grant shares of long-term stock awards in the three-month periods ended March 31, 2021 and 2020.
    
Our long-term stock award activity was as follows, shares in millions: 
Three Months Ended March 31,
 20212020
Unvested stock award shares at January 11 2 
Weighted average grant date fair value$36 $34 
Stock award shares vested 1 
Weighted average grant date fair value$34 $32 
Stock award shares forfeited  
Weighted average grant date fair value$37 $35 
Unvested stock award shares at March 311 1 
Weighted average grant date fair value$37 $36 

At March 31, 2021 and 2020, there was $18 million and $32 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of two years and three years at March 31, 2021 and 2020, respectively.

The total market value (at the vesting date) of stock award shares which vested was $26 million and $29 million during the three-month periods ended March 31, 2021 and 2020, respectively.










12



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

J. STOCK-BASED COMPENSATION (Continued)
Stock Options. Stock options are granted to certain key employees.

We granted 331,970 shares of stock options in the three-month period ended March 31, 2021 with a grant date weighted average exercise price of approximately $56 per share.

Our stock option activity was as follows, shares in millions: 
Three Months Ended March 31,
 20212020
Option shares outstanding, January 12 3 
Weighted average exercise price$33 $27 
Option shares granted1 1 
Weighted average exercise price$56 $48 
Option shares exercised 1 
Aggregate intrinsic value on date of exercise (A)
$
$
22 million
Weighted average exercise price$ $17 
Option shares forfeited  
Weighted average exercise price$11 $42 
Option shares outstanding, March 313 3 
Weighted average exercise price$36 $32 
Weighted average remaining option term (in years)77
Option shares vested and expected to vest, March 313 3 
Weighted average exercise price$36 $32 
Aggregate intrinsic value (A)
$
65 million
$
14 million
Weighted average remaining option term (in years)67
Option shares exercisable (vested), March 312 1 
Weighted average exercise price$30 $26 
Aggregate intrinsic value (A)
$
51 million
$
13 million
Weighted average remaining option term (in years)56
(A)    Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price), multiplied by the number of shares.

At March 31, 2021 and 2020, there was $6 million and $9 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of two years and three years at March 31, 2021 and 2020, respectively.


13



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

J. STOCK-BASED COMPENSATION (Concluded)

The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows: 
Three Months Ended March 31,
 20212020
Weighted average grant date fair value$13.61 $10.67 
Risk-free interest rate0.75 %1.53 %
Dividend yield1.67 %1.14 %
Volatility factor30.00 %24.00 %
Expected option life6 years6 years
Restricted Stock Units. Restricted stock units are granted to our key employees and non-employee Directors. These grants did not cause net share dilution due to our practice of repurchasing and retiring an equal number of shares in the open market.

We granted 635,840 restricted stock units in the three-month period ended March 31, 2021 with a weighted average grant date fair value of $56 per share. In the three-month period ended March 31, 2021, 126,295 shares were issued and 8,789 restricted stock units were forfeited. During the three-month period ended March 31, 2020, we granted 394,970 restricted stock units with a grant date fair value of approximately $47 per share and 4,760 restricted stock units were forfeited.

At March 31, 2021 and 2020, there was $23 million and $10 million, respectively, of unrecognized compensation expense related to unvested restricted stock units; such units had a weighted average remaining vesting period of two years and three years at March 31, 2021 and 2020, respectively.

The total market value (at the vesting date) of restricted stock units which vested was $7 million during the three-month period ended March 31, 2021.

Performance Restricted Stock Units. Under our Long Term Incentive Program, we grant performance restricted stock units to certain senior executives. These performance restricted stock units will vest and share awards will be issued at no cost to the employees, subject to our achievement of specified performance metrics established by our Compensation Committee over a three-year performance period and the recipient's continued employment through the share award date.

During the three-month period ended March 31, 2021, we granted 85,360 performance restricted stock units with a grant date fair value of approximately $53 per share and 104,757 shares were issued. No performance restricted stock units were forfeited during the three-month period ended March 31, 2021. During the three-month period ended March 31, 2020, we granted 133,390 performance restricted stock units with a grant date fair value of approximately $34 per share and 151,724 shares were issued.

















14



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

K. EMPLOYEE RETIREMENT PLANS
Net periodic pension cost for our defined-benefit pension plans, with the exception of service cost, is recorded in other income (expense), net, in our condensed consolidated statement of operations. Net periodic pension cost for our defined-benefit pension plans was as follows, in millions: 
 Three Months Ended March 31,
 20212020
 QualifiedNon-QualifiedQualifiedNon-Qualified
Service cost$1 $ $1 $ 
Interest cost8 1 6 1 
Expected return on plan assets(4) (6) 
Amortization of net loss6 1 6 1 
Net periodic pension cost$11 $2 $7 $2 

As of January 1, 2010, substantially all of our domestic and foreign qualified and domestic non-qualified defined-benefit pension plans were frozen to future benefit accruals. In December 2019, our Board of Directors approved the termination of our qualified domestic defined-benefit pension plans. These plans are expected to be settled in the second quarter of 2021.

L. RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE LOSS
 
The reclassifications from accumulated other comprehensive loss to the condensed consolidated statements of operations were as follows, in millions: 
 Amounts Reclassified 
Accumulated Other Comprehensive LossThree Months Ended March 31,Statement of Operations Line Item
20212020
Amortization of defined-benefit pension and other post-retirement benefits:
   
Actuarial losses, net$7 $7 
Other income (expense), net
Tax (benefit)(2)(2) 
Net of tax$5 $5  
Interest rate swaps (A)
$2 $ Interest expense
Tax expense5   
Net of tax$7 $  
(A)    Upon full repayment and retirement of the 5.950% Notes due March 15, 2022 in the first quarter of 2021, we recognized the remaining interest rate swap loss and related disproportionate tax expense.
















15



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

M. SEGMENT INFORMATION

Information by segment and geographic area was as follows, in millions: 
 Three Months Ended March 31,
 2021202020212020
 Net Sales (A)
Operating Profit (Loss)
Operations by segment:
    
Plumbing Products$1,249 $955 $252 $157 
Decorative Architectural Products
721 626 142 95 
Total$1,970 $1,581 $394 $252 
Operations by geographic area:
North America$1,529 $1,258 $308 $210 
International, principally Europe
441 323 86 42 
Total$1,970 $1,581 394 252 
General corporate expense, net
(29)(27)
Operating profit365 225 
Other income (expense), net(208)(51)
Income from continuing operations before income taxes
$157 $174 
(A)    Inter-segment sales were not material.

N. OTHER INCOME (EXPENSE), NET
 
Other, net, which is included in other income (expense), net, was as follows, in millions:
Three Months Ended March 31,
 20212020
Income from cash and cash investments
$ $1 
Equity investment income, net2  
Foreign currency transaction losses (9)
Net periodic pension and post-retirement benefit cost
(11)(8)
Dividend income3  
Total other, net$(6)$(16)




















16



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

O. INCOME PER COMMON SHARE
 
Reconciliations of the numerators and denominators used in the computations of basic and diluted income per common share were as follows, in millions: 
Three Months Ended March 31,
 20212020
Numerator (basic and diluted):  
Income from continuing operations$94 $133 
Less: Allocation to redeemable noncontrolling interest6  
Less: Allocation to unvested restricted stock awards
 1 
Income from continuing operations attributable to common shareholders
88 132 
Income from discontinued operations, net 397 
Less: Allocation to unvested restricted stock awards
 3 
Income from discontinued operations, net attributable to common shareholders 394 
Net income attributable to common shareholders
$88 $526 
Denominator:  
Basic common shares (based upon weighted average)
256 273 
Add: Stock option dilution1 1 
Diluted common shares257 274 
 
For the three-month period ended March 31, 2021, we allocated undistributed earnings to the unvested restricted stock awards. For the three-month period ended March 31, 2020, we allocated dividends and undistributed earnings to the unvested restricted stock awards.
 
Additionally, 188,000 and 582,000 common shares for the three-month periods ended March 31, 2021 and 2020, respectively, related to stock options, and 7,000 restricted stock units for the three-month period ended March 31, 2020 were excluded from the computation of diluted income per common share due to their antidilutive effect.

Effective February 10, 2021, our Board of Directors authorized the repurchase, for retirement, of up to $