masco annual report 2006

BUILDING SOLUTIONS FOR THE FUTURE

2006 ANNUAL REPORT50 YEARS OF SALES GROWTH

TABLE OF CONTENTS

Financial Highlights .....................1Letter to Shareholders ....................2Masco at a Glance ......................4Building Solutions for the Future ............6Building Financial Solutions:

Shareholder Returns ..................8Financial Review ....................8

Corporate Responsibility and Governance .....11Corporate Leadership ...................14Certifications .........................15Performance Graph .....................16Form 10-KInformation for Shareholders ...Inside Back Cover

ON THE COVER

Building Solutions is a Masco strategy based on aunique value proposition that is end-user driven andfocuses on continual differentiation driven by under-standing our customers and market opportunities.The five building blocks on the cover represent ourbusiness segments. Through innovation and dedica-tion to excellence in people, products, service andpartnering relationships, we are “Building Solutionsfor the Future.”

Forward-looking StatementsOur 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. Actual re-sults may differ materially from the results discussed in such forward-looking statements. For an explanation of variousfactors that may affect our performance, readers should refer to the “Risk Factors” section of our Annual Report onForm 10-K included herein, as well as the comment at the beginning of “Management’s Discussion and Analysis of Fi-nancial Condition and Results of Operations” in that Report. The Company undertakes no obligation to update any for-ward-looking statements, whether as a result of new information, future events 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 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.

Masco Corporation 2006 Annual Report | 1

Dollars In Millions, Except Per Common Share Data

50-Year 5-Year 2006Growth Growth vsRate Rate 2005 2006 2005 2001 1956

Net Sales 15% 11% 2% $12,778 $12,569 $7,487 $ 11

Operating Profit 1,2 15% 3% -28% $ 1,126 $ 1,567 $ 983 $ 1

Income from Continuing Operations 1,2,3 15% 23% -47% $ 461 $ 866 $ 166 $ 0

Income from Continuing Operationsas a % of Net Sales 1,2,3 4% 7% 2% 4%

Per Common Share Data:

Income from ContinuingOperations 1,2,3 13% 27% -43% $ 1.15 $ 2.01 $ 0.35 $0.005/16

Cash Dividends Paid 16% 10% 10% $ 0.86 $ 0.78 $ 0.521/2$0.001/16

Amounts exclude discontinued operations.

1 The year 2006 included non-cash impairment charges for goodwill aggregating $331 million after tax ($331 million pre-tax) andincome regarding litigation settlement of $1 million after tax ($1 million pre-tax).

2 The year 2005 included non-cash impairment charges for goodwill aggregating $69 million after tax ($69 million pre-tax) andincome regarding litigation settlement of $4 million after tax ($6 million pre-tax).

3 The years 2006, 2005 and 2001 included non-cash impairment charges for financial investments aggregating $66 million after tax($101 million pre-tax), $29 million after tax ($45 million pre-tax) and $344 million after tax ($530 million pre-tax), respectively.

Financial Highlights

CELEBRATING 50 YEARS OF SALES GROWTH

’56 ’06

50 YEARS OF SALES GROWTH

2 | Building Solutions 50 Years of Sales Growth

TO OUR SHAREHOLDERS:While Masco’s sales were up six percent in thefirst half of 2006, the second half of the yearbrought some of the most challenging economicconditions in our history, resulting in full-yearnet sales from continuing operations being uponly two percent. During 2006, a year definedby lagging consumer confidence and commodityvolatility, housing starts were down approxi-mately 13 percent, with most of the declinecoming in the second half of the year. In fact,the housing starts run rate in late 2006 was over20 percent below the comparable period in 2005.In addition, consumers increasingly decidedto cancel or defer home buying and majorremodeling projects.

We faced the challenges of 2006 head-on. Ourstrategy of simplifying and refining our portfolioof companies remained consistent. We main-tained our focus on strategic growth, reducedoperating costs, continued to divest non-strate-gic businesses and simplified our organizationalstructure. Over the past three years, we havereduced the number of our operating units,through consolidations and divestitures, from 67businesses in 2003 to 31 businesses currently.

We are proud that 2006 marked a milestone of 50years of sales growth for Masco; our quarterlydividend was raised for the 48th consecutive year;and, we maintained a strong balance sheet withgood liquidity. The Company returned $1.2 billionto shareholders through common share repur-chases (29 million shares) and dividends. Eventhough we achieved relatively high cash flow in2006, we were disappointed that our earnings forthe year did not meet our expectations.

We are in the midst of a dynamic and challeng-ing economic environment and expect 2007 tobe even more difficult than 2006. While someeconomists believe that the new housing marketis stabilizing and the downturn is nearing thebottom, others are less optimistic. Given recentbusiness trends and excess inventories of unsoldexisting and new homes, we expect furtherdeclines during 2007 in total housing activity.

In 2007 we will continue to take tough andstrategic actions. Consistent with our overallgrowth strategy, we will continue to manage thebusiness for difficult short-term economic timesby pursuing a variety of initiatives to offset costincreases and improve operating profit in thefuture. We will cut capital expenditures, and, bythe end of the first quarter of 2007, we will havelowered our Company-wide headcount by 8,000employees (16 percent of our U.S. workforce).Throughout the Company, we are restructuringto reduce costs and improve efficiencies in thesupply chain and, at the same time, we areinvesting in systems and manufacturing capabil-ities for the future.

While the low point in housing starts may notbe realized until sometime later in 2007 or 2008,we still believe that the long-term fundamentalsof the industry are sound. In addition, our keyretail customers continue to grow and expandinto new markets. To meet future expected de-mand for our products, we are bringing newmanufacturing facilities on line to better serveour customers. We are increasing global sourcingand improving synergies among our businesssegments. We continue to attract and retain highly-talented people who are able to apply theirbusiness knowledge within a highly competitiveglobal industry. Masco will continue to invest intalent, training, innovation and systems to ensurethat the Company’s foundation remains strong.

We consider 2007 as a transitional year andexpect to resume our growth in 2008. While busi-ness trends will likely result in lower sales andearnings for 2007, we continue to believe that wewill achieve our longer-term goal of creatingshareholder value and improving our return oninvested capital to approximately 18 percent by2010. Although the current challenges facing theresidential building and remodeling markets arenumerous and complex, Masco is operatingfrom a position of strength on many fronts, andwe remain focused on building solutions for thefuture—for our customers, our shareholders andthe Company.


MARCH 2007


Masco has the scale, size and expertise tocustomize our retail service approach to uniquelyalign with our large and growing strategic cus-tomers. We serve international markets from 18different countries. Our dedicated retail servicecompanies support our major home improve-ment customers in the U.S. and Europe. Morethan 1,000 Masco associates provide training andsales support for Big Box retailers, as well askitchen and bath dealers. Additionally, Masco hasthe ability, through Masco Contractor Services(MCS), to go the last mile to almost any job site forour homebuilder customers across the country.

The extensive capabilities of MCS further differ-entiate us and provide a significant growthopportunity. MCS has relationships with 90 of thetop 100 U.S. homebuilders. We source, distributeand install more than 20 different product cate-gories and install products in approximately one-half of all new homes built in the U.S. Currently,for each home in which we do work, MCS realizesaverage revenue of approximately $3,000 sellingand installing insulation, cabinets, fireplaces, paint,windows, gutters, decorative hardware and otherbuilding products. In the future, MCS has thepotential to grow that average per home revenuesignificantly. For example, we believe that averageper home revenue could grow to approximately$20,000 if each new home were to include all ofour current core products and services, includingpaint and windows.

In addition to strategic alliances with retailersand homebuilders, Masco is focused on givingthe consumer more choices in styles and pricepoints. Providing great selections and great

products result in consumers choosing Mascobrands. We believe that the majority of all newhomes built in the U.S. contain Masco productsand services and that more than 90 percent ofour sales are from products and services enjoy-ing a leadership position in their respectivemarkets. Our brands give consumers the designs,choices and quality they want when makingimportant purchases that they may make onlyonce in a decade, or even once in a lifetime.

The key to our future success is the strength ofour more than 57,000 employees worldwide.We have the capability to manage the businessfor difficult short-term economic times and arepursuing a variety of initiatives to offset costincreases and improve operating profit in thefuture. We remain committed to organic growth,cash flow generation, improving return on in-vested capital and generating significant returnsfor our shareholders. While Masco’s culture hasevolved, the founding principles that value indi-vidual initiative, innovative management, entre-preneurism and excellence remain unchanged.We believe that by the end of 2007, we will bean even stronger Company than we are today.

Richard A. ManoogianChairman of the Board andChief Executive Officer

Alan H. BarryPresident and Chief Operating Officer

RICHARD A. MANOOGIANChairman of the Board and

Chief Executive Officer

ALAN H. BARRYPresident and

Chief Operating Officer

CABINETS ANDRELATED PRODUCTSThe Cabinets and Related Prod-ucts segment includes assem-bled and ready-to-assemblekitchen and bath cabinets; homeoffice workstations; entertain-ment centers; storage products;bookcases; and kitchen utilityproducts. The Company be-lieves that it is the largest U.S.manufacturer of kitchen andbath cabinetry, offering approxi-mately 300 styles in more than20 product lines.

PLUMBINGPRODUCTSThe Plumbing Productssegment includes faucets;plumbing fittings and valves;showerheads and hand show-ers; bathtubs and showerenclosures; and spas. TheCompany believes that it is aworld leader in the manufac-ture of plumbing products.

MASCO AT A GLANCE

’02 ’03 ’04 ’05 ’06 ’02$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

5-Year Growth Rate 8%Amounts exclude discontinued operations.

5

$3,286

5

’02 ’03 ’04 ’05 ’06

5


$

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500 $3,296

$

Newport Brass faucet, Delta faucet, Merillat cabinetry Hansgrohe handheld shower &plumbing fixtures

Delta faucet

INSTALLATION ANDOTHER SERVICESThe Installation and OtherServices segment includes thesale, installation and distribu-tion of insulation, as well ascabinetry, fireplaces, gutters,garage doors, bath accessories,windows, paint and otherbuilding products. Masco isone of the largest providers ofa variety of installed productsfor homebuilders across NorthAmerica.

DECORATIVEARCHITECTURAL PRODUCTSThe Decorative ArchitecturalProducts segment principallyincludes paints and stains; anddoor, window and otherdecorative hardware.

OTHER SPECIALTYPRODUCTSThe Other Specialty Productssegment includes windows,window frame componentsand patio doors; staple guntackers, staples and otherfastening tools; and hydronicradiators and heat convectors.

’02 ’03 ’04 ’05 ’06’$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

5-Year Growth Rate 13%A

$3,158

’02 ’03 ’04 ’05 ’06

’


$0

$500

$1,000

$1,500

$2,000$1,777

$

’02 ’03 ’04 ’05 ’06’5-Year Growth Rate 16%

Amounts exclude discontinued operations.

$1,261

$0

$300

$600

$900

$1,200

$1,500

$

KraftMaid cabinetry, Masco Contractor Services Ginger lighting Milgard windows


insulation, cabinets, fireplaces, paint, windows,gutters, decorative hardware and otherbuilding products. In the future, MCS has thepotential to grow that per home average rev-enue significantly. For example, we believe thataverage per home revenue could grow toapproximately $20,000 if each new home wereto include all of our current core products andservices, including paint and windows.

• For our new home construction customers,MCS provides solutions through the Build-LogixSM program, a value-integration processthat focuses on the sequencing of productsand processes in the build cycle to reducesupply-chain waste and inefficiency. This pro-gram reduces builder cycle times, helps im-prove builder customer satisfaction andincreases Masco’s involvement in variousstages of the construction process.

• Masco Contractor Services and General Electric(GE) are working together to integrate GE’secomagination® program and the EnvironmentsFor Living® program, sponsored by MCS, intoa new program that helps homebuilders anddevelopers construct state-of-the-art energyefficient and environmentally- friendly homes.The program combines GE’s high-performanceproducts and MCS’ advanced principles ofapplied Building Science into an upgradepackage for builders to offer to homebuyers.

• Delta Faucet’s water-efficient showerheadwith H2OKinetic Technology® uses only 1.6 gal-lons of water per minute, yet still deliverssuperb performance. Most low-flow shower-heads create very small water droplets oraerate the water, resulting in water coolingquickly and making for a less-than-satisfyingexperience. This new Delta® fixture usesH2OKinetic Technology to produce largerdroplets with better heat retention, providingan optimum shower experience.

• Masco’s cabinet companies continue to pro-vide trend-setting styles and options for theindividual consumer. For example, Merillat’sSoftAction™ cabinet hardware offers a com-pression feature that prevents the slamming ofdrawers and cabinet doors by regulating themovement for a virtually silent closing everytime. This customer-pleasing feature may ex-tend the life of the cabinets, as well as protectthe contents stored inside.

• The extensive capabilities of Masco ContractorServices (MCS) provide solutions for home-builders. MCS has relationships with 90 of thetop 100 U.S. homebuilders. We source, dis-tribute and install more than 20 differentproduct categories and install products inapproximately one-half of all new homes builtin the U.S. Currently, for each home in whichwe do work, MCS realizes average revenueof approximately $3,000 selling and installing


Inspiration, innovation and excellence in products andservices enhance our living environments, helping toturn them into comfortable homes. Masco companies,through a variety of products and programs, are deliv-ering solutions for individual consumers, homebuilders,wholesalers and retail customers...for the future.


This collaboration provides homebuilders witha powerful program to assist them in buildingand marketing homes to the evolving greenconsumer who appreciates comfort, but alsovalues energy efficiency, protecting the envi-ronment and reducing emissions. The Envi-ronments For Living program is based ontechniques of applied Building Science andprovides tiered levels of certified energy effi-ciency for heating and cooling the home.

• Behr Premium Plus® interior paint has beenrated as the number one quality paint in theU.S. for four consecutive years by a leadingconsumer publication. Behr’s kitchen and bathenamel coating with NanoGuard® technologyimproves the mildew and stain resistance ofthe paint coating. Already a leader in the DIYmarket, Behr has formulated Behr PremiumSelect™ paint for professional spray applica-tion by MCS in new home construction.

• Milgard Manufacturing has introduced Sun-CoatMAX™ low-e insulating glass, a newhigh-performance, triple-coating technology.SunCoatMAX glass provides a new level ofsolar heat gain control, energy efficiency,improved UV protection and year-round com-fort. SunCoatMAX glass enhances the energyefficiency of the home without heavy tintingor reflective coatings that block sunlight fromentering the home.

•Masco retail service companies support TheHome Depot, Lowe’s and Wal-Mart in NorthAmerica and work closely with Kingfisherand B&Q in Europe. One of our strategicinitiatives is to continue to grow with the BigBox retailers. To do this, we start with onesimple premise—that ultimately the consumerdrives everything. Focusing first on the con-sumer makes us a valuable partner and asuccessful company. As an example of thevalue of our relationships with the Big Boxretailers, KraftMaid provides an extensivetraining curriculum, integrating productknowledge, kitchen design and selling tech-niques—tools that are key to the in-storedesigners’ success in delivering a dreamkitchen to every customer.

For more than 75 years, we have worked tobuild solutions for our customers and theconsumer throughinnovation, inspira-tion and excellentproducts and serv-ices. That commit-ment to innovation,inspiration and ex-cellence is our his-tory, our traditionand our future.

Delta faucet Milgard windows

SHAREHOLDER RETURNSMasco continues to focus on building greatershareholder value. This commitment is demon-strated by our returning $4.8 billion to share-holders, through share repurchases anddividends, for the four-year period endedDecember 31, 2006. While difficult businesstrends will likely result in 2007 being a transi-tional year, our goal, beginning in 2008, is toachieve our historic average annual return toshareholders of 12 to 15 percent a year for thenext several years, through a combination of or-ganic sales growth, share repurchases and cashdividends.

Average Annual Return to Shareholders Goal

Organic Sales Growth 6-8%

Share Repurchases 4-5%

Cash Dividends 2%

Total 12-15%

Assumes flat margins.

Share Repurchases• The Company repurchased 29 million sharesof its common stock during 2006 and had 36million shares remaining at December 31, 2006under the May 2006 Board of Directors repur-chase authorization of 50 million shares.

• Masco repurchased 126 million commonshares in the last four years, representingapproximately 26 percent of our shares out-standing at the beginning of the four-yearperiod.

Cash Dividends• The Company increased its quarterly dividendin 2006 by 10 percent to $.22 from $.20 percommon share. The new quarterly dividendreflects the Company’s favorable long-termoutlook and strong balance sheet and cashflow, and makes 2006 the 48th consecutiveyear in which the quarterly dividend wasincreased.


Cash Returned to Shareholders• In 2006 and 2005, the Company returned$1.2 billion and $1.3 billion, respectively, toshareholders through share repurchases anddividends.

FINANCIAL REVIEW• Net sales from continuing operations were arecord $12.8 billion in 2006, a two percentincrease over the $12.6 billion achieved in 2005.

• Net sales from North American operations,accounting for 82 percent of the Company’ssales, increased one percent to $10.5 billionin 2006. Net sales of $2.2 billion fromInternational operations, principally in Europe,increased five percent from 2005.

• For the full-year 2006, reported income fromcontinuing operations was $461 million or$1.15 per common share, including non-cashimpairment charges for goodwill and financialinvestments and costs and charges related toprofit improvement programs. For the full-year2005, reported income from continuing oper-ations was $866 million or $2.01 per commonshare, including non-cash impairment charges

BUILDING FINANCIAL SOLUTIONS

CASH RETURNED TO SHAREHOLDERS(in millions)

’02 ’03 ’04 ’05 ’06

$1,203

Cash DividendsShares Repurchased

$0

$300

$600

$900

$1,200

$1,500

F


for goodwill and financial investments andcosts and charges related to profit improve-ment programs.

• Operating profit margins, as reported, were8.8 percent in 2006 compared with 12.5 percentin 2005. Operating margins were adverselyimpacted by goodwill impairment charges, theslowdown in the new home constructionmarket, a moderation in consumer spending,as well as costs and charges related to profitimprovement programs, increased commoditycosts and a less favorable product mix.

Profit Improvement Programs•During 2006, our profit improvement pro-grams resulted in costs and charges of $47 mil-lion which we believe will result in futuresignificant cost savings.

• The Company continues to reduce costs andadd value through sourcing from emergingmarkets, including Asia. We now have over1,500 employees and over 450,000 square feetof manufacturing and distribution space inChina. Our Asian sourcing has grown from $200million in 2003 to over $700 million in 2006.

Capital Expenditures• Including discontinued operations, capitalexpenditures were $388 million or 3.0 percentof sales in 2006 compared with $282 million or2.2 percent of sales in 2005. This increase isprincipally related to capacity expansion andfacility acquisitions. Including discontinuedoperations, depreciation and amortizationexpense was $244 million in 2006 comparedwith $241 million in 2005.

Cash Flow• In 2006, the Company achieved free cashflow (defined as cash from operations lesscapital expenditures and before dividends)of over $800 million. For the four-year periodended December 31, 2006, the Company’s freecash flow aggregated $4.2 billion.

NET WORKING CAPITALAS A % OF NET SALES

’02 ’03 ’04 ’05 ’060%

5%

10%

15%

20%

25%

16.1%

RETURN ON INVESTED CAPITAL

’02 ’03 ’04 ’05 ’060%

3%

6%

9%

12%

15%

9.8%

NFREE CASH FLOW(in millions)

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$200

$400

$600

$800

$1,000

$1,200

$820

R


Balance Sheet•Working capital (defined as accounts receiv-able and inventories less accounts payable)as a percent of sales was 16.1 percent and15.9 percent at December 31, 2006 and 2005,respectively.

Capitalization•Debt as a percent of total capital was 53 per-cent at December 31, 2006 compared with49 percent at December 31, 2005. Debt as apercent of total capital would have been48 percent if at December 31, 2006, theCompany had paid $825 million related to theZero Coupon Convertible Senior Notes; suchamount was paid in January 2007.

Return on Invested Capital (ROIC)• For the 12 months ended December 31, 2006and 2005, return on invested capital, as re-ported, was 9.8 percent and 13.0 percent,respectively. While we remain highly commit-ted to the continued improvement in ourreturn on invested capital, due to slowingbusiness trends, which resulted in a reductionin earnings for 2006, our return on investedcapital was lower than expected for 2006. Wecontinue to believe that we will achieve ourreturn on invested capital goal of approxi-mately 18 percent by 2010.

Liquidity• The Company ended 2006 in a strong financialposition with over $2 billion in cash and mar-ketable securities, even after using $854 mil-lion to repurchase common shares in 2006.

• During 2006, the Company issued $1 billionof fixed-rate 6.125% notes due 2016, resultingin net proceeds of $988 million. The note of-fering was in anticipation of the 2007 debtmaturities, including the put option related tothe Zero Coupon Convertible Senior Notes.

• In January 2007, the Company repurchasedfor cash of $825 million, the accreted value(94 percent of the total outstanding) of its ZeroCoupon Convertible Senior Notes (“Notes”)which were put to the Company in accor-dance with the terms of the Notes.

• In 2006, the Company generated $71 millionof cash from the net disposition of financialinvestments and $160 million from the netdisposition of certain businesses.

BUILDING FINANCIAL SOLUTIONS

Cabinets and Related ProductsPlumbing ProductsInstallation and Other ServicesDecorative Architectural ProductsOther Specialty Products

2006 NET SALES BY SEGMENT (Percent of Total Net Sales)

10%10%10%Amounts exclude discontinued operations.

F

RETURN ON INVESTED CAPITAL

’02 ’03 ’04 ’05 ’060%

3%

6%

9%

12%

15%

9.8%

N


CORPORATE RESPONSIBILITYAND GOVERNANCEAs a world leader in the home improvement andbuilding products markets, Masco continuallystrives to maintain high standards of excellencein accountability and social responsibility.Masco’s reputation for ethical business practicesis one of our most valued assets, and we areproud of our progress in this area.

• Masco released its first Corporate SustainabilityReport in 2004 and has continued tostrengthen its record for economic, environ-mental and social responsibility. In 2006, anindependent research firm providing manage-ment tools to serve clients with investmentstrategies based on corporate social and envi-ronmental performance, included Masco inits social index. This index consists of 400 U.S.companies that demonstrate leadership incorporate social responsibility by exhibitingpositive social and environmental recordsbased on community relations, diversity,employee relations, human rights, productquality and safety, and environmental andcorporate governance.

• Masco participated with in-kind product in thenationwide Habitat for Humanity Builders’Blitz that resulted in the construction of morethan 400 homes for low-income families.

Masco provided bath packages, drawn from across-section of Masco businesses, to equipnearly 700 full and half-baths with vanities,towel bars and other bath accessories, tubenclosures, showers and showerheads, andautomatic gas shut-off valves, an importantprotection for homes with gas appliances.

• Masco’s on-going support for Habitat forHumanity touched underserved populationsaround the globe including India, Armeniaand Northern Ireland. We also continued oursupport to the U.S. Gulf Coast following thedevastating hurricanes of 2005. Masco wasproud to respond to the devastation directlywith contributions of cash and products for re-building communities and lives.

• Masco Foundation’s REACH initiative (Revital-izing communities through Arts, Culture andHousing) subsidized student transportationand opened the doors, free of charge, todozens of museums and artistic and culturalvenues for hundreds of thousands of childrenand families across southeast Michigan. In ad-dition, the REACH initiative subsidized culturaland educational offerings produced by localpublic television that reached millions of re-gional (including Canada) and national viewers.

•Masco, its Foundation and its operating divi-sions supported hundreds of cultural institu-tions, youth initiatives and civic organizationsacross the nation to ensure that children andfamilies were provided exposure to thosecultural and educational offerings that createvibrant communities in which to live andwork.

• In 2006, we continued to enhance our corpo-rate governance through the addition of a newindependent Director. Excluding the Com-pany’s Chief Executive Officer, all Directors areindependent under New York Stock Exchangestandards, and all members of the AuditCommittee, Organization and CompensationCommittee and Corporate Governance andNominating Committee are independent.

• To reinforce our Legal and Ethical ComplianceProgram, we have developed new systemsthat enhance our ability to communicate itsrequirements, confirm compliance and trainemployees on ethical behaviors and expecta-tions. In 2006, a DVD was created anddistributed to all Masco divisions to explain


the origin and elements of Masco’s ethicsprogram, and Masco’s long-standing Compli-ance Certification process was enhancedthrough a web-based employee certificationsystem. In addition to providing training toour employees through traditional methodssuch as presentations, videos and writtenmaterials, more than 40,000 sessions havebeen completed on-line.

Merillat cabinetry, Newport Brass faucet Ginger faucet

Hansgrohe showerhead

KraftMaid cabinetry

Masco Contractor Services


BOARD OFDIRECTORSDennis W. Archer 1, 3ChairmanDickinson Wright PLLC

Thomas G. Denomme 1, 3

Retired Vice Chairman andChief Administrative OfficerChrysler Corporation

Peter A. Dow 1, 2

Retired Vice Chairman, ChiefOperating Officer and Execu-tive Committee ChairmanCampbell-Ewald

Anthony F. Earley, Jr. 1, 3Chairman andChief Executive OfficerDTE Energy Company

Verne G. Istock 1, 2, 3

Retired Chairman and PresidentBank One Corporation

David L. Johnston 2, 3

President and Vice Chancellorof the University of Waterlooin Ontario, Canada

J. Michael Losh 1, 2

Retired Chief Financial Officerand Executive Vice PresidentGeneral Motors Corporation

Richard A. ManoogianChairman of the Board andChief Executive OfficerMasco Corporation

Lisa A. Payne 1

Vice Chairman andChief Financial OfficerTaubman Centers, Inc.

Mary Ann Van Lokeren 2, 3

Retired Chairman andChief Executive OfficerKrey Distributing Company

William T. AndersonVice President–ControllerCorporate Accounting

Ronald W. AyersGroup President

Graham BallsVice President–ControllerEuropean Operations

Alan H. BarryPresident andChief Operating Officer

Nicholas BilligGroup Vice President

Donald J. DeMarie, Jr.Group President

Wayne DevineGroup Vice President

Maria C. DueyVice President–Investor Relations

Jeffrey D. FilleyGroup Vice President

Daniel R. FoleyVice President–Human Resources

Lau FrandsenPresident–Masco Europe

Eugene A. Gargaro, Jr.Vice President andSecretary

Ted GooldGroup Vice President

Clay H. KiefaberGroup 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 and Marketing

Jerry W. MollienVice President–Corporate Taxes

Timothy J. MonteithVice President andChief Information Officer

Richard G. MostellerVice President andSenior Financial Advisor

Sharon J. RothwellVice President–Corporate Affairs

Jai ShahVice President–Strategic Planning

Barry J. SilvermanVice President–AssociateGeneral Counsel

John G. SznewajsVice President–Corporate Developmentand Treasurer

David W. Van HiseVice President–International

Jerry VolasGroup President

Thomas VossExecutive Vice President–Europe

Timothy WadhamsSenior Vice President andChief Financial Officer

Gary L. YezbickVice President–Operational andTechnological Services

Corporate LeadershipCORPORATE OFFICERS AND OPERATING EXECUTIVES

1Member of Audit Committee

2Member of Organization andCompensation Committee

3Member of Corporate Governanceand Nominating Committee


and effectiveness of established internal controlsrelated to Company policies, procedures andobjectives. The report of the Company’s Inde-pendent Registered Public Accounting Firm (in-cluded in the accompanying Form 10-K) statestheir opinion on the Company’s consolidated fi-nancial statements, management’s assessment ofinternal controls over financial reporting and theeffectiveness of internal controls over financialreporting, based on audits conducted in accor-dance with the standards of the Public CompanyAccounting Oversight Board (U.S.).

The Audit Committee of the Board of Directorsmeets periodically with both management andthe Independent Registered Public AccountingFirm to provide oversight with respect to theCompany’s financial reporting process andsystem of internal controls.

Richard A. Manoogian and Timothy Wadhamshave provided certifications to the Securities andExchange Commission as required by Section302 of the Sarbanes-Oxley Act of 2002. Thesecertifications are included as Exhibits 31.a and31.b to the Company’s Form 10-K, includedherein, for the year ended December 31, 2006.

As required by the New York Stock Exchange(NYSE), on May 23, 2006, Richard A. Manoogiansubmitted the annual Chief Executive Officercertification to the NYSE that stated that he wasnot aware of any violation by the Company ofthe NYSE corporate governance listing standards.

RESPONSIBILITY FORFINANCIAL STATEMENTSManagement is responsible for the fairness andintegrity of the Company’s consolidated finan-cial statements. In order to meet this responsi-bility, management maintains formal policiesand procedures that are consistent with highstandards of accounting and administrative prac-tices, which are regularly communicated withinthe organization. In addition, management main-tains a program of internal auditing within theCompany to examine and evaluate the adequacy

Certifications

Performance GraphThe table below sets forth a line graph compar-ing the cumulative total shareholder return onMasco Common Stock with the cumulative totalreturn of (i) the Standard & Poor’s 500 Compos-ite Stock Index (“S&P 500 Index”), (ii) the Stan-dard & Poor’s Industrials Index (“S&P IndustrialsIndex”) and (iii) the Standard & Poor’s ConsumerDurables & Apparel Index (“S&P Consumer


Durables & Apparel Index”), from December 31,2001 through December 31, 2006, when theclosing price of Masco Common Stock was$29.87. The graph assumes investments of $100on December 31, 2001 in Masco CommonStock and in each of these three indices and thereinvestment of dividends.

The table below sets forth the value, as of De-cember 31 for each of the years indicated, of a$100 investment made on December 31, 2001 ineach of Masco Common Stock, the S&P 500

2001 2002 2003 2004 2005 2006

Masco Common Stock $100.00 $88.14 $117.20 $159.02 $134.82 $137.23

S&P 500 Index $100.00 $78.03 $100.16 $110.92 $116.28 $134.43

S&P Industrials Index $100.00 $73.80 $ 97.26 $114.60 $117.17 $132.58

S&P Consumer Durables & Apparel Index $100.00 $99.66 $124.23 $153.51 $156.33 $165.96

$50

$100

$150

$200

2001 2002 2003 2004 2005 2006

Masco Common Stock

S&P 500 Index

S&P Industrials Index

S&P Consumer Durables & Apparel Index

Index, the S&P Industrials Index, and the S&PConsumer Durables & Apparel Index and thereinvestment of dividends.

COMPANY PROFILEMasco Corporation is one of the world’s largest man-ufacturers of brand-name consumer products for thehome improvement and new home constructionmarkets. The Company is also a leading provider ofa variety of installed products, including insulationand other building products, for homebuilders.

Our products include faucets, kitchen and bath cabi-nets, paints and stains, bath and shower units, spas,showering and plumbing specialties, windows andother hardware.

As of December 31, 2006, the Company had approxi-mately 57,000 employees and over 120 manufacturingfacilities. Masco’s principal manufacturing facilities arelocated throughout the United States. Internationaloperations are located principally in Europe.

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

INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRMPricewaterhouseCoopers LLPPricewaterhouseCoopers Plaza1900 St. AntoineDetroit, MI 48226-2263

STOCK EXCHANGE INFORMATIONMasco Corporation’s common stock is traded on theNew York Stock Exchange under the symbol MAS.

INTERNET CONTACTCurrent information about Masco Corporation canbe found by visiting our home page on the Internetat www.masco.com or you may contact us via e-mailat [email protected].

INVESTOR RELATIONS CONTACTAdditional information about the Company is avail-able without charge to shareholders who direct arequest to:

Maria C. DueyVice President–Investor RelationsMasco Corporation21001 Van Born RoadTaylor, MI 48180

ANNUAL MEETING OF SHAREHOLDERSThe 2007 Annual Meeting of Shareholders of MascoCorporation will be held at the executive offices ofthe Company on May 8, 2007 at 10:00 a.m., E.D.T.

TRANSFER AGENT, REGISTRAR ANDDIVIDEND DISBURSING AGENTAnswers to many of your shareholder questions andrequests for forms are available by visiting The Bankof New 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 11002New York, NY 10286-1002

Dividend Reinvestment PlanMasco Corporation has appointed The Bank of NewYork to serve as agent for its Dividend ReinvestmentPlan. All inquiries regarding the Plan should be sentto:

The Bank of New YorkDividend Reinvestment Department/Masco CorporationP.O. Box 1958Newark, NJ 07101-1958

Duplicate Mailings and Other InquiriesMultiple shareholders who reside at one address andhold their shares through a bank or broker may re-ceive only one Annual Report and Proxy Statement.This “householding” procedure reduces duplicatemailings and Company expenses. Shareholders whowish to opt out of householding should contact theirbank or broker.

Shares owned by one person, but held in differentforms of the same name may result in duplicatemailings of shareholder information at added ex-pense to the Company. Please notify The Bank ofNew York in order to eliminate such duplication.

Shareholder inquiries, including those regarding loststock certificates, should be directed to:

The Bank of New YorkInvestor Services DepartmentP.O. Box 11258New York, NY 10286-1258Phone: 800-524-4458 (in the U.S.)

212-815-3700 (outside of the U.S.)888-269-5221 (hearing impaired-TTY phone)

E-Mail Address: [email protected]

Information for Shareholders

MASCO CORPORATION21001 VAN BORN ROAD

TAYLOR, MI 48180313.274.7400www.masco.com

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masco annual report 2006

Economy & Finance