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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 September 30, 2019
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 1-5794
Masco Corporation
(Exact name of Registrant as Specified in its Charter)

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

17450 College Parkway, | Livonia, | Michigan | 48152
(Address of Principal Executive Offices) | (Zip Code)

(313) 274-7400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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

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

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

MASCO CORPORATION
INDEX

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

MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
September 30, 2019 and December 31, 2018
(In Millions, Except Share Data)

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

See notes to condensed consolidated financial statements.
1

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three and Nine Months Ended September 30, 2019 and 2018
(In Millions, Except Per Common Share Data)

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

See notes to condensed consolidated financial statements.
2

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
For the Three and Nine Months Ended September 30, 2019 and 2018
(In Millions)

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

See notes to condensed consolidated financial statements.
3

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Nine Months Ended September 30, 2019 and 2018
(In Millions)

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

See notes to condensed consolidated financial statements.
4

MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
For the Three and Nine Months Ended September 30, 2019 and 2018
(In Millions, Except Per Common Share Data)

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

5

MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Concluded)
For the Three and Nine Months Ended September 30, 2019 and 2018
(In Millions, Except Per Common Share Data)

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

See notes to condensed consolidated financial statements.
6

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. ACCOUNTING POLICIES
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to fairly state our financial position at September 30, 2019, our results of operations and comprehensive income (loss) for the three-month and nine-month periods ended September 30, 2019 and 2018, cash flows for the nine-month periods ended September 30, 2019 and 2018, and changes in shareholders' equity for the three-month and nine-month periods ended September 30, 2019 and 2018. The condensed consolidated balance sheet at December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Reclassifications. Certain prior year amounts have been reclassified to conform to the 2019 presentation in the condensed consolidated financial statements. In our condensed consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified.
Leases. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use assets (“ROU assets”), accrued liabilities and other liabilities on our condensed consolidated balance sheet. Finance lease ROU assets are included in property and equipment, net, notes payable, and long-term debt on our condensed consolidated balance sheet.
ROU assets represent our right to use an underlying asset for the duration of the lease term while lease liabilities represent our obligation to make lease payments in exchange for the right to use an underlying asset. ROU assets and lease liabilities are measured based on the present value of fixed lease payments over the lease term at the commencement date. The ROU asset also includes any lease payments made prior to the commencement date and initial direct costs incurred, and is reduced by any lease incentives received. We review our ROU assets as events occur or circumstances change that would indicate the carrying amount of the ROU assets are not recoverable and exceed their fair values. If the carrying amount of the ROU asset is not recoverable from its undiscounted cash flows, then we would recognize an impairment loss for the difference between the carrying amount and the current fair value.
As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate on the commencement date of the lease as the discount rate in determining the present value of future lease payments. We determine the incremental borrowing rate for each lease by using the current yields of our uncollateralized, publicly traded debts with maturity periods similar to the respective lease term, adjusted to a collateralized basis based on third-party data. Our lease terms may include options to extend or terminate the lease when there are relevant economic incentives present that make it reasonably certain that we will exercise that option. We account for any non-lease components separately from lease components.
For operating leases, lease expense for future fixed lease payments is recognized on a straight-line basis over the lease term. For finance leases, lease expense for future fixed lease payments is recognized using the effective interest rate method over the lease term. Variable lease payments are recognized as lease expense in the period incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Recently Adopted Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board ("FASB") issued a new standard for leases, ASC 842, which changes the accounting model for identifying and accounting for leases. We adopted ASC 842 on January 1, 2019 using the optional transition method, which allows for initial application of the new standard beginning at the adoption date. We elected the package of practical expedients that allows us to forgo reassessing a) whether any existing contracts are or contain leases, b) the lease classification for any existing leases, and c) whether initial direct costs for any existing leases are capitalized. We also elected the practical expedient to use hindsight with respect to lease renewals, terminations, and purchase options when determining the lease term and in assessing impairment of the assets related to leases existing at the time of adoption. As a result of the standard, we recorded $236 million of operating lease ROU assets, $45 million of short-term operating lease liabilities, and $214 million of long-term operating lease liabilities on the date of adoption which includes assets and liabilities that have subsequently been reclassified as held for sale or disposed of. Our accounting for finance leases remained unchanged. The standard did not impact our condensed consolidated statements of operations or statements of cash flows.
7

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
A. ACCOUNTING POLICIES (Concluded)
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which improves and simplifies accounting rules around hedge accounting and
better portrays the economic results of an entity's risk management activities in its financial statements. We adopted ASU 2017-12 on January 1, 2019. The adoption of the standard did not impact our financial position or results of operations.
In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees.
We adopted ASU 2018-07 on January 1, 2019. The adoption of the standard did not impact our financial position or results of operations.
Recently Issued Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which modifies the methodology for recognizing loss impairments on certain types of financial instruments, including receivables. The new methodology requires an entity to estimate the credit losses expected over the life of an exposure. Additionally, ASU 2016-13 amends the current available-for-sale security other-than-temporary impairment model for debt securities. ASU 2016-13 is effective for us for annual periods beginning January 1, 2020. This standard will impact the valuation of our credit losses relating to our receivables, however, we do not anticipate a material effect on our financial position or results of operations.
In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. ASU 2018-15 allows for either retrospective adoption or prospective adoption to all implementation costs incurred after the date of adoption. We plan to adopt this standard prospectively effective for annual periods beginning January 1, 2020 and do not anticipate that the adoption of this new standard will have a material impact on our financial position or results of operations.
B. ACQUISITIONS
On March 9, 2018, we acquired substantially all of the net assets of The L.D. Kichler Co. ("Kichler"), a leader in decorative residential and light commercial lighting products, ceiling fans and LED lighting systems. This business expands our product offerings to our customers. The results of this acquisition for the period from the acquisition date are included in the condensed consolidated financial statements and are reported in the Decorative Architectural Products segment. The purchase price, net of $2 million cash acquired, consisted of $549 million paid with cash on hand. Since the acquisition, we revised the allocation of the purchase price to identifiable assets and liabilities based on analysis of information as of the acquisition date that was made available in the year after acquisition. The initial and final allocations of the fair value of the acquisition of Kichler is summarized in the following table, in millions.

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

8

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
B. ACQUISITIONS (Concluded)
The goodwill acquired, which is generally tax deductible, is related primarily to the operational and financial synergies we expect to derive from combining Kichler's operations into our business, as well as the assembled workforce. The other intangible assets acquired consist of $59 million of indefinite-lived intangible assets, which is
related to trademarks, and $181 million of definite-lived intangible assets. The definite-lived intangible assets consist of $145 million related to customer relationships, which is being amortized on a straight-line basis over 20 years, and $36 million of other definite-lived intangible assets, which is being amortized over a weighted average amortization period of 3 years.
C. DISCONTINUED OPERATIONS
On September 6, 2019, we completed the sale of UK Window Group ("UKWG"), a manufacturer and distributor of windows and doors, for proceeds of approximately $8 million, of which $2 million net of cash disposed was received upon sale. The remaining $6 million was accounted for as a note receivable that is expected to be collected within the next two years. In connection with the sale, we recognized a loss of $70 million for both the three-month and nine-month periods ended September 30, 2019, which is included in (loss) income from discontinued operations, net in the condensed consolidated statements of operations.
Additionally, on September 29, 2019, we entered into a definitive agreement to sell Milgard Manufacturing Incorporated ("Milgard"), a manufacturer and distributor of windows and doors, for approximately $725 million. The closing of the sale is expected to occur during the fourth quarter of 2019, subject to customary closing conditions and regulatory review, and we expect to recognize a gain on the divestiture of approximately $395 million.
We determined that the assets and liabilities for Milgard and UKWG met the held for sale criteria in accordance with ASC 205-20, Discontinued Operations, as of September 30, 2019. Accordingly, these businesses' held for sale assets and liabilities were reclassified in the condensed consolidated balance sheets at September 30, 2019 and December 31, 2018 to assets held for sale or liabilities held for sale. We ceased recording depreciation for the held for sale assets upon meeting the held for sale criteria.
Furthermore, we determined that the combined sale of UKWG and the planned disposition of Milgard represents a strategic shift that will have a major effect on our operations and financial results. These businesses represented all of our window businesses and all remaining businesses in the Windows and Other Specialty Products segment. As a result, these businesses are presented in discontinued operations separate from continuing operations for all periods presented. In addition, depreciation and amortization, capital expenditures, and significant non-cash operating and investing activities related to discontinued operations are separately disclosed.
9

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
C. DISCONTINUED OPERATIONS (Concluded)
The major classes of line items constituting (loss) income from discontinued operations, net, in millions:

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

(A) | In the first quarter of 2019, we recognized a $7 million non-cash goodwill impairment charge related to a decline in the long-term outlook of our windows and doors business in the United Kingdom.

(B) The unusual relationship between income tax benefit (expense) and (loss) income before income tax for 2019 resulted primarily from a loss
on the sale of UKWG providing no foreign tax benefit.
The carrying amount of major classes of assets and liabilities included as part of the Milgard and UKWG discontinued operations, were as follows, in millions:

| September 30, 2019 | December 31, 2018
Cash and cash investments | $ | 5 |  | $ | 6 |
Receivables | 60 |  | 85 |
Prepaid expenses and other | 13 |  | 18 |
Inventories | 33 |  | 42 |
Property and equipment, net | 151 |  | 186 |
Operating lease right-of-use assets | 30 |  | — |
Goodwill | 199 |  | 206 |
Other intangible assets, net | 112 |  | 117 |
Total assets classified as held for sale | $ | 603 |  | $ | 660 |
Accounts payable | $ | 66 |  | $ | 75 |
Accrued liabilities | 74 |  | 74 |
Other liabilities | 133 |  | 108 |
Total liabilities classified as held for sale | $ | 273 |  | $ | 257 |

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

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

10

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
D. REVENUE
Our revenues are derived primarily from sales to customers in North America and Internationally, principally Europe. Net sales from these geographic markets, by segment, were as follows, in millions:

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

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

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

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

Our contract asset balance was $2 million at both September 30, 2019 and December 31, 2018. Our contract liability balance was $16 million and $39 million at September 30, 2019 and December 31, 2018, respectively.
We (reversed) recognized $(2) million and $2 million of revenue for the three-month periods ended September 30, 2019 and 2018, respectively, related to performance obligations settled in previous quarters of the same year. We recognized $1 million of revenue for the nine-month period ended September 30, 2019, and $1 million and $4 million of revenue for the three-month and nine-month periods ended September 30, 2018, respectively, related to performance obligations settled in previous years.
11

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

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

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

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

Certain other information related to leases was as follows:

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

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

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

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

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
E. LEASES (Concluded)
At September 30, 2019, future maturities of lease liabilities (under ASC 842) were as follows, in millions:

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

At December 31, 2018, future minimum operating lease payments (under ASC 840), including discontinued operations, were as follows, in millions: 2019 – $55 million; 2020 – $47 million; 2021 – $40 million; 2022 – $30 million; 2023 – $20 million; 2024 and beyond – $99 million.
F. DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense, including discontinued operations, was $124 million and $115 million for the nine-month periods ended September 30, 2019 and 2018, respectively.
G. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the nine-month period ended September 30, 2019, by segment, were as follows, in millions:

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

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

(A) Other consists of the effect of foreign currency translations.
13

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
G. GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)
The carrying value of our other indefinite-lived intangible assets was $76 million and $86 million at September 30, 2019 and December 31, 2018, respectively, and principally included registered trademarks. During the first quarter of 2019, we recognized a $9 million impairment charge related to a registered trademark in our Decorative Architectural Products segment due to a change in the long-term net sales projections of lighting products. The carrying value of our definite-lived intangible assets was $188 million (net of accumulated amortization of $44 million) and $203 million (net of accumulated amortization of $27 million) at September 30, 2019 and December 31, 2018, respectively, and principally included customer relationships.
H. WARRANTY LIABILITY
Changes in our warranty liability were as follows, in millions:

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

I. DEBT
On April 16, 2018, we repaid and retired all of our $114 million, 6.625% Notes on the scheduled repayment date.
On March 13, 2019, we entered into a credit agreement (the “Credit Agreement”) with a bank group, with an aggregate commitment of $1.0 billion and a maturity date of March 13, 2024. Under the Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current bank group or new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with an aggregate commitment of $750 million, was terminated.
The Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries, in U.S. dollars, European euros, British Pounds Sterling, Canadian dollars and certain other currencies for revolving credit loans, swingline loans and letters of credit. Borrowings under the revolving credit loans denominated in any agreed upon currency other than U.S. dollars are limited to $500 million, equivalent. We can also borrow swingline loans up to $100 million and obtain letters of credit of up to $25 million; outstanding letters of credit under the Credit Agreement reduce our borrowing capacity. At September 30, 2019, we had no outstanding standby letters of credit under the Credit Agreement.
Revolving credit loans bear interest under the Credit Agreement, at our option, at (A) a rate per annum equal to the greater of (i) the JPMorgan Chase Bank, N.A. prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50% and (iii) adjusted LIBO Rate plus 1.0% (the "Alternative Base Rate"); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) adjusted LIBO Rate plus an applicable margin based upon our then-applicable corporate credit ratings. The foreign currency revolving credit loans bear interest at a rate equal to adjusted LIBO Rate plus an applicable margin based upon our then-applicable corporate credit ratings.
The Credit Agreement contains financial covenants requiring us to maintain (A) a maximum net leverage ratio, as adjusted for certain items, of 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, equal to or greater than 2.5 to 1.0.
14

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
I. DEBT (Concluded)
In order for us to borrow under the Credit Agreement, there must not be any default in our covenants in the Credit Agreement (i.e., in addition to the two financial covenants, principally limitations on subsidiary debt, negative pledge restrictions, legal compliance requirements and maintenance of properties and insurance) and our representations and warranties in the Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since December 31, 2018, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and no borrowings were outstanding at September 30, 2019.
Fair Value of Debt. The fair value of our short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues, which are Level 1 inputs. The aggregate estimated market value of our short-term and long-term debt at September 30, 2019 was approximately $3.2 billion, compared with the aggregate carrying value of $3.0 billion. The aggregate estimated market value was approximately $3.0 billion at December 31, 2018, which equaled the aggregate carrying value of short-term and long-term debt at that date.
J. STOCK-BASED COMPENSATION
Our 2014 Long Term Stock Incentive Plan provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors. At September 30, 2019, outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, and phantom stock awards.
Pre-tax compensation expense included in income from continuing operations for these stock-based incentives was as follows, in millions:

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

Long-Term Stock Awards. Long-term stock awards are granted to our key employees and non-employee Directors and do not cause net share dilution inasmuch as we continue the practice of repurchasing and retiring an equal number of shares in the open market. We granted 636,030 shares of long-term stock awards in the nine-month period ended September 30, 2019.
15

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
J. STOCK-BASED COMPENSATION (Continued)
Our long-term stock award activity was as follows, shares in millions:

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

At September 30, 2019 and 2018, there was $49 million and $50 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of three years at both September 30, 2019 and 2018.
The total market value (at the vesting date) of stock award shares which vested during the nine-month periods ended September 30, 2019 and 2018 was $31 million and $56 million, respectively.
Stock Options. Stock options are granted to certain key employees. The exercise price equals the market price of our common stock at the grant date. These options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date.
We granted 561,280 shares of stock options in the nine-month period ended September 30, 2019 with a grant date weighted average exercise price of approximately $36 per share. In the nine-month period ended September 30, 2019, 108,086 stock options were forfeited (including options that expired unexercised).
16

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
J. STOCK-BASED COMPENSATION (Continued)
Our stock option activity was as follows, shares in millions:

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

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

At both September 30, 2019 and 2018, there was $9 million of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of three years at both September 30, 2019 and 2018.
17

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
J. STOCK-BASED COMPENSATION (Concluded)
The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:

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

Restricted Stock Units. Under our Long Term Incentive Program, we grant restricted stock units to certain senior executives. These restricted stock units will vest and share awards will be issued at no cost to the employees, subject to our achievement of specified return on invested capital performance goals over a three-year period that have been established by our Organization and Compensation Committee of the Board of Directors for the performance period and the recipient's continued employment through the share award date. During the nine-month period ended September 30, 2019, we granted 126,680 restricted stock units with a grant date fair value of approximately $39 per share and 15,600 restricted stock units were forfeited. During the nine-month period ended September 30, 2018, we granted 113,260 restricted stock units with a grant date fair value of approximately $42 per share and 11,600 restricted stock units were forfeited.
K. EMPLOYEE RETIREMENT PLANS
Net periodic pension cost for our defined-benefit pension plans, with the exception of service cost, is recorded in other income (expense), net, in our condensed consolidated statement of operations. Net periodic pension cost for our defined-benefit pension plans was as follows, in millions:

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

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

As of January 1, 2010, substantially all of our domestic and foreign qualified and domestic non-qualified defined-benefit pension plans were frozen to future benefit accruals.
18

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
L. RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE LOSS
The reclassifications from accumulated other comprehensive loss to the condensed consolidated statements of operations were as follows, in millions:

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

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

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

(A) | Inter-segment sales were not material.

19

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
N. OTHER INCOME (EXPENSE), NET
Other, net, which is included in other income (expense), net, was as follows, in millions:

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

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

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

For the three-month and nine-month periods ended September 30, 2019 and 2018, we allocated dividends and undistributed earnings to the unvested restricted stock awards.
Additionally, 855,000 and 1.2 million common shares for the three-month and nine-month periods ended September 30, 2019, respectively, and 668,000 and 627,000 common shares for the three-month and nine-month periods ended September 30, 2018, respectively, related to stock options and 20,000 common shares related to restricted stock units for the three-month and nine-month periods ended September 30, 2019 were excluded from the computation of diluted income per common share due to their antidilutive effect.
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MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Concluded)
O. INCOME PER COMMON SHARE (Concluded)
In September 2019, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2017. In the first nine months of 2019, we repurchased and retired 11.5 million shares of our common stock (including 0.6 million shares to offset the dilutive impact of long-term stock awards granted in the first nine months of the year), for approximately $440 million. At September 30, 2019, we had $1.96 billion remaining under the 2019 authorization.
On the basis of amounts paid (declared), cash dividends per common share were $0.120 ($0.135) and $0.360 ($0.375) for the three-month and nine-month periods ended September 30, 2019, respectively, and $0.105 ($0.120) and $0.315 ($0.330) for the three-month and nine-month periods ended September 30, 2018, respectively.
P. OTHER COMMITMENTS AND CONTINGENCIES
We are involved in claims and litigation, including class actions and regulatory proceedings, which arise in the ordinary course of our business. The types of matters may include, among others: competition, product liability, employment, warranty, advertising, contract, personal injury, environmental, intellectual property, and insurance coverage. We believe we have adequate defenses in these matters and that the likelihood that the outcome of these matters would have a material adverse effect on us is remote. However, there is no assurance that we will prevail in these matters, and we could, in the future, incur judgments, enter into settlements of claims or revise our expectations regarding the outcome of these matters, which could materially impact our results of operations.
Q. INCOME TAXES
Our effective tax rate was 27 percent for both of the three-month periods ended September 30, 2019 and 2018.
Our effective tax rate was 26 percent and 25 percent for the nine-month periods ended September 30, 2019 and 2018, respectively. The increase in the rate was primarily due to an additional $9 million income tax benefit on stock-based compensation recognized in the nine-month period ended September 30, 2018.
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MASCO CORPORATION
Item 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER 2019 AND THE FIRST NINE MONTHS 2019 VERSUS THIRD QUARTER 2018 AND THE FIRST NINE MONTHS 2018

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

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

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

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

(A) Before general corporate expense, net; see Note M to the condensed consolidated financial statements.
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We report our financial results in accordance with generally accepted accounting principles ("GAAP") in the United States. However, we believe that certain non-GAAP performance measures and ratios used in managing the business may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results under GAAP.
The following discussion of consolidated results of operations and segment and geographic results refers to the three-month and nine-month periods ended September 30, 2019 compared to the same periods of 2018.
NET SALES
Net sales increased two percent and one percent for the three-month and nine-month periods ended September 30, 2019, respectively. Excluding acquisitions and the effect of currency translation, net sales increased three percent and one percent for the three-month and nine-month periods ended September 30, 2019, respectively. The following table reconciles reported net sales to net sales, excluding acquisitions and the effect of currency translation, in millions:

| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
Net sales, as reported | $ | 1,947 |  |  | $ | 1,904 |  |  | $ | 5,787 |  |  | $ | 5,743 |
Acquisitions | — |  |  | — |  |  | (65 | ) |  | — |
Net sales, excluding acquisitions | 1,947 |  |  | 1,904 |  |  | 5,722 |  |  | 5,743 |
Currency translation | 15 |  |  | — |  |  | 70 |  |  | — |
Net sales, excluding acquisitions and the effect of currency translation | $ | 1,962 |  |  | $ | 1,904 |  |  | $ | 5,792 |  |  | $ | 5,743 |

North American net sales increased three percent and two percent for the three-month and nine-month periods ended September 30, 2019, respectively. Higher sales volumes of paints and other coatings increased sales by two percent for the three-month period only. Net selling price increases of plumbing products, paints and other coating products, and lighting products, in aggregate, increased sales by two percent for both the three-month and nine-month periods. The acquisition of Kichler in March 2018 increased sales by one percent for the nine-month period only. Such increases were partially offset by lower sales volume of lighting products which decreased sales by one percent for the three-month period only. Lower sales volume of lighting and plumbing products, in aggregate, decreased sales by one percent for the nine-month period only.
International net sales increased one percent for the three-month period ended September 30, 2019. In local currencies (including sales in currencies outside their respective functional currencies), net sales increased five percent. Higher sales volume and net selling prices of plumbing products, in aggregate, increased sales by six percent. Such increases were partially offset by unfavorable sales mix of plumbing products which decreased sales by one percent. International net sales decreased five percent for nine-month period ended September 30, 2019. In local currencies, net sales increased one percent primarily due to favorable net selling prices of plumbing products.
Net sales in the Plumbing Products segment increased one percent for the three-month period ended September 30, 2019. Higher sales volume of International operations increased sales by two percent and net selling prices of North American operations increased sales by two percent. Such increases were partially offset by foreign currency translation which decreased sales by two percent. Lower sales volume of North American operations decreased sales by one percent. Net sales in the Plumbing Products segment decreased one percent for the nine-month period ended September 30, 2019. Foreign currency translation decreased sales by two percent. Lower sales volume of North American operations further decreased sales by one percent. Such decreases were partially offset by favorable net selling prices of North American operations which increased sales by two percent.
Net sales in the Decorative Architectural Products segment increased five percent for the three-month period ended September 30, 2019. Net sales increased due to higher sales volume of paints and other coating products and net selling price increases of paints and other coating products and lighting products. Such increases were partially offset by lower sales volume of lighting products and builders' hardware. Net sales in the Decorative Architectural Products segment increased four percent for the nine-month period ended September 30, 2019. The acquisition of Kichler increased sales by three percent. Net selling price increases of paints and other coating products and lighting products also increased sales. Such increases were partially offset by lower sales volume of lighting products and paints and other coating products.
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Net sales in the Cabinetry Products segment decreased three percent and one percent for the three-month and nine-month periods ended September 30, 2019, respectively. Unfavorable sales mix and lower sales volume, in aggregate, decreased sales by five percent and three percent for the three-month and nine-month periods, respectively. Such decreases were partially offset by net selling price increases which increased sales by two percent and three percent for the three-month and nine-month periods, respectively.
OPERATING PROFIT
Our gross profit margins were 34.2 percent and 34.1 percent for the three-month and nine-month periods ended September 30, 2019, respectively, compared with 32.7 percent and 33.3 percent for the comparable periods of 2018. Gross profit margins were positively impacted by increased net selling prices and the absence of the recognition of the inventory step up adjustment established as part of the acquisition of Kichler in 2018. Such increases were partially offset by an increase in commodity costs including tariffs.
Selling, general and administrative expenses, as a percentage of sales, were 17.9 percent and 18.1 percent for the three-month and nine-month periods ended September 30, 2019, respectively, compared to 17.7 percent and 18.1 percent for the comparable periods of 2018.
Operating profit in the Plumbing Products segment for the three-month period ended September 30, 2019 was positively impacted by increased net selling prices, the benefits associated with cost savings initiatives, and higher sales volumes. These positive impacts were partially offset by an increase in commodity costs and severance charges. Operating profit in the Plumbing Products segment for the nine-month period ended September 30, 2019 was negatively impacted by an increase in other expenses (such as trade show costs and severance charges), an increase in commodity costs, and lower sales volume. These negative impacts were partially offset by increased net selling prices and benefits associated with cost savings initiatives.
Operating profit in the Decorative Architectural Products segment for the three-month and nine-month periods ended September 30, 2019 was positively impacted by increased net selling prices of paints and other coating products and lighting products, the absence of the recognition of the inventory step up adjustment established as part of the acquisition of Kichler in 2018, the benefits associated with cost savings initiatives and, for the three-month period only, higher sales volume of paints and other coating products. These positive impacts were partially offset by an increase in commodity costs across the segment and lower sales volume of lighting products, and, for the nine-month period only, lower sales volume of paints and other coating products and a non-cash impairment charge related to an other indefinite-lived intangible asset for a trademark associated with lighting products.
Operating profit in the Cabinetry Products segment for the three-month and nine-month periods ended September 30, 2019 was positively impacted by increased net selling prices, the benefits associated with cost savings initiatives and, for the nine-month period only, a decrease in program launch and display expenses. These positive impacts were primarily offset by unfavorable sales mix and higher variable expenses, including professional fees to support the potential divestiture of the business.
OTHER INCOME (EXPENSE), NET
Interest expense for the three-month and nine-month periods ended September 30, 2019 was $39 million and $119 million, respectively, compared to $38 million and $117 million for the three-month and nine-month periods ended September 30, 2018.
Other, net, for the three-month and nine-month periods ended September 30, 2019 included $6 million and $17 million, respectively, of net periodic pension and post-retirement benefit cost, $4 million and $2 million, respectively, of foreign currency transaction losses, and $1 million of earnings related to equity method investments in both periods. Other, net, for the three-month and nine-month periods ended September 30, 2018 included $2 million and $11 million, respectively, of net periodic pension and post-retirement benefit cost, and $1 million of foreign currency transaction gains and $5 million of foreign currency transaction losses, respectively. The nine-month period ended September 30, 2018 also included $2 million of earnings related to equity method investments.
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INCOME AND INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS — ATTRIBUTABLE TO MASCO CORPORATION
Income from continuing operations for the three-month and nine-month periods ended September 30, 2019 was $184 million and $546 million, respectively, compared to $170 million and $517 million, respectively, for the comparable periods of 2018. Diluted income per common share for the three-month and nine-month periods ended September 30, 2019 was 0.64 and 1.87, respectively, per common share, compared with $.55 and $1.66, respectively, per common share for the comparable periods of 2018.
Our effective tax rate was 27 percent and 26 percent for the three-month and nine-month periods ended September 30, 2019, respectively, which were both higher than our normalized tax rate of 25 percent due primarily to losses in certain foreign jurisdictions providing no income tax benefit and a change in mix of earnings from lower to higher tax jurisdictions.
Our effective tax rate was 27 percent and 25 percent for the three-month and nine-month periods ended September 30, 2018, respectively. Our effective tax rate for the three-month period was higher than our normalized tax rate of 25 percent, primarily due to a $3 million income tax expense for non-deductible compensation resulting from IRS guidance issued related to the application of the Tax Cuts and Jobs Act of 2017.
OTHER FINANCIAL INFORMATION
Our current ratio was 1.5 to 1 and 1.6 to 1 at September 30, 2019 and December 31, 2018, respectively. The decrease in our current ratio is due primarily to the reclassification of our $201 million, 7.125% Notes due March 15, 2020 to short-term notes payable, as well as the adoption of ASC 842, which added $45 million of short-term operating lease liabilities to our balance sheet in the first quarter of 2019.
For the nine-month period ended September 30, 2019, net cash provided by operating activities was $605 million.
For the nine-month period ended September 30, 2019, net cash used for financing activities was $590 million, primarily due to $440 million for the repurchase and retirement of our common stock (including 0.6 million shares repurchased to offset the dilutive impact of long-term stock awards granted in 2019), $105 million for the payment of cash dividends, $42 million for dividends paid to noncontrolling interests, and $21 million for employee withholding taxes paid on stock-based compensation. These uses of cash were slightly offset by $23 million of proceeds from the exercise of stock options.
For the nine-month period ended September 30, 2019, net cash used for investing activities was $104 million, primarily for capital expenditures.
Our cash and cash investments were $475 million and $553 million at September 30, 2019 and December 31, 2018, respectively. Our cash and cash investments consist of overnight interest bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations.
Of the $475 million and $553 million of cash and cash investments held at September 30, 2019 and December 31, 2018, $254 million and $270 million, respectively, was held in our foreign subsidiaries. If these funds were needed for our operations in the U.S., their repatriation into the U.S. would not result in significant additional U.S. income tax or foreign withholding tax, as we have recorded such taxes on substantially all undistributed foreign earnings, except for those that are legally restricted.
On March 13, 2019, we entered into a credit agreement (the "Credit Agreement") with a bank group, with an aggregate commitment of $1.0 billion and a maturity date of March 13, 2024. Under the Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current bank group or new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with an aggregate commitment of $750 million, was terminated. See Note I to the condensed consolidated financial statements.
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The Credit Agreement contains financial covenants requiring us to maintain (A) a maximum net leverage ratio, as adjusted for certain items, of 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, equal to or greater than 2.5 to 1.0. We were in compliance with all covenants and no borrowings were outstanding under our Credit Agreement at September 30, 2019.
As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including extending payment terms. We also facilitate a voluntary supply chain finance program (the "program") to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements with any of the participating financial institutions in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program.
All outstanding payments owed under the program are recorded within accounts payable in our condensed consolidated balance sheets. The amounts owed to participating financial institutions under the program and included in accounts payable for our continuing operations were $55 million and $71 million at September 30, 2019 and December 31, 2018, respectively. We account for all payments made under the program as a reduction to our cash flows from operations and reported within our increase in accounts payable and accrued liabilities, net, line within our condensed consolidated statements of cash flows. The amounts settled through the program and paid to participating financial institutions were $181 million and $188 million for our continuing operations during the nine-month periods ended September 30, 2019 and 2018, respectively. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions’ willingness to commit funds to, and participate in, the program. We do not believe such risk would have a material impact on our working capital or cash flows, as substantially all of our payments are made outside of the program.
We believe that our present cash balance, cash flows from operations, and the ability to utilize our Credit Agreement are sufficient to fund our near-term working capital and other investment needs. We believe that our longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings and future financial market activities.
OUTLOOK FOR THE COMPANY
We continue to successfully execute our long-term growth strategies by leveraging our strong brand portfolio, industry-leading positions and Masco Operating System, our methodology to drive growth and productivity. We remain confident in the fundamentals of our business and will continue to execute on our strategies to create shareholder value. We believe that our strong financial position and cash flow generation, together with our current strategy of investing in our industry-leading branded building products, our continued focus on innovation and our commitment to operational excellence, the active management of our portfolio and disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders. Additionally, we have entered into a definitive agreement to sell Milgard Manufacturing Incorporated and are pursuing the sale of our Cabinetry business. We expect these sales to conclude in the next three to six months, assuming they can be completed on acceptable terms and conditions.
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FORWARD-LOOKING STATEMENTS
This report contains statements that reflect our views about our future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "outlook," "believe," "anticipate," "appear," "may," "will," "should," "intend," "plan," "estimate," "expect," "assume," "seek," "forecast," and similar references to future periods. Our views about future performance involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. We caution you against relying on any of these forward-looking statements. Our future performance may be affected by the levels of residential repair and remodel activity and new home construction, our ability to maintain our strong brands and reputation and to develop new products, our ability to maintain our competitive position in our industries, our reliance on key customers, the cost and availability of raw materials and increasing tariffs, our dependence on third-party suppliers, risks associated with international operations and global strategies, our ability to achieve the anticipated benefits of our strategic initiatives, including the potential divestitures of our Cabinetry and Windows businesses, our ability to successfully execute our acquisition strategy and integrate businesses that we have and may acquire, our ability to attract, develop and retain talented personnel, risks associated with our reliance on information systems and technology, and our ability to achieve the anticipated benefits from our investments in new technology. These and other factors are discussed in detail in Item 1A, "Risk Factors" in our most recent Annual Report on Form 10-K, as well as in other filings we make with the Securities and Exchange Commission. The forward-looking statements in this report speak only as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.
27

MASCO CORPORATION
Item 4. |
CONTROLS AND PROCEDURES

a. Evaluation of Disclosure Controls and Procedures.
The Company’s principal executive officer and principal financial officer have concluded, based on an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 that, as of September 30, 2019, the Company's disclosure controls and procedures were effective.
b. Changes in Internal Control over Financial Reporting.
In connection with the evaluation of the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2019, which is required under the Securities Exchange Act of 1934 by paragraph (d) of Exchange Rules 13a-15 or 15d-15 (as defined in paragraph (f) of Rule 13a-15), management determined that there was no change that materially affected or is reasonably likely to materially affect internal control over financial reporting.
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MASCO CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings involving us is set forth in Note P to our condensed consolidated financial statements included in Part I, Item 1 of this Report and is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes to the risk factors of the Company set forth in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding the repurchase of our common stock for the three-month period ended September 30, 2019 under the 2017 share repurchase authorization:

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

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

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

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

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

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MASCO CORPORATION
PART II. OTHER INFORMATION, Continued
Item 6. Exhibits

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

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MASCO CORPORATION
PART II. OTHER INFORMATION, Concluded
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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

October 30, 2019
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