# Fortune Brands Innovations, Inc.: Form 10-Q for the period ended Mar 31, 2018

- Company: [Fortune Brands Innovations, Inc.](/companies/fbin.md) (CIK 1519751)
- Form: 10-Q
- Filed: 2018-05-02
- Accepted by EDGAR: May 2, 2018, 16:07 ET
- Period: 2018-03-31
- Accession: 0001193125-18-148656
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1519751/000119312518148656/d557453d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1519751/000119312518148656/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Selling, general and administrative | 3 months, 2018-01-01 to 2018-03-31 | $311.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2018-01-01 to 2018-03-31 | $119.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-01-01 to 2018-03-31 | $14.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-01-01 to 2018-03-31 | $32.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-01-01 to 2018-03-31 | $75.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-01-01 to 2018-03-31 | $0.49 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-01-01 to 2018-03-31 | $0.50 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-01-01 to 2018-03-31 | 152,100,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2018-01-01 to 2018-03-31 | −$51.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2018-01-01 to 2018-03-31 | $37.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2018-01-01 to 2018-03-31 | $29.6m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2018-01-01 to 2018-03-31 | $325.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2018-03-31 | $244.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-03-31 | $1.64bn | us-gaap:AssetsCurrent |
| Total assets | at 2018-03-31 | $5.55bn | us-gaap:Assets |
| Current liabilities | at 2018-03-31 | $1.14bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2018-03-31 | $3.19bn | us-gaap:Liabilities |
| Long-term debt | at 2018-03-31 | $1.54bn | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | at 2018-03-31 | $350.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2018-03-31 | $2.36bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,063 characters.

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, 2017, which are included in our Annual Report on Form 10-K for the year ended December 31, 2017.

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 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, pension contributions, 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) by our reliance on the North American home improvement, repair and new home construction activity levels, (ii) the North American and global economies, (iii) risk associated with entering into potential strategic acquisitions and integrating acquired property, (iv) our ability to remain competitive, innovative and protect our intellectual property, (v) our reliance on key customers and suppliers, (vi) the cost and availability associated with our supply chains and the availability of raw materials, (vii) risk of increases in our defined benefit-related costs and funding requirements, (viii) compliance with tax, environmental and federal, state and international laws and industry regulatory standards and (ix) the risk of doing business internationally. 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, 2017. 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.

### OVERVIEW (Continued)

We believe 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 as well as a tradition of strong innovation and customer service. We are focused 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 our categories and our leading brands. As consumer demand and the housing market grow, we expect the benefits of operating leverage and strategic spending to support increased manufacturing capacity and long-term growth initiatives will help us continue to achieve profitable organic growth.

We believe our most attractive opportunities are to invest in profitable organic growth initiatives. We also believe that as the market grows, we have the potential to generate additional growth from leveraging our cash flow and balance sheet strength by pursuing accretive strategic acquisitions and joint ventures, and by returning cash to shareholders through a combination of dividends and common stock repurchases under our share repurchase programs as explained in further detail under “Liquidity and Capital Resources” below.

The U.S. market for our home products consists of spending on both new home construction and repair and remodel activities within existing homes, with the substantial majority of the markets we serve consisting of repair and remodel spending. We believe that the U.S. market for our home products is in the midst of an elongated recovery from the U.S. economic recession that ended in mid-2009 and that a continued recovery will largely depend on consumer confidence, employment, home prices, stable mortgage rates and credit availability. Over the long term, we believe that the U.S. home products market will benefit from favorable population and immigration trends, which will drive demand for new housing units, and from aging existing housing stock that will continue to need to be repaired and remodeled.

We may be impacted by fluctuations in raw material and 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.

In October 2017, we acquired Victoria +Albert, a UK-based premium brand of standalone bathtubs, sink, tub fillers, faucets and other accessories. In July 2017, we acquired Shaws Since1897 Limited (“Shaws”), a UK-based luxury plumbing products company that specializes in manufacturing. The total combined consideration paid was approximately $132 million, subject to certain post-closing adjustments and deferred acquisition payments. We financed both of the acquisitions using cash on hand and borrowings under our existing revolving credit facility. These transactions broadened our plumbing portfolio and enhanced future growth opportunities.

### RESULTS OF OPERATIONS

### Three Months Ended March 31, 2018 Compared To Three Months Ended March 31, 2017

*(In millions)*

|  | Net Sales 2018 | 2017 | % Change vs. Prior Year |
| --- | ---: | ---: | ---: |
| Cabinets | $557.2 | $573.6 | (2.9)% |
| Plumbing | 449.7 | 378.4 | 18.8 |
| Doors | 110.3 | 102.2 | 7.9 |
| Security | 137.4 | 132.6 | 3.6 |
| Net sales | $1,254.6 | $1,186.8 | 5.7% |
|  | **Operating Income (Loss)** |  |  |
|  | **2018** | **2017** | **% Change vs. Prior Year** |
| Cabinets | $24.1 | $47.0 | (48.7)% |
| Plumbing (a) | 88.4 | 67.2 | 31.5 |
| Doors | 13.1 | 8.2 | 59.8 |
| Security | 15.1 | 10.1 | 49.5 |
| Less: Corporate expenses (a) | (21.3) | (21.5) | 0.9 |
| Operating income | $119.4 | $111.0 | 7.6% |

*(a) We revised our previously reported results for the three months ended March 31, 2017 for ASU 2017-07, Presentation of Net Periodic Pension and Postretirement Costs.*

The following discussion of consolidated results of operations and segment results refers to the three months ended March 31, 2018 compared to the three months ended March 31, 2017. Consolidated results of operations should be read in conjunction with segment results of operations.

#### Net sales

Net sales increased $67.8 million, or 5.7%. The increase was due to higher sales volume primarily from the continuing improvement in U.S. market conditions for home products as well as higher international sales principally in China and Canada, share gains, including new product introductions, favorable foreign exchange of approximately $11 million, the benefit from the 2017 acquisitions in our Plumbing segment and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by unfavorable mix as well as unfavorable weather conditions affecting our U.S. market performance.

#### Cost of products sold

Cost of products sold increased $42.3 million, or 5.5%, due to higher net sales, including the impact of the acquisitions in our Plumbing segment and increased commodity costs partially offset by the benefit of productivity improvements.

#### Selling, general and administrative expenses

Selling, general and administrative expenses increased $21.6 million, or 7.5%, due to higher employee-related costs and advertising and marketing costs as well as the impact of the acquisitions in our Plumbing segment.

### RESULTS OF OPERATIONS (Continued)

#### Amortization of intangible assets

Amortization of intangible assets increased $0.1 million due to the 2017 acquisitions in our Plumbing segment offset by a decrease related to a definite-lived customer relationship intangible that was fully amortized during the second quarter of 2017.

#### Asset impairment charges

Asset impairment charges of $3.2 million during the first quarter of 2017 related to our decision to sell Field ID, our cloud-based inspection and safety compliance software representing an asset group included in our Security segment.

#### Restructuring charges

Restructuring charges of $0.8 million in the three months ended March 31, 2018 primarily related to severance costs within our Doors and Cabinets segment. Restructuring charges in the three months ended March 31, 2017 were $2.2 million.

#### Operating income

Operating income increased $8.4 million, or 7.6%, primarily due to higher net sales, productivity improvements and lower severance costs. These benefits were partially offset by unfavorable mix, increased commodity costs and higher employee-related and advertising and marketing costs.

#### Interest expense

Interest expense increased $2.8 million to $14.7 million due to higher average borrowings and higher average interest rates.

#### Other income, net

Other income, net, was $2.8 million in the three months ended March 31, 2018, compared to $4.7 million in the three months ended March 31, 2017. The decrease in other income, net is primarily due to lower defined benefit plan income in 2018 ($1.2 million decrease).

#### Income taxes

The effective income tax rates for the three months ended March 31, 2018 and 2017 were 30.1% and 25.4%, respectively. The effective income tax rate in 2018 was favorably impacted by the corporate tax rate reduction from 35% to 21% under the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), and a benefit associated with the U.S. research and development credit. The effective income tax rate in 2018 was unfavorably impacted by an adjustment to the deemed repatriation tax liability recorded in 2017 under the Tax Act, the repeal of the Domestic Production Activity (Internal Revenue Code Section 199) Deduction, state and local taxes, and increases to uncertain tax positions.

The effective income tax rate in 2017 was favorably impacted by a tax benefit attributable to the share-based compensation (ASU 2016-09) deduction, a tax benefit attributable to the Domestic Production Activity (Internal Revenue Code Section 199) Deduction, favorable tax rates in foreign jurisdictions, and a benefit associated with the U.S. research and development credit, offset by state and local taxes and increases to uncertain tax positions.

### RESULTS OF OPERATIONS (Continued)

#### Net income from continuing operations

Net income from continuing operations was $75.1 million in the three months ended March 31, 2018 compared to $77.4 million in the three months ended March 31, 2017. The decrease of $2.3 million was due to higher interest and income tax expenses, and lower other income partly offset by higher operating income.

### Results By Segment

### Cabinets

Net sales decreased $16.4 million, or 2.9%, predominantly due to the impact of exiting a customer relationship, unfavorable weather conditions affecting our U.S. market performance and unfavorable mix. These factors were partly offset by the benefit from new product introductions, higher sales unit volume and price increases to help mitigate cumulative raw material cost increases.

Operating income decreased $22.9 million, or 48.7%, due to lower net sales, including the impact of unfavorable mix and underutilization of our fixed cost base, and increased headcount-related costs partially offset by the benefit from productivity improvements.

### Plumbing

Net sales increased $71.3 million, or 18.8% due to share gains, new product introductions across our distribution channels, the benefit from the 2017 acquisitions of Victoria & Albert and Shaws and higher sales in international markets, principally in China and Canada. Foreign exchange was favorable by approximately $7 million. These benefits were slightly offset by higher sales rebates tied to higher sales volumes.

Operating income increased $21.2 million, or 31.5%, due to the higher net sales and benefit from productivity improvements and lower severance costs. These benefits were partially offset by commodity cost inflation, higher employee-related, advertising and marketing costs, and amortization of the acquisition-related inventory fair value adjustment ($1.7 million) related to our 2017 acquisitions. In addition, 2017 operating income reflects the impact of adopting ASU 2017-07 during the first quarter of 2018 and the reclassification of approximately $3.0 million from operating income to other income, net.

### Doors

Net sales increased $8.1 million, or 7.9%, due to share gains, including new product introductions, higher sales volume driven primarily by continuing improvement in the U.S. home products market, price increases to help mitigate cumulative raw material cost increases and favorable product mix.

Operating income increased $4.9 million, or 59.8%, due to the higher net sales, and leveraging the sales on our existing fixed cost base.

### RESULTS OF OPERATIONS (Continued)

### Security

Net sales increased $4.8 million, or 3.6%, due to higher sales volume and the impact from favorable foreign exchange of approximately $3 million partly offset by the impact of our exiting of two product lines in our commercial distribution channel.

Operating income increased $5.0 million, or 49.5%. The benefits from the higher sales volume, lower restructuring and other charges (approximately $5.0 million decrease) including the absence of asset impairment charges in 2018 and productivity improvements were partially offset by higher commodity costs and employee-related costs.

### Corporate

Corporate expenses decreased by $0.2 million. In addition, 2017 operating income reflects the impact of adopting ASU 2017-07 during the first quarter of 2018 and the related reclassification of approximately $0.9 million from operating income to other income, net.

*(In millions)*

|  | Three Months Ended March 31, 2018 | 2017 |
| --- | ---: | ---: |
| General and administrative expense | $(21.3) | $(21.5) |
| Total Corporate expenses | $(21.3) | $(21.5) |

In future periods, the Company may record, in the Corporate segment, material expense or income 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.

### LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs 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 deemed appropriate. Our principal sources of liquidity are cash on hand, cash flows from operating activities and availability under our credit facility. Our operating income is generated by our subsidiaries. There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Fortune Brands. In December 2017, our Board of Directors increased the quarterly cash dividend by 11% to $0.20 per share of our outstanding common stock. 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 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.

In March 2018, the Company entered into a $350 million term loan for general corporate purposes that matures in March 2019. Interest rates under the term loan are variable based on LIBOR at the time of the borrowing and the Company’s long-term credit rating and can range from LIBOR + 0.625% to LIBOR + 1.25%. Covenants under the term loan are the same as the existing $1.25 billion revolving credit agreement. As of March 31, 2018, we were in compliance with all covenants under this facility.

In the first quarter of 2018, we repurchased 5.6 million shares of our outstanding common stock under the Company’s share repurchase programs for $350 million. We presented $325 million of share repurchases in our net cash used by financing activities subtotal of our condensed consolidated statement of cash flows as $25 million of shares repurchased on March 28 and 29, 2018 were not settled and paid until April 2 and 3, 2018. As of March 31, 2018, the Company’s total remaining share repurchase authorization under the remaining programs was approximately $208 million. The share repurchase programs do not obligate the Company to repurchase any specific dollar amount or number of shares and may be suspended or discontinued at any time.

We periodically review our portfolio of brands and evaluate potential strategic transactions and other capital initiatives to increase shareholder value. However, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, make any purchases of shares of our common stock under our share repurchase programs, or 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. 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, 2017 entitled “Item 1A. Risk Factors.”

Acquisitions in 2017 included:

- In October 2017, the Company acquired Victoria + Albert, a UK manufacturer of luxury freestanding tubs and basins. In July 2017, we acquired Shaws, a UK-based luxury plumbing products company that specializes in manufacturing and selling fireclay sinks. The combined consideration paid was approximately $132 million, subject to certain post-closing adjustments and deferred acquisition payments. The results of operations of the acquired companies are included in the Plumbing segment from the date of acquisitions. We financed the transactions using cash on hand and borrowings under our existing revolving credit facility.

On March 31, 2018, we had cash and cash equivalents of $244.4 million, of which $234.2 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.

In June 2016, we amended and restated our credit agreement to combine and rollover the existing revolving credit facility and term loan into a new standalone $1.25 billion revolving credit facility. Terms and conditions of the credit agreement, including the total commitment amount, essentially remained the same as under the 2011 credit agreement. The revolving credit facility will mature in June 2021 and borrowings thereunder will be used for general corporate purposes. Interest rates under the facility are variable based on LIBOR at the time of the borrowing and the Company’s long-term credit rating and can range from LIBOR + 0.9% to LIBOR + 1.5%. At March 31, 2018, we were in compliance with all covenants under this facility.

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 half of the year, particularly in the first quarter.

### Cash Flows

Below is a summary of cash flows for the three months ended March 31, 2018 and 2017.

*(In millions)*

|  | Three Months Ended March 31, 2018 | 2017 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(51.9) | $(17.9) |
| Net cash used in investing activities | (42.7) | (29.6) |
| Net cash provided by financing activities | 16.2 | 6.0 |
| Effect of foreign exchange rate changes on cash | (0.2) | 0.8 |
| Net decrease in cash and cash equivalents | $(78.6) | $(40.7) |

Net cash used in operating activities was $51.9 million in the three months ended March 31, 2018, compared to $17.9 million in the three months ended March 31, 2017. The increase in cash used of $34.0 million was primarily due to higher build in working capital primarily driven by higher accounts receivable in 2018 compared to 2017.

Net cash used in investing activities was $42.7 million in the three months ended March 31, 2018, compared to $29.6 million in the three months ended March 31, 2017. The increase in cash used of $13.1 million was primarily due to $8.1 million of higher capital spending and higher cost of acquisitions of $5.7 million.

Net cash provided by financing activities was $16.2 million in the three months ended March 31, 2018, compared to $6.0 million in the three months ended March 31, 2017. The increase in cash provided of $10.2 million was primarily due to higher net borrowings in 2018 compared to 2017 ($320.0 million increase), partly offset by higher share repurchases in 2018 compared to 2017 ($297.9 million increase).

### 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, 2017, the fair value of our total pension plan assets was $656.6 million, representing 79% of the accumulated benefit obligation liability. In 2018, we expect to make pension contributions of approximately $12 million. 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 and Japan. Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S. dollars.

### RECENTLY ISSUED ACCOUNTING STANDARDS

#### Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, which clarifies the accounting for revenue arising from contracts with customers and specifies the disclosures that an entity should include in its financial statements. The standard is effective for annual reporting periods beginning after December 15, 2017 (calendar year 2018 for Fortune Brands). We adopted ASU 2014-09 as of January 1, 2018 and for periods thereafter using the modified retrospective approach, which we applied to all contracts not completed as of January 1, 2018. The cumulative effect of adopting the new revenue standard was not material and no adjustment was recorded to retained earnings. The comparative financial information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of this standard did not have a material impact on the current quarter and we do not expect it to have a material impact on revenue or net income on an ongoing basis.

A majority of our sales revenue continues to be recognized when products are shipped from our facilities to our customers. Previously, for certain products, we recognized sales revenue at destination as we determined risks and rewards transferred at that point. We will now recognize sales revenue for these customers at shipping point consistent with the respective contractual terms.

#### Leases

In February 2016, the FASB issued ASU 2016-02, which requires lessees to recognize almost all leases on their balance sheet as a “right-of-use” asset and lease liability but recognize related expenses in a manner similar to current accounting. The guidance also eliminates current real estate-specific provisions for all entities. In January 2018, the FASB issued ASU 2018-01, which clarifies the application of the new leases guidance to land easements. The standard is effective for annual periods beginning after December 15, 2018 (calendar year 2019 for Fortune Brands) and earlier application is permitted. We are assessing the impact the adoption of this standard will have on our financial statements.

#### Stock Compensation Scope of Modification Accounting

In May 2017, the FASB issued ASU 2017-09, which clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications. The new guidance provides a relief to entities that make non-substantive changes to their share-based payment awards and will result in fewer changes to the terms of an award being accounted for as modifications. We adopted the new standard beginning January 1, 2018. The adoption of this standard did not have a material effect on our financial statements.

#### Clarifying the Definition of a Business

In January 2017, the FASB issued ASU 2017-01, which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business and therefore business combination guidance would apply. The new standard requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset (i.e., a business) or a group of similar identifiable assets (i.e., not a business). The guidance also requires a business to include at least one substantive process and narrows the definition of outputs (e.g., revenues with customers). We adopted the new standard beginning January 1, 2018. The adoption of this standard did not have a material effect on our financial statements.

#### Restricted Cash

In November 2016, the FASB issued ASU 2016-18, according to which entities are no longer required to present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. The prior standard did not address the classification of activity related to restricted cash and restricted cash equivalents in the statement of cash flows and this has resulted in diversity in cash flows presentation. We adopted the new standard beginning January 1, 2018. The adoption of this standard did not have a material effect on our financial statements.

#### Intra-Entity Transfers of Assets Other Than Inventory

In October 2016, the FASB issued ASU 2016-16, which requires companies to account for the income tax effects of intercompany sales and transfers of assets other than inventory (e.g., intangible assets) when the transfer occurs. Under the current guidance companies are required to defer the income tax effects of intercompany transfers of assets until the asset has been sold to an outside party or otherwise recognized (e.g., depreciated, amortized or impaired). We adopted the new standard beginning January 1, 2018 using a “modified retrospective” (i.e., with a cumulative adjustment to retained earnings at adoption). The adoption of this standard did not have a material effect on our financial statements.

#### Classification of Certain Cash Receipts and Cash Payments

In September 2016 the FASB issued ASU 2016-15, which changes how an entity classifies certain cash receipts and cash payments on its statement of cash flows. The key changes that may potentially impact our financial statements include the following: 1) Cash payments for debt prepayment or extinguishment costs would be classified as financing cash outflows; 2) Contingent consideration payments that are not made within three months after the consummation of a business combination would be classified as financing (if the payment is made up to the acquisition date fair value of liability) or operating outflows (if in excess of acquisition fair value). Cash payments made “soon after” the consummation of a business combination generally would be classified as cash outflows for investing activities; 3) Insurance settlement proceeds would be classified based on the nature of the loss; and 4) Company-owned life insurance settlement proceeds would be presented as investing cash inflows, and premiums would be classified as investing or operating cash outflows, or a combination of both. We retrospectively adopted the new standard beginning January 1, 2018. The adoption of this standard did not have a material effect on our financial statements.

#### Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued ASU 2016-01, which requires entities to measure investments in unconsolidated entities (other than those accounted for using the equity method of accounting) at fair value through the income statement. There will no longer be an available-for-sale classification (with changes in fair value reported in Other Comprehensive Income). In addition, the cost method is eliminated for equity investments without readily determinable fair values. We adopted the new standard beginning January 1, 2018. The adoption of this standard did not have a material effect on our financial statements.

#### Clarifying Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets

In May 2017, the FASB issued ASC 610-20 that clarifies the scope and application of various standards for the sale of nonfinancial assets (e.g. PP&E including real estate, intangible assets, materials and supplies). The standard distinguishes between a sale to customer vs non-customer. Sales to customers are in scope of the new revenue standard. It also clarifies a derecognition model for nonfinancial assets that do not represent a business. We adopted the new standard beginning January 1, 2018 consistent with the effective date for the new revenue recognition standard. The adoption of this standard did not have a material effect on our financial statements.

#### Improvements to Accounting for Hedging Activities

In August 2017, the FASB issued ASU 2017-12 that amends current hedge accounting model. The new standard eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item (which is consistent with our current practice). The change in fair value for qualifying cash flow and net investment hedges will be included in Other comprehensive income (until they are reclassified into the income statement). The standard also eases certain documentation and assessment requirements and modifies the accounting for components excluded from the assessment of hedge effectiveness. The standard is effective as of January 1, 2019 and earlier application is permitted. We are assessing the impact the adoption of this standard will have on our financial statements.

#### Financial Instruments—Credit Losses

In June 2016, the FASB issued ASU 2016-13, which changes the impairment model for most financial assets and certain other instruments that are not measured at fair value through net income. The new guidance applies to most financial assets measured at amortized cost, including trade and other receivables and loans as well as off-balance-sheet credit exposures (e.g., loan commitments and standby letters of credit). The standard will replace the “incurred loss” approach under the current guidance with an “expected loss” model that requires an entity to estimate its lifetime “expected credit loss.” The standard is effective January 1, 2020 and early application is permitted beginning January 1, 2019. We are assessing the impact the adoption of this standard will have on our financial statements.

#### Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” This guidance is applicable to the Company’s fiscal year beginning January 1, 2019, with early adoption permitted. The Company is currently evaluating the potential effects of this guidance on its consolidated financial statements.

## Market risk

As filed, 220 characters.

There have been no material changes in the information provided in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2017.

## Controls and procedures

As filed, 1,184 characters.

### (a) Evaluation of Disclosure Controls and Procedures.

The Company’s management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

### (b) Changes in Internal Control Over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company is in the process of reviewing the internal control structure of acquired businesses and, if necessary, will make appropriate changes as we incorporate our controls and procedures into those recently acquired businesses.

## Risk factors

As filed, 187 characters.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017 in the section entitled “Risk Factors.”

Filed May 2, 2018.
Source: SEC EDGAR, the filing index for accession 0001193125-18-148656. Last ingested by Listed: Nov 10, 2026, 02:09 ET. No prices; not investment advice.