Masco Corporation
02/10/2026 | Press release | Distributed by Public on 02/10/2026 06:05
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with, and is qualified in its entirety by, our consolidated financial statements (and notes related thereto) and other more detailed financial information appearing elsewhere in this Report. Further, you should read the following discussion and analysis of our financial condition and results of operations together with the "Risk Factors" included elsewhere in this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See also "Cautionary Statement Concerning Forward-Looking Statements" at the beginning of this Report. Amounts may not add due to rounding.
Overview
We design, manufacture and distribute branded home improvement and building products. These products are sold primarily for repair and remodeling activity and, to a lesser extent, new home construction. We sell our products through home center retailers, online retailers, wholesalers and distributors, mass merchandisers, hardware stores, direct to the consumer, professional contractors and homebuilders.
We continue to pursue our strategy of driving the full potential of our core businesses, leveraging opportunities across our enterprise, and actively managing our portfolio. We remain confident in the fundamentals of our business and long-term strategy. We execute our strategy by investing in our brands, developing innovative products, making capital investments, and focusing on continuous productivity improvement and operational excellence, among other initiatives. We believe that our strong financial position and cash flow generation, together with our investments in our industry-leading branded building products, our continued focus on innovation and customer service and disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders.
We continue to leverage the Masco Operating System, our methodology to drive growth and productivity, and continuous improvement initiatives across our enterprise to identify additional opportunities to improve our business operations. From time to time, we take actions to drive efficiency in the business focused on the strategic rationalization of our businesses, including business consolidations, plant closures, headcount reductions and other cost savings initiatives. In the fourth quarter of 2025, we began implementing various restructuring actions to further streamline our business, reduce headcount, and optimize operations. In connection with these actions, we incurred charges of approximately $18 million in the fourth quarter of 2025, and we expect to incur approximately $50 million in additional charges in 2026. Additionally, subsequent to December 31, 2025, we announced that we will implement an internal reorganization resulting in the integration of our Liberty Hardware ("Liberty") business, a distributor of cabinet and other hardware and shower doors, into our Delta Faucet business. As a result of the integration, beginning with our Quarterly Report on Form 10-Q for the period ending March 31, 2026, Liberty will be included in our Plumbing Products segment rather than our Decorative Architectural Products segment.
Recent Trends
Due to changing market conditions, we are experiencing, and may continue to experience, lower market demand for our products. We have been experiencing, and may continue to experience, elevated commodity and other input costs, as well as employee-related cost inflation. Additionally, we have been experiencing, and may continue to experience, significantly higher costs to us, principally in our Plumbing Products segment, due to the recently enacted tariffs, particularly those related to China. We seek to mitigate the impact of higher tariffs and other unfavorable impact to our costs over time with pricing, cost savings initiatives, sourcing changes, and other activities. Consumer demand for our products, however, could further diminish if consumer confidence erodes and the price of our products and other consumer goods increases.
Consolidated Results of Operations
We report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However, we believe that certain non-GAAP performance measures and ratios, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. These include the disclosure of net sales, operating profit and operating profit margins adjusted for certain items. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results under GAAP.
We discuss our consolidated results as well as our Business Segment results of operations for the year ended December 31, 2025 versus December 31, 2024. A detailed discussion of our consolidated and Business Segment results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023 can be found under "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 11, 2025.
NET SALES
Below is a summary of our net sales, in millions, for the years ended December 31, 2025 and 2024:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Net sales, as reported | $ | 7,562 | $ | 7,828 | (3) | % | |||||||||||
| Divestitures | - | (178) | |||||||||||||||
| Net sales, excluding divestitures | 7,562 | 7,650 | (1) | % | |||||||||||||
| Currency translation | (45) | - | |||||||||||||||
| Net sales, excluding divestitures and the effect of currency translation | $ | 7,517 | $ | 7,650 | (2) | % | |||||||||||
Our net sales for 2025 were $7,562 million, which decreased three percent compared to 2024. Excluding divestitures and the effect of currency translation, net sales decreased two percent. Our net sales for 2025 decreased primarily due to lower sales volume across the entire company which decreased sales by four percent, partially offset by higher net selling prices of plumbing products which increased sales by two percent.
RESULTS OF OPERATIONS
Below is a summary of our results of operations, dollars in millions, for the years ended December 31, 2025 and 2024:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 |
Change
|
|||||||||||||||
|
Net sales
|
$ | 7,562 | $ | 7,828 | (3) | % | |||||||||||
|
Cost of sales
|
(4,883) | (4,997) | (2) | % | |||||||||||||
| Gross profit | $ | 2,679 | $ | 2,831 | (5) | % | |||||||||||
| Gross margin | 35.4 | % | 36.2 | % | (80) bps | ||||||||||||
|
Selling, general and administrative expenses
|
$ | (1,426) | $ | (1,468) | (3) | % | |||||||||||
|
Selling, general and administrative expenses of a percent of net sales
|
(18.9) | % | (18.8) | % | (10) bps | ||||||||||||
|
Impairment charge for other intangible assets
|
$ | (5) | $ | - | 100 | % | |||||||||||
|
Operating profit, as reported
|
$ | 1,248 | $ | 1,363 | (8) | % | |||||||||||
|
Rationalization charges
|
19 | 9 | 111 | % | |||||||||||||
|
Impairment charge for other intangible assets
|
5 | - | 100 | % | |||||||||||||
|
Operating profit, excluding rationalization charges and impairment charge
|
$ | 1,272 | $ | 1,372 | (7) | % | |||||||||||
| Operating profit margin, as reported | 16.5 | % | 17.4 | % | (90) bps | ||||||||||||
|
Operating profit margin, excluding rationalization charges and impairment charge
|
16.8 | % | 17.5 | % | (70) bps | ||||||||||||
Our gross profit for 2025 was $2,679 million, which decreased five percent, and was negatively impacted by higher commodity and tariff costs, four percent due to lower sales volume, two percent due to the divestiture of our Kichler Lighting ("Kichler") business, as well as an increase in other expenses (including inventory-related reserves). These amounts were partially offset by five percent due to higher net selling prices of plumbing products, as well as cost savings initiatives.
Our selling, general and administrative expenses for 2025 were $1,426 million, which decreased three percent, and were positively impacted by three percent due to the divestiture of Kichler and one percent due to lower employee-related costs, partially offset by one percent due to unfavorable foreign currency translation.
Our operating profit for 2025 was $1,248 million, which decreased eight percent, and was negatively impacted by decreased gross profit and an impairment charge for other intangible assets, partially offset by lower selling, general and administrative expenses.
OTHER INCOME (EXPENSE), NET
Below is a summary of our other income (expense), net, in millions, for the years ended December 31, 2025 and 2024:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Favorable / (Unfavorable) | |||||||||||||||
| Interest expense | $ | (101) | $ | (99) | (2) | % | |||||||||||
| Other, net | (12) | (103) | 88 | % | |||||||||||||
|
Other income (expense), net
|
$ | (114) | $ | (202) | 44 | % | |||||||||||
Other, net included a loss on the sale of Kichler of $88 million, inclusive of costs to sell, for the year ended December 31, 2024.
INCOME TAXES
Below is a summary of our income tax expense, in millions, and our effective tax rate for the years ended December 31, 2025 and 2024:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Favorable / (Unfavorable) | |||||||||||||||
| Income tax expense | $ | (277) | $ | (287) | 3 | % | |||||||||||
| Effective tax rate | (24.4) | % | (24.7) | % | 30 bps | ||||||||||||
Refer to Note P to the consolidated financial statements for additional information.
NET INCOME AND INCOME PER COMMON SHARE - ATTRIBUTABLE TO MASCO CORPORATION
Below is a summary of our net income, in millions, and diluted income per common share for the years ended December 31, 2025 and 2024:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | Favorable / (Unfavorable) | |||||||||||||||
| Net income | $ | 810 | $ | 822 | (1) | % | |||||||||||
| Diluted income per common share | $ | 3.86 | $ | 3.76 | 3 | % | |||||||||||
Business Segment Results
The following tables set forth our net sales and operating profit information by Business Segment, dollars in millions.
| Year Ended December 31, |
Percent Change
|
||||||||||||||||
| 2025 | 2024 |
2025 vs. 2024
|
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| Net Sales: | |||||||||||||||||
| Plumbing Products | $ | 4,992 | $ | 4,853 | 3 | % | |||||||||||
| Decorative Architectural Products | 2,570 | 2,975 | (14) | % | |||||||||||||
| Total | $ | 7,562 | $ | 7,828 | (3) | % | |||||||||||
| Year Ended December 31, |
Percent Change
|
||||||||||||||||
| 2025 | 2024 |
2025 vs. 2024
|
|||||||||||||||
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Operating Profit:
|
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| Plumbing Products | $ | 895 | $ | 911 | (2) | % | |||||||||||
| Decorative Architectural Products | 443 | 549 | (19) | % | |||||||||||||
| Total | $ | 1,338 | $ | 1,460 | (8) | % | |||||||||||
| General corporate expense, net | (89) | (97) | (8) | % | |||||||||||||
| Total operating profit | $ | 1,248 | $ | 1,363 | (8) | % | |||||||||||
BUSINESS SEGMENT RESULTS DISCUSSION
Changes in operating profit in the following Business Segment Results discussion exclude general corporate expense, net, and compares each respective period to the same period of the immediately preceding year.
Plumbing Products
Sales
Net sales in the Plumbing Products segment increased three percent in 2025. In local currencies (including sales in currencies outside their respective functional currencies), net sales increased two percent in 2025. Net sales increased three percent due to higher net selling prices, partially offset by one percent due to lower sales volume.
Operating Results
Operating profit in the Plumbing Products segment in 2025 was negatively impacted by higher commodity and tariff costs, an increase in other expenses (including inventory-related reserves), lower sales volume, unfavorable sales mix, an increase in strategic growth investments, and higher marketing costs, partially offset by higher net selling prices, cost savings initiatives, and the gain on the sale of a building.
Decorative Architectural Products
Sales
Net sales in the Decorative Architectural Products segment decreased 14 percent in 2025, primarily due to lower sales volume which decreased net sales by eight percent and the divestiture of Kichler which decreased net sales by six percent.
Operating Results
Operating profit in the Decorative Architectural Products segment in 2025 was negatively impacted by lower sales volume and higher commodity and tariff costs, partially offset by cost savings initiatives and lower marketing costs.
Liquidity and Capital Resources
Overview of Capital Structure
Historically, we have largely funded our growth through cash provided by our operations, the issuance of notes in the financial markets, bank borrowings and, to a lesser extent, the issuance of our common stock, including issuances for certain mergers and acquisitions. Maintaining high levels of liquidity and focusing on cash generation are among our financial strategies. Our capital allocation strategy includes reinvesting in our business, maintaining an investment grade credit rating, maintaining a relevant dividend and deploying excess free cash flow to share repurchases or acquisitions.
We had cash and cash investments of approximately $647 million and $634 million at December 31, 2025 and 2024, respectively. Our cash and cash investments consist of overnight interest bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations. While we attempt to diversify these investments in a prudent manner to minimize risk, it is possible that future changes in the financial markets could affect the security or availability of these investments. Of the cash and cash investments we held at December 31, 2025 and 2024, $306 million and $321 million, respectively, was held in our foreign subsidiaries. If these funds were needed for our operations in the U.S., their repatriation into the U.S. would not result in significant additional U.S. income tax or foreign withholding tax, as we have recorded such taxes on substantially all undistributed foreign earnings, except for those that are legally restricted.
Our total debt as a percent of total capitalization was 97 percent and 102 percent at December 31, 2025 and 2024, respectively. Refer to Note K to the consolidated financial statements for additional information.
We believe that our present cash balance and cash flows from operations, and borrowing availability under our revolving credit agreement, are sufficient to fund our near-term working capital and other investment needs. We believe that our longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings and future financial market activities. However, due to the changing market conditions and its impact on our customers and suppliers, we are unable to fully estimate the extent of the impact that the changing market conditions may have on our future financial condition.
Capital Expenditures
We continue to invest in our manufacturing and distribution operations to increase our productivity, improve customer service and support product innovation. Capital expenditures for 2025 were $156 million, compared with $168 million for 2024. The decrease in capital expenditures in 2025 was primarily due to a capacity expansion investment in our Decorative Architectural Products segment in 2024. For 2026, capital expenditures, excluding any potential future acquisitions, are expected to be approximately $190 million. Depreciation and amortization expense for 2025 totaled $148 million, compared with $150 million for 2024. For 2026, depreciation and amortization expense, excluding any potential future acquisitions, is expected to be approximately $160 million. Amortization expense totaled $23 million in 2025, compared with $32 million in 2024.
Credit Agreement
On April 26, 2022, we entered into a revolving credit agreement (the "2022 Credit Agreement") with an aggregate commitment of $1.0 billion and a maturity date of April 26, 2027.
Under the 2022 Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or new lenders. See Note K to the consolidated financial statements for additional information.
The 2022 Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) an interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0. We were in compliance with all covenants and no borrowings were outstanding under our 2022 Credit Agreement as of December 31, 2025.
Corporate Development Strategy
We expect to maintain a balanced growth strategy pursuing organic growth by maximizing the full potential of our existing businesses and, as appropriate, complementing our existing business with strategic acquisitions.
In addition, we actively manage our portfolio of companies by divesting those businesses that do not align with our long-term growth strategy. We will continue to review all of our businesses to determine which businesses, if any, may not align with our long-term growth strategy.
Divestitures
In the third quarter of 2024, we sold our Kichler business, a provider of decorative residential and light commercial lighting products, ceiling fans, and LED lighting systems, for consideration of $125 million, net of cash disposed, and subject to final closing adjustments. Post-closing adjustments were finalized in the fourth quarter of 2024.
Share Repurchases
Effective October 20, 2022, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock, exclusive of excise tax, in open-market transactions or otherwise. We repurchased and retired 8.5 million shares of our common stock in 2025 for approximately $576 million, inclusive of excise tax of $5 million. This included 0.3 million shares to offset the dilutive impact of restricted stock units granted in 2025. At December 31, 2025, we had $325 million remaining under the 2022 authorization. Effective February 10, 2026, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock, exclusive of excise tax, in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2022. Consistent with past practice and as part of our long-term capital allocation strategy, outside of any potential acquisitions, we anticipate using approximately $600 million of cash for share repurchases (including shares which will be purchased to offset any dilution from restricted stock units granted as part of our compensation programs) in 2026. Refer to Note N to the consolidated financial statements for additional information.
During 2024, we repurchased and retired 10.0 million shares of our common stock (including 0.5 million shares to offset the dilutive impact of restricted stock units granted during the year), for approximately $757 million, inclusive of excise tax of $6 million.
Dividend to Holders of our Common Shares
In 2025, we paid a quarterly dividend of $0.31 per common share for an annual dividend of $1.24 per share. Total cash dividends paid was $261 million in 2025.
As part of our capital allocation strategy, the Board of Directors declared a quarterly dividend of $0.32 per share in the first quarter of 2026 with the intention to increase the annual dividend three percent to $1.28 per share.
Other Liquidity and Capital Resource Activities
As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including extending payment terms. We also facilitate a voluntary supply chain finance program (the "program") to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. The amounts confirmed as valid under the program and included in accounts payable were $26 million and $36 million at December 31, 2025 and 2024, respectively. Of the amounts confirmed as valid under the program, the amounts owed to participating financial institutions were $17 million and $23 million at December 31, 2025 and 2024, respectively. All payments made under the program are recorded as a decrease in accounts payable and accrued liabilities, net, in our consolidated statements of cash flows. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions' willingness to commit funds to, and participate in, the program. We do not believe such risk would have a material impact on our working capital or cash flows, as substantially all of our payments are made outside of the program.
We utilize derivative and hedging instruments to manage our exposure to currency fluctuations, primarily related to the European euro, British pound sterling, Chinese renminbi, Mexican peso and the U.S. dollar. We review our hedging program, derivative positions and overall risk management on a regular basis. We currently do not have any derivative instruments for which we have designated hedge accounting.
Cash Flows
Significant sources and (uses) of cash for the years ended December 31, 2025 and 2024 are summarized as follows, in millions:
| 2025 | 2024 | ||||||||||
| Net cash from operating activities | $ | 1,022 | $ | 1,075 | |||||||
| Purchase of Company common stock | (571) | (751) | |||||||||
| Excise tax paid on the purchase of Company common stock | (6) | (3) | |||||||||
| Cash dividends paid | (261) | (254) | |||||||||
| Purchase of redeemable noncontrolling interest | - | (15) | |||||||||
| Dividends paid to noncontrolling interest | (45) | (37) | |||||||||
| Proceeds from the exercise of stock options | 6 | 79 | |||||||||
| Employee withholding taxes paid on stock-based compensation | (10) | (35) | |||||||||
| Payment of debt | (2) | (3) | |||||||||
| Capital expenditures | (156) | (168) | |||||||||
|
Acquisition of business, net of cash acquired
|
- | (4) | |||||||||
|
Proceeds from disposition of:
|
|||||||||||
| Business, net of cash disposed | - | 126 | |||||||||
| Property and equipment | 14 | 1 | |||||||||
| Effect of exchange rate changes on cash and cash investments | 25 | (9) | |||||||||
| Other, net | (3) | (5) | |||||||||
| Cash increase (decrease) | $ | 14 | $ | (1) | |||||||
Our working capital days were as follows:
| At December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Receivable days | 51 | 51 | |||||||||
| Inventory days | 83 | 72 | |||||||||
| Accounts payable days | 70 | 70 | |||||||||
| Working capital (receivables plus inventories, less accounts payable) as a percentage of net sales | 16.7 | % | 15.1 | % | |||||||
Operating Activities
Net cash provided by operations was $1,022 million, primarily driven by operating profit and the change in deferred taxes as a result of the cash tax benefit associated with immediate expensing of qualified fixed assets and research and development expenditures from the enactment of the One Big Beautiful Bill Act, partially offset by changes in working capital.
Financing Activities
Net cash used for financing activities was $888 million, primarily due to $571 million for the repurchase and retirement of our common stock, $261 million for the payment of cash dividends, and $45 million for dividends paid to noncontrolling interest.
Investing Activities
Net cash used for investing activities was $144 million, primarily driven by $156 million of capital expenditures.
Commitments and Contingencies
Litigation
Information regarding our legal proceedings is set forth in Note R to the consolidated financial statements, which is incorporated herein by reference.
Other Commitments
We enter into contracts, which include reasonable and customary indemnifications that are standard for the industries in which we operate. Such indemnifications include claims made against builders by homeowners for issues relating to our products and workmanship. In conjunction with divestitures and other transactions, we occasionally provide reasonable and customary indemnifications. We have not paid a material amount related to these indemnifications, and we evaluate the probability that amounts may be incurred and record an estimated liability when probable and reasonably estimable.
Contractual Obligations
The following table provides payment obligations related to current contracts at December 31, 2025, in millions:
| Payments Due by Period | |||||||||||||||||||||||||||||||||||
| 2026 | 2027-2028 | 2029-2030 | Beyond 2030 | Other | Total | ||||||||||||||||||||||||||||||
|
Debt (A)
|
$ | 2 | $ | 904 | $ | 539 | $ | 1,503 | $ | - | $ | 2,949 | |||||||||||||||||||||||
|
Interest (A)
|
98 | 178 | 135 | 521 | - | 932 | |||||||||||||||||||||||||||||
| Operating leases | 60 | 90 | 62 | 124 | - | 336 | |||||||||||||||||||||||||||||
| Currently payable income taxes | 17 | - | - | - | - | 17 | |||||||||||||||||||||||||||||
|
Purchase commitments (B)
|
369 | 125 | 79 | 85 | - | 658 | |||||||||||||||||||||||||||||
|
Uncertain tax positions, including interest and penalties (C)
|
- | - | - | - | 84 | 84 | |||||||||||||||||||||||||||||
| Total | $ | 545 | $ | 1,298 | $ | 815 | $ | 2,233 | $ | 84 | $ | 4,975 | |||||||||||||||||||||||
(A)We assume that all debt would be held to maturity. Amounts include finance lease obligations.
(B)Includes purchase commitments for vendor contracts and contracts for the purchase of renewable energy certificates and transferable tax credits. Excludes contracts that do not require volume commitments and open or pending purchase orders.
(C)Due to the high degree of uncertainty regarding the timing of future cash outflows associated with uncertain tax positions, we are unable to make a reasonable estimate for the year in which cash settlements may occur with applicable tax authorities.
Refer to Note M to the consolidated financial statements for defined-benefit pension plan obligations.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make certain estimates and assumptions that affect or could have affected the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We regularly review our estimates and assumptions, which are based upon historical experience, as well as current economic conditions and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of certain assets and liabilities and related disclosures, and future revenues and expenses, that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions.
Note A to the consolidated financial statements includes our accounting policies, estimates and methods used in the preparation of our consolidated financial statements.
We believe that the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
We recognize revenue as control of our products is transferred to our customers, which is generally at the time of shipment or upon delivery based on the contractual terms with our customers. We provide customer programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. These customer programs and incentives are considered variable consideration. We include in revenue variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. This determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to our volume-based incentives. This determination is updated each reporting period.
Goodwill and Other Intangible Assets
We record the excess of purchase price over the fair value of net tangible assets of acquired companies as goodwill or other identifiable intangible assets. In the fourth quarter of each year, or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, we complete the impairment testing of goodwill utilizing a discounted cash flow method. We selected the discounted cash flow methodology because we believe that it is comparable to what would be used by market participants. We have defined our reporting units and completed the impairment testing of goodwill at the operating segment level.
Determining market values using a discounted cash flow method requires us to make significant estimates and assumptions, including long-term projections of cash flows, market conditions and appropriate discount rates. Our judgments are based upon historical experience, current market trends, consultations with external valuation specialists and other information. While we believe that the estimates and assumptions underlying the valuation methodology are reasonable, different estimates and assumptions could result in different outcomes. In estimating future cash flows, we rely on internally generated five-year forecasts for sales and operating profits, and, currently, a two percent long-term assumed annual growth rate of cash flows for periods after the five-year forecast. We generally develop these forecasts based upon, among other things, recent sales data for existing products, planned timing of new product launches, estimated repair and remodel activity and, to a lesser extent, estimated housing starts. Our assumptions included U.S. and Eurozone Gross Domestic Product growing at approximately 1.5 percent and 1.2 percent, respectively, in 2026, and 1.8 percent and 1.2 percent, respectively, per annum over the remainder of the five-year forecast.
We utilize our weighted average cost of capital of approximately 7.75 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2025, based upon our assessment of the risks impacting each of our businesses, we applied a risk premium to increase the discount rate to a range of 9.75 percent to 11.75 percent for our reporting units.
If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized to the extent that a reporting unit's recorded carrying value exceeds its fair value, not to exceed the carrying amount of goodwill in that reporting unit.
In the fourth quarter of 2025, we estimated that future discounted cash flows projected for all of our reporting units were greater than the carrying values. Accordingly, we did not recognize any impairment charges for goodwill. A 10 percent decrease in the estimated fair value of our reporting units would not have resulted in any goodwill impairment.
We review our other indefinite-lived intangible assets for impairment annually in the fourth quarter, or as events occur or circumstances change that indicate the assets may be impaired without regard to the business unit. Potential impairment is identified by comparing the fair value of an other indefinite-lived intangible asset to its carrying value. We utilize a relief-from-royalty model to estimate the fair value of other indefinite-lived intangible assets. We consider the implications of both external (e.g., market growth, competition and local economic conditions) and internal (e.g., product sales and expected product growth) factors and their potential impact on cash flows related to the intangible asset in both the near- and long-term. We also consider the profitability of the business, among other factors, to determine the royalty rate for use in the impairment assessment.
We utilize our weighted average cost of capital of approximately 7.75 percent as the basis to determine the discount rate to apply to the estimated future cash flows. In 2025, based upon our assessment of the risks impacting each of our businesses and the nature of the other indefinite-lived intangible assets (i.e., trade name), we applied a risk premium to increase the discount rate to a range of 10.75 percent to 12.00 percent for our other indefinite-lived intangible assets.
If the carrying amount of an other indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized to the extent that an other indefinite-lived intangible asset's recorded carrying value exceeds its fair value, not to exceed the carrying amount of the other indefinite-lived intangible asset.
In the fourth quarter of 2025, we recognized a $5 million non-cash impairment charge related to a registered trademark within our Decorative Architectural Products segment due to the loss of a customer in our paint applicator business. As of December 31, 2025, the impaired other indefinite-lived intangible asset had a remaining net carrying value of $2 million. A 10 percent decrease in the estimated fair value of our other indefinite-lived intangible assets would not have resulted in an additional impairment, except for the previously mentioned registered trademark.
Refer to Note H for additional information.
Income Taxes
We record deferred taxes on the future tax consequences of differences between the financial statement carrying value of our assets and liabilities and their respective tax basis. The realization of deferred tax assets depends on sufficient sources of taxable income in future periods. Possible sources of taxable income include taxable income in carryback periods, the future reversal of existing taxable temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future income or gains and projected future taxable income.
If, based upon all available evidence, both positive and negative, it is more likely than not such deferred tax assets will not be realized, a valuation allowance is recorded. Significant weight is given to evidence that is objectively verifiable such as cumulative losses in recent years, however, some evidence may be based on estimates and assumptions regarding potential sources of future taxable income. Changes in these estimates and assumptions may result in a change in judgment regarding the realizability of deferred tax assets.
Refer to Note P for additional information.
Recently Adopted and Issued Accounting Pronouncements
Refer to Note A to the consolidated financial statements for discussion of recently adopted and issued accounting pronouncements, which is incorporated herein by reference.
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