fourth quarter 2011 masco earnings presentation

11

Fourth Quarter 2011Masco Earnings PresentationTuesday, February 14, 20128:00 a.m. ET

2

Written and oral statements made in this presentation that reflect our views about our future performance 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. These views 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 our reliance on new home construction and home improvement, our reliance on key customers, the cost and availability of raw materials, shifts in consumer preferences and purchasing practices, and our ability to achieve cost savings through restructuring and other initiatives. These and other factors are discussed in detail in Item 1A, “Risk Factors” in our Annual Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and in other filings we make with the Securities and Exchange Commission. Our forward-looking statements in this presentation speak only as of the date of this presentation. 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.

Certain of the financial and statistical data included in this presentation and the related materials are non-GAAP financial measures as defined under Regulation G. The Company believes that non-GAAP performance measures and ratios used in managing the business may provide attendees of this presentation 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, the Company's reported results under accounting principles generally accepted in the United States. Additional information about the Company is contained in the Company's filings with the SEC and is available on Masco’s Web Site, www.masco.com.

http://www.masco.com/

3

2011 – A Challenging Environment

Flat North American housing environment − Increased mix of multi-family vs. single-family

Difficult European economic conditions− Mix shift from shower systems to faucets and lower

price points Commodity cost pressures Competitive retail environment

− Increased promotional activity

Our financial performance was disappointing

4

Key Financial Data

Q4 2011

Q4 2010

Full-Year2011

Full-Year2010

Net Sales (Millions) $1,738 $1,716 $7,467 $7,486

Adjusted EPS* $(0.09) $(0.08) $.02 $.23

Adjusted Gross Profit Margins* 21.9% 23.5% 25.1% 26.7%

Adjusted Operating Margins* 1.6% 1.9% 4.4% 5.9%

Working Capital N/A N/A 12.2% 13.4%

Free Cash Flow (Millions) N/A N/A $71 $296

$1.7 Billion of cash at December 31, 2011 *(Loss) as reported was $(1.42) per common share and $(2.92) per common share for the fourth quarter of 2011 and 2010, respectively and $(1.34) per common share and $(2.94) per common share for the years ended December 31, 2011 and 2010, respectively. Gross profit margins as reported were 19.1% and 18.0% for the fourth quarter of 2011 and 2010, respectively and 23.9% and 24.5% for the years ended December 31, 2011 and 2010, respectively. Operating margins as reported were (30.6)% and (44.8)% for the fourth quarter of 2011 and 2010, respectively and (4.0)% and (6.2)% for the years ended December 31, 2011 and 2010, respectively.

5

We Took Actions in 2011 to Better Position for the Current Environment and the Recovery

Continued to rationalize our businesses− Closed/consolidated plants− Continued to reduce costs and headcount − Planned disposition of underperforming businesses− Product exits

Completed the major restructuring of our North American Cabinet and Installation businesses

Introduced new products and programs Invested in future growth opportunities

− Including international growth Improved working capital management Successfully amended our credit agreement

Held or improved share in most major product categories

6

Cabinets and Related Products

Financial Performance Q4 2011 Financial Performance FY 2011

($ in Millions)4th QTR

3 Months Ended

12/31/11vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $287 $304 $(17) (6%)Operating (Loss)* $(38) $(46) $8 N/AOperating Margin (13.2%) (15.1%)Decremental Margin N/A

BrandsCommentary

*Excludes business rationalization charges of $13M and $91M in the fourth quarters of 2011 & 2010, respectively and $47M and $179M for the full-year 2011 and 2010, respectively. Also excludes goodwill impairment charge of $44M in 2011. See Analyst Package for GAAP reconciliation.

®

($ in Millions)Full-Year

12 Months Ended

12/31/11 vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $1,231 $1,464 $(233) (16%)Operating (Loss)* $(115) $(71) $(44) N/AOperating Margin (9.3%) (4.8%)Decremental Margin (19%)

•Excluding sales related to the exit of certain product lines:•Q4 sales were up 2% •Full-year 2011 sales were down 5%

• Operating margins in the segment were impacted by:•Reduced volume and negative mix•Product exit and related loss of leverage•Aggressive promotional activity•Profit improvement initiatives •Unfavorable price/commodity relationship principally in Europe

http://www.denovasurfaces.com/

7

2012 Outlook - CabinetsEstimated Improvement

(in Millions) Sales Operating Profit 2011 Total Segment $1,230 ($115)Less: 2011 International

1($370) ($40)

2011 North America Cabinet Actual $860 ($75)Product Exit (10) $13 2011 N.A. Operating Loss ($62)2012 Profit Improvements, Net

2$30

2012 Revenue Opportunities, Net2

$30 $10 2012 N.A. Cabinet Estimate $880 ($22)

*Assumptions:• Reflects a flat retail and housing start environment of

600k starts with constant mix • Every 50k increase in lagged US starts = ~$25M in

revenues (assuming constant mix) which converts to ~$8-$10M in profits

Opportunities:• Adding new dealers and additional brands with existing

dealers in 2011 starting to show solid results• New 2011 vanity/top programs at retail now generating

growth opportunities• New 2011 kitchen countertop program at retail

expanding throughout the East Coast

1Uncertain economic environments, identified cost reductions of ~$7M net in 20122Management estimates

8

Installation and Other Services


Businesses Commentary

*Excludes business rationalization charges of $2M in each of the fourth quarters of 2011 and 2010 and $8M in each of the full-year 2011 and 2010. Also excludes goodwill impairment charges of $697M in 2010. See Analyst Package for GAAP reconciliation.


3 Months Ended

12/31/11 vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $285 $254 $31 12%Operating (Loss)* $(6) $(19) $13 N/AOperating Margin (2.1%) (7.5%)Incremental Margin 42%


12 Months Ended

12/31/11vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $1,077 $1,041 $36 3%Operating (Loss)* $(71) $(93) $22 N/AOperating Margin (6.6%) (8.9%)Incremental Margin 61%

•Full-year and Q4 sales benefitted from residential insulation share gains and expansion of the retrofit and commercial businesses

•Q4 sales also benefitted from an increase in lagged housing starts of 6%

•Sales were negatively impacted by a shift from single-family to multi-family units

•Operating margins were favorably impacted by:•Incremental volume•Profit improvement initiatives

®®

®

http://www.youtube.com/watch?v=nzWcXubIHyk

9

2012 Outlook – Installation Estimated Improvement

Sales

(in Millions) Sales Operating Profit 2011 Total Segment $1,077 ($71)2011 Branch Closures ($30) $6 2011 Adjusted Segment $1,047 ($65)2012 Profit Improvements, Net

1$20

2012 Revenue Opportunities, Net1

$40 $10 2012 Installation Segment Estimate $1,087 ($35)

*Assumptions • Reflects a flat housing start environment of 600k starts

with constant mix• Every 50k increase in lagged US starts = ~$50M in

revenues (assuming constant mix) which converts to ~$12M-$15M in profits

Opportunities:• Segment continues to add profitable retrofit

and residential/commercial business• Further cost reductions from lean

implementation, ERP leverage, vendor partnership and supply chain benefits

1Management Estimates

10

Plumbing Products


Brands Commentary

*Excludes business rationalization charges of $3M & $5M in the fourth quarters of 2011 & 2010, respectively and $15M in each of the full-year 2011 and 2010. Also excludes goodwill impairment charges of $1M in each of 2011 &2010. See Analyst Package for GAAP reconciliation.


3 Months Ended

12/31/11 vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $674 $661 $13 2%Operating Profit* $56 $70 $(14) N/AOperating Margin 8.3% 10.6%Decremental Margin N/A


12 Months Ended

12/31/11 vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $2,913 $2,692 $221 8%Operating Profit* $338 $347 $(9) N/AOperating Margin 11.6% 12.9%Decremental Margin N/A

•Sales increases were driven by:•Volume (full-year) and price increases •Positive effect of currency (full-year)

•Operating margins were impacted by:•Price/commodity relationships which were positive in the quarter but are negative for the full-year•Unfavorable product mix•New program costs •Strategic growth spend

®

http://www.hansgrohe-usa.com/puravida

11

Focus on total cost productivity − Commodity cost management

Executing on growth opportunities − International expansion− North American Retail

Enhancing and leveraging brand equity − Growing share through leveraging our leadership

brands

2012 Outlook - Plumbing Products

12

Decorative Architectural Products


Brands Commentary

*Excludes business rationalization charges of $11M & $5M for the fourth quarters of 2011 and 2010, respectively and $12M & $5M for the full-year 2011 and 2010, respectively. Also excludes goodwill impairment charges of $75M in 2011. See Analyst Package for GAAP reconciliation.


3 Months Ended

12/31/11 vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $348 $336 $12 4%Operating Profit* $35 $50 $(15) N/AOperating Margin 10.1% 14.9%Decremental Margin N/A


12 Months Ended

12/31/11 vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $1,670 $1,693 $(23) (1%)Operating Profit* $283 $350 $(67) N/AOperating Margin 16.9% 20.7%Decremental Margin (291%)

• Full-year and Q4 sales were impacted by:• Reduced volumes, including the loss of Wal-Mart paint

and hardware business• Price increases

• Operating margins were negatively impacted in both the quarter and full-year by:

• Volume declines• Unfavorable price/commodity relationships• Unfavorable mix • Strategic growth spend and program costs

http://www.libertyhardware.com/search/detail/?searchType=retail&ID=P17890C-VBC-C&FIN=VBC

http://www.libertyhardware.com/search/detail/?searchType=retail&ID=P17891C-VBC-C&FIN=VBC

13

Focus on total cost productivity − Commodity cost management

Executing on growth opportunities − Enhance the Core − Grow the Pro− International growth

Enhancing and leveraging brand equity− New product introductions− Quality leadership

2012 Outlook - Decorative Architectural Products

14

Other Specialty Products


BrandsCommentary


3 Months Ended

12/31/11vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $144 $161 $(17) (11%)

Operating Profit $ --- $3 $(3) N/AOperating Margin ---% 1.9%Decremental Margin (18%)


12 Months Ended

12/31/11 vs.

12/31/1012/31/2011 12/31/2010 $ %

Net Sales $576 $596 $(20) (3%)Operating Profit $4 $19 $(15) N/AOperating Margin 0.7% 3.2%Decremental Margin (75%)

*Excludes business rationalization charges of $29M for the fourth quarter of 2011 and $31M for the full-year 2011. Also excludes goodwill impairment charges of $374M in 2011. See Analyst Package for GAAP reconciliation.

•Full-Year and Q4 sales reflect:•Lower sales volume of windows in North America (principally due to the expiration of the tax credit in 2010) which more than offset share gains from new products and geographies

•Operating margins were impacted by (both Q4 & full-year):• Volume decreases • New product launch and geographic expansion costs• Unfavorable product mix• Favorable price/commodity relationship• Profit improvement initiatives

®

15

Focus on total cost productivity − Realize benefits from Q4 2011 plant closures

Executing on growth opportunities − Texas and Western Canada expansion − Expanding at Retail in UK and US

Enhancing and leveraging brand equity − Leveraging Essence launch

2012 Outlook - Other Specialty Products

16

($ in Millions) 2012 Estimate 2011 Actual

Rationalization Charges* ~ $20 $121

Tax Rate** ~ 50% 18%

Interest Expense ~ $260 $254

General Corp. Expense ~ $140 $118

Capital Expenditures ~ $180 $151

Depreciation & Amortization ~ $220 $263***

Outstanding Shares 348 million 348 million

2012 Guidance Estimates

*Based on current business plans.

**Tax rate for 2011 excludes the valuation allowance on the Federal deferred income tax assets and the impairment charge for goodwill and other intangible assets.

***2011 includes $58M of accelerated depreciation, which is also included in the rationalization charges.

17

2012 Strategic Initiatives

Outperformthe

recovery

• Leverage brands

• Innovative productsExpand market leadership

• Total cost productivity

• Drive lean benefitsReduce costs

• Focus on Cabinets, Installation

• Return to profitability

Improveunderperforming businesses

1

2

3

Strengthen Balance Sheet

4• Debt reduction

• Credit facility amendment

18

Questions & Answers

19

Appendix

20

Q4 2011 EPS Reconciliation

(in Millions) Q4 2011 Q4 2010

Loss from Continuing Operations before Income Taxes – As Reported $ (593) $ (824)

Rationalization Charges 61 104

Impairment of goodwill and other intangible assets 494 698

Litigation Charge 3 -

Financial Investment (Income) Expense (4) (10)

Loss from Continuing Operations before Income Taxes – As Adjusted (39) (32)

Tax at 36% rate benefit (expense) 14 12

Less: Net income attributable to non-controlling interest (5) (9)

Net Loss – as adjusted $ (30) $ (29)

Loss per common share – as adjusted $ (0.09) $ (0.08)

Shares 348 349

21

Full-Year 2011 EPS Reconciliation

($ in Millions) YTD 12/31/11 YTD 12/31/10

Loss from Continuing Operations before Income Taxes – As Reported $ (472) $ (741)



Litigation Charge 9 -

Financial Investment (Income) Expense (73) 25

Income from Continuing Operations before Income Taxes – As Adjusted 79 190

Tax at 36% rate (28) (68)

Less: Net income attributable to non-controlling interest (42) (41)

Net Income – as adjusted $ 9 $ 81

Earnings per common share – as adjusted $ 0.02 $ 0.23

Shares 348 349

22

Q4 2011 ProfitReconciliation

($ in Millions) Q4 2011 Q4 2010

Sales $ 1,738 $ 1,716

Gross Profit – As Reported $ 332 $ 309


Gross Profit – As Adjusted $ 380 $ 404

Gross Margin - As Reported 19.1% 18.0%Gross Margin - As Adjusted 21.9% 23.5%

Operating Loss – As Reported $ (531) $ (769)

Rationalization Charges 61 104 Impairment of goodwill and other intangible assets 494 698 Litigation Charge 3 -

Operating Profit – As Adjusted $ 27 $ 33

Operating Margin - As Reported -30.6% -44.8%Operating Margin - As Adjusted 1.6% 1.9%

23

Full-Year 2011 Profit Reconciliation

($ in Millions) YTD 12/31/11 YTD 12/31/10

Sales $ 7,467 $ 7,486

Gross Profit – As Reported $ 1,784 $ 1,833


Gross Profit – As Adjusted $ 1,875 $ 1,999

Gross Margin - As Reported 23.9% 24.5%Gross Margin - As Adjusted 25.1% 26.7%

Operating (Loss) Profit – As Reported $ (295) $ (463)



Litigation Charges 9 -

Operating Profit – As Adjusted $ 329 $ 443

Operating Margin - As Reported -4.0% -6.2%Operating Margin - As Adjusted 4.4% 6.0%

24

2011 Impairment of Goodwill and Other Intangible Assets

Goodwill/intangible asset impairment of $494 million, primarily related to:− Milgard Manufacturing, our North American window business− Tvilum, our European ready-to-assemble cabinet business − Liberty, our North American builders’ hardware business

Non-cash charge aggregated ($0.96) per common share

Successfully Amended our Credit Line

25

$1.25 billion line established in June 2010 with two financial covenants− Debt to capitalization (65%)− Interest coverage (adjusted EBITDA/Interest Expense)

~ $175 million of headroom on debt to capitalization covenant at December 31, 2011

Amended Credit Facility in February 2012− Debt to capitalization covenant modified to add back ~$250M of Q4 2011

non-cash charges along with new $250M deductible basket− Rollback of step-up on interest coverage covenant until Q1 2013

As amended, we have ~ $630M of borrowing availability on the line

Credit Facility Amendment

Not in default of any covenants at December 31, 2011

26

$0

$400

$800

$1,200

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

#REF!

($ In Millions)

Outstanding Debt MaturitiesDecember 31, 2011

27

Q4 2011 Results (As Reported)

* Operating margin is before general corporate expense, net and litigation charges. See Analyst Package for GAAP reconciliation.

($ in Millions) Net Sales Change in Sales Operating Margin *

Q4 2011 Q4 2010Q4 2011 vs. Q4

2010 Q4 2011 Q4 2010

Cabinets and Related Products $ 287 $ 304 -6% -33.1% -45.1%

Plumbing Products 674 661 2% 7.7% 9.7%

Installation and Other Services 285 254 12% -2.8% -282.7%

Decorative Architectural Products 348 336 4% -14.7% 13.4%

Other Specialty Products 144 161 -11% -279.9% 1.9%

Total Segment-Reported $ 1,738 $ 1,716 1% -29.1% -43.3%

North America $ 1,320 $ 1,293 2% -34.8% -59.6%

International 418 423 -1% -11.0% 6.6%

Total Segment - Reported $ 1,738 $ 1,716 1% -29.1% -43.3%

28

Q4 2011 Results (As Adjusted)

* Operating margin is before impairment charges for goodwill and other intangible assets, business rationalization charges, general corporate expense, net and litigation charges. See Analyst Package for GAAP reconciliation.


Q4 2011 Q4 2010Q4 2011 vs. Q4

2010 Q4 2011 Q4 2010

Cabinets and Related Products $ 287 $ 304 -6% -13.2% -15.1%

Plumbing Products 674 661 2% 8.3% 10.6%

Installation and Other Services 285 254 12% -2.1% -7.5%

Decorative Architectural Products 348 336 4% 10.1% 14.9%

Other Specialty Products 144 161 -11% 0.0% 1.9%

Total Segment-Reported $ 1,738 $ 1,716 1% 2.7% 3.4%

North America $ 1,320 $ 1,293 2% 2.7% 2.1%

International 418 423 -1% 2.9% 7.3%

Total Segment - Adjusted $ 1,738 $ 1,716 1% 2.7% 3.4%

29

Full-Year 2011 Results (As Reported)

* Operating margin is before general corporate expense, net and litigation charges. See Analyst Package for GAAP reconciliation.


FY 2011 FY 2010FY 2011 vs. FY

2010 FY 2011 FY 2010

Cabinets and Related Products $ 1,231 $ 1,464 -16% -16.7% -17.1%

Plumbing Products 2,913 2,692 8% 11.1% 12.3%

Installation and Other Services 1,077 1,041 3% -7.3% -76.7%

Decorative Architectural Products 1,670 1,693 -1% 11.7% 20.4%

Other Specialty Products 576 596 -3% -69.6% 3.2%Total Segment - Reported $ 7,467 $ 7,486 0% -2.2% -4.7%

North America $ 5,669 $ 5,823 -3% -4.6% -8.7%

International 1,798 1,663 8% 5.1% 9.3%

Total Segment - Reported $ 7,467 $ 7,486 0% -2.2% -4.7%

30

Full-Year 2011 Results (As Adjusted)

* Operating margin is before impairment charges for goodwill and other intangible assets, business rationalization charges, general corporate expense, net and litigation charges. See Analyst Package for GAAP reconciliation.


FY 2011 FY 2010FY 2011 vs. FY

2010 FY 2011 FY 2010

Cabinets and Related Products $ 1,231 $ 1,464 -16% -9.3% -4.8%

Plumbing Products 2,913 2,692 8% 11.6% 12.9%

Installation and Other Services 1,077 1,041 3% -6.6% -8.9%

Decorative Architectural Products 1,670 1,693 -1% 16.9% 20.7%

Other Specialty Products 576 596 -3% 0.7% 3.2%Total Segment - Reported $ 7,467 $ 7,486 0% 5.9% 7.4%

North America $ 5,669 $ 5,823 -3% 5.1% 6.6%

International 1,798 1,663 8% 8.3% 10.0%

Total Segment - Adjusted $ 7,467 $ 7,486 0% 5.9% 7.4%

31

Q4 2011 Segment Rationalization Charges

($ in Millions)Rationalization Charges - Q4 2011 Q4 2010

Severance Plant Closures ERP RTA Exit Total -

Q4 2011Total -

Q4 2010

Cabinets and Related Products $ (5) $ (8) $ - $ - $ (13) $ (91)

Plumbing Products (2) (1) - - (3) (5)

Installation and Other Services (1) (1) - - (2) (2)

Decorative Architectural Products - (11) - - (11) (5)

Other Specialty Products - (29) - - (29) -

Corp. / Other (3) - - - (3) (1)

Total Q4 2011 $ (11) $ (50) $ - $ - $ (61) $ (104)

Total Q4 2010 $ (3) $ (78) $ (2) $ (21) $ (104)

Change $ (8) $ 28 $ 2 $ 21 $ 43

32

Full-Year 2011 Segment Rationalization Charges

($ in Millions)Rationalization Charges - December 31, 2011 FY 2010

Severance Plant Closures ERP RTA Exit Total - FY

2011Total - FY

2010

Cabinets and Related Products $ (6) $ (16) $ (1) $ (24) $ (47) $ (179)

Plumbing Products (2) (13) - - (15) (15)

Installation and Other Services (3) (1) (4) - (8) (8)

Decorative Architectural Products - (12) - - (12) (5)

Other Specialty Products - (31) - - (31) -

Corp. / Other (6) (2) - - (8) (1)

Total December 31, 2011 $ (17) $ (75) $ (5) $ (24) $ (121) $ (208)

Total December 31, 2010 $ (14) $ (101) $ (9) $ (84) $ (208)

Change $ (3) $ 26 $ 4 $ 60 $ 87

33

Segment International North America NewConstruction

Cabinets and Related Products

25% 75% 25% - 30%

Plumbing Products

45% 55% 15% - 20%

Installation and Other Services

-- 100% 80+%

Decorative Architectural Products

-- 100% <5%

Other SpecialtyProducts

25% 75% 20% - 25%

Company Total 24% 76% ~25%

Segment Mix Full-Year 2011 – Estimate

34

2011 Masco International Revenue Split*

International sales accounted for ~ 24% of total 2011 Masco sales

*Based on company estimates

fourth quarter 2011 masco earnings presentation

Investor Relations