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MASCO CORPORATION

(MAS)
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Masco : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

04/28/2021 | 04:53pm EDT

FIRST QUARTER 2021 VERSUS FIRST QUARTER 2020

                              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
                                                             2021                   2020                    2021  vs.   2020
Net Sales:
Plumbing Products                                      $        1,249          $       955                                  31  %
Decorative Architectural Products                                 721                  626                                  15  %

Total                                                  $        1,970          $     1,581                                  25  %

North America                                          $        1,529          $     1,258                                  22  %
International, principally Europe                                 441                  323                                  37  %
Total                                                  $        1,970          $     1,581                                  25  %



                                              Three Months Ended March 31,
                                                                        2021       2020
Operating Profit (Loss): (A)
Plumbing Products                                                      $ 252      $ 157
Decorative Architectural Products                                        142         95

Total                                                                  $ 394      $ 252

North America                                                          $ 308      $ 210
International, principally Europe                                         86         42
Total                                                                    394        252
General corporate expense, net                                           (29)       (27)
Operating profit                                                       $ 365      $ 225



(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, 2021 compared to the same period of 2020.

                                   NET SALES

Net sales increased 25 percent for the three-month period ended March 31, 2021. Excluding acquisitions and the effect of currency translation, net sales increased 19 percent for the three-month period ended March 31, 2021. 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,
                                                                                    2021                 2020
Net sales, as reported                                                         $     1,970          $     1,581
Acquisitions                                                                           (57)                   -

Net sales, excluding acquisitions                                                    1,913                1,581
Currency translation                                                                   (38)                   -
Net sales, excluding acquisitions and the effect of currency
translation                                                                    $     1,875          $     1,581



North American net sales increased 22 percent for the three-month period ended
March 31, 2021. Higher sales volume of plumbing products, paints and other
coating products, builders' hardware products and lighting products, in
aggregate, increased sales by 19 percent for the three-month period. The
acquisitions of Kraus and Work Tools increased sales by four percent for the
three-month period. Favorable currency translation increased sales by one
percent. Such increases were slightly offset by unfavorable net selling prices
of paints and other coating products and plumbing products, which decreased
sales by two percent.

International net sales increased 37 percent for the three-month period ended
March 31, 2021. In local currencies (including sales in currencies outside their
respective functional currencies), net sales increased 27 percent. Higher sales
volume and, to a lesser extent, favorable sales mix of plumbing products
increased sales by 23 percent for the three-month period. The acquisition of ESS
increased sales by three percent for the three-month period.

Net sales in the Plumbing Products segment increased 31 percent for the
three-month period ended March 31, 2021. Higher sales volume increased sales by
21 percent and favorable sales mix increased sales by two percent for the
three-month period. The acquisitions of Kraus and ESS increased sales by five
percent and favorable foreign currency translation further increased sales by
four percent for the three-month period. Such increases were slightly offset by
unfavorable net selling prices, which decreased sales by one percent.

Net sales in the Decorative Architectural Products segment increased 15 percent
for the three-month period ended March 31, 2021, due mostly to higher sales
volume of paints and other coating products, and to a lesser extent, builders'
hardware and lighting products. The Work Tools acquisition increased sales by
two percent for the three-month period. Such increases were partially offset by
unfavorable net selling prices of paints and other coating products and lighting
products for the three-month period.










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                                OPERATING PROFIT

Our gross profit margin was 35.5 percent for the three-month period ended March
31, 2021 compared to 34.6 percent for the comparable period of 2020. Gross
profit margins for the three-month period ended March 31, 2021 were positively
impacted by increased sales volume and cost savings initiatives. Such increases
were partially offset by unfavorable net selling prices.

Selling, general and administrative expenses, as a percentage of sales, was 17.0
percent for the three-month period ended March 31, 2021 compared to 20.4 percent
for the comparable period of 2020. Selling, general and administrative expenses
were positively impacted by cost containment activities, including reduced
expenses resulting from the COVID-19 pandemic and leverage of fixed expenses due
primarily to increased sales volume.

Operating profit in the Plumbing Products segment for the three-month period
ended March 31, 2021 was positively impacted by increased sales volume, as well
as cost savings initiatives, including reduced expenses resulting from the
COVID-19 pandemic and favorable foreign currency translation. These positive
impacts were partially offset by lower net selling prices and increased
commodity costs and wages.

Operating profit in the Decorative Architectural Products segment for the three-month period ended March 31, 2021 benefited primarily from increased sales volume, as well as cost savings initiatives, including reduced expenses resulting from the COVID-19 pandemic. These positive impacts were partially offset by lower net selling prices.

                          OTHER INCOME (EXPENSE), NET

Interest expense for the three-month period ended March 31, 2021 was $202
million compared to $35 million for the three-month period ended March 31, 2020.
The increase is due primarily to the $168 million loss on debt extinguishment
which was recorded as additional interest expense in connection with the early
retirement of debt in the first quarter of 2021.

Other, net, for the three-month period ended March 31, 2021 included $11 million
of net periodic pension and post-retirement benefit cost, partially offset by $3
million of dividend income related to preferred stock of ACProducts Holding,
Inc., and $2 million of earnings related to equity method investments. 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.

                                  INCOME TAXES

Our effective tax rate of 27 percent for the three-month period ended March 31,
2021 was higher than our normalized tax rate of 25 percent. The increase was due
primarily to a $5 million income tax expense from the elimination of a
disproportionate tax effect from accumulated other comprehensive loss, relating
to our interest rate swap, following the retirement of the related debt in March
2021 and a $5 million increase to income tax expense from an anticipated loss on
the termination of our qualified domestic defined-benefit pension plans in 2021
providing no tax benefit in certain jurisdictions. The increased income tax
expense was partially offset by an additional $5 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 2021.

Our effective tax rate of 19 percent for the three-month period ended March 31,
2020 was lower than our normalized tax rate of 25 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.

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,
2021 was $94 million compared to $133 million for the comparable period of 2020.
Diluted income per common share for the three-month period ended March 31, 2021
was $0.34 per common share, compared with $0.48 per common share for the
comparable period of 2020.

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                          OTHER FINANCIAL INFORMATION

Our current ratio was 1.8 to 1 at both March 31, 2021 and December 31, 2020.

For the three-month period ended March 31, 2021, net cash used for operating activities was $89 million.


For the three-month period ended March 31, 2021, net cash used for financing
activities was $359 million, primarily due to $1,326 million for the early
retirement of our 5.950% Notes due March 15, 2022, 4.450% Notes due April 1,
2025, and 4.375% Notes due April 1, 2026 and $160 million of related debt
extinguishment costs. Net cash used for financing activities was also impacted
by $303 million for the repurchase and retirement of our common stock (including
0.6 million shares repurchased to offset the dilutive impact of restricted stock
units granted in 2021), $36 million for the payment of cash dividends, and $14
million for employee withholding taxes paid on stock-based compensation. These
uses of cash were partially offset by proceeds, net of issuance costs, of $1,481
million due to the issuances of $600 million of 1.500% Notes due February 15,
2028, $600 million of 2.000% Notes due February 15, 2031 and $300 million of
3.125% Notes due February 15, 2051.

For the three-month period ended March 31, 2021, net cash used for investing activities was $25 million, comprised primarily of $30 million for capital expenditures.


Our cash and cash investments were $838 million and $1.3 billion at March 31,
2021 and December 31, 2020, 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 $838 million and $1.3 billion of cash and cash investments held at March
31, 2021 and December 31, 2020, $338 million and $385 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 4, 2021, we issued $600 million of 1.500% Notes due February 15, 2028,
$600 million of 2.000% Notes due February 15, 2031 and $300 million of 3.125%
Notes due February 15, 2051. We received proceeds of $1,495 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 March 22,
2021, proceeds from the debt issuances, together with cash on hand, were used to
repay and early retire our $326 million 5.950% Notes due March 15, 2022, $500
million 4.450% Notes due April 1, 2025, and $500 million 4.375% Notes due April
1, 2026. In connection with these early retirements, we incurred a loss on debt
extinguishment of $168 million, which was recorded as interest expense.

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. 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, 2021.

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.

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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 $44 million and $45 million at March
31, 2021 and December 31, 2020, respectively. We account for all payments made
under the program as a reduction to our cash flows from operations and reported
within our (decrease) increase in accounts payable and accrued liabilities, net,
line within our condensed consolidated statements of cash flows. The amounts
settled through the program and paid to participating financial institutions
were $46 million and $30 million for our continuing operations during the
three-month periods ended March 31, 2021 and 2020, respectively. A downgrade in
our credit rating or changes in the financial markets could limit the financial
institutions' willingness to commit funds to, and participate in, the program.
We do not believe such risk would have a material impact on our working capital
or cash flows, as substantially all of our payments are made outside of the
program.

We believe that our present cash balance, cash flows from operations, and
borrowing availability under our Credit Agreement are sufficient to fund our
near-term working capital and other investment needs. We believe that our
longer-term working capital and other general corporate requirements will be
satisfied through cash flows from operations and, to the extent necessary, from
bank borrowings and future financial market activities.
                          COVID-19 IMPACT AND RESPONSE
During 2020, certain aspects of our businesses were adversely affected by the
COVID-19 pandemic. Many, but not all, of our businesses remained operating
because the products we provide are critical to infrastructure sectors and
day-to-day operations of homes and businesses in our communities as defined by
applicable local orders. Operational activity that was previously slowed at
certain of our facilities, as a result of the pandemic and governmental orders,
largely resumed operations at normal capacities enabling them to progress on the
fulfillment of production backlogs that developed as well as to meet current
consumer demand, which has continued to be strong in the first quarter of 2021.
Finally, we have and may continue to experience supply chain disruptions,
particularly disruptions related to our ability to source plumbing, lighting and
builders' hardware products.

We continue to be committed to the safety and well-being of our employees during
this time, and, led by our cross-functional Infectious Illness Response Team, we
have employed best practices and followed guidance from the World Health
Organization and the Centers for Disease Control and Prevention. We have
implemented and are continuing to implement alternative work arrangements to
support the health and safety of our employees, including working remotely and
avoiding large gatherings. In addition, we have modified work areas and
workstations to provide protective measures for employees, are staggering
shifts, requiring the use of face coverings, practicing social distancing and
increasing the cleaning of our facilities, and in the event that we learn of an
employee testing positive for COVID-19, we are completing contact tracing and
requiring impacted employees to self-quarantine.

                            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 remain
confident in the fundamentals of our business and long-term strategy. 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.















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                           FORWARD-LOOKING STATEMENTS

This report contains statements that reflect our views about our future
performance and constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. Forward-looking statements can be
identified by words such as "outlook," "believe," "anticipate," "appear," "may,"
"will," "should," "intend," "plan," "estimate," "expect," "assume," "seek,"
"forecast," and similar references to future periods. Our views about future
performance involve risks and uncertainties that are difficult to predict and,
accordingly, our actual results may differ materially from the results discussed
in our forward-looking statements. We caution you against relying on any of
these forward-looking statements. Our future performance may be affected by the
levels of residential repair and remodel activity, and to a lesser extent, 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 confidence, 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 and
diverse 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.

                                       24

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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, 2021, 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, 2021, 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.



                                       25
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                               MASCO CORPORATION

© Edgar Online, source Glimpses

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