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Fortune Brands Home & Security Grows Sales And Profit In Third Quarter, Raises Annual Outlook For EPS

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 charges, net debt-to-EBITDA before charges/gains 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 September 30, Nine Months Ended September 30,
2012   2011   % Change 2012   2011   % Change
Net Sales (GAAP)                    
Kitchen & Bath Cabinetry $ 329.7 $ 310.7 6.1 $ 987.1 $ 954.6 3.4
Plumbing & Accessories 278.2 249.1 11.7 804.2 704.7 14.1
Advanced Material Windows & Door Systems 158.4 148.2 6.9 431.4 399.2 8.1
Security & Storage   142.8       140.0     2.0     420.5       394.0     6.7  
Total Net Sales $ 909.1     $ 848.0     7.2   $ 2,643.2     $ 2,452.5     7.8  
 
Operating Income (Loss) Before Charges/Gains (a)                    
Kitchen & Bath Cabinetry $ 13.1 $ 8.0 63.8 $ 27.7 $ 21.5 28.8
Plumbing & Accessories 48.5 38.7 25.3 127.5 98.8 29.0
Advanced Material Windows & Door Systems 6.2 1.9 226.3 (0.1 ) (6.7 ) 98.5
Security & Storage 20.8 20.0 4.0 53.7 45.7 17.5
Corporate expense   (15.7 )     (14.4 )   (9.0 )   (42.3 )     (40.4 )   (4.7 )
Total Operating Income Before Charges/Gains $ 72.9     $ 54.2     34.5   $ 166.5     $ 118.9     40.0  
 
Earnings Per Share Before Charges/Gains (b)                    
Diluted $ 0.29     $ 0.20     45.0   $ 0.66     $ 0.44     50.0  
 
                   
EBITDA Before Charges/Gains (c) $ 96.0     $ 77.5     23.9   $ 236.4     $ 191.9     23.2  
 
(a) Operating income (loss) before charges/gains is operating income derived in accordance with U.S. generally accepted accounting principles ("GAAP") including estimated incremental standalone corporate expenses for 2011 periods and excluding restructuring and other charges, business separation costs, income from a contingent acquisition consideration adjustment and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. 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 period to period. This measure may be inconsistent with similar measures presented by other companies. A reconciliation to operating income, the most comparable GAAP measure, is included in subsequent tables.
 
(b) Diluted EPS before charges/gains is net income calculated on a diluted per-share basis excluding restructuring and other charges, income from a contingent acquisition consideration adjustment, and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. Diluted EPS before charges/gains for the three and nine months ended September 30, 2011 have also been adjusted to reflect an adjusted pro forma effective tax rate of 35%, capital structure changes that reflect the borrowing arrangements and debt level of the Company as of October 4, 2011, the 1:1 share distribution resulting from the spin-off of the Company from Fortune Brands, Inc., estimated incremental standalone corporate expenses for 2011 periods and business separation costs. 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 reconciliation to diluted EPS, the most closely comparable GAAP measure, is included in subsequent tables.
 
(c) EBITDA before charges/gains is net income derived in accordance with GAAP including estimated incremental standalone corporate expenses for 2011 periods and excluding restructuring and other charges, income from a contingent acquisition consideration adjustment, business separation costs, the impact of income and expense from actuarial gains or losses associated with our defined benefit plans, 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 reconciliation to net income, the most closely comparable GAAP measure, is included in subsequent tables.

     
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (GAAP)
(In millions)
(Unaudited)
 
   
September 30, December 31,
2012 2011
 
Assets
Current assets    
Cash and cash equivalents $ 216.1 $ 120.8
Accounts receivable, net 407.1 346.1
Inventories 392.3 336.3
Other current assets   122.9   150.3
Total current assets 1,138.4 953.5
 
Property, plant and equipment, net 497.8 525.8
Goodwill resulting from business acquisitions 1,368.4 1,366.6
Other intangible assets, net of accumulated amortization 698.1 702.9
Other assets   81.8   89.1
Total assets $ 3,784.5 $ 3,637.9
 
 
Liabilities and Equity
Current liabilities    
Notes payable to banks $ 5.3 $ 3.8
Current portion of long-term debt - 17.5
Accounts payable 253.5 260.7
Other current liabilities   339.0   315.8
Total current liabilities 597.8 597.8
 
Long-term debt 339.3 389.3
Deferred income taxes 205.0 204.1
Accrued defined benefit plans 229.9 248.2
Other non-current liabilities   78.2   74.0
Total liabilities 1,450.2 1,513.4
 
Stockholders' equity 2,330.9 2,120.8
Noncontrolling interests   3.4   3.7
Total equity   2,334.3   2,124.5
Total liabilities and equity $ 3,784.5 $ 3,637.9

           
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
 
     
Nine Months Ended September 30,
2012   2011
Operating Activities      
Net Income $ 101.1 $ 36.3
Depreciation and amortization 79.0 76.0
Deferred income taxes 5.6 3.4
Other noncash items 17.4 11.8
Changes in assets and liabilities, net   (83.7 )     (104.5 )
Net cash provided by operating activities $ 119.4     $ 23.0  
 
Investing Activities      
Capital expenditures, net of proceeds from asset sales $ (33.4 ) $ (38.0 )
Acquisitions, net of cash acquired - (6.0 )
Other investing activities   (5.0 )     -  
Net cash used in investing activities $ (38.4 )   $ (44.0 )
     
Net cash provided by financing activities $ 11.2     $ 88.9  
 
     
Effect of foreign exchange rate changes on cash   3.1       (1.0 )
     
Net increase in cash and cash equivalents $ 95.3 $ 66.9
Cash and cash equivalents at beginning of period   120.8       60.7  
Cash and cash equivalents at end of period $ 216.1     $ 127.6  
 
 
             

FREE CASH FLOW

Nine Months Ended September 30,   2012 Full Year
2012   2011   Target
 
Free Cash Flow (a) $ 166.6 $ (15.0 ) In excess of $ 275
Add:
Capital expenditures 46.0 41.4 80
Less:
Proceeds from the sale of assets 12.6 3.4 15
Proceeds from the exercise of stock options   80.6       -           85
Cash Flow From Operations (GAAP) $ 119.4     $ 23.0     In excess of   $ 255
(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 September 30, Nine Months Ended September 30,
2012   2011   % Change 2012   2011   % Change
                   
Net Sales $ 909.1     $ 848.0     7.2   $ 2,643.2     $ 2,452.5   7.8  
 
Cost of products sold 606.8 592.2 2.5 1,776.7 1,695.1 4.8
 
Selling, general
and administrative expenses 236.2 228.0 3.6 699.6 648.4 7.9
 
Amortization of intangible assets 2.4 3.5 (31.4 ) 8.6 11.0 (21.8 )
 
Restructuring charges 3.1 1.1 181.8 4.1 1.8 127.8
 
Business separation costs - 2.4 (100.0 ) - 2.4 (100.0 )
                   
Operating Income   60.6       20.8     191.3     154.2       93.8   64.4  
 
Related party interest expense, net - 0.2 (100.0 ) - 23.2 (100.0 )
 
External interest expense (income) 2.0 (0.1 ) (4,100.0 ) 6.6 0.2 2,673.1
 
Other (income) expense, net (0.8 ) 1.8 (143.5 ) (0.6 ) 1.9 (131.3 )
                   
Income before income taxes   59.4       18.9     215.0     148.2       68.5   116.5  
 
Income tax provision 19.2 16.4 17.1 47.1 32.2 46.3
                   
Net Income $ 40.2     $ 2.5     1,532.8   $ 101.1     $ 36.3   178.8  
 
Less: Noncontrolling interests 0.2 0.3 (33.3 ) 0.8 0.9 (11.1 )
                   
Net Income attributable to
Fortune Brands Home & Security $ 40.0     $ 2.2     1,750.1   $ 100.3     $ 35.4   183.6  
 
Earnings Per Common Share, Diluted (a) :                    
Net Income $ 0.24     $ 0.01     2,300.0   $ 0.61     $ 0.23   165.2  
                   
Diluted Average Shares Outstanding (a)   167.0       155.1     7.7     165.1       155.1   6.5  
 
(a) Diluted earnings per common share and the average number of shares of common stock outstanding in the three and nine months ended September 30, 2011 were retrospectively restated adjusting the number of shares of Fortune Brands Home & Security, Inc. common stock using the number of shares of common stock outstanding as of September 27, 2011. In the periods prior to the spin-off of Fortune Brands Home & Security, Inc. from Fortune Brands, Inc., the same number of shares was used to calculate diluted earnings per share since no Fortune Brands Home & Security, Inc. stock-based awards were outstanding at that time.

FORTUNE BRANDS HOME & SECURITY, INC.
(In millions, except per share amounts)
(Unaudited)
             
 
                   
Three Months Ended September 30, Nine Months Ended September 30,
2012   2011   % Change 2012   2011   % Change
Net Sales (GAAP)                    
Kitchen & Bath Cabinetry $ 329.7 $ 310.7 6.1 $ 987.1 $ 954.6 3.4
Plumbing & Accessories 278.2 249.1 11.7 804.2 704.7 14.1
Advanced Material Windows & Door Systems 158.4 148.2 6.9 431.4 399.2 8.1
Security & Storage   142.8       140.0     2.0     420.5       394.0     6.7  
Total Net Sales $ 909.1     $ 848.0     7.2   $ 2,643.2     $ 2,452.5     7.8  
 
Operating Income (Loss)                    
Kitchen & Bath Cabinetry $ 1.5 $ 7.8 (80.8 ) $ 14.1 $ 20.9 (32.5 )
Plumbing & Accessories 48.5 38.6 25.6 127.5 98.9 28.9
Advanced Material Windows & Door Systems 9.2 (0.3 ) 3,166.7 4.4 (9.6 ) 145.8
Security & Storage 20.8 20.0 4.0 54.2 45.7 18.6
Corporate Expenses (a)   (19.4 )     (45.3 )   57.2     (46.0 )     (62.1 )   25.9  
Total Operating Income (GAAP) $ 60.6     $ 20.8     191.3   $ 154.2     $ 93.8     64.4  
 

OPERATING INCOME (LOSS) BEFORE CHARGES/GAINS RECONCILIATION

 
Operating Income (Loss) Before Charges/Gains (b)                    
Kitchen & Bath Cabinetry $ 13.1 $ 8.0 63.8 $ 27.7 $ 21.5 28.8
Plumbing & Accessories 48.5 38.7 25.3 127.5 98.8 29.0
Advanced Material Windows & Door Systems 6.2 1.9 226.3 (0.1 ) (6.7 ) 98.5
Security & Storage 20.8 20.0 4.0 53.7 45.7 17.5
Corporate expenses   (15.7 )     (14.4 )   (9.0 )   (42.3 )     (40.4 )   (4.7 )
 
Total Operating Income Before Charges/Gains   72.9       54.2     34.5     166.5       118.9     40.0  
Restructuring and other charges (c) (8.6 ) (2.5 ) (242.6 ) (10.6 ) (3.4 ) (211.4 )
Contingent acquisition consideration adjustment (d) - - - 2.0 - 100.0
Standalone corporate costs (e) - 3.8 (100.0 ) - 13.8 (100.0 )
Business separation costs (f) - (2.4 ) 100.0 - (2.4 ) 100.0
Defined benefit plan actuarial losses (g)   (3.7 )     (32.3 )   88.5     (3.7 )     (33.1 )   88.8  
Total Operating Income (GAAP) $ 60.6     $ 20.8     191.3   $ 154.2     $ 93.8     64.4  
 
(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 for 2011 periods and excluding restructuring and other charges, business separation costs, income from a contingent acquisition consideration adjustment and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. 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 period to period. 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; "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 and gains or losses associated with the sale of closed 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 $3.8 million and $13.8 million of incremental corporate expenses if it had functioned as an independent standalone public company for the three months and nine months ended September 30, 2011.
 
(f) Business separation costs are costs related to non-cash non-recurring costs associated with the modification of share-based compensation awards as a result of the spin-off of FBHS from Fortune Brands, Inc.
 
(g) Represents actuarial losses associated with our defined benefit plans.

 

DILUTED EPS BEFORE CHARGES/GAINS RECONCILIATION

Diluted EPS before charges/gains is net income calculated on a diluted per-share basis excluding restructuring and other charges, income from a contingent acquisition consideration adjustment, and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. Diluted EPS before charges/gains for the three and nine months ended September 30, 2011 have also been adjusted to reflect an adjusted pro forma effective tax rate of 35%, capital structure changes that reflect the borrowing arrangements and debt level of the Company as of October 4, 2011, the 1:1 share distribution resulting from the spin-off of the Company from Fortune Brands, Inc., estimated incremental standalone corporate expenses, and business separation costs. 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.
 
For the third quarter of 2012, diluted EPS before charges/gains is net income calculated on a diluted per-share basis excluding $8.6 million ($5.7 million after tax or $0.04 per diluted share) of restructuring and other charges and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans of $3.7 million ($2.4 million after tax or $0.01 per diluted share).
 
For the nine months ended September 30, 2012, diluted EPS before charges/gains is net income calculated on a diluted per-share basis excluding $10.6 million ($7.0 million after tax or $0.04 per diluted share) of restructuring and other charges, income from a contingent acquisition consideration adjustment of $2.0 million ($1.3 million after tax) and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans of $3.7 million ($2.4 million after tax or $0.01 per diluted share).
 
For the third quarter of 2011, diluted EPS before charges/gains is net income calculated on a diluted per-share basis adjusted to reflect estimated incremental standalone corporate costs of $3.8 million ($2.4 million after tax or $0.01 per diluted share), capital structure changes of $2.9 million ($1.8 million after tax or $0.01 per diluted share) and an adjusted pro forma tax rate adjustment of $10.3 million ($0.06 per diluted share), and excludes $2.5 million ($1.6 million after tax or $0.01 per diluted share) of restructuring and other charges, business separation costs of $2.4 million ($1.7 million after tax or $0.01 per diluted share) and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans of $32.3 million ($20.2 million after tax or $0.13 per diluted share).
 
For the nine months ended September 30, 2011, diluted EPS before charges/gains is net income calculated on a diluted per-share basis adjusted to reflect estimated incremental 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) and an adjusted pro forma tax rate adjustment of $8.9 million ($0.06 per diluted share), and excludes $3.4 million ($2.3 million after tax or $0.01 per diluted share) of restructuring and other charges, business separation costs of $2.4 million ($1.7 million after tax or $0.01 per diluted share) and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans of $33.1 million ($20.7 million after tax or $0.13 per diluted share).
           
                   
Three Months Ended September 30, Nine Months Ended September 30,
2012   2011   % Change 2012   2011   % Change
                   
Earnings Per Common Share - Diluted
EPS Before Charges/Gains $ 0.29 $ 0.20 45.0 $ 0.66 $ 0.44 50.0
 
Restructuring and other charges (0.04 ) (0.01 ) (300.0 ) (0.04 ) (0.01 ) (300.0 )
Contingent acquisition consideration adjustment - - - - - -
Standalone corporate costs - 0.01 (100.0 ) - 0.05 (100.0 )
Capital structure change - 0.01 (100.0 ) - (0.06 ) 100.0
Business separation costs - (0.01 ) 100.0 - (0.01 ) 100.0
Adjusted pro forma tax rate adjustment - (0.06 ) 100.0 - (0.06 ) 100.0
Defined benefit plan actuarial losses (0.01 ) (0.13 ) 92.3 (0.01 ) (0.13 ) 92.3
Impact of adjusted pro forma diluted shares outstanding   -       -     -     -       0.01     (100.0 )
 
Diluted EPS (GAAP) $ 0.24     $ 0.01     2,300.0   $ 0.61     $ 0.23     165.2  
 

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 $0.86 to $0.88 per share. On a GAAP basis, the Company is targeting diluted EPS to be in the range of $0.80 to $0.83 per share. In addition, on a GAAP basis, based on current relevant interest rate benchmarks and year-to-date pension asset returns the Company may incur additional defined benefit plan net actuarial losses in the range of $0.10 to $0.15 per share in the fourth quarter of 2012 due to declining discount rates since December 31, 2011, the last remeasurement date. Any actuarial loss will be based upon spot discount rates as of December 31, 2012 and our full year 2012 pension asset returns and may differ materially from this estimate. A 25 basis point change in our discount rate impacts our defined benefit liabilities by approximately $25 million.

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

2011 DILUTED EPS BEFORE CHARGES/GAINS RECONCILIATION

For the year ended December 31, 2011, diluted EPS before charges/gains is net income (loss) calculated on a diluted per-share basis adjusted to reflect the actual number of diluted shares of the Company as of December 31, 2011 of 160.7 million, estimated incremental standalone corporate costs of $13.8 million ($8.6 million after tax or $0.05 per diluted share), an adjusted pro forma effective tax rate adjustment of $12.0 million ($0.07 per share) to reflect an effective tax rate of 35%, capital structure changes that reflect the borrowing arrangements and debt level of the Company as of October 4, 2011 of $14.4 million ($8.9 million after tax or $0.06 per diluted share), and excludes restructuring and other charges of $20.0 million ($12.5 million after tax or $0.08 per diluted share), business separation costs of $2.4 million ($1.7 million after tax or $0.01 per diluted share), asset impairment charges of $90.0 million ($55.3 million after tax or $0.35 per diluted share) and the impact of income and expenses from actuarial gains or losses associated with our defined benefit plans of $80.0 million ($49.9 million after tax or $0.31 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.
               
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 actuarial losses (0.31 )
 
Diluted EPS (GAAP) $ (0.23 )
 
 
 

RECONCILIATION OF EBITDA BEFORE CHARGES/GAINS TO GAAP NET INCOME

                   
Three Months Ended September 30, Nine Months Ended September 30,
2012   2011   % Change 2012   2011   % Change
                   
EBITDA BEFORE CHARGES/GAINS $ 96.0     $ 77.5     23.9   $ 236.4     $ 191.9     23.2  
                   
Depreciation (a) $ (19.9 ) $ (21.6 ) 7.9 $ (60.7 ) $ (63.9 ) 5.0
Amortization of intangible assets (2.4 ) (3.5 ) 31.4 (8.6 ) (11.0 ) 21.8
Restructuring and other charges (8.6 ) (2.5 ) (242.6 ) (10.6 ) (3.4 ) (211.4 )
Contingent acquisition consideration adjustment - - - 2.0 - 100.0
Business separation costs - (2.4 ) 100.0 - (2.4 ) 100.0
Related party interest expense, net - (0.2 ) 100.0 - (23.2 ) 100.0
External interest expense (income) (2.0 ) 0.1 (4,100.0 ) (6.6 ) (0.2 ) (2,673.1 )
Standalone corporate expenses - 3.8 (100.0 ) - 13.8 (100.0 )
Defined benefit plan actuarial losses (3.7 ) (32.3 ) 88.5 (3.7 ) (33.1 ) 88.8
Income tax provision   (19.2 )     (16.4 )   (17.1 )   (47.1 )     (32.2 )   (46.3 )
                   
Net Income $ 40.2 $ 2.5 1,532.8 $ 101.1 $ 36.3 178.8
Noncontrolling interests   (0.2 )     (0.3 )   33.3     (0.8 )     (0.9 )   11.1  
Net income attributable to Home & Security $ 40.0     $ 2.2     1,750.1   $ 100.3     $ 35.4     183.6  
 
EBITDA before charges/gains is net income derived in accordance with GAAP including estimated incremental standalone corporate expenses for 2011 periods and excluding restructuring and other charges, income from a contingent acquisition consideration adjustment, business separation costs, the impact of income and expense from actuarial gains or losses associated with our defined benefit plans, depreciation, amortization of intangible assets, related party interest expense, net, external interest expense (income), 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) Depreciation excludes accelerated depreciation of $9.2 million and $9.7 million for the three and nine months ended September 30, 2012, respectively, and $1.1 million for the three and nine months ended September 30, 2011. 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 September 30,
$ in millions, except per share amounts
(unaudited)
                                       
  Before Charges/Gains adjustments  
         

Defined

Restructuring Standalone Business

benefit plan

Capital Pro forma Before
GAAP and other corporate separation

actuarial

structure tax rate Charges/Gains
(unaudited) charges   costs   costs  

losses

  change   adjustment (Non-GAAP)
                                           
2012 THIRD QUARTER
 
Net Sales $ 909.1 -

-

- - - -
 
Cost of products sold 606.8 (5.5 ) - - (1.5 ) - -
Selling, general & administrative expenses 236.2 - - - (2.2 ) - -
Amortization of intangible assets 2.4 - - - - - -
Restructuring charges   3.1   (3.1 )   -     -     -     -     -  
 
Operating Income 60.6 8.6 - - 3.7 - - 72.9
 
External interest expense 2.0 - - - - - -
Other income, net   (0.8 ) -     -     -     -     -     -  
Income before income taxes 59.4 8.6 - - 3.7 - - 71.7
 
Income taxes   19.2   2.9    

-

    -     1.3     -     -  
 
Net Income $ 40.2   5.7     -     -     2.4     -     -   48.3
 
Less: Noncontrolling interests   0.2   -     -    

-

    -     -     -  
 
Net Income attributable to Fortune Brands Home & Security, Inc. $ 40.0   5.7     -     -     2.4     -     -   48.1
 
Average Diluted Shares Outstanding 167.0 167.0
 
Diluted EPS 0.24 0.29
 
2011
 
Net Sales $ 848.0 - - - - - -
 
Cost of products sold 592.2 (1.4 ) - - (17.0 ) - -
Selling, general & administrative expenses 228.0

-

3.8 - (15.3 ) - -
Amortization of intangible assets 3.5 - - - - - -
Restructuring charges 1.1 (1.1 ) - - - - -
Business separation costs   2.4   -    

-

    (2.4 )  

-

   

-

   

-

 
 
Operating Income 20.8 2.5 (3.8 ) 2.4 32.3 - - 54.2
 
Related party interest expense, net 0.2 - - - - 2.9 -
External interest income (0.1 ) - - - - - -
Other expense, net   1.8   -     -     -     -     -     -  
Income before income taxes 18.9 2.5 (3.8 ) 2.4 32.3 (2.9 ) - 49.4
 
Income taxes   16.4   0.9     (1.4 )   0.7     12.1     (1.1 )   (10.3 )
 
Net Income $ 2.5   1.6     (2.4 )   1.7     20.2     (1.8 )   10.3   $ 32.1
 
Less: Noncontrolling interests   0.3   -     -    

-

   

-

    -     -  
 
Net Income attributable to Fortune Brands Home & Security, Inc. $ 2.2   1.6     (2.4 )   1.7     20.2     (1.8 )   10.3   $ 31.8
 
Average Diluted Shares Outstanding 155.1 159.4
 
Diluted EPS 0.01 0.20

     
FORTUNE BRANDS HOME & SECURITY, INC.
Reconciliation of Income Statement - GAAP to Before Charges/Gains Information
Nine Months Ended September 30,
$ in millions, except per share amounts
(unaudited)
                                   
  Before Charges/Gains adjustments  
           
Contingent

Defined

Restructuring acquisition Standalone Business

benefit plan

Capital Pro forma Before
GAAP and other consideration corporate separation

actuarial

structure tax rate Charges/Gains
(unaudited) charges   adjustment   costs   costs  

losses

  change   adjustment (Non-GAAP)
       
2012 YEAR TO DATE
 
Net Sales $ 2,643.2 - - - - - - -
 
Cost of products sold 1,776.7 (6.5 ) - - - (1.5 ) - -
Selling, general & administrative expenses 699.6 - 2.0 - - (2.2 ) - -
Amortization of intangible assets 8.6 - - - - - - -
Restructuring charges   4.1   (4.1 )   -     -     -     -     -     -  
 
Operating Income 154.2 10.6 (2.0 ) - - 3.7 - - 166.5
 
External interest expense 6.6 - - - - - - -
Other income, net   (0.6 ) -     -     -     -     -     -     -  
Income before income taxes 148.2 10.6 (2.0 ) - - 3.7 - - 160.5
 
Income taxes   47.1   3.6     (0.7 )   -     -     1.3     -     -  
 
Net Income $ 101.1   7.0     (1.3 )   -     -     2.4     -     -   $ 109.2
 
Less: Noncontrolling interests   0.8   -     -     -     -     -     -     -  
 
Net Income attributable
to Fortune Brands Home & Security, Inc. $ 100.3   7.0     (1.3 )   -     -     2.4     -     -   $ 108.4
 
Average Diluted Shares Outstanding 165.1 165.1
 
Diluted EPS 0.61

 

0.66
 
 
2011
 
Net Sales $ 2,452.5 - - - - - - -
 
Cost of products sold 1,695.1 (1.6 ) - - - (17.1 ) - -
Selling, general & administrative expenses 648.4 - - 13.8 - (16.0 ) - -
Amortization of intangible assets 11.0 - - - - - - -
Restructuring charges 1.8 (1.8 ) - - - - - -
Business separation costs   2.4   -     -     -     (2.4 )   -     -     -  
 
Operating Income 93.8 3.4 - (13.8 ) 2.4 33.1 - - 118.9
 
Related party interest expense, net 23.2 - - - - - (14.4 ) -
External interest expense 0.2 - - - - - - -
Other expense, net   1.9   -     -     -     -     -     -     -  
Income before income taxes 68.5 3.4 - (13.8 ) 2.4 33.1 14.4 - 108.0
 
Income taxes   32.2   1.1     -     (5.2 )   0.7     12.4     5.5     (8.9 )
 
Net Income $ 36.3   2.3     -     (8.6 )   1.7     20.7     8.9     8.9   $ 70.2
 
Less: Noncontrolling interests   0.9   -     -     -    

-

   

-

    -     -  
 
Net Income attributable
to Fortune Brands Home & Security, Inc. $ 35.4   2.3     -     (8.6 )   1.7     20.7     8.9     8.9   $ 69.3
 
Average Diluted Shares Outstanding 155.1 158.9
 
Diluted EPS 0.23 0.44

         
FORTUNE BRANDS HOME & SECURITY, INC.
RECONCILIATION OF SEGMENT OPERATING INCOME BEFORE CHARGES/GAINS TO GAAP OPERATING INCOME (LOSS)
(In millions)
(unaudited)
             
For the three month period ended

September 30, 2012

 

September 30, 2011

 

$ change

  % change
KITCHEN & BATH CABINETRY              
Operating income before charges/gains (a) $ 13.1 $ 8.0 $ 5.1 63.8
Restructuring charges (2.6 ) (0.4 ) (2.2 ) (558.2 )
Other charges (b)
Cost of products sold   (9.0 )     0.2       (9.2 )   (5,272.4 )
Operating income (GAAP) $ 1.5     $ 7.8     $ (6.3 )   (80.8 )
 
ADVANCED MATERIAL WINDOWS & DOOR SYSTEMS              
Operating income before charges/gains (a) $ 6.2 $ 1.9 $ 4.3 226.3
Restructuring charges (0.5 ) (0.7 ) 0.2 29.5
Other charges (b)
Cost of products sold   3.5       (1.5 )     5.0     337.8  
Operating income (loss) (GAAP) $ 9.2     $ (0.3 )   $ 9.5     3,166.7  
 
(a) Operating income before charges/gains is operating income derived in accordance with GAAP excluding restructuring and other charges. Operating income 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 period to period. This measure may be inconsistent with similar measures presented by other companies.
 
(b) Other charges represents 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 and gains or losses associated with the sale of closed facilities.




Stock quotes in this article: FBHS 

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