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 September 30, ~~2017~~2020

☐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)		(~~IRS~~I.R.S. Employer
~~Incorporation)~~	Identification No.)

17450 College Parkway, ~~Livonia, Michigan~~

Livonia,

Michigan

48152

(Address of Principal Executive Offices)

(Zip Code)

(313) 274-7400

(~~Registrant’s~~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. x☒ Yes o☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate website, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). x☒ Yes o☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of ~~“large~~"large accelerated filer,~~” “accelerated~~" "accelerated filer,~~” “smaller~~" "smaller reporting company,”" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filerx

☒

Accelerated filero

☐

Non-accelerated filero

☐

Smaller reporting companyo

☐

~~(Do not check if a smaller reporting company)~~

Emerging growth companyo

☐

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o☐ Yes x☒ No

Indicate the number of shares outstanding of each of the ~~issuer’s~~issuer's classes of common stock, as of the latest practicable date.



Class						Shares Outstanding at September 30, ~~2017~~2020
Common stock, par value $1.00 per share						~~314,565,292~~

~~MASCO CORPORATION~~

~~INDEX~~

261,675,891

MASCO CORPORATION

INDEX


				Page No.
PART I.			FINANCIAL INFORMATION
Item 1.			Financial Statements (Unaudited):
			Condensed Consolidated Balance Sheets — as at ~~September~~Sept ember 30, ~~2017~~2020 and December 31, ~~2016~~2019	1
			Condensed Consolidated Statements of Operations for the Three and Nine Months Ended ~~September~~ Sep tember 30, ~~2017~~2020 and ~~2016~~2019	2
			Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019	3
			Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019	4
			Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019	5
			Notes to Condensed Consolidated Financial Statements	67
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations	1822
Item 4.			Controls and Procedures	2429
PART II.			OTHER INFORMATION	2530
Item 1.			Legal Proceedings	2530
Item 1A.			Risk Factors	2530

Item 2.6.			~~Unregistered Sales of Equity Securities and Use of Proceeds~~Exhibits	2531
			~~Item 6.~~Signature	~~Exhibits~~32	26
	~~Signature~~	27

MASCO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

September 30, ~~2017~~2020 and December 31, ~~2016~~2019

(In Millions, Except Share Data)


	September 30, 2017			December 31, 2016				September 30, 2020		December 31, 2019
ASSETS							ASSETS
Current assets:
Current Assets:							Current Assets:
Cash and cash investments	$	1,141		$	990		Cash and cash investments	$	1,326	$	697
Short-term bank deposits	77			201

Receivables	1,128			917			Receivables	1,262		997

Prepaid expenses and other	96			114			Prepaid expenses and other	88		90
Assets held for sale							Assets held for sale	0		173
Inventories:							Inventories:
Finished goods	478			366			Finished goods	514		485
Raw material	280			254			Raw material	255		211
Work in process	108			92			Work in process	42		58
	866			712				811		754
Total current assets	3,308			2,934			Total current assets	3,487		2,711
Property and equipment, net	1,097			1,060			Property and equipment, net	878		878
Operating lease right-of-use assets							Operating lease right-of-use assets	156		176
Goodwill	801			832			Goodwill	528		509
Other intangible assets, net	156			154			Other intangible assets, net	253		259
Other assets	121			157			Other assets	273		139
Assets held for sale							Assets held for sale	0		355
Total assets	$	5,483		$	5,137		Total assets	$	5,575	$	5,027

LIABILITIES							LIABILITIES
Current liabilities:
Current Liabilities:							Current Liabilities:
Accounts payable	$	916		$	800		Accounts payable	$	933	$	697
Notes payable	117			2			Notes payable	5		2
Accrued liabilities	675			658			Accrued liabilities	799		700
Liabilities held for sale							Liabilities held for sale	0		149
Total current liabilities	1,708			1,460			Total current liabilities	1,737		1,548
Long-term debt	2,969			2,995			Long-term debt	2,787		2,771
Noncurrent operating lease liabilities							Noncurrent operating lease liabilities	143		162
Other liabilities	746			785			Other liabilities	567		589
Liabilities held for sale							Liabilities held for sale	0		13
Total liabilities	5,423			5,240			Total liabilities	5,234		5,083

Commitments and contingencies (Note N)
Commitments and contingencies (Note P)							Commitments and contingencies (Note P)

EQUITY							EQUITY
Masco Corporation’s shareholders’ equity:
Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2017 – 311,500,000; 2016 – 318,000,000	311			318
Preferred shares authorized: 1,000,000; Issued and outstanding: 2017 and 2016 – None	—			—
Masco Corporation's shareholders' equity:							Masco Corporation's shareholders' equity:
Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2020 – 260,500,000; 2019 – 275,600,000							Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2020 – 260,500,000; 2019 – 275,600,000	261		276
Preferred shares authorized: 1,000,000; Issued and outstanding: 2020 and 2019 – NaN							Preferred shares authorized: 1,000,000; Issued and outstanding: 2020 and 2019 – NaN	0		0
Paid-in capital	—			—			Paid-in capital	21		0
Retained deficit	(343		)	(381		)
Retained earnings (deficit)							Retained earnings (deficit)	15		(332)
Accumulated other comprehensive loss	(127		)	(235		)	Accumulated other comprehensive loss	(156)		(179)
Total Masco Corporation’s shareholders’ deficit	(159		)	(298		)
Total Masco Corporation's shareholders' equity (deficit)							Total Masco Corporation's shareholders' equity (deficit)	141		(235)
Noncontrolling interest	219			195			Noncontrolling interest	200		179
Total equity	60			(103		)	Total equity	341		(56)
Total liabilities and equity	$	5,483		$	5,137		Total liabilities and equity	$	5,575	$	5,027

See notes to condensed consolidated financial statements.

MASCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019

(In Millions, Except Per Common Share Data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales	$	1,983	$	1,716	$	5,328	$	5,068
Cost of sales	1,231		1,105		3,401		3,262
Gross profit	752		611		1,927		1,806
Selling, general and administrative expenses	328		322		939		964
Impairment charge for other intangible assets	0		0		0		9
Operating profit	424		289		988		833
Other income (expense), net:
Interest expense	(40)		(39)		(110)		(119)
Other, net	(4)		(9)		(22)		(17)
	(44)		(48)		(132)		(136)
Income from continuing operations before income taxes	380		241		856		697
Income tax expense	87		66		202		181
Income from continuing operations	293		175		654		516
(Loss) income from discontinued operations, net	0		(37)		411		1
Net income	293		138		1,065		517
Less: Net income attributable to noncontrolling interest	18		12		36		35
Net income attributable to Masco Corporation	$	275	$	126	$	1,029	$	482

Income (loss) per common share attributable to Masco Corporation:
Basic:
Income from continuing operations	$	1.05	$	.57	$	2.31	$	1.66
(Loss) income from discontinued operations, net	0		(.13)		1.54		0
Net income	$	1.05	$	.44	$	3.85	$	1.66
Diluted:
Income from continuing operations	$	1.05	$	.56	$	2.31	$	1.65
(Loss) income from discontinued operations, net	0		(.12)		1.54		0
Net income	$	1.05	$	.44	$	3.85	$	1.65

Amounts attributable to Masco Corporation:
Income from continuing operations	$	275	$	163	$	618	$	481
(Loss) income from discontinued operations, net	0		(37)		411		1
Net income	$	275	$	126	$	1,029	$	482

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net sales $ 1,936
$ 1,877
$ 5,770
$ 5,598
Cost of sales 1,286
1,263
3,775
3,715
Gross profit 650
614
1,995
1,883
Selling, general and administrative expenses 355
345
1,090
1,045
Operating profit 295
269
905
838
Other income (expense), net:

Interest expense (43 ) (43 ) (239 ) (186 )
Other, net 4
1
58
5
(39 ) (42 ) (181 ) (181 )
Income before income taxes 256
227
724
657
Income tax expense 96
81
243
229
Net income 160
146
481
428
Less: Net income attributable to noncontrolling interest 12
12
35
35
Net income attributable to Masco Corporation $ 148
$ 134
$ 446
$ 393

Income per common share attributable to Masco Corporation:

Basic:

Net income $ .47
$ .41
$ 1.40
$ 1.18
Diluted:

Net income $ .46
$ .40
$ 1.38
$ 1.17

See notes to condensed consolidated financial statements.

MASCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)

For the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019

(In Millions)


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016			2017		2016				2020		2019		2020		2019
Net income	$	160	$	146		$	481	$	428		Net income	$	293	$	138	$	1,065	$	517
Less: Net income attributable to noncontrolling interest	12		12			35		35			Less: Net income attributable to noncontrolling interest	18		12		36		35
Net income attributable to Masco Corporation	$	148	$	134		$	446	$	393		Net income attributable to Masco Corporation	$	275	$	126	$	1,029	$	482
Other comprehensive income (loss), net of tax (Note J):
Other comprehensive income (loss), net of tax (Note L):											Other comprehensive income (loss), net of tax (Note L):
Cumulative translation adjustment	$	33	$	(1	)	$	119	$	(10	)	Cumulative translation adjustment	$	32	$	(13)	$	15	$	(11)
Interest rate swaps	—		—			2		1			Interest rate swaps	0		0		1		1
Pension and other post-retirement benefits	4		3			11		9			Pension and other post-retirement benefits	5		4		15		12
Realized gain on available-for-sale securities	—		—			—		(1		)
Other comprehensive income (loss)	37		2			132		(1		)
Less: Other comprehensive income attributable to noncontrolling interest	6		2			24		4

Other comprehensive income (loss), net of tax											Other comprehensive income (loss), net of tax	37		(9)		31		2
Less: Other comprehensive income (loss) attributable to noncontrolling interest											Less: Other comprehensive income (loss) attributable to noncontrolling interest	9		(8)		8		(7)
Other comprehensive income (loss) attributable to Masco Corporation	$	31	$	—		$	108	$	(5	)	Other comprehensive income (loss) attributable to Masco Corporation	$	28	$	(1)	$	23	$	9
Total comprehensive income	$	197	$	148		$	613	$	427		Total comprehensive income	$	330	$	129	$	1,096	$	519
Less: Total comprehensive income attributable to the noncontrolling interest	18		14			59		39
Less: Total comprehensive income attributable to noncontrolling interest											Less: Total comprehensive income attributable to noncontrolling interest	27		4		44		28
Total comprehensive income attributable to Masco Corporation	$	179	$	134		$	554	$	388		Total comprehensive income attributable to Masco Corporation	$	303	$	125	$	1,052	$	491

See notes to condensed consolidated financial statements.

MASCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019

(In Millions)


	Nine Months Ended September 30,
	2020		2019
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Cash provided by operations	$	590	$	754
Increase in receivables	(294)		(136)
Increase in inventories	(66)		(27)
Increase in accounts payable and accrued liabilities, net	343		14
Net cash from operating activities	573		605

CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:


Retirement of notes	(400)		0
Purchase of Company common stock	(602)		(440)

Cash dividends paid	(108)		(105)
Dividends paid to noncontrolling interest	(23)		(42)
Issuance of notes, net of issuance costs	415		0
Debt extinguishment costs	(5)		0
Proceeds from the exercise of stock options	26		23
Employee withholding taxes paid on stock-based compensation	(25)		(21)
Increase (decrease) in debt, net	1		(3)

Credit Agreement and other financing costs	0		(2)
Net cash for financing activities	(721)		(590)

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Capital expenditures	(72)		(111)
Acquisition of business, net of cash acquired	(24)		0
Proceeds from disposition of:
Businesses, net of cash disposed	868		2

Other financial investments	2		1
Property and equipment	0		15


Other, net	(4)		(11)
Net cash from (for) investing activities	770		(104)

Effect of exchange rate changes on cash and cash investments	7		10

CASH AND CASH INVESTMENTS:
Increase (decrease) for the period	629		(79)
At January 1	697		559
At September 30	$	1,326	$	480

Nine Months Ended September 30,
2017 2016
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:

Cash provided by operations $ 745
$ 670
Increase in receivables (227 ) (245 )
Increase in inventories (143 ) (73 )
Increase in accounts payable and accrued liabilities, net 92
131
Net cash from operating activities 467
483

CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:

Retirement of notes (535 ) (1,300 )
Purchase of Company common stock (312 ) (242 )
Cash dividends paid (96 ) (95 )
Dividends paid to noncontrolling interest (35 ) (31 )
Issuance of notes, net of issuance costs 593
889
Debt extinguishment costs (104 ) (40 )
Issuance of Company common stock —
1
Employee withholding taxes paid on stock-based compensation (29 ) (40 )
Decrease in debt, net —
(2 )
Net cash for financing activities (518 ) (860 )

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:

Capital expenditures (113 ) (117 )
Proceeds from disposition of:

Business, net of cash disposed 128
—
Short-term bank deposits 206
223
Other financial investments 6
14
Property and equipment 6
—
Purchases of:

Short-term bank deposits (65 ) (151 )
Other, net (11 ) (9 )
Net cash from (for) investing activities 157
(40 )

Effect of exchange rate changes on cash and cash investments 45
(10 )

CASH AND CASH INVESTMENTS:

Increase (decrease) for the period 151
(427 )
At January 1 990
1,468
At September 30 $ 1,141
$ 1,041

See notes to condensed consolidated financial statements.

MASCO CORPORATION

CONSOLIDATED STATEMENTS OF ~~SHAREHOLDERS’~~SHAREHOLDERS' EQUITY (Unaudited)

For the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019

(In Millions, Except Per Common Share Data)

Total Common
Shares
($1 par value)
Paid-In
Capital
Retained Deficit
Accumulated
Other
Comprehensive
Loss

Noncontrolling
Interest
Balance, January 1, 2016 $ 58
$ 330
$ —
$ (300 ) $ (165 ) $ 193
Total comprehensive income (loss) 427

393
(5 ) 39
Shares issued (24 ) 3
(27 )

Shares retired:

Repurchased (252 ) (8 ) (8 ) (236 )

Surrendered (non-cash) (14 )

(14 )

Cash dividends declared (96 )

(96 )

Dividends paid to noncontrolling interest (31 )

(31 )
Stock-based compensation 35

35

Balance, September 30, 2016 $ 103
$ 325
$ —
$ (253 ) $ (170 ) $ 201

Balance, January 1, 2017 $ (103 ) $ 318
$ —
$ (381 ) $ (235 ) $ 195
Total comprehensive income 613

446
108
59
Shares issued (14 ) 2
(16 )

Shares retired:

Repurchased (312 ) (8 ) (6 ) (298 )

Surrendered (non-cash) (15 ) (1 )
(14 )

Cash dividends declared (96 )

(96 )

Dividends paid to noncontrolling interest (35 )

(35 )
Stock-based compensation 22

22

Balance, September 30, 2017 $ 60
$ 311
$ —
$ (343 ) $ (127 ) $ 219


	Total		Common Shares ($1 par value)		Paid-In Capital		Retained (Deficit) Earnings		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interest
Balance, January 1, 2019	$	69	$	294	$	0	$	(278)	$	(127)	$	180
Total comprehensive income	128						116		4		8
Shares issued	5		1		4
Shares retired:
Repurchased	(122)		(3)		(11)		(108)
Surrendered (non-cash)	(10)		(1)				(9)
Cash dividends declared	(35)						(35)

Stock-based compensation	7				7
Balance, March 31, 2019	$	42	$	291	$	0	$	(314)	$	(123)	$	188
Total comprehensive income	262						240		6		16
Shares issued	2		1		1
Shares retired:
Repurchased	(167)		(5)		(10)		(152)

Cash dividends declared	(35)						(35)
Dividends paid to noncontrolling interest	(42)										(42)
Stock-based compensation	9				9
Balance, June 30, 2019	$	71	$	287	$	0	$	(261)	$	(117)	$	162
Total comprehensive income (loss)	129						126		(1)		4
Shares issued	5				5
Shares retired:
Repurchased	(151)		(3)		(12)		(136)

Cash dividends declared	(38)						(38)
Stock-based compensation	7				7
Balance, September 30, 2019	$	23	$	284	$	0	$	(309)	$	(118)	$	166

MASCO CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Concluded)

For the Three and Nine Months Ended September 30, 2020 and 2019

(In Millions, Except Per Common Share Data)


	Total		Common Shares ($1 par value)		Paid-In Capital		Retained (Deficit) Earnings		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interest
Balance, January 1, 2020	$	(56)	$	276	$	0	$	(332)	$	(179)	$	179
Cumulative effect of adoption of new credit loss standard (refer to Note A)	(1)						(1)
Adjusted balance, January 1, 2020	$	(57)	$	276	$	0	$	(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	$	0	$	(412)	$	(199)	$	183
Total comprehensive income	252						224		15		13

Shares retired:
Repurchased	0		(3)		3

Cash dividends declared	(35)						(35)
Dividends paid to noncontrolling interest	(23)										(23)
Stock-based compensation	8				8
Balance, June 30, 2020	$	37	$	260	$	11	$	(223)	$	(184)	$	173
Total comprehensive income	330						275		28		27
Shares issued	3		1		2



Cash dividends declared	(37)						(37)
Stock-based compensation	8				8
Balance, September 30, 2020	$	341	$	261	$	21	$	15	$	(156)	$	200

See notes to condensed consolidated financial statements.

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 September 30, ~~2017,~~2020, our results of operations and comprehensive income (loss) for the three-month and nine-month periods ended September 30, ~~2017~~2020 and ~~2016,~~2019, cash flows for the nine-month period ended September 30, 2020 and ~~cash flows~~2019 and changes in shareholders' equity for the three-month and nine-month periods ended September 30, ~~2017~~2020 and ~~2016.~~2019. The condensed consolidated balance sheet at December 31, ~~2016~~2019 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.

~~Reclassification.~~ Reclassifications. Certain prior year amounts have been reclassified to conform to the ~~2017~~2020 presentation in the condensed consolidated financial statements. In our condensed consolidated statements of cash flows, the cash flows from discontinued operations are not separately classified.

Stock-Based Compensation. We issue stock-based incentives in various forms to our employees and non-employee Directors. Outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units ("RSUs"), performance restricted stock units ("PRSUs") and phantom stock awards.

In December 2019, our Organization and Compensation Committee of the Board of Directors (the "Compensation Committee") amended the terms of equity awards under our 2014 Long Term Stock Incentive Plan to provide that newly issued stock options, RSUs and phantom stock awards vest over a three-year period and redefined retirement-eligibility as age 65 or age 55 with at least 10 years of continuous service.

As such, compensation expense for equity awards granted in 2020 and thereafter is recognized ratably over the shorter of the vesting period, typically three years, or the length of time until the grantee becomes retirement eligible.

In February 2020, our Compensation Committee approved the grant of RSUs under the Company’s 2014 Long Term Stock Incentive Plan. We measure compensation expense for RSUs at the market price of our common stock at the grant date.

Allowance for Credit Losses. We do business with a number of customers, including certain home center retailers. We monitor our exposure for credit losses on our customer receivable balances and other financial investments measured at amortized cost and the credit worthiness of our customers on an on-going basis, including requiring the completion of credit applications and performing periodic reviews of our open accounts receivable. We record allowances for doubtful accounts for estimated losses resulting from the inability of our customers to fulfill their required payment obligation to us. Allowances are estimated at each of our businesses based upon specific customer balances, where a risk of loss has been identified, and also include a provision for losses based upon historical collection experience and write-off activity as well as reasonable and supportable forecast information that considers macro-economic factors and industry-specific trends associated with our businesses, among others. Our receivables balances are generally due in less than one year.

Recently Adopted Accounting Pronouncements.In ~~July 2015,~~June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value, as opposed to the lower of cost or market. We adopted ASU 2015-11 on January 1, 2017. The adoption of the new standard did not have an impact on our financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which requires the tax effects related to share-based payments to be recorded through the income statement, simplifies the accounting requirements for forfeitures and employers' tax withholding requirements, and modifies the presentation of certain items on the statement of cash flows. We adopted ASU 2016-09 on January 1, 2017, using the retrospective options for reclassifying excess tax benefit from stock-based compensation and employee withholding taxes paid on stock-based compensation within our statements of cash flows. The adoption of the remaining requirements did not have an impact on our financial position or results of operation. As a result of this adoption, we increased cash flows from (for) operating activities and decreased cash flows from (for) financing activities by $61 million for the nine-month period ended September 30, 2016. For full year 2016 and 2015, we currently estimate increasing cash flows from (for) operating activities and decreasing cash flows from (for) financing activities by $62 million and $111 million, respectively. Subsequent to adoption, tax effects related to employee share-based payments will be recorded to income tax expense, thus increasing the volatility in our effective tax rate.

In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We early adopted ASU 2017-04 effective January 1, 2017. The adoption of the new standard did not have an impact on our financial position or results of operations.

~~Recently Issued Accounting Pronouncements.~~ In May 2014, the FASB issued a new standard for revenue recognition, Accounting Standards Codification ("ASC") 606. The purpose of ASC 606 is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability across industries. The standard allows for either a full retrospective or modified retrospective method of adoption. We will adopt this standard on its effective date, January 1, 2018, under the full retrospective method of adoption. We do not expect the adoption will have a material impact on our financial position or results of operations. We have finalized our accounting policy, trained our business units on the new standard and are currently evaluating our internal controls under the new standard. We have not experienced significant issues in our implementation process.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for us for annual periods beginning January 1, 2018. The adoption of this standard is not expected to have a material impact on our financial position or results of operations.

In February 2016, the FASB issued a new standard for leases, ASC 842, which changes the accounting model for identifying and accounting for leases. ASC 842 is effective for us for annual periods beginning January 1, 2019 and requires retrospective application. We expect this standard to increase our total assets and total liabilities; however, we are currently evaluating the magnitude of the impact the adoption of this new standard will have on our financial position and results of operations.

~~MASCO CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)~~

~~A. ACCOUNTING POLICIES (Concluded)~~

~~In June 2016, the FASB~~ issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which modifies the methodology for recognizing loss impairments on certain types of financial ~~instruments.~~instruments, including receivables. The new methodology requires an entity to estimate the credit losses expected over the life of an exposure. Additionally, ASU 2016-13 amends the current available-for-sale security other-than-temporary impairment model for debt securities. We adopted ASU 2016-13 and recorded a cumulative-effect adjustment to opening retained earnings on January 1, 2020. The adoption of the standard did not have a material effect on our financial position or results of operations.

In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," which allows for the capitalization of certain implementation costs incurred in a hosting arrangement that is a service contract. We adopted ASU 2018-15 prospectively beginning on January 1, 2020. The adoption of the standard did not have an impact on our financial position or results of operations.

MASCO CORPORATION

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

A. ACCOUNTING POLICIES (Concluded)

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. We early adopted ASU 2019-12 on January 1, 2020. The adoption of the standard did not have an impact on our financial position or results of operations.

Recently Issued Accounting Pronouncements. In January 2020, the 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. ASU 2020-01 is effective for us for annual periods beginning January 1, ~~2020.~~2021. Early adoption is permitted. We ~~are currently evaluating the impact the adoption of~~plan to adopt this ~~new~~ standard ~~will have on our financial position and results of operations.~~

In October 2016, the FASB issued ASU 2016-16, "Income Taxes (Topic 740): Intra-Entity Asset Transfers of Assets Other than Inventory," which no longer allows the tax effects of intra-entity asset transfers (intercompany sales) of assets other than inventory to be deferred until the transferred asset is sold to a third party or otherwise recovered through use. The new standard requires the tax expense from the sale of the asset in the seller’s tax jurisdiction and the corresponding basis differences in the buyer’s jurisdiction to be recognized when the transfer occurs even though the pre-tax effects of the transaction are eliminated in consolidation. ASU 2016-16 is effective for us for annual periods beginning January 1, ~~2018. The~~2021 and do not anticipate that the adoption of this ~~standard is not expected to have a material impact on our financial position or results of operations.~~

In March 2017, the FASB issued ASU 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which modifies the presentation of net periodic pension and post-retirement benefit cost ("net benefit cost") in the income statement and the components eligible for capitalization as assets. ASU 2017-07 is effective for us for annual periods beginning January 1, 2018. We do not expect the adoption of the new standard will have a material impact on our financial position or results of operations. ~~For full year 2016,~~

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional guidance and expedients for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are intended to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in this update are elective and are effective upon issuance. We are currently assessing whether and how we ~~expect $31~~will elect to apply ASU 2020-04.

B. ACQUISITIONS

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 the Plumbing Products segment. In connection with this acquisition, we recognized $10 million of ~~expense~~definite-lived intangible assets, primarily related to ~~be retrospectively reclassified~~technology, which is being amortized on a straight-line basis over a weighted average amortization period of 5 years. We also recognized $12 million of goodwill, which is not tax deductible, and is related primarily to the expected synergies from ~~operating profit to other income (expense), net, within~~combining the operations into our ~~results of operations. For~~business. During the ~~nine-month~~three-month period ended September 30, ~~2017,~~2020, we ~~expect $22 million of expense to be retrospectively reclassified from operating profit to other income (expense), net, within our results of operations.~~

~~In May 2017,~~revised the FASB issued ASU 2017-09, "Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting," which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification. ASU 2017-09 is effective for us for annual periods beginning January 1, 2018, and is applied prospectively. Upon adoption, modification accounting is required only if the fair value, the vesting conditions, or the classificationallocation of the ~~award (as equity or liability) changes~~purchase price to certain identifiable assets based on analysis of information as ~~a result~~ of the ~~change~~acquisition date that has been made available through September 30, 2020, which resulted in ~~terms or conditions.~~a $2 million increase to goodwill.

~~In August 2017,~~

C. DISCONTINUED OPERATIONS

On September 6, 2019, we completed the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," which improves and simplifies accounting rules around hedge accounting and better portrays the economic resultsdivestiture of an entity’s risk management activities in its financial statements. ASU 2017-12 is effective for us for annual periods beginning January 1, 2019. We are currently evaluating the impact the adoption of this new standard will have on our ~~financial position and results of operations.~~

~~B. DIVESTITURES~~

~~In the second quarter of 2017 we divested of Arrow Fastener Co., LLC~~UK Window Group business ("~~Arrow"~~UKWG"), a manufacturer and distributor of ~~fastening tools,~~windows and doors, for proceeds of ~~$128 million.~~approximately $8 million, of which $2 million net of cash disposed was received upon sale. The remaining $6 million was accounted for as a note receivable that is expected to be collected within two years of the divestiture. In connection with the ~~divestiture~~sale, we recognized a ~~gain~~loss of $2$70 million ~~and $51 million~~ for both the three-month and nine-month periods ended September 30, ~~2017, respectively,~~2019, which is included in ~~other,~~(loss) income from discontinued operations, net ~~within other income (expense), net in our condensed consolidated statement of operations. The results of this business are included within income before income taxes~~ in the condensed consolidated ~~statement~~statements of ~~operations~~operations. Additionally, on November 6, 2019, we completed the divestiture of our Milgard Windows and ~~reported as part~~Doors business ("Milgard"), a manufacturer and distributor of ~~our~~windows and doors.

In the third quarter of 2019, we determined that the previously reported Windows and Other Specialty Products segment ~~prior~~met the criteria to ~~the date~~be classified as a discontinued operation as a result of the ~~divestiture.~~combined sale of UKWG and Milgard. These businesses represented all of our windows businesses and all remaining businesses in the Windows and Other Specialty Products segment.

MASCO CORPORATION

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

C. DISCONTINUED OPERATIONS (Continued)

During the second quarter of 2020, a $17 million pre-tax post-closing adjustment related to the finalization of working capital items was recorded to (loss) income from discontinued operations, net in the condensed consolidated statement of operations, as a gain on the divestiture of Milgard. Of the $17 million, we received $15 million in cash as of September 30, 2020, which is presented in investing activities on the condensed consolidated statement of cash flow as proceeds from disposition of businesses, net of cash disposed. The remaining $2 million is accounted for as a short-term receivable; payable in two monthly installments before December 31, 2020. All post-closing adjustments related to our divestiture of Milgard were finalized with the buyer in the second quarter of 2020.

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. The working capital adjustment was finalized with the buyer in the second quarter of 2020, resulting in no significant changes to net proceeds. In connection with the sale, we recognized a gain on the divestiture of $585 million for the nine months ended September 30, 2020, which is included in (loss) income from discontinued operations, net in the condensed consolidated statement of operations.

In the fourth quarter of 2019, we determined that the previously reported Cabinetry Products segment met the criteria to be classified as a discontinued operation, as Cabinetry represented all of our cabinet businesses and all remaining businesses in the Cabinetry Products segment.

We determined that the assets and liabilities for Cabinetry met the held for sale criteria in accordance with ASC 205-20, Discontinued Operations in 2019. Accordingly, the Cabinetry business' assets and liabilities were classified in the condensed consolidated balance sheet at December 31, 2019 as assets held for sale or liabilities held for sale. We ceased recording depreciation and amortization for the held for sale assets upon meeting the held for sale criteria.

As the combined sale of UKWG and Milgard and the sale of Cabinetry represented a strategic shift that will have a major effect on our operations and financial results, these businesses were presented in discontinued operations separate from continuing operations for the three and nine months ended September 30, 2020 and 2019, as applicable. In addition, depreciation and amortization, capital expenditures, and significant non-cash operating and investing activities related to discontinued operations were separately disclosed.

The results of the windows businesses recorded in income (loss) from discontinued operations before income tax was income of $6 million and $7 million for the three and nine months ended September 30, 2019, respectively. The results of the cabinetry business recorded in income (loss) from discontinued operations before income tax was income of $28 million for the three months ended September 30, 2019 and a loss of $8 million and income of $86 million for the nine months ended September 30, 2020 and 2019, respectively.

MASCO CORPORATION

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

C. DISCONTINUED OPERATIONS (Continued)

The major classes of line items constituting income from discontinued operations, net, in millions:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales	$	0	$	403	$	101	$	1,234
Cost of sales	0		314		78		959
Gross profit	0		89		23		275
Selling, general and administrative expenses	0		56		31		176
Impairment charge for goodwill (A)	0		0		0		7
Other income (expense), net	0		1		0		1
Income (loss) from discontinued operations	0		34		(8)		93
(Loss) gain on disposal of discontinued operations	0		(70)		602		(70)
(Loss) income before income tax	0		(36)		594		23
Income tax expense (B)	0		(1)		(183)		(22)
(Loss) income from discontinued operations, net	$	0	$	(37)	$	411	$	1

(A) In the first quarter of 2019, we recognized a $7 million non-cash goodwill impairment charge related to a decline in the long-term outlook of our windows and doors business in the United Kingdom.

(B) The unusual relationship between income tax expense and (loss) income before income tax for 2019 resulted primarily from a loss on the sale of UKWG providing no foreign tax benefit.

The carrying amount of major classes of assets and liabilities included as part of the Cabinetry discontinued operations, were as follows, in millions:


	December 31, 2019

Receivables	$	76

Prepaid expenses and other	7
Inventories	90
Property and equipment, net	157
Operating lease right-of-use assets	4
Goodwill	181
Other intangible assets, net	1
Other assets	12
Total assets classified as held for sale	$	528



Accounts payable	$	103
Accrued liabilities	46
Noncurrent operating lease liabilities	3
Other liabilities	10
Total liabilities classified as held for sale	$	162

MASCO CORPORATION

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

C. DISCONTINUED OPERATIONS (Concluded)

Other selected financial information for Cabinetry, Milgard and UKWG during the period owned by us, were as follows, in millions:


	Nine Months Ended September 30,
	2020		2019
Depreciation and amortization	$	0	$	27
Capital expenditures	1		27
ROU assets obtained in exchange for new lease obligations	0		3

In conjunction with the divestiture of Milgard and Cabinetry, we entered into Transition Services Agreements to provide administrative services to the buyers. As of September 30, 2020, our Transition Service Agreement with Milgard concluded. The fees for services rendered under each of the Transition Service Agreements were not material and are not expected to be material to our results of operations for Milgard and Cabinetry, respectively.

As a part of the Cabinetry Transition Services Agreement, we guaranteed Cabinetry's obligations to a third-party while Cabinetry continued to participate in our voluntary supply chain finance program to the extent Cabinetry under its new ownership became delinquent on its payments. As of September 30, 2020, the amount Cabinetry and its new owners owed under the program was less than the $10 million letter of credit provided to the third-party by the new owners in conjunction with the Transition Services Agreement. Cabinetry exited our program in June 2020 and as of the date of filing, all outstanding invoices have been paid. As such, there is no remaining exposure and no losses were recognized under the guarantee.

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 September 30, 2020
	Plumbing Products		Decorative Architectural Products		Total
Primary geographic markets:
North America	$	757	$	842	$	1,599
International, principally Europe	384		0		384
Total	$	1,141	$	842	$	1,983


	Nine Months Ended September 30, 2020
	Plumbing Products		Decorative Architectural Products		Total
Primary geographic markets:
North America	$	1,973	$	2,364	$	4,337
International, principally Europe	991		0		991
Total	$	2,964	$	2,364	$	5,328


	Three Months Ended September 30, 2019
	Plumbing Products		Decorative Architectural Products		Total
Primary geographic markets:
North America	$	664	$	710	$	1,374
International, principally Europe	342		0		342
Total	$	1,006	$	710	$	1,716

MASCO CORPORATION

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

D. REVENUE (Concluded)


	Nine Months Ended September 30, 2019
	Plumbing Products		Decorative Architectural Products		Total
Primary geographic markets:
North America	$	1,923	$	2,110	$	4,033
International, principally Europe	1,035		0		1,035
Total	$	2,958	$	2,110	$	5,068

Our contract asset balance was $2 million at both September 30, 2020 and December 31, 2019. Our contract liability balance was $25 million and $40 million at September 30, 2020 and December 31, 2019, respectively.

We reversed $6 million and $2 million of revenue for the three-month periods ended September 30, 2020 and 2019, respectively, related to performance obligations settled in previous quarters of the same year. We recognized $1 million and $6 million of revenue for the three-month and nine-month periods ended September 30, 2020, respectively, and $1 million of revenue for the nine-month period ended September 30, 2019 related to performance obligations settled in previous years.

Changes in the allowance for credit losses deducted from accounts receivable were as follows, in millions:


	Nine Months Ended September 30, 2020
Balance at January 1 (after adopting ASU 2016-13)	$	5
Provision for expected credit losses during the period	2
Write-offs charged against the allowance	(1)
Recoveries of amounts previously written off	1

Balance at end of period	$	7

E. DEPRECIATION AND AMORTIZATION

Depreciation and amortization expense, including discontinued operations, was $99 million and $124 million for the nine-month periods ended September 30, 2020 and 2019, respectively.

F. GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the nine-month period ended September 30, ~~2017,~~2020, by segment, were as follows, in millions:


	Gross Goodwill At September 30, 2020		Accumulated Impairment Losses		Net Goodwill At September 30, 2020
Plumbing Products	$	585	$	(340)	$	245
Decorative Architectural Products	358		(75)		283


Total	$	943	$	(415)	$	528

Gross Goodwill At September 30, 2017 Accumulated
Impairment
Losses Net Goodwill At September 30, 2017
Plumbing Products $ 534
$ (340 ) $ 194
Decorative Architectural Products 294
(75 ) 219
Cabinetry Products 240
(59 ) 181
Windows and Other Specialty Products 718
(511 ) 207
Total $ 1,786
$ (985 ) $ 801

Gross Goodwill At December 31, 2016
Accumulated
Impairment
Losses
Net Goodwill At December 31, 2016 Other(A) Divestitures (B) Net Goodwill At September 30, 2017
Plumbing Products $ 519
$ (340 ) $ 179
$ 15
$ —
$ 194
Decorative Architectural Products 294
(75 ) 219
—
—
219
Cabinetry Products 240
(59 ) 181
—
—
181
Windows and Other Specialty
Products
987
(734 ) 253
1
(47 ) 207
Total $ 2,040
$ (1,208 ) $ 832
$ 16
$ (47 ) $ 801


	Gross Goodwill At December 31, 2019		Accumulated Impairment Losses		Net Goodwill At December 31, 2019		Acquisitions		Other (A)		Net Goodwill At September 30, 2020
Plumbing Products	$	566	$	(340)	$	226	$	14	$	5	$	245
Decorative Architectural Products	358		(75)		283		0		0		283


Total	$	924	$	(415)	$	509	$	14	$	5	$	528

(A) Other ~~principally includes~~consists of the effect of foreign currency ~~translation.~~


~~(B)~~	~~Divestitures includes the disposition of Arrow in the second quarter of 2017 and is comprised of $270 million of gross goodwill and $223 million of accumulated impairment losses.~~

The carrying value of our other indefinite-lived intangible assets was $136 million at both September 30, 2017 and December 31, 2016, and principally included registered trademarks. The carrying value of our definite-lived intangible assets was $20 million (net of accumulated amortization of $10 million) and $18 million (net of accumulated amortization of $16 million) at September 30, 2017 and December 31, 2016, respectively, and principally included customer relationships.

~~D. DEPRECIATION AND AMORTIZATION~~translations.

~~Depreciation and amortization expense was $95 million and $100 million for the nine-month periods ended September 30, 2017 and 2016, respectively.~~

~~E. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES~~

We are exposed to global market risk as part of our normal, daily business activities. To manage these risks, we enter into various derivative contracts. These contracts may include interest rate swap agreements, foreign currency contracts and metals contracts. We review our hedging program, derivative positions and overall risk management on a regular basis.

~~Interest Rate Swap Agreements.~~ In 2012, in connection with the issuance of $400 million of debt, we terminated the interest rate swap hedge relationships that we had entered into in 2011. These interest rate swaps were designated as cash flow hedges and effectively fixed interest rates on the forecasted debt issuance to variable rates based on 3-month LIBOR. Upon termination, the ineffective portion of the cash flow hedges of an approximately $2 million loss was recognized in our consolidated statement of operations in other, net. The remaining loss of approximately $23 million from the termination of these swaps is being amortized as an increase to interest expense over the remaining term of the debt, through March 2022. At September 30, 2017, the balance remaining in accumulated other comprehensive loss was $9 million (pre-tax).

MASCO CORPORATION

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

~~E. DERIVATIVE INSTRUMENTS~~F. GOODWILL AND ~~HEDGING ACTIVITIES~~OTHER INTANGIBLE ASSETS (Concluded)

~~Foreign Currency Contracts.~~ Our net cash inflows and outflows exposed to the risk of changes in foreign currency exchange rates arise from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments, debt and other payables, and investments in subsidiaries. To mitigate this risk, we, including certain The carrying value of our ~~European operations, enter into foreign currency forward contracts~~other indefinite-lived intangible assets was $76 million at both September 30, 2020 and ~~foreign currency exchange contracts.~~

~~Gains (losses)~~December 31, 2019, and principally included registered trademarks. During the first quarter of 2019, we recognized a $9 million impairment charge related to ~~foreign currency forward and exchange contracts are recorded~~a registered trademark in our ~~condensed consolidated statements~~Decorative Architectural Products segment due to a change in the long-term net sales projections of ~~operations in other income (expense)~~lighting products. The carrying value of our definite-lived intangible assets was $177 million (net of accumulated amortization of $66 million) and $183 million (net of accumulated amortization of $48 million) at September 30, 2020 and December 31, 2019, respectively, and principally included customer relationships.

G. FAIR VALUE OF FINANCIAL INVESTMENTS

In conjunction with our divestiture of Cabinetry, we received preferred stock of ACProducts Holding, Inc., ~~net. In~~ the ~~event that the counterparties fail to meet the terms~~holding company of the ~~foreign currency forward or exchange contracts, our exposure is limited~~buyer, with a liquidation preference of $150 million. The preferred stock has a coupon of 8 percent until the first anniversary of issuance, 9 percent after the first anniversary and until the second anniversary of issuance, and 10 percent after the second anniversary of issuance and until the seventh anniversary of issuance. After which, the rate will increase by 50 basis points up to a maximum of 15 percent for each annual period occurring during and after the ~~aggregate foreign currency rate differential with such institutions.~~seventh anniversary until all shares have been redeemed in full.

~~Metals Contracts.~~ ~~From time~~ We do not have the ability to time, we have entered into contracts to manage our exposure to increases in the prices of copper and zinc. Gains (losses) related to these contracts are recorded in our condensed consolidated statements of operations in cost of sales.

~~The pre-tax gains (losses) included in our condensed consolidated statements of operations are as follows, in millions:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Foreign currency contracts:

Exchange contracts $ (1 ) $ —
$ (1 ) $ —
Forward contracts 1
—
1
—
Metals contracts —
1
—
5
Interest rate swaps —
—
(3 ) (1 )
Total gain (loss) $ —
$ 1
$ (3 ) $ 4

~~We present our derivatives net by counterparty, due to the right of offset under master netting arrangements, in the condensed consolidated balance sheets. The notional amounts being hedged~~exercise significant influence, and the fair value of ~~those derivative instruments are as follows,~~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 ~~millions:~~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.

At September 30, 2017
Notional
Amount Balance Sheet
Foreign currency contracts:

Exchange contracts $ 2

Accrued liabilities
$ —
Forward contracts 4

Receivables
—

At December 31, 2016
Notional
Amount Balance Sheet
Foreign currency contracts:

Forward contracts $ 21

Accrued liabilities
$ (2 )
Metals contracts 1

Accrued liabilities
—

The fair value of ~~each foreign currency derivative contract is estimated~~the preferred stock was measured on a ~~recurring~~non-recurring basis, ~~quarterly,~~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 and $7 million for the three-month and nine-month periods ended September 30, 2020, respectively. As such, the preferred stock was reported at the carrying value of $143 million in other assets in our condensed consolidated balance sheet at September 30, 2020.

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 ~~2 inputs (significant other observable inputs).~~1 inputs. The aggregate estimated market value of our short-term and long-term debt at September 30, 2020 was approximately $3.2 billion, compared with the aggregate carrying value of $2.8 billion. The aggregate estimated market value of our short-term and long-term debt at December 31, 2019 was approximately $3.0 billion, compared with the aggregate carrying value of $2.8 billion.

MASCO CORPORATION

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

F.H. WARRANTY LIABILITY

Changes in our warranty liability were as follows, in millions:


	Nine Months Ended September 30, 2020		Twelve Months Ended December 31, 2019
Balance at January 1	$	84	$	81
Accruals for warranties issued during the period	25		34
Accruals related to pre-existing warranties	1		1
Settlements made (in cash or kind) during the period	(24)		(31)
Other, net (including currency translation)	(1)		(1)
Balance at end of period	$	85	$	84

Nine Months Ended
September 30, 2017 Twelve Months Ended December 31, 2016
Balance at January 1 $ 192
$ 152
Accruals for warranties issued during the period 43
66
Accruals related to pre-existing warranties 6
33
Settlements made (in cash or kind) during the period (43 ) (56 )
Other, net (including currency translation) 1
(3 )
Balance at end of period $ 199
$ 192

In the second and third quarters of 2016, a business unit in the Windows and Other Specialty Products segment recorded $10 million and $21 million, respectively, for increases in its estimate of expected future warranty claims relating to previously sold windows and doors. The change in estimate resulted from the adoption of an improved warranty valuation model and the availability of additional information used to support the estimate of costs to service claims and recent warranty claims trends, including a shift to increased costs to repair.

G.I. DEBT

On ~~June 21, 2017,~~September 18, 2020, we issued $300 million of ~~3.5%~~2.0% Notes due ~~November~~October 1, 2030 (the "2030 Notes") and received proceeds of $300 million, net of discount, for the issuance of the 2030 Notes. Also on September 18, 2020, we issued an incremental $100 million of our existing 4.5% Notes due May 15, ~~2027~~2047 (the "2047 Notes") and received proceeds of $119 million, including a premium, for the issuance of the 2047 Notes. The incremental $100 million will form a single series with the existing $300 million of 4.5% Notes due May 15, 2047. ~~We received proceeds of $599 million, net of discount, for the issuance of these Notes.~~ The 2030 Notes and 2047 Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. On ~~June 27, 2017,~~September 29, 2020, proceeds from the debt issuances ~~together with cash on hand,~~ were used to repay and early retire ~~$299~~$400 million of our ~~7.125%~~3.5% Notes due ~~March 15, 2020, $74 million of our 5.95% Notes due March 15, 2022, $62 million of our 7.75% Notes due August~~April 1, ~~2029, and $100 million of our 6.5% Notes due August 15, 2032.~~2021. In connection with ~~these~~this early ~~retirements,~~retirement, we incurred a loss on debt extinguishment of ~~$107~~$6 million, which was recorded as interest expense.

On March ~~28, 2013,~~13, 2019, we entered into a credit agreement (the “Credit Agreement”) with ~~a bank group, with~~ an aggregate commitment of ~~$1.25~~$1.0 billion and a maturity date of March 28, 2018. On May 29, 2015 and August 28, 2015, we amended the Credit Agreement with the bank group (the “Amended Credit Agreement”). The Amended Credit Agreement reduced the aggregate commitment to $750 million and extended the maturity date to May 29, 2020.13, 2024. Under the ~~Amended~~ Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional ~~$375~~$500 million with the current ~~bank group~~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 ~~Amended~~ Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries, in U.S. dollars, European ~~Euro~~euros, British Pounds Sterling, Canadian dollars and certain other ~~currencies.~~currencies for revolving credit loans, swingline loans and letters of credit. Borrowings under the ~~revolver~~revolving credit loans denominated in ~~euros~~any agreed upon currency other than U.S. dollars are limited to $500 million, equivalent. We can also borrow swingline loans up to ~~$75~~$100 million and obtain letters of credit of up to ~~$100~~$25 million; ~~any~~ outstanding letters of credit under the ~~Amended~~ Credit Agreement reduce our borrowing capacity. At September 30, ~~2017,~~2020, we had no outstanding standby letters of credit under the ~~Amended~~ Credit Agreement.

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

~~MASCO CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)~~

~~G. DEBT (Concluded)~~

In order for us to borrow under the ~~Amended~~ Credit Agreement, there must not be any default in our covenants in the ~~Amended~~ Credit Agreement (i.e., in addition to the two financial covenants, principally limitations on subsidiary debt, negative pledge restrictions, legal compliance requirements and maintenance of properties and insurance) and our representations and warranties in the ~~Amended~~ Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally no material adverse change or litigation likely to result in a material adverse change, since December 31, ~~2014, in each case,~~2018, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and no0 borrowings ~~have been made~~were outstanding at September 30, ~~2017.~~2020.

~~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 short-term and long-term debt was approximately $3.4 billion, compared with the aggregate carrying value of $3.1 billion, at September 30, 2017. The aggregate estimated market value of short-term and long-term debt was approximately $3.3 billion, compared with the aggregate carrying value of $3.0 billion, at December 31, 2016.14

H.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 September 30, ~~2017,~~2020, 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 and stock appreciation rights.~~ awards.

Pre-tax compensation expense included in income from continuing operations for these stock-based incentives ~~were~~was as follows, in millions:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016			2020		2019		2020		2019
Long-term stock awards	$	6	$	5	$	19	$	17	Long-term stock awards	$	4	$	6	$	11	$	16
Stock options	—		1		2		2		Stock options	1		1		6		3
Restricted stock units	—		—		1		—		Restricted stock units	1		0		12		0
Performance restricted stock units									Performance restricted stock units	2		0		3		2
Phantom stock awards and stock appreciation rights	2		4		7		6		Phantom stock awards and stock appreciation rights	1		1		3		3
Total	$	8	$	10	$	29	$	25	Total	$	9	$	8	$	35	$	24

Long-Term Stock Awards.~~Long-term~~ Prior to the amendment of our 2014 Long Term Stock Incentive Plan in December 2019, we granted long-term stock awards ~~are granted~~ to our key employees and non-employee ~~Directors and do~~Directors. These grants did not cause net share dilution ~~inasmuch as we continue the~~due to our practice of repurchasing and retiring an equal number of shares in the open market. We ~~granted 819,000~~did not grant shares of long-term stock awards in the nine-month period ended September 30, ~~2017.~~2020.

~~MASCO CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)~~

~~H. STOCK-BASED COMPENSATION (Continued)~~

Our long-term stock award activity was as follows, shares in millions:


	Nine Months Ended September 30,
	2020		2019
Unvested stock award shares at January 1	2		2
Weighted average grant date fair value	$	34	$	30

Stock award shares granted	0		1
Weighted average grant date fair value	$	0	$	36

Stock award shares vested	1		1
Weighted average grant date fair value	$	32	$	25

Stock award shares forfeited	0		0
Weighted average grant date fair value	$	35	$	32






Unvested stock award shares at September 30	1		2
Weighted average grant date fair value	$	36	$	34

Nine Months Ended September 30,
2017 2016
Unvested stock award shares at January 1 4
5
Weighted average grant date fair value $ 20
$ 17

Stock award shares granted 1
1
Weighted average grant date fair value $ 34
$ 26

Stock award shares vested 2
2
Weighted average grant date fair value $ 18
$ 16

Stock award shares forfeited —
—
Weighted average grant date fair value $ 24
$ 20

Unvested stock award shares at September 30 3
4
Weighted average grant date fair value $ 24
$ 20

AtSeptember 30, ~~2017~~2020 and ~~2016,~~2019, there was ~~$50~~$25 million and $49 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 ~~both~~ September 30, ~~2017~~2020 and ~~2016.~~ 2019, respectively.

The total market value (at the vesting date) of stock award shares which vested was $31 million during both the nine-month periods ended September 30, ~~2017~~2020 and ~~2016 was $45 million and $43 million, respectively.~~2019.

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. The exercise price equals the market price of our common stock at the grant date. ~~These~~Beginning in 2020, stock options ~~generally~~ become exercisable (vest ratably) over ~~five~~three years beginning on the first anniversary from the ~~date of grant and expire no later than 10 years after the~~ grant date. Stock options granted prior to 2020 become exercisable (vest ratably) over five years.

We granted ~~397,350 shares of~~420,840 stock options in the nine-month period ended September 30, ~~2017~~2020 with a grant date ~~weighted-average~~weighted average exercise price of approximately ~~$34~~$48 per share. In the nine-month period ended September 30, ~~2017, no~~2020, 16,240 stock ~~option shares~~options were forfeited (including options that expired unexercised).

~~MASCO CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)~~

~~H. STOCK-BASED COMPENSATION (Continued)~~

Our stock option activity was as follows, shares in millions:

Nine Months Ended September 30,
2017 2016
Option shares outstanding, January 1 7
12
Weighted average exercise price $ 15
$ 17

Option shares granted —
—
Weighted average exercise price $ 34
$ 26

Option shares exercised 1
5
Aggregate intrinsic value on date of exercise (A)
$ 36 million
$ 64 million
Weighted average exercise price $ 15
$ 21

Option shares forfeited —
—
Weighted average exercise price $ —
$ —

Option shares outstanding, September 30 6
7
Weighted average exercise price $ 16
$ 15
Weighted average remaining option term (in years) 4
4

Option shares vested and expected to vest, September 30 6
7
Weighted average exercise price $ 16
$ 15
Aggregate intrinsic value (A)
$ 132 million
$ 137 million
Weighted average remaining option term (in years) 4
4

Option shares exercisable (vested), September 30 4
6
Weighted average exercise price $ 13
$ 13
Aggregate intrinsic value (A)
$ 115 million
$ 117 million
Weighted average remaining option term (in years) 3
3


		Nine Months Ended September 30,
		2020		2019
Option shares outstanding, January 1		3		4
Weighted average exercise price	$	27	$	21

Option shares granted		1		1
Weighted average exercise price	$	48	$	36

Option shares exercised		1		2
Aggregate intrinsic value on date of exercise (A)	$	29 million	$	29 million
Weighted average exercise price	$	17	$	12

Option shares forfeited		0		0
Weighted average exercise price	$	42	$	34






Option shares outstanding, September 30		3		3
Weighted average exercise price	$	34	$	26
Weighted average remaining option term (in years)		7		6

Option shares vested and expected to vest, September 30		2		3
Weighted average exercise price	$	33	$	26
Aggregate intrinsic value (A)	$	54 million	$	48 million
Weighted average remaining option term (in years)		7		6

Option shares exercisable (vested), September 30		1		2
Weighted average exercise price	$	28	$	21
Aggregate intrinsic value (A)	$	35 million	$	39 million
Weighted average remaining option term (in years)		5		4


~~(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.~~

(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 September 30, ~~2017~~2020 and ~~2016,~~2019, there was $8$7 million and $7$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 three years at both September 30, ~~2017~~2020 and ~~2016.~~2019.

MASCO CORPORATION

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

H.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:


	Nine Months Ended September 30,
	2020			2019
Weighted average grant date fair value	$	10.67		$	8.81
Risk-free interest rate	1.53		%	2.57		%
Dividend yield	1.14		%	1.35		%
Volatility factor	24.00		%	25.00		%
Expected option life	6 years			6 years

Nine Months Ended September 30,
2017 2016
Weighted average grant date fair value $ 9.68
$ 6.43
Risk-free interest rate 2.16 % 1.41 %
Dividend yield 1.19 % 1.49 %
Volatility factor 30.00 % 29.00 %
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. The grant date fair value is based on the fair value of our common stock. These units will vest and be settled in shares ratably over three years.

We granted 437,170 restricted stock units in the nine-month period ended September 30, 2020 with a weighted average grant date fair value of $47 per share. In the nine-month period ended September 30, 2020, 7,930 restricted stock units were forfeited.

At September 30, 2020, there was $8 million of unrecognized compensation expense related to unvested restricted stock units; such units had a weighted average remaining vesting period of two years.

Performance Restricted Stock Units. ~~In March 2017,~~Under our ~~Organization and Compensation Committee ("Compensation Committee") of the Board of Directors approved a~~ Long Term Incentive Program, ~~("LTIP Program"), replacing our previous Long Term Cash Incentive Plan. Under the LTIP Program,~~ we ~~granted~~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 ~~return on invested capital~~ performance ~~goals~~metrics established by our Compensation Committee over a three-year ~~period that have been established by the Compensation Committee for the~~ performance period and the ~~employee's~~recipient's continued employment through the share award date. Restricted stock units are granted at a target number; based on our performance, the number of restricted stock units that vest can be adjusted downward to zero and upward to a maximum of 200%. We granted ~~124,780~~ ~~restricted stock units in~~During the nine-month period ended September 30, ~~2017,~~2020, we granted 133,390 performance restricted stock units with a grant date fair value of approximately ~~$34~~$34 per ~~share. No~~share and 151,724 shares were issued. NaN performance restricted stock units were forfeited induring the nine-month period ended September 30, ~~2017.~~2020. During the nine-month period ended September 30, 2019, we granted 126,680 performance restricted stock units with a grant date fair value of approximately $39 per share and 15,600 performance restricted stock units were forfeited.

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 September 30,
	2020				2019
	Qualified		Non-Qualified		Qualified		Non-Qualified
Service cost	$	1	$	0	$	1	$	0
Interest cost	5		2		11		2
Expected return on plan assets	(6)		0		(12)		0
Amortization of net loss	7		0		4		1
Net periodic pension cost	$	7	$	2	$	4	$	3


	Three Months Ended September 30,											Nine Months Ended September 30,
	2017					2016						2020				2019
	Qualified			Non-Qualified		Qualified			Non-Qualified			Qualified		Non-Qualified		Qualified		Non-Qualified
Service cost	$	1		$	—	$	1		$	—	Service cost	$	2	$	0	$	2	$	0
Interest cost	11			2		13			1		Interest cost	18		4		30		5
Expected return on plan assets	(12		)	—		(15		)	—		Expected return on plan assets	(17)		0		(34)		0
Amortization of net loss	5			1		5			1		Amortization of net loss	18		2		14		2
Net periodic pension cost	$	5		$	3	$	4		$	2	Net periodic pension cost	$	21	$	6	$	12	$	7

Nine Months Ended September 30,
2017 2016
Qualified Non-Qualified Qualified Non-Qualified
Service cost $ 2
$ —
$ 2
$ —
Interest cost 36
5
34
5
Expected return on plan assets (36 ) —
(34 ) —
Amortization of net loss 15
2
12
2
Net periodic pension cost $ 17
$ 7
$ 14
$ 7

As of January 1, 2010, substantially all of our domestic and foreign qualified and domestic non-qualified ~~defined benefit~~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 in 2021.

~~MASCO CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)~~

J.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				Amounts Reclassified
Accumulated Other Comprehensive Loss	Three Months Ended September 30,				Nine Months Ended September 30,				Statement of Operations Line Item
	2020		2019		2020		2019
Amortization of defined-benefit pension and other post-retirement benefits:
Actuarial losses, net	$	7	$	5	$	20	$	16	Other income (expense), net
Tax (benefit)	(2)		(1)		(5)		(4)
Net of tax	$	5	$	4	$	15	$	12

Interest rate swaps	$	0	$	0	$	1	$	1	Interest expense
Tax (benefit)	0		0		0		0
Net of tax	$	0	$	0	$	1	$	1

In addition to the above amounts, we reclassified $14 million of deferred currency translation losses from accumulated other comprehensive loss to the condensed consolidated statement of operations in conjunction with the disposition of UKWG in September 2019.

Amounts Reclassified
Accumulated Other Comprehensive Loss Three Months Ended September 30, Nine Months Ended September 30, Statement of Operations Line Item
2017 2016 2017 2016
Amortization of defined benefit pension and other postretirement benefits:

Actuarial losses, net $ 6
$ 6
$ 17
$ 14
Selling, general and administrative expenses
Tax (benefit) (2 ) (3 ) (6 ) (5 )
Net of tax $ 4
$ 3
$ 11
$ 9

Interest rate swaps $ —
$ —
$ 3
$ 1
Interest expense
Tax (benefit) —
—
(1 ) —

Net of tax $ —
$ —
$ 2
$ 1

Available-for-sale securities $ —
$ —
$ —
$ (1 ) Other, net
Tax expense —
—
—
—

Net of tax $ —
$ —
$ —
$ (1 )

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 September 30, Nine Months Ended September 30,
2017 2016 2017 2016 2017 2016 2017 2016
Net Sales(A)
Operating Profit (Loss)
Net Sales(A)
Operating Profit (Loss)
Operations by segment:

Plumbing Products $ 951
$ 899
$ 175
$ 174
$ 2,763
$ 2,635
$ 529
$ 491
Decorative Architectural Products 553
536
104
111
1,711
1,649
346
355
Cabinetry Products 229
239
19
19
711
736
65
77
Windows and Other Specialty Products 203
203
23
(10 ) 585
578
47
(9 )
Total $ 1,936
$ 1,877
$ 321
$ 294
$ 5,770
$ 5,598
$ 987
$ 914
Operations by geographic area:

North America $ 1,529
$ 1,497
$ 266
$ 235
$ 4,600
$ 4,445
$ 835
$ 749
International, principally Europe 407
380
55
59
1,170
1,153
152
165
Total $ 1,936
$ 1,877
321
294
$ 5,770
$ 5,598
987
914
General corporate expense, net

(26 ) (25 ) (82 ) (76 )
Operating profit

295
269
905
838
Other income (expense), net

(39 ) (42 ) (181 ) (181 )
Income before income taxes

$ 256
$ 227
$ 724
$ 657


	Three Months Ended September 30,								Nine Months Ended September 30,
	2020		2019		2020		2019		2020		2019		2020		2019
	Net Sales (A)				Operating Profit (Loss)				Net Sales (A)				Operating Profit (Loss)
Operations by segment:
Plumbing Products	$	1,141	$	1,006	$	271	$	179	$	2,964	$	2,958	$	583	$	530
Decorative Architectural Products	842		710		179		134		2,364		2,110		475		380


Total	$	1,983	$	1,716	$	450	$	313	$	5,328	$	5,068	$	1,058	$	910
Operations by geographic area:
North America	$	1,599	$	1,374	$	368	$	262	$	4,337	$	4,033	$	899	$	759
International, principally Europe	384		342		82		51		991		1,035		159		151
Total	$	1,983	$	1,716	450		313		$	5,328	$	5,068	1,058		910
General corporate expense, net					(26)		(24)						(70)		(77)
Operating profit					424		289						988		833
Other income (expense), net					(44)		(48)						(132)		(136)
Income from continuing operations before income taxes					$	380	$	241					$	856	$	697


~~(A)~~	~~Inter-segment sales were not material.~~

(A) Inter-segment sales were not material.

~~MASCO CORPORATION~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)~~

L.N. OTHER INCOME (EXPENSE), NET

Other, net, which is included in other income (expense), net, was as follows, in millions:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019

Income from cash and cash investments	$	0	$	1	$	2	$	2
Equity investment income, net	1		1		1		1


Foreign currency transaction gains (losses)	1		(5)		(6)		(3)
Net periodic pension and post-retirement benefit cost	(9)		(6)		(25)		(17)
Dividend income	3		0		7		0
Other items, net	0		0		(1)		0
Total other, net	$	(4)	$	(9)	$	(22)	$	(17)

MASCO CORPORATION

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

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Gain on sale of business $ 2
$ —
$ 51
$ —
Income from cash and cash investments and short-term bank deposits 1
1
3
3
Equity investment income, net —
—
1
1
Realized gain from auction rate securities —
—
—
1
Realized gains from private equity funds —
1
2
2
Impairment of private equity funds (2 ) —
(2 ) —
Foreign currency transaction gains (losses) 3
(3 ) 3
(1 )
Other items, net —
2
—
(1 )
Total other, net $ 4
$ 1
$ 58
$ 5

~~M. EARNINGS~~O. INCOME PER COMMON SHARE

Reconciliations of the numerators and denominators used in the computations of basic and diluted ~~earnings~~income per common share were as follows, in millions:


	Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016			2020		2019		2020		2019
Numerator (basic and diluted):									Numerator (basic and diluted):
Net income	$	148	$	134	$	446	$	393
Income from continuing operations									Income from continuing operations	$	275	$	163	$	618	$	481
Less: Allocation to unvested restricted stock awards	1		2		4		5		Less: Allocation to unvested restricted stock awards	1		1		5		3
Net income available to common shareholders	$	147	$	132	$	442	$	388
Income from continuing operations attributable to common shareholders									Income from continuing operations attributable to common shareholders	274		162		613		478

(Loss) income from discontinued operations, net									(Loss) income from discontinued operations, net	0		(37)		411		1
Less: Allocation to unvested restricted stock awards									Less: Allocation to unvested restricted stock awards	0		0		3		0
(Loss) income from discontinued operations, net attributable to common shareholders									(Loss) income from discontinued operations, net attributable to common shareholders	0		(37)		408		1

Net income attributable to common shareholders									Net income attributable to common shareholders	$	274	$	125	$	1,021	$	479

Denominator:									Denominator:
Basic common shares (based upon weighted average)	313		326		315		328		Basic common shares (based upon weighted average)	261		286		265		289
Add: Stock option dilution	3		3		4		4		Add: Stock option dilution	0		1		1		1
Diluted common shares	316		329		319		332		Diluted common shares	261		287		266		290

For the three-month and nine-month periods ended September 30, ~~2017~~2020 and ~~2016,~~2019, we allocated dividends and undistributed earnings to the unvested restricted stock awards.

Additionally, ~~397,000~~106,000 and ~~339,000~~685,000 common shares for the three-month and nine-month periods ended September 30, ~~2017,~~2020, respectively, and ~~609,000~~855,000 and 1.2 million common shares for the three-month and nine-month ~~period~~periods ended September 30, ~~2016,~~2019, respectively, related to stock options, and 20,000 common shares related to performance restricted stock units for the three-month and nine-month periods ended September 30, 2019 were excluded from the computation of diluted ~~earnings~~income per common share due to their antidilutive effect.

In ~~May 2017,~~September 2019, our Board of Directors authorized the repurchase, for retirement, of up to ~~$1.5~~$2.0 billion of shares of our common stock in open-market transactions or ~~otherwise, replacing the previous Board of Directors authorization established in 2014.~~otherwise. In the first nine months of ~~2017,~~2020, we repurchased and retired ~~8.0~~16.5 million shares of our common stock ~~(including 0.8~~for approximately $602 million. This included 0.4 million shares to offset the dilutive impact of ~~long-term~~restricted stock ~~awards~~units granted in the first nine months of the ~~year), for approximately $312 million. As part~~year as well as 1.2 million shares received at no additional cost from the settlement of the ~~repurchases, in August 2017, we agreed to purchase a total of $150 million of common stock with an immediate delivery of 3.3 million~~ ~~shares under an~~ accelerated stock repurchase ~~transaction. This~~ transaction ~~will be completed~~initiated in ~~October 2017, at which time we anticipate we will receive, at no cost to us, an additional0.7 million shares of our common stock resulting from expected changes in the volume weighted average stock price of our common stock over the term of the transaction.~~ November 2019. At September 30, ~~2017,~~2020, we had ~~$1.3 billion~~$900 million remaining under the ~~2017~~2019 repurchase authorization.

On the basis of amounts paid (declared), cash dividends per common share were ~~$0.100~~$0.135 ($~~0.105)~~0.140) and ~~$0.300~~$0.405 ($~~0.305)~~0.410) for the three-month and nine-month periods ended September 30, ~~2017,~~2020, respectively, and ~~$0.095~~$0.120 ($~~0.100)~~0.135) and ~~$0.285~~$0.360 ($~~0.290)~~0.375) for the three-month and nine-month periods ended September 30, ~~2016,~~2019, respectively.

MASCO CORPORATION

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

N.P. OTHER COMMITMENTS AND CONTINGENCIES

We are ~~subject to~~involved in claims ~~charges,~~and litigation, including class actions, mass torts and ~~other~~regulatory proceedings, which arise in the ordinary course of our ~~business, including those arising from or related to contractual~~business. The types of matters ~~intellectual property,~~may include, among others: competition, product liability, employment, warranty, advertising, contract, personal injury, environmental, ~~matters, product liability, product recalls, construction defect,~~intellectual property, and insurance ~~coverage, personnel and employment disputes, anti-trust issues and other matters, including class actions.~~coverage. We believe we have adequate defenses in these matters and that the likelihood that the outcome of these matters would have a material adverse effect on us is remote. However, there is no assurance that we will prevail in these matters, and we could, in the future, incur judgments, enter into settlements of claims or revise our expectations regarding the outcome of these matters, which could materially impact our results of operations.

O.Q. INCOME TAXES

Our effective tax rate was 3823 percent and 3627 percent for the three-month periods ~~ended September 30, 2017~~ and ~~2016, respectively. The increase in the rate is primarily due to a change in the mix of earnings from lower to higher tax jurisdictions.~~

~~Our effective tax rate was 34~~24 percent and 3526 percent for the nine-month periods ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The decrease in the rate iswas primarily due to a $10 million and $13 million reduction in income tax ~~benefits on employee share-based payments, partially offset by a change~~expense in the ~~mix~~three-month and nine-month periods ended September 30, 2020, respectively, resulting from IRS guidance released during the third quarter of ~~earnings~~2020 that allows us to exclude certain high-taxed foreign income from ~~lower to higher~~the U.S. tax ~~jurisdictions.~~effects on Global Intangible Low-taxed Income.



						MASCO CORPORATION
Item 2.
~~Item 2.~~						MANAGEMENT'S DISCUSSION AND ANALYSIS OF
						FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THIRD QUARTER ~~2017~~2020 AND THE FIRST NINE MONTHS ~~2017~~2020 VERSUS THIRD QUARTER ~~2016~~2019 AND THE FIRST NINE MONTHS ~~2016~~2019

SALES AND OPERATIONS

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


	Three Months Ended September 30,				Percent Change
	2020		2019		2020	vs.	2019
Net Sales:
Plumbing Products	$	1,141	$	1,006	13			%
Decorative Architectural Products	842		710		19			%

Total	$	1,983	$	1,716	16			%

North America	$	1,599	$	1,374	16			%
International, principally Europe	384		342		12			%
Total	$	1,983	$	1,716	16			%

Three Months Ended September 30, Percent Change
2017 2016 2017 vs. 2016
Net Sales:

Plumbing Products $ 951
$ 899
6 %
Decorative Architectural Products 553
536
3 %
Cabinetry Products 229
239
(4 )%
Windows and Other Specialty Products 203
203
— %
Total $ 1,936
$ 1,877
3 %

North America $ 1,529
$ 1,497
2 %
International, principally Europe 407
380
7 %
Total $ 1,936
$ 1,877
3 %


	Nine Months Ended September 30,				Percent Change
	2020		2019		2020	vs.	2019
Net Sales:
Plumbing Products	$	2,964	$	2,958	—			%
Decorative Architectural Products	2,364		2,110		12			%

Total	$	5,328	$	5,068	5			%

North America	$	4,337	$	4,033	8			%
International, principally Europe	991		1,035		(4)			%
Total	$	5,328	$	5,068	5			%

Nine Months Ended September 30, Percent Change
2017 2016 2017 vs. 2016
Net Sales:

Plumbing Products $ 2,763
$ 2,635
5 %
Decorative Architectural Products 1,711
1,649
4 %
Cabinetry Products 711
736
(3 )%
Windows and Other Specialty Products 585
578
1 %
Total $ 5,770
$ 5,598
3 %

North America $ 4,600
$ 4,445
3 %
International, principally Europe 1,170
1,153
1 %
Total $ 5,770
$ 5,598
3 %

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Operating Profit (Loss) Margins: (A)

Plumbing Products 18.4 % 19.4 % 19.1 % 18.6 %
Decorative Architectural Products 18.8 % 20.7 % 20.2 % 21.5 %
Cabinetry Products 8.3 % 7.9 % 9.1 % 10.5 %
Windows and Other Specialty Products 11.3 % (4.9 )% 8.0 % (1.6 )%

North America 17.4 % 15.7 % 18.2 % 16.9 %
International, principally Europe 13.5 % 15.5 % 13.0 % 14.3 %
Total 16.6 % 15.7 % 17.1 % 16.3 %
Total operating profit margin, as reported 15.2 % 14.3 % 15.7 % 15.0 %


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Operating Profit (Loss): (A)
Plumbing Products	$	271	$	179	$	583	$	530
Decorative Architectural Products	179		134		475		380

Total	$	450	$	313	$	1,058	$	910

North America	$	368	$	262	$	899	$	759
International, principally Europe	82		51		159		151
Total	450		313		1,058		910
General corporate expense, net	(26)		(24)		(70)		(77)
Operating profit	$	424	$	289	$	988	$	833

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

We report our financial results in accordance with generally accepted accounting principles ~~(“GAAP”~~("GAAP") in the United ~~States.~~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 and nine-month periods ended September 30, 2020 compared to the same periods of 2019.

NET SALES

Net sales increased ~~three~~16 percent for ~~both~~ the three-month period ended September 30, 2020 and five percent for the nine-month period ended September 30, ~~2017, from the comparable periods of 2016.~~2020. Excluding ~~dispositions and~~ the effect of currency translation, net sales increased ~~three~~15 percent and ~~four~~five percent ~~for~~for the three-month and nine-month periods ended September 30, ~~2017, respectively, from the comparable periods of 2016.~~2020, respectively. The following table reconciles reported net sales to net sales, excluding ~~dispositions and~~ the effect of currency translation, in millions:

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net sales, as reported $ 1,936
$ 1,877
$ 5,770
$ 5,598
Dispositions —
(17 ) —
(17 )
Net sales, excluding dispositions 1,936
1,860
5,770
5,581
Currency translation (15 ) —
30
—
Net sales, excluding dispositions and the effect of currency translation $ 1,921
$ 1,860
$ 5,800
$ 5,581


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales, as reported	$	1,983	$	1,716	$	5,328	$	5,068



Currency translation	(13)		—		9		—
Net sales, excluding the effect of currency translation	$	1,970	$	1,716	$	5,337	$	5,068

North American net sales increased ~~two~~16 percent and ~~three~~eight percent for the three-month and nine-month periods ended September 30, ~~2017, from the comparable periods of 2016. Net sales were positively impacted by increased~~2020. Higher sales volume of ~~plumbing products,~~ paints and other coating products, plumbing products and builders' hardware ~~and windows, which,~~products, in aggregate, increased sales by ~~two~~17 percent and ~~three~~nine percent for the three-month and nine-month periods, ended September 30, 2017, respectively, from the comparable periods of 2016. Favorable sales mix of cabinets, plumbing products, and windows and net selling price increases of windows, in aggregate, increased sales by two percent for both the three-month and nine-month periods ended September 30, 2017, from the comparable periods of 2016.respectively. Such increases were ~~partially~~slightly offset by ~~decreased sales volume~~lower net selling prices of ~~cabinets,~~paints and other coating products, which decreased sales by one percent for both ~~the three-month and nine-month periods ended September 30, 2017, from the comparable periods of 2016. The~~periods.

International net sales ~~volume impacts include the unfavorable effect of the severe hurricanes, which impacted several of our businesses. The divestiture of Arrow Fastener also decreased sales by one~~increased 12 percent for the three-month period ended September 30, ~~2017, from the comparable period of 2016.~~

~~International net sales increased seven percent and one percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016.~~2020. In local currencies (including sales in currencies outside their respective functional currencies), net sales increased ~~four percent for both the three-month and nine-month periods ended September 30, 2017, from the comparable periods of 2016. Net sales were positively impacted by increased~~nine percent. Higher sales volume of plumbing products increased sales by nine percent. International net sales decreased four percent for the nine-month period ended September 30, 2020. In local currencies, net sales decreased four percent. Lower sales volume and unfavorable sales mix of plumbing products, in aggregate, decreased sales by four percent.

Net sales in the Plumbing Products segment increased 13 percent for the three-month period ended September 30, 2020. Higher sales volume increased sales by 12 percent. Favorable foreign currency translation further increased sales by one percent. Net sales in the Plumbing Products segment was flat for the nine-month period ended September 30, 2020. Higher sales volume and net selling ~~price increases of plumbing products and windows, which,~~prices, in aggregate, increased net sales by ~~eight~~one percent, offset by unfavorable sales mix, which decreased sales by one percent.

Net sales in the Decorative Architectural Products segment increased 19 percent for the three-month period ended September 30, 2020, due mostly to higher sales volume of paints and other coating products, and to a lesser extent, builders' hardware products and lighting products. This increase was slightly offset by unfavorable net selling prices of paints and other coating products and builders' hardware products. Net sales in the Decorative Architectural Products segment increased 12 percent for the nine-month period ended September 30, 2020, due mostly to higher sales volume of paints and other coating products, and to a lesser extent, builders' hardware products. This increase was slightly offset by unfavorable net selling prices of paints and other coating products and lower sales volume of lighting products.

OPERATING PROFIT

Our gross profit margin was 37.9 percent and ~~seven~~36.2 percent for the three-month and nine-month periods ended September 30, ~~2017,~~2020, respectively, ~~from the~~compared to 35.6 percent for both comparable periods of ~~2016.~~2019. Gross profit margins for the three-month period ended September 30, 2020 were positively impacted by increased sales volume, cost savings initiatives, including actions taken to mitigate the coronavirus disease 2019 ("COVID-19") pandemic impact, as well as decreased commodity costs, partially attributed to tariff mitigation. Such increases were partially offset by ~~an unfavorable sales mix of plumbing products and~~ lower sales volume of cabinets and windows, which, in aggregate, decreased sales by three percent for both the three-month and nine-month periods ended September 30, 2017, from the comparable periods of 2016.

Net sales in the Plumbing Products segment increased six percent and five percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016. These increases were due primarily to increased sales volume of North American operations (including the unfavorable impact of the severe hurricanes) and International operations, net selling price increases of International operations and a favorable sales mix of North American operations, which, in aggregate, increased sales by five percent and six percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016. These increases were partially offset by an unfavorable sales mix of International operations, which decreased sales by one percent for both the three-month and nine-month periods ended September 30, 2017, from the comparable periods of 2016. Foreign currency translation increased sales by one percent and decreased sales by one percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016, primarily due to the changes between the British Pound and euro to the U.S. Dollar.

Net sales in the Decorative Architectural Products segment increased three percent and four percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016, primarily due to increased

sales volume of paints and other coating products and builders' hardware (including the unfavorable impact of the severe hurricanes), resulting from growth in our Behr pro initiative, the expansion of our shower door program and growth in e-commerce.

Net sales in the Cabinetry Products segment decreased four percent and three percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016. These decreases were due to lower sales volume of North American cabinets, primarily due to decreased sales to our builder and dealer customers in the U.S. (including the unfavorable impact of the severe hurricanes), and international cabinets, primarily due to the continued exit of certain accounts in the U.K., which decreased sales by eight percent and six percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016. Lower net selling prices of North American cabinets also decreased sales by one percent for both the three-month and nine-month periods ended September 30, 2017, from the comparable periods of 2016. Such decreases were partially offset by a positive sales mix of North American cabinets, which increased sales by four percent for both the three-month and nine-month periods ended September 30, 2017, from the comparable periods of 2016.

Net sales in the Windows and Other Specialty Products segment were flat and increased one percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016. Excluding the divestiture of Arrow, sales increased by nine percent and five percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016. Net selling price increases of North American and international windows, increased sales volume of North American windows, and a favorable sales mix of North American windows, in aggregate, increased sales by nine percent and seven percent for the three-month and nine-month periods ended September 30, 2017, respectively, from the comparable periods of 2016. These increases were partially offsetprices. Gross profit margins for the nine-month period ended September 30, ~~2017~~2020 were positively impacted by ~~foreign currency translation, which decreased sales by two percent from the comparable period of 2016.~~

~~OPERATING MARGINS~~

Our gross profit margins were 33.6 percent and 34.6 percent for the three-month and nine-month periods ended September 30, 2017, respectively, compared with 32.7 percent and 33.6 percent for the comparable periods of 2016. The increase in gross profit margin was due primarily to increased sales volume and cost savings initiatives, ~~and a decrease in warranty costs due~~including actions taken to mitigate the ~~absence~~impact of ~~$10 million and $21 million adjustments recorded in~~ the ~~second and third quarters of 2016, respectively, by a business in our Windows and Other Specialty Products segment. These~~COVID-19 pandemic. Such increases were partially offset by ~~an unfavorable relationship between~~lower net selling prices, unfavorable sales mix and increased commodity ~~costs.~~costs, primarily attributed to tariffs.

Selling, general and administrative expenses, as a percentage of sales, were ~~18.3~~16.5 percent and ~~18.9~~17.6 percent for the three-month and nine-month periods ended September 30, ~~2017,~~2020, respectively, compared to ~~18.4~~18.8 percent and ~~18.7~~19.0 percent for the comparable periods of ~~2016. Increases in selling,~~2019. Selling, general and administrative expenses ~~for~~were positively impacted by cost containment activities including those actions taken to mitigate the ~~nine-month period were~~COVID-19 pandemic impact and leverage of fixed expenses due primarily ~~driven by increases in investments in strategic growth initiatives and higher trade show costs.~~to increased sales volume.

Operating profit for the three-month and nine-month periods ended September 30, 2017 include $1 million and $3 million of costs and charges related to our business rationalization initiatives, respectively, compared to $6 million and $16 million from the comparable periods of 2016, respectively.

~~Operating margins~~ in the Plumbing Products segment for the three-month period ended September 30, 2017 were negatively impacted by an increase in certain variable expenses, investments in strategic growth initiatives and an unfavorable relationship between net selling prices and commodity costs, partially offset by increased sales volume and cost savings initiatives. Operating margins for the nine-month period ended September 30, 2017 were2020 was positively impacted by increased sales volume, cost savings initiatives, including actions taken to mitigate the COVID-19 pandemic impact and adecreased commodity costs, partially attributed to tariff mitigation. Operating profit in the Plumbing Products segment for the nine-month period ended September 30, 2020 was positively impacted by cost savings initiatives, including actions taken to mitigate the COVID-19 pandemic impact, favorable ~~relationship between~~ net selling prices and ~~commodity costs,~~higher sales volume. These positive impacts were partially offset by ~~an increase~~increases in ~~certain variable expenses (including trade show costs) and investments in strategic growth initiatives.~~commodity costs, primarily attributed to tariffs.

Operating ~~margins~~profit in the Decorative Architectural Products segment for the three-month ~~and nine-month periods~~period ended September 30, ~~2017 were negatively affected by an unfavorable relationship between net selling prices~~2020 benefited primarily from increased sales volume, as well as cost savings initiatives, including actions taken to mitigate the COVID-19 pandemic impact and decreased commodity ~~costs of paints and other coating products and builder's hardware, and an increase in strategic growth investments to support the expansion of pro paint sales. Such cost increases~~costs. These positive impacts were partially offset by ~~increased sales volume and cost savings initiatives.~~

lower net selling prices. Operating ~~margins~~profit in the ~~Cabinetry~~Decorative Architectural Products segment for the three-month period ended September 30, 2017 were positively affected by cost savings initiatives and a positive sales mix, partially offset by decreased sales volume, an unfavorable relationship between net selling prices and commodity costs, costs to support new product launches in North America, and anti-dumping and countervailing duties. Operating margins for the nine-month period ended September 30, ~~2017 were negatively affected by decreased~~2020 benefited primarily from increased sales volume, as well as cost savings initiatives, including actions taken to mitigate the COVID-19 pandemic impact. Additionally, operating profit was positively impacted by the non-recurrence of a 2019 non-cash impairment charge related to an other indefinite-lived intangible asset for a trademark associated with lighting products. These positive impacts were partially offset by unfavorable ~~relationship between~~ net selling prices and ~~commodity costs, costs to support new product launches~~higher fixed expenses in ~~North America, and anti-dumping and countervailing duties. Such cost increases were partially offset by cost savings initiatives as well as positive sales mix.~~our lighting business.

Operating margins in the Windows and Other Specialty Products segment for the three-month and nine-month periods ended September 30, 2017 were positively affected by a decrease in warranty costs due to the absence of a $10 million and $21 million adjustment recorded in the second quarter and third quarters of 2016, respectively. Operating margins were also positively affected by cost savings initiatives and a favorable relationship between net selling prices and commodity costs.

OTHER INCOME (EXPENSE), NET

Interest expense for the three-month and nine-month periods ended September 30, ~~2017~~2020 was ~~$43~~$40 million and ~~$239~~$110 million, respectively, compared to ~~$43~~$39 million and ~~$186~~$119 million for the three-month and nine-month periods ended September 30, ~~2016,~~2019, respectively. ~~Interest expense increased for~~In the ~~nine-month period due primarily to~~third quarter of 2020, we recognized a ~~$107 million~~ loss on debt extinguishment ~~which was recorded as additional interest expense in connection with~~of $6 million on the early retirement of ~~debt in the second quarter of 2017, compared to the $40 million loss on debt extinguishment~~our 3.5% Notes due April 1, 2021, which was recorded ~~as additional~~to interest ~~expense in connection with the early retirement of debt in the second quarter of 2016.~~expense. This increase was ~~partially~~ offset by lower interest charges due to the ~~discharge~~extinguishment of ~~indebtedness as well as refinancing certain debt at more favorable interest rates.~~our 7.125% Notes due March 15, 2020 in the fourth quarter of 2019.

Other, net, for the three-month and nine-month periods ended September 30, ~~2017~~2020 included ~~gains of $2~~$9 million and ~~$51~~$25 million, respectively, of net periodic pension and post-retirement benefit cost, $3 million and $7 million, respectively, of dividend income related to preferred stock of ACProducts Holding, Inc., and $1 million of foreign currency transaction gains for the ~~sale~~three-month period and $6 million of ~~Arrow offset by $2 million related to the impairment of a private equity fund. Other, net,~~foreign currency transaction losses for the nine-month ~~period ended September 30, 2017 also included earnings of $1 million related to equity method investments and $2 million related to distributions from private equity funds.~~period. Other, net, for the three-month and nine-month periods ended September 30, ~~2016~~2019 included ~~gains of $1~~$6 million and $2$17 million, respectively, ~~related to distributions from private equity funds. The nine-month period ended September 30, 2016 also included $1~~of net periodic pension and post-retirement benefit cost and $5 million and $3 million, respectively of ~~earnings from equity investments and gains of $1 million on the redemption of auction rate securities.~~foreign currency transaction losses.

INCOME AND INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS — ATTRIBUTABLE TO MASCO CORPORATION

Income from continuing operations for the three-month and nine-month periods ended September 30, ~~2017~~2020 was ~~$148~~$275 million and ~~$446~~$618 million, respectively, compared ~~with $134~~to $163 million and ~~$393~~$481 million ~~respectively,~~ for the comparable periods of ~~2016.~~2019. Diluted ~~earnings~~income per common share for the three-month and nine-month periods ended September 30, ~~2017~~2020 was ~~$.46~~$1.05 and ~~$1.38,~~$2.31, respectively, per common share, compared with ~~$.40~~$0.56 and ~~$1.17,~~$1.65, respectively, per common share for the comparable periods of ~~2016.~~2019.

Effective January 1, 2017 we adopted ASU 2016-09, which requires the tax effects related to employee share-based payments to be recorded to income tax expense, thus increasing the volatility in our effective tax rate. Our effective tax rate was 3823 percent and 3624 percent for the three-month and nine-month periods ended September 30, ~~2017 and 2016,~~2020, respectively. ~~The 2017~~Our tax ~~rate is higher~~rates were lower than our normalized tax rate of 3426 percent due primarily to a $10 million reduction in income tax expense in both periods, resulting from IRS guidance released during the third quarter of 2020, that allows us to exclude certain high-taxed foreign income from the U.S. tax effects on Global Intangible Low-taxed Income. Also, our effective tax rate for the nine-month period was lower than our normalized tax rate due to ~~a change in the mix of earnings from lower to higher~~an additional $5 million income tax ~~jurisdictions.~~ benefit on stock-based compensation.

Our effective tax rate was 3427 percent and 3526 percent for the three-month and nine-month periods ended September 30, ~~2017 and 2016,~~2019, respectively. ~~The 2016 tax rate is lower than our 2016~~Our normalized tax rate ~~of 36 percent resulting primarily from the tax benefit of the domestic production deduction which allows a deduction~~ for ~~certain qualified production activities within the U.S.~~2019 was 26 percent.

OTHER FINANCIAL INFORMATION

Our current ratio was ~~1.9~~2.0 to 1 and ~~2.0~~1.8 to 1 at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The increase in our current ratio is due primarily to increased cash on hand as a result of the temporary suspension of our share repurchase activity beginning in the first quarter of 2020. We have announced our intention to resume our share repurchase activity in the fourth quarter as part of our strategic initiative to drive long-term shareholder value. We anticipate using approximately $100 million of cash for share repurchases in the fourth quarter, for a total of approximately $700 million of share repurchases in 2020.

For the nine-month period ended September 30, ~~2017,~~2020, net cash provided by operating activities was ~~$467~~$573 million. Cash provided by operations of $590 million was affected by the income tax expense of $179 million resulting from the gain recorded in connection with the divestiture of Cabinetry. Additionally, cash from operating activities was affected by increased receivables and payables as a result of increased demand for our products in the third quarter of 2020.

For the nine-month period ended September 30, ~~2017,~~2020, net cash used byfor financing activities was ~~$518~~$721 million, primarily due to the early retirement of $299 million of our 7.125% Notes due March 15, 2020, $74 million of our 5.95% Notes due March 15, 2022, $62 million of our 7.75% Notes due August 1, 2029, and $100 million of our 6.5% Notes due August 15, 2032, and related costs of $104 million. Net cash used by financing activities was also impacted by $312$602 million for the repurchase and retirement of ~~Company~~our common stock (including ~~0.8~~0.4 million shares repurchased to offset the dilutive impact of ~~long-term~~restricted stock ~~awards~~units granted in ~~2017)~~2020), ~~$96~~$400 million for the early retirement of our 3.5% Notes due April 1, 2021, $108 million for the payment of cash dividends, ~~$35~~$23 million for dividends paid to noncontrolling ~~interests,~~interest and ~~$29~~$25 million for employee withholding taxes paid on stock-based compensation. These ~~amounts~~uses of cash were partially offset by the ~~issuance~~issuances of $300 million of ~~3.5%~~2.0% Notes due ~~November 15, 2027~~October 1, 2030 and ~~$300~~an incremental $100 million ofon our existing 4.5% Notes due May 15, ~~2047.~~2047 that was issued at a premium of $19 million and $26 million of proceeds from the exercise of stock options.

For the nine-month period ended September 30, ~~2017,~~2020, net cash provided by investing activities was ~~$157~~$770 million, ~~primarily due to $128~~comprised of $853 million of proceeds from the sale of ~~Arrow~~Cabinetry, net of cash disposed, and ~~$141~~$15 million ~~in net proceeds~~ from the ~~disposition~~finalization of ~~short-term bank deposits,~~working capital items on the sale of Milgard, partially offset by ~~$113~~$72 million ~~used~~ for capital ~~expenditures.~~expenditures and $24 million for the acquisition of SmarTap, net of cash acquired.

Our cash and cash investments were $1.3 billion and ~~short-term bank deposits were $1.2 billion~~$697 million at ~~both~~ September 30, ~~2017~~2020 and December 31, ~~2016.~~2019, respectively. Our cash and cash investments consist of overnight ~~interest bearing~~interest-bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations. ~~Our short-term bank deposits consist of time deposits with maturities of 12 months or less.~~

Of the ~~$1.2~~$1.3 billion and $697 million of cash and cash investments ~~and short-term bank deposits~~ held at September 30, ~~2017~~2020 and December 31, ~~2016, $721~~2019, $324 million and ~~$618~~$297 million, respectively, iswas 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 ~~June 21, 2017,~~September 18, 2020, we issued $300 million of ~~3.5%~~2.0% Notes due ~~November~~October 1, 2030 and received proceeds of $300 million, net of discount, for the issuance of the 2030 Notes. Also on September 18, 2020, we issued an incremental $100 million on our existing 4.5% Notes due May 15, ~~2027~~2047 and received proceeds of $119 million, including a premium, for the issuance of the 2047 Notes. The incremental $100 million will form a single series with the existing $300 million of 4.5% Notes due May 15, 2047. ~~We received proceeds of $599 million, net of discount, for the issuance of these Notes.~~ The 2030 Notes and 2047 Notes are senior indebtedness and are redeemable at our option at the applicable redemption price. On ~~June 27, 2017,~~September 29, 2020, proceeds from the debt issuances ~~together with cash on hand,~~ were used to repay and early retire ~~$299~~$400 million of our ~~7.125%~~3.5% Notes due ~~March 15, 2020, $74 million of our 5.95% Notes due March 15, 2022, $62 million of our 7.75% Notes due August~~April 1, ~~2029, and $100 million of our 6.5% Notes due August 15, 2032.~~2021. In connection with ~~these~~this early ~~retirements,~~retirement, we incurred a loss on debt extinguishment of ~~$107~~$6 million, which was recorded as interest expense.

On March ~~28, 2013,~~13, 2019, we entered into a credit agreement (the ~~“Credit Agreement”~~"Credit Agreement") ~~with a bank group,~~ with an aggregate commitment of ~~$1.25~~$1.0 billion and a maturity date of March 28, 2018. On May 29, 2015 and August 28, 2015, we amended the Credit Agreement with the bank group (the “Amended Credit Agreement”). The Amended Credit Agreement reduces the aggregate commitment to $750 million and extended the maturity date to May 29, 2020.13, 2024. Under the ~~Amended~~ Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional ~~$375~~$500 million with the current ~~bank group~~lenders or new lenders. Upon entry into the Credit Agreement, our credit agreement dated March 28, 2013, as amended, with an aggregate commitment of $750 million, was terminated. See Note GI to the condensed consolidated financial statements.

The ~~Amended~~ Credit Agreement contains financial covenants requiring us to maintain (A) a ~~maximum~~ net leverage ratio, as adjusted for certain items, ofnot exceeding 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, ~~equal to or greater~~not less than 2.5 to 1.0. We were in compliance with all covenants and ~~had~~ no borrowings were outstanding under our ~~Amended~~ Credit Agreement at September 30, ~~2017.~~2020.

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

All outstanding payments owed under the program are recorded within accounts payable in our condensed consolidated balance sheets. The amounts owed to participating financial institutions under the program and included in accounts payable for our continuing operations were $47 million and $29 million at September 30, 2020 and December 31, 2019, respectively. We account for all payments made under the program as a reduction to our cash flows from operations and reported within our increase 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 $97 million and $92 million for our continuing operations during the nine-month periods ended September 30, 2020 and 2019, respectively. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions’ willingness to commit funds to, and participate in, the program. We do not believe such risk would have a material impact on our working capital or cash flows, as substantially all of our payments are made outside of the program.

The COVID-19 pandemic did not impact our financial performance during the third quarter of 2020 to the extent we anticipated. Operational activity that was previously slowed at certain of our facilities, as a result of the pandemic, have largely resumed operations at normal capacities enabling them to progress on the fulfillment of production and distribution backlogs that developed in the first half of the year as well as to meet current consumer demand.

Many, but not all, of our businesses remained operating in the first nine months of 2020 because the products we provide are critical to infrastructure sectors and the day-to-day operations of homes and businesses in our communities as defined by applicable local orders. However, certain of our facilities experienced full closures ranging from a few days to several weeks, and if certain governmental orders are reimposed or if we are required to close a facility for employee safety reasons, we could experience new or extended closures which might adversely impact our ability to produce and distribute our products. Finally, we may experience supply chain disruptions, particularly disruptions related to our ability to source plumbing, lighting and builders’ hardware products.

We may experience an adverse impact to our fourth quarter of 2020 results due to economic contraction as a result of high unemployment levels and remaining or potential renewed shelter-in-place and social distancing orders. However, given our portfolio of lower ticket, repair and remodel-oriented products, we expect that demand for our products will continue to be solid as we recover from the COVID-19 pandemic.

We believe that our present cash balance, ~~and~~ 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~~anticipate that our longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings and future financial market activities. However, due to the highly uncertain nature, severity and duration or resurgence of the COVID-19 pandemic and its impact on our customers, suppliers and employees, we are unable to fully estimate the extent of the impact it may have on our future financial condition.

In preparing this Form 10-Q, including our financial statements contained in this report, we made certain estimates and assumptions that affect or could have affected the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As the impact of the COVID-19 pandemic to our business becomes more certain, we will update and refine our estimates and assumptions, which could affect the reported amounts of assets and liabilities and related disclosures, and future revenues and expenses.

We continue to be committed to the safety and well-being of our employees during this time, and, led by our cross-functional COVID-19 task force, 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 ~~successfully~~ execute ~~against~~ our ~~long-term growth~~ strategies byof leveraging our strong brand portfolio, industry-leading positions and the Masco Operating System, our methodology to drive growth and ~~productivity. We believe the demand drivers underlying our business continue~~productivity, to ~~be strong and support~~create long-term ~~growth of our market-leading products.~~shareholder value. We believe that our strong financial position and cash flow generation, together with our ~~current strategy of investing~~investments in our industry-leading branded building products, our continued focus on innovation ~~and our commitment to operational excellence~~ and disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders. While we continue to remain uncertain regarding the short-term impact that the COVID-19 pandemic may have on our businesses, we remain confident in the fundamentals of our businesses and long-term strategy.

FORWARD-LOOKING STATEMENTS

This report contains statements that reflect our views about our future performance and constitute ~~“forward-looking statements”~~"forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as ~~“believe,” “anticipate,” “appear,” “may,” “will,” “should,” “intend,” “plan,” “estimate,” “expect,” “assume,” “seek,” “forecast,”~~"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 ~~home improvement~~residential repair and remodel activity and new home construction, our ability to maintain our strong brands and reputation and to develop ~~and introduce new and improved~~innovative products, our ability to maintain our competitive position in our industries, our reliance on key customers, the length and severity of the ongoing COVID-19 pandemic, including its impact on domestic and international economic activity, consumer demand for our products, our production capabilities, our employees and our supply chain, the cost and availability of materials and the imposition of tariffs, our dependence on third-party suppliers, risks associated with our international operations and global strategies, our ability to achieve the anticipated benefits of our strategic initiatives, our ability to ~~improve~~successfully execute our ~~underperforming U.S. window business, the cost~~acquisition strategy and ~~availability of raw materials,~~integrate businesses that we have and may acquire, our ~~dependence on third party suppliers,~~ability to attract, develop and retain talented personnel, risks associated with ~~international operations~~our reliance on information systems and ~~global strategies.~~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”~~"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.

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 September 30, ~~2017,~~2020, the ~~Company’s~~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 September 30, ~~2017,~~2020, which is required under the Securities Exchange Act of 1934 by paragraph (d) of Exchange Rules 13a-15 or 15d-15 (as defined in paragraph (f) of Rule 13a-15), management determined that there was no change that materially affected or is reasonably likely to materially affect internal control over financial reporting.

MASCO CORPORATION

PART II. OTHER INFORMATION

Item 1.Legal Proceedings

Information regarding legal proceedings involving us is set forth in Note NP 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~~In addition to the ~~risk factors of the Company~~other information set forth in ~~Item 1A, “Risk~~this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

~~Item 2~~. ~~Unregistered Sales of Equity Securities and Use of Proceeds~~

~~The following table provides information regarding the repurchase of Company common stock~~2019. Except as set forth in our Quarterly Report on Form 10-Q for the ~~three-month~~quarter period ended ~~September~~June 30, ~~2017 under~~2020, there have been no material changes to our risk factors from those disclosed in Part I, Item 1A of the ~~2017 share repurchase authorization:~~ Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

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
7/1/17-7/31/17 359,823
$ 38.32
359,823
$ 1,472,685,839
8/1/17-8/31/17 (B)
3,660,131
$ 44.83
3,660,131
$ 1,308,607,235
9/1/17-9/30/17 —
$ —
—
$ 1,308,607,235
Total for the period 4,019,954
$ 44.25
4,019,954
$ 1,308,607,235


~~(A)~~	~~In May 2017, our Board of Directors authorized the repurchase, for retirement, of up to $1.5 billion of shares of our common stock in open-market transactions or otherwise.~~

~~(B)~~

In August 2017, we entered into an accelerated stock repurchase transaction whereby we agreed to repurchase a total of $150 million of our common stock with an immediate delivery of 3.3 million shares. This transaction will be completed in October 2017, at which time we anticipate we will receive, at no additional cost, 0.7 million additional shares of our common stock resulting from expected changes in the volume weighted average stock price of our common stock over the term of the transaction. The average price paid per common share does not reflect the holdback shares that we expect to receive upon completion of the accelerated stock repurchase transaction. If we had received the expected additional 0.7 million shares at inception of the accelerated stock repurchase transaction, the total number of shares purchased under this transaction would have been approximately 4.0 million with an average price paid per common share of approximately $37.50.

MASCO CORPORATION

PART II. OTHER INFORMATION, Continued

Item 6. Exhibits



4.1	–	Resolutions establishing the terms of the 2.000% Notes Due 2030 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 September 18, 2020.

4.2	–	Resolutions establishing the terms of the 4.500% Notes Due 2047 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 September 18, 2020.

4.3	–	Second Supplemental Indenture dated as of September 18, 2020 to the Indenture dated as of February 12, 2001 between Masco Corporation and The Bank of New York Mellon Trust Company, N.A., as successor trustee under agreement originally with Bank One Trust Company, National Association, as Trustee, as supplemented. Incorporated by reference to Exhibit 4.3 to Masco Corporation’s Current Report on Form 8-K dated and filed on September 18, 2020.

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 September 30, 2020, 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)

12 –
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

31a –
Certification by Chief Executive Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934

31b –
Certification by Chief Financial Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934

32 –
Certification Required by Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code

101 – Interactive Data File

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

October ~~24, 2017~~

28, 2020



	Gross Goodwill At September 30, 2017		Accumulated Impairment Losses			Net Goodwill At September 30, 2017
Plumbing Products	$	534	$	(340	)	$	194
Decorative Architectural Products	294		(75		)	219
Cabinetry Products	240		(59		)	181
Windows and Other Specialty Products	718		(511		)	207
Total	$	1,786	$	(985	)	$	801



	Gross Goodwill At December 31, 2016		Accumulated Impairment Losses			Net Goodwill At December 31, 2016		Other(A)		Divestitures (B)			Net Goodwill At September 30, 2017
Plumbing Products	$	519	$	(340	)	$	179	$	15	$	—		$	194
Decorative Architectural Products	294		(75		)	219		—		—			219
Cabinetry Products	240		(59		)	181		—		—			181
Windows and Other Specialty Products	987		(734		)	253		1		(47		)	207
Total	$	2,040	$	(1,208	)	$	832	$	16	$	(47	)	$	801



	At September 30, 2017
	Notional Amount		Balance Sheet
Foreign currency contracts:
Exchange contracts	$	2
Accrued liabilities			$	—
Forward contracts	4
Receivables			—



	At December 31, 2016
	Notional Amount		Balance Sheet
Foreign currency contracts:
Forward contracts	$	21
Accrued liabilities			$	(2	)
Metals contracts	1
Accrued liabilities			—



	Nine Months Ended September 30, 2017			Twelve Months Ended December 31, 2016
Balance at January 1	$	192		$	152
Accruals for warranties issued during the period	43			66
Accruals related to pre-existing warranties	6			33
Settlements made (in cash or kind) during the period	(43		)	(56		)
Other, net (including currency translation)	1			(3		)
Balance at end of period	$	199		$	192



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
7/1/17-7/31/17	359,823	$	38.32	359,823	$	1,472,685,839
8/1/17-8/31/17 (B)	3,660,131	$	44.83	3,660,131	$	1,308,607,235
9/1/17-9/30/17	—	$	—	—	$	1,308,607,235
Total for the period	4,019,954	$	44.25	4,019,954	$	1,308,607,235




12	–	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

31a	–	Certification by Chief Executive Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934

31b	–	Certification by Chief Financial Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934

32	–	Certification Required by Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code

101	–	Interactive Data File

MASCO CORPORATION

~~Item 4.~~

CONTROLS AND PROCEDURES