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, 20172021
OR
☐ | 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 | ||
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)
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 | ☐ | 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, 201715, 2021 was 151,800,773.135,734,346.
PART I. FINANCIAL INFORMATION
Item | FINANCIAL STATEMENTS. |
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Nine and Three Months Ended September 30, 20172021 and 20162020
(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 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| |||||||||||||||||
Net sales | $ | 3,900.8 | $ | 3,683.3 | $ | 1,348.6 | $ | 1,279.0 |
| $ | 5,693.4 |
|
| $ | 4,430.6 |
|
| $ | 1,986.3 |
|
| $ | 1,652.1 |
| ||||||||
Cost of products sold | 2,461.3 | 2,352.8 | 841.6 | 801.0 |
|
| 3,637.2 |
|
|
| 2,873.9 |
|
|
| 1,280.0 |
|
|
| 1,071.5 |
| ||||||||||||
Selling, general and administrative expenses | 877.7 | 831.4 | 297.3 | 284.5 |
|
| 1,166.3 |
|
|
| 918.4 |
|
|
| 400.2 |
|
|
| 328.3 |
| ||||||||||||
Amortization of intangible assets | 23.6 | 20.4 | 7.5 | 7.3 |
|
| 48.5 |
|
|
| 31.1 |
|
|
| 15.9 |
|
|
| 10.5 |
| ||||||||||||
Loss on sale of product line (see Note 4) | 2.4 | — | — | — | ||||||||||||||||||||||||||||
Asset impairment charges | 3.2 | — | — | — |
|
| — |
|
|
| 22.5 |
|
|
| — |
|
|
| — |
| ||||||||||||
Restructuring charges | 3.5 | 12.4 | 0.4 | 3.1 |
|
| 11.5 |
|
|
| 16.5 |
|
|
| 3.6 |
|
|
| 1.6 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Operating income | 529.1 | 466.3 | 201.8 | 183.1 |
|
| 829.9 |
|
|
| 568.2 |
|
|
| 286.6 |
|
|
| 240.2 |
| ||||||||||||
Interest expense | 36.5 | 37.5 | 12.3 | 11.8 |
|
| 63.2 |
|
|
| 64.4 |
|
|
| 20.6 |
|
|
| 20.1 |
| ||||||||||||
Other expense (income), net | 0.2 | (0.1 | ) | 0.1 | 0.6 |
|
| 0.7 |
|
|
| (13.4 | ) |
|
| (1.3 | ) |
|
| (2.1 | ) | |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Income before taxes |
|
| 766.0 |
|
|
| 517.2 |
|
|
| 267.3 |
|
|
| 222.2 |
| ||||||||||||||||
Income tax |
|
| 168.9 |
|
|
| 121.7 |
|
|
| 65.2 |
|
|
| 54.0 |
| ||||||||||||||||
Income after tax |
|
| 597.1 |
|
|
| 395.5 |
|
|
| 202.1 |
|
|
| 168.2 |
| ||||||||||||||||
Equity in losses of affiliate |
|
| — |
|
|
| 4.7 |
|
|
| — |
|
|
| 2.4 |
| ||||||||||||||||
Net income | 344.7 | 309.5 | 129.6 | 123.4 |
|
| 597.1 |
|
|
| 390.8 |
|
|
| 202.1 |
|
|
| 165.8 |
| ||||||||||||
Less: Noncontrolling interests | 0.1 | (0.1 | ) | 0.1 | — |
|
| — |
|
|
| 1.3 |
|
|
| — |
|
|
| 1.2 |
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Net income attributable to Fortune Brands | $ | 344.6 | $ | 309.6 | $ | 129.5 | $ | 123.4 |
| $ | 597.1 |
|
| $ | 389.5 |
|
| $ | 202.1 |
|
| $ | 164.6 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Basic earnings per common share |
| $ | 4.32 |
|
| $ | 2.81 |
|
| $ | 1.47 |
|
| $ | 1.19 |
| ||||||||||||||||
Diluted earnings per common share |
| $ | 4.26 |
|
| $ | 2.78 |
|
| $ | 1.45 |
|
| $ | 1.17 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
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 |
| $ | 598.4 |
|
| $ | 371.9 |
|
| $ | 186.7 |
|
| $ | 184.6 |
|
See notes to condensed consolidated financial statements.
2
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
September 30, 2017 | December 31, 2016 |
| September 30, 2021 |
|
| December 31, 2020 |
| |||||||||
Assets |
|
|
|
|
|
|
|
| ||||||||
Current assets |
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | $ | 277.1 | $ | 251.5 |
| $ | 460.7 |
|
| $ | 419.1 |
| ||||
Accounts receivable, net | 594.7 | 550.7 | ||||||||||||||
Accounts receivable less allowances for discounts and credit losses |
|
| 921.8 |
|
|
| 734.9 |
| ||||||||
Inventories | 600.1 | 531.1 |
|
| 1,128.3 |
|
|
| 867.2 |
| ||||||
Other current assets | 126.4 | 111.9 |
|
| 215.2 |
|
|
| 187.3 |
| ||||||
|
| |||||||||||||||
Total current assets | 1,598.3 | 1,445.2 |
|
| 2,726.0 |
|
|
| 2,208.5 |
| ||||||
Property, plant and equipment, net of accumulated depreciation | 690.6 | 662.5 |
|
| 934.7 |
|
|
| 917.4 |
| ||||||
Operating lease assets |
|
| 199.4 |
|
|
| 170.2 |
| ||||||||
Goodwill | 1,852.8 | 1,833.8 |
|
| 2,466.6 |
|
|
| 2,394.8 |
| ||||||
Other intangible assets, net of accumulated amortization | 1,105.4 | 1,107.0 |
|
| 1,401.3 |
|
|
| 1,420.3 |
| ||||||
Other assets | 102.2 | 80.0 |
|
| 140.8 |
|
|
| 247.5 |
| ||||||
|
| |||||||||||||||
Total assets | $ | 5,349.3 | $ | 5,128.5 |
| $ | 7,868.8 |
|
| $ | 7,358.7 |
| ||||
|
| |||||||||||||||
Liabilities and equity |
|
|
|
|
|
|
|
| ||||||||
Current liabilities |
|
|
|
|
|
|
|
| ||||||||
Accounts payable | $ | 392.5 | $ | 393.8 |
|
| 735.7 |
|
|
| 620.5 |
| ||||
Other current liabilities | 460.0 | 449.0 |
|
| 793.1 |
|
|
| 724.6 |
| ||||||
|
| |||||||||||||||
Total current liabilities | 852.5 | 842.8 |
|
| 1,528.8 |
|
|
| 1,345.1 |
| ||||||
Long-term debt | 1,462.2 | 1,431.1 |
|
| 2,629.1 |
|
|
| 2,572.2 |
| ||||||
Deferred income taxes | 176.2 | 163.5 |
|
| 167.2 |
|
|
| 160.5 |
| ||||||
Accrued defined benefit plans | 185.1 | 216.2 |
|
| 132.0 |
|
|
| 159.5 |
| ||||||
Operating lease liabilities |
|
| 166.9 |
|
|
| 140.5 |
| ||||||||
Othernon-current liabilities | 127.4 | 111.9 |
|
| 190.2 |
|
|
| 205.4 |
| ||||||
|
| |||||||||||||||
Total liabilities | 2,803.4 | 2,765.5 |
|
| 4,814.2 |
|
|
| 4,583.2 |
| ||||||
Commitments and contingencies (see Note 17) |
|
|
|
|
|
|
|
| ||||||||
Equity | ||||||||||||||||
Fortune Brands stockholders’ equity | ||||||||||||||||
Stockholders' equity |
|
|
|
|
|
|
|
| ||||||||
Common stock(a) | 1.7 | 1.7 |
|
| 1.9 |
|
|
| 1.8 |
| ||||||
Paid-in capital | 2,712.2 | 2,653.8 |
|
| 2,994.8 |
|
|
| 2,926.3 |
| ||||||
Accumulated other comprehensive loss | (25.5 | ) | (71.9 | ) |
|
| (53.8 | ) |
|
| (55.1 | ) | ||||
Retained earnings | 1,076.5 | 814.6 |
|
| 2,670.0 |
|
|
| 2,180.2 |
| ||||||
Treasury stock | (1,220.6 | ) | (1,036.7 | ) |
|
| (2,558.3 | ) |
|
| (2,277.7 | ) | ||||
|
| |||||||||||||||
Total Fortune Brands stockholders’ equity | 2,544.3 | 2,361.5 | ||||||||||||||
Noncontrolling interests | 1.6 | 1.5 | ||||||||||||||
|
| |||||||||||||||
Total equity | 2,545.9 | 2,363.0 | ||||||||||||||
|
| |||||||||||||||
Total stockholders' equity |
|
| 3,054.6 |
|
|
| 2,775.5 |
| ||||||||
Total liabilities and equity | $ | 5,349.3 | $ | 5,128.5 |
| $ | 7,868.8 |
|
| $ | 7,358.7 |
| ||||
|
|
(a) | Common stock, par value $0.01 per |
See notes to condensed consolidated financial statements.
3
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 20172021 and 20162020
(In millions)
(Unaudited)
2017 | 2016 |
| 2021 |
|
| 2020 |
| |||||||||
Operating activities |
|
|
|
|
|
|
|
| ||||||||
Net income | $ | 344.7 | $ | 309.5 |
| $ | 597.1 |
|
| $ | 390.8 |
| ||||
Non-cashpre-tax expense (income): | ||||||||||||||||
Non-cash adjustments: |
|
|
|
|
|
|
|
| ||||||||
Depreciation | 72.7 | 69.3 |
|
| 92.9 |
|
|
| 85.8 |
| ||||||
Amortization | 23.6 | 20.4 | ||||||||||||||
Amortization of intangibles |
|
| 48.5 |
|
|
| 31.1 |
| ||||||||
Non-cash lease expense |
|
| 31.8 |
|
|
| 26.6 |
| ||||||||
Stock-based compensation | 32.7 | 24.3 |
|
| 36.0 |
|
|
| 33.5 |
| ||||||
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 |
|
| 1.1 |
|
|
| 0.6 |
| ||||||||
Deferred taxes |
|
| 9.6 |
|
|
| (17.0 | ) | ||||||||
Asset impairment charges | 3.2 | — |
|
| — |
|
|
| 22.5 |
| ||||||
Amortization of deferred financing costs | 1.5 | 3.0 | ||||||||||||||
Amortization of deferred financing fees |
|
| 2.8 |
|
|
| 3.3 |
| ||||||||
Equity in losses of affiliate |
|
| — |
|
|
| 4.7 |
| ||||||||
Loss (gain) on equity investments |
|
| 2.9 |
|
|
| (6.6 | ) | ||||||||
Loss on sale of property, plant and equipment | 0.3 | 1.2 |
|
| 1.5 |
|
|
| 1.3 |
| ||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
| ||||||||
Increase in accounts receivable | (34.5 | ) | (53.1 | ) |
|
| (186.2 | ) |
|
| (164.4 | ) | ||||
(Increase) decrease in inventories | (60.7 | ) | 22.6 | |||||||||||||
(Decrease) increase in accounts payable | (3.5 | ) | 28.7 | |||||||||||||
Increase in inventories |
|
| (258.0 | ) |
|
| (20.5 | ) | ||||||||
Increase in accounts payable |
|
| 116.5 |
|
|
| 88.5 |
| ||||||||
Increase in other assets | (28.0 | ) | (11.6 | ) |
|
| (0.6 | ) |
|
| (21.2 | ) | ||||
Decrease in accrued expenses and other liabilities | (23.9 | ) | (12.0 | ) | ||||||||||||
Increase (decrease) in accrued taxes | 15.2 | (0.6 | ) | |||||||||||||
|
| |||||||||||||||
(Decrease) increase in accrued expenses and other liabilities |
|
| (65.0 | ) |
|
| 25.0 |
| ||||||||
(Decrease) increase in accrued taxes |
|
| (0.1 | ) |
|
| 22.8 |
| ||||||||
Net cash provided by operating activities | 352.6 | 380.6 |
|
| 430.8 |
|
|
| 506.8 |
| ||||||
|
| |||||||||||||||
Investing activities |
|
|
|
|
|
|
|
| ||||||||
Capital expenditures(a) | (95.5 | ) | (106.1 | ) |
|
| (113.0 | ) |
|
| (66.2 | ) | ||||
Proceeds from the sale of assets | 0.2 | 2.3 | ||||||||||||||
Proceeds from sale of product line | 1.5 | — | ||||||||||||||
Proceeds from the disposition of assets |
|
| 1.7 |
|
|
| 1.5 |
| ||||||||
Cost of acquisitions, net of cash acquired | (19.4 | ) | (230.5 | ) |
|
| 5.2 |
|
|
| — |
| ||||
|
| |||||||||||||||
Cost of investments in equity securities |
|
| — |
|
|
| (59.4 | ) | ||||||||
Net cash used in investing activities | (113.2) | (334.3) |
|
| (106.1 | ) |
|
| (124.1 | ) | ||||||
Financing activities |
|
|
|
|
|
|
|
| ||||||||
Decrease in short-term debt, net | — | (1.0 | ) | |||||||||||||
Issuance of long-term debt | 375.0 | 880.0 |
|
| 825.0 |
|
|
| 1,020.0 |
| ||||||
Repayment of long-term debt | (345.0 | ) | (465.0 | ) |
|
| (770.0 | ) |
|
| (1,120.0 | ) | ||||
Proceeds from the exercise of stock options | 25.8 | 24.8 |
|
| 32.6 |
|
|
| 56.0 |
| ||||||
Treasury stock purchases | (173.7 | ) | (362.7 | ) | ||||||||||||
Employee withholding taxes paid related to stock-based compensation | (10.2 | ) | (9.8 | ) | ||||||||||||
Deferred acquisition payment | (12.4 | ) | — | |||||||||||||
Treasury stock purchases(b) |
|
| (252.9 | ) |
|
| (150.0 | ) | ||||||||
Employee withholding taxes related to stock-based compensation |
|
| (10.5 | ) |
|
| (8.3 | ) | ||||||||
Dividends to stockholders | (82.7 | ) | (73.7 | ) |
|
| (107.9 | ) |
|
| (99.9 | ) | ||||
Dividends paid to non-controlling interests |
|
| — |
|
|
| (2.5 | ) | ||||||||
Other financing, net | (0.3 | ) | (2.1 | ) |
|
| (1.4 | ) |
|
| (4.1 | ) | ||||
|
| |||||||||||||||
Net cash used in financing activities | (223.5 | ) | (9.5 | ) |
|
| (285.1 | ) |
|
| (308.8 | ) | ||||
|
| |||||||||||||||
Effect of foreign exchange rate changes on cash | 9.7 | 3.3 |
|
| 1.0 |
|
|
| 1.9 |
| ||||||
|
| |||||||||||||||
Net increase in cash and cash equivalents | $ | 25.6 | $ | 40.1 |
| $ | 40.6 |
|
| $ | 75.8 |
| ||||
|
| |||||||||||||||
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(c) at beginning of period |
| $ | 425.0 |
|
| $ | 394.9 |
| ||||||||
Cash, cash equivalents and restricted cash(c) at end of period |
| $ | 465.6 |
|
| $ | 470.7 |
|
(a) | Capital expenditures of |
(b) | Treasury stock purchased for the nine months ended September 30, 2021 excludes $17.2 million related to purchases that were not settled until after October 1, 2021. |
(c) | Restricted cash of $1.2 million and $3.7 million is included in Other current assets and Other assets, respectively, as of September 30, 2021 and 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. Restricted cash of $1.0 million and $4.9 million is included in Other current assets and Other assets, respectively, as of December 31, 2020. |
See notes to condensed consolidated financial statements.
4
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Nine and Three Months Ended September 30, 20172021 and 20162020
(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, 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 interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
| $ | 1.8 |
|
| $ | 2,926.3 |
|
| $ | (55.1 | ) |
| $ | 2,180.2 |
|
| $ | (2,277.7 | ) |
| $ | — |
|
| $ | 2,775.5 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 597.1 |
|
|
| — |
|
|
| — |
|
|
| 597.1 |
|
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| 1.3 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.3 |
|
Stock options exercised |
|
| 0.1 |
|
|
| 32.5 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 32.6 |
|
Stock-based compensation |
|
| — |
|
|
| 36.0 |
|
|
| — |
|
|
| — |
|
|
| (10.5 | ) |
|
| — |
|
|
| 25.5 |
|
Treasury stock purchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (270.1 | ) |
|
| — |
|
|
| (270.1 | ) |
Dividends ($0.78 per common share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (107.3 | ) |
|
| — |
|
|
| — |
|
|
| (107.3 | ) |
Balance at September 30, 2021 |
| $ | 1.9 |
|
| $ | 2,994.8 |
|
| $ | (53.8 | ) |
| $ | 2,670.0 |
|
| $ | (2,558.3 | ) |
| $ | — |
|
| $ | 3,054.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Paid-In Capital |
|
| Accumulated Other Comprehensive (Loss) Income |
|
| Retained Earnings |
|
| Treasury Stock |
|
| Non- controlling Interests |
|
| Total Equity |
| |||||||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021 |
| $ | 1.9 |
|
| $ | 2,982.8 |
|
| $ | (38.4 | ) |
| $ | 2,539.3 |
|
| $ | (2,442.1 | ) |
| $ | — |
|
| $ | 3,043.5 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 202.1 |
|
|
| — |
|
|
| — |
|
|
| 202.1 |
|
Other comprehensive income (loss) |
|
| — |
|
|
| — |
|
|
| (15.4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (15.4 | ) |
Stock options exercised |
|
| — |
|
|
| 0.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
|
Stock-based compensation |
|
| — |
|
|
| 11.6 |
|
|
| — |
|
|
| — |
|
|
| (2.1 | ) |
|
| — |
|
|
| 9.5 |
|
Treasury stock purchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (114.1 | ) |
|
| — |
|
|
| (114.1 | ) |
Dividends ($0.52 per common share) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (71.4 | ) |
|
| — |
|
|
| — |
|
|
| (71.4 | ) |
Balance at September 30, 2021 |
| $ | 1.9 |
|
| $ | 2,994.8 |
|
| $ | (53.8 | ) |
| $ | 2,670.0 |
|
| $ | (2,558.3 | ) |
| $ | — |
|
| $ | 3,054.6 |
|
See notes to condensed consolidated financial statements.
5
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | Basis of Presentation and Principles of Consolidation |
References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Home & Security, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires.
The Company is a leading home and security products company with a portfolio of leading branded products used for residential home repair, remodeling, new construction and security applications.
The condensed consolidated balance sheet as of September 30, 2017,2021, the related condensed consolidated statements of comprehensive income and equity for the nine and three-month periodsthree months ended September 30, 20172021 and 20162020, and the related condensed consolidated statements of cash flows and equity for the nine-month periodsnine months ended September 30, 20172021 and 20162020 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.
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 the remaining outstanding shares of Flo in a multi-phase transaction.In January 2021, upon the expiration of the minority shareholders’ substantive participating rights, we began to consolidate the financial results of Flo into the Company’s financial results. The financial results of Flo are included in the Company’s condensed consolidated statements of comprehensive income for the nine and three months ended September 30, 2021, the condensed consolidated statement of cash flow for the nine months ended September 30, 2021 and the condensed consolidated balance sheet as of September 30, 2021. The results of operations are included in the Plumbing segment.
In December 2020, we acquired 100% of the outstanding equity interests of Larson Manufacturing (“Larson”), the North American market leading brand of storm, screen and security doors. Larson also sells related outdoor living products including retractable screens and porch windows. The Company completed the acquisition for a total purchase price, excluding expected tax benefits, of approximately $717.5 million, net of cash acquired. We financed the transaction with borrowings under our existing credit facilities. The financial results of Larson were included in the Company’s condensed consolidated statements of comprehensive income for the nine and three months ended September 30, 2021 the condensed consolidated statement of cash flow for the nine months ended September 30, 2021, and the condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020. The results of operations are included in the Outdoors & Security segment.
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, 20162020 condensed consolidated balance sheet was derived from theour 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, 2016.2020.
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.
6
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. | Recently Issued Accounting Standards |
Revenue from Contracts with CustomersSimplifying the Accounting for Income Taxes
In May 2014,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2014-09, 2019-12, which clarifies theis intended to simplify accounting for revenue arising from contracts with customersincome taxes and specifies the disclosures that an entity should includeimprove consistency in its financial statements.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 standard isguidance was effective for annual reporting periodsthe Company’s fiscal year 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.January 1, 2021. 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.
7
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (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 vsnon-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 allnon-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 ASU2017-04 in conjunction with our annual goodwill impairment test during the fourth quarter of 2017.
8
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (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.
9
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (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 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 asoff-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 anavailable-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 new 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.
10Effects of Reference Rate Reform
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. | Balance Sheet Information |
Supplemental information on our balance sheets is as follows:
(In millions) | September 30, 2017 | December 31, 2016 |
| September 30, 2021 |
|
| December 31, 2020 |
| ||||||||
Inventories: |
|
|
|
|
|
|
|
| ||||||||
Raw materials and supplies | $ | 211.6 | $ | 207.6 |
| $ | 443.9 |
|
| $ | 346.6 |
| ||||
Work in process | 61.8 | 55.9 |
|
| 82.3 |
|
|
| 76.7 |
| ||||||
Finished products | 326.7 | 267.6 |
|
| 602.1 |
|
|
| 443.9 |
| ||||||
Total inventories |
| $ | 1,128.3 |
|
| $ | 867.2 |
| ||||||||
|
|
|
|
|
|
|
|
|
| |||||||
Total inventories | $ | 600.1 | $ | 531.1 | ||||||||||||
Property, plant and equipment, gross | $ | 1,715.8 | $ | 1,630.7 |
| $ | 2,217.3 |
|
| $ | 2,150.1 |
| ||||
Less: accumulated depreciation | 1,025.2 | 968.2 |
|
| 1,282.6 |
|
|
| 1,232.7 |
| ||||||
|
| |||||||||||||||
Property, plant and equipment, net | $ | 690.6 | $ | 662.5 |
| $ | 934.7 |
|
| $ | 917.4 |
|
4. | Acquisitions and Dispositions |
Flo Technologies
In July 2017,2018 our Plumbing segment entered into a strategic partnership with, and acquired non-controlling equity interests in, 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 the remaining outstanding shares of Flo in a multi-phase transaction. As part of this agreement, we acquired Shaws, a UK-based luxury plumbing products company that specializesmajority of Flo’s outstanding shares during 2020 and entered into a forward contract to purchase all remaining shares of Flo during the first quarter of 2022 for a price based on a multiple of Flo’s 2021 sales and adjusted earnings before interest and taxes.
During 2020, we applied the equity method of accounting to our investment in manufacturingFlo as the minority shareholders had substantive participating rights which precluded consolidation in our results of operations and selling fireclay sinksstatements of financial position and selling brasswarecash flows. 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 minority shareholders’ substantive participating rights expired on January 1, 2021, at which time we obtained control of, and accessoriesbegan consolidating, Flo in partnership with Perrin & Rowe. Netour results of operations and statements of financial positions and cash flows. Immediately prior to consolidating Flo, we recognized a non-cash loss of $4.5 million within other expense during the nine months ended September 30, 2021 related to the remeasurement of our previously existing investment in Flo. The fair value allocated to assets acquired and liabilities assumed as of January 1, 2021 was $87.8 million,net of cash acquired of $9.7 million. Flo’s net sales and operating income infor the nine and three months ended September 30, 20172021 were not material to the Company.
Larson Manufacturing
In December 2020, we acquired 100% of the outstanding equity interests of Larson, the North American market leading brand of storm, screen and security doors. Larson also sells related outdoor living products including retractable screens and porch windows. The Company completed the acquisition for a total purchase price, excluding expected tax benefits, of approximately $717.5 million, net of cash acquired. 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 andwith borrowings under our existing credit facility. Net sales and operating incomeThe financial results of Larson were included in the first nine monthsCompany’s consolidated balance sheet as of 2017 were not material to the Company.December 31, 2020. The results of operations are included in the PlumbingOutdoors & Security segment. We incurred $4.5 million of Larson acquisition-related transaction costs in the year ended December 31, 2020. 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$290 million, subject to the finalization of the purchase price allocation.
The following table summarizes the preliminary allocation of $94.6the purchase price to the fair value of assets acquired and liabilities assumed as of the date of the acquisition.
(In millions) |
| |||
Accounts receivable |
| $ | 42.3 |
|
Inventories |
|
| 51.1 |
|
Property, plant and equipment |
|
| 66.1 |
|
Goodwill |
|
| 305.8 |
|
Identifiable intangible assets |
|
| 313.0 |
|
Operating lease assets |
|
| 6.1 |
|
Other assets |
|
| 3.7 |
|
Total assets |
|
| 788.1 |
|
Accounts payable |
|
| 6.5 |
|
Other current liabilities and accruals |
|
| 31.5 |
|
Other non-current liabilities |
|
| 32.6 |
|
Net assets acquired(a) |
| $ | 717.5 |
|
(a) Net assets exclude $0.4 million of cash transferred to the Company as the result of the Larson acquisition.
The preceding purchase price allocation has been determined provisionally and is subject to revision as additional information about the fair value of individual assets and liabilities becomes available. We apply significant judgement in cash. We financeddetermining the transaction using cash on handestimates and borrowings under our existing credit facilities. Netassumptions used to determine the fair value of the identifiable intangible assets, including forecasted revenue growth rates, EBITDA margins, percentage of revenue attributable to the tradename, contributory asset charges, customer attrition rate, market-participant discount rates and the assumed royalty rates. The Company is in the process of finalizing valuations of certain tangible and intangible assets, including property, plant and equipment. The provisional measurement of property, plant and equipment and goodwill is subject to change. Any change in the acquisition date fair value of the acquired assets and liabilities will change the amount of the purchase price allocable to goodwill.
Goodwill includes expected sales and operating incomecost synergies. The goodwill is included in our Outdoors & Security segment. Larson’s identifiable intangible assets consist of a finite-lived customer relationships asset of $168.0 million, an indefinite-lived tradename of $111.0 million and a finite-lived proprietary technology asset of $34.0 million. The useful life of the first nine months of 2017 were not materialcustomer relationship intangible asset is estimated to be 13 years. The Larson tradename has been assigned an indefinite life as we currently anticipate that this tradename will contribute cash flows to the Company.Company indefinitely. The resultsuseful life of operations are included in the Plumbing segment. We do not expect any portion of goodwillproprietary technology intangible asset is estimated to be deductible for income tax purposes.
We recognized7 years. Customer and contractual relationships and proprietary technology are amortized on 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.straight-line basis over their useful lives.
11
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$2,466.6 million and $1,833.8$2,394.8 million as of September 30, 20172021 and December 31, 2016,2020, 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 |
| Plumbing |
|
| Outdoors & Security |
|
| Cabinets |
|
| Total Goodwill |
| |||||||||||||||||||
Goodwill at December 31, 2016(a) | $ | 924.3 | $ | 670.2 | $ | 143.0 | $ | 96.3 | $ | 1,833.8 | ||||||||||||||||||||||||||
Goodwill at December 31, 2020(a) |
| $ | 750.1 |
|
| $ | 718.6 |
|
| $ | 926.1 |
|
| $ | 2,394.8 |
| ||||||||||||||||||||
Year-to-date translation adjustments | 3.3 | 4.6 | — | 1.5 | 9.4 |
|
| 0.8 |
|
|
| 0.2 |
|
|
| 0.4 |
|
|
| 1.4 |
| |||||||||||||||
Acquisition-related adjustments | — | 9.6 | — | — | 9.6 |
|
| 65.5 |
|
|
| 4.9 |
|
|
| — |
|
|
| 70.4 |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||
Goodwill at September 30, 2017(a) | $ | 927.6 | $ | 684.4 | $ | 143.0 | $ | 97.8 | $ | 1,852.8 | ||||||||||||||||||||||||||
Goodwill at September 30, 2021(a) |
| $ | 816.4 |
|
| $ | 723.7 |
|
| $ | 926.5 |
|
| $ | 2,466.6 |
|
(a) | Net of accumulated impairment losses of $399.5 million in the |
We also had net identifiable intangible assets, principally tradenames, of $1,105.4 million and $1,107.0 million as of September 30, 2017 and December 31, 2016, respectively.
The gross carrying value and accumulated amortization by class of identifiable intangible assets as of September 30, 20172021 and December 31, 20162020 were as follows:
(In millions) | As of September 30, 2017 | As of December 31, 2016 |
| As of September 30, 2021 |
|
| As of December 31, 2020 |
| ||||||||||||||||||||||||||||||||||||||||
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 |
| $ | 711.7 |
|
| $ | — |
|
| $ | 711.7 |
|
| $ | 711.0 |
|
| $ | — |
|
| $ | 711.0 |
| ||||||||||||
Amortizable intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Tradenames | 18.6 | (9.4 | ) | 9.2 | 15.8 | (7.3 | ) | 8.5 |
|
| 37.1 |
|
|
| (15.3 | ) |
|
| 21.8 |
|
|
| 34.8 |
|
|
| (14.0 | ) |
|
| 20.8 |
| ||||||||||||||||
Customer and contractual relationships | 627.1 | (226.0 | ) | 401.1 | 611.9 | (203.1 | ) | 408.8 |
|
| 977.3 |
|
|
| (375.1 | ) |
|
| 602.2 |
|
|
| 973.2 |
|
|
| (337.3 | ) |
|
| 635.9 |
| ||||||||||||||||
Patents/proprietary technology | 57.2 | (44.7 | ) | 12.5 | 61.9 | (44.0 | ) | 17.9 |
|
| 133.0 |
|
|
| (67.4 | ) |
|
| 65.6 |
|
|
| 109.6 |
|
|
| (57.0 | ) |
|
| 52.6 |
| ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total | 702.9 | (280.1 | ) | 422.8 | 689.6 | (254.4 | ) | 435.2 |
|
| 1,147.4 |
|
|
| (457.8 | ) |
|
| 689.6 |
|
|
| 1,117.6 |
|
|
| (408.3 | ) |
|
| 709.3 |
| ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||||
Total identifiable intangibles | $ | 1,385.5 | $ | (280.1 | ) | $ | 1,105.4 | $ | 1,361.4 | $ | (254.4 | ) | $ | 1,107.0 |
| $ | 1,859.1 |
|
| $ | (457.8 | ) |
| $ | 1,401.3 |
|
| $ | 1,828.6 |
|
| $ | (408.3 | ) |
| $ | 1,420.3 |
|
We had net identifiable intangible assets of $1,401.3 million and $1,420.3 as of September 30, 2021 and December 31, 2020, respectively. The $24.1$30.5 million increase in gross identifiable intangible assets was primarily due to acquisition-related adjustments in our Plumbing segment (See Note 4) as well asthe consolidation of Flo and 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).adjustments.
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 25 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.
12
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the second quarter of 2020, we recognized a pre-tax charge of $13.0 million related to a tradename in our Plumbing segment and the remaining carrying value of this tradename is being amortized over its estimated useful life of 30 years. This charge was primarily due to extended closures of luxury plumbing showrooms associated with the impact of the novel coronavirus (“COVID-19”) pandemic that led to lower than expected sales related to an indefinite-lived tradename combined with the updated financial outlook compared to previous forecasts and uncertainty of the COVID-19 pandemic on the sales and profitability.
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. As of September 30, 2021, the carrying value of this tradename was $29.1 million.
The fair values of these tradenames 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 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 year ended December 31, 2020 were as follows:
|
| 2020 |
| |||||||||
Unobservable Input |
| Minimum |
|
| Maximum |
|
| Weighted Average(a) |
| |||
Discount rate |
|
| 14.8 | % |
|
| 15.8 | % |
|
| 15.1 | % |
Royalty rate(b) |
|
| 4.0 | % |
|
| 5.0 | % |
|
| 4.3 | % |
Long-term revenue growth rate(c) |
|
| 1.0 | % |
|
| 3.0 | % |
|
| 1.6 | % |
(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. |
As of December 31, 2016,2020, the fair value of onefour Cabinets' tradenames exceeded their carrying values of $180.6 million by less than 30%. A reduction in the estimated fair value of the tradenames in theour Cabinets segment and one of the tradenamescould trigger additional impairment charges in the Doors segment exceeded their carrying value by less than 10%. In the second quarter 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. As of September 30, 2017, the carrying values of these tradenames was $168 million.We did not identify any impairment triggers during the third quarter of 2017. In addition to evaluating the interim events that may require more frequent impairment testing, we will conduct our annual impairment testing in the fourth quarter of 2017.
The Company cannot predict the occurrence of certain events that might adversely affect the carrying value of goodwill and other intangible assets. The events and/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, including due to resurgences of the virus, actual new construction and repair and remodel growth rates that lagfall below our assumptions, actions of key customers, volatility ofincreases in discount rates, continued economic uncertainty, higher levels of unemployment, weak consumer confidence, lower levels of discretionary consumer spending, a decrease in royalty rates and a decline in the trading price of our common stock. 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. |
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 ofpre-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).
External Debt and Financing Arrangements |
In June 2016,Unsecured Senior Notes
At September 30, 2021, the Company amendedhad 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 to combinedebt issuance costs as of September 30, 2021 and rolloverDecember 31, 2020:
|
|
|
|
|
|
|
|
| Net Carrying Value |
| |||||
(in millions) | Principal Amount |
|
| Issuance Date |
| Maturity Date |
| September 30, 2021 |
|
| December 31, 2020 |
| |||
4.000% Senior Notes | $ | 500.0 |
|
| June 2015 |
| June 2025 |
| $ | 497.2 |
|
| $ | 496.6 |
|
4.000% Senior Notes (the "2018 Notes") |
| 600.0 |
|
| September 2018 |
| September 2023 |
|
| 597.9 |
|
|
| 597.1 |
|
3.250% Senior Notes (the "2019 Notes") |
| 700.0 |
|
| September 2019 |
| September 2029 |
|
| 694.0 |
|
|
| 693.5 |
|
Total Senior Notes | $ | 1,800.0 |
|
|
|
|
|
| $ | 1,789.1 |
|
| $ | 1,787.2 |
|
Credit Facilities
In April 2020, the existingCompany entered into a 364-day supplemental, $400 million revolving credit facility and term loan(the “2020 Revolving Credit Agreement”). This supplemental facility was never utilized by the Company prior to its expiration in April 2021.
In September 2019, the Company entered into a new standalonesecond amended and restated $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 “2019 Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. OnThe 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 30, 2017 and December 31, 2016, our outstanding borrowings under this facility were $570.0 million and $540.0 million, respectively. At September 30, 2017 and December 31, 2016, the current portion of long-term debt was zero.2024. Interest rates under the facility2019 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%0.91% to LIBOR + 1.5%1.4%. On September 30, 2021 and December 31, 2020, our outstanding borrowings under this facility were $840.0 million and $785.0 million, respectively. This facility is included in Long-term debt in the condensed consolidated balance sheets. As of September 30, 2017,2021, we were in compliance with all covenants under this facility.
13
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 often-year notes due 2025 with a coupon of 4%. We used the proceeds from the Senior Notes offering to pay down our revolving credit facility and for general corporate purposes. On September 30, 2017 and December 31, 2016, 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.
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, 20172021 and December 31, 2016.2020.
7. | 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, 20172021 was $190.2 million, representing a net settlement payable of $2.3$463.0 million. Based on foreign exchange rates as of September 30, 2017,2021, we estimate that $1.2$2.7 million of net foreign currency derivative lossesgains included in accumulated other comprehensive income as of September 30, 20172021 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, 20172021 and December 31, 20162020 were as follows:
|
|
| Fair Value |
| ||||||||||||||||
(In millions) | Fair Value |
| Location |
| September 30, 2021 |
|
| December 31, 2020 |
| |||||||||||
Location | September 30, 2017 | December 31, 2016 | ||||||||||||||||||
Assets | ||||||||||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign exchange contracts | Other current assets | $ | 3.0 | $ | 2.8 |
| Other current assets |
| $ | 3.2 |
|
| $ | 3.7 |
| |||||
Commodity contracts |
| Other current assets |
|
| 0.2 |
|
|
| 1.9 |
| ||||||||||
Net investment hedges | Other current assets | 0.2 | 0.6 |
| Other current assets |
|
| 0.1 |
|
|
| — |
| |||||||
|
|
| Total assets |
| $ | 3.5 |
|
| $ | 5.6 |
| |||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign exchange contracts |
| Other current liabilities |
| $ | 1.3 |
|
| $ | 6.5 |
| ||||||||||
Total assets | $ | 3.2 | $ | 3.4 |
| Total liabilities |
| $ | 1.3 |
|
| $ | 6.5 |
| ||||||
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 |
14
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The effects of derivative financial instruments on the statements of comprehensive income for the nine months ended September 30, 2021 and 2020 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, 2021 |
| |||||||||
|
| Cost of products sold |
|
| Interest expense |
|
| Other expense, net |
| |||
Total amounts per Consolidated Statements of Comprehensive Income |
| $ | 3,637.2 |
|
| $ | 63.2 |
|
| $ | 0.7 |
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items |
|
| — |
|
|
| — |
|
|
| (2.1 | ) |
Derivative designated as hedging instruments |
|
| — |
|
|
| — |
|
|
| (0.6 | ) |
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 0.2 |
|
|
| — |
|
|
| — |
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 0.9 |
|
|
| — |
|
|
| — |
|
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, 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 |
|
|
| — |
|
The effects of derivative financial instruments on the statements of comprehensive income for the three months ended September 30, 20172021 and 2016 were:2020 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, 2021 |
| |||||||||
|
| Cost of products sold |
|
| Interest expense |
|
| Other income, net |
| |||
Total amounts per Consolidated Statements of Comprehensive Income |
| $ | 1,280.0 |
|
| $ | 20.6 |
|
| $ | 1.3 |
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Hedged items |
|
| — |
|
|
| — |
|
|
| (3.8 | ) |
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 |
|
| 0.9 |
|
|
| — |
|
|
| — |
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| — |
|
|
| — |
|
|
| — |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| — |
|
|
| 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, 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 |
|
|
| — |
|
The effective portion of cash flow hedges recognized in other comprehensive income were a net lossesgain of $(0.1) $1.8million and $(8.0) a net loss of $7.0 million in the nine months ended September 30, 20172021 and 2016,2020, respectively. The effective portion of cash flow hedges recognized in other comprehensive income were a net lossesgain of $(3.8)$2.4 million and zeroa net loss of $0.3 million in the three months ended September 30, 20172021 and 2016, 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.2020, respectively.
ASC
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 levelLevel 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 3.
15
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Level 3 except for certain pension assets.
The carrying value net of underwriting commissions, price discounts, and debt issuance costs and fair value of debt as of September 30, 20172021 and December 31, 20162020 were as follows:
(In millions) | September 30, 2017 | December 31, 2016 |
| September 30, 2021 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value |
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| |||||||||||||||||
Notes, net of underwriting commissions, price discounts and debt issuance costs |
| $ | 1,789.1 |
|
| $ | 1,933.8 |
|
| $ | 1,787.2 |
|
| $ | 1,994.9 |
| ||||||||||||||||
Revolving credit facility | $ | 570.0 | $ | 570.0 | $ | 540.0 | $ | 540.0 |
|
| 840.0 |
|
|
| 840.0 |
|
|
| 785.0 |
|
|
| 785.0 |
| ||||||||
Senior Notes | 892.2 | 927.5 | 891.1 | 919.2 | ||||||||||||||||||||||||||||
Total debt |
| $ | 2,629.1 |
|
| $ | 2,773.8 |
|
| $ | 2,572.2 |
|
| $ | 2,779.9 |
|
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 levelLevel 1 inputs.
Assets and liabilities measured at fair value on a recurring basis as of September 30, 20172021 and December 31, 20162020 were as follows:
(In millions) | Fair Value |
| Fair Value |
| ||||||||||||
September 30, 2017 | December 31, 2016 |
| September 30, 2021 |
|
| December 31, 2020 |
| |||||||||
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) |
| $ | 3.5 |
|
| $ | 5.6 |
| ||||||||
Deferred compensation program assets (Level 2) |
|
| 19.7 |
|
|
| 16.3 |
| ||||||||
Total assets | $ | 10.2 | $ | 7.9 |
| $ | 23.2 |
|
| $ | 21.9 |
| ||||
Liabilities |
|
|
|
|
|
|
|
| ||||||||
Derivative financial instruments (level 2) | $ | 5.5 | $ | 3.1 | ||||||||||||
Derivative financial instruments (Level 2) |
| $ | 1.3 |
|
| $ | 6.5 |
|
16
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. | Accumulated Other Comprehensive |
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, 2021 and 2020 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 | ) | |||||
|
|
|
|
|
|
|
|
(In millions) |
| Foreign Currency Adjustments |
|
| Derivative Hedging Gain (Loss) |
|
| Defined Benefit Plan Adjustments |
|
| Accumulated Other Comprehensive Loss |
| ||||
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 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2020 |
| $ | 7.2 |
|
| $ | 4.2 |
|
| $ | (66.5 | ) |
| $ | (55.1 | ) |
Amounts classified into accumulated other comprehensive (loss) income |
|
| 2.9 |
|
|
| 1.4 |
|
|
| (2.6 | ) |
|
| 1.7 |
|
Amounts reclassified from accumulated other comprehensive (loss) income |
|
| — |
|
|
| (1.8 | ) |
|
| 1.4 |
|
|
| (0.4 | ) |
Net current-period other comprehensive (loss) income |
|
| 2.9 |
|
|
| (0.4 | ) |
|
| (1.2 | ) |
|
| 1.3 |
|
Balance at September 30, 2021 |
| $ | 10.1 |
|
| $ | 3.8 |
|
| $ | (67.7 | ) |
| $ | (53.8 | ) |
17
(In millions) |
| Foreign Currency Adjustments |
|
| Derivative Hedging Gain (Loss) |
|
| Defined Benefit Plan Adjustments |
|
| Accumulated Other Comprehensive Loss |
| ||||
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 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021 |
| $ | 25.0 |
|
| $ | 3.3 |
|
| $ | (66.7 | ) |
| $ | (38.4 | ) |
Amounts classified into accumulated other comprehensive (loss) income |
|
| (14.9 | ) |
|
| 1.7 |
|
|
| (2.4 | ) |
|
| (15.6 | ) |
Amounts reclassified from accumulated other comprehensive (loss) income |
|
| — |
|
|
| (1.2 | ) |
|
| 1.4 |
|
|
| 0.2 |
|
Net current-period other comprehensive (loss) income |
|
| (14.9 | ) |
|
| 0.5 |
|
|
| (1.0 | ) |
|
| (15.4 | ) |
Balance at September 30, 2021 |
| $ | 10.1 |
|
| $ | 3.8 |
|
| $ | (67.7 | ) |
| $ | (53.8 | ) |
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The reclassifications out of accumulated other comprehensive loss for the nine and three months ended September 30, 20172021 and 20162020 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 |
(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 | |||||
|
| 2021 |
|
| 2020 |
|
|
| ||
Gains (losses) on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| $ | 0.2 |
|
| $ | (2.1 | ) |
| Cost of products sold |
Commodity contracts |
|
| 0.9 |
|
|
| (0.2 | ) |
| Cost of products sold |
Interest rate contracts |
|
| 0.5 |
|
|
| 0.5 |
|
| Interest expense |
|
|
| 1.6 |
|
|
| (1.8 | ) |
| Total before tax |
|
|
| 0.2 |
|
|
| (0.3 | ) |
| Tax expense |
|
| $ | 1.8 |
|
| $ | (2.1 | ) |
| Net of tax |
Defined benefit plan items |
|
|
|
|
|
|
|
|
|
|
Recognition of actuarial losses |
| $ | (1.1 | ) |
| $ | (0.6 | ) |
| Other expense (income), net |
|
|
| (1.1 | ) |
|
| (0.6 | ) |
| Total before tax |
|
|
| (0.3 | ) |
|
| 0.2 |
|
| Tax expense |
|
| $ | (1.4 | ) |
| $ | (0.4 | ) |
| Net of tax |
Total reclassifications for the period |
| $ | 0.4 |
|
| $ | (2.5 | ) |
| 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 | |||||
|
| 2021 |
|
| 2020 |
|
|
| ||
Gains (losses) on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| $ | 0.9 |
|
| $ | (1.4 | ) |
| Cost of products sold |
Commodity contracts |
|
| — |
|
|
| 0.2 |
|
| Cost of products sold |
Interest rate contracts |
|
| 0.2 |
|
|
| 0.2 |
|
| Interest expense |
|
|
| 1.1 |
|
|
| (1.0 | ) |
| Total before tax |
|
|
| 0.1 |
|
|
| — |
|
| Tax expense |
Total reclassifications for the period |
| $ | 1.2 |
|
| $ | (1.0 | ) |
| Net of tax |
Defined benefit plan items |
|
|
|
|
|
|
|
|
|
|
Recognition of actuarial losses |
| $ | (1.1 | ) |
| $ | (0.6 | ) |
| Other expense (income), net |
|
|
| (1.1 | ) |
|
| (0.6 | ) |
| Total before tax |
|
|
| (0.3 | ) |
|
| 0.2 |
|
| Tax expense |
|
| $ | (1.4 | ) |
| $ | (0.4 | ) |
| Net of tax |
Total reclassifications for the period |
| $ | (0.2 | ) |
| $ | (1.4 | ) |
| Net of tax |
18
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. | Revenue |
The following table disaggregates our consolidated revenue by major sales distribution channels for the nine and three months ended September 30, 2021 and 2020:
(In millions) |
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Wholesalers(a) |
| $ | 2,594.4 |
|
| $ | 1,969.8 |
|
| $ | 933.6 |
|
| $ | 722.9 |
|
Home Center retailers(b) |
|
| 1,642.0 |
|
|
| 1,338.4 |
|
|
| 524.9 |
|
|
| 498.3 |
|
Other retailers(c) |
|
| 326.6 |
|
|
| 251.3 |
|
|
| 128.5 |
|
|
| 91.7 |
|
Builder direct |
|
| 194.8 |
|
|
| 164.6 |
|
|
| 65.7 |
|
|
| 57.8 |
|
U.S. net sales |
|
| 4,757.8 |
|
|
| 3,724.1 |
|
|
| 1,652.7 |
|
|
| 1,370.7 |
|
International(d) |
|
| 935.6 |
|
|
| 706.5 |
|
|
| 333.6 |
|
|
| 281.4 |
|
Net sales |
| $ | 5,693.4 |
|
| $ | 4,430.6 |
|
| $ | 1,986.3 |
|
| $ | 1,652.1 |
|
(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 costincome for pension and postretirement benefits for the nine and three months ended September 30, 20172021 and 20162020 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 |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| |||||||||||||||||
Service cost | $ | 0.4 | $ | 7.2 | $ | — | $ | — |
| $ | 0.3 |
|
| $ | 0.3 |
|
| $ | 0.1 |
|
| $ | 0.1 |
|
| ||||||||
Interest cost | 25.0 | 25.8 | — | 0.2 |
|
| 18.0 |
|
|
| 21.2 |
|
|
| 6.0 |
|
|
| 7.0 |
|
| ||||||||||||
Expected return on plan assets | (28.0 | ) | (27.9 | ) | — | — |
|
| (26.2 | ) |
|
| (24.5 | ) |
|
| (8.7 | ) |
|
| (8.1 | ) |
| ||||||||||
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 |
|
| 1.1 |
|
|
| 0.6 |
|
|
| 1.1 |
|
|
| 0.6 |
|
| ||||||||||||||||
Net periodic benefit income |
| $ | (6.8 | ) |
| $ | (2.4 | ) |
| $ | (1.5 | ) |
| $ | (0.4 | ) |
|
Service cost for 2017 relates to benefit accruals in an hourly Union defined benefit plan in our Outdoors & Security segment. All other defined benefit pension plans were frozen as of December 31, 2016.
19
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. | Income Taxes |
The effective income tax rates for the nine and three months ended September 30 2017were 22.0% and 2016 were 29.5%24.4% for 2021 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 related 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,23.5% and a benefit associated with the U.S. research and development credit, offset by state and local taxes and increases to uncertain tax positions.24.3% for 2020, respectively.
The effective income tax ratesrate for the threenine months ended September 30, 2017 and 2016 were 31.6% and 28.6%, respectively. The increase in the effective 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 were2021 was favorably impacted by a benefit related to decreases in uncertain tax benefit attributable to the Domestic Production Activity (Internal Revenue Code Section 199) Deduction, favorable tax rates in foreign jurisdictions,positions and a benefit associated with the U.S. research and development credit, offset by state and local taxes and increasesrelated to uncertain tax positions.
It is reasonably possible that, within the next 12 months, total unrecognized tax benefits may decrease up to $1.5 million, primarily as a result of the conclusion of pending U.S. federal, state and foreign income tax proceedings.share-based compensation.
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 claimshistoric 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, 20172021 and 2016,2020, respectively.
(In millions) | Nine Months Ended September 30, |
| Nine Months Ended September 30, |
| ||||||||||||
2017 | 2016 |
| 2021 |
|
| 2020 |
| |||||||||
Reserve balance at January 1, | $ | 16.2 | $ | 16.0 |
| $ | 24.5 |
|
| $ | 24.7 |
| ||||
Provision for warranties issued | 23.3 | 23.8 |
|
| 26.5 |
|
|
| 17.7 |
| ||||||
Settlements made (in cash or in kind) | (17.0 | ) | (22.8 | ) |
|
| (25.5 | ) |
|
| (19.7 | ) | ||||
Acquisition |
|
| 0.3 |
|
|
| — |
| ||||||||
Foreign translation adjustments | (1.2 | ) | — |
|
| 0.1 |
|
|
| — |
| |||||
Acquisitions | 0.7 | 0.4 | ||||||||||||||
|
| |||||||||||||||
Reserve balance at September 30, | $ | 22.0 | $ | 17.4 |
| $ | 25.9 |
|
| $ | 22.7 |
|
20
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. | Information on Business Segments |
Net sales and operating income for the nine and three months ended September 30, 20172021 and 20162020 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 | % |
|
| Nine Months Ended September 30, | |||||||||||
(In millions) |
| 2021 |
|
| 2020 |
|
| % Change vs. Prior Year | |||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumbing |
| $ | 2,057.6 |
|
| $ | 1,564.4 |
|
|
| 31.5 |
| % |
Outdoors & Security |
|
| 1,525.4 |
|
|
| 1,052.7 |
|
|
| 44.9 |
|
|
Cabinets |
|
| 2,110.4 |
|
|
| 1,813.5 |
|
|
| 16.4 |
|
|
Net sales |
| $ | 5,693.4 |
|
| $ | 4,430.6 |
|
|
| 28.5 |
| % |
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumbing |
| $ | 483.3 |
|
| $ | 330.6 |
|
|
| 46.2 |
| % |
Outdoors & Security |
|
| 211.7 |
|
|
| 143.5 |
|
|
| 47.5 |
|
|
Cabinets |
|
| 214.2 |
|
|
| 163.1 |
|
|
| 31.3 |
|
|
Less: Corporate expenses |
|
| (79.3 | ) |
|
| (69.0 | ) |
|
| (14.9 | ) |
|
Operating income |
| $ | 829.9 |
|
| $ | 568.2 |
|
|
| 46.1 |
| % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, | |||||||||||
(In millions) |
| 2021 |
|
| 2020 |
|
| % Change vs. Prior Year | |||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumbing |
| $ | 741.4 |
|
| $ | 590.6 |
|
|
| 25.5 |
| % |
Outdoors & Security |
|
| 528.4 |
|
|
| 406.7 |
|
|
| 29.9 |
|
|
Cabinets |
|
| 716.5 |
|
|
| 654.8 |
|
|
| 9.4 |
|
|
Net sales |
| $ | 1,986.3 |
|
| $ | 1,652.1 |
|
|
| 20.2 |
| % |
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Plumbing |
| $ | 166.5 |
|
| $ | 116.6 |
|
|
| 42.8 |
| % |
Outdoors & Security |
|
| 80.4 |
|
|
| 66.8 |
|
|
| 20.4 |
|
|
Cabinets |
|
| 67.2 |
|
|
| 82.1 |
|
|
| (18.1 | ) |
|
Less: Corporate expenses |
|
| (27.5 | ) |
|
| (25.3 | ) |
|
| (8.7 | ) |
|
Operating income |
| $ | 286.6 |
|
| $ | 240.2 |
|
|
| 19.3 |
| % |
21
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. |
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 | % |
22
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restructuring and Other Charges |
Pre-tax restructuring and other charges for the nine and three months ended September 30, 20172021 and 20162020 are shown below.
(In millions) | Nine Months Ended September 30, 2017 |
| Nine Months Ended September 30, 2021 |
|
| Nine Months Ended September 30, 2020 |
| |||||||||||||||||||||||||||||
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 |
| $ | — |
|
| $ | 2.8 |
|
| $ | 2.8 |
|
| $ | 7.2 |
|
| $ | 0.1 |
|
| $ | 7.3 |
| |||||||
Security | 1.9 | 0.9 | 2.8 | |||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||
Outdoors & Security |
|
| 8.5 |
|
|
| (0.4 | ) |
|
| 8.1 |
|
|
| 3.2 |
|
|
| 0.5 |
|
|
| 3.7 |
| ||||||||||||
Cabinets |
|
| 3.0 |
|
|
| 3.5 |
|
|
| 6.5 |
|
|
| 4.7 |
|
|
| 2.6 |
|
|
| 7.3 |
| ||||||||||||
Corporate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.4 |
|
|
| 0.3 |
|
|
| 1.7 |
| ||||||||||||
Total | $ | 3.5 | $ | 0.9 | $ | 4.4 |
| $ | 11.5 |
|
| $ | 5.9 |
|
| $ | 17.4 |
|
| $ | 16.5 |
|
| $ | 3.5 |
|
| $ | 20.0 |
|
(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 20172021 largely related to severance costs associated with the relocation of manufacturing facilitieswithin our Outdoors & Security and Cabinets segments. Restructuring and other charges in the first nine months of 2020 largely related to headcount actions associated with COVID-19-related reductions in demand across all segments and costs associated with changes in our manufacturing processes within our Plumbing segments.segment.
(In millions) | Nine Months Ended September 30, 2016 |
| Three Months Ended September 30, 2021 |
|
| Three Months Ended September 30, 2020 |
| |||||||||||||||||||||||||||||
Restructuring Charges | Other Charges (a) | Total Charges |
| Restructuring Charges |
|
| Other Charges (a) |
|
| Total Charges |
|
| Restructuring Charges |
|
| Other Charges (a) |
|
| Total Charges |
| ||||||||||||||||
Plumbing |
| $ | — |
|
| $ | 1.2 |
|
| $ | 1.2 |
|
| $ | 4.0 |
|
| $ | 2.4 |
|
| $ | 6.4 |
| ||||||||||||
Outdoors & Security |
|
| 2.4 |
|
|
| (0.4 | ) |
|
| 2.0 |
|
|
| - |
|
|
| (0.3 | ) |
|
| (0.3 | ) | ||||||||||||
Cabinets | $ | 1.8 | $ | — | $ | 1.8 |
|
| 1.2 |
|
|
| 0.9 |
|
|
| 2.1 |
|
|
| (2.4 | ) |
|
| 0.3 |
|
|
| (2.1 | ) | ||||||
Plumbing | 1.1 | 0.8 | 1.9 | |||||||||||||||||||||||||||||||||
Security | 9.5 | 3.5 | 13.0 | |||||||||||||||||||||||||||||||||
|
|
| ||||||||||||||||||||||||||||||||||
Total | $ | 12.4 | $ | 4.3 | $ | 16.7 |
| $ | 3.6 |
|
| $ | 1.7 |
|
| $ | 5.3 |
|
| $ | 1.6 |
|
| $ | 2.4 |
|
| $ | 4.0 |
|
Restructuring and other charges in the third quarter of
Cabinets segments. Restructuring and other charges in the third quarter of
Reconciliation of Restructuring Liability
|