UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
|
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
|
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number
FORTUNE BRANDS HOME & SECURITY, INC.
(Exact name of Registrant as specified in its charter)
|
Delaware |
|
62-1411546 |
|
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Common Stock |
|
New York Stock Exchange |
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.
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
☒ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
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Emerging growth company |
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|
If an emerging growth company, indicate by check mark if the registrant has elected not to 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at July 19, 2019 was
PART I. FINANCIAL INFORMATION
|
Item 1. |
FINANCIAL STATEMENTS. |
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six and Three Months Ended June 30, 2019 and 2018
(In millions, except per share amounts)
(Unaudited)
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Six Months Ended |
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Three Months Ended |
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June 30, |
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June 30, |
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2019 |
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2018 |
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2019 |
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2018 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of products sold |
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Selling, general and administrative expenses |
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Amortization of intangible assets |
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Restructuring charges |
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Operating income |
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Interest expense |
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Other income, net |
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( |
) |
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( |
) |
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( |
) |
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( |
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Income from continuing operations before income taxes |
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Income tax |
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Income from continuing operations, net of tax |
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Loss from discontinued operations, net of tax |
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— |
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( |
) |
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— |
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- |
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Net income |
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Less: Noncontrolling interests |
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( |
) |
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— |
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( |
) |
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Net income attributable to Fortune Brands |
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$ |
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$ |
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$ |
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$ |
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Basic earnings per common share |
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Continuing operations |
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$ |
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$ |
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$ |
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$ |
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Discontinued operations |
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— |
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— |
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— |
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— |
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Net income attributable to Fortune Brands common shareholders |
|
$ |
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$ |
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$ |
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$ |
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Diluted earnings per common share |
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Continuing operations |
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$ |
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$ |
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$ |
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$ |
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Discontinued operations |
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— |
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— |
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— |
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— |
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Net income attributable to Fortune Brands common shareholders |
|
$ |
|
|
|
$ |
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$ |
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$ |
|
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|
Comprehensive income |
|
$ |
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|
$ |
|
|
|
$ |
|
|
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$ |
|
|
See notes to condensed consolidated financial statements.
2
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
|
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|
June 30, 2019 |
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December 31, 2018 |
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||
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable less allowances for discounts and doubtful accounts |
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Inventories |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net of accumulated depreciation |
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Operating lease assets |
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— |
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Goodwill |
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Other intangible assets, net of accumulated amortization |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and equity |
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Current liabilities |
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Short-term debt |
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$ |
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$ |
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Accounts payable |
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Other current liabilities |
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Total current liabilities |
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Long-term debt |
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Deferred income taxes |
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Accrued defined benefit plans |
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Operating lease liabilities |
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— |
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Other non-current liabilities |
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Total liabilities |
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Commitments and contingencies (see Note 18) |
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Equity |
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Fortune Brands equity |
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Common stock(a) |
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Paid-in capital |
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Accumulated other comprehensive loss |
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( |
) |
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( |
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Retained earnings |
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Treasury stock |
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( |
) |
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( |
) |
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Total Fortune Brands equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity |
|
$ |
|
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$ |
|
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(a) |
|
See notes to condensed consolidated financial statements.
3
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2019 and 2018
(In millions)
(Unaudited)
|
|
|
2019 |
|
|
2018 |
|
||
|
Operating activities |
|
|
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|
|
|
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Net income |
|
$ |
|
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|
$ |
|
|
|
Non-cash pre-tax expense: |
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Depreciation |
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Amortization of intangibles |
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Non-cash lease expense |
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— |
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Stock-based compensation |
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Deferred taxes |
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( |
) |
|
Asset impairment charges |
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— |
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Amortization of deferred financing fees |
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(Gain) loss on sale of property, plant and equipment |
|
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( |
) |
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|
Changes in assets and liabilities: |
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Increase in accounts receivable |
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( |
) |
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|
( |
) |
|
Increase in inventories |
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( |
) |
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( |
) |
|
Increase in accounts payable |
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Increase in other assets |
|
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( |
) |
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( |
) |
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Decrease in accrued expenses and other liabilities |
|
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( |
) |
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( |
) |
|
(Decrease) Increase in accrued taxes |
|
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( |
) |
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Net cash provided by operating activities |
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Investing activities |
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Capital expenditures (a) |
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( |
) |
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( |
) |
|
Proceeds from the disposition of assets |
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Cost of acquisition, net of cash acquired |
|
|
— |
|
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|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
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|
( |
) |
|
Financing activities |
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(Decrease) increase in short-term debt |
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( |
) |
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Issuance of long-term debt |
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Repayment of long-term debt |
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( |
) |
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( |
) |
|
Proceeds from the exercise of stock options |
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Treasury stock purchases |
|
|
( |
) |
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( |
) |
|
Employee withholding taxes related to stock-based compensation |
|
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( |
) |
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( |
) |
|
Deferred acquisition payments |
|
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( |
) |
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— |
|
|
Dividends to stockholders |
|
|
( |
) |
|
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( |
) |
|
Other financing, net |
|
|
( |
) |
|
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— |
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Net cash used in financing activities |
|
|
( |
) |
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|
( |
) |
|
Effect of foreign exchange rate changes on cash |
|
|
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( |
) |
|
Net increase in cash and cash equivalents |
|
$ |
|
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|
$ |
|
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|
Cash, cash equivalents and restricted cash(b) at beginning of period |
|
$ |
|
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$ |
|
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|
Cash, cash equivalents and restricted cash(b) at end of period |
|
$ |
|
|
|
$ |
|
|
|
(a) |
|
|
(b) |
|
See notes to condensed consolidated financial statements.
4
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Six and Three Months Ended June 30, 2019 and 2018
(In millions)
(Unaudited)
|
|
|
Common Stock |
|
|
Paid-In Capital |
|
|
Accumulated Other Comprehensive (Loss) Income |
|
|
Retained Earnings |
|
|
Treasury Stock |
|
|
Non- controlling Interests |
|
|
Total Equity |
|
|||||||
|
Balance at December 31, 2017 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
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|
$ |
( |
) |
|
$ |
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$ |
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|
Comprehensive income: |
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Net income |
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— |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
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Stock options exercised |
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— |
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— |
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— |
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— |
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|
Stock-based compensation |
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— |
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— |
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— |
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( |
) |
|
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— |
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Treasury stock purchase |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
|
Dividends ($ |
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— |
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— |
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— |
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( |
) |
|
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— |
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— |
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|
( |
) |
|
Balance at June 30, 2018 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
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|
$ |
|
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|
Balance at December 31, 2018 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Comprehensive income: |
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|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
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|
|
|
Stock options exercised |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
Adoption of ASU 2018-02 |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Treasury stock purchase |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
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|
Common Stock |
|
|
Paid-In Capital |
|
|
Accumulated Other Comprehensive (Loss) Income |
|
|
Retained Earnings |
|
|
Treasury Stock |
|
|
Non- controlling Interests |
|
|
Total Equity |
|
|||||||
|
Balance at March 31, 2018 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Stock options exercised |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
Treasury stock purchase |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2018 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock options exercised |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Stock-based compensation |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
Treasury stock purchase |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Dividends ($ |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2019 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
See notes to condensed consolidated financial statements
5
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
1. |
Basis of Presentation and Principles of Consolidation |
References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Home & Security, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires.
The Company is a leading home and security products company with a portfolio of leading branded products used for residential home repair, remodeling, new construction and security applications.
The condensed consolidated balance sheet as of June 30, 2019, the related condensed consolidated statements of comprehensive income and equity for the six and three months ended June 30, 2019 and 2018, and the related condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 are unaudited. In the opinion of management, all adjustments necessary for a fair statement of the financial statements have been included. Interim results may not be indicative of results for a full year.
The condensed consolidated financial statements and notes are presented pursuant to the rules and regulations of the Securities and Exchange Commission and do not contain certain information included in our annual audited consolidated financial statements and notes. The December 31, 2018 condensed consolidated balance sheet was derived from our audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”). This Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.
In September 2018, we acquired
|
2. |
Recently Issued Accounting Standards |
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, which requires lessees to recognize almost all leases on their balance sheet as “right-of-use” assets and lease liabilities but recognize related expenses in a manner similar to previous accounting guidance. The guidance also eliminates previous real estate-specific provisions for all entities. In January 2018, the FASB issued ASU 2018-01, which clarifies the application of the new leases guidance to land easements. In July 2018, the FASB issued ASU 2018-10 and ASU 2018-11, which clarify certain guidance included in ASU 2016-02 and introduces a new optional transition method, which does not require revisions to comparative periods.
We adopted this standard as of January 1, 2019 using the transition method introduced by ASU 2018-11, which does not require revisions to comparative periods. We elected to implement the transition package of practical expedients permitted within the new standard, which among other things, allows us to carryforward the historical lease classification. In addition, we elected the hindsight practical expedient to determine the lease term for existing leases.
Adoption of the new standard resulted in the recording of lease assets and lease liabilities of approximately $
6
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
2. |
Recently Issued Accounting Standards (Continued) |
Improvements to Accounting for Hedging Activities
In August 2017, the FASB issued ASU 2017-12, which amends the current hedge accounting model. The new standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item (which is consistent with our prior practice). The change in fair value for qualifying cash flow and net investment hedges is included in other comprehensive loss (until they are reclassified into the income statement). The standard also eased certain documentation and assessment requirements and modified the accounting for components excluded from the assessment of hedge effectiveness. We adopted this standard as of January 1, 2019. The adoption of this standard did not have a material effect on our financial statements.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, which permits companies to reclassify to retained earnings the tax effects stranded in accumulated other comprehensive income (“AOCI”) as a result of U.S. Tax Cuts and Jobs Act of 2017. We adopted this standard on January 1, 2019, which resulted in a reclassification of $
Improvements to Nonemployee Share-Based Payment Accounting
In June 2018, the FASB issued ASU 2018-07, which simplifies the accounting for share-based arrangements with nonemployees. The new guidance generally aligns the accounting for share-based awards to nonemployees with the guidance for share-based awards to employees. The guidance was effective for the Company’s fiscal year beginning January 1, 2019. The adoption of this standard did not have a material effect on our financial statements.
Codification Improvements
In July 2018, the FASB issued ASU 2018-09, which includes technical corrections, clarifications, and other minor improvements to various areas including business combinations, fair value measurements and hedging. The transition and effective date guidance is based on the facts and circumstances of each amendment. Some of the amendments in this standard were effective immediately, while others were effective for the Company’s fiscal year beginning January 1, 2019. The adoption of this standard did not have a material effect on our financial statements.
Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, which removes several disclosure requirements, including the amount in AOCI expected to be recognized in income over the next fiscal year and the effects of a
Financial Instruments—Credit Losses
In June 2016, the FASB issued ASU 2016-13, which changes the impairment model for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance applies to most financial assets measured at amortized cost, including trade and other receivables and loans as well as off-balance-sheet credit exposures (e.g., loan commitments and standby letters of credit). The standard will replace the “incurred loss” approach under the current guidance with an “expected loss” model that requires an entity to estimate its lifetime “expected credit loss.” The standard is effective for the Company’s fiscal year beginning January 1, 2020 with early adoption permitted beginning January 1, 2019. We are assessing the impact the adoption of this standard will have on our financial statements.
7
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
2. |
Recently Issued Accounting Standards (Continued) |
Changes to the Disclosure Requirements for Fair Value Measurement
In August 2018, the FASB issued ASU 2018-13, which removes the requirement to disclose: 1) amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy, 2) policy for timing of transfers between levels, and 3) valuation processes for Level 3 investments. In addition, this guidance modifies and adds other disclosure requirements, which primarily relate to valuation of Level 3 assets and liabilities. The guidance is effective for the Company’s fiscal year beginning January 1, 2020, with early adoption permitted. We do not expect the adoption of this guidance to have a material effect on our financial statements.
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
In August 2018, the FASB issued ASU 2018-15 which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Costs to obtain software, including configuration and integration with legacy IT systems, coding and testing, including parallel process phases are eligible for capitalization under the new standard. In addition, activities that would be expensed include costs related to vendor demonstrations, determining performance and technology requirements and training activities. The standard is effective for the Company’s fiscal year beginning January 1, 2020, with early adoption permitted. We are assessing the impact the adoption of this standard will have on our financial statements.
|
3. |
Balance Sheet Information |
Supplemental information on our balance sheets is as follows:
|
(In millions) |
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Inventories: |
|
|
|
|
|
|
|
|
|
Raw materials and supplies |
|
$ |
|
|
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
|
|
|
Finished products |
|
|
|
|
|
|
|
|
|
Total inventories |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, gross |
|
$ |
|
|
|
$ |
|
|
|
Less: accumulated depreciation |
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
|
|
|
$ |
|
|
8
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
4. |
Acquisitions and Dispositions |
In September 2018, we acquired
The following table summarizes the preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed as of the date of the acquisition.
|
(In millions) |
|
|||
|
Accounts receivable |
|
$ |
|
|
|
Inventories |
|
|
|
|
|
Property, plant and equipment |
|
|
|
|
|
Goodwill |
|
|
|
|
|
Identifiable intangible assets |
|
|
|
|
|
Other assets |
|
|
|
|
|
Total assets |
|
|
|
|
|
Accounts payable |
|
|
|
|
|
Other liabilities and accruals |
|
|
|
|
|
Net assets acquired |
|
$ |
|
|
The preceding purchase price allocation has been determined provisionally and is subject to revision as additional information about the fair value of individual assets and liabilities becomes available. We apply significant judgement in determining the estimates and assumptions used to determine the fair value of the identifiable intangible assets, including forecasted revenue growth rates, customer attrition rates, discount rates and assumed royalty rates. Any change in the acquisition date fair value of the acquired net assets will change the amount of the purchase price allocable to goodwill.
Goodwill includes expected sales and cost synergies. Identifiable intangible assets primarily consist of customer relationships and tradenames.
|
5. |
Goodwill and Identifiable Intangible Assets |
We had goodwill of $
|
(In millions) |
|
Cabinets |
|
|
Plumbing |
|
|
Doors & Security |
|
|
Total Goodwill |
|
||||
|
Goodwill at December 31, 2018⁽ª⁾ |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Year-to-date translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related adjustments |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Goodwill at June 30, 2019⁽ª⁾ |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(a) |
|
We also had net identifiable intangible assets, principally tradenames, of $
9
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
5. |
Goodwill and Identifiable Intangible Assets (Continued) |
The gross carrying value and accumulated amortization by class of identifiable intangible assets as of June 30, 2019 and December 31, 2018 were as follows:
|
(In millions) |
|
As of June 30, 2019 |
|
|
As of December 31, 2018 |
|
||||||||||||||||||
|
|
|
Gross Carrying Amounts |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
|
Gross Carrying Amounts |
|
|
Accumulated Amortization |
|
|
Net Book Value |
|
||||||
|
Indefinite-lived tradenames |
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Amortizable intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Customer and contractual relationships |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Patents/proprietary technology |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total identifiable intangibles |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Amortizable identifiable intangible assets, principally tradenames and customer relationships, are subject to amortization over their estimated useful life, ranging from 2 to
In the first half of 2019, no events or circumstances occurred that would have required us to perform interim impairment tests of goodwill or indefinite-lived tradenames. During the third and fourth quarters of 2018, we recognized impairment charges related to
The events and/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 fall below our assumptions, actions of key customers, increases 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 decline in the trading price of our common stock. We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill and indefinite-lived intangible assets.
|
6. |
Leases |
As discussed in Note 2, we adopted ASU 2016-02 as of January 1, 2019. We have operating and finance leases for buildings and certain machinery and equipment. Operating leases are included in operating lease assets, other current liabilities, and operating lease liabilities in our condensed consolidated balance sheets. Amounts recognized for finance leases as of and for the six months ended June 30, 2019 were immaterial.
Operating lease assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. As most of our lease contracts do not provide an explicit interest rate, we use our incremental borrowing rate in determining the present value of future lease payments. Our incremental borrowing rates include estimates related to the impact of collateralization and the economic environment where the leased asset is located. The operating lease assets also include any prepaid lease payments and initial direct costs incurred, but exclude lease incentives received at lease commencement. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Our leases have remaining lease terms of 1 to
We do not recognize leases with an initial term of twelve months or less on the balance sheet and instead recognize the related lease payments as expense in the statement of comprehensive income on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component for all asset classes. Additionally, for certain equipment leases, we apply a portfolio approach and account for multiple lease components as a single lease component.
10
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
6. |
Leases (Continued) |
Certain of our lease agreements include variable rental payments, including rental payments adjusted periodically for inflation. Variable rental payments are expensed during the period they are incurred and therefore are excluded from our lease assets and liabilities. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating lease expense recognized in the condensed consolidated statement of comprehensive income during the six and three months ended June 30, 2019 was $
Other information related to leases was as follows:
|
(In millions, except lease term and discount rate) |
|
Six Months Ended June 30, 2019 |
|
|
|
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
|
Right-of-use assets obtained in exchange for operating lease obligations |
|
$ |
|
|
|
Weighted average remaining lease term - operating leases |
|
|
|
|
|
Weighted average discount rate - operating leases |
|
|
|
% |
Total lease payments under non-cancellable operating leases as of June 30, 2019 were as follows:
|
(In millions) |
|
|
|
|
|
Year Ending December 31, |
|
|
|
|
|
2019 (excluding six months ended June 30, 2019) |
|
$ |
|
|
|
2020 |
|
|
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total lease payments |
|
|
|
|
|
Less imputed interest |
|
|
( |
) |
|
Total |
|
$ |
|
|
|
Reported as of June 30, 2019 |
|
|
|
|
|
Other current liabilities |
|
$ |
|
|
|
Operating lease liabilities |
|
|
|
|
|
Total |
|
$ |
|
|
|
7. |
External Debt and Financing Arrangements |
In September 2018, we issued $
In June 2015, we issued $
11
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
7. |
External Debt and Financing Arrangements (Continued) |
In June 2016, the Company amended and restated its 2011 credit agreement to combine and rollover the prior revolving credit facility and term loan into a new standalone $
We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $
|
8. |
Financial Instruments |
We do not enter into financial instruments for trading or speculative purposes. We principally use financial instruments to reduce the impact of changes in foreign currency exchange rates and commodities used as raw materials in our products. The principal derivative financial instruments we enter into on a routine basis are foreign exchange contracts. Derivative financial instruments are recorded at fair value. The counterparties to derivative contracts are major financial institutions. We are subject to credit risk on these contracts equal to the fair value of these instruments. Management currently believes that the risk of incurring material losses is unlikely and that the losses, if any, would be immaterial to the Company.
Raw materials used by the Company are subject to price volatility caused by weather, supply conditions, geopolitical and economic variables, and other unpredictable external factors. As a result, from time to time, we enter into commodity swaps to manage the price risk associated with forecasted purchases of materials used in our operations.
Our primary foreign currency hedge contracts pertain to the Canadian dollar, the British pound, the Chinese yuan and the Mexican peso. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding at June 30, 2019 was $
The fair values of derivative instruments on the consolidated balance sheets as of June 30, 2019 and December 31, 2018 were as follows:
|
(In millions) |
|
|
|
|
|
Fair Value |
|
|||||
|
Type of hedge |
|
Type of contract |
|
Location |
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Cash flow |
|
Foreign exchange contracts |
|
Other current assets |
|
$ |
|
|
|
$ |
|
|
|
Fair value |
|
Foreign exchange contracts |
|
Other current assets |
|
|
|
|
|
|
|
|
|
Net investment hedges |
|
Net investment hedges |
|
Other current assets |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
Cash flow |
|
Foreign exchange contracts |
|
Other current liabilities |
|
$ |
|
|
|
$ |
|
|
|
Fair value |
|
Foreign exchange contracts |
|
Other current liabilities |
|
|
|
|
|
|
|
|
|
Net investment hedges |
|
Net investment hedges |
|
Other current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
|
|
|
$ |
|
|
12
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
8. |
Financial Instruments (Continued) |
The effects of derivative financial instruments on the statements of comprehensive income for the six months ended June 30, 2019 and 2018 were as follows:
|
(In millions) |
|
Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships |
|
|||||||||
|
|
|
Six Months Ended June 30, 2019 |
|
|||||||||
|
|
|
Cost of products sold |
|
|
Interest expense |
|
|
Other income, net |
|
|||
|
Total amounts per Consolidated Statements of Earnings |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items |
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships |
|
|||||||||
|
|
|
Six Months Ended June 30, 2018 |
|
|||||||||
|
|
|
Cost of products sold |
|
|
Interest expense |
|
|
Other income, net |
|
|||
|
Total amounts per Consolidated Statements of Earnings |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Derivative designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
|
- |
|
|
|
|
|
13
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
8. |
Financial Instruments (Continued) |
The effects of derivative financial instruments on the statements of comprehensive income for the three months ended June 30, 2019 and 2018 were as follows:
|
(In millions) |
|
Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships |
|
|||||||||
|
|
|
Three Months Ended June 30, 2019 |
|
|||||||||
|
|
|
Cost of products sold |
|
|
Interest expense |
|
|
Other income, net |
|
|||
|
Total amounts per Consolidated Statements of Earnings |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Derivative designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
|
Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships |
|
|||||||||
|
|
|
Three Months Ended June 30, 2018 |
|
|||||||||
|
|
|
Cost of products sold |
|
|
Interest expense |
|
|
Other income, net |
|
|||
|
Total amounts per Consolidated Statements of Earnings |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Derivative designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
|
— |
|
|
|
|
|
The cash flow hedges recognized in other comprehensive income was a net loss of $
14
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.Fair Value Measurements
FASB Accounting Standards Codification (“ASC”) requirements for Fair Value Measurements and Disclosures establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs, the highest priority, are quoted prices in active markets for identical assets or liabilities. Level 2 inputs reflect other than quoted prices included in Level 1 that are either observable directly or through corroboration with observable market data. Level 3 inputs are unobservable inputs, due to little or no market activity for the asset or liability, such as internally-developed valuation models. We do
The carrying value, net of underwriting commissions, price discounts, and debt issuance costs and fair value of debt as of June 30, 2019 and December 31, 2018 were as follows:
|
(In millions) |
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||||||||||
|
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
||||
|
Revolving credit facility |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Term Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimated fair value of our term loan and revolving credit facility is determined primarily using broker quotes, which are Level 2 inputs. The estimated fair value of our Senior Notes is determined by using quoted market prices of our debt securities, which are Level 1 inputs.
Assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 were as follows:
|
(In millions) |
|
Fair Value |
|
|||||
|
|
|
June 30, 2019 |
|
|
December 31, 2018 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
Derivative financial instruments (Level 2) |
|
$ |
|
|
|
$ |
|
|
|
Deferred compensation program assets (Level 2) |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
|
|
|
$ |
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Derivative financial instruments (Level 2) |
|
$ |
|
|
|
$ |
|
|
15
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
10. |
Accumulated Other Comprehensive (Loss) Income |
Total accumulated other comprehensive (loss) income consists of net income and other changes in business equity from transactions and other events from sources other than shareholders. It includes currency translation gains and losses, unrealized gains and losses from derivative instruments designated as cash flow hedges, and defined benefit plan adjustments.
|
(In millions) |
|
Foreign Currency Adjustments |
|
|
Derivative Hedging Gain (Loss) |
|
|
Defined Benefit Plan Adjustments(a) |
|
|
Accumulated Other Comprehensive Loss |
|
||||
|
Balance at December 31, 2017 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Amounts classified into accumulated other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive (loss) income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net current-period other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Balance at June 30, 2018 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Amounts classified into accumulated other comprehensive (loss) income |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Adoption of ASU 2018-02(b) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive (loss) income |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net current-period other comprehensive (loss) income |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
Balance at June 30, 2019 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
(a) |
|
|
|
(b) |
|
|
(In millions) |
|
Foreign Currency Adjustments |
|
|
Derivative Hedging Gain (Loss) |
|
|
Defined Benefit Plan Adjustments(a) |
|
|
Accumulated Other Comprehensive Loss |
|
||||
|
Balance at March 31, 2018 |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Amounts classified into accumulated other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive (loss) income |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net current-period other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Balance at June 30, 2018 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Amounts classified into accumulated other comprehensive (loss) income |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive (loss) income |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net current-period other comprehensive (loss) income |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
Balance at June 30, 2019 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
(a) |
See Note 12, “Defined Benefit Plans,” for further information on the adjustments related to defined benefit plans. |
16
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
10. |
Accumulated Other Comprehensive (Loss) Income (Continued) |
The reclassifications out of accumulated other comprehensive loss for the six and three months ended June 30, 2019 and 2018 were as follows:
|
(In millions) |
||||||||||
|
Details about Accumulated Other Comprehensive Loss Components |
|
Amount Reclassified from Accumulated Other Comprehensive Loss Six months ended June 30, |
|
|
Affected Line Item in the Statement of Comprehensive Income |
|||||
|
|
|
2019 |
|
|
2018 |
|
|
|
||
|
Gains (losses) on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
|
|
|
|
— |
|
|
Cost of products sold |
|
Interest rate contracts |
|
|
|
|
|
|
— |
|
|
Interest expense |
|
|
|
|
|
|
|
|
— |
|
|
Total before tax |
|
|
|
|
( |
) |
|
|
— |
|
|
Tax expense |
|
Total reclassifications for the period |
|
$ |
|
|
|
|
— |
|
|
Net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions) |
||||||||||
|
Details about Accumulated Other Comprehensive Loss Components |
|
Amount Reclassified from Accumulated Other Comprehensive Loss Three Months Ended June 30, |
|
|
Affected Line Item in the Statement of Comprehensive Income |
|||||
|
|
|
2019 |
|
|
2018 |
|
|
|
||
|
Gains (losses) on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
$ |
|
|
|
$ |
|
|
|
Cost of products sold |
|
Commodity contracts |
|
|
( |
) |
|
|
( |
) |
|
Cost of products sold |
|
Interest rate contracts |
|
|
|
|
|
|
— |
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
Total before tax |
|
|
|
|
( |
) |
|
|
( |
) |
|
Tax expense |
|
Total reclassifications for the period |
|
$ |
|
|
|
$ |
|
|
|
Net of tax |
|
11. |
Revenue |
The following table disaggregates our consolidated revenue by major sales distribution channels for the six and three months ended June 30, 2019 and 2018:
|
(In millions) |
|
Six Months Ended June 30, |
|
|
Three Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Wholesalers(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Home Center retailers(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other retailers(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Builder direct |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(1) |
|
|
|
(2) |
|
|
|
(3) |
|
|
|
(4) |
|
17
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
12. |
Defined Benefit Plans |
The components of net periodic benefit cost for pension benefits for the six and three months ended June 30, 2019 and 2018 were as follows:
|
(In millions) |
|
Six Months Ended June 30, |
|
|
Three Months Ended June 30, |
||||||||||||
|
|
|
Pension Benefits |
|
|
Pension Benefits |
|
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
Net periodic benefit income |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Service cost relates to benefit accruals in an hourly Union defined benefit plan in our Doors & Security segment. All other defined benefit pension plans were frozen as of December 31, 2016.
|
13. |
Income Taxes |
The effective income tax rates for the six months ended June 30, 2019 and 2018 were
The effective income tax rates for the three months ended June 30, 2019 and 2018 were
It is reasonably possible that, within the next 12 months, total unrecognized tax benefits may decrease in the range of $
18
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
14. |
Product Warranties |
We generally record warranty expense related to contractual warranty terms at the time of sale. We may also provide customer concessions for claims made outside of the contractual warranty terms and those expenses are recorded in the period in which the concession is made. We offer our customers various warranty terms based on the type of product that is sold. Warranty expense is determined based on historic claim experience and the nature of the product category.
|
(In millions) |
|
Six Months Ended June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Reserve balance at January 1, |
|
$ |
|
|
|
$ |
|
|
|
Provision for warranties issued |
|
|
|
|
|
|
|
|
|
Settlements made (in cash or in kind) |
|
|
( |
) |
|
|
( |
) |
|
Reserve balance at June 30, (a) |
|
$ |
|
|
|
$ |
|
|
|
|
(a) |
|
|
15. |
Information on Business Segments |
Beginning in the third quarter of 2018, we combined our Doors and Security segments and historical financial segment information has been restated to conform to the new segment presentation.
|
|
|
Six Months Ended June 30, |
|||||||||||
|
(In millions) |
|
2019 |
|
|
2018 |
|
|
% Change vs. Prior Year |
|||||
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabinets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
% |
|
Plumbing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doors & Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
% |
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabinets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
% |
|
Plumbing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doors & Security |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
Less: Corporate expenses |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
Operating income |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|||||||||||
|
(In millions) |
|
2019 |
|
|
2018 |
|
|
% Change vs. Prior Year |
|||||
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabinets |
|
$ |
|
|
|
$ |
|
|
|
|
( |
) |
% |
|
Plumbing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doors & Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
% |
|
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cabinets |
|
$ |
|
|
|
$ |
|
|
|
|
( |
) |
% |
|
Plumbing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doors & Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Corporate expenses |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
Operating income |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
% |
19
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
16. |
Restructuring and Other Charges |
Pre-tax restructuring and other charges for the six and three months ended June 30, 2019 and 2018 are shown below.
|
(In millions) |
|
Six Months Ended June 30, 2019 |
|
|
Six Months Ended June 30, 2018 |
|
||||||||||||||||||
|
|
|
Restructuring Charges |
|
|
Other Charges (a) |
|
|
Total Charges |
|
|
Restructuring Charges |
|
|
Other Charges (a) |
|
|
Total Charges |
|
||||||
|
Cabinets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Plumbing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doors & Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(a) |
|
Restructuring and other charges in the first six months of 2019 largely related to severance costs within our Plumbing and Cabinets segments and costs associated with closing facilities within our Plumbing and Doors & Security segments. Restructuring and other charges in the first six months of 2018 largely related to severance costs across all segments and our initiatives to consolidate our manufacturing footprint in our Cabinets segment.
|
(In millions) |
|
Three Months Ended June 30, 2019 |
|
|
Three Months Ended June 30, 2018 |
|
||||||||||||||||||
|
|
|
Restructuring Charges |
|
|
Other Charges (a) |
|
|
Total Charges |
|
|
Restructuring Charges |
|
|
Other Charges (a) |
|
|
Total Charges |
|
||||||
|
Cabinets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Plumbing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doors & Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
(a) |
“Other Charges” represent charges directly related to restructuring initiatives that cannot be reported as restructuring under GAAP. Such costs may include losses on disposal of inventories, trade receivables allowances from exiting product lines, accelerated depreciation resulting from the closure of facilities and gains or losses on the sale of previously closed facilities. |
Restructuring and other charges in the second quarter of 2019 largely related to severance costs within our Plumbing and Cabinets segments and costs associated with closing facilities within our Plumbing segment. Restructuring and other charges in the second quarter of 2018 primarily resulted from severance costs across all segments and our initiatives to consolidate our manufacturing footprint in our Cabinets segment.
Reconciliation of Restructuring Liability
|
(In millions) |
|
Balance at 12/31/18 |
|
|
2019 Provision |
|
|
Cash Expenditures (a) |
|
|
Non-Cash Write-offs |
|
|
Balance at 6/30/19 |
|
|||||
|
Workforce reduction costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
(a) |
|
|
(In millions) |
|
Balance at 12/31/17 |
|
|
2018 Provision |
|
|
Cash Expenditures (a) |
|
|
Non-Cash Write-offs (b) |
|
|
Balance at 6/30/18 |
|
|||||
|
Workforce reduction costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
(a) |
Cash expenditures primarily relate to severance charges. |
|
|
(b) |
|
20
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
17. |
Earnings Per Share |
The computations of earnings per common share for the six and three months ended June 30, 2019 and 2018 were as follows:
|
(In millions, except per share data) |
|
Six Months Ended June 30, |
|
|
Three Months Ended June 30, |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
|
Income from continuing operations, net of tax |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less: Noncontrolling interest |
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Income from continuing operations for EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
- |
|
|
|
( |
) |
|
|
— |
|
|
|
- |
|
|
Net income attributable to Fortune Brands |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net income attributable to Fortune Brands common stockholders |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Discontinued operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Net income attributable to Fortune Brands common stockholders |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Basic average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive stock-based awards excluded from weighted- average number of shares outstanding for diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
18. |
Commitments and Contingencies |
Litigation
We are defendants in lawsuits associated with the normal conduct of our businesses and operations. 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 our 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.
Environmental
Compliance with federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, did not have a material effect on capital expenditures, earnings or the competitive position of Fortune Brands during the six and three months ended June 30, 2019 and 2018. 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. We believe compliance with current environmental protection laws (before taking into account estimated recoveries from third parties) will not have a material adverse effect upon our results of operations, cash flows or financial condition. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop estimates of environmental remediation exposures.
Lease Commitments
Future minimum rental payments under non-cancelable operating leases as of December 31, 2018 were as follows:
|
(In millions) |
|
||
|
2019 |
$ |
|
|
|
2020 |
|
|
|
|
2021 |
|
|
|
|
2022 |
|
|
|
|
2023 |
|
|
|
|
Remainder |
|
|
|
|
Total minimum rental payments |
$ |
|
|
These minimum rental payments were determined in accordance with the previous leasing guidance (ASC 840). Accordingly, the minimum payments exclude optional lease payments that we can avoid. The minimum lease payments as of June 30, 2019, disclosed in Note 6, are determined in accordance with the new leasing guidance (ASC 842), which include optional lease payments if we are reasonably certain to incur them.
22
|
Item 2. |
FORTUNE BRANDS HOME & SECURITY, INC. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto, which are included in this report, as well as our audited consolidated financial statements for the year ended December 31, 2018, which are included in our Annual Report on Form 10-K for the year ended December 31, 2018.
This discussion contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding expected capital spending, expected pension contributions, the anticipated impact of recently issued accounting standards on our financial statements, planned business strategies, anticipated market potential, future financial performance, impact of acquisitions and other matters. Statements preceded by, followed by or that otherwise 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 current expectations, estimates, assumptions and projections about our industry, business and future financial results, available at the time this report is filed with the Securities and Exchange Commission. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including but not limited to: (i) our reliance on the North American home improvement, repair and new home construction activity levels, and the North American and global economies generally, (ii) the competitive nature of consumer and trade brand businesses, (iii) our ability to develop new products or processes and improve existing products and processes, (iv) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (v) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (vi) risks associated with doing business internationally, (vii) changes in government and industry standards, (viii) risks associated with entering into potential strategic acquisitions and integrating acquired property, (ix) our ability to secure and protect our intellectual property rights, (x) our reliance on key customers and suppliers, including wholesale distributors and dealers, (xi) risk of increases in our defined benefit-related costs and funding requirements, (xii) risks associated with the disruption of operations, (xiii) our inability to obtain raw materials and finished goods in a timely and cost-effective manner, (xiv) our ability to attract and retain qualified personnel and other labor constraints, (xv) future tax law changes or the interpretation of existing tax laws, (xvi) potential liabilities and costs from claims and litigation, (xvii) impairments in the carrying value of goodwill or other acquired intangible assets, (xviii) delays or outages in our information technology system or computer networks and (xix) our ability to access the capital markets on terms acceptable to us. These and other factors are discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2018. We undertake no obligation to, and expressly disclaim any such obligation to, update or clarify 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, except as required by law.
OVERVIEW
References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Home & Security, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires. The Company is a leading home and security products company with a portfolio of leading branded products used for residential home repair, remodeling, new construction and security applications.
We believe the Company has certain competitive advantages including market-leading brands, a diversified mix of 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. We expect the benefits of operating leverage and strategic spending to support increased manufacturing capacity and long-term growth initiatives will help us continue to achieve profitable organic growth.
We believe our most attractive opportunities are to invest in profitable organic growth initiatives. We also believe that we have the potential to generate additional growth from leveraging our cash flow and balance sheet strength by pursuing accretive strategic acquisitions and joint ventures, and by returning cash to shareholders through a combination of dividends and common stock repurchases under our share repurchase program as explained in further detail under “Liquidity and Capital Resources” below.
23
The U.S. market for our products primarily consists of spending on both new home construction and repair and remodel activities within existing homes, with a majority of the markets we serve consisting of repair and remodel spending. Growth in the U.S. market for our products will largely depend on consumer confidence, employment, home prices, stable mortgage rates and credit availability.
We may be impacted by fluctuations in raw material and transportation costs, changes in foreign exchange and promotional activity among our competitors. We strive to offset the potential unfavorable impact of these items with productivity improvement initiatives and price increases.
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 million, subject to certain post-closing adjustments. The acquisition of Fiberon provided 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. The results of operations are included in the Doors & Security segment from the date of acquisition.
24
RESULTS OF OPERATIONS
Six Months Ended June 30, 2019 Compared To Six Months Ended June 30, 2018
|
|
|
Net Sales |
|||||||||||
|
(In millions) |
|
2019 |
|
|
2018 |
|
|
% Change vs. Prior Year |
|||||
|
Cabinets |
|
$ |
1,208.0 |
|
|
$ |
1,194.8 |
|
|
|
1.1 |
|
% |
|
Plumbing |
|
|
964.7 |
|
|
|
933.4 |
|
|
|
3.4 |
|
|
|
Doors & Security |
|
|
662.4 |
|
|
|
555.4 |
|
|
|
19.3 |
|
|
|
Net sales |
|
$ |
2,835.1 |
|
|
$ |
2,683.6 |
|
|
|
5.6 |
|
% |
|
|
|
Operating Income (Loss) |
|||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
% Change vs. Prior Year |
|||||
|
Cabinets |
|
$ |
108.9 |
|
|
$ |
93.5 |
|
|
|
16.5 |
|
% |
|
Plumbing |
|
|
195.9 |
|
|
|
183.7 |
|
|
|
6.6 |
|
|
|
Doors & Security |
|
|
72.4 |
|
|
|
73.5 |
|
|
|
(1.5 |
) |
|
|
Less: Corporate expenses |
|
|
(39.2 |
) |
|
|
(42.7 |
) |
|
|
8.2 |
|
|
|
Operating income |
|
$ |
338.0 |
|
|
$ |
308.0 |
|
|
|
9.7 |
|
% |
The following discussion of consolidated results of operations and segment results refers to the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Consolidated results of operations should be read in conjunction with segment results of operations.
Net sales
Net sales increased by $151.5 million, or 5.6%, due to the benefit from the 2018 Fiberon acquisition in our Doors & Security segment ($96 million), price increases to help mitigate cumulative raw material cost increases and higher sales volume, including growth in China. These benefits were partially offset by lower sales unit volume of make-to-order custom and semi-custom cabinetry products, unfavorable mix in our Doors & Security segment, unfavorable foreign exchange of $21 million and unfavorable promotion and rebate costs.
Cost of products sold
Cost of products sold increased by $118.8 million, or 6.9%, due to the higher net sales and increased commodity costs, partially offset by the benefit from productivity improvements.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $4.9 million, or 0.8%, due to higher employee related costs and transportation costs, as well as the impact of the 2018 Fiberon acquisition in our Doors & Security segment.
Amortization of intangible assets
Amortization of intangible assets increased by $3.7 million primarily due to the 2018 Fiberon acquisition in our Doors & Security segment.
Restructuring charges
Restructuring charges of $5.7 million in the six months ended June 30, 2019 primarily related to severance costs within our Plumbing and Cabinets segments and costs associated with closing facilities within our Plumbing and Doors & Security segments. Restructuring charges of $11.6 million in the six months ended June 30, 2018 primarily related to severance costs across all segments and our initiatives to consolidate our manufacturing footprint in our Cabinets segment.
Operating income
Operating income increased by $30.0 million, or 9.7%, primarily due to higher net sales, productivity improvements and lower restructuring charges. These benefits were partially offset by unfavorable commodity costs.
25
RESULTS OF OPERATIONS (Continued)
Interest expense
Interest expense increased by $16.1 million to $48.2 million due to higher average borrowings and higher average interest rates.
Other income, net
Other income, net, was $1.9 million in the six months ended June 30, 2019, compared to $6.2 million in the six months ended June 30, 2018. The decrease in other income, net is primarily due to lower defined benefit plan income in 2019 ($4.0 million decrease).
Income taxes
The effective income tax rates for the six months ended June 30, 2019 and 2018 were 24.0% and 27.4%, respectively. The effective income tax rates in 2019 and 2018 were favorably impacted by a benefit associated with the U.S. research and development credit and unfavorably impacted by state and local taxes and unfavorable tax rates in foreign jurisdictions. Additionally, the 2018 effective income tax rate was unfavorably impacted by an adjustment to the deemed repatriation tax liability recorded in 2017 under the Tax Cuts and Jobs Act of 2017 and increases to uncertain tax positions.
Net income from continuing operations
Net income from continuing operations was $221.6 million in the six months ended June 30, 2019 compared to $204.8 million in the six months ended June 30, 2018. The increase of $16.8 million was due to higher operating income and lower income tax expenses, partly offset by higher interest expense and lower other income.
Results By Segment
Cabinets
Net sales increased by $13.2 million, or 1.1%, predominantly due to higher sales unit volume of stock cabinetry products and price increases to help mitigate cumulative raw material cost increases. These factors were partly offset by lower sales unit volume of make-to-order custom and semi-custom cabinetry products, lower sales in Canada and increased promotional costs. Foreign exchange was unfavorable by approximately $3 million.
Operating income increased by $15.4 million, or 16.5%, due to higher net sales, the benefit from productivity improvements and lower restructuring costs partially offset by an increase in employee related costs.
Plumbing
Net sales increased by $31.3 million, or 3.4%, due to higher sales volume principally from growth in China and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by lower sales volume in Canada and luxury-branded products as well as unfavorable foreign exchange of approximately $15 million.
Operating income increased by $12.2 million, or 6.6%, due to higher net sales, the benefit from productivity improvements and the absence in 2019 of the amortization of the acquisition-related inventory fair value adjustment ($1.7 million of expense in 2018) related to our Victoria+Albert acquisition. These benefits were partially offset by commodity cost inflation, higher restructuring costs and unfavorable channel mix.
Doors & Security
Net sales increased by $107.0 million, or 19.3%, due to the benefit from the 2018 Fiberon acquisition ($96 million), price increases to help mitigate cumulative raw material cost increases and higher sales volume. These benefits were partially offset by higher customer program costs and unfavorable mix. Foreign exchange was unfavorable by approximately $3 million.
Operating income decreased by $1.1 million, or 1.5%, due to Fiberon’s inventory fair value adjustments ($1.8 million in 2019) and an expense due to a fair value adjustment associated with an idle manufacturing facility ($1.7 million in 2019). These factors were partially offset by the benefit of the higher sales.
26
Corporate
Corporate expenses decreased by $3.5 million, or 8.2%, due to lower employee related costs.
27
RESULTS OF OPERATIONS (Continued)
Three Months Ended June 30, 2019 Compared To Three Months Ended June 30, 2018
|
|
|
Net Sales |
|||||||||||
|
(In millions) |
|
2019 |
|
|
2018 |
|
|
% Change vs. Prior Year |
|||||
|
Cabinets |
|
$ |
635.0 |
|
|
$ |
637.6 |
|
|
|
(0.4 |
) |
% |
|
Plumbing |
|
|
506.1 |
|
|
|
483.7 |
|
|
|
4.6 |
|
|
|
Doors & Security |
|
|
366.1 |
|
|
|
307.7 |
|
|
|
19.0 |
|
|
|
Net sales |
|
$ |
1,507.2 |
|
|
$ |
1,429.0 |
|
|
|
5.5 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss) |
|||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
% Change vs. Prior Year |
|||||
|
Cabinets |
|
$ |
65.7 |
|
|
$ |
69.4 |
|
|
|
(5.3 |
) |
% |
|
Plumbing |
|
|
106.7 |
|
|
|
95.3 |
|
|
|
12.0 |
|
|
|
Doors & Security |
|
|
50.0 |
|
|
|
45.3 |
|
|
|
10.4 |
|
|
|
Less: Corporate expenses |
|
|
(20.0 |
) |
|
|
(21.4 |
) |
|
|
6.5 |
|
|
|
Operating income |
|
$ |
202.4 |
|
|
$ |
188.6 |
|
|
|
7.3 |
|
% |
The following discussion of consolidated results of operations and segment results refers to the three months ended June 30, 2019 compared to the three months ended June 30, 2018. Consolidated results of operations should be read in conjunction with segment results of operations.
Net sales
Net sales increased by $78.2 million, or 5.5%, due to the benefit from the 2018 Fiberon acquisition in our Doors & Security segment ($59 million), higher sales volume, including growth in China and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by lower sales unit volume of make-to-order custom and semi-custom cabinetry products, unfavorable mix in our Doors & Security segment, higher customer rebates and promotion costs and unfavorable foreign exchange of $11 million.
Cost of products sold
Cost of products sold increased by $64.7 million, or 7.1%, due to higher net sales and increased commodity costs, partially offset by the benefit of productivity improvements.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $4.1 million, or 1.3%, due to higher employee related costs and transportation costs as well as the impact of the 2018 Fiberon acquisition in our Doors & Security segment.
Amortization of intangible assets
Amortization of intangible assets increased by $1.9 million primarily due to the 2018 Fiberon acquisition in our Doors & Security segment.
Restructuring charges
Restructuring charges of $4.5 million in the three months ended June 30, 2019 primarily related to severance costs within our Plumbing and Cabinets segments and costs associated with closing facilities within our Plumbing segment. Restructuring charges of $10.8 million in the three months ended June 30, 2018 primarily related to severance costs across all segments and our initiatives to consolidate our manufacturing footprint in our Cabinets segment.
Operating income
Operating income increased by $13.8 million, or 7.3%, primarily due to higher net sales, including the impact of the 2018 Fiberon acquisition in our Doors & Security segment, productivity improvements and lower restructuring charges. These benefits were partially offset by unfavorable commodity costs.
28
RESULTS OF OPERATIONS (Continued)
Interest expense
Interest expense increased by $7.1 million to $24.5 million due to higher average borrowings and higher average interest rates.
Other income, net
Other income, net, was $0.7 million in the three months ended June 30, 2019, compared to $3.4 million in the three months ended June 30, 2018. The decrease in other income, net is primarily due to lower defined benefit plan income in 2019 ($1.9 million decrease).
Income taxes
The effective income tax rates for the three months ended June 30, 2019 and 2018 were 23.2% and 25.7%, respectively. The effective income tax rates in 2019 and 2018 were favorably impacted by a benefit associated with the U.S. research and development credit and unfavorably impacted by state and local taxes and unfavorable tax rates in foreign jurisdictions. Additionally, the 2019 effective income tax rate was favorably impacted by decreases to uncertain tax positions, as a result of audit settlements.
Net income from continuing operations
Net income from continuing operations was $137.1 million in the three months ended June 30, 2019 compared to $129.7 million in the three months ended June 30, 2018. The increase of $7.4 million was due to higher operating income and lower income tax expenses, partly offset by higher interest expense and lower other income.
Results By Segment
Cabinets
Net sales decreased by $2.6 million, or 0.4%, predominantly due to lower sales unit volume of make-to-order custom and semi-custom cabinetry products, lower sales in Canada and increased promotional costs. Foreign exchange was unfavorable by approximately $1 million. These factors were partly offset by higher sales unit volume of stock cabinetry products and price increases to help mitigate cumulative raw material cost increases, including the impact of tariffs.
Operating income decreased by $3.7 million, or 5.3%, due to lower sales unit volume of make-to-order custom and semi-custom cabinetry products, which led to underutilization of make-to-order plant capacity, increased promotions and an increase in employee related cost. These factors were partly offset by higher sales unit volume of stock cabinetry products and lower restructuring costs.
Plumbing
Net sales increased by $22.4 million, or 4.6%, due to higher sales volume principally from growth in China and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by lower sales volume in Canada and luxury-branded products, higher rebates costs as well as unfavorable foreign exchange of approximately $9 million.
Operating income increased by $11.4 million, or 12.0%, due to higher sales unit volume and the benefit from productivity improvements. These benefits were partially offset by higher restructuring charges, unfavorable mix, unfavorable foreign exchange of approximately $4 million and higher rebates costs.
Doors & Security
Net sales increased by $58.4 million, or 19.0%, principally due to the benefit from the Fiberon acquisition ($59 million) and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by unfavorable mix and higher customer program costs. Foreign exchange was unfavorable by approximately $1 million.
Operating income increased by $4.7 million, or 10.4%, due to the benefit from the Fiberon acquisition, partly offset by unfavorable product mix and higher customer program costs.
Corporate
Corporate expenses decreased by $1.4 million, or 6.5% due to lower employee related costs.
29
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to support working capital requirements, fund capital expenditures and service indebtedness, as well as to finance acquisitions, repurchase shares of our common stock and pay dividends to stockholders, as deemed appropriate. Our principal sources of liquidity are cash on hand, cash flows from operating activities, availability under our credit facility and debt issuances in the capital markets. We believe our operating cash flows, availability under the credit facility and access to capital markets will provide sufficient liquidity to support the Company’s financing needs.
Our operating income is generated by our subsidiaries. There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Fortune Brands. 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, and at what level, because the payment of dividends is dependent on our financial condition, results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors.
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%. We used the proceeds from the 2018 Senior Notes offering to pay down our revolving credit facility. On June 30, 2019 and December 31, 2018, the outstanding amount of the 2018 Senior Notes, net of underwriting commissions, price discounts, and debt issuance costs, was $595.5 million and $595.0 million, respectively.
In June 2015, we issued $900 million of unsecured senior notes in a registered public offering, of which $400 million of the aggregate principle amount becomes due and payable in June 2020. The company expects to repay or refinance these notes prior to the maturity date.
In March 2018, the Company entered into a $350 million term loan for general corporate purposes scheduled to mature 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. In March 2019, the Company amended the $525 million term loan to decrease the borrowings from $525 million to $350 million and extend the maturity date to March 2020. All other terms and conditions on the amended term loan remain the same as the previous $525 million term loan. At June 30, 2019 and December 31, 2018, amounts due under the term loan were $350.0 million and $525.0 million, respectively, which are included within short term debt in our consolidated balance sheet. 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. As of June 30, 2019, we were in compliance with all covenants under this facility.
In June 2016, we amended and restated our 2011 credit agreement to combine and rollover the existing revolving credit facility and term loan into a new standalone $1.25 billion revolving credit facility. This amendment and restatement of the credit agreement was a non-cash transaction for the Company. Terms and conditions of the credit agreement, including the total commitment amount, essentially remained the same as under the 2011 credit agreement. The revolving credit facility will mature in June 2021 and borrowings thereunder will be used for general corporate purposes. On June 30, 2019 and December 31, 2018, our outstanding borrowings under this facility were $575.0 million and $320.0 million, respectively. Interest rates under the facility are variable based on LIBOR at the time of the borrowing and the Company’s long-term credit rating and can range from LIBOR + 0.9% to LIBOR + 1.5%. At June 30, 2019, we were in compliance with all covenants under this facility. The company expects to repay or refinance the aggregate principle amount due prior to the maturity date.
In the first half of 2019, we repurchased 1.1 million shares of our outstanding common stock under the Company’s share repurchase programs for $50.0 million. As of June 30, 2019, the Company’s total remaining share repurchase authorization under the remaining program was approximately $364 million. The share repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares and may be suspended or discontinued at any time.
We periodically review our portfolio of brands and evaluate potential strategic transactions and other capital initiatives to increase shareholder value. However, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, make any purchases of shares of our common stock under our share repurchase programs, or pay dividends, or what impact any such transactions could have on our results of operations, cash flows or financial condition, whether as a result of the issuance of debt or equity securities, or otherwise. Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section of our Annual Report on Form 10-K for the year-ended December 31, 2018 entitled “Item 1A. Risk Factors.”
In September 2018, we acquired 100% of the membership interests of 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 million, subject to certain post-closing adjustments. The acquisition of Fiberon provided 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. The results of operations are included in the Doors & Security segment from the date of acquisition.
30
On June 30, 2019, we had cash and cash equivalents of $276.3 million, of which $227.4 million was held at non-U.S. subsidiaries. We manage our global cash requirements considering (i) available funds among the subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay and record tax expense on those funds that are repatriated.
Our operating cash flows are significantly impacted by the seasonality of our business. We typically generate most of our operating cash flow in the third and fourth quarters of each year. We use operating cash in the first quarter of the year.
31
Cash Flows
Below is a summary of cash flows for the six months ended June 30, 2019 and 2018.
|
(In millions) |
|
Six Months Ended June 30, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Net cash provided by operating activities |
|
$ |
112.0 |
|
|
$ |
137.3 |
|
|
Net cash used in investing activities |
|
|
(50.8 |
) |
|
|
(72.3 |
) |
|
Net cash used in financing activities |
|
|
(53.0 |
) |
|
|
(35.2 |
) |
|
Effect of foreign exchange rate changes on cash |
|
|
4.9 |
|
|
|
(7.3 |
) |
|
Net increase in cash and cash equivalents |
|
$ |
13.1 |
|
|
$ |
22.5 |
|
Net cash provided by operating activities was $112.0 million in the six months ended June 30, 2019, compared to net cash provided by operating activities of $137.3 million in the six months ended June 30, 2018. The decrease in cash provided of $25.3 million was primarily due to increases in accounts receivable, decreases in accrued taxes related to estimated tax payments and increases in other current liabilities.
Net cash used in investing activities was $50.8 million in the six months ended June 30, 2019, compared to net cash used in investing activities of $72.3 million in the six months ended June 30, 2018. The decrease in cash used of $21.5 million was due to $12.3 million of lower capital spending, lower cost of acquisitions of $5.8 million and higher proceeds from the sale of PP&E in 2019 of $3.4 million.
Net cash used in financing activities was $53.0 million in the six months ended June 30, 2019, compared to cash used in financing activities of $35.2 million in the six months ended June 30, 2018. The increase in cash used of $17.8 million was primarily due to lower net borrowings in 2019 compared to 2018 ($555.0 million decrease) and deferred acquisition payments during 2019 ($19 million) partly offset by lower share repurchases in 2019 compared to 2018 ($552.7 million decrease).
Pension Plans
Subsidiaries of Fortune Brands sponsor their respective defined benefit pension plans that are funded by a portfolio of investments maintained within our benefit plan trust. As of December 31, 2018, the fair value of our total pension plan assets was $599.6 million, representing 79% of the accumulated benefit obligation liability. In 2019, we expect to make pension contributions of approximately $8 million. For the foreseeable future, we believe that we have sufficient liquidity to meet the minimum funding that may be required by the Pension Protection Act of 2006.
Foreign Exchange
We have operations in various foreign countries, principally Canada, China, Mexico, the United Kingdom, France, Australia, Japan and South Africa. Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S. dollars.
RECENTLY ISSUED ACCOUNTING STANDARDS
The adoption of recent accounting standards, as discussed in Note 2, “Recently Issued Accounting Standards,” to our Consolidated Financial Statements, has not had and is not expected to have a significant impact on our revenue, earnings or liquidity.
32
|
Item 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
There have been no material changes in the information provided in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2018.
|
Item 4. |
CONTROLS AND PROCEDURES. |
|
|
(a) |
Evaluation of Disclosure Controls and Procedures. |
The Company’s management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
|
|
(b) |
Changes in Internal Control Over Financial Reporting. |
There have not been any changes in the Company's internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company is in the process of reviewing the internal control structure of acquired businesses and, if necessary, will make appropriate changes as we incorporate our controls and procedures into those recently acquired businesses.
33
PART II. OTHER INFORMATION
|
Item 1. |
LEGAL PROCEEDINGS. |
|
|
(a) |
Litigation. |
We are defendants in lawsuits associated with the normal conduct of our businesses and operations. 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 our 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.
|
|
(b) |
Environmental Matters. |
Compliance with federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, did not have a material effect on capital expenditures, earnings or the competitive position of Fortune Brands during the six and three months ended June 30, 2019 and 2018. 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. We believe compliance with current environmental protection laws (before taking into account estimated recoveries from third parties) will not have a material adverse effect upon our results of operations, cash flows or financial condition. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop estimates of environmental remediation exposures.
|
Item 1A. |
RISK FACTORS. |
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 in the section entitled “Risk Factors.”
|
Item 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Below are the repurchases of common stock by the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) for the three months ended June 30, 2019:
Issuer Purchases of Equity Securities
|
Three Months Ended June 30, 2019 |
|
Total number of shares purchased (a) |
|
|
Average price paid per share |
|
|
Total number of shares purchased as part of publicly announced plans or programs (a) |
|
|
Maximum dollar amount that may yet be purchased under the plans or programs (a) |
|
||||
|
April 1 – April 30 |
|
|
453,051 |
|
|
$ |
48.6 |
|
|
|
453,051 |
|
|
$ |
363,740,089 |
|
|
May 1 – May 31 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
363,740,089 |
|
|
June 1 – June 30 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
363,740,089 |
|
|
Total |
|
|
453,051 |
|
|
$ |
48.6 |
|
|
|
453,051 |
|
|
|
|
|
|
(a) |
Information on the Company’s share repurchase program follows: |
|
Authorization date |
|
Announcement date |
|
Authorization amount of shares of outstanding common stock |
|
Expiration date |
|
July 13, 2018 |
|
July 16, 2018 |
|
$400 million |
|
July 13, 2020 |
|
|
|
|
|
|
|
|
34
|
Item 6. |
EXHIBITS |
|
3(i). |
|
|
|
|
|
|
|
3(ii). |
|
|
|
|
|
|
|
31.1.* |
|
Certificate of Chief Executive Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
31.2.* |
|
Certificate of Chief Financial Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
32.* |
|
Joint CEO/CFO Certificate Required Under Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
101.* |
|
The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Cover Page, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Equity, and (vi) the Notes to the Condensed Consolidated Financial Statements. |
|
|
|
|
|
* |
Filed or furnished herewith. |
35
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
FORTUNE BRANDS HOME & SECURITY, INC. |
|
|
(Registrant) |
|
|
|
|
|
|
|
Date: August 2, 2019 |
/s/ Patrick D. Hallinan |
|
|
Patrick D. Hallinan |
|
|
Senior Vice President and Chief Financial Officer |
|
|
(Duly authorized officer and principal financial officer of the Registrant) |
36
EXHIBIT 31.1
CERTIFICATION
I, Christopher J. Klein, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2019 of Fortune Brands Home & Security, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 2, 2019
|
/s/ Christopher J. Klein |
|
Christopher J. Klein |
|
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, Patrick D. Hallinan, certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2019 of Fortune Brands Home & Security, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: August 2, 2019
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/s/ Patrick D. Hallinan |
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Patrick D. Hallinan |
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Senior Vice President and |
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Chief Financial Officer |
EXHIBIT 32
JOINT CEO/CFO CERTIFICATE REQUIRED PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned, the Chief Executive Officer and the Senior Vice President and Chief Financial Officer of Fortune Brands Home & Security, Inc. (the “Company”), hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, that the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.
Dated: August 2, 2019
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/s/ Christopher J. Klein |
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Christopher J. Klein |
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Chief Executive Officer |
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/s/ Patrick D. Hallinan |
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Patrick D. Hallinan |
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Senior Vice President and |
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Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Fortune Brands Home & Security, Inc. and will be retained by Fortune Brands Home & Security, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.