Masco Annual Report2004

Masco Corporation

Building a Dynamic Future2004 Annual Report

About MascoMasco Corporation is a world leader in the manufacture of home improvement and buildingproducts. Masco is also a leading provider of services that include the sale and installation ofinsulation and other building products. We provide brand-name, value-added products andservices for the home and family that can be used with confidence and displayed with pride.

ON THE COVERTo enhance market share growth and pricing power, Masco continues to intensify its focus on new-product development. In our decorative architectural products segment, Behr Process Corporationrecently introduced a variety of new exterior wood finishes, including one specifically designed forlog homes—achieving very favorable market recognition. Additionally, the cover design showcasesMilgard Windows, featuring its popular Fiberglass WoodClad™ windows.

TABLE OF CONTENTSFinancial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Building on Leadership Brands . . . . . . . . . . . . . . . . . . . . . . . . . . 2Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Building a Dynamic Future. . . . . . . . . . . . . . . . . . . . . . . . . . . 4Financial Highlights for 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 5Strategic Redirection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Leveraging Synergies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Portfolio Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14New-Product Development . . . . . . . . . . . . . . . . . . . . . . . . . 16Customer Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Asia Sourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Improving Shareholder Returns. . . . . . . . . . . . . . . . . . . . . . 22Corporate Responsibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Future Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Forty-Eight Years of Sales Growth . . . . . . . . . . . . . . . . . . . . . . . 26Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Corporate Leadership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Division Operating Executives . . . . . . . . . . . . . . . . . . . . . . . . . . 30Form 10-KInformation for Shareholders . . . . . . . . . . . . . Inside Back Cover

FORWARD-LOOKING STATEMENTSOur Annual Report to Shareholders contains statements reflecting our views about the Company’s future performance. Thesestatements are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Actual results maydiffer materially from the results discussed in such forward-looking statements. Readers should refer to the comment at thebeginning of “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in ourAnnual Report on Form 10-K included herein, which explains that various factors may affect our projected performance. TheCompany undertakes no obligation to update any forward-looking statements, whether as a result of new information, futureevents or otherwise.

NON-GAAP DISCLOSUREThe Company believes that certain non-GAAP (Generally Accepted Accounting Principles) performance measures andratios, used in managing the business, may provide users of this financial information with additional meaningful compar-isons between current results and results in prior periods of ongoing operations. Non-GAAP performance measures andratios should be viewed in addition to, and not as an alternative for, the Company’s reported results under accounting prin-ciples generally accepted in the United States. For a reconciliation of 2004 sales growth excluding acquisitions and divesti-tures, please refer to page 19 of the Form 10-K included herein.

AR Cover 04_v4r2 3/17/05 3:29 PM Page 2

BUILDING A DYNAMIC FUTURE

2004 Annual Report ~ 1

Financial HighlightsDollars in Millions Except Per Common Share Data

48-Year 5-YearGrowth Growth 2004

Rate Rate vs 2003 2004 2003 1999 1956Net Sales 16% 17% 14% $12,074 $10,571 $5,577 $ 11

Operating Profit1, 2

17% 14% 6% $ 1,569 $ 1,484 $ 807 $ 1Income from

Continuing Operations1, 2 17% 13% 18% $ 930 $ 790 $ 502 $ 0

Income from Continuing Operations as a % of1, 2

:Net Sales 8% 7% 9% 4%Shareholders’ Equity

317% 15% 19% 9%

Shareholders’ Equity 16% 12% - 1% $ 5,423 $ 5,456 $3,019 $ 5

Per Common Share Data:Income from

Continuing Operations1, 2 14% 13% 27% $ 2.04 $ 1.61 $ 1.12 $0.005/16

Cash Dividends Paid 16% 8% 14% $ 0.66 $ 0.58 $ 0.45 $0.001/16

Amounts, except for shareholders’ equity, have been restated to exclude discontinued operations.

1 The year 2004 includes a non-cash goodwill impairment charge of $141 million after tax ($168 million pre-tax) and income of $19 million after tax ($30 millionpre-tax) related to the Behr litigation settlement.

2 The year 2003 includes a non-cash goodwill impairment charge of $47 million after tax ($53 million pre-tax) and income of $45 million after tax ($72 millionpre-tax) related to the Behr litigation settlement.

3 Based on shareholders’ equity as of the beginning of the year.

FIVE YEARS OF SALES GROWTH In Millions

’04’03’02’01’00

Annual Report 04_v6 3/18/05 7:35 AM Page 1

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CABINETS AND RELATED PRODUCTSMasco is the largest U.S. manufacturer of kitchen and bath cabinetry,offering approximately 300 styles in more than 20 lines from our U.S.companies: KraftMaid, Merillat, Mill’s Pride, Texwood and Zenith. OurEuropean cabinet companies include The Aran Group, The MooresGroup and Tvilum-Scanbirk. This segment includes assembled andready-to-assemble kitchen and bath cabinets; home office workstations;entertainment centers; storage products; bookcases; and kitchen utilityproducts.

PLUMBING PRODUCTSMasco is a world leader in the manufacture of plumbing products. Thissegment includes faucets; plumbing fittings and valves; showerheadsand hand showers; bathtubs and shower enclosures; and spas. Leadingfaucet brands include Bristan™, Damixa®, Delta®, Hansgrohe®, Mariani™,Newport Brass® and Peerless®. Leading plumbing specialty brandsinclude Alsons®, Aqua Glass®, BrassCraft®, Brasstech®, Cobra®, Ginger®,Gummers™, Heritage™, Hot Spring®, NewTeam™ and PlumbShop®.

INSTALLATION AND OTHER SERVICESMasco provides a variety of installation services for homebuildersacross the U.S. and in Canada. Included in this segment are the sale andinstallation principally of insulation as well as cabinetry, fireplaces, gut-ters, bath accessories, garage doors, shelving and windows. Under theMasco Contractor Services umbrella, this segment includes installationindustry leaders such as Cary Insulation, Gale Insulation, QualityInsulation, Sacramento Building Products and Williams Insulation.

DECORATIVE ARCHITECTURAL PRODUCTSThis segment includes paints and stains; and door, window and otherhardware. Market leaders in paints and stains include Behr ProcessCorporation and Masterchem Industries, with top-selling brands Behr®, Behr Premium Plus®, Casual Colors®, Expressions™, Kilz® andHammerite®. Leading hardware brands include Bath Unlimited®,Brainerd®, Franklin Brass®, and Liberty® in the U.S. and Avocet™ inEurope. This segment also includes Vapor Technologies, which providescoatings technology and manufacturing process equipment for manyMasco products.

OTHER SPECIALTY PRODUCTSThe Other Specialty Products segment includes windows, windowframe components and patio doors; electronic locksets; staple gun tackers, staples and other fastening tools; and hydronic radiators andheat convectors. Companies in this segment include Arrow Fastener,Computerized Security Systems, Faucet Queens and MilgardManufacturing in the U.S., and The Brugman Group, CambrianWindows, Duraflex, Griffin Windows, Premier Manufacturing, SuperiaRadiatoren and Vasco in Europe.


2 ~ Masco Corporation

Building on Leadership BrandsNet Sales

Dollars In Millions


2004 Annual Report ~ 32004 Annual Report ~ 32004 Annual Report ~ 32004 Annual Report ~ 32004 Annual Report ~ 32004 Annual Report ~ 32004 Annual Report ~ 32004 Annual Report ~ 3

Masco Contractor Services Aqua Glass tub, Delta faucet, Milgard windows Delta faucet

Bath Unlimited accessories Behr paintAlsons shower system

Delta faucet, Hüppe collapsible shower doors, Mirolin tub Texwood cabinetry Hot Spring spa

Merillat cabinetry


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Building a Dynamic FutureWe are pleased to report that in 2004 your Company achievedrecord sales, net income and earnings per common share, andMasco’s share price reached an all-time high.

Our success was in large part due to a change in strategic direction to focus onincreasing shareholder value by improving the Company’s return on invested capital (ROIC) through strong internal growth, share repurchases and balance sheetsimplification.

The new strategic direction, which we announced in early 2003, was designed to benefit our shareholders by leveraging the critical mass of brands that we developedin 1997 through 2002 through our acquisition of a number of leading home improve-ment and building product companies. During this period of rapid growth, our goalwas to broaden our product and services offerings to customers and consumers, tomake Masco more important to a dramatically consolidating customer base, includ-ing home centers and homebuilders, and to address the increasing globalization of

our markets.

While we were successful in buildingwhat we believe is one of the world’sleading providers of home improvementand building products and services dur-ing the period prior to 2003, we did notcreate satisfactory shareholder value, weincreased debt as a percentage of totalcapitalization and we experienced adecline in ROIC.

Our recent change in strategic directionhas focused the resources of theCompany on improving return to share-holders and contributed significantly toour record results in 2004.

Richard A. ManoogianChairman and Chief Executive Officer

Alan H. BarryPresident and Chief Operating Officer

March 2005

Annual Report 04_v6 3/18/05 3:48 PM Page 4


Financial Highlights for 2004NET SALES AND OPERATING PROFIT

Net sales from continuing operations were a record $12.1 billion, a 14 percent increaseover the $10.6 billion that we achieved in 2003. Since the Company had no acquisi-tions of significant size during the past year, virtually all of this increase was frominternal growth.

Net sales from North American operations, accounting for 82 percent of theCompany’s sales, increased 13 percent to $9.9 billion in 2004 from $8.8 billion in 2003.Net sales from International operations, principally in Europe, increased 21 percentto $2.2 billion in 2004 from $1.8 billion in 2003.

Income from continuing operations for 2004 was $930 million compared with $790 million in 2003, including non-cash, after-tax charges for goodwill impairmentof $141 million ($168 million pre-tax) and $47 million ($53 million pre-tax) in 2004 and2003, respectively. Earnings from continuing operations were $2.04 per commonshare compared with $1.61 per common share in 2003. Excluding the charges forgoodwill impairment, earnings from continuing operations were $2.35 per commonshare and $1.70 per common share for 2004 and 2003, respectively.

Dollars in Millions

Year Net Sales Operating Profit 2004 $12,074 $1,569

2003 10,571 1,484

2002 8,831 1,267

2001 7,705 1,011

2000 6,506 888

1999 5,577 807

5-Year Growth Rate 17% 14%

Amounts have been restated to exclude discontinued operations.

NET SALES AND OPERATING PROFIT




Our operating profit margins from continuing operations, as reported, were 13.0 per-cent in 2004, compared with 14.0 percent in 2003. Excluding goodwill impairmentcharges, operating profit margins were 14.4 percent and 14.5 percent in 2004 and 2003,respectively. These margins were adversely affected by increased commodity costsnot recovered due to the normal delay from a timing standpoint in implementing selling price increases to customers, costs associated with the Sarbanes-Oxley legisla-tion, increased energy and freight costs, stronger foreign currencies resulting inincreased International sales that have lower margins, product mix and relativelyhigher sales in product segments with somewhat lower margins.

CASH FLOW

In 2004, the Company achieved free cash flow (defined as cash from operations lesscapital expenditures and before dividends) of over $1 billion, for the second consec-utive year. Our cash flow has benefited from improved balance sheet management,particularly related to working capital management.

CAPITAL EXPENDITURES

Capital expenditures for the year, including discontinued operations, were $310 mil-lion compared with $271 million for 2003. We continue to invest capital to supportinternal growth opportunities across our businesses. Depreciation and amortizationfor 2004 was $237 million compared with $244 million for 2003.

LIQUIDITY

The Company ended 2004 in a strong financial position with cash and marketablesecurities in excess of $1.5 billion, even after using approximately $900 million torepurchase common shares for retirement. In keeping with our commitment toreduce the Company’s financial investments, our marketable equity securities andbond funds portfolio was reduced to $263 million at year-end compared with $517million at the end of 2003.

The Company renegotiated its debt agreements with its banks and replaced its thenexisting credit agreements with a $2.0 billion five-year revolving credit agreementpayable in November 2009. At year-end, there were no borrowings under this newagreement.



Hansgrohe faucets


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BALANCE SHEET

Our focus on balance sheet management in 2004 resulted in the following:

• Accounts receivable at the end of 2004 were 49 days, compared with 53 days for2003;

• Year-end inventories increased slightly to 49 days, compared with 48 days in 2003;

• Accounts payable days at year-end improved to 36 days, compared with 35 daysin 2003, as the Company continues to negotiate more favorable supplier terms; and

• Working capital at year-end (defined as accounts receivable and inventories lessaccounts payable) improved to 16.8 percent of sales, from 18.1 percent a year earlier.

CAPITALIZATION

Consistent with our commitment to improve ROIC, we continued to aggressively man-age our capital base by repurchasing 31 million common shares in 2004 for approxi-

mately $900 million. In thepast two years, our com-mon shares outstandinghave been reduced by 66million through sharerepurchases.

Debt as a percent of totalcapitalization at the endof 2004 was 44 percent,compared with 43 percentat year-end 2003.



Ginger mirror and light fixtures, Mirolin bathtub, NewportBrass vanity & plumbing fixtures



Strategic RedirectionDuring the past two years, Masco has undertaken a critical forward-looking strategic planning initiative designed to identify opportunities to further strengthen the Company,grow our market leadership positions and enhance long-termshareholder value.

STRATEGIC AGENDA

2004 Goals 2004 Results

Return on Invested Capital Improve 12.0% compared with 11.1% in 2003

Average Annual InternalSales Growth 6–8% 14%

Average Annual Sales Growththrough Acquisitions 5% or less Less than 1%

Average Annual OperatingProfit Margins 13–15% 13.0%

Cash Flow Above Average Free cash flow exceeded $1 billion

Average Annual Return toShareholders, includingDividends 12–15% 29%

STRATEGIC AGENDA




Your Company spent a number of years and significant resources developing a criti-cal mass of businesses that provide leadership products and services and highly rec-ognized brands. These brands target diverse price points and distribution channels inthe home improvement and building products and services industries. That strategyproved effective, solidifying our position in the marketplace while simultaneouslyimproving our importance to customers.

Today, over 90 percent of our sales are represented by products and services that webelieve are leaders in their respective market niches—a position unmatched by anyother company in the markets in which we compete. Having built this critical mass,we are now focused on improving value for our shareholders by:

• Leveraging synergies;

• Refining our business portfolio;

• Enhancing new-product development;

• Focusing on key customers; and

• Sourcing products and components from Asia.

Dollars in Millions2004 Sales Percent of Total

Cabinets and Related Products $ 3,131 26%

Installation and Other Services 2,771 23%

Plumbing Products 2,468 20%

Decorative Architectural Products 1,606 13%

Other Specialty Products 1,159 10%

Leadership Sales $11,135 92%Other Sales 939 8%

Total Sales $12,074 100%

LEADERSHIP PRODUCTS AND SERVICES



Delta faucet, KraftMaid cabinetry




Milgard windows



Leveraging SynergiesWe are leveraging synergies among operating companies through the establish-ment of product platforms, each under the direction of a Group President withresponsibility for the performance of operating companies within these platforms.These product platforms are:

• Cabinets;

• Plumbing Products;

• Decorative Architectural Products, including coatings;

• Installation Services; and

• Other Specialty Products, including windows.

In each of these platforms, global steering committees are focusing on sourcing initia-tives, shared best practices, cost-reduction efforts, joint marketing programs andmanufacturing rationalization.

This process is perhaps best illustrated by Masco Contractor Services (MCS), whichtoday supplies and installs products in approximately 50 percent of the new homesbuilt in the United States. We are leveraging our unique installation services capabil-ities and relationships to enhance our sales of other products by offering our buildercustomers installation of more than 20 separate categories of products. We are excited about the opportunities to provide logistical advantages to our builder customers by installing both insulation and non-insulation products, includingMasco-manufactured products such as cabinets and windows. Through our broadinstallation and distribution system, Masco is the only company that currently offershomebuilders nationwide installation services.

Although MCS is the undisputed leader in providing installation services, our serv-ices revenues currently represent only a small portion of the installation costs ofbuilding a home, offering significant opportunities for future growth.




Portfolio ReviewIn order to improve profitability and improve returns on capital deployed, we continue to review our portfolio of companies, concentrating on those that fully support ourstrategic alignment and competitive core, perform to ourexpectations and are less susceptible to foreign competition.Through consolidations and divestitures in 2004, we reducedthe number of operating units from 63 to 47; we expect furtherconsolidation as we continue to streamline our operations.

During 2004 and early 2005, Masco divested the following six European companies: Alma Küchen, The Alvic Group, Gebhardt Ventilatoren, Jüng Pumpen, E. Missel, and SKS Group.

ORGANIZATION RESTRUCTURING

In 2004, we also consolidated a number of our operating companies:

• We structured our plumbing products operations into a single platform and haveseveral consolidations underway.

• We have refined the organizational structure and the strategic focus of our cabinetbusinesses to better serve our builder customers and our retail customers.

• PowerShot, a manufacturer of fastening products, was assimilated into ArrowFastener.

• European operations were structured into three platforms, resulting in the reduc-tion of reporting units from 29 to 19.

These organizational changes should enable Masco to continue to drive worldwidesynergies and cost savings in the future.


ACQUISITION STRATEGY

Historically, Masco’s goal has been to grow the Company’s sales through acquisitionat an average annual rate of five to 10 percent. As part of our strategic redirection, wehave reduced our annual sales growth target through acquisition to five percent orless. Likely candidates would be “bolt-on” acquisitions that meet our financial crite-ria and add a product extension, geographic presence or a new service or manufac-turing capacity to one of our existing product or services platforms. There were nosignificant acquisitions in 2004.


Watkins Hot Spring Solana spa




New-Product DevelopmentTo enhance market share growth, in recent years we haveintensified our focus on new-product development. We esti-mate that currently 25 to 30 percent of our manufacturedproduct sales come from products that have been introducedduring the past three years.

Milgard Windows continued its new-product initiatives and, in 2004, in order toexpand to markets in the eastern U.S., introduced its new double- and single-hungwindows and fiberglass French and sliding doors. Fiberglass is relatively new to thewindow market and provides dimensional stability that is impervious to outside ele-ments. The unique combination of fiberglass with a finely crafted interior woodveneer was hailed by Woman’s Day Special Interest Publications as the most innovativenew product of 2004.

In architectural products, Behr also introduced several new products in 2004, includ-ing Behr Semi-Transparent Concrete Stain, Behr Wet-Look Sealer and Log Home andBarn Finishes.

A number of exciting new plumbing products have been introduced in early2005. These include the Simply PUR™ filtra-tion faucet, a faucet system developed inpartnership with Procter & Gamble thatoffers a convenient and easily changeablefilter, and the H2Okinetics Technology™ thatchanges the shape of water droplets to create a warmer, more luxurious showerexperience, using less water.

Behr paint, Milgard windows

ˆ



Delta Simply PUR™ filtration faucetˆ




For 2005, Bath Unlimited is launching three new bath-accessory designs available tobuilders, architects and specifiers: an old-world style, a traditional design and aSouthwest theme; and Hansgrohe introduced Citterio™, a new high-end line of faucets.

In Installation Services, MCS is installing a variety of new products, including closetorganizers manufactured by other Masco operating companies. In addition, MCSintroduced its new Diamond ClassSM Level for its Environments for Living® program,that offers significant improvements in comfort and energy savings to homeowners.

THE SEVEN PILLARS OF THE ENVIRONMENTS FOR LIVING® PROGRAM



Customer ProgramsCustomer programs are driven by research in consultationwith our builder, retailer and wholesaler customers. These programs are designed to provide incentives for mutual growthand to help our customers better market our products to con-sumers. For example, a recent study conducted by our BuilderCabinet Group identified consumer model-home shopping andbuying behaviors to help our builder customers ensure thattheir cabinet choices, design centers and marketing programs present products and upgrade options in ways that bestaddress consumers’ needs and interests.

KEY RETAILER PROGRAM

Since 1986, the Key Retailer Program has grownsignificantly with 2004 sales reaching $3.7 billion,compared with $3.4 billion in 2003. Building onthe customized programs that we offer to ourretailer customers, we have established value-added programs at both the corporate and oper-ating company levels.

These newly expanded programs include: transportation, logistics, inventory replenishment, technology, consumer research, product development, visual merchandising, advertising and brand management.

BUILDER ALLIANCE PROGRAM

Since its establishment in 1987, the Masco Builder Alliance Program has been contin-ually enhanced to reflect the needs of the marketplace and the voice of our customers.


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The Masco Builder Alliance Program serves builder customers through a wide range of customized initiatives, including Masco database management, targetedproduct-based rebate programs, design center support services and other value-added services.

In 2004, Masco continued to finalize a number of national arrangements with keyhomebuilders that incentivize our customers to make us their primary installer ofinsulation and other building products. Arrangements have now been executed withfive of the top 10 U.S. homebuilders with additional arrangements expected to be finalized in 2005. We continue to increase sales through penetration of non-insulationinstallation services.



Masco Contractor Services, Milgard windows



Asia SourcingAs Asian countries have become major manufacturing centerswith lower costs for labor, land and facilities, we have expanded our operations there, and now have approximately1,400 employees and approximately 400,000 square feet ofmanufacturing and distribution space in China. In 2004, weoutsourced over $400 million of products and componentscompared with over $200 million in 2003, resulting in significant cost savings.

Our established capabilities in China provide a base for further expansion of manu-facturing and assembly in that country, and are already allowing Masco to serveAsian consumers as the markets for our products grow.

Moores cabinetry


We continue to focus on initiatives that enable the Company to create value for our shareholders. In 2003, the Companyestablished a goal of achieving a 15 percent ROIC by 2008 orsooner. For the 12 months ended December 31, 2004, ROICwas 12.0 percent compared with 11.1 percent in 2003. In both2004 and 2003, the Company returned more than $1 billion toshareholders through share repurchases and dividends.

SHARE REPURCHASE

The Company has continued its active share-repurchase program; in 2004 approxi-mately 31 million common shares were repurchased and retired. During the first twomonths of 2005, the Company repurchased an additional six million shares ofCompany common stock (including approximately two million shares which weresubsequently reissued for the long-term stock incentive award plan).

We believe that our shares continue to be attractively valued and, depending on mar-ket conditions and other factors, we expect to continue to be relatively aggressive inour share-repurchase program.

DIVIDENDS

In 2004, the quarterly cash dividend was increased to $.18 from $.16 per commonshare. This 12.5 percent increase reflects our favorable long-term outlook, strong bal-ance sheet and cash flow, and recent positive changes in the tax law. This marks the46th consecutive year in which dividends have been increased.



Improving Shareholder Returns



Corporate ResponsibilitySUSTAINABILITY REPORT

In an effort to inform our shareholders of Masco’s economic, environ-mental and social performance, in 2004 we published our firstCorporate Sustainability Report, which can be viewed on Masco’s website at www.masco.com. Sustainability is the concept that guides Mascoin measuring and continuously improving our performance with theintent of ensuring that our business activities contribute to the well-being of society and the environment. The report is intended to pro-vide stakeholders with a balanced and reasonable picture of Masco’s sustainabilitypractices, outcomes and activities.

GOVERNANCE

Independent Directors

In 2004, we continued to enhance our corporate governance through the addition ofa new independent director, Dennis W. Archer, Chairman of Dickinson Wright PLLC,a Detroit-based law firm, former two-term mayor of the city of Detroit and formerAssociate Justice of the Michigan Supreme Court. His addition to the Board increasedthe number of independent directors from seven to eight. All members of the AuditCommittee, Organization and Compensation Committee and Corporate Governanceand Nominating Committee are independent.

Code of Business Ethics

To reinforce our commitment to ethical business practices, we are continuing to developprocesses and systems to enhance our ability to communicate requirements, confirmcompliance and train employees in ethical behaviors and expectations related to ourCode of Business Ethics program. For example, in 2003 we installed a toll-free employeeethics “hotline” and introduced comprehensive Internet-based ethical and legal compli-ance training programs to our U.S. employees. We have translated our Code of BusinessEthics into additional languages for distribution internationally, and are adapting our eth-ical and legal compliance training for our International operations.




Future OutlookWe continue to view the future with excitement and optimism,and we expect continued improvement in both sales and earnings in 2005. In addition to the strategic initiatives outlined in this report, your Company continues to benefitfrom a broad offering of brand-name products and increasingly diversified installation services, new-productdevelopment and strong representation in all channels of distribution for our products.

Despite the market advantages that we have established and maintained, Masco con-tinues to face a number of challenges, including increasing commodity costs and pric-ing pressures and competition from certain import products.

Macro-economic factors, such as slower economic growth, relatively higher commod-ity, energy and freight costs, and anticipated increases in mortgage interest rates, mayhave a negative impact on our businesses. Nevertheless, we believe that our marketleadership positions, our market share growth, our business mix of new constructionand remodeling and our broad array of leading brand-name products and serviceswill enable us to achieve another year of record sales and earnings in 2005.

We greatly appreciate the proven commitment, capabilities and enthusiasm of ourover 60,000 employees who contribute to the achievement of our financial and oper-ational objectives. We look forward to their continued efforts as we strive to make2005 another record year with sustained increases in returns to our shareholders.

Richard A. ManoogianChairman and Chief Executive Officer

Alan H. BarryPresident and Chief Operating Officer



Ginger mirror and lighting, Liberty hardware, Merillat cabinetry, Newport Brass faucet




Forty-Eight Years of Sales Growth


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Selected Financial Data

MASCO COMMON SHAREMARKET PRICE—P/E RATIO

Price/Market Earnings Earnings

Price Per Common RatioYear High Low Share1 High Low

2004 $37.02 $25.88 $2.04 18 – 132003 28.44 16.59 1.61 18 – 102002 29.43 17.25 1.06 28 – 162001 26.94 17.76 .39 69 – 462000 27.00 14.50 1.20 23 – 121 Amounts are calculated using income from continuing operations and have

been restated to exclude discontinued operations.

Dollars In Millions Except Per Common Share Data

2004 2003 2002 2001 2000Net sales1 $12,074 $10,571 $ 8,831 $ 7,705 $ 6,506Operating profit 1, 2, 3, 4, 5 $ 1,569 $ 1,484 $ 1,267 $ 1,011 $ 888Income from continuing operations1, 2, 3, 4, 5, 6, 7, 8 $ 930 $ 790 $ 547 $ 183 $ 540Per share of common stock:

Income from continuing operations1, 2, 3, 4, 5, 6, 7, 8:Basic $2.09 $1.65 $1.13 $0.40 $1.22 Diluted $2.04 $1.61 $1.06 $0.39 $1.20

Dividends declared $0.68 $0.60 $0.55 $0.53 $0.50Dividends paid $0.66 $0.58 $0.541/2 $0.521/2 $0.49

Income from continuing operations as a % of 1, 2, 3, 4, 5, 6, 7, 8:Net sales 8% 7% 6% 2% 8%Shareholders’ equity 9 17% 15% 14% 6% 18%

At December 31:Total assets $12,541 $12,173 $12,050 $ 9,021 $ 7,604Long-term debt $ 4,187 $ 3,848 $ 4,316 $ 3,628 $ 3,018Shareholders’ equity $ 5,423 $ 5,456 $ 5,294 $ 3,958 $ 3,286Book value per common share $ 11.89 $ 11.11 $ 10.30 $ 8.33 $ 7.27

1 Amounts have been restated to exclude discontinued operations.2 The year 2004 includes a non-cash goodwill impairment charge of $141 million after tax ($168 million pre-tax) and income of $19 million after tax ($30 million pre-tax)

related to the Behr litigation settlement.3 The year 2003 includes a non-cash goodwill impairment charge of $47 million after tax ($53 million pre-tax) and income of $45 million after tax ($72 million pre-tax) related to

the Behr litigation settlement.4 The year 2002 includes a $92 million after tax ($147 million pre-tax), net charge for the Behr litigation settlement and pre-tax income of $16 million for the planned disposition of

a business.5 Operating profit for 2001 and 2000 includes goodwill amortization of $87 million and $60 million, respectively.6 The year 2002 includes a $92 million after-tax ($117 million pre-tax), non-cash goodwill impairment charge recognized as a cumulative effect of a change in accounting principle.7 The year 2001 includes a $344 million after-tax ($530 million pre-tax), non-cash charge for the write-down of certain investments, principally securities of Furnishings International Inc. 8 The year 2000 includes a $94 million after-tax ($145 million pre-tax), non-cash charge for the planned disposition of businesses and the write-down of certain investments.9 Based on shareholders’ equity as of the beginning of the year.

OPERATING PROFIT AS A PERCENT OF NET SALES1, 2

20043 20034 20025 20016 20006

As reported 13.0% 14.0% 14.3% 13.1% 13.6%Before general corporate expense 14.6% 15.1% 15.5% 14.4% 15.2%As reconciled 15.7% 14.9% 17.0% 15.5% 16.1%

1 Amounts have been restated to exclude discontinued operations.

2 General corporate expense is reported in Note P to the Consolidated FinancialStatements contained in our Annual Report on Form 10-K included herein.

3 The year 2004 includes a non-cash, pre-tax goodwill impairment charge of $168 million and pre-tax income of $30 million related to the Behr litigation settlement.

4 The year 2003 includes a non-cash, pre-tax goodwill impairment charge of $53 millionand pre-tax income of $72 million related to the Behr litigation settlement.

5 The year 2002 includes a pre-tax net charge of $147 million for the Behr litigationsettlement, and pre-tax income of $16 million related to the planned dispositionof a business.

6 Operating profit for 2001 and 2000 includes goodwill amortization expense of$87 million and $60 million, respectively.



CORPORATE OFFICERS AND OPERATING EXECUTIVES

WILLIAM T. ANDERSONVice President–ControllerEuropean Operations

RONALD W. AYERSGroup President

ALAN H. BARRYPresident andChief Operating Officer

DR. LILLIAN BAUDERVice President

JOHN C. CALKINSVice President–CorporateServices

THOMAS N. CHIEFFEGroup Vice President

SAMUEL A. CYPERTVice President–InvestorRelations

DONALD J. DEMARIE, JR.Group President

WAYNE DEVINEGroup Vice President

DAVID A. DORANVice President–Taxes

CHARLES A. DOWD, JR.Group President

DANIEL R. FOLEYVice President–HumanResources

LAU FRANDSENPresident–Masco Europe

EUGENE A. GARGARO, JR.Vice President and Secretary

TED GOOLDGroup Vice President

CLAY H. KIEFABERGroup Vice President

LARRY J. LA BOVice President–ControllerNorth American Operations

JOHN R. LEEKLEYSenior Vice President andGeneral Counsel

RICHARD A. MANOOGIANChairman of the Board andChief Executive Officer

KAREN R. MENDELSOHNVice President–Sales andMarketing

DONALD J. MILROYGroup Vice President

JERRY W. MOLLIENVice President–Corporate Taxes

RICHARD G. MOSTELLERVice President andSenior Financial Advisor

SHARON J. ROTHWELLVice President-Corporate Affairs

ROBERT B. ROSOWSKIVice President and Treasurer

BARRY J. SILVERMANVice President–Associate General Counsel

JOHN G. SZNEWAJSVice President–BusinessDevelopment

DAVID W. VAN HISEVice President–International

JERRY VOLASGroup Vice President

THOMAS VOSSExecutive VicePresident–Europe

TIMOTHY WADHAMSSenior Vice President and Chief Financial Officer

ALFONS WALDERGroup Vice President

JOHN C. WILLSGroup President

DIRECTORS

DENNIS W. ARCHER4

Chairman Dickinson Wright PLLC, a law firm Director since 2004

THOMAS G. DENOMME1, 3, 4

Retired Vice Chairman and Chief Administrative Officer Chrysler Corporation Director since 1998

PETER A. DOW1, 2

Retired Vice Chairman, Chief Operating Officer andExecutive Committee ChairmanCampbell-Ewald, an advertising companyDirector since 2001

ANTHONY F. EARLEY, JR.1, 4

Chairman, Chief Executive Officer, President and Chief Operating Officer DTE Energy Company Director since 2001

VERNE G. ISTOCK1, 2, 4

Retired Chairman/PresidentBank One CorporationDirector since 1997

DAVID L. JOHNSTON2, 4

President and Vice Chancellor of theUniversity of Waterloo in Ontario, CanadaDirector since 2003

J. MICHAEL LOSH1

Interim Chief Financial OfficerCardinal Health, Inc.Director since 2003

WAYNE B. LYONRetired ChairmanLifeStyle Furnishings International Ltd.Director since 1988

RICHARD A. MANOOGIAN3

Chairman of the Board and Chief Executive OfficerMasco CorporationDirector since 1964

MARY ANN VAN LOKEREN2, 4

Chairman and Chief Executive OfficerKrey Distributing Company, a beverage distribution firmDirector since 1997

1 Member of Audit Committee2 Member of Organization and Compensation Committee3 Member of Executive Committee4 Member of Corporate Governance and Nominating Committee

Corporate Leadership




Division Operating ExecutivesALLAN ABRAMS

VASKEN ALTOUNIAN

OLE LUND ANDERSEN

A. JAMES ARUFFO

ROBERT BALL

MARC BICKLER

NICHOLAS BILLIG

FRANK BUSAM

ROGER A. CARLSON

JEFFREY D. FILLEY

KLAUS GROHE

STEVEN M. HAMMOCK

LARRY B. HIGGINS

DAVID B. HUMENIK

ECKHARD KEILL

STANLEY G. KORTE

STEVE LEE

JOSEPH MAHON

NICHOLAS MATTEN

JIM McCARTHY

REINHARD METZGER

MARK MOORE

JAN NUYTS

DOMINIC PRIMUCCI

STEVEN P. RAIA

RENZO RASTELLI

BASTIAN SCHAEFER

WILLIAM F. SCHMIDT

RONALD D. SMITH

JAMES J. SWEENEY, JR.

TODD TALBOT

DONALD K. WOODY

CERTIFICATIONSRichard A. Manoogian and Timothy Wadhams have provided certifications to the Securities andExchange Commission as required by Section 302 of the Sarbanes-Oxley Act of 2002. These certifications are included as Exhibits 31.a and 31.b to the Company’s Form 10-K for the year endedDecember 31, 2004.

As required by the New York Stock Exchange (NYSE), on May 25, 2004, Richard A. Manoogian sub-mitted the annual CEO certification to the NYSE that stated he was not aware of any violation by theCompany of the NYSE corporate governance listing standards.

RESPONSIBILITY FOR FINANCIAL STATEMENTSManagement is responsible for the fairness and integrity of the Company’s consolidated financialstatements. In order to meet this responsibility, management maintains formal policies and proce-dures that are consistent with high standards of accounting and administrative practices, which areregularly communicated within the organization. In addition, management maintains a program ofinternal auditing within the Company to examine and evaluate the adequacy and effectiveness ofestablished internal controls as related to Company policies, procedures and objectives. The accom-panying report of the Company’s independent registered public accounting firm states their opinionon the Company’s consolidated financial statements, management’s assessment of internal controlsover financial reporting, and the effectiveness of internal controls over financial reporting, based onaudits conducted in accordance with auditing standards established by the Public CompanyAccounting Oversight Board.

The Audit Committee of the Board of Directors meets periodically with both management and theindependent registered public accounting firm to provide oversight with respect to the Company’sfinancial reporting process and system of internal controls.


Information for ShareholdersCOMPANY PROFILEMasco Corporation is one of the world’s largest manufac-turers of brand-name consumer products for the home andfamily. The Company is also a leading provider of servicesthat include the sale and installation of insulation and otherbuilding products.

Our products include faucets, kitchen and bath cabinets,architectural coatings (paints and stains), bath and showerunits, spas and hot tubs, showering and plumbing special-ties, windows and electronic locksets and other hardware.

The Company has approximately 6,300 shareholders ofrecord and 62,000 employees. Masco’s principal manufac-turing facilities are located throughout the United States.International operations are primarily located in Europe.

EXECUTIVE OFFICESMasco Corporation21001 Van Born RoadTaylor, MI 48180Phone: 313-274-7400Fax: 313-792-4177

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMPricewaterhouseCoopers LLP400 Renaissance CenterDetroit, MI 48243

STOCK EXCHANGE INFORMATIONMasco Corporation common stock is traded on the NewYork Stock Exchange under the symbol MAS.

TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENTAnswers to many of your shareholder questions andrequests for forms are available by visiting The Bank ofNew York’s web site at www.stockbny.com.

Transfer and Address ChangesSend certificates for transfer and address changes to:

The Bank of New YorkReceive and Deliver DepartmentP.O. Box 11002Church Street StationNew York, NY 10286

Dividend Reinvestment PlanMasco Corporation has appointed The Bank of New Yorkto serve as agent for its Dividend Reinvestment Plan. Allenrollments, terminations, sales, requests for certificates

and optional cash payments regarding the Plan should besent to:

The Bank of New YorkDividend Reinvestment DepartmentP.O. Box 1958Newark, NJ 07101-1958

Duplicate MailingsShares owned by one person, but held in different forms ofthe same name (e.g., John Smith, John B. Smith, J.B. Smith),may result in duplicate mailings of shareholder informa-tion at added expense to the Company.

Please notify The Bank of New York by calling 800-524-4458 in order to eliminate such duplication.

Multiple shareholders who reside at one address and holdtheir shares through a bank or broker may receive only oneAnnual Report and Proxy Statement. This “householding”procedure reduces duplicate mailings and Companyexpenses. Shareholders who wish to opt out of household-ing should contact their bank or broker.

Other InquiriesAll other shareholder inquiries, including those regarding lost,stolen or destroyed stock certificates, should be directed to:

The Bank of New YorkShareholder Relations DepartmentP.O. Box 11258Church Street StationNew York, NY 10286800-524-4458E-Mail Address: [email protected]

INTERNETCurrent information on Masco Corporation can be foundby visiting our home page on the Internet atwww.masco.com.

INVESTOR RELATIONS CONTACTAdditional information about the Company is availablewithout charge to shareholders who direct a request to:

Samuel A. CypertVice President–Investor RelationsMasco Corporation21001 Van Born RoadTaylor, MI 48180

ANNUAL MEETING OF SHAREHOLDERSThe 2005 Annual Meeting of Shareholders of MascoCorporation will be held at the executive offices of theCompany on May 10, 2005 at 10:00 a.m., E.D.T.

AR Cover 04_v4r2 3/17/05 3:52 PM Page 3

Masco Corporation21001 Van Born Road

Taylor, MI 48180313.274.7400

www.masco.com

m

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Masco Annual Report2004

Economy & Finance