Good morning, ladies and gentlemen. Welcome to the Masco Corporation 2011 Second Quarter Conference Call. As a reminder, today's conference is being recorded and simultaneously webcast. If you have not received the press release and supplemental information, they are available on Masco’s website along with today’s slide presentation under the Investor Relations section at www.masco.com. Before we begin management’s presentation, the company wants to direct your attention to the current slide and the note at the end of the earnings release, which are cautionary reminders about statements that reflect the company’s views about its future performance and about non-GAAP financial measures. After a brief discussion by management, the call will be open for analyst questions. If we are unable to get to your question during this time, please call the Masco Corporation Investor Relations office at (313) 792-5500. I would now like to turn the call over to Mr. Timothy Wadhams, President and Chief Executive Officer of Masco. Mr. Wadhams, please go ahead.

Thank you, Connie, and thank all of you for joining us today for Masco's Second Quarter 2011 Earnings Call. I'm joined by Donnie Demarie, our Executive Vice President and Chief Operating Officer; and John Sznewajs, our CFO. And if you would please flip to Slide #3. Sales in the quarter were down 1%. Excluding rationalization charges, gains and impairments from financial investments and adjusting for a normalized tax rate of 36%, income as reconciled would have been $0.05 a share compared to $0.16 in the second quarter of 2010. On an as reported basis, we earned $0.02 in the second quarter compared to $0.01 in the prior year. Working capital improved in the quarter to 15.6%. We'll talk about that a little later on, and we ended the quarter with $1.6 billion of cash. If you flip to Slide #4, please. Gross profit and operating profit as reconciled for the rationalization charges and for a litigation charge in the second quarter, gross profit would have been down about 150 basis points to 26.9%, and our operating margin would have been 5.5%, a 280 basis point decline. A little bit of color in terms of our overall financial performance. I mentioned that sales were down 1%. That equates to about $26 million. That includes an unfavorable change in terms of product exits. As we've announced previously, we have exited the ready-to-assemble product group that ended in the second quarter, and that was a reduction of about $49 million in terms of sales. Offsetting that was positive impact from foreign currency of $54 million. Our International operations were up 5% in the quarter in local currencies, and had another very strong quarter in terms of operating performance with margins at 9.8%. That compares to 9.5% last year. Sales to key Retail customers…

[Operator Instructions] And we'll take our first question from Josh Levin from Citigroup.

So you talked in the press release about new programs in Plumbing and Cabinets, and you just made a passing reference to it. And I suppose understandably for competitive reasons, you don't want to give too many details. But can you -- with regards to those new programs, can you help us think about when and how does new programs might start to impact earnings?

Yes, Josh. We're looking at top side opportunities that we think are very significant. We think the Pro initiative with The Home Depot is an opportunity that could result in hundreds of millions of dollars on the top line as it develops over time. We also think that some of the opportunities that we're pursuing in Cabinets, builders' hardware and Plumbing have top line opportunities of hundreds of millions of dollars. Having said that, many of those programs will be launched later this year and it's important for us, obviously, to coordinate communication, promotional strategies with our customers, and so we don't want to get ahead of ourselves. But I'm very certain that you'll be pleased as we are able to communicate more about those programs going forward, and we will do so at the appropriate time. But we've been very hard at work obviously strengthening our brands, investing in innovation. And we've shared that with investors over time, and that's been a big part of our strategy. But we feel very confident, very comfortable that these opportunities, as they develop, will provide significant earnings and significant top line growth.

Okay. And my second question, so single-family starts appear to be sort of just flatlining, but multi-family starts are picking up. Can you give us an idea of how your earnings sensitivity differs from multi-family starts to single-family starts?

Well, generally speaking, a single-family start would have more of the types of products that we manufacture; for example, Installation, more fixtures in terms of faucets, those types of things. So generally speaking, single-family starts are more important to us. Having said that, we're certainly very much aware that multi-family starts are growing more rapidly than single family. And so from that standpoint, we've got products that we certainly think will resonate well in those applications. I mean, basically they tend to be the same products, but just fewer of them.

Yes, and Josh, I would add that we saw this trend coming really about 2 years ago, and have worked hard in both our Cabinets segment and Install to position ourselves to win. On the Installation services, although the take per unit is lower, we believe our market share is at least the same as it is on the single-family side. So we think we're positioned to win there, where surely a better balance sheet, strong capital base is really important to do those bigger projects. And on the Cabinet side, we've really been focused on doing more in smaller spaces that applies both to multi-family, but also to what we're seeing in the single-family market today. We're dealing with smaller kitchens, and so how do we do more in smaller spaces and really bring out more value to consumers. So we see this trend as one that we think we're positioned to win, and we're going after it aggressively.

And we'll take our next question from Josh Chan from Robert W. Baird. Joshua Chan - Robert W. Baird & Co. Incorporated: I was just wondering, a lot of building products companies have talked about a tough April and May, but June was a little bit better. Could you comment on that for your company, and if you also care to comment about July?

Yes. Well, what we mentioned the last time we were together was that April, when we had our call I think on the 26th of April, that April looked like it was going to be down high single digits and in fact, it was. We did see a pretty nice lift in May. We were up mid-to-high single digits in May, and June was relatively flat for us. July, at this point in time, our sense is will be down low single digit or flat if you exclude the product exit, the way it looks at this point. Again, to your point, Josh, weather has been commented on by several folks in the industry, and I don't think there's any question that weather has been a factor in terms of certainly impacting consumers' involvement in projects over the late -- early part of the first quarter or late part of the first quarter, excuse me, early part of the second quarter. No question. Joshua Chan - Robert W. Baird & Co. Incorporated: All right. That's definitely understandable. And then going over to the second half outlook, you talked about some program launch and then you also have easier comparisons. I mean, I understand what's going on with the macro, but I guess your comment about second half growth being challenged seems somewhat conservative. I mean, could you explain a little bit about the outlook?

Well, the outlook that -- what we tried to talk about there was more from a macro perspective, and we certainly continue to believe that the macro side of things is weak. You've got the near-term reality of higher energy costs, higher food costs, which impact disposable income for consumers. And you've also got the near-term uncertainty that seems to emanate from the discussions that come out of Washington in terms of a variety of economic topics that I think people think are important. So when you think about that, the consumer does not appear to be very actively engaged at this point in time. So our feeling is the macro side of things is going to be pretty tough. Having said that, from our perspective as I mentioned earlier, we've got a lot of new product opportunities that we'll be launching in the second half. And we certainly expect to have some positive impact from that. So our concern about the environment is more on the macro side, the things that we can influence, the things that we have the ability to control, which include some of the new products that we're bringing to market certainly, we believe, put us in a great position. We've done a lot to strengthen our brands over the course of the last couple of 3 years. We're in a very good position there. We continue to be in an extremely good position from a share standpoint. One of our strategies has been through innovation, through a lot of the work that we've been doing with the consumer to increase our very strong market position. And as we sit here today, I don't think there's any area given the fact that we've seen some good improvement in terms of Installation and Cabinets over the course of the last couple of quarters, at least on a sequential basis, that puts us in a position where from a share standpoint, we continue to grow. So we think the environment is going to be challenging, but we certainly think that the opportunities that we'll be rolling out will be a plus. And your comment about easier comps in the second half is certainly accurate, and we'll see how things unfold. But we feel very, very comfortable with the opportunities that we're developing inside.

And we'll take our next question from Dennis McGill from Zelman & Associates.

Just wanted to follow up on the multi-family discussions just to make sure I understood your comments correctly. So you're saying a share in multi-family similar to single family, then is it fair to assume that in the Install business, roughly 25% to 30% of revenue is multi-family?

Yes, Dennis, I'd have to look at it to see. I don't think we've broken that out, have we broken it out or given that out?

Well, I don't know if we have the breakdown. I'm not sure that we...

Mostly it's influenced by the take per unit, Dennis, because the take per unit in that segment is lower than it would be on a single family. But that's something that we can look at and decide whether or not we've disclosed that previously.

Okay. It might be something helpful to disclose in the future, if you will dig it up. The other question just had to do on the Cabinet side, the facility closure in New Mexico. I was just wondering if you could elaborate on that a little bit on that how that fits into the cost savings that you previously talked about, and then how we should think about that moving forward. And then also the decision to close now versus a year ago with the restructuring efforts, what factored into that to lead you to close it today?

Well, I think in terms of the decision, Dennis, obviously, we've completed a lot of work in that segment. The exit of the product group that we talked about, the common architecture program. I mean, those were certainly initiatives that were very important. The integration has been going well, and I think as we have looked at expectations for volumes out there, having an operation on the West Coast was important for us from a freight standpoint at one point in time. But as we reviewed our footprint, reviewed the economics, we felt like we could eliminate some of the capacity there. And we'll have a little bit of a penalty in terms of freight, but we think that's certainly manageable. I think the cost, it was about $1 million, John, in terms of charge. And I think the savings, Dennis, this plant will be idle, by the way, so we'll continue to depreciate it, but I think we're looking at, what, about $3 million, $3.5 million?

On a full year basis, $1.5 million to $2 million this year.

Okay. And that'll be incremental to cost you discussed previously?

Yes, that's correct.

And we'll take our next question from Nishu Sood from Deutsche Bank.

Actually I wanted to ask about commodity costs. The negative $20 million headwind you talked about sounds small relative to just some of the headline price figures you see, especially in areas like Decorative Architectural. So are there hedging activities going on, or what are you folks doing to manage that so well?

Hedging, Nishu, for us has been fairly minimal and pretty much limited to metals, particularly copper and zinc. But what we've -- you might -- roll the tape back a little bit, you might remember late last year, second half, I think we incurred a negative price/commodity of about $60 million, $65 million on a full year basis and I think almost all of that was in the third and fourth quarter. But we have been very active in the areas that we talked about. I think you can assume that we have seen hundreds of millions of dollars of commodity cost increases this year. But obviously, we've been able to offset that with supply chain initiatives, with pricing. So we've been very, very active. And I think we've had some very good success. The strength of our brands, the innovation that we've worked on certainly aids us in that opportunity. But we feel pretty good about where we're at. And again, it's been a lot of hard work by folks across the enterprise, but we've been pretty successful.

Got it. Okay. So I guess looking at that as a net figure, but the second question I just wanted to make sure I got it in there was about the Plumbing Products division. You mentioned unfavorable products mix shift in that division. Now when I think about that division, the first thing I think about is that -- one of the first things I think about is the success of Hansgrohe. Obviously at the higher end now with the decline in big-ticket remodeling that obviously would have shifted your mix there to probably more replacement and Retail-type stuff. But I would have thought that the Hansgrohe effect would have been stronger than the countervailing effect. So how should we look at that negative mix effect that you were talking about?

Well, actually, Nishu, a lot of the mix impact is related to Hansgrohe. And a fair amount of that relates to their movement from principally a showerhead manufacturer to a faucet manufacturer. That transitioned well. Actually, I shouldn't say moving away from showerheads but basically, getting more balance with faucets, and faucets versus showerheads in terms of the products that they manufacture tend to have a little bit lower margin. The other issue that affects them is the expansion that they've had into geographic areas. Typically, as they go into geographic areas, and I think they're in, what, about 30?

70.

70 different geographic areas with what, 30 different subsidiaries at this point in time. Typically, when they enter a new market, there tends to be a little bit of a shift there, if you will, or a little bit of pressure in terms of margin. So that would be primarily where the mix shift is taking place. Now we've also seen a little bit of shift in terms of hot tubs, for example, to opening price points. But basically, Hansgrohe would be the one area where mix has probably been more of the issue. But having said that, they continue to perform at just a fabulous rate, if you will. As I mentioned, they had a record quarter in both sales and profitability. And so even though there's a little bit of a mix shift, we're still seeing some very good top line growth there.

And we'll take our next question from Chris Wiggins from Oppenheimer. Christopher Wiggins - Oppenheimer & Co. Inc.: Just curious, you called out $6 million year-over-year change in ad costs at Decorative, and just wondering if you could provide any color on how you think those ad costs trend sequentially into the third quarter. And then related to that, I think some suppliers have increased the TiO2 pricing by another 25%. So I guess I'm wondering your ability to offset that, does it come from just kind of lower ad spending as an offset to higher pricing, or how should I think about that dynamic?

Well, it is true that there have been some additional cost increases related to TiO2 in resins. I think that others in the industry have talked about those in terms of mid-to-high teen type increases. Because of the fact that we deal with a lot of large suppliers and have one large customer, we don't typically get specific about price/commodity detail in this particular segment. But I think you can certainly assume that we continue to face cost pressures. And as we've talked in the past, there are availability issues, if you will, relative to supply. And we've been able to manage through that and have done a very good job. So that would be part of the answer to your question. The rest of the question related to promotional activity, and we did have incremental in the second quarter about $5 million, $6 million of incremental promotional spend. And typically, the second quarter, Chris, is when we have the majority, if you will, of some of the promotional activity related to Paint. You've got Memorial Day, typically the 4th of July starts sometime in late June. We also do some things around other dates like Labor Day and Presidents' Day. But the second quarter tends to be the quarter when most of the advertising budget is spent. And if you look at the sequential change in profitability versus the change in sales from the first quarter, you can see that impact. And we talked about that last year on the call as well. But second quarter is a very, very heavy period of time in terms of advertising spend. Christopher Wiggins - Oppenheimer & Co. Inc.: Okay, great. That's helpful. And then if I could ask kind of just a bigger-picture strategic question, I mean, as you kind of look out at some of the economic forecasts, particularly as you look to housing starts for 2012, a lot of forecasts imply kind of a big step up. And I guess from a planning perspective, I'm just wondering how you view the environment. I mean, do you plan with that type of step up in mind, or do you look at it as more of a very much more conservative approach as you kind of look at your strategic planning for next year?

We have tended to try to be on the conservative side, Chris, in terms of our planning. Our sense is that -- and to be honest with you, even though we think we've been conservative in terms of our planning, we've been surprised as starts have declined, just like most of the rest of the folks that use that. So it has been pretty difficult from a planning perspective. But we do feel very confident that if we miss and there's more upside, that we'll be able to respond. We feel that the footprint in terms of our Installation business, we've made a lot of changes there obviously. We've taken a lot of branches out. We've consolidated, but we think we're in a very good position relative to where we think housing activity could be strongest. We're also -- we're working very closely with the larger builders as I mentioned earlier. So we feel like we can adjust there. And I think most of the rest of our businesses, we've got the flexibility. We're more nimble. We've completed the common architecture project that we talked about in terms of the Merillat and Quality brands. So our sense is that we can react on the upside. So attempting to plan maybe a little more conservatively we think makes sense. Christopher Wiggins - Oppenheimer & Co. Inc.: Great. And if I could just sneak in one more question. I view it was interesting you put out a press release during the quarter, I think that you were increasing some production lines for some hot tub manufacturing with some strong demand there. I found it interesting. I'm just wondering if I could -- if you could give any color as to -- when I view hot tubs, I view it as a very discretionary item and certainly a bigger-ticket type discretionary item. So I'm curious as to why you might be seeing strength in that market, but not so much in some of the other big-ticket items?

Well, that has been kind of an interesting phenomenon. That started probably about a year ago, and I think it has a lot to do with the strength of the brands. Our hot tub business, HotSprings and the Caldera brand are both leading brands in that segment. We also have taken a lot of share. A lot of folks have gone out of business in that segment. There's been a lot of folks, unfortunately, that haven't been able to make it or from our perspective, I guess, fortunately. And so we've been able to pick up share, and that is one of the bright spots for us. But you are right, it is a very discretionary purchase. It tends to be a bigger-ticket purchase. As we mentioned, we have seen a little bit of migration to opening price point, and we came out with a new product called HotShot, I think. And yes, and John points out that we did develop a -- the ACE System, which automatically regulates the chemicals in the spa. We brought that out about just a little less than a year ago. So it's been a fair amount of innovation and a lot of good work in terms of brand positioning in that segment.

I would just add that I think innovation played a big role. The ACE System has really changed the need to buy another spa. So we're seeing people who own spas trade them in on new spas, and wanting to get this innovation. So it's been such a strong innovation that's really created new demand for.

And we'll take our next question from David MacGregor from Longbow Research.

Tim, your international revenue is about 22% of the total, but there's a lot Western European revenue and U.K. revenue in there. So I guess with respect to emerging markets, how much is emerging markets? You talked about developing your Paint and Plumbing business internationally. How much of that is really emerging market plans with respect to the segments rather than, say, Western European growth plans?

Again, David, there is a pie chart in the back of the information that we provided. I think it's Slide #28, that gives a breakdown of our international revenue kind of splits that into regions. And so that would give you a pretty good flavor in terms of where we're having the most success. I don't know, John, if you've got -- probably you want to maybe provide a little color on that.

Yes. I mean, to your question about emerging markets and sales outside of Western Europe, I mean, basically, it would be -- call it sort of 2%, 3% what we would define as emerging markets, that being sort of Asia and Latin America. To balance it, we've got a fair amount in the other European market either Northern Europe or Eastern Europe as well. So suffice it to say that overall, it's relatively small. 2% to 3% of that, of course, would be a percent of our total sales, not as a percent of our international sales.

Yes, great. I guess the question really is, what do we do about that, and how do we grow that? It seems like with growth opportunities in North America somewhat stunted for the time being that there might be a bigger opportunity in some of these other markets just where within the list of priorities does that stand?

David, it's Donnie. It's right up there. We really see growing in emerging markets, and really in markets where the projected growth rates are higher than they here in North America, is probably our #1 priority. We're doing a lot with Hansgrohe. They've been very, very successful in growing their business. If you go back 10, 12 years ago, they were 90-plus percent in Europe. And now, we're doing as much in -- outside of Europe as we are in Europe. And yes, they have a great model, and we've had the Delta folks and the Hansgrohe folks working on some joint initiatives. John Sznewajs and I were in China earlier this year to announce the launch of the Delta brand in China. And we're bringing our technology there with our Touch2O, and we think that's going to resonate really well, especially in the Asian market. We're also doing -- we're looking at opportunities in Paint. We sell paint today in Canada, Mexico, South America. We have a large R&D facility in India, and we put together a team to really explore what's our best opportunities and where should we go next. So we really see those 2 platforms as global platforms. Outside of that, we've got opportunities in hand tools. We've been doing things with Arrow Fasteners to get outside of North America, and have had some good success. And some of the success we've talked about a little bit earlier with hot tubs is really is our ability to ship and sell products internationally. So we're doing quite a bit in hot tubs now, too. So a lot of our businesses where we have a reason to believe we've put some very hard to get after it organically. So we're making a lot of progress.

Okay, good. Just a follow-up, I guess, in 2012, you've got $800 million of debt coming due. Do you plan to refinance that, or would you use the cash on hand? And I guess just association with that, you've got cash on hand in Hansgrohe. How much access do you have to that cash, and do you have the ability to declare a dividend?

David, a couple of questions there. With respect to the $800 million coming due next July, we've said in the past that if you think about the March 2010 issue that we did, we issued $500 million of debt to replace the $300 million maturity at that time. We'll take about -- because the $200 million is overfunding on that maturity, we'll take about roughly $400 million off the balance sheet to pay down that maturity and then we'd refinance the balance of it. So we feel pretty confident we can do that. With respect to the cash over in Europe, there is some cash over in Hansgrohe. We do have an operating agreement between ourselves and the other shareholders of Hansgrohe to get at that cash if we need to. We do have a dividend policy in place in a manner with fairly efficient cash structure to get to try to minimize as much of the tax cost in bringing that cash back. So we've got some plans in place to -- in the future to bring that cash back tax efficiently.

Yes, just to amplify on John's initial comment, David, if you take the $300 million that was due in March of 2010 and the $850 million of debt that's due next -- about a year from now, that's obviously, $1,150,000,000,000. And I think when we get all done, our intent would be to pay down probably $200 million to $300 million of that with internal funds. Now John mentioned that refi -- we did a refi when we paid down the $300 million of $500 million. That would suggest another financing at some point of $300 million to $400 million, just to add a little bit of color to John's comment, with a net debt decline of $200 million to $300 million. And that has been consistent in terms of our communication to investors for the last couple of years.

And we'll take our next question from Bob Wetenhall from RBC.

Just wanted to try to reconcile a little bit more of your top line commentary that you have some relatively easy comps going into the back half of the year, but you also noted the challenges in the broader outlook for the economy. And are you just trying to direct us to think that sales in 2011 are going to be a little bit lower than in 2010?

No, we haven't given guidance for sales. We've talked a little bit about the economic environment. But we haven't given any guidance, Bob, in terms of sales, and certainly wouldn't necessarily direct you to that conclusion.

Got it. Okay. And just in terms of the commodity cost pressures if -- I kind of got confused when you were running through it. It seems like there was a bunch of different places. Could you just run through it by segment real fast where you feel maybe the top 2 or 3 places where you can offset the raw material inflation most effectively?

Yes. We -- well, I guess what I would say to you is that I believe in all the segments that we will have success. I wouldn't want to tell you that each segment will be neutral at the end of this year relative to price/commodity because timing of actions certainly have some implication. But our sense would be that if we do have some negative impact in terms of price/commodity that, that is something that will correct itself in a subsequent quarter. So we've got pressure in all the segments; Cabinets, particleboard in Europe, as well as lumber here in the U.S., is certainly a challenge. Metals impact us in Plumbing in terms of zinc and copper, which go into brass. We've talked about inputs for Paint. And in the Window business, resins, glass costs certainly are items that we need to manage through. But having said that, I feel very good about our ability across all of the product groups to make that happen. Again, innovation, strong brands certainly facilitate that.

So you're going to get some pricing to offset the raw material?

Well, we certainly anticipate that we will have pricing in certain areas. We'll be working with suppliers in certain areas. And so yes, definitely, there'll be price.

All right. We'll take our final question from Dan Oppenheim from Credit Suisse. Daniel Oppenheim - Crédit Suisse AG: I was wondering if you can talk about the -- you've mentioned the Cabinets and Installation business narrowing the losses there, but at running behind that level -- and we talked about in terms of running up behind that -- the business so far this year. Can you give more clarity in terms of narrowing the losses, what's left to do in terms of the cost and how you can make it up there?

Well, I think, Dan, one of the comments that we heard a little earlier was more -- less challenging comps in the second half of the year. And I think that if you think back late last year, we saw a real slowdown in terms of housing starts. Obviously, the first part of this year was pretty slow. So to the extent that we're going to end up about flat with last year, that would suggest that the latter part of the year should be a little bit stronger in terms of that activity. We've also got some of the other major initiatives out of the way that certainly took time and attention. We've got some top line opportunities that we're developing in Cabinets, particularly with the countertop solution that we've talked about in the past. And we've got some excitement there that we'll be able to share with you over the course for the next few months. So we've got some top line opportunities. We've also got some top line opportunities in the Installation side of the business. We expanded the footprint for our distribution business a couple of years ago with a couple of greenfields. So we've got opportunity there. We've also got some opportunity with the larger builders, and we've talked about that. So I think both the combination of top line, additional cost reductions in the second half, we've got the ERP system fully implemented in Installation. So we feel like we've got a very good opportunity to make that happen and you are correct as you look at the first couple of quarters. Most of that improvement is slated for the second half.

And I would add, Tim, that we've got the realization of benefits from actions we've already taken. Daniel Oppenheim - Crédit Suisse AG: Okay. And then, I guess, just a quick follow-up. You've talked about sort of lowering expectations in terms of just the housing starts this year, and the conservatism towards next year. How much of that impacts your view in terms of the ability to get price to offset commodity costs just in terms of a tougher environment there, or do you think that that's something you can get even with lower volumes there?

Well, I think we've demonstrated, Dan, over the course of the last 2, 3 years in a very, very challenging environment. I mean, we've been able to successfully offset commodity costs. I think if we were to go back and roll the tape back 3 or 4 years, I'm guessing that we're probably neutral over that long period of time. And we've seen a $5 billion decline in sales from $12.5 billion in '06 to about $7.5 billion last year. And so I don't think it gets a whole lot tougher than that, but I think when you've got the focus we've had on innovation, the focus we've had on the work we've done around customer intimacy, the strength of our brands, it certainly puts us in a good position. We've got a supply chain initiative in place that is getting a lot of good traction. So yes, we feel comfortable that even in a tough environment, we should be able to make that happen. Thank you. And I'd like to thank all of you for participating today, we appreciate that. And as Connie mentioned earlier, if we didn't get to your question, please give us a call, and we'll try to get back to you as quickly as we can. Thank you.

And this concludes today's conference. We thank you for your participation.