Masco CorporationCorporate Sustainability Report 2003/04

Building Partnerships...Valuing Our Resources

D E C E M B E R 2 0 0 4

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As a world leader in thehome improvement and build-ing products industries, MascoCorporation has always strivedto maintain the highest stan-dards of excellence, accounta-bility and leadership.

We are proud of our trackrecord in economic, environ-mental and social responsibili-ty and value the partnershipsweve built with shareholders,customers, employees, suppli-ers and the communities inwhich we do business.Sustainable development is animportant goal at Masco, andwe are pleased to share ourprogress with you in our firstCorporate Sustainability Report.

Masco values integrity and isproud of its reputation. Acommitment to strong busi-ness ethics has played a keyrole in Mascos culture sinceour Company was founded in1929. Our Code of BusinessEthics Program, as well as theformal Governance Guidelinesadopted by our Board ofDirectors, support our long-established policy that allemployees and agents of theCompany observe the higheststandards and conduct theirbusiness in accordance withlegal and ethical business practices.

We are committed to protecting the environment throughcontinuous improvement initiatives that include recycling,waste minimization, efficient use of raw materials, andpartnering with a variety of organizations committed tosustainable business practices.

Protecting the health and well-being of our employees hasalways been a key priority, and we measure our health andsafety performance similar to the way we evaluate financialsuccesses and other key corporate milestones. As evidencedby this Report, our efforts are having a significant and pos-itive impact throughout the Masco family of companies.

Additionally, Masco believes in supporting the communi-ties in which we operate. As a responsible corporate citizen,Masco provides financial support to not-for-profit organi-zations that promote affordable housing, the arts and othercivic initiatives. The Masco Corporation Foundation is atthe center of these efforts, providing financial and in-kindsupport to a variety of institutions. Our corporate leader-ship is mirrored by the activities of our individual operat-ing companies and employees that contribute to charitableactivities in their local communities.

The Global Reporting Initiative (GRI) is a multi-stakeholder process and independent institution whosemission is to develop and disseminate globally applicable Sustainability Reporting Guidelines. TheseGuidelines are for voluntary use by organizations for reporting on the economic, environmental, and socialdimensions of their activities, products, and services. -GRI, 2002To learn more about the Global Reporting Initiative, please go to the GRI web site at http://www.globalreporting.org.

ABOUT THIS REPORTSCOPE OF THE REPORT (2.11, 2.12, 2.13, 2.14, 2.15, 2.16, 2.19, 3.18)This Report describes the sustainability performance and practices of Masco Corporation and the operating companies in which wehave a controlling interest, but excludes the performance of the few joint ventures in which Masco participates. During 2003, we com-pleted the sale of three operating companies: Baldwin Hardware, Weiser Lock and The Marvel Group, and reference to the non-finan-cial performance of these former operating companies is, therefore, not included. We have also chosen to exclude non-financial dataon a number of planned European divestitures, being treated currently as discontinued operations, as previously disclosed, so as toenhance comparability with future reporting.

Our Report focuses on Mascos economic, social and environmental performance during 2003 with some reference to 2004 whereinformation or data are available and deemed pertinent. Financial information is reported in U.S. dollars and has been restated for 2004discontinued operations. As this is Mascos first Corporate Sustainability Report, information on programs drawn from a wider timeperiod that add to the understanding of our performance is included. Our 2003 Annual Report details the Companys financial perform-ance more specifically. For purposes of this Report, our 2003 Annual Report is deemed to include the information contained in our currentForm 8-K report dated November 5, 2004. (http://www.masco.com/investors/annual_reports.html)

TARGETS (2.17, 2.20)In preparing this Report, we found that some of the data are not currently available. Masco businesses consist of over 50 operatingcompanies at our 600 locations worldwide. We are modifying our reporting structures and expect more comprehensive data in futurereports. In addition, we are endeavoring to establish objectives and targets in line with GRI indicators. We are actively developing com-prehensive performance targets that refine and expand upon our health, safety and environmental metrics and expect to share these insubsequent reports.

AUDIT AND ASSURANCE (2.18, 2.21)This Report contains information from a variety of sources. Information drawn from our audited, consolidated financial statementscomplies with generally accepted accounting principles in the United States of America. Compiling and sharing our corporate sustain-ability performance data, programs and case studies with our stakeholders has been an exciting and important exercise for Masco. Weexpect feedback and stakeholder comments regarding this Report to play an important role in the development of future reporting.External report assurance was not sought for our first Report; however, we may seek external assurance in the future.

WELCOME TO MASCO CORPORATION (1.2)

Mascos sustainable develop-ment initiatives extendthrough our supply chain. Wehave instituted mechanisms toencourage supplier compliancewith appropriate standards,including business practicesrelated to the integrity andperformance of domestic andforeign manufacturers. Forcustomers, our products aredesigned with environmental,health and safety concerns inmind.

While we value all of ourresources, we believe that ourpeople are our greatest asset inachieving success and main-taining world-class status. Thesame spirit upon which thisCompany was founded morethan 75 years ago will guide usin making Masco, our peopleand our culture even strongerin the years to come.

In the following Report, youwill find detailed informationoutlining many of our accom-plishments. Of course, this isan ongoing pursuit. We believethat we can always do a betterjob of helping to make theworld a better place.

Richard A. ManoogianChairman andChief Executive Officer

Alan H. BarryPresident andChief Operating Officer

CONTENTS PAGEWelcome by Richard Manoogian and Alan Barry . . . . . . . .1HOME IMPROVEMENT AND BUILDING PRODUCTS AND

SERVICES FOR THE HOME . . . . . . . . . . . . . . . . . . . . . . . .2About Masco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Economic Information . . . . . . . . . . . . . . . . . . . . . . . . . .2Our Product Segments . . . . . . . . . . . . . . . . . . . . . . . . . .4Masco Corporate Strategy . . . . . . . . . . . . . . . . . . . . . . .6Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . .10Payments to Political Parties and Institutions . . . . . . .10Health, Safety and Environmental Overview . . . . . . . .11

VALUING OUR RELATIONSHIPS . . . . . . . . . . . . . . . . . . . .12Working with Our Stakeholders . . . . . . . . . . . . . . . . .12Our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Our Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Ethical Business Practices . . . . . . . . . . . . . . . . . . . . . .16Training and Development . . . . . . . . . . . . . . . . . . . . .17Employee Health and Safety . . . . . . . . . . . . . . . . . . .18Charitable Contributions . . . . . . . . . . . . . . . . . . . . . .21

CONTENTS PAGEKey Community Projects . . . . . . . . . . . . . . . . . . . . . .22Working with Suppliers . . . . . . . . . . . . . . . . . . . . . . . .24Customers and Products . . . . . . . . . . . . . . . . . . . . . . .24

VALUING THE ENVIRONMENT . . . . . . . . . . . . . . . . . . . .26Environmental Management . . . . . . . . . . . . . . . . . . .26Working with Others . . . . . . . . . . . . . . . . . . . . . . . . .28Making the Most of Resources . . . . . . . . . . . . . . . . . .28Water . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33Air Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34Energy and Greenhouse Gases . . . . . . . . . . . . . . . . . . .35Looking after Flora and Fauna . . . . . . . . . . . . . . . . . .36Industrial Environmental Incidents . . . . . . . . . . . . . . .37Our Products and the Environment . . . . . . . . . . . . . .38Research and Development . . . . . . . . . . . . . . . . . . . . .38

GRI INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44

RED parenthetic references relate to specific GRI indicators. See page 41 for the full GRI Index.

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ABOUT MASCO (2.1, 2.6)Masco Corporation is a world leader in the manufacture of home improvement and buildingproducts. We are also a leading provider of services that include the sale and installation ofinsulation and other building products. We provide brand-name, value-added products andservices for the home and family that can be used with confidence and displayed with pride.

Masco Corporation is headquartered in Taylor, Michigan, U.S.A., and is incorporated in theState of Delaware. The Companys common stock is traded on the New York Stock Exchange(NYSE) under the symbol MAS.

ECONOMIC INFORMATIONNET SALES (2.5, 2.7, 2.8, EC1)In 2003, Masco net sales were approximately $10.6 billion, up 19.7 percent from 2002 (seeChart 1). Over 80 percent of the Companys sales are generated in North America with theremainder generated principally in Europe, primarily in Belgium, Denmark, Germany, Italy,the Netherlands and the United Kingdom. No single country outside of North Americaaccounts for more than five percent of the Companys sales.

INVENTORY (2.18, EC3)In its consolidated financial statements, Masco provides information on inventory in the categories of finished goods, raw materials and work in process. Costs in inventory includepurchased parts, materials, direct labor and applied manufacturing overhead using generallyaccepted accounting principles (GAAP).

At December 31, 2003, Mascos total inventory was $1.019 billion. Chart 1 shows that inven-tory increased by approximately 12 percent between 2001 and 2003 while sales rose by 37percent over the same period.

WHAT WE BUY (EC3, EN1)In 2005, Masco will complete the last phase of its centralized Supplier RelationshipManagement (SRM) system implementation for North America. The launch of the systemrequires considerable corporate-wide input on data definitions, training and data collection,but creates an effective resource in our quest to identify synergies, consolidate suppliers, lever-age volume and reduce total costs. We are aggressively completing the broad-based implemen-tation of the SRM system, while using the system to provide aggregated cost and quality datafor the commodities, products and services that we purchase.

HOME IMPROVEMENT AND BUILDING PRODUCTS AND SERVICES FOR THE HOME

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

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Chart 1NET SALES AND INVENTORY*

In Millions

* Information has been restated to exclude 2004 discontinued operations.

SalesInventory

$7,705

$913

$8,831

$1,056

$10,571

$1,019

RED parenthetic referencesrelate to specific GRI indi-cators. See page 41 for thefull GRI Index.

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OUR MAJOR FINANCIAL INDICATORS (2.8, EC6, EC7)Table A provides an overview of Mascos major economic indicators for the past three years. Additional financial information is available in our 2003 Annual Report.(http://www.masco.com/investors/annual_reports.html)

Table A: Summary of Our Major Financial Indicators

2001 2002 2003

Return on AverageCapital Employed(ROACE )* 10.7% 11.5% 11.5%

Diluted Earnings Per Common Share from Continuing Operations $ .39 $1.24 $1.61

Dividends Paid Per Share $.521/2 $.541/2 $.58

Total Assets, December 31 $9,021 million $12,050 million $12,149 million

Net Sales $7,705 million $8,831 million $10,571 million

Operating Profit $1,011 million $1,267 million $1,484 million

* Please see Appendix B for the calculation and definition of ROACE.

WHAT WE CONTRIBUTE THROUGH TAXES (EC8)As a responsible corporate citizen, Masco pays state, local and federal income taxes, as well asnumerous other taxes in the states and countries where we are located, contributing signifi-cantly to the common good of the communities in which we operate. Masco paid nearly$600 million in taxes in 2003. Masco accumulates financial data by operating company, notby taxing jurisdiction; therefore, we are unable to provide a detailed breakdown of taxes paidby country or other locality. Chart 2 reflects a recent history of taxes paid.

OUR PRODUCT SEGMENTS (2.2, 2.3, 2.4, 3.6)In this Report, we refer to and conduct analyses in terms of Masco's five financial reportingsegments. Chart 3 reflects our 2003 sales by segment and Table B reflects our brands by seg-ment. For more information about our 2004 efforts to consolidate our operating companies around product platforms, please see our 2003 Annual Report.(http://www.masco.com/investors/annual_reports.html)

Masco is the largest U.S. manufacturer of assembled and ready-to-assemble kitchen and bathcabinets and related products. We offer approximately 300 styles in more than 20 lines fromour U.S. companies and many more from our European companies. These operating com-panies also produce entertainment centers, storage products, bookcases and kitchen utilityproducts.

WO

RL

D

CABINETS & RELATEDPRODUCTS

INSTALLATION &OTHER SERVICES

PLUMBINGPRODUCTS

DECORATIVEARCHITECTURALPRODUCTS

TM

OTHERSPECIALTYPRODUCTS

$100

$200

$300

$400

$500

$600

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Chart 2TAXES PAID

In Millions

$396

$522$597

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

Chart 32003 SALES BY SEGMENT

In Millions

$1,148

$1,449

$2,411 $2,684

$2,879

Table B: Mascos Brands by Segment

Fewer Operating CompaniesMany Operating Companies

Complexity

Acquisition Growth

Operating Company Autonomy

Focus on Sales Growth

Focus on Profit Margins

Simplicity

Organic Growth

Focus on Growth of Absolute Profit

Focus on Return on Invested Capital

Synergy / Cooperative Activities

FROM TO

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MASCO 2004 CORPORATE STRATEGIC INITIATIVES

Masco launched five Company-wide strategic initiatives in 2004:

A. Grow Profitably with the Big Box Retailers;

B. Leverage Manufacturing with Services;

C. Add Value through Sourcing from and Selling in China and the Far East;

D. Focus on New Product Innovation; and

E. Align Europes Role within Our Competitive Core.

As we continue to improve upon our sustainability management practices, our aim is to sup-port these strategic initiatives and maximize their contribution to environmental and socialresponsibility.

A. GROW PROFITABLY WITH THE BIG BOX RETAILERS

Globally, the largest home improvement retailers continue to grow and take additional mar-ket share. Mascos challenge is to grow with the large retailers through a menu of strategiesthat address products, brands, supply chains and services. Sustainability management can sup-port this strategic initiative in a number of ways including:

Anticipating and responding to the environmental management programs that large retailers are increasingly requiring from suppliers;

Building valued brand products to increase customer awareness and maximize current andfuture markets for sustainable products;

Reviewing and monitoring the sustainable development practices of Mascos suppliers; and

Enhancing Mascos reputation as a preferred provider that works in partnership with itscustomers.

B. LEVERAGE MANUFACTURING WITH SERVICES

Some experts predict that new home market share for the top 20 U.S. homebuilders willincrease from its current share of approximately 25 percent to 75 percent by 2015. Our instal-lation and other service businesses place us in a favorable position for meeting the needs oflarge homebuilders as well as supporting the growth of our products in new homes. By con-tinuing to strengthen Mascos relationships with the largest homebuilders, we can improve thesupply chain, continue adding value and provide total cost solutions that reduce cycle timeand related administrative expenses for these valued customers. Sustainability managementcan support this strategic initiative by:

The Company is also a world leader in the manufacture of plumbing products includingfaucets, plumbing fittings and valves, bathtubs, shower enclosures and spas.

Masco provides a variety of installation and other services for homebuilders, including the saleand installation of insulation, fireplaces, cabinetry, gutters, bath accessories, garage doors,shelving, windows and other building products.

Our decorative architectural products include paints and stains as well as door, window andother hardware. This segment also includes coatings technology and manufacturing processequipment.

Other specialty products include windows, window frame components and patio doors, elec-tronic locksets, staple guns and hammer tackers, staples and other fastening tools, hydronicradiators and heat convectors.

MASCO CORPORATE STRATEGYINTRODUCTION (1.1, 2.22)Mascos corporate strategies are designed to provide the Company with efficiencies and com-petitive advantages in the home improvement and new construction markets. Customer serv-ice initiatives are tailored to meet the needs of large retailers and builders as well as whole-salers, smaller builders and retailer customers. While intended to provide optimum service toall customers and build value for shareholders, such initiatives are also designed to enhancesustainability. Table C summarizes our strategic direction. For a more comprehensive discus-sion, please see our 2003 Annual Report. (http://www.masco.com/investors/annual_reports.html)

Table C: Mascos Strategic Direction

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Responding to the demandsof new homebuyers andhomebuilders for homesthat provide an efficientand comfortable environ-ment (e.g., advanced build-ing science techniques,energy efficiency, highquality indoor air, etc.);

Helping contain the cost ofhome construction to makenew houses more afford-able to potential home-owners; and

Providing high-quality,durable products and serv-ices that will benefit thehomeowner for an extend-ed period of time.

C. ADD VALUETHROUGH SOURCINGFROM AND SELLING INCHINA AND THE FAREAST

While Masco maintains astrong manufacturing basewithin North America andEurope, we are strategicallysourcing certain products andcomponents from China, theFar East and other emergingmarkets. In addition, we arealigning ourselves to sell prod-ucts within China, the worldsthird largest global market.Sustainability managementcan support this strategic ini-tiative by:

Preserving the high quality of Masco products, regard-less of where they are manufactured;

Supporting fair employment practices in emergingeconomies; and

Identifying opportunities to improve the quality of lifeand preserve resources in emerging economies (e.g.,water-efficient faucets and showers, gray-water systemproducts, space-saving cabinetry and storage systems,etc.).

D. FOCUS ON NEW PRODUCT INNOVATION

New product development and innovation are key compo-nents to achieving Mascos corporate growth. Our productsand services must be innovative and focus on the needs ofend users if we are to differentiate Masco from our com-petitors. Sustainability management can support this strate-gic initiative by:

Integrating environmental and consumer health andsafety concerns into new product development;

Anticipating future regulatory changes, thus reducingcost and risk;

Improving production techniques and service deliveryto reduce environmental and employee safety impacts;and

Delivering innovative products and services for thehome that address sustainability issues.

E. ALIGN EUROPESROLE WITHIN OURCOMPETITIVE CORE

Historically, Masco has beenhighly decentralized with astrong entrepreneurial culture.Presently, Mascos Europeanoperating companies, similarto their North American coun-terparts, are being reorganizedin product platforms consis-tent with Mascos corporatestrategy. Sustainability man-agement can support thisstrategic initiative by:

Forming global platformsteering committees toidentify opportunities forcooperative activities andsynergies;

Benefiting from sustainabil-ity practices of ourEuropean operating compa-nies where home improve-ment retailers and con-sumers have long expectedsustainability principles tobe incorporated into prod-ucts and services; and

Improving the efficiency ofthe Company on a globalbasis by coordinating prod-ucts, markets, brands, man-ufacturing facilities, trans-portation and other aspectsof Company operations.

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CORPORATE GOVERNANCE(2.22, 3.1, 3.2, 3.4, 3.5, 3.6, 3.7)Masco is committed to highstandards of corporate gover-nance. Mascos Board ofDirectors adopted NYSE gov-ernance standards for commit-tee charters, Board guidelines,and codes of conduct andbusiness ethics well in advanceof the required date for adop-tion of such standards.Information on these standardsmay be found on the Mascowebsite. (http://www.masco.com/cor-porate_information/governance/)

Mascos Corporate Govern-ance Guidelines cover Directorqualifications, responsibilities,access to management andindependent auditors, com-pensation and training, seniormanagement evaluation andsuccession, and Board per-formance appraisal. TheGuidelines also require threestanding Board committees:Corporate Governance andNominating Committee, AuditCommittee, and Organizationand Compensation Commit-tee. A full description of thestanding committees charters,responsibilities and reportingmay be found on the Mascowebsite. (http://www.masco.com/corporate_information/governance/)

The Corporate Governance and Nominating Committee,in addition to recommending candidates for Mascos Boardof Directors, is charged with overseeing the evaluation ofthe Boards performance and evaluating the independenceof each Director. Our Corporate Governance Guidelinesrequire that a majority of Board members qualify asIndependent Directors under the requirements of appli-cable laws and NYSE guidelines. Currently, only two ofMascos ten directors do not qualify as independent mem-bers. They are Wayne B. Lyon, a former President of Mascowho will be retiring from the Board of Directors in May2005, and Richard A. Manoogian, Chairman of the Boardand Chief Executive Officer.

In addition to overseeing the integrity of Mascos financialstatements, independent audit and internal audit function,the Audit Committees responsibility is to oversee theadministration of Mascos Code of Business Ethics as itrelates to employees and officers. The Committee alsoreceives periodic updates from management and the SeniorVice President and General Counsel of the Companyregarding compliance by employees and officers with legal,tax and other regulatory requirements, as well as theCompanys Code of Business Ethics. Additional informa-tion on the communication of our Code of Business Ethicsand its use is contained in the Valuing Our Relationshipssection (see pg. 16) of this Report.

Finally, the Organization andCompensation Committee isresponsible for overseeing theCompanys compensation andbenefit policies, evaluatingsenior executive performanceand reviewing the Companysmanagement succession plan.

PAYMENTS TO POL IT ICALPARTIES ANDINSTITUTIONS (SO3, SO5)It is the Companys policy notto contribute directly to polit-ical candidates, parties or insti-tutions. However, contribu-tions may be made, where per-mitted by law, to support oroppose local ballot proposalsof significant interest to Mascoand the communities in whichwe do business. For example,Masco supported a ballot pro-posal to increase support tothe art and cultural insti-tutions around southeastMichigan in an attempt toensure broad access by school-children and families to theregions cultural offerings dur-ing an environment of reducedgovernment funding.

Apart from Company resources,Masco sponsors a PoliticalAction Committee (PAC) andwelcomes voluntary contribu-tions from eligible Mascoemployees for the purpose ofcontributing to various cam-paigns, candidates and causes;however, we do not undertake

general solicitations of employees. The Federal Election Commission website contains infor-mation regarding contributions by the PAC. (http://www.fec.gov)

HEALTH, SAFETY AND ENVIRONMENTAL (HSE) OVERVIEW (3.6, 3.7)Within Masco, HSE leadership is the responsibility of the Vice President of CorporateServices. The Vice President apprises the senior management team regularly of issues requir-ing its attention and action. The HSE Department at Mascos corporate headquarters coordinates Company policy and works closely with the HSE staff at the operating companies to implement corporate-wide initiatives. Our headquarters HSE Departmentencourages alignment among health, safety and environmental initiatives such as metrics,management systems, audits and communications. This alignment permits Masco to evalu-ate trends and adopt best practices more readily.

Our HSE policy commits us to conducting our business in a manner that protects the envi-ronment and the health and safety of all of our employees. Our approach includes the following goals:

Incorporating HSE considerations into the design and distribution of our products andservices;

Providing employees with a workplace free from unsafe conditions and recognized hazards;

Complying with HSE legal requirements and participating in the development of regula-tions in an open and transparent manner; and

Reporting on HSE performance clearly, effectively and comprehensively.

Examples of our approach are discussed more extensively in the Valuing Our Relationshipsand Valuing the Environment sections of this Report.

MASCO 2003 SAFETY AWARD RECIP IENTS

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OUR SHAREHOLDERS (3.8, 3.10)Masco has approximately 6,500 shareholders. The majorityof our shares are owned by institutional investors. In additionto our Annual Shareholders Meeting held at Mascos corpo-rate headquarters, we communicate with our shareholders ina number of ways. In all cases, information that is potential-ly material to our shareholders is made available simultane-ously to the public. Examples of communication include:

The Investor Relations Department responds to ques-tions and comments received on a daily basis from insti-tutional and individual shareholders;

After the end of each calendar quarter, our Chairman hostsa conference call for investors to discuss financial and oper-ating results and to respond to any questions regarding theCompanys current financial condition, as well as otherissues and concerns. An average of 150 shareholders,investment analysts and others participate in these calls,with additional interested parties simultaneously accessing

WORKING WITH OURSTAKEHOLDERS (2.9, 3.9)Mascos corporate sustainabili-ty rests on good relationshipswith our diverse stakeholders.In the normal course of busi-ness, we communicate withsuppliers, customers, employ-ees, community leaders, share-holders, financial institutions,governmental authorities,opinion leaders, non-govern-mental organizations (NGOs)and the media through a widevariety of established methodsfrom our headquarters anddirectly through our operatingcompanies. Masco believesthat it can deliver improvedresults by engaging with stake-holders honestly, respectfullyand with integrity. We believethat this CorporateSustainability Report willserve as an effective vehicle forproviding meaningful com-munications with stakeholdersand the broader community.

VALUING OUR RELATIONSHIPS

the call through Mascoswebsite or listening to thereplay that is available forapproximately 10 days fol-lowing each conference call;

For a number of years, wehave hosted an annual, one-day Investor Conferenceattended by more than 100key analysts and investorswhere our Chairman,President and other execu-tives formally update theinvestment community oncurrent business trends;

We host approximately 15meetings per year with indi-vidual analysts at our corpo-rate headquarters; and

Our Chairman and execu-tives from Mascos seniormanagement team partici-pate in approximately 10conferences and financialpresentations throughout theUnited States, attracting 50to 150 participants annually.

MASCOA TOP TEN CORPORATE CITIZEN (SO4)Socially Responsible Investing (SRI) is becoming an increasingly significant component ofglobal financial investment with over $2 trillion now managed in this way in the UnitedStates. Citizens Advisers, a leader in responsible investing since its founding in 1982, rec-ognized Masco in its third quarter 2004 Top Ten Corporate Citizens List for environ-mental stewardship. The list is drawn from the Citizens Index, a broad-based index of 300companies that have passed multiple screens for financial strength and corporate responsi-bility. (http://www.citizenfunds.com/top_ten/q3-2004-list.htm)

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OUR EMPLOYEESINTRODUCTION (LA1)At Masco, we rely on the quality of our employees to retain and expand upon our positionas a world leader in the manufacture, supply and installation of home improvement andbuilding products. With competitive pressures rising, customer consolidation and ourresponsibility to deliver improved shareholder returns, our employees have to be among thebest in their respective disciplines. We are committed to promoting and sustaining the health,safety, skills and potential of our workforce and to recognizing and rewarding our employeescommitment to us with excellent career and employment opportunities.

We strive for a diverse and talented workforce that thrives on challenge. At the end of 2003,we employed 59,526 full-time employees, approximately 80 percent (47,831) of whomworked in the United States. Table D provides a distribution of employees by country.

EMPLOYEE ENGAGEMENT (3.19, LA4, HR9)Human Resource (HR) functions at Masco are managed at the operating company level, withMasco headquarters providing consultative support and guidance on the adoption and imple-mentation of policies regarding equal opportunity, dispute resolution, workplace violence andharassment. Our headquarters Group Employee Relations team is linked to the HR func-tions at our operating companies and, together with the Corporate Legal Department, helpsestablish priorities and assists with legal compliance issues. Policies are communicated toemployees through handbooks, postings and our Intranet. Mascos corporate dispute resolu-tion policy guides employees through employment-related disputes including mediation andarbitration proceedings. The mediators and arbitrators involved in this process are independ-ent professionals.

Masco promotes employee involvement throughout the Company. We recognize the knowledge and experience of our workforce and the value of employee consultation. As anexample, our Corporate Operational Services Department assists operating companies withprojects to improve financial, operational and people performance by eliminating non-value-added activities from manufacturing and business processes. These projects include LeanManufacturing, Kaizen, Continuous Improvement, Problem Solving, Business Process Re-Engineering, Six Sigma and Quality Assurance. Since these projects are team-based,employee cooperation and input is crucial to ensuring success.

As an example, during a typical Kaizen event, a cross-functional team spends several daysworking together to achieve significant improvements in their operations. Outcomes have, attimes, included improving productivity by 20 percent; reducing work-in-process inventoryby 50 percent; reducing material handling steps by 33 percent; and implementing safety andenvironmental improvements. The success of similar events has led many operating compa-nies to designate full-time Continuous Improvement Managers to coordinate LeanManufacturing activities.

Table D: Number of Full-Time Employees by CountryDecember 31, 2003

COUNTRY OF FULL-TIMEOPERATION EMPLOYEESAustria 20Belgium 477Canada 1,141China 908Czech Republic 10Denmark 1,770France 111Germany 2,316Hungary 4Italy 546Luxembourg 6Mexico 84Netherlands 267Poland 61Portugal 158South Korea 2Spain 74Switzerland 8Turkey 166United Kingdom 3,566United States 47,831Total 59,526

EQUAL OPPORTUNITY POLICIES AND PROGRAMS (3.19, LA1, LA10)Masco seeks to recruit, retain and advance talented and qualified employees. We are committedto ensuring a diverse and representative workforce without discrimination based upon race, color, religion, sex, national origin or sexual orientation. Masco adheres to all equal employmentopportunity requirements. To help encourage a diverse workforce, Masco recruits at a numberof diversity job fairs as well as at historically African-American colleges and universities.

Masco partners with organizations committed to the principles of diversity. For example:

Menttium 100 is the first cross-company mentoring program in the United States. Mascoprovides both mid-level mentors and mentees for this comprehensive executive develop-ment program for high-potential women in business; and

INROADS has helped businesses gain greater access to diverse talent in urban areas forover 30 years through early identification and continuous leadership development of out-standing students early in their college years. Masco provides internship opportunities tothe program and has hired a number of interns upon program completion.

In addition, Masco is a corporate partner or member of:

The National Black MBA Association (NBMBAA)An organization dedicated to creat-ing intellectual and economic wealth in the African-American community through partnerships with industries and the public and private sectors;

The National Society of Hispanic MBAs (NSHMBA)An organization that fosters Hispanicleadership through graduate management, education and professional development; and

CatalystA non-profit research and advisory organization working to advance women inbusiness and the professions, and improve their representation on corporate boards.

MERILLATS LEAN MANUFACTURING (SO4)In 2003, Mascos Merillat operating company in Atkins, Virginia, received the Shingo Prize forExcellence in Manufacturing. This Prize is North Americas premier manufacturing award recogniz-ing organizations that use Lean Manufacturing strategies and practices to achieve world-class results.Since the adoption of Lean Manufacturing at Merillat in 1998, the cycle time decreased from fivedays to 17 hours, work-in-process inventory decreased 80 percent, quality increased 66 percent andon-time delivery increased to 99.7 percent.

Merillat uses employee involvement and empowerment to deploy world-class strategies and practices.Since 1998, more than 300 employees have participated in Lean activities, such as Kaizen events.As a result of employee participation, days lost due to injury decreased by 98 percent. This Merillatfacility also targeted waste elimination throughout its processes with initiatives such as reducing theVolatile Organic Compound (VOC) emissions per cabinet and recycling finishing material, used oil,wood waste and scrap metal.

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ETHICAL BUSINESS PRACTICES THE RIGHT WAY TO DO BUSINESS (3.5, 3.7, 3.19, HR1, HR4, SO2)Mascos reputation for ethical business practices is one of our most valued assets. Ethical busi-ness practices have long been an integral part of our corporate culture. For over 25 years, ourLegal and Ethical Standards Compliance Program has supported our long-established policythat all employees and agents conduct the business of the Company in compliance with allapplicable laws and in accordance with ethical business practices. During 2002 and 2003, thisprogram underwent careful and extensive review with verifiable communication throughoutthe Company to provide enhanced and practical guidance to employees and to ensure com-mon understandings and practices.

A central element of our business ethics program is our Code of Business Ethics. The Codefocuses on areas of ethical risk, provides guidance on recognizing and dealing with ethicalissues and helps foster Mascos culture of honesty and accountability. For example, the Codeinstructs all employees to comply with all applicable laws including those prohibiting insid-er trading, harassment and discrimination. It clarifies Mascos insistence on fair dealings withall of its stakeholders, stating clearly that we will not take advantage of anyone throughmanipulation, concealment, abuse of confidential information, misrepresentation of materi-al facts or any other unfair dealing practice. The Code also serves to satisfy certain require-ments of the Sarbanes-Oxley Legislation relative to Mascos senior officers.

ETHICS IN ACTION (3.5, 3.7, HR8, HR10)To reinforce our Code of Business Ethics program, we have developed a number of mecha-nisms to communicate its requirements, confirm compliance and train employees on broad-er ethical behaviors and expectations.

The Masco Ethics Hotline, staffed by English- and Spanish-speaking representatives, providesan anonymous route to report perceived unethical conduct. Translation services are available forother languages. Administered by an independent company, the Hotline is available 24 hours aday, seven days a week. Introduced to our U.S. employees in January 2004, and currently being

introduced internationally, the Hotline is available for employees to report any concernsthey may have regarding perceived illegal or unethical behavior. This includes, amongother issues, complaints about accounting, auditing, environmental, legal, health and safe-ty, and import/export regulations. Our aim is to investigate and resolve satisfactorily anyHotline report within 30 days of the initial call. The Code forbids retaliation of any kindagainst good faith reports or complaints of alleged Code violations.

The Hotline number, printed on a wallet card, together with copies of the Code ofBusiness Ethics and a joint letter from our Chairman and our President, were mailed to all U.S. employees homes and are provided to all new employees. We are in the process of translating materials into 23 languages for further distribution, domestically and internationally.

Annually, all executives and key employees are expected to read, disclose exceptions, sign andreturn a statement certifying their compliance with the Legal and Ethical StandardsCompliance program. The Senior Vice President and General Counsels office verifies thataffected employees return signed statements.

TRAINING AND DEVELOPMENT (LA17)INTRODUCTION

Masco believes that the professional development of our people is central to improvingCompany performance and meeting the challenges of our increasingly demanding marketsand customers. We are committed to the continuous growth and development of our peoplethrough applied learning processes. Our Corporate People and Organization DevelopmentGroup supports development in the following areas: leadership and management, interper-sonal effectiveness, customer service, quality, financial literacy, sales and business communi-cation.

MASCO UNIVERSITY

Masco University, our in-house Learning Management System (LMS), is an important toolin managing the training activities of employees throughout the Company. It offers e-train-ing in a wide variety of courses that reinforce our employment, ethics, health, safety and envi-ronmental policies. In addition, Masco University also supports operating companies byassisting with the development of training programs that respond to specific issues at individ-ual facilities.

Masco University provides two core ethics courses, among others. The first of the core cours-es introduces the Code of Business Ethics with the second course, The Code at Work, demon-strating application of the Code in everyday business situations. This Internet-based trainingwas required for 6,000 Masco senior managers in early 2004. Since then, the training hasbeen expanded to include Mascos salaried employees in management and sales.Approximately 85 percent of this group had completed the first course by mid-2004.Successful completion of the training by key employees is a factor in the performance evalu-ation of all operating company general managers and corporate executives. The ethics train-ing program will be introduced internationally in late 2004.

INVESTORS IN PEOPLE AWARD (SO4)Since 1999, Mascos Premier Trade Frames operating company in the United Kingdom has achieved the U.K. Governmentstandard for employee trainingthe much coveted Investors in People award. Each individual in the organization has adefined job description along with key tasks documented in their training files. Employee training needs are evaluated reg-ularly, with the operating company striving to eliminate employee dissatisfaction.

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HEALTH, SAFETY AND ENVIRONMENTAL TRAINING

Selected health, safety and environmental training is provided by our Corporate HSEDepartment. The Department holds regular conferences providing training opportunities forHSE staff from the operating companies. These conferences present best practices, regulato-ry updates and training regarding specific regulations. The HSE Department also communi-cates with the operating companies through a website, e-mail bulletins and on-site trainingsessions.

ADVANCED STUDY

Masco sponsors candidates from operating companies and headquarters in a three-yearMaster of Business Administration (MBA) program developed in partnership with a promi-nent Michigan university. Our MBA program combines rigorous academic learning with thereal-world experience of its participants to create world-class business leaders.

We also offer a leadership program in Operations Management, designed to engage and chal-lenge our employees to build their skills and leadership capabilities in this evolving field.

EMPLOYEE HEALTH AND SAFETY Masco continually strives to provide a safe and healthy workplace for our employees, and weare committed to continual health and safety improvement.

HEALTH AND SAFETY MANAGEMENT SYSTEMS AND AUDIT (2.20)To ensure Company-wide accountability for safety, our Health and Safety professionals atheadquarters comprehensively audit regulatory compliance and safety management systemsin our North American facilities. Aligned with internationally recognized guidelines such asOHSAS 18001, OSHA VPP and ILO-OSH 2001 Guidelines on Occupational Safety andHealth Management Systems, the safety management systems audit assesses key elements ofthe system. This system includes management participation, establishing safety goals,employee participation, hazard analysis, hazard reporting, inspection, investigating incidents,health and safety training, emergency preparedness and contractor safety. From the auditresults, we generate and communicate corrective action plans and monitor their progress.

In our efforts to continually improve our safety performance, we encourage operating com-panies to obtain third-party certification for the OHSAS 18001 management system. During2003 and 2004, selected facilities modified their existing management systems to the OHSAS18001 format. In September 2004, Hansgrohe in Alpharetta, Georgia, completed the verifi-cation audits and achieved certification for OHSAS 18001. We expect additional operatingcompanies to achieve certification in the future.

EMPLOYEE PARTICIPATION IN HEALTH AND SAFETY (LA6)At Masco, we actively encourage employee participation in safety management systems. Westrive to provide a variety of opportunities for employees to participate actively in the safetyprocess. One common approach at the operating company level is through membership on asafety committee, and many of our operating companies provide additional means for partic-ipation as well. For example:

At KraftMaid Cabinetry in Middlefield, Ohio, plant managers, supervisors and hourlyemployees participate in monthly safety audits and assist with safety-related investigations; and

Since BrassCraft began actively soliciting employee feedback in its Brownstown, Michigan,facility five years ago, accidents and days lost due to injury have declined significantly. Asan example, an employee suggested building a rotating fixture to deliver plumbing parts topackers who previously had to reach across a wide table to retrieve them. BrassCraft hasincorporated this employee suggestion at every packing station, resulting in reducedinjuries.

WELLNESS PROGRAMS (LA12)Numerous health promotion and wellness programs exist throughout the Company.Programs are developed and implemented at individual sites to address local needs. These pro-grams include immunization and screening, fitness centers, health risk assessments, nutrition-al guidance and assistance to lose weight and stop smoking. Success stories include:

KraftMaid Cabinetry in Middlefield, Ohio, sponsors a prominent weight loss program atwork and pays half of the fees for participation. Each weekly session offers a private weigh-in followed by a group meeting where topics such as healthy weight loss, good nutrition,behavior modification and weight loss celebration are discussed. KraftMaids employee par-ticipation level has been overwhelmingly positive with an average of 15-35 employees perseries. Overall, participants have achieved weight loss of more than 1,900 pounds; and

Mills Pride in Waverly, Ohio, sponsors an annual Safety and Health Fair designed toenhance employee awareness of safety and the importance of wellness programs. Exhibitorsin the Fair include an optometrist who consults on vision care and medical staff who per-form blood pressure checks, cholesterol screenings, body fat analyses and diabetes tests.

INJURY DATA (LA5, LA7)By collecting and analyzing injury data centrally, we are able to identify trends and prioritizefacilities in need of the greatest support. Our practices for recording injuries are consistent withthe International Labor Organization (ILO) Code of Practice on Recording and Notificationof Occupational Accidents and Diseases. Injuries to temporary employees are also included inour injury rates. We do not currently track injury rates for outside contractors working at ourfacilities; however, we intend to collect and report on injury data for contractors in the future.

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In order to raise awareness and continue to improve performance, Masco implemented theSafety Excellence Award program. Through this program, awards are presented to recognizeour best-performing operating companies and facilities. Four metrics are evaluated in theaward process. These include incidence, lost day frequency and lost day severity rates, as wellas excellence in the safety management system. The program also recognizes those operatingcompanies and facilities demonstrating significant improvement in the safety metrics over theprevious year.

Additionally, Masco operating companies received safety awards from external sources. Theseawards included:

The Royal Society for the Prevention of Accidents presented the CommendationCertificate to The Moores Group in England;

The Ashtabula Safety Council and the Bureau of Workers Compensation Division ofSafety and Hygiene presented the Safety Achievement Award to KraftMaid Cabinetry forreducing its accident rate by more than 25 percent in one year. The facility in Orwell,Ohio, also received an additional award for working more than 500,000 hours and at leastsix months without a lost day injury;

The National Paint and Coatings Association presented the Safety Award of Excellence toseveral Behr Process facilities in the United States and Canada. This award is presented to facil-ities in recognition for outstanding achievements in safety performance; and

The North Carolina Department of Labor presented the 2003 Gold Safety Award toBrassCraft Manufacturing in Thomasville, North Carolina, for the fourth consecutiveyear. The award recognized the achievement of a LDFR more than 50 percent below theindustry average.

CHARITABLE CONTRIBUTIONSINTRODUCTION (3.19, EC13)As a responsible corporate citizen, Masco provides financial support for not-for-profit organi-zations that promote decent housing environments, the arts and other civic initiatives prima-rily in Detroit and southeast Michigan. Our corporate giving is through three principalsources: the Masco Corporation Foundation, Masco corporate funds and our individual oper-ating companies. In 2003, our global contributions exceeded $6.6 million.

MASCO CORPORATION FOUNDATION (EC10)Mascos Foundation was established in 1952 and is funded primarily with contributions fromMasco Corporation. The Foundation provides financial and in-kind support via strategicpartnerships with results-oriented organizations compliant with U.S. tax code 501(c)3. Giftsfrom the Foundation are focused primarily on low-income housing, and arts and cultural ini-tiatives in the southeast Michigan region (please see Chart 7). In 2003, the Foundationreceived a grant of $2 million from Masco Corporation.

Arts/CultureHousingCivic/CommunityEducationHealthEnvironment

Chart 72003 MASCO CORPORATION FOUNDATION

CONTRIBUTIONS BY CATEGORY

$1,314,500

$478,500

$444,500

$135,000$85,000$30,000

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Masco has historically trackedand reported lost day frequen-cy rates (LDFR) and lost dayseverity rates (LDSR) for facil-ities in North America. In2003, the Corporate Healthand Safety Department begancollecting injury data fromfacilities outside of NorthAmerica. LDFR includes allcases resulting in one or moredays away from work beyondthe day of injury or onset ofillness. LDSR includes thedays away from work beyondthe day of injury or onset ofillness. We also track andreport incidence rates (IR) forNorth American facilities. IRincludes all cases that result inloss of consciousness, daysaway from work, restriction ofwork or motion, transfer toanother job or medical treat-ment beyond first aid. For our

performance against these metrics, see Charts 4, 5 and 6.

While our Installation and Other Services segment contin-ues to improve upon its injury rates, the rates remain high-er than industry averages and our manufacturing segmentsdue to the inherent nature of this business. Challengesinclude managing hazards in the construction process,managing the risks associated with thousands of Companyvehicles on the road every day and managing the hazards ofworking at height. We have implemented many improve-ment programs including outreach to builders, fall protec-tion and defensive driver training. We will not be satisfiedwith our safety performance while injuries still occur, andwe are actively engaged in continuing to identify andimplement program improvements.

The Charts below reflect that our structured continuousimprovement programs are delivering positive results acrossthe Company. While these positive trends are encouraging,we regret to report that the Company experienced an off-site traffic fatality of a sales employee in 2003.

SAFETY MILESTONES AND AWARDS (3.19, SO4)Many of our operating companies have reached significantmilestones during 2003 with respect to improved injuryrates including:

Alsons in Hillsdale, Mich-igan, has achieved morethan two years without alost day injury;

Delta Canada in London,Ontario, went a full yearwithout a lost day injury;

Mills Pride in Sayre,Pennsylvania, achieved 477days (more than 1.4 mil-lion hours) without a lostday injury;

Delta Faucet in Jackson,Tennessee, exceeded onefull year (1.6 millionhours) without a lost dayinjury; and

Merillats Panel Facility inAtkins, Virginia, achievedmore than 600 days with-out a lost day injury.

0

30

60

90

120

150

01 02 03 01 02 03 03

Chart 5LOST DAY SEVERITY RATE*

Days lost per 100 employees

ManufacturingInstallation and Other ServicesFacilities Outside of North America**

* Industry average for lost day severity rate is not available.** The Corporate Health and Safety Department began collecting injury data in 2003 from facilities outside of North America; therefore, data are available only for 2003.

51.1

28.9 26.832.9

127.5113.6

110.5

0

1

2

3

4

5

6

1.61.2 1.0

1.9

5.7

4.5 4.33.7 3.8

01 02 03 0301 02 03

Chart 4LOST DAY FREQUENCY RATE

Lost day cases per 100 employees

ManufacturingInstallation and Other ServicesFacilities Outside of North America*Industry Average**

* The Corporate Health and Safety Department began collecting injury data in 2003 from facilities outside of North America; therefore, data are available only for 2003 and industry average is not available.** Industry average for manufacturing: 2002 U.S. Bureau of Labor Statistics for Durable Goods Manufacturing. Industry Average for Installation and Other Services: 2002 U.S. Bureau of Labor Statistics for SIC 174 (masonry, stonework and plastering).

0

2

4

6

8

10

12

Chart 6INCIDENCE RATE

Injuries per 100 employees

01 02 03 01 02 03

ManufacturingInstallation and Other ServicesIndustry Average*

* Industry average for manufacturing: 2002 U.S. Bureau of Labor Statistics for Durable Goods Manufacturing. Industry Average for Installation and Other Services: 2002 U.S. Bureau of Labor Statistics for SIC 174 (masonry, stonework and plastering).

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7.9

11.810.8

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MASCO CORPORATE FUNDS

Corporate funds are also used to support a variety of organizations. These gifts are not necessarilyrestricted to undertakings complying with U.S. tax code 501(c)3. The choice of recipients is influ-enced and directed by a broad array of individuals throughout Masco. Financial support from cor-porate funds in 2003 was approximately $750,000. This was supplemented by other internal con-tributions including support for the employee matching gift program, as well as the value of in-kind product donations, bringing total gifts from corporate funds to $1.1 million in 2003. In addi-tion to providing funds to well-managed, not-for-profit organizations, Masco encourages and sup-ports employee volunteer and charitable activities throughout the organization.

OPERATING COMPANIES

Our operating companies actively support charitable organizations in their local communi-ties. These contributions take the form of cash contributions and the donation of manufac-tured product. The total fair market value of the collective support to charitable causes byoperating companies exceeded $3 million in 2003.

KEY COMMUNITY PROJECTS INTRODUCTION

Masco supported a variety of community projects during the course of 2003. The followingsummaries provide a small sample of our community engagements.

REACH GRANT PROGRAM

In 2003, Mascos Foundation awarded grants to a variety of arts and cultural organizations in south-east Michigan in response to difficult economic conditions. Our community-wide initiative toRevitalize and Enhance the community through Arts, Culture and Housing (REACH) is aimed atsupplementing operating budgets and community outreach efforts, particularly those aimed atyoung people. Recipients of nearly $500,000 worth of grants given by our Foundations REACHprogram to 19 organizations included, among others: Detroit Historical Museum, Michigan OperaTheatre, Detroit Symphony Orchestra, Charles H. Wright Museum of African American History,The Detroit Institute of Arts, Plowshares Theatre Company, Detroit Public Television, Casa deUnidad Cultural Arts Center and the YMCA Metro Detroits Arts and Humanities program.

HABITAT FOR HUMANITY

Masco Corporation has partnered with Habitat for Humanity International for a number ofyears in its mission to eliminate poverty-housing and homelessness while making decent shel-ter a matter of conscience and action. Masco was the leading corporate sponsor of the 2003Habitat Detroit Blitz Build and underwrote the construction of four homes, including onebuilt by our headquarters employees. Mascos support also extends to international projectsincluding support for the construction of four homes in South Africa in 2002 and a total ofeight homes in Armenia in 2003 and 2004.

ARAB COMMUNITY CENTER FOR ECONOMIC AND SOCIAL SERVICES(ACCESS) / JEWISH FEDERATION OF METRO DETROIT (JFMD)

Masco Corporation Foundation awarded grants of $250,000 each to ACCESS and JFMD tosupport educational exhibits at the Arab American National Museum being built inDearborn, Michigan, and the Jewish Community Center in West Bloomfield, Michigan,under construction during 2003 and 2004. The purpose of these gifts is to encourage a continuing dialogue that will promote greater understanding and acceptance between thesecommunities.

CITY OF HOPE

The City of Hope in California is an innovative biomedical research, treatment and educa-tional institution, dedicated to the prevention and cure of life-threatening illnesses such ascancer, HIV/AIDS and diabetes. Masco is proud to support the organization through ourbacking of the Hardware/Home Improvement (HHI) industry support group. HHI hasdonated over $131 million to City of Hope and remains one of the strongest providers of vol-unteers, including active participation by a number of Masco employees throughout ouroperating companies. Volunteer loyalty and commitment has allowed City of Hope to min-imize overhead and devote 84 percent of resources directly toward its good works.

In recent years, the community has honored Masco with a number of awards for its charita-ble activities. A partial list of these awards may be found in Table E.

Table E: Community Honors Received by Masco (SO4)

Award Year Received Organization PurposeGold Award 2004, 2003, 2002, 2001 United Way In recognition of the outstanding

support Masco and its employeeshave given to United Way.

Commitment to 2004 Volunteer Accounting For providing longstanding and extra-Community Award Service Team of Michigan ordinary effort to the tax assistance

(VAST MI) program for low-income families.

Platinum Award 2004, 2003 American Red Cross In recognition of ongoing supportSilver Award 2002 to the blood supply donation.

Corporate Honor 2002 Taylor School Foundation In recognition of outstandingAward for Educational Excellence contributions towards

excellence in education.

Partner Award 2002 Community Development In recognition of support andAdvocates of Detroit (CDAD)/ contributions to the success of Community

Local Initiative Support Corporation (LISC) Development Corporations in Detroit.

Sponsor of the Year 2002 Habitat for Humanity For providing simple affordableDetroit, Michigan housing to disadvantaged and low-

income families in Detroit.

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WORKING WITH SUPPL IERS (3.16, 3.19, HR1, HR2, HR3)Our efforts to work effectively with our stakeholders extend throughout our supply chain ofover 13,000 suppliers in 36 countries in 2003. We take care to encourage our suppliers to actresponsibly. Our goal is to ensure that our suppliers employees are paid fairly, have theirrights respected, and manufacture products in healthy and safe facilities within operationsthat work to reduce their negative impact on the environment. We are working to strength-en our framework, particularly as we expand our manufacturing and sales in growing marketssuch as China. We are also looking at ways to better understand and verify supplier perform-ance on-site and remotely.

Supplier questionnaires and incentives have been developed and used by Masco operatingcompanies to improve upon supplier performance in a number of areas. For example, BehrProcess requires all suppliers to complete a detailed questionnaire covering product steward-ship, transportation and distribution safety, and other HSE initiatives. The ability of the sup-plier to provide independent verification of formalized management processes and compli-ance with human rights initiatives is also evaluated.

Additionally, the Masco Supplier Team Award Recognition (MASTAR) program seeks toreward leadership, communication, commitment and cooperation while achieving world-class quality, cost reduction, delivery, service and sustainability. Suppliers are expected to pro-vide evidence in support of this self-assessment to the Masco purchasing team. If require-ments are deemed not to have been met, suppliers must provide a plan for corrective action.Included within the assessment are criteria relating to the systematic management of health,safety and environmental issues as well as innovation and process improvements.

CUSTOMERS AND PRODUCTS (PR1)At Masco, we believe that we can serve our customers best by working with them in partner-ship for the management of sustainable development. A particular challenge is the diversityof sustainability approaches that our largest customers are using. Our response has been todevelop a variety of strategies including:

Anticipating and responding to the sustainability management programs that our cus-tomers require from their suppliers;

Enhancing Mascos reputation as a preferred provider that works in partnership with itscustomers; and

Embedding sustainability into brand and product offerings in order to increase customerbenefits and maximize current and future markets for more sustainable products. Forexample, plumbing products operating companies, Hansgrohe and Damixa, have devel-oped showers and faucets that minimize water waste; and BrassCrafts Safety+PLUSautomatic gas shut-off system that protects homes from catastrophic gas leaks, won TheDesign Journals 2003 Platinum Award for Design Excellence (ADEX).

ERGONOMIC KITCHEN DESIGNThe Moores Group operating company in the U.K., along with others in our cabinet segment, has assessed the design ofkitchens and produced the Ergonomic Range, aimed primarily at elderly consumers. It includes fittings that aid mobili-ty, reach, lifting, storage and lighting. The design of the Ergonomic Range was a collaborative effort among experts in fur-niture design, occupational therapy and component providers, and was influenced by customer feedback.

The successful incorporation of ergonomic considerations in product design is also reflected in the Passport Series producedby KraftMaid for the U.S. market. This design won a Platinum Award in the Professional Division of the New Productsfor Mature Markets Design Competition sponsored by the American Society on Aging, and meets specifications recommend-ed by the Americans with Disabilities Act (ADA).

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ENVIRONMENTALMANAGEMENT (3.19)ENVIRONMENTALMANAGEMENTSYSTEMS(3.20)Masco believes that environ-mental issues at any facilitycan best be managed througha systematic approach. To help implement our environ-mental policies, we stronglyencourage each operatingcompany to develop a formalEnvironmental ManagementSystem (EMS). As stated by the United StatesEnvironmental ProtectionAgency (USEPA), An EMS isa continual cycle of planning,implementing, reviewing andimproving the processes andactions that an organizationundertakes to meet its busi-

ness and environmental goals. Since 1999, Masco operat-ing companies have engaged third party auditors to certify their Environmental Management Systems to theinternational ISO 14001 standard. At the end of 2003, 13facilities had an ISO 14001 certified EMS with 10 morefacilities in process. Our Corporate Environmental AffairsDepartment supports the operating company throughoutits pursuit of certification, including training of facilitypersonnel.

MEASURING ENVIRONMENTAL PERFORMANCE

For several years, Masco has been collecting data and usingenvironmental indicators to measure performance towardenvironmental goals. In 2003, we started ourEnvironmental Metrics program and began collectingadditional environmental data. For the purpose of increas-ing awareness and improving performance, theEnvironmental Affairs Department at Masco created anEnvironmental Excellence Award to recognize leadingenvironmental performance in our operating companies.We expect to announce the first award recipients in 2005,based on 2004 performance. We will continue to expandupon our data collection and use the information to identify opportunities for environmental improvements.

VALUING THE ENVIRONMENT

ENVIRONMENTALCOMPLIANCE AUDITS(2.20)The environmental profession-als at Masco conduct compli-ance audits at all manufacturingsites and a number of distribu-tion facilities in North Americaat least once every three years.We use auditing software tosupplement our efforts andensure audits are comprehen-sive. Several Masco operatingcompanies use the same soft-ware to self-audit their facilitieson a more frequent basis. Ournon-U.S. facilities are auditedby outside consultants.

DELTA FAUCET RECOGNIZED FOR ENVIRONMENTAL RESPONSIBILITY (SO4)Our Delta Faucet facility in Jackson, Tennessee, has been acknowledged for environmental responsibility by becoming aTennessee Pollution Prevention Partnership (TP3) Performer. (http://www.state.tn.us/environment/dca/tp3/) TP3 is astate-wide network of households, schools, government agencies, organizations, businesses and industries working together toprevent pollution. The facility achieved this status by using its ISO 14001 certified Environmental Management System tomeet its commitments of compliance with environmental laws and pollution prevention.

Performance-related results include the following success stories:

Removing a gas-fired dryer in the wastewater treatment process eliminated six metric tons of annual air emissions andreduced energy demands by one-half;

Changing coolants in machining allowed the facility to lower the temperature on the parts washer tanks, resulting in99.95 percent less energy for heating; and

Placing all material safety data sheets online and improving access to Intranet information resulted in a more efficientuse of resources and a reduction in the amount of waste generated.

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WORKING WITH OTHERS (3.15, 3.16, EN33, HR6)Masco works with suppliers to achieve environmental objectives. For example, Masco evaluatessuppliers with national corporate contracts as part of the MASTAR award (please see pg. 24 formore details on the MASTAR award). In addition, many Masco operating companies employevaluation processes for their supply base that may include a review of their commitment to envi-ronmental stewardship. For example, Damixa works closely with its key supplier based in Taiwanwhere the suppliers operational standards are fully assessed, evaluating its compliance againstDamixas standards. In addition to environmental management, the assessment covers variousissues such as child labor practices, conditions of employment, health and safety, and supply chainmanagement.

Our operating companies utilize contractor/supplier agreements to ensure that contractorsand suppliers conduct their work activities in a responsible manner and that materials andwastes are handled in compliance with environmental laws and regulations.

Masco works in partnership with regulatory agencies as well. The USEPA Administratorappointed a Masco representative to participate in the Common Sense Initiative and theStrategic Goals Program for the metal finishing industry. A Masco representative was alsoappointed to the advisory committee, under the Federal Advisory Committee Act (FACA), todevelop the standards for air emissions from combustion devices and wood finishing operations.

In addition, Masco is a founding member and participates actively in the Southeast MichiganSustainable Business Forum (SMSBF). The Forum is a learning organization that meetsmonthly to discuss pertinent issues and hear presentations concerning the practical andstrategic inclusion of sustainability issues in business. Representatives from a number of cor-porations, community groups, academic institutions and other NGOs, as well as individualsfrom the Michigan Governors Office, frequently attend SMSBF meetings.

MAKING THE MOST OF RESOURCES Masco is committed to using raw materials efficiently. We are working to design resource effi-ciency into our manufacturing processes by investing in new equipment that is less wastefuland by measuring our performance in order to manage it better. For example, at severalMilgard manufacturing facilities and at our Duraflex facility, we adjusted our vinyl saws tominimize waste and improve productivity. At a Milgard facility, we increased the glass batch-ing size to make more efficient use of glass. At our Merillat facilities, we are using Six Sigmato reduce the amount of wood waste from cut direct saws by 50 percent.

USING RECYCLED MATERIALS IN PRODUCTION (EN2)Recycled or recovered materials play an important role in our manufacturing processes. We strive to reuse materials or use recycled or recovered materials in our processes where possible, allowing us to consume fewer raw materials and natural resources.

Our 2003 successes include:

The particleboard manufactured at Merillat in Rapid City, South Dakota, is composed of80 percent wood waste, including shavings and wood dust from the areas lumber indus-try. Woodpiles created by loggers are collected, chipped and brought to the facility for usein the particleboard rather than being burned. Merillat purchases approximately 100,000metric tons of wood waste per year;

Texwood facilities in Texas and Kentucky used 74,800 metric tons of particleboard andmedium density fiberboard (MDF) made from wood waste;

Milgards manufacturing facilities send clean vinyl scrap back to the Milgard vinyl extru-sion facility in Tacoma, Washington, to be reused. The company reused 2,358 metric tonsof scrap vinyl in 2003;

In Milgards glass tempering facilities in Tacoma, Washington and Dixon, California, recy-cled glass made up 10 percent of the raw material in its glass production;

Since 1995, Behr has incorporated the use of recycled plastic in its packaging. Behr's sup-plier, a national vendor of plastic products, recycles used automobile battery casings fromwhich it manufactures plastic containers of various sizes;

A.J. Gummers in the United Kingdom utilizes reusable pallets and plastic bins instead ofcardboard boxes in line-side supply systems. It also recycles scrap metal, wood, brass scrapand other general waste; and

Nearly all of the brass scrap chips from the manufacture of plumbing products at DeltaFaucet and BrassCraft are recycled back to the brass suppliers.

MINIMIZING WASTE (EN11)Masco constantly strives to reduce the quantity and toxicity of the waste we generate.Although Masco does not currently consolidate waste data on a corporate-wide basis, we willbegin to do this through our SRM system in 2005. As this system is expanded across

TVILUM-SCANBIRK CHIPS AWAY AT WASTESince 1998, our Danish cabinet operating company, Tvilum-Scanbirk, hasbeen substituting chipboard off-cuts and chips from a local chipboard man-ufacturer for virgin wood chips in its production processes. Use of this wastematerial as a replacement for relatively expensive virgin wood, transportedfrom distant forests and requiring expensive drying processes, is both costeffective and highly efficient environmentally. The waste management part-nership was boosted in 2003 when the chipboard manufacturer beganincorporating treated, post-consumer wood such as unwanted furniture, pal-lets and packaging into our consignment. Tvilum-Scanbirks raw materialconsumption now includes 50,000 metric tons of wood waste annually.

0500

1,000

1,500

2,000

2,500

3,000

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Chart 8TRI TOTAL ONSITE RELEASES

In Metric Tons

2,587

1,548 1,619 1,5811,766

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operating companies and fine-tuned for consistency, we expect the comprehensiveness of ourdata systems to improve markedly. This will enhance our ability to report on waste produc-tion in future reports. Our operating companies monitor their waste generation and look foropportunities to decrease waste and cut costs whenever possible. Success stories in the reduc-tion of non-hazardous waste generated include:

Milgards glass tempering facility in Tacoma, Washington, has been successful in usingglass optimization software to reduce waste and increase yield. Milgard recycled 100 per-cent (7,600 metric tons) of its scrap glass in 2003;

Waste minimization efforts at Texwood Industries in Texas and Kentucky have prevented8,200 metric tons of solid waste from going to landfills each year;

At Mills Pride in Waverly, Ohio, the plant segregates wood waste, recyclables and palletsfrom the regular trash being sent to landfills, thus reducing landfill costs and saving land-fill space. Mills Pride-Waverly has maintained a recycling program since 1989. In 2003,3,600 metric tons of material were collected, processed, reused and sold as recyclables;

Behr Process in Santa Ana, California, received a WRAP (Waste Reduction AwardProgram) award from the California Integrated Waste Management Board for its effortsin diverting 187 metric tons of metal and plastic from state landfills in 2003; and

Behr Process in Chicago Heights, Illinois, was recognized for its efforts in waste reductionby the Illinois Waste Management and Research Center. In 2003, the Chicago Heightsfacility diverted 479 metric tons of recyclable material from disposal.

We also strive to reduce the toxicity of the waste we generate by reducing the use of hazardoussubstances in our operations. Success stories surrounding our reduction in the amount of haz-ardous waste generated include:

Behr Process in Chicago Heights, Illinois, eliminated mineral spirits from its manufactur-ing operation. This action reduced total Volatile Organic Compound (VOC) emissionsand virtually eliminated hazardous waste from the facility; and

At Vapor Technologies in Longmont, Colorado, the use of its most hazardous materials,Isopropyl Alcohol (IPA) and Lenium ES, has been reduced roughly 90 percent from 2003to 2004.

Masco recognizes that the toxic chemical releases reported in the EPAs Toxic ReleaseInventory (TRI) are a key area for improvement, and we have succeeded in reducing our on-site waste as shown in Chart 8. For the five-year period, chemical on-site releases, as definedby EPAs TRI reporting instructions, were cut by 32 percent while Mascos net sales nearlydoubled with an annual growth rate of 17 percent.

RECYCLING AT MASCO (EN11)Most of our operating companies segregate and send cardboard, particleboard, pallets andscrap metal for recycling, and many exceed this best practice. In fact, in 2003, data submit-ted by facilities that file a Toxic Release Inventory (TRI) show 63 percent of the TRI chem-icals managed are recycled or reused for energy recovery on- or off-site (please see Chart 9).

Many of our operating companies implement extensive recycling programs or include recyclingas part of their EMS or improvement programs, such as Six Sigma or Kaizen. For example:

Texwood facilities in Duncanville and Cedar Hill, Texas, recycled 21,500 metric tons ofwood dust for reuse in garden decking, fire logs, garden centers and cement factory fuel.The Duncanville facility also uses sawdust innovatively as a filtering medium for glue washwater. The sawdust is reused several times before disposal. Texwood received an awardfrom the City of Duncanville, Texas, for Leadership in Recycling as a result of its efforts;

DAMIXA EXCELS IN PACKAGINGWhen shipping faucets, our Danish operating company, Damixa, uses innovativecardboard boxes where the fluting and inner layer are composed of recycled paper.The outer paper is printed in a single color with ink containing no heavy met-als. The opening flap of the box is glued closed, eliminating the use of plasticstrapping as a security measure. Within the box, internal protection is providedby cardboard fittings (made from recycled material), bubble wrap and polyeth-ylene bags. Packaging materials are assessed as part of Damixas environmentalpolicy with a target of using 100 percent recycled papers and eliminating the useof plastic materials internally where possible.

m30 31

VAPOR TECHNOLOGYS ZERO-WASTE VACUUM COATINGVapor Technologies developed a physical vapor deposition coating process that replaces ahazardous waste generating plating technique while producing corrosion and wear-resist-ant coatings with a highly decorative appearance. Its Low Temperature Arc VaporDeposition (LTAVD) process is the technical centerpiece of the business. As the nameimplies, its energy requirements are not excessive and the LTAVD process is safe for theenvironment and workers. The hazardous or toxic materials produced are negligible. The only waste generated is a smallamount of non-hazardous dust and some non-hazardous oil from the vacuum pumps. The process is also good for our busi-ness and for consumers since our products coated using this process come with a lifetime warranty against tarnishing, pit-ting, corrosion or discoloration. We use this technology extensively in manufacturing our plumbing products.

Recycling or Energy RecoveryReleasedTreated

Chart 92003 TRI CHEMICAL MANAGEMENT

20%

17% 63%

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MILLS PRIDE: PROUD OF ITS WASTE SAVINGSMills Pride in Waverly, Ohio, in conjunction with the Ohio State Environmental Protection Agency Division of HazardousWaste Management (DHWM) and Ohio Pollution Prevention (P2), conducted an assessment that focused on the coatingapplication process at the facility. Following the assessment, a number of existing coating spray guns on the coating lines werereplaced with new spray guns that reduced the amount of coating overspray during the finishing process. The replacementof these spray guns resulted in an increase in the efficiency of its coating process by approximately 35 percent, decreased thevolume of raw materials purchased for the coating operation and reduced the volume of waste generated by the company.The total annual savings is significant and the environmental benefit is a 30 percent reduction (137 metric tons) of VOCemissions each year.

Mills Pride in Sayre, Pennsylvania, sent 16 metric tons of cardboard for recycling in 2003,while the Waverly, Ohio, facility increased the amount of materials recycled (metals, films,cardboard, pallets, aerosol cans, PVC vinyl) by nearly 18 percent between 2001 and 2003(from 3,084 to 3,629 metric tons);

Milgards glass tempering facility in Dixon, California, broadened its recycling programsfor cardboard, paper, plastic and glass. As a result, 239 metric tons of waste were divertedfrom the landfill producing annual savings in landfill disposal costs. The Dixon facility alsoreduced its raw glass waste by 600 metric tons annually; and

Six Behr Process sites in California increased their recycling by 14 percent, with one facil-ity sending stretch film and cardboard for recycling to reduce waste costs by 68 percent.

WATERWATER USE (EN5, EN22)Our continual improvement initiatives, supported by our site-based environmental manage-ment systems, continue to yield water savings. In 2003, we succeeded, for the first time, inintegrating the water usage data from all domestic Masco facilities. We used 1.9 million cubicmeters of water in 2003. In a review of 39 of our facilities where water data are available foreach of the last three years, consumption dropped by 7.6 percent between 2001 and 2003(please see Chart 10).

Delta Faucet Company is currently Mascos largest user of water. To reduce and control wateruse, Delta employs a variety of techniques and continues to search for new ways to reducewater usage at its facilities. For example, when Deltas facility in Jackson, Tennessee, discov-ered that its production had outgrown the capacity of the water softening equipment used inthe plating process, it reduced the amount of water used in the plating department byinstalling control valves. This solution brought about a decrease in water usage with averagesavings of over 34,000 cubic meters a year.

0.0

0.5

1.0

1.5

2.0

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Installation and Other ServicesPlumbing ProductsDecorative Architectural ProductsCabinets and Related Products

* Based on 39 domestic facilities, accounting for 77 percent of domestic use. Water con- sumption for our Other Specialty Products segment was not available for each of the three years.

Chart 10WATER CONSUMPTION*

In Million Cubic Meters

1.11

.07

.24.07.22

.07

.23

1.04

.16 .16

1.00

.16

MERILLAT PURSUES RECYCLING AGGRESSIVELYMerillat manages various types of waste inherent in cabinet manufacturing. At its woodworking and finishing facilities,recycling programs include selling sawdust and shavings for agricultural use, manufacturing fire logs, and use as filler incomposite board and decking. From one facility alone, over 22,000 metric tons of material a year were recycled or reusedin these ways instead of being sent to landfills. Wood chips and sawdust are also used by several locations as fuel for heat-ing. At one facility in Atkins, Virginia, 6,200 metric tons of wood waste were used to fire a boiler in 2003. Two Merillatfacilities also utilize solvent distillation units to reclaim solvent for reuse, resulting in fewer raw material purchases and lesshazardous waste requiring disposal.

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Many other operating companies also focus on limiting their water use through technologyand management systems. For example:

Vapor Technologies in Longmont, Colorado, installed an automatic clean-line that iscompletely self-contained. All water, including the water contained in the cleaning baths,is treated and recirculated in the closed-loop system; and

In 2003, all six Behr Process manufacturing facilities developed water reuse systems,reducing the water used and the waste generated. Behr also installed pigging systems thatassist in maximizing batch yield while reducing the generation of waste paint.

WATER QUALITY (EN12)We believe that we have a moral responsibility to ensure that the water we discharge from ourmanufacturing processes is within mandatory quality parameters. For example, water fromour plating facilities is treated in on-site wastewater treatment plants to remove or reduce con-tamination. The water is then tested for suspended solids, heavy metals and other pollutantsto ensure it meets local parameters before it is released to local Publicly Owned TreatmentWorks (POTW) facilities.

Masco facilities do not discharge untreated process water directly to any surface water (e.g.,river, stream, lake). Transfers of compounds in process waters to POTWs and transfers ofcompounds in storm waters to surface waters are reported by facilities that file a Toxic ReleaseInventory (TRI). These facilities have decreased the quantities of the compounds released insuch a manner by 62 percent since 1999 (please see Chart 11).

AIR EMISSIONS (EN10)Some larger Masco manufacturing facilities release a number of compounds into the atmosphere. These releases comply with applicable emission control standards, and weactively seek to minimize the amount and number of compounds we release. In the U.S.,facilities required to file a Toxic Release Inventory (TRI) must report the emissions of specified compounds into the air. From 1999 to 2003, we achieved a 32 percent decrease inemissions (please see Chart 12).

VOLATILE ORGANIC COMPOUND (VOC) EMISSIONS (EN10)Most of our facilities do not release large quantities of VOC emissions, however, we contin-ue to seek ways to reduce our emissions. For example:

Seven facilities in our cabinet group use regenerative thermal oxidizers (RTOs) to controlVOC emissions;

Merillat in Adrian, Michigan, reduced VOCs by 22 percent, from 123 metric tons in2001 to 101 metric tons in 2003, despite production increases; and

Merillat in Jackson, Ohio, replaced solvent-based stain with water-based stain and purchased new single-side edge grooving and coating machines, reducing VOCs byapproximately 94 percent.

ENERGY AND GREENHOUSE GASES ENERGY USAGE (EN3, EN4)Our main sources of energy come from electricity and natural gas supply networks. Othersources include diesel in trucks and in generators, propane gas for forklift trucks and, occa-sionally, for space heating. As this is our first Corporate Sustainability Report, we are report-ing our main sources of energy use only. In future reports, we expect to be able to provide amore complete picture of other sources including our use of renewable energy and energyfrom waste. For instance, we burn over 50,000 metric tons of wood waste per year in lieu offossil fuel for process and building heat. An additional 30,000 metric tons of wood waste isalso sold as fuel.

GREENHOUSE GASES (EN8)The burning of fossil fuel directly through vehicle engines, natural gas or in the productionof electricity, releases carbon dioxide. The buildup of carbon dioxide in the Earths atmos-phere is widely believed to contribute to global warming and climate change. During 2003,Masco used less than 2,000 gigawatts of electricity and natural gas, and approximately745,000 metric tons of carbon dioxide were released to the air in 2003 due to this energy con-sumption. By continuing to measure our power usage and introducing further improvementsto our energy efficiency, we expect to report reduced CO2 emissions in the future. Chart 13reflects our Company-wide CO2 production by energy source.

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0.4

0.6

0.8

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1.2

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Chart 11TRI TRANSFERS TO WATER IN THE U.S.*

In Metric Tons

* Process Water to POTWs and Storm Water to Surface Water.

0.971.09

0.78

0.54

0.37

0

500

1,000

1,500

2,000

2,500

3,000

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2,587

1,548 1,618 1,58