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 June 30, 2016
 
Commission file number: 1-5794
 
Masco Corporation
(Exact name of Registrant as Specified in its Charter) 
Delaware
 
38-1794485
(State of
 
(IRS Employer
Incorporation)
 
Identification No.)
21001 Van Born Road, Taylor, Michigan
 
48180
(Address of Principal Executive Offices)
 
(Zip Code)

(313) 274-7400
(Registrant’s telephone number, including area code)
 
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.  x  Yes   o  No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  x  Yes   o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 
o Yes    x 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 June 30, 2016
Common stock, par value $1.00 per share
 
330,214,588
 
 
 
 
 
 


MASCO CORPORATION

INDEX



 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Table of Contents
MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)


June 30, 2016 and December 31, 2015
(In Millions, Except Share Data)
 
 
June 30, 2016
 
December 31, 2015
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash investments
$
956

 
$
1,468

Short-term bank deposits
135

 
248

Receivables
1,113

 
853

Prepaid expenses and other
88

 
72

Inventories:
 

 
 

Finished goods
433

 
358

Raw material
237

 
238

Work in process
95

 
91

 
765

 
687

Total current assets
3,057

 
3,328

Property and equipment, net
1,039

 
1,027

Goodwill
840

 
839

Other intangible assets, net
156

 
160

Other assets
232

 
310

Total assets
$
5,324

 
$
5,664

 
 
 
 
LIABILITIES
 

 
 

Current liabilities:
 

 
 

Notes payable
$
3

 
$
1,004

Accounts payable
913

 
749

Accrued liabilities
716

 
752

Total current liabilities
1,632

 
2,505

Long-term debt
2,993

 
2,403

Other liabilities
629

 
698

Total liabilities
5,254

 
5,606

 
 
 
 
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: 2016 – 326,200,000 ; 2015 – 330,500,000
326

 
330

Preferred shares authorized: 1,000,000;
Issued and outstanding: 2016 and 2015 – None
—

 
—

Paid-in capital
—

 
—

Retained deficit
(273
)
 
(300
)
Accumulated other comprehensive loss
(170
)
 
(165
)
Total Masco Corporation’s shareholders’ deficit
(117
)
 
(135
)
Noncontrolling interest
187

 
193

Total equity
70

 
58

Total liabilities and equity
$
5,324

 
$
5,664


See notes to condensed consolidated financial statements.

1
Table of Contents
MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)


For the Three and Six Months Ended June 30, 2016 and 2015
(In Millions, Except Per Common Share Data)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$
2,001

 
$
1,929

 
$
3,721

 
$
3,588

Cost of sales
1,301

 
1,292

 
2,452

 
2,456

Gross profit
700

 
637

 
1,269

 
1,132

Selling, general and administrative expenses
365

 
358

 
700

 
688

Operating profit
335

 
279

 
569

 
444

Other income (expense), net:
 

 
 

 
 

 
 

Interest expense
(87
)
 
(61
)
 
(143
)
 
(117
)
Other, net
5

 
3

 
4

 
4

 
(82
)
 
(58
)
 
(139
)
 
(113
)
Income from continuing operations before income taxes
253

 
221

 
430

 
331

Income tax expense
(90
)
 
(102
)
 
(148
)
 
(142
)
Income from continuing operations
163

 
119

 
282

 
189

Loss from discontinued operations, net
—

 
(4
)
 
—

 
(1
)
Net income
163

 
115

 
282

 
188

Less: Net income attributable to noncontrolling interest
13

 
10

 
23

 
19

Net income attributable to Masco Corporation
$
150

 
$
105

 
$
259

 
$
169

 
 
 
 
 
 
 
 
Income per common share attributable to Masco Corporation:
 
 

 
 

 
 

Basic:
 

 
 

 
 

 
 

Income from continuing operations
$
.45

 
$
.32

 
$
.78

 
$
.49

Loss from discontinued operations, net
—

 
(.01
)
 
—

 
—

Net income
$
.45

 
$
.30

 
$
.78

 
$
.49

Diluted:
 

 
 

 
 

 
 

Income from continuing operations
$
.45

 
$
.31

 
$
.77

 
$
.48

Loss from discontinued operations, net
—

 
(.01
)
 
—

 
—

Net income
$
.45

 
$
.30

 
$
.77

 
$
.48

 
 
 
 
 
 
 
 
Amounts attributable to Masco Corporation:
 

 
 

 
 

 
 

Income from continuing operations
$
150

 
$
109

 
$
259

 
$
170

Loss from discontinued operations, net
—

 
(4
)
 
—

 
(1
)
       Net income
$
150

 
$
105

 
$
259

 
$
169

 
See notes to condensed consolidated financial statements.


2
Table of Contents
MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)


For the Three and Six Months Ended June 30, 2016 and 2015
(In Millions)
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net income
$
163

 
$
115

 
$
282

 
$
188

Less: Net income attributable to noncontrolling interest
13

 
10

 
23

 
19

Net income attributable to Masco Corporation
$
150

 
$
105

 
$
259

 
$
169

Other comprehensive (loss) income, net of tax (Note K):
 

 
 

 
 

 
 

Cumulative translation adjustment
$
(33
)
 
$
43

 
$
(9
)
 
$
(53
)
Interest rate swaps
1

 
1

 
1

 
1

Pension and other post-retirement benefits
3

 
3

 
6

 
7

Realized gain on available-for-sale securities
(1
)
 
—

 
(1
)
 
—

Other comprehensive (loss) income
(30
)
 
47

 
(3
)
 
(45
)
Less: Other comprehensive (loss) income attributable to noncontrolling interest
(5
)
 
14

 
2

 
(9
)
Other comprehensive (loss) income attributable to Masco Corporation
$
(25
)
 
$
33

 
$
(5
)
 
$
(36
)
Total comprehensive income
$
133

 
$
162

 
$
279

 
$
143

Less: Total comprehensive income attributable to the noncontrolling interest
8

 
24

 
25

 
10

Total comprehensive income attributable to Masco Corporation
$
125

 
$
138

 
$
254

 
$
133

 
See notes to condensed consolidated financial statements.


3
Table of Contents
MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


For the Six Months Ended June 30, 2016 and 2015
(In Millions)  
 
 
Six Months Ended
June 30,
 
2016
 
2015
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
 

 
 

Cash provided by operations
$
357

 
$
355

Increase in receivables
(286
)
 
(332
)
Increase in inventories
(79
)
 
(63
)
Increase in accounts payable and accrued liabilities, net
122

 
179

Net cash from operating activities
114

 
139

 
 
 
 
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
 

 
 

Retirement of notes
(1,300
)
 
(500
)
Purchase of Company common stock
(168
)
 
(207
)
Cash dividends paid
(63
)
 
(62
)
Dividend payment to noncontrolling interest
(31
)
 
(36
)
Cash distributed to TopBuild Corp.
—

 
(63
)
Issuance of TopBuild Corp. debt
—

 
200

Issuance of notes, net of issuance costs
889

 
497

Issuance of Company common stock
1

 
—

Excess tax benefit from stock-based compensation
12

 
15

Decrease in debt, net
(2
)
 
—

Credit Agreement and other financing costs
—

 
(3
)
Net cash for financing activities
(662
)
 
(159
)
 
 
 
 
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
 

 
 

Capital expenditures
(79
)
 
(70
)
Acquisition of companies, net of cash acquired
—

 
(42
)
Proceeds from disposition of:
 

 
 

Short-term bank deposits
117

 
190

Other financial investments
13

 
6

Property and equipment
—

 
4

Purchases of:
 

 
 

Short-term bank deposits
—

 
(119
)
Other, net
(6
)
 
(29
)
Net cash from (for) investing activities
45

 
(60
)
 
 
 
 
Effect of exchange rate changes on cash and cash investments
(9
)
 
(6
)
 
 
 
 
CASH AND CASH INVESTMENTS:
 

 
 

Decrease for the period
(512
)
 
(86
)
At January 1
1,468

 
1,383

At June 30
$
956

 
$
1,297

 
See notes to condensed consolidated financial statements.

4
Table of Contents
MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)


For the Six Months Ended June 30, 2016 and 2015
(In Millions, Except Per Common Share Data)
 
 
 
Total
 
Common
Shares
($1 par value)
 
Paid-In
Capital
 
Retained Earnings
(Deficit)
 
Accumulated
Other
Comprehensive
 Loss
 
Noncontrolling
Interest
Balance, January 1, 2015
$
1,128

 
$
345

 
$
—

 
$
690

 
$
(111
)
 
$
204

Total comprehensive income (loss)
143

 
 

 
 

 
169

 
(36
)
 
10

Shares issued
(8
)
 
3

 
(11
)
 
 

 
 

 
 

Shares retired:
 

 
 

 
 

 
 

 
 

 
 

Repurchased
(207
)
 
(8
)
 
(6
)
 
(193
)
 
 

 
 

Surrendered (non-cash)
(16
)
 
(1
)
 


 
(15
)
 
 

 
 

Cash dividends declared
(62
)
 
 

 
 

 
(62
)
 
 

 
 

Dividend payment to noncontrolling interest
(36
)
 
 

 
 

 
 

 
 

 
(36
)
Separation of TopBuild Corp.
(828
)
 
 
 
 
 
(828
)
 
 
 
 
Stock-based compensation
17

 
 

 
17

 
 

 
 

 
 

Balance, June 30, 2015
$
131

 
$
339

 
$
—

 
$
(239
)
 
$
(147
)
 
$
178

 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2016
$
58

 
$
330

 
$
—

 
$
(300
)
 
$
(165
)
 
$
193

Total comprehensive income
279

 
 

 
 

 
259

 
(5
)
 
25

Shares issued
(11
)
 
2

 
(13
)
 
 

 
 

 
 

Shares retired:
 

 
 

 
 

 
 

 
 

 
 

Repurchased
(174
)
 
(6
)
 
(10
)
 
(158
)
 
 

 
 

Surrendered (non-cash)
(11
)
 


 
 

 
(11
)
 
 

 
 

Cash dividends declared
(63
)
 
 

 
 

 
(63
)
 
 

 
 

Dividend payment to noncontrolling interest
(31
)
 
 

 
 

 
 

 
 

 
(31
)
Stock-based compensation
23

 
 

 
23

 
 

 
 

 
 

Balance, June 30, 2016
$
70

 
$
326

 
$
—

 
$
(273
)
 
$
(170
)
 
$
187

 
See notes to condensed consolidated financial statements.


5
Table of Contents
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 present fairly our financial position as at June 30, 2016 , and our results of operations and comprehensive income (loss) for the three-month and six -month periods ended June 30, 2016 and 2015 , and cash flows and changes in shareholders’ equity for the six -month periods ended June 30, 2016 and 2015 .  The condensed consolidated balance sheet at December 31, 2015 was derived from audited financial statements.
 
Reclassification. Certain prior year amounts have been reclassified to conform to the 2016 presentation in the condensed consolidated financial statements. 
 
Recently Issued Accounting Pronouncements.  In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2015-02 (“ASU 2015-02”) “Consolidation (Topic 810) — Amendments to the Consolidations Analysis,” which modifies certain aspects of both the variable interest entities and voting interest entities models. We adopted ASU 2015-02 on January 1, 2016. The adoption of the new standard did not have an impact on our financial position or our results of operations.

In April 2015, the FASB issued Accounting Standards Update 2015‑03 (“ASU 2015‑03”) “Interest - Imputation of Interest (Subtopic 835‑30) - Simplifying the Presentation of Debt Issuance Costs,” that requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. In August 2015, the FASB issued ASU 2015‑15 to clarify that debt issuance costs related to line‑of‑credit arrangements may remain classified as an asset. We retrospectively adopted both ASU 2015‑03 and ASU 2015‑15 on January 1, 2016. As a result of the retrospective adoption of the standards, we reclassified $15 million of debt issuance costs from other assets to long-term debt, and $1 million of debt issuance costs from other assets to notes payable, as of December 31, 2015.
In May 2014, the FASB issued a new standard for revenue recognition, Accounting Standards Codification 606 (“ASC 606”).  The purpose of ASC 606 is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability across industries. ASC 606 is effective for us for annual periods beginning January 1, 2018.  We are currently evaluating the impact the adoption of this new standard will have on our results of operations. 

In January 2016, the FASB issued Accounting Standards Update 2016-01 (“ASU 2016-01”), “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for us for annual periods beginning January 1, 2018. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

In February 2016, the FASB issued a new standard for leases, Accounting Standards Codification 842 (“ASC 842”), which changes the accounting model of identifying and accounting for leases. ASC 842 is effective for us for annual periods beginning January 1, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.
    
In March 2016, the FASB issued Accounting Standard Update 2016-09 (“ASU 2016-09”), “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which requires the tax effects related to share-based payments to be recorded through the income statement and simplifies the accounting requirements for forfeitures and employers' tax withholding requirements. ASU 2016-09 is effective for us for annual periods beginning January 1, 2017. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.


6
Table of Contents
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


B. DISCONTINUED OPERATIONS
 
The presentation of discontinued operations includes a component or group of components that we have or intend to dispose of, and represents a strategic shift that has (or will have) a major effect on our operations and financial results.  For spin off transactions, discontinued operations treatment is appropriate following the completion of the spin off.

On September 30, 2014, we announced a plan to spin off 100 percent of our Installation and Other Services businesses into an independent, publicly-traded company named TopBuild Corp. (“TopBuild”) through a tax-free distribution of the stock of TopBuild to our stockholders.  We initiated the spin off as TopBuild was no longer considered core to our long-term growth strategy in branded building products. We completed the spin off on June 30, 2015 at which time we accounted for it as a discontinued operation. Losses from this discontinued operation were included in loss from discontinued operations, net, in the condensed consolidated statement of operations for the three-month and six-month periods ended June 30, 2015.
 
The major classes of line items constituting income from discontinued operations, net, were as follows, in millions:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net sales
$
—

 
$
404

 
$
—

 
$
762

Cost of sales
—

 
318

 
—

 
603

Gross profit
—

 
86

 
—

 
159

Selling, general and administrative expenses
—

 
80

 
—

 
148

Income from discontinued operations
$
—

 
$
6

 
$
—

 
$
11

Income tax expense  (A)
—

 
(10
)
 
—

 
(12
)
Loss from discontinued operations, net
$
—

 
$
(4
)
 
$
—

 
$
(1
)
 
(A) The unusual relationship between income tax expense and income from discontinued operations for the three-month and six-month periods ended June 30, 2015 resulted primarily from certain non-deductible transaction costs related to the spin off of TopBuild.

Other selected financial information for TopBuild during the period owned by us was as follows, in millions:
 
Six Months Ended
June 30,
 
2016
 
2015
Depreciation and amortization
$
—

 
$
6

Capital expenditures
$
—

 
$
7

 
In conjunction with the spin off, we entered into a Transition Services Agreement with TopBuild under which we provide administrative services to TopBuild subsequent to the separation.  The fees for services rendered under the Transition Services Agreement are not material to our results of operations. 


7
Table of Contents
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


C. GOODWILL AND OTHER INTANGIBLE ASSETS
 
The changes in the carrying amount of goodwill for the six -month period ended June 30, 2016 , by segment, were as follows, in millions: 
 
Gross Goodwill At June 30, 2016
 
Accumulated
Impairment
Losses
 
Net Goodwill At June 30, 2016
Plumbing Products
$
527

 
$
(340
)
 
$
187

Decorative Architectural Products
294

 
(75
)
 
219

Cabinetry Products
240

 
(59
)
 
181

Windows and Other Specialty Products
987

 
(734
)
 
253

Total
$
2,048

 
$
(1,208
)
 
$
840

 
Gross Goodwill At December 31, 2015
 
Accumulated
Impairment
Losses
 
Net Goodwill At December 31, 2015
 
Other(A)
 
Net Goodwill At June 30, 2016
Plumbing Products
$
525

 
$
(340
)
 
$
185

 
$
2

 
$
187

Decorative Architectural Products
294

 
(75
)
 
219

 
—

 
219

Cabinetry Products
240

 
(59
)
 
181

 
—

 
181

Windows and Other Specialty Products
988

 
(734
)
 
254

 
(1
)
 
253

Total
$
2,047

 
$
(1,208
)
 
$
839

 
$
1

 
$
840

 
 
(A)  Other principally includes the effect of foreign currency translation.
 
The carrying value of our other indefinite-lived intangible assets was $136 million and $137 million at June 30, 2016 and December 31, 2015 , respectively, and principally included registered trademarks. The carrying value of our definite-lived intangible assets was $20 million (net of accumulated amortization of $50 million ) and $23 million (net of accumulated amortization of $49 million ) at June 30, 2016 and December 31, 2015 , respectively, and principally included customer relationships. 

D. DEPRECIATION AND AMORTIZATION
 
Depreciation and amortization expense, including discontinued operations, was $66 million and $68 million for the six -month periods ended June 30, 2016 and 2015 , respectively. 

E. FAIR VALUE OF FINANCIAL INVESTMENTS
 
We have maintained investments in available-for-sale securities, equity method investments and a number of private equity funds, principally as part of our tax planning strategies, as any gains enhance the utilization of any current and future tax capital losses. Financial investments were as follows, in millions:
 
June 30, 2016
 
December 31, 2015
Prepaid expenses and other:
 
 
 
Auction rate securities
$
12

 
$
—

 
 
 
 
Other assets:
 
 
 
Auction rate securities
—

 
22

Equity method investments
13

 
13

Private equity funds
7

 
10

Other investments
3

 
3

Total
$
35

 
$
48

 


8
Table of Contents
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


E. FAIR VALUE OF FINANCIAL INVESTMENTS (Concluded)

Recurring Fair Value Measurements.   Our auction rate securities are measured at fair value on a recurring basis, and have been estimated using a discounted cash flow model (Level 3 input).  The significant inputs in the discounted cash flow model used to value the auction rate securities include:  expected maturity of auction rate securities, discount rate used to determine the present value of expected cash flows and the assumptions for credit defaults, since the auction rate securities are backed by credit default swap agreements.
 
In May 2016, $10 million of our auction rate securities were called by our counterparty and redeemed at a value that approximated our recorded basis. Our investments in auction rate securities had a recorded basis of $12 million and $22 million at June 30, 2016 and December 31, 2015 , respectively, which included cost basis of $10 million and $19 million and pre-tax unrealized gains of $2 million and $3 million at each respective date.
 
Non-Recurring Fair Value Measurements.   During the six -month periods ended June 30, 2016 and 2015 , we did not measure any financial investments at fair value on a non-recurring basis, as there was no other-than-temporary decline in the estimated value of these investments.
 
We did not have any transfers between Level 1 and Level 2 financial assets in the six -month periods ended June 30, 2016 or 2015 .
    
Realized Gains (Losses).   Income from financial investments, net, included in other, net, within other income (expense), net, was as follows, in millions: 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Realized gains from auction rate securities
$
1

 
$
—

 
$
1

 
$
—

Realized gains from private equity funds
1

 
2

 
1

 
4

Equity investment income, net
—

 
2

 
1

 
2

Total income from financial investments, net
$
2

 
$
4

 
$
3

 
$
6

 
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 or the current rates available to us for debt with similar terms and remaining maturities.  The aggregate estimated market value of short-term and long-term debt at June 30, 2016 was approximately $3.3 billion , compared with the aggregate carrying value of $3.0 billion .  The aggregate estimated market value of short-term and long-term debt at December 31, 2015 was approximately $3.6 billion , compared with the aggregate carrying value of $3.4 billion .

F. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
We are exposed to global market risk as part of our normal daily business activities.  To manage these risks, we enter into various derivative contracts.  These contracts include interest rate swap agreements, foreign currency contracts and metals contracts intended to hedge our exposure to copper and zinc. We review our hedging program, derivative positions and overall risk management on a regular basis.
 
Interest Rate Swap Agreements.  In 2012, in connection with the issuance of $400 million of debt, we terminated the interest rate swap hedge relationships that we had entered into in 2011.  These interest rate swaps were designated as cash flow hedges and effectively fixed interest rates on the forecasted debt issuance to variable rates based on 3-month LIBOR.  Upon termination, the ineffective portion of the cash flow hedges of an approximate $2 million loss was recognized in our consolidated statement of operations in other, net within other income (expense), net.  The remaining loss of approximately $23 million from the termination of these swaps is being amortized as an increase to interest expense over the remaining term of the debt, through March 2022.





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


F. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)

Foreign Currency Contracts.   Our net cash inflows and outflows exposed to the risk of changes in foreign currency exchange rates arise from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments, debt and other payables, and investments in subsidiaries.  To mitigate this risk, we, including certain of our European operations, entered into foreign currency forward contracts and foreign currency exchange contracts.

Gains (losses) related to foreign currency forward and exchange contracts are recorded in our condensed consolidated statements of operations in other, net, within other income (expense), net.  In the event that the counterparties fail to meet the terms of the foreign currency forward or exchange contracts, our exposure is limited to the aggregate foreign currency rate differential with such institutions.

Metals Contracts.  We have entered into several contracts to manage our exposure to increases in the price of copper and zinc.  Gains (losses) related to these contracts are recorded in our condensed consolidated statements of operations in cost of sales.
 
The pre-tax gains (losses) included in our condensed consolidated statements of operations are as follows, in millions:
 
Three Months Ended
June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Foreign currency contracts:
 

 
 

 
 

 
 

Exchange contracts
$
—

 
$
(1
)
 
$
—

 
$
3

Forward contracts
—

 
—

 
—

 
(4
)
Metal contracts
2

 
(3
)
 
4

 
(5
)
Interest rate swaps
(1
)
 
(1
)
 
(1
)
 
(1
)
Total gain (loss)
$
1

 
$
(5
)
 
$
3

 
$
(7
)

We present our derivatives net by counterparty, due to the right of offset under master netting arrangements, in the condensed consolidated balance sheets.  The notional amounts being hedged and the fair value of those derivative instruments are as follows, in millions:
 
At June 30, 2016
 
Notional
Amount
 
Balance Sheet
Foreign currency contracts:
 

 
 

Exchange contracts
$
14

 
 

Receivables
 

 
$
—

Forward contracts
35

 
 

Accrued liabilities
 

 
(1
)
Other liabilities
 
 
(2
)
Metals contracts
23

 
 

Accrued liabilities
 

 
(2
)












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


F. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Concluded)
 
At December 31, 2015
 
Notional
Amount
 
Balance Sheet
Foreign currency contracts:
 

 
 

Exchange contracts
$
39

 
 

Receivables
 

 
$
1

Forward contracts
30

 
 

Accrued liabilities
 

 
(2
)
Other liabilities
 

 
(1
)
Metals contracts
50

 
 

Accrued liabilities
 

 
(10
)
 
The fair value of all foreign currency and metals derivative contracts is estimated on a recurring basis, quarterly, using Level 2 inputs (significant other observable inputs).

G. WARRANTY LIABILITY
 
Changes in our warranty liability were as follows, in millions: 
 
Six Months Ended
June 30, 2016
 
Twelve Months Ended December 31, 2015
Balance at January 1
$
152

 
$
135

Accruals for warranties issued during the period
30

 
56

Accruals related to pre-existing warranties
14

 
15

Settlements made (in cash or kind) during the period
(28
)
 
(50
)
Other, net (including currency translation)
(1
)
 
(4
)
Balance at end of period
$
167

 
$
152


During the second quarter of 2016, a business in the Windows and Other Specialty Products segment recorded a $10 million increase as a change in estimate of expected future warranty claims resulting from recent warranty claim trends, including, among other items, the nature and type of claim and estimate of costs to service claims.

H. DEBT

On March 17, 2016 , we issued $400 million of 3.5% Notes due April 1, 2021 and $500 million of 4.375% Notes due April 1, 2026. We received proceeds of $ 896 million , net of discount, for the issuance of these Notes. The Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. On April 15, 2016, proceeds from the debt issuances, together with cash on hand, were used to repay and early retire all of our $1 billion , 6.125% Notes which were due on October 3, 2016 and all of our $300 million , 5.85% Notes which were due on March 15, 2017. In connection with these early retirements, we incurred $40 million of debt extinguishment costs, which we recorded as interest expense.
On March 28, 2013, we entered into a credit agreement (the “Credit Agreement”) with a bank group, with an aggregate commitment of $1.25 billion and a maturity date of March 28, 2018.  On May 29, 2015 and August 28, 2015, we amended the Credit Agreement with the bank group (the “Amended Credit Agreement”).  The Amended Credit Agreement reduced the aggregate commitment to $750 million and extends the maturity date to May 29, 2020.  Under the Amended Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $375 million with the current bank group or new lenders.

The Amended Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries, in U.S. dollars, European Euro and certain other currencies. Borrowings under the revolver denominated in euros are limited to $500 million , equivalent. We can also borrow swingline loans up to $75 million and obtain letters of credit of up to $100 million ; any outstanding letters of credit under the Amended Credit Agreement reduce our borrowing capacity. At June 30, 2016 , we had $1.5 million of outstanding standby letters of credit under the Amended Credit Agreement.

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


H. DEBT (Concluded)

Revolving credit loans bear interest under the Amended Credit Agreement, at our option, at (A) a rate per annum equal to the greatest of (i) the prime rate, (ii) the Federal Funds effective rate plus 0.50% and (iii) LIBOR plus 1.0% (the “Alternative Base Rate”); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) LIBOR 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 LIBOR plus an applicable margin based upon our then-applicable corporate credit ratings.

The Amended 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.

In order for us to borrow under the Amended Credit Agreement, there must not be any default in our covenants in the Amended 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 Amended 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, 2014, in each case, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and had no borrowing under the Amended Credit Agreement at June 30, 2016 . 

I. STOCK-BASED COMPENSATION
 
Our 2014 Long Term Stock Incentive Plan (the “2014 Plan”) provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors.  At June 30, 2016 , outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom stock awards and stock appreciation rights.  Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions: 
 
Three Months Ended
June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Long-term stock awards
$
7

 
$
7

 
$
12

 
$
13

Stock options
—

 
3

 
1

 
4

Phantom stock awards and stock appreciation rights
(1
)
 
3

 
2

 
6

Total
$
6

 
$
13

 
$
15

 
$
23

Income tax benefit (37 percent tax rate)
$
3

 
$
5

 
$
6

 
$
9

 
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 1,050,380 shares of long-term stock awards in the six -month period ended June 30, 2016 .


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


I. STOCK-BASED COMPENSATION (Continued)

Our long-term stock award activity was as follows, shares in millions: 
 
Six Months Ended
June 30,
 
2016
 
2015
Unvested stock award shares at January 1
5

 
6

Weighted average grant date fair value
$
17

 
$
18

 
 
 
 
Stock award shares granted
1

 
1

Weighted average grant date fair value
$
26

 
$
26

 
 
 
 
Stock award shares vested
2

 
2

Weighted average grant date fair value
$
16

 
$
17

 
 
 
 
Stock award shares forfeited
—

 
—

Weighted average grant date fair value
$
20

 
$
19

 
 
 
 
Forfeitures upon spin off (A)  
—

 
1

Weighted average grant date fair value
$
—

 
$
20

 
 
 
 
Modification upon spin off (B)  
—

 
1

 
 
 
 
Unvested stock award shares at June 30
4

 
5

Weighted average grant date fair value
$
20

 
$
17

 

(A)                   In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards.
(B)                    Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee Directors such that all individuals received an equivalent fair value both before and after the separation.  The modification to the outstanding stock awards was made pursuant to existing anti-dilution provisions in our 2014 Plan and 2005 Long Term Incentive Plan.

At June 30, 2016 and 2015 , there was $55 million and $52 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 June 30, 2016 and 2015 .
 
The total market value (at the vesting date) of stock award shares which vested during the six -month periods ended June 30, 2016 and 2015 was $38 million and $49 million , respectively.
 
Stock Options.  Stock options are granted to our 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 474,500 of stock option shares in the six -month period ended June 30, 2016 with a grant date exercise price approximating $26 per share. In the six -month period ended June 30, 2016 , no stock option shares were forfeited (including options that expired unexercised).

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


I. STOCK-BASED COMPENSATION (Continued)

Our stock option activity was as follows, shares in millions: 
 
 
Six Months Ended
June 30,
 
 
2016
 
 
2015
Option shares outstanding, January 1
 
12

 
 
18

Weighted average exercise price (A)
$
17

 
$
21

 
 
 
 
 
 
Option shares granted
 
—

 
 
—

Weighted average exercise price
$
26

 
$
26

 
 
 
 
 
 
Option shares exercised
 
2

 
 
2

Aggregate intrinsic value on date of exercise (B)  
$
31 million

 
$
24 million

Weighted average exercise price
$
21

 
$
16

 
 
 
 
 
 
Option shares forfeited
 
—

 
 
3

Weighted average exercise price
$
—

 
$
29

 
 
 
 
 
 
Forfeitures upon spin off (C)  
 
—

 
 
—

Weighted average exercise price
$
—

 
$
19

 
 
 
 
 
 
Modification upon spin off (A)  
 
—

 
 
2

 
 
 
 
 
 
Option shares outstanding, June 30
 
10

 
 
15

Weighted average exercise price
$
17

 
$
18

Weighted average remaining option term (in years)
 
4

 
 
4

 
 
 
 
 
 
Option shares vested and expected to vest, June 30
 
10

 
 
15

Weighted average exercise price
$
17

 
$
18

Aggregate intrinsic value (B)  
$
137 million

 
$
101 million

Weighted average remaining option term (in years)
 
4

 
 
4

 
 
 
 
 
 
Option shares exercisable (vested), June 30
 
8

 
 
13

Weighted average exercise price
$
16

 
$
18

Aggregate intrinsic value (B)  
$
122 million

 
$
89 million

Weighted average remaining option term (in years)
 
3

 
 
3

 
 
(A)
Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee Directors such that all individuals received an equivalent fair value both before and after the separation.  The modification to the outstanding options was made pursuant to existing anti-dilution provisions in our 2014 Plan and 2005 Long Term Incentive Plan. The modification contributed to the lower exercise price.
(B)
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.
(C)
In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards.


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


I. STOCK-BASED COMPENSATION (Concluded)

At June 30, 2016 and 2015 , there was $8 million and $7 million , respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of three years at both June 30, 2016 and 2015 .

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: 
 
Six Months Ended
June 30,
 
2016
 
2015
Weighted average grant date fair value
$
6.43

 
$
9.67

Risk-free interest rate
1.41
%
 
1.75
%
Dividend yield
1.49
%
 
1.32
%
Volatility factor
29.00
%
 
42.00
%
Expected option life
6 years

 
6 years


J. EMPLOYEE RETIREMENT PLANS
 
Net periodic pension cost for our defined-benefit pension plans was as follows, in millions: 
 
Three Months Ended June 30,
 
2016
 
2015
 
Qualified
 
Non-Qualified
 
Qualified
 
Non-Qualified
Service cost
$
—

 
$
—

 
$
1

 
$
—

Interest cost
10

 
3

 
11

 
3

Expected return on plan assets
(9
)
 
—

 
(12
)
 
—

Amortization of net loss
3

 
—

 
5

 
—

Net periodic pension cost
$
4

 
$
3

 
$
5

 
$
3

 
Six Months Ended June 30,
 
2016
 
2015
 
Qualified
 
Non-Qualified
 
Qualified
 
Non-Qualified
Service cost
$
1

 
$
—

 
$
2

 
$
—

Interest cost
21

 
4

 
23

 
4

Expected return on plan assets
(19
)
 
—

 
(23
)
 
—

Amortization of net loss
7

 
1

 
9

 
1

Net periodic pension cost
$
10

 
$
5

 
$
11

 
$
5


In May 2016, we contributed $51 million to certain qualified defined-benefit pension plans, which was not included in our previous 2016 expected contributions. At June 30, 2016, we now expect to contribute a total of approximately $96 million to our qualified defined-benefit pension plans in 2016.    

We froze all future benefit accruals under substantially all of our domestic qualified and foreign and domestic non-qualified defined benefit pension plans several years ago.


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


K. 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
June 30,
 
Six Months Ended
June 30,
 
Statement of Operations Line Item
 
2016
 
2015
 
2016
 
2015
 
Amortization of defined benefit pension and other postretirement benefits:
 
 

 
 

 
 

 
 

 
 
Actuarial losses, net
 
$
3

 
$
5

 
$
8

 
$
10

 
Selling, general and administrative expenses
Tax (benefit)
 
—

 
(2
)
 
(2
)
 
(3
)
 
 
Net of tax
 
$
3

 
$
3

 
$
6

 
$
7

 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$
1

 
$
1

 
$
1

 
$
1

 
Interest expense
Tax (benefit)
 
—

 
—

 
—

 
—

 
 
Net of tax
 
$
1

 
$
1

 
$
1

 
$
1

 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities
 
$
(1
)
 
$
—

 
$
(1
)
 
$
—

 
Other, net
Tax expense
 
—

 
—

 
—

 
—

 
 
Net of tax
 
$
(1
)
 
$
—

 
$
(1
)
 
$
—

 
 


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


L. SEGMENT INFORMATION
 
Information by segment and geographic area was as follows, in millions: 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
2016
 
2015
 
Net Sales(A)
 
Operating   Profit (Loss)
 
Net Sales(A)
 
Operating   Profit (Loss)
Our operations by segment were (B):
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Plumbing Products
$
923

 
$
846

 
$
188

 
$
138

 
$
1,736

 
$
1,642

 
$
317

 
$
249

Decorative Architectural Products
620

 
622

 
139

 
133

 
1,113

 
1,073

 
244

 
216

Cabinetry Products
261

 
269

 
34


15

 
497


518

 
58

 
11

Windows and Other Specialty Products
197

 
192

 
(2
)
 
21

 
375

 
355

 
1

 
27

Total
$
2,001

 
$
1,929

 
$
359

 
$
307

 
$
3,721

 
$
3,588

 
$
620

 
$
503

Our operations by geographic area were:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

North America
$
1,598

 
$
1,554

 
$
299

 
$
260

 
$
2,948

 
$
2,836

 
$
514

 
$
411

International, principally Europe
403

 
375

 
60

 
47

 
773

 
752

 
106

 
92

Total
$
2,001

 
$
1,929

 
359

 
307

 
$
3,721

 
$
3,588

 
620

 
503

General corporate expense, net
 

 
 

 
(24
)
 
(28
)
 
 

 
 

 
(51
)
 
(59
)
Operating profit
 

 
 

 
335

 
279

 
 

 
 

 
569

 
444

Other income (expense), net
 

 
 

 
(82
)
 
(58
)
 
 

 
 

 
(139
)
 
(113
)
Income from continuing operations before income taxes
 

 
 

 
$
253

 
$
221

 
 

 
 

 
$
430

 
$
331

 
 
(A)
Inter-segment sales were not material.
(B)
In the first quarter of 2016, we renamed our Cabinetry Products and Windows and Other Specialty Products segments. The name change did not impact the review of financial information by our corporate operating executive or the composition of the segments.

M. SEVERANCE COSTS
 
We recorded charges related to severance of $2 million and $4 million for the three-month and six -month periods ended June 30, 2016 , respectively, and $1 million and $7 million for the three-month and six -month periods ended June 30, 2015 , respectively. Such 2016 charges are reflected in the condensed consolidated statements of operations in cost of sales and selling, general and administrative expenses, while 2015 charges are principally reflected in selling, general and administrative expenses. 
 
N. OTHER INCOME (EXPENSE), NET
 
Other, net, which is included in other income (expense), net, was as follows, in millions: 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Income from cash and cash investments
$
1

 
$
1

 
$
2

 
$
1

Income from financial investments, net (Note E)
2

 
4

 
3

 
6

Foreign currency transaction gains (losses)
2

 
(4
)
 
2

 
(5
)
Other items, net
—

 
2

 
(3
)
 
2

Total other, net
$
5

 
$
3

 
$
4

 
$
4



17
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MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)


O. EARNINGS PER COMMON SHARE
 
Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions: 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Numerator (basic and diluted):
 

 
 

 
 

 
 

Income from continuing operations
$
150

 
$
109

 
$
259

 
$
170

Less: Allocation to unvested restricted stock awards
2

 
1

 
3

 
2

Income from continuing operations attributable to common shareholders
148

 
108

 
256

 
168

 
 
 
 
 
 
 
 
Loss from discontinued operations, net
—

 
(4
)
 
—

 
(1
)
Less: Allocation to unvested restricted stock awards
—

 
—

 
—

 
—

Loss from discontinued operations attributable to common shareholders
—

 
(4
)
 
—

 
(1
)
 
 
 
 
 
 
 
 
Net income available to common shareholders
$
148

 
$
104

 
$
256

 
$
167

 
 
 
 
 
 
 
 
Denominator:
 

 
 

 
 

 
 

Basic common shares (based upon weighted average)
328

 
340

 
329

 
342

Add: Stock option dilution
3

 
4

 
4

 
4

Diluted common shares
331

 
344

 
333

 
346

 
For the three-month and six -month periods ended June 30, 2016 and 2015 , we allocated dividends and undistributed earnings to the unvested restricted stock awards.
 
Additionally, 380,000 and 1 million common shares for the three-month and six -month periods ended June 30, 2016 , respectively, and 6 million and 9 million common shares for the three-month and six -month periods ended June 30, 2015 , respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect.

On September 30, 2014, we announced that our Board of Directors authorized the repurchase of up to 50 million shares for retirement of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2007. In the first six months of 2016 , we repurchased and retired 6.0 million shares of our common stock (including 1.1 million shares to offset the dilutive impact of long-term stock awards granted in the first half of the year), for approximately $174 million , of which $168 million was paid in cash during the first six months of 2016 . At June 30, 2016 , we had 21.8 million shares remaining under the authorization.

On the basis of amounts paid (declared), cash dividends per common share were $0.095 ( $0.095 ) and $0.190 ( $0.190 ) for the three-month and six -month periods ended June 30, 2016 , respectively, and $0.090 ( $0.090 ) and $0.180 ( $0.180 ) for the three-month and six -month periods ended June 30, 2015 , respectively. 

P. OTHER COMMITMENTS AND CONTINGENCIES
 
We are subject to claims, charges, litigation and other proceedings in the ordinary course of our business, including those arising from or related to contractual matters, intellectual property, personal injury, environmental matters, product liability, product recalls, construction defect, insurance coverage, personnel and employment disputes, anti-trust issues and other matters, including class actions.  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. 

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

Q. INCOME TAXES
 
Our effective tax rate was 36 percent and 34 percent for the three-month and six -month periods ended June 30, 2016 , respectively.  Our rate for the six-month period ended June 30, 2016 included a $4 million state income tax benefit on uncertain tax positions resulting from the expiration of applicable statutes of limitation.
 
Our effective tax rate was 46 percent and 43 percent for the three-month and six -month periods ended June 30, 2015, respectively, primarily due to an $18 million valuation allowance against the deferred tax assets of TopBuild recorded as a non-cash charge to income tax expense in the second quarter of 2015. The TopBuild deferred tax assets have been impaired by our decision to spin off TopBuild into a separate company that on a stand-alone basis as of June 30, 2015, the spin off date, was unlikely to be able to realize the value of such deferred tax assets as a result of its history of losses.



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Table of Contents

 
MASCO CORPORATION
 
 
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
SECOND QUARTER 2016 AND THE FIRST SIX MONTHS 2016 VERSUS
SECOND QUARTER 2015 AND THE FIRST SIX MONTHS 2015


SALES AND OPERATIONS
 
The following table sets forth our net sales and operating profit margins by business segment and geographic area, dollars in millions: 
 
Three Months Ended June 30,
 
Percent Change
 
2016
 
2015
 
2016 vs. 2015
Net Sales:
 

 
 

 
 

Plumbing Products
$
923

 
$
846

 
9
 %
Decorative Architectural Products
620

 
622

 
—
 %
Cabinetry Products
261

 
269

 
(3
)%
Windows and Other Specialty Products
197

 
192

 
3
 %
Total
$
2,001

 
$
1,929

 
4
 %
 
 
 
 
 
 
North America
$
1,598

 
$
1,554

 
3
 %
International, principally Europe
403

 
375

 
7
 %
Total
$
2,001

 
$
1,929

 
4
 %
 
Six Months Ended June 30,
 
Percent Change
 
2016
 
2015
 
2016 vs. 2015
Net Sales:
 

 
 

 
 

Plumbing Products
$
1,736

 
$
1,642

 
6
 %
Decorative Architectural Products
1,113

 
1,073

 
4
 %
Cabinetry Products
497

 
518

 
(4
)%
Windows and Other Specialty Products
375

 
355

 
6
 %
Total
$
3,721

 
$
3,588

 
4
 %
 
 
 
 
 
 
North America
$
2,948

 
$
2,836

 
4
 %
International, principally Europe
773

 
752

 
3
 %
Total
$
3,721

 
$
3,588

 
4
 %
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Operating Profit (Loss) Margins: (A)
 

 
 

 
 

 
 

Plumbing Products
20.4
 %
 
16.3
%
 
18.3
%
 
15.2
%
Decorative Architectural Products
22.4
 %
 
21.4
%
 
21.9
%
 
20.1
%
Cabinetry Products
13.0
 %
 
5.6
%
 
11.7
%
 
2.1
%
Windows and Other Specialty Products
(1.0
)%
 
10.9
%
 
0.3
%
 
7.6
%
 
 
 
 
 
 
 
 
North America
18.7
 %
 
16.7
%
 
17.4
%
 
14.5
%
International, principally Europe
14.9
 %
 
12.5
%
 
13.7
%
 
12.2
%
Total
17.9
 %
 
15.9
%
 
16.7
%
 
14.0
%
Total operating profit margin, as reported
16.7
 %
 
14.5
%
 
15.3
%
 
12.4
%
(A)     Before general corporate expense, net; see Note L to the condensed consolidated financial statements.

20

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.
NET SALES
 
Net sales increased four percent for both the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015. Excluding acquisitions and the unfavorable effect of currency translation, net sales increased four percent for both the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015. The following table reconciles reported net sales to net sales, excluding acquisitions and the effect of currency translation, in millions:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Net sales, as reported
$
2,001

 
$
1,929

 
$
3,721

 
$
3,588

Acquisitions
(3
)
 
—

 
(6
)
 
—

Net sales, excluding acquisitions
1,998

 
1,929

 
3,715

 
3,588

Currency translation
6

 
—

 
26

 
—

Net sales, excluding acquisitions and the effect of currency translation
$
2,004

 
$
1,929

 
$
3,741

 
$
3,588

 
North American net sales increased three percent and four percent for the three-month and six-month periods ended June 30, 2016, respectively, from the comparable periods of 2015. Net sales were positively impacted by increased sales volume of plumbing products, paints and other coating products and builders’ hardware, which, in aggregate, increased North American sales by four percent for the three-month period ended June 30, 2016, from the comparable period of 2015, and five percent, in aggregate, when including windows for the six-month period ended June 30, 2016, from the comparable period of 2015. A favorable sales mix of cabinets and windows increased sales by one percent for both the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015. An increase in net selling prices of windows, plumbing products and cabinets increased sales one percent for both the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015. Such increases were partially offset by decreased sales volumes in cabinets and a decrease in net selling prices of paints and other coating products, which, in aggregate, decreased sales by three percent for the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015.
International net sales increased seven percent and three percent for the three-month and six-month periods ended June 30, 2016, respectively, from the comparable periods of 2015. In local currencies (including sales in currencies outside their respective functional currencies), net sales from International operations increased nine percent and six percent for the three-month and six-month periods ended June 30, 2016, respectively, from the comparable periods of 2015, primarily due to increased sales volume of International plumbing products, which increased sales by nine percent and five percent, respectively, from the comparable periods of 2015. A favorable product mix of cabinets and windows, coupled with net selling price increases of International plumbing products, increased sales by two percent for both the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015. An acquisition also increased sales by one percent for both the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015. Such increases were partially offset by unfavorable currency and lower sales volume of cabinets.

Net sales in the Plumbing Products segment increased for the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015, due to increased sales volume of both North American and International operations, which, on a combined basis, increased sales by eight percent and six percent for the three-month and six-month periods ended June 30, 2016, respectively, from the comparable periods of 2015. Net selling price increases of both North American and International operations also increased sales by one percent for both the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015. Such increases were partially offset by unfavorable currency, which decreased net sales by one percent in both the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015.

Net sales in the Decorative Architectural Products segment were relatively flat for the three-month period ended June 30, 2016, from the comparable period of 2015, due to lower selling prices and higher promotions of paints and other coating products, offset by increased sales volume of paints and other coating products and builders’ hardware. Net sales increased for the six-

21

month period ended June 30, 2016, from the comparable period of 2015, due to increased sales volume of paints and other coating products and builder’s hardware, partially offset by lower selling prices and higher promotions of paints and other coating products.

Net sales in the Cabinetry Products segment decreased for the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015, due to decreased sales volume of both North American and international cabinets, which, in aggregate, decreased sales by 10 percent for both the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015. Such decrease was partially offset by a positive sales mix for North American and international cabinets and net selling price increases of North American cabinets, which on a combined basis increased sales seven percent and six percent in the three-month and six-month periods ended June 30, 2016, respectively.

Net sales in the Windows and Other Specialty Products segment increased for the three-month and six-month periods ended June 30, 2016, from the comparable periods of 2015. An increase in net selling prices of North American windows in the western U.S. and favorable product mix of both North American and international windows increased sales five percent and four percent for the three-month and six-month periods ended June 30, 2016, respectively. An international acquisition positively impacted net sales by one percent and two percent for the three-month and six-month periods ended June 30, 2016, respectively, from the comparable periods of 2015. Sales volume of North American windows decreased sales by two percent in the three-month period ended June 30, 2016, and increased sales by two percent in six-month period ended June 30, 2016, from the comparable periods of 2015. A stronger U.S. dollar decreased sales by two percent in both the three-month and six-month periods ended June 30, 2016, compared to the same periods of 2015.


OPERATING MARGINS
 
Our gross profit margins were 35.0 and 34.1 percent for the three-month and six-month periods ended June 30, 2016, respectively, compared with 33.0 percent and 31.5 percent for the comparable periods of 2015.

Gross profit margins for the three-month and six-month periods ended June 30, 2016 were positively affected by increased sales volume, a more favorable relationship between net selling prices and commodity costs, as well as the benefits associated with other cost savings initiatives.

Selling, general and administrative expenses, as a percentage of sales, were 18.2 percent and 18.8 percent for the three-month and six-month periods ended June 30, 2016 compared to 18.6 percent and 19.2 percent for the comparable periods of 2015.

Operating profit for the three-month and six-month periods ended June 30, 2016 includes $7 million and $10 million, respectively, of costs and charges related to our business rationalizations and other initiatives, compared with $1 million and $7 million for the comparable periods of 2015.

Operating margins in the Plumbing Products segment for the three-month and six-month periods ended June 30, 2016 were positively impacted by increased sales volume, a more favorable relationship between net selling prices and commodity costs (including the favorable impact of the metal hedge contracts) and the benefits associated with business rationalization activities and other cost savings initiatives, partially offset by unfavorable product mix.

Operating margins in the Decorative Architectural Products segment for the three-month and six-month periods ended June 30, 2016 were positively affected by increased sales volume of paints and other coating products and builders' hardware, as well as the benefits associated with cost savings initiatives. These increases were partially offset by an unfavorable relationship between selling prices and commodity costs driven by higher promotional spend.

Operating margins in the Cabinetry Products segment for the three-month and six-month periods ended June 30, 2016 were positively affected by the benefits associated with business rationalization activities and other cost savings initiatives, a positive product mix and a more favorable relationship between net selling prices and commodity costs in our North America business. Such increases were partially offset by a decrease in sales volume due primarily to the strategic decision to exit certain low margin business in our direct-to-builder channel.

Operating margins in the Windows and Other Specialty Products segment for the three-month and six-month periods ended June 30, 2016 reflect an increase in warranty costs and certain other expenses, such as higher labor costs and ERP system implementation costs at our North American windows business. Such costs were partially offset by a more favorable relationship between net selling prices and commodity costs.


22

OTHER INCOME (EXPENSE), NET
 
Interest expense for the three-month and six-month periods ended June 30, 2016 was $87 million and $143 million , respectively, compared to $61 million and $117 million for the three-month and six-month periods ended June 30, 2015 , respectively. Interest expense increased due primarily to the $40 million of additional interest expense recorded in April 2016 in connection with the early retirement of debt, partially offset by the interest savings due to the discharge of indebtedness.
 
Other, net, for the three-month and six-month periods ended June 30, 2016 included gains of $1 million on the redemption of auction rate securities, and gains of $1 million related to distributions from private equity funds. The six-month period ended June 30, 2016 also included $1 million of earnings from equity investments. Other, net for the three-month and six-month periods ended June 30, 2015 included gains of $2 million and $4 million, respectively, related to distributions from private equity funds and $2 million of earnings from equity investments.

INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS — ATTRIBUTABLE TO MASCO CORPORATION
 
Income for the three-month and six-month periods ended June 30, 2016 was $150 million and $259 million , respectively, compared with $109 million and $170 million , respectively, for the comparable periods of 2015 . Diluted earnings per common share for the three-month and six-month periods ended June 30, 2016 was $.45 and $.77 , respectively, per common share, compared with $.31 and $.48 , respectively, per common share for the comparable period of 2015 .

Our effective tax rate was 36 percent and 34 percent for the three-month and six-month periods ended June 30, 2016 , respectively. Our rate for the six-month period ended June 30, 2016 was lower than our normalized tax rate of 36 percent due primarily to a $4 million state income tax benefit on uncertain tax positions resulting from the expiration of applicable statutes of limitation.

Our effective tax rate was 46 percent and 43 percent for the three-month and six-month periods ended June 30, 2015, respectively. These rates were higher than our normalized tax rate of 36 percent due primarily to an $18 million valuation allowance against the deferred tax assets of TopBuild recorded as a non-cash charge to income tax expense in the second quarter of 2015. The TopBuild deferred tax assets have been impaired by our decision to spin off TopBuild into a separate company that on a stand-alone basis as of June 30, 2015, the spin off date, was unlikely to be able to realize the value of such deferred tax assets as a result of its history of losses.

OTHER FINANCIAL INFORMATION
 
Our current ratio was 1.9 to 1 and 1.3 to 1 at June 30, 2016 and December 31, 2015 , respectively. The increase in the current ratio was primarily due to the net debt reduction of $400 million .
 
For the six-month period ended June 30, 2016 , net cash of $114 million was generated from operating activities.

For the six-month period ended June 30, 2016 , net cash used by financing activities was $662 million , primarily due to the early retirement of all of our $1 billion , 6.125% Notes which were due on October 3, 2016 and all of our $300 million , 5.85% Notes which were due on March 15, 2017, $ 168 million for the repurchase and retirement of Company common stock (including 1.1 million shares repurchased to offset the dilutive impact of long-term stock awards granted in 2016), $ 63 million for the payment of cash dividends and $31 million for dividends paid to noncontrolling interests. This usage was partially offset by the issuance of $400 million of 3.5% Notes due April 1, 2021 and $500 million of 4.375% Notes due April 1, 2026 . 
 
For the six-month period ended June 30, 2016 , net cash provided by investing activities was $45 million , primarily due to $117 million net proceeds from the sale of short-term bank cash deposits, partially offset by $79 million used for capital expenditures.
 
Our cash, cash investments and short-term bank deposits were $1.1 billion and $1.7 billion at June 30, 2016 and December 31, 2015 , respectively.  Our cash and cash investments consist of overnight interest bearing money market demand accounts, time deposit accounts, money market mutual funds containing government securities and treasury obligations.  Our short-term bank deposits consist of time deposits with maturities of 12 months or less.
 
Of the $1.1 billion and the $1.7 billion of cash, cash investments and short-term bank deposits held at June 30, 2016 and December 31, 2015 , $574 million and $630 million, respectively, is held in foreign subsidiaries.  If these funds were needed for

23

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 17, 2016 , we issued $400 million of 3.5% Notes due April 1, 2021 and $500 million of 4.375% Notes due April 1, 2026. We received proceeds of $ 896 million , net of discount, for the issuance of these Notes. The Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. On April 15, 2016, proceeds from the debt issuances, together with cash on hand, were used to repay and early retire all of our $1 billion , 6.125% Notes which were due on October 3, 2016 and all of our $300 million , 5.85% Notes which were due on March 15, 2017. In connection with these early retirements, we incurred $40 million of debt extinguishment costs, which we recorded as interest expense.

On March 28, 2013, we entered into a credit agreement (the “Credit Agreement”) with a bank group, with an aggregate commitment of $1.25 billion and a maturity date of March 28, 2018.  On May 29, 2015 and August 28, 2015, we amended the Credit Agreement with the bank group (the “Amended Credit Agreement”).  The Amended Credit Agreement reduces the aggregate commitment to $750 million and extends the maturity date to May 29, 2020.  Under the Amended Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $375 million with the current bank group or new lenders.  See Note H to the condensed consolidated financial statements.
 
The Amended 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 had no borrowings under our Amended Credit Agreement at June 30, 2016 .
 
We believe that our present cash balance, cash flows from operations and, to the extent necessary, bank borrowings and future financial market activities, are sufficient to fund our working capital and other investment needs.

OUTLOOK FOR THE COMPANY
 
We continue to successfully execute against our long-term growth strategies by leveraging our brand portfolio, industry-leading positions, and Masco Operating System, our methodology to drive growth and productivity.

We believe we will continue to see steady demand for our market-leading products, as both repair and remodel and new home construction trends continue to improve. We believe and are confident that the long-term fundamentals for home improvement activity and new home construction continue to be positive.  We believe that our strong financial position, together with our current strategy of investing in our industry-leading branded building products, including BEHR® paint, DELTA® and HANSGROHE® faucets, bath and shower fixtures, KRAFTMAID® and MERILLAT® cabinets, MILGARD® windows and doors and HOTSPRING® spas, our continued focus on innovation and our commitment to operational excellence and disciplined capital allocation will allow us to drive long-term growth and create value for our shareholders.
 
FORWARD-LOOKING STATEMENTS
 
This report contains statements that reflect our views about our future performance constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “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 home improvement activity and new home construction, our ability to maintain our strong brands and to develop and introduce new and improved products, our ability to maintain our competitive position in our industries, our reliance on key customers, our ability to achieve the anticipated benefits of our strategic initiatives, our ability to sustain the performance at our cabinetry businesses, the cost and availability of raw materials, our dependence on third party suppliers, and risks associated with international operations and global strategies.  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.
 

24
Table of Contents

 
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 June 30, 2016 , the Company’s disclosure controls and procedures were effective.
 
b.     Changes in Internal Control over Financial Reporting.
 
During the second quarter of 2016, the Company continued a phased deployment of a new Enterprise Resource Planning (“ERP”) system at Milgard. The system implementation is designed, in part, to enhance the overall system of internal control over financial reporting through further automation and improve business processes and is not in response to any identified deficiency or weakness in the Company’s internal control over financial reporting. However, this system implementation is significant in scale and complexity and has resulted in modification to certain Milgard internal controls.


25
Table of Contents
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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 .
 
Item 2 .  Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table provides information regarding the repurchase of Company common stock for the three months ended June 30, 2016 : 
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 Number of
Shares That May
Yet Be Purchased
Under the Plans or Programs
4/1/16-4/30/16
310,814

 
$
31.20

 
310,814

 
24,268,720

5/1/16-5/31/16
1,300,000

 
$
31.51

 
1,300,000

 
22,968,720

6/1/16-6/30/16
1,200,000

 
$
30.97

 
1,200,000

 
21,768,720

Total for the quarter
2,810,814

 
$
31.25

 
2,810,814

 
21,768,720

 
(A)
In September 2014, our Board of Directors authorized the purchase of up to 50 million shares of our common stock in open-market transactions or otherwise.


26
Table of Contents
MASCO CORPORATION
 
PART II.  OTHER INFORMATION, Continued


 
Item 6 . Exhibits  
 
 
 
 
 
10a
–
Masco Corporation 2014 Long Term Stock Incentive Plan (Amended and Restated May 9, 2016)
 
 
 
 
 
10b
–
Masco Corporation Non-Employee Directors Equity Program under the 2014 Long Term Stock Incentive Plan (Amended and Restated May 9, 2016)
 
 
 
 
 
12
–
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
 
 
 
 
 
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
–
Interactive Data File


27
Table of Contents
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 and Chief Financial Officer
 
July 26, 2016

28
Table of Contents
MASCO CORPORATION

EXHIBIT INDEX



Exhibit
 
 
 
 
 
Exhibit 10a
 
Masco Corporation 2014 Long Term Stock Incentive Plan (Amended and Restated May 9, 2016)
 
 
 
Exhibit 10b
 
Masco Corporation Non-Employee Directors Equity Program under the 2014 Long Term Stock Incentive Plan (Amended and Restated May 9, 2016)
 
 
 
Exhibit 12
 
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends
 
 
 
Exhibit 31a
 
Certification by Chief Executive Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
 
 
 
Exhibit 31b
 
Certification by Chief Financial Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
 
 
 
Exhibit 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
 
 
 
Exhibit 101
 
Interactive Data File


29
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


SECTION 1.  Purposes.

The purposes of the 2014 Long Term Stock Incentive Plan (the “Plan”) are to encourage selected employees of and consultants to Masco Corporation (the “Company”) and its Affiliates to acquire a proprietary interest in the Company in order to create an increased incentive to contribute to the Company’s future success and prosperity, and enhance the ability of the Company and its Affiliates to attract and retain exceptionally qualified individuals upon whom the sustained progress, growth and profitability of the Company depend, thus enhancing the value of the Company for the benefit of its stockholders.
SECTION 2.  Definitions.

As used in the Plan, the following terms shall have the meanings set forth below:
(a)  “Affiliate” shall mean any entity in which the Company’s direct or indirect equity interest is at least twenty percent, and any other entity in which the Company has a significant direct or indirect equity interest, whether more or less than twenty percent, as determined by the Committee.
(b)  “Award” shall mean any Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Award, or Dividend Equivalent granted under the Plan.
(c)  “Award Agreement” shall mean any agreement, contract or other instrument or document evidencing any Award granted under the Plan which may, but need not, be executed by the Participant.
(d)  “Board” shall mean the Board of Directors of the Company.
(e)  “Change in Control” shall mean at any time during a period of twenty-four consecutive calendar months, the individuals who at the beginning of such period constitute the Company’s Board, and any new directors (other than Excluded Directors, as hereinafter defined), whose election by such Board or nomination for election by stockholders was approved by a vote of at least two-thirds of the members of such Board who were either directors on such Board at the beginning of the period or whose election or nomination for election as directors was previously so approved, for any reason ceasing to constitute at least a majority of the members thereof. For purposes hereof, “Excluded Directors” are directors whose (i) election by the Board or approval by the Board for stockholder election occurred within one year after any “person” or “group of persons,” as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, commencing a tender offer for, or becoming the beneficial owner of, voting securities representing 25 percent or more of the combined voting power of all outstanding voting securities of the Company, other than pursuant to a tender offer approved by the Board prior to its commencement or pursuant to stock acquisitions approved by the Board prior to their representing 25 percent or more of such combined voting power or (ii) initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or “person” other than the Board.
(f)  “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
(g)  “Committee” shall mean a committee of the Company’s directors designated by the Board to administer the Plan and composed of not less than two directors, each of whom is a “non-employee director,” an “independent director” and an “outside director,” within the meaning of and to the extent required respectively by Rule 16b-3, the applicable rules of the NYSE and Section 162(m) of the Code, and any regulations issued thereunder.
(h)  “Dividend Equivalent” shall mean any right granted under Section 6(g) of the Plan.
(i)  “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
(j)  “Executive Group” shall mean every person who the Committee believes may be both (i) a “covered employee” as defined in Section 162(m) of the Code as of the end of the taxable year in which the Company expects to take a deduction of the Award, and (ii) the recipient of compensation of more than $1,000,000 (as such amount appearing in Section 162(m) of the Code may be adjusted by any subsequent legislation) for that taxable year.
(k)  “Incentive Stock Option” shall mean an Option granted under Section 6(a) of the Plan that is intended to meet the requirements of Section 422 of the Code, or any successor provision thereto.
(l)  “Non-Qualified Stock Option” shall mean an Option granted under Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(m)  “NYSE” shall mean the New York Stock Exchange.
(n)  “Option” shall mean an Incentive Stock Option or a Non-Qualified Stock Option.

1
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


(o)  “Participant” shall mean an employee of or consultant to the Company or any Affiliate or a director of the Company designated to be granted an Award under the Plan or, for the purpose of granting Substitute Awards, a holder of options or other equity based awards relating to the shares of a company acquired by the Company or with which the Company combines.
(p)  “Performance Award” shall mean any right granted under Section 6(e) of the Plan.
(q)  “Prior Plans” shall mean the Company’s 1991 and 2005 Long Term Stock Incentive Plans.
(r)  “Restricted Period” shall mean the period of time during which Awards of Restricted Stock or Restricted Stock Units are subject to restrictions.
(s)  “Restricted Stock” shall mean any Share granted under Section 6(d) of the Plan.
(t)  “Restricted Stock Unit” shall mean any right granted under Section 6(d) of the Plan that is denominated in Shares.
(u)  “Rule 16b-3” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, or any successor rule or regulation.
(v)  “Section 16” shall mean Section 16 of the Exchange Act, the rules and regulations promulgated by the Securities and Exchange Commission thereunder, or any successor provision, rule or regulation.
(w)  “Shares” shall mean the Company’s common stock, par value $1.00 per share, and such other securities or property as may become the subject of Awards, or become subject to Awards, pursuant to an adjustment made under Section 4(c) of the Plan.
(x)  “Stock Appreciation Right” shall mean any right granted under Section 6(c) of the Plan.
(y)  “Substitute Awards” shall mean Awards granted in assumption of, or in substitution for, outstanding awards previously granted by a company acquired by a Company or with which the Company combines.
SECTION 3.  Administration.

The Committee shall administer the Plan, and subject to the terms of the Plan and applicable law, the Committee’s authority shall include without limitation the power to:
(i) designate Participants;
(ii) determine the types of Awards to be granted;
(iii) determine the number of Shares to be covered by Awards and any payments, rights or other matters to be calculated in connection therewith;
(iv) determine the terms and conditions of Awards and amend the terms and conditions of outstanding Awards;
(v) determine how, whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Shares, other securities, other Awards or other property, or canceled, forfeited or suspended;
(vi) determine how, whether, to what extent, and under what circumstances cash, Shares, other securities, other Awards, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the holder thereof or of the Committee;
(vii) determine the methods or procedures for establishing the fair market value of any property (including, without limitation, any Shares or other securities) transferred, exchanged, given or received with respect to the Plan or any Award;
(viii) prescribe and amend the forms of Award Agreements and other instruments required under or advisable with respect to the Plan;
(ix) designate Options granted to key employees of the Company or its subsidiaries as Incentive Stock Options;
(x) interpret and administer the Plan, Award Agreements, Awards and any contract, document, instrument or agreement relating thereto;
(xi) establish, amend, suspend or waive such rules and regulations and appoint such agents as it shall deem appropriate for the administration of the Plan;
(xii) decide all questions and settle all controversies and disputes which may arise in connection with the Plan, Award Agreements and Awards;
(xiii) delegate to a committee of at least two directors of the Company the authority to designate Participants and

2
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


grant Awards, and to amend Awards granted to Participants, but only with respect to Participants who are not officers or directors of the Company for purposes of Section 16 of the Exchange Act;
(xiv) delegate to one or more officers or managers of the Company, or a committee of such officers and managers, the authority, subject to such terms and limitations as the Committee shall determine, to cancel, modify, waive rights with respect to, alter, discontinue, suspend or terminate Awards held by employees who are not officers or directors of the Company for purposes of Section 16 of the Exchange Act; provided, however, that any delegation to management shall conform with the requirements of the NYSE applicable to the Company and Delaware corporate law; and
(xv) make any other determination and take any other action that the Committee deems necessary or desirable for the interpretation, application and administration of the Plan, Award Agreements and Awards.
All designations, determinations, interpretations and other decisions under or with respect to the Plan, Award Agreements or any Award shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, Affiliates, Participants, beneficiaries of Awards and stockholders of the Company.
SECTION 4.  Shares Available for Awards.

(a)  Shares Available.  Subject to adjustment as provided in Section 4(c): the maximum number of Shares available for issuance in respect of Awards made under the Plan shall be 8 million Shares, provided, however, that if for any reason any Award under the Plan or under any Prior Plan (other than a Substitute Award) is forfeited, canceled, or expired, or is withheld by the Company from an Award of Restricted Shares or Restricted Stock Units upon its vesting for the payment of income taxes on a Participant’s behalf, the number of Shares available for issuance in respect of Awards under the Plan shall be increased by the number of Shares so forfeited, canceled, expired or withheld. Notwithstanding anything to the contrary contained herein, the following shall not increase the number of Shares available for issuance in respect of Awards under the Plan: (i) Shares delivered in payment of an Option and (ii) Shares that are repurchased by the Company with Option proceeds. In addition, Shares covered by an SAR, to the extent that it is exercised and settled in Shares, and regardless of whether or not Shares are actually issued to the Participant upon exercise of the SAR, shall be considered issued or transferred pursuant to the Plan. Subject to the foregoing, Shares may be made available from the authorized but unissued Shares of the Company or from Shares reacquired by the Company.
(b)  Individual Stock-Based Awards.  
(i) Subject to adjustment as provided in Section 4(c), no Participant may receive Options or Stock Appreciation Rights under the Plan in any calendar year that relate to more than 2,000,000 Shares in the aggregate; provided, however, that such number may be increased with respect to any Participant by any Shares available for grant to such Participant in accordance with this Section 4(b) in any prior years that were not granted in such prior year. No provision of this Section 4(b)(i) shall be construed as limiting the amount of any other stock-based or cash-based award which may be granted to any Participant.
(ii) Notwithstanding the foregoing clause (i) or any other provision in the Plan to the contrary (but subject to adjustment as provided in Section 4(c)), the maximum aggregate number of Shares associated with any Award granted under the Plan during the annual director compensation period (with each such period commencing on the date of the Company’s Annual Meeting of stockholders and ending on the day prior to the subsequent Annual Meeting), to any one non-employee director of the Board shall be the greater of (A) 25,000 shares or (B) that number of Shares having a fair market value of $500,000 as of the date of grant.
(c)  Adjustments.  Upon the occurrence of any dividend or other distribution (whether in the form of cash, Shares, other securities or other property), change in the capital or shares of capital stock, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company or extraordinary transaction or event which affects the Shares, then the Committee shall make such adjustment, if any, in such manner as it deems appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, in (i) the number and type of Shares (or other securities or property) which thereafter may be made the subject of Awards both to any individual and to all Participants, (ii) outstanding Awards including without limitation the number and type of Shares (or other securities or property) subject thereto, and (iii) the grant, purchase or exercise price with respect to outstanding Awards and, if deemed appropriate, make provision for cash payments to the holders of outstanding Awards; provided, however, that the number of Shares subject to any Award denominated in Shares shall always be a whole number.

3
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


(d)  Substitute Awards.  Shares underlying Substitute Awards shall not reduce the number of shares remaining available for issuance under the Plan for any purpose.
SECTION 5.  Eligibility.

Any employee of or consultant to the Company or any Affiliate, or any director of the Company, is eligible to be designated a Participant.
SECTION 6.  Awards.

(a)  Options.  (i)  Grant.  The Committee is authorized to grant Options to Participants with such terms and conditions, not inconsistent with the provisions of the Plan, as the Committee shall determine. The Award Agreement shall specify:
(A) the purchase price per Share under each Option, provided, however, that such price shall be not less than 100% of the fair market value of the Shares underlying such Option on the date of grant (except in the case of Substitute Awards);
(B) the term of each Option (not to exceed ten years); and
(C) the time or times at which an Option may be exercised, in whole or in part, the method or methods by which and the form or forms (including, without limitation, cash, Shares, other Awards or other property, or any combination thereof, having a fair market value on the exercise date equal to the relevant exercise price) in which payment of the exercise price with respect thereto may be made or deemed to have been made.
(ii)  Other Terms.  Notwithstanding the following terms, the Committee may impose other terms that may be more or less favorable to the Company as it deems fit. Unless the Committee shall impose such other terms, the following conditions shall apply:
(A)  Exercise.  A Participant electing to exercise an Option shall give written notice to the Company, as may be specified by the Committee, of exercise of the Option and the number of Shares elected for exercise, such notice to be accompanied by such instruments or documents as may be required by the Committee, and shall tender the purchase price of the Shares elected for exercise.
(B)  Payment.  At the time of exercise of an Option payment in full, or adequate provision therefore, in cash or in Shares or any combination thereof, at the option of the Participant, shall be made for all Shares then being purchased.
(C)  Issuance.  The Company shall not be obligated to issue any Shares unless and until:
(1) if the class of Shares at the time is listed upon any stock exchange, the Shares to be issued have been listed, or authorized to be added to the list upon official notice of issuance, upon such exchange, and
(2) in the opinion of the Company’s counsel there has been compliance with applicable law in connection with the issuance and delivery of Shares and such issuance shall have been approved by the Company’s counsel.
Without limiting the generality of the foregoing, the Company may require from the Participant such investment representation or such agreement, if any, as the Company’s counsel may consider necessary in order to comply with the Securities Act of 1933 as then in effect, and may require that the Participant agree that any sale of the Shares will be made only in such manner as shall be in accordance with law and that the Participant will notify the Company of any intent to make any disposition of the Shares whether by sale, gift or otherwise. The Participant shall take any action reasonably requested by the Company in such connection. A Participant shall have the rights of a stockholder only as and when Shares have been actually issued to the Participant pursuant to the Plan.
(D)  Minimum Vesting.  Options may not become fully exercisable prior to the third anniversary of the date of grant, except as provided in Section 6(a)(ii)(E) and Section 7(f) below.
(E)  Termination of Employment; Death.  If the employment of a Participant terminates for any reason or if a Participant dies (whether before or after the normal retirement date), Options shall be or become exercisable only as provided in (1) through (5) below:
(1) If such termination is voluntary on the part of the Participant, such Option may be exercised only if and to the extent such Option was exercisable at the date of termination and only within thirty days (extended to the next business day if falling on a weekend or holiday) after the date of termination. Except as so exercised such Option shall expire at the end of such period.
(2) If such termination is involuntary on the part of the Participant, such Option may be exercised only if and

4
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


to the extent such Option was exercisable at the date of termination and only within ninety days (extended to the next business day if falling on a weekend or holiday) after the date of termination. Except as so exercised such Option shall expire at the end of such period.
(3) If an employee retires on or after the normal retirement date, such Option shall continue to be and become exercisable in accordance with its terms and the provisions of this Plan.
(4) If a Participant’s employment is terminated by reason of permanent and total disability, all unexercisable installments of such Option shall thereupon become exercisable and shall remain exercisable for the remainder of the Option term.
(5) If a Participant dies, all unexercisable installments of such Option shall thereupon become exercisable and, at any time or times within one year after such death, the Option may be exercised, as to all or any unexercised portion of the Option. The Company may decline to deliver Shares to a designated beneficiary until it receives indemnity against claims of third parties satisfactory to the Company. Except as so exercised such Option shall expire at the end of such period.
(F)  The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. The maximum number of Shares that may be awarded as Incentive Stock Options is 8 million.
 
(b)  Restoration Options.  The Committee may only grant a Participant a restoration Option under this Plan with respect to an option granted by the Company under the Prior Plans, or with respect to a restoration option resulting from such an option, when the Company is contractually bound to grant such restoration Option, and the Participant pays the exercise price by delivering Shares or by attesting to the ownership of such Shares. The restoration option is equal to the number of Shares delivered or attested to by the Participant, and the exercise price shall not be less than 100 percent of the fair market value of the Shares on the date the restoration option is granted. A restoration option otherwise will have the same terms as the original option. Unless the Committee shall otherwise determine, (i) no restoration option shall be granted unless the recipient is an active employee at the time of grant and (ii) the number of Shares which are subject to a restoration Option shall not exceed the number of whole Shares exchanged in payment for the exercise of the underlying Option. No restoration Options shall otherwise be granted under this Plan.
(c)  Stock Appreciation Rights.  The Committee is authorized to grant Stock Appreciation Rights to Participants. Subject to the terms of the Plan, a Stock Appreciation Right granted under the Plan shall confer on the holder thereof a right to receive, upon exercise thereof, the excess of (i) the fair market value of one Share on the date of exercise or, if the Committee shall so determine in the case of any such right other than one related to any Incentive Stock Option, at any time during a specified period before or after the date of exercise over (ii) the fair market value on the date of grant. Stock Appreciation Rights may not fully vest prior to the third anniversary of the date of grant, except as provided in Sections 6(d)(iv)(B) and 7(f) below.
Subject to the terms of the Plan, the Committee shall determine the grant price, which shall not be less than 100% of the fair market value of the Shares underlying the Stock Appreciation Right on the date of grant, term (not to exceed ten years), methods of exercise and settlement and any other terms and conditions of any Stock Appreciation Right and may impose such conditions or restrictions on the exercise of any Stock Appreciation Right as it may deem appropriate.
(d)  Restricted Stock and Restricted Stock Units .
(i)  Issuance.  The Committee is authorized to grant to Participants Awards of Restricted Stock, which shall consist of Shares, and Restricted Stock Units which shall give the Participant the right to receive cash, Shares, other securities, other Awards or other property, in each case subject to the termination of the Restricted Period determined by the Committee. Notwithstanding the following terms, the Committee may impose other terms that may be more or less favorable to the Company as it deems fit. In the absence of any such differing provisions, Awards of Restricted Stock and Restricted Stock Units shall have the provisions described below.
(ii)  Restrictions.  The Restricted Period may differ among Participants and may have different expiration dates with respect to portions of Shares covered by the same Award. Subject to the terms of the Plan, Awards of Restricted Stock and Restricted Stock Units shall have such restrictions as the Committee may impose (including, without limitation, limitations on the right to vote Restricted Stock or the right to receive any dividend or other right or property), which restrictions may lapse separately or in combination at such time or times, in installments or otherwise (including the achievement of performance measures as set forth in Section 6(e) hereof), as the Committee may deem appropriate. Any Shares or other securities distributed with respect to Restricted Stock or which a Participant is otherwise entitled to receive by reason of such Shares shall be subject to the restrictions contained in the applicable Award Agreement. Restricted Stock Awards and Restricted Stock Units

5
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


may not fully vest prior to the third anniversary of the date of grant, except as provided in Sections 6(d)(iv)(B), 6(e)(iii) and 7(f) below. Subject to the aforementioned restrictions and the provisions of the Plan, a Participant shall have all of the rights of a stockholder with respect to Restricted Stock.
(iii)  Registration.  Restricted Stock granted under the Plan may be evidenced in such manner as the Committee may deem appropriate, including, without limitation, book-entry registration or issuance of stock certificates.
(iv)  Termination; Death . If a Participant’s employment terminates for any reason, all Shares of Restricted Stock or Restricted Stock Units theretofore awarded to the Participant which are still subject to restrictions shall upon such termination be forfeited and transferred back to the Company, except as provided in clauses (A) and (B) below.
(A)  If an employee ceases to be employed by reason of retirement on or after normal retirement date, the restrictions contained in the Award of Restricted Stock or the Restricted Stock Unit shall continue to lapse in the same manner as though employment had not terminated, subject to clause (B) below and Sections 6(d)(v) and 7(f).
(B)  If a Participant ceases to be employed by reason of permanent and total disability or if a Participant dies, whether before or after the normal retirement date, the restrictions contained in such Participant’s Award of Restricted Stock or Restricted Stock Units shall lapse.
(C)  At the expiration of the Restricted Period, the Company shall deliver Shares in the case of an Award of Restricted Stock or Shares, cash, securities or other property, in the case of a Restricted Stock Unit, as follows:
(1) if an assignment to a trust has been made in accordance with Section 7(d)(ii)(B), to such trust; or
(2) if the Restricted Period has expired by reason of death and a beneficiary has been designated in form approved by the Company, to the beneficiary so designated; or
(3) in all other cases, to the Participant or the legal representative of the Participant’s estate.
(v)  Acceleration.  New Awards granted to a Participant in or after the calendar year in which such Participant attains age 65 will vest in five equal annual installments or such earlier vesting as may be specified in the Award Agreement. With respect to an Award granted to a Participant prior to the calendar year in which the Participant attains age 65, if in the calendar year in which the Participant attains age 65 the Restricted Period then remaining thereunder is longer than five years, the Restricted Period shall be shortened so that commencing in the calendar year that a Participant attains age 66, the restrictions contained in the Award shall lapse in equal annual installments such that the Participant shall be fully vested not later than the end of the calendar year in which the Participant attains age 70.
(e)  Performance Awards .
(i) The Committee is hereby authorized to grant Performance Awards to Participants.
(ii) Subject to the terms of the Plan, a Performance Award granted under the Plan (A) may be denominated or payable in cash, Shares (including, without limitation, Restricted Stock or Restricted Stock Units), other securities or other Awards, and (B) shall confer on the holder thereof rights valued as determined by the Committee and payable to, or exercisable by, the holder of the Performance Award, in whole or in part, upon the achievement of such performance goals during such performance periods as the Committee shall establish. Subject to the terms of the Plan, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any Performance Award granted and the amount of any payment or transfer to be made pursuant to any Performance Award shall be determined by the Committee. Unless the Committee determines otherwise, the performance period relating to any Performance Award shall be at least one calendar year commencing January 1 and ending December 31 (except in circumstances in connection with a Change in Control, in which event the performance period may be shorter than one year).
(iii) Every Performance Award to a member of the Executive Group shall, if the Committee intends that such Award should constitute “qualified performance-based compensation” for purposes of Section 162(m) of the Code, include a pre-established formula, such that payment, retention or vesting of the Award is subject to the achievement during a performance period or periods, as determined by the Committee, of a level or levels, as determined by the Committee, of one or more performance measures with respect to the Company or any of its Affiliates, including the following:

6
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


 

Cash flow
Return on invested capital
Earnings per share
Return on net assets
EBIT
Return on net tangible assets
EBITDA
Return on sales
Gross margin
Revenue growth
Gross profit
Revenues
Net income
Safety measures
Operating margin
SG&A as a percent of sales
Operating profit
Total shareholder return
Quality measures
Working capital
Return on assets
Working capital as a percent of sales
Return on equity
Working capital efficiency
each as determined in accordance with generally accepted accounting principles, where applicable, as consistently applied by the Company. The following shall be excluded in determining whether any performance criterion has been attained: losses resulting from discontinued operations, extraordinary losses (in accordance with generally accepted accounting principles, as currently in effect), the cumulative effect of changes in accounting principles and other unusual, non-recurring items of loss that are separately identified and quantified in the Company’s audited financial statements. Performance measures may vary from Performance Award to Performance Award and from Participant to Participant and may be established on a stand-alone basis, in tandem or in the alternative. For any Performance Award, the maximum amount that may be delivered or earned in settlement of all such Awards granted in any year shall be (x) if and to the extent that such Awards are denominated in Shares, 2,000,000 Shares (subject to adjustment as provided in Section 4(c)) and (y) if and to the extent that such Awards are denominated in cash, $10,000,000. Notwithstanding any provision of the Plan to the contrary, the Committee shall not be authorized to increase the amount payable under any Award to which this Section 6(e)(iii) applies upon attainment of such pre-established formula.
(f)  Dividend Equivalents.  The Committee is authorized to grant to Participants Awards under which the holders thereof shall be entitled to receive payments equivalent to dividends or interest with respect to a number of Shares determined by the Committee, and the Committee may provide that such amounts (if any) shall be deemed to have been reinvested in additional Shares or otherwise reinvested. Subject to the terms of the Plan, such Awards may have such terms and conditions as the Committee shall determine, but shall not be awarded on unearned Performance Awards.
(g)  Termination of Employment.  Except as otherwise provided in the Plan or determined by the Committee,
(i) Awards granted to, or otherwise held by, employees will terminate, expire and be forfeited upon termination of employment, which shall include a change in status from employee to consultant and termination by reason of the fact that an entity is no longer an Affiliate, and
(ii) a Participant’s employment shall not be considered to be terminated (A) in the case of approved sick leave or other approved leave of absence (not to exceed one year or such other period as the Committee may determine), or (B) in the case of a transfer among the Company and its Affiliates.
(h)  Termination of Awards.  Notwithstanding any of the provisions of this Plan or instruments evidencing Awards granted hereunder, other than the provisions of Section 7(f), the Committee may terminate any Award (including the unexercised portion of any Option and any Award of Restricted Stock or Restricted Stock Units which remains subject to restrictions) concurrently with or at any time following termination of employment regardless of the reason for such termination of employment if the Committee shall determine that the Participant has engaged in any activity detrimental to the interests of the Company or an Affiliate.
SECTION 7.  General.
 
(a)  No Cash Consideration for Awards.  Awards may be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law.

7
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


(b)  Awards May Be Granted Separately or Together.  Awards may, in the discretion of the Committee, be granted either alone or in addition to, in tandem with or in substitution for any other Award or any award granted under any other Plan of the Company or any Affiliate. Awards granted in addition to or in tandem with other Awards or in addition to or in tandem with awards granted under another Plan of the Company or an Affiliate, may be granted either at the same time as or at a different time from the grant of such other Awards or awards.
(c)  Forms of Payment Under Awards.  Subject to the terms of the Plan and of any applicable Award Agreement, payments or transfers to be made by the Company or an Affiliate upon the grant, exercise, or payment of an Award may be made in such form or forms as the Committee shall determine, including, without limitation, cash, Shares, other securities, other Awards, or other property, or any combination thereof, and may be made in a single payment or transfer, in installments, or on a deferred basis, in each case in accordance with rules and procedures established by the Committee. Such rules and procedures may include, without limitation, provisions for the payment or crediting of reasonable interest on installment or deferred payments or the grant or crediting of Dividend Equivalents in respect of installment or deferred payments.
(d)  Limits on Transfer of Awards.  Awards cannot be transferred, except the Committee is hereby authorized to permit the transfer of Awards under the following terms and conditions and with such additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee shall determine:
(i) No Award or right under any Award may be sold, encumbered, pledged, alienated, attached, assigned or transferred in any manner and any attempt to do any of the foregoing shall be void and unenforceable against the Company.
(ii) Notwithstanding the provisions of Section 7(d)(i) above:
(A) An Option may be transferred:
(1) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
(2) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant’s estate; or
(3) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant’s life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Options shall revert to and remain solely with the Participant. Notwithstanding a qualified assignment, for the purpose of determining compensation arising by reason of the Option, the Participant, and not the trust to which rights under such an Option may be assigned, shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
(B) A Participant may assign or transfer rights under an Award of Restricted Stock or Restricted Stock Units:
(1) to a beneficiary designated by the Participant in writing on a form approved by the Committee;
(2) by will or the applicable laws of descent and distribution to the personal representative, executor or administrator of the Participant’s estate; or
(3) to a revocable grantor trust established by the Participant for the sole benefit of the Participant during the Participant’s life, and under the terms of which the Participant is and remains the sole trustee until death or physical or mental incapacity. Such assignment shall be effected by a written instrument in form and content satisfactory to the Committee, and the Participant shall deliver to the Committee a true copy of the agreement or other document evidencing such trust. If in the judgment of the Committee the trust to which a Participant may attempt to assign rights under such an Award does not meet the criteria of a trust to which an assignment is permitted by the terms hereof, or if after assignment, because of amendment, by force of law or any other reason such trust no longer meets such criteria, such attempted assignment shall be void and may be disregarded by the Committee and the Company and all rights to any such Awards shall revert to and remain solely with the Participant. Notwithstanding a qualified assignment, for the purpose of

8
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


determining compensation arising by reason of the Award, the Participant, and not the trust to which rights under such an Award may be assigned, shall continue to be considered an employee or consultant, as the case may be, of the Company or an Affiliate, but such trust and the Participant shall be bound by all of the terms and conditions of the Award Agreement and this Plan. Shares issued in the name of and delivered to such trust shall be conclusively considered issuance and delivery to the Participant.
(iii) The Committee, the Company and its officers, agents and employees may rely upon any beneficiary designation, assignment or other instrument of transfer, copies of trust agreements and any other documents delivered to them by or on behalf of the Participant which they believe genuine and any action taken by them in reliance thereon shall be conclusive and binding upon the Participant, any trustee, the personal representatives of the Participant’s estate and all persons asserting a claim based on an Award. The delivery by a Participant of a beneficiary designation, or an assignment of rights under an Award as permitted hereunder, shall constitute the Participant’s irrevocable undertaking to hold the Committee, the Company and its officers, agents and employees harmless against claims, including any cost or expense incurred in defending against claims, of any person (including the Participant) which may be asserted or alleged to be based on an Award subject to a beneficiary designation or an assignment. In addition, the Company may decline to deliver Shares to a beneficiary, heir or trustee until it receives indemnity against claims of third parties satisfactory to the Company.
(e)  Share Certificates.  All certificates for, or other indicia of, Shares or other securities delivered under the Plan pursuant to any Award or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which such Shares or other securities are then listed and any applicable Federal or state securities laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(f)  Change in Control .
Notwithstanding any of the provisions of this Plan or instruments evidencing Awards granted hereunder, upon a Change in Control of the Company the vesting of all rights of Participants under outstanding Awards shall be accelerated and all restrictions thereon shall terminate in order that Participants may fully realize the benefits thereunder. Such acceleration shall include, without limitation, the immediate exercisability in full of all Options and the termination of restrictions on Restricted Stock and Restricted Stock Units. Further, in addition to the Committee’s authority set forth in Section 4(c), the Committee, as constituted before such Change in Control, is authorized, and has sole discretion, as to any Award, either at the time such Award is made hereunder or any time thereafter, to take any one or more of the following actions: (A) provide for the purchase of any such Award, upon the Participant’s request, for an amount of cash equal to the amount that could have been attained upon the exercise of such Award or realization of the Participant’s rights had such Award been currently exercisable or payable; (B) make such adjustment to any such Award then outstanding as the Committee deems appropriate to reflect such Change in Control; and (C) cause any such Award then outstanding to be assumed, or new rights substituted therefore, by the acquiring or surviving corporation after such Change in Control. Notwithstanding the foregoing and the terms of any Award Agreement (i) such acceleration of vesting and lapse of any Restricted Period shall not accelerate the time of payment of any Award, other than an Option, constituting deferred compensation not exempt from Section 409A of the Internal Revenue Code; and (ii) at the time of any Change in Control, shares subject to any Award which have not then become fully vested (“legacy awards”) shall thereupon become fully vested as provided above only if the Committee fails to substitute successor awards as provided in the foregoing clauses (A), (B) or (C) which are equal to the then-current value of fully vested legacy awards and the shares of the acquiring or surviving corporation are marketable securities tradable on any national securities exchange, provided that for legacy awards that do not become fully vested, the vesting schedule applicable to the legacy awards shall continue, as if the Change in Control had not occurred, as to such successor awards; provided, further, that such successor awards shall immediately vest at the time which the Committee determines, within 24 months following the date of Change in Control, that any such person shall have been terminated involuntarily by the Company for a reason other than gross negligence or deliberate misconduct which demonstrably harms the Company, or that any such person shall have resigned for Good Reason as such term has been previously defined, and rules for its application established, by the Committee.
(g)  Cash Settlement.  Notwithstanding any provision of this Plan or of any Award Agreement to the contrary, any Award outstanding hereunder may at any time be cancelled in the Committee’s sole discretion upon payment of the value of such Award to the holder thereof in cash or in another Award hereunder, such value to be determined by the Committee in its sole discretion.
(h)  Option Repricing.  Except as provided in Section 4(c) and in connection with the granting of a Substitute Award, no outstanding Option may be cancelled and replaced with an Option having a lower exercise price.

9
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


(i) Clawback Upon Restatement. In the event the Company has a restatement of its financial statements, other than as a result of changes to accounting rules and regulations, the Committee shall have the discretion at any time (notwithstanding any expiration of this Plan or of the rights or obligations otherwise arising hereunder) to require any Participant to return all cash or Shares which he may have acquired (or which he is deemed to have acquired) as a result of any Performance Award payment or as a result of the sale of Shares which may have vested under any Award, and to waive, forfeit and surrender to the Company the right to any unrealized Performance Award payments and to all unsold vested Shares and all unvested Shares made under any Award (whether or not such Participant may then be an employee, consultant or director of the Company or any of its affiliates, and whether or not such Participant’s or any other person’s misconduct may have caused such restatement), provided that such payment or right to payment or Award was earned, paid or granted during the three-year period preceding the date of restatement of such restated financial results and provided, further, that any such recovery shall be offset by recovery otherwise obtained hereunder. The Committee retains discretion regarding the application of these provisions.
 
  SECTION 8.  Amendment and Termination.

Except to the extent prohibited by applicable law and unless otherwise expressly provided in an Award Agreement or in the Plan:
(a)  Amendments to the Plan.  The Board may amend the Plan and the Board or the Committee may amend any outstanding Award; provided, however, that: (I) no Plan amendment shall be effective until approved by stockholders of the Company (i) if any stockholder approval thereof is required in order for the Plan to continue to satisfy the conditions of the applicable rules and regulations that the Committee has determined to be necessary to comply with, and (ii) if such Plan amendment would materially (A) increase the number of Shares available under the Plan or issuable to a Participant (other than a change in the number of Shares made in connection with an event described in Section 4(c) hereof), (B) change the types of Awards that may be granted under the Plan, (C) expand the class of persons eligible to receive Awards under the Plan, or (D) directly or indirectly (including through an exchange of underwater options or SARs for cash or other Awards) reduce the price at which an Option or Stock Appreciation Right is exercisable (other than in connection with an event described in Section 4(c) hereof or the granting of a Substitute Award), and (II) without the consent of affected Participants no amendment of the Plan or (other than as permitted or required herein) of any Award may impair the rights of Participants under outstanding Awards.
(b)  Waivers.  The Committee may waive any conditions to the Company’s obligations or rights of the Company under any Award theretofore granted, prospectively or retroactively, without the consent of any Participant.
(c)  Adjustments of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events.  The Committee shall be authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(c) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits to be made available under the Plan; provided, however, no such adjustment shall be made to an Award granted under Section 6(e)(iii) if the Committee intends such Award to constitute “qualified performance-based compensation” unless such adjustment is permitted under Section 162(m) of the Code.
SECTION 9.  Correction of Defects, Omissions, and Inconsistencies.

The Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to effectuate the Plan.
SECTION 10.  General Provisions.
 
(a)  No Rights to Awards.  No Participant or other person shall have any claim to be granted any Award under the Plan, and there is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards under the Plan. The terms and conditions of Awards of the same type and the determination of the Committee to grant a waiver or modification of any Award and the terms and conditions thereof need not be the same with respect to each Participant.
(b)  Withholding.  The Company or any Affiliate shall be authorized to withhold from any Award granted or any payment due or transfer made under any Award or under the Plan the amount (in cash, Shares, other securities, other Awards or other property) of withholding taxes due in respect of an Award, its exercise or any payment or transfer under such Award or under

10
Exhibit 10a
MASCO CORPORATION
2014 LONG TERM STOCK INCENTIVE PLAN
(Amended and Restated May 9, 2016)


the Plan and to take such other action as may be necessary in the opinion of the Company or Affiliate to satisfy all obligations for the payment of such taxes.
(c)  No Limit on Other Compensation Arrangements.  Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other or additional compensation arrangements, including the grant of options and other stock-based awards, and such arrangements may be either generally applicable or applicable only in specific cases.
 
(d)  No Right to Employment or Service.  The grant of an Award shall not be construed as giving a Participant the right to be retained in the employ or service of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment or service, free from any liability, or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement or in any other agreement binding the parties.
(e)  Governing Law.  The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Michigan and applicable Federal law.
(f)  Severability.  If any provision of the Plan or any Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or as to any person or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
(g)  No Trust or Fund Created.  Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any Affiliate pursuant to an Award, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.
(h)  No Fractional Shares.  No fractional Shares shall be issued or delivered pursuant to the Plan or any Award, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares, or whether such fractional Shares or any rights thereto shall be cancelled, terminated or otherwise eliminated.
(i)  Headings.  Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.
SECTION  11.  Term.

The Plan shall be effective as of the date of its approval by the Company’s stockholders and no Awards shall be made under the Plan after May 6, 2024.



11
Exhibit 10b
MASCO CORPORATION
NON-EMPLOYEE DIRECTORS EQUITY PROGRAM
UNDER THE 2014 LONG TERM STOCK INCENTIVE PLAN
May 9, 2016


For purposes of the Masco Corporation (the “ Company ”) Non-Employee Directors Equity Program (the “ Program ”), an “Eligible Director” is any director of the Company who is not an employee of the Company and who receives a fee for services as a director. Terms not defined herein have the meaning given to them in the Company’s 2014 Long Term Stock Incentive Plan, as amended from time to time (the “ Plan ”).
Section 1. Restricted Stock Award
(a) Eligibility for Award . On the date of each of the Company’s annual stockholders’ meetings (the “ Annual Meeting ”), each person who is or becomes an Eligible Director at such meeting and whose service on the Board is expected to continue following such meeting shall be granted an Award of Restricted Stock.

(b) (i)  Amount of Award .  The amount of the Award of Restricted Stock shall be determined by the Board of Directors from time to time, and shall be rounded to the nearest ten Shares and disregarding any retainer provided as compensation for service on a Board committee, or as Chair of a Board committee or the Board (the “ Equity Retainer ”).   If an Eligible Director begins serving as a director other than as of the date of an Annual Meeting, Awards of Restricted Stock granted hereunder shall be granted on the date of the meeting of the Corporate Governance and Nominating Committee that takes place on or after the date such Eligible Director is first elected or appointed to the Board, and such Awards shall be pro-rated to reflect the partial service provided by such Eligible Director in the period between Annual Meetings.

(ii) Adjustment to Amount or Terms of Award . The Board shall have sole discretion to adjust the amount of the Equity Retainer to be paid in the form of Shares and the terms of any such Award of Shares. Except as the Board may otherwise determine, any increase or decrease in an Eligible Director’s Annual Retainer during a period with respect to which such Eligible Director has already been granted an Award of Restricted Stock shall be implemented by increasing or decreasing the cash portion of such Eligible Director’s annual retainer.
(iii) Limitation on Equity Retainer . Notwithstanding the foregoing or anything to the contrary herein, the maximum Equity Retainer granted to an Eligible Director during the annual director compensation period (as defined in the Plan) shall not exceed the limit set forth in Section 4(b)(ii) of the Plan.
(c) Vesting . Subject to clauses (e) and Section 2 below, each Award of Restricted Stock granted hereunder shall vest with respect to one-third of the Shares underlying such Award (disregarding fractional Shares) on May 15 of each of the three consecutive calendar years following the year in which such Award is granted; provided, however, that if an Award is granted between the Annual Meeting and December 31 pursuant to Section 1(b)(i), the first vesting shall occur on May 15 of the second calendar year following the year in which such Award is granted.

(d) Effective Grant Date . The price of the Shares used in determining the number of Shares subject to an Award of Restricted Stock granted hereunder shall be the fair market value of the Shares as determined by the Board on the effective grant date of such Award; provided that if an Award granted in accordance with Section 1(a) of this Program falls within seven days prior to the release of the Company’s quarterly or annual financial results, then the effective grant date for such Award will be the second market trading day following the date on which such financial results are released.

(e) Voting and Dividends . Each Eligible Director shall be entitled to vote and receive dividends on the Shares subject to the Award of Restricted Stock, but will not be able to obtain a stock certificate or sell, encumber or otherwise transfer such Shares of Restricted Stock except in accordance with the terms of the Plan.
Section 2. Termination of Services as a Director
(a) Retirement . If an Eligible Director’s term of service as a director is terminated by reason of retirement on or after normal retirement age for a director as set forth in the Company’s Corporate Governance Guidelines, the restrictions contained in any Award of Restricted Stock held by such Eligible Director shall continue to lapse in the same manner as if his or her term of service had not terminated.

(b) Death or Disability . If an Eligible Director’s term of service as a director is terminated by reason of death or permanent and total disability or, if following termination or retirement as a director, a former director dies while continuing to

1
Exhibit 10b
MASCO CORPORATION
NON-EMPLOYEE DIRECTORS EQUITY PROGRAM
UNDER THE 2014 LONG TERM STOCK INCENTIVE PLAN
May 9, 2016


have rights under an Award of Restricted Stock, upon such death or termination by reason of permanent and total disability, the restrictions contained in any such Award of Restricted Stock shall lapse.

(c) Forfeiture .

(i) If an Eligible Director’s term of service as a director terminates for any reason other than as a result of death, permanent and total disability or retirement on or after normal retirement age as set forth in the Company’s Corporate Governance Guidelines, all Shares of Restricted Stock held by such Eligible Director that remain subject to restrictions shall be forfeited and transferred back to the Company on the date of such termination; provided, however , that any Shares of Restricted Stock that remain subject to restrictions but that would have vested on May 15 following such Eligible Director’s termination shall vest pro rata on the date of termination based upon that portion of the year between annual vesting dates in which the termination occurred during which such Eligible Director served as a director.
(ii) Notwithstanding anything to the contrary herein, if, following termination of service as a director for any reason other than death (including due to retirement), an Eligible Director continues to hold Shares of Restricted Stock, the Board, in its sole judgment, may cause all Shares of Restricted Stock that remain subject to restrictions to be forfeited and transferred back to the Company concurrently with, or at any time following, such termination if the Board determines that such former director has engaged in any activity detrimental to the interests of the Company, a subsidiary or an affiliated company.
(d) No Acceleration . The provisions of Section 6(d)(v) of the Plan (“Acceleration”) shall not apply to Awards of Restricted Stock granted to Eligible Directors.
Section 3. Non-Compete Provision
Each Award of Restricted Stock granted hereunder shall contain a provision whereby the Award holder shall agree, in consideration for the Award and regardless of whether restrictions on Shares of Restricted Stock have lapsed, as follows:
(a)    While the holder is a director of the Company and for a period of one year following the later of the last date of vesting of any Shares or the termination of such holder’s term as a director of the Company, other than a termination following a Change in Control, the Award holder shall agree not to engage in, and not to become associated in a “Prohibited Capacity” (as hereinafter defined) with any other entity engaged in, any ‘‘Business Activities” (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. “ Business Activities ” shall mean the design, development, manufacture, sale, marketing or servicing of any product, or providing of services competitive with the products or services, of the Company or any subsidiary at any time while the Award is outstanding, to the extent that such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. “ Prohibited Capacity ” shall mean being associated with an entity as a director, employee, consultant, investor or in another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of the holder’s duties or responsibilities with such other entity, or (2) an investment by the Award holder in such other entity represents more than 1% of such other entity’s capital stock, partnership or other ownership interests.
(b)    Should the Award holder breach any of the restrictions contained in the preceding paragraph, by accepting an Award, the Award holder shall agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company’s right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the Award, net of all federal, state and other taxes payable on the amount of such income, but only to the extent that such income is realized from restrictions lapsing on Shares or exercises occurring, as the case may be, on or after the termination of the Award holder’s term as a director of the Company or within the two-year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to the Award holder by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by the Award holder hereunder.

2
Exhibit 10b
MASCO CORPORATION
NON-EMPLOYEE DIRECTORS EQUITY PROGRAM
UNDER THE 2014 LONG TERM STOCK INCENTIVE PLAN
May 9, 2016


Section 4. Termination, Modification or Suspension
The Board may terminate, modify or suspend the Program at any time as it may deem advisable.


3
Exhibit 12
 
MASCO CORPORATION
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends


 
 
(Dollars in Millions)
 
 
Six Months Ended
June 30,
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
 
2013
 
2012
 
2011
Earnings Before Income Taxes, Preferred Stock Dividends and Fixed Charges:
 
 

 
 

 
 

 
 

 
 

 
 

Income (loss) from continuing operations before income taxes
 
$
430

 
$
689

 
$
507

 
$
386

 
$
155

 
$
(322
)
Deduct equity in undistributed (earnings) loss of fifty-percent- or-less-owned companies
 
(1
)
 
(2
)
 
2

 
           (16)

 
—

 
             (9)

Add interest on indebtedness, net
 
100

 
222

 
221

 
230

 
249

 
250

Add amortization of debt expense
 
3

 
5

 
5

 
6

 
7

 
7

Add estimated interest factor for rentals
 
10

 
19

 
33

 
31

 
31

 
33

Earnings (loss) before income taxes, noncontrolling interest, fixed charges and preferred stock dividends
 
$
542

 
$
933

 
$
768

 
$
637

 
$
442

 
$
(41
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Charges:
 
 

 
 

 
 

 
 

 
 

 
 

Interest on indebtedness
 
$
101

 
$
223

 
$
221

 
$
229

 
$
248

 
$
249

Amortization of debt expense
 
3

 
5

 
5

 
6

 
7

 
7

Estimated interest factor for rentals
 
10

 
19

 
33

 
31

 
31

 
33

Total fixed charges
 
$
114

 
$
247

 
$
259

 
$
266

 
$
286

 
$
289

 
 
 
 
 
 
 
 
 
 
 
 
 
Preferred stock dividends (A)
 
—

 
—

 
—

 
—

 
—

 
—

Combined fixed charges and preferred stock dividends
 
$
114

 
$
247

 
$
259

 
$
266

 
$
286

 
$
289

Ratio of earnings to fixed charges
 
4.8

 
3.8

 
3.0

 
2.4

 
1.5

 
(0.1
)
Ratio of earnings to combined fixed charges and preferred stock dividends
 
4.8

 
3.8

 
3.0

 
2.4

 
1.5

 
(0.1
)
Ratio of earnings to combined fixed charges and preferred stock dividends excluding certain items (B)
 
4.8

 
3.8

 
2.9

 
2.4

 
1.7

 
1.4

 
(A)                    Represents amount of income before provision for income taxes required to meet the preferred stock dividend requirements of the Company.
(B)                    Excludes the 2014 litigation settlement income of $9 million; the 2012 non-cash, pre-tax impairment charge for other intangible assets of $42 million and litigation expense of $1 million; and the 2011 non-cash, pre-tax impairment charge for goodwill and other intangible assets of $450 million and litigation expense of $9 million.


1

Exhibit 31a
MASCO CORPORATION
Certification Required by Rule 13a-14(a) or 15d-14(a)
of the Securities Exchange Act of 1934

I, Keith Allman, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Masco Corporation ("the registrant");

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
July 26, 2016
 
By:
/s/ Keith Allman
 
 
 
 
Keith Allman
 
 
 
 
President and Chief Executive Officer



1
 
Exhibit 31b
MASCO CORPORATION
Certification Required by Rule 13a-14(a) or 15d-14(a)
of the Securities Exchange Act of 1934


I, John G. Sznewajs, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Masco Corporation ("the registrant");

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d.
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:
July 26, 2016
 
By:
/s/ John G. Sznewajs
 
 
 
 
John G. Sznewajs
 
 
 
 
Vice President and Chief Financial Officer



1
 
Exhibit 32
MASCO CORPORATION
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

The certification set forth below is being submitted in connection with the Masco Corporation Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
 
Keith Allman, the President and Chief Executive Officer, and John G. Sznewajs, the Vice President and Chief Financial Officer, of Masco Corporation, each certifies that, to the best of his knowledge:
 
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.
The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of Masco Corporation.

Date:
 
July 26, 2016
 
/s/ Keith Allman
 
 
 
 
Keith Allman
 
 
 
 
President and Chief Executive Officer
 
 
 
 
 
Date:
 
July 26, 2016
 
/s/ John G. Sznewajs
 
 
 
 
John G. Sznewajs
 
 
 
 
Vice President and Chief Financial Officer

 


1