A home and security company DELIVERING THE NEXT PHASE OF GROWTH www.fbhs.com April 2019 Fortune Brands (NYSE: FBHS) is a home and security products company built on industry-leading brands and innovative products for kitchens, bathrooms, entryways and outdoor living spaces. Read about our proven track record, market view, growth platforms and business outlook. This presentation contains forward-looking statements and uses Non-GAAP information such as operating margin, EBITDA and EPS. For more, please read o ...

[Part I](index=3&type=section&id=PART%20I) [Business](index=3&type=section&id=Item%201.%20Business.) Fortune Brands Home & Security is a leading home and security products company with three segments, focusing on brand building, innovation, and strategic cash deployment | Segment | 2018 Net Sales (in million) | Percentage of Total 2018 Net Sales | Key Brands | | :--- | :--- | :--- | :--- | | Cabinets | $2,418.6 | 44% | Diamond, Aristokraft, Mid-Continent, Kitchen Craft, Homecrest, Omega, etc. | | Plumbing | 1,883.3 | 34% | Moen, ROHL, Riobel, Perrin & Rowe, Victoria + Albert, Shaws | | Doors & Security | 1,183.2 | 22% | Master Lock, SentrySafe, Therma-Tru, Fypon, Fiberon | | Total | $5,485.1 | 100% | | - The company's strategy includes building on leading brand positions, developing innovative products, expanding in international markets (**16% of 2018 net sales**), leveraging global supply chains, and deploying cash flow to high-return opportunities such as acquisitions (e.g., Fiberon in 2018) and share repurchases[7](index=7&type=chunk)[8](index=8&type=chunk) - Two customers, The Home Depot and Lowe's, each accounted for **more than 10%** of the Company's net sales in 2018 Sales to all U.S. home centers were approximately **26% of net sales**[12](index=12&type=chunk) | (In million) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Cabinets | $2,418.6 | $2,467.1 | $2,397.8 | | Plumbing | 1,883.3 | 1,720.8 | 1,534.4 | | Doors & Security | 1,183.2 | 1,095.4 | 1,052.7 | | Total | $5,485.1 | $5,283.3 | $4,984.9 | - The business experiences seasonality, with lower sales typically in the first quarter due to reduced new home construction and repair-and-remodel activity[17](index=17&type=chunk) [Risk Factors](index=8&type=section&id=Item%201A.%20Risk%20Factors.) The company faces material risks from North American housing market reliance, intense competition, supply chain volatility, and operational disruptions - The business is heavily reliant on North American home improvement, repair/remodel, and new construction activity, which are sensitive to economic conditions like employment levels, consumer confidence, and interest rates[20](index=20&type=chunk) - The company operates in highly competitive markets where it faces pressure from competitors on price, private-label brands, and imported products[21](index=21&type=chunk) - Global commodity price volatility for materials like brass, zinc, steel, and wood, as well as energy costs, could adversely affect financial results Import tariffs could also lead to price increases[21](index=21&type=chunk)[23](index=23&type=chunk) - Strategic acquisitions involve risks such as integration difficulties, failure to achieve expected financial benefits, and loss of key employees[25](index=25&type=chunk)[26](index=26&type=chunk) - The carrying value of goodwill and other intangible assets could be impaired by negative economic events, potentially affecting results of operations[29](index=29&type=chunk)[30](index=30&type=chunk) - The company is exposed to risks from information technology system failures and cyber-attacks, which could damage its reputation and result in financial, legal, and operational consequences[30](index=30&type=chunk)[31](index=31&type=chunk) [Unresolved Staff Comments](index=14&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments.) The company reports no unresolved staff comments - None [Properties](index=14&type=section&id=Item%202.%20Properties.) The company operates 52 manufacturing facilities and 53 distribution centers globally, with a mix of owned and leased properties across its segments | Segment | Manufacturing Facilities (Owned/Leased) | Distribution Centers and Warehouses (Owned/Leased) | | :--- | :--- | :--- | | Cabinets | 22 / 3 | 3 / 17 | | Plumbing | 8 / 6 | 7 / 15 | | Doors & Security | 10 / 3 | 1 / 10 | | **Totals** | **40 / 12** | **11 / 42** | [Legal Proceedings](index=14&type=section&id=Item%203.%20Legal%20Proceedings.) The company is involved in routine litigation, but management believes these actions will not materially affect its financial condition - The Company is involved in ordinary routine litigation but believes these actions will not have a material adverse effect and that the likelihood of material loss is remote[36](index=36&type=chunk)[37](index=37&type=chunk) [Mine Safety Disclosures](index=15&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the company - Not applicable [Executive Officers of the Registrant](index=15&type=section&id=Executive%20Officers%20of%20the%20Registrant.) This section lists Fortune Brands' executive officers, including Christopher J. Klein (CEO) and Patrick D. Hallinan (SVP & CFO) | Name | Age | Position | | :--- | :--- | :--- | | Christopher J. Klein | 55 | Chief Executive Officer | | Patrick D. Hallinan | 51 | Senior Vice President and Chief Financial Officer | | Nicholas I. Fink | 44 | President, Plumbing Segment | | Brett E. Finley | 48 | President, Doors & Security Segment | | David M. Randich | 57 | President, Cabinets Segment | [Part II](index=17&type=section&id=PART%20II) [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=17&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities.) The company's common stock trades on NYSE (FBHS), with a **10%** dividend increase and **$92.0 million** in Q4 2018 share repurchases - The company's common stock is listed on the New York Stock Exchange (NYSE) under the ticker symbol "FBHS"[44](index=44&type=chunk) - In December 2018, the Board of Directors increased the quarterly cash dividend by **10%** to **$0.22 per share**[44](index=44&type=chunk) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | Oct 1 – Oct 31, 2018 | 1,043,400 | $47.94 | $455,686,267 | | Nov 1 – Nov 30, 2018 | 951,700 | $44.08 | $413,734,259 | | Dec 1 – Dec 31, 2018 | — | — | $413,734,259 | | **Total Q4 2018** | **1,995,100** | **$46.10** | | [Selected Financial Data](index=19&type=section&id=Item%206.%20Selected%20Financial%20Data.) This section summarizes five-year financial data, showing net sales growth from **$4.0 billion** in 2014 to **$5.5 billion** in 2018 | (In million, except per share amounts) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net sales | $5,485.1 | $5,283.3 | $4,984.9 | $4,579.4 | $4,013.6 | | Operating income | 595.2 | 682.5 | 618.6 | 480.3 | 390.9 | | Income from continuing operations, net of tax | 390.0 | 475.3 | 412.4 | 306.5 | 273.6 | | Diluted earnings per share — continuing operations | 2.66 | 3.05 | 2.61 | 1.88 | 1.64 | | Cash flow provided by operating activities | 604.0 | 600.3 | 650.5 | 429.2 | 266.2 | | Total assets | $5,964.6 | $5,511.4 | $5,128.5 | $4,875.7 | $4,051.5 | | Third party debt | 2,334.0 | 1,507.6 | 1,431.1 | 1,168.7 | 668.6 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses 2018 financial performance, noting **4%** net sales growth to **$5.5 billion** but a **12.8%** operating income decrease due to impairment and costs - In 2018, net sales grew **4%**, but operating income decreased **12.8%** due to unfavorable mix, asset impairment charges, higher employee-related costs, and restructuring charges[54](index=54&type=chunk) - In September 2018, the company acquired Fiberon for approximately **$470.0 million**, expanding its Doors & Security segment into the outdoor living space[54](index=54&type=chunk)[56](index=56&type=chunk) - The company issued **$600 million** of **4%** senior notes due 2023 and increased its term loan to **$525 million** to finance its activities, including acquisitions and share repurchases[54](index=54&type=chunk)[56](index=56&type=chunk) - The U.S. home products market, a key driver for the company, is estimated to have grown in 2018, with new housing construction up approximately **5%** and repair/remodeling spending up approximately **4%**[54](index=54&type=chunk) [Results of Operations](index=23&type=section&id=Results%20of%20Operations) This section details operating results for 2018 vs. 2017 and 2017 vs. 2016, highlighting the Fiberon acquisition and **$62.6 million** impairment charges | (In million) | 2018 | % change | 2017 | % change | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | | | | | | | Cabinets | $2,418.6 | (2.0)% | $2,467.1 | 2.9% | $2,397.8 | | Plumbing | 1,883.3 | 9.4% | 1,720.8 | 12.1% | 1,534.4 | | Doors & Security | 1,183.2 | 8.0% | 1,095.4 | 4.1% | 1,052.7 | | **Total Net Sales** | **$5,485.1** | **3.8%** | **$5,283.3** | **6.0%** | **$4,984.9** | | **Operating Income** | | | | | | | Cabinets | $143.5 | (46.3)% | $267.2 | 3.6% | $257.8 | | Plumbing | 375.3 | 4.7% | 358.5 | 13.8% | 314.9 | | Doors & Security | 155.6 | 5.9% | 146.9 | 16.2% | 126.4 | | Corporate | (79.2) | 12.1% | (90.1) | (11.9)% | (80.5) | | **Total Operating Income** | **$595.2** | **(12.8)%** | **$682.5** | **10.3%** | **$618.6** | - Key financial impacts in 2018 included the Fiberon acquisition, **$62.6 million** in asset impairment charges for Cabinets tradenames, and **$35.4 million** in restructuring charges[61](index=61&type=chunk) [2018 Compared to 2017](index=24&type=section&id=2018%20Compared%20to%202017) In 2018, net sales grew **3.8%** to **$5.5 billion**, but operating income fell **12.8%** to **$595.2 million**, mainly due to **$62.6 million** impairment charges - Net sales increased by **$201.8 million** (**3.8%**) due to price increases, acquisitions, higher sales volume, and favorable foreign exchange (**$9 million**)[62](index=62&type=chunk)[63](index=63&type=chunk) - Operating income decreased by **$87.3 million** (**12.8%**) due to unfavorable mix, asset impairment charges (**$62.6 million**), higher employee-related costs, and restructuring charges (**$24.1 million**)[65](index=65&type=chunk)[66](index=66&type=chunk)[67](index=67&type=chunk) - The effective income tax rate increased to **27.4%** in 2018 from **25.1%** in 2017, partly due to a **$5.5 million** unfavorable adjustment related to the 2017 Tax Act[70](index=70&type=chunk) - By segment: Cabinets operating income fell **46.3%** due to impairment charges Plumbing operating income grew **4.7%** on higher sales Doors & Security operating income grew **5.9%**, aided by the Fiberon acquisition[74](index=74&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk) [2017 Compared to 2016](index=28&type=section&id=2017%20Compared%20to%202016) In 2017, net sales increased **6.0%** to **$5.3 billion**, and operating income grew **10.3%** to **$682.5 million**, driven by market improvements and acquisitions - Net sales increased by **$298.4 million** (**6.0%**) due to higher sales volume, acquisitions in the Plumbing segment, and price increases[78](index=78&type=chunk) - Operating income increased by **$63.9 million** (**10.3%**) due to higher net sales and productivity improvements, partially offset by unfavorable mix and higher costs[80](index=80&type=chunk) - The effective income tax rate decreased to **25.1%** in 2017 from **29.2%** in 2016, favorably impacted by the Tax Act (**$25.7 million** benefit) and tax benefits from share-based compensation[83](index=83&type=chunk) - By segment: Cabinets sales grew **2.9%**, Plumbing sales grew **12.1%** (boosted by acquisitions), and Doors & Security sales grew **4.1%**[84](index=84&type=chunk)[85](index=85&type=chunk)[88](index=88&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$262.9 million** cash, **$604.0 million** operating cash flow, and a **$1.25 billion** credit facility, while increasing debt for acquisitions and repurchases - In 2018, the company issued **$600 million** of **4%** senior notes due 2023 and increased its term loan to **$525 million**[90](index=90&type=chunk) - In 2018, the company repurchased **12.0 million shares** of its common stock for **$694.6 million** As of Dec 31, 2018, approximately **$413.7 million** remained under its share repurchase authorizations[92](index=92&type=chunk) | (In million) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $604.0 | $600.3 | $650.5 | | Net cash used in investing activities | (634.3) | (287.7) | (385.1) | | Net cash used in financing activities | (6.8) | (250.1) | (250.4) | | (In million) | Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Short-term and long-term debt | $2,334.0 | $525.0 | $719.0 | $595.0 | $495.0 | [Critical Accounting Policies and Estimates](index=34&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section details critical accounting policies, including annual impairment testing for goodwill and intangibles, resulting in a **$62.6 million** charge in 2018 - Goodwill and indefinite-lived intangible assets are tested for impairment annually in Q4 An impairment test is also performed if a triggering event occurs[115](index=115&type=chunk) - In 2018, the company recorded pre-tax impairment charges of **$62.6 million** related to two indefinite-lived tradenames in the Cabinets segment due to reduced revenue growth expectations[117](index=117&type=chunk)[119](index=119&type=chunk) - Key assumptions for defined benefit plans in 2018 included a weighted-average discount rate of **4.4%** and an expected long-term rate of return on assets of **6.0%**[120](index=120&type=chunk)[122](index=122&type=chunk) - The company completed its analysis of the 2017 Tax Act, resulting in a provisional net benefit of **$25.7 million** in 2017 and an unfavorable adjustment of **$5.5 million** in 2018[124](index=124&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=40&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk.) The company manages market risks from interest rates, foreign currency, and commodity prices using derivatives, with a **$8.5 million** interest rate sensitivity - A hypothetical **100 basis point** change in interest rates on variable rate borrowings would impact pre-tax earnings by **$8.5 million** as of December 31, 2018[130](index=130&type=chunk) - The company uses forward foreign exchange contracts to hedge transactions, principally in the Canadian dollar, British pound, Chinese yuan, and Mexican peso[131](index=131&type=chunk) - A Value-at-Risk (VAR) sensitivity analysis estimated the maximum potential one-day loss from adverse changes in foreign exchange rates to be **$0.8 million** at December 31, 2018, with a **95% confidence level**[131](index=131&type=chunk) [Financial Statements and Supplementary Data](index=42&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data.) This section presents the company's audited consolidated financial statements for 2018, showing net sales of **$5.49 billion** and net income of **$389.8 million** | (In million) | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **NET SALES** | **$5,485.1** | **$5,283.3** | **$4,984.9** | | OPERATING INCOME | 595.2 | 682.5 | 618.6 | | NET INCOME | 389.8 | 472.7 | 413.2 | | (In million) | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | TOTAL CURRENT ASSETS | $1,686.1 | $1,601.7 | | TOTAL ASSETS | $5,964.6 | $5,511.4 | | TOTAL CURRENT LIABILITIES | $1,492.1 | $906.8 | | TOTAL LIABILITIES | $3,784.6 | $2,910.3 | | TOTAL EQUITY | $2,180.0 | $2,601.1 | [Notes to Consolidated Financial Statements](index=47&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) These notes detail financial disclosures, including the **$470 million** Fiberon acquisition, **$62.6 million** impairment, and **$2.33 billion** total debt - In September 2018, the company acquired Fiberon for a purchase price of approximately **$470.0 million** The acquisition added **$173.4 million** to goodwill and **$195.0 million** to identifiable intangible assets (Note 4)[171](index=171&type=chunk)[172](index=172&type=chunk)[173](index=173&type=chunk) - Goodwill increased by **$168.3 million** in 2018, primarily due to the Fiberon acquisition The company also recorded asset impairment charges of **$62.6 million** for two indefinite-lived tradenames in the Cabinets segment (Note 6)[176](index=176&type=chunk)[177](index=177&type=chunk) - Total debt as of December 31, 2018 was **$2,334.0 million**, consisting primarily of senior notes, a revolving credit facility, and a term loan (Note 8)[184](index=184&type=chunk) - The company's pension plans had a funded status (deficit) of **$(163.6) million** at year-end 2018, compared to **$(175.8) million** at year-end 2017 (Note 15)[208](index=208&type=chunk) - Net sales to The Home Depot and Lowe's were **13%** and **14%** of total net sales in 2018, respectively (Note 19)[234](index=234&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=88&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure.) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None [Controls and Procedures](index=88&type=section&id=Item%209A.%20Controls%20and%20Procedures.) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of December 31, 2018[254](index=254&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018[258](index=258&type=chunk) - The assessment of internal control over financial reporting excluded the recently acquired Fiberon, which represented **2.0%** of total assets and **0.7%** of total revenues for 2018[258](index=258&type=chunk) - No changes in internal control over financial reporting occurred during the fourth quarter of 2018 that materially affected, or are reasonably likely to materially affect, the controls[259](index=259&type=chunk) [Other Information](index=89&type=section&id=Item%209B.%20Other%20Information.) The company reports no other information for this item - None [Part III](index=90&type=section&id=PART%20III) [Directors, Executive Officers and Corporate Governance](index=90&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance.) This section incorporates information on directors, executive officers, and corporate governance by reference from the 2019 Proxy Statement - Information regarding directors, executive officers, corporate governance, and the audit committee is incorporated by reference from the registrant's 2019 Proxy Statement[261](index=261&type=chunk) [Executive Compensation](index=90&type=section&id=Item%2011.%20Executive%20Compensation.) This section incorporates executive compensation information by reference from the company's 2019 Proxy Statement - Information regarding executive compensation is incorporated by reference from the registrant's 2019 Proxy Statement[262](index=262&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=90&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters.) This section incorporates security ownership and equity compensation plan information by reference from the 2019 Proxy Statement - Information regarding security ownership and equity compensation plans is incorporated by reference from the registrant's 2019 Proxy Statement[263](index=263&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=90&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence.) This section incorporates information on related person transactions, director independence, and board committees by reference from the 2019 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the registrant's 2019 Proxy Statement[264](index=264&type=chunk) [Principal Accountant Fees and Services](index=90&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services.) This section incorporates information on fees paid to and services provided by the principal independent registered public accounting firm from the 2019 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the registrant's 2019 Proxy Statement[265](index=265&type=chunk) [Part IV](index=91&type=section&id=PART%20IV) [Exhibits and Financial Statement Schedules](index=91&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including consolidated financials and various agreements - Lists the financial statements, schedules, and exhibits filed with the Form 10-K[266](index=266&type=chunk) - Includes key exhibits such as credit agreements, indentures for senior notes, and long-term incentive plans[268](index=268&type=chunk)[270](index=270&type=chunk)[271](index=271&type=chunk) [Form 10-K Summary](index=95&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no Form 10-K summary - None

Fortune Brands Home & Security (FBHS) Q4 2018 Earnings Conference Call January 31, 2019 4:30 PM ET Company Participants Brian Lantz - Senior Vice President of Communications & Corporate Administration Chris Klein - Chief Executive Officer Pat Hallinan - Chief Financial Officer Conference Call Participants Susan Maklari - Credit Suisse Phil Ng - Jefferies Justin Speer - Zelman & Associates Steven Kim - Evercore Timothy Weiss - Baird Operator Good afternoon. My name is Kelly and I will be your conference oper ...