FIRST QUARTER 2020 VERSUS FIRST QUARTER 2019





                              SALES AND OPERATIONS

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


                                             Three Months Ended March 31,         Percent Change
                                                2020               2019           2020  vs.  2019
Net Sales:
Plumbing Products                         $           955     $        940                      2 %
Decorative Architectural Products                     626              573                      9 %
Total                                     $         1,581     $      1,513                      4 %

North America                             $         1,258     $      1,171                      7 %
International, principally Europe                     323              342                     (6 )%
Total                                     $         1,581     $      1,513                      4 %



                                     Three Months Ended March 31,
                                        2020                2019
Operating Profit (Loss): (A)
Plumbing Products                 $        157         $        153
Decorative Architectural Products           95                   73
Total                             $        252         $        226

North America                     $        210         $        181
International, principally Europe           42                   45
Total                                      252                  226
General corporate expense, net             (27 )                (29 )
Operating profit                  $        225         $        197

(A) Before general corporate expense, net; see Note M to the condensed consolidated financial statements.




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We report our financial results in accordance with generally accepted accounting principles ("GAAP") in the United States of America. However, we believe that certain non-GAAP performance measures and ratios used in managing the business may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results under GAAP.

The following discussion of consolidated results of operations and segment and geographic results refers to the three-month period ended March 31, 2020 compared to the same period of 2019.

NET SALES

Net sales increased four percent for the three-month period ended March 31, 2020. Excluding acquisitions and the effect of currency translation, net sales increased five percent for the three-month period ended March 31, 2020. The following table reconciles reported net sales to net sales, excluding acquisitions and the effect of currency translation, in millions:


                                                           Three Months Ended March 31,
                                                              2020               2019
Net sales, as reported                                  $         1,581     $      1,513
Acquisitions                                                          -                -
Net sales, excluding acquisitions                                 1,581            1,513
Currency translation                                                  9                -

Net sales, excluding acquisitions and the effect of currency translation

                                    $         1,590     $      1,513

North American net sales increased seven percent for the three-month period ended March 31, 2020. Higher sales volumes of paints and other coating products and plumbing products, in aggregate, increased sales by nine percent. Such increases were partially offset by lower sales volume of lighting and builders' hardware products, which, in aggregate, decreased sales by two percent.

International net sales decreased six percent for the three-month period ended March 31, 2020. In local currencies (including sales in currencies outside their respective functional currencies), net sales decreased three percent. Unfavorable sales mix and lower volume of plumbing products each decreased sales by two percent. Such decreases were partially offset by favorable net selling prices which increased sales by one percent.

Net sales in the Plumbing Products segment increased two percent for the three-month period ended March 31, 2020. Higher sales volume and favorable net selling prices increased sales by three percent and one percent, respectively. Such increases were partially offset by unfavorable sales mix and foreign currency translation which each decreased sales by one percent.

Net sales in the Decorative Architectural Products segment increased nine percent for the three-month period ended March 31, 2020. Net sales increased due to higher sales volume of paints and other coating products. This increase was partially offset by lower sales volume of lighting and builders' hardware products.



                                OPERATING PROFIT

Our gross profit margin was 34.6 percent for the three-month period ended March 31, 2020, compared with 34.5 percent for the comparable period of 2019. Gross profit margins were positively impacted by increased sales volume of paints and other coating products and North American plumbing products and increases in net selling prices. Such increases were mostly offset by increases in commodity costs, primarily attributable to tariffs.

Selling, general and administrative expenses, as a percentage of sales, were 20.4 percent for the three-month period ended March 31, 2020, compared to 20.9 percent for the comparable period of 2019. Selling, general and administrative expense were positively impacted by lower salaries and professional fees, partially offset by additional legal cost and stock compensation expense.







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Operating profit in the Plumbing Products segment for the three-month period ended March 31, 2020 was positively impacted by the benefits associated with cost savings initiatives, sales volumes and increased net selling prices. These positive impacts were partially offset by an increase in commodity costs, primarily attributed to the impact of tariffs, and other expenses (such as salaries and wages).

Operating profit in the Decorative Architectural Products segment for the three-month period ended March 31, 2020 was positively impacted by higher sales volumes, the benefits associated with cost savings initiatives and the non-recurrence of a non-cash impairment charge related to an other indefinite-lived intangible asset for a trademark associated with lighting products. These positive impacts were partially offset by increases in commodity costs, primarily attributed to the impact of tariffs, and other expenses (such as salaries and legal cost) across the segment.



                          OTHER INCOME (EXPENSE), NET

Interest expense for the three-month period ended March 31, 2020 was $35 million, compared to $39 million for the three-month period ended March 31, 2019. The decrease is due to the extinguishment of our 7.125% Notes due March 15, 2020 in the fourth quarter of 2019.

Other, net, for the three-month period ended March 31, 2020 included $9 million of foreign currency transaction losses and $8 million of net periodic pension and post-retirement benefit cost. Other, net, for the three-month period ended March 31, 2019 included $5 million of net periodic pension and post-retirement benefit cost.

INCOME AND INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS - ATTRIBUTABLE TO

MASCO CORPORATION

Income from continuing operations for the three-month period ended March 31, 2020 was $133 million compared to $107 million for the comparable period of 2019. Diluted income per common share for the three-month period ended March 31, 2020 was $0.48 per common share, compared with $0.36 per common share for the comparable period of 2019.

Our effective tax rate of 19 percent for the three-month period ended March 31, 2020 was lower than our normalized tax rate of 26 percent due primarily to an additional $6 million income tax benefit on stock-based compensation and an additional $4 million state income tax benefit from a reduction in the liability for uncertain tax positions resulting from the expiration of statutes of limitation in the first quarter of 2020.

Our effective tax rate of 23 percent for the three-month period ended March 31, 2019 was lower than our normalized tax rate of 26 percent due primarily to an additional $4 million income tax benefit on stock-based compensation in the first quarter of 2019.



                          OTHER FINANCIAL INFORMATION

Our current ratio was 1.8 to 1 at both March 31, 2020 and December 31, 2019.

For the three-month period ended March 31, 2020, net cash used for operating activities was $92 million. First quarter 2020 cash for operations was affected by an expected and annually recurring seasonal first quarter increase in accounts receivable compared with fourth quarter 2019. First quarter 2020 cash provided by operations of $7 million was affected by the income tax expense of $179 million resulting from the gain recorded in connection with the divestiture of Cabinetry. Additionally, in the first quarter of 2020, we recognized $189 million of income taxes payable resulting from the sale of Cabinetry in February 2020. As permitted by recent IRS guidance in response to the coronavirus disease 2019 ("COVID-19") pandemic, we plan to defer this and our other eligible Federal and State income tax payments normally due in April 2020 to July 2020.

For the three-month period ended March 31, 2020, net cash used for financing activities was $639 million, primarily due to $602 million for the repurchase and retirement of our common stock (including 0.4 million shares repurchased to offset the dilutive impact of restricted stock units granted in 2020), $37 million for the payment of cash dividends, and $22 million for employee withholding taxes paid on stock-based compensation. These uses of cash were slightly offset by $20 million of proceeds from the exercise of stock options.





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For the three-month period ended March 31, 2020, net cash provided by investing activities was $807 million, comprised of $853 million of proceeds from the sale of Cabinetry, net of cash disposed, partially offset by $24 million for capital expenditures and $24 million for the acquisition of SmarTap, net of cash acquired.

Our cash and cash investments were $767 million and $697 million at March 31, 2020 and December 31, 2019, respectively. Our cash and cash investments consist of overnight interest-bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations.

Of the $767 million and $697 million of cash and cash investments held at March 31, 2020 and December 31, 2019, $256 million and $297 million, respectively, was held in our foreign subsidiaries. If these funds were needed for our operations in the U.S., their repatriation into the U.S. would not result in significant additional U.S. income tax or foreign withholding tax, as we have recorded such taxes on substantially all undistributed foreign earnings, except for those that are legally restricted.

On March 13, 2019, we entered into a credit agreement (the "Credit Agreement") with an aggregate commitment of $1.0 billion and a maturity date of March 13, 2024. Under the Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with an aggregate commitment of $750 million, was terminated. See Note I to the condensed consolidated financial statements.

The Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0. We were in compliance with all covenants and no borrowings were outstanding under our Credit Agreement at March 31, 2020.

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

All outstanding payments owed under the program are recorded within accounts payable in our condensed consolidated balance sheets. The amounts owed to participating financial institutions under the program and included in accounts payable for our continuing operations were $33 million and $29 million at March 31, 2020 and December 31, 2019, respectively. We account for all payments made under the program as a reduction to our cash flows from operations and reported within our increase (decrease) in accounts payable and accrued liabilities, net, line within our condensed consolidated statements of cash flows. The amounts settled through the program and paid to participating financial institutions were $30 million and $36 million for our continuing operations during the three-month periods ended March 31, 2020 and 2019, respectively. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions' willingness to commit funds to, and participate in, the program. We do not believe such risk would have a material impact on our working capital or cash flows, as substantially all of our payments are made outside of the program.

While the COVID-19 pandemic did not significantly impact our financial performance during the first quarter of 2020, we anticipate that the pandemic may significantly and adversely impact the results of operations in each of our segments for the second quarter of 2020 and potentially future quarters. Specifically, we expect reduced consumer demand for our products resulting from the continued economic contraction as a result of shelter-in-place and social distancing orders, increased unemployment levels, limitations imposed on the number of people permitted to enter the stores of some of our retail customers, and the closure of some of our customers' business operations.







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Currently, many, but not all, of our businesses remain operating because the products we provide are critical to infrastructure sectors and the day-to-day operations of homes and businesses in our communities as defined by applicable local orders. However, these designations may change in the future, which could adversely impact our ability to produce and distribute our products. Certain of our facilities have experienced closures ranging from a few days to a few weeks, and some of these closures are continuing in the second quarter. These closures have and may continue to adversely impact our results of operations. Finally, we may experience supply chain disruptions, particularly disruptions related to our ability to source plumbing, lighting and builders' hardware products. While we anticipate an adverse impact to our results in the short-term, given our portfolio of lower ticket, repair and remodel-oriented products, we expect that demand for our products will be solid as we recover from the COVID-19 pandemic.

We currently believe that our present cash balance, cash flows from operations, and borrowing availability under our Credit Agreement are sufficient to fund our near-term working capital and other investment needs. We presently anticipate 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 rapidly evolving and highly uncertain nature and duration of the COVID-19 pandemic and its impact on our customers, suppliers and employees, we are unable to fully estimate the extent of the impact it may have on our future financial condition.

In preparation of this Form 10-Q, including our financial statements contained in this report, we made 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 period. As the nature and duration of the COVID-19 pandemic affects become more certain, we will update and refine our estimates and assumptions, which could impact the reported amounts of assets and liabilities and related disclosures, and future revenues and expenses.

We are committed to the safety and well-being of our employees during this time, and, led by our cross-functional COVID-19 task force, we are employing best practices and following guidance from the World Health Organization and the Centers for Disease Control and Prevention. We have implemented alternative work arrangements to support the health and safety of our employees including working remotely and avoiding large gatherings. In addition, at our facilities that remain open, we are modifying work areas and workstations to provide protective measures for employees, staggering shifts, practicing social distancing and increasing cleaning.













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                            OUTLOOK FOR THE COMPANY

We continue to execute our strategies of leveraging our strong brand portfolio, industry-leading positions and the Masco Operating System, our methodology to drive growth and productivity, to create long-term shareholder value. 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 disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders. While we expect to experience softness in the short-term in our businesses as a result of the COVID-19 pandemic, we remain confident in the fundamentals of our businesses.



                           FORWARD-LOOKING STATEMENTS

This report contains statements that reflect our views about our future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "outlook," "believe," "anticipate," "appear," "may," "will," "should," "intend," "plan," "estimate," "expect," "assume," "seek," "forecast," and similar references to future periods. Our views about future performance involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. We caution you against relying on any of these forward-looking statements. Our future performance may be affected by the levels of residential repair and remodel activity and new home construction, our ability to maintain our strong brands and reputation and to develop innovative products, our ability to maintain our competitive position in our industries, our reliance on key customers, the length and severity of the ongoing COVID-19 pandemic, including its impact on domestic and international economic activity, consumer demand for our products, our production capabilities, our employees and our supply chain, the cost and availability of materials and the imposition of tariffs, our dependence on third-party suppliers, risks associated with our international operations and global strategies, our ability to achieve the anticipated benefits of our strategic initiatives, our ability to successfully execute our acquisition strategy and integrate businesses that we have and may acquire, our ability to attract, develop and retain talented personnel, risks associated with our reliance on information systems and technology, and our ability to achieve the anticipated benefits from our investments in new technology. These and other factors are discussed in detail in Item 1A, "Risk Factors" in our most recent Annual Report on Form 10-K, as well as in other filings we make with the Securities and Exchange Commission. The forward-looking statements in this report speak only as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.





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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 March 31, 2020, the Company's disclosure controls and procedures were effective.

b. Changes in Internal Control over Financial Reporting.

In connection with the evaluation of the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2020, which is required under the Securities Exchange Act of 1934 by paragraph (d) of Exchange Rules 13a-15 or 15d-15 (as defined in paragraph (f) of Rule 13a-15), management determined that there was no change that materially affected or is reasonably likely to materially affect internal control over financial reporting.






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MASCO CORPORATION

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