UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2020

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission file number1-35166

FORTUNE BRANDS HOME & SECURITY, INC.

(Exact name of Registrant as specified in its charter)

Delaware
~~DELAWARE~~		62-1411546
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~520 Lake Cook Road, Deerfield, Illinois~~		~~60015-5611~~
~~(Address of principal executive offices)~~		~~(Zip Code)~~

520 Lake Cook Road, Deerfield, Illinois 60015-5611

(Address of principal executive offices) (Zip Code)

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	FBHS	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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-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 Rule12b-2 of the Exchange Act.


Large accelerated filer	☒	☒	Accelerated filer		☐

Non-accelerated filer	☐	~~☐ (Do not check if a smaller reporting company)~~	Smaller reporting company		☐

			Emerging growth company	☐	☐

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 inRule 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 October ~~20, 2017~~16, 2020 was ~~151,800,773.~~138,928,712.

PART I. FINANCIAL INFORMATION

Item 1.1.

FINANCIAL STATEMENTS.

FORTUNE BRANDS HOME & SECURITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Nine and Three Months Ended September 30, ~~2017~~2020 and ~~2016~~2019

(In millions, except per share amounts)

(Unaudited)

											Nine Months Ended						Three Months Ended
	Nine Months Ended September 30,						Three Months Ended September 30,				September 30,						September 30,
	2017			2016			2017		2016		2020			2019			2020			2019
Net sales	$	3,900.8		$	3,683.3		$	1,348.6	$	1,279.0	$	4,430.6		$	4,294.1		$	1,652.1		$	1,459.0
Cost of products sold		2,461.3			2,352.8			841.6		801.0		2,873.9			2,773.5			1,071.5			934.8
Selling, general and administrative expenses		877.7			831.4			297.3		284.5		918.4			943.9			328.3			311.3
Amortization of intangible assets		23.6			20.4			7.5		7.3		31.1			30.0			10.5			9.9
Loss on sale of product line (see Note 4)		2.4			—			—		—
Asset impairment charges		3.2			—			—		—		22.5			29.5			—			29.5
Restructuring charges		3.5			12.4			0.4		3.1		16.5			11.2			1.6			5.5


Operating income		529.1			466.3			201.8		183.1		568.2			506.0			240.2			168.0
Interest expense		36.5			37.5			12.3		11.8		64.4			71.8			20.1			23.6
Other expense (income), net		0.2			(0.1	)		0.1		0.6


Income before income taxes		492.4			428.9			189.4		170.7
Income taxes		145.1			120.9			59.8		48.8

Income from continuing operations, net of tax		347.3			308.0			129.6		121.9
(Loss) income from discontinued operations , net of tax		(2.6	)		1.5			—		1.5

Other income, net												(13.4	)		(2.2	)		(2.1	)		(0.3	)
Income before taxes												517.2			436.4			222.2			144.7
Income tax												121.7			109.1			54.0			39.0
Income after tax												395.5			327.3			168.2			105.7
Equity in losses of affiliate												4.7			—			2.4			—
Net income		344.7			309.5			129.6		123.4		390.8			327.3			165.8			105.7
Less: Noncontrolling interests		0.1			(0.1	)		0.1		—		1.3			(0.5	)		1.2			0.1

Net income attributable to Fortune Brands	$	344.6		$	309.6		$	129.5	$	123.4	$	389.5		$	327.8		$	164.6		$	105.6

Basic earnings per common share											$	2.81		$	2.34		$	1.19		$	0.76
Diluted earnings per common share											$	2.78		$	2.32		$	1.17		$	0.75

Basic earnings per common share
Continuing operations	$	2.26		$	2.00		$	0.84	$	0.79
Discontinued operations		(0.02	)		0.01			—		0.01

Net income attributable to Fortune Brands common shareholders	$	2.24		$	2.01		$	0.84	$	0.80
Diluted earnings per common share
Continuing operations	$	2.22		$	1.95		$	0.83	$	0.77
Discontinued operations		(0.02	)		0.01			—		0.01

Net income attributable to Fortune Brands common shareholders	$	2.20		$	1.96		$	0.83	$	0.78
Comprehensive income	$	391.1		$	309.8		$	158.7	$	110.5	$	371.9		$	327.4		$	184.6		$	94.3

See notes to condensed consolidated financial statements.

FORTUNE BRANDS HOME & SECURITY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)


	September 30, 2017			December 31, 2016			September 30, 2020			December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	277.1		$	251.5		$	464.5		$	387.9
Accounts receivable, net		594.7			550.7
Accounts receivable less allowances for discounts and doubtful accounts								765.2			624.8
Inventories		600.1			531.1			738.3			718.6
Other current assets		126.4			111.9			170.0			166.9

Total current assets		1,598.3			1,445.2			2,138.0			1,898.2
Property, plant and equipment, net of accumulated depreciation		690.6			662.5			791.7			824.2
Operating lease assets								166.9			165.6
Goodwill		1,852.8			1,833.8			2,085.2			2,090.2
Other intangible assets, net of accumulated amortization		1,105.4			1,107.0			1,111.2			1,168.9
Other assets		102.2			80.0			226.0			144.2

Total assets	$	5,349.3		$	5,128.5		$	6,519.0		$	6,291.3


Liabilities and equity
Current liabilities
Short-term debt							$	—		$	399.7
Accounts payable	$	392.5		$	393.8			544.1			460.0
Other current liabilities		460.0			449.0			590.9			549.6

Total current liabilities		852.5			842.8			1,135.0			1,409.3
Long-term debt		1,462.2			1,431.1			2,086.5			1,784.6
Deferred income taxes		176.2			163.5			149.2			157.2
Accrued defined benefit plans		185.1			216.2			180.2			201.4
Operating lease liabilities								139.1			139.8
Othernon-current liabilities		127.4			111.9			200.4			171.2

Total liabilities		2,803.4			2,765.5			3,890.4			3,863.5
Commitments and contingencies (see Note 17)
Equity
Fortune Brands stockholders’ equity
Fortune Brands equity
Common stock^(a)		1.7			1.7			1.8			1.8
Paid-in capital		2,712.2			2,653.8			2,903.3			2,813.8
Accumulated other comprehensive loss		(25.5	)		(71.9	)		(91.5	)		(72.6	)
Retained earnings		1,076.5			814.6			2,052.7			1,763.0
Treasury stock		(1,220.6	)		(1,036.7	)		(2,237.7	)		(2,079.4	)

Total Fortune Brands stockholders’ equity		2,544.3			2,361.5
Total Fortune Brands equity								2,628.6			2,426.6
Noncontrolling interests		1.6			1.5			—			1.2

Total equity		2,545.9			2,363.0			2,628.6			2,427.8


Total liabilities and equity	$	5,349.3		$	5,128.5		$	6,519.0		$	6,291.3

^(a)

Common stock, par value $0.01 per ~~share: 179.6~~share; 183.8 million shares and ~~177.7~~181.9 million shares issued at September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

See notes to condensed consolidated financial statements.

FORTUNE BRANDS HOME & SECURITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019

(In millions)

(Unaudited)


	2017			2016			2020			2019
Operating activities
Net income	$	344.7		$	309.5		$	390.8		$	327.3
Non-cashpre-tax expense (income):
Non-cash pre-tax expense:
Depreciation		72.7			69.3			85.8			82.7
Amortization		23.6			20.4
Amortization of intangibles								31.1			30.0
Non-cash lease expense								26.6			26.5
Stock-based compensation		32.7			24.3			33.5			22.9
Recognition of actuarial (gains) losses		(1.3	)		1.9
Deferred income taxes		8.2			(23.0	)
Loss on sale of product line		2.4			—
Recognition of actuarial losses								0.6			2.1
Deferred taxes								(17.0	)		(1.8	)
Asset impairment charges		3.2			—			22.5			31.2
Amortization of deferred financing costs		1.5			3.0
Loss on sale of property, plant and equipment		0.3			1.2
Amortization of deferred financing fees								3.3			2.4
Equity in losses of affiliate								4.7			—
Gain on equity investments								(6.6	)		—
Loss (gain) on sale of property, plant and equipment								1.3			(1.0	)
Changes in assets and liabilities:
Increase in accounts receivable		(34.5	)		(53.1	)		(164.4	)		(68.4	)
(Increase) decrease in inventories		(60.7	)		22.6
(Decrease) increase in accounts payable		(3.5	)		28.7
Increase in inventories								(20.5	)		(81.2	)
Increase (decrease) in accounts payable								88.5			(11.1	)
Increase in other assets		(28.0	)		(11.6	)		(21.2	)		(18.3	)
Decrease in accrued expenses and other liabilities		(23.9	)		(12.0	)
Increase (decrease) in accrued taxes		15.2			(0.6	)

Increase in accrued expenses and other liabilities								25.0			6.0
Increase in accrued taxes								22.8			4.5
Net cash provided by operating activities		352.6			380.6			506.8			353.8


Investing activities
Capital expenditures^(a)		(95.5	)		(106.1	)		(66.2	)		(82.4	)
Proceeds from the sale of assets		0.2			2.3
Proceeds from sale of product line		1.5			—
Cost of acquisitions, net of cash acquired		(19.4	)		(230.5	)

Proceeds from the disposition of assets								1.5			4.2
Cost of investments in equity securities								(59.4	)		—
Other investing activities, net								—			0.1
Net cash used in investing activities		(113.2)			(334.3)			(124.1	)		(78.1	)

Financing activities
Decrease in short-term debt, net		—			(1.0	)
Decrease in short-term debt								—			(525.0	)
Issuance of long-term debt		375.0			880.0			1,020.0			1,494.3
Repayment of long-term debt		(345.0	)		(465.0	)		(1,120.0	)		(955.0	)
Proceeds from the exercise of stock options		25.8			24.8			56.0			6.9
Treasury stock purchases		(173.7	)		(362.7	)		(150.0	)		(100.0	)
Employee withholding taxes paid related to stock-based compensation		(10.2	)		(9.8	)
Deferred acquisition payment		(12.4	)		—
Employee withholding taxes related to stock-based compensation								(8.3	)		(8.5	)
Deferred acquisition payments								—			(19.0	)
Dividends to stockholders		(82.7	)		(73.7	)		(99.9	)		(92.3	)
Dividends paid to non-controlling interests								(2.5	)		—
Other financing, net		(0.3	)		(2.1	)		(4.1	)		(3.3	)

Net cash used in financing activities		(223.5	)		(9.5	)		(308.8	)		(201.9	)


Effect of foreign exchange rate changes on cash		9.7			3.3			1.9			(1.2	)


Net increase in cash and cash equivalents	$	25.6		$	40.1		$	75.8		$	72.6


Cash and cash equivalents at beginning of period	$	251.5		$	238.5
Cash and cash equivalents at end of period	$	277.1		$	278.6
Cash, cash equivalents and restricted cash^(b) at beginning of period							$	394.9		$	270.7
Cash, cash equivalents and restricted cash^(b)at end of period							$	470.7		$	343.3

(a)

Capital expenditures of ~~$11.3~~$3.5 million and ~~$4.7~~$9.0 million that ~~have~~had not been paid as of September 30, ~~2017~~2020 and ~~2016,~~2019, respectively, were excluded from the ~~Statements~~Statement of Cash Flows.

(b)

Restricted cash of $1.0 million and $5.2 million is included in Other current assets and Other assets, respectively, as of September 30, 2020 and restricted cash of $0.8 million and $6.3 million is included in Other current assets and Other assets, respectively, as of September 30, 2019. Restricted cash of $0.8 million and $6.1 million is included in Other current assets and Other assets, respectively, as of December 31, 2019.

See notes to condensed consolidated financial statements.

FORTUNE BRANDS HOME & SECURITY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Nine and Three Months Ended September 30, ~~2017~~2020 and ~~2016~~2019

(In millions)

(Unaudited)

   Common
Stock    Paid-In
Capital Accumulated
Other
Comprehensive
Income (Loss) Retained
Earnings Treasury
Stock Non-
controlling
Interests Total
Equity
Balance at December 31, 2015
   $ 1.7    $ 2,602.2 $ (52.5 ) $ 501.6 $ (602.1 ) $ 2.9 $ 2,453.8
Comprehensive income:

Net income
   —      —   —   309.6 —   (0.1 ) 309.5
Other comprehensive income
   —      —   0.3 —   —   —   0.3
Stock options exercised
   —      24.8 —   —   —   —   24.8
Stock-based compensation
   —      24.3 —   —   (9.8 ) —   14.5
Treasury stock purchase
   —      —   —   —   (362.7 ) —   (362.7 )
Dividends ($0.28 per common share)
   —      —   —   (72.8 ) —   —   (72.8 )
Dividends paid to noncontrolling interests
   —      —   —   —   —   (1.4 ) (1.4 )
Other
   —      (5.8 ) —   —   —   —   (5.8 )




Balance at September 30, 2016
   $ 1.7    $ 2,645.5 $ (52.2 ) $ 738.4 $ (974.6 ) $ 1.4 $ 2,360.2




Balance at December 31, 2016
   $ 1.7    $ 2,653.8 $ (71.9 ) $ 814.6 $ (1,036.7 ) $ 1.5 $ 2,363.0
Comprehensive income:

Net income
   —      —   —   344.6 —   0.1 344.7
Other comprehensive income
   —      —   46.4 —   —   —   46.4
Stock options exercised
   —      25.7 —   —   —   —   25.7
Stock-based compensation
   —      32.7 —   —   (10.2 ) —   22.5
Treasury stock purchase
   —      —   —   —   (173.7 ) —   (173.7 )
Dividends ($0.54 per common share)
   —      —   —   (82.7 ) —   —   (82.7 )




Balance at September 30, 2017
   $ 1.7    $ 2,712.2 $ (25.5 ) $ 1,076.5 $ (1,220.6 ) $ 1.6 $ 2,545.9

	Common Stock		Paid-In Capital		Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Treasury Stock			Non- controlling Interests			Total Equity
Balance at December 31, 2018	$	1.8	$	2,766.0	$	(67.0	)	$	1,448.1		$	(1,970.7	)	$	1.8		$	2,180.0
Comprehensive income:
Net income		—		—		—			327.8			—			(0.5	)		327.3
Other comprehensive income (loss)		—		—		0.1			—			—			—			0.1
Stock options exercised		—		6.9		—			—			—			—			6.9
Stock-based compensation		—		22.9		—			—			(8.5	)		—			14.4
Adoption of ASU 2018-02		—		—		(8.6	)		8.6			—			—			—
Treasury stock purchases		—		—		—			—			(100.0	)		—			(100.0	)
Dividends ($0.66 per common share)		—		—		—			(92.0	)		—			—			(92.0	)
Balance at September 30, 2019	$	1.8	$	2,795.8	$	(75.5	)	$	1,692.5		$	(2,079.2	)	$	1.3		$	2,336.7

Balance at December 31, 2019	$	1.8	$	2,813.8	$	(72.6	)	$	1,763.0		$	(2,079.4	)	$	1.2		$	2,427.8
Comprehensive income:
Net income		—		—		—			389.5			—			1.3			390.8
Other comprehensive income (loss)		—		—		(18.9	)		—			—			—			(18.9	)
Stock options exercised		—		56.0		—			—			—			—			56.0
Stock-based compensation		—		33.5		—			—			(8.3	)		—			25.2
Treasury stock purchases		—		—		—			—			(150.0	)		—			(150.0	)
Dividends to non-controlling interests		—		—		—			—			—			(2.5	)		(2.5	)
Dividends ($0.72 per common share)		—		—		—			(99.8	)		—			—			(99.8	)
Balance at September 30, 2020	$	1.8	$	2,903.3	$	(91.5	)	$	2,052.7		$	(2,237.7	)	$	—		$	2,628.6

	Common Stock		Paid-In Capital		Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Treasury Stock			Non- controlling Interests			Total Equity
Balance at June 30, 2019	$	1.8	$	2,786.6	$	(64.1	)	$	1,648.1		$	(2,028.9	)	$	1.2		$	2,344.7
Comprehensive income:
Net income		—		—		—			105.6			—			0.1			105.7
Other comprehensive income (loss)		—		—		(11.4	)		—			—			—			(11.4	)
Stock options exercised		—		0.8		—			—			—			—			0.8
Stock-based compensation		—		8.4		—			—			(0.3	)		—			8.1
Treasury stock purchases		—		—		—			—			(50.0	)		—			(50.0	)
Dividends ($0.44 per common share)		—		—		—			(61.2	)		—			—			(61.2	)
Balance at September 30, 2019	$	1.8	$	2,795.8	$	(75.5	)	$	1,692.5		$	(2,079.2	)	$	1.3		$	2,336.7

Balance at June 30, 2020	$	1.8	$	2,852.9	$	(110.3	)	$	1,954.7		$	(2,237.3	)	$	1.3		$	2,463.1
Comprehensive income:
Net income		—		—		—			164.6			—			1.2			165.8
Other comprehensive income (loss)		—		—		18.8			—			—			—			18.8
Stock options exercised		—		31.9		—			—			—			—			31.9
Stock-based compensation		—		18.5		—			—			(0.4	)		—			18.1
Treasury stock purchases		—		—		—			—			—			—			—
Dividends to non-controlling interests		—		—		—			—			—			(2.5	)		(2.5	)
Dividends ($0.48 per common share)		—		—		—			(66.6	)		—			—			(66.6	)
Balance at September 30, 2020	$	1.8	$	2,903.3	$	(91.5	)	$	2,052.7		$	(2,237.7	)	$	—		$	2,628.6

See notes to condensed consolidated financial ~~statements.~~statements

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation and Principles of Consolidation

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 September 30, ~~2017,~~2020, the related condensed consolidated statements of comprehensive income and equity for the nine and ~~three-month periods~~three months ended September 30, ~~2017~~2020 and ~~2016~~2019, and the related condensed consolidated statements of cash flows ~~and equity~~ for the ~~nine-month periods~~nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 are unaudited. The presentation of these financial statements requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. 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, ~~2016~~2019 condensed consolidated balance sheet was derived from ~~the~~our audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”). This Quarterly Report on Form10-Q should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form10-K for the year ended December 31, ~~2016.~~2019.

~~In July 2017, we acquired Shaws Since1897 Limited (“Shaws”), aUK-based~~ luxury plumbing products company that specializes in manufacturing and selling fireclay sinks and selling brassware and accessories in partnership with Perrin & Rowe. This acquisition broadened our plumbing portfolio and enhanced future growth opportunities. Net sales and operating income in the three months ended September 30, 2017 were not material to the Company. The financial results of Shaws were included in the Company’s consolidated balance sheets as of September 30, 2017, the Company’s consolidated statements of income for the nine and three months ended September 30, 2017, and statement of cash flows for the nine months ended September 30, 2017.

In September 2016, we acquired ROHL LLC (“ROHL”) and in a related transaction, we acquired TCL Manufacturing which gave us ownership of Perrin & Rowe Limited (“Perrin & Rowe”). In addition, in May 2016, we acquired Riobel Inc (“Riobel”). The financial results of ROHL, Perrin & Rowe, and Riobel were included in the Company’s consolidated balance sheets as of September 30, 2017 and December 31, 2016, the Company’s consolidated statements of income for the nine and three months ended September 30, 2017, and statement of cash flows for the nine months ended September 30, 2017.

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

2.	Recently Issued Accounting Standards

~~Revenue from Contracts with Customers~~Financial Instruments—Credit Losses

In ~~May 2014,~~June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)~~2014-09,~~ which clarifies the accounting for revenue arising from contracts with customers and specifies the disclosures that an entity should include in its financial statements. The standard is effective for annual reporting periods beginning after December 15, 2017 (calendar year 2018 for Fortune Brands). During 2016, the FASB issued certain amendments to the standard relating to the principal versus agent guidance, accounting for licenses of intellectual property and identifying performance obligations as well as the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The effective date and transition requirements for these amendments are the same as those of the original ASU. We have elected the modified retrospective transition approach and also have identified focus areas for each of our reporting segments and have made substantial progress in our assessment of the accounting and financial reporting implications as of September 30, 2017. Our key considerations pursuant to ASU 2014-09 are the control of goods (i.e., timing of revenue recognition), separate performance obligations, customer rights of return (i.e., the reclassification on the balance sheet of the customer rights of return from accounts receivable to a refund liability as well as the recognition of a corresponding asset) and our accounting for display assets. We do not expect the change in accounting related to these considerations to have a material effect on our financial statements.

~~Leases~~

~~In February 2016, the FASB issued ASU2016-02,~~ ~~which requires lessees to recognize almost all leases on their balance sheet as a“right-of-use”~~ asset and lease liability but recognize related expenses in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. The standard is effective for annual periods beginning after December 15, 2018 (calendar year 2019 for Fortune Brands) and earlier application is permitted. We are assessing the impact the adoption of this standard will have on our financial statements.

~~Improvements to Accounting for Hedging Activities~~

~~In August 2017, the FASB issued ASU2017-12,~~ that amends 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 (consistent with our current practice). The change in fair value for qualifying cash flow and net investment hedges will be included in Other comprehensive income (until they are reclassified into the income statement). The standard also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of the hedge effectiveness. Standard is effective as of January 1, 2019 and earlier application is permitted. We are assessing the impact the adoption of this standard will have on our financial statements.

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

2.	~~Recently Issued Accounting Standards (Continued)~~

~~Clarifying Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~

~~In May 2017, the FASB issued ASC610-20~~ that clarifies the scope and application of various standards for the sale of nonfinancial assets (e.g. PP&E including real estate, intangible assets, materials and supplies). The standard distinguishes between a sale to customer vs~~non-customer.~~ Sales to customers are in scope of the new revenue standard. It also clarifies a derecognition model for nonfinancial assets that do not represent a business. The standard is effective as of January 1, 2018 consistent with the effective date for the new revenue recognition standard. We are assessing the impact the adoption of this standard will have on our financial statements and we will consider the implications of the new standard on case by case basis for all~~non-recurring~~ ~~transactions where we sell or transfer nonfinancial assets.~~

~~Stock Compensation Scope of Modification Accounting~~

~~In May 2017, the FASB issued ASU2017-09,~~ ~~which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance provides a relief to entities that makenon-substantive~~ changes to their share-based payment awards and will result in fewer changes to the terms of an award being accounted for as modifications. The standard is effective January 1, 2018 and early adoption is permitted; however we have elected not to early adopt. We do not expect the adoption of this standard to have a material effect on our financial statements.

~~Presentation of Net Periodic Pension and Postretirement Cost~~

~~In March 2017, the FASB issued ASU2017-07,~~ which requires entities to present the service cost component of the net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. In addition, only the service cost component will be eligible for capitalization in assets. Employers will present the other components (i.e., interest cost, expected return on plan assets and actuarial gains/losses) separately from the line item(s) that includes the service cost and outside of any subtotal of operating income. The standard is effective January 1, 2018 and early adoption is permitted. We are assessing the impact the adoption of this standard will have on our financial statements.

~~Simplifying the Test for Goodwill Impairment~~

~~In January 2017, the FASB issued ASU2017-04,~~ which simplifies the accounting for goodwill impairment for all entities. Under the new standard, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The standard eliminates the current requirement to calculate a goodwill impairment charge by comparing the implied fair value of goodwill with its carrying amount (i.e., hypothetical purchase price allocation). The new standard is effective for annual and interim impairment tests performed in the periods beginning after January 1, 2020 and early adoption is permitted. We plan to early adopt ASU~~2017-04~~ ~~in conjunction with our annual goodwill impairment test during the fourth quarter of 2017.~~

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

2.	~~Recently Issued Accounting Standards (Continued)~~

~~Clarifying the Definition of a Business~~

~~In January 2017, the FASB issued ASU2017-01,~~ which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business and therefore business combination guidance would apply. The new standard requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset (i.e., a business) or a group of similar identifiable assets (i.e., not a business). The guidance also requires a business to include at least one substantive process and narrows the definition of outputs (e.g., revenues with customers). The standard is effective January 1, 2018 and early adoption is permitted. We do not expect the adoption of this standard to have a material effect on our financial statements.

~~Restricted Cash~~

~~In November 2016, the FASB issued ASU2016-18,~~ according to which entities are no longer required to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The prior standard did not address the classification of activity related to restricted cash and restricted cash equivalents in the statement of cash flows, which has resulted in diversity in the presentation of cash flows. The standard is effective January 1, 2018 and early adoption is permitted; however, we elected not to early adopt. We do not expect the adoption of this standard to have a material effect on our financial statements.

~~Intra-Entity Transfers of Assets Other Than Inventory~~

~~In October 2016, the FASB issued ASU2016-16,~~ which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory (e.g., intangible assets) when the transfer occurs. Under the current guidance, companies are required to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized (e.g., depreciated, amortized or impaired). The standard is effective January 1, 2018 and early adoption is permitted; however, we elected not to early adopt. The transition method will be a “modified retrospective” (i.e., with a cumulative adjustment to retained earnings at adoption). We are assessing the impact the adoption of this standard will have on our financial statements.

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

2.	~~Recently Issued Accounting Standards (Continued)~~

~~Classification of Certain Cash Receipts and Cash Payments~~

~~In September 2016, the FASB issued ASU2016-15,~~ which changes how an entity classifies certain cash receipts and cash payments on its statement of cash flows. The key changes that may potentially impact our financial statements include the following: 1) Cash payments for debt prepayment or extinguishment costs would be classified as financing cash outflows; 2) Contingent consideration payments that are not made within three months after the consummation of a business combination would be classified as financing (if the payment is made up to the acquisition date fair value of liability) or operating outflows (if in excess of acquisition fair value). Cash payments made “soon after” the consummation of a business combination generally would be classified as cash outflows for investing activities; 3) Insurance settlement proceeds would be classified based on the nature of the loss; and 4) Company-owned life insurance settlement proceeds would be presented as investing cash inflows, and premiums would be classified as investing or operating cash outflows, or a combination of both. The new standard is effective January 1, 2018 and should be adopted retrospectively. Early adoption is permitted; however, we elected not to early adopt. We do not expect the adoption of this standard to have a material effect on our financial statements.

~~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 asoff-balance-sheet credit exposures (e.g., loan commitments and standby letters of credit). The standard ~~will replace~~replaced the “incurred loss” approach under the ~~current~~previous guidance with an “expected loss” model that requires an entity to estimate its lifetime “expected credit loss.” ~~The standard is effective~~We adopted this guidance on January 1, ~~2020 and early application is permitted beginning January 1, 2019. We are assessing the impact the~~2020. The adoption of this ~~standard will~~guidance did not have a material effect on our financial statements.

~~Recognition and~~Changes to the Disclosure Requirements for Fair Value Measurement ~~of Financial Assets and Financial Liabilities~~

In ~~January 2016,~~August 2018, the FASB issued ASU~~2016-01,~~ 2018-13, which ~~requires entities~~removes the requirement to ~~measure investments in unconsolidated entities (other than those accounted~~disclose: 1) amount of and reasons for ~~using~~transfers between Levels 1 and 2 of the ~~equity method of accounting) at~~ fair value ~~through the income statement. There will no longer be anavailable-for-sale~~ ~~classification (with changes in fair value reported in Other Comprehensive Income).~~hierarchy, 2) policy for timing of transfers between levels, and 3) valuation processes for Level 3 investments. In addition, ~~the cost method is eliminated for equity investments without readily determinable fair values. The new standard is effective~~this guidance modifies and adds other disclosure requirements, which primarily relate to valuation of Level 3 assets and liabilities. We adopted this guidance on January 1, ~~2018. Early application~~2020. The adoption of this guidance did not have a material effect on our financial statements.

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is ~~permitted~~a Service Contract

In August 2018, the FASB issued ASU 2018-15, which aligns the requirements for ~~certain provisions~~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. We adopted this guidance on January 1, 2020. The adoption of ~~the standard; however, we elected~~this guidance did not ~~to early adopt. We do not expect this standard to~~ have a material effect on our financial statements.

106

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.Recently Issued Accounting Standards(Continued)

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, which is intended to simplify accounting for income taxes and improve consistency in application. ASU 2019-12 amends certain elements of income tax accounting, including but not limited to intraperiod tax allocations, step-ups in tax basis of goodwill, and calculating taxes on year-to-date losses in interim periods. The guidance is effective for the Company’s fiscal year beginning January 1, 2021, with early adoption permitted. We do not expect the adoption of this guidance to have a material effect on our financial statements.

Clarifications in Accounting for Equity Securities

In January 2020, the FASB issued ASU 2020-01, which clarifies the interactions between accounting for equity investments (ASC 321), equity method accounting (ASC 323) and derivatives and hedges (ASC 815). As a result of the ASU, when entities apply the measurement alternative to non-controlling equity investments under ASC 321, and must transition to the equity method of accounting because of an observable transaction, existing investments should be remeasured immediately before applying the equity method of accounting. Additionally, it states that if entities hold non-derivative forward contracts or purchased call options to acquire equity securities, such instruments should be measured using the fair value principles of ASC 321 before settlement or exercise. The Company early adopted this guidance on January 1, 2020, and as a result recognized non-cash gains of $11.0 million within other income during the first nine months of 2020 related to our investment in Flo Technologies, Inc. (see Note 4).

Effects of Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, which provides relief from accounting analysis and impacts that may otherwise be required for modifications to agreements necessitated by reference rate reform. It also provides optional expedients to enable the continuance of hedge accounting where certain hedging relationships are impacted by reference rate reform. This optional guidance is effective immediately, and available to be used through December 31, 2022. We are assessing the impact that reference rate reform and the related adoption of this guidance may have on our financial statements.

3.	Balance Sheet Information

Supplemental information on our balance sheets is as follows:


(In millions)	September 30, 2017		December 31, 2016		September 30, 2020		December 31, 2019
Inventories:
Raw materials and supplies	$	211.6	$	207.6	$	299.3	$	274.4
Work in process		61.8		55.9		72.0		72.2
Finished products		326.7		267.6		367.0		372.0
Total inventories					$	738.3	$	718.6

Total inventories	$	600.1	$	531.1
Property, plant and equipment, gross	$	1,715.8	$	1,630.7	$	2,005.7	$	1,982.5
Less: accumulated depreciation		1,025.2		968.2		1,214.0		1,158.3

Property, plant and equipment, net	$	690.6	$	662.5	$	791.7	$	824.2

4.	~~Acquisitions and Dispositions~~

In July 2017, we acquired Shaws, a UK-based luxury plumbing products company that specializes in manufacturing and selling fireclay sinks and selling brassware and accessories in partnership with Perrin & Rowe. Net sales and operating income in the three months ended September 30, 2017 were not material to the Company. We financed the transaction using cash on hand and borrowings under our existing credit facilities. The results of the operations are included in the Plumbing segment from the date of acquisition.

~~In April 2017, we completed the sale of Field ID, our cloud-based inspection and safety compliance software product line included in our Security segment. We recorded apre-tax~~ loss of $2.4 million as the result of this sale. The estimated tax expense on the sale was insignificant. Field ID did not qualify for presentation as a discontinued operation in our financial statements.

In September 2016, we acquired ROHL, a California-based luxury plumbing company. In a related transaction, we also acquired Perrin & Rowe, a UK manufacturer and designer of luxury kitchen and bathroom plumbing products. The total combined purchase price was approximately $166 million (including $3 million of liabilities assumed), subject to certain post-closing adjustments. We financed the transaction using cash on hand and borrowings under our existing credit facility. Net sales and operating income in the first nine months of 2017 were not material to the Company. The results of operations are included in the Plumbing segment. The goodwill expected to be deductible for income tax purposes is approximately $49 million.

In May 2016, we acquired Riobel, a Canadian plumbing company specializing in premium showroom bath and shower fittings, for a total purchase price of $94.6 million in cash. We financed the transaction using cash on hand and borrowings under our existing credit facilities. Net sales and operating income in the first nine months of 2017 were not material to the Company. The results of operations are included in the Plumbing segment. We do not expect any portion of goodwill to be deductible for income tax purposes.

~~We recognized a loss on discontinued operations primarily related to the prior sale of the Waterloo tool storage and Simonton window businesses for the nine months ended September 30, 2017.~~

117

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Acquisitions and Dispositions

In 2018 our Plumbing segment entered into a strategic partnership with, and acquired non-controlling equity interests in, Flo Technologies, Inc. (“Flo”), a U.S. manufacturer of comprehensive water monitoring and shut-off systems with leak detection technologies. In January 2020, we entered into an agreement to acquire 100% of the outstanding shares of Flo in a multi-phase transaction. As part of this agreement, we acquired additional shares for $44.2 million in cash, including direct transactions costs, and entered into a forward contract to purchase all remaining shares of Flo at a future date in exchange for an additional $7.9 million in cash, which is included in other assets in our condensed consolidated balance sheet. In April 2020, we acquired additional shares of Flo under a separate option agreement which resulted in a non-cash gain of $4.4 million on the forward contract within other income during the nine months ended September 30, 2020.

We utilize the equity method to account for investments when we possess the ability to exercise significant influence, but not control, over the operating and financial policies of the investee. The ability to exercise significant influence is presumed when the investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is restricted. In applying the equity method, we record our investment at cost and subsequently increase or decrease the carrying amount of the investment by our proportionate share of the net earnings or losses of the investee. We record dividends or other equity distributions as reductions in the carrying value of our investment.

As of September 30, 2020, we owned approximately 80% of Flo’s outstanding shares. Starting in the first quarter of 2020, we applied the equity method of accounting to our investment in Flo as the minority shareholders have substantive participating rights which preclude consolidation in our results of operations and statements of financial position and cash flows. The substantive participating rights are due to expire in the first quarter of 2021, at which time we will obtain control of, and begin consolidating, Flo in our results. The second phase, scheduled to occur in the first quarter of 2022, will result in the acquisition of the remaining outstanding shares of Flo for a price based on a multiple of Flo’s 2021 sales and adjusted earnings before interest and taxes. Immediately prior to applying the equity method of accounting, we recognized a non-cash gain of $6.6 million within other income during the nine months ended September 30, 2020 related to the remeasurement of our previously existing investment in Flo.

The carrying value of our investment in Flo was $79.1 million at September 30, 2020 and $25.7 million at December 31, 2019.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.	Goodwill and Identifiable Intangible Assets

We had goodwill of ~~$1,852.8~~$2,085.2 million and ~~$1,833.8~~$2,090.2 million as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. ~~The $19.0 million increase was primarily due to the acquisition-related adjustments in our Plumbing segment (See Note 4) and foreign translation adjustments.~~ The change in the net carrying amount of goodwill by segment was as follows:

(In millions)    Cabinets    Plumbing    Doors    Security    Total
Goodwill
Goodwill at December 31, 2016^(a)
   $ 924.3    $ 670.2    $ 143.0    $ 96.3    $ 1,833.8
Year-to-date translation adjustments
   3.3    4.6    —      1.5    9.4
Acquisition-related adjustments
   —      9.6    —      —      9.6










Goodwill at September 30, 2017^(a)
   $ 927.6    $ 684.4    $ 143.0    $ 97.8    $ 1,852.8

(In millions)	Plumbing			Doors & Security			Cabinets			Total Goodwill
Goodwill at December 31, 2019^(a)	$	747.3		$	417.4		$	925.5		$	2,090.2
Year-to-date translation adjustments		(3.9	)		(0.3	)		(0.8	)		(5.0	)
Goodwill at September 30, 2020^(a)	$	743.4		$	417.1		$	924.7		$	2,085.2

^(a)

Net of accumulated impairment losses of $399.5 million in the Doors & Security segment.

We also had net identifiable intangible assets ~~principally tradenames,~~ of ~~$1,105.4~~$1,111.2 million and ~~$1,107.0~~$1,168.9 million as of September 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. The $27.1 million decrease in gross identifiable intangible assets was primarily due to tradename impairment charges of $22.5 million in our Plumbing and Cabinets segments and foreign translation adjustments.

The gross carrying value and accumulated amortization by class of identifiable intangible assets as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were as follows:


(In millions)	As of September 30, 2017							As of December 31, 2016							As of September 30, 2020							As of December 31, 2019
	Gross Carrying Amounts		Accumulated Amortization			Net Book Value		Gross Carrying Amounts		Accumulated Amortization			Net Book Value		Gross Carrying Amounts		Accumulated Amortization			Net Book Value		Gross Carrying Amounts		Accumulated Amortization			Net Book Value
Indefinite-lived tradenames	$	682.6	$	—		$	682.6	$	671.8	$	—		$	671.8	$	597.5	$	—		$	597.5	$	635.6	$	—		$	635.6

Amortizable intangible assets
Tradenames		18.6		(9.4	)		9.2		15.8		(7.3	)		8.5		33.5		(13.4	)		20.1		20.6		(12.9	)		7.7
Customer and contractual relationships		627.1		(226.0	)		401.1		611.9		(203.1	)		408.8		799.9		(325.6	)		474.3		803.9		(299.6	)		504.3
Patents/proprietary technology		57.2		(44.7	)		12.5		61.9		(44.0	)		17.9		75.5		(56.2	)		19.3		73.4		(52.1	)		21.3

Total		702.9		(280.1	)		422.8		689.6		(254.4	)		435.2		908.9		(395.2	)		513.7		897.9		(364.6	)		533.3

Total identifiable intangibles	$	1,385.5	$	(280.1	)	$	1,105.4	$	1,361.4	$	(254.4	)	$	1,107.0	$	1,506.4	$	(395.2	)	$	1,111.2	$	1,533.5	$	(364.6	)	$	1,168.9

The $24.1 million increase in gross identifiable intangible assets was primarily due to acquisition-related adjustments in our Plumbing segment (See Note 4) as well as foreign translation adjustments, partially offset by impairment charges during the first quarter of 2017 related to our decision to sell Field ID (See Note 6).

Amortizable identifiable intangible assets, principally ~~tradenames and~~ customer relationships, are subject to amortization ~~on a straight-line basis~~ over their estimated useful life, ranging from 2 to 30 years, based on the assessment of a number of factors that may impact useful ~~life. These factors include historical and tradename performance with respect to consumer name recognition, geographic market presence, market share, plans for ongoing tradename support and promotion,~~life, which includes customer attrition rates and other relevant factors.

12During the third quarter of 2020, no events or circumstances occurred that would have required us to perform interim impairment tests of goodwill or indefinite-lived tradenames.

During the second quarter of 2020, extended closures of luxury plumbing showrooms associated with the novel coronavirus pandemic (“COVID-19”) led to lower than expected sales related to an indefinite-lived tradename within the Plumbing segment, which combined with the updated financial outlook compared to previous forecasts and the continued uncertainty of the pandemic on the sales and profitability related to the tradename led us to conclude that it was more likely than not that the indefinite-lived tradename was impaired. Therefore we performed an interim impairment test as of June 30, 2020, and as a result we recognized a pre-tax impairment charge of $13.0 million related to this tradename. We also performed an evaluation of the useful life of this tradename and determined it was no longer indefinite-lived due to changes in long-term management expectations and future operating plans. As a result, the remaining carrying value of this tradename is being amortized over its estimated useful life of 30 years.

In the first quarter of 2020, we recognized an impairment charge of $9.5 million related to an indefinite-lived tradename in our Cabinets segment. This charge was primarily the result of lower expected sales of custom cabinetry products related to the impact of COVID-19. In the fourth quarter of 2019, we recognized an impairment charge of $12.0 million related to the same indefinite-lived tradename, which was the result of a strategic shift associated with new segment leadership and acceleration of our capacity rebalancing initiatives from custom cabinetry products to value-based cabinetry products as a result of lower than expected sales of custom cabinetry products compared to prior forecasts. As of September 30, 2020, the carrying value of this tradename was $29.1 million.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5.	~~Goodwill and Identifiable Intangible Assets (Continued)~~

5.Goodwill and Identifiable Intangible Assets (Continued)

In the third quarter of 2019, we recognized an impairment charge of $29.5 million related to a second indefinite-lived tradename in our Cabinets segment, which was primarily the result of a continuing shift in consumer demand from semi-custom cabinetry products to value-priced cabinetry products, which led to consecutive downward adjustments of internal sales forecasts and future growth rates associated with the tradename. As of ~~December 31, 2016,~~September 30, 2020, the carrying value of this tradename was $85.0 million.

The estimated fair value of ~~one of the tradenames~~a third tradename in ~~the~~our Cabinets segment ~~and one of the tradenames in the Doors segment~~ exceeded ~~their~~its carrying value by less than 10%~~. In the second quarter~~ as of 2017, we performed an interim impairment test on the tradename in the Cabinets segment and concluded the fair value continues to exceed its carrying value. A further reduction in fair value of these tradenames may result in an impairment charge in future periods.March 31, 2020. As of September 30, ~~2017,~~2020, the carrying value of this tradename was $38.2 million.

The fair values of these tradenames ~~was $168 million~~.were measured using the relief-from-royalty approach, which estimates the present value of royalty income that could be hypothetically earned by licensing the tradename to a third party over its remaining useful life. Some of the more significant assumptions inherent in estimating the fair values include forecasted revenue growth rates for the tradename, assumed royalty rate, and a market-participant discount rate that reflects the level of risk associated with the tradenames’ future revenues and profitability. We ~~did not identify any impairment triggers~~selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management plans. These assumptions represent Level 3 inputs of the fair value hierarchy (refer to Note 8).

The significant assumptions used to estimate the fair values of the tradenames impaired during the ~~third quarter of 2017. In addition to evaluating~~nine months ended September 30, 2020 and the ~~interim events that may require more frequent impairment testing, we will conduct our annual impairment testing~~year ended December 31, 2019 were as follows:

	2020									2019
Unobservable Input	Minimum			Maximum			Weighted Average^(a)			Minimum			Maximum			Weighted Average^(a)
Discount rate		14.8	%		15.8	%		15.1	%		13.0	%		13.5	%		13.3	%
Royalty rate^(b)		4.0	%		5.0	%		4.3	%		3.0	%		4.0	%		3.3	%
Long-term revenue growth rate^(c)		1.0	%		3.0	%		1.6	%		3.0	%		3.0	%		3.0	%

^(a)	Weighted by relative fair value of the impaired tradenames.

^(b)	Represents estimated percentage of sales a market-participant would pay to license the impaired tradenames.

^(c)	Selected long-term revenue growth rate within 10-year projection period of the impaired tradenames.

A reduction in the ~~fourth quarter of 2017.~~

~~The Company cannot predict the occurrence of certain events that might adversely affect the carrying~~estimated fair value of ~~goodwill and other intangible assets. The events and/~~the tradenames in our Cabinets segment could trigger additional impairment charges in future periods. Events or circumstances that could have a potential negative effect on the estimated fair value of our reporting units and indefinite-lived tradenames include: lower than forecasted revenues, more severe impacts of the COVID-19 pandemic than currently expected, actual new construction and repair and remodel growth rates that ~~lag~~fall below our assumptions, actions of key customers, ~~volatility of~~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 a 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.	~~Asset Impairment~~

In January 2017, we committed to a plan to sell Field ID, our cloud-based inspection and safety compliance software product line included in our Security segment. In accordance with FASB Accounting Standards Codification (“ASC”) 360, as a result of our decision to sell, during the first quarter of 2017 we recorded $3.2 million of~~pre-tax~~ impairment charges to write down the long-lived assets included in this disposal group to fair value, based upon their estimated fair value less cost to sell. These charges consisted of approximately $3.0 million for definite-lived intangible assets and $0.2 million for fixed assets. We completed the sale of Field ID in April 2017 (See Note 4).

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

External Debt and Financing Arrangements

~~In June 2016,~~Unsecured Senior Notes

At September 30, 2020, the Company ~~amended~~had aggregate outstanding notes in the amount of $1.8 billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company. The following table provides a summary of the Company’s outstanding Notes, including the net carrying value of the Notes, net of underwriting commissions, price discounts, and ~~restated its credit agreement~~debt issuance costs as of September 30, 2020 and December 31, 2019:

					Net Carrying Value
(in millions)	Principal Amount		Issuance Date	Maturity Date	September 30, 2020		December 31, 2019
3.000% Senior Notes	$	400.0	June 2015	June 2020	$	—	$	399.7
4.000% Senior Notes		500.0	June 2015	June 2025		496.4		495.8
4.000% Senior Notes (the "2018 Notes")		600.0	September 2018	September 2023		596.8		596.1
3.250% Senior Notes		700.0	September 2019	September 2029		693.3		692.7
Total Senior Notes					$	1,786.5	$	2,184.3

During June 2020, we repaid all amounts outstanding on the 3.000% Senior Notes issued in June 2015 which were scheduled to ~~combine~~mature in June 2020 using borrowings under our 2019 Revolving Credit Agreement (as defined below). In September 2019, the Company issued $700 million of unsecured senior notes (“2019 Notes”) in a registered public offering. The 2019 Notes are due in 2029 with a coupon rate of 3.25%. The Company used the proceeds from the 2019 Notes offering to repay in full a $350 million term loan and ~~rollover~~to pay down outstanding balances under our 2019 Revolving Credit Agreement.

Credit Facilities

In April 2020, the ~~existing~~Company entered into a 364-day supplemental, $400 million revolving credit facility ~~and term loan into a new standalone $1.25 billion revolving credit facility. This amendment of the credit agreement was anon-cash~~ ~~transaction for the Company. Terms and conditions of the amended and restated credit agreement, including the total commitment amount, essentially remained the same. As a result of the refinancing, wewrote-off~~ ~~prepaid debt issuance costs of approximately $1.3 million during the three months ended June 30, 2016. The revolving credit facility will mature in June 2021~~(the “2020 Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. ~~On September 30, 2017~~Given the uncertain nature and ~~December 31, 2016, our outstanding borrowings under~~duration of the COVID-19 pandemic, this was a proactive step taken out of an abundance of caution to provide ample liquidity for the business. The terms and conditions of the 2020 Revolving Credit Agreement are essentially the same as the Company’s existing $1.25 billion revolving credit facility ~~were $570.0 million~~except for additional provisions related to cash hoarding and ~~$540.0 million, respectively. At September 30, 2017 and December 31, 2016,~~ the ~~current portion~~use of ~~long-term~~ debt ~~was zero.~~issuance proceeds. Interest rates under the ~~facility~~2020 Revolving Credit Agreement 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%~~1.4% to LIBOR + ~~1.5%~~1.8%. The 2020 Revolving Credit Agreement includes a covenant under which the Company is required to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0. Consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments. In addition, the 2020 Revolving Credit Agreement includes a covenant under which the Company’s ratio of consolidated total indebtedness minus certain cash and cash equivalents to consolidated EBITDA generally may not exceed 3.5 to 1.0. As of September 30, ~~2017,~~2020, there were 0 outstanding borrowings under this facility and we were in compliance with all covenants under this facility.

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

7.	~~External Debt and Financing Arrangements (Continued)~~

In September 2019, the Company entered into a second amended and restated $1.25 billion revolving credit facility (the “2019 Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. The terms and conditions of the 2019 Revolving Credit Agreement, including the total commitment amount, essentially remained the same as under the previous credit agreement, except that the maturity date was extended to September 2024. Borrowings amounting to $165.0 million were rolled-over from the prior revolving credit facility into the 2019 Revolving Credit Agreement. Interest rates under the 2019 Revolving Credit Agreement are variable based on LIBOR at the time of the borrowing and the Company’s long-term credit rating and can range from LIBOR + 0.91% to LIBOR + 1.4%. This amendment and restatement of the credit agreement was a non-cash transaction for the Company. On September 30, 2020, our outstanding borrowings under this facility was $300.0 million. On December 31, 2019, our outstanding borrowings under this facility was 0. This facility is included in Long-term debt in the condensed consolidated balance sheets. As of September 30, 2020, we were in compliance with all covenants under this facility.

In June 2015, we issued $900 million of unsecured senior notes (“Senior Notes”) in a registered public offering. The Senior Notes consist of two tranches: $400 million of five-year notes due 2020 with a coupon of 3% and $500 million of~~ten-year~~ ~~notes due 2025 with a coupon of 4%. We~~September 2019, the Company used the proceeds from the ~~Senior~~2019 Notes ~~offering~~ to ~~pay down our revolving credit facility~~repay the full outstanding balance on the Term Loan entered into in March 2018 and subsequently amended in August 2018 and March 2019 (the “Term Loan”). Following the March 2019 amendment, the Term Loan provided for ~~general corporate purposes. On September 30, 2017~~borrowings of $350 million and matured in March 2020. At December 31, ~~2016,~~2019, amounts due under the ~~carrying value of the Senior Notes, net of underwriting commissions, price discounts and debt issuance costs, was $892.2 million and $891.1 million, respectively.~~Term Loan were 0.

We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to ~~$25.7~~$17.5 million in aggregate, of which there were no0 outstanding balances as of September 30, ~~2017~~2020 and December 31, ~~2016.~~2019.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 Mexican peso and the Chinese ~~yuan and the Euro.~~yuan. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding at September 30, ~~2017~~2020 was ~~$190.2 million, representing a net settlement payable of $2.3~~$349.7 million. Based on foreign exchange rates as of September 30, ~~2017,~~2020, we estimate that ~~$1.2~~$2.4 million of net ~~foreign currency~~ derivative losses included in accumulated other comprehensive income as of September 30, ~~2017~~2020 will be reclassified to earnings within the next twelve months.

The fair values of derivative instruments on the consolidated balance sheets as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were as follows:

							Fair Value
(In millions)		Fair Value				Location	September 30, 2020		December 31, 2019
Assets:
Foreign exchange contracts						Other current assets	$	1.1	$	2.9
Commodity contracts						Other current assets		—		0.1
	Location	September 30, 2017		December 31, 2016		Total assets	$	1.1	$	3.0
Assets
Liabilities:
Foreign exchange contracts	Other current assets	$	3.0	$	2.8	Other current liabilities	$	4.4	$	2.2
Commodity contracts						Other current liabilities		0.1		—
Net investment hedges	Other current assets		0.2		0.6	Other current liabilities		0.1		0.3
						Total liabilities	$	4.6	$	2.5
	Total assets	$	3.2	$	3.4

Liabilities
Foreign exchange contracts	Other current liabilities	$	5.1	$	2.9
Net investment hedges	Other current liabilities		0.4		0.2

	Total current liabilities	$	5.5	$	3.1

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Financial Instruments (Continued)

The effects of derivative financial instruments on the statements of comprehensive income for the nine months ended September 30, 2020 and 2019 were as follows:

(In millions)	Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Nine Months Ended September 30, 2020
	Cost of products sold			Interest expense		Other income, net
Total amounts per Consolidated Statements of Comprehensive Income	$	2,873.9		$	64.4	$	13.4
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items							(5.3	)
Derivative designated as hedging instruments							6.9
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income		(2.1	)
Commodity contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income		(0.2	)
Interest rate contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income					0.5			��

(In millions)	Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Nine Months Ended September 30, 2019
	Cost of products sold			Interest expense		Other income, net
Total amounts per Consolidated Statements of Comprehensive Income	$	2,773.5		$	71.8	$	2.2
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items							(2.7	)
Derivative designated as hedging instruments							3.4
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income		3.2
Commodity contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income		(0.2	)
Interest rate contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income					0.3

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7.	Financial Instruments (Continued)

The effects of derivative financial instruments on the statements of comprehensive income for the three months ended September 30, ~~2017~~2020 and ~~2016 were:~~2019 were as follows:

(In millions)       Gain (Loss) Recognized in Income
Nine Months Ended September 30,
Type of hedge

Location
   2017    2016
Cash flow
   Cost of products sold    $ 0.9    $ (2.6 )
Fair value
   Other (income) expense, net    (1.4 )    1.3




Total
      $ (0.5 )    $ (1.3 )
(In millions)       Gain (Loss) Recognized in Income Three
Months Ended September 30,
Type of hedge

Location
   2017    2016
Cash flow
   Cost of products sold    $ (0.1 )    $ (1.2 )
Fair value
   Other (income) expense, net    (0.9 )    0.3




Total
      $ (1.0 )    $ (0.9 )

(In millions)	Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Three Months Ended September 30, 2020
	Cost of products sold			Interest expense		Other income, net
Total amounts per Consolidated Statements of Comprehensive Income	$	1,071.5		$	20.1	$	2.1
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items							3.5
Derivative designated as hedging instruments							(3.1	)
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income		(1.4	)
Commodity contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income		0.2
Interest rate contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income					0.2

(In millions)	Classification and Amount of Gain (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships
	Three Months Ended September 30, 2019
	Cost of products sold			Interest expense		Other income, net
Total amounts per Consolidated Statements of Comprehensive Income	$	934.8		$	23.6	$	0.3
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items							(2.5	)
Derivative designated as hedging instruments							2.7
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income		0.4
Commodity contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income		(0.2	)
Interest rate contracts:
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income					0.1

The ~~effective portion of~~ cash flow hedges recognized in other comprehensive income were a net ~~losses~~ loss of ~~$(0.1)~~ $7.0million and ~~$(8.0)~~ a net gain of $2.7 million in the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. The ~~effective portion of~~ cash flow hedges recognized in other comprehensive income were a net ~~losses~~ loss of ~~$(3.8)~~ $0.3million and ~~zero~~a net gain of $2.9 million in the three months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. ~~In the nine and three months ended September 30, 2017 and 2016, the ineffective portion of cash flow hedges recognized in other (income) expense, net, was insignificant.~~

9.	~~Fair Value Measurements~~

~~ASC~~

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8.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 ~~inputs~~ other than quoted prices included in ~~level~~Level 1 that are either observable directly or through corroboration with observable market data. Level 3 inputs are unobservable inputs, due to little or no0 market activity for the asset or liability, such as internally-developed valuation models. We do not have any assets or liabilities measured at fair value on a recurring basis that are ~~level~~Level 3.

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

9.	~~Fair Value Measurements (Continued)~~

The carrying value ~~net of underwriting commissions, price discounts, and debt issuance costs~~ and fair value of debt as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were as follows:

(In millions)    September 30, 2017    December 31, 2016
   Carrying
Value    Fair
Value    Carrying
Value    Fair
Value
Revolving credit facility
   $ 570.0    $ 570.0    $ 540.0    $ 540.0
Senior Notes
   892.2    927.5    891.1    919.2

(In millions)	September 30, 2020				December 31, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Notes, net of underwriting commissions, price discounts and debt issuance costs	$	1,786.5	$	1,992.4	$	2,184.3	$	2,271.4
2019 Revolving Credit Agreement		300.0		300.0		—		—
Total debt		2,086.5		2,292.4		2,184.3		2,271.4

The estimated fair value of our ~~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~~Level 1 inputs.

Assets and liabilities measured at fair value on a recurring basis as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were as follows:


(In millions)	Fair Value				Fair Value
	September 30, 2017		December 31, 2016		September 30, 2020		December 31, 2019
Assets
Derivative financial instruments (level 2)	$	3.2	$	3.4
Deferred compensation program assets (level 2)		7.0		4.5

Derivative financial instruments (Level 2)					$	1.1	$	3.0
Deferred compensation program assets (Level 2)						15.3		12.1
Total assets	$	10.2	$	7.9	$	16.4	$	15.1

Liabilities
Derivative financial instruments (level 2)	$	5.5	$	3.1
Derivative financial instruments (Level 2)					$	4.6	$	2.5

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~10.~~

Accumulated Other Comprehensive ~~Loss~~(Loss) Income

Total accumulated other comprehensive ~~loss~~(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. The after-tax components of and changes in accumulated other comprehensive ~~loss, net of tax,~~(loss) income for the nine and three months ended September 30, 2020 and 2019 were as follows:

(In millions)    Foreign
Currency
Adjustments    Derivative
Hedging
Gain
(Loss)    Defined
Benefit Plan
Adjustments^(a)    Accumulated
Other
Comprehensive
Loss
Balance at December 31, 2015
   $ (13.3 )    $ 2.1    $ (41.3 )    $ (52.5 )
Amounts classified into accumulated other comprehensive loss
   0.9    (7.3 )    9.0    2.6
Amounts reclassified from accumulated other comprehensive loss
   —      2.8    (5.1 )    (2.3 )








Net current-period other comprehensive income (loss)
   0.9    (4.5 )    3.9    0.3








Balance at September 30, 2016
   $ (12.4 )    $ (2.4 )    $ (37.4 )    $ (52.2 )








Balance at December 31, 2016
   $ (28.0 )    $ (0.6 )    $ (43.3 )    $ (71.9 )
Amounts classified into accumulated other comprehensive loss
   47.0    0.6    3.5    51.1
Amounts reclassified from accumulated other comprehensive loss
   —      (0.6 )    (4.1 )    (4.7 )








Net current-period other comprehensive income (loss)
   47.0    —      (0.6 )    46.4








Balance at September 30, 2017
   $ 19.0    $ (0.6 )    $ (43.9 )    $ (25.5 )

^(a)

~~See Note 11, “Defined Benefit Plans,” for further information on the adjustments related to defined benefit plans.~~

(In millions)	Foreign Currency Adjustments			Derivative Hedging Gain (Loss)			Defined Benefit Plan Adjustments			Accumulated Other Comprehensive Loss
Balance at December 31, 2018	$	(25.3	)	$	4.2		$	(45.9	)	$	(67.0	)
Amounts classified into accumulated other comprehensive (loss) income		1.1			3.0			(2.8	)		1.3
Adoption of ASU 2018-02								(8.6	)		(8.6	)
Amounts reclassified from accumulated other comprehensive (loss) income		—			(2.8	)		1.6			(1.2	)
Net current-period other comprehensive (loss) income		1.1			0.2			(9.8	)		(8.5	)
Balance at September 30, 2019	$	(24.2	)	$	4.4		$	(55.7	)	$	(75.5	)

Balance at December 31, 2019	$	(11.5	)	$	5.5		$	(66.6	)	$	(72.6	)
Amounts classified into accumulated other comprehensive (loss) income		(12.7	)		(7.7	)		(1.0	)		(21.4	)
Amounts reclassified from accumulated other comprehensive (loss) income		—			2.1			0.4			2.5
Net current-period other comprehensive (loss) income		(12.7	)		(5.6	)		(0.6	)		(18.9	)
Balance at September 30, 2020	$	(24.2	)	$	(0.1	)	$	(67.2	)	$	(91.5	)

(In millions)	Foreign Currency Adjustments			Derivative Hedging Gain (Loss)			Defined Benefit Plan Adjustments			Accumulated Other Comprehensive Loss
Balance at June 30, 2019	$	(11.6	)	$	2.0		$	(54.5	)	$	(64.1	)
Amounts classified into accumulated other comprehensive (loss) income		(12.6	)		2.7			(2.8	)		(12.7	)
Amounts reclassified from accumulated other comprehensive (loss) income		—			(0.3	)		1.6			1.3
Net current-period other comprehensive (loss) income		(12.6	)		2.4			(1.2	)		(11.4	)
Balance at September 30, 2019	$	(24.2	)	$	4.4		$	(55.7	)	$	(75.5	)

Balance at June 30, 2020	$	(41.8	)	$	(1.1	)	$	(67.4	)	$	(110.3	)
Amounts classified into accumulated other comprehensive (loss) income		17.6			—			(0.2	)		17.4
Amounts reclassified from accumulated other comprehensive (loss) income		—			1.0			0.4			1.4
Net current-period other comprehensive (loss) income		17.6			1.0			0.2			18.8
Balance at September 30, 2020	$	(24.2	)	$	(0.1	)	$	(67.2	)	$	(91.5	)

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~10.~~

Accumulated Other Comprehensive ~~Loss~~(Loss) Income (Continued)

The reclassifications out of accumulated other comprehensive loss for the nine and three months ended September 30, ~~2017~~2020 and ~~2016~~2019 were as follows:

(In millions)
Details about Accumulated Other Comprehensive Loss Components
   Amount Reclassified from
Accumulated Other Comprehensive Loss
Nine Months Ended September 30,    Affected Line Item in
the Statement of
Comprehensive
Income
   2017    2016
(Losses) gains on cash flow hedges

Foreign exchange contracts
   $ 0.5    $ (2.5 )    Cost of products sold
Commodity contracts
   0.4    (0.1 )    Cost of products sold





   0.9    (2.6 )    Total before tax
   (0.3 )    (0.2 )    Tax expense





   $ 0.6    $ (2.8 )    Net of tax
Defined benefit plan items

Recognition of prior service credits
   $ 5.1    $ 10.0    ^(a)
Recognition of actuarial gains (losses)
   1.3    (1.9 )    ^(a)





   6.4    8.1    Total before tax
   (2.3 )    (3.0 )    Tax expense





   $ 4.1    $ 5.1    Net of tax





Total reclassifications for the period
   $ 4.7    $ 2.3    Net of tax

(In millions)
Details about Accumulated Other Comprehensive Loss Components
   Amount Reclassified from
Accumulated Other Comprehensive Loss
Three Months Ended September 30,    Affected Line Item in
the Statement of
Comprehensive
Income
   2017    2016
Gains (losses) on cash flow hedges

Foreign exchange contracts
   $ (0.5 )    $ (1.3 )    Cost��of products sold
Commodity contracts
   0.4    0.1    Cost of products sold





   (0.1 )    (1.2 )    Total before tax
   0.2    —      Tax expense





   $ 0.1    $ (1.2 )    Net of tax
Defined benefit plan items

Recognition of prior service credits
   $ —      $ 3.8    ^(a)
Recognition of actuarial gains (losses)
   1.3    (1.0 )    ^(a)





   1.3    2.8    Total before tax
   (0.4 )    (1.0 )    Tax expense





   $ 0.9    $ 1.8    Net of tax





Total reclassifications for the period
   $ 1.0    $ 0.6    Net of tax

^(a)

~~These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. Refer to Note 11, “Defined Benefit Plans,” for additional information.~~

(In millions)
Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss Nine months ended September 30,						Affected Line Item in the Statement of Comprehensive Income
	2020			2019
Gains (losses) on cash flow hedges
Foreign exchange contracts	$	(2.1	)	$	3.2		Cost of products sold
Commodity contracts		(0.2	)		(0.2	)	Cost of products sold
Interest rate contracts		0.5			0.3		Interest expense
		(1.8	)		3.3		Total before tax
		(0.3	)		(0.5	)	Tax expense
	$	(2.1	)	$	2.8		Net of tax
Defined benefit plan items
Recognition of actuarial losses	$	(0.6	)	$	(2.1	)	(a)
		(0.6	)		(2.1	)	Total before tax
		0.2			0.5		Tax expense
	$	(0.4	)	$	(1.6	)	Net of tax
Total reclassifications for the period	$	(2.5	)	$	1.2		Net of tax


(In millions)
Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss Three Months Ended September 30,						Affected Line Item in the Statement of Comprehensive Income
	2020			2019
Gains (losses) on cash flow hedges
Foreign exchange contracts	$	(1.4	)	$	0.4		Cost of products sold
Commodity contracts		0.2			(0.2	)	Cost of products sold
Interest rate contracts		0.2			0.1		Interest expense
		(1.0	)		0.3		Total before tax
		—			—		Tax expense
	$	(1.0	)	$	0.3		Net of tax
Defined benefit plan items
Recognition of actuarial losses	$	(0.6	)	$	(2.1	)	(a)
		(0.6	)		(2.1	)	Total before tax
		0.2			0.5		Tax expense
	$	(0.4	)	$	(1.6	)	Net of tax
Total reclassifications for the period	$	(1.4	)	$	(1.3	)	Net of tax

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~11.~~

10.

Revenue

The following table disaggregates our consolidated revenue by major sales distribution channels for the nine and three months ended September 30, 2020 and 2019:

(In millions)	Nine Months Ended September 30,				Three Months Ended September 30,
	2020		2019		2020		2019
Wholesalers^(a)	$	1,969.8	$	2,001.8	$	722.9	$	684.0
Home Center retailers^(b)		1,338.4		1,205.6		498.3		383.7
Other retailers^(c)		251.3		220.0		91.7		77.6
Builder direct		164.6		173.2		57.8		60.8
U.S. net sales		3,724.1		3,600.6		1,370.7		1,206.1
International^(d)		706.5		693.5		281.4		252.9
Net sales	$	4,430.6	$	4,294.1	$	1,652.1	$	1,459.0

(a)

Represents sales to customers whose business is oriented towards builders, professional trades and home remodelers, inclusive of sales through our customers’ respective internet website portals.

(b)

Represents sales to the three largest “Do-It-Yourself” retailers; The Home Depot, Inc., Lowes Companies, Inc. and Menards, Inc., inclusive of sales through their respective internet website portals.

(c)

Represents sales principally to our mass merchant and standalone independent e-commerce customers.

(d)

Represents sales in markets outside the United States, principally in Canada, China, Europe and Mexico.

11.	Defined Benefit Plans

The components of net periodic benefit cost for pension ~~and postretirement benefits~~ for the nine and three months ended September 30, ~~2017~~2020 and ~~2016~~2019 were as follows:


(In millions)	Nine Months Ended September 30,												Nine Months Ended September 30,						Three Months Ended September 30,
	Pension Benefits						Postretirement Benefits						Pension Benefits						Pension Benefits
	2017			2016			2017			2016			2020			2019			2020			2019
Service cost	$	0.4		$	7.2		$	—		$	—		$	0.3		$	0.3		$	0.1		$	0.1
Interest cost		25.0			25.8			—			0.2			21.2			24.7			7.0			8.3
Expected return on plan assets		(28.0	)		(27.9	)		—			—			(24.5	)		(26.4	)		(8.1	)		(8.8	)
Recognition of prior service costs (credits)		—			—			(5.1	)		(10.0	)
Recognition of actuarial losses (gains)		0.3			—			(1.6	)		1.9

Net periodic benefit (income) cost	$	(2.3	)	$	5.1		$	(6.7	)	$	(7.9	)

(In millions)	Three Months Ended September 30,
	Pension Benefits						Postretirement Benefits
	2017			2016			2017			2016
Service cost		$0.1			$1.6			$—			$—
Interest cost		8.3			8.4			—			(0.1)
Expected return on plan assets		(9.3)			(8.9)			—			—
Recognition of prior service costs (credits)		—			—			—			(3.8)
Recognition of actuarial losses (gains)		0.3			—			(1.6)			1.0

Net periodic benefit (income) cost	$	(0.6	)	$	1.1		$	(1.6	)	$	(2.9	)
Recognition of actuarial losses														0.6			2.1			0.6			2.1
Net periodic benefit (income) expense													$	(2.4	)	$	0.7		$	(0.4	)	$	1.7

Service cost ~~for 2017~~ 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.

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

12.	Income Taxes

~~12.~~

~~Income Taxes~~

The effective income tax rates for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 were ~~29.5%~~23.5% and ~~28.2%~~25.0%, respectively. The ~~increase in the~~ effective income tax rate ~~reflected a lower tax benefit on share-based compensation, partially offset by a valuation allowance release related to state deferred tax assets. In addition, the effective tax rates~~ in ~~both periods were~~2020 was favorably impacted by a ~~tax~~ benefit ~~attributable~~related to ~~the Domestic Production Activity (Internal Revenue Code Section 199) Deduction, favorable tax rates~~share-based compensation, and in ~~foreign jurisdictions, and~~2019, was favorably impacted by a benefit ~~associated with the U.S. research and development credit, offset by state and local taxes and increases~~related to decreases in uncertain tax ~~positions.~~positions, as a result of audit settlements with taxing authorities.

The effective income tax rates for the three months ended September 30, ~~2017~~2020 and ~~2016~~2019 were ~~31.6%~~24.3% and ~~28.6%~~27.0%, respectively. The ~~increase in the~~ effective income tax rate ~~reflected a lower tax benefit on share-based compensation, partially offset by a valuation allowance release related to state deferred tax assets. In addition, the effective tax rates~~ in ~~both periods were~~2020 was favorably impacted by a ~~tax~~ benefit ~~attributable~~related to the Domestic Production Activity (Internal Revenue Code Section 199) Deduction, favorable tax rates in foreign jurisdictions, and a benefit associated with the U.S. research and development credit, offset by state and local taxes and increases to uncertain tax positions.share-based compensation.

It is reasonably possible that, within the next 12 months, total unrecognized tax benefits may decrease upin the range of $2.5 million to ~~$1.5~~$13.0 million, primarily as a result of the conclusion of pending U.S. federal, state and foreign income tax proceedings.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13.	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 ~~historical claims~~historic claim experience and the nature of the product category. The following table summarizes activity related to our product warranty liability for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively.


(In millions)	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2020			2019
Reserve balance at January 1,	$	16.2		$	16.0		$	24.7		$	24.9
Provision for warranties issued		23.3			23.8			17.7			20.5
Settlements made (in cash or in kind)		(17.0	)		(22.8	)		(19.7	)		(19.2	)
Foreign translation adjustments		(1.2	)		—			—			(0.5	)
Acquisitions		0.7			0.4

Reserve balance at September 30,	$	22.0		$	17.4		$	22.7		$	25.7

14.	Information on Business Segments

Net sales and operating income for the nine and three months ended September 30, 2020 and 2019 by segment were as follows:

	Nine Months Ended September 30,
(In millions)	2020			2019			% Change vs. Prior Year
Net Sales
Plumbing	$	1,564.4		$	1,478.8			5.8		%
Doors & Security		1,052.7			1,017.6			3.4
Cabinets		1,813.5			1,797.7			0.9
Net sales	$	4,430.6		$	4,294.1			3.2		%
Operating Income (Loss)
Plumbing	$	330.6		$	307.9			7.4		%
Doors & Security		143.5			122.5			17.1
Cabinets		163.1			134.0			21.7
Less: Corporate expenses		(69.0	)		(58.4	)		(18.2	)
Operating income	$	568.2		$	506.0			12.3		%

	Three Months Ended September 30,
(In millions)	2020			2019			% Change vs. Prior Year
Net Sales
Plumbing	$	590.6		$	514.1			14.9		%
Doors & Security		406.7			355.2			14.5
Cabinets		654.8			589.7			11.0
Net sales	$	1,652.1		$	1,459.0			13.2		%
Operating Income (Loss)
Plumbing	$	116.6		$	112.0			4.1		%
Doors & Security		66.8			50.1			33.3
Cabinets		82.1			25.1			227.1
Less: Corporate expenses		(25.3	)		(19.2	)		(31.8	)
Operating income	$	240.2		$	168.0			43.0		%

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~14.~~

15.

~~Information on Business Segments~~

~~Net sales and operating income for the nine and three months ended September 30, 2017 and 2016 by segment were as follows:~~

   Nine Months Ended September 30,
(In millions)    2017    2016    % Change
vs. Prior Year
Net Sales

Cabinets
   $ 1,841.2    $ 1,797.2    2.4 %
Plumbing
   1,251.5    1,108.0    13.0
Doors
   374.2    351.3    6.5
Security
   433.9    426.8    1.7





Net sales
   $ 3,900.8    $ 3,683.3    5.9 %
Operating Income

Cabinets
   $ 205.4    $ 194.0    5.9 %
Plumbing
   270.8    242.6    11.6
Doors
   55.8    46.1    21.0
Security
   56.4    44.7    26.2
Less: Corporate expenses
   (59.3 )    (61.1 )    2.9





Operating income
   $ 529.1    $ 466.3    13.5 %
Corporate expenses

General and administrative expense
   $ (63.8 )    $ (61.3 )
Defined benefit plan income
   3.2    2.1
Recognition of defined benefit plan actuarial gains (losses)
   1.3    (1.9 )





Total Corporate expenses
   $ (59.3 )    $ (61.1 )    2.9 %

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~14.~~

~~Information on Business Segments (Continued)~~

   Three Months Ended September 30,
(In millions)    2017    2016    % Change
vs. Prior Year
Net Sales
Cabinets
   $ 614.2    $ 602.1    2.0 %
Plumbing
   438.3    391.1    12.1
Doors
   138.5    129.2    7.2
Security
   157.6    156.6    0.6





Net sales
   $ 1,348.6    $ 1,279.0    5.4 %
Operating Income

Cabinets
   $ 69.7    $ 74.8    (6.8 )%
Plumbing
   97.3    84.0    15.8
Doors
   25.1    22.3    12.6
Security
   27.7    22.9    21.0
Less: Corporate expenses
   (18.0 )    (20.9 )    13.9





Operating income
   $ 201.8    $ 183.1    10.2 %
Corporate expenses

General and administrative expense
   $ (20.5 )    $ (20.5 )
Defined benefit plan income
   1.2    0.6
Recognition of defined benefit plan actuarial gains (losses)
   1.3    (1.0 )





Total Corporate expenses
   $ (18.0 )    $ (20.9 )    13.9 %

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~15.~~

Restructuring and Other Charges

Pre-tax restructuring and other charges for the nine and three months ended September 30, ~~2017~~2020 and ~~2016~~2019 are shown below.


(In millions)	Nine Months Ended September 30, 2017						Nine Months Ended September 30, 2020						Nine Months Ended September 30, 2019
	Restructuring Charges		Other Charges ^(a)		Total Charges		Restructuring Charges		Other Charges ^(a)		Total Charges		Restructuring Charges		Other Charges ^(a)		Total Charges
Plumbing		1.6	$	—	$	1.6	$	7.2	$	0.1	$	7.3	$	3.5	$	5.6	$	9.1
Security		1.9		0.9		2.8

Doors & Security								3.2		0.5		3.7		1.6		2.0		3.6
Cabinets								4.7		2.6		7.3		6.1		1.1		7.2
Corporate								1.4		0.3		1.7		—		—		—
Total	$	3.5	$	0.9	$	4.4	$	16.5	$	3.5	$	20.0	$	11.2	$	8.7	$	19.9

(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 first nine months of ~~2017~~2020 largely related to headcount actions associated with COVID-19 across all of our segments and costs associated with changes in our manufacturing processes within our Plumbing segment. Restructuring and other charges in the first nine months of 2019 largely related to severance costs within our Plumbing and Cabinets segment and costs associated with closing facilities within our Plumbing and Doors & Security ~~and Plumbing~~ segments.


(In millions)	Nine Months Ended September 30, 2016						Three Months Ended September 30, 2020									Three Months Ended September 30, 2019
	Restructuring Charges		Other Charges ^(a)		Total Charges		Restructuring Charges			Other Charges ^(a)			Total Charges			Restructuring Charges		Other Charges ^(a)			Total Charges
Plumbing							$	4.0		$	2.4		$	6.4		$	0.2	$	(0.2	)	$	—
Doors & Security								—			(0.3	)		(0.3	)		1.5		—			1.5
Cabinets	$	1.8	$	—	$	1.8		(2.4	)		0.3			(2.1	)		3.8		0.4			4.2
Plumbing		1.1		0.8		1.9
Security		9.5		3.5		13.0

Total	$	12.4	$	4.3	$	16.7	$	1.6		$	2.4		$	4.0		$	5.5	$	0.2		$	5.7

^a)

(a)

Restructuring and other charges in the ~~first nine months~~third quarter of ~~2016 primarily~~2020 largely related to severance and other costs associated with changes in our manufacturing processes within our Plumbing segment partially offset by a credit related to severance costs ~~and charges associated with~~due to the ~~relocation~~cancellation of a ~~manufacturing facility~~previously approved restructuring action within our Cabinets segment. Restructuring and other charges in the third quarter of 2019 largely related to severance costs within our Cabinets and Doors & Security ~~segment.~~segments.

Reconciliation of Restructuring Liability

(In millions)	Balance at 12/31/19		2020 Provision		Cash Expenditures ^(a)			Non-Cash Write-offs		Balance at 9/30/20
Workforce reduction costs	$	6.7	$	16.0	$	(12.2	)	$	—	$	10.5
Other		0.1		0.5		(0.6	)		—		—
	$	6.8	$	16.5	$	(12.8	)	$	—	$	10.5

(a)

Cash expenditures primarily relate to severance charges.

(In millions)	Balance at 12/31/18		2019 Provision		Cash Expenditures ^(a)			Non-Cash Write-offs			Balance at 9/30/19
Workforce reduction costs	$	9.9	$	10.2	$	(10.1	)	$	(0.1	)	$	9.9
Other		0.6		1.0		(1.2	)		—			0.4
	$	10.5	$	11.2	$	(11.3	)	$	(0.1	)	$	10.3

(a)

Cash expenditures primarily relate to severance charges.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

~~15.~~

16.

~~Restructuring and Other Charges (Continued)~~

(In millions)    Three Months Ended September 30, 2017
   Restructuring
Charges    Other Charges ^(a)    Total
Charges
Doors
   $ 0.2    $ (0.1 )    $ 0.1
Security
   0.2    0.3    0.5






Total
   $ 0.4    $ 0.2    $ 0.6

^(a)

~~Restructuring and other charges in the third quarter of 2017 primarily resulted from severance costs within our Doors and Plumbing Segments.~~

(In millions)    Three Months Ended September 30, 2016
   Restructuring
Charges    Other Charges ^(a)    Total
Charges
Plumbing
   $ 0.4    $ 0.5    $ 0.9
Security
   2.7    1.0    3.7






Total
   $ 3.1    $ 1.5    $ 4.6

^(a)

~~Restructuring and other charges in the third quarter of 2016 primarily resulted from severance costs within our Security segment.~~

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~15.~~

~~Restructuring and Other Charges (Continued)~~

~~Reconciliation of Restructuring Liability~~

(In millions)    Balance at
12/31/16    2017
Provision    Cash
Expenditures ^(a)    Non-Cash
Write-offs    Balance at
9/30/17
Workforce reduction costs
   $ 2.4    $ 2.8    $ (2.9 )    $ (0.5 )    $ 1.8
Other
   0.6    0.7    (1.3 )    —      0.0










   $ 3.0    $ 3.5    $ (4.2 )    $ (0.5 )    $ 1.8

^(a)

~~Cash expenditures primarily related to severance charges.~~

(In millions)    Balance at
12/31/15    2016
Provision    Cash
Expenditures ^(a)    Non-Cash
Write-offs ^(b)    Balance at
9/30/16
Workforce reduction costs
   $ 10.4    $ 8.7    $ (15.0 )    $ 0.2    $ 4.3
Other
   0.5    3.7    (3.0 )    (0.6 )    0.6










   $ 10.9    $ 12.4    $ (18.0 )    $ (0.4 )    $ 4.9

^(a)

~~Cash expenditures primarily related to severance charges.~~

^(b)

~~Non-cash~~ ~~write-offs include asset impairment charges attributable to restructuring actions.~~

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~16.~~

Earnings Per Share

The computations of earnings per common share for the nine and three months ended September 30, 2020 and 2019 were as follows:

(In millions, except per share data)    Nine Months Ended
September 30,    Three Months Ended
September 30,
   2017    2016    2017    2016
Income from continuing operations, net of tax
   $ 347.3    $ 308.0    $ 129.6    $ 121.9
Less: Noncontrolling interest
   0.1    (0.1 )    0.1    —








Income from continuing operations for EPS
   347.2    308.1    129.5    121.9
Income from discontinued operations
   (2.6 )    1.5    —      1.5








Net income attributable to Fortune Brands
   $ 344.6    $ 309.6    $ 129.5    $ 123.4








Earnings per common share

Basic

Continuing operations
   $ 2.26    $ 2.00    $ 0.84    $ 0.79
Discontinued operations
   (0.02 )    0.01    —      0.01








Net income attributable to Fortune Brands common stockholders
   $ 2.24    $ 2.01    $ 0.84    $ 0.80
Diluted

Continuing operations
   $ 2.22    $ 1.95    $ 0.83    $ 0.77
Discontinued operations
   (0.02 )    0.01    —      0.01








Net income attributable to Fortune Brands common stockholders
   $ 2.20    $ 1.96    $ 0.83    $ 0.78
Basic average shares outstanding
   153.7    154.4    153.5    154.2
Stock-based awards
   2.5    3.6    2.4    3.4








Diluted average shares outstanding
   156.2    158.1    155.9    157.6
Antidilutive stock-based awards excluded from weighted-average number of shares outstanding for diluted earnings per share
   0.6    0.5    0.6    —

(In millions, except per share data)	Nine Months Ended September 30,					Three Months Ended September 30,
	2020		2019			2020		2019
Net income	$	390.8	$	327.3		$	165.8	$	105.7
Less: Noncontrolling interest		1.3		(0.5	)		1.2		0.1
Net income attributable to Fortune Brands		389.5		327.8			164.6		105.6

Basic earnings per common share	$	2.81	$	2.34		$	1.19	$	0.76
Diluted earnings per common share	$	2.78	$	2.32		$	1.17	$	0.75

Basic average shares outstanding		138.6		140.0			138.6		139.5
Stock-based awards		1.4		1.4			1.9		1.4
Diluted average shares outstanding		140.0		141.4			140.5		140.9
Antidilutive stock-based awards excluded from weighted- average number of shares outstanding for diluted earnings per share		1.1		2.2			0.3		1.7

2617.Commitments and Contingencies

~~FORTUNE BRANDS HOME & SECURITY, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)~~

~~17.~~

~~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 nine and three months ended September 30, ~~2017~~2020 and ~~2016.~~2019. We are involved in remediation activities to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs of each site are based on our best estimate of undiscounted future ~~costs, excluding possible insurance recoveries or recoveries from other third parties.~~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.

~~18.~~

~~Subsequent Event~~

In October 2017, the Company acquired Victoria + Albert, a UK manufacturer of luxury freestanding tubs and basins. Victoria + Albert represent a strong strategic fit, adding a preeminent luxury tub brand to our plumbing portfolio. The results of operations of the acquired company will be included in the Plumbing segment from the date of acquisition. This acquisition will not have a material effect on net sales or operating income.

Item 2.

FORTUNE BRANDS HOME & SECURITY, INC.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF~~

~~FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~

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, ~~2016,~~2019, which are included in our Annual Report on Form10-K for the year ended December 31, ~~2016.~~2019.

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 the expected or potential impact of the novel coronavirus pandemic (“COVID-19”) on our business, operations or financial condition in addition to statements regarding our general business strategies, market potential, future financial performance, the potential of our brands and other matters, 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, ~~based on information~~ 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) the uncertainties relating to the impact of COVID-19 on the Company’s business, operations and financial results, (ii)our reliance on the North American home improvement, repair and new home construction activity levels, ~~(ii)~~and the North American and global economies generally, (iii) ~~risk~~the competitive nature of consumer and trade brand businesses, (iv) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (v) our ability to develop new products or processes and improve existing products and processes, (vi) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (vii) risks associated with doing business internationally, including changes in trade-related tariffs and risks with uncertain trade environments, (viii) changes in government and industry standards, (ix) risks associated with entering into potential strategic acquisitions and integrating acquired property, ~~(iv)~~(x) our ability to ~~remain competitive, innovative~~secure and protect our intellectual property ~~(v)~~rights, (xi) our reliance on key customers and suppliers, ~~(vi) the cost~~including wholesale distributors and ~~availability~~dealers, (xii) risks associated with the disruption of operations, (xiii) our ~~supply chains and the availability of~~inability to obtain raw materials ~~(vii)~~and finished goods in a timely and cost-effective manner, (xiv) our ability to attract and retain qualified personnel and other labor constraints, (xv) impairments in the carrying value of goodwill or other acquired intangible assets, (xvi) delays or outages in our information technology system or computer networks, (xvii) risk of increases in our defined benefit-related costs and funding requirements, ~~(viii) compliance with~~(xviii) future tax ~~environmental~~law changes or the interpretation of existing tax laws, (xix) potential liabilities and ~~federal, state~~costs from claims and ~~international laws~~litigation, and ~~industry regulatory standards and (ix)~~(xx) our ability to access the ~~risk of doing business internationally.~~ 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 Form10-K for the year ended December 31, ~~2016.~~2019, as updated in Part II, Item 1A “Risk Factors” below. 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 ~~leader in~~leading home and security products ~~focused~~company with a portfolio of leading branded products used for residential home repair, remodeling, new construction and security applications.

During the first nine months of 2020, in response to the COVID-19 pandemic, a number of countries and U.S. states issued orders requiring nonessential businesses to close (“closure orders”) and persons who were not engaged in essential businesses to stay at home. Most states and jurisdictions designated our products, our retail channel partners and residential construction as essential business activities. A small number of jurisdictions where we operate did not deem our products as part of an essential business, impacting both our ability to manufacture and the demand for some of our products.

While our financial results were negatively impacted during the second quarter by these closure orders, sales volumes increased as these restrictions were relaxed benefiting our third quarter results. Due to the continued inherent uncertainty surrounding COVID-19, including rapidly changing governmental directives, public health challenges and market reactions, it is challenging to estimate the future performance of our business and the financial impacts of COVID-19. The long-term impacts of the COVID-19 pandemic continue to be unclear, and they may negatively affect our results in later periods, largely depending on the ~~design, manufacture~~timing and ~~sale~~shape of ~~market-leading branded~~the economic recovery as well as any further closures related to COVID-19.

Our first priority with regard to COVID-19 continues to be to ensure the safety, health and hygiene of our employees, customers, suppliers and others with whom we partner in our business activities. Because of our comprehensive use of appropriate risk mitigation and safety practices, we have largely been able to continue our business operations in this unprecedented business environment which could differentiate us from some of our competition. We believe that the disruption caused by the pandemic created increased consumer interest in investing in their homes and accelerated trends that we were experiencing prior to the pandemic, such as the shift towards value-priced cabinetry products and a focus on outdoor living. We have also taken proactive steps in our manufacturing supply chain and other areas to drive efficiencies which we expect to allow us to be more competitive both during and after the ~~following categories: kitchen and bath cabinetry, plumbing and accessories, entry door systems and security products.~~

pandemic. We continue to believe that 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~~structure. We believe these long-held strengths will enable us to compete effectively during and ~~customer service.~~after the COVID-19 pandemic. We ~~are focused~~will continue to focus 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~~the categories we serve and our leading brands. As consumer demand and the housing market grow, 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.

~~OVERVIEW (Continued)~~

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

The U.S. market for our ~~home~~ products primarily consists of spending on both new home construction and repair and remodel activities within existing homes, with ~~the substantial~~a majority of the markets we serve consisting of repair and remodel spending. ~~We believe that~~Growth in the U.S. market for our ~~home~~ products ~~is in the midst of an elongated recovery from the U.S. economic recession that ended inmid-2009~~ ~~and that a continued recovery~~ will largely depend on consumer confidence, employment, home prices, stable mortgage rates and credit ~~availability. Over~~availability, all of which may be further impacted by COVID-19 for an unknown duration.

In addition to the ~~long term,~~potential COVID-19 impacts noted above, we believe that the U.S. home products market will benefit from favorable population and immigration trends, which will drive demand for new housing units, and from an aging existing housing stock that will continue to need to be repaired and remodeled.

We may be impacted by fluctuations in the cost and availability of raw ~~material and~~materials, tariffs, 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 July 2017, we acquired Shaws Since1897 Limited (“Shaws”), aUK-based~~ luxury plumbing products company that specializes in manufacturing and selling fireclay sinks and selling brassware and accessories in partnership with Perrin & Rowe. We financed the transaction using cash on hand and borrowings under our existing credit facilities. This acquisition broadened our plumbing portfolio and enhanced future growth opportunities. Net sales and operating income in the three months ended September 30, 2017 were not material to the Company. The results of the operations are included in the Plumbing segment.

During the third quarter of 2016, we created the Global Plumbing Group (“GPG”), which was designed to support the growth of multiple plumbing brands with an enhanced set of products and brands, while leveraging Moen’s existing global supply chain and broad distribution network.

In September 2016, we acquired ROHL LLC (“ROHL”), a California-based luxury plumbing company and in a related transaction, we acquired TCL Manufacturing Ltd, which gave us ownership of Perrin & Rowe Limited, a UK manufacturer and designer of luxury kitchen and bathroom plumbing products. The total combined purchase price was approximately $166 million, subject to certain post-closing adjustments. We financed both acquisitions using cash on hand and borrowings under our existing credit facility. These transactions broadened the plumbing portfolio and enhanced future growth opportunities.

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

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

29RESULTS OF OPERATIONS

Nine Months Ended September 30, ~~2017~~2020 Compared To Nine Months Ended September 30, ~~2016~~2019

	Net Sales
(In millions)	2020			2019			% Change vs. Prior Year
Plumbing	$	1,564.4		$	1,478.8			5.8		%
Doors & Security		1,052.7			1,017.6			3.4
Cabinets		1,813.5			1,797.7			0.9
Net sales	$	4,430.6		$	4,294.1			3.2		%

	Operating Income (Loss)
	2020			2019			% Change vs. Prior Year
Plumbing	$	330.6		$	307.9			7.4		%
Doors & Security		143.5			122.5			17.1
Cabinets		163.1			134.0			21.7
Less: Corporate expenses		(69.0	)		(58.4	)		(18.2	)
Operating income	$	568.2		$	506.0			12.3		%

   Net Sales
(In millions)    2017    2016    % Change
vs. Prior Year
Cabinets
   $ 1,841.2    $ 1,797.2    2.4 %
Plumbing
   1,251.5    1,108.0    13.0
Doors
   374.2    351.3    6.5
Security
   433.9    426.8    1.7






Net sales
   $ 3,900.8    $ 3,683.3    5.9 %
   Operating Income
   2017    2016    % Change
vs. Prior Year
Cabinets
   $ 205.4    $ 194.0    5.9 %
Plumbing
   270.8    242.6    11.6
Doors
   55.8    46.1    21.0
Security
   56.4    44.7    26.2
Less: Corporate expenses
   (59.3 )    (61.1 )    2.9
Operating income
   $ 529.1    $ 466.3    13.5 %

The following discussion of consolidated results of operations and segment results refers to the nine months ended September 30, ~~2017~~2020 compared to the nine months ended September 30, ~~2016.~~2019. Consolidated results of operations should be read in conjunction with segment results of operations.

Net sales

Net sales increased ~~$217.5~~by $136.5 million, or ~~5.9%. The increase was due to~~3.2%, on higher ~~sales~~ volume ~~primarily from the continuing improvement in U.S. market conditions for home products, new product introductions, the benefits from the acquisitions in our Plumbing segment~~ and price increases to help mitigate the cumulative ~~raw material cost increases.~~impact from tariff related costs. These ~~benefits~~factors were partially offset by unfavorable mix, higher ~~sales promotions, sales rebates~~rebate costs and unfavorable foreign exchange of ~~approximately $4~~$10 million.

Cost of products sold

Cost of products sold increased ~~$108.5~~by $100.4 million, or ~~4.6%~~3.6%, due to higher net sales, ~~including~~ the impact of ~~the acquisitions in our Plumbing segment~~higher tariffs and ~~raw material cost increases,~~unfavorable mix partially offset by the benefit offrom productivity improvements.

Selling, general and administrative expenses

Selling, general and administrative expenses ~~increased $46.3~~decreased by $25.5 million, or ~~5.6%~~2.7%, due to the benefits from organizational restructuring initiatives. These decreases were partially offset by higher ~~employee-related costs and advertising costs as well as the impact of the acquisitions in our Plumbing segment.~~

transportation costs.

~~RESULTS OF OPERATIONS (Continued)~~

Amortization of intangible assets

Amortization of intangible assets increased ~~$3.2~~by $1.1 million ~~primarily due to~~includes the ~~acquisitions in our~~amortization of a Plumbing ~~segment, partially offset by a decrease relating to a definite-lived customer relationship intangible in our Doors segment that~~tradename which was ~~fully amortized during the second quarter of 2017.~~previously classified as indefinite-lived.

~~Loss on sale of product line~~

Asset impairment charges

Asset impairment charges of ~~$3.2~~$22.5 million ~~relate~~in 2020 related to ~~our decision in the first quarter of 2017 to sell Field ID, our cloud-based inspection and safety compliance software product line included~~indefinite-lived tradenames in our ~~Security~~Plumbing and Cabinets segments. Asset impairment charges of $29.5 million in 2019 related to an indefinite-lived tradename within our Cabinets segment.

Restructuring charges

Restructuring charges of ~~$3.5~~$16.5 million in the nine months ended September 30, ~~2017~~2020 primarily ~~relates~~related to ~~severance~~headcount actions associated with COVID-19 across all of our segments and costs associated with changes in our manufacturing processes within our ~~Security and~~ Plumbing ~~segments.~~ segment. Restructuring charges ~~in the nine months ended September 30, 2016 were $12.4 million and primarily related to severance costs and charges associated with supply chain initiatives within our Security segment.~~

~~Operating income~~

Operating income increased $62.8 million, or 13.5%, primarily due to higher net sales, including the benefits from the acquisitions in our Plumbing segment and productivity improvements. These benefits were partially offset by unfavorable mix, higher employee-related, raw material and advertising costs.

~~Interest expense~~

~~Interest expense decreased $1.0 million to $36.5 million primarily due to the absence in 2017~~ of ~~thewrite-off~~ ~~of debt issuance costs of approximately $1.3 million incurred during 2016.~~

~~Other (income) expense, net~~

~~Other (income) expense, net, was expense of $0.2~~$11.2 million in the nine months ended September 30, ~~2017, compared~~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.

RESULTS OF OPERATIONS (Continued)

Operating income

Operating income increased by $62.2 million, or 12.3%, primarily due to price increases to help mitigate the impact of ~~$0.1~~higher tariffs, higher net sales, benefits from productivity improvements and previously approved restructuring actions as well as lower asset impairment charges. These factors were partially offset by the impact of unfavorable mix, higher tariffs and higher transportation costs.

Interest expense

Interest expense decreased $7.4 million to $64.4 million due to lower average borrowings and lower average interest rates.

Other income, net

Other income, net, was $13.4 million in the nine months ended September 30, ~~2016.~~

~~Income taxes~~

The effective income tax rates for the nine months ended September 30, 2017 and 2016 were 29.5% and 28.2%, respectively. The increase in the effective tax rate reflected a lower tax benefit on share-based compensation, partially offset by a valuation allowance release related2020, compared to state deferred tax assets. In addition, the effective tax rates in both periods were favorably impacted by a tax benefit attributable to the Domestic Production Activity (Internal Revenue Code Section 199) Deduction, favorable tax rates in foreign jurisdictions, and a benefit associated with the U.S. research and development credit, offset by state and local taxes and increases to uncertain tax positions.

~~Net income from continuing operations~~

~~Net income from continuing operations was $347.3~~$2.2 million in the nine months ended September 30, ~~2017 compared to $308.0 million in the nine months ended September 30, 2016.~~2019. The increase ~~of $39.3 million was~~in other income, net is primarily due to ~~higher operating income.~~

~~RESULTS OF OPERATIONS (Continued)~~

~~Loss from discontinued operations~~

~~The loss from discontinued operations~~gains of ~~$2.6~~$11.0 million ~~in the nine months ended September 30, 2017 primarily~~ related to ~~the prior sale of the Waterloo tool storage~~our January 2020 investment in Flo and Simonton window businesses. The income from discontinued operations of $1.5 million in the nine months ended September 30, 2016 included the effect of tax adjustments relating to the Waterloo business.

~~Results by Segment~~

~~Cabinets~~

~~Net sales increased $44.0 million, or 2.4%,~~ due to higher ~~sales volume driven primarily by continuing improvement~~defined benefit income in the U.S. home products market and the benefit from new product introductions and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by unfavorable mix and higher sales promotions.

~~Operating income increased $11.4~~2020 ($3.1 million ~~or 5.9%~~increase), ~~due to the increase in net sales and productivity improvements. These benefits were partially offset by unfavorable mix and higher employee-related costs.~~

~~Plumbing~~

Net sales increased $143.5 million, or 13.0%, due to higher sales volume driven by continuing improvement in the U.S. home products market and the benefit from new product introductions, higher sales in international markets, principally China, and the benefit from the acquisitions of Riobel, ROHL and Perrin & Rowe in 2016 as well as Shaws in 2017. These benefits were partially offset by higher sales rebates and unfavorable foreign exchange of approximately $4 million.

Operating income increased $28.2 million, or 11.6%, due to higher net sales, productivity improvements and favorable mix. These benefits were partially offset by higher employee-related costs, raw material costs and advertising costs.

~~Doors~~

Net sales increased $22.9 million, or 6.5%, due to higher sales volume driven primarily by continuing improvement in the U.S. home products market and the benefit from new product introductions and price increases to help mitigate cumulative raw material cost increases.

~~Operating income increased $9.7 million, or 21.0%, due to the higher net sales and leveraging sales on our existing fixed cost base.~~

~~RESULTS OF OPERATIONS (Continued)~~

~~Results by Segment (Continued)~~

~~Security~~

~~Net sales increased $7.1 million, or 1.7%, due to higher sales volume and price increases to help mitigate cumulative raw material cost increases. These benefits were~~ partially offset by unfavorable foreign ~~exchange of approximately $1 million and by the impact of our exiting of two product lines in our commercial distribution channel.~~

Operating income increased $11.7 million, or 26.2%, primarily due to productivity improvements, lower restructuring and other charges (approximately $10 million) relating to the completion in 2016 of a manufacturing facility relocation and the related cost savings resulting from the facility relocation, as well as higher net sales. These benefits were partially offset by higher raw material costs.

~~Corporate~~

Corporate expenses decreased by $1.8 million predominantly due to recognition of an actuarial gain versus an actuarial loss in the prior year and higher defined benefit plan income during 2017 in comparison to prior year.currency adjustments.

(In millions)    Nine Months Ended
September 30,
   2017    2016
General and administrative expense
   $ (63.8 )    $ (61.3 )
Defined benefit plan income
   3.2    2.1
Defined benefit plan recognition of actuarial gain/(loss)
   1.3    (1.9 )




Total Corporate expenses
   $ (59.3 )    $ (61.1 )

In future periods the Company may record, ~~in the Corporate segment,~~within other income and expense, material ~~expense or income~~adjustments associated with actuarial gains and losses arising from periodic remeasurement of our liabilities for defined benefit plans. At a minimum, the Company will remeasure its defined benefit plan liabilities in the fourth quarter of each year. Remeasurements due to plan amendments and settlements may also occur in interim periods during the year. Remeasurement of these liabilities attributable to updating our liability discount rates and expected return on assets may, in particular, result in material income or expense recognition.

33Based on current relevant interest rate benchmarks and year-to-date pension asset returns, the Company may incur additional defined benefit plan actuarial losses of approximately $0.16 per share in the fourth quarter of 2020 due to declining discount rates since December 31, 2019, the last remeasurement date. Any actuarial loss incurred in the fourth quarter will be based upon spot discount rates as of December 31, 2020 and our full year 2020 pension asset returns and may differ materially from this estimate. A 50 basis point change in our discount rate impacts our defined benefit plan liabilities by approximately $65 million.

Income taxes

The effective income tax rates for the nine months ended September 30, 2020 and 2019 were 23.5% and 25.0%, respectively. The effective income tax rate in 2020 was favorably impacted by a benefit related to share-based compensation, and in 2019, was favorably impacted by a benefit related to decreases in uncertain tax positions, as a result of audit settlements with taxing authorities.

Net income attributable to Fortune Brands

Net income attributable to Fortune Brands was $389.5 million in the nine months ended September 30, 2020 compared to $327.8 million in the nine months ended September 30, 2019. The increase was due to higher operating income, higher other income and lower interest expense, partly offset by higher income tax expenses and higher equity in losses of affiliate.

Results By Segment

Plumbing

Net sales increased by $85.6 million, or 5.8%, due to higher sales volume from retail and e-commerce customers in the U.S. who remained open during the economic shutdowns, higher sales volume in China despite closures for COVID-19 and price increases to help mitigate the cumulative impact of tariffs. These factors were partly offset by lower sales from showroom customers whose locations closed or operated at limited capacity as a result of the COVID-19 pandemic and higher rebate costs as well as unfavorable foreign exchange of approximately $8 million.

Operating income increased by $22.7 million, or 7.4%, due to higher sales volume, the benefit from productivity improvements and lower restructuring and other charges. These benefits were partly offset by unfavorable mix, asset impairment charges ($13.0 million in 2020), the impact of higher tariffs and higher advertising and marketing costs as well as unfavorable foreign exchange of approximately $3 million.

RESULTS OF OPERATIONS (Continued)

Doors & Security

Net sales increased by $35.1 million, or 3.4%, due to higher volume for doors and decking products, price increases to help mitigate tariffs and the benefit from new customers in decking products. These factors were partially offset by lower volume primarily due to COVID-19 related weakness in the commercial security market, the discontinuance of a doors product line, higher rebate costs and unfavorable mix. Foreign exchange was unfavorable by approximately $1 million.

Operating income increased by $21.0 million, or 17.1%, due to higher sales volume, the benefit from productivity improvements, the absence in 2020 of amortization expense related to Fiberon’s inventory fair value adjustment ($1.8 million in 2019) and the absence in 2020 of an expense due to a fair value adjustment associated with an idle manufacturing facility ($1.7 million in 2019). Foreign exchange was favorable by approximately $3 million. These factors were partially offset by unfavorable mix, the impact of higher tariffs and higher restructuring costs.

Cabinets

Net sales increased by $15.8 million, or 0.9%, due to higher volume and price increases to help mitigate the cumulative impact of tariffs. These factors were partly offset by a continued shift to value-priced products from make-to-order products, as well as unfavorable foreign exchange of approximately $1 million.

Operating income increased by $29.1 million, or 21.7%, due to higher net sales, the benefit from productivity improvements and lower asset impairment charges ($20.0 million decrease). These factors were partly offset by a continued shift to value-priced products from make-to-order products and higher tariffs.

Corporate

Corporate expenses increased by $10.6 million, or 18.2%, due to higher employee related costs, including higher restructuring and other charges.

Three Months Ended September 30, ~~2017~~2020 Compared To Three Months Ended September 30, ~~2016~~2019

	Net Sales
(In millions)	2020			2019			% Change vs. Prior Year
Plumbing	$	590.6		$	514.1			14.9		%
Doors & Security		406.7			355.2			14.5
Cabinets		654.8			589.7			11.0
Net sales	$	1,652.1		$	1,459.0			13.2		%

	Operating Income (Loss)
	2020			2019			% Change vs. Prior Year
Plumbing	$	116.6		$	112.0			4.1		%
Doors & Security		66.8			50.1			33.3
Cabinets		82.1			25.1			227.1
Less: Corporate expenses		(25.3	)		(19.2	)		(31.8	)
Operating income	$	240.2		$	168.0			43.0		%

   Net Sales
(In millions)    2017    2016    % Change
vs. Prior Year
Cabinets
   $ 614.2    $ 602.1    2.0 %
Plumbing
   438.3    391.1    12.1
Doors
   138.5    129.2    7.2
Security
   157.6    156.6    0.6





Net sales
   $ 1,348.6    $ 1,279.0    5.4 %

   Operating Income
   2017    2016    % Change
vs. Prior Year
Cabinets
   $ 69.7    $ 74.8    (6.8 )%
Plumbing
   97.3    84.0    15.8
Doors
   25.1    22.3    12.6
Security
   27.7    22.9    21.0
Less: Corporate expenses
   (18.0 )    (20.9 )    13.9





Operating income
   $ 201.8    $ 183.1    10.2 %

The following discussion of consolidated results of operations and segment results refers to the three months ended September 30, ~~2017~~2020 compared to the three months ended September 30, ~~2016.~~2019. Consolidated results of operations should be read in conjunction with segment results of operations.

Net sales

Net sales increased ~~$69.6~~by $193.1 million, or ~~5.4%. The increase was due to~~13.2%, on higher ~~sales~~ volume, ~~primarily from the continuing improvement in U.S. market conditions for home products, new product introductions, the benefits from the acquisitions in our Plumbing segment,~~ price increases to help mitigate the cumulative ~~raw material cost increases~~impact from tariff related costs and favorable foreign exchange of approximately $4$2 million. These ~~benefits were partially offset by unfavorable mix, higher sales rebates and sales promotions.~~

~~Cost of products sold~~

Cost of products sold increased $40.6 million, or 5.1%, due to higher net sales, including the impact of acquisitions in our Plumbing segment and higher raw material costs, partially offset by the benefit of productivity improvements.

~~Selling, general and administrative expenses~~

Selling, general and administrative expenses increased $12.8 million, or 4.5%, due to higher employee-related costs, including higher healthcare costs, as well as the impact of the acquisitions in our Plumbing segment.

~~RESULTS OF OPERATIONS (Continued)~~

~~Amortization of intangible assets~~

Amortization of intangible assets increased $0.2 million due to the acquisitions in our Plumbing segment, partially offset by a decrease relating to a definite-lived customer relationship intangible in Doors segment that was fully amortized during the second quarter of 2017.

~~Restructuring charges~~

Restructuring charges in the three months ended September 30, 2017 and 2016 were $0.4 million and $3.1 million, respectively. Restructuring charges in 2017 relate to severance costs within our Security and Doors segments. Restructuring charges in 2016 primarily relate to supply chain initiatives within our Security segment.

~~Operating income~~

~~Operating income increased $18.7 million, or 10.2%, primarily due to higher net sales and productivity improvements. These benefits~~factors were partially offset by unfavorable mix and higher ~~employee-related~~rebate costs.

~~Interest expense~~Cost of products sold

~~Interest expense~~Cost of products sold increased ~~$0.5~~by $136.7 million, ~~to $12.3 million primarily~~or 14.6%, due to higher ~~average interest rates~~net sales, unfavorable mix, higher tariffs and higher employee related costs, partially offset by ~~lower average borrowings.~~the benefit from productivity improvements.

~~Other (income) expense, net~~Selling, general and administrative expenses

~~Other (income) expense, net,~~Selling, general and administrative expenses increased by $17.0 million, or 5.5%, due to higher employee related costs, higher advertising costs and higher transportation costs partially offset by the benefits from organizational restructuring initiatives.

Amortization of intangible assets

Amortization of intangible assets increased by $0.6 million includes the amortization of a Plumbing tradename which was ~~expense~~previously classified as indefinite-lived.

Asset impairment charges

Asset impairment charges of ~~$0.1~~$29.5 million in 2019 related to an indefinite-lived tradename within our Cabinets segment.

Restructuring charges

Restructuring charges of $1.6 million in the three months ended September 30, ~~2017 compared~~2020 primarily related to ~~expense~~severance and other costs associated with changes in our manufacturing processes within our Plumbing segmentpartially offset by a credit related to severance costs and the cancellation of ~~$0.6~~a previously approved restructuring action in our Cabinets segment.Restructuring charges of $5.5 million in the three months ended September 30, ~~2016.~~2019 primarily related to severance costs within our Plumbing and Cabinets segments.

RESULTS OF OPERATIONS (Continued)

Operating income

Operating income increased by $72.2 million, or 43.0%, primarily due to higher net sales, the absence of the 2019 asset impairment charge in Cabinets (29.5 million), the benefits from productivity improvements and previously approved organizational restructuring actions as well as lower restructuring charges in 2020 as compared to the prior year. These factors were partially offset by unfavorable mix, higher employee related costs, higher rebate costs, higher advertising costs, higher tariffs and higher transportation costs.

Interest expense

Interest expense decreased $3.5 million to $20.1 million due to lower average borrowings and lower average interest rates.

Other income, net

Other income, net, was $2.1 million in the three months ended September 30, 2020, compared to $0.3 million in the three months ended September 30, 2019. The increase in other income, net is primarily due to higher defined benefit income in 2020 ($2.1 million increase).

Income taxes

~~Net income from continuing operations~~share-based compensation.

Net income ~~from continuing operations~~attributable to Fortune Brands

Net income attributable to Fortune Brands was ~~$129.6~~$164.6 million in the three months ended September 30, ~~2017~~2020 compared to ~~$121.9~~$105.6 million in the three months ended September 30, ~~2016.~~2019. The increase ~~of $7.7 million~~ was ~~primarily~~ due to a higher operating ~~income.~~income, lower interest expense and higher other income, partly offset by higher income tax expenses and higher equity in losses of affiliate.

Results By Segment

~~RESULTS OF OPERATIONS (Continued)~~

~~Results by Segment~~

~~Cabinets~~Plumbing

Net sales increased ~~$12.1~~by $76.5 million, or ~~2.0%~~14.9%, due to higher volume in the U.S., China, and Canada and price increases to help mitigate the cumulative impact of tariffs, as well as favorable foreign exchange of approximately $1 million. These factors were partly offset by higher rebate costs.

Operating income increased by $4.6 million, or 4.1%, due to higher sales and productivity improvements. These benefits were partly offset by higher employee related costs, higher restructuring and other charges, higher advertising and marketing costs, unfavorable sales mix, the impact of higher tariffs and higher air freight transportation costs.

Doors & Security

Net sales increased by $51.5 million, or 14.5%, on higher volume in the U.S., price increases to help mitigate the cumulative impact from tariff related costs and the benefit from new customers in decking products. These factors were partially offset by the discontinuance of a doors product line and higher customer program costs. Foreign exchange was favorable by approximately $1 million.

Operating income increased by $16.7 million, or 33.3%, due to higher sales volume ~~driven primarily by continuing improvement in the U.S. home products market~~ and the benefit from ~~new product introductions,~~productivity improvements and leveraging our existing fixed cost base. These factors were partially offset by higher employee related costs and unfavorable mix. Foreign exchange was favorable by approximately $1 million.

RESULTS OF OPERATIONS (Continued)

Cabinets

Net sales increased by $65.1 million, or 11.0%, on higher in-stock volume and price increases to help mitigate the cumulative ~~raw material cost increases and favorable foreign exchange~~impact of ~~approximately $2 million.~~tariffs. These ~~benefits~~factors were partly offset by ~~unfavorable mix and higher sales promotions.~~

~~Operating income decreased $5.1 million, or 6.8%, due~~a continued shift to ~~higher employee-related costs, including higher healthcare costs. These benefits were partially offset by the increase in net sales and productivity improvements.~~

~~Plumbing~~

Net sales increased $47.2 million, or 12.1%, due to higher sales volume in the U.S. driven by continuing improvement in the U.S. home products market and the benefit from new product introductions, higher sales in international markets, principally China and Canada, the benefit from the acquisitions of ROHL and Perrin & Rowe in 2016 as well as Shaws in 2017 and favorable foreign exchange of approximately $2 million. These benefits were partially offset by higher sales rebates.value-priced products.

Operating income increased ~~$13.3~~by $57.0 million, or ~~15.8%~~227.1%, due to higher net sales, the absence of the 2019 asset impairment charge ($29.5 million), lower restructuring costs ($6.2 million decrease), the benefits from productivity initiatives and ~~productivity improvements partially offset by higher employee-related costs, sales rebates and raw material costs.~~

~~Doors~~

~~Net sales increased $9.3 million, or 7.2%, due to favorable mix, higher sales volume driven primarily by improved conditions in the U.S. home products markets and the benefit~~ from ~~new product introductions and price increases to help mitigate cumulative raw material cost increases.~~

~~Operating income increased $2.8 million, or 12.6%, due to higher net sales and~~ leveraging ~~sales on~~ our existing fixed cost ~~base.~~

~~Security~~

~~Net sales increased $1.0 million, or 0.6%, due to higher sales volume in the U.S.~~base and ~~international markets for our core locks and safes product lines and favorable foreign exchange~~lower promotion costs. These factors were partly offset by ~~the impact from our exiting of two product lines in our commercial sales distribution channel.~~

~~Operating income increased $4.8 million, or 21.0%, primarily due~~a continued shift to productivity improvements, lower restructuring and other charges (approximately $3 million) relating to the completion in 2016 of a manufacturing facility relocation and the related cost savings resulting from the facility relocation.

~~RESULTS OF OPERATIONS (Continued)~~

~~Results by Segment (Continued)~~

value-priced products.

Corporate

Corporate expenses ~~decreased~~increased by ~~$2.9~~$6.1 million, ~~predominantly~~or 31.8%, due to ~~recognition of an actuarial gain versus an actuarial loss in the prior quarter and~~ higher ~~defined benefit plan income during 2017 in comparison to prior quarter.~~employee related costs.

(In millions)    Three Months Ended
September 30,
   2017    2016
General and administrative expense
   $ (20.5 )    $ (20.5 )
Defined benefit plan income
   1.2    0.6
Defined benefit plan recognition of actuarial gains (losses)
   1.3    (1.0 )




Total Corporate expenses
   $ (18.0 )    $ (20.9 )

LIQUIDITY AND CAPITAL RESOURCES

Our ~~primary~~principal sources of liquidity are cash on hand, cash flows from operating activities, cash borrowed under our credit facilities and cash from debt issuances in the capital markets. Our operating income is generated by our subsidiaries. We believe our operating cash flows, including funds available under our credit facilities and access to capital markets, provide sufficient liquidity to support the Company’s liquidity and financing needs, which 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~~the Board of Directors deems appropriate.

Our ~~principal sources of liquidity have been cash on hand,~~ cash flows from ~~operating activities~~operations, borrowing availability and ~~availability under our credit facilities. Our operating income is generated by our subsidiaries. There~~overall liquidity are ~~no restrictions on~~subject to certain risks and uncertainties, including those described in the ~~ability~~section of our ~~subsidiaries to pay dividends or make other distributions to Fortune Brands.~~Annual Report on Form 10-K for the year-ended December 31, 2019 entitled “Item 1A. Risk Factors,” updated in “Item 1A – Risk Factors” below. In December 2016, our Board of Directors increased the quarterly cash dividend by 13% to $0.18 per share of our outstanding common stock. Our Board of Directors will continue to evaluate dividend payment opportunities on a quarterly basis. There can be no assurance as to when and if future dividends will be paid, 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 the first nine months of 2017, we repurchased 2.8 million shares of our outstanding common stock under the Company’s share repurchase programs for $173.7 million. As of September 30, 2017, the Company’s total remaining share repurchase authorization under the repurchase programs was approximately $347 million. The share repurchase programs do 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,~~addition, 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~~

Long-Term Debt

At September 30, 2020, the Company had aggregate outstanding notes in the ~~section~~amount of ~~our Annual Report on Form10-K~~ ~~for~~$1.8 billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the ~~year-ended~~Company. The following table provides a summary of the Company’s outstanding Notes, including the net carrying value of the Notes, net of underwriting commissions, price discounts and debt issuance costs as of September 30, 2020 and December 31, ~~2016 entitled “Item 1A. Risk Factors.”~~

~~Acquisitions in 2017 and 2016 included:~~2019:

In October 2017, the Company acquired Victoria + Albert, a UK manufacturer of luxury freestanding tubs and basins. The results of operations of the acquired company will be included in the Plumbing segment from the date of acquisition. This acquisition will not have a material effect on net sales or operating income.

					Net Carrying Value
(in millions)	Principal Amount		Issuance Date	Maturity Date	September 30, 2020		December 31, 2019
3.000% Senior Notes	$	400.0	June 2015	June 2020	$	—	$	399.7
4.000% Senior Notes		500.0	June 2015	June 2025		496.4		495.8
4.000% Senior Notes (the "2018 Notes")		600.0	September 2018	September 2023		596.8		596.1
3.250% Senior Notes		700.0	September 2019	September 2029		693.3		692.7
Total Senior Notes					$	1,786.5	$	2,184.3

~~In July 2017,~~

During June 2020, we ~~acquired Shaws Since1897 Limited, a U.K.-based company that specializes~~repaid all amounts outstanding on the 3.000% Senior Notes issued in ~~the design, production and marketing of luxury fire-clay kitchen sinks. We financed the transaction~~June 2015 which were scheduled to mature in June 2020 using ~~cash on hand and~~ borrowings under our 2019 Revolving Credit Agreement (as defined below). In September 2019, the Company issued $700 million of unsecured senior notes (“2019 Notes”) in a registered public offering. The 2019 Notes are due in 2029 with a coupon rate of 3.25%. The Company used the proceeds from the 2019 Notes offering to repay in full a $350 million term loan and to pay down outstanding balances under our 2019 Revolving Credit Agreement.

Credit Facilities

In April 2020, the Company entered into a 364-day, supplemental $400 million revolving credit facility (the “2020 Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. Given the uncertain nature and duration of the COVID-19 pandemic, this was a proactive step taken out of an abundance of caution to provide ample liquidity for the business. The terms and conditions of the 2020 Revolving Credit Agreement are essentially the same as the Company’s existing $1.25 billion revolving credit ~~facilities. Net sales~~facility except for additional provisions related to cash hoarding and ~~operating~~the use of debt issuance proceeds. Interest rates under the 2020 Revolving Credit Agreement are variable based on LIBOR at the time of the borrowing and the Company’s long-term credit rating and can range from LIBOR + 1.4% to LIBOR + 1.8%. The 2020 Revolving Credit Agreement includes a covenant under which the Company is required to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0. Consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments. In addition, the 2020 Revolving Credit Agreement includes a covenant under which the Company’s ratio of consolidated total indebtedness minus certain cash and cash equivalents to consolidated EBITDA generally may not exceed 3.5 to 1.0. As of September 30, 2020, there were no outstanding borrowings under this facility and we were in compliance with all covenants under this facility.

In September 2019, the Company entered into a second amended and restated $1.25 billion revolving credit facility (the “2019 Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. The terms and conditions of the 2019 Revolving Credit Agreement, including the total commitment amount, essentially remained the same as under the previous credit agreement, except that the maturity date was extended to September 2024. Borrowings amounting to $165.0 million were rolled-over from the prior revolving credit facility into the 2019 Revolving Credit Agreement. Interest rates under the 2019 Revolving Credit Agreement are variable based on LIBOR at the time of the borrowing and the Company’s long-term credit rating and can range from LIBOR + 0.91% to LIBOR + 1.4%. This amendment and restatement of the credit agreement was a non-cash transaction for the Company. On September 30, 2020 our outstanding borrowings under this facility was $300.0 million. On December 31, 2019 our outstanding borrowings under this facility was zero. This facility is included in Long-term debt in the ~~three months ended~~condensed consolidated balance sheets. As of September 30, ~~2017~~2020, we were ~~not material to the Company.~~

in compliance with all covenants under this facility.

In September ~~2016, we acquired ROHL, a California-based luxury plumbing company~~2019, the Company used the proceeds from the 2019 Notes to repay the full outstanding balance on the Term Loan entered into in March 2018 and subsequently amended in ~~a related transaction, we acquired TCL Manufacturing Ltd, which gave us ownership~~August 2018 and March 2019 (the “Term Loan”). Following the March 2019 amendment, the Term Loan provided for borrowings of ~~Perrin & Rowe, a UK manufacturer~~$350 million and ~~designer of luxury kitchen~~matured in March 2020. At December 31, 2019, amounts due under the Term Loan were zero.

Cash and bathroom plumbing products. The total combined purchase price was approximately $166 million, subject to certain post-closing adjustments. We financed both acquisitions using cash on hand and borrowings under our existing credit facility.

Seasonality

On September 30, ~~2017,~~2020, we had cash and cash equivalents of ~~$277.1~~$464.5 million, of which ~~$257.9~~$374.4 million was held atnon-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 ofnon-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay and record ~~income~~ tax expense on those funds ~~to the extent they were previously considered indefinitely reinvested.~~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 ~~half~~quarter of the year ~~particularly~~Additionally, as noted in the overview section above, the potential future impact of COVID-19 on our net sales, supply chain, manufacturing, and distribution, as well as overall new construction, repair and remodel activity, and consumer spending, are uncertain.

We believe that our current cash position, cash flow generated from operations, and amounts available under our revolving credit facilities should be sufficient for our operating requirements and enable us to fund our capital expenditures, dividend payments, and any required long-term debt payments. In addition, we believe that we have the ability to obtain alternative sources of financing if required. We expect capital expenditures during 2020 to be in the range of $120 to $150 million. Given the current uncertainty related to COVID-19, we may adjust our capital expenditures as necessary or appropriate to support the operations of the business.

Share Repurchases and Dividends

In the first ~~quarter.~~quarter of 2020, we repurchased 2.5 million shares of our outstanding common stock under the Company’s share repurchase programs for $150.0 million. We did not repurchase any shares during the second or third quarter of 2020. On September 21, 2020, the Company’s Board of Directors authorized the repurchase of up to $500 million of shares of the Company’s common stock over the two years ending September 21, 2022. 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.

In the first nine months of 2020, we paid dividends in the amount of $99.9 million to the Company’s shareholders. 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. There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Fortune Brands.

Acquisitions

We periodically review our portfolio of brands and evaluate potential strategic transactions and other capital initiatives to increase shareholder value.

Cash Flows

Below is a summary of cash flows for the nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019.


(In millions)	Nine Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2020			2019
Net cash provided by operating activities	$	352.6		$	380.6		$	506.8		$	353.8
Net cash used in investing activities		(113.2	)		(334.3	)		(124.1	)		(78.1	)
Net cash used in financing activities		(223.5	)		(9.5	)		(308.8	)		(201.9	)
Effect of foreign exchange rate changes on cash		9.7			3.3			1.9			(1.2	)

Net increase in cash and cash equivalents	$	25.6		$	40.1		$	75.8		$	72.6

Net cash provided by operating activities was ~~$352.6~~$506.8 million in the nine months ended September 30, ~~2017~~2020, compared to ~~$380.6~~net cash provided by operating activities of $353.8 million in the nine months ended September 30, ~~2016.~~2019. The ~~decrease~~increase in cash provided of ~~$28.0~~$153.0 million was primarily due to ~~a higher build~~lower increases in working capital, ~~during 2017 compared to 2016 which included inventory reductions as we completed our manufacturing facility relocations in our Plumbing and Security businesses, partly offset by~~ higher net ~~income.~~income and increases in accrued taxes.

Net cash used in investing activities was ~~$113.2~~$124.1 million in the nine months ended September 30, ~~2017~~2020, compared to ~~$334.3~~net cash used in investing activities of $78.1 million in the nine months ended September 30, ~~2016.~~2019. The ~~decrease~~increase in cash used of ~~$221.1~~$46.0 million was primarily due to the ~~decrease~~acquisition of additional shares of Flo Technologies in ~~cost of acquisitions of $211.1 million.~~January 2020 and April 2020, partially offset by a decline in capital expenditures.

Net cash used byin financing activities was ~~$223.5~~$308.8 million in the nine months ended September 30, ~~2017~~2020, compared to ~~net~~ cash used in financing activities of ~~$9.5~~$201.9 million in the nine months ended September 30, ~~2016.~~2019. The increase in cash used of ~~$214~~$106.9 million ~~during 2017~~ was primarily due to lower net borrowings ~~of $384 million and~~in 2020 compared to 2019 ($114.3 million), higher ~~dividends of $9 million, partially offset by lower~~ share repurchases in ~~2017~~2020 compared to ~~2016 ($189 million decrease). Additionally, during~~2019, partly offset by higher proceeds from the ~~third quarter 2017, we paid~~exercise of stock options and the absence of deferred acquisition payments ~~totaling $12.4 million (net of certain working capital and other adjustments) relating to the ROHL and Perrin & Rowe acquisitions.~~made during 2019 ($19.0 million).

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, ~~2016,~~2019, the fair value of our total pension plan assets was ~~$577.7~~$677.2 million, representing ~~73%~~77% of the accumulated benefit obligation liability. ~~In 2017,~~During the nine months ended September 30, 2020, we ~~expect to make total~~made our required minimum pension contributions of ~~approximately $25~~$18 million. We may make a potential voluntary contribution in the range of $10 million to $30 million during the remainder of ~~which $22 million has been paid as of September 30, 2017.~~2020. 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 ~~France.~~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

~~Revenue from Contracts with Customers~~

~~In May 2014, the Financial~~The adoption of recent accounting standards, as discussed in Note 2, “Recently Issued Accounting Standards, ~~Board (“FASB”) issued Accounting Standards Update (“ASU”)2014-09,~~ ~~which clarifies the accounting for revenue arising from contracts with customers~~” to our Consolidated Financial Statements, has not had and ~~specifies the disclosures that an entity should include in its financial statements. The standard~~ is effective for annual reporting periods beginning after December 15, 2017 (calendar year 2018 for Fortune Brands). During 2016, the FASB issued certain amendments to the standard relating to the principal versus agent guidance, accounting for licenses of intellectual property and identifying performance obligations as well as the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The effective date and transition requirements for these amendments are the same as those of the original ASU. We have elected the modified retrospective transition approach and also have identified focus areas for each of our reporting segments and have made substantial progress in our assessment of the accounting and financial reporting implications as of September 30, 2017. Our key considerations pursuant to~~ASU 2014-09~~ are the control of goods (i.e., timing of revenue recognition), separate performance obligations, customer rights of return (i.e., the reclassification on the balance sheet of the customer rights of return from accounts receivable to a refund liability as well as the recognition of a corresponding asset) and our accounting for display assets. We do not ~~expect the change in accounting related to these considerations~~expected to have a ~~material effect~~significant impact on our ~~financial statements.~~

~~Leases~~

~~Improvements to Accounting for Hedging Activities~~

~~In August 2017, the FASB issued ASU2017-12,~~ that amends 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 (consistent with our current practice). The change in fair value for qualifying cash flow and net investment hedges will be included in Other comprehensive income (until they are reclassified into the income statement). The standard also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. The standard is effective as of January 1, 2019 and earlier application is permitted. We are assessing the impact the adoption of this standard will have on our financial statements.

revenue, earnings or liquidity.

~~RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)~~

~~Clarifying Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets~~

~~Stock Compensation Scope of Modification Accounting~~

~~In May 2017, the FASB issued ASU2017-09,~~ ~~which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance provides a relief to entities that makenon-substantive~~ changes to their share-based payment awards and will result in fewer changes to the terms of an award being accounted for as modifications. The standard is effective January 1, 2018 and early adoption is permitted, however we elected not to early adopt. We do not expect the adoption of this standard to have a material effect on our financial statements.

~~Presentation of Net Periodic Pension and Postretirement Cost~~

~~Simplifying the Test for Goodwill Impairment~~

~~In January 2017, the FASB issued ASU2017-04,~~ which simplifies the accounting for goodwill impairment for all entities. Under the new standard, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The standard eliminates the current requirement to calculate a goodwill impairment charge by comparing the implied fair value of goodwill with its carrying amount (i.e., hypothetical purchase price allocation). The standard is effective for annual and interim impairment tests performed in the periods beginning after January 1, 2020 and early adoption is permitted. We plan to early adopt ASU~~2017-04~~ ~~in conjunction with our annual goodwill impairment test during the fourth quarter of 2017.~~

~~RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)~~

~~Clarifying the Definition of a Business~~

~~Restricted Cash~~

~~In November 2016, the FASB issued ASU2016-18,~~ according to which entities are no longer required to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The prior standard did not address the classification of activity related to restricted cash and restricted cash equivalents in the statement of cash flows which has resulted in diversity in cash flows presentation. The standard is effective January 1, 2018 and early adoption is permitted; however, we elected not to early adopt. We do not expect the adoption of this standard to have a material effect on our financial statements.

~~Intra-Entity Transfers of Assets Other Than Inventory~~

~~In October 2016, the FASB issued ASU2016-16,~~ which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory (e.g., intangible assets) when the transfer occurs. Under the current guidance companies are required to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized (e.g., depreciated, amortized or impaired). The standard is effective January 1, 2018 and early adoption is permitted; however, we elected not to early adopt. The transition method will be a “modified retrospective” (i.e., with a cumulative adjustment to retained earnings at adoption). We are assessing the impact the adoption of this standard will have on our financial statements.

~~Classification of Certain Cash Receipts and Cash Payments~~

~~In September 2016 the FASB issued ASU2016-15,~~ which changes how an entity classifies certain cash receipts and cash payments on its statement of cash flows. The key changes that may potentially impact our financial statements include the following: 1) Cash payments for debt prepayment or extinguishment costs would be classified as financing cash outflows; 2) Contingent consideration payments that are not made within three months after the consummation of a business combination would be classified as financing (if the payment is made up to the acquisition date fair value of liability) or operating outflows (if in excess of acquisition fair value). Cash payments made “soon after” the consummation of a business combination generally would be classified as cash outflows for investing activities; 3) Insurance settlement proceeds would be classified based on the nature of the loss; and 4) Company-owned life insurance settlement proceeds would be presented as investing cash inflows, and premiums would be classified as investing or operating cash outflows, or a combination of both. The new standard is effective January 1, 2018 and should be adopted retrospectively. Early adoption is permitted; however, we elected not to early adopt. We do not expect the adoption of this standard to have a material effect on our financial statements.

~~RECENTLY ISSUED ACCOUNTING STANDARDS (Continued)~~

~~Financial Instruments—Credit Losses~~

~~In June 2016, the FASB issued ASU2016-13,~~ 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 January 1, 2020 and early application is permitted beginning January 1, 2019. We are assessing the impact the adoption of this standard will have on our financial statements.

~~Recognition and Measurement of Financial Assets and Financial Liabilities~~

~~In January 2016, the FASB issued ASU2016-01,~~ which requires entities to measure investments in unconsolidated entities (other than those accounted for using the equity method of accounting) at fair value through the income statement. There will no longer be an~~available-for-sale~~ classification (with changes in fair value reported in Other Comprehensive Income). In addition, the cost method is eliminated for equity investments without readily determinable fair values. The standard is effective January 1, 2018. Early application is permitted for certain provisions of the standard; however, we elected not to early adopt. We do not expect this standard to have a material effect on our financial statements.

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 Form10-K for the year ended December 31, ~~2016.~~2019.

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~~Company's disclosure controls and procedures (as defined in Rules13a-15(e) and15d-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~~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~~Company's internal control over financial reporting that occurred during the ~~Company’s~~ fiscal quarter ended September 30, ~~2017~~2020 that have materially affected, or are reasonably likely to materially affect, the ~~Company’s~~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.

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS.

(a)

~~Other~~

Litigation.

~~The Company is a defendant~~We are defendants in lawsuits associated with the normal conduct of ~~its~~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 ~~the Company’s~~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.

Item 1A.

RISK FACTORS.

~~There~~

The current outbreak of the novel coronavirus (“COVID-19”) has impacted our business and is expected to continue to cause further disruptions to our business, financial performance and operating results.

The COVID-19 pandemic may have ~~been no material changes~~far-reaching impacts on many aspects of the Company’s operations in the future including the continued operation of our facilities across the globe, the ability of our suppliers to manufacture key inputs, as well as potential other impacts on customer behaviors, the ~~risk factors previously disclosed~~Company’s employees and the market generally. Our business could be negatively impacted over the longer term if the disruptions related to COVID-19 decrease consumer confidence and housing investments; or precipitate a prolonged economic downturn and/or an extended rise in unemployment or tempering of wage growth, any of which could lower demand for our products. Risks related to negative economic conditions are described in "Risk Factors" in our Annual Report on Form10-K for the year ended December 31, ~~2016 in the section entitled “Risk Factors.”~~2019.

The inherent uncertainty surrounding COVID-19, due in part to rapidly changing governmental directives, public health challenges and progress, and market reactions also makes it more challenging for our management to estimate the future performance of our business and the economic impact of the COVID-19 pandemic, including but not limited to, possible impairment, restructuring, and other charges. Accordingly, future developments may materially impact our current estimates of such charges.

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 Rule10b-18(a)(3) under the Exchange Act) for the three months ended September 30, ~~2017:~~2020:

Issuer Purchases of Equity Securities

Period
   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)
July 1 – July 31
   603,750    $ 66.18    603,750    $ 450,381,443
August 1 – August 31
   881,646    63.53    881,646    394,375,046
September 1 – September 30
   729,023    64.51    729,023    347,346,977







Total
   2,214,419    $ 64.57    2,214,419

Three Months Ended September 30, 2020	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)
July 1 – July 31		—	$	—		—	$	—
August 1 – August 31		—		—		—		—
September 1 – September 30		—		—		—		500,000,000
Total		—	$	—		—

^(a)

Information on the Company’s share repurchase ~~programs~~program follows:

Authorization date

Announcement date

Authorization amount of shares of outstanding common stock

Expiration date

~~Authorization and announcement date~~September 21, 2020

~~Announcement date~~

September 21, 2020

$500 million

~~Authorization amount of~~
~~shares of outstanding~~
~~common stock~~

~~Expiration date~~

September 21, 2022

~~February~~July 13, 2018

July 16, ~~2016~~2018

~~February 22, 2016~~

400 million

~~February 16, 2018~~

~~February 28, 2017~~

~~March 1, 2017~~

~~300 million~~

~~February 28, 2019~~

July 13, 2020

Item 6.

EXHIBITS



3(i).		Restated Certificate of Incorporation of Fortune Brands Home & Security, Inc. ~~(incorporated~~incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form10-Q filed with the SEC on November 5, 2012, Commission file number~~1-35166).~~ 1-35166.

3(ii).		Amended and RestatedBy-laws of Fortune Brands Home & Security, Inc., as adopted September 27, 2011 ~~(incorporated~~incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form8-K filed with the SEC on September 30, 2011, Commission file number~~1-35166).~~ 1-35166.

31.1.* 31.1*		Certificate of Chief Executive Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2.* 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 Form10-Q for the quarter ended September 30, ~~2017~~2020 formatted in Inline eXtensible Business Reporting Language ~~(XBRL)~~(iXBRL): (i) the Cover Page, (ii) the Condensed Consolidated Statements of Comprehensive Income, ~~(ii)~~(iii) the Condensed Consolidated Balance Sheets, ~~(iii)~~(iv) the Condensed Consolidated Statements of Cash Flows, ~~(iv)~~(v) the Condensed Consolidated Statements of Equity, and ~~(v)~~(vi) the Notes to the Condensed Consolidated Financial Statements.

104.*	Cover Page Interactive Data File (embedded within the iXBRL document).

*	Filed or furnished herewith.

*	~~Filed herewith.~~

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: October ~~31, 2017~~29, 2020		/s/ Patrick D. Hallinan
		Patrick D. Hallinan
		Senior Vice President and Chief Financial Officer
		(Duly authorized officer and principal financial officer of the Registrant)

4835


	Common Stock		Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Non- controlling Interests			Total Equity
Balance at December 31, 2015	$	1.7	$	2,602.2		$	(52.5	)	$	501.6		$	(602.1	)	$	2.9		$	2,453.8
Comprehensive income:
Net income		—		—			—			309.6			—			(0.1	)		309.5
Other comprehensive income		—		—			0.3			—			—			—			0.3
Stock options exercised		—		24.8			—			—			—			—			24.8
Stock-based compensation		—		24.3			—			—			(9.8	)		—			14.5
Treasury stock purchase		—		—			—			—			(362.7	)		—			(362.7	)
Dividends ($0.28 per common share)		—		—			—			(72.8	)		—			—			(72.8	)
Dividends paid to noncontrolling interests		—		—			—			—			—			(1.4	)		(1.4	)
Other		—		(5.8	)		—			—			—			—			(5.8	)

Balance at September 30, 2016	$	1.7	$	2,645.5		$	(52.2	)	$	738.4		$	(974.6	)	$	1.4		$	2,360.2


Balance at December 31, 2016	$	1.7	$	2,653.8		$	(71.9	)	$	814.6		$	(1,036.7	)	$	1.5		$	2,363.0
Comprehensive income:
Net income		—		—			—			344.6			—			0.1			344.7
Other comprehensive income		—		—			46.4			—			—			—			46.4
Stock options exercised		—		25.7			—			—			—			—			25.7
Stock-based compensation		—		32.7			—			—			(10.2	)		—			22.5
Treasury stock purchase		—		—			—			—			(173.7	)		—			(173.7	)
Dividends ($0.54 per common share)		—		—			—			(82.7	)		—			—			(82.7	)

Balance at September 30, 2017	$	1.7	$	2,712.2		$	(25.5	)	$	1,076.5		$	(1,220.6	)	$	1.6		$	2,545.9


(In millions)		Gain (Loss) Recognized in Income Nine Months Ended September 30,
Type of hedge	Location	2017			2016
Cash flow	Cost of products sold	$	0.9		$	(2.6	)
Fair value	Other (income) expense, net		(1.4	)		1.3

Total		$	(0.5	)	$	(1.3	)

(In millions)		Gain (Loss) Recognized in Income Three Months Ended September 30,
Type of hedge	Location	2017			2016
Cash flow	Cost of products sold	$	(0.1	)	$	(1.2	)
Fair value	Other (income) expense, net		(0.9	)		0.3

Total		$	(1.0	)	$	(0.9	)


(In millions)	September 30, 2017				December 31, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
Revolving credit facility	$	570.0	$	570.0	$	540.0	$	540.0
Senior Notes		892.2		927.5		891.1		919.2


(In millions)	Foreign Currency Adjustments			Derivative Hedging Gain (Loss)			Defined Benefit Plan Adjustments^(a)			Accumulated Other Comprehensive Loss
Balance at December 31, 2015	$	(13.3	)	$	2.1		$	(41.3	)	$	(52.5	)
Amounts classified into accumulated other comprehensive loss		0.9			(7.3	)		9.0			2.6
Amounts reclassified from accumulated other comprehensive loss		—			2.8			(5.1	)		(2.3	)

Net current-period other comprehensive income (loss)		0.9			(4.5	)		3.9			0.3

Balance at September 30, 2016	$	(12.4	)	$	(2.4	)	$	(37.4	)	$	(52.2	)

Balance at December 31, 2016	$	(28.0	)	$	(0.6	)	$	(43.3	)	$	(71.9	)
Amounts classified into accumulated other comprehensive loss		47.0			0.6			3.5			51.1
Amounts reclassified from accumulated other comprehensive loss		—			(0.6	)		(4.1	)		(4.7	)

Net current-period other comprehensive income (loss)		47.0			—			(0.6	)		46.4

Balance at September 30, 2017	$	19.0		$	(0.6	)	$	(43.9	)	$	(25.5	)


(In millions)
Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive Loss Nine Months Ended September 30,						Affected Line Item in the Statement of Comprehensive Income
	2017			2016
(Losses) gains on cash flow hedges
Foreign exchange contracts	$	0.5		$	(2.5	)		Cost of products sold
Commodity contracts		0.4			(0.1	)		Cost of products sold

		0.9			(2.6	)		Total before tax
		(0.3	)		(0.2	)		Tax expense

	$	0.6		$	(2.8	)		Net of tax
Defined benefit plan items
Recognition of prior service credits	$	5.1		$	10.0			^(a)
Recognition of actuarial gains (losses)		1.3			(1.9	)		^(a)

		6.4			8.1			Total before tax
		(2.3	)		(3.0	)		Tax expense

	$	4.1		$	5.1			Net of tax

Total reclassifications for the period	$	4.7		$	2.3			Net of tax


(In millions)	Three Months Ended September 30, 2017
	Restructuring Charges		Other Charges ^(a)			Total Charges
Doors	$	0.2	$	(0.1	)	$	0.1
Security		0.2		0.3			0.5

Total	$	0.4	$	0.2		$	0.6


(In millions)	Three Months Ended September 30, 2016
	Restructuring Charges		Other Charges ^(a)		Total Charges
Plumbing	$	0.4	$	0.5	$	0.9
Security		2.7		1.0		3.7

Total	$	3.1	$	1.5	$	4.6


(In millions)	Balance at 12/31/16		2017 Provision		Cash Expenditures ^(a)			Non-Cash Write-offs			Balance at 9/30/17
Workforce reduction costs	$	2.4	$	2.8	$	(2.9	)	$	(0.5	)	$	1.8
Other		0.6		0.7		(1.3	)		—			0.0

	$	3.0	$	3.5	$	(4.2	)	$	(0.5	)	$	1.8


(In millions)	Balance at 12/31/15		2016 Provision		Cash Expenditures ^(a)			Non-Cash Write-offs ^(b)			Balance at 9/30/16
Workforce reduction costs	$	10.4	$	8.7	$	(15.0	)	$	0.2		$	4.3
Other		0.5		3.7		(3.0	)		(0.6	)		0.6

	$	10.9	$	12.4	$	(18.0	)	$	(0.4	)	$	4.9