UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20162018

Commission filenumber 1-35166

Fortune Brands Home & Security, Inc.

(Exact name of registrant as specified in its charter)

520 Lake Cook Road, Deerfield, IL 60015-5611

(Address of Principal Executive Offices)    (Zip Code)

Registrant’s telephone number, including area code:(847) 484-4400

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes    ☒        No    ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes    ☐        No    ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    ☒        No    ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes    ☒        No    ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this annual report on Form 10-K or any amendment to this annual report on Form 10-K.        ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in RuleRule 12b-2 of the Exchange Act.

Large accelerated filer      ☒      Accelerated filer      ☐Non-accelerated filer      ☐      Smaller reporting company      ☐      Emerging growth company      ☐

(DoIf an emerging growth company, indicate by check mark if the registrant has elected not check if a smallerto use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐

reporting company)

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Act).

Yes    ☐        No    ☒

The aggregate market value of the registrant’s voting common equity held bynon-affiliates of the registrant at June 30, 20162018 (the last day of the registrant’s most recent second quarter) was $8,858,346,599.$7,606,348,311. The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at February 3, 2017,1, 2019, was 153,077,974.140,549,295.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information contained in the registrant’s proxy statement for its Annual Meeting of Stockholders to be held on May 2, 20177, 2019 (to be filed not later than 120 days after the end of the registrant’s fiscal year) (the “2017“2019 Proxy Statement”) is incorporated by reference into Part III  hereof.

Form 10-K Table of Contents

PART I

Item 1. Business.

Cautionary Statement Concerning Forward-Looking Statements

This Annual Report on Form10-K contains certain “forward-looking statements” made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding expected capital spending, expected pension contributions, the anticipated effects of recently issued accounting standards on our financial statements, planned business strategies, market potential, future financial performance and other matters. Statements that include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the current plans and expectations at the time this report is filed with the Securities and Exchange Commission (the “SEC”) or, with respect to any documents incorporated by reference, available at the time such document was prepared or filed with the SEC. Although we believe that these statements are based on reasonable assumptions, they are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those indicated in such statements. These factors include those listed in the section below entitled “Risk Factors.” Except as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise.

Unless the context otherwise requires, references in this Annual Report on Form10-K to “Fortune Brands,” the “Company,” “we,” “our” or “us” refer to Fortune Brands Home & Security, Inc. and its consolidated subsidiaries.

Our Company

We are a leading home and security products company that competes in attractive long-term growth markets in our product categories. With a foundation of market-leading brands across a diversified mix of channels, and lean and flexible supply chains, as well as a tradition of strong product innovation and customer service, we are focused on outperforming our markets in both growth and returns, and driving increased shareholder value. We have fourthree business segments: Cabinets, Plumbing, and Doors and& Security. We sell our products through a wide array of sales channels, including kitchen and bath dealers, wholesalers oriented toward builders or professional remodelers, industrial and locksmith distributors,“do-it-yourself” remodeling-oriented home centers and other retail outlets. We believe the Company’s impressive track record reflects the long-term attractiveness and potential of our categories and our leading brands. OurDespite increased pressures driven in part by tariffs, higher interest rates and inflation, our performance in the five years since becoming an independent publicly traded company demonstrates the strength of our operating model and our ability to generate profitable growth as sales volume increases and we leverage our structural competitive advantages to gain share in our categories. In 2016, we celebrated our five-year anniversary as an independent company and we were added to the S&P 500 Index.

Our Strategy

Build on leading business and brand positions in attractive growth and return categories.    We believe that we have leading market positions and brands in many of our product categories. In 2018, we expanded into the outdoor living market by acquiring Fiber Composites LLC (“Fiberon”), a leading U.S. manufacturer of outdoor performance materials used in decking, railing and fencing products. The acquisition of Fiberon provides category expansion and product extension opportunities into the outdoor living space for our Doors & Security segment. We continue to plan to invest in targeted advertising and other strategic initiatives aimed

at enhancing brand awareness and educating

consumers regarding the breadth, features and benefits of our product lines. For example, in the third quarter of 2016,2018, Moen launched its new “Buy it for…”“Who designs for water” advertising campaign.and brand campaign showcasing its appreciation for Earth’s most crucial resource, while inspiring consumers to look at water from a renewed viewpoint. We also strive to leverage our brands by expanding into adjacent product categories and continue to develop new programs by working closely with our customers.

Continue to develop innovative products for customers, designers, installers and consumers.    Sustained investments in consumer-driven product innovation and customer service, along with our low cost structures, have contributed to our success in the marketplace and creating consumer demand. In 2016,2018, our Global Plumbing Group developed partnerships and investments in the “whole home” water space, including partnering with Flo Technologies. In 2018, MasterBrand Cabinets, which provides a wide range of cabinets for the home, launched innovative new cabinet door designs, lighting systems, color palettes and features in a range of styles that allows consumers to create a custom kitchen look at an affordable price and introduced new, exclusive laminate door and finish options across multiple price segments. We continue to provide channel support with responsive websites featuring our cabinet brands that drives consumer leadsconsumers to our partner dealers. In 2016, we created the Global Plumbing Group (“GPG”), a strategic platform designed to accelerate growth opportunities and transform our existing plumbing business. We expanded our brand presence in plumbing through the acquisition of Riobel Inc. (“Riobel”), a Canadian premium showroom brand. We also acquired ROHL LLC (“ROHL”), a California-based luxury brand and in a related transaction, we acquired TCL Manufacturing Ltd, which gave us ownership of Perrin & Rowe Limited (“Perrin & Rowe”), a UK manufacturer and designer of luxury kitchen and bathroom plumbing products. In addition, GPG’s legacy brand, Moen had a number of innovative product launches in 2016, including a customizable shower technology with personal device integration. TheTherma-Tru portfolio ofon-trend door and glass collections continued to evolve to meet current and emerging architectural design trends including wider and taller door styles, expanding panel configurations, as well as additional decorative, privacy and textured glass designs. Master Lock continued to be an innovation leader in security and safety products and services, driven by consumer and end user focused insights with continued emphasis on electronic enabled solutions for enhanced capability and convenience. In 2016, Master Lock2018, we launched new products including stainless steel padlocks, resettable combination outdoor locksour Vault Enterprise software and lock boxes; allsuite of which deliver improved weather protection, enhanced security,Bluetooth^® enabled hardware for business, providing a convenient way for companies to control access, manage assets and improved ease of use for end users.improve accountability across many users simultaneously. SentrySafe continued to provide a full line portfolio of quality security, fire and water resistant safes to help consumers and small business owners protect documents and valuables.

Expand in international markets.    We expect to have opportunities to expand sales by further penetrating international markets, which represented approximately 15%16% of net sales in 2016.2018. We continue to develop our relationship with dealers and distributors and their Moen brandedMoen-branded stores throughout China. In our Cabinets segment, Kitchen Craft remained a leading cabinetry brand in Canada, in 2016, while WoodCrafters provided a company presence in Mexico. Within our Doors & Security segment, Master Lock continued to expand its presence in Europe and Asia, (primarily Japan), whileTherma-Tru made inroads in Canada as consumers transitioned from traditional entry door materials to more advanced and energy-efficient fiberglass doors.

Leverage our global supply chains.    We are using lean manufacturing,design-to-manufacture and distributive assembly techniques to make our supply chains more flexible and improve supply chain quality, cost, response times and asset efficiency. We view our global supply chains and manufacturing presence as a strategic asset not only to support strong operating leverage as volumes increase, but also to enable the profitable growth of new products, adjacent market expansion and international growth. We invested in innovative supply chain initiatives, including entering into a joint venture agreement to operate a manufacturing facility in China.

Enhance returns and deploy our cash flow to high-return opportunities.    We continue to believe our most attractive opportunities are to invest in profitable organic growth initiatives, pursue accretive strategic acquisitions,non-controlling equity investments, and joint ventures, and return cash to shareholdersstockholders through a

combination of dividends and repurchases of shares of our common stock under our share repurchase program. Bothadd-on acquisitions andIn 2018, we repurchased approximately 12 million shares of our outstanding common stock under the Company’s share repurchase programs for $695 million. In September 2018, we acquired Fiberon providing category expansion and product extension opportunities may be particularly attractive ininto the next few years. In 2016, we took a number of steps to position ourselvesoutdoor living space for the future by creating GPG, completing acquisitions under GPG, amending and restating our credit agreement to combine and rollover the existing revolving credit facility and term loan into a new standalone $1.25 billion revolving credit facility, completing the integration of our Norcraft Companies, Inc. (“Norcraft”) business, investing in capacity, strategically repurchasing our shares and increasing the quarterly cash dividend by 13% to $0.18 per share of our common stock.Doors & Security segment.

Our Competitive Strengths

We believe our competitive strengths include the following:

Leading brands.    We have leading brands in many of our product categories. We believe that established brands are meaningful to both consumers and trade customers in their respective categories

and that we have the opportunity to, among other things, continue to expand many of our brands into adjacent product categories and international markets.

Strategic focus on attractive consumer-facing categories.    We believe we operate in categories that, while very competitive, are among the more attractive categories in the home products and security products markets. Some of the key characteristics that make these categories attractive in our view include the following:

Operational excellence.    We believe our investments in lean manufacturing and productivity initiatives have resulted in supply chain flexibility and the ability to cost-effectively add or reduce capacity in order to match demand levels. In 2016,2018, we invested in incremental capacityapproximately $45 million to support long-term growth potential both in the U.S. and international markets. In addition, our supply chains and low cost manufacturing structures have created favorable operating leverage allowing volumesallow us to grow without sacrificing customer service levels.adapt to challenging market conditions. We believe that margin improvement will continue to be driven predominantly by organic volume growth that can be readily accommodated by additionalcurrent production shifts and equipment as necessary.capacity.

Commitment to innovation.    We have a long track record of successful product and process innovations that introduce valued new products and services to our customers and consumers. We are committed to continuing to invest in new product development and enhance customer service to strengthen our leading brands and penetrate adjacent markets.

Diverse salesend-use mix.    We sell in a variety of product categories and sales channels in the U.S. home and security products markets. In addition, our exposure to changing levels of U.S. residential new home construction activity is balanced withrepair-and-remodel activity, which comprised a substantial majority of the overall U.S. home products market and abouttwo-thirds of our U.S. home products sales.sales in 2018. We also benefit from a stable market for plumbing and security products and international sales growth opportunities.

Diverse sales channels.    We sell through a wide array of sales channels, including kitchen and bath dealers, wholesalers oriented to builders or professional remodelers, industrial and locksmith distributors,“do-it-yourself” remodeling-oriented home centers and other retail outlets. We also sell security products to locksmiths, industrial distributors and mass merchants. We are able to leverage these existing sales channels to expand into adjacent product categories. In 2016,2018, sales to our top ten customers represented less than half of total sales.

Decentralized business model.    Our business segments are focused on distinct product categories and are responsible for their own performance. This structure enables each of our segments to independently best position itself within each category in which it competes and reinforces strong accountability for operational and financial performance. Each of our segments focusfocuses on its unique set of consumers, customers, competitors and suppliers, while also sharing best practices.

Strong capital structure.    structure.    We exited 20162018 with a strong balance sheet. In 2016,2018, we repurchased $424.512.0 million of our shares. We amended and restated our credit agreement to combine and rollover the existing revolving credit facility and term loan into a new standalone $1.25 billion revolving credit facility. As of December 31, 2016,2018, we had $251.5$262.9 million of cash and cash equivalents and total debt was $1,431.1$2,334.0 million, resulting in a net debt position of $1,179.6$2,071.1 million. In addition, we had $710.0$930.0 million available under our credit facilitiesfacility as of December 31, 2016.2018.

Business Segments

WeIn July 2018, we publicly announced an internal reorganization to combine our Doors and Security segments under common leadership to drive innovation, accelerate product development, and enhance investments and business processes for the combined segment. In conjunction with the reorganization, we changed how our chief operating decision maker evaluates and allocates the resources across our businesses. As a result, beginning in the third quarter of 2018, we have fourthree business segments: Cabinets, Plumbing and Doors and& Security. The following table shows net sales for each of these segments and key brands within each segment:

Segment		2018 Net Sales (in millions)				Percentage of Total 2018 Net Sales				Key Brands
Cabinets		$	2,418.6				44	%		Diamond, Aristokraft,Mid-Continent, Kitchen Craft, Homecrest, Omega, Ultracraft, StarMark, Schrock, Decora, Kemper
Plumbing			1,883.3				34	%		Moen, ROHL, Riobel, Perrin & Rowe, Victoria + Albert, Shaws
Doors & Security			1,183.2				22	%		Master Lock, American Lock, SentrySafe,Therma-Tru, Fypon, Fiberon
Total		$	5,485.1				100	%

Our segments compete on the basis of innovation, fashion, quality, price, service and responsiveness to distributor, retailer and installer needs, as well asend-user consumer preferences. Our markets are very competitive. Approximately 15%16% of 20162018 net sales were to international markets, and sales to two of the Company’s customers, The Home Depot, Inc. (“The Home Depot”) and Lowe’s Companies, Inc. (“Lowe’s”), each accounted for more than 10% of the Company’s net sales in 2016.2018. Sales to all U.S. home centers in the aggregate were approximately 27%26% of net sales in 2016.2018.

Cabinets.    Our Cabinets segment manufactures custom, semi-custom and stock cabinetry, as well as vanities, for the kitchen, bath and other parts of the home through a regional supply chain footprint to deliver high quality cabinets and service to our customers. This segment sells a portfolio of brands that enables our customers to differentiate themselves against competitors. This portfolio includes brand names such as Aristokraft, Diamond,Mid-Continent, Diamond, Kitchen Classics, Kitchen Craft, Schrock, Homecrest, Omega, Homecrest, Thomasville, Kemper, StarMark and Ultracraft. Substantially all of this segment’s sales are in North America. This segment sells directly to kitchen and bath dealers, home centers, wholesalers and large builders. In aggregate, sales to The Home Depot and Lowe’s comprised approximately 33%36% of net sales of the Cabinets segment in 2016.2018. This segment’s competitors include Masco and American Woodmark, and RSI, as well as a large number of overseas, regional and local suppliers.

Plumbing.    Our Plumbing segment manufactures or assembles and sells faucets, accessories, kitchen sinks and waste disposals, in North America and China, predominantly under the Moen, ROHL, Riobel, ROHL, Perrin & Rowe, Victoria + Albert and Waste KingShaws brands. Although this segment sells products principally in the U.S., CanadaChina and China,Canada, this segment also sells in Mexico, Southeast Asia, Europe and South America. Approximately 24%28% of 20162018 net sales were to international markets. This segment sells directly through its own sales force and indirectly through independent manufacturers’ representatives, primarily to wholesalers, home centers, mass merchandisers and industrial distributors. In aggregate, sales to The Home Depot and Lowe’s comprised approximately 25%23% of net sales of the Plumbing segment in 2016.2018. This segment’s chief competitors include Delta (owned by Masco),

Masco, Kohler, Pfister (owned by Spectrum Brands), American Standard (owned byBrands, LIXIL Group),Group, InSinkErator (owned by Emerson Electronic Company) and imported private-label brands.

Doors.Doors & Security.    Our Doors & Security segment manufactures and sells fiberglass and steel entry door systems under theTherma-Tru brand name, composite decking, railing and fencing under the Fiberon brand name, and urethane millwork product lines under the Fypon brand name. It also manufactures, sources and distributes locks, safety and security devices, and electronic security products under the Master Lock brand and fire resistant safes, security containers and commercial cabinets under the SentrySafe brand. This segment benefits from the long-term trend away from traditional materials, such as wood, steel and aluminum, toward more energy-efficient and durable synthetic materials.Therma-Trusells products include fiberglass and steel residential entry door and patio door systems, primarily for saleprincipally in the U.S., Canada, Europe, Central America, Japan and Canada.Australia. Approximately 14% of 2018 net sales were to international markets. This segment’s principal customers are home centers, hardware and other retailers, millwork building products and wholesale distributors, and specialty dealers that provide products to the residential new construction market, as well as to the remodeling and renovation markets. In aggregate, sales to The Home Depot and Lowe’s comprised approximately 16% of net sales of the Doors segment in 2016. This segment’s competitors include Masonite,JELD-WEN, Plastpro and Pella.

Security.    Our Security segment’s products consist of locks, safety and security devices, and electronic security products manufactured, sourced and distributed under the Master Lock brand and fire resistant safes, security containers and commercial cabinets manufactured, sourced and distributed under the SentrySafe brand. This segment sells products principally in the U.S., Canada, Europe, Central America, Japan and Australia. Approximately 26% of 2016 net sales were to international markets. This segment manufactures and sellskey-controlled and combination padlocks, bicycle and cable locks,built-in locker locks, door hardware, automotive, trailer and towing locks, electronic access control solutions, and other specialty safety and security devices for consumer use to hardware, home center and other retail outlets. In addition, the segmentit sells lock systems and fire resistant safes to locksmiths, industrial and institutional users, and original equipment manufacturers. In aggregate, sales to The Home Depot and Lowe’s comprised approximately 17%19% of net sales of the net sales of

theDoors & Security segment in 2016.2018.Therma-Tru, Fiberon and Fypon brands compete with Masonite,JELD-WEN, Trex, Azek, Plastpro, Pella and various regional and local suppliers. The Master Lock brand competes with Abus, W.H. Brady, Hampton, Kwikset (owned by Spectrum Brands), Schlage (owned by Allegion),Brands, Allegion, Assa Abloy and various imports, andimports. SentrySafe competesbrands compete with First Alert, Magnum, Fortress, Interlocks andStack-OnStack-On. and Fire King.

Annual net sales for each of the last three fiscal years for each of our business segments were as follows:

For additional financial information for each of our business segments, refer to Note 18,19, “Information on Business Segments,” to the Consolidated Financial Statements in Item 8 of this Annual Report on Form10-K.

Other Information

Raw materials.    The table below indicates the principal raw materials used by each of our segments. These materials are available from a number of sources. Volatility in the prices of commodities and energy used in making and distributing our products impacts the cost of manufacturing our products.

Intellectual property.    Product innovation and branding are important to the success of our business. In addition to the brand protection offered by our trademarks, patent protection helps distinguish our unique product features in the market by preventing copying and making it more difficult for competitors to benefit unfairly from our design innovation. We hold U.S. and foreign patents covering various features used in products sold within all of our business segments. Although each of our segments relies on a number of patents and patent groups that, in the aggregate, provide important protections to the Company, no single patent or patent group is material to any of the Company’s segments.

Employees.    As of December 31, 2016,2018, we had approximately 22,70025,300 full-time employees. 2,436Approximately 3,200 of these employees are covered by collective bargaining agreements. A majority of these employees are subject to collective bargaining agreements that will expire within one year of the date on which this Annual Report on Form10-K was filed. Employee relations are generally good.

Information about geographic areas.    For additional information about net sales and assets by geographic areas, refer to Note 18, “Information on Business Segments,” to the Consolidated Financial Statements in Item 8 of this Annual Report on Form10-K.

Seasonality.    All of our operating segments traditionally experience lower sales in the first quarter of the year when new home construction,repair-and-remodel activity and security buying are at their

lowest. As a result of sales seasonality and associated timing of working capital fluctuations, our cash flow from operating activities is typically higher in the second half of the year.

Environmental matters.    We are involved in remediation activities to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs of each site are based on our best estimate of undiscounted future costs, excluding possible insurance recoveries or recoveries from other third parties. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop estimates of environmental remediation exposures. Some of the potential liabilities relate to sites we own, and some relate to sites we no longer own or never owned. Several of our subsidiaries have been designated as potentially responsible parties (“PRP”) under “Superfund” or similar state laws. As of December 31, 2016, eleven2018, ten such instances have not been dismissed, settled or otherwise resolved. In 2016, one2018, none of our subsidiaries waswere identified as a PRP in a new instance and no instances were settled, dismissed or otherwise resolved. In most instances where our subsidiaries are named as a PRP, we enter into cost-sharing arrangements with other PRPs. We give notice to insurance carriers of potential PRP liability, but very rarely, if ever, receive reimbursement from insurance for PRP costs. We believe that the cost of complying with the present environmental protection laws, before considering estimated recoveries either from other PRPs or insurance, will not have a material adverse effect on our results of operations, cash flows or financial condition. At December 31, 20162018 and 2015,2017, we had accruals of $1.0 million$0.6 and $2.8$0.7 million, respectively, relating to environmental compliance and cleanup including, but not limited to, the above mentioned Superfund sites. Our year over year accrual decreased after we completed the remediation at one location.

Legal structure.    Fortune Brands Home & Security, Inc. is a holding company that was initially organized as a Delaware corporation in 1988. Wholly-owned subsidiaries of the Company include MasterBrand Cabinets, Inc., Moen Incorporated, Fortune Brands Global Plumbing Group LLC, Fortune Brands Doors, Inc. and Fortune Brands Storage & Security LLC. As a holding company, we are a legal entity separate and distinct from our subsidiaries. Accordingly, the rights of the Company, and thus the rights of our creditors (including holders of debt securities and other obligations) and stockholders to participate in any distribution of the assets or earnings of any subsidiary is subject to the claims of creditors of the subsidiary, except to the extent that claims of the Company itself as a creditor of such subsidiary may be recognized, in which event the Company’s claims may in certain circumstances be subordinate to certain claims of others. In addition, as a holding company, the source of our unconsolidated revenues and funds is dividends and other payments from subsidiaries. Our subsidiaries are not limited by long-term debt or other agreements in their abilities to pay cash dividends or to make other distributions with respect to their capital stock or other payments to the Company.

Available Information.    The Company’s website address is www.FBHS.com. The Company’s annual report onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K and any amendments to these reports are available free of charge on the Company’s website as soon as reasonably practicable after the reports are filed or furnished electronically with the SEC. These documents also are made available to read and copy at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information about the Public Reference Room by contacting the SEC at1-800-SEC-0330.Reports filed with the SEC are also made available on its website at www.sec.gov. We also make available on our website, or in printed form upon request, free of charge, our Corporate Governance Principles, Code of Business Conduct and Ethics, Code of Ethics for Senior Financial Officers, Charters for the Committees of our Board of Directors and certain other information related to the Company.

Item 1A.  Risk Factors.

There are inherent risks and uncertainties associated with our business that could adversely affect our business, financial condition or operating results. Set forth below are descriptions of those risks and

uncertainties that we currently believe to be material, but the risks and uncertainties described below are not the only risks and uncertainties that could adversely affect our business, financial condition or operating results. If any of the followingthese risks materialize, our business, financial condition or operating results could suffer. In this case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Relating to Our Business

Our business primarily relies on North American home improvement, repair and remodel and new home construction activity levels, all of which are impacted by risks associated with fluctuations in the housing market. Downward changes in the general economy, the housing market or other business conditions could adversely affect our results of operations, cash flows and financial condition.

Our business primarily relies on home improvement, repair and remodel, and new home construction activity levels, principally in North America. The housing market is sensitive to changes in economic conditions and other factors, such as the level of employment, access to labor, consumer confidence, consumer income, government tax programs, availability of financing and interest rate levels. Adverse changes in any of these conditions generally, or in any of the markets where we operate, could decrease demand and could adversely impact our businesses by: causing consumers to delay or decrease homeownership; making consumers more price conscious resulting in a shift in demand to smaller, less expensive homes; making consumers more reluctant to make investments in their existing homes, including large kitchen and bath repair and remodel projects; or making it more difficult to secure loans for major renovations. Although the U.S. new home construction market is improving, demand for new homes is still recovering after the 2007-2009 U.S. economic recession and continues to remain below historical levels.

We operate in very competitive consumer and trade brand categories.

The markets in which we operate are very competitive. Although we believe that competition in our businesses is based largely on product quality, consumer and trade brand reputation, customer service and product features, as well as fashion trends, innovation and ease of installation, price is a significant factor for consumers as well as our trade customers. Some of our competitors may resort to price competition to sustain or grow market share and manufacturing capacity utilization. Also, certain large customers continue to offer private-label brands that compete with some of our product offerings as a lower-cost alternative. We also face increasing pressure from imported ‘flat pack’ cabinets. The strong competition that we face in all of our businesses may adversely affect our profitability and revenue levels, as well as our results of operations, cash flows and financial condition.

Risks associated with strategic acquisitions and joint ventures could adversely affect our results of operations, cash flows and financial condition.

We consider acquisitions and joint ventures as a means of enhancing shareholder value. Acquisitions and joint ventures involve risks and uncertainties, including difficulties integrating acquired companies and operating joint ventures; difficulties retaining the acquired businesses’ customers and brands; the inability to achieve the expected financial results and benefits of transactions; the loss of key employees from acquired companies; implementing and maintaining consistent standards, controls, policies and information systems; and diversion of management’s attention from other business matters. Future acquisitions could cause us to incur additional debt or issue shares, resulting in dilution in earnings per share and return on capital.

We may not successfully develop new products or improve existing products.

Our success depends on meeting consumer needs and anticipating changes in consumer preferences with successful new products and product improvements. We aim to introduce products and new or improved production processes proactively to offset obsolescence and decreases in sales of existing products. While we devote significant focus to the development of new products, we may not be successful in product development and our new products may not be commercially successful. In addition, it is possible that competitors may improve their products more rapidly or effectively, which could adversely affect our sales. Furthermore, market demand may decline as a result of consumer preferences trending away from our categories or trending down within our brands or product categories, which could adversely impact our results of operations, cash flows and financial condition.

Risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility could adversely affect our results of operations, cash flows and financial condition.

We regularly evaluate our organizational productivity and global supply chains and assess opportunities to increase capacity, reduce costs and enhance quality. We strivemay be unable to enhance quality, speed and flexibility to meet changing and uncertain market conditions, as well as manage cost inflation, including wages, pension and medical costs. Our success depends in part on refining our cost structure and supply chains to promote consistently flexible and low cost supply chains that can respond to market changes to protect profitability and cash flow or ramp up quickly and effectively to meet demand. Import tariffs could potentially lead to increases in prices of raw materials or components which are critical to our business. Failure to achieve the desired level of quality, capacity or cost reductions could impair our results of operations, cash flows and financial condition.

We may not successfully develop new products or processes or improve existing products or processes.

Our success depends on meeting consumer needs and anticipating changes in consumer preferences with successful new products and product improvements. We aim to introduce products and new or

improved production processes proactively to offset obsolescence and decreases in sales of existing products. We may not be successful in product development and our new products may not be commercially successful. In addition, it is possible that competitors may improve their products or processes more rapidly or effectively, which could adversely affect our sales. Furthermore, market demand may decline as a result of consumer preferences trending away from our categories or trending down within our brands or product categories, which could adversely impact our results of operations, cash flows and financial condition.

Risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, could adversely affect our results of operations, cash flows and financial condition.

We are exposed to risks associated with global commodity price volatility arising from restricted or uneven supply conditions, the sustained expansion and volatility of demand from emerging markets, potentially unstable geopolitical and economic variables, weather and other unpredictable external factors. We buy raw materials that contain commodities such as brass, zinc, steel, wood, and glass and petroleum-based products such as resins. In addition, our distribution costs are significantly impacted by the price of oil and diesel fuel. Decreased availability and increased or volatile prices for these commodities, as well as energy used in making, distributing and transporting our products, could increase the costs of our products. While in the past we have been able to mitigate the impact of these cost increases through productivity improvements and passing on increasing costs to our customers over time, there is no assurance that we will be able to offset such cost increases in the future, and the risk of potentially sustained high levels of inflation could adversely impact our results of operations, cash flows and financial condition. While we may use derivative contracts to limit our short-term exposure to commodity price volatility, the commodity exposures under these contracts could still be material to our results of operations, cash flows and financial condition. In addition, in periods of declining commodity prices, these derivative contracts may have the short-term effect of increasing our expenditures for these raw materials.

We manufacture, source and sell products internationally and are exposed to risks associated with doing business globally.

We manufacture, source or sell our products in a number of locations throughout the world, predominantly in the U.S., Canada, China, Europe and Mexico. Accordingly, we are subject to risks

associated with potential disruption caused by changes in political, economic and social environments, including civil and political unrest, terrorism, possible expropriation, local labor conditions, changes in laws, regulations and policies of foreign governments and trade disputes with the U.S., and U.S. laws affecting activities of U.S. companies abroad. Risks inherent to international operations include: potentially adverse tax laws, unfavorable changes or uncertainty relating to trade agreements or importation duties, uncertainty regarding clearance and enforcement of intellectual property rights, risks associated with the Foreign Corrupt Practices Act and difficulty enforcing contracts. While we hedge certain foreign currency transactions, a change in the value of the currencies will impact our financial statements when translated into U.S. dollars. In addition, fluctuations in currency can adversely impact the cost position of our products in local currency, making it more difficult for us to compete. Our success will depend, in part, on our ability to effectively manage our businesses through the impact of these potential changes. In addition, we source certain raw materials, components and finished goods from China where we have experienced higher manufacturing costs and longer lead times due to currency fluctuations, higher wage rates, labor shortages and higher raw material costs.

Changes in government and industry regulatory standards could adversely affect our results of operations, cash flows and financial condition.

Government regulations and policies pertaining to trade agreements, health and safety (including protection of employees as well as consumers), taxes and environmental concerns continue to emerge

domestically, as well as internationally. In particular, there may be additional tariffs or taxes related to our imported inputs and finished goods. It is necessary for us to comply with current requirements (including requirements that do not become effective until a future date), and even more stringent requirements could be imposed on our products or processes in the future. Compliance with changes in taxes, tariffs and other regulations may require us to alter our manufacturing and installation processes and our sourcing. Such actions could increase our capital expenditures and adversely impact our results of operations, cash flows and financial condition.

Risks associated with strategic acquisitions and joint ventures could adversely affect our results of operations, cash flows and financial condition.

We consider acquisitions and joint ventures as a means of enhancing shareholder value. Acquisitions and joint ventures involve risks and uncertainties, including difficulties integrating acquired companies and operating joint ventures; difficulties retaining the acquired businesses’ customers and brands; the inability to achieve the expected financial results and benefits of transactions; the loss of key employees from acquired companies; implementing and maintaining consistent standards, controls, policies and information systems; and diversion of management’s attention from other business matters. Future acquisitions could cause us to incur additional debt or issue additional shares, resulting in dilution in earnings per share and return on capital.

Our inability to secure and protect our intellectual property rights could negatively impact revenues and brand reputation.

We have many patents, trademarks, brand names and trade names that are important to our business. Unauthorized use of these intellectual property rights may not only erode sales of our products, but may also cause significant damage to our brand name and reputation, interfere with our ability to effectively represent the Company to our customers, contractors and suppliers, and increase litigation costs. There can be no assurance that our efforts to protect our brands and trademark rights will prevent violations. In addition, existing patent, trade secret and trademark laws offer only limited protection, and the laws of some countries in which our products are or may be developed, manufactured or sold may not fully protect our intellectual property from infringement by others. There can be no assurance that our efforts to assess possible third party intellectual property rights will ensure thatthe Company’s ability to manufacture, distribute, market or sell in any given country or territory. Furthermore, others may assert intellectual property infringement claims against us or our customers.

Our businesses rely on the performance of wholesale distributors, dealers and other marketing arrangements and could be adversely affected by poor performance or other disruptions in our distribution channels and customers.

We rely on a distribution network comprised of consolidating customers. Any disruption to the existing distribution channels could adversely affect our results of operations, cash flows and financial condition. The consolidation of distributors or the financial instability or default of a distributor or one

of its major customers could potentially cause such a disruption. In addition to our own sales force, we offer our products through a variety of third-party distributors, representatives and retailers. Certain of our distributors, representatives or retailers may also market other products that compete with our products. The loss or termination of one or more of our major distributors, representatives or retailers, the failure of one or more of our distributors, representatives or representativesretailers to effectively promote our products, or changes in the financial or business condition of these distributors, representatives or representativesretailers could affecteffect our ability to bring products to market.

Our pension costs and funding requirements could increase as a result of volatility in the financial markets and changes in interest rates and actuarial assumptions.

Increases in the costs of pension benefits may continue and negatively affect our business as a result of: the effect of potential declines in the stock and bond markets on the performance of our pension plan

assets; potential reductions in the discount rate used to determine the present value of our benefit obligations; and changes to our investment strategy that may impact our expected return on pension plan assets assumptions. U.S. generally accepted accounting principles require that we calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Our accounting policy for defined benefit plans may subject earnings to volatility due to the recognition of actuarial gains and losses, and amortization of liability savings, particularly due to the change in the fair value of pension assets and interest rates. Funding requirements for our U.S. pension plans may become more significant. However, the ultimate amounts to be contributed are dependent upon, among other things, interest rates, underlying asset returns and the impact of legislative or regulatory changes related to pension funding obligations.

Risks associated with the disruption of operations could adversely affect our results of operations, cash flows and financial condition.

We manufacture a significant portion of the products we sell. Any prolonged disruption in our operations, whether due to technical or labor difficulties, weather, lack of raw material or component availability, startup inefficiencies for new operations, destruction of or damage to any facility (as a result of natural disasters, fires and explosions, use and storage of hazardous materials or other events) or other reasons, could negatively impact our profitability and competitive position and adversely affect our results of operations, cash flows and financial condition.

Our inability to obtain raw materials and finished goods in a timely and cost-effective manner from suppliers could adversely affect our ability to manufacture and market our products.

We purchase raw materials to be used in manufacturing our products and also rely on third-party manufacturers as a source for finished goods. We typically do not enter into long-term contracts with our suppliers or sourcing partners. Instead, most raw materials and sourced goods are obtained on a “purchase order” basis. In addition, in some instances we maintain single-source or limited-source sourcing relationships, either because multiple sources are not available or the relationship is advantageous due to performance, quality, support, delivery, capacity or price considerations. Financial, operating or other difficulties encountered by our suppliers or sourcing partners or changes in our relationships with them could result in manufacturing or sourcing interruptions, delays and inefficiencies, and prevent us from manufacturing or obtaining the finished goods necessary to meet customer demand. If we are unable to meet customer demand, there could be an adverse effect on our results of operations, cash flows and financial condition.

Our failure to attract and retain qualified personnel and other labor constraints could adversely affect our results of operations, cash flows and financial condition.

Our success depends in part on the efforts and abilities of qualified personnel at all levels, including our senior management team and other key employees. Their motivation, skills, experience, contacts and industry knowledge significantly benefit our operations and administration. TheWith low unemployment rates in the U.S., competition for qualified talent and attracting and retaining personnel in remote locations could result in the failure to attract, motivate and retain members of our senior management team and key employeespersonnel, which could have an adverse effect on our results of operations, cash flows and financial condition.

Future tax law changes or the interpretation of existing tax laws may materially impact our effective income tax rate, the resolution of unrecognized tax benefits and cash tax payments.

Our businesses are subject to income taxation in the U.S., as well as internationally. We are routinely audited by income tax authorities in many jurisdictions. Although we believe that the recorded tax estimates are reasonable and appropriate, there are significant uncertainties in these estimates. As a

result, the ultimate outcome from any audit could be materially different from amounts reflected in our income tax provisions and accruals. Future settlements of income tax audits may have a material adverse effect on earnings between the period of initial recognition of tax estimates in our financial statements and the point of ultimate tax audit settlement. In addition, significant judgement is required in determining our provision for income taxes. Our total income tax expense could be affected by changes in tax laws rates in the jurisdictions in which our businesses are subject to taxation, changes in the valuation of deferred tax assets and liabilities or changes in tax laws or the interpretation of such laws by tax authorities.

Potential liabilities and costs from claims and litigation could adversely affect our results of operations, cash flows and financial condition.

We are, from time to time, involved in various claims, litigation matters and regulatory proceedings that arise in the ordinary course of our business and that could have an adverse effect on us. These matters may include contract disputes, intellectual property disputes, product recalls, personal injury claims, construction defects and home warranty claims, warranty disputes, environmental claims or proceedings, other tort claims, employment and tax matters and other proceedings and litigation, including class actions. It is not possible to predict the outcome of pending or future litigation, and, as with any litigation, it is possible that some of the actions could be decided unfavorably and could have an adverse effect on our results of operations, cash flows and financial condition.

We are subject to product safety regulations, recalls and direct claims for product liability that can result in significant liability and, regardless of the ultimate outcome, can be costly to defend. As a result of the difficulty of controlling the quality of products or components sourced from other manufacturers, we are exposed to risks relating to the quality of such products and to limitations on our recourse against such suppliers.

An impairment in the carrying value of goodwill or other acquired intangible assets could negatively affect our results of operations and financial condition.

The carrying value of goodwill represents the fair value of acquired businesses in excess of identifiable assets and liabilities as of the acquisition date. The carrying value of other intangible assets represents the fair value of customer relationships, tradenames and other acquired intangible assets as of the acquisition date. Goodwill and other acquired intangible assets expected to contribute indefinitely to our cash flows are not amortized, but must be evaluated for impairment by our management at least annually. If the carrying value exceeds the implied fair value of goodwill, the goodwill is considered impaired and is reduced to fair value via anon-cash charge to earnings. If the carrying value of an indefinite-lived intangible asset is greater than its fair value, the intangible asset is considered impaired and is reduced to fair value via anon-cash charge to earnings. Events or circumstances that could have a potential negative effect on the estimated fair value of our reporting units and indefinite-lived tradenames include: actual new construction and repair and remodel growth

rates that lagfall below our assumptions, actions of key customers, volatility ofincreases in discount rates, continued economic uncertainty, higher levels of unemployment, weak consumer confidence, lower levels of discretionary consumer spending, a decrease in royalty rates and a decline in the trading price of our common stock.stock . If the value of goodwill or other acquired intangible assets is impaired, our results of operations and financial condition could be adversely affected.

We may experience delays or outages in our information technology systemsystems and computer networks. We may be subject to breaches of our information technology systems, which could damage our reputation and consumer relationships. Such breaches could subject us to significant financial, legal and operational consequences.

We, like most companies, may be subject to information technology system failures and network disruptions. These may bedisruptions caused by delays or disruptions due to system updates, natural disasters, malicious attacks, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronicbreak-ins, or similar events or disruptions. Our businesses may implement enterprise

resource planning systems or add applications to replace outdated systems and to operate more efficiently. Predictions regarding benefits resulting from the implementation of these projects are subject to uncertainties. We may not be able to successfully implement the projects without experiencing difficulties. In addition, any expected benefits of implementing projects might not be realized or the costs of implementation might outweigh the benefits realized. In addition, information security risks have generally increased in recent years because of the proliferation of new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. We believe we devote appropriate resources to network security, data encryption, and other security measures to protect our systems and data, but these security measures cannot provide absolute security. In the event of a breach, we would be exposed to a risk of loss or litigation and possible liability, which could have an adverse effect on our business, results of operations, cash flows and financial condition.

There can be no assurance that we will have access to the capital markets on terms acceptable to us.

From time to time we may need to access the long-term and short-term capital markets to obtain financing. Although we believe that the sources of capital currently in place permit us to finance our operations for the foreseeable future on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future will be impacted by many factors, including, but not limited to: our financial performance, our credit ratings, the liquidity of the overall capital markets and the state of the economy, including the U.S. housing market. There can be no assurance that we will have access to the capital markets on terms acceptable to us. In addition, a prolonged global economic downturn may also adversely impact our access to long-term capital markets, result in increased interest rates on our corporate debt, and weaken operating cash flow and liquidity. Decreased cash flow and liquidity could potentially adversely impact our ability to pay dividends, fund acquisitions and repurchase shares in the future.

Item 1B.  Unresolved Staff Comments.

None.

Item 2.  Properties.

Our principal executive office is located at 520 Lake Cook Road, Deerfield, Illinois 60015. We operate 2930 U.S. manufacturing facilities in 16 states and have 1622 manufacturing facilities in international locations (8(9 in Mexico, 3 in Asia, 34 in Europe, 4 in Africa, and 2 in Canada). In addition, we have 4453 distribution centers and warehouses worldwide, of which 3642 are leased. The following table provides additional information with respect to these properties.

We are of the opinion that the properties are suitable to our respective businesses and have production capacities adequate to meet the current needs of our businesses.

Item 3.  Legal Proceedings.

The Company is a defendant in lawsuits that are ordinary routine litigation matters incidental to its businesses. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is possible that these actions could be decided unfavorably to the Company. The Company believes that

there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon the Company’s results of operations, cash flows or financial condition, and, where appropriate, these actions are being vigorously contested. Accordingly, the Company believes the likelihood of material loss is remote.

Item 4.  Mine Safety Disclosures.

Not applicable.

Executive Officers of the Registrant.

Christopher J. Klein has served as Chief Executive Officer of Fortune Brands since January 2010.

E. Lee Wyatt, Jr.Patrick D. Hallinanhas served as Senior Vice President and Chief Financial Officer of Fortune Brands since July 2011.

Michael P. Bauerhas2017. From January 2017 to July 2017, Mr. Hallinan served as Senior Vice President of Master Lock Company LLC since December 2014. From April 2011 through December 2014,Finance of Fortune Brands. Prior to joining Fortune Brands’ executive team, Mr. BauerHallinan served as the Presidentchief financial officer of the U.S. Businesses at Moen Incorporated, a subsidiary of Fortune Brands.Brands, from November 2013 to January 2017.

Nicholas I. Finkhas served as President of Fortune Brands Globalthe Plumbing Group LLCsegment since August 2016. From June 2015 to August 2016, Mr. Fink served as Senior Vice President-Global Growth and Development of Fortune Brands. From June 2006 to May 2015, Mr. Fink worked at Beam Suntory, Inc., a global spirits company, and its predecessor entities in various senior positions including as Senior Vice President and President, Asia-Pacific/South America from July 2013 to May 2015 and as Senior Vice President, Chief Strategy Officer from May 2012 to December 2013.America.

Brett E. Finleyhas served as President of the Doors & Security segment since July 2018. From February 2016 to July 2018, Mr. Finley served as the President of Fortune Brands Doors, Inc. since February 2016. From February 2008 to February 2016, Mr. Finley held various leadership positions at IDEX Corporation, a global manufacturer of fluidics systems and specialty engineered products, including Senior Vice President, Group Executive, Fluid & Metering Technologies Segment and President- IDEX-Asia.

David M. Randich has served as President of MasterBrandthe Cabinets Inc., a subsidiary of Fortune Brands,segment since October 2012. From November 2007 to October 2012, Mr. Randich served as President ofTherma-Tru Corp., a subsidiary of Fortune Brands.

Tracey L. Belcourt has served as Senior Vice President of Global Growth and Development of Fortune Brands since December 2016. From 2012 to 2016, Ms. Belcourt served as Executive Vice President, Strategy of Mondelez International, Inc. a confectionary, food and beverage company.

Robert K. Biggart has served as Senior Vice President, General Counsel and Secretary of Fortune Brands since December 2013. From March 2005 through December 2013, Mr. Biggart served as Senior Vice President — General Counsel of PepsiCo Americas Beverages, a business division of PepsiCo, Inc., a global food and beverage company.

Sheri R. Grissomhas served as Senior Vice President — Human Resources of Fortune Brands since February 2015. Ms. Grissom served as Executive Vice President — Global Human Resources of Actuant Corporation, a diversified industrial company, from October 2010 to February 2015.

Brian C. Lantzhas served as Senior Vice President, Communications & Corporate Administration since January 2017. Mr. Lantz joined Fortune Brands in June 2011 as Vice President of Investor Relations.

Marty Thomashas served as Senior Vice President, Operations and Supply Chain Strategy since September 2017. Mr. Thomas served as Senior Vice President of Global Operations and Engineering Services at Rockwell Automation, Inc., a provider of industrial automation and information products, from 2006 to 2016.

Dan Luburichas served as Vice President and Corporate Controller of Fortune Brands since October 2011.

PART II

Market Information, Dividends and Holders of Record

Our common stock is listed on the New York Stock Exchange (the “NYSE”) under the ticker symbol “FBHS”. The following table presents the high and low prices for our common stock as reported on the NYSE and the dividends declared for each of the periods indicated.

In December 2016,2018, our Board of Directors increased the quarterly cash dividend by 13%10% to $0.18$0.22 per share of our common stock. Our Board of Directors will continue to evaluate dividend payment opportunities on a quarterly basis. There can be no assurance as to when and if future dividends will be paid, or at what level, because the payment of dividends is dependent upon our financial condition, results of operations, capital requirements and other factors deemed relevant by our Board of Directors.

On February 3, 2017,1, 2019, there were 11,4989,946 record holders of the Company’s common stock, par value $0.01 per share. A substantially greater number of holders of the Company’s common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers or other financial institutions.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Below are the repurchases of common stock by the Company or any “affiliated purchaser” (as defined inRule 10b-18(a)(3) under the Exchange Act) for the three months ended December 31, 2016:2018:

Stock Performance

The above graph compares the relative performance of our common stock, the S&P Midcap 400 Index, S&P 500 Index and a Peer Group Index. This graph covers the period from December 31, 20112013 through December 31, 2016.2018. This graph assumes $100 was invested in the stock or the index on December 31, 20112013 and also assumes the reinvestment of dividends. The foregoing performance graph is being furnished as part of this Annual Report on Form10-K solely in accordance with the requirement under Rule14a-3(b)(9) to furnish our stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by the Company under the Securities Act or the Exchange Act of 1934.Act.

Peer Group IndexIndex.The 2018 peer group is composed of the following publicly traded companies corresponding to the Company’s core businesses:

Armstrong World Industries, Inc., Fastenal Company, Leggett & Platt Incorporated, Lennox International Inc., Masco Corporation, Mohawk Industries, Inc., Newell RubbermaidBrands Inc., The Sherwin-Williams Company, Stanley Black & Decker, Inc., and USG Corporation and The Valspar Corporation.

Calculation of Peer Group Index

The weighted-average total return of the entire peer group, for the period of December 31, 20112013 through December 31, 2016,2018, is calculated in the following manner:

Five-year Consolidated Selected Financial Data

Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is a supplement to the accompanying consolidated financial statements and provides additional information on our business, recent developments, financial condition, liquidity and capital resources, cash flows and results of operations. MD&A is organized as follows:

Overview

The Company is a leader in home and security products focused on the design, manufacture and sale of market-leading branded products in the following categories: kitchen and bath cabinetry, plumbing and accessories, entry door systems, security products and securityoutdoor performance materials used in decking, railing and fencing products.

For the year ended December 31, 2016,2018, net sales based on country of destination were:

We believe the Company has certain competitive advantages including market-leading brands, a diversified mix of customer channels, lean and flexible supply chains, a decentralized business model and a strong capital structure as well as a tradition of strong innovation and customer service. We are focused on outperforming our markets in growth, profitability and returns in order to drive increased shareholder value. We believe the Company’s track record reflects the long-term attractiveness and potential of our categories and our leading brands. As consumer demand and the housing market continue to grow, we expect the benefits of operating leverage and strategic spending to support increased manufacturing capacity and long-term growth initiatives will help us to continue to achieve profitable organic growth.

We believe our most attractive opportunities are to invest in profitable organic growth initiatives. We also believe that as the market grows, we have the potential to generate additional growth from leveraging our cash flows and balance sheet strength by pursuing accretive strategic acquisitions,non-controlling equity investments, and joint ventures, and by returning cash to shareholders through a combination of dividends and repurchases under our share repurchase program as explained in further detail under “Liquidity and Capital Resources” below.

The U.S. market for our home products consists of spending on both new home construction and repair and remodel activities within existing homes, with the substantial majority of the markets we serve consisting of repair and remodel spending. We believe thatContinued growth in the U.S. market for our home products is in the midst of an elongated recovery from the U.S. economic recession that ended inmid-2009 and that a continued recovery will largely depend on consumer confidence, employment, home prices, stable mortgage rates and credit availability. Over the long term, we believe that the U.S. home products market will benefit from favorable population and immigration trends, which will drive demand for new housing units, and from aging existing housing stock that will continue to need to be repaired and remodeled.

We may be impacted by fluctuations in raw material,materials, tariffs, transportation costs, and foreign exchange rates and promotional activity among our competitors. We strive to offset the potential unfavorable impact of these items with productivity improvements initiatives and price increases.

During the three years ended December 31, 2016,2018, our net sales grew at a compounded annual rate of 10%6.2% as we benefited from an improving U.S. home products market, acquisitions, and growth in international markets. Operating income grew at a compounded annual rate of 25%7.4% with consolidated operating margins improving from 9%10% in 20132015 to 13%11% in 2016.2018. Growth in operating income was primarily due to higher sales volume, changes to our portfolio of businesses, control and leverage of our operating expenses and the benefits of productivity programs.

During 2016,2018, the U.S. home products market grew due to increases in new home construction and repair and remodel activities. We believe new housing construction experienced low double-digitapproximately 5% growth in 20162018 compared to 20152017 and spending for home repair and remodeling increased in the range of 5%approximately 4%. In 2016,2018, net sales grew 9%4% due to price increases to help mitigate cumulative raw material cost increases, the acquisitions in our Plumbing and operating income increased 28% due toDoors & Security segments, higher sales volume primarily resulting from U.S. home products market growth, the acquisitions in our Cabinets and Plumbing segments, price increases to help mitigate cumulative raw material cost increases and the effect of favorable foreign exchange. In 2018, operating income decreased 12.8% due to unfavorable foreign exchangemix, asset impairment charges, higher employee-related costs and productivity improvements.restructuring charges.

During 2015,2017, the U.S. home products market grew due to increases in new home construction and repair and remodel activities. We believe new housing construction experienced low double-digitapproximately 7% growth in 20152017 compared to 20142016 and spending for home repair and remodeling increased by approximately 5%. In 2015,2017, net sales grew 14%6% and operating income increased 23% including the benefit of acquisitions of Norcraft Companies, Inc. (“Norcraft”) in 2015, and John D. Brush & Co., Inc. (“SentrySafe”) and Anaheim Manufacturing Company (“Anaheim”) in 2014,9% due to higher sales volume primarily resulting from U.S. home products market growth, the acquisitions in our Plumbing segments, price increases to help mitigate cumulative raw material cost increases, the effect of favorable foreign exchange and productivity improvements.

During the fourth quarter of 2018, our Plumbing segment entered into strategic partnerships with several companies who incorporate emerging technology into plumbing-related products, and at the same time acquirednon-controlling equity interests in two of our partners. This includes an investment in Flo Technologies, Inc.

In September 2018, we issued $600 million of unsecured senior notes (“2018 Senior Notes”) in a registered public offering. The 2018 Senior Notes are due in 2023 with a coupon rate of 4%. All other terms and conditions of the 2018 Senior Notes are substantially consistent with our other senior notes issued in June 2015 (“2015 Senior Notes”, and collectively with the 2018 Senior Notes, the “Senior Notes”). We used the proceeds from the 2018 Senior Notes offering to pay down our revolving credit facility.

In September 2018, we acquired 100% of the membership interests of Fiber Composites LLC (“Fiberon”), a leading U.S. manufacturer of outdoor performance materials used in decking, railing and fencing products

for a total purchase price of approximately $470.0 million, subject to certain post-closing adjustments. The acquisition of Fiberon provides category expansion and product extension opportunities into the outdoor living space for our Doors & Security segment. We financed the transaction using cash on hand and borrowings under our revolving credit and term loan facilities. Fiberon’s results of operations are included in the Doors & Security segment from the date of acquisition.

In July 2018, we publicly announced an internal reorganization to combine our historical Doors and Security segments under common leadership to drive innovation, accelerate product development, and enhance investments and business processes. In connection with the reorganization, we changed how our chief operating decision maker evaluates and allocates the resources for the combined business. Reporting for the new Doors & Security segment began in the third quarter of 2018 and historical financial segment information has been restated to conform to the new segment presentation.

In March 2018, the Company entered into a $350 million term loan for general corporate purposes that matures in March 2019. In August 2018, the Company amended its existing $350 million term loan to increase the borrowings under the term loan from $350 million to $525 million. All terms and conditions on the amended term loan remain the same as the previous $350 million term loan. Interest rates under the term loan are variable based on LIBOR at the time of the borrowing and the Company’s long-term credit rating and can range from LIBOR + 0.625% to LIBOR + 1.25%. Covenants under the term loan are the same as the existing $1.25 billion revolving credit agreement.

In October 2017, we acquired Domotec Holdings Limited (“Victoria + Albert”), aUK-based premium brand of standalone bathtubs, sinks, tub fillers, faucets and other accessories. In July 2017, we acquired Shaws Since1897 Limited (“Shaws”), aUK-based luxury plumbing products company that specializes in manufacturing and selling fireclay sinks and selling brassware and accessories. The total combined consideration paid was approximately $146 million, subject to certain post-closing adjustments and deferred acquisition payments. We financed both of the acquisitions using cash on hand and borrowings under our revolving credit facility. These transactions broadened our plumbing portfolio.

During the third quarter of 2016, we announced the creation of GPG, which was designed to support the growth of multiple plumbing brands with an enhanced set of products and brands, while leveraging Moen’s existing global supply chain and broad distribution network.

In September 2016, we acquired ROHL LLC (“ROHL”), a California-based luxury plumbing company and in a related transaction, we acquired TCL Manufacturing Ltd, which gave us ownership of Perrin & Rowe, Limited (“Perrin & Rowe”), a UK manufacturer and designer of luxury kitchen and

bathroom plumbing products. The total combined purchase price was approximately $166 million, subject to certain post-closing adjustments. We financed both acquisitions using cash on hand and borrowings under our existing credit facilities.facility. These transactions broadened the plumbing portfolio and enhanced future growth opportunities.

In June 2016, we amended and restated our credit agreement to combine and rollover the existing revolving credit facility and term loan into a new standalone $1.25 billion revolving credit facility. Terms and conditions of the credit agreement, including the total commitment amount, essentially remained the same.same as our previous credit assesment. The revolving credit facility will mature in June 2021 and borrowings thereunder will be used for general corporate purposes.

In May 2016, we acquired Riobel Inc.Inc (“Riobel”), a Canadian plumbing company specializing in premium showroom bath and shower fittings, for a total purchase price of $94.6 million, in cash, subject to certain post-closing adjustments. We financed the transaction using cash on hand and borrowings under our existing credit facilities.

In September 2015, we completed the sale of Waterloo Industries, Inc. (“Waterloo”) for approximately $14 million in cash, subject to certain post-closing adjustments.

In June 2015, we issued $900 million of unsecured senior notes (“Senior Notes”) in a registered public offering. We used the proceeds from the Senior Notes offering to pay down our revolving credit facility and for general purposes.

In May 2015, we acquired Norcraft, a leading publicly-owned manufacturer of kitchen and bathroom cabinetry, for a total purchase price of $648.6 million. We financed the transaction using cash on hand and borrowings under our existing credit facilities.

In December 2014, we acquired Anaheim, which markets and sells garbage disposals, for $28.9 million in cash.

In September 2014, we sold the Simonton windows business (“Simonton”) for $130 million in cash.

In July 2014, we acquired SentrySafe, a leading manufacturer of home safes, for a purchase price of $116.7 million in cash. The financial results of SentrySafe were included in the Company’s results of operations and cash flows beginning in August of 2014. The purchase prices were funded from cash on hand and our existing credit facilities.

Basis of Presentation

The consolidated financial statements include the accounts of Fortune Brands and its wholly-owned subsidiaries. The consolidated financial statements in this Annual Report on Form10-K have been derived from the accounts of the Company and its wholly-owned subsidiaries. The Company’s consolidated financial

statements are based on a fiscal year ending December 31. Certain of the Company’s subsidiaries operate on a 52 or 53 week fiscal year ending during the month of December. In December 2016,2017, there were certain transactions that resulted in approximately $49$38 million of net cash outflows relating to payments made to third parties in the normal course of business during the period between theyear-end of our wholly-owned subsidiaries and the Company’syear-end.year-end (in 2018, amounts were immaterial).

In September 2018, we acquired Fiber Composites LLC (“Fiberon”). The financial results of Fiberon were included in the Company’s consolidated statements of income and statements of cash flow beginning in September 2018 and the consolidated balance sheet as of December 31, 2018. The results of operations are included in the Doors & Security segment.

In October 2017, we acquired Victoria + Albert. In July 2017, we acquired Shaws. The financial results of both of the acquisitions were included in the Company’s consolidated balance sheets as of December 31, 2017 and in the Company’s consolidated statements of income and statements of cash flow beginning in October 2017 and July 2017, respectively. The results of operations are included in the Plumbing segment.

In September 2016, we acquired ROHL and in a related transaction, we acquired TCL Manufacturing Ltd., which gave us ownership of Perrin & Rowe and in May 2016, we acquired Riobel. The financial results of ROHL and Riobel were included in the Company’s consolidated balance sheets as of December 31, 2016 and in the Company’s consolidated statements of income and statements of cash flow beginning in September 2016 and May 2016, respectively.

In September 2015, we completed the sale of Waterloo. In accordance with Accounting Standards Codification (“ASC”) requirements, the results of operations of Waterloo through the date of sale, were classified and separately stated as discontinued operations in the accompanying consolidated statements of income for 2015 and 2014. The assets and liabilities of Waterloo were classified as discontinued operations in the accompanying consolidated balance sheet as of December 31, 2014.

In May 2015, we acquired Norcraft. The financial results of Norcraft were included in the Company’s consolidated statements of income and statements of cash flow beginning in May 2015 and the consolidated balance sheets as of December 31, 2015 and 2016.

In September 2014, we sold all of the shares of stock of Fortune Brands Windows, Inc., our subsidiary that owned and operated the Simonton windows business. The results of operations of Simonton were reclassified and separately stated as discontinued operationsare included in the accompanying consolidated statements of income for 2014.

The cash flows from discontinued operations for 2015 and 2014 were not separately classified on the accompanying consolidated statements of cash flows. Information on Business Segments was revised to exclude these discontinued operations.Plumbing segment.

Results of Operations

The following discussion of both consolidated results of operations and segment results of operations refers to the year ended December 31, 20162018 compared to the year ended December 31, 2015,2017, and the year ended December 31, 20152017 compared to the year ended December 31, 2014.2016. The discussion of consolidated results of operations should be read in conjunction with the discussion of segment results of operations and our financial statements and notes thereto included in this Annual Report on Form10-K. Unless otherwise noted, all discussion of results of operations are for continuing operations.

Years Ended December 31, 2016, 20152018, 2017 and 20142016

Certain items had a significant impact on our results in 2016, 20152018, 2017 and 2014.2016. These included the acquisitions of Fiberon, Victoria + Albert, Shaws, Riobel, ROHL and Perrin & Rowe, Norcraft, Anaheim and SentrySafe, dispositions of

Waterloo and Simonton, defined benefit plan recognition of actuarial losses, restructuring and other charges, asset impairment charges and the impact of changes in foreign currency exchange rates.

In 2018, financial results included:

In 2017, financial results included:

In 2016, financial results included:

In 2015, financial results included:

In 2014, financial results included:

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loss from discontinued operations of $114.3 million, net of tax, which includes the net loss on the sale of Simonton windows of $111.2 million, as well as restructuring and impairment losses of $14.1 million, net of tax, as a result of the decision to sell the Waterloo tool storage business.

20162018 Compared to 20152017

Total Fortune Brands

Net sales

Net sales increased $405.5$201.8 million, or 9%3.8%. The increase was due to higher sales volume primarily from the continuing improvement in U.S. market conditions for home products, the benefit from the acquisitions in our Cabinets and Plumbing segments and price increases to help mitigate cumulative raw material cost increases, higher international sales, principally in China, our acquisitions

during 2017 and 2018 in our Plumbing and Doors & Security segments, higher sales volume primarily from the effectgrowth in the U.S. home products market, the benefit from new product introductions and favorable foreign exchange of unfavorable foreign exchange.approximately $9 million. These benefits were partially offset by more moderate industry growth during the second half of 2018, unfavorable foreign exchange of approximately $27 millionmix and higher salespromotions and rebates.

Cost of products sold

Cost of products sold increased $182.8$167.4 million, or 6%5.0%, due to higher net sales, including the impact of the acquisitionsincreased commodity costs, higher restructuring and other charges related to costs associated with our initiatives to consolidate and rationalize our manufacturing footprint and discontinue certain product lines in our Cabinets segment, and higher amortization of the acquisition-related inventory fair value adjustment in our Plumbing segments,and Doors & Security segments. These factors were partially offset by the benefit of productivity improvements.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $82.3$44.5 million, or 8%3.7%, due to higher employee-related costs, the impact of thefrom our acquisitions during 2017 and 2018 in our CabinetsPlumbing and PlumbingDoors & Security segments and higher employee-relatedtransportation costs partially offset by the absence of Norcraft transaction costs in 2016 ($15.1 million in 2015).benefit from restructuring actions.

Amortization of intangible assets

Amortization of intangible assets increased $6.5$4.4 million due to the recognition of certain intangible assets from theour acquisitions during 2017 and 2018 in our Plumbing and Doors & Security segments offset by a decrease related to a definite-lived customer relationship intangible that was fully amortized during the second quarter of 2017.

Loss on sale of product line

In April 2017, we completed the sale of Field ID, our cloud-based inspection and safety compliance software product line included in our Doors & Security segment. We recorded apre-tax loss of $2.4 million as the result of this sale.

Asset impairment charges

Asset impairment charges of $62.6 million in 2018 related to two indefinite-lived tradenames within our Cabinets and Plumbing segment. During the third quarter of 2018, we recognized an impairment of $27.1 million related to one tradename, which was primarily the result of reduced revenue growth expectations associated with Cabinets operations in Canada, including the announced closure of Company-owned retail locations during the third quarter of 2018. During the fourth quarter of 2018, we recognized an impairment of $35.5 million related to another tradename, which was primarily the result of lower than forecasted sales during the fourth quarter of 2018 as well as projected changes in the mix of revenue across our tradenames in future periods, including the impact of more moderate industry growth expectations, which were finalized during our annual planning process conducted during the fourth quarter. Asset impairment charges of $3.2 million in the first quarter of 2017 related to our decision to sell Field ID.

Restructuring charges

Restructuring charges of $13.9$24.1 million in 20162018 primarily related to severance costs within all of our segments and costs associated with our initiatives to consolidate our manufacturing footprint and product lines in our Cabinets segment. Restructuring charges of $8.3 million in 2017 primarily related to severance costs across all segments and charges associated with the relocation of a manufacturing facility within our SecurityCabinets segment. Restructuring charges of $16.6 million in 2015 primarily related to the same relocation of a manufacturing facility, including severance costs within our Security segment as well as severance costs to relocate a Plumbing manufacturing facility in China.

Operating income

Operating income increased $136.6decreased $87.3 million or 28%12.8%. Operating income increaseddecreased due to unfavorable mix, asset impairment charges, higher employee-related costs and restructuring charges partially offset by

higher net sales, including the benefit from acquisitions in our Plumbing segment and productivity improvements. These benefits were partially offset by higher employee-related costs, higher advertising costs and higher sales rebates and approximately $6 million of unfavorable foreign exchange. Operating income in 2015 was also impacted by $15.1 million of Norcraft transaction costs, which did not recur in 2016.

Interest expense

Interest expense increased $17.2$25.1 million to $49.1$74.5 million due to higher average borrowings to finance share repurchases and acquisitions and higher average interest rates.

Other expense,income, net

Other expense,income, net, was expense of $1.5$16.3 million in 2016the twelve months ended December 31, 2018, compared to expense of $4.3$1.7 million in 2015.the twelve months ended December 31, 2017. The change was principallyincrease in other income, net, is primarily due to hedge gains associated with our September 2018 debt issuance, favorable foreign currency adjustments.adjustments and various tax credits within our Plumbing business partially offset by lower defined benefit plan income in 2018 ($3.0 million decrease). In addition, 2017 reflects a $7.0 million impairment charge related to a cost method investment.

Income taxes

The effective income tax rates for 20162018 and 20152017 were 29.2%27.4% and 33.4%25.1%, respectively. The 2018 effective income tax rate was favorably impacted by the corporate tax rate reduction from 35% to 21% under The Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The 2018 effective income tax rate was unfavorably impacted by the repeal of the Domestic Production Activity (Internal Revenue Code Section 199) Deduction, a valuation allowance increase ($3 million), an adjustment to the provisional net benefit recorded in 2017 under the Tax Act ($5.5 million), state and local taxes, unfavorable tax rates in foreign jurisdictions ($3.5 million), and increases in uncertain tax positions ($4.1 million).

The 2017 effective income tax rate was favorably impacted by the Tax Act. The effective income tax ratesrate for 2016 and 2015 were2017 was favorably impacted by a tax benefit related to share-based compensation ($23.9 million), the tax benefit attributable to the Domestic Production Activity (Internal Revenue Code Section 199) Deduction ($13.0 million10.9 million) and $12.5 million, respectively), favorable tax rates in foreign jurisdictions ($7.6 million and $8.7 million, respectively) and a benefit associated with the U.S. research and development credit ($2.3 million and $2.2 million, respectively)8.3 million), partially offset by state and local taxes and increases to uncertain tax positions ($13.2 million11.6 million).

The Tax Act made significant changes to the U.S. Internal Revenue Code including a reduction in the corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017, generally providing for an exemption from federal income tax for dividends received from foreign subsidiaries, and $4.7 million, respectively). The 2016imposing aone-time transition tax on the deemed repatriation of cumulative foreign earnings and profits as of December 31, 2017. On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued, which deals with the application of U.S. GAAP to situations where a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, we calculated our best estimate of the impact of the Tax Act on our 2017 effective income tax raterate. As a result, the Company recorded a provisional net benefit of $25.7 million in the fourth quarter of 2017, the period in which the Tax Act was favorably impacted by aenacted. This provisional amount included an estimated reduction in the Company’s net deferred tax benefit related toliabilities of $62.4 million resulting from the adoption of ASU2016-09,decrease in the new accounting guidance relating to share-based compensation ($27.8 million). The 2015 effectivefederal income tax raterate; an estimated deemed repatriation tax liability of $28.5 million; and an estimated net increase to our provision for taxes on foreign earnings not considered permanently reinvested of $8.2 million. During the fourth quarter of 2018, the Company completed its analysis in conjunction with the SAB 118 measurement period ending on December 22, 2018. The total tax provision impact for the year ended December 31, 2018 was unfavorably impacted by $2.4an unfavorable adjustment of $5.5 million related primarily to nondeductible acquisition costs.certain deferred tax assets and liabilities.

Income from continuing operations

Net income from continuing operations was $412.4$390.0 million in 20162018 compared to $306.5$475.3 million in 20152017. The decrease of $85.3 million was primarily due to higherlower operating income.

Income (loss)Loss from discontinued operations

IncomeThe loss from discontinued operations was $0.8$0.2 million and $9.0$2.6 million in 20162018 and 2015, respectively. The discontinued operations in 2016 includes the effect of tax adjustments relating2017, respectively and is related to the Waterloo business. The discontinued operations in 2015 consist of the results of operations of Waterloo and theafter-tax gain associated with theprior sale of the business.Waterloo tool storage and Simonton window businesses.

Results By Segment

Cabinets

Net sales increased $224.4decreased $48.5 million, or 10%2.0%, predominantly due to the benefitimpact of the Norcraft acquisition,exiting a customer relationship and unfavorable mix. These factors were partially offset by the benefit from new product introductions and price increases to help mitigate cumulative raw material cost increases.

Operating income decreased $123.7 million, or 46.3%, primarily due to lower net sales, tradename asset impairment charges of $62.6 million, higher restructuring and other charges incurred to consolidate our manufacturing footprint and discontinue certain product lines and increased employee-related costs due to inflation, partially offset by the benefit from productivity improvements.

Plumbing

Net sales increased $162.5 million, or 9.4% due to higher sales unit volume in the U.S. China and Canada, new product introductions across our distribution channels, the benefit from the 2017 acquisitions of Victoria + Albert and Shaws and price increases to help mitigate cumulative raw material cost increases and higher sales volume including the impact of new product introductions. These benefits were partially offset by higher rebates. Foreign exchange was favorable by approximately $6 million of unfavorable foreign exchange.$5 million.

Operating income increased $65.4$16.8 million, or 34%4.7%, due to the higher net sales including the benefit of the Norcraft acquisition and benefits from productivity improvements. These benefits were partially offset by commodity cost inflation, higher employee-related costs, unfavorable mix, amortization of the acquisition-related inventory fair value adjustments ($5.5 million) related to our 2017 acquisitions and increased marketing and advertising costs. In addition, 2017 operating income reflects the impact of adopting ASU2017-07 during 2018 and the reclassification of approximately $5.1 million from Plumbing operating income to other income, net.

PlumbingDoors & Security

Net sales increased $119.9$87.8 million, or 8%8.0%, due to higher sales volume, inresulting from the U.S. driven by improving U.S. market conditions andbenefit from new product introductions, the benefit from the acquisitionsacquisition of Riobel, ROHL and Perrin & Rowe andFiberon in 2018, price increases to help mitigate cumulative raw material cost increases and the effectimpact of unfavorablefavorable foreign exchange. These benefitsexchange, which were partiallypartly offset by higherincreasednon-repeating sales rebatespromotions and approximately $18 million of unfavorable foreign exchange.mix.

Operating income increased $40.9$8.7 million, or 14%5.9%, due to higher net sales including the benefitsand an inventory valuation accounting change benefit of the acquisitions of Riobel, ROHL and Perrin & Rowe, as well as productivity improvements. These

benefits$12.8 million, which were partially offset by higher employee-related costs, higher advertising costsnon-repeating sales promotions and approximately $7 million of unfavorable foreign exchange. Operating income in 2016 was also favorably impacted by lower restructuring and other charges ($4.0 million impact) primarilyinventory step up amortization related to severance costs to relocate a facility in China.the Fiberon acquisition.

DoorsCorporate

Net sales increased $33.9Corporate expenses decreased by $10.9 million or 8%,mainly due to higher sales volume driven primarily by improved conditions in the U.S. home products market, new product introductions, price increases to help mitigate cumulative raw material cost increases and favorable mix.

Operating income increased $17.9 million, or 41%, due to higher net sales, the benefits of productivity improvements and approximately $2 million of favorable foreign exchange. These benefits were partially offset by higher employee relatedlower employee-related costs.

Security

Net sales increased $27.3 million, or 5%, due primarily to higher sales volume in the U.S. and Europe and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by In addition, 2017 corporate expense reflects the impact of exiting certain product linesadopting ASU2017-07 during the first quarter of 2018 and the related reclassification of approximately $3$4.5 million of unfavorable foreign exchange.

Operating2017 income increased $10.7 million, or 19% due to higher net sales and the benefits of productivity improvements. These benefits were partially offset by the impact of approximately $3 million of unfavorable foreign exchange.

Corporate

from Corporate expenses in 2016 benefited from the absence of transaction costs associated with the Norcraft acquisition ($15.1 million in 2015). This benefit was offset by higher employee-related costs and lower defined benefit plan income.to other income, net.