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

	

FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2017
 
Commission file number: 1-5794
 
Masco Corporation
(Exact name of Registrant as Specified in its Charter) 

			
Delaware	 	38-1794485	
(State of	 	(IRS Employer	
Incorporation)	 	Identification No.)	

			
21001 Van Born Road, Taylor, Michigan	 	48180	
(Address of Principal Executive Offices)	 	(Zip Code)	

(313) 274-7400
(Registrant’s telephone number, including area code)
 
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 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 accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

	
			
Large accelerated filer x	 	Accelerated filer o	
Non-accelerated filer o	 	Smaller reporting company o	
(Do not check if a smaller reporting company)	 	Emerging growth company o	
 
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 classes of common stock, as of the latest practicable date. 

			
Class	 	Shares Outstanding at March 31, 2017	
Common stock, par value $1.00 per share	 	319,362,898	

MASCO CORPORATION

INDEX

	
			
 	 	Page No.	
PART I.	FINANCIAL INFORMATION	 	
Item 1.	Financial Statements (Unaudited):	 	
 	Condensed Consolidated Balance Sheets — as at March 31, 2017 and December 31, 2016	1	
 	Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016	2	
 	Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2017 and 2016	3	
 	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	4	
 	Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2017 and 2016	5	
 	Notes to Condensed Consolidated Financial Statements	6	
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15	
Item 4.	Controls and Procedures	20	
PART II.	OTHER INFORMATION	21	
Item 1.	Legal Proceedings	21	
Item 1A.	Risk Factors	21	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21	
Item 6.	Exhibits	22	
 	Signature	23	

MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

March 31, 2017 and December 31, 2016
(In Millions, Except Share Data)

	

	
								
 	March 31, 2017	 	December 31, 2016	
ASSETS	 		 	 		
Current assets:	 		 	 		
Cash and cash investments	$	689		 	$	990		
Short-term bank deposits	194		 	201		
Receivables	1,144		 	917		
Prepaid expenses and other	105		 	114		
Inventories:	 		 	 		
Finished goods	463		 	366		
Raw material	263		 	254		
Work in process	100		 	92		
 	826		 	712		
Total current assets	2,958		 	2,934		
Property and equipment, net	1,074		 	1,060		
Goodwill	835		 	832		
Other intangible assets, net	154		 	154		
Other assets	118		 	157		
Total assets	$	5,139		 	$	5,137		
 	 	 	 	
LIABILITIES	 		 	 		
Current liabilities:	 		 	 		
Accounts payable	$	903		 	$	800		
Notes payable	3		 	2		
Accrued liabilities	518		 	658		
Total current liabilities	1,424		 	1,460		
Long-term debt	2,996		 	2,995		
Other liabilities	778		 	785		
Total liabilities	5,198		 	5,240		
 	 	 	 	
Commitments and contingencies (Note M)			 			
 	 	 	 	
EQUITY	 		 	 		
Masco Corporation’s shareholders’ equity:	 		 	 		
Common shares, par value $1 per share
Authorized shares: 1,400,000,000;
Issued and outstanding: 2017 – 316,100,000; 2016 – 318,000,000	316		 	318		
Preferred shares authorized: 1,000,000;
Issued and outstanding: 2017 and 2016 – None	—		 	—		
Paid-in capital	—		 	—		
Retained deficit	(370	)	 	(381	)	
Accumulated other comprehensive loss	(214	)	 	(235	)	
Total Masco Corporation’s shareholders’ deficit	(268	)	 	(298	)	
Noncontrolling interest	209		 	195		
Total equity	(59	)	 	(103	)	
Total liabilities and equity	$	5,139		 	$	5,137		

See notes to condensed consolidated financial statements.

1

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

For the Three Months Ended March 31, 2017 and 2016
(In Millions, Except Per Common Share Data)

	

	
								
 	Three Months Ended
March 31,	
 	2017	 	2016	
Net sales	$	1,777		 	$	1,720		
Cost of sales	1,169		 	1,151		
Gross profit	608		 	569		
Selling, general and administrative expenses	355		 	335		
Operating profit	253		 	234		
Other income (expense), net:	 		 	 		
Interest expense	(43	)	 	(56	)	
Other, net	3		 	(1	)	
 	(40	)	 	(57	)	
Income before income taxes	213		 	177		
Income tax expense	63		 	58		
Net income	150		 	119		
Less: Net income attributable to noncontrolling interest	10		 	10		
Net income attributable to Masco Corporation	$	140		 	$	109		
 	 	 	 	
Income per common share attributable to Masco Corporation:	 	 		
Basic:	 		 	 		
Net income	$	.44		 	$	.33		
Diluted:	 		 	 		
Net income	$	.43		 	$	.32		

See notes to condensed consolidated financial statements.

2

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

For the Three Months Ended March 31, 2017 and 2016
(In Millions)

	

	
								
 	Three Months Ended
March 31,	
 	2017	 	2016	
Net income	$	150		 	$	119		
Less: Net income attributable to noncontrolling interest	10		 	10		
Net income attributable to Masco Corporation	$	140		 	$	109		
Other comprehensive income, net of tax (Note I):	 		 	 		
Cumulative translation adjustment	$	21		 	$	24		
Pension and other post-retirement benefits	4		 	3		
Other comprehensive income	25		 	27		
Less: Other comprehensive income attributable to noncontrolling interest	4		 	7		
Other comprehensive income attributable to Masco Corporation	$	21		 	$	20		
Total comprehensive income	$	175		 	$	146		
Less: Total comprehensive income attributable to the noncontrolling interest	14		 	17		
Total comprehensive income attributable to Masco Corporation	$	161		 	$	129		

See notes to condensed consolidated financial statements.

3

MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For the Three Months Ended March 31, 2017 and 2016
(In Millions)  

	

	
								
 	Three Months Ended
March 31,	
 	2017	 	2016	
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:	 		 	 		
Cash provided by operations	$	253		 	$	219		
Increase in receivables	(237	)	 	(198	)	
Increase in inventories	(109	)	 	(63	)	
Decrease in accounts payable and accrued liabilities, net	(56	)	 	(28	)	
Net cash for operating activities	(149	)	 	(70	)	
 	 	 	 	
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:	 		 	 		
Purchase of Company common stock	(87	)	 	(86	)	
Cash dividends paid	(32	)	 	(32	)	
Issuance of notes, net of issuance costs	—		 	889		
Issuance of Company common stock	—		 	1		
Employee withholding taxes paid on stock-based compensation	(14	)	 	(19	)	
Decrease in debt, net	—		 	(2	)	
Net cash (for) from financing activities	(133	)	 	751		
 	 	 	 	
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:	 		 	 		
Capital expenditures	(37	)	 	(37	)	
Proceeds from disposition of:	 		 	 		
Short-term bank deposits	11		 	60		
Other financial investments	3		 	—		
Property and equipment	6		 	—		
Other, net	(9	)	 	(3	)	
Net cash (for) from investing activities	(26	)	 	20		
 	 	 	 	
Effect of exchange rate changes on cash and cash investments	7		 	6		
 	 	 	 	
CASH AND CASH INVESTMENTS:	 		 	 		
(Decrease) increase for the period	(301	)	 	707		
At January 1	990		 	1,468		
At March 31	$	689		 	$	2,175		

See notes to condensed consolidated financial statements.

4

MASCO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

For the Three Months Ended March 31, 2017 and 2016
(In Millions, Except Per 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	146		 	 		 	 		 	109		 	20		 	17		
Shares issued	(6	)	 	2		 	(8	)	 	 		 	 		 	 		
Shares retired:	 		 	 		 	 		 	 		 	 		 	 		
Repurchased	(86	)	 	(3	)	 	(7	)	 	(76	)	 	 		 	 		
Surrendered (non-cash)	(11	)	 			 			 	(11	)	 	 		 	 		
Cash dividends declared	(32	)	 	 		 	 		 	(32	)	 	 		 	 		
Stock-based compensation	15		 	 		 	15		 	 		 	 		 	 		
Balance, March 31, 2016	$	84		 	$	329		 	$	—		 	$	(310	)	 	$	(145	)	 	$	210		
 	 	 	 	 	 	 	 	 	 	 	 	
Balance, January 1, 2017	$	(103	)	 	$	318		 	$	—		 	$	(381	)	 	$	(235	)	 	$	195		
Total comprehensive income	175		 	 		 	 		 	140		 	21		 	14		
Shares issued	(1	)	 	1		 	(2	)	 	 		 	 		 	 		
Shares retired:	 		 	 		 	 		 	 		 	 		 	 		
Repurchased	(92	)	 	(3	)	 	(5	)	 	(84	)	 	 		 	 		
Surrendered (non-cash)	(13	)	 			 	 		 	(13	)	 	 		 	 		
Cash dividends declared	(32	)	 	 		 	 		 	(32	)	 	 		 	 		
Stock-based compensation	7		 	 		 	7		 	 		 	 		 	 		
Balance, March 31, 2017	$	(59	)	 	$	316		 	$	—		 	$	(370	)	 	$	(214	)	 	$	209		

See notes to condensed consolidated financial statements.

5

MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

A. ACCOUNTING POLICIES
 
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly our financial position as at March 31, 2017 , and our results of operations, comprehensive income (loss), cash flows and changes in shareholders' equity for the three-month period ended March 31, 2017 and 2016 . The condensed consolidated balance sheet at December 31, 2016 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
 
Reclassification. Certain prior year amounts have been reclassified to conform to the 2017 presentation in the condensed consolidated financial statements. 
 
Recently Adopted Accounting Pronouncements. In July 2015, 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 statement 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 $30 million for the three-month period ended March 31, 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, 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 are finalizing our assessment of the impact of the adoption; however, currently, we do not expect the adoption will have a material impact on our financial position or results of operations. We currently anticipate adopting this standard on its effective date, January 1, 2018, under the full retrospective method of adoption. We have not experienced significant issues in our implementation process and we do not anticipate significant changes to our accounting policies.

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. We are currently evaluating the impact the adoption of this new standard will have on our financial position and 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.

6

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

A. ACCOUNTING POLICIES (Concluded)

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. ASC 2017-07 is effective for us for annual periods beginning January 1, 2018. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations; however, we expect the impact to be limited to the reclassification of non-service cost components of net benefit cost from operating profit to other income (expense), net, within our results of operations.

B. GOODWILL AND OTHER INTANGIBLE ASSETS
 
The changes in the carrying amount of goodwill for the three-month period ended March 31, 2017 , by segment, were as follows, in millions: 

												
 	Gross Goodwill At March 31, 2017	 	Accumulated
Impairment
Losses	 	Net Goodwill At March 31, 2017	
Plumbing Products	$	522		 	$	(340	)	 	$	182		
Decorative Architectural Products	294		 	(75	)	 	219		
Cabinetry Products	240		 	(59	)	 	181		
Windows and Other Specialty Products	987		 	(734	)	 	253		
Total	$	2,043		 	$	(1,208	)	 	$	835		

																				
 	Gross Goodwill At December 31, 2016	 	Accumulated
Impairment
Losses	 	Net Goodwill At December 31, 2016	 	Other(A)	 	Net Goodwill At March 31, 2017	
Plumbing Products	$	519		 	$	(340	)	 	$	179		 	$	3		 	$	182		
Decorative Architectural Products	294		 	(75	)	 	219		 	—		 	219		
Cabinetry Products	240		 	(59	)	 	181		 	—		 	181		
Windows and Other Specialty Products	987		 	(734	)	 	253		 	—		 	253		
Total	$	2,040		 	$	(1,208	)	 	$	832		 	$	3		 	$	835		

	

(A)     Other principally includes the effect of foreign currency translation.
 
The carrying value of our other indefinite-lived intangible assets was $136 million at both March 31, 2017 and December 31, 2016 , and principally included registered trademarks. The carrying value of our definite-lived intangible assets was $18 million at both March 31, 2017 and December 31, 2016 (net of accumulated amortization of $8 million and $16 million , respectively), and principally included customer relationships. 

C. DEPRECIATION AND AMORTIZATION
 
Depreciation and amortization expense was $31 million and $32 million for the three-month periods ended March 31, 2017 and 2016 , respectively. 

D. 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 March 31, 2017, the balance remaining in accumulated other comprehensive loss was $12 million (pre-tax).

7

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

D. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (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 of our European operations, enter into foreign currency forward contracts and foreign currency exchange contracts.
    
Gains (losses) related to foreign currency forward and exchange contracts are recorded in our condensed consolidated statements of operations in other income (expense), net.  In the event that the counterparties fail to meet the terms of the foreign currency forward or exchange contracts, our exposure is limited to the aggregate foreign currency rate differential with such institutions.

Metals Contracts.  From time 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 
March 31,	
 	2017	 	2016	
Metals contracts	$	—		 	$	2		

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 and the fair value of those derivative instruments are as follows, in millions:

								
 	At March 31, 2017	
 	Notional
Amount	 	Balance Sheet	
Foreign currency contracts:	 		 	 		
Exchange contracts	$	6		 	 		
Accrued liabilities	 		 	$	—		
Forward contracts	18		 	 		
Accrued liabilities	 		 	(2	)	

								
 	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 all foreign currency derivative contracts is estimated on a recurring basis, quarterly, using Level 2 inputs (significant other observable inputs).

8

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

E. WARRANTY LIABILITY
 
Changes in our warranty liability were as follows, in millions: 

								
 	Three Months Ended
March 31, 2017	 	Twelve Months Ended December 31, 2016	
Balance at January 1	$	192		 	$	152		
Accruals for warranties issued during the period	13		 	66		
Accruals related to pre-existing warranties	3		 	33		
Settlements made (in cash or kind) during the period	(14	)	 	(56	)	
Other, net (including currency translation)	—		 	(3	)	
Balance at end of period	$	194		 	$	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.

F. DEBT

On March 28, 2013, we entered into a credit agreement (the “Credit Agreement”) with a bank group, with an aggregate commitment of $1.25 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.  Under the Amended Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $375 million with the current bank group or new lenders.

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 and certain other currencies. Borrowings under the revolver denominated in euros are limited to $500 million , equivalent. We can also borrow swingline loans up to $75 million and obtain letters of credit of up to $100 million ; any outstanding letters of credit under the Amended Credit Agreement reduce our borrowing capacity. At March 31, 2017 , 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 of (i) the prime rate, (ii) the Federal Funds effective rate plus 0.50% and (iii) LIBOR plus 1.0% (the “Alternative Base Rate”); plus an applicable margin based upon our then-applicable corporate credit ratings; or (B) LIBOR 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 plus an applicable margin based upon our then-applicable corporate credit ratings.

The Amended Credit Agreement contains financial covenants requiring us to maintain (A) a maximum net leverage ratio, as adjusted for certain items, of 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, equal to or greater than 2.5 to 1.0.

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, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and no borrowings have been made at March 31, 2017 . 

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. 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 both March 31, 2017 and December 31, 2016 .

9

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

G. STOCK-BASED COMPENSATION
 
Our 2014 Long Term Stock Incentive Plan provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors.  At March 31, 2017 , outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, phantom stock awards and stock appreciation rights. 

Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions: 

								
 	Three Months Ended March 31,	
 	2017	 	2016	
Long-term stock awards	$	6		 	$	5		
Stock options	1		 	1		
Phantom stock awards and stock appreciation rights	2		 	3		
Total	$	9		 	$	9		
      
Long-Term Stock Awards.  Long-term stock awards are granted to our key employees and non-employee Directors and do not cause net share dilution inasmuch as we continue the practice of repurchasing and retiring an equal number of shares in the open market.  We granted 770,870 shares of long-term stock awards in the three-month period ended March 31, 2017 .
    
Our long-term stock award activity was as follows, shares in millions: 

								
 	Three Months Ended March 31,	
 	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	$	22		 	$	19		
 	 	 	 	
Unvested stock award shares at March 31	3		 	4		
Weighted average grant date fair value	$	23		 	$	20		

At March 31, 2017 and 2016 , there was $63 million and $62 million , respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of 4 years at both March 31, 2017 and 2016 .
 
The total market value (at the vesting date) of stock award shares which vested during the three-month periods ended  March 31, 2017 and 2016 was $39 million and $36 million , respectively.
 
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 options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date.
 
We granted 397,350 shares of stock options in the three-month period ended March 31, 2017 with a grant date weighted-average exercise price of approximately $34 per share. In the three-month period ended March 31, 2017 , no stock option shares were forfeited (including options that expired unexercised).

10

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

G. STOCK-BASED COMPENSATION (Continued)

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

	
								
 	 	Three Months Ended March 31,	
 	 	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		
Aggregate intrinsic value on date of exercise (A)  	$	3 million		 	$	18 million		
Weighted average exercise price	$	23		 	$	18		
 	 	 	 	 	 	
Option shares forfeited	 	—		 	 	—		
Weighted average exercise price	$	—		 	$	—		
 	 	 	 	 	 	
Option shares outstanding, March 31	 	7		 	 	11		
Weighted average exercise price	$	16		 	$	18		
Weighted average remaining option term (in years)	 	4		 	 	4		
 	 	 	 	 	 	
Option shares vested and expected to vest, March 31	 	7		 	 	11		
Weighted average exercise price	$	16		 	$	18		
Aggregate intrinsic value (A)  	$	131 million		 	$	154 million		
Weighted average remaining option term (in years)	 	4		 	 	4		
 	 	 	 	 	 	
Option shares exercisable (vested), March 31	 	6		 	 	10		
Weighted average exercise price	$	13		 	$	17		
Aggregate intrinsic value (A)  	$	120 million		 	$	138 million		
Weighted average remaining option term (in years)	 	3		 	 	3		

	

		
(A)	Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price), multiplied by the number of shares.	

At March 31, 2017 and 2016 , there was $10 million and $8 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 March 31, 2017 and 2016.

11

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

G. STOCK-BASED COMPENSATION (Concluded)     

The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows: 

	
								
 	Three Months Ended March 31,	
 	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. In March 2017, our Organization and Compensation Committee ("Compensation Committee") of the Board of Directors approved a Long Term Incentive Program ("LTIP Program"). Under the LTIP Program, we granted restricted stock units to certain senior executives. These restricted stock units will vest and share awards will be issued at no cost, subject to our achievement of specified return on invested capital performance goals over a three-year period that have been established by the Compensation Committee for the performance period and the employee'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 the three-month period ended March 31, 2017 , with a grant date fair value of approximately $34 per share. No restricted stock units were forfeited in the three-month period ended March 31, 2017 .

H. EMPLOYEE RETIREMENT PLANS
 
Net periodic pension cost for our defined-benefit pension plans was as follows, in millions: 

																
 	Three Months Ended March 31,	
 	2017	 	2016	
 	Qualified	 	Non-Qualified	 	Qualified	 	Non-Qualified	
Service cost	$	1		 	$	—		 	$	1		 	$	—		
Interest cost	12		 	1		 	11		 	1		
Expected return on plan assets	(12	)	 	—		 	(10	)	 	—		
Amortization of net loss	5		 	1		 	4		 	1		
Net periodic pension cost	$	6		 	$	2		 	$	6		 	$	2		

We froze all future benefit accruals under substantially all of our domestic and foreign qualified and domestic non-qualified defined benefit pension plans several years ago.

I. RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE LOSS
 
The reclassifications from accumulated other comprehensive loss to the condensed consolidated statements of operations were as follows, in millions: 

											
 	 	Amounts Reclassified	 	 	
Accumulated Other Comprehensive Loss	 	Three Months Ended
March 31,	 	Statement of Operations Line Item	
	 	2017	 	2016	 		
Amortization of defined benefit pension and other postretirement benefits:	 	 		 	 		 	 	
Actuarial losses, net	 	$	6		 	$	5		 	Selling, general and administrative expenses	
Tax (benefit)	 	(2	)	 	(2	)	 	 	
Net of tax	 	$	4		 	$	3		 	 	

12

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

J. SEGMENT INFORMATION
 
Information by segment and geographic area was as follows, in millions: 

																
 	Three Months Ended March 31,	
 	2017	 	2016	 	2017	 	2016	
 	Net Sales(A)	 	Operating   Profit	
Operations by segment:	 		 	 		 	 		 	 		
Plumbing Products	$	863		 	$	813		 	$	156		 	$	129		
Decorative Architectural Products	505		 	493		 	101		 	105		
Cabinetry Products	231		 	236		 	16			24		
Windows and Other Specialty Products	178		 	178		 	6		 	3		
Total	$	1,777		 	$	1,720		 	$	279		 	$	261		
Operations by geographic area:	 		 	 		 	 		 	 		
North America	$	1,411		 	$	1,350		 	$	239		 	$	215		
International, principally Europe	366		 	370		 	40		 	46		
Total	$	1,777		 	$	1,720		 	279		 	261		
General corporate expense, net	 		 	 		 	(26	)	 	(27	)	
Operating profit	 		 	 		 	253		 	234		
Other income (expense), net	 		 	 		 	(40	)	 	(57	)	
Income before income taxes	 		 	 		 	$	213		 	$	177		

	

		
(A)	Inter-segment sales were not material.	

K. OTHER INCOME (EXPENSE), NET
 
Other, net, which is included in other income (expense), net, was as follows, in millions: 

								
 	Three Months Ended
March 31,	
 	2017	 	2016	
Income from cash and cash investments and short-term bank deposits	$	1		 	$	1		
Equity investment income, net	—		 	1		
Realized gains from private equity funds	1		 	—		
Foreign currency transaction gains	1		 	—		
Other items, net	—		 	(3	)	
Total other, net	$	3		 	$	(1	)	

13

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

L. EARNINGS PER COMMON SHARE
 
Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions: 

								
 	Three Months Ended
March 31,	
 	2017	 	2016	
Numerator (basic and diluted):	 		 	 		
Net income	$	140		 	$	109		
Less: Allocation to unvested restricted stock awards	1		 	1		
Net income available to common shareholders	$	139		 	$	108		
 	 	 	 	
Denominator:	 		 	 		
Basic common shares (based upon weighted average)	317		 	330		
Add: Stock option dilution	4		 	3		
Diluted common shares	321		 	333		
 
For the three-month periods ended March 31, 2017 and 2016 , we allocated dividends and undistributed earnings to the unvested restricted stock awards.
 
Additionally, 221,000 and 1 million common shares for the three-month periods ended March 31, 2017 and 2016, respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect.

On September 30, 2014, we announced that our Board of Directors authorized the repurchase of up to 50 million shares for retirement of our common stock in open-market transactions or otherwise. In the first three months of 2017 , we repurchased and retired 2.8 million shares of our common stock (including 0.8 million shares to offset the dilutive impact of long-term stock awards granted in the first quarter), for approximately $92 million , of which $87 million was paid in cash during the first three months of 2017. At March 31, 2017 , we had 10.1 million shares remaining under the authorization.

On the basis of amounts paid (declared), cash dividends per common share were $0.100 ( $0.100 ) and $0.095 ( $0.095 ) for the three-month periods ended March 31, 2017 and 2016 , respectively. 

M. OTHER COMMITMENTS AND CONTINGENCIES
 
We are subject to claims, charges, litigation and other proceedings in the ordinary course of our business, including those arising from or related to contractual matters, intellectual property, personal injury, environmental matters, product liability, product recalls, construction defect, insurance coverage, personnel and employment disputes, anti-trust issues and other matters, including class actions.  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.

N. INCOME TAXES
 
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 30 percent and 33 percent for the three-month periods ended March 31, 2017 and 2016, respectively.  The decrease in the tax rate was primarily due to a $7 million income tax benefit on stock based compensation in the first quarter of 2017.

14

	
		
 	MASCO CORPORATION	
 	 	
Item 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF	
 	FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
 	 	
FIRST QUARTER 2017 VERSUS FIRST QUARTER 2016	

SALES AND OPERATIONS
 
The following table sets forth our net sales and operating profit margins by business segment and geographic area, dollars in millions: 

											
 	Three Months Ended March 31,	 	Percent Change	
 	2017	 	2016	 	2017 vs. 2016	
Net Sales:	 		 	 		 	 		
Plumbing Products	$	863		 	$	813		 	6	 %	
Decorative Architectural Products	505		 	493		 	2	 %	
Cabinetry Products	231		 	236		 	(2	)%	
Windows and Other Specialty Products	178		 	178		 	—	 %	
Total	$	1,777		 	$	1,720		 	3	 %	
 	 	 	 	 	 	
North America	$	1,411		 	$	1,350		 	5	 %	
International, principally Europe	366		 	370		 	(1	)%	
Total	$	1,777		 	$	1,720		 	3	 %	

						
 	Three Months Ended March 31,	
 	2017	 	2016	
Operating Profit Margins: (A)	 		 	 		
Plumbing Products	18.1	%	 	15.9	%	
Decorative Architectural Products	20.0	%	 	21.3	%	
Cabinetry Products	6.9	%	 	10.2	%	
Windows and Other Specialty Products	3.4	%	 	1.7	%	
 	 	 	 	
North America	16.9	%	 	15.9	%	
International, principally Europe	10.9	%	 	12.4	%	
Total	15.7	%	 	15.2	%	
Total operating profit margin, as reported	14.2	%	 	13.6	%	

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

We report our financial results in accordance with generally accepted accounting principles (“GAAP”) in the United States.  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.

15

NET SALES
 
Net sales increased three percent for the three-month period ended March 31, 2017, from the comparable period of 2016. Excluding acquisitions and the unfavorable effect of currency translation, net sales increased five percent for the three-month period ended March 31, 2017, from the comparable period of 2016. The following table reconciles reported net sales to net sales, excluding acquisitions and the effect of currency translation, in millions:

								
 	Three Months Ended
March 31,	
 	2017	 	2016	
Net sales, as reported	$	1,777		 	$	1,720		
Acquisitions (none)	—		 	—		
Net sales, excluding acquisitions	1,777		 	1,720		
Currency translation	22		 	—		
Net sales, excluding acquisitions and the effect of currency translation	$	1,799		 	$	1,720		
 
North American net sales increased five percent for the three-month period ended March 31, 2017, from the comparable period of 2016. Net sales were positively impacted by increased sales volume of plumbing products and builders’ hardware, which, in aggregate, increased sales by four percent for the three-month period ended March 31, 2017, from the comparable period of 2016. Favorable sales mix of cabinets, windows, and plumbing products increased sales by one percent, from the comparable period of 2016. Such increases were partially offset by decreased sales volumes in cabinets and windows, which, in aggregate, decreased sales by one percent for the three-month period ended March 31, 2017, from the comparable period of 2016.
International net sales decreased one percent for the three-month period ended March 31, 2017, from the comparable period of 2016, due primarily to a stronger U.S. dollar. In local currencies (including sales in currencies outside their respective functional currencies), net sales increased five percent for the three-month period ended March 31, 2017, from the comparable period of 2016, primarily due to increased sales volume of plumbing products, net selling price increases of plumbing products and windows, and favorable product mix of cabinets, which, in aggregate, increased sales by six percent for the three-month period ended March 31, 2017, from the comparable period of 2016. Such increases were partially offset by lower sales volume of cabinets and unfavorable sales mix of plumbing products, which, in aggregate, decreased sales by two percent.

Net sales in the Plumbing Products segment increased six percent for the three-month period ended March 31, 2017, from the comparable period of 2016, due to increased sales volume of both North American and International operations and net selling price increases of International operations, which, in aggregate, increased sales by seven percent from the comparable period of 2016. Foreign currency translation reduced sales by two percent for the three-month period ended March 31, 2017, from the comparable period of 2016, primarily due to the stronger U.S. Dollar.

Net sales in the Decorative Architectural Products segment increased two percent for the three-month period ended March 31, 2017, from the comparable period of 2016, primarily due to increased sales volume of builders' hardware resulting from the expansion of our shower door program and growth in our BEHR PRO® business, partially offset by lower sales volume of total DIY paints and other coating products.

Net sales in the Cabinetry Products segment decreased two percent for the three-month period ended March 31, 2017, from the comparable period of 2016, due to decreased sales volume of both North American and international cabinets, primarily due to our deliberate exit of certain lower margin business in the direct-to-builder channel in the U.S. and other accounts in the U.K., which decreased sales by six percent from the comparable period of 2016. Lower net selling prices of North American cabinets also decreased sales by one percent from the comparable period of 2016. Such decreases were partially offset by a positive sales mix of North American and international cabinets, which increased sales by five percent from the comparable period of 2016.

Net sales in the Windows and Other Specialty Products segment was flat for the three-month period ended March 31, 2017, compared to the same period of 2016. A favorable sales mix of North American windows and net selling price increases of both North American and international windows, in aggregate, increased sales by six percent from the comparable period of 2016. Such increases were offset by foreign currency translation and decreased sales volume of North American windows.

16

OPERATING MARGINS
 
Our gross profit margins were 34.2 percent for the three-month period ended March 31, 2017, respectively, compared with 33.1 percent for the comparable period of 2016. The increase in gross profit margin was due primarily to increased sales volume, a more favorable relationship between net selling prices and commodity costs, and cost savings initiatives.

Selling, general and administrative expenses, as a percentage of sales, were 20.0 percent for the three-month period ended March 31, 2017, compared to 19.5 percent for the comparable period of 2016. Increases in selling, general and administrative expenses were driven by higher trade show costs, increases in advertising expenses and investments in strategic growth initiatives.

Operating profit for the three-month period ended March 31, 2017 includes $2 million of costs and charges related to our business rationalizations and other initiatives, compared with $3 million for the comparable period of 2016.

Operating margin in the Plumbing Products segment for the three-month period ended March 31, 2017 was positively impacted by increased sales volume, a more favorable relationship between net selling prices and commodity costs (including an unfavorable impact from commodity hedging) and the benefits associated with cost savings initiatives. Such increases were partially offset by an increase in certain variable expenses (such as trade show costs) and investments in strategic growth initiatives.

Operating margin in the Decorative Architectural Products segment for the three-month period ended March 31, 2017 was negatively affected by an increase in certain variable expenses (such as advertising expenses), strategic growth investments to support the expansion of pro paint sales and an unfavorable relationship between net selling prices and commodity costs. Such cost increases were partially offset by increased sales volume of builders' hardware.

Operating margin in the Cabinetry Products segment for the three-month period ended March 31, 2017 was negatively affected by costs to support new product launches in North America and decreased sales volume. Such cost increases were partially offset by the benefits associated with business rationalization activities and other cost savings initiatives, as well as positive sales mix.

Operating margin in the Windows and Other Specialty Products segment for the three-month period ended March 31, 2017 was positively affected by cost savings initiatives and favorable product mix.

OTHER INCOME (EXPENSE), NET
 
Interest expense for the three-month period ended March 31, 2017 was $43 million compared to $56 million for the three-month period ended March 31, 2016 . Interest expense decreased due to the discharge of indebtedness as well as refinancing certain debt at more favorable interest rates.
 
Other, net, for the three-month period ended March 31, 2017 included gains of $1 million related to distributions from private equity funds, and for the three-month period ended March 31, 2016 included earnings of $1 million related to equity method investments.

INCOME PER COMMON SHARE — ATTRIBUTABLE TO MASCO CORPORATION
 
Income for the three-month period ended March 31, 2017 was $140 million , compared with $109 million for the comparable period of 2016 . Diluted earnings per common share for the three-month period ended March 31, 2017 was $.43 per common share, compared with $.32 per common share for the comparable period of 2016 .

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 of 30 percent and 33 percent for the three-month periods ended March 31, 2017 and 2016 , respectively, was lower than our normalized tax rate of 34 percent (36 percent in 2016) due primarily to a $7 million income tax benefit on stock based compensation in first quarter of 2017 and a $3 million and $4 million state income tax benefit in the first quarters of 2017 and 2016, respectively, on uncertain tax positions resulting from the expiration of applicable statutes of limitation.

17

OTHER FINANCIAL INFORMATION
 
Our current ratio was 2.1 to 1 and 2.0 to 1 at March 31, 2017 and December 31, 2016 , respectively. 
 
For the three-month period ended March 31, 2017 , net cash used by operating activities was $149 million . First quarter 2017 and 2016 cash for operations was affected by an expected and annually recurring seasonal first quarter increase in accounts receivable and inventories compared with fourth quarter 2016 and 2015, respectively.

For the three-month period ended March 31, 2017 , net cash used by financing activities was $133 million , primarily due to $87 million for the repurchase and retirement of Company common stock (including 770,870 shares repurchased to offset the dilutive impact of long-term stock awards granted in 2017), $32 million for the payment of cash dividends and $14 million of employee withholding taxes paid on stock-based compensation.

For the three-month period ended March 31, 2017 , net cash used by investing activities was $26 million , primarily due to $37 million used for capital expenditures, partially offset by $11 million in net proceeds from the disposition of short-term bank deposits.
 
Our cash, cash investments and short-term bank deposits were $0.9 billion and $1.2 billion at March 31, 2017 and December 31, 2016 , respectively.  Our cash and cash investments consist of overnight interest bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations.  Our short-term bank deposits consist of time deposits with maturities of 12 months or less.
 
Of the $0.9 billion and the $1.2 billion of cash, cash investments and short-term bank deposits held at March 31, 2017 and December 31, 2016 , $578 million and $618 million , respectively, is held in our foreign subsidiaries.  If these funds were needed for our operations in the U.S., their repatriation into the U.S. would not result in significant additional U.S. income tax or foreign withholding tax, as we have recorded such taxes on substantially all undistributed foreign earnings, except for those that are legally restricted.

On March 28, 2013, we entered into a credit agreement (the “Credit Agreement”) with a bank group, with an aggregate commitment of $1.25 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.  Under the Amended Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $375 million with the current bank group or new lenders.  See Note F 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, of 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, equal to or greater than 2.5 to 1.0.  We were in compliance with all covenants and had no borrowings under our Amended Credit Agreement at March 31, 2017 .
 
We believe that our present cash balance and cash flows from operations are sufficient to fund our near-term working capital and other investment needs. We believe that our longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings and future financial market activities.

18

OUTLOOK FOR THE COMPANY
 
We continue to successfully execute against our long-term growth strategies by leveraging our strong brand portfolio, industry-leading positions, and Masco Operating System, our methodology to drive growth and productivity. We believe we will continue to see strong demand for our market-leading products, as the fundamentals for long-term demand in both repair and remodel and new home construction continue to be positive. We believe that our strong financial position, together with our current strategy of investing 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.
 
FORWARD-LOOKING STATEMENTS
 
This report contains statements that reflect our views about our future performance and constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by words such as “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 activity and new home construction, our ability to maintain our strong brands and to develop and introduce new and improved products, our ability to maintain our competitive position in our industries, our reliance on key customers, our ability to achieve the anticipated benefits of our strategic initiatives, our ability to improve our underperforming U.S. window business, the cost and availability of raw materials, our dependence on third party suppliers, and risks associated with international operations and global strategies.  These and other factors are discussed in detail in Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K, as well as in other filings we make with the Securities and Exchange Commission.  The forward-looking statements in this report speak only as of the date of this report.  Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.  Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.

19

	
		
 	MASCO CORPORATION	
 	 	
Item 4.	CONTROLS AND PROCEDURES	

a.     Evaluation of Disclosure Controls and Procedures.
 
The Company’s principal executive officer and principal financial officer have concluded, based on an evaluation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 that, as of March 31, 2017 , the Company’s disclosure controls and procedures were effective.
 
b.     Changes in Internal Control over Financial Reporting.
 
In connection with the evaluation of the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2017 , 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.

20

MASCO CORPORATION
 
PART II.  OTHER INFORMATION

 
Item 1 .   Legal Proceedings
 
Information regarding legal proceedings involving us is set forth in Note M to our condensed consolidated financial statements included in Part I, Item 1 of this Report and is incorporated herein by reference.
 
Item 1A .  Risk Factors
 
There have been no material changes to the risk factors of the Company set forth in Item 1A, “Risk Factors” in 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 for the three-month period ended March 31, 2017 : 

													
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 Number Of
Shares That May
Yet Be Purchased
Under The Plans Or Programs	
1/1/17-1/31/17	1,002,140		 	$	32.25		 	1,002,140		 	11,867,538		
2/1/17-2/28/17	684,676		 	$	33.55		 	684,676		 	11,182,862		
3/1/17-3/31/17	1,089,949		 	$	33.93		 	1,089,949		 	10,092,913		
Total for the quarter	2,776,765		 	$	33.23		 	2,776,765		 	10,092,913		

	

(A)	In September 2014, our Board of Directors authorized the purchase of up to 50 million shares of our common stock in open-market transactions or otherwise.	

21

MASCO CORPORATION
 
PART II.  OTHER INFORMATION, Continued

 
Item 6 . Exhibits  

				
 	 	 	 	
 	10	–	Form of Long Term Incentive Program Awards	
 	 	 	 	
 	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	

22

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 and Chief Financial Officer	
 
April 25, 2017

23

MASCO CORPORATION

EXHIBIT INDEX

	
			
Exhibit	 	 	
 	 	 	
Exhibit 10	 	Form of Long Term Incentive Program Awards	
 	 	 	
Exhibit 12	 	Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends	
 	 	 	
Exhibit 31a	 	Certification by Chief Executive Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934	
 	 	 	
Exhibit 31b	 	Certification by Chief Financial Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934	
 	 	 	
Exhibit 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	
 	 	 	
Exhibit 101	 	Interactive Data File	

24

[Form of Long Term Incentive Program Award]

[MASCO CORPORATION LETTERHEAD]

[Date]

[Executive Name]
[Executive Address]
______________
______________

RE:	RSU Grant Under the [Insert Performance Period] LTIP Program	

Dear [Executive Name]:

You have been designated to be a participant (a “Participant”) in Masco Corporation’s [insert Performance Period] Long-Term Incentive Program (the “LTIP Program”) by the Organization and Compensation Committee (the “Committee”) of the Board of Directors of Masco Corporation (the “Company”). This grant letter (“Grant Letter”) contains terms and conditions that apply to your grant (the “Grant”) of Restricted Stock Units (“RSUs”).

The Grant may entitle you to receive Shares of the Company’s common stock (“Shares”) as a share award (“Share Award”), if certain conditions are satisfied, including approval of the Share Award by the Committee following the Performance Period. All of your rights to the Grant are described in this Grant Letter and the 2014 Long Term Stock Incentive Plan (the “Plan”), which, together, constitute your performance award agreement (the “Agreement”).

YOUR GRANT

You have been granted ______ RSUs for the three-year period that begins on January 1, ____, and ends on December 31, ____ (the “Performance Period”). Subject to the terms contained in this Grant Letter, if the Committee determines (following the end of the Performance Period), that an average Return on Invested Capital (“ROIC”), as defined below, was achieved by the Company at the Threshold Performance Score Percentage (as defined below) or greater, then a Share Award will be made to you on the Share Award Date (as defined below).

THE LTIP PROGRAM

Purpose of the Program

The purpose of the LTIP Program is to provide an additional incentive for you to contribute to the achievement of the Company’s long-term growth and profitability goals established by the Committee at the beginning of the Performance Period, and to align your efforts with stockholder interests. The Committee has set performance goals at levels that are consistent with the Company’s long-range business plan, and the achievement of these goals will require a high level of performance over the Performance Period.

252090

[Executive Name]
[Date]
Page 2

 
Summary of the Program

Participants in the LTIP Program are typically members of Masco’s executive officer group. An individual’s eligibility to be a Participant in the LTIP Program is determined by the Committee at the beginning of the Performance Period. The Committee has also specified the minimum (the “Threshold”), the target (the “Target”), and the Maximum (the “Maximum”) Performance Score Percentages, which are increasing levels of performance goals, as defined in this Grant Letter. The Company’s performance during the Performance Period will be evaluated against these Performance Score Percentages.

Following the completion of each year during the Performance Period, the Company will certify that year’s financial results to the Committee. At the end of the Performance Period, the Committee will then calculate the Company’s three-year average ROIC, as defined below, and if at least the Threshold Performance Score Percentage goal is attained, the RSUs will be redeemed in favor of a Share Award after the end of the Performance Period, as provided in this Grant Letter. Any Share Award is subject to the Committee’s right to exercise negative discretion (to reduce or eliminate an award at any time) and to the provisions of the LTIP Program. The definitions, procedures, and timing of the LTIP Program are described in more detail below.

Definitions

Words capitalized in this Grant Letter will have the meanings given to them in this letter, or, if not defined in this Grant Letter, then as defined in the Plan. The following definitions relate specifically to the Grant and the performance criteria:

“Adjusted After-Tax Operating Income” – this is equal to reported operating income of the Company for the year, adjusted to exclude the effect of special charges and certain other non-recurring income and expenses, multiplied by the positive difference between the following: [one minus the decimal equivalent of the then-applicable nominal corporate tax rate].

“Adjusted Invested Capital” – this is the average reported shareholders’ equity, adjusted to include the cumulative after-tax impact of goodwill and intangible asset impairment charges and to exclude the effect of special charges and certain other non-recurring income and expenses, plus average short-term and long-term debt minus average cash and cash investments, where each such component’s average is determined by combining the current year’s and prior year’s respective amounts and dividing each resulting sum by two.

“ROIC” – this is an acronym for “Return on Invested Capital” and, for each year within a Performance Period, will be determined by dividing the year’s Adjusted After-Tax Operating Income by Adjusted Invested Capital. The annual ROIC percentages will be aggregated and divided by three to determine the average annual ROIC for use in the LTIP Program calculations.

252090

[Executive Name]
[Date]
Page 3

“RSU” - this is an acronym for “Restricted Stock Unit” and refers to a bookkeeping entry unit that may convert to a Share under certain circumstances. While in the form of a bookkeeping entry, RSUs are recorded on a one-for-one RSU-to-Share basis. However, an RSU can result in more or less Shares depending on the achievement level of the goals. If an RSU does not convert to a Share at the conclusion of the Performance Period as provided in the LTIP Program, it will lapse and be forfeited without further consideration.

It is important to note that the terms above will be construed consistent with generally accepted accounting principles, where applicable. In addition to the adjustments noted above, the Committee will also adjust the components of ROIC to exclude, as applicable, the following unusual items: rationalization charges, gains and losses from discontinued operations and other unusual, non-recurring gains and losses that are separately identified and reported.

Goals for the Performance Period

The following Performance Score Percentages and three-year average ROIC goals have been established by the Committee for the Performance Period:

	
				
Performance Score Percentages	Threshold
40 %	Target
100%	Maximum
200%	
Three-Year Average ROIC Goals	___%	___%	___%	

Determination of Achieved Performance Score Percentage and Amount of Share Award

Following the completion of each year during the Performance Period, the Company will certify that year’s financial results to the Committee and, at the end of the Performance Period, the Committee will then calculate the Company’s three-year average ROIC. Based on the three-year average ROIC, the Committee will determine the achieved Performance Score Percentage for the Performance Period.

If the achieved Performance Score Percentage for the three-year average ROIC is less than the Threshold Performance Score Percentage, no Share Award will be made and your Grant will lapse and be forfeited. If the Threshold Performance Score Percentage is achieved, subject to the Committee’s right to exercise negative discretion, your Share Award will be determined by multiplying the achieved Performance Score Percentage by the number of RSUs in your Grant, and rounded to the nearest whole Share.

Continued Employment for Share Award and Timing of Shares

Except as described below, to qualify for a Share Award, you must be employed by the Company or an Affiliate on the Share Award Date (as defined below). If your employment is

252090

[Executive Name]
[Date]
Page 4

transferred within the Company or to an Affiliate, even if to a position in which you are no longer eligible to participate in the LTIP Program, you will continue to be eligible for a Share Award (prorated or not, as the case may be) following the Committee’s approval of that Share Award, as if the employment transfer had not occurred (unless the Committee determines that there was another reason for the transfer that violates, or is subject to, another provision of the Agreement).

Once a Share Award is approved by the Committee in 2020, the Shares will be issued to you no earlier than February 15, ____, and no later than March 15, ____ (the distribution date being the “Share Award Date”). You may be required to accept certain terms and conditions after the end of the Performance Period with respect to any Shares that may be issued to you.
Special Circumstances
Notwithstanding the foregoing, there are certain other employment situations in which the terms of your Grant may be modified, including the following:

•	If you voluntarily terminate your employment at age sixty-five (65) or later, prior to the Share Award Date, then, in the discretion of the Committee, a cash payment equal to the value of a prorated Share Award (where the prorated amount is determined by the Committee and may be based, in part, on the length of your service) that would otherwise have been made to you, may be made to you at the same time as Share Awards are made; and	

•	If, prior to the Share Award Date, (1) there is a Change in Control of the Company (as defined in the Plan) and you are terminated from employment at the time of the Change in Control or within a specified period of time after the Change in Control (as determined by the Committee) or you resign from employment for Good Reason (as determined by the Committee) within that specified period, or (2) you die, or (3) you become permanently and totally disabled (as determined by the Committee), then, in the discretion of the Committee, a cash payment equal to the value of a prorated Share Award (where the prorated amount is determined by the Committee and may be based, in part, on the length of your service) that would otherwise have been made to you, may be made to you at the same time as Share Awards are made.	

Administration, Amendment, and Termination of the Program

The Committee has the sole authority and discretion to interpret the LTIP Program and its related documents and to administer the LTIP Program. The Committee may amend or terminate the LTIP Program at any time. Neither the Company nor the Committee is obligated to make the LTIP Program (in whole or in part), or any other program, available to you or to any other employee at any time. The Committee may suspend, eliminate, or reduce a Grant, Share Award, or Shares for any Participant who fails to achieve an acceptable level of personal performance and professionalism.

General Information Regarding Your Acceptance

252090

[Executive Name]
[Date]
Page 5

By signing and returning this Grant Letter, you agree to accept the Grant, and you voluntarily agree to the terms and conditions of the Agreement and acknowledge that:

•	You have read and you understand this Grant Letter (including Exhibit A, which is incorporated as part of this Grant Letter) and the Agreement;	

•	You have received or have access to all of the documents referred to in this Grant Letter;	

•	There are no other commitments or understandings currently outstanding with respect to any other grants of options, restricted stock, restricted stock units, phantom stock, stock appreciation rights, or performance awards, except as may be evidenced by other agreements entered into by you and the Company or Committee;	

•	You may be required to accept certain terms and conditions at the end of the Performance Period with respect to any Shares that may be issued to you resulting from any portion of the Award that may be achieved;	

•	This Agreement will be governed by and interpreted in accordance with Michigan law, unless preempted by applicable Federal law. The headings in this Grant Letter are for information purposes only and are not a substantive part of the operative Agreement; and	

•	The LTIP Program is, in all respects, subject to the documents referenced in this Grant Letter and the Committee’s application of its negative discretion, and is intended to comply with, or be exempt from, as the case may be, the provisions of Internal Revenue Code Sections 162(m) and 409A.	

Please indicate your agreement to this Grant and the Agreement, effective as of the date of this Grant Letter, by signing the attached duplicate original and returning it to the Company.

Very truly yours,
                            
Masco Corporation

By: ___________________
Keith J. Allman
Its:     Chief Executive Officer

252090

[Executive Name]
[Date]
Page 6

[SIGNATURE BLOCK FOR THE CEO’S GRANT LETTER:

Very truly yours,
                            
The Organization and Compensation Committee of Masco Corporation

By: ___________________
Donald R. Parfet
Its:     Chairman]

AGREED TO THE FOREGOING:

_______________________________________
[Executive]

252090

EXHIBIT A
to
Grant Letter
Dated _____________

Participant’s Further Acknowledgements

The terms and conditions contained in this Exhibit A have been incorporated into the Grant Letter and are binding on the Participant.

You agree not to engage in certain activities

Notwithstanding anything contained in the Grant Letter, if at any time you engage in an activity following your termination of employment, which in the sole judgment of the Committee is detrimental to the interests of the Company, including a subsidiary or affiliated company, all rights to any portion of the Grant will be forfeited. You acknowledge that such activity includes, but is not limited to, “Business Activities” (as defined below).

In addition, you agree, in consideration for the Grant, and regardless of whether any Shares have been issued, while you are employed or retained as a consultant by the Company or any of its subsidiaries or affiliates and for a period of one year following any termination of your employment and, if applicable, any consulting relationship with the Company or any of its subsidiaries or affiliates other than a termination in connection with a Change in Control (as defined in the Plan), not to engage in, and not to become associated in a “Prohibited Capacity” (as hereinafter defined) with any other entity engaged in, any Business Activities and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. “Business Activities” shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of (x) the Company or any subsidiary if you are employed by or consulting with the Company at any time while the Grant is outstanding, or (y) the subsidiary employing or retaining you at any time while the Grant is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. “Prohibited Capacity” shall mean being associated with an entity as an employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, (2) any of your duties or responsibilities are similar to or include any of those you had while employed or retained as a consultant by the Company or any of its subsidiaries, or (3) an investment by you in such other entity represents more than 1% of such other entity’s capital stock, partnership or other ownership interests.

By accepting the Grant, you agree that, should you breach the restrictions contained in the preceding paragraph, independent of any equitable or legal remedies that the Company may

252090

have and without limiting the Company’s right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the Grant, net of all federal, state and other taxes payable on the amount of such income, but only to the extent such income is realized from any Award under the LTIP Program received on or after your termination of employment or, if applicable, any consulting relationship with the Company or its subsidiary or within the two-year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder. The Plan also has specific provisions regarding the consequences that must follow certain types of restatements of the Company’s financial statements – those provisions can apply even if you have not breached any part of the LTIP Program.

You agree to the application of the Company’s Dispute Resolution Policy

Section 3 of the Plan provides, in part, that the Committee shall have the authority to interpret the Plan, Award Agreement, Awards and any related agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if, for any reason, a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing (other than a claim involving non‑competition restrictions or the Company’s, a subsidiary’s or an affiliated company’s trade secrets, confidential information or intellectual property rights) which (1) are within the scope of the Company’s Dispute Resolution Policy (the terms of which are incorporated herein, as it shall be amended from time to time); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the LTIP Program, the Plan or the provisions of any Grant, Award or other agreements, including those related to the restricted stock units and related Shares or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, except as otherwise agreed in writing by you and the Company or a subsidiary or affiliate of the Company.

It is our mutual intention that any arbitration award entered into under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of the Agreement, (b) shall be binding upon the Company’s and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company or its subsidiaries or affiliated companies with respect to any portion of the LTIP

250400.2
2

Program or other stock-based incentive plans to the extent the provisions of such other agreement requires arbitration between you and your employer, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute.

Nothing in the Agreement or otherwise limits your ability to communicate directly with and provide information, including documents, not otherwise protected from disclosure by any applicable law or privilege to any federal, state or local governmental agency or commission (“Government Agency”) regarding possible legal violations, without disclosure to the Company. The Company may not retaliate against you for any of these activities, and nothing in the Agreement requires you to waive any monetary award or other payment that you might become entitled to from any Government Agency. Further, nothing in the Agreement precludes you from filing a charge of discrimination with the Equal Employment Opportunity Commission or a like charge or complaint with a state or local fair employment practice agency. You agree to waive the right to receive future monetary recovery directly from the Company, including payments by the Company that result from any complaint or charges that you file with any Governmental Agency or that are filed on your behalf.  

The Grant does not imply any employment or consulting commitment by the Company

You agree that the Grant and acceptance of the Grant does not imply any commitment by the Company, a subsidiary or affiliated company to your continued employment or any consulting relationship, and that your employment status is that of an “employee‑at‑will” and, in particular, that the Company, its subsidiary or affiliated company has a continuing right with or without cause (unless otherwise specifically agreed to in writing executed by you and the Company) to terminate your employment or other relationship at any time. You agree that your acceptance represents your agreement not to terminate voluntarily your current employment (or consulting arrangement, if applicable) for at least one year from the date of Grant unless you have already agreed in writing to a longer period.

You agree to comply with applicable tax requirements

You agree to comply with the requirements of applicable federal, state, and other applicable laws with respect to withholding or providing for the payment of required taxes, and that you will provide related information as reasonably requested.

250400.2
3

Exhibit 12
 
MASCO CORPORATION
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

	
																									
 	 	(Dollars in Millions)	
 	 	Three Months Ended
March 31,	 	Year Ended December 31,	
 	 	2017	 	2016	 	2015	 	2014	 	2013	 	2012	
Earnings Before Income Taxes, Preferred Stock Dividends and Fixed Charges:	 	 		 	 		 	 		 	 		 	 		 	 		
Income from continuing operations before income taxes	 	$	213		 	$	830		 	$	689		 	$	507		 	$	386		 	$	155		
Deduct equity in undistributed (earnings) loss of fifty-percent-or-less-owned companies	 	—		 	(2	)	 	(2	)	 	2		 	           (16)		 	—		
Add interest on indebtedness, net	 	42		 	185		 	222		 	221		 	230		 	249		
Add amortization of debt expense	 	1		 	5		 	5		 	5		 	6		 	7		
Add estimated interest factor for rentals	 	5		 	21		 	19		 	33		 	31		 	31		
Earnings before income taxes, noncontrolling interest, fixed charges and preferred stock dividends	 	$	261		 	$	1,039		 	$	933		 	$	768		 	$	637		 	$	442		
 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed Charges:	 	 		 	 		 	 		 	 		 	 		 	 		
Interest on indebtedness	 	$	43		 	$	190		 	$	223		 	$	221		 	$	229		 	$	248		
Amortization of debt expense	 	1		 	5		 	5		 	5		 	6		 	7		
Estimated interest factor for rentals	 	5		 	21		 	19		 	33		 	31		 	31		
Total fixed charges	 	$	49		 	$	216		 	$	247		 	$	259		 	$	266		 	$	286		
 	 	 	 	 	 	 	 	 	 	 	 	 	
Preferred stock dividends (A)	 	—		 	—		 	—		 	—		 	—		 	—		
Combined fixed charges and preferred stock dividends	 	$	49		 	$	216		 	$	247		 	$	259		 	$	266		 	$	286		
Ratio of earnings to fixed charges	 	5.3		 	4.8		 	3.8		 	3.0		 	2.4		 	1.5		
Ratio of earnings to combined fixed charges and preferred stock dividends	 	5.3		 	4.8		 	3.8		 	3.0		 	2.4		 	1.5		
Ratio of earnings to combined fixed charges and preferred stock dividends excluding certain items (B)	 	5.3		 	4.8		 	3.8		 	2.9		 	2.4		 	1.7		
 
(A)                    Represents amount of income before provision for income taxes required to meet the preferred stock dividend requirements of the Company.

(B)                    Excludes the 2014 litigation settlement income of $9 million; the 2012 non-cash, pre-tax impairment charge for other intangible assets of $42 million and litigation expense of $1 million.

1

Exhibit 31a
MASCO CORPORATION
Certification Required by Rule 13a-14(a) or 15d-14(a)
of the Securities Exchange Act of 1934

I, Keith Allman, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Masco Corporation ("the registrant");	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and	

d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;	

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
					
Date:	April 25, 2017	 	By:	/s/ Keith Allman	
 	 	 	 	Keith Allman	
 	 	 	 	President and Chief Executive Officer	

1

	

Exhibit 31b
MASCO CORPORATION
Certification Required by Rule 13a-14(a) or 15d-14(a)
of the Securities Exchange Act of 1934

I, John G. Sznewajs, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Masco Corporation ("the registrant");	

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	

4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

a.	designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	

b.	designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	

c.	evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and	

d.	disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;	

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

a.	all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	

b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	

	
					
Date:	April 25, 2017	 	By:	/s/ John G. Sznewajs	
 	 	 	 	John G. Sznewajs	
 	 	 	 	Vice President and Chief Financial Officer	

1

	

Exhibit 32
MASCO CORPORATION
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

The certification set forth below is being submitted in connection with the Masco Corporation Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017 (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
 
Keith Allman, the President and Chief Executive Officer, and John G. Sznewajs, the Vice President and Chief Financial Officer, of Masco Corporation, each certifies that, to the best of his knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	

2.	The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of Masco Corporation.	

	
					
Date:	 	April 25, 2017	 	/s/ Keith Allman	
 	 	 	 	Keith Allman	
 	 	 	 	President and Chief Executive Officer	
 	 	 	 	 	
Date:	 	April 25, 2017	 	/s/ John G. Sznewajs	
 	 	 	 	John G. Sznewajs	
 	 	 	 	Vice President and Chief Financial Officer	

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