# Fortune Brands Innovations, Inc.: Form 10-Q for the period ended Jun 30, 2019

- Company: [Fortune Brands Innovations, Inc.](/companies/fbin.md) (CIK 1519751)
- Form: 10-Q
- Filed: 2019-08-02
- Accepted by EDGAR: Aug 2, 2019, 16:06 ET
- Period: 2019-06-30
- Accession: 0001564590-19-028366
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1519751/000156459019028366/fbhs-10q_20190630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1519751/000156459019028366/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-04-01 to 2019-06-30 | $1.51bn | us-gaap:Revenues |
| Revenue | 6 months, 2019-01-01 to 2019-06-30 | $2.84bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2019-04-01 to 2019-06-30 | $969.6m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2019-01-01 to 2019-06-30 | $1.84bn | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2019-04-01 to 2019-06-30 | $320.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 6 months, 2019-01-01 to 2019-06-30 | $632.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2019-04-01 to 2019-06-30 | $202.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2019-01-01 to 2019-06-30 | $338.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-04-01 to 2019-06-30 | $24.5m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2019-01-01 to 2019-06-30 | $48.2m | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-04-01 to 2019-06-30 | $41.5m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2019-01-01 to 2019-06-30 | $70.1m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-04-01 to 2019-06-30 | $137.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2019-01-01 to 2019-06-30 | $222.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-04-01 to 2019-06-30 | $0.97 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2019-01-01 to 2019-06-30 | $1.57 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-04-01 to 2019-06-30 | $0.98 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2019-01-01 to 2019-06-30 | $1.58 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-04-01 to 2019-06-30 | 141,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2019-01-01 to 2019-06-30 | 141,600,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2019-01-01 to 2019-06-30 | $112.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2019-01-01 to 2019-06-30 | $54.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2019-01-01 to 2019-06-30 | $61.7m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2019-01-01 to 2019-06-30 | $50.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2019-06-30 | $276.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-06-30 | $1.92bn | us-gaap:AssetsCurrent |
| Total assets | at 2019-06-30 | $6.34bn | us-gaap:Assets |
| Current liabilities | at 2019-06-30 | $1.70bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-06-30 | $4.00bn | us-gaap:Liabilities |
| Long-term debt | at 2019-06-30 | $1.67bn | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | at 2019-06-30 | $749.3m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2019-06-30 | $2.34bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 30,341 characters.

### MANAGEMENT’S DISCUSSION AND ANALYSIS OF

### 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, 2018, which are included in our Annual Report on Form 10-K for the year ended December 31, 2018.

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, 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) our reliance on the North American home improvement, repair and new home construction activity levels, and the North American and global economies generally, (ii) the competitive nature of consumer and trade brand businesses, (iii) our ability to develop new products or processes and improve existing products and processes, (iv) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (v) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (vi) risks associated with doing business internationally, (vii) changes in government and industry standards, (viii) risks associated with entering into potential strategic acquisitions and integrating acquired property, (ix) our ability to secure and protect our intellectual property rights, (x) our reliance on key customers and suppliers, including wholesale distributors and dealers, (xi) risk of increases in our defined benefit-related costs and funding requirements, (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) future tax law changes or the interpretation of existing tax laws, (xvi) potential liabilities and costs from claims and litigation, (xvii) impairments in the carrying value of goodwill or other acquired intangible assets, (xviii) delays or outages in our information technology system or computer networks and (xix) 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, 2018. 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.

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. 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 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 program 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.

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 September 2018, we acquired 100% of the membership interests of Fiber Composites, LLC (“Fiberon”), a leading U.S. manufacturer of outdoor performance materials used in decking, railing and fencing products, for a total purchase price of approximately $470 million, subject to certain post-closing adjustments. The acquisition of Fiberon provided category expansion and product extension opportunities into the outdoor living space for our Doors & Security segment. We financed the transaction using cash on hand and borrowings under our revolving credit and term loan facilities. The results of operations are included in the Doors & Security segment from the date of acquisition.

### RESULTS OF OPERATIONS

### Six Months Ended June 30, 2019 Compared To Six Months Ended June 30, 2018

*(In millions)*

|  | Net Sales 2019 | 2018 | % Change vs. Prior Year |
| --- | ---: | ---: | ---: |
| Cabinets | $1,208.0 | $1,194.8 | 1.1% |
| Plumbing | 964.7 | 933.4 | 3.4 |
| Doors & Security | 662.4 | 555.4 | 19.3 |
| Net sales | $2,835.1 | $2,683.6 | 5.6% |

|  | Operating Income (Loss) 2019 | 2018 | % Change vs. Prior Year |
| --- | ---: | ---: | ---: |
| Cabinets | $108.9 | $93.5 | 16.5% |
| Plumbing | 195.9 | 183.7 | 6.6 |
| Doors & Security | 72.4 | 73.5 | (1.5) |
| Less: Corporate expenses | (39.2) | (42.7) | 8.2 |
| Operating income | $338.0 | $308.0 | 9.7% |

The following discussion of consolidated results of operations and segment results refers to the six months ended June 30, 2019 compared to the six months ended June 30, 2018. Consolidated results of operations should be read in conjunction with segment results of operations.

#### Net sales

Net sales increased by $151.5 million, or 5.6%, due to the benefit from the 2018 Fiberon acquisition in our Doors & Security segment ($96 million), price increases to help mitigate cumulative raw material cost increases and higher sales volume, including growth in China. These benefits were partially offset by lower sales unit volume of make-to-order custom and semi-custom cabinetry products, unfavorable mix in our Doors & Security segment, unfavorable foreign exchange of $21 million and unfavorable promotion and rebate costs.

#### Cost of products sold

Cost of products sold increased by $118.8 million, or 6.9%, due to the higher net sales and increased commodity costs, partially offset by the benefit from productivity improvements.

#### Selling, general and administrative expenses

Selling, general and administrative expenses increased by $4.9 million, or 0.8%, due to higher employee related costs and transportation costs, as well as the impact of the 2018 Fiberon acquisition in our Doors & Security segment.

#### Amortization of intangible assets

Amortization of intangible assets increased by $3.7 million primarily due to the 2018 Fiberon acquisition in our Doors & Security segment.

#### Restructuring charges

Restructuring charges of $5.7 million in the six months ended June 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. Restructuring charges of $11.6 million in the six months ended June 30, 2018 primarily related to severance costs across all segments and our initiatives to consolidate our manufacturing footprint in our Cabinets segment.

#### Operating income

Operating income increased by $30.0 million, or 9.7%, primarily due to higher net sales, productivity improvements and lower restructuring charges. These benefits were partially offset by unfavorable commodity costs.

### RESULTS OF OPERATIONS (Continued)

#### Interest expense

Interest expense increased by $16.1 million to $48.2 million due to higher average borrowings and higher average interest rates.

#### Other income, net

Other income, net, was $1.9 million in the six months ended June 30, 2019, compared to $6.2 million in the six months ended June 30, 2018. The decrease in other income, net is primarily due to lower defined benefit plan income in 2019 ($4.0 million decrease).

#### Income taxes

The effective income tax rates for the six months ended June 30, 2019 and 2018 were 24.0% and 27.4%, respectively. The effective income tax rates in 2019 and 2018 were favorably impacted by a benefit associated with the U.S. research and development credit and unfavorably impacted by state and local taxes and unfavorable tax rates in foreign jurisdictions. Additionally, the 2018 effective income tax rate was unfavorably impacted by an adjustment to the deemed repatriation tax liability recorded in 2017 under the Tax Cuts and Jobs Act of 2017 and increases to uncertain tax positions.

#### Net income from continuing operations

Net income from continuing operations was $221.6 million in the six months ended June 30, 2019 compared to $204.8 million in the six months ended June 30, 2018. The increase of $16.8 million was due to higher operating income and lower income tax expenses, partly offset by higher interest expense and lower other income.

### Results By Segment

### Cabinets

Net sales increased by $13.2 million, or 1.1%, predominantly due to higher sales unit volume of stock cabinetry products and price increases to help mitigate cumulative raw material cost increases. These factors were partly offset by lower sales unit volume of make-to-order custom and semi-custom cabinetry products, lower sales in Canada and increased promotional costs. Foreign exchange was unfavorable by approximately $3 million.

Operating income increased by $15.4 million, or 16.5%, due to higher net sales, the benefit from productivity improvements and lower restructuring costs partially offset by an increase in employee related costs.

### Plumbing

Net sales increased by $31.3 million, or 3.4%, due to higher sales volume principally from growth in China and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by lower sales volume in Canada and luxury-branded products as well as unfavorable foreign exchange of approximately $15 million.

Operating income increased by $12.2 million, or 6.6%, due to higher net sales, the benefit from productivity improvements and the absence in 2019 of the amortization of the acquisition-related inventory fair value adjustment ($1.7 million of expense in 2018) related to our Victoria+Albert acquisition. These benefits were partially offset by commodity cost inflation, higher restructuring costs and unfavorable channel mix.

### Doors & Security

Net sales increased by $107.0 million, or 19.3%, due to the benefit from the 2018 Fiberon acquisition ($96 million), price increases to help mitigate cumulative raw material cost increases and higher sales volume. These benefits were partially offset by higher customer program costs and unfavorable mix. Foreign exchange was unfavorable by approximately $3 million.

Operating income decreased by $1.1 million, or 1.5%, due to Fiberon’s inventory fair value adjustments ($1.8 million in 2019) and an expense due to a fair value adjustment associated with an idle manufacturing facility ($1.7 million in 2019). These factors were partially offset by the benefit of the higher sales.

### Corporate

Corporate expenses decreased by $3.5 million, or 8.2%, due to lower employee related costs.

### RESULTS OF OPERATIONS (Continued)

### Three Months Ended June 30, 2019 Compared To Three Months Ended June 30, 2018

*(In millions)*

|  | Net Sales 2019 | 2018 | % Change vs. Prior Year |
| --- | ---: | ---: | ---: |
| Cabinets | $635.0 | $637.6 | (0.4)% |
| Plumbing | 506.1 | 483.7 | 4.6 |
| Doors & Security | 366.1 | 307.7 | 19.0 |
| Net sales | $1,507.2 | $1,429.0 | 5.5% |
|  | **Operating Income (Loss)** |  |  |
|  | **2019** | **2018** | **% Change vs. Prior Year** |
| Cabinets | $65.7 | $69.4 | (5.3)% |
| Plumbing | 106.7 | 95.3 | 12.0 |
| Doors & Security | 50.0 | 45.3 | 10.4 |
| Less: Corporate expenses | (20.0) | (21.4) | 6.5 |
| Operating income | $202.4 | $188.6 | 7.3% |

The following discussion of consolidated results of operations and segment results refers to the three months ended June 30, 2019 compared to the three months ended June 30, 2018. Consolidated results of operations should be read in conjunction with segment results of operations.

#### Net sales

Net sales increased by $78.2 million, or 5.5%, due to the benefit from the 2018 Fiberon acquisition in our Doors & Security segment ($59 million), higher sales volume, including growth in China and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by lower sales unit volume of make-to-order custom and semi-custom cabinetry products, unfavorable mix in our Doors & Security segment, higher customer rebates and promotion costs and unfavorable foreign exchange of $11 million.

#### Cost of products sold

Cost of products sold increased by $64.7 million, or 7.1%, due to higher net sales and increased commodity costs, partially offset by the benefit of productivity improvements.

#### Selling, general and administrative expenses

Selling, general and administrative expenses increased by $4.1 million, or 1.3%, due to higher employee related costs and transportation costs as well as the impact of the 2018 Fiberon acquisition in our Doors & Security segment.

#### Amortization of intangible assets

Amortization of intangible assets increased by $1.9 million primarily due to the 2018 Fiberon acquisition in our Doors & Security segment.

#### Restructuring charges

Restructuring charges of $4.5 million in the three months ended June 30, 2019 primarily related to severance costs within our Plumbing and Cabinets segments and costs associated with closing facilities within our Plumbing segment. Restructuring charges of $10.8 million in the three months ended June 30, 2018 primarily related to severance costs across all segments and our initiatives to consolidate our manufacturing footprint in our Cabinets segment.

#### Operating income

Operating income increased by $13.8 million, or 7.3%, primarily due to higher net sales, including the impact of the 2018 Fiberon acquisition in our Doors & Security segment, productivity improvements and lower restructuring charges. These benefits were partially offset by unfavorable commodity costs.

### RESULTS OF OPERATIONS (Continued)

#### Interest expense

Interest expense increased by $7.1 million to $24.5 million due to higher average borrowings and higher average interest rates.

#### Other income, net

Other income, net, was $0.7 million in the three months ended June 30, 2019, compared to $3.4 million in the three months ended June 30, 2018. The decrease in other income, net is primarily due to lower defined benefit plan income in 2019 ($1.9 million decrease).

#### Income taxes

The effective income tax rates for the three months ended June 30, 2019 and 2018 were 23.2% and 25.7%, respectively. The effective income tax rates in 2019 and 2018 were favorably impacted by a benefit associated with the U.S. research and development credit and unfavorably impacted by state and local taxes and unfavorable tax rates in foreign jurisdictions. Additionally, the 2019 effective income tax rate was favorably impacted by decreases to uncertain tax positions, as a result of audit settlements.

#### Net income from continuing operations

Net income from continuing operations was $137.1 million in the three months ended June 30, 2019 compared to $129.7 million in the three months ended June 30, 2018. The increase of $7.4 million was due to higher operating income and lower income tax expenses, partly offset by higher interest expense and lower other income.

### Results By Segment

### Cabinets

Net sales decreased by $2.6 million, or 0.4%, predominantly due to lower sales unit volume of make-to-order custom and semi-custom cabinetry products, lower sales in Canada and increased promotional costs. Foreign exchange was unfavorable by approximately $1 million. These factors were partly offset by higher sales unit volume of stock cabinetry products and price increases to help mitigate cumulative raw material cost increases, including the impact of tariffs.

Operating income decreased by $3.7 million, or 5.3%, due to lower sales unit volume of make-to-order custom and semi-custom cabinetry products, which led to underutilization of make-to-order plant capacity, increased promotions and an increase in employee related cost. These factors were partly offset by higher sales unit volume of stock cabinetry products and lower restructuring costs.

### Plumbing

Net sales increased by $22.4 million, or 4.6%, due to higher sales volume principally from growth in China and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by lower sales volume in Canada and luxury-branded products, higher rebates costs as well as unfavorable foreign exchange of approximately $9 million.

Operating income increased by $11.4 million, or 12.0%, due to higher sales unit volume and the benefit from productivity improvements. These benefits were partially offset by higher restructuring charges, unfavorable mix, unfavorable foreign exchange of approximately $4 million and higher rebates costs.

### Doors & Security

Net sales increased by $58.4 million, or 19.0%, principally due to the benefit from the Fiberon acquisition ($59 million) and price increases to help mitigate cumulative raw material cost increases. These benefits were partially offset by unfavorable mix and higher customer program costs. Foreign exchange was unfavorable by approximately $1 million.

Operating income increased by $4.7 million, or 10.4%, due to the benefit from the Fiberon acquisition, partly offset by unfavorable product mix and higher customer program costs.

### Corporate

Corporate expenses decreased by $1.4 million, or 6.5% due to lower employee related costs.

### 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, availability under our credit facility and debt issuances in the capital markets. We believe our operating cash flows, availability under the credit facility and access to capital markets will provide sufficient liquidity to support the Company’s financing needs.

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. 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 September 2018, we issued $600 million of unsecured senior notes (“2018 Senior Notes”) in a registered public offering. The 2018 Senior Notes are due in 2023 with a coupon rate of 4%. We used the proceeds from the 2018 Senior Notes offering to pay down our revolving credit facility. On June 30, 2019 and December 31, 2018, the outstanding amount of the 2018 Senior Notes, net of underwriting commissions, price discounts, and debt issuance costs, was $595.5 million and $595.0 million, respectively.

In June 2015, we issued $900 million of unsecured senior notes in a registered public offering, of which $400 million of the aggregate principle amount becomes due and payable in June 2020. The company expects to repay or refinance these notes prior to the maturity date.

In March 2018, the Company entered into a $350 million term loan for general corporate purposes scheduled to mature in March 2019. In August 2018, the Company amended its existing $350 million term loan to increase the borrowings under the term loan from $350 million to $525 million. In March 2019, the Company amended the $525 million term loan to decrease the borrowings from $525 million to $350 million and extend the maturity date to March 2020. All other terms and conditions on the amended term loan remain the same as the previous $525 million term loan. At June 30, 2019 and December 31, 2018, amounts due under the term loan were $350.0 million and $525.0 million, respectively, which are included within short term debt in our consolidated balance sheet. 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 June 30, 2019, we were in compliance with all covenants under this facility.

In June 2016, we amended and restated our 2011 credit agreement to combine and rollover the existing revolving credit facility and term loan into a new standalone $1.25 billion revolving credit facility. This amendment and restatement of the credit agreement was a non-cash transaction for the Company. 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. On June 30, 2019 and December 31, 2018, our outstanding borrowings under this facility were $575.0 million and $320.0 million, respectively. 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 June 30, 2019, we were in compliance with all covenants under this facility. The company expects to repay or refinance the aggregate principle amount due prior to the maturity date.

In the first half of 2019, we repurchased 1.1 million shares of our outstanding common stock under the Company’s share repurchase programs for $50.0 million. As of June 30, 2019, the Company’s total remaining share repurchase authorization under the remaining program was approximately $364 million. 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.

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, 2018 entitled “Item 1A. Risk Factors.”

In September 2018, we acquired 100% of the membership interests of Fiberon, a leading U.S. manufacturer of outdoor performance materials used in decking, railing and fencing products, for a total purchase price of approximately $470 million, subject to certain post-closing adjustments. The acquisition of Fiberon provided category expansion and product extension opportunities into the outdoor living space for our Doors & Security segment. We financed the transaction using cash on hand and borrowings under our revolving credit and term loan facilities. The results of operations are included in the Doors & Security segment from the date of acquisition.

On June 30, 2019, we had cash and cash equivalents of $276.3 million, of which $227.4 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.

### Cash Flows

Below is a summary of cash flows for the six months ended June 30, 2019 and 2018.

*(In millions)*

|  | Six Months Ended June 30, 2019 | 2018 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $112.0 | $137.3 |
| Net cash used in investing activities | (50.8) | (72.3) |
| Net cash used in financing activities | (53.0) | (35.2) |
| Effect of foreign exchange rate changes on cash | 4.9 | (7.3) |
| Net increase in cash and cash equivalents | $13.1 | $22.5 |

Net cash provided by operating activities was $112.0 million in the six months ended June 30, 2019, compared to net cash provided by operating activities of $137.3 million in the six months ended June 30, 2018. The decrease in cash provided of $25.3 million was primarily due to increases in accounts receivable, decreases in accrued taxes related to estimated tax payments and increases in other current liabilities.

Net cash used in investing activities was $50.8 million in the six months ended June 30, 2019, compared to net cash used in investing activities of $72.3 million in the six months ended June 30, 2018. The decrease in cash used of $21.5 million was due to $12.3 million of lower capital spending, lower cost of acquisitions of $5.8 million and higher proceeds from the sale of PP&E in 2019 of $3.4 million.

Net cash used in financing activities was $53.0 million in the six months ended June 30, 2019, compared to cash used in financing activities of $35.2 million in the six months ended June 30, 2018. The increase in cash used of $17.8 million was primarily due to lower net borrowings in 2019 compared to 2018 ($555.0 million decrease) and deferred acquisition payments during 2019 ($19 million) partly offset by lower share repurchases in 2019 compared to 2018 ($552.7 million decrease).

### 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, 2018, the fair value of our total pension plan assets was $599.6 million, representing 79% of the accumulated benefit obligation liability. In 2019, we expect to make pension contributions of approximately $8 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, 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.

## 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, 2018.

## Controls and procedures

As filed, 1,183 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 June 30, 2019 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, 2018 in the section entitled “Risk Factors.”

Filed Aug 2, 2019.
Source: SEC EDGAR, the filing index for accession 0001564590-19-028366. Last ingested by Listed: Nov 10, 2026, 02:09 ET. No prices; not investment advice.