Item 1. Business.

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Masco Corporation manufactures, distributes and installs home improvement and building products, with an emphasis on brand-name consumer products and services holding leadership positions. We are among the largest manufacturers in North America of a number of home improvement and building products, including faucets, cabinets, architectural coatings and windows, and we are one of the largest installers of insulation for new home construction. We provide broad product offerings in a variety of styles and price points and distribute products through multiple channels, including directly to homebuilders and wholesale and retail channels. Approximately 81 percent of our 2013 sales were generated by our North American operations.

Sales of home improvement and building products at retailers increased by almost 6 percent during 2013, despite continued economic uncertainties, weak consumer confidence and modest consumer spending. Housing starts increased approximately 18 percent during 2013, with the pace slowing in the second half of the year.

Throughout 2013, we continued to focus on our four strategic initiatives to improve our performance, and we achieved gains in each of those areas. First, we are extending and expanding our product leadership positions by leveraging our brands and introducing innovative new and improved products. We believe that we gained market share in our North American plumbing business with our DELTA®, PEERLESS®, and BRIZO® brands, and internationally with our HANSGROHE® products. Our decorative architectural products businesses focused on the professional segment with BEHRPRO® paint and KILZ® PRO-X product lines. BEHR® paint also expanded its product offering by introducing its MARQUEE™ exterior paint and PREMIUM DECKOVER® solid color coating for wood and concrete surfaces and by pursuing international opportunities. Milgard Manufacturing, our manufacturer of windows in the western U.S., and our U.K. Window Group continued to gain share in their markets. Our Masco Contractor Services business continued to achieve share gains in the installation of insulation for the new home construction, retrofit and commercial channels.

Another strategic initiative is to improve our performance by reducing costs, primarily through supply chain savings, and implementing lean principles and production process improvements. Over the last several years, we have taken out over $600 million of fixed costs, on a gross basis. We continue to seek improvements in our global supply chain to realize cost savings by or through simplifying the purchasing process and coordinating logistical operations.

Another strategic initiative is to improve our underperforming businesses, and during 2013, we saw our Cabinets and Related Products and our Installation and Other Services segments return to profitability. Approximately one third ($200 million) of our fixed cost reduction was attributable to our cabinetry businesses and one third came from our insulation businesses. By lowering our breakeven point, each of these segments saw a return to profitability during 2013 at much lower levels of revenue than historically. By reducing our fixed costs, we believe that we are strengthening the foundation for continued growth. Our Installation segment continued its improvement during 2013 through incremental new home construction activity, cost reductions from lean processes, leveraging our ERP system and supply chain savings.

Our final strategic initiative is strengthening our balance sheet through net debt reduction and maintaining strong liquidity through continued working capital improvements. We continued to reduce our debt by approximately $200 million through the retirement of notes due in August. At December 31, 2013, we had approximately $1.5 billion of cash, cash investments and short-term bank deposits.

We believe that we have managed our businesses successfully through the economic crisis and subsequent recession of recent years. We believe that our focus on our strategic initiatives of expanding our product leadership positions, reducing costs, improving our underperforming businesses and

strengthening our balance sheet have improved our performance and, as we continue to focus on these initiatives, will position us well as our markets continue to recover.

Recent Developments

On January 8, 2014, we announced that Timothy Wadhams is retiring from his position as the Company's President and Chief Executive Officer, effective February 14, 2014. Our Board of Directors has elected Keith J. Allman, age 51, to succeed Mr. Wadhams as President and Chief Executive Officer and to join the Company's Board of Directors, effective as of February 14, 2014. Mr. Allman joined the Company in 1998 and has served most recently as a Group President, with responsibilities for our Plumbing and North American Cabinet businesses. We thank Mr. Wadhams for his 37 years of service.

Our Business Segments

We report our financial results in five business segments aggregated by similarity in products and services. The following table sets forth the contribution of our segments to net sales and operating profit (loss) for the three years ended December 31, 2013. Additional financial information concerning our operations by segment and by geographic regions, as well as general corporate expense, net, as of and for the three years ended December 31, 2013, is set forth in Note P to our consolidated financial statements included in Item 8 of this Report.

					(In Millions)
		Net Sales (1)
		2013			2012			2011
Cabinets and Related Products		$	1,014		$	939		$	934
Plumbing Products			3,183			2,955			2,913
Installation and Other Services			1,412			1,209			1,077
Decorative Architectural Products			1,927			1,818			1,670
Other Specialty Products			637			574			576
​	​	​	​	​	​	​	​	​	​	​
Total		$	8,173		$	7,495		$	7,170
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​
		Operating Profit (Loss) (1)(2)(3)(4)
		** 2013**			** 2012**			** 2011**
Cabinets and Related Products		$	(10	)	$	(89	)	$	(126	)
Plumbing Products			394			307			322
Installation and Other Services			37			(19	)		(79	)
Decorative Architectural Products			351			329			196
Other Specialty Products			35			(31	)		(401	)
​	​	​	​	​	​	​	​	​	​	​
Total		$	807		$	497		$	(88	)
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​

(1)

Amounts exclude discontinued operations.

(2)

Operating profit (loss) is before general corporate expense, net, and gain on sale of fixed assets, net.

(3)

Operating profit (loss) is before net charges of $77 million regarding the 2012 litigation settlement, primarily in the Installation and Other Services segment and $9 million regarding the 2011 litigation settlements in the Cabinets and Related Products and the Other Specialty Products segments.

(4)

Operating profit (loss) includes impairment charges for goodwill and other intangible assets as follows: For 2012 – Other Specialty Products – $42 million. For 2011 – Plumbing Products – $1 million; Decorative Architectural Products – $75 million; and Other Specialty Products – $374 million.

All of our operating segments, except the Plumbing Products segment, normally experience stronger sales during the second and third calendar quarters, corresponding with the peak season for new home construction and repair and remodel activity.

Cabinets and Related Products

In North America, we manufacture and sell value-priced, stock and semi-custom assembled cabinetry for kitchen, bath, storage, home office and home entertainment applications in a broad range of styles and price points to address consumer preferences. We have also expanded our product offerings in this segment to include the manufacture and sale of kitchen countertops, as well as an integrated bathroom vanity and countertop solution. In the United Kingdom, we manufacture and sell assembled and ready-to-assemble kitchen, bath, and storage cabinetry. Our KRAFTMAID® brand is sold primarily to dealers, home centers and mass merchants and our MERILLAT®, MOORES™ and QUALITY CABINETS™ brands are sold primarily to dealers and homebuilders for both home improvement and new home construction. Cabinet sales are significantly affected by levels of activity in both new home construction and retail consumer spending, particularly spending for major kitchen and bathroom renovation projects. A significant portion of our sales for home improvement are made through home center retailers.

Our Cabinet segment was particularly affected by the economic downturn and decline in new home construction and repair and remodel activity. While improving, consumer spending for big ticket remodeling projects, including large kitchen and bath remodeling projects, continues to be below normal levels, which impacts our profitability. Although home construction is improving and is expected to continue to improve, the demand for new homes remains below the historic average and demand has increased for multi-family housing units, which are smaller than single-family housing units and require fewer cabinets for the kitchen and bathrooms. We continue our strategy to increase sales in this segment through brand building, new product introductions aimed to provide differentiated products to our multiple sales channels, and product innovation. We also continue to focus on our cost structure in this segment and improving cabinet production efficiencies.

The cabinet manufacturing industry in the United States and the United Kingdom includes several large competitors and numerous local and regional competitors. In recent years, we have experienced significant competition in the form of discounts and new product offerings by our competitors, which have impacted the segment's results of operations. We also face competition from foreign manufacturers. In addition to price, we believe that competition in this industry is based largely on product quality, responsiveness to customer needs, product features and selection. Our North American competitors include American Woodmark Corporation and Fortune Brands Home & Security, Inc.

The raw materials used in this segment are primarily hardwood lumber, plywood and particleboard, and are available from multiple sources, both domestic and foreign.

Plumbing Products

The businesses in our Plumbing Products segment sell a wide variety of faucet, bathing and showering devices that are manufactured by or for us. The majority of our plumbing products are sold in North America and Europe under the brand names DELTA®, PEERLESS®, HANSGROHE®, AXOR®, BRIZO®, BRASSTECH®, BRISTAN™, GINGER®, NEWPORT BRASS and PLUMB SHOP®. Our products include single-handle and double-handle faucets, showerheads, handheld showers, valves, bathing units and toilets. These products are sold to major retail accounts and to wholesalers and distributors that, in turn, sell our products to plumbers, building contractors, remodelers, smaller retailers and others.

In 2013, we began the process of integrating our plumbing products sold under our AQUA GLASS® and AMERICAN SHOWER & BATH™ brands into the DELTA and PEERLESS brands. As a result of the integration, we exited the wholesale plumbing distribution channel for these bath products. Our

INNOVEX® and acrylic tub and shower systems, bath and shower enclosure units, shower trays and laundry tubs are now manufactured and sold under the Delta and Peerless, Aqua Glass, American Shower & Bath and MIROLIN® brand names. These products are sold primarily to home center retailers for home improvement and new home construction in North America, although the Mirolin products are also sold to wholesalers and distributors in Canada.

Our spas are manufactured and sold under HOT SPRING®, CALDERA® and other trademarks directly to independent dealers. Major competitors include Kohler, Aquatic, Maax and Jacuzzi. We sell HÜPPE® shower enclosures through wholesale channels in Europe. HERITAGE™ ceramic and acrylic bath fixtures and faucets are principally sold in the United Kingdom directly to select retailers.

Also included in our Plumbing Products segment are brass and copper plumbing system components and other plumbing specialties, which are sold to plumbing, heating and hardware wholesalers and to home center retailers, hardware stores, building supply outlets and other mass merchandisers. These products are marketed in North America for the wholesale trade under our BRASSCRAFT® and BRASSTECH® trademarks and for "do-it-yourself" consumers under our MASTER PLUMBER® and PLUMB SHOP® trademarks, and are also sold under private label.

We believe that our plumbing products are among the leaders in sales in North America and Europe, with American Standard, Kohler, Moen and Pfister as major competitors. We are also experiencing competition from foreign manufacturers, including GROHE, particularly in Germany, China and the Middle East. We face significant competition from private label products (including house brands sold by certain of our customers). Many of the faucet and showering products with which our products compete are manufactured by foreign manufacturers that are putting downward pressures on price, particularly in the emerging markets we are entering. The businesses in our Plumbing Products segment source products primarily from Asia and manufacture products in the United States, Europe and Asia. In addition to price, we believe that competition for our plumbing products is based largely on brand reputation, product quality, product innovation and features and breadth of product offering.

A substantial portion of our plumbing products contain brass, the major components of which are copper and zinc. We have multiple sources, both domestic and foreign, for the raw materials used in this segment, and sufficient raw materials have been available for our needs. We have encountered price volatility for brass, brass components and any components containing copper and zinc; therefore, we have implemented a hedging strategy to minimize the impact of this volatility. Federal legislation mandating a national standard for lead content in plumbing products used to convey drinking water became effective in January 2014. Faucet and water supply valve manufacturers, including our plumbing product companies, are required to obtain adequate supplies of lead-free brass or suitable alternative materials for continued production of faucets and certain of our other plumbing products. Our plumbing products that are affected by this legislation meet the federal standards. Our Delta Faucet business uses DIAMOND™ SEAL TECHNOLOGY, which reduces the number of potential leak points in a faucet, simplifies installation and satisfies legislation regarding the acceptable lead content in plumbing products.

Installation and Other Services

Our Installation and Other Services segment sells installed building products and distributes building products primarily for new home construction, and, to a lesser extent, retrofit and commercial construction, throughout the United States. In addition to insulation, we sell installed gutters, after-paint products, garage doors and fireplaces. The installation and distribution of insulation comprised approximately twelve percent, eleven percent and nine percent of our consolidated net sales in 2013, 2012 and 2011, respectively. Installed building products are supplied primarily to homebuilders by our network of branches located across the United States. Our distributed products include insulation, insulation accessories, gutters and roofing, among others. Distributed products are sold primarily to contractors and dealers (including lumber yards) from distribution centers in various parts of the United States.

In response to the economic downturn and resulting decline in new home construction, we expanded our ability to serve the residential retrofit and light commercial channels. Within the Installation and Other Services segment, we have several initiatives related to improved residential energy efficiency, including retrofit installation services (primarily insulation) delivered directly to homeowners and traditional remodeler contractors, as well as through retailers and dealer outlets.

In addition to price, we believe that competition in this industry is based largely on customer service and the quality of installation service. We believe that we are a leading provider of installed insulation in the new home construction industry in the United States. Our competitors include several regional contractors, as well as numerous local contractors and lumber yards. We believe that our capabilities and financial resources are substantial compared to regional and local contractors.

We procure the materials used by this segment, primarily insulation, from multiple sources.

Decorative Architectural Products

We produce architectural coatings including paints, primers, specialty paint products, stains and waterproofing products. The products are sold in the United States, Canada, China, Mexico and South America under the brand names BEHR® and KILZ® to "do-it-yourself" and professional customers through home centers, paint stores and other retailers. Net sales of architectural coatings comprised approximately 21 percent in 2013 and approximately 20 percent of our consolidated net sales in each of 2012 and 2011. Our competitors include large national and international brands such as Benjamin Moore, Glidden, Olympic, Sherwin-Williams, Valspar and Zinsser, as well as many regional and other national brands. In addition to price, we believe that competition in this industry is based largely on product quality, technology and product innovation, customer service and brand reputation. In 2013, Behr introduced MARQUEE™ exterior paint with enhanced stain-blocking and fade-resistant properties, and PREMIUM DECKOVER™, a deck resurfacing product which conceals cracks and splinters in wood surfaces and helps to create a slip-resistant finish for decks.

Our BEHR products are principally sold through The Home Depot, this segment's and our largest customer. The loss of this segment's sales to The Home Depot would have a material adverse effect on this segment's business and on our consolidated business as a whole.

Titanium dioxide is a major ingredient in the manufacture of paint. The price for titanium dioxide can fluctuate as a result of surges in global demand and production capacity limitations, which can impact our operating results in this segment. Petroleum products are also used in the manufacture of architectural coatings. Significant increases in the cost of crude oil and natural gas lead to higher raw material costs (e.g., for resins, solvents and packaging, as well as titanium dioxide), which can adversely affect the segment's results of operations. We have agreements with the significant suppliers of the major raw materials used in this segment which are intended to help assure continued availability.

Our Decorative Architectural Products segment also includes LIBERTY® and BRAINERD® branded cabinet, door, window and other hardware, which is manufactured for us and sold to home centers, other retailers, original equipment manufacturers and wholesalers. Key competitors in North America include Amerock, Top Knobs and house brands. Decorative bath hardware and shower accessories are sold under the brand names DELTA®, FRANKLIN BRASS® and DECOR BATHWARE® to distributors, home centers and other retailers. Competitors include Moen, Gatco and house brands sold by certain of our customers.

Other Specialty Products

We manufacture and sell vinyl, fiberglass and aluminum windows and patio doors, as well as the ESSENCE SERIES® windows and doors, which combines a wood interior with a fiberglass exterior, under the MILGARD® brand name for home improvement and new home construction, principally in the western United States. MILGARD products are sold primarily through dealers and, to a lesser extent,

directly to production and custom homebuilders and through lumber yards and home centers. This segment's competitors in North America include national brands, such as Jeld-Wen, Marvin, Pella and Andersen, and numerous regional brands.

In the United Kingdom, we manufacture and sell windows, related products and components under several brand names including GRIFFIN™, PREMIER™ and DURAFLEX™. Sales are primarily through dealers and wholesalers to the repair and remodeling markets, although our DURAFLEX products are also sold to other window fabricators. United Kingdom competitors include many small and mid-sized firms and a few large, vertically integrated competitors.

In addition to price, we believe that competition in this industry in both the domestic and foreign markets is based largely on customer service, product quality and brand reputation.

We manufacture and sell a complete line of manual and electric staple gun tackers, staples and other fastening tools under the brand names ARROW® and POWERSHOT®. We sell these products through various distribution channels including home centers and other retailers and wholesalers. Our principal North American competitor in this product line is Stanley Black & Decker.

The raw materials used in this segment have been available from multiple sources.

Additional Information

We hold U.S. and foreign patents, patent applications, licenses, trademarks, trade names, trade secrets and proprietary manufacturing processes. As a manufacturer and distributor of brand name products, we view our trademarks and other intellectual property rights as important, but do not believe that there is any reasonable likelihood of a loss of such rights that would have a material adverse effect on our present business as a whole.

We are subject to U.S. and foreign government regulations, particularly those pertaining to health and safety (including protection of employees and consumers), climate disruption and environmental issues. In addition to our responsibilities for environmental remediation, our businesses are subject to other requirements regarding protection of the environment and worker health and safety. Our businesses are subject to requirements relating to the emission of volatile organic compounds which may impact our sourcing of particleboard, require that we install special equipment in manufacturing facilities or that we reformulate paint products. As described above, our Plumbing Products segment is subject to restrictions on lead content in some of its products. Compliance with such laws and regulations could significantly affect product performance as well as our production costs. We monitor applicable laws and regulations relating to the protection of the environment, climate disruption and worker health and safety, and incur ongoing expense relating to compliance. We do not expect compliance with the federal, state and local regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment and worker health and safety, will result in material capital expenditures or have a material adverse effect on our earnings or competitive position.

We do not consider backlog orders to be material in any of our segments.

At December 31, 2013, we employed approximately 32,000 people. We have generally experienced satisfactory relations with our employees.

Available Information

Our website is www.masco.com. Our periodic reports and all amendments to those reports required to be filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website as soon as reasonably practicable after those reports are electronically filed with or furnished to the Securities and Exchange Commission. This Report is being posted on our website concurrently with its filing with the Securities and Exchange Commission. Material contained on our website is not incorporated by reference into this Report.