DEERFIELD, IL - Fortune Brands Home & Security, Inc. (NYSE: FBHS), an industry-leading home and security products company, today announced second quarter 2015 results from continuing operations and updated its 2015 annual outlook for earnings per share.

“The rate of growth for the home products market improved modestly in the second quarter and our teams again delivered profit growth that was right on plan,” said Chris Klein, chief executive officer, Fortune Brands. “We continue to anticipate accelerating new construction activity in the second half of the year. Based on that market assumption and our solid execution, we are maintaining our expectations for our core business for the remainder of 2015.”

Second Quarter 2015

For the second quarter of 2015, sales were $1.17 billion, an increase of 13 percent over the second quarter of 2014. Earnings per share were $0.48, compared to $0.51 in the prior-year quarter. EPS before charges/gains were $0.59, compared to $0.51 the same quarter last year. Operating income was $128.2 million, compared to $125.5 million in the prior-year quarter. Operating income before charges/gains was $150.5 million, compared to $125.6 million the same quarter last year.

“In the second quarter, sales increased 13 percent for the total company and 17 percent for the U.S. businesses. Importantly, operating income before charges/gains grew 20 percent, with solid performance across all operating segments,” Klein said.

For each segment in the second quarter of 2015, compared to the prior-year quarter:

  • Cabinet sales increased 18 percent to the prior year. Excluding the impact of the Norcraft acquisition, sales increased 8 percent, with the dealer channel growing 10 percent and in-stock cabinet and vanities increasing high teens.
  • Plumbing sales increased 5 percent, with growth across the U.S. wholesale and retail channels, offset somewhat by the impact of Canadian currency and slower China sales.
  • Door sales were up 6 percent with growth in both the wholesale and retail channels.
  • Security sales increased 28 percent driven by the SentrySafe acquisition.

“In the second quarter we also took advantage of the opportunity to secure long-term financing,” said Lee Wyatt, chief financial officer, Fortune Brands. “Importantly, with $975 million of availability on our revolver, we have significant financial flexibility to drive incremental shareholder value.”

Annual Outlook for 2015

The Company’s 2015 outlook now includes the impact of the Norcraft acquisition, as well as incremental interest expense from the recent long-term financing.

The Company’s 2015 annual outlook continues to be based on a U.S. home products market growth assumption of 6 to 8 percent. Based on the Company’s expectation to continue outperforming the market, the acquisition of Norcraft and the impact of foreign currency, the Company expects full-year 2015 net sales growth in the range of 13 to 15 percent.

The Company updated its expectations for 2015 EPS before charges/gains to be in the range of $2.03 to $2.10, which compares to 2014 EPS before charges/gains of $1.74. This EPS expectation now includes an incremental 4 to 5 cents due to the acquisition of Norcraft, partially offset by incremental interest expense unrelated to the Norcraft acquisition.

“The second quarter home products market improved modestly, as we had planned,” said Klein. “We continue to see positive signs and look for stronger market growth in the second half of the year.”

The Company expects to generate free cash flow of approximately $270 million for the full year 2015. The expected free cash flow is net of anticipated capital expenditures of approximately $135 million, as the Company invests in incremental capacity and infrastructure to support multi-year growth.

About Fortune Brands

Fortune Brands Home & Security, Inc. (NYSE: FBHS), headquartered in Deerfield, Ill., creates products and services that help fulfill the dreams of homeowners and help people feel more secure. The Company’s trusted brands include MasterBrand cabinets, Moen faucets, Therma-Tru entry door systems, and Master Lock and SentrySafe security products. Fortune Brands holds market leadership positions in all of its segments. Fortune Brands is part of the S&P MidCap 400 Index. For more information, please visit www.FBHS.com.

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, organic cabinet sales, 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 June 30,       Six Months Ended June 30,
          2015   2014   % Change       2015   2014   % Change
  Net Sales (GAAP)                                
  Cabinets       $ 550.9     $ 467.9     18         $ 962.0     $ 878.8     9  
  Plumbing         358.0       340.1     5           691.6       650.0     6  
  Doors         117.6       110.5     6           200.8       190.1     6  
  Security         138.6       108.7     28           261.5       197.4     32  
  Total Net Sales       $ 1,165.1     $ 1,027.2     13         $ 2,115.9     $ 1,916.3     10  
                                   
  Operating Income Before Charges/Gains (a)                                
  Cabinets       $ 57.0     $ 46.3     23         $ 70.9     $ 66.3     7  
  Plumbing         75.0       69.9     7           139.9       125.3     12  
  Doors         15.2       9.7     57           14.0       9.6     46  
  Security         19.8       14.0     41           29.7       23.2     28  
  Corporate Expenses         (16.5 )     (14.3 )   (15 )         (30.8 )     (28.7 )   (7 )
  Total Operating Income Before Charges/Gains       $ 150.5     $ 125.6     20         $ 223.7     $ 195.7     14  
                                   
  Earnings Per Share Before Charges/Gains (b)                                
  Diluted - Continuing Operations       $ 0.59     $ 0.51     16         $ 0.88     $ 0.78     13  
                                   
                                   
  EBITDA Before Charges/Gains (c)       $ 175.2     $ 144.8     21         $ 270.7     $ 235.2     15  
                                   
                                   
  (a) (b) (c) For definitions of Non-GAAP measures, see Definitions of Terms page
 
                 
                 
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (GAAP)
(In millions)
(Unaudited)
                 
                 
        June 30,       December 31,
        2015       2014
                 
Assets                
Current assets                
Cash and cash equivalents       $ 223.5       $ 191.9
Accounts receivable, net         573.5         458.9
Inventories         546.4         462.2
Other current assets         153.9         122.8
Current assets of discontinued operations         32.6         63.3
Total current assets         1,529.9         1,299.1
                 
Property, plant and equipment, net         582.0         539.8
Goodwill         1,904.7         1,467.8
Other intangible assets, net of accumulated amortization         858.8         656.5
Other assets         72.1         72.4
Non-current assets of discontinued operations         19.0         17.3
Total assets       $ 4,966.5       $ 4,052.9
                 
                 
Liabilities and Equity                
Current liabilities                
Current portion of long-term debt       $ -       $ 26.3
Accounts payable         352.6         333.8
Other current liabilities         320.2         322.0
Current liabilities of discontinued operations         9.5         17.5
Total current liabilities         682.3         699.6
                 
Long-term debt         1,389.8         643.7
Deferred income taxes         230.2         150.6
Other non-current liabilities         291.8         292.5
Non-current liabilities of discontinued operations         2.6         3.4
Total liabilities         2,596.7         1,789.8
                 
Stockholders' equity         2,367.4         2,259.5
Noncontrolling interests         2.4         3.6
Total equity         2,369.8         2,263.1
Total liabilities and equity       $ 4,966.5       $ 4,052.9
 
                     
                     
FORTUNE BRANDS HOME & SECURITY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
                     
                     
                     
        Six Months Ended June 30,      
        2015     2014      
Operating Activities                    
Net income       $ 119.7       $ 134.8        
Depreciation and amortization         50.2         47.6        
Recognition of actuarial losses         -         0.6        
Deferred taxes         1.2         6.6        
Other noncash items         14.7         16.2        
Changes in assets and liabilities, net         (144.0 )       (236.5 )      
Net cash provided (used) by operating activities       $ 41.8       $ (30.7 )      
                     
Investing Activities                    
Capital expenditures, net of proceeds from asset sales       $ (54.2 )     $ (47.5 )      
Cost of acquisitions, net of cash         (652.5 )       -        
Net cash used by investing activities       $ (706.7 )     $ (47.5 )      
                     
Financing Activities                    
Increase in debt, net       $

717.6

      $ 248.9        
Proceeds from the exercise of stock options         13.1         11.0        
Treasury stock purchases         (0.4 )       (255.0 )      
Dividends to stockholders         (44.6 )       (39.5 )      
All other, net         15.2         17.5        
Net cash provided (used) by financing activities       $ 700.9       $ (17.1 )      
                     
                     
Effect of foreign exchange rate changes on cash         (4.4 )       (1.1 )      
                     
Net increase (decrease) in cash and cash equivalents       $ 31.6       $ (96.4 )      
Cash and cash equivalents at beginning of period         191.9         241.4        
Cash and cash equivalents at end of period       $ 223.5       $ 145.0        
                     
                     
                     

FREE CASH FLOW

      Six Months Ended June 30,     2015 Full Year
        2015     2014     Approximation
                     
Free Cash Flow*       $ 15.6       $ (67.2 )     $ 270.0
Add:                    
Capital expenditures         54.6         47.6         135.0
Less:                    
Proceeds from the sale of assets         0.4         0.1         -
Proceeds from the exercise of stock options         13.1         11.0         15.0

Transaction costs for Norcraft acquisition

       

14.9

        -         15.0
Cash Flow From Operations (GAAP)       $ 41.8       $ (30.7 )     $ 375.0
                     
* 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) plus proceeds from the exercise of stock options. It additionally excludes payments of transaction costs related to the Norcraft acquisition. Free cash flow does not include adjustments for certain non-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.
CONSOLIDATED STATEMENT OF INCOME (GAAP)
(In millions, except per share amounts)
(Unaudited)
                                 
        Three Months Ended June 30,       Six Months Ended June 30,
        2015   2014   % Change       2015   2014   % Change
                                 
Net Sales       $ 1,165.1     $ 1,027.2   13         $ 2,115.9   $ 1,916.3   10  
                                 
Cost of products sold         754.7       665.4   13           1,388.6     1,259.2   10  
                                 
Selling, general                                
and administrative expenses         271.0       232.6   17           512.4     455.3   13  
                                 
Amortization of intangible assets         5.1       3.0   70           8.6     6.1   41  
                                 
Restructuring charges         6.1       0.7   771           10.8     0.9   1,100  
                                 
Operating Income         128.2       125.5   2           195.5     194.8   0  
                                 
Interest expense         6.0       2.1   186           9.4     4.0   135  
                                 
Other expense, net         1.5       1.0   50           3.2     0.5   540  
                                 
Income from continuing operations before income taxes         120.7       122.4   (1 )         182.9     190.3   (4 )
                                 
Income taxes         42.7       36.1   18           64.0     57.7   11  
                                 
Income from continuing operations, net of tax       $ 78.0     $ 86.3   (10 )       $ 118.9   $ 132.6   (10 )
                                 
Income from discontinued operations, net of tax         1.4       7.3   (81 )         0.8     2.2   (64 )
                                 
Net income       $ 79.4     $ 93.6   (15 )       $ 119.7   $ 134.8   (11 )
                                 
Less: Noncontrolling interests         (0.3 )     0.3   (200 )         -     0.7   (100 )
                                 
Net income attributable to                                
Fortune Brands Home & Security       $ 79.7     $ 93.3   (15 )       $ 119.7   $ 134.1   (11 )
                                 
Earnings Per Common Share, Diluted:                                
Net Income from continuing operations       $ 0.48     $ 0.51   (6 )       $ 0.73   $ 0.78   (6 )
                                 
Diluted Average Shares Outstanding         163.0       168.7   (3 )         162.8     170.0   (4 )
 
                             

DILUTED EPS BEFORE CHARGES/GAINS RECONCILIATION

             
                             

For the second quarter of 2015, diluted EPS before charges/gains is income from continuing operations, net of tax and including the impact from noncontrolling interests calculated on a diluted per-share basis excluding $6.5 million ($5.5 million after tax or $0.03 per diluted share) of net restructuring and other charges, transaction costs related to the acquisition of Norcraft of $15.8 million ($12.6 million after tax or $0.08 per diluted share) and a tax item of $0.3 million.

                             

For the six months ended June 30, 2015, diluted EPS before charges/gains is income from continuing operations, net of tax and including the impact from noncontrolling interests calculated on a diluted per-share basis excluding $11.3 million ($8.7 million after tax or $0.05 per diluted share) of restructuring and other charges, transaction costs related to the acquisition of Norcraft of $16.9 million ($13.3 million after tax or $0.09 per diluted share), and a tax item of $1.6 million ($0.01 per diluted share).

                             
For the second quarter of 2014, diluted EPS before charges/gains is net income calculated on a diluted per-share basis excluding $0.1 million of net restructuring and other charges ($0.5 million after tax benefit).
                             
For six months ended June 30, 2014, diluted EPS before charges/gains is net income calculated on a diluted per-share basis excluding $0.3 million ($0.2 million after tax) of restructuring and other charges and the impact of expense from actuarial losses associated with our defined benefit plan of $0.6 million ($0.4 million after tax).
                             
                             
      Three Months Ended June 30,     Six Months Ended June 30,
      2015   2014   % Change     2015   2014   % Change
                             
Earnings Per Common Share - Diluted                            
Diluted EPS Before Charges/Gains (b)     $ 0.59     $ 0.51   16       $ 0.88     $ 0.78   13  
                             
Restructuring and other charges       (0.03 )     -   -         (0.05 )     -   -  
Norcraft transaction costs(d)       (0.08 )     -   -         (0.09 )     -   -  
Defined benefit plan actuarial losses       -       -   -         -       -   -  
Tax item       -       -   -         (0.01 )     -   -  
                             
Diluted EPS - Continuing Operations     $ 0.48     $ 0.51   (6 )     $ 0.73     $ 0.78   (6 )
                             
                             

RECONCILIATION OF FULL YEAR 2015 EARNINGS GUIDANCE TO GAAP

                             

For the full year, the Company is targeting diluted EPS before charges/gains from continuing operations to be in the range of $2.03 to $2.10 per share. This EPS outlook now includes an incremental 4 to 5 cents due to the acquisition of Norcraft net of interest and amortization, partially offset by incremental interest expense from long-term financing unrelated to the Norcraft acquisition and foreign exchange. On a GAAP basis, the Company is targeting diluted EPS from continuing operations to be in the range of $1.82 to $1.89 per share. The Company's GAAP basis EPS range assumes the Company incurs no actuarial gains or losses associated with its defined benefit plans.

                             
                             
(b) (d) For definitions of Non-GAAP measures, see Definitions of Terms page
 
 
 
FORTUNE BRANDS HOME & SECURITY, INC.
RECONCILIATION OF FULL YEAR 2014 DILUTED EPS BEFORE CHARGES/GAINS TO GAAP DILUTED EPS FROM CONTINUING OPERATIONS
(unaudited)        
         
        For the twelve months ended
        December 31, 2014
         
Diluted EPS Before Charges/Gains* (b)       $ 1.74  
         
Restructuring and other charges         (0.05 )
Asset impairment charges         (0.01 )
Defined benefit plan actuarial losses         (0.05 )
Tax item         0.01  
         
Diluted EPS - Continuing Operations       $ 1.64  
         
         
         
* For the year ended December 31, 2014, diluted EPS before charges/gains is income from continuing operations, net of tax and including the impact from noncontrolling interests calculated on a diluted per-share basis excluding $13.5 million ($8.4 million after tax or $0.05 per diluted share) of restructuring and other charges, a tax benefit resulting from the write off of our investment in an international subsidiary of $1.6 million ($1.6 million after tax or $0.01 per diluted share), an asset impairment charge of $1.6 million ($1.0 million after tax or $0.01 per diluted share) and the impact of expense from actuarial losses associated with our defined benefit plans of $13.7 million ($8.7 million after tax or $0.05 per diluted share).
         
         
(b) For definitions of Non-GAAP measures, see Definitions of Terms page  
 
 
 
FORTUNE BRANDS HOME & SECURITY, INC.
(In millions)
(Unaudited)
                                 
                                 

RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS TO EBITDA BEFORE CHARGES/GAINS

   
                                 
        Three Months Ended June 30,       Six Months Ended June 30,
        2015   2014   % Change       2015   2014   % Change
                                 
Income from continuing operations, net of tax       $ 78.0   $ 86.3   (10 )       $ 118.9   $ 132.6   (10 )
                                 
Depreciation       $ 21.1   $ 17.2   23         $ 41.6   $ 33.9   23  
Amortization of intangible assets         5.1     3.0   70           8.6     6.1   41  
Restructuring and other charges         6.5     0.1   6,400           11.3     0.3   3,667  
Interest expense         6.0     2.1   186           9.4     4.0   135  
Norcraft transaction costs (d)         15.8     -   100           16.9     -   100  
Defined benefit plan actuarial losses         -     -   -           -     0.6   (100 )
Income taxes         42.7     36.1   18           64.0     57.7   11  
                                 
EBITDA BEFORE CHARGES/GAINS (c)       $ 175.2   $ 144.8   21         $ 270.7   $ 235.2   15  
                                 
                                 
(c) (d) For definitions of Non-GAAP measures, see Definitions of Terms page
 
   
   
FORTUNE BRANDS HOME & SECURITY, INC.
Reconciliation of Income Statement - GAAP to Before Charges/Gains Information
Three Months Ended June 30,
$ in millions, except per share amounts
(unaudited)
                     
            Before Charges/Gains adjustments      
                           
            Restructuring     Norcraft     Before
      GAAP     and other   Tax Item   Acquisition     Charges/Gains
      (unaudited)     charges       Costs     (Non-GAAP)
                           
2015     SECOND QUARTER
                           
Net Sales     $ 1,165.1       -     -     -        
                           
Cost of products sold       754.7       -     -     (2.0 )      
Selling, general & administrative expenses       271.0       (0.4 )   -     (13.8 )      
Amortization of intangible assets       5.1       -     -     -        
Restructuring charges       6.1       (6.1 )   -     -        
                           
Operating Income       128.2       6.5     -     15.8         150.5
                           
Interest expense       6.0       -     -     -        
Other expense, net       1.5       -     -     -        
Income from continuing operations before income taxes       120.7       6.5     -     15.8         143.0
                           
Income taxes       42.7       1.0     (0.3 )   3.2        
                           
Income from continuing operations, net of tax     $ 78.0       5.5     0.3     12.6         96.4
                           
Income from discontinued operations, net of tax       1.4       -     -     -        
                           
Net Income       79.4       -     -     -        
                           
Less: Noncontrolling interests       (0.3 )     -     -     -        
                           
Net Income attributable                          
to Fortune Brands Home & Security, Inc.     $ 79.7       5.5     0.3     12.6         98.1
                           
Income from continuing operations, net of tax                          
less noncontrolling interests     $ 78.3       5.5     0.3     12.6         96.7
                           
Diluted Average Shares Outstanding       163.0                       163.0
                           
Diluted EPS - Continuing Operations       0.48                       0.59
                           
2014                          
                           
Net Sales     $ 1,027.2       -     -     -        
                           
Cost of products sold       665.4       0.6     -     -        
Selling, general & administrative expenses       232.6       -     -     -        
Amortization of intangible assets       3.0       -     -     -        
Restructuring charges       0.7       (0.7 )   -     -        
                           
Operating Income       125.5       0.1     -     -         125.6
                           
Interest expense       2.1       -     -     -        
Other expense, net       1.0       -     -     -        
Income from continuing operations before income taxes       122.4       0.1     -     -         122.5
                           
Income taxes       36.1       0.6     -     -        
                           
Income from continuing operations, net of tax     $ 86.3       (0.5 )   -     -       $ 85.8
                           
Income from discontinued operations, net of tax       7.3       -     -     -        
                           
Net Income       93.6       -     -     -        
                           
Less: Noncontrolling interests       0.3       -     -     -        
                           
Net Income attributable                          
to Fortune Brands Home & Security, Inc.     $ 93.3       (0.5 )   -     -       $ 92.8
                           
Income from continuing operations, net of tax                          
less noncontrolling interests     $ 86.0       (0.5 )   -     -       $ 85.5
                           
Diluted Average Shares Outstanding       168.7                       168.7
                           
Diluted EPS - Continuing Operations       0.51                       0.51
 
                           
                           
FORTUNE BRANDS HOME & SECURITY, INC.
Reconciliation of Income Statement - GAAP to Before Charges/Gains Information
Six Months Ended June 30,
$ in millions, except per share amounts
(unaudited)
                   
            Before Charges/Gains adjustments      
                               
            Restructuring  

Defined benefit

      Norcraft     Before
      GAAP     and other  

plan actuarial

  Tax Item   Acquisition     Charges/Gains
      (unaudited)     charges  

losses

      Costs     (Non-GAAP)
                               
2015     YEAR TO DATE
                               
Net Sales     $ 2,115.9     -     -     -     -        
                               
Cost of products sold       1,388.6     (0.1 )   -     -     (2.0 )      
Selling, general & administrative expenses       512.4     (0.4 )   -     -     (14.9 )      
Amortization of intangible assets       8.6     -     -     -     -        
Restructuring charges       10.8     (10.8 )   -     -     -        
                               
Operating Income       195.5     11.3     -     -     16.9         223.7
                               
Interest expense       9.4     -     -     -     -        
Other expense, net       3.2     -     -     -     -        
Income from continuing operations before income taxes       182.9     11.3     -     -     16.9         211.1
                               
Income taxes       64.0     2.6     -     (1.6 )   3.6        
                               
Income from continuing operations, net of tax     $ 118.9     8.7     -     1.6     13.3       $ 142.5
                               
Income from discontinued operations, net of tax       0.8     -     -     -     -        
                               
Net Income       119.7     -     -     -     -        
                               
Less: Noncontrolling interests       -     -     -     -     -        
                               
Net Income attributable                              
to Fortune Brands Home & Security, Inc.     $ 119.7     8.7     -     1.6     13.3       $ 143.3
                               
Income from continuing operations, net of tax                              
less noncontrolling interests     $ 118.9     8.7     -     1.6     13.3       $ 142.5
                               
Diluted Average Shares Outstanding       162.8                         162.8
                               
Diluted EPS - Continuing Operations       0.73                         0.88
                               
2014                              
                               
Net Sales       1,916.3     -     -     -     -        
                               
Cost of products sold       1,259.2     0.6     (0.6 )   -     -        
Selling, general & administrative expenses       455.3     -     -     -     -        
Amortization of intangible assets       6.1     -     -     -     -        
Restructuring charges       0.9     (0.9 )   -     -     -        
                               
Operating Income       194.8     0.3     0.6     -     -         195.7
                               
Interest expense       4.0     -     -     -     -        
Other expense, net       0.5     -     -     -     -        
Income from continuing operations before income taxes       190.3     0.3     0.6     -     -         191.2
                               
Income taxes       57.7     0.6     0.2     -     -        
                               
Income from continuing operations, net of tax     $ 132.6     (0.3 )   0.4     -     -       $ 132.7
                               
Income from discontinued operations, net of tax       2.2     -     -     -     -        
                               
Net Income       134.8     -     -     -     -        
                               
Less: Noncontrolling interests       0.7     -     -     -     -        
                               
Net Income attributable                              
to Fortune Brands Home & Security, Inc.     $ 134.1     (0.3 )   0.4     -     -       $ 134.2
                               
Income from continuing operations, net of tax                              
less noncontrolling interests     $ 131.9     (0.3 )   0.4     -     -       $ 132.0
                               
Diluted Average Shares Outstanding       170.0                         170.0
                               
Diluted EPS - Continuing Operations       0.78                         0.78
 
 
 
FORTUNE BRANDS HOME & SECURITY, INC.
(In millions, except per share amounts)
(Unaudited)
                             
                             
                             
      Three Months Ended June 30,     Six Months Ended June 30,
      2015   2014   % Change     2015   2014   % Change
Net Sales (GAAP)                            
Cabinets     $ 550.9     $ 467.9     18       $ 962.0     $ 878.8     9  
Plumbing       358.0       340.1     5         691.6       650.0     6  
Doors       117.6       110.5     6         200.8       190.1     6  
Security       138.6       108.7     28         261.5       197.4     32  
Total Net Sales     $ 1,165.1     $ 1,027.2     13       $ 2,115.9     $ 1,916.3     10  
                             
Operating Income                            
Cabinets     $ 54.9     $ 46.1     19       $ 67.9     $ 66.0     3  
Plumbing       69.9       71.5     (2 )       133.7       126.8     5  
Doors       15.2       9.7     57         14.0       9.6     46  
Security       18.5       14.0     32         26.5       23.2     14  
Corporate Expenses (1)       (30.3 )     (15.8 )   (92 )       (46.6 )     (30.8 )   (51 )
Total Operating Income (GAAP)     $ 128.2     $ 125.5     2       $ 195.5     $ 194.8     0  
                             

OPERATING INCOME BEFORE CHARGES/GAINS RECONCILIATION

                             
Operating Income Before Charges/Gains (a)                      
Cabinets     $ 57.0     $ 46.3     23       $ 70.9     $ 66.3     7  
Plumbing       75.0       69.9     7         139.9       125.3     12  
Doors       15.2       9.7     57         14.0       9.6     46  
Security       19.8       14.0     41         29.7       23.2     28  
Corporate Expenses       (16.5 )     (14.3 )   (15 )       (30.8 )     (28.7 )   (7 )
                             
Total Operating Income Before Charges/Gains (a)       150.5       125.6     20         223.7       195.7     14  
Restructuring and other charges (2) (3)       (6.5 )     (0.1 )   (6,400 )       (11.3 )     (0.3 )   (3,667 )
Norcraft transaction costs (d)       (15.8 )     -     (100 )       (16.9 )     -     (100 )
Defined benefit plan actuarial losses (4)       -       -     -         -       (0.6 )   100  
Total Operating Income (GAAP)     $ 128.2     $ 125.5     2       $ 195.5     $ 194.8     0  
                             
                             
                             
(1) Corporate expenses include the components of defined benefit plan expense other than service cost including actuarial gains and losses.
                             
(2) Restructuring charges are costs incurred to implement significant cost reduction initiatives and include workforce reduction costs.
                             
(3) "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, accelerated depreciation resulting from the closure of facilities, and gains or losses on the sale of previously closed facilities.
                             
(4) Represents actuarial gains or losses associated with our defined benefit plans. Actuarial gains or losses in a period represent the difference between actual and actuarially assumed experience, principally related to liability discount rates and plan asset returns, as well as other actuarial assumptions including compensation rates, turnover rates, and health care cost trend rates. The Company recognizes actuarial gains or losses immediately in operating income to the extent they cumulatively exceed a “corridor.” The corridor is equal to the greater of 10% of the fair value of plan assets or 10% of a plan’s projected benefit obligation. Actuarial gains or losses are determined at required remeasurement dates which occur at least annually in the fourth quarter. Remeasurements due to plan amendments and settlements may also occur in interim periods during the year. Our operating income before charges/gains reflects our expected rate of return on pension plan assets which in a given period may materially differ from our actual return on plan assets. Our liability discount rates and plan asset returns are based upon difficult to predict fluctuations in global bond and equity markets that are not directly related to the Company’s business. We believe that the exclusion of actuarial gains or losses from operating income before charges/gains provides investors with useful supplemental information regarding the underlying performance of the business from period to period that may be considered in conjunction with our operating income as measured on a GAAP basis. We present this supplemental information because such actuarial gains or losses may create volatility in our operating income that does not necessarily have an immediate corresponding impact on operating cash flow or the actual compensation and benefits provided to our employees. The table below sets forth additional supplemental information on the Company’s historical actual and expected rate of return on plan assets, as well as discount rates used to value its defined benefit obligations:
                             
($ In millions)                            
      Year Ended         Year Ended    
      December 31, 2014         December 31, 2013    
     

%

 

$

       

%

 

$

   
Actual return on plan assets      

9.8%

 

 

 

$52.0

           

15.2%

 

 

 

$74.6

     
Expected return on plan assets      

7.4%

 

    42.2            

7.8%

 

    41.8      
Discount rate at December 31:                            
Pension benefits      

4.2%

 

             

5.0%

 

       
Postretirement benefits      

3.5%

 

             

4.3%

 

       
                             
                             
(a) (d) For definitions of Non-GAAP measures, see Definitions of Terms page
 
                                     
FORTUNE BRANDS HOME & SECURITY, INC.
(In millions)
(unaudited)
                                     
                                     
                                     

RECONCILIATION OF SEGMENT OPERATING INCOME BEFORE CHARGES/GAINS TO GAAP OPERATING INCOME

             
      For the three month period ended     For the six month period ended
      June 30,   June 30,             June 30,   June 30,        
      2015   2014   $ change   % change     2015   2014   $ change   % change
CABINETS                                    
Operating income before charges/gains(a)     $ 57.0     $ 46.3     $ 10.7     23       $ 70.9     $ 66.3     $ 4.6     7  
Restructuring charges (1)       (0.1 )     (0.2 )     0.1     50         (1.0 )     (0.3 )     (0.7 )   (233 )
Other charges (2)                                    
Cost of products sold       (2.0 )     -       (2.0 )   (100 )       (2.0 )     -       (2.0 )   (100 )
Operating income (GAAP)     $ 54.9     $ 46.1     $ 8.8     19       $ 67.9     $ 66.0     $ 1.9     3  
                                     
PLUMBING                                    
Operating income before charges/gains(a)     $ 75.0     $ 69.9     $ 5.1     7       $ 139.9     $ 125.3     $ 14.6     12  
Restructuring charges (1)       (4.7 )     1.0       (5.7 )   (570 )       (5.7 )     0.9       (6.6 )   (733 )
Other charges (2)                                    
Cost of products sold       -       0.6       (0.6 )   (100 )       (0.1 )     0.6       (0.7 )   (117 )
Selling, general and administrative expenses       (0.4 )     -       (0.4 )   (100 )       (0.4 )     -       (0.4 )   (100 )
Operating income (GAAP)     $ 69.9     $ 71.5     $ (1.6 )   (2 )     $ 133.7     $ 126.8     $ 6.9     5  
                                     
DOORS                                    
Operating income before charges/gains (a)     $ 15.2     $ 9.7     $ 5.5     57       $ 14.0     $ 9.6     $ 4.4     46  
Operating income (GAAP)     $ 15.2     $ 9.7     $ 5.5     57       $ 14.0     $ 9.6     $ 4.4     46  
                                     
SECURITY                                    
Operating income before charges/gains(a)     $ 19.8     $ 14.0     $ 5.8     41       $ 29.7     $ 23.2     $ 6.5     28  
Restructuring charges (1)       (1.3 )     -       (1.3 )   (100 )       (3.2 )     -       (3.2 )   (100 )
Operating income (GAAP)     $ 18.5     $ 14.0     $ 4.5     32       $ 26.5     $ 23.2     $ 3.3     14  
                                     
CORPORATE                                    
Corporate expense before charges/gains(a)     $ (16.5 )   $ (14.3 )   $ (2.2 )   (15 )     $ (30.8 )   $ (28.7 )   $ (2.1 )   (7 )
Restructuring charges (1)       -       (1.5 )     1.5     100         (0.9 )     (1.5 )     0.6     40  
Other charges (2)                                    
Selling, general and administrative expenses       (13.8 )     -       -     (100 )       (14.9 )     -       -     (100 )
Defined benefit plan actuarial losses (3)       -       -       -     -         -       (0.6 )     0.6     100  
Corporate expense (GAAP)     $ (30.3 )   $ (15.8 )   $ (0.7 )   (92 )     $ (46.6 )   $ (30.8 )   $ (0.9 )   (51 )
                                     
                                     
(1) Restructuring charges are costs incurred to implement significant cost reduction initiatives and include workforce reduction costs.
                                     

(2) "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, accelerated depreciation resulting from the closure of facilities, and gains or losses on the sale of previously closed facilities. For the Cabinets segment, other charges represent the Norcraft purchase accounting impact of expense related to our estimated inventory step up. For Corporate, other charges represents external costs directly related to the acquisition of Norcraft and primarily include expenditures for banking, legal, accounting and other similar services.

                                     
(3) Represents actuarial gains or losses associated with our defined benefit plans. Actuarial gains or losses in a period represent the difference between actual and actuarially assumed experience, principally related to liability discount rates and plan asset returns, as well as other actuarial assumptions including compensation rates, turnover rates, and health care cost trend rates. The Company recognizes actuarial gains or losses immediately in operating income to the extent they cumulatively exceed a “corridor.” The corridor is equal to the greater of 10% of the fair value of plan assets or 10% of a plan’s projected benefit obligation. Actuarial gains or losses are determined at required remeasurement dates which occur at least annually in the fourth quarter. Remeasurements due to plan amendments and settlements may also occur in interim periods during the year. Our operating income before charges/gains reflects our expected rate of return on pension plan assets which in a given period may materially differ from our actual return on plan assets. Our liability discount rates and plan asset returns are based upon difficult to predict fluctuations in global bond and equity markets that are not directly related to the Company’s business. We believe that the exclusion of actuarial gains or losses from operating income before charges/gains provides investors with useful supplemental information regarding the underlying performance of the business from period to period that may be considered in conjunction with our operating income as measured on a GAAP basis. We present this supplemental information because such actuarial gains or losses may create volatility in our operating income that does not necessarily have an immediate corresponding impact on operating cash flow or the actual compensation and benefits provided to our employees. The table below sets forth additional supplemental information on the Company’s historical actual and expected rate of return on plan assets, as well as discount rates used to value its defined benefit obligations:
                                     
($ In millions)                                    
      Year Ended             Year Ended        
      December 31, 2014             December 31, 2013        
     

%

 

$

           

%

 

$

       
Actual return on plan assets      

9.8%

 

 

 

$52.0

               

15.2%

 

 

 

$74.6

         
Expected return on plan assets      

7.4%

 

    42.2                

7.8%

 

    41.8          
Discount rate at December 31:                                    
Pension benefits      

4.2%

 

                 

5.0%

 

           
Postretirement benefits      

3.5%

 

                 

4.3%

 

           
                                     
                                     
(a) For definitions of Non-GAAP measures, see Definitions of Terms page
 
         
         
FORTUNE BRANDS HOME & SECURITY, INC.
RECONCILIATION OF PERCENTAGE CHANGE IN NET SALES EXCLUDING NORCRAFT TO PERCENTAGE CHANGE IN NET SALES (GAAP)
(Unaudited)
         
         
       

Three Months Ended
June 30, 2015

         
CABINETS        
Percentage change in Net Sales excluding Norcraft 8%
Norcraft Net Sales       10%
Percentage change in Net Sales (GAAP) 18%
         
         
         
Net sales excluding Norcraft is net sales derived in accordance with GAAP excluding Norcraft. 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
 
 
(a) Operating income before charges/gains is operating income derived in accordance with GAAP excluding restructuring and other charges, Norcraft transaction related expenses, and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. Operating income before charges/gains 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.
 
(b) Diluted EPS before charges/gains is income from continuing operations, net of tax, less noncontrolling interests calculated on a diluted per-share basis excluding restructuring and other charges, Norcraft transaction related expenses, and the impact of income and expense from actuarial gains or losses associated with our defined benefit plans. 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.
 
(c) EBITDA before charges/gains is income from continuing operations, net of tax, derived in accordance with GAAP excluding the following impacts on income from continuing operations, net of tax: restructuring and other charges, Norcraft transaction related expenses, the impact of income and expense from actuarial gains or losses associated with our defined benefit plans, depreciation, 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 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.
 
(d) Represents external costs directly related to the acquisition of Norcraft and primarily includes expenditures for banking, legal, accounting and other similar services. In addition, it includes the impact of expense related to our estimated purchase accounting inventory step up.
 

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