FORTUNE BRANDS INNOVATIONS, INC. FORTUNE BRANDS HOME & SECURITY, INC.
RECONCILIATION OF OPERATING INCOME BEFORE CHARGES/GAINS TO GAAP OPERATING INCOME(In millions)
(Unaudited)
For the three months ended | For the twelve months ended | |||||||||||||||
December 31, | December 31, | % | December 31, | December 31, | ||||||||||||
CABINETS | 2019 | 2018 | $ change | change | 2019 | 2018 | $ change | % change | ||||||||
Operating income before charges/gains (a) | $ | 59.8 | $ | 62.3 | $ | (2.5) | (4) | $ | 230.5 | $ | 232.3 | $ | (1.8) | (1) | ||
Restructuring charges (b) | (4.1) | (5.8) | 1.7 | 29 | (10.2) | (16.8) | 6.6 | 39 | ||||||||
Other charges (b) | ||||||||||||||||
Cost of products sold | 0.4 | 0.4 | - | - | 0.1 | (9.1) | 9.2 | 101 | ||||||||
Selling, general and administrative expenses | 0.2 | (0.1) | 0.3 | 300 | (0.6) | (0.3) | (0.3) | (100) | ||||||||
Asset impairment charge (e) | (12.0) | (35.5) | 23.5 | 66 | (41.5) | (62.6) | 21.1 | 34 | ||||||||
Operating income (GAAP) | $ | 44.3 | $ | 21.3 | $ | 23.0 | 108 | $ | 178.3 | $ | 143.5 | $ | 34.8 | 24 | ||
PLUMBING | ||||||||||||||||
Operating income before charges/gains (a) | $ | 118.8 | $ | 108.8 | $ | 10.0 | 9 | $ | 435.8 | $ | 396.0 | $ | 39.8 | 10 | ||
Restructuring charges (b) | 0.7 | (1.0) | 1.7 | 170 | (2.8) | (2.6) | (0.2) | (8) | ||||||||
Other charges (b) | ||||||||||||||||
Cost of products sold | 0.4 | (1.0) | 1.4 | 140 | (2.6) | (6.0) | 3.4 | 57 | ||||||||
Selling, general and administrative expenses | (0.2) | (0.8) | 0.6 | 75 | (2.8) | (8.3) | 5.5 | 66 | ||||||||
Change in inventory costing method (f) | - | (3.8) | 3.8 | 100 | - | (3.8) | 3.8 | 100 | ||||||||
Operating income (GAAP) | $ | 119.7 | $ | 102.2 | $ | 17.5 | 17 | $ | 427.6 | $ | 375.3 | $ | 52.3 | 14 | ||
DOORS & SECURITY | ||||||||||||||||
Operating income before charges/gains (a) | $ | 49.5 | $ | 26.8 | $ | 22.7 | 85 | $ | 177.4 | $ | 155.3 | $ | 22.1 | 14 | ||
Restructuring charges (b) | (0.1) | - | (0.1) | (100) | (1.7) | (4.7) | 3.0 | 64 | ||||||||
Other charges (b) | ||||||||||||||||
Cost of products sold | 0.4 | (4.0) | 4.4 | 110 | (3.4) | (7.3) | 3.9 | 53 | ||||||||
Selling, general and administrative expenses | - | - | - | - | - | 1.2 | (1.2) | (100) | ||||||||
Change in inventory costing method (f) | - | 11.1 | (11.1) | (100) | - | 11.1 | (11.1) | (100) | ||||||||
Operating income (GAAP) | $ | 49.8 | $ | 33.9 | $ | 15.9 | 47 | $ | 172.3 | $ | 155.6 | $ | 16.7 | 11 | ||
CORPORATE | ||||||||||||||||
General and administrative expense before charges/gains | $ | (21.3) | $ | (17.3) | $ | (4.0) | (23) | $ | (79.7) | $ | (78.9) | $ | (0.8) | (1) | ||
Other charges (b) | ||||||||||||||||
Selling, general and administrative expenses | - | - | - | - | - | (0.3) | 0.3 | 100 | ||||||||
Total Corporate expense (GAAP) | $ | (21.3) | $ | (17.3) | $ | (4.0) | (23) | $ | (79.7) | $ | (79.2) | $ | (0.5) | (1) | ||
FORTUNE BRANDS HOME & SECURITY | ||||||||||||||||
Operating income before charges/gains (a) | $ | 206.8 | $ | 180.6 | $ | 26.2 | 15 | $ | 764.0 | $ | 704.7 | $ | 59.3 | 8 | ||
Restructuring charges (b) | (3.5) | (6.8) | 3.3 | 49 | (14.7) | (24.1) | 9.4 | 39 | ||||||||
Other charges (b) | ||||||||||||||||
Cost of products sold | 1.2 | (4.6) | 5.8 | 126 | (5.9) | (22.4) | 16.5 | 74 | ||||||||
Selling, general and administrative expenses | - | (0.9) | 0.9 | 100 | (3.4) | (7.7) | 4.3 | 56 | ||||||||
Change in inventory costing method (f) | - | 7.3 | (7.3) | (100) | - | 7.3 | (7.3) | (100) | ||||||||
Asset impairment charge (e) | (12.0) | (35.5) | 23.5 | 66 | (41.5) | (62.6) | 21.1 | 34 | ||||||||
Operating income (GAAP) | $ | 192.5 | $ | 140.1 | $ | 52.4 | 37 | $ | 698.5 | $ | 595.2 | $ | 103.3 | 17 |
(a) (b) (e) (f) For definitions of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS HOME & SECURITY, INC.
BEFORE CHARGES/GAINS OPERATING MARGIN TO OPERATING MARGIN(Unaudited)
Three months ended December 31, | Twelve months ended December 31, | |||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | |||||
CABINETS | ||||||||||
Before Charges/Gains Operating Margin | 10.1% | 10.0% | 10 bps | 9.7% | 9.6% | 10 bps | ||||
Restructuring & Other Charges | (0.6%) | (0.9%) | (0.4%) | (1.1%) | ||||||
Asset Impairment Charges (e) | (2.0%) | (5.7%) | (1.8%) | (2.6%) | ||||||
Operating | Margin | 7.5% | 3.4% | 410 bps | 7.5% | 5.9% | 160 bps | |||
PLUMBING | ||||||||||
Before Charges/Gains Operating Margin | 21.7% | 22.3% | (60) bps | 21.5% | 21.0% | 50 bps | ||||
Restructuring & Other Charges | 0.1% | (0.6%) | (0.4%) | (0.9%) | ||||||
Change in inventory costing method (f) | - | (0.8%) | - | (0.2%) | ||||||
Operating Margin | 21.8% | 20.9% | 90 bps | 21.1% | 19.9% | 120 bps | ||||
DOORS & SECURITY | ||||||||||
Before Charges/Gains Operating Margin | 14.9% | 8.7% | 620 bps | 13.2% | 13.1% | 10 bps | ||||
Restructuring & Other Charges | 0.1% | (1.3%) | (0.4%) | (0.8%) | ||||||
Change in inventory costing method (f) | - | 3.6% | - | 0.9% | ||||||
Operating Margin | 15.0% | 11.0% | 400 bps | 12.8% | 13.2% | (40) bps | ||||
Total Company | ||||||||||
Before Charges/Gains Operating Margin | 14.1% | 12.7% | 140 bps | 13.3% | 12.8% | 50 bps | ||||
Restructuring & Other Charges | (0.2%) | (0.9%) | (0.5%) | (1.0%) | ||||||
Asset Impairment Charges (e) | (0.8%) | (2.4%) | (0.7%) | (1.0%) | ||||||
Change in inventory costing method (f) | - | 0.5% | - | 0.1% | ||||||
Operating Margin | 13.1% | 9.9% | 320 bps | 12.1% | 10.9% | 120 bps |
Operating margin is calculated as operating income derived in accordance with GAAP divided by GAAP Net Sales. Before charges/gains operating margin is operating income derived in accordance with GAAP excluding restructuring and other charges, asset impaiment charges and a change in inventory costing method divided by GAAP net sales. Before charges/gains operating margin is a measure not derived in accordance with GAAP. Management uses this measure to evaluate the returns generated by FBHS and its business segments. 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.
(e) (f) For definitions of Non-GAAP measures, see Definitions of Terms page
DILUTED EPS BEFORE CHARGES/GAINS RECONCILIATION
For the three months ended December 31, 2019, diluted EPS before charges/gains is net income from continuing operations, net of tax less noncontrolling interests calculated on a diluted per-share basis excluding $2.3 million ($1.5 million after tax or $0.02 per diluted share) of restructuring and other charges, the impact from actuarial losses associated with our defined benefit plans of $32.0 million ($24.2 million after tax or $0.17 per diluted share), an asset impairment charge of $12.0 million ($8.9 million after tax or $0.06 per diluted share) and a net tax charge of $1.9 million ($0.01 per diluted share).
For the twelve months ended December 31, 2019, diluted EPS before charges/gains is net income from continuing operations, net of tax less noncontrolling interests calculated on a diluted per-share basis excluding $24.0 million ($18.1 million after tax or $0.13 per diluted share) of restructuring and other charges, intangible asset impairment charges of $41.5 million ($31.4 million after tax or $0.22 per diluted share), the impact from actuarial losses associated with our defined benefit plans of $34.1 million ($25.8 million after tax or $0.18 per diluted share) and a net tax charge of $1.3 million ($0.01 per diluted share).
For the three months ended December 31, 2018, diluted EPS before charges/gains is net income from continuing operations, net of tax less noncontrolling interests calculated on a diluted per-share basis excluding $11.8 million ($9.1 million after tax or $0.06 per diluted share) of restructuring and other charges, asset impairment charges of $35.5 million ($27.1 million after tax or $0.19 per diluted share), a benefit from an inventory costing change of $7.3 million ($5.5 million after tax or $0.04 per diluted share), a net charge related to an update to the estimated impact of the Tax Cuts and Jobs Act of 2017 of $4.0 million ($0.03 per diluted share) and the impact from actuarial losses associated with our defined benefit plans of $3.6 million ($2.7 million after tax or $0.02 per diluted share).
For the twelve months ended December 31, 2018, diluted EPS before charges/gains is net income from continuing operations, net of tax less noncontrolling interests calculated on a diluted per-share basis excluding $54.2 million ($43.4 million after tax or $0.30 per diluted share) of restructuring and other charges, asset impairment charges of $62.6 million ($50.8 million after tax or $0.35 per diluted share), a benefit from an inventory costing change of $7.3 million ($5.5 million after tax or $0.04 per diluted share), a net charge related to an update to the estimated impact from the Tax Cuts and Jobs Act of 2017 ($7.2 million or $0.05 per diluted share) and the impact from actuarial losses associated with our defined benefit plans of $3.9 million ($2.9 million after tax or $0.02 per diluted share).
Three months ended December 31, | Twelve months ended December 31, | ||||||||||
2019 | 2018 | % Change | 2019 | 2018 | % Change | ||||||
Earnings Per Common Share - Diluted | |||||||||||
Diluted EPS Before Charges/Gains - Continuing Operations (c) | $ | 1.00 | $ | 0.86 | 16 | $ | 3.60 | $ | 3.34 | 8 | |
Restructuring and other charges | (0.02) | (0.06) | 67 | (0.13) | (0.30) | 57 | |||||
Asset impairment charges (e) | (0.06) | (0.19) | 68 | (0.22) | (0.35) | 37 | |||||
Change in inventory costing method (f) | - | 0.04 | (100) | - | 0.04 | (100) | |||||
Defined benefit plan actuarial losses | (0.17) | (0.02) | (750) | (0.18) | (0.02) | (800) | |||||
Tax items | (0.01) | (0.03) | 67 | (0.01) | (0.05) | 80 | |||||
Diluted EPS - Continuing Operations | |||||||||||
$ | 0.74 | $ | 0.60 | 23 | $ | 3.06 | $ | 2.66 | 15 |
(c) (e) (f) For definitions of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS HOME & SECURITY, INC.
RECONCILIATION OF FULL YEAR 2019 GUIDANCE DILUTED EPS BEFORE CHARGES/GAINS TO GAAP DILUTED EPS
(Unaudited)
For the twelve months ended | ||||||||
December 31, 2020 | December 31, 2019 | % change | ||||||
Diluted EPS before charges/gains - full year range | ||||||||
$ | 3.83 | - | 4.03 | $ | 3.60 | 6 - 12 | ||
Diluted EPS Before Charges/Gains - Continuing Operations (c) | ||||||||
$ | 3.93 | $ | 3.60 | 9 | ||||
Restructuring and other charges | (0.12) | (0.13) | ||||||
Asset impairment charges (e) | - | (0.22) | ||||||
Defined benefit plan actuarial losses | - | (0.18) | ||||||
Tax items | - | (0.01) | ||||||
Diluted EPS - Continuing Operations | ||||||||
$ | 3.81 | $ | 3.06 | 25 | ||||
Diluted EPS - Continuing Operations - full year range | ||||||||
$ | 3.71 | - | 3.91 | $ | 3.06 | 21 - 28 |
The Company is targeting diluted EPS before charges/gains from continuing operations to be in the range of $3.83 to $4.03 per share. For the full year, on a GAAP basis, the Company is targeting diluted EPS from continuing operations to be in the range of $3.71 to $3.91 per share and including the full year impact of previously announced restructuring actions. Reconciliation of non-GAAP diluted EPS guidance to GAAP diluted EPS guidance cannot be provided without unreasonable efforts on a forward- looking basis due to the high variability and low visibility with respect to gains and losses associated with our defined benefit plans and restructuring and other charges, which are excluded from the diluted EPS before charges/gains. In addition, the Company's GAAP EPS range assumes the Company incurs no gains or losses associated with its defined benefit plans during 2020.
For the twelve months ended December 31, 2019, diluted EPS before charges/gains is net income from continuing operations, net of tax less noncontrolling interests calculated on a diluted per-share basis excluding $24.0 million ($18.1 million after tax or $0.13 per diluted share) of restructuring and other charges, intangible asset impairment charges of $41.5 million ($31.4 million after tax or $0.22 per diluted share), the impact from actuarial losses associated with our defined benefit plans of $34.1 million ($25.8 million after tax or $0.18 per diluted share) and a net tax charge of $1.3 million ($0.01 per diluted share).
(c) (e) For definitions of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS HOME & SECURITY, INC.
(In millions) (Unaudited)
CALCULATION OF NET DEBT-TO-EBITDA BEFORE CHARGES/GAINS RATIO | ||
As of December 31, 2019 | ||
Short-term debt * | 399.7 | |
Long-term debt * | 1,784.6 | |
Total debt | 2,184.3 | |
Less: | ||
Cash and cash equivalents * | 387.9 | |
Net debt (1) | 1,796.4 | |
For the twelve months ended December 31, 2019 | ||
EBITDA before charges/gains (2) (d) | 919.9 | |
Net debt-to-EBITDA before charges/gains ratio (1/2) | ||
2.0 |
* Amounts are per the unaudited Condensed Consolidated Balance Sheet as of December 31, 2019.
Twelve months ended | ||
December 31, | ||
2019 | ||
EBITDA BEFORE CHARGES/GAINS (d) | ||
$ | 919.9 | |
Depreciation** | ||
$ | (109.4) | |
Amortization of intangible assets | (41.4) | |
Restructuring and other charges | (24.0) | |
Interest expense | (94.2) | |
Asset impairment charges (e) | (41.5) | |
Defined benefit plan actuarial losses | (34.1) | |
Income taxes | (144.0) | |
Income from continuing operations, net of tax | ||
$ | 431.3 |
- Depreciation excludes accelerated depreciation of ($1.9) million for the twelve months ended December 31, 2019. Accelerated depreciation is included in restructuring and other charges.
(d) (e) For definitions of Non-GAAP measures, see Definitions of Terms page
FORTUNE BRANDS HOME & SECURITY, INC.
FREE CASH FLOW GUIDANCE TO GAAP CASH FLOW FROM OPERATIONS(In millions)
(Unaudited)
Twelve months ended | 2020 full year | ||||
December 31, 2019 | approximation | ||||
Free Cash Flow* | $ | 526.9 | $ | 565.0 - 585.0 | |
Add: | |||||
Capital Expenditures | 131.8 | 160.0 - 175.0 | |||
Less: | |||||
Proceeds from the sale of assets | 4.2 | - | |||
Proceeds from the exercise of stock options | 17.3 | 14.0 | |||
Cash Flow From Operations (GAAP) | $ | 637.2 | $ | 711.0 - 746.0 |
- Free cash flow is cash flow from operations calculated in accordance with U.S. generally accepted accounting principles ("GAAP") less net capital expenditures (capital expenditures less proceeds from the sale of assets including property, plant and equipment, and the proceeds from the exercise of stock options). Free cash flow does not include adjustments for certainnon-discretionary cash flows such as mandatory debt repayments. 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.
RECONCILIATION OF PERCENTAGE CHANGE IN PLUMBING & TOTAL COMPANY NET SALES EXCLUDING FX IMPACT TO PERCENTAGE CHANGE IN NET SALES (GAAP)
(Unaudited)
Twelve months ended December | ||||
31, 2019 | ||||
% change | ||||
PLUMBING | ||||
Percentage change in Net Sales excluding FX impact | 9% | |||
FX Impact | (1%) | |||
Percentage change in Net Sales (GAAP) | 8% | |||
Twelve months ended December | ||||
31, 2019 | ||||
% change | ||||
TOTAL COMPANY | ||||
Percentage change in Net Sales excluding FX impact | 6% | |||
FX Impact | (1%) | |||
Percentage change in Net Sales (GAAP) | 5% |
Plumbing & total Company net sales excluding the impact of FX is Plumbing and total Company net sales derived in accordance with GAAP excluding the impact of FX. Management uses this measure to evaluate the overall performance of the Company and its segments and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the segment from period to period. This measure may be inconsistent with similar measures presented by other companies.
FORTUNE BRANDS HOME & SECURITY, INC.
RECONCILIATION OF PERCENTAGE CHANGE IN CABINETS NET SALES EXCLUDING 53rd WEEK IN FISCAL 2018 NET SALES TO PERCENTAGE CHANGE IN NET SALES (GAAP)
(Unaudited)
Three months ended December 31, | ||||
2019 | ||||
% change | ||||
CABINETS | ||||
Percentage change in Net Sales excluding 53rd Week | 3% | |||
Impact of 53rd Week | (8%) | |||
Percentage change in Net Sales (GAAP) | (5%) |
Twelve months ended December | ||||
31, 2019 | ||||
% change | ||||
CABINETS | ||||
Percentage change in Net Sales excluding 53rd Week | (1%) | |||
Impact of 53rd Week | (0%) | |||
Percentage change in Net Sales (GAAP) | (1%) |
Cabinets net sales excluding the 53rd week in fiscal 2018 is consolidated Cabinets net sales derived in accordance with GAAP for 2018 excluding the impact of the 53rd week on 2018 reported net sales. Management uses this measure to evaluate the overall performance of the Cabinets segment and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the segment from period to period. This measure may be inconsistent with similar measures presented by other companies.
Definitions of Terms: Non-GAAP Measures
- Operating income before charges/gains is operating income derived in accordance with GAAP excluding restructuring and other charges, asset impairment charges and a benefit from an inventory costing change. Operating income before charges/gains is a measure not derived in accordance with GAAP. Management uses this measure to evaluate the returns generated by the Company and its business segments. 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.
- Restructuring charges are costs incurred to implement significant cost reduction initiatives and include workforce reduction costs. "Other charges" represent charges or gains 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, impairments related to previously closed facilities and the losses on the sale of closed facilities. In total, the Company recognized a credit of ($1.2) million in the three months ended December 31, 2019 related to the reversal of previously recorded inventory obsolescence provisions and inventory obsolescence provision expense of $7.5 million for the twelve months ended December 31, 2019, and $0.3 million and $11.3 million for the three and twelve months ended December 31, 2018, respectively, associated with these initiatives.
In our Doors & Security segment, other charges also includes an acquisition-related inventory step-up expense (Fiberon) classified in cost of products sold of $1.8 million for the twelve months ended December 31, 2019 and $3.9 million and $4.9 million for the three and twelve months ended December 31, 2018, respectively. In our Plumbing segment, other charges also includes an acquisition-related inventory step-up expense (Victoria + Albert) classified in cost of products sold of $0.5 million and $5.5 million for the three and twelve months ended December 31, 2018, and compensation expense classified in selling, general and administrative expense of $0.8 million and $8.1 million for the three and twelve months ended December 31, 2018, respectively, related to deferred purchase price consideration payable to certain former Victoria + Albert shareholders contingent on their employment through October 2018. In Corporate, other charges also includes $0.3 million of expense associated with our assessment of the impact on the Company from the Tax Cuts and Jobs Act of 2017, for the twelve months ended December 31, 2018.
- Diluted EPS before charges/gains is income from continuing operations, net of tax, less noncontrolling interests calculated on a dilutedper-share basis excluding restructuring and other charges, asset impairment charges, a change in inventory costing method, actuarial losses associated with our defined benefit plans and tax items. 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.
- EBITDA before charges/gains is income from continuing operations, net of tax, derived in accordance with GAAP excluding restructuring and other charges, depreciation, asset impairments, a benefit from an inventory costing change, losses with our defined benefit plans, amortization of intangible assets, 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 the Company. 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. - Asset impairment charges for the three and twelve months ended December 31, 2019 represent apre-tax impairment charge of $12.0 million and $29.5 million, respectively, related to indefinite-lived tradenames in our Cabinets segment. It also includes a $1.7 million fair value asset impairment expense classified in cost of products sold, for the twelve months ended December 31, 2019 associated with an idle manufacturing facility in our Doors & Security segment. Asset impairment charges for the three and twelve months ended December 31, 2018 represent pre-tax impairment charges of $35.5 million and $62.6 million, respectively, related to two indefinite-lived tradenames within our Cabinets segment.
- During the fourth quarter of 2018, we determined that it was preferable to change our accounting policy for product groups in which metals inventory comprise a significant portion of inventories fromlast-in,first-out ("LIFO") to first-in,first-out ("FIFO"). As a result, we recorded a pre-tax benefit of $7.3 million within cost of products sold during the three months ended December 31, 2018.
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Fortune Brands Home & Security Inc. published this content on 29 January 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 29 January 2020 23:19:07 UTC
