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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 1-5794
Masco Corporation
(Exact name of Registrant as Specified in its Charter)

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

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

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

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

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

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

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

Class |  | Shares Outstanding at March 31, 2021
Common stock, par value $1.00 per share |  | 253,785,852

MASCO CORPORATION
INDEX

|  | Page No.
PART I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements (Unaudited): |
| Condensed Consolidated Balance Sheets — as at March 31, 2021 and December 31, 2020 | 1
| Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 | 2
| Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 2020 | 3
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 | 4
| Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2021 and 2020 | 5
| Notes to Condensed Consolidated Financial Statements | 6
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19
Item 4. | Controls and Procedures | 25
PART II. | OTHER INFORMATION | 26
Item 1. | Legal Proceedings | 26
Item 1A. | Risk Factors | 26
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 26
Item 6. | Exhibits | 27
| Signature | 28

MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
March 31, 2021 and December 31, 2020
(In Millions, Except Share Data)

| March 31, 2021 |  | December 31, 2020
ASSETS |  |  |
Current Assets: |  |  |
Cash and cash investments | $ | 838 |  |  | $ | 1,326 |
Receivables | 1,305 |  |  | 1,138 |
Prepaid expenses and other | 97 |  |  | 149 |
Assets held for sale | 18 |  |  | — |
Inventories: |  |  |
Finished goods | 601 |  |  | 552 |
Raw material | 252 |  |  | 242 |
Work in process | 95 |  |  | 82 |
| 948 |  |  | 876 |
Total current assets | 3,206 |  |  | 3,489 |
Property and equipment, net | 894 |  |  | 908 |
Operating lease right-of-use assets | 173 |  |  | 166 |
Goodwill | 588 |  |  | 563 |
Other intangible assets, net | 378 |  |  | 357 |
Other assets | 326 |  |  | 294 |
Assets held for sale | 9 |  |  | — |
Total assets | $ | 5,574 |  |  | $ | 5,777 |
LIABILITIES |  |  |
Current Liabilities: |  |  |
Accounts payable | $ | 925 |  |  | $ | 893 |
Notes payable | 6 |  |  | 3 |
Accrued liabilities | 803 |  |  | 1,038 |
Liabilities held for sale | 14 |  |  | — |
Total current liabilities | 1,748 |  |  | 1,934 |
Long-term debt | 2,955 |  |  | 2,792 |
Noncurrent operating lease liabilities | 157 |  |  | 149 |
Other liabilities | 458 |  |  | 481 |
Liabilities held for sale | 14 |  |  | — |
Total liabilities | 5,332 |  |  | 5,356 |
Commitments and contingencies (Note P) |  |  |
Redeemable noncontrolling interest | 25 |  | — |
EQUITY |  |  |
Masco Corporation's shareholders' equity: |  |  |
Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2021 – 253,100,000; 2020 – 258,200,000 | 253 |  |  | 258 |
Preferred shares authorized: 1,000,000; Issued and outstanding: 2021 and 2020 – None | — |  |  | — |
Paid-in capital | — |  |  | — |
Retained (deficit) earnings | (116) |  |  | 79 |
Accumulated other comprehensive loss | (154) |  |  | (142) |
Total Masco Corporation's shareholders' (deficit) equity | (17) |  |  | 195 |
Noncontrolling interest | 234 |  |  | 226 |
Total equity | 217 |  |  | 421 |
Total liabilities and equity | $ | 5,574 |  |  | $ | 5,777 |

See notes to condensed consolidated financial statements.
1

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended March 31, 2021 and 2020
(In Millions, Except Per Common Share Data)

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Net sales |  |  |  |  | $ | 1,970 |  |  | $ | 1,581 |
Cost of sales |  |  |  |  | 1,270 |  |  | 1,034 |
Gross profit |  |  |  |  | 700 |  |  | 547 |
Selling, general and administrative expenses |  |  |  |  | 335 |  |  | 322 |
Operating profit |  |  |  |  | 365 |  |  | 225 |
Other income (expense), net: |  |  |  |  |  |  |
Interest expense |  |  |  |  | (202) |  |  | (35) |
Other, net |  |  |  |  | (6) |  |  | (16) |
|  |  |  |  | (208) |  |  | (51) |
Income from continuing operations before income taxes |  |  |  |  | 157 |  |  | 174 |
Income tax expense |  |  |  |  | 43 |  |  | 33 |
Income from continuing operations |  |  |  |  | 114 |  |  | 141 |
Income from discontinued operations, net |  |  |  |  | — |  |  | 397 |
Net income |  |  |  |  | 114 |  |  | 538 |
Less: Net income attributable to noncontrolling interest |  |  |  |  | 20 |  |  | 8 |
Net income attributable to Masco Corporation |  |  |  |  | $ | 94 |  |  | $ | 530 |
Income per common share attributable to Masco Corporation: |  |  |  |  |  |  |
Basic: |  |  |  |  |  |  |
Income from continuing operations |  |  |  |  | $ | .34 |  |  | $ | .49 |
Income from discontinued operations, net |  |  |  |  | — |  |  | 1.44 |
Net income |  |  |  |  | $ | .34 |  |  | $ | 1.93 |
Diluted: |  |  |  |  |  |  |
Income from continuing operations |  |  |  |  | $ | .34 |  |  | $ | .48 |
Income from discontinued operations, net |  |  |  |  | — |  |  | 1.44 |
Net income |  |  |  |  | $ | .34 |  |  | $ | 1.92 |
Amounts attributable to Masco Corporation: |  |  |  |  |  |  |
Income from continuing operations |  |  |  |  | $ | 94 |  |  | $ | 133 |
Income from discontinued operations, net |  |  |  |  | — |  |  | 397 |
Net income |  |  |  |  | $ | 94 |  |  | $ | 530 |

See notes to condensed consolidated financial statements.
2

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
For the Three Months Ended March 31, 2021 and 2020
(In Millions)

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Net income |  |  |  |  | $ | 114 |  |  | $ | 538 |
Less: Net income attributable to noncontrolling interest |  |  |  |  | 20 |  |  | 8 |
Net income attributable to Masco Corporation |  |  |  |  | $ | 94 |  |  | $ | 530 |
Other comprehensive income (loss), net of tax (Note L): |  |  |  |  |  |  |
Cumulative translation adjustment |  |  |  |  | $ | (36) |  |  | $ | (29) |
Interest rate swaps |  |  |  |  | 7 |  |  | — |
Pension and other post-retirement benefits |  |  |  |  | 5 |  |  | 5 |
Other comprehensive (loss), net of tax |  |  |  |  | (24) |  |  | (24) |
Less: Other comprehensive (loss) attributable to noncontrolling interest |  |  |  |  | (12) |  |  | (4) |
Other comprehensive (loss) attributable to Masco Corporation |  |  |  |  | $ | (12) |  |  | $ | (20) |
Total comprehensive income |  |  |  |  | $ | 90 |  |  | $ | 514 |
Less: Total comprehensive income attributable to noncontrolling interest |  |  |  |  | 8 |  |  | 4 |
Total comprehensive income attributable to Masco Corporation |  |  |  |  | $ | 82 |  |  | $ | 510 |

See notes to condensed consolidated financial statements.
3

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended March 31, 2021 and 2020
(In Millions)

| Three Months Ended March 31,
| 2021 |  | 2020
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: |  |  |
Cash provided by operations | $ | 323 |  |  | $ | 7 |
Increase in receivables | (195) |  |  | (183) |
Increase in inventories | (78) |  |  | (21) |
(Decrease) increase in accounts payable and accrued liabilities, net | (139) |  |  | 105 |
Net cash for operating activities | (89) |  |  | (92) |
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: |  |  |
Retirement of notes | (1,326) |  |  | — |
Purchase of Company common stock | (303) |  |  | (602) |
Cash dividends paid | (36) |  |  | (37) |
Issuance of notes, net of issuance costs | 1,481 |  |  | — |
Debt extinguishment costs | (160) |  |  | — |
Proceeds from the exercise of stock options | — |  |  | 20 |
Employee withholding taxes paid on stock-based compensation | (14) |  |  | (22) |
(Decrease) increase in debt, net | (1) |  |  | 2 |
Net cash for financing activities | (359) |  |  | (639) |
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: |  |  |
Capital expenditures | (30) |  |  | (24) |
Acquisition of business, net of cash acquired | — |  |  | (24) |
Proceeds from disposition of: |  |  |
Businesses, net of cash disposed | — |  |  | 853 |
Other financial investments | 1 |  |  | 1 |
Other, net | 4 |  |  | 1 |
Net cash (for) from investing activities | (25) |  |  | 807 |
Effect of exchange rate changes on cash and cash investments | (13) |  |  | (6) |
CASH AND CASH INVESTMENTS: |  |  |
(Decrease) increase for the period | (486) |  |  | 70 |
At January 1 | 1,326 |  |  | 697 |
At March 31 | $ | 840 |  |  | $ | 767 |

See notes to condensed consolidated financial statements.
4

MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)
For the Three Months Ended March 31, 2021 and 2020
(In Millions, Except Per Common Share Data)

| Total |  | Common Shares ($1 par value) |  | Paid-In Capital |  | Retained (Deficit) Earnings |  | Accumulated Other Comprehensive (Loss) |  | Noncontrolling Interest
Balance, January 1, 2020 | $ | (56) |  |  | $ | 276 |  |  | $ | — |  |  | $ | (332) |  |  | $ | (179) |  |  | $ | 179 |
Cumulative effect of adoption of new credit loss standard | (1) |  |  |  |  |  |  | (1) |  |  |  |  |
Adjusted balance, January 1, 2020 | $ | (57) |  |  | $ | 276 |  |  | $ | — |  |  | $ | (333) |  |  | $ | (179) |  |  | $ | 179 |
Total comprehensive income (loss) | 514 |  |  |  |  |  |  | 530 |  |  | (20) |  |  | 4 |
Shares issued | 11 |  |  | 1 |  |  | 10 |  |  |  |  |  |  |
Shares retired: |  |  |  |  |  |  |  |  |  |  |
Repurchased | (602) |  |  | (14) |  |  | (28) |  |  | (560) |  |  |  |  |
Surrendered (non-cash) | (13) |  |  |  |  |  |  | (13) |  |  |  |  |
Cash dividends declared | (36) |  |  |  |  |  |  | (36) |  |  |  |  |
Stock-based compensation | 18 |  |  |  |  | 18 |  |  |  |  |  |  |
Balance, March 31, 2020 | $ | (165) |  |  | $ | 263 |  |  | $ | — |  |  | $ | (412) |  |  | $ | (199) |  |  | $ | 183 |
Balance, January 1, 2021 | $ | 421 |  |  | $ | 258 |  |  | $ | — |  |  | $ | 79 |  |  | $ | (142) |  |  | $ | 226 |
Total comprehensive income (loss) | 90 |  |  |  |  |  |  | 94 |  |  | (12) |  |  | 8 |
Shares issued | — |  |  | 1 |  |  | (1) |  |  |  |  |  |  |
Shares retired: |  |  |  |  |  |  |  |  |  |  |
Repurchased | (303) |  |  | (6) |  |  | (27) |  |  | (270) |  |  |  |  |
Surrendered (non-cash) | (13) |  |  |  |  |  |  | (13) |  |  |  |  |
Redeemable noncontrolling interest - redemption adjustment | (6) |  |  |  |  |  |  | (6) |  |  |  |  |
Stock-based compensation | 28 |  |  |  |  | 28 |  |  |  |  |  |  |
Balance, March 31, 2021 | $ | 217 |  |  | $ | 253 |  |  | $ | — |  |  | $ | (116) |  |  | $ | (154) |  |  | $ | 234 |

See notes to condensed consolidated financial statements.
5

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. ACCOUNTING POLICIES
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to fairly state our financial position at March 31, 2021, our results of operations, comprehensive income (loss), cash flows and changes in shareholders' equity for the three-month period ended March 31, 2021 and 2020. The condensed consolidated balance sheet at December 31, 2020 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted ("GAAP") in the United States of America.
Recently Adopted Accounting Pronouncements. In January 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-01, "Investments—Equity Securities (Topic 321)," "Investments—Equity Method and Joint Ventures (Topic 323)," and "Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815," which clarifies that an entity should consider observable transactions when either applying or discontinuing the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321. ASU 2020-01 clarifies that for certain forward contracts or purchased options to acquire investments, an entity should not consider whether, upon settlement of the forward contract or exercise of the purchased option, the underlying securities would be accounted for under the equity method or the fair value option. We adopted ASU 2020-01 prospectively beginning on January 1, 2021. The adoption of the standard did not have a material effect on our financial position or results of operations.
B. ACQUISITIONS
In the first quarter of 2021, we acquired a 75.1% equity interest in Easy Sanitary Solutions B.V. ("ESS"), for approximately €47 million ($58 million), including $52 million of cash and $6 million of debt that will be paid out over two years less any pending or settled indemnity matters. These amounts are subject to working capital and other adjustments. The cash payment was made to a third-party notary on December 29, 2020 for the acquisition of this equity interest in advance of the transaction closing on January 4, 2021. ESS is a manufacturer of shower channel drains and offers a wide range of products for barrier-free showering and bathroom wall niches. This business is included in our Plumbing Products segment. In connection with this acquisition, we recognized $32 million of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of 10 years. We also recognized $35 million of goodwill, which is not tax deductible, and is related primarily to the expected synergies from combining the operations into our business.
The remaining 24.9% equity interest in ESS is subject to a call and put option that is exercisable by us or the sellers, respectively, any time after December 31, 2023. The redemption value of the call and put option is the same and based on a floating EBITDA value. The call and put options were determined to be embedded within the redeemable noncontrolling interest and was recorded as temporary equity in the condensed consolidated balance sheet as of March 31, 2021. We elected to adjust the redeemable noncontrolling interest to its full redemption amount directly into retained earnings.
In the fourth quarter of 2020, we acquired substantially all of the net assets of Kraus USA Inc. ("Kraus"), a designer and distributor of sinks, faucets and accessories for the kitchen and bathroom, for approximately $103 million and an additional cash payment of up to $50 million contingent upon the achievement of certain financial performance metrics for the year ending December 31, 2022. As of the closing date of the acquisition, the contingent consideration was assigned a fair value of approximately $8 million. This business expands our product offerings to our customers and our online presence under the Kraus brand. This business is included in our Plumbing Products segment. In connection with this acquisition, we recognized $25 million of indefinite-lived intangible assets, which is related to trademarks, and $49 million of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of 10 years. We also recognized $20 million of goodwill, which is generally tax deductible, and is related primarily to the expected synergies from combining the operations into our business. During the three-month period ended March 31, 2021, we revised the allocation of the purchase price to certain identifiable assets and liabilities based on analysis of information as of the acquisition date that has been made available through March 31, 2021, which resulted in a $1 million decrease to goodwill.
6

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
B. ACQUISITIONS (Concluded)
In the fourth quarter of 2020, we acquired substantially all of the net assets of Work Tools International Inc. and Elder & Jenks, LLC (collectively, "Work Tools") for approximately $53 million, including $48 million of cash and $5 million of debt that will be paid out in 18 months less any pending or settled indemnity matters. Work Tools will expand our product offering to our customers as it is a leading manufacturer of high-quality precision painting tools and accessories including brushes, rollers and mini rollers for DIY and professionals. This business is included in our Decorative Architectural Products segment. In connection with this acquisition, we recognized $7 million of indefinite-lived intangible assets, which is related to trademarks, and $27 million of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of 12 years. We also recognized $7 million of goodwill, which is generally tax deductible, and is related primarily to the expected synergies from combining the operations into our business. The working capital adjustments were finalized with the seller in the first quarter of 2021, resulting in no significant changes.
In the first quarter of 2020, we acquired all of the share capital of SmarTap A.Y Ltd. ("SmarTap") for approximately $24 million in cash. SmarTap is a developer of a smart bathing system that monitors and controls the temperature and flow of water. This acquisition provides an adaptable solution for a wide range of products as it is compatible with showerheads, hand showers, spouts and shower jets. This business is included in our Plumbing Products segment. In connection with this acquisition, we recognized $10 million of definite-lived intangible assets, primarily related to technology, which is being amortized on a straight-line basis over a weighted average amortization period of 5 years. We also recognized $14 million of goodwill, which is not tax deductible, and is related primarily to the expected synergies from combining the operations into our business.
C. DIVESTITURES
In March 2021, we entered into a definitive agreement to sell Hüppe GmbH ("Hüppe"), a manufacturer of shower enclosures and shower trays. The closing of the sale is expected during the second quarter of 2021, subject to customary closing conditions and regulatory approval. We determined that the assets and liabilities for Hüppe met the held for sale criteria. Accordingly, Hüppe's assets and liabilities were classified in the condensed consolidated balance sheet at March 31, 2021 as assets held for sale or liabilities held for sale. Additionally, we ceased recording depreciation and amortization for the held for sale assets upon meeting the held for sale criteria. The sale of Hüppe does not represent a strategic shift that will have a major effect on our operations and financial results so it was not presented as discontinued operations. This business is included in our Plumbing Products segment.
The carrying amount of major classes of assets and liabilities included as part of Hüppe being reported as held for sale, were as follows, in millions:

| March 31, 2021
Cash and cash investments | $ | 2 |
Receivables | 7 |
Prepaid expenses and other | 1 |
Inventories | 8 |
Property and equipment, net | 7 |
Operating lease right-of-use assets | 2 |
Total assets classified as held for sale | $ | 27 |
Accounts payable | $ | 7 |
Accrued liabilities | 7 |
Noncurrent operating lease liabilities | 1 |
Other liabilities | 13 |
Total liabilities classified as held for sale | $ | 28 |

7

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
C. DIVESTITURES (Concluded)
On November 14, 2019, we entered into a definitive agreement to sell Masco Cabinetry LLC ("Cabinetry"), a manufacturer of cabinetry products. We completed the divestiture of Cabinetry on February 18, 2020 for proceeds of approximately $989 million, including $853 million, net of cash disposed. The remaining $136 million was accounted for as preferred stock issued by a holding company of the buyer; refer to Note G for additional information. In connection with the sale, we recognized a gain on the divestiture of $585 million for the three months ended March 31, 2020, which is included in income from discontinued operations, net in the condensed consolidated statement of operations.
As the sale of Cabinetry represented a strategic shift having a major effect on our operations and financial results, the business was presented in discontinued operations separate from continuing operations for the three months ended March 31, 2020.
The major classes of line items constituting income from discontinued operations, net, in millions:

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Net sales |  |  |  |  | $ | — |  |  | $ | 101 |
Cost of sales |  |  |  |  | — |  |  | 78 |
Gross profit |  |  |  |  | — |  |  | 23 |
Selling, general and administrative expenses |  |  |  |  | — |  |  | 32 |
(Loss) from discontinued operations |  |  |  |  | — |  |  | (9) |
Gain on disposal of discontinued operations |  |  |  |  | — |  |  | 585 |
Income before income tax |  |  |  |  | — |  |  | 576 |
Income tax expense |  |  |  |  | — |  |  | (179) |
Income from discontinued operations, net |  |  |  |  | $ | — |  |  | $ | 397 |

D. REVENUE
Our revenues are derived primarily from sales to customers in North America and Internationally, principally Europe. Net sales from these geographic markets, by segment, were as follows, in millions:

| Three Months Ended March 31, 2021
| Plumbing Products |  | Decorative Architectural Products |  | Total
Primary geographic markets: |  |  |  |  |
North America | $ | 808 |  |  | $ | 721 |  |  | $ | 1,529 |
International, principally Europe | 441 |  |  | — |  |  | 441 |
Total | $ | 1,249 |  |  | $ | 721 |  |  | $ | 1,970 |

| Three Months Ended March 31, 2020
| Plumbing Products |  | Decorative Architectural Products |  | Total
Primary geographic markets: |  |  |  |  |
North America | $ | 632 |  |  | $ | 626 |  |  | $ | 1,258 |
International, principally Europe | 323 |  |  | — |  |  | 323 |
Total | $ | 955 |  |  | $ | 626 |  |  | $ | 1,581 |

8

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
D. REVENUE (Concluded)
Our contract asset balance was $2 million at both March 31, 2021 and December 31, 2020. Our contract liability balance was $27 million and $62 million at March 31, 2021 and December 31, 2020, respectively.
We recognized $1 million and $3 million of revenue for the three-month periods ended March 31, 2021 and 2020, respectively, related to performance obligations settled in previous years.
Changes in the allowance for credit losses deducted from accounts receivable were as follows, in millions:

| Three Months Ended March 31, 2021 |  | Twelve Months Ended December 31, 2020
Balance at January 1 | $ | 7 |  |  | $ | 5 |
Provision for expected credit losses during the period | 1 |  |  | 3 |
Write-offs charged against the allowance | (1) |  |  | (2) |
Recoveries of amounts previously written off | 1 |  |  | 1 |
Other (A) | (1) |  |  | — |
Balance at end of period | $ | 7 |  |  | $ | 7 |

(A) As a result of Hüppe being considered held for sale, $1 million for the three month period ended March 31, 2021 was removed from allowance for credit losses.
E. DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense was $43 million and $33 million for the three-month periods ended March 31, 2021 and 2020, respectively.
F. GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill for the three-month period ended March 31, 2021, by segment, were as follows, in millions:

| Gross Goodwill At March 31, 2021 |  | Accumulated Impairment Losses |  | Net Goodwill At March 31, 2021 |  |  |  |  |  |
Plumbing Products (A) | $ | 598 |  |  | $ | (301) |  |  | $ | 297 |  |  |  |  |  |  |
Decorative Architectural Products | 366 |  |  | (75) |  |  | 291 |  |  |  |  |  |  |
Total | $ | 964 |  |  | $ | (376) |  |  | $ | 588 |  |  |  |  |  |  |

(A) As a result of Hüppe being considered held for sale, both gross goodwill and accumulated impairment losses for the Plumbing Products segment were reduced by $39 million.

| Gross Goodwill At December 31, 2020 |  | Accumulated Impairment Losses |  | Net Goodwill At December 31, 2020 |  | Acquisitions |  | Other (B) |  |  |  | Net Goodwill At March 31, 2021
Plumbing Products | $ | 613 |  |  | $ | (340) |  |  | $ | 273 |  |  | $ | 34 |  |  | $ | (10) |  |  |  |  | $ | 297 |
Decorative Architectural Products | 365 |  |  | (75) |  |  | 290 |  |  | 1 |  |  | — |  |  |  |  | 291 |
Total | $ | 978 |  |  | $ | (415) |  |  | $ | 563 |  |  | $ | 35 |  |  | $ | (10) |  |  |  |  | $ | 588 |

(B) Other consists of the effect of foreign currency translation.
The carrying value of our other indefinite-lived intangible assets was $109 million at both March 31, 2021 and December 31, 2020 and principally included registered trademarks. The carrying value of our definite-lived intangible assets was $269 million (net of accumulated amortization of $79 million) and $248 million (net of accumulated amortization of $73 million) at March 31, 2021 and December 31, 2020, respectively, and principally included customer relationships. The increase in our definite-lived intangible assets is primarily a result of our acquisition of ESS.
9

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
G. FAIR VALUE OF FINANCIAL INVESTMENTS
Preferred Stock of ACProducts Holding, Inc. In conjunction with our divestiture of Cabinetry, we received preferred stock of ACProducts Holding, Inc., the holding company of the buyer, with a liquidation preference of $150 million. We do not have the ability to exercise significant influence, and the fair value of this security is not readily available. We have elected to measure this investment at cost (less impairment, if any) adjusted for observable price changes in orderly transactions for the identical or similar investments of the same issuer for subsequent measurements of fair value.
As the preferred stock was received in conjunction with the sale of Cabinetry, we determined the cost to be the fair value of the preferred stock at the time of sale. The fair value of the preferred stock was measured on a non-recurring basis, and estimated using discounted cash flow and option pricing models (Level 3 inputs). The significant unobservable inputs used to value the preferred stock included: time to exit (deemed maturity) since the preferred stock is not mandatorily redeemable, discount rate used to determine the present value of expected cash flows, which included the spread on company specific debt and the risk-free rate of return, the liquidation preference and the coupon rate. On the date of acquisition, the fair value of this investment was determined to be $136 million and was included in other assets in our condensed consolidated balance sheet.
Dividends earned on this investment are included within other income (expense), net in our condensed consolidated statement of operations with a corresponding increase to our basis in the investment. We had dividend income of $3 million for the three-month period ended March 31, 2021. The preferred stock was reported at the carrying value of $149 million and $146 million in other assets in our condensed consolidated balance sheet at March 31, 2021 and December 31, 2020, respectively.
Fair Value of Debt. The fair value of our short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues, which are Level 1 inputs. The aggregate estimated market value of our short-term and long-term debt at March 31, 2021 was approximately $3.1 billion, compared with the aggregate carrying value of $3.0 billion. The aggregate estimated market value of our short-term and long-term debt at December 31, 2020 was approximately $3.3 billion, compared with the aggregate carrying value of $2.8 billion.
H. WARRANTY LIABILITY
Changes in our warranty liability were as follows, in millions:

| Three Months Ended March 31, 2021 |  | Twelve Months Ended December 31, 2020
Balance at January 1 | $ | 83 |  |  | $ | 84 |
Accruals for warranties issued during the period | 8 |  |  | 34 |
Accruals related to pre-existing warranties | — |  |  | (3) |
Settlements made (in cash or kind) during the period | (8) |  |  | (33) |
Other, net (including currency translation and acquisitions) | (1) |  |  | 1 |
Balance at end of period | $ | 82 |  |  | $ | 83 |

10

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
I. DEBT
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. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with an aggregate commitment of $750 million, was terminated.
The Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries, in U.S. dollars, European euros, British Pounds Sterling, Canadian dollars and certain other currencies for revolving credit loans, swingline loans and letters of credit. Borrowings under the revolving credit loans denominated in any agreed upon currency other than U.S. dollars are limited to $500 million, equivalent. We can also borrow swingline loans up to $100 million and obtain letters of credit of up to $25 million; outstanding letters of credit under the Credit Agreement reduce our borrowing capacity. At March 31, 2021, we had no outstanding standby letters of credit under the Credit Agreement.
Revolving credit loans bear interest under the Credit Agreement, at our option, at (A) a rate per annum equal to the greater of (i) the JPMorgan Chase Bank, N.A. prime rate, (ii) the Federal Reserve Bank of New York effective rate plus 0.50% and (iii) if available, adjusted LIBO Rate plus 1.0% (the "Alternative Base Rate"); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) if available, adjusted LIBO Rate plus an applicable margin based upon our then-applicable corporate credit ratings. The foreign currency revolving credit loans bear interest at a rate equal to adjusted LIBO Rate, if available, plus an applicable margin based upon our then-applicable corporate credit ratings.
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.
In order for us to borrow under the Credit Agreement, there must not be any default in our covenants in the Credit Agreement (i.e., in addition to the two financial covenants, principally limitations on subsidiary debt, negative pledge restrictions, legal compliance requirements and maintenance of properties and insurance) and our representations and warranties in the Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since December 31, 2018, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and no borrowings were outstanding at March 31, 2021.
11

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
J. STOCK-BASED COMPENSATION
Our 2014 Long Term Stock Incentive Plan provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors. At March 31, 2021, outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, performance restricted stock units, and phantom stock awards.
Pre-tax compensation expense included in income from continuing operations for these stock-based incentives was as follows, in millions:

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Long-term stock awards |  |  |  |  | $ | 3 |  |  | $ | 4 |
Stock options |  |  |  |  | 4 |  |  | 3 |
Restricted stock units |  |  |  |  | 19 |  |  | 8 |
Performance restricted stock units |  |  |  |  | 2 |  |  | 1 |
Phantom stock awards |  |  |  |  | 2 |  |  | — |
Total |  |  |  |  | $ | 30 |  |  | $ | 16 |

Long-Term Stock Awards. Prior to the amendment of our 2014 Long Term Stock Incentive Plan in December 2019, we granted long-term stock awards to our key employees and non-employee Directors. We did not grant shares of long-term stock awards in the three-month periods ended March 31, 2021 and 2020.
Our long-term stock award activity was as follows, shares in millions:

| Three Months Ended March 31,
| 2021 |  | 2020
Unvested stock award shares at January 1 | 1 |  |  | 2 |
Weighted average grant date fair value | $ | 36 |  |  | $ | 34 |
Stock award shares vested | — |  |  | 1 |
Weighted average grant date fair value | $ | 34 |  |  | $ | 32 |
Stock award shares forfeited | — |  |  | — |
Weighted average grant date fair value | $ | 37 |  |  | $ | 35 |
Unvested stock award shares at March 31 | 1 |  |  | 1 |
Weighted average grant date fair value | $ | 37 |  |  | $ | 36 |

At March 31, 2021 and 2020, there was $18 million and $32 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of two years and three years at March 31, 2021 and 2020, respectively.
The total market value (at the vesting date) of stock award shares which vested was $26 million and $29 million during the three-month periods ended March 31, 2021 and 2020, respectively.
12

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
J. STOCK-BASED COMPENSATION (Continued)
Stock Options. Stock options are granted to certain key employees.
We granted 331,970 shares of stock options in the three-month period ended March 31, 2021 with a grant date weighted average exercise price of approximately $56 per share.
Our stock option activity was as follows, shares in millions:

|  | Three Months Ended March 31,
|  | 2021 |  |  | 2020
Option shares outstanding, January 1 |  | 2 |  |  |  | 3 |
Weighted average exercise price | $ | 33 |  |  | $ | 27 |
Option shares granted |  | 1 |  |  |  | 1 |
Weighted average exercise price | $ | 56 |  |  | $ | 48 |
Option shares exercised |  | — |  |  |  | 1 |
Aggregate intrinsic value on date of exercise (A) | $ | — |  | $ | 22 million
Weighted average exercise price | $ | — |  |  | $ | 17 |
Option shares forfeited |  | — |  |  |  | — |
Weighted average exercise price | $ | 11 |  |  | $ | 42 |
Option shares outstanding, March 31 |  | 3 |  |  |  | 3 |
Weighted average exercise price | $ | 36 |  |  | $ | 32 |
Weighted average remaining option term (in years) |  | 7 |  |  | 7
Option shares vested and expected to vest, March 31 |  | 3 |  |  |  | 3 |
Weighted average exercise price | $ | 36 |  |  | $ | 32 |
Aggregate intrinsic value (A) | $ | 65 million |  | $ | 14 million
Weighted average remaining option term (in years) |  | 6 |  |  | 7
Option shares exercisable (vested), March 31 |  | 2 |  |  |  | 1 |
Weighted average exercise price | $ | 30 |  |  | $ | 26 |
Aggregate intrinsic value (A) | $ | 51 million |  | $ | 13 million
Weighted average remaining option term (in years) |  | 5 |  |  | 6

(A) Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price), multiplied by the number of shares.
At March 31, 2021 and 2020, there was $6 million and $9 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 two years and three years at March 31, 2021 and 2020, respectively.
13

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

| Three Months Ended March 31,
| 2021 |  | 2020
Weighted average grant date fair value | $ | 13.61 |  |  | $ | 10.67 |
Risk-free interest rate | 0.75 | % |  | 1.53 | %
Dividend yield | 1.67 | % |  | 1.14 | %
Volatility factor | 30.00 | % |  | 24.00 | %
Expected option life | 6 years |  | 6 years

Restricted Stock Units. Restricted stock units are granted to our key employees and non-employee Directors. These grants did not cause net share dilution due to our practice of repurchasing and retiring an equal number of shares in the open market.
We granted 635,840 restricted stock units in the three-month period ended March 31, 2021 with a weighted average grant date fair value of $56 per share. In the three-month period ended March 31, 2021, 126,295 shares were issued and 8,789 restricted stock units were forfeited. During the three-month period ended March 31, 2020, we granted 394,970 restricted stock units with a grant date fair value of approximately $47 per share and 4,760 restricted stock units were forfeited.
At March 31, 2021 and 2020, there was $23 million and $10 million, respectively, of unrecognized compensation expense related to unvested restricted stock units; such units had a weighted average remaining vesting period of two years and three years at March 31, 2021 and 2020, respectively.
The total market value (at the vesting date) of restricted stock units which vested was $7 million during the three-month period ended March 31, 2021.
Performance Restricted Stock Units. Under our Long Term Incentive Program, we grant performance restricted stock units to certain senior executives. These performance restricted stock units will vest and share awards will be issued at no cost to the employees, subject to our achievement of specified performance metrics established by our Compensation Committee over a three-year performance period and the recipient's continued employment through the share award date.
During the three-month period ended March 31, 2021, we granted 85,360 performance restricted stock units with a grant date fair value of approximately $53 per share and 104,757 shares were issued. No performance restricted stock units were forfeited during the three-month period ended March 31, 2021. During the three-month period ended March 31, 2020, we granted 133,390 performance restricted stock units with a grant date fair value of approximately $34 per share and 151,724 shares were issued.
14

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
K. EMPLOYEE RETIREMENT PLANS
Net periodic pension cost for our defined-benefit pension plans, with the exception of service cost, is recorded in other income (expense), net, in our condensed consolidated statement of operations. Net periodic pension cost for our defined-benefit pension plans was as follows, in millions:

| Three Months Ended March 31,
| 2021 |  | 2020
| Qualified |  | Non-Qualified |  | Qualified |  | Non-Qualified
Service cost | $ | 1 |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |
Interest cost | 8 |  |  | 1 |  |  | 6 |  |  | 1 |
Expected return on plan assets | (4) |  |  | — |  |  | (6) |  |  | — |
Amortization of net loss | 6 |  |  | 1 |  |  | 6 |  |  | 1 |
Net periodic pension cost | $ | 11 |  |  | $ | 2 |  |  | $ | 7 |  |  | $ | 2 |

As of January 1, 2010, substantially all of our domestic and foreign qualified and domestic non-qualified defined-benefit pension plans were frozen to future benefit accruals. In December 2019, our Board of Directors approved the termination of our qualified domestic defined-benefit pension plans. These plans are expected to be settled in the second quarter of 2021.
L. RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE LOSS
The reclassifications from accumulated other comprehensive loss to the condensed consolidated statements of operations were as follows, in millions:

|  |  | Amounts Reclassified |  |
Accumulated Other Comprehensive Loss |  |  | Three Months Ended March 31, |  | Statement of Operations Line Item
|  |  |  | 2021 |  | 2020 |
Amortization of defined-benefit pension and other post-retirement benefits: |  |  |  |  |  |  |  |  |
Actuarial losses, net |  |  |  |  | $ | 7 |  |  | $ | 7 |  |  | Other income (expense), net
Tax (benefit) |  |  |  |  | (2) |  |  | (2) |  |  |
Net of tax |  |  |  |  | $ | 5 |  |  | $ | 5 |  |  |
Interest rate swaps (A) |  |  |  |  | $ | 2 |  |  | $ | — |  |  | Interest expense
Tax expense |  |  |  |  | 5 |  |  | — |  |  |
Net of tax |  |  |  |  | $ | 7 |  |  | $ | — |  |  |

(A) Upon full repayment and retirement of the 5.950% Notes due March 15, 2022 in the first quarter of 2021, we recognized the remaining interest rate swap loss and related disproportionate tax expense.
15

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
M. SEGMENT INFORMATION
Information by segment and geographic area was as follows, in millions:

|  |  | Three Months Ended March 31,
|  |  |  |  |  |  |  |  | 2021 |  | 2020 |  | 2021 |  | 2020
|  |  |  |  | Net Sales (A) |  | Operating Profit (Loss)
Operations by segment: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Plumbing Products |  |  |  |  |  |  |  |  | $ | 1,249 |  |  | $ | 955 |  |  | $ | 252 |  |  | $ | 157 |
Decorative Architectural Products |  |  |  |  |  |  |  |  | 721 |  |  | 626 |  |  | 142 |  |  | 95 |
Total |  |  |  |  |  |  |  |  | $ | 1,970 |  |  | $ | 1,581 |  |  | $ | 394 |  |  | $ | 252 |
Operations by geographic area: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
North America |  |  |  |  |  |  |  |  | $ | 1,529 |  |  | $ | 1,258 |  |  | $ | 308 |  |  | $ | 210 |
International, principally Europe |  |  |  |  |  |  |  |  | 441 |  |  | 323 |  |  | 86 |  |  | 42 |
Total |  |  |  |  |  |  |  |  | $ | 1,970 |  |  | $ | 1,581 |  |  | 394 |  |  | 252 |
General corporate expense, net |  |  |  |  |  |  |  |  |  |  |  |  | (29) |  |  | (27) |
Operating profit |  |  |  |  |  |  |  |  |  |  |  |  | 365 |  |  | 225 |
Other income (expense), net |  |  |  |  |  |  |  |  |  |  |  |  | (208) |  |  | (51) |
Income from continuing operations before income taxes |  |  |  |  |  |  |  |  |  |  |  |  | $ | 157 |  |  | $ | 174 |

(A) Inter-segment sales were not material.
N. OTHER INCOME (EXPENSE), NET
Other, net, which is included in other income (expense), net, was as follows, in millions:

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Income from cash and cash investments |  |  |  |  | $ | — |  |  | $ | 1 |
Equity investment income, net |  |  |  |  | 2 |  |  | — |
Foreign currency transaction losses |  |  |  |  | — |  |  | (9) |
Net periodic pension and post-retirement benefit cost |  |  |  |  | (11) |  |  | (8) |
Dividend income |  |  |  |  | 3 |  |  | — |
Total other, net |  |  |  |  | $ | (6) |  |  | $ | (16) |

16

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
O. INCOME PER COMMON SHARE
Reconciliations of the numerators and denominators used in the computations of basic and diluted income per common share were as follows, in millions:

|  |  | Three Months Ended March 31,
|  |  |  |  | 2021 |  | 2020
Numerator (basic and diluted): |  |  |  |  |  |  |
Income from continuing operations |  |  |  |  | $ | 94 |  |  | $ | 133 |
Less: Allocation to redeemable noncontrolling interest |  |  |  |  | 6 |  |  | — |
Less: Allocation to unvested restricted stock awards |  |  |  |  | — |  |  | 1 |
Income from continuing operations attributable to common shareholders |  |  |  |  | 88 |  |  | 132 |
Income from discontinued operations, net |  |  |  |  | — |  |  | 397 |
Less: Allocation to unvested restricted stock awards |  |  |  |  | — |  |  | 3 |
Income from discontinued operations, net attributable to common shareholders |  |  |  |  | — |  |  | 394 |
Net income attributable to common shareholders |  |  |  |  | $ | 88 |  |  | $ | 526 |
Denominator: |  |  |  |  |  |  |
Basic common shares (based upon weighted average) |  |  |  |  | 256 |  |  | 273 |
Add: Stock option dilution |  |  |  |  | 1 |  |  | 1 |
Diluted common shares |  |  |  |  | 257 |  |  | 274 |

For the three-month period ended March 31, 2021, we allocated undistributed earnings to the unvested restricted stock awards. For the three-month period ended March 31, 2020, we allocated dividends and undistributed earnings to the unvested restricted stock awards.
Additionally, 188,000 and 582,000 common shares for the three-month periods ended March 31, 2021 and 2020, respectively, related to stock options, and 7,000 restricted stock units for the three-month period ended March 31, 2020 were excluded from the computation of diluted income per common share due to their antidilutive effect.
Effective February 10, 2021, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2019. In the first three months of 2021, we repurchased and retired 5.5 million shares of our common stock (including 0.6 million shares to offset the dilutive impact of restricted stock units granted in the first three months of the year), for approximately $303 million. At March 31, 2021, we had $1.9 billion remaining under the 2021 authorization.
On the basis of amounts paid (declared), cash dividends per common share were $0.140 for the three-month period ended March 31, 2021 and $0.135 ($0.135) for the three-month period ended March 31, 2020, respectively.
17

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Concluded)
P. OTHER COMMITMENTS AND CONTINGENCIES
We are involved in claims and litigation, including class actions, mass torts and regulatory proceedings, which arise in the ordinary course of our business. The types of matters may include, among others: competition, product liability, employment, warranty, advertising, contract, personal injury, environmental, intellectual property, and insurance coverage. We believe we have adequate defenses in these matters. We are also subject to product safety regulations, product recalls and direct claims for product liabilities. We believe the likelihood that the outcome of these claims, litigation and product safety 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 or penalties, enter into settlements of claims or revise our expectations regarding the outcome of these matters, which could materially impact our results of operations.
Q. INCOME TAXES
Our effective tax rate was 27 percent and 19 percent for the three-month periods ended March 31, 2021 and 2020, respectively. The increase in the rate was primarily due 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 increase in the rate was also due to an additional $4 million income tax benefit on stock-based compensation, recognized in the first quarter of 2020.
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MASCO CORPORATION
Item 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
19

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 fo r 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.
20

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.
21

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.
22

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.
23

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

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

MASCO CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding legal proceedings involving us is set forth in Note P to our condensed consolidated financial statements included in Part I, Item 1 of this Report and is incorporated herein by reference.
Item 1A. Risk Factors
There have been no material changes to the risk factors of the Company set forth in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding the repurchase of our common stock for the three-month period ended March 31, 2021 under the 2019 share repurchase authorization:

Period | Total Number Of Shares Purchased |  | Average Price Paid Per Common Share |  | Total Number Of Shares Purchased As Part Of Publicly Announced Plans or Programs (A) |  | Maximum Value Of Shares That May Yet Be Purchased Under The Plans Or Programs
1/1/21 - 1/31/21 | 2,031,375 |  |  | $ | 55.45 |  |  | 2,031,375 |  |  | 661,594,923 |
2/1/21 - 2/9/21 | 742,102 |  |  | $ | 55.93 |  |  | 742,102 |  |  | 620,087,704 |
Total for the quarter | 2,773,477 |  |  | $ | 55.58 |  |  | 2,773,477 |  |  | 620,087,704 |

(A) In September 2019, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise. This authorization was replaced in February 2021.
The following table provides information regarding the repurchase of our common stock for the three-month period ended March 31, 2021 under the 2021 share repurchase authorization:

Period | Total Number Of Shares Purchased |  | Average Price Paid Per Common Share |  | Total Number Of Shares Purchased As Part Of Publicly Announced Plans or Programs (A) |  | Maximum Value Of Shares That May Yet Be Purchased Under The Plans Or Programs
2/10/21 - 2/28/21 | 1,757,968 |  |  | $ | 54.05 |  |  | 1,757,968 |  |  | 1,904,983,216 |
3/1/21 - 3/31/21 | 1,000,029 |  |  | $ | 54.22 |  |  | 1,000,029 |  |  | 1,850,760,865 |
Total for the quarter | 2,757,997 |  |  | $ | 54.11 |  |  | 2,757,997 |  |  | 1,850,760,865 |

(A) Effective February 10, 2021, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2019.
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MASCO CORPORATION
PART II. OTHER INFORMATION, Continued
Item 6. Exhibits

| 4.1 | – | Resolutions establishing the terms of the 1.500% Notes Due 2028 and form of global note. Incorporated by reference to Exhibit 4.1 to Masco Corporation’s Current Report on Form 8-K dated and filed on March 4, 2021.
| 4.2 | – | Resolutions establishing the terms of the 2.000% Notes Due 2031 and form of global note. Incorporated by reference to Exhibit 4.2 to Masco Corporation’s Current Report on Form 8-K dated and filed on March 4, 2021.
| 4.3 | – | Resolutions establishing the terms of the 3.125% Notes Due 2051 and form of global note. Incorporated by reference to Exhibit 4.3 to Masco Corporation’s Current Report on Form 8-K dated and filed on March 4, 2021.
| 31a | – | Certification by Chief Executive Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
| 31b | – | Certification by Chief Financial Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934
| 32 | – | Certification Required by Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code
| 101 | – | The following financial information from Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Shareholders' Equity, and (vi) Notes to Condensed Consolidated Financial Statements.
| 104 | – | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

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

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

April 28, 2021
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