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Fortune Brands Home & Security Reports Strong First Quarter Results, Raises Full-Year Outlook

Stocks in this article: FBHS

Use of non-GAAP financial information

This press release includes measures not derived in accordance with generally accepted accounting principles (“GAAP”), such as diluted earnings per share before charges/gains, net debt-to-EBITDA ratio, operating income before charges/gains, and free cash flow. These measures should not be considered in isolation or as a substitute for any measure derived in accordance with GAAP and may also be inconsistent with similar measures presented by other companies. Reconciliations of these measures to the most closely comparable GAAP measures, and reasons for the Company’s use of these measures, are presented in the attached pages.

     
FORTUNE BRANDS HOME & SECURITY, INC.
(In millions, except per share amounts)
(Unaudited)
 
         
Three Months Ended March 31,
2012   2011   % Change
Net Sales (GAAP)          
Kitchen & Bath Cabinetry $ 311.5 $ 299.8 3.9
Plumbing & Accessories 244.5 203.8 20.0
Advanced Material Windows & Door Systems 113.4 102.0 11.2
Security & Storage   129.4       109.2     18.5  
Total Net Sales $ 798.8     $ 714.8     11.8  
 
Operating Income (Loss) Before Charges/Gains (a)          
Kitchen & Bath Cabinetry $ (3.9 ) $ (1.7 ) (129.4 )
Plumbing & Accessories 36.2 25.6 41.4
Advanced Material Windows & Door Systems (10.3 ) (13.6 ) 24.3
Security & Storage 11.8 6.2 90.3
Corporate expense   (12.9 )     (13.2 )   2.3  
Total Operating Income Before Charges/Gains $ 20.9     $ 3.3     533.3  
 
Earnings Per Share Before Charges/Gains (b)          
Diluted $ 0.08     $ -     -  
 
         
EBITDA Before Charges/Gains (c) $ 45.4     $ 28.1     61.6  
 
(a) Operating income (loss) before charges/gains is operating income derived in accordance with GAAP including estimated incremental standalone corporate expenses and excluding restructuring and other charges, and income from a contingent acquisition consideration adjustment. Operating income (loss) before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to determine the returns generated by FBHS and to evaluate and identify cost-reduction initiatives. Management believes this measure provides investors with helpful supplemental information regarding the underlying performance of the company from year to year. This measure may be inconsistent with similar measures presented by other companies. A GAAP reconciliation is included in subsequent tables.
 
(b) Diluted EPS before charges/gains is net income (loss) calculated on a diluted per-share basis adjusted to reflect the borrowing arrangements and debt levels that actually existed immediately after the separation from Fortune Brands, Inc. as of October 4, 2011, the 1:1 share distribution resulting from the spin-off of FBHS from Fortune Brands, Inc., standalone corporate costs, an adjusted pro forma effective tax rate of 35%, and excludes restructuring and other charges, and income from a contingent acquisition consideration adjustment. Diluted EPS before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to evaluate the overall performance of the company and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the company from period to period. This measure may be inconsistent with similar measures presented by other companies. A GAAP reconciliation is included in subsequent tables.
 
(c) EBITDA before charges/gains is net income (loss) derived in accordance with GAAP including estimated incremental standalone corporate expenses and excluding restructuring and other charges, income from a contingent acquisition consideration adjustment, depreciation, amortization of intangible assets, related party interest expense, net, external interest expense, and income taxes. EBITDA before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to assess returns generated by FBHS. Management believes this measure provides investors with helpful supplemental information about the company's ability to fund internal growth, make acquisitions and repay debt and related interest. This measure may be inconsistent with similar measures presented by other companies. A GAAP reconciliation is included in subsequent tables.

   
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (GAAP)
(In millions)
(Unaudited)
 
   
March 31, December 31,
2012 2011
 
Assets
Current assets    
Cash and cash equivalents $ 120.6 $ 120.8
Accounts receivable, net 379.3 346.1
Inventory 350.7 336.3
Other current assets   123.3   150.3
Total current assets 973.9 953.5
 
Property, plant and equipment, net 515.0 525.8
Goodwill resulting from business acquisitions 1,367.4 1,366.6
Other intangible assets, net of accumulated amortization 701.4 702.9
Other assets   89.8   89.1
Total assets $ 3,647.5 $ 3,637.9
 
 
Liabilities and Equity
Current liabilities    
Notes payable to banks $ 4.3 $ 3.8
Current portion of long-term debt 17.5 17.5
Accounts payable 254.7 260.7
Other current liabilities   240.4   315.8
Total current liabilities 516.9 597.8
 
Long-term debt 409.3 389.3
Deferred income taxes 213.4 204.1
Accrued defined benefit plans 250.0 248.2
Other long-term liabilities   74.4   74.0
Total liabilities 1,464.0 1,513.4
 
Stockholders' equity 2,180.5 2,120.8
Noncontrolling interests   3.0   3.7
Total equity   2,183.5   2,124.5
Total liabilities and equity $ 3,647.5 $ 3,637.9

       
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
       
Three Months Ended March 31,
2012     2011
Operating Activities        
Net Income (Loss) $ 13.0 $ (10.3 )
Depreciation and amortization 24.5 24.8
Deferred income taxes

8.1

0.6
Other noncash items 6.0 2.7
Changes in assets and liabilities, net   (95.5 )     (85.7 )
Net cash provided by operating activities $ (43.9 )   $ (67.9 )
 
Investing Activities        
Capital expenditures, net of proceeds from asset sales $ (9.8 ) $ (9.9 )
Other investing activities   (3.6 )     -  
Net cash used in investing activities $ (13.4 )   $ (9.9 )
       
Financing Activities $ 56.7     $ 84.9  
       
Effect of changes in foreign currency exchange rates on cash $ 0.4     $ 0.1  
       
Net (decrease)/increase in cash and cash equivalents $ (0.2 ) $ 7.2
Cash and cash equivalents at beginning of year   120.8       60.7  
Cash and cash equivalents at end of period $ 120.6     $ 67.9  
 
             

FREE CASH FLOW

Three Months Ended March 31,     2012 Full Year
2012   2011     Targeted Range
 
Free Cash Flow (a) $ (12.5 ) $ (77.8 ) $ 200 - 225
Add:
Capital Expenditures

11.2

10.0 80
Less:
Proceeds from the sale of assets

1.4

0.1 5 - 10
Proceeds from the exercise of stock options  

41.2

      -         50 - 60
Cash Flow From Operations (GAAP) $ (43.9 )   $ (67.9 )     $ 225 - 235
 
(a) Free cash flow is cash flow from operations calculated in accordance with GAAP less net capital expenditures (capital expenditures less proceeds from the sale of assets including property, plant and equipment) plus proceeds from the exercise of stock options. Free cash flow is a measure not derived in accordance with GAAP. Management believes that free cash flow provides investors with helpful supplemental information about the company's ability to fund internal growth, make acquisitions, repay debt and related interest, pay dividends, and repurchase common stock. This measure may be inconsistent with similar measures presented by other companies.

     
FORTUNE BRANDS HOME & SECURITY, INC.
CONSOLIDATED STATEMENT OF INCOME (GAAP)
(In millions, except per share amounts)
(Unaudited)
           
Three Months Ended March 31,
2012   2011   % Change
         
Net Sales $ 798.8     $ 714.8     11.8  
 
Cost of products sold 552.0 504.5 9.4
 
Selling, general
and administrative expenses 221.1 198.5 11.4
 
Amortization of intangible assets 3.4 3.7 (8.1 )
 
Restructuring charges 1.0 0.3 233.3
         
Operating Income   21.3       7.8     173.1  
 
Related party interest expense, net - 22.7 (100.0 )
 
External interest expense 2.5 0.1 -
 
Other income, net (0.5 ) - -
         
Income (Loss) before income taxes   19.3       (15.0 )   228.7  
 
Income taxes 6.3 (4.7 ) 234.0
         
Net Income (Loss) $ 13.0     $ (10.3 )   226.2  
 
Less: Noncontrolling interests 0.5 0.2 150.0
         
Net Income (Loss) attributable to
Fortune Brands Home & Security $ 12.5     $ (10.5 )   219.0  
 
Earnings (Loss) Per Common Share, Diluted (a) :          
Net Income $ 0.08     $ (0.07 )   213.3  
         
Diluted Average Shares Outstanding (a)   163.0       155.1     5.1  
 
(a) Diluted earnings per common share and the average number of shares of common stock outstanding in the first quarter of 2011 were retrospectively restated adjusting the number of shares of Fortune Brands Home & Security, Inc. common stock for the stock split on September 27, 2011. Prior to the Separation, the same number of shares was used to calculate basic and diluted earnings per share since no Fortune Brands Home & Security, Inc. stock-based awards were outstanding prior to the Separation.

     
FORTUNE BRANDS HOME & SECURITY, INC.
(In millions, except per share amounts)

 

(Unaudited)

 
         
Three Months Ended March 31,
2012   2011   % Change
Net Sales (GAAP)          
Kitchen & Bath Cabinetry $ 311.5 $ 299.8 3.9
Plumbing & Accessories 244.5 203.8 20.0
Advanced Material Windows & Door Systems 113.4 102.0 11.2
Security & Storage   129.4       109.2     18.5  
Total Net Sales $ 798.8     $ 714.8     11.8  
 
Operating Income (Loss)          
Kitchen & Bath Cabinetry $ (5.3 ) $ (2.0 ) (165.0 )
Plumbing & Accessories 36.2 25.7 40.9
Advanced Material Windows & Door Systems (8.5 ) (13.9 ) 38.8
Security & Storage 11.8 6.2 90.3
Corporate Expenses (a)   (12.9 )     (8.2 )   (57.3 )
Total Operating Income - GAAP $ 21.3     $ 7.8     173.1  
 

OPERATING INCOME BEFORE CHARGES/GAINS RECONCILIATION

 
Operating Income (Loss) Before Charges/Gains (b)          
Kitchen & Bath Cabinetry $ (3.9 ) $ (1.7 ) (129.4 )
Plumbing & Accessories 36.2 25.6 41.4
Advanced Material Windows & Door Systems (10.3 ) (13.6 ) 24.3
Security & Storage 11.8 6.2 90.3
Corporate expenses   (12.9 )     (13.2 )   2.3  
 
Total Operating Income Before Charges/Gains   20.9       3.3     533.3  
Restructuring and other charges (c) (1.6 ) (0.5 ) (220.0 )
Contingent acquisition consideration adjustment (d) 2.0 - -
Standalone corporate costs (e) - 5.0 (100.0 )
       

 

 
Total Operating Income - GAAP $ 21.3     $ 7.8     173.1  
 
(a) For 2011, corporate expenses include allocations of certain Fortune Brands, Inc. general corporate expenses incurred directly by Fortune Brands, Inc. These allocated expenses include costs associated with legal, finance, treasury, accounting, internal audit and general management services. They also include the components of defined benefit plan expense other than service cost including actuarial gains and losses.
   
(b) Operating income (loss) before charges/gains is operating income derived in accordance with GAAP including estimated incremental standalone corporate expenses and excluding restructuring and other charges, and income from a contingent acquisition consideration adjustment. Operating income (loss) before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to determine the returns generated by FBHS and to evaluate and identify cost-reduction initiatives. Management believes this measure provides investors with helpful supplemental information regarding the underlying performance of the company from year to year. This measure may be inconsistent with similar measures presented by other companies.
 
(c) Restructuring charges are costs incurred to implement significant cost reduction initiatives and include workforce reduction costs and asset write-downs; "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 and accelerated depreciation resulting from the closure of facilities.
 
(d) Represents gain attributable to reduction of estimated liability for contingent consideration associated with a business acquisition.
 
(e) The Company estimates that it would have incurred $5 million of incremental corporate expenses if it had functioned as an independent standalone public company for the three months ended March 31, 2011.

 

DILUTED EPS BEFORE CHARGES/GAINS RECONCILIATION

Diluted EPS before charges/gains is net income (loss) calculated on a diluted per-share basis adjusted to reflect the borrowing arrangements and debt levels that actually existed immediately after the separation from Fortune Brands, Inc. as of October 4, 2011, the 1:1 share distribution resulting from the spin-off of FBHS from Fortune Brands, Inc., standalone corporate costs, an adjusted pro forma effective tax rate of 35%, and excludes restructuring and other charges, and income from a contingent acquisition consideration adjustment.
 

For the first quarter of 2012, diluted EPS before charges/gains is net income calculated on a per-share basis excluding $1.6 million ($1.1 million after tax or $0.01 per diluted share) of restructuring and other charges, and income from a contingent acquisition consideration of $2.0 million ($1.3 million after tax or $0.01 per diluted share).

 

For the first quarter of 2011, diluted EPS before charges/gains is net income calculated on a per-share basis excluding $0.5 million ($0.3 million after tax) of restructuring and other charges, standalone corporate costs of $5.0 million ($3.1 million after tax or $0.02 per diluted share), capital structure changes of $19.8 million ($12.3 million after tax or $0.08 per diluted share), and an adjusted pro forma tax rate adjustment of $1.0 million ($0.01 per diluted share).

 
Diluted EPS before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to evaluate the overall performance of the company and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the company from period to period. This measure may be inconsistent with similar measures presented by other companies.
       
Three Months Ended March 31,
2012   2011   % Change
         
Earnings Per Common Share - Diluted    
EPS Before Charges/Gains $ 0.08 $ - -
 
Restructuring and other charges (0.01 ) - -
Contingent acquisition consideration adjustment 0.01 - -
Standalone corporate costs - 0.02 (100.0 )
Capital structure change - (0.08 ) 100.0
Adjusted pro forma tax rate adjustment - (0.01 ) 100.0
         
 
Diluted EPS (GAAP) $ 0.08     $ (0.07 )   214.3  
 

RECONCILIATION OF FULL YEAR 2012 EARNINGS GUIDANCE TO GAAP

 
For the full year, the company is targeting diluted EPS before charges/gains to be in the range of $0.77 to $0.87 per share. On a GAAP basis, the company is targeting diluted EPS to be in the range of $0.76 to $0.86 per share.

 
FORTUNE BRANDS HOME & SECURITY, INC.
(In millions, except per share amounts)
(Unaudited)
 

2011 DILUTED EPS BEFORE CHARGES/GAINS RECONCILIATION

 
2011 Diluted EPS before charges/gains is net income (loss) calculated on a diluted per-share basis adjusted to reflect the borrowing arrangements and debt levels that actually existed immediately after the separation from Fortune Brands, Inc. as of October 4, 2011, the actual diluted shares of the Company as of December 31, 2011 of 160.7 million, standalone corporate costs, an adjusted pro forma effective tax rate of 35%, and excludes restructuring and other charges, business separation costs, asset impairment charges and actuarial losses associated with the Company's defined benefit plans.
 
For the year ended December 31, 2011, diluted EPS before charges/gains is net income calculated on a per-share basis excluding $20.0 million ($12.5 million after tax or $0.08 per diluted share) of restructuring and other charges, standalone corporate costs of $13.8 million ($8.6 million after tax or $0.05 per diluted share), capital structure changes of $14.4 million ($8.9 million after tax or $0.06 per diluted share), business separation costs of $2.4 million ($1.7 million after tax or $0.01 per diluted share), an adjusted pro forma tax rate adjustment of $12.0 million ($0.07 per diluted share), asset impairment charges of $90.0 million ($55.3 million after tax, or $0.35 per diluted share) and the impact from our defined benefit plan accounting change of $80.0 million ($49.9 million after tax, or $0.31 per diluted share).
 
2011 Diluted EPS before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to evaluate its underlying 2012 EPS growth rate and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the company from period to period. This measure may be inconsistent with similar measures presented by other companies.
   
Twelve months ended
December 31, 2011
Earnings Per Common Share - Diluted  
EPS Before Charges/Gains

$

0.60

 
Restructuring and other charges (0.08 )
Standalone corporate costs 0.05
Capital structure change (0.06 )
Business separation costs (0.01 )
Adjusted pro forma tax rate adjustment (0.07 )
Asset impairment charges (0.35 )
Defined benefit plan accounting change (a) (0.31 )
       
Diluted EPS (GAAP)

$

(0.23

)
 

(a) Represents the impact of expense from actuarial losses totaling approximately $80 million.

 
 

RECONCILIATION OF EBITDA BEFORE CHARGES/GAINS TO GAAP NET INCOME (LOSS)

           
Three Months Ended March 31,
2012   2011   % Change
           
EBITDA BEFORE CHARGES/GAINS $ 45.4     $ 28.1     61.6  
           
Depreciation (b) $ (20.6 ) $ (21.1 ) 2.4
Amortization of intangible assets (3.4 ) (3.7 ) 8.1
Restructuring and other charges (1.6 ) (0.5 ) (220.0 )
Contingent acquisition consideration adjustment 2.0 - -
Related party interest expense, net - (22.7 ) -
External interest expense (2.5 ) (0.1 ) -
Standalone corporate expenses - 5.0 -
Income tax (provision) benefit   (6.3 )     4.7     -  
           
Net Income (Loss) $ 13.0 $ (10.3 ) 226.2
Noncontrolling interests   (0.5 )     (0.2 )   (150.0 )
Net income (loss) attributable to Home & Security $ 12.5     $ (10.5 )   219.0  
 
EBITDA before charges/gains is net income (loss) derived in accordance with GAAP including estimated incremental standalone corporate expenses and excluding restructuring and other charges, income from a contingent acquisition consideration adjustment, depreciation, amortization of intangible assets, related party interest expense, net, external interest expense, and income taxes. EBITDA before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to assess returns generated by FBHS. Management believes this measure provides investors with helpful supplemental information about the company's ability to fund internal growth, make acquisitions and repay debt and related interest. This measure may be inconsistent with similar measures presented by other companies.
 
(b) Depreciation excludes accelerated depreciation of $0.5 million for the three months ended March 31, 2012. Accelerated depreciation is included in restructuring and other charges.

                                 
FORTUNE BRANDS HOME & SECURITY, INC.
Reconciliation of Income Statement - GAAP to Before Charges/Gains Information
Three Months Ended March 31,
$ in millions, except per share amounts
(unaudited)
                           
  Before Charges/Gains adjustments  
       
Contingent
Restructuring acquisition Standalone Capital Pro forma
GAAP and other consideration corporate structure tax rate Before
(unaudited) charges   adjustment   costs   change   adjustment Charges/Gains
                               
2012 FIRST QUARTER
 
Net Sales $ 798.8 - - - - -
 
Cost of products sold 552.0 (0.6 ) - - - -
Selling, general & administrative expenses 221.1 - 2.0 - - -
Amortization of intangible assets 3.4 - - - - -
Restructuring charges 1.0 (1.0 ) - - - -
             

 

   

 

 
 
Operating Income 21.3 1.6 (2.0 ) - - - 20.9
 
Related party interest expense, net - - - - - -
External interest expense 2.5 - - - - -
Other income, net (0.5 ) - - - - -
                   
Income before income taxes 19.3 1.6 (2.0 ) - - - 18.9
 
Income taxes   6.3   0.5     (0.7 )   -     -     -  
 
Net Income $ 13.0   1.1     (1.3 )   -     -     -   $ 12.8
 
Less: Noncontrolling interests   0.5   -     -     -     -     -  
 
Net Income attributable to Fortune Brands Home & Security, Inc. $ 12.5   1.1     (1.3 )   -     -     -   $ 12.3
 
Average Diluted Shares Outstanding 163.0 163.0
 
Diluted EPS 0.08 0.08
 
 
2011
 
Net Sales $ 714.8 - - - - -
 
Cost of products sold 504.5 (0.2 ) - - - -
Selling, general & administrative expenses 198.5 - - 5.0 - -
Amortization of intangible assets 3.7 - - - - -
Restructuring charges 0.3 (0.3 ) - - - -
                   
 
Operating Income 7.8 0.5 - (5.0 ) - - 3.3
 
Related party interest expense, net 22.7 - - - (19.8 ) -
External interest expense 0.1 - - - - -
Other income, net - - - - - -
                   
Income (loss) before income taxes (15.0 ) 0.5 - (5.0 ) 19.8 - 0.3
 
Income taxes   (4.7 ) 0.2     -     (1.9 )   7.5     (1.0 )
 
Net Income (loss) $ (10.3 ) 0.3     -     (3.1 )   12.3     1.0   $ 0.2
 
Less: Noncontrolling interests   0.2   -     -     -     -     -  
 
Net Income (loss) attributable to Fortune Brands Home & Security, Inc. $ (10.5 ) 0.3     -     (3.1 )   12.3     1.0   $ (0.0 )
 
Average Diluted Shares Outstanding 155.1 158.4
 
Diluted EPS (0.07 ) (0.00 )




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