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MarketScreener Homepage  >  Equities  >  Nyse  >  Fortune Brands Home & Security, Inc.    FBHS

FORTUNE BRANDS HOME & SECURITY, INC.

(FBHS)
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Fortune Brands Home & Security : MANAGEMENT'S DISCUSSION AND ANALYSIS OF

10/29/2020 | 03:14pm EST

FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and the notes thereto, which are included in
this report, as well as our audited consolidated financial statements for the
year ended December 31, 2019, which are included in our Annual Report on Form
10-K for the year ended December 31, 2019.

This discussion contains forward-looking statements that are made pursuant to
the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), regarding the expected or potential impact of the novel
coronavirus pandemic ("COVID-19") on our business, operations or financial
condition in addition to statements regarding our general business strategies,
market potential, future financial performance, the potential of our brands and
other matters, expected capital spending, expected pension contributions, the
anticipated impact of recently issued accounting standards on our financial
statements, planned business strategies, anticipated market potential, future
financial performance, impact of acquisitions and other matters. Statements
preceded by, followed by or that otherwise include the words "believes,"
"expects," "anticipates," "intends," "projects," "estimates," "plans" and
similar expressions or future or conditional verbs such as "will," "should,"
"would," "may" and "could" are generally forward-looking in nature and not
historical facts. Where, in any forward-looking statement, we express an
expectation or belief as to future results or events, such expectation or belief
is based on current expectations, estimates, assumptions and projections about
our industry, business and future financial results, available at the time this
report is filed with the Securities and Exchange Commission.  Our actual results
could differ materially from the results contemplated by these forward-looking
statements due to a number of factors, including but not limited to: (i) the
uncertainties relating to the impact of COVID-19 on the Company's business,
operations and financial results, (ii) our reliance on the North American home
improvement, repair and new home construction activity levels, and the North
American and global economies generally, (iii) the competitive nature of
consumer and trade brand businesses, (iv) risks associated with our ability to
improve organizational productivity and global supply chain efficiency and
flexibility, (v) our ability to develop new products or processes and improve
existing products and processes, (vi) risks associated with global commodity and
energy availability and price volatility, as well as the possibility of
sustained inflation, (vii) risks associated with doing business internationally,
including changes in trade-related tariffs and risks with uncertain trade
environments, (viii) changes in government and industry standards, (ix) risks
associated with entering into potential strategic acquisitions and integrating
acquired property, (x) our ability to secure and protect our intellectual
property rights, (xi) our reliance on key customers and suppliers, including
wholesale distributors and dealers, (xii) risks associated with the disruption
of operations, (xiii) our inability to obtain raw materials and finished goods
in a timely and cost-effective manner, (xiv) our ability to attract and retain
qualified personnel and other labor constraints, (xv) impairments in the
carrying value of goodwill or other acquired intangible assets, (xvi) delays or
outages in our information technology system or computer networks, (xvii) risk
of increases in our defined benefit-related costs and funding requirements,
(xviii) future tax law changes or the interpretation of existing tax laws, (xix)
potential liabilities and costs from claims and litigation, and (xx) our ability
to access the capital markets on terms acceptable to us. These and other factors
are discussed in Part I, Item 1A "Risk Factors" of our Annual Report on Form
10-K for the year ended December 31, 2019, as updated in Part II, Item 1A "Risk
Factors" below.  We undertake no obligation to, and expressly disclaim any such
obligation to, update or clarify any forward-looking statements to reflect
changed assumptions, the occurrence of anticipated or unanticipated events, new
information or changes to future results over time or otherwise, except as
required by law.

OVERVIEW


References to "Fortune Brands," "the Company," "we," "our" and "us" refer to
Fortune Brands Home & Security, Inc. and its consolidated subsidiaries as a
whole, unless the context otherwise requires. The Company is a leading home and
security products company with a portfolio of leading branded products used for
residential home repair, remodeling, new construction and security applications.

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





                                       22
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While our financial results were negatively impacted during the second quarter
by these closure orders, sales volumes increased as these restrictions were
relaxed benefiting our third quarter results. Due to the continued inherent
uncertainty surrounding COVID-19, including rapidly changing governmental
directives, public health challenges and market reactions, it is challenging to
estimate the future performance of our business and the financial impacts of
COVID-19. The long-term impacts of the COVID-19 pandemic continue to be unclear,
and they may negatively affect our results in later periods, largely depending
on the timing and shape of the economic recovery as well as any further closures
related to COVID-19.

Our first priority with regard to COVID-19 continues to be to ensure the safety,
health and hygiene of our employees, customers, suppliers and others with whom
we partner in our business activities. Because of our comprehensive use of
appropriate risk mitigation and safety practices, we have largely been able to
continue our business operations in this unprecedented business environment
which could differentiate us from some of our competition. We believe that the
disruption caused by the pandemic created increased consumer interest in
investing in their homes and accelerated trends that we were experiencing prior
to the pandemic, such as the shift towards value-priced cabinetry products and a
focus on outdoor living. We have also taken proactive steps in our manufacturing
supply chain and other areas to drive efficiencies which we expect to allow us
to be more competitive both during and after the pandemic. We continue to
believe that the Company has certain competitive advantages including
market-leading brands, a diversified mix of channels, lean and flexible supply
chains, a decentralized business model and a strong capital structure. We
believe these long-held strengths will enable us to compete effectively during
and after the COVID-19 pandemic. We will continue to focus on outperforming our
markets in growth, profitability and returns in order to drive increased
shareholder value.  We believe the Company's track record reflects the long-term
attractiveness and potential of the categories we serve and our leading brands.

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


The U.S. market for our products primarily consists of spending on both new home
construction and repair and remodel activities within existing homes, with a
majority of the markets we serve consisting of repair and remodel
spending. Growth in the U.S. market for our products will largely depend on
consumer confidence, employment, home prices, stable mortgage rates and credit
availability, all of which may be further impacted by COVID-19 for an unknown
duration.

In addition to the potential COVID-19 impacts noted above, we may be impacted by
fluctuations in the cost and availability of raw materials, tariffs,
transportation costs, changes in foreign exchange and promotional activity among
our competitors.  We strive to offset the potential unfavorable impact of these
items with productivity improvement initiatives and price increases.




                                       23
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RESULTS OF OPERATIONS


Nine Months Ended September 30, 2020 Compared To Nine Months Ended September 30,
2019

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

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




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

Net sales

Net sales increased by $136.5 million, or 3.2%, on higher volume and price increases to help mitigate the cumulative impact from tariff related costs. These factors were partially offset by unfavorable mix, higher rebate costs and unfavorable foreign exchange of $10 million.

Cost of products sold


Cost of products sold increased by $100.4 million, or 3.6%, due to higher net
sales, the impact of higher tariffs and unfavorable mix partially offset by the
benefit from productivity improvements.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $25.5 million, or 2.7%, due to the benefits from organizational restructuring initiatives. These decreases were partially offset by higher transportation costs.

Amortization of intangible assets

Amortization of intangible assets increased by $1.1 million includes the amortization of a Plumbing tradename which was previously classified as indefinite-lived.

Asset impairment charges


Asset impairment charges of $22.5 million in 2020 related to indefinite-lived
tradenames in our Plumbing and Cabinets segments. Asset impairment charges of
$29.5 million in 2019 related to an indefinite-lived tradename within our
Cabinets segment.

Restructuring charges


Restructuring charges of $16.5 million in the nine months ended September 30,
2020 primarily related to headcount actions associated with COVID-19 across all
of our segments and costs associated with changes in our manufacturing processes
within our Plumbing segment. Restructuring charges of $11.2 million in the nine
months ended September 30, 2019 primarily related to severance costs within our
Plumbing and Cabinets segments and costs associated with closing facilities
within our Plumbing and Doors & Security segments.







                                       24
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RESULTS OF OPERATIONS (Continued)

Operating income


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

Interest expense

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

Other income, net


Other income, net, was $13.4 million in the nine months ended September 30,
2020, compared to $2.2 million in the nine months ended September 30, 2019. The
increase in other income, net is primarily due to gains of $11.0 million related
to our January 2020 investment in Flo and due to higher defined benefit income
in 2020 ($3.1 million increase), partially offset by unfavorable foreign
currency adjustments.



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



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

Income taxes

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

Net income attributable to Fortune Brands


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

Results By Segment

Plumbing


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

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



                                       25
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RESULTS OF OPERATIONS (Continued)

Doors & Security


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

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

Cabinets


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

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

Corporate

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




                                       26
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Three Months Ended September 30, 2020 Compared To Three Months Ended September
30, 2019

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

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



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

Net sales

Net sales increased by $193.1 million, or 13.2%, on higher volume, price increases to help mitigate the cumulative impact from tariff related costs and favorable foreign exchange of approximately $2 million. These factors were partially offset by unfavorable mix and higher rebate costs.

Cost of products sold

Cost of products sold increased by $136.7 million, or 14.6%, due to higher net sales, unfavorable mix, higher tariffs and higher employee related costs, partially offset by the benefit from productivity improvements.

Selling, general and administrative expenses

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

Amortization of intangible assets

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

Asset impairment charges

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

Restructuring charges


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









                                       27
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RESULTS OF OPERATIONS (Continued)

Operating income


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

Interest expense

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

Other income, net


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

Income taxes




The effective income tax rates for the three months ended September 30, 2020 and
2019 were 24.3% and 27.0%, respectively. The effective income tax rate in 2020
was favorably impacted by a benefit related to share-based compensation.

Net income attributable to Fortune Brands


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

Results By Segment

Plumbing

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


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

Doors & Security


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

Operating income increased by $16.7 million, or 33.3%, due to higher sales volume and the benefit from productivity improvements and leveraging our existing fixed cost base. These factors were partially offset by higher employee related costs and unfavorable mix. Foreign exchange was favorable by approximately $1 million.




                                       28
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RESULTS OF OPERATIONS (Continued)

Cabinets


Net sales increased by $65.1 million, or 11.0%, on higher in-stock volume and
price increases to help mitigate the cumulative impact of tariffs. These factors
were partly offset by a continued shift to value-priced products.

Operating income increased by $57.0 million, or 227.1%, due to higher net sales,
the absence of the 2019 asset impairment charge ($29.5 million), lower
restructuring costs ($6.2 million decrease), the benefits from productivity
initiatives and from leveraging our existing fixed cost base and lower promotion
costs. These factors were partly offset by a continued shift to value-priced
products.

Corporate

Corporate expenses increased by $6.1 million, or 31.8%, due to higher employee related costs.

LIQUIDITY AND CAPITAL RESOURCES


Our principal sources of liquidity are cash on hand, cash flows from operating
activities, cash borrowed under our credit facilities and cash from debt
issuances in the capital markets. Our operating income is generated by our
subsidiaries. We believe our operating cash flows, including funds available
under our credit facilities and access to capital markets, provide sufficient
liquidity to support the Company's liquidity and financing needs, which are to
support working capital requirements, fund capital expenditures and service
indebtedness, as well as to finance acquisitions, repurchase shares of our
common stock and pay dividends to stockholders, as the Board of Directors deems
appropriate.

Our cash flows from operations, borrowing availability and overall liquidity are
subject to certain risks and uncertainties, including those described in the
section of our Annual Report on Form 10-K for the year-ended December 31, 2019
entitled "Item 1A. Risk Factors," updated in "Item 1A - Risk Factors" below. In
addition, we cannot predict whether or when we may enter into acquisitions,
joint ventures or dispositions, pay dividends, or what impact any such
transactions could have on our results of operations, cash flows or financial
condition, whether as a result of the issuance of debt or equity securities, or
otherwise.

Long-Term Debt

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



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




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



                                       29

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Credit Facilities


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



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



In September 2019, the Company used the proceeds from the 2019 Notes to repay
the full outstanding balance on the Term Loan entered into in March 2018 and
subsequently amended in August 2018 and March 2019 (the "Term Loan"). Following
the March 2019 amendment, the Term Loan provided for borrowings of $350 million
and matured in March 2020. At December 31, 2019, amounts due under the Term Loan
were zero.

Cash and Seasonality

On September 30, 2020, we had cash and cash equivalents of $464.5 million, of
which $374.4 million was held at non-U.S. subsidiaries. We manage our global
cash requirements considering (i) available funds among the subsidiaries through
which we conduct business, (ii) the geographic location of our liquidity needs,
and (iii) the cost to access international cash balances. The repatriation of
non-U.S. cash balances from certain subsidiaries could have adverse tax
consequences as we may be required to pay and record tax expense on those funds
that are repatriated.

Our operating cash flows are significantly impacted by the seasonality of our
business. We typically generate most of our operating cash flow in the third and
fourth quarters of each year. We use operating cash in the first quarter of the
year Additionally, as noted in the overview section above, the potential future
impact of COVID-19 on our net sales, supply chain, manufacturing, and
distribution, as well as overall new construction, repair and remodel activity,
and consumer spending, are uncertain.

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

Share Repurchases and Dividends


In the first quarter of 2020, we repurchased 2.5 million shares of our
outstanding common stock under the Company's share repurchase programs for
$150.0 million. We did not repurchase any shares during the second or third
quarter of 2020. On September 21, 2020, the Company's Board of Directors
authorized the repurchase of up to $500 million of shares of the Company's
common stock over the two years ending September 21, 2022. The share repurchase
program does not obligate the Company to repurchase any specific dollar amount
or number of shares and may be suspended or discontinued at any time.

In the first nine months of 2020, we paid dividends in the amount of $99.9
million to the Company's shareholders. Our Board of Directors will continue to
evaluate dividend payment opportunities on a quarterly basis. There can be no
assurance as to when and if



                                       30
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future dividends will be paid, and at what level, because the payment of
dividends is dependent on our financial condition, results of operations, cash
flows, capital requirements and other factors deemed relevant by our Board of
Directors. There are no restrictions on the ability of our subsidiaries to pay
dividends or make other distributions to Fortune Brands.

Acquisitions

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

Cash Flows


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



                                                    Nine Months Ended
(In millions)                                         September 30,
                                                    2020          2019

Net cash provided by operating activities $ 506.8$ 353.8 Net cash used in investing activities

                (124.1 )      (78.1 )
Net cash used in financing activities                (308.8 )     (201.9 )

Effect of foreign exchange rate changes on cash 1.9 (1.2 ) Net increase in cash and cash equivalents $ 75.8$ 72.6





Net cash provided by operating activities was $506.8 million in the nine months
ended September 30, 2020, compared to net cash provided by operating activities
of $353.8 million in the nine months ended September 30, 2019. The increase in
cash provided of $153.0 million was primarily due to lower increases in working
capital, higher net income and increases in accrued taxes.



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



Net cash used in financing activities was $308.8 million in the nine months
ended September 30, 2020, compared to cash used in financing activities of
$201.9 million in the nine months ended September 30, 2019. The increase in cash
used of $106.9 million was primarily due to lower net borrowings in 2020
compared to 2019 ($114.3 million), higher share repurchases in 2020 compared to
2019, partly offset by higher proceeds from the exercise of stock options and
the absence of deferred acquisition payments made during 2019 ($19.0 million).

Pension Plans


Subsidiaries of Fortune Brands sponsor their respective defined benefit pension
plans that are funded by a portfolio of investments maintained within our
benefit plan trust. As of December 31, 2019, the fair value of our total pension
plan assets was $677.2 million, representing 77% of the accumulated benefit
obligation liability. During the nine months ended September 30, 2020, we made
our required minimum pension contributions of $18 million. We may make a
potential voluntary contribution in the range of $10 million to $30 million
during the remainder of 2020. For the foreseeable future, we believe that we
have sufficient liquidity to meet the minimum funding that may be required by
the Pension Protection Act of 2006.

Foreign Exchange

We have operations in various foreign countries, principally Canada, China, Mexico, the United Kingdom, France, Australia, Japan and South Africa. Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S. dollars.

RECENTLY ISSUED ACCOUNTING STANDARDS


The adoption of recent accounting standards, as discussed in Note 2, "Recently
Issued Accounting Standards," to our Consolidated Financial Statements, has not
had and is not expected to have a significant impact on our revenue, earnings or
liquidity.



                                       31

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