mas-20230331

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, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission file number: 1-5794

Masco Corporation

(Exact name of Registrant as Specified in its Charter)

Delaware

38-1794485

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer Identification No.)

17450 College Parkway,

Livonia,

Michigan

48152

(Address of Principal Executive Offices)

(Zip Code)

(313) 274-7400

(Registrant's telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Each Exchange
On Which Registered

Common Stock, $1.00 par value

MAS

New York Stock Exchange

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

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, 2023
Common stock, par value $1.00 per share						225,088,525

MASCO CORPORATION

INDEX

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets - as of March 31, 2023 and December 31, 2022

Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 and 2022

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022

Condensed Consolidated Statements of Shareholders' Equity for the Three Months Ended March 31, 2023 and 2022

Notes to Condensed Consolidated Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Item 4.

Controls and Procedures

PART II. OTHER INFORMATION

Unregistered Sales of Equity Securiti es and Use of Proceeds

Item 6.

Exhibits

Signature

MASCO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

March 31, 2023 and December 31, 2022

(In Millions, Except Share Data)


	March 31, 2023		December 31, 2022
ASSETS
Current assets:
Cash and cash investments	$	510	$	452

Receivables	1,329		1,149
Inventories	1,196		1,236
Prepaid expenses and other	113		109
Total current assets	3,148		2,946
Property and equipment, net	1,019		975
Goodwill	540		537
Other intangible assets, net	344		350
Operating lease right-of-use assets	266		266
Other assets	113		113
Total assets	$	5,430	$	5,187

LIABILITIES
Current liabilities:
Accounts payable	$	913	$	877
Notes payable	413		205
Accrued liabilities	692		807
Total current liabilities	2,018		1,889
Long-term debt	2,946		2,946
Noncurrent operating lease liabilities	254		255
Other liabilities	332		339
Total liabilities	$	5,550	$	5,429

Commitments and contingencies (Note L)
Redeemable noncontrolling interest	20		20

EQUITY
Masco Corporation's shareholders' equity:
Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2023 – 225,000,000; 2022 – 225,300,000	225		225
Preferred shares authorized: 1,000,000; Issued and outstanding: 2023 and 2022 – None	—		—
Paid-in capital	—		16
Retained deficit	(847)		(947)
Accumulated other comprehensive income	243		226
Total Masco Corporation's shareholders' deficit	(379)		(480)
Noncontrolling interest	239		218
Total equity	(140)		(262)
Total liabilities and equity	$	5,430	$	5,187

See notes to condensed consolidated financial statements.

MASCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months Ended March 31, 2023 and 2022

(In Millions, Except Per Common Share Data)


	Three Months Ended March 31,
		2023		2022
Net sales		$	1,979	$	2,201
Cost of sales		1,310		1,497
Gross profit		669		704
Selling, general and administrative expenses		354		351


Operating profit		315		353
Other income (expense), net:
Interest expense		(28)		(25)
Other, net		(2)		(1)
		(30)		(26)
Income before income taxes		285		327
Income tax expense		64		75
Net income		221		252


Less: Net income attributable to noncontrolling interest		16		19
Net income attributable to Masco Corporation		$	205	$	233

Income per common share attributable to Masco Corporation:
Basic:


Net income		$	0.91	$	0.98
Diluted:


Net income		$	0.90	$	0.97

See notes to condensed consolidated financial statements.

MASCO CORPORATION

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

For the Three Months Ended March 31, 2023 and 2022

(In Millions)


	Three Months Ended March 31,
		2023		2022
Net income		$	221	$	252
Less: Net income attributable to noncontrolling interest		16		19
Net income attributable to Masco Corporation		$	205	$	233
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment		$	22	$	(11)

Pension and other post-retirement benefits		—		1

Other comprehensive income (loss), net of tax		22		(10)
Less: Other comprehensive income (loss) attributable to the noncontrolling interest		5		(4)
Other comprehensive income (loss) attributable to Masco Corporation		$	17	$	(6)
Total comprehensive income		$	243	$	242
Less: Total comprehensive income attributable to noncontrolling interest		21		15
Total comprehensive income attributable to Masco Corporation		$	222	$	227

See notes to condensed consolidated financial statements.

MASCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended March 31, 2023 and 2022

(In Millions)


	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Cash provided by operations	$	286	$	334
Increase in receivables	(194)		(349)
Decrease (increase) in inventories	45		(127)
Decrease in accounts payable and accrued liabilities, net	(104)		(85)
Net cash from (for) operating activities	33		(227)

CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:

Purchase of Company common stock	(53)		(364)
Proceeds from revolving credit borrowings, net	210		263
Cash dividends paid	(65)		(67)








Proceeds from the exercise of stock options	9		1
Employee withholding taxes paid on stock-based compensation	(20)		(17)


Decrease in debt, net	(3)		(3)
Net cash from (for) financing activities	78		(187)

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Capital expenditures	(61)		(27)







Other, net	2		1
Net cash for investing activities	(59)		(26)

Effect of exchange rate changes on cash and cash investments	6		(7)

CASH AND CASH INVESTMENTS:
Increase (decrease) for the period	58		(447)
At January 1	452		926
At March 31	$	510	$	479

See notes to condensed consolidated financial statements.

MASCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

For the Three Months Ended March 31, 2023 and 2022

(In Millions, Except Per Common Share Data)


	Total		Common Shares ($1 par value)		Paid-In Capital		Retained (Deficit) Earnings		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interest
Balance, January 1, 2022	$	56	$	241	$	—	$	(652)	$	232	$	235
Total comprehensive income (loss)	242		—		—		233		(6)		15
Shares issued	1		1		—		—		—		—
Shares retired:
Repurchased	(364)		(6)		(27)		(331)		—		—
Surrendered (non-cash)	(17)		—		—		(17)		—		—
Cash dividends declared	(67)		—		—		(67)		—		—

Redeemable noncontrolling interest - redemption adjustment	1		—		—		1		—		—
Stock-based compensation	27		—		27		—		—		—
Balance, March 31, 2022	$	(121)	$	236	$	—	$	(833)	$	226	$	250



Balance, January 1, 2023	$	(262)	$	225	$	16	$	(947)	$	226	$	218
Total comprehensive income	243		—		—		205		17		21
Shares issued	6		1		5		—		—		—
Shares retired:
Repurchased	(56)		(1)		(32)		(23)		—		—
Surrendered (non-cash)	(17)		—		—		(17)		—		—
Cash dividends declared	(65)		—		—		(65)		—		—


Stock-based compensation	11		—		11		—		—		—
Balance, March 31, 2023	$	(140)	$	225	$	—	$	(847)	$	243	$	239

See notes to condensed consolidated financial statements.

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, 2023, and our results of operations, comprehensive income (loss), cash flows and changes in shareholders' equity for the three months ended March 31, 2023 and 2022. The condensed consolidated balance sheet at December 31, 2022 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 September 2022, the Financial Accounting Standards Board ("FASB") issued ASU 2022-04, "Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which requires that an entity that uses a supplier finance program in connection with the purchase of goods or services disclose information about the program’s nature, activity during the period, changes from period to period, and potential magnitude. We adopted this standard for annual periods on a retrospective basis, including interim periods within those annual periods, beginning January 1, 2023, except for the amendment on rollforward information, which is effective prospectively for annual periods beginning January 1, 2024 and will be adopted at that time. The adoption of this guidance modified our disclosures, but did not have an impact on our financial position and results of operations.

Recently Issued Accounting Pronouncements. In March 2023, the FASB issued ASU 2023-02, "Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,” which permits an entity to elect to account for their tax equity investments using the proportional amortization method if certain conditions are met, regardless of the tax credit program from which the income tax credits are received. ASU 2023-02 is effective for annual periods on either a modified retrospective or retrospective basis, including interim periods within those annual periods, beginning January 1, 2024. Early adoption is permitted. We plan to adopt this standard beginning January 1, 2024, and we are currently reviewing the provisions of this standard and the impact, if any, the adoption of this guidance will have on our financial position and results of operations.

B. REVENUE

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


	Three Months Ended March 31, 2023
	Plumbing Products		Decorative Architectural Products		Total
Primary geographic markets:
North America	$	798	$	757	$	1,555
International, principally Europe	424		—		424
Total	$	1,222	$	757	$	1,979


	Three Months Ended March 31, 2022
	Plumbing Products		Decorative Architectural Products		Total
Primary geographic markets:
North America	$	892	$	842	$	1,734
International, principally Europe	467		—		467
Total	$	1,359	$	842	$	2,201

We recognized $1 million and $5 million of revenue for the three months ended March 31, 2023 and 2022, respectively, related to performance obligations settled in previous years.

MASCO CORPORATION

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

B. REVENUE (Concluded)

Our contract asset balance was $2 million and $1 million at March 31, 2023 and December 31, 2022, respectively. Our contract liability balance was $24 million and $61 million at March 31, 2023 and December 31, 2022, respectively.

Changes in the allowance for credit losses deducted from accounts receivable were as follows, in millions:


	Three Months Ended March 31, 2023		Twelve Months Ended December 31, 2022
Balance at January 1	$	8	$	6
Provision for expected credit losses during the period	—		5
Write-offs charged against the allowance	(1)		(4)
Recoveries of amounts previously written off	1		1

Balance at end of period	$	8	$	8

C. DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense was $35 million for both the three months ended March 31, 2023 and 2022.

D. INVENTORIES

The components of inventory were as follows, in millions:


	At March 31, 2023		At December 31, 2022
Finished goods	$	750	$	715
Raw materials	338		408
Work in process	108		113
Total	$	1,196	$	1,236

E. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill at March 31, 2023, by segment, was as follows, in millions:


	Gross Goodwill At March 31, 2023		Accumulated Impairment Losses		Net Goodwill At March 31, 2023
Plumbing Products	$	614	$	(301)	$	313
Decorative Architectural Products	366		(139)		227


Total	$	980	$	(440)	$	540

The changes in the carrying amount of goodwill for the three months ended March 31, 2023, by segment, were as follows, in millions:


	Gross Goodwill At December 31, 2022		Accumulated Impairment Losses		Net Goodwill At December 31, 2022		Foreign Currency Translation		Net Goodwill At March 31, 2023
Plumbing Products	$	611	$	(301)	$	310	$	3	$	313
Decorative Architectural Products	366		(139)		227		—		227
Total	$	977	$	(440)	$	537	$	3	$	540

MASCO CORPORATION

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

E. GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)

The carrying value of our other indefinite-lived intangible assets was $102 million at both March 31, 2023 and December 31, 2022 and principally included registered trademarks. The carrying value of our definite-lived intangible assets was $242 million (net of accumulated amortization of $100 million) at March 31, 2023 and $248 million (net of accumulated amortization of $94 million) at December 31, 2022, and principally included customer relationships.

F. SUPPLIER FINANCE PROGRAM

We facilitate a voluntary supply chain finance program (the "program") to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements with any of the participating financial institutions in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program.

All outstanding payments owed under the program are recorded within accounts payable in our condensed consolidated balance sheets. The amounts confirmed as valid under the program and included in accounts payable were $52 million and $50 million at March 31, 2023 and December 31, 2022, respectively. Of the amounts confirmed as valid under the program, the amounts owed to participating financial institutions were $26 million and $29 million at March 31, 2023 and December 31, 2022, respectively. All payments made under the program are recorded as a decrease in accounts payable and accrued liabilities, net, in our condensed consolidated statements of cash flows.

G. DEBT

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.

The 2022 Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries in U.S. dollars, European euros, British pounds sterling, Canadian dollars and certain other currencies for revolving credit loans, swingline loans and letters of credit. Borrowings under the revolving credit loans denominated in any agreed upon currency other than U.S. dollars are limited to the equivalent of $500 million. We can also borrow swingline loans up to $125 million and obtain letters of credit of up to $25 million. Outstanding letters of credit under the 2022 Credit Agreement reduce our borrowing capacity and we had no outstanding letters of credit under the 2022 Credit Agreement at March 31, 2023.

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

In order for us to borrow under the 2022 Credit Agreement, there must not be any default in our covenants in the 2022 Credit Agreement (i.e., in addition to the two financial covenants described above, principally limitations on subsidiary debt, negative pledge restrictions, and requirements relating to legal compliance, maintenance of our properties and insurance) and our representations and warranties in the 2022 Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since December 31, 2021, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and $210 million was borrowed and outstanding at an interest rate of 5.974% at March 31, 2023.

MASCO CORPORATION

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

G. DEBT (Concluded)

On April 26, 2022, we entered into a 364-day $500 million senior unsecured delayed draw term loan due April 26, 2023 with a syndicate of lenders. The senior unsecured term loan and commitments thereunder are subject to prepayment or termination at our option and the loans will bear interest at SOFR plus a spread adjustment and 0.70%. The covenants, including the financial covenants, are substantially the same as those in the 2022 Credit Agreement. We repaid $300 million during 2022.

Subsequent to March 31, 2023, we increased our borrowing under the 2022 Credit Agreement to $266 million at a weighted average interest rate of 6.190%, and repaid the remaining $200 million outstanding under the term loan.

Fair Value of Debt. The fair value of our short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues, which are Level 1 inputs. The 364-day term loan has an interest rate that resets monthly and the fair value of this instrument approximates the carrying value at March 31, 2023. The aggregate estimated market value of our short-term and long-term debt at March 31, 2023 was approximately $3.0 billion, compared with the aggregate carrying value of $3.4 billion. The aggregate estimated market value of our short-term and long-term debt at December 31, 2022 was approximately $2.7 billion, compared with the aggregate carrying value of $3.2 billion.

H. SEGMENT INFORMATION

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


	Three Months Ended March 31,
			2023		2022		2023		2022
		Net Sales (A)	Operating Profit
Our operations by segment were:
Plumbing Products			$	1,222	$	1,359	$	206	$	228
Decorative Architectural Products			757		842		132		155
Total			$	1,979	$	2,201	$	338	$	383
Our operations by geographic area were:
North America			$	1,555	$	1,734	$	266	$	300
International, principally Europe			424		467		72		83
Total, as above			$	1,979	$	2,201	338		383
General corporate expense, net							(23)		(30)
Operating profit							315		353
Other income (expense), net							(30)		(26)
Income before income taxes							$	285	$	327

(A) Inter-segment sales were not material.

MASCO CORPORATION

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

I. OTHER INCOME (EXPENSE), NET

Other, net, which is included in other income (expense), net, was as follows, in millions:


	Three Months Ended March 31,
		2023		2022
Net periodic pension and post-retirement benefit expense		$	(3)	$	(2)

Foreign currency transaction gains		1		4
Income from cash and cash investments		1		—
Realized gains from private equity funds		1		—