2013 MASCO CORPORATION MASCO CORPORATION 21001 Van Born Road ANNUAL REPORT Taylor, MI 48180-1340 313-274-7400 www.masco.com WE ARE PROUD OF OUR HERITAGE AND OUR STRONG LEADERSHIP OVER THE LAST 85 YEARS. ALEX MANOOGIAN OUR COMPANY’S FOUNDER RICHARD A. MANOOGIAN TIMOTHY WADHAMS On behalf of Masco Corporation’s Board of Directors, I wish to extend our gratitude to Timothy Wadhams who retired as President and Chief Executive Officer in February. We thank Tim for his numerous contributions during his 37-year career. His leadership, dedication and positive influence have played a vital role in guiding us through difficult times and have positioned the Company for future success. The Board would also like to welcome Keith Allman as President and Chief Executive Officer. We strongly believe that Keith, with his knowledge of Masco, his operational expertise and his customer relationships, will continue to drive value for our shareholders. Verne G. Istock Chairman of the Board 2013 MASCO CORPORATION ANNUAL REPORT MARCH 2014 Keith J. TO OUR SHAREHOLDERS Allman PRESIDENT AND CEO I am humbled that your Board of Directors appointed me to be Masco’s President and Chief Executive Officer, the fourth in the Company’s 85-year history. Our founder and first President and CEO, Alex Manoogian, was an Armenian immigrant who built this Company from the ground up. With the introduction of the revolutionary Delta® faucet in 1954, he launched the Company into the building products industry. In the decades that followed, his son, Richard Manoogian, assembled a portfolio of companies that placed Masco in a prominent position on the Fortune 500 list. In 2007, Timothy Wadhams was elected President and CEO and was a strong leader during periods of growth as well as during our most challenging times. Needless to say, I am proud to follow these men and to be a part of a company with such a rich heritage and respected reputation. 2013: STRONG AND CONSISTENT GROWTH We are pleased with our 2013 performance, delivering strong and consistent growth in all four quarters and across all operating segments. Our financial results were solid with net sales for 2013 increasing 9 percent to $8.2 billion, compared to 2012. Despite continued economic uncertainties, weak consumer confidence and modest consumer spending, we were able to continue to leverage the housing recovery. Our strong performance reflected our commitment to successfully deliver on our four strategic initiatives, which include leveraging our brands, reducing our costs, improving our Installation and Cabinet segments and strengthening our balance sheet. Steady gains in each of these initiatives were achieved and were critical to strength- ening our market position. We returned our Installation and Cabinet segments to profitability, increasing the full-year adjusted operating profit of these two segments. Our hard work was also evident in our <#> improved operating leverage and reduction in fixed costs, resulting in our strongest operating margin in six years. We ended 2013 with $1.5 billion of balance sheet liquidity, providing us with greater financial flexibility to fund our growth. During 2013, we strengthened our foundation to position the Company for growth in the future. We aligned our orga- nization with strategic goal setting, improved our planning processes and continued to develop talent across the organization. We also took steps to optimize our portfolio by reducing our exposure within Europe and concentrating on operations that align with our strategic direction. We continued to drive growth through our unparalleled portfolio of brands, the majority of which represent the premier brand in their respective market categories. By leveraging our brand strength, we were able to drive FEATURED KraftMaid Cabinetry PRODUCT consumer demand and expand our market leadership continued to add positions. With well-known brands such as Delta®, one KraftMaid® to its extensive Cabinetry collections with of the strongest brands in North America’s plumbing new color options, industry, we continue to extend into complementary door styles and plumbing categories, targeting multiple price points decorative accents. and distribution channels in this industry. We also remained focused on new product introductions that differentiate us in the marketplace and, importantly, provide clear benefits to consumers. In 2013, Behr Process Corporation successfully introduced DECKOVER® solid color coating, which brings new life to old wood and concrete surfaces of decks, patios and porches. Our three nationally recognized cabinetry brands, KraftMaid®, Merillat® and QualityCabinets™, continued to add to their extensive collections with new color options, finishes, wood species, door styles, decorative accents and storage products. Merillat Cabinetry unveiled one of the largest product launches in the history of its Merillat Classic® line. This product launch coincided with its renewed brand identity, “We are America’s Cabinetmaker,” major process improvements and a reenergized focus on customers. Continued geographic expansion in our Decorative Architectural Products and Plumbing Products segments is also driving our growth. During 2013, Behr Process Corporation completed the rollout of its products to The Home Depot stores across Mexico, continued to build the foundation of its China business with dealers and expanded its retail relationships into Latin America. Hansgrohe, one of the leading global bathroom specialists, 2 2013 MASCO CORPORATION ANNUAL REPORT continued to grow its international footprint. With a strategy that relies on building relationships with established importers and retailers who understand local markets and offer operational stabil- ity, Hansgrohe now delivers products to more than 130 countries. As you can see, 2013 was a productive and successful year for us. I want to thank our employees around the world for their intense focus on the execution of our strategies. I would also like to take this opportunity to thank our former President and CEO, Timothy Wadhams, who retired from this position in mid-February of this year. We are grateful for his dedication, 37 years of service and the positive influence he had throughout our Company. During his tenure, he assembled a strong leadership team, developed critical strategic initiatives and built a solid foundation for Masco’s continued growth. Hansgrohe, one of the leading 2014 OUTLOOK global bathroom FEATURED PRODUCT The entire organization is focused on the deployment, specialists, now delivers products Axor® Starck acceleration and successful execution of our strategy. We to more than Organic look to enhance our ability to serve the customer through 130 countries. collection continuous improvement in all we do. We will continue to maximize the value of our well-known leading brands through customer-driven innovation, industry-leading service and a high-performance culture. As we continue to leverage our talent, best practices and scale across our businesses, we are excited about the opportunities our strong portfolio offers. I am optimistic about our future and confident in our abilities. I believe there are significant opportunities to leverage the momentum from 2013, gain share in our channels and drive profitable growth across all our operating segments in 2014. Our portfolio is well positioned, we believe, to maximize the benefits of the North American new construction and repair and remodeling rebound. We take pride in our heritage and our 85-year history and our dynamic team is focused and ready to take Masco into an even brighter future. Keith J. Allman PRESIDENT AND CHIEF EXECUTIVE OFFICER 3 2013 COMPANY PROFILE DECORATIVE ARCHITECTURAL PRODUCTS Net sales: $1.9 billion 23% of total net sales We are one of the largest suppliers of architectural paint and exterior wood care products to the United States and Canadian do-it-yourself channel. This segment also includes hardware for cabinets, doors, windows and other applications. FEATURED: DECKOVER® solid color coating CABINETS AND RELATED PRODUCTS Net sales: $1.0 billion 12% of total net sales We are one of the largest manufacturers of kitchen and bath cabinetry in the world. This segment includes assembled kitchen and bath cabinets, kitchen countertops, home office workstations, entertainment centers, storage products and kitchen utility products. FEATURED: Merillat Classic® Bayville™ collection OTHER SPECIALTY PRODUCTS Net sales: $0.7 billion 9% of total net sales We are one of the leading manufacturers of vinyl and fiberglass windows, principally in the western United States. This segment includes windows, window frame components and patio doors, both in the United States and United Kingdom. This segment also includes staple gun tackers, staplers and other fastening tools. FEATURED: Milgard® Essence® Series wood windows 4 2013 MASCO CORPORATION ANNUAL REPORT PLUMBING PRODUCTS Net sales: $3.2 billion 39% of total net sales We are a world leader in manufactured plumbing products, with access to broad distribution channels worldwide. Through our premier brands, we offer an array of products including faucets, plumbing fittings and valves, showerheads and hand showers, bathtubs and shower enclosures, and spas. FEATURED: Hot Spring® Spa Limelight® Collection ® ® ® Delta Trinsic faucet featuring Touch2O Technology FEATURED: Masco Contractor Services INSTALLATION AND OTHER SERVICES Net sales: $1.4 billion 17% of total net sales This segment includes the sale, installation and distribution of insulation,