building a dynamic future from a proud legacy · 2020. 3. 19. · alma küchen,the alvic group,the...

Masco CorporationBuilding a Dynamic Future...

from a Proud Legacy

T A B L E O F C O N T E N T SFinancial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Building on Strong Brands . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

A New Focus for the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Strategic Direction for the Future . . . . . . . . . . . . . . . . . . . . . . . . . .7Assessing Masco’s Recent Accomplishments and Challenges . . . . .7Masco’s Strategic Evolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8Masco’s Strategic Agenda . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Financial Highlights for 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

Forty-Seven Years of Sales Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24Corporate Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Division Operating Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .26Form 10-KInformation for Shareholders . . . . . . . . . . . . . . . . . . . . . .Inside Back Cover

F O R W A R D - L O O K I N G S T A T E M E N T SOur Annual Report to Shareholders contains statements reflecting our views about the Company’s future performance.These statements are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Actualresults may differ materially from the results discussed in such forward-looking statements. Readers should refer to thecomment at the beginning of “Management’s Discussion and Analysis of Financial Condition and Results of Operations”contained in our Annual Report on Form 10-K included herein, which explains that various factors may affect our pro-jected performance. The Company undertakes no obligation to update any forward-looking statements, whether as aresult of new information, future events or otherwise.

N O N - G A A P D I S C L O S U R EThe 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 com-parisons between current results and results in prior periods of ongoing operations. Non-GAAP performance measuresand ratios should be viewed in addition to, and not as an alternative for, the Company’s reported results under account-ing principles generally accepted in the United States. For a reconciliation of 2003 sales growth excluding acquisitionsand divestitures, please refer to page 18 of the Form 10-K included herein.

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

O N T H E C O V E RCelebrating its 50th anniversary this year, Delta Faucet continues to be a trend setter in the introduction ofinnovative faucets and coordinating accessories. Part of the Brizo™ branded Floriano Collection, theFloriano faucet is no exception, offering Delta’s first pull-down wand with an ergonomic toggle switch anda twist and lock mechanism to hold it in place. The unique bud vase is either interchangeable with asoap/lotion dispenser or can be displayed separately elsewhere in the home.

MASCO CORPORATION 1 2003 ANNUAL REPORT

03

Dollars in Millions Except Per Common Share Data

47-Year 5-YearGrowth Growth 2003

Rate Rate vs 2002 2003 2002 1998 1956Net Sales 16% 17% 20% $10,936 $9,149 $4,941 $ 11Operating Profit

1, 217% 12% 9% $ 1,424 $1,301 $ 822 $ 1

Income fromContinuing Operations1, 2, 3 17% 7% 29% $ 740 $ 572 $ 536 $ 0

Income from Continuing Operations as a % of:1, 2, 3

Net Sales 7% 6% 11% 4%Shareholders’ Equity

414% 14% 25% 9%

Shareholders’ Equity 16% 16% 3% $ 5,456 $5,294 $2,647 $ 5Per Common Share Data:

Income from Continuing Operations1, 2, 3 14% 5% 36% $ 1.51 $1.11 $1.20 $ 0.005/16

Cash Dividends Paid 16% 6% 6% $ 0.58 $0.541/2 $0.43 $ 0.001/16

Amounts, except for shareholders’ equity, have been restated to exclude the operations of businesses sold in 2003; 1998 and 1956 amounts have beenrestated for the 1999 poolings of interests, except for dividends.1 The year 2003 includes a non-cash goodwill impairment charge of $118 million after-tax ($142 million pre-tax) and income of $45 million after-

tax ($72 million pre-tax) related to the Behr litigation settlement.2 The year 2002 includes a $92 million after-tax ($147 million pre-tax), net charge for the Behr litigation settlement, including $19 million of pre-

tax income recorded for the reimbursement from liability insurers.3 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.4 Based on shareholders’ equity as of the beginning of the year.

Financial Highlights

2 0 0 3 F I NA N C I A L H I G H L I G H T S

’99

’00

’01

’02

’03 $10,936

$9,149

$6,839

$5,931

$8,015

Five Years of Sales Growth In Millions

Inside Mar29 QX4 R1 3/30/04 11:39 AM Page 1


’99

’00

’01

’02

’03 $3,058

$2,798

$2,536

$2,207

$2,567

Cabinets and Related Products

’99

’00

’01

’02

’03 $2,411

$1,845

$855

$532

$1,692

Installation and Other Services

’99

’00

’01

’02

’03 $2,645

$2,031

$1,828

$1,793

$1,742

Plumbing Products

C A B I N E T S A N DR E L A T E D P R O D U C T S

Masco is the largest U.S. manufacturer ofkitchen and bath cabinetry, offeringapproximately 300 styles in more than 20lines from our U.S. companies: KraftMaid,Merillat, Mill’s Pride, Texwood and Zenith.Our European cabinet companies includeAlma Küchen, The Alvic Group, The AranGroup, The GMU Group, The MooresGroup and Tvilum-Scanbirk.This segmentincludes assembled and ready-to-assemblekitchen and bath cabinets; entertainmentcenters; storage products; bookcases; andkitchen utility products.

P L U M B I N GP R O D U C T S

Masco is a world leader in the manufactureof plumbing products. This segmentincludes faucets; plumbing fittings andvalves; bathtubs and shower enclosures;and spas. Leading faucet brands includeBristan™, Damixa®, Delta®, Hansgrohe®,Mariani™, Newport Brass® and Peerless®.Leading plumbing specialty brandsinclude Alsons®, Aqua Glass®, BrassCraft®,Brasstech®, Gummers®, Hansgrohe®,Heritage™, Hot Spring®, NewTeam™ andPlumbShop®.

I N S T A L L A T I O N A N D O T H E R S E R V I C E S

Masco provides a variety of installationservices for home builders across the U.S.and in Canada. Included in this segmentare the sale and installation principally ofinsulation, fireplaces, cabinetry, gutters,bath accessories, garage doors, shelvingand windows. Under the Masco ContractorServices umbrella, this segment includesindustry leaders Cary Insulation,Davenport Insulation, Gale Industries andService Partners.

N E T S A L E S In MillionsAmounts have been restated to exclude the operations of businesses sold in 2003.

2 0 0 3 B U I L D I N G O N S T R O N G B R A N D S

20

Behr

Delta

The Aran Group Ginger, Newport Brass

Milgard



03

D E C O R A T I V EA R C H I T E C T U R A L P R O D U C T SThis segment includes paints and stains;and door, window and other hardware.Market leaders in paints and stains includeBehr Process Corporation andMasterchem Industries with top-sellingbrands Behr®, Behr Premium Plus®, Kilz®and Hammerite®. Leading hardwarebrands include Bath Unlimited®,Brainerd®, Franklin Brass®, Ginger® andLiberty® in the U.S. and Avocet™ inEurope. This segment also includes VaporTechnologies, which provides coatingstechnology and manufacturing processequipment for many Masco products.

O T H E R S P E C I A L T YP R O D U C T S

The Other Specialty Products segmentincludes windows, window frame compo-nents and patio doors; electronic locksets;staple guns and tackers, staples and otherfastening tools; hydronic radiators andheat convectors; venting and ventilationsystems; and pumps. Companies in thissegment include Arrow Fastener, Cobra,Computerized Security Systems, FaucetQueens and Milgard Manufacturing in theU.S., and The Brugman Group, CambrianWindows, Duraflex, Gebhardt, GriffinWindows, Jung Pumpen, PremierManufacturing, Superia Radiatoren andVasco in Europe.

’99

’00

’01

’02

’03 $1,522

$1,358

$1,060

$856

$1,229

Decorative Architectural Products

’99

’00

’01

’02

’03 $1,300

$1,117

$560

$543

$785

Other Specialty Products

Aqua Glass, Delta, Ginger, KraftMaid, Liberty

Hot Spring

American Shower and Bath

Arrow Fastener

Newport Brass

Delta

2 0 0 3 B U I L D I N G O N S T R O N G B R A N D S

N E T S A L E S In MillionsAmounts have been restated to exclude the operations of businesses sold in 2003.


A New Focusfor the Company

2 0 0 3 L E T T E R T O S H A R E H O L D E R S

RICHARD A. MANOOGIANChairman andChief Executive Off icer

ALAN H. BARRYPresident andChief Operating Off icer


20

For the six years from 1997 through 2002, Masco investedover $10 billion in acquisitions,* capital expenditures andnew product development to build the “critical mass” thatwe thought was important, given the business and macro-economic conditions that we believed would impact ourbusinesses (e.g., increased consolidation among our customerbase, including home centers and home builders; and theincreasing globalization of our markets).

AS WE CELEBRATE MASCO’S 75TH ANNIVERSARY, WE ARE AT AN EXCITING

TIME IN OUR COMPANY’S HISTORY FOR OUR SHAREHOLDERS, EMPLOYEES

AND CUSTOMERS.

* Includes poolings of interests.



In the spring of 2003, we made a majordecision to refocus our strategies to bet-ter utilize our assets in ways that webelieve should create more shareholdervalue.

These strategies will result in a greaterfocus on internal growth, and corre-spondingly fewer acquisitions, withincreased emphasis on cash flow,share buybacks and improving returnon invested capital.

This new focus contributed to ourCompany achieving record sales andearnings in 2003.

M A R C H 2 0 0 403

Dollars in Millions

Year Net Sales Operating Profit

2003 $10,936 $1,4242002 9,149 1,3012001 8,015 1,0422000 6,839 9391999 5,931 8671998 4,941 822

5-Year Growth Rate 17% 12%

Amounts have been restated to exclude the operations of businesses sold in 2003 andfor the 1999 poolings of interests.

NET SALES & OPERATING PROFIT

This major investment resulted in ourCompany more than doubling its salesfrom less than $4 billion to over $10 billion and earned Masco the dis-tinction of being one of the mostimportant suppliers serving the homeimprovement and building productsmarkets.

During this expansion period, we moved profitably into new leadershippositions such as architectural coatings,windows, installation services and othermarkets.

On the other hand, during these yearswe did not create adequate shareholdervalue, we increased debt as a percentageof total capitalization and we experi-enced a decline in return on investedcapital (ROIC).

Inside Mar29 QX4 R1 4/2/04 5:59 PM Page 5


2 0 0 3 L E T T E R T O S H A R E H O L D E R S20

Merillat

Delta




03

S T R A T E G I C D I R E C T I O N F O RT H E F U T U R E

The strategic goals that we haveembraced through Masco’s currentstrategic planning process are designedto help ensure that Masco will be a pre-ferred provider of products and servic-es within our chosen markets, and thatour Company will be an invaluablepartner and integral to the business ofour customers in our key product andservices markets.

A S S E S S I N G M A S C O ’ S R E C E N TA C C O M P L I S H M E N T S A N DC H A L L E N G E S

During the past decade, change hasbeen occurring within the homeimprovement and new constructionmarkets, producing both significantchallenges and opportunities:

• Customer consolidation of large retail-ers, home centers and home buildersaccelerated, enhancing their buying power;

• Foreign competition became a majorcompetitive threat as foreign producersfound it easier to penetrate the U.S.market by selling to a few large cus-tomers, while larger customers found iteasier to source directly from foreigncountries;

• New home construction and home reno-vation remained strong, even within awavering U.S. economy; and

• Americans, more than ever, chose toinvest in their homes.

To address both the challenges andopportunities in this dynamic environ-ment, we invested significantly to buildthe critical mass that we thought wasnecessary to strategically position theCompany for future success. Whileacquisitions contributed to our growthin sales, product development, marketsand distribution channels, increasingour importance to our customers, wehave experienced a decline in return oninvested capital due, in large part, tothat significant investment.

During this time, Masco’s growth alsoadded organizational and financialcomplexity to our Company. In addi-tion, we maintained our historic, decen-tralized operating model, thus not max-imizing opportunities for synergiesamong business units as we grew larger.We are now focused on leveraging thatcritical mass to drive greater sharehold-er value.

DURING THE PAST DECADE, CHANGE HAS BEEN OCCURRING WITHIN THE

HOME IMPROVEMENT AND NEW CONSTRUCTION MARKETS, PRODUCING BOTH

SIGNIFICANT CHALLENGES AND OPPORTUNITIES.



20

M A S C O ’ S S T R A T E G I CE V O L U T I O N

In order for Masco to address the chal-lenges that we face and continue togrow successfully, our strategies haveevolved in a number of important areas.

We are shifting our focus from many tofewer operating companies, from com-plexity to simplicity, from acquisitiongrowth to more active management ofour business unit portfolio to drivegreater organic growth, from divisionautonomy to synergy, and we havefocused more on improving ROIC byincreasing absolute profits with lessemphasis on profit margins.

Because of this assessment and as partof our strategic evolution, we have reor-ganized our businesses into five prod-uct and services platforms:

• Cabinets;

• Plumbing Products;

• Coatings (included in DecorativeArchitectural Products);

• Windows (included in Other SpecialtyProducts); and

• Installation Services.

As a result, we have already seen signif-icant improvements within each ofthese platforms.

Cabinets, for example, is now organizedinto two domestic sub-groups: retail andbuilder, each under the direction of agroup vice president. Through this andother consolidation efforts, we have lever-aged our strengths, simplified manufac-turing, reduced costs, and improved qual-ity and efficiency throughout our cabinetbusinesses.

In Plumbing Products, creating onecohesive domestic platform has enabledthe Company to reduce costs, improveworking capital management andenhance product development oppor-tunities. A recently launched andalready popular line of faucet productsis one example of our innovative newplumbing products.


Strategic EvolutionFrom T O

Many Operating Companies FEWER OPERATING COMPANIES

Complexity SIMPLICITY

Acquisition Growth ORGANIC GROWTH

Division Autonomy SYNERGY/COOPERATIVE ACTIVITIES

Focus on Profit Margins FOCUS ON ROIC

MASCO’S STRATEGIC AGENDA

Build Greater Shareholder Value



03


Masco Contractor Services

Milgard



20

In Coatings, we have literally reinventedthe paint-buying process through theintroduction of the in-store ColorSolutions Centers™, and we are nowone of North America’s largest architec-tural coatings companies.

In Windows, we continue to achieve sig-nificant growth through geographicexpansion and new products, includingan exciting new fiberglass patio doorprogram.

The Installation Services businesseshave increased sales and profitsthrough consolidating locations,improving supply-chain efficiency,expanding non-insulation productinstalled sales and building on our part-nerships with large builders to increasetheir total purchases of Masco productsand services. Masco’s services workforceis now helping to build more than half of all new homes being constructed inthe U.S.


Dollars in Millions2003 PercentSales of Total

Cabinets and Related Products $ 2,884 26%Installation and Other Services 2,411 22%Plumbing Products 2,140 20%Decorative Architectural Products 1,422 13%Other Specialty Products 1,028 9%

Leadership Sales $ 9,885 90%Other Sales 1,051 10%

Total Sales $10,936 100%

LEADERSHIP PRODUCTS & SERVICES*

M A S C O ’ S S T R A T E G I C A G E N D A

In addition to reorganizing ourCompany around the five product andservices platforms, we are increasingour focus on:

• Managing our business portfolio of lead-ership companies to improve overall prof-itability and return on invested capital;

• Enhancing our internal growth rate;

• Reducing our rate of sales growth fromacquisitions;

• Maximizing opportunities for potentialsynergies among our business units;

• Continuing to provide leadership devel-opment programs for high-potentialpeople throughout the organization; and

• Anticipating and responding to strategicchallenges affecting Masco’s futuregrowth.

Portfolio Management: We are manag-ing our business portfolio of leadership

* We estimate that approximately 90 percent of our sales are from productsand services that represent leadership positions in their market segments.


03



Alsons

Alsons, Ginger, Mirolin


Two examples of existing programs thatoffer our customers improved efficien-cy, better service and cost savings areour Key Retailer and Builder Allianceprograms.

In 2003, the Key Retailer Program,which offers customized programs thatalign with the diverse goals of this cus-tomer group, helped us achieve recordKey Retailer sales of $3.4 billion, com-pared with $3.1 billion in 2002.

The Masco Builder Alliance Programhas helped us achieve sales of Mascoproducts and services approximating$3,000, on average, for each new single-family home built in the U.S. In 2003,under this Program we launched agree-ments with a number of key nationalbuilders to make us their primaryinstaller of insulation and selected otherbuilding products.

External Growth: Our acquisition pro-gram has been refocused to target thosecompanies that:

• Meet our criteria for return on assetswith operating margins of at least 15 percent of sales; and

• Have dynamic growth potential;and/or

• Have the potential for significant syn-ergies with our existing companies; or

• Are “bolt-on” acquisitions for one ofour existing companies.


20

companies to improve overall profitabil-ity and return on invested capital by:

• Retaining those companies that com-plement our business strategy; and

• Consolidating existing companieswhere appropriate.

In 2003, the Company divested threedivisions: Baldwin Hardware, Marveland Weiser Lock. These companies hadcombined 2003 annualized net sales ofapproximately $250 million. In addi-tion, Masco divested its 42 percent equity interest in Emco Limited.

In early 2004, we announced theplanned divestiture of several Europeandivisions with 2003 net sales in excessof $350 million. We have also identifiedfive of our operating companies for con-solidation with other Masco businessunits and, as a direct result, we anticipateconsiderable annual cost savings.

Internal Growth: We are increasing ourfocus on strengthening our rate oforganic (internal) growth, including thefollowing areas:

• New product development;

• Product line extensions;

• New models or finishes;

• Aggressive marketing and merchan-dising programs; and

• Customer incentive programs tostrengthen our partnerships with val-ued builder and retailer customers.




03

Historically, our goal has been to grow sales at an average annual rate offive to 10 percent through acquisitions.Generally, in recent years our averagehas been at the upper end of that range.Going forward, we expect that our refo-cused strategy will result in acquisitionsat a slower rate with a more positiveimpact on our financial performance, par-ticularly on our return on invested capital.

Leveraging Synergies: Masco’s operat-ing model brings a renewed focus toleveraging efficiencies and other syner-gies across business units by:

• Reducing costs through overheadconsolidation, inter-company sourc-ing and shared manufacturing technologies;

• Forming worldwide steering commit-tees to leverage the size and capa-bilities of our cabinet, plumbing,


’94

’95

’96

’97

’98

’99

’00

’01

’02

’03

Key Retailer Sales In Millions

$1,000 $2,000 $3,000

installation services and windowsplatforms; and

• Enhancing the exchange of bestpractices.

Examples of leveraging initiativesalready underway include:

• Moving the manufacturing of ourPremier® assembled cabinetry linefrom Mill’s Pride to KraftMaid totake advantage of manufacturing efficiencies;

• Significantly increasing inter-companysourcing within Masco; and

• Opening a new Masco inter-companysourcing and distribution center inChina that draws on and coordinatesthe expertise and capabilities of allMasco companies in China.

Leadership Development:To effectivelyexecute Masco’s strategies going for-ward, we are developing future genera-tions of leaders by continuing to recruit,train, motivate and retain high-potentialcandidates to manage the Company.

Programs designed to enhance leader-ship development include an in-houseM.B.A. Program conducted for theCompany by an accredited universityexclusively for Masco candidates. Otherinternal leadership development pro-grams are also tailored to meet specificCompany objectives. To date, 165 peoplehave graduated from these programsand 96 employees are currently enrolled.



20


Liberty

well as business relationships withliterally dozens of Chinese compa-nies, we have an established base ofoperations from which to expand.

• Growing profitability with largeretailers: As our major retailer cus-tomers evolve to meet ever-higherconsumer expectations, we mustrespond with the products and serv-ices that meet their needs.

• Using Masco Contractor Services asan added driver for organic growth:Today, this services segment is com-posed of more than 330 branchoffices, over 50 distribution centers,approximately 9,000 service vehiclesand over 15,000 Masco employees,giving the Company a unique com-petitive advantage. We are leveragingthat capability to sell and install abroader array of products, includingMasco-manufactured products, therebyincreasing our importance to ourlarge builder customers.

If we are successful in executing thestrategies outlined in this Letter,we believe that we will continue toachieve above-average sales and earn-ings growth and improve our return oninvested capital from approximately 11 percent in 2003 to our goal of 15 percent by 2008, thereby creatingsignificant value for our shareholders.

We have also more closely aligned thecompensation of Masco executives withCompany performance. Approximatelytwo-thirds of the potential annualearned compensation for our seniorexecutives is performance-based andreflects Masco’s increased focus onreturn on invested capital and growthin earnings per common share.

Strategic Initiatives: Masco’s futuresales and profitability growth will beenhanced by anticipating, identifyingand addressing strategic opportunities,such as:

• Taking advantage of extraordinaryopportunities in China: While manyof our businesses are not subject toimport competition, we are posi-tioned to capitalize on opportunitiesin China for both sourcing from andselling products within China. Withover 1,000 Masco employees and645,000 square feet of manufacturingand distribution space in China as


03



Behr

Masco Contractor Services, Milgard



20


Delta, KraftMaid

The Moores Group



03


Corporate GovernanceDuring 2003, we also took steps toenhance our corporate governance,including:

• Adding two new independent direc-tors, increasing the number of independent directors from five toseven. All members of the AuditCommittee, Organization and Com-pensation Committee and CorporateGovernance and Nominating Com-mittee are independent;

• Adding share ownership guidelinesfor directors to those already in effectfor officers;

• Adopting New York Stock Exchangegovernance standards for committeecharters, board guidelines and codesof conduct and business ethics wellin advance of the required date foradoption of such standards; and

• Installing a toll-free employee ethicshotline and complementing ourexisting legal compliance training forour employees with the introductionof a comprehensive Internet-basedethical and legal compliance trainingprogram.


Income from continuing operations forthe year was $740 million or $1.51 percommon share.This includes the recog-nition of a non-cash, pre-tax goodwillimpairment charge of $142 million($118 million or $.24 per commonshare, after-tax), the majority of whichrelates to European businesses that theCompany plans to divest. Excluding theimpact of the goodwill impairmentcharge, income from continuing opera-tions was $1.75 per common share.

C A S H F L O W A N D L I Q U I D I T Y

Cash Flow

In 2003, the Company achieved recordfree cash flow (cash from operationsless capital expenditures and beforecash dividends) of $1,150 million, com-pared with $940 million in 2002.

This free cash flow included the benefitof a reduction in working capital(defined as accounts receivable andinventories less accounts payable).Working capital at year-end 2003 wasreduced to 18.1 percent of sales, com-pared with 21.9 percent at year-end 2002.


20


Net sales from continuing operations,aided by acquisitions, were a record$10.9 billion in 2003, a 20 percentincrease over the $9.1 billion that weachieved in 2002. Excluding acquisi-tions and divestitures, net salesincreased nine percent over the prioryear.

Net sales from our North Americanoperations, accounting for approxi-mately 80 percent of the Company’ssales, increased 14 percent to $8.8 bil-lion in 2003 from $7.7 billion in 2002.

Aided by acquisitions, net sales fromInternational operations, principally inEurope and benefiting from strongEuropean currencies, increased 49 per-cent to $2.2 billion in 2003 from $1.5billion in 2002.

Operating profit margins were 13.0 per-cent in 2003, compared with 14.2 per-cent in 2002. Margins in 2003 includethe effect of increased energy, insuranceand pension costs; higher promotionand display expense to gain additionalmarket share; the impact of foreign cur-rency changes; and product mix.

Financial Highlightsfor 2003



03

Capital Expenditures

Capital expenditures for the year were$271 million, compared with $285 mil-lion for 2002. Depreciation and amorti-zation for 2003 was $244 million,compared with $220 million for 2002.

Liquidity

The Company ended 2003 in a strongfinancial position with cash and mar-ketable securities in excess of $1.3 bil-lion, even after retiring approximately$430 million of our outstanding debtand using approximately $780 millionto repurchase common shares. Mascoalso has unused bank credit lines of $2 billion.

At year-end, the Company’s total debtas a percent of total capitalizationimproved to 43 percent, compared with47 percent at the end of 2002.

S H A R E R E P U R C H A S E S

The Company repurchased and retiredapproximately 35 million commonshares in 2003. During the first twomonths of 2004, an additional 10 mil-lion common shares have been repur-chased by the Company. There wereapproximately 478 million diluted com-mon shares at the beginning of 2004.


Delta, KraftMaid

D I V I D E N D I N C R E A S E

The quarterly cash dividend wasincreased 14 percent to $.16 from $.14per common share, making 2003 the45th consecutive year in which divi-dends have been increased. Thisincrease, which was larger than inrecent years, reflects our favorable long-term outlook, strong balance sheet and cash flow as well as recent U.S. tax law changes, which reduced the divi-dend tax rate for individuals.


we believe that we will again achieverecord sales and earnings from contin-uing operations for the full-year 2004.

We are also very proud of and gratefulto our employees whose proven com-mitment, capabilities and initiative con-tinue to play a tremendous role inMasco’s success.

Richard A. ManoogianChairman and Chief Executive Officer

Alan H. BarryPresident and Chief Operating Officer


20


We are excited and energized by ournew strategic focus and believe that itwill have a dramatic effect on our futureperformance. Going forward, our morebalanced growth strategy and increasedemphasis on organic growth, cash flowand return on invested capital shouldresult in increased returns for ourshareholders.

We take great pride in our heritage andour 75-year history, but our focus is onthe future. We are committed to achiev-ing our objectives, and we believe thatour refocused strategic direction pro-vides us with unique competitiveadvantages. More importantly, we arecreating a strategic framework that will facilitate the refinement of our strategies to enhance our competi-tiveness as we face the challenges oftomorrow.

The changes that we have made arehaving a favorable impact on Companyperformance in early 2004. During thefirst few months of the year, we experi-enced strong growth in our businessesand, if present business trends continue,

Outlook

Aqua Glass, Delta, Ginger


03

2 0 0 3 G R OW T H H I G H L I G H T S

’03’93’88’83 ’98’73’68’63 ’78

FORTY-SEVEN YEARS OF SALES GROWTH

$11,000

$10,000

$ 9,000

$ 8,000

$ 7,000

$ 6,000

$ 5,000

$ 4,000

$ 3,000

$ 2,000

$ 1,000

In Millions



Masco at 75


1929 Alex Manoogian organizes Masco Screw Products Company in Detroit,Michigan, machining parts for the automotive industry.

1936 Masco becomes a public company and is listed on the Detroit StockExchange.

1942 Masco’s annual sales exceed $1 million.

1952 Masco acquires rights to a single-handle washerless faucet and AlexManoogian begins redesigning the product.

1954 Masco begins production and marketing of the Delta single-handle faucet.

1958 Delta Faucet annual sales exceed $1 million.

1961 Masco Screw Products Company changes its name to Masco Corporation.

1969 Masco Corporation is listed on the New York Stock Exchange.

1975 Masco joins the Fortune 500 list of the largest U.S. corporations.

1983 Masco’s annual sales exceed $1 billion.

1985 Masco enters the cabinet manufacturing business.

1995 Masco enters the services business.

1999 Masco enters the architectural coatings business. Masco’s annual salesexceed $5 billion.

2001 Masco enters the windows business. Masco’s operating profit exceeds $1 billion.

2003 Masco increases its quarterly dividend for the 45th consecutive year.Masco’s annual sales exceed $10 billion.

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MASCO COMMON SHAREMARKET PRICE—P/E RATIO

Price/Market Earnings EarningsPrice Per Common Ratio

Year High Low Share1 High Low

2003 $28.44 $16.59 $1.51 19 – 112002 29.43 17.25 1.11 27 – 162001 26.94 17.76 0.43 63 – 412000 27.00 14.50 1.29 21 – 111999 33.69 22.50 1.21 28 – 19

Five-Year Average 32 – 201 Amounts are calculated using income from continuing operations and have been

restated to exclude the operations of businesses sold in 2003.

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2 0 0 3 F I NA N C I A L R E V I E W


SELECTED FINANCIAL DATA (CONSOLIDATED)Dollars In Millions Except Per Common Share Data

2003 2002 2001 2000 1999

Net sales1 $10,936 $ 9,149 $8,015 $6,839 $5,931Operating profit 1, 2, 3, 4 ,7 $ 1,424 $ 1,301 $1,042 $ 939 $ 867Income from continuing operations1, 2, 3, 5, 6, 7 $ 740 $ 572 $ 203 $ 581 $ 541Per share of common stock:

Income from continuing operations1, 2, 3, 5, 6, 7:Basic $1.54 $1.18 $0.44 $1.32 $1.24 Diluted $1.51 $1.11 $0.43 $1.29 $1.21

Dividends declared $0.60 $0.55 $0.53 $0.50 $0.46Dividends paid $0.58 $0.541/2 $0.521/2 $0.49 $0.45

Income from continuing operations as a % of 1, 2, 3, 5, 6, 7:Net sales 7% 6% 3% 8% 9%Shareholders’ equity8 14% 14% 6% 19% 20%

At December 31:Total assets $12,149 $12,050 $9,021 $7,604 $6,517Long-term debt $ 3,848 $ 4,316 $3,628 $3,018 $2,431Shareholders’ equity $ 5,456 $ 5,294 $3,958 $3,286 $3,019Book value per common share $ 11.90 $ 10.83 $ 8.62 $ 7.39 $ 6.81

1 Amounts have been restated to exclude the operations of businesses sold in 2003.2 The year 2003 includes a non-cash goodwill impairment charge of $118 million after-tax ($142 million pre-tax) and income of $45 million after-tax ($72 million pre-tax)

related to the Behr litigation settlement.3 The year 2002 includes a $92 million after-tax ($147 million pre-tax), net charge for the Behr litigation settlement, including $19 million of pre-tax income recorded for

reimbursements from liability insurers.4 Operating profit for 1999-2001 includes goodwill amortization as follows: 2001 – $93 million, 2000 – $66 million and 1999 – $45 million.5 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 prin-

ciple.6 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.7 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.8 Based on shareholders' equity as of the beginning of the year.

OPERATING PROFIT AS A PERCENT OF NET SALES1

2003 2002 2001 2000 1999

As reported 13.0% 14.2% 13.0% 13.7% 14.6%Before general corporate expense2, 4 14.0% 15.3% 14.2% 15.2% 16.2%Before goodwill amortization and

general corporate expense2, 3, 4 14.7% 16.9% 15.4% 16.1% 16.9%

1 Amounts have been restated to exclude the operations of businesses sold in 2003.2 General corporate expense is reported in Note P to the Consolidated

Financial Statements contained in our Annual Report on Form 10-K included herein.3 The year 2003 excludes the $142 million pre-tax goodwill impairment charge and

$72 million pre-tax income related to the litigation settlement.The year 2002 excludes the $147 million pre-tax net charge for the litigation settlement.

4 These non-GAAP measures provide additional information regarding the results of ongoing operations.These measures may not be comparable to similarly titled measures reported by other companies and should not be considered as an alternative or superior to amounts reported under accounting principles generally accepted in the United States.



WILLIAM T. ANDERSONVice President–ControllerEuropean Operations

RONALD W. AYERSGroup President

ALAN H. BARRYPresident andChief Operating Officer

DR. LILLIAN BAUDERVice President–CorporateAffairs

KLAUS BOCHVice President–Europe

J. MICHAEL CAMPBELLGroup President

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 FRANDSENGroup President–Europe

EUGENE A. GARGARO, JR.Vice President and Secretary

TED GOOLDGroup Vice President

ROLAND GRASSBERGERGroup Vice President

CLAY H. KIEFABERGroup Vice President

ALAN J. KRAUSSSenior Group 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

ROBERT B. ROSOWSKIVice President and Treasurer

R. HAMILTON SCHIRMERVice President

BARRY J. SILVERMANVice President–Associate General Counsel

JOHN G. SZNEWAJSVice President–BusinessDevelopment

DAVID W. VAN HISEVice President–International

THOMAS VOSSExecutive VicePresident–Europe

TIMOTHY WADHAMSSenior Vice President and Chief Financial Officer

ALFONS WALDERGroup Vice President

JOHN C. WILLSGroup President

D I R E C T O R STHOMAS G. DENOMME 1, 3

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. ISTOCK 1, 2, 4

Retired Chairman/PresidentBank One CorporationDirector since 1997

DAVID L. JOHNSTON 4

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

J. MICHAEL LOSH 1

Retired Executive Vice President and Chief Financial OfficerGeneral Motors CorporationDirector since 2003

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

RICHARD A. MANOOGIAN 3

Chairman of the Board and Chief Executive OfficerMasco CorporationDirector since 1964

MARY ANN VAN LOKEREN 2

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

C O R P O R A T E O F F I C E R S A N D O P E R A T I N G E X E C U T I V E S

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D I V I S I O N O P E R A T I N G E X E C U T I V E S

Allan Abrams

Vasken Altounian

Ole Lund Andersen

Antonio Arangiaro

A. James Aruffo

Robert Ball

Nicholas Billig

Thomas Breuer

Frank Busam

Roger A. Carlson

Joseph H. Carrington

Rob Carter

Brandon Cook

Herbert Dieterle

Claus Eberling

Andoni Eizmendi

Jeffrey D. Filley

Ronald J. Foy

Esmerelda Goncalves

Scott Gordon

Klaus Grohe

Steven M. Hammock

Larry B. Higgins

David B. Humenik

Joaquin Alberro Irizar

Eckhard Keill

Stanley G. Korte

Dieter E. Krist

Bob C. Ladd

Steve Lee

Saul Levitt

Nicholas Matten

Jim McCarthy

Nicholas McGrellis

Reinhard Metzger

Gary E. Milgard

Bernd Möhner

Mark Moore

Peter Morgan

Chris Morris

Jan Nuyts

Michael Perpeet

Chris Phillips

Luciano Pianezzola

Dominic Primucci

Steven P. Raia

Javier Rosales

Peter Schabos

Bastian Schaefer

William F. Schmidt

Helmut Schweitzer

Ronald D. Smith

James J. Sweeney, Jr.

Todd Talbot

Gareth Thomas

Jerry Volas

Donald K. Woody

Chris Yankowich

R E S P O N S I B I L I T Y F O R F I N A N C I A L S T A T E M E N T SManagement 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 auditors states their opinion on the Company’s con-solidated financial statements, based on audits conducted in accordance with auditing standardsgenerally accepted in the United States of America.

The Audit Committee of the Board of Directors meets periodically with both management and theindependent auditors to provide oversight with respect to the Company’s financial reporting processand system of internal controls.

2 0 0 3 D I V I S I O N O P E R AT I N G L E A D E R S H I P


C O M P A N Y P R O F I L EMasco Corporation is one of the world’s largest manufac-turers of brand-name consumer products for the homeand family. Masco Corporation is also a leading providerof services that include the sale and installation of insula-tion and other building 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, electronic locksets and other hardware, airtreatment products, ventilating equipment and pumps.

The Company has approximately 6,500 shareholders ofrecord and 61,000 employees. Masco’s principal manufac-turing facilities are located throughout the United States;International operations are primarily located in Europe,particularly Belgium, Denmark, Germany, Holland, Italy,Spain and the United Kingdom.

E X E C U T I V E O F F I C E SCorporate HeadquartersMasco Corporation21001 Van Born RoadTaylor, MI 48180Phone: 313-274-7400Fax: 313-792-6135

I N D E P E N D E N T A U D I T O R SPricewaterhouseCoopers LLP400 Renaissance CenterDetroit, MI 48243

S T O C K E X C H A N G E I N F O R M A T I O NMasco Corporation common stock is traded on the NewYork Stock Exchange with the symbol MAS.

T R A N S F E R A G E N T , R E G I S T R A R A N DD I V I D E N D D I S B U R S I N G A G E N TThe Bank of New YorkShareholder Relations DepartmentP.O. Box 11258Church Street StationNew York, NY 10286

S H A R E H O L D E R I N Q U I R I E S C A N B EA N S W E R E D B Y C O N T A C T I N G :The Bank of New YorkPhone: 800-524-4458E-Mail Address: [email protected]

Send certificates for transfer and address changes to:

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

Send all other shareholder inquiries, including thoseregarding lost, stolen or destroyed stock certificates to:

The Bank of New YorkShareholder Relations DepartmentP.O. Box 11258Church Street StationNew York, NY 10286

Answers to many of your shareholder questions andrequests for forms are available by visiting The Bank ofNew York’s website at www.stockbny.com.

D U P L I C A T E M A I L I N G SShares owned by one person, but held in different formsof the same name (e.g., John Smith, John B. Smith, J.B.Smith), may result in duplicate mailings of shareholderinformation at added expense to the Company.

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

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

D I V I D E N D R E I N V E S T M E N T P L A NMasco Corporation has appointed The Bank of New Yorkto serve as agent for our Dividend Reinvestment Plan. Allenrollments, terminations, sales, requests for certificatesand optional cash payments regarding the Plan should besent to:

The Bank of New YorkDividend Reinvestment DepartmentP.O. Box 1958Newark, NJ 07101-9774

I N T E R N E TCurrent information on Masco Corporation can befound by visiting our home page on the Internet atwww.masco.com.

I N V E S T O R R E L A T I O N S C O N T A C TAdditional information about the Company is available without charge to shareholders who direct a request to:

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

A N N U A L M E E T I N G O F S H A R E H O L D E R SThe 2004 Annual Meeting of Shareholders of MascoCorporation will be held at the offices of the Company onMay 11, 2004 at 10:00 A.M. local time.

2003 I N F O R M AT I O N F O R S H A R E H O L D E R S

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