A Decade of
Outperformance
202 1 AN N UAL R EP O RT
F
O
R
T
U
N
E
B
R
A
N
D
S
•
2
0
2
1
A
N
N
U
A
L
R
E
P
O
R
T
Celebrating 10 Years
A Decade of Outperformance
Acquisitions Timeline
Since Fortune Brands became an
independent company 10 years ago, our
purpose has been Fulfilling the Dreams of
Home, and the home has never mattered
more. Our portfolio of trusted brands
helps homeowners create spaces to
connect with loved ones, protect what
matters, and live their most authentic
lives. As we continue to deliver on
our purpose, we are also proud of our
impressive track record of delivering
results and shareholder value.
Our Growing Team
Number of associates
2012
2021
14,000
28,000
2011
Listed on NYSE (FBHS)
2013
2014
2015
2016
2017
2018
Acquired WoodCrafters
Acquired SentrySafe
Acquired Norcraft Companies
Formed Fortune Brands Global Plumbing Group
Acquired Riobel, ROHL, and Perrin & Rowe
Acquired Shaws and Victoria + Albert
Formed Fortune Brands Doors & Security
Acquired Fiberon
2020
Renamed Doors & Security to
Fortune Brands Outdoors & Security
Acquired LARSON
2021
Celebrated 10 years as a publicly
traded company
To learn more about our history, visit
www.fbhs.com/our-story/history
10 Years of Financial Growth
Total Net Sales
In billions
145%
Operating Income
In millions
430%
Capital Allocation for
Incremental Growth
2012 – 2021
2012
2021
2012
2021
$3.1
2012
$211
$7.7
2021
$1,116
Earnings Per Share
Dollars
590%
EBITDA
In millions
352%
$0.83
2012
$290
$5.73
2021
$1,308
41%
$6 .4
BILLION
44%
15%
Strategic Acquisitions
Share Repurchases
Dividends
In this annual report, all data presented is from continuing operations and all references to earnings per share, operating income,
operating margin and EBITDA are on a before charges/gains basis, unless noted otherwise. Reconciliations of non-GAAP measures are
presented on pages 90–95.
FORTUNE BRANDS / 1
Letter to Shareholders
Dear Shareholders:
2021 We delivered outstanding performance in 2021, driving
sales, operating income and earnings per share growth
and achieving operating margin improvement. We
delivered these results while overcoming numerous
external headwinds, including supply chain disruptions and extreme inflation during
yet another historically challenging year. Demand for our products was again strong,
and our teams worked tirelessly to keep one another safe while delivering for
our customers.
We also took actions to keep our Company positioned for future outperformance.
We advanced our Fortune Brands Advantage capabilities, which make our businesses
stronger together, and continued investing in our people and leading brands. As a
result, we are driving innovation, expanding capacity, and pursuing exciting growth
opportunities throughout the organization. Our commitment to our purpose of
Fulfilling the Dreams of Home is resonating, and it reflects our dedication to creating
value for all of our stakeholders in an ethical, responsible, and sustainable way.
“ Our commitment to our purpose of Fulfilling
the Dreams of Home is resonating, and it
reflects our dedication to creating value
for all of our stakeholders in an ethical,
responsible, and sustainable way.”
Nicholas I. Fink
Chief Executive Officer
2 / FORTUNE BRANDS
Financial Highlights
In millions, except per-share amounts
Years ended December 31
Total Net Sales
Operating Income
Earnings Per Share
EBITDA
2021
$7,660
$ 1,116
$ 5.73
$1,308
2020
$6,100
$ 857
$ 4.19
$ 1,018
2019
$5,770
$ 764
$ 3.60
$ 920
2018
$5,490
$ 705
$ 3.34
$ 868
2017
$5,280
$ 716
$ 3.08
$ 855
Capital Performance
12/31/2021
Cash
Debt
Debt-to-Capital*
Market Capitalization (in billions)
$ 472
$2,710
46.9%
$ 14.4
* Debt-to-Capital represents gross debt (both short-term and long-
term) divided by the sum of gross debt plus stockholders' equity.
Learn more
about our growth
platforms on
the following
pages.
2021 Financial Highlights
Plumbing Financial Highlights:
For the full year 2021, sales were $7.7 billion,
● Sales increased 25 percent to over $2.8 billion
an increase of approximately 26 percent over
2020. Earnings per share were $5.73, up
37 percent. Total company operating margin
was 14.6 percent, up 50 basis points. All of our
businesses performed exceptionally well. Below
are our 2021 results and highlights by segment.
PLUMBING
The Global Plumbing Group continued to
outperform its global and U.S. markets and grew
sales across all brands and regions. The year 2021
marks the sixth year in a row that full-year margins
exceed 21 percent. Investments in marketing and
innovation continued to fuel market-beating results,
along with investments in capacity and distribution
to help meet demand and better serve customers.
Momentum remains strong across the group.
● Operating income was up 29 percent to
$633 million
● Operating margin was 22.9 percent
OUTDOORS & SECURITY
Outdoors & Security all delivered double-digit
growth in 2021, highlighting widespread strength
across the brands. Outdoor living continues
to show sustained momentum, and we remain
focused on expanding our presence in this
attractive category. Security also delivered
strong performance in 2021, and the team
continues to make progress toward its strategic
goals, including innovation-led growth and
margin expansion.
FORTUNE BRANDS / 3
Business Mix by Channel*
Business Mix by End Market*
U.S. Home Centers
Wholesale
Dealers & Specialty Retail
Other Retail
Builder Direct
International
29%
27%
19%
6%
3%
16%
Repair & Remodel
New Construction
Multi-Family & Commercial
International
50%
23%
11%
16%
* Company data for the year ended
December 31, 2021.
Outdoors & Security Financial Highlights:
growth and outperformance, and we will maintain
● Sales increased 44 percent to $2.0 billion
● Operating income was up 49 percent to
$305 million
● Operating margin was 14.9 percent
CABINETS
Cabinets’ performance is a testament to how
agile the business has become. Sales increased
to the mid-teens for the full year, with growth
across product lines at all price points. Demand
remained strong, and we are executing strategies
to increase efficiency and align our growth with
the highest returning opportunities.
Cabinets Financial Highlights:
● Sales increased 16 percent to $2.9 billion
the discipline, agility, and execution for which we
have become known.
Looking to the future, Fortune Brands is investing
across the enterprise to make digital excellence
a new and transformative Fortune Brands
Advantage capability. We are excited to advance
our digital journey in 2022 and are confident that
digital excellence will become a true advantage
for our Company.
We will continue to leverage our amazing brands,
innovation, and operating efficiency to create
products which enrich the lives of millions, while
delivering for stakeholders.
We believe our future remains every bit as bright
— or brighter — as we look forward to the next
● Operating income was up 12 percent to
10 years.
$287 million
● Operating margin was 10.1 percent
Regards,
Nicholas I. Fink
Chief Executive Officer
March 1, 2022
Driving Outperformance
In 2021, we celebrated 10 years as a public
company. I am proud of how we have consistently
produced exceptional results while simultaneously
investing in key strategic initiatives that will drive
the business for the future. We have the tools and
the opportunities for continued above-market
4 / FORTUNE BRANDS
Members of Fortune Brands'
Leadership Team had the honor of
ringing the closing bell at the NYSE
in the fall of 2021 in celebration of
our 10-year anniversary of becoming
a publicly traded company.
FORTUNE BRANDS / 5
The Fortune Brands Advantage
FU ELI N G LO N G -TER M O UTPER FO R MAN C E
The Fortune Brands Advantage is our unifying operating model that bridges all
of our businesses, fueling exceptional, long‑term performance. We invest in a
common set of capabilities across the enterprise, driving cost-savings and revenue
growth opportunities and yielding incremental investment and margin growth.
We believe this ensures that we are well positioned to continually outperform any
market condition.
2021 Fortune Brands Advantage Focus Areas
Category Management
Global Supply Chain Excellence
Complexity Reduction
Working with channel partners to
Leveraging a robust, global
Simplifying workstreams to
drive optimal performance and
supply chain to strategically
eliminate redundancies, reduce
best serve consumers through
drive scale efficiencies with
waste, and maximize efficiencies
actionable category insights.
cutting-edge capabilities.
at all points.
Our strong execution in these core capabilities helps us drive cost improvement
and fuel investments for revenue growth and outperformance.
The Fortune Brands Advantage in Action
By developing best-in-class capabilities within these areas, we can generate additional cash to fuel
exciting growth opportunities, such as brand building, product innovation, digital enhancements,
and capacity expansion. These investments contribute to our resiliency and, in turn, enable even
stronger capital deployment and investment. This cycle of building and leveraging key capabilities
and reinvesting in our business drives our perpetual outperformance engine.
6 / FORTUNE BRANDS
Spotlighting Our Supply Chain Excellence
The year 2021 was a year marked by supply chain disruptions, which were driven by
unprecedented demand, labor challenges, and unpredictable weather events. Yet we still
delivered exceptional performance.
An unwavering focus on supply chain excellence — leveraging our scale, strong supplier
relationships, and global sourcing and logistics capabilities — enabled us to respond with agility
and determination. We are proud of how our teams have worked tirelessly to overcome supply
chain headwinds and continue to outperform the market, proving, yet again, that we can effectively
create value in extremely challenging situations.
Looking forward, Fortune Brands is
investing in our next Fortune Brands
Advantage capability: digital excellence.
G ROW TH PL ATFO R M
Plumbing
The Global Plumbing Group (GPG) significantly outperformed both its U.S. and
global markets, achieving above-market growth and margin performance for the
sixth straight year. GPG designs for water and manufactures, markets, and distributes
faucets, showers, sinks, tubs, and bathroom accessories. It also expanded its innovative
smart water ecosystem, which is empowering homeowners to manage water in a
connected, digital way.
FEATURED BRANDS INCLUDE
Responsible Products: The Moen Smart Water Network
Moen is connecting homeowners to their water like never before with the industry’s
first-of-its-kind, whole-home smart water ecosystem: the Moen Smart Water Network.
The system includes innovative water-saving products, like the Moen Smart Faucet and
Smart Shower, Flo Smart Water Monitor and Shutoff, and Moen Smart Sump Pump
Monitor. Water-savings generated by these products contribute to Mission Moen, the
brand's ambitious goal to save water.
8 / FORTUNE BRANDS
Fuel for Growth
● GPG delivers above-market growth in North America and China, with
industry-leading operating margins
● Strategy fueled by driving consumer-led innovation and growing with
strategic partnerships and into adjacent categories
● Its anchor brand, Moen, is consistently rated as best in class on
consumer score metrics for brand awareness and loyalty
● A leader in digital home water management, a category with
substantial growth opportunity
● House of Rohl, GPG’s collection of luxury brands, is drawing increased
consumer demand for its attractive and stylish portfolio
Driving Outperformance
GPG is winning share and driving growth across all major brands,
channels, and geographies and generating incremental investment
dollars to pursue further above-market growth and margin. Investing
in e-commerce, brand, innovation, and capacity continues to fuel
long-term outperformance. GPG's strong focus on innovation,
developing the future of water for today's consumers, is delivering
robust results.
2021 Segment Net Sales
% of total FBHS
36%
2021 Segment Income*
% of total FBHS
52%
2021 Operating Margin
OM%
23%
2021
2017
2021
2017
Net Sales
In billions
$2.76
$1.72
Operating Income
In millions
$633
$366
* Segment income excludes
Corporate G&A expense.
FORTUNE BRANDS / 9
G ROW TH PL ATFO R M
Outdoors & Security
Outdoors & Security is focused on driving growth in the attractive outdoor
living space with products engineered for a lifetime of performance, providing
homeowners protection and security. Sales were up in 2021 even in the midst of
ongoing labor and material availability headwinds, and demand was strong across
the portfolio. The portfolio's products include exterior entryway, storm, security and
screen doors; eco-friendly composite decking and cladding; retractable screens and
porch windows; and safety and security devices.
FEATURED BRANDS INCLUDE
Responsible Products: Recycled Composite Deck Boards
Fiberon composite decking and cladding is certified for containing a minimum
94 percent mixed recycled wood fiber and plastic content. These outdoor products are
beautiful, durable, and easy-to-maintain, while helping consumers to eliminate millions
of pounds of plastic from entering landfills and save thousands of trees from being cut
down each year.
10 / FORTUNE BRANDS
Fuel for Growth
● Therma-Tru pioneered the fiberglass entry door industry and
is the leading entry door brand most preferred by residential
building professionals
● Larson Manufacturing adds the #1 storm, screen, and security door
brand, creating significant opportunity for co-product development
● Fiberon is a leading U.S. manufacturer of capped composites,
the fastest-growing area within wood-alternative decking and
cladding products
● The iconic Master Lock and SentrySafe brands are widely recognized
in locks, safety, and security devices, including electronic security
solutions and protective security containers
Driving Outperformance
We expect continued growth across Outdoors & Security as we
leverage our expertise in advanced materials and take advantage of
the continuing trend for homeowners to invest in their outdoor living
spaces. Further, Security continues to build momentum. With many
trusted and leading brands, we are leveraging our Fortune Brands
Advantage capabilities to fuel innovation throughout the portfolio
and capture even greater above-market growth.
2021 Segment Net Sales
% of total FBHS
27%
2021 Segment Income*
% of total FBHS
25%
2021 Operating Margin
OM%
15%
Net Sales
In billions
2021
2017
2021
2017
$2.04
$1.10
Operating Income
In millions
$305
$163
* Segment income excludes
Corporate G&A expense.
FORTUNE BRANDS / 11
G ROW TH PL ATFO R M
Cabinets
MasterBrand Cabinets is the premier kitchen and bath cabinet producer in
North America. The business achieved strong results in 2021 despite an incredibly
challenging environment. The team delivered strong growth across all price points,
meeting the needs of consumers while delivering double-digit margins. MasterBrand
Cabinets leverages its industry leadership, scale, and strong reputation with home
centers, builders, and its 4,000+ dealer partners to fuel outperformance.
FEATURED BRANDS INCLUDE
Responsible Products: Eco‑Friendly Quality Cabinets
Most cabinets from MasterBrand are certified in the Kitchen Cabinet Manufacturers
Association’s Environmental Stewardship Program (ESP). The ESP recognizes
companies that demonstrate the use of environmentally responsible materials in cabinet
products and minimize their environmental impact by recycling wastes and using
low-emission coatings.
12 / FORTUNE BRANDS
Fuel for Growth
● Focusing on streamlining operations to successfully deliver
share gains and higher margins, outperforming in a variety of
market environments
● Growing by investing in channels, including our advantaged, leading
dealer network, home centers, e-commerce, and new partners
● Strong reputation for quality and customer service with MasterBrand
Cabinets’ 4,000+ dealer network
● Continuing to optimize a large, low-cost, competitive global supply
chain designed to meet consumer trends and win in the marketplace
Driving Outperformance
Cabinets continues to drive growth and capture market share, especially
in the value-priced product market and with strong momentum in our
premium offerings. Our Fortune Brands Advantage capabilities are
succeeding in offsetting labor, material, and freight inflation challenges,
while demand remains high across all price points. We expect to
continue delivering on our long-term margin objectives.
2021 Segment Net Sales
% of total FBHS
37%
2021 Segment Income*
% of total FBHS
23%
2021 Operating Margin
OM%
10%
Net Sales
In billions
$2.86
$2.47
Operating Income
In millions
$287
$272
* Segment income excludes
Corporate G&A expense.
2021
2017
2021
2017
FORTUNE BRANDS / 13
ESG
Highlights
Our Impact Beyond the Home
Our products play an important role in the
homes of millions. We are making sure the way
in which we manufacture them, and the great
teams behind our brands, are all supported
with responsibility and sustainability in mind.
It’s simply the right thing to do, and our strong
management practices benefit our associates,
customers, investors, communities, and our
larger, collective home.
We’re using SASB, GRI, and TCFD reporting
frameworks and have expanded our
disclosures. To see the latest, please visit
fbhs.com/corporate-responsibility.
14 / FORTUNE BRANDS
Environmental
Announced carbon reduction
and renewable energy goals
to help fight climate change
Invested in new software and
systems to improve and streamline
environmental data collection
processes, capture global data,
enhance future reporting, and
better evaluate opportunities
Committed to operating
efficiently to reduce
environmental impacts; we
recycle the majority of the
waste produced
We’re also proud to design and manufacture
responsible products, including the ones
spotlighted on pages 8, 10, and 12 of this report.
Social
Governance
Well-established, strong safety
record; we’re committed to zero
safety incidents and proud of how
we invest in acquired companies to
make them safer
Re-evaluated and aligned key ESG
focus areas with SASB and TCFD
reporting frameworks to ensure
we are providing meaningful
information to our stakeholders
Diverse Board and Leadership
Team demonstrate how we have
increased representation at the
highest levels, and we are driving
a comprehensive equity strategy
to advance diversity, equity
and inclusion
Nominating, Environmental,
Social and Governance (NESG)
Committee of the Board provides
oversight of ESG programs and
related risks
Conducted our first global associate
feedback survey and established
ongoing survey cadence
Established formal ESG
Steering Committee that
reports to the CEO
FORTUNE BRANDS / 15
Excited for
Our Future
16 / FORTUNE BRANDS
16 / FORTUNE BRANDS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2021
For the transition period from ______ to_______
Commission file number 1-35166
Fortune Brands Home & Security, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
62-1411546
(IRS Employer
Identification No.)
520 Lake Cook Road, Deerfield, IL 60015-5611
(Address of Principal Executive Offices)
(Zip Code)
Registrant’s telephone number, including area code: (847) 484-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbols(s)
Name of each exchange on which
registered
Common Stock, par value $0.01 per share
FBHS
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒
No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required
to submit such files). Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Emerging growth company
☒ Accelerated filer
☐
☐ Non-accelerated filer
☐ Smaller reporting company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
No ☒
The aggregate market value of the registrant’s voting common equity held by non-affiliates of the registrant at June 30, 2021 (the
last day of the registrant’s most recent second quarter) was $13,699,604,954. The number of shares outstanding of the registrant’s
common stock, par value $0.01 per share, at February 11, 2022, was 134,174,304.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the registrant’s proxy statement for its Annual Meeting of Stockholders to be held on May 3, 2022
(to be filed not later than 120 days after the end of the registrant’s fiscal year) (the “2022 Proxy Statement”) is incorporated by
reference into Part III hereof.
Form 10-K Table of Contents
PART I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3.
Item 4. Mine Safety Disclosures.
Legal Proceedings.
Information about our Executive Officers.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations.
Liquidity and Capital Resources.
Critical Accounting Estimates.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Item 8. Financial Statements and Supplementary Data.
Notes to Consolidated Financial Statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accountant Fees and Services.
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Schedule II Valuation and Qualifying Accounts
Page
3
9
15
15
16
16
18
20
21
23
26
31
36
37
46
82
82
82
82
83
83
83
83
83
84
87
88
89
PART I
Item 1. Business.
Cautionary Statement Concerning Forward-Looking Statements
This Annual Report on Form 10-K contains certain “forward-looking statements” made pursuant to the
safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), regarding
our general business strategies, anticipated market potential, the potential impact of costs, including
material and labor costs, the potential impact of inflation, the potential of our brands expected capital
spending, expected pension contributions, expected impact of acquisitions, the anticipated effects of
recently issued accounting standards on our financial statements, planned business strategies, future
financial performance and other matters. Statements that 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 the 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 (the “SEC”). Although we believe that these statements
are based on reasonable assumptions, they are subject to numerous factors, risks and uncertainties that
could cause actual outcomes and results to be materially different from those indicated in such
statements. These factors include those listed in the section below entitled “Risk Factors.” Except as
required by law, we undertake no obligation to, and expressly disclaim any such obligation to, update or
revise 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 the law.
Unless the context otherwise requires, references in this Annual Report on Form 10-K to “Fortune
Brands,” the “Company,” “we,” “our” or “us” refer to Fortune Brands Home & Security, Inc. and its
consolidated subsidiaries.
Our Company
We are a leading home and security products company that competes in attractive long-term growth
markets in our product categories. We sell our products through a wide array of sales channels, including
kitchen and bath dealers, wholesalers oriented toward builders or professional remodelers, industrial and
locksmith distributors, “do-it-yourself” remodeling-oriented home centers, e-commerce and other retail
outlets.
Our Strategy
Build on leading business and brand positions in attractive growth and return categories. We have
leading brands with what we believe to be sustainable competitive advantages in many of our product
categories, which we sell primarily in North America and China. We believe that established brands are
meaningful to both consumers and trade customers in their respective categories and that we have the
opportunity to, among other things, gain share in the marketplace and continue to strengthen many of our
brands through cross-branding, expanding into adjacent product categories, and expanding in
international and e-commerce markets. We are committed to continuing to invest in our capacity and
supply chain to strengthen our business and continue to meet demand for our products.
Develop innovative products and processes for customers and consumers. We have a long track
record of successful product and process innovations that introduce valued new products to our
customers and consumers. We are committed to continuing to invest in new product development and
enhance customer service to strengthen our leading brands and penetrate adjacent markets, including in
the digital space and connected products.
3
Enhance returns and deploy our cash flow to high-return opportunities. We continue to believe our
most attractive opportunities are to invest in profitable organic growth initiatives, pursue accretive
strategic acquisitions, non-controlling equity investments, and joint ventures, and return cash to
stockholders through a combination of dividends and repurchases of our common stock.
Advance our digital strategy to fuel growth. We continue to invest in our digital capabilities to leverage
our scale across technology, data and talent to further accelerate and sustain growth in e-commerce and
connected products.
Invest in appropriate ESG initiatives that positively impact our employees and community and
conduct business responsibly. We believe that advancing environmental, social and governance
(“ESG”) initiatives are critical to making sure we continue to serve our customers and consumers to meet
their needs. As a manufacturer, conducting business ethically is a priority for our businesses. We
continue to look for ways to improve our environmental, social and governance programs and practices
by focusing on ways to improve water conservation, waste reduction and carbon and climate impact,
keep our employees safe and create a culture where all employees are treated with dignity and respect.
Invest in a common set of capabilities across the enterprise, known as the Fortune Brands
Advantage.
While our business segments are focused on distinct product categories and are responsible for their own
performance, the Fortune Brands Advantage is an operating model consisting of a set of unifying
capabilities that we believe are critical to our strategic growth across all of our businesses. The Fortune
Brands Advantage currently consists of three critical pillars:
Category Management - Partnering with our channel partners to drive optimal performance and best
serve our consumers through actionable category insights.
Global Supply Chain Excellence - Leveraging our robust, global supply chain to strategically drive scale
efficiencies with cutting edge capabilities.
Complexity Reduction - Simplifying workstreams to be even more efficient.
We continue to grow our competencies in these areas, allowing each of our businesses to take
advantage of available opportunities for revenue growth and margin improvement, no matter the market
environment.
Business Segments
We have three business segments: Plumbing, Outdoors & Security and Cabinets. Our segments compete
on the basis of innovation, fashion, quality, price, service and responsiveness to distributor, retailer and
installer needs, as well as end-user consumer preferences. Our markets are very competitive.
Approximately 16% of 2021 net sales were to international markets, and sales to two of the Company’s
customers, The Home Depot, Inc. (“The Home Depot”) and Lowe’s Companies, Inc. (“Lowe’s”), each
accounted for more than 14% of the Company’s net sales in 2021. Sales to all U.S. home centers in the
aggregate were approximately 35% of net sales in 2021. In 2021, sales to our top ten customers
represented less than half of total sales.
Plumbing. Our Plumbing segment manufactures or assembles and sells faucets, accessories, kitchen
sinks and waste disposals, predominantly under the Moen, ROHL, Riobel, Victoria+Albert, Perrin & Rowe
and Shaws brands. Although this segment sells products principally in the U.S., China and Canada, this
segment also sells in Mexico, Southeast Asia, Europe and South America. Approximately 32% of 2021
net sales were to international markets. This segment sells directly through its own sales force and
indirectly through independent manufacturers’ representatives, primarily to wholesalers, home centers,
mass merchandisers and industrial distributors. This segment is increasingly investing in digital trends
and “smart” home capabilities. In aggregate, sales to The Home Depot and Lowe’s comprised
approximately 21% of net sales of the Plumbing segment in 2021 . This segment’s chief competitors
include Masco, Kohler, LIXIL Group, InSinkErator (owned by Emerson Electronic Company), Huida, Hgill,
and Jomoo and imported private-label brands.
4
Outdoors & Security. Our Outdoors & Security segment manufactures and sells fiberglass and steel
entry door systems under the Therma-Tru brand, storm, screen and security doors under the Larson
brand, composite decking, railing and cladding under the Fiberon brand, and urethane millwork under the
Fypon brand. It also manufactures, sources and distributes locks, safety and security devices, and
electronic security products under the Master Lock and American Lock brands and fire resistant safes,
security containers and commercial cabinets under the SentrySafe brand. Larson, a North American
market leading brand of storm, screen and security doors, was acquired in December 2020. This segment
sells products principally in the U.S., Canada, Europe, Central America, Japan and Australia.
Approximately 10% of 2021 net sales were to international markets. This segment’s principal customers
are home centers, hardware and other retailers, millwork building products and wholesale distributors,
and specialty dealers that provide products to the residential new construction market, as well as to the
remodeling and renovation markets. In addition, it sells lock systems and fire resistant safes to
locksmiths, industrial and institutional users, and original equipment manufacturers. In aggregate, sales to
The Home Depot and Lowe’s comprised approximately 30% of net sales of the Outdoors & Security
segment in 2021. Therma-Tru, Larson, Fiberon and Fypon brands compete with Masonite, JELD-WEN,
Andersen, Trex, Azek, Plastpro, Pella and various regional and local suppliers. The Master Lock brand
competes with Abus, W.H. Brady, Hampton, Allegion, Assa Abloy and various imports. The SentrySafe
brand competes with Magnum, Fortress and Interlocks.
Cabinets. Our Cabinets segment manufactures high quality stock, semi-custom and custom cabinetry, as
well as vanities, for the kitchen, bath and other parts of the home with a regional and international supply
chain footprint. This segment sells a portfolio of brands, including AOK, Diamond Brands, KitchenCraft,
Homecrest, Omega and EVE, that enable our customers to differentiate themselves against competitors.
Substantially all of this segment’s sales are in North America. Approximately 6% of 2021 net sales were
to international markets. This segment sells directly to kitchen and bath dealers, home centers,
wholesalers, large builders and through e-commerce. In aggregate, sales to The Home Depot and Lowe’s
comprised approximately 39% of net sales of the Cabinets segment in 2021. This segment’s competitors
include Cabinetworks Group (formerly ACPI) and American Woodmark, as well as a large number of
overseas, regional and local competitors.
Other Information
Raw materials. The table below indicates the principal raw materials used by each of our segments.
These materials are available from a number of sources. Volatility in the prices of commodities and
energy used in making and distributing our products impacts the cost of manufacturing our products.
Segment
Plumbing
Outdoors & Security
Cabinets
Raw Materials
Brass, zinc, resins, stainless steel and aluminum
Wood, resins, plastics, steel, glass, aluminum, vinyl and insulating foam
Hardwoods (maple, birch and oak), plywood and particleboard
Intellectual property. Product innovation and branding are important to the success of our business. In
addition to the brand protection offered by our trademarks, patent protection helps distinguish our unique
product features in the market by preventing copying and making it more difficult for competitors to benefit
unfairly from our design innovation. We hold U.S. and foreign patents covering various features used in
products sold within all of our business segments. Although each of our segments relies on a number of
patents and patent groups that, in the aggregate, provide important protections to the Company, no single
patent or patent group is material to any of the Company’s segments.
Human Capital Resources. As of December 31, 2021, Fortune Brands had more than 28,000 full-time
and part-time employees worldwide (excluding contract workers). Approximately 77% of our workforce is
composed of hourly production and distribution associates and the remaining population is composed of
5
associates in an office role. Approximately 14% of employees in the U.S. work under collective bargaining
agreements. Below is a summary of the number of employees by segment and role:
Segment
Plumbing
Outdoors & Security
Cabinets
Corporate
Production and Distribution
Office
Total
2,461
5,402
13,646
—
2,167
1,911
2,330
139
4,628
7,313
15,976
139
We believe our associates are the key to our success. We invest in our teams and develop our
associates to become the next generation of leaders to fuel innovation and drive Company growth. The
Company also endeavors to create an environment that keeps our employees safe, treats them with
dignity and respect and fosters a culture of performance. Fortune Brands does this through the programs
summarized below, the objectives and related risks of each is overseen by our Board of Directors or its
committees.
Health and Safety
Safety is a critical element to Fortune Brands’ growth strategy, integral to Company culture and one of our
core values. This is reflected in our goal of zero safety incidents and through our efforts to create an
injury-free workplace. Our Employee Safety & Environmental Stewardship Principles set standards for
how we maintain a safe work environment and guides our business operations. The Company also has
an Environmental, Health & Safety Leadership council comprised of representatives from across the
Company’s businesses that share best practices and is responsible for driving environmental, health and
safety strategy. This helps drive our best-in-class programs designed to reinforce positive behaviors, to
empower our employees to actively take part in maintaining a safe work environment, to heighten
awareness and to mitigate risk on critical safety components. Within each of our manufacturing and
distribution facilities, we have site-specific safety and environmental plans designed to reduce risk.
Through a continued commitment to improve our safety performance, we have historically been
successful in reducing the number of injuries sustained by our employees. Two of our primary safety
measures are the Total Recordable Incidence Rate ("TRIR") and Lost Time Rate ("LTR"). For the year
ended December 31, 2021, our TRIR was 1.34, compared to 1.20 for the year ended December 31, 2020
and our LTR was 0.48, compared to 0.40 for the year ended December 31, 2020. The year over year
increases in in these numbers are reflective of the addition of Larson to our 2021 results.
Our safety focus was demonstrated in our continued response to the COVID-19 pandemic. In 2021, we
supplemented our enhanced safety protocols and implemented a mandatory mask mandate in our
facilities when a location hits a positivity rate of 1% or more. We continue to offer flexibility to work
remotely, with most office locations working on a hybrid schedule, but allowing for flexibility in that
schedule where possible to minimize potential exposure of our employees. We also emphasized the
importance of vaccines, by offering over 40 onsite vaccine clinics to employees, implementing flexible
leave policies to allow people to get vaccinated, and offering educational opportunities on the safety and
efficacy of vaccines. The Company also encouraged vaccinations and rewarded employees who were
already vaccinated through a vaccine sweepstakes.
Attracting and Retaining Superior Talent
Fortune Brands is committed to investing in the physical, emotional and financial well-being of our
employees and we believe that this is a critical component of our business strategy. To attract and retain
superior talent at all levels of the Company, our total rewards are designed to be market competitive,
align employee incentives with Company performance and support our employees across many aspects
of their lives. We have a strong pay-for-performance culture that is supported by incentive programs that
take into consideration business results and employee performance. We also offer a range of benefits
including retirement savings plans, comprehensive healthcare and mental-health benefits including
medical, dental and vision coverage, health savings and spending accounts, and employee assistance
services. In 2021, we took steps to enhance our benefit plans starting in 2022 to further enhance
6
inclusivity by providing enhanced parental support benefits for our US associates, including fertility
benefits and specialized support from adoption and surrogacy assistance to pregnancy and post-partum.
Many of our businesses also offer paid parental leave.
Creating a Culture of Diversity, Equity and Inclusion (“DEI”)
We continue to take measured actions that create an inclusive culture and diverse workforce, increase
representation and engagement of underrepresented associates and that are reflective of our consumers
and communities. We believe that attracting and retaining talented and diverse employees will enable us
to be more innovative, responsive to consumer needs and deliver strong performance and growth.
Fortune Brands is a party to CEO Action for Diversity & Inclusion, a CEO-driven business commitment to
advance diversity and inclusion in the workplace. We also continue to partner with Network of Executive
Women to help focus on the development and advancement of women. In 2021, Fortune Brands joined
the W.K. Kellogg Foundation Expanding Equity program, a program designed for advancing racial equity
in the workplace. The program has helped the Company to create a comprehensive diversity, equity and
inclusion equity to increase representation of underrepresented associates. The Company is committed
to increasing representation of professionals of color and women through new hires and promotions,
ensuring an inclusive culture by reducing the barriers to inclusion through our policies, programs,
business practices and education and by demonstrating support for racial equality in our communities
through outreach and investment. As of December 31, 2021, Fortune Brands’ workforce is composed of
38% women and approximately 44% of hourly production and distribution employees are people of color
and 15% of employees in an office role are people of color.
The Company implemented an unconscious bias learning program to increase DEI awareness and break
bias in the decision making process for its senior leaders during 2020. In 2021, Fortune Brands continued
its unconscious bias learning program to all global people managers and launched an organization-wide
employee engagement survey among employees and implemented a system to foster employee
engagement and drive continued improvement in DEI awareness. The Company also continued to
expand its employee resource groups during 2021. We now have a dedicated employee resource group
for our Women, Black, Hispanic and LGBTQ employees that are focused on activating and educating
leaders and accelerating an inclusive culture. These actions supplement the Company’s (i) inclusive
culture councils which are responsible for setting priorities and initiatives that support an inclusive work
environment, and (ii) employee resource groups that support DEI initiatives and provide networking and
professional development opportunities.
Talent Development and Succession
We aim to inspire and equip our associates to be successful in their current role within the organization
and help them to develop the skills to build on opportunities to grow their career. We understand our most
critical roles that serve as points of leverage to deliver value and place our best people in those roles,
while attracting new talent and capabilities in support of continuous improvement in all we do. Fortune
Brands uses performance management programs to support a high-performance culture, strengthening
our employee engagement and helping to retain our top talent. The Company provides associates with
relevant skills training and provides leadership training for production and distribution associates in a
supervisory role and mid-level office associates. The Company also makes a significant investment in
assessing our talent against the jobs both in the near term and the future and ensuring our leaders are
prepared for greater levels of responsibility and can successfully transition into new roles.
Succession planning for critical roles is an important part of our talent program. Succession and
development plans are created and monitored to ensure progress is made along established timelines.
Seasonality. All of our operating segments traditionally experience lower sales in the first quarter of the
year when new home construction, repair and remodel activity and security buying are at their lowest. As
a result of sales seasonality and associated timing of working capital fluctuations, our cash flow from
operating activities is typically higher in the second half of the year.
7
Environmental matters. We believe that the cost of complying with the present environmental protection
laws, before considering estimated recoveries either from other potentially responsible parties under
Superfund or similar state laws or from insurance, will not have a material adverse effect on our
competitive position, results of operations, cash flows or financial condition.
Available Information. The Company’s website address is www.FBHS.com. The Company’s annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments
to these reports are available free of charge on the Company’s website as soon as reasonably practicable
after the reports are filed or furnished electronically with the SEC. Reports filed with the SEC are also
made available on its website at www.sec.gov.
Item 1A. Risk Factors.
There are inherent risks and uncertainties associated with our business that could adversely affect our
business, financial condition or operating results. Set forth below are descriptions of those risks and
uncertainties that we currently believe to be material, but the risks and uncertainties described below are
not the only risks and uncertainties that could adversely affect our business, financial condition or
operating results. If any of these risks materialize, our business, financial condition or operating results
could suffer. In this case, the trading price of our common stock could decline, and you may lose all or
part of your investment.
Industry Risks
Our business primarily relies on North American and Chinese home improvement, repair and
remodel and new home construction activity levels, all of which are impacted by risks associated
with fluctuations in the housing market. Downward changes in the general economy, the housing
market, unfavorable interest rates or other business conditions could adversely affect our results
of operations, cash flows and financial condition.
Our business primarily relies on home improvement, repair and remodel, and new home construction
activity levels, principally in North America and China. The housing market is sensitive to changes in
economic conditions and other factors, such as the level of employment, access to and the cost of labor,
consumer confidence, demographic changes, consumer income, government tax programs, availability of
financing, inflation and interest rate levels. Adverse changes in any of these conditions generally, or in
any of the markets where we operate, could decrease demand and could adversely impact our
businesses by: causing consumers to delay or decrease homeownership; making consumers more price
conscious resulting in a shift in demand to smaller, less expensive homes; making consumers more
reluctant to make investments in their existing homes or causing them to delay investments, including
large kitchen and bath repair and remodel projects; or making it more difficult to secure loans for major
renovations.
We operate in very competitive consumer and trade brand categories.
The markets in which we operate are very competitive. Although we believe that competition in our
businesses is based largely on product quality, consumer and trade brand reputation, customer service
and product features, as well as fashion trends, innovation and ease of installation, price is a significant
factor for consumers as well as our trade customers. Some of our competitors may resort to price
competition to sustain or grow market share and manufacturing capacity utilization. Also, certain large
customers continue to offer private-label brands that compete with some of our product offerings as a
lower-cost alternative. The strong competition that we face in all of our businesses may adversely affect
our profitability and revenue levels, as well as our results of operations, cash flows and financial
condition.
We may not successfully develop new products or processes or improve existing products or
processes.
Our success depends on meeting consumer needs and anticipating changes in consumer preferences
with successful new products and product improvements. We aim to introduce products and new or
improved production processes proactively to offset obsolescence and decreases in sales of existing
products. We may not be successful in product development and our new products may not be
commercially successful. In addition, it is possible that competitors may improve their products or
processes more rapidly or effectively, which could adversely affect our sales. Furthermore, market
demand may decline as a result of consumer preferences trending away from our categories or trending
down within our brands or product categories, which could adversely impact our results of operations,
cash flows and financial condition.
Our businesses rely on the performance of wholesale distributors and dealers, retailers and other
marketing arrangements and could be adversely affected by poor performance or other
disruptions in our distribution channels and customers.
We rely on a distribution network comprised of consolidating customers. Any disruption to the existing
distribution channels could adversely affect our results of operations, cash flows and financial condition.
9
The consolidation of distributors or retailers or the financial instability or default of a distributor or one of
its major customers could potentially cause such a disruption. In addition to our own sales force, we offer
our products through a variety of third-party distributors, representatives and retailers. Certain of our
distributors, representatives or retailers may also market other products that compete with our products.
In addition, one or more retailers may stop carrying certain of our products, reduce the volume of
purchases of our products and/or replace certain of our products with the products of our competitors.
The loss or termination of, or significant reduction in sales to, one or more of our major distributors,
representatives or retailers, the failure of one or more of our distributors, representatives or retailers to
effectively promote our products, or changes in the financial or business condition of these distributors,
representatives or retailers could adversely affect our ability to bring products to market and our results of
operations, cash flows and financial condition.
Operational and Sourcing Risks
Risks associated with our ability to improve organizational productivity and global supply chain
efficiency and flexibility could adversely affect our results of operations, cash flows and financial
condition.
If we are unable to obtain sufficient components or raw materials on a timely basis or for a cost-effective
price or if we experience other manufacturing, supply or distribution difficulties, our business and results
of operations may be adversely affected. We acquire our components and raw materials from many
suppliers and vendors in various countries. We endeavor to ensure the continuity of our components and
materials and make efforts to diversify certain of our sources of components and materials, but we cannot
guarantee these efforts will be successful. A reduction or interruption in supply or an issue in the supply
chain, including as a result of our inability to quickly develop acceptable alternative sources for such
supply, could adversely affect our ability to manufacture, distribute and sell our products in a timely or
cost-effective manner.
We regularly evaluate our organizational productivity and global supply chains and assess opportunities
to increase capacity, reduce costs and enhance quality. We may be unable to enhance quality, speed
and flexibility to meet changing and uncertain market conditions, as well as manage continued cost
inflation, including wages, pension and medical costs. Our success depends in part on refining our cost
structure and supply chains to promote consistently flexible and low cost supply chains that can respond
to market changes to protect profitability and cash flow or ramp up quickly and effectively to meet
demand. Supply chain disruptions could continue to impact our ability to timely source necessary
components and inputs. Import tariffs could potentially lead to increases in prices of raw materials or
components which are critical to our business. Failure to achieve the desired level of quality, capacity or
cost reductions could impair our results of operations, cash flows and financial condition.
Risks associated with global commodity and energy availability and price volatility, as well as the
possibility of sustained inflation, could adversely affect our results of operations, cash flows and
financial condition.
We are exposed to risks associated with global commodity price volatility arising from restricted or uneven
supply conditions, the sustained expansion and volatility of demand from emerging markets, potentially
unstable geopolitical and economic variables, severe weather and other unpredictable external factors.
We buy raw materials that contain commodities such as brass, zinc, steel, wood, glass and petroleum-
based products such as resins. In addition, our distribution costs are significantly impacted by the price of
oil and diesel fuel. Decreased availability and increased or volatile prices for these commodities, as well
as energy used in making, distributing and transporting our products, could increase the costs of our
products. While in the past we have been able to mitigate the impact of these cost increases through
productivity improvements and passing on increasing costs to our customers over time, there is no
assurance that we will be able to offset such cost increases in the future, and the risk of potentially
sustained high levels of inflation could adversely impact our results of operations, cash flows and financial
condition. While we may use derivative contracts to limit our short-term exposure to commodity price
volatility, the commodity exposures under these contracts could still be material to our results of
operations, cash flows and financial condition. In addition, in periods of declining commodity prices, these
derivative contracts may have the short-term effect of increasing our expenditures for these raw materials.
10
We may experience delays or outages in our information technology systems and computer
networks. We may be subject to breaches of our information technology systems, which could
damage our reputation and consumer relationships. Such breaches could subject us to significant
financial, legal and operational consequences.
We, like most companies, may be subject to information technology system failures and network
disruptions caused by delays or disruptions due to system updates, natural disasters, malicious attacks,
accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses,
physical or electronic break-ins, or similar events or disruptions. We rely upon information technology
systems and infrastructure, including support provided by third parties, to support our business, our
products and our customers. Our businesses may implement digital systems or technologies, enterprise
resource planning systems or add applications to replace outdated systems and to operate more
efficiently. We may not be able to successfully implement these projects without experiencing difficulties.
Any expected benefits of implementing projects might not be realized or the costs of implementation
might outweigh the benefits realized.
We routinely rely on systems for manufacturing, customer orders, shipping, regulatory compliance and
various other matters, as well as information technology systems and infrastructure to aid us in the
collection, use, storage and transfer and other processing of data including confidential, business,
financial, and personal information. Security threats, including cyber and other attacks, are becoming
increasingly sophisticated, frequent and adaptive. In addition, a greater number of our employees are
working remotely in response to the COVID-19 pandemic, which (among other things) could expose us to
greater risks related to cybersecurity and our information technology systems. Third-party systems that
we rely upon could also become vulnerable to the same risks and may contain defects in design or
manufacture or other problems that could result in system disruption or compromise the information
security of our own systems. We believe we devote appropriate resources to network security, data
encryption, and other security measures to protect our systems and data, but these security measures
cannot provide absolute security. Breaches and breakdowns affecting our information technology
systems or protected data could have an adverse effect on our business, results of operations, cash flows
and financial condition.
We manufacture, source and sell products internationally and are exposed to risks associated
with doing business globally, including risks associated with uncertain trade environments.
We manufacture, source or sell our products in a number of locations throughout the world,
predominantly in the U.S., Mexico, Europe, Africa, Canada and Asia. Accordingly, we are subject to risks
associated with potential disruption caused by changes in political, economic and social environments,
including civil and political unrest, illnesses declared as a public health emergency (including viral
pandemics such as COVID-19), terrorism, expropriation, local labor conditions, changes in laws,
regulations and policies of foreign governments and trade disputes with the U.S., and U.S. laws affecting
activities of U.S. companies abroad. We could be adversely affected by international trade regulations,
including duties, tariffs and antidumping penalties. Risks inherent to international operations include:
potentially adverse tax laws, unfavorable changes or uncertainty relating to trade agreements or
importation duties, uncertainty regarding clearance and enforcement of intellectual property rights, risks
associated with the Foreign Corrupt Practices Act and other anti-bribery laws, mandatory or voluntary
shutdowns of our facilities or our suppliers due to changes in political dynamics, economic policies or
health emergencies and difficulty enforcing contracts. While we hedge certain foreign currency
transactions, a change in the value of the currencies will impact our financial statements when translated
into U.S. dollars. In addition, fluctuations in currency can adversely impact the cost position of our
products in local currency, making it more difficult for us to compete. Our success will depend, in part, on
our ability to effectively manage our businesses through the impact of these potential changes. In
addition, we source certain raw materials, components and finished goods from Asia where we have
experienced higher manufacturing costs and longer lead times due to higher tariffs, currency fluctuations,
higher wage rates, labor shortages and higher raw material costs.
11
Disruption of operations could adversely affect our results of operations, cash flows and financial
condition.
We manufacture a significant portion of the products we sell. Any prolonged disruption in our
manufacturing operations, whether due to technical or labor difficulties, continued labor shortages,
transportation-related shortages, supply chain constraints, COVID-19, weather conditions (including due
to the impacts of climate change, particularly for those facilities near any shorelines or in any other area
traditionally impacted by extreme weather), lack of raw material or component availability, startup
inefficiencies for new operations, destruction of or damage to any facility (as a result of natural disasters,
fires and explosions, use and storage of hazardous materials or other events) or other reasons, could
negatively impact our profitability and competitive position and adversely affect our results of operations,
cash flows and financial condition.
Our inability to obtain raw materials and finished goods in a timely and cost-effective manner from
suppliers could adversely affect our ability to manufacture and market our products.
We purchase raw materials to be used in manufacturing our products and also rely on third-party
manufacturers to produce certain of the finished goods we sell. We often do not enter into long-term
contracts with our suppliers or sourcing partners. Instead, most raw materials and sourced goods are
obtained on a “purchase order” basis. In addition, in some instances we maintain single-source or limited-
source sourcing relationships, either because multiple sources are not available or the relationship is
advantageous due to performance, quality, support, delivery, capacity or price considerations. Financial,
operating or other difficulties encountered by our suppliers or sourcing partners or changes in our
relationships with them could result in manufacturing or sourcing interruptions, delays and inefficiencies,
and prevent us from manufacturing or obtaining the finished goods necessary to meet customer demand.
If we are unable to meet customer demand, there could be an adverse effect on our results of operations,
cash flows and financial condition.
Risks associated with strategic acquisitions and joint ventures could adversely affect our results
of operations, cash flows and financial condition.
We consider acquisitions and joint ventures as a means of enhancing stockholder value. Acquisitions and
joint ventures involve risks and uncertainties, including difficulties integrating acquired companies and
operating joint ventures; difficulties retaining the acquired businesses’ customers; the inability to achieve
the expected financial results and benefits of transactions; the loss of key employees from acquired
companies; implementing and maintaining consistent standards, controls, policies and information
systems; and diversion of management’s attention from other business and strategic matters. Future
acquisitions could cause us to incur additional debt or issue additional shares, resulting in dilution in
earnings per share and return on capital.
Impairment charges could have a material adverse effect on the Company’s financial results.
Goodwill and other acquired intangible assets expected to contribute indefinitely to our cash flows are not
amortized, but must be evaluated for impairment by management at least annually. If the carrying value
exceeds the implied fair value of goodwill, the goodwill is considered impaired and is reduced to fair value
via a non-cash charge to earnings. If the carrying value of an indefinite-lived intangible asset is greater
than its fair value, the intangible asset is considered impaired and is reduced to fair value via a non-cash
charge to earnings. No impairments were recorded during the year ended December 31, 2021. During the
years ended December 31, 2020 and 2019, we recorded non-cash impairment charges related to
indefinite-lived intangible assets of $22.5 million and $41.5 million, respectively. Future events may occur
that would adversely affect the fair value of our goodwill or other acquired intangible assets and require
impairment charges. Such events may include, but are not limited to, lower than forecasted revenues,
actual new construction and repair and remodel growth rates that fall below our assumptions, actions of
key customers, increases in discount rates, continued economic uncertainty, higher levels of
unemployment, weak consumer confidence, lower levels of discretionary consumer spending, a decrease
in royalty rates and a decline in the trading price of our common stock. We continue to evaluate the
impact of economic and other developments to assess whether impairment indicators are present.
Accordingly, we may be required to perform impairment tests based on changes in the economic
environment and other factors, and these tests could result in impairment charges in the future. Given the
12
Company’s recent impairment charges, there is minimal difference between the estimated fair values and
the carrying values of some our indefinite-lived intangible assets, increasing the possibility of future
impairment charges.
Our pension costs and funding requirements could increase as a result of volatility in the financial
markets and changes in interest rates and actuarial assumptions.
Increases in the costs of pension benefits may continue and negatively affect our business as a result of:
the effect of potential declines in the stock and bond markets on the performance of our pension plan
assets; potential reductions in the discount rate used to determine the present value of our benefit
obligations; and changes to our investment strategy that may impact our expected return on pension plan
assets assumptions. U.S. generally accepted accounting principles require that we calculate income or
expense for the plans using actuarial valuations. These valuations reflect assumptions about financial
markets and interest rates, which may change based on economic conditions. Our accounting policy for
defined benefit plans may subject earnings to volatility due to the recognition of actuarial gains and
losses, particularly due to the change in the fair value of pension assets and interest rates. Funding
requirements for our U.S. pension plans may become more significant. However, the ultimate amounts to
be contributed are dependent upon, among other things, interest rates, underlying asset returns and the
impact of legislative or regulatory changes related to pension funding obligations.
Legal, Regulatory and People Risks
COVID-19 has impacted our business and may cause further disruptions to our business, results
of operations and financial condition.
The COVID-19 pandemic has had an impact on many aspects of the Company’s business and operations
and may continue to impact the Company in the future, including impacting our ability to efficiently
operate our facilities across the globe, the ability of our suppliers to supply and manufacture key inputs,
availability and cost of transportation and logistics, customer behaviors, our employees, the distributors,
dealers and retailers who sell our products, and the market generally. Our business could be negatively
impacted over the longer term if the disruptions related to COVID-19 decrease consumer confidence and
housing investments; or precipitate a prolonged economic downturn and/or an extended rise in
unemployment or tempering of wage growth, any of which could lower demand for our products. The
COVID-19 pandemic may also exacerbate certain of the other risks described in this “Risk Factors”
section.
The COVID-19 pandemic has also resulted in and is expected to continue to result in operational
challenges in the manufacturing of our products and the operation of the related domestic and
international supply chains supporting our ability to manufacture our products and distribute them through
our channels. Restrictions on or disruptions of transportation or increased border controls or closures, or
other impacts on domestic and global supply chains or distribution channels, could increase our raw
materials and commodity costs, increase demand for raw materials and commodities from competing
purchasers, limit our ability to manufacture and distribute products to meet customer demand or otherwise
have a material adverse effect on our business, results of operations and financial condition.
Our failure to attract and retain qualified personnel and other labor constraints could adversely
affect our results of operations, cash flows and financial condition.
Our success depends in part on the efforts and abilities of qualified personnel at all levels, including our
senior management team and other key employees. Their motivation, skills, experience, contacts and
industry knowledge significantly benefit our operations and administration.
Low unemployment rates in the U.S., rising wages, competition for qualified talent and attracting and
retaining personnel in remote locations could result in the failure to attract, motivate and retain personnel.
This has resulted in higher employee costs, increased attrition and significant shifts in the labor market
and employee expectations and we may continue to face challenges in finding and retaining qualified
personnel, particularly at the production level, which could have an adverse effect on our results of
operations, cash flows and financial condition.
13
Climate change and related legislative and regulatory initiatives could adversely affect our
business and results of operations.
Concerns over the long-term effects of climate change have led to, and we expect will continue to lead to
governmental efforts around the world to mitigate those effects. The Company will need to respond to any
new laws and regulations as well as to consumer, investor and business preferences resulting from
climate change concerns, which may increase our operational complexity and result in costs to us in
order to comply with any new laws, regulations or preferences. Further, the effects of climate change may
negatively impact international, regional and local economic activity, which may lower demand for our
products or disrupt our manufacturing or distribution operations. Overall, climate change, its effects and
the resulting, unknown impact on government regulation, consumer, investor and business preferences
could have a long-term material adverse effect on our business and results of operations.
Environmental, social and governance matters may adversely impact our business and
reputation.
In addition to the importance of their financial performance, companies are increasingly being judged by
their performance on a variety of environmental, social and governance (“ESG”) matters.
In light of the increased focus on ESG matters, there can be no certainty that we will manage such issues
successfully, or that we will successfully meet stakeholder expectations as to our proper role. Any failure
or perceived failure by us in this regard could adversely impact our business and reputation.
Changes in government and industry regulatory standards could adversely affect our results of
operations, cash flows and financial condition.
Government regulations and policies pertaining to trade agreements, health and safety (including
protection of employees as well as consumers), taxes and environment (including those specific to
climate change and the reduction of air and energy emissions) may continue to emerge in the U.S., as
well as internationally. In particular, there may be additional tariffs or taxes related to our imported raw
materials, components and finished goods. It is necessary for us to comply with current requirements
(including requirements that do not become effective until a future date), and even more stringent
requirements could be imposed on our products or processes in the future. Compliance with changes in
taxes, tariffs and other regulations may require us to further alter our manufacturing and installation
processes and our sourcing. Such actions may result in customers transitioning to available competitive
products, loss of market share, negative publicity, reputational damage loss of customer confidence or
other negative consequences (including a decline in stock price) and could increase our capital
expenditures and adversely impact our results of operations, cash flows and financial condition.
Future tax law changes or the interpretation of existing tax laws may materially impact our
effective income tax rate, the resolution of unrecognized tax benefits and cash tax payments.
Our businesses are subject to taxation in the U.S., as well as internationally, including income tax, value-
added tax and property tax. Our total tax expense could be affected by changes in tax rates in the
jurisdictions in which our businesses are subject to taxation, changes in the valuation of deferred tax
assets and liabilities or changes in tax laws or the interpretation of such laws by tax authorities which may
have a material impact on our financial results. In addition, we are routinely audited by tax authorities in
many jurisdictions. Although we believe we record and accrue tax estimates that are reasonable and
appropriate, these estimates are based on assumptions and require the exercise of significant judgment,
and there are significant uncertainties in these estimates. As a result, the ultimate outcome from any audit
could be materially different from amounts reflected in our income tax provisions and accruals. Future
settlements of income tax audits may have a material adverse effect on earnings between the period of
initial recognition of tax estimates in our financial statements and the point of ultimate tax audit
settlement.
14
Our inability to secure and protect our intellectual property rights could negatively impact
revenues and brand reputation.
We have many patents, trademarks, brand names, trade names and trade secrets that, in the aggregate,
are important to our business. Unauthorized use of these intellectual property rights or other loss of our
intellectual property competitive position may not only erode sales of our products, but may also cause us
to incur substantial significant damage to our brand name and reputation, interfere with our ability to
effectively represent the Company to our customers, contractors and suppliers, and increase litigation
costs. There can be no assurance that our efforts to protect our brands and trademark rights will prevent
violations. In addition, existing patent, trade secret and trademark laws offer only limited protection, and
the laws of some countries in which our products are or may be developed, manufactured or sold may not
fully protect our intellectual property from infringement by others. There can be no assurance that our
efforts to assess possible third party intellectual property rights will ensure the Company’s ability to
manufacture, distribute, market or sell in any given country or territory. Furthermore, others may assert
intellectual property infringement claims against us or our customers which may require us to incur
significant expense to defend such litigation or indemnify our customers.
Potential liabilities and costs from claims and litigation could adversely affect our results of
operations, cash flows and financial condition.
We are, from time to time, involved in various claims, litigation matters and regulatory proceedings that
arise in the ordinary course of our business and that could have an adverse effect on us. These matters
may include contract disputes, intellectual property disputes, product recalls, personal injury claims,
construction defects and home warranty claims, warranty disputes, environmental claims or proceedings,
other tort claims, employment and tax matters and other proceedings and litigation, including class
actions. It is not possible to predict the outcome of pending or future litigation, and, as with any litigation, it
is possible that some of the actions could be decided unfavorably and could have an adverse effect on
our results of operations, cash flows and financial condition.
We are subject to product safety regulations, recalls and direct claims for product liability that can result in
significant liability and, regardless of the ultimate outcome, can be costly to defend. As a result of the
difficulty of controlling the quality of products or components sourced from other manufacturers, we are
exposed to risks relating to the quality of such products and to limitations on our recourse against such
suppliers.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive office is located in Deerfield, Illinois. We operate 35 U.S. manufacturing facilities
in 18 states and have 21 manufacturing facilities in international locations (8 in Mexico, 2 in Asia, 4 in
Europe, 4 in Africa, and 3 in Canada). In addition, we have 71 distribution centers and warehouses
worldwide, of which 56 are leased. The following table provides additional information with respect to
these properties.
Segment
Plumbing
Outdoors & Security
Cabinets
Totals
Manufacturing
Facilities
Leased
5
3
4
12
Owned
7
17
20
44
Total
12
20
24
56
Distribution Centers
and Warehouses
Owned
7
5
3
15
Leased
19
17
20
56
Total
26
22
23
71
We are of the opinion that the properties are suitable to our respective businesses and have production
capacities adequate to meet the current needs of our businesses.
15
Item 3. Legal Proceedings.
The Company is a defendant in lawsuits that are ordinary routine litigation matters incidental to its
businesses. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is
possible that these actions could be decided unfavorably to the Company. The Company believes that
there are meritorious defenses to these actions and that these actions will not have a material adverse
effect upon the Company’s results of operations, cash flows or financial condition, and, where
appropriate, these actions are being vigorously contested. Accordingly, the Company believes the
likelihood of material loss is remote.
Item 4. Mine Safety Disclosures.
Not applicable.
Information about our current Executive Officers.
Our current executive officers are:
Name
Nicholas I. Fink
Patrick D. Hallinan
Cheri M. Phyfer
Brett E. Finley
R. David Banyard, Jr.
Hiranda S. Donoghue
Sheri R. Grissom
John D. Lee
May Russell
Marty Thomas
Dan Luburic
Age
47
54
50
51
53
43
57
49
44
63
50
Position
Chief Executive Officer
Senior Vice President & Chief Financial Officer
President, Plumbing
President, Outdoors & Security
President, Cabinets
Senior Vice President, General Counsel & Corporate Secretary
Senior Vice President, Chief Human Resources Officer
Senior Vice President, Global Growth & Development
Senior Vice President, Chief Digital Officer
Senior Vice President, Operations & Supply Chain Strategy
Vice President and Corporate Controller
Nicholas I. Fink has served as Chief Executive Officer since January 2020. From March 2019 to January
2020, Mr. Fink served as President and Chief Operating Officer of Fortune Brands. From July 2016 to
March 2019, Mr. Fink served as President of the Company’s Plumbing business.
Patrick D. Hallinan has served as Senior Vice President & Chief Financial Officer of Fortune Brands
since July 2017. From January 2017 to July 2017, Mr. Hallinan served as Senior Vice President of
Finance of Fortune Brands.
Cheri M. Phyfer has served as President of the Plumbing segment since March 2019. Ms. Phyfer served
as President of Moen’s U.S. business from February 2018 to March 2019. Prior to that, Ms. Phyfer held
various positions at the Sherwin-Williams Company, a manufacturer of paint and coatings products,
including President of the Consumer Brands Group (2017) and President & General Manager –
Diversified Brands from 2013 to 2017.
Brett E. Finley has served as President of the Outdoors & Security segment since July 2018. From
February 2016 to July 2018, Mr. Finley served as the President of Fortune Brands Doors, Inc.
R. David Banyard, Jr. has served as President of the Cabinets segment since November 2019. Mr.
Banyard served as President and Chief Executive Officer of Myer Industries, an international
manufacturer of packaging, storage, and safety products and specialty molding, from December 2015 to
October 2019.
Hiranda S. Donoghue has served as Senior Vice President, General Counsel & Secretary of Fortune
Brands since December 2021. Ms. Donoghue served as Vice President & Deputy General Counsel of
Baxter International Inc., a healthcare company, from November 2018 to December 2021. Prior to that,
Ms. Donoghue held various positions as a legal advisor at Walgreen Co., from October 2007 to
16
November 2018, including most recently as Vice President, Corporate and M&A Legal (from October
2017 to November 2018).
Sheri R. Grissom has served as Senior Vice President, Chief Human Resources Officer of Fortune
Brands since February 2015.
John D. Lee has served as Senior Vice President, Global Growth & Development of Fortune Brands
since January 2020. Mr. Lee served as Senior Vice President, Global Growth & Development of the
Plumbing segment from July 2016 to January 2020.
May Russell has served as Senior Vice President & Chief Digital Officer of Fortune Brands since
February 2022. Ms. Russell served in various positions with Ford Motor Company, a manufacturer of
vehicles, since 2009, most recently serving as Chief Technology/Product Officer of Ford Digital Solutions,
a division of Ford Motor Company, from November 2018 to January 2022.
Marty Thomas has served as Senior Vice President, Operations & Supply Chain Strategy of Fortune
Brands since September 2017. Mr. Thomas served as Senior Vice President of Global Operations and
Engineering Services at Rockwell Automation, Inc., a provider of industrial automation and information
products, prior thereto.
Dan Luburic has served as Vice President and Corporate Controller of Fortune Brands since October
2011.
17
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Market Information, Dividends and Holders of Record
Our common stock is listed on the New York Stock Exchange under the ticker symbol “FBHS”.
In December 2021, our Board of Directors increased the quarterly cash dividend by 8% to $0.28 per
share of our 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, or at what level, because the payment of dividends is dependent upon our financial condition,
results of operations, capital requirements and other factors deemed relevant by our Board of Directors.
As a holding company, we are a legal entity separate and distinct from our subsidiaries. Accordingly, the
source of our unconsolidated revenues and funds is dividends and other payments from subsidiaries. Our
subsidiaries are not limited by long-term debt or other agreements in their abilities to pay cash dividends
or to make other distributions with respect to their capital stock or other payments to the Company.
On February 11, 2022, there were 8,055 record holders of the Company’s common stock, par value $0.01
per share. A substantially greater number of holders of the Company’s common stock are “street name”
or beneficial holders, whose shares of record are held by banks, brokers or other financial institutions.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Below are the repurchases of common stock by the Company or any “affiliated purchaser” (as defined in
Rule 10b-18(a)(3) under the Exchange Act) for the three months ended December 31, 2021:
Three Months Ended December 31, 2021
October 1 – October 31
November 1 – November 30
December 1 – December 31
Total
Total number of
shares purchas
ed(a)
1,435,721
408,200
—
1,843,921
Average price
paid per share
94.53
$
102.82
—
96.37
$
(a) Information on the Company’s share repurchase program follows:
Total number of
shares purchased
as part of publicly
announced plans
or programs(a)
1,435,721
408,200
—
1,843,921
Approximate dollar
value of shares that may
yet be purchased under
the plans or programs(a)
456,660,001
$
414,689,648
414,689,648
Authorization date
September 21, 2020
July 23, 2021
Announcement date
September 21, 2020
July 23, 2021
Authorization amount of shares
of outstanding common stock
$500,000,000
$400,000,000
Expiration date
September 21, 2022
July 23, 2023
18
Stock Performance
FORTUNE BRANDS HOME & SECURITY, INC.
STOCK PRICE PERFORMANCE
(With Dividend Reinvestment)
$300
$250
$200
$150
$100
$50
$0
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
FBHS
S&P 500
Peer Index
The above graph compares the relative performance of our common stock, the S&P 500 Index and a
Peer Group Index. This graph covers the period from December 31, 2016 through December 31, 2021.
This graph assumes $100 was invested in the stock or the index on December 31, 2016 and also
assumes the reinvestment of dividends. The foregoing performance graph is being furnished as part of
this Annual Report on Form 10-K solely in accordance with the requirement under Rule 14a-3(b)(9) to
furnish our stockholders with such information, and therefore, shall not be deemed to be filed or
incorporated by reference into any filings by the Company under the Securities Act or the Exchange Act.
Peer Group Index. The 2021 peer group is composed of the following publicly traded companies
corresponding to the Company’s core businesses:
American Woodmark Corporation, Armstrong World Industries, Inc., Leggett & Platt Incorporated, Lennox
International Inc., Masco Corporation, Masonite International Corporation, Mohawk Industries, Inc.,
Newell Brands Inc., The Sherwin-Williams Company, Stanley Black & Decker, Inc. and Fastenal
Company.
19
Calculation of Peer Group Index
The weighted-average total return of the entire peer group, for the period of December 31, 2016 through
December 31, 2021, is calculated in the following manner:
(1) the total return of each peer group member is calculated by dividing the change in market value
of a share of its common stock during the period, assuming reinvestment of any dividends, by the
value of a share of its common stock at the beginning of the period; and
(2) each peer group member’s total return is then weighted within the index based on its market
capitalization relative to the market capitalization of the entire index, and the sum of such
weighted returns results in a weighted-average total return for the entire Peer Group Index.
Item 6. Reserved.
Not applicable.
20
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Introduction
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
is a supplement to the accompanying consolidated financial statements and provides additional
information on our business, recent developments, financial condition, liquidity and capital resources,
cash flows and results of operations. MD&A is organized as follows:
•
•
•
•
•
Overview: This section provides a general description of our business and a discussion of
management’s general outlook regarding market demand, our competitive position and product
innovation, as well as recent developments we believe are important to understanding our results of
operations and financial condition or in understanding anticipated future trends.
Basis of Presentation: This section provides a discussion of the basis on which our consolidated
financial statements were prepared.
Results of Operations: This section provides an analysis of our results of operations for the two years
ended December 31, 2021 and 2020. For a discussion of our 2019 results, please refer to Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the
Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC
on February 24, 2021.
Liquidity and Capital Resources: This section provides a discussion of our financial condition and an
analysis of our cash flows for each of the two years ended December 31, 2021 and 2020. This
section also provides a discussion of our contractual obligations, other purchase commitments and
customer credit risk that existed at December 31, 2021, as well as a discussion of our ability to fund
our future commitments and ongoing operating activities through internal and external sources of
capital.
Critical Accounting Estimates: This section identifies and summarizes those accounting policies that
significantly impact our reported results of operations and financial condition and require significant
judgment or estimates on the part of management in their application.
Overview
The Company is a leader in home and security products focused on the design, manufacture and sale of
market-leading branded products in the following categories: plumbing and accessories, entry door and
storm door systems, security products, outdoor performance materials used in decking and railing
products, and kitchen and bath cabinetry.
For the year ended December 31, 2021, net sales based on country of destination were:
(In millions)
United States
China
Canada
Other international
Total
$
$
6,402.8
510.4
542.6
200.3
7,656.1
84%
7
7
2
100%
We believe the Company has certain competitive advantages including market-leading brands, a
diversified mix of customer 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
stockholder 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
continue to grow, we expect the benefits of operating leverage and strategic spending to support
increased manufacturing capacity and long-term growth initiatives will help us to continue to achieve
profitable organic growth.
21
We continue to believe our most attractive opportunities are to invest in profitable organic growth
initiatives, pursue accretive strategic acquisitions, non-controlling equity investments, and joint ventures,
and return cash to stockholders through a combination of dividends and repurchases of shares of our
common stock under our share repurchase program 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. Continued growth in the U.S. market for our home products
will largely depend on consumer confidence, employment, wage growth, home prices, stable mortgage
rates and credit availability.
We may be impacted by fluctuations in raw materials, component costs, labor costs, tariffs, transportation
costs, foreign exchange rates, inflation, interest rates and promotional activity among our competitors,
among other things. We strive to offset the potential unfavorable impact of these items with productivity
improvements and price increases.
During the two years ended December 31, 2021, our net sales grew at a compounded annual rate of
15.2% as we benefited from a growing U.S. home products market, acquisitions, and growth in
international markets. Operating income grew at a compounded annual rate of 24.9% with consolidated
operating margins between 12% and 14% from 2019 to 2021. Growth in operating income was primarily
due to higher sales volume, changes to our portfolio of businesses, control over our operating expenses
and the benefits of manufacturing productivity programs.
During the first half of 2020, in response to the COVID-19 pandemic, a number of countries and U.S.
states issued orders requiring nonessential businesses to close (“closure orders”) and persons who were
not engaged in essential businesses to stay at home. Generally, states and jurisdictions designated our
products, our retail channel partners and residential construction as essential business activities. While
our financial results were negatively impacted during the second quarter of 2020 by these closure orders,
sales volumes increased as these restrictions were relaxed benefiting our third and fourth quarter 2020
results.
During 2021, the U.S. home products market grew due to increases in repair and remodel and new home
construction activity. We believe spending for home repair and remodeling increased approximately 14%
and new housing construction experienced approximately 11% growth in 2021 compared to 2020. In
2021, net sales grew 25.7% due to higher sales volume including the favorable comparison to 2020 when
our volumes were impacted by the COVID-19 pandemic, the benefit from the Larson acquisition ($403.4
million), price increases to help mitigate the impact of cumulative commodity and transportation cost
increases and favorable mix, as well as favorable foreign exchange of approximately $63 million. These
benefits were partially offset by higher promotion and volume-based rebate costs. In 2021, operating
income increased 36.1% over 2020 primarily due to higher net sales, the benefit from the Larson
acquisition, manufacturing productivity improvements, the absence of the 2020 asset impairment charges
and lower restructuring and other charges, as well as favorable foreign exchange of approximately $17
million. These benefits were partially offset by higher commodity, employee-related and transportation
costs, higher amortization of intangible assets principally due to the Larson acquisition, higher advertising
costs, higher promotion and volume-based rebate costs and higher tariffs.
In December 2020, we acquired 100% of the outstanding equity of Larson, the North American market
leading brand of storm, screen and security doors, for a total purchase price of approximately $717.5
million, net of cash acquired. We financed the transaction with borrowings under our existing credit
facilities. The results of operations are included in the Outdoors & Security segment. The financial results
of Larson were included in the Company’s December 31, 2021 and 2020 consolidated balance sheets
and the Company's consolidated statements of income and of cash flows beginning January 2021.
Larson's net sales, operating income and cash flows from the date of acquisition to December 31, 2020
were not material to the Company.
22
In June 2020, we repaid all amounts outstanding on the 3.000% Senior Notes issued in June 2015 at
their maturity date using borrowings under our 2019 Revolving Credit Agreement (as defined below). In
September 2019, the Company issued $700 million of 3.25% Senior Notes due 2029 (“2019 Notes”) in a
registered public offering. The Company used the proceeds from the 2019 Notes offering to repay in full a
$350 million term loan and to pay down outstanding balances under our 2019 Revolving Credit
Agreement.
In November 2021, the Company entered into a 364-day, $400 million term loan credit agreement (“2021
Term Loan”) for general corporate purposes that matures in November 2022. Interest rates under the
2021 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%.
In 2018 our Plumbing segment entered into a strategic partnership with, and acquired non-controlling
equity interests in, Flo Technologies, Inc. (“Flo”), a U.S. manufacturer of comprehensive water monitoring
and shut-off systems with leak detection technologies. In January 2020, we entered into an agreement to
acquire 100% of the outstanding shares of Flo in a multi-phase transaction, which was completed in
January 2022. The minority shareholders' substantive participating rights expired on January 1, 2021, at
which time we obtained control of, and began consolidating, Flo in our results of operations and
statements of financial positions and cash flows. Immediately prior to consolidating Flo, we recognized a
non-cash loss of $4.5 million within other expense for the year-ended December 31, 2021, related to the
remeasurement of our previously existing investment in Flo. During the fourth quarter of 2021 we
recorded a mark-to-market expense of $2.2 million related to the remaining shares held by the minority
shareholders.
Basis of Presentation
The consolidated financial statements in this Annual Report on Form 10-K have been derived from the
accounts of the Company and its wholly-owned subsidiaries. The Company’s consolidated financial
statements are based on a fiscal year ending December 31. Certain of the Company’s subsidiaries
operate on a 52 or 53 week fiscal year ending during the month of December.
Results of Operations
The following discussion of both consolidated results of operations and segment results of operations
refers to the year ended December 31, 2021 compared to the year ended December 31, 2020. The
discussion of consolidated results of operations should be read in conjunction with the discussion of
segment results of operations and our financial statements and notes thereto included in this Annual
Report on Form 10-K. Unless otherwise noted, all discussion of results of operations are for continuing
operations.
Years Ended December 31, 2021 and 2020
(In millions)
Net Sales:
Plumbing
Outdoors & Security
Cabinets
Total Fortune Brands
Operating Income:
Plumbing
Outdoors & Security
Cabinets
Corporate
Total Fortune Brands
2021
% change
2020
$
$
$
$
2,761.2
2,039.9
2,855.0
7,656.1
629.7
291.9
279.3
(110.5)
1,090.4
25.4% $
43.7
15.6
25.7% $
2,202.1
1,419.2
2,469.0
6,090.3
34.6% $
45.0
18.5
(6.8)
36.1% $
467.9
201.3
235.7
(103.5)
801.4
Certain items had a significant impact on our results in 2021 and 2020. These included restructuring and
other charges, asset impairment charges and the impact of changes in foreign currency exchange rates.
23
In 2021, financial results included:
•
•
the impact of foreign exchange primarily due to movement in the Canadian dollar, Mexican peso,
British pound and Chinese yuan, which had a favorable impact compared to 2020, of approximately
$63 million on net sales and of approximately $17 million both on operating income and net income
and
restructuring and other charges of $20.7 million before tax ($15.9 million after tax), largely related to
severance costs associated with the relocation of manufacturing facilities within our Outdoor &
Security and Cabinets segments.
In 2020, financial results included:
•
•
•
•
restructuring and other charges of $25.1 million before tax ($17.5 million after tax), largely related to
headcount actions associated with COVID-19 across all segments and costs associated with changes
in our manufacturing processes within our Plumbing segment,
asset impairment charges of $22.5 million related to the impairment of indefinite-lived tradenames
within our Plumbing and Cabinets segments, which were primarily the result of forecasted sales
declines resulting from the COVID-19 pandemic,
actuarial losses within our defined benefit plans of $3.4 million primarily related to decreases in
discount rates and differences between expected and actual returns on plan assets and
the impact of foreign exchange primarily due to movement in the Canadian dollar, British pound,
Mexican peso and Chinese yuan, which had an unfavorable impact compared to 2019, of
approximately $4 million on net sales and a favorable impact compared to 2019, of approximately $1
million both on operating income and net income.
Total Fortune Brands
Net sales
Net sales increased by $1,565.8 million, or 25.7%, due to higher sales volume including the favorable
comparison to 2020 when our volumes were impacted by the COVID-19 pandemic, the benefit from the
Larson acquisition ($403.4 million), price increases to help mitigate the impact of cumulative commodity
and transportation cost increases and favorable mix, as well as favorable foreign exchange of
approximately $63 million. These benefits were partially offset by higher promotion and volume-based
rebate costs.
Cost of products sold
Cost of products sold increased by $983.2 million, or 25.0%, due to higher net sales, the impact of the
Larson acquisition including higher amortization of the acquisition related inventory fair value adjustment
($3.3 million in 2021), commodity cost inflation, product mix, labor inflation, and higher tariffs, partially
offset by the benefit from manufacturing productivity improvements.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $296.4 million, or 23.1%, due to higher
transportation and employee-related costs, the impact of the Larson acquisition and advertising costs.
24
Amortization of intangible assets
Amortization of intangible assets increased by $22.1 million primarily due to the Larson acquisition in our
Outdoors & Security segment ($18.2 million) and the 2021 consolidation of Flo in our Plumbing segment
($2.6 million).
Asset impairment charges
Asset impairment charges of $22.5 million in 2020 related to indefinite-lived tradenames within our
Plumbing and Cabinets segments.
Restructuring charges
Restructuring charges of $13.5 million in 2021 largely related to severance costs associated with the
relocation of manufacturing facilities within our Outdoor & Security and Cabinets segments. Restructuring
charges of $15.9 million in 2020 largely related to headcount actions associated with COVID-19 across all
segments and costs associated with changes in our manufacturing processes within our Plumbing
segment.
Operating income
Operating income increased by $289.0 million, or 36.1%, primarily due to higher net sales, the benefit
from the Larson acquisition, manufacturing productivity improvements, the absence of the 2020 asset
impairment charges and lower restructuring and other charges, as well as favorable foreign exchange of
approximately $17 million. These benefits were partially offset by higher commodity, employee-related
and transportation costs, higher amortization of intangible assets principally due to the Larson acquisition,
higher advertising costs, higher promotion and volume-based rebate costs and higher tariffs.
Interest expense
Interest expense increased by $0.5 million to $84.4 million, due to higher average borrowings partially
offset by lower average interest rates.
Other expense (income), net
Other expense (income), net, was expense of $0.9 million in 2021, compared to income of $13.3 million in
2020. The decrease of $14.2 million of income is primarily due to losses of $5.0 million in 2021 and gains
of $11.0 million in 2020 related to our investment in Flo prior to its consolidation and unfavorable foreign
currency losses, partially offset by higher defined benefit income ($7.8 million increase).
Income taxes
The effective income tax rates for 2021 and 2020 were 23.2% and 23.1%, respectively. The 2021
effective income tax rate was unfavorably impacted by state and local income taxes, foreign income taxed
at higher rates and a valuation allowance increase. This expense was offset by favorable benefits for the
release of uncertain tax positions, primarily related to statute of limitation lapses, and share-based
compensation.
The 2020 effective income tax rate was unfavorably impacted by state and local income taxes and foreign
income taxed at higher rates. This expense was offset by a tax benefit related to share-based
compensation.
Net income attributable to Fortune Brands
Net income attributable to Fortune Brands was $772.4 million in 2021 compared to $553.1 million in 2020.
The increase of $219.3 million was due to higher operating income, lower equity in losses of affiliate and
lower noncontrolling interests, partly offset by higher income tax expenses, higher other expense and
higher interest expense.
25
Results By Segment
Plumbing
Net sales increased by $559.1 million, or 25.4%, due to higher sales volume across all brands and
markets, including showroom customers whose locations were negatively impacted in 2020 by the
COVID-19 pandemic, and price increases to help mitigate the impact of cumulative commodity and
transportation cost increases, as well as favorable foreign exchange of approximately $53 million. These
benefits were partially offset by higher volume-based rebate costs.
Operating income increased by $161.8 million, or 34.6%, due to higher net sales, the benefit from
manufacturing productivity improvements, the absence of the 2020 asset impairment charge ($13.0
million) and favorable restructuring and other charges, as well as favorable foreign exchange of
approximately $21 million. These benefits were partially offset by the impact of higher employee-related,
freight, commodity, advertising and tariff costs, higher amortization of intangible assets related to the Flo
acquisition and higher volume-based rebate costs.
Outdoors & Security
Net sales increased by $620.7 million, or 43.7%, due to the benefit from the Larson acquisition ($403.4
million), higher sales volume including the favorable comparison to 2020 when our volumes were
impacted by the COVID-19 pandemic, price increases to help mitigate the impact of cumulative
commodity and transportation cost increases and lower rebate costs due to timing of sales in 2021 versus
prior year period, as well as favorable foreign exchange of approximately $1 million. These benefits were
partially offset by unfavorable mix primarily driven by materials availability.
Operating income increased by $90.6 million, or 45.0%, due to higher net sales, the benefit from the
Larson acquisition and manufacturing productivity improvements. These benefits were partially offset by
commodity cost inflation, higher freight and employee-related costs and higher restructuring charges, as
well as unfavorable foreign exchange of approximately $1 million.
Cabinets
Net sales increased by $386.0 million, or 15.6%, due to higher sales volume in both our stock and make-
to-order products, including the favorable comparison to 2020 when our volumes were impacted by the
COVID-19 pandemic, price increases to help mitigate the impact of cumulative commodity and
transportation cost increases and favorable mix, as well as favorable foreign exchange of approximately
$8 million. These benefits were partially offset by higher volume-based rebate costs.
Operating income increased by $43.6 million, or 18.5%, due to higher net sales, the benefit from
manufacturing productivity improvements, the absence of the 2020 asset impairment charge ($9.5 million)
and lower advertising, tariff and restructuring costs. These factors were partly offset by higher freight,
commodity, and employee-related costs and higher volume-based rebate costs, as well as unfavorable
foreign exchange of approximately $3 million.
Corporate
Corporate expenses increased by $7.0 million, or 6.8%, due to higher employee-related and consulting
costs. These factors were partly offset by the absence of transaction costs associated with the Larson
acquisition in 2020 ($4.5 million) and the absence of the impairment of a long-lived asset in 2020 ($3.6
million).
Liquidity and Capital Resources
Our principal sources of liquidity are cash on hand, cash flows from operating activities, cash borrowed
under our credit facility and cash from debt issuances in the capital markets. Our operating income is
generated by our subsidiaries. We believe our operating cash flows, including funds available under the
credit facility and access to capital markets, provide sufficient liquidity to support the Company’s working
capital requirements, capital expenditures and service of indebtedness, as well as to finance acquisitions,
26
repurchase shares of our common stock and pay dividends to stockholders, as the Board of Directors
deems appropriate.
Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and
uncertainties, including those described in the section entitled “Item 1A. Risk Factors.” In addition, 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.
Unsecured Senior Notes
At December 31, 2021, the Company had aggregate outstanding notes in the principal amount of $1.8
billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company.
The following table provides a summary of the Company’s outstanding Notes, including the carrying value
of the Notes, net of underwriting commissions, price discounts and debt issuance costs as of
December 31, 2021 and December 31, 2020:
(in millions)
Coupon Rate
4.000% Senior Notes
4.000% Senior Notes
3.250% Senior Notes
Total Senior Notes
Credit Facilities
Principal
Amount
Issuance Date
Maturity Date
$
June 2015
500.0
600.0 September 2018
700.0 September 2019
June 2025
September 2023
September 2029
$
1,800.0
Net Carrying Value
December 31,
2021
December 31,
2020
$
$
497.4 $
598.2
694.2
1,789.8 $
496.6
597.1
693.5
1,787.2
In November 2021, the Company entered into a 364-day, $400 million term loan credit agreement (“2021
Term Loan”) for general corporate purposes that matures in November 2022. Interest rates under the
2021 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 2021 Term
Loan are the same as the existing $1.25 billion revolving credit agreement. As of December 31, 2021, we
were in compliance with all covenants under this facility.
In September 2019, the Company entered into a second amended and restated $1.25 billion revolving
credit facility (the “2019 Revolving Credit Agreement”), and borrowings thereunder will be used for
general corporate purposes. The maturity date of the facility is September 2024. Interest rates under the
2019 Revolving Credit Agreement are variable based on LIBOR at the time of the borrowing and the
Company’s long-term credit rating, and can range from LIBOR + 0.91% to LIBOR + 1.4%. Company is
required to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of 3.0 to
1.0. Consolidated EBITDA is defined as consolidated net income before interest expense, income taxes,
depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time
adjustments. In addition, the Company’s ratio of consolidated debt minus certain cash and cash
equivalents to consolidated EBITDA generally may not exceed 3.5 to 1.0. On December 31, 2021 and
December 31, 2020, our outstanding borrowings under this credit facility were $520.0 million and 785.0
million, respectively. As of December 31, 2021, we were in compliance with all covenants under this credit
facility.
We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for
working capital of up to $17.5 million in aggregate as of December 31, 2021 and December 31, 2020, of
which there were no outstanding balances as of December 31, 2021 and 2020. The weighted-average
interest rates on these borrowings were zero in 2021 and 2020.
Commercial Paper
In November 2021, the Company established a commercial paper program (the "Commercial Paper
Program") pursuant to which the Company may issue short-term, unsecured commercial paper notes.
Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed, with
the aggregate principal amount outstanding at any time not to exceed $1.25 billion. The Company’s 2019
27
Revolving Credit Agreement is the liquidity backstop for the repayment of any notes issued under the
Commercial Paper Program. The Company plans to use net proceeds from any issuances under the
Commercial Paper Program for general corporate purposes. There was no commercial paper outstanding
as of December 31, 2021.
As of December 31, 2021, the components of external long-term debt were as follows:
(In millions)
Notes (due 2023 to 2029)
2019 Revolving Credit Agreement
2021 Term Loan
Total debt
Less: current portion
Total long-term debt
$
$
2021
1,789.8 $
520.0
400.0
2,709.8
400.0
2,309.8 $
2020
1,787.2
785.0
—
2,572.2
—
2,572.2
In our debt agreements, there are normal and customary events of default which would permit the lenders
to accelerate the debt if not cured within applicable grace periods, such as failure to pay principal or
interest when due or a change in control of the Company. There were no events of default as of
December 31, 2021.
Cash and Seasonality
In 2021, we invested approximately $148.1 million in incremental capacity to support long-term growth
potential and new products inclusive of cost reduction and productivity initiatives. We expect capital
spending in 2022 to be in the range of $375 to $425 million, reflecting incremental capacity investments in
our decking product line within Outdoors & Security. On December 31, 2021, we had cash and cash
equivalents of $471.5 million, of which $376.1 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.
Share Repurchases
In 2021, we repurchased 4.7 million shares of our outstanding common stock under the Company’s share
repurchase program for $447.7 million. As of December 31, 2021, the Company’s total remaining share
repurchase authorization under the remaining program was approximately $414.7 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.
Dividends
In 2021, we paid dividends in the amount of $143.0 million to the Company’s stockholders. 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. There are no restrictions on the ability of our
subsidiaries to pay dividends or make other distributions to Fortune Brands.
Acquisitions
We periodically review our portfolio of brands and evaluate potential strategic transactions and other
capital initiatives to increase stockholder value. In December 2020, we acquired 100% of the outstanding
equity of Larson for a total purchase price of approximately $717.5 million, net of cash acquired.
28
In 2018 our Plumbing segment entered into a strategic partnership with, and acquired non-controlling
equity interests in, Flo Technologies, Inc. (“Flo”), a U.S. manufacturer of comprehensive water monitoring
and shut-off systems with leak detection technologies. In January 2020, we entered into an agreement to
acquire 100% of the outstanding shares of Flo in a multi-phase transaction, which was completed in
January 2022. The minority shareholders' substantive participating rights expired on January 1, 2021, at
which time we obtained control of, and began consolidating, Flo in our results of operations and
statements of financial positions and cash flows. Immediately prior to consolidating Flo, we recognized a
non-cash loss of $4.5 million within other expense for the year-ended December 31, 2021, related to the
remeasurement of our previously existing investment in Flo. During the fourth quarter of 2021 we
recorded a mark-to-market expense of $2.2 million related to the remaining shares held by the minority
shareholders.
Cash Flows
Below is a summary of cash flows for the years ended December 31, 2021 and 2020.
(In millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of foreign exchange rate changes on cash
Net increase in cash, cash equivalents and restricted cash
$
$
2021
688.7
(207.1)
(428.6)
(1.9)
51.1
$
$
2020
825.7
(923.5)
111.6
16.3
30.1
Net cash provided by operating activities was $688.7 million in 2021 compared to $825.7 million in 2020.
The $137.0 million decrease in cash provided from 2020 to 2021 was primarily due to an increase in our
inventory investments to mitigate the impact of an uncertain and volatile global supply chain environment
and higher increases in accounts receivable associated with our sales growth. These factors were
partially offset by higher net income.
Net cash used in investing activities was $207.1 million in 2021 compared to $923.5 million in 2020. The
decrease in cash used of $716.4 million from 2020 to 2021 was primarily due to the acquisition of Larson
in December 2020 ($713.0 million decrease), the acquisition of additional shares of Flo in January and
April 2020 ($59.4 million decrease) and the cash acquired during the consolidation of Flo in January
2021, partially offset by higher capital expenditures.
Net cash used in financing activities was $428.6 million in 2021 compared to cash provided by financing
activities of $111.6 million in 2020. The increase in cash used of $540.2 million from 2020 to 2021 was
primarily due to higher share repurchases in 2021 compared to 2020 ($260.1 million increase), lower net
borrowings in 2021 compared to 2020 ($250.0 million decrease), lower proceeds from the exercise of
stock options and higher dividends to shareholders ($9.7 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. In 2021 and 2020, we contributed $21.3
million and $47.7 million, respectively, to our qualified pension plans. In 2022, we expect to make pension
contributions of approximately $10.0 million. As of December 31, 2021, the fair value of our total pension
plan assets was $816.0 million, representing funding of 92% of the accumulated benefit obligation liability.
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, Mexico, the United Kingdom, China,
South Africa, France and Japan. Therefore, changes in the value of the related currencies affect our
financial statements when translated into U.S. dollars.
29
Contractual Obligations and Other Commercial Commitments
The following summarizes our contractual obligations and commitments as of December 31, 2021.
Purchase obligations were $959.1 million, of which $900.3 million is due within one year. Purchase
obligations include contracts for raw materials and finished goods purchases, selling and administrative
services, and capital expenditures. Total lease payments under non-cancellable operating leases as of
December 31, 2021 were $48.2 million in 2022, $43.3 million in 2023, $34.0 million in 2024, $24.6 million
in 2025, $20.4 million in 2026 and $55.2 million thereafter. A final payment of $16.6 million related to our
acquisition of Flo was paid in January 2022.
Due to the uncertainty of the timing of settlement with taxing authorities, we are unable to make
reasonably reliable estimates of the period of cash settlement of unrecognized tax benefits. Therefore,
$83.1 million of unrecognized tax benefits as of December 31, 2021 have been excluded from the
paragraph above.
In addition to the contractual obligations and commitments described above, we also had other
commercial commitments for which we are contingently liable as of December 31, 2021. Other corporate
commercial commitments include standby letters of credit of $37.0 million, in the aggregate, all of which
expire in less than one year, and surety bonds of $22.7 million, of which $17.4 million matures in less
than one year and $5.3 million matures in 1-3 years. These contingent commitments are not expected to
have a significant impact on our liquidity.
Debt payments due during the next five years as of December 31, 2021 are $400 million in 2022, $600
million in 2023, $520 million in 2024, $500 million in 2025, zero in 2026 and $700 million in 2027 and
beyond. The Company intends to repay or refinance the $400 million Term Loan on or before the
November 2022 maturity date. Interest payments due during the next five years as of December 31, 2021
are $78 million in 2022, $124 million in 2023 through 2024, $56 million in 2025 through 2026 and $68
million in 2027 and beyond.
Foreign Currency Risk
Certain anticipated transactions, assets and liabilities are exposed to foreign currency risk. Principal
currencies hedged include the Canadian dollar, the Mexican peso, the British pound and the Chinese
yuan. We regularly monitor our foreign currency exposures in order to maximize the overall effectiveness
of our foreign currency hedge positions. For additional information on this risk, see Item 7A. “Quantitative
and Qualitative Disclosures about Market Risk” in this Annual Report on Form 10-K.
Derivative Financial Instruments
In accordance with Accounting Standards Codification ("ASC") requirements for Derivatives and Hedging,
we recognize all derivative contracts as either assets or liabilities on the balance sheet, and the
measurement of those instruments is at fair value. If the derivative is designated as a fair value hedge
and is effective, the changes in the fair value of the derivative and of the hedged item attributable to the
hedged risk are recognized in earnings in the same period. If the derivative is designated as a cash flow
hedge, the changes in the fair value of the derivative are recorded in other comprehensive income (“OCI”)
and are recognized in the consolidated statement of income when the hedged item affects earnings. If the
derivative is designated as an effective economic hedge of the net investment in a foreign operation, the
changes in the fair value of the derivative is reported in the cumulative translation adjustment section of
OCI. Similar to foreign currency translation adjustments, these changes in fair value are recognized in
earnings only when realized upon sale or upon complete or substantially complete liquidation of the
investment in the foreign entity.
Deferred currency gains (loss) of $0.3 million, $(3.0) million and $4.1 million (before tax impact) were
reclassified into earnings for the years ended December 31, 2021, 2020 and 2019, respectively. Based
on foreign exchange rates as of December 31, 2021, we estimate that $1.9 million of net derivative gain
30
included in other comprehensive income ("AOCI") as of December 31, 2021, will be reclassified to
earnings within the next twelve months.
Recently Issued Accounting Standards
The adoption of recent accounting standards, as discussed in Note 2, “Significant Accounting Policies,” to
our Consolidated Financial Statements, has not had and is not expected to have a significant impact on
our revenue, earnings or liquidity.
Critical Accounting Estimates
Our significant accounting policies are described in Note 2, “Significant Accounting Policies,” of the Notes
to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. The Consolidated
Financial Statements are prepared in conformity with U.S. generally accepted accounting principles
(“GAAP”). Preparation of the financial statements requires us to make judgments, estimates and
assumptions that affect the amounts of assets and liabilities reflected in the financial statements and
revenues and expenses reported for the relevant reporting periods. We believe the policies discussed
below are the Company’s critical accounting policies as they include the more significant, subjective and
complex judgments and estimates made when preparing our consolidated financial statements.
Inventories
Inventory provisions are recorded to reduce inventory to the net realizable dollar value for obsolete or
slow moving inventory based on assumptions about future demand and marketability of products, the
impact of new product introductions, inventory levels and turns, product spoilage and specific
identification of items, such as product discontinuance, engineering/material changes, or regulatory-
related changes. In accordance with this policy, our inventory provision was $50.7 million and $51.2
million as of December 31, 2021 and 2020, respectively.
Business Combinations
We account for business combinations under the acquisition method of accounting in accordance with
ASC Topic 805, Business Combinations, which requires an allocation of the consideration we paid to the
identifiable assets, intangible assets and liabilities based on the estimated fair values as of the closing
date of the acquisition. The excess of the fair value of the purchase price over the fair values of these
identifiable assets, intangible assets and liabilities is recorded as goodwill.
Purchased intangibles other than goodwill are initially recognized at fair value and amortized over their
useful lives unless those lives are determined to be indefinite. The valuation of acquired assets will impact
future operating results. The fair value of identifiable intangible assets is determined using an income
approach on an individual asset basis. Specifically, we use the multi-period excess earnings method to
determine the fair value of customer relationships and the relief-from-royalty approach to determine the
fair value of the tradename and proprietary technology. Determining the fair value of acquired intangibles
involves significant estimates and assumptions, including forecasted revenue growth rates, EBITDA
margins, percentage of revenue attributable to the tradename, contributory asset charges, customer
attrition rate, market-participant discount rates and the assumed royalty rates.
The determination of the useful life of an intangible asset other than goodwill is based on factors including
historical tradename performance with respect to consumer name recognition, geographic market
presence, market share, plans for ongoing tradename support and promotion, customer attrition rate, and
other relevant factors.
Goodwill and Indefinite-lived Intangible Assets
In accordance with ASC requirements for Intangibles - Goodwill and Other, goodwill is tested for
impairment at least annually in the fourth quarter and written down when impaired. An interim impairment
test is performed if an event occurs or conditions change that would more likely than not reduce the fair
value of the reporting unit below the carrying value.
31
To evaluate the recoverability of goodwill, we first assess qualitative factors to determine whether it is
more likely than not that goodwill is impaired. Qualitative factors include changes in volume, margin,
customers and the industry. If it is deemed more likely than not that goodwill for a reporting unit is
impaired, we will perform a quantitative impairment test using a weighting of the income and market
approaches. For the income approach, we use a discounted cash flow model, estimating the future cash
flows of the reporting units to which the goodwill relates and then discounting the future cash flows at a
market-participant-derived discount rate. In determining the estimated future cash flows, we consider
current and projected future levels of income based on management’s plans for that business; business
trends, prospects and market and economic conditions; and market-participant considerations.
Furthermore, our cash flow projections used to assess impairment of our goodwill and other intangible
assets are significantly influenced by our projection for the U.S. home products market, our annual
operating plans finalized in the fourth quarter of each year, and our ability to execute on various planned
cost reduction initiatives supporting operating income improvements. Our projection for the U.S. home
products market is inherently uncertain and is subject to a number of factors, such as employment, home
prices, credit availability, new home starts and the rate of home foreclosures. For the market approach,
we apply market multiples for peer groups to the current operating results of the reporting units to
determine each reporting unit’s fair value. The Company’s reporting units are operating segments, or one
level below operating segments when appropriate. When the estimated fair value of a reporting unit is
less than its carrying value, we measure and recognize the amount of the goodwill impairment loss based
on that difference.
The significant assumptions that are used to determine the estimated fair value for goodwill impairment
testing include the following: third-party market forecasts of U.S. new home starts and home repair and
remodel spending; management’s sales, operating income and cash flow forecasts; peer company
EBITDA earnings multiples; the market-participant-based discount rate; and the perpetuity growth rate.
Our estimates of reporting unit fair values are based on certain assumptions that may differ from our
historical and future actual operating performance. Specifically, assumptions related to growth in the new
construction and repair and remodel segments of the U.S. home products markets drive our forecasted
sales growth. The market forecasts are developed using independent third-party forecasts from multiple
sources. In addition, estimated future operating income and cash flow consider our historical performance
at similar levels of sales volume and management’s future operating plans as reflected in annual and
long-term plans that are reviewed and approved by management.
The significant assumptions used to estimate the fair values of the goodwill tested quantitatively during
the year ended December 31, 2021 were as follows:
Unobservable Input
Minimum
Maximum
Discount rates
EBITDA multiple
Long-term revenue growth rates(b)
8.3%
15.0
2.5%
Weighted
Average(a)
9.2%
16.8
3.0%
10.0%
18.0
3.0%
(a) Weighted by relative fair value of the goodwill that was tested quantitatively.
(b) Selected long-term revenue growth rate within 10-year projection period for the goodwill that was tested quantitatively.
2021
A 50 basis point change in any of the significant assumptions during the year ended December 31, 2021
would not have resulted in an impairment being recognized when estimating the fair value of our reporting
unit goodwill.
Certain of our tradenames have been assigned an indefinite life as we currently anticipate that these
tradenames will contribute cash flows to the Company indefinitely. Indefinite-lived intangible assets are
not amortized, but are evaluated at least annually to determine whether the indefinite useful life is
appropriate. We measure the fair value of identifiable intangible assets upon acquisition and we review
for impairment annually in the fourth quarter and whenever market or business events indicate there may
be a potential impairment of that intangible. Impairment losses are recorded to the extent that the carrying
value of the indefinite-lived intangible asset exceeds its fair value. The significant assumptions that are
used to determine the estimated fair value for indefinite-lived intangible assets upon acquisition and
32
subsequent impairment testing are forecasted revenue growth rates; the assumed royalty rates; and the
market-participant discount rates.
We first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived
intangible asset is impaired. Qualitative factors include changes in volume, customers and the industry. If
it is deemed more likely than not that an intangible asset is impaired, we will perform a quantitative
impairment test. We measure fair value of our indefinite-lived tradenames using the relief-from-royalty
approach which estimates the present value of royalty income that could be hypothetically earned by
licensing the brand name to a third party over the remaining useful life. The determination of fair value
using this technique requires the use of estimates and assumptions related to forecasted revenue growth
rates, the assumed royalty rates and the market-participant discount rates. During our 2021 annual
impairment test, of our $711.1 million indefinite lived tradenames, we tested $355.4 million quantitatively,
and the remainder was assessed using qualitative factors. There were no impairments for the year ended
December 31, 2021. See Note 5, “Goodwill and Identifiable Intangible Assets,” for additional information.
During the second quarter of 2020, extended closures of luxury plumbing showrooms associated with
COVID-19 led to lower than expected sales related to an indefinite-lived tradename within the Plumbing
segment, which combined with the updated financial outlook compared to previous forecasts and the
continued uncertainty of the pandemic on the sales and profitability related to the tradename led us to
conclude that it was more likely than not that the indefinite-lived tradename was impaired. Therefore, we
performed an interim impairment test as of June 30, 2020, and as a result we recognized a pre-tax
impairment charge of $13.0 million related to this tradename. We also performed an evaluation of the
useful life of this tradename and determined it was no longer indefinite-lived due to changes in long-term
management expectations and future operating plans. As a result, the remaining carrying value of this
tradename is being amortized over its estimated useful life of 30 years.
In the first quarter of 2020, we recognized an impairment charge of $9.5 million related to an indefinite-
lived tradename in our Cabinets segment. This charge was primarily the result of lower expected sales of
custom cabinetry products related to the impact of COVID-19. In the fourth quarter of 2019, we
recognized an impairment charge of $12.0 million related to the same indefinite-lived tradename, which
was the result of a strategic shift associated with new segment leadership and acceleration of our
capacity rebalancing initiatives from custom cabinetry products to value-based cabinetry products as a
result of lower than expected sales of custom cabinetry products compared to prior forecasts. As of
December 31, 2021, the carrying value of this tradename was $29.1 million.
In the third quarter of 2019, we recognized an impairment charge of $29.5 million related to a second
indefinite-lived tradename in our Cabinets segment, which was primarily the result of a continuing shift in
consumer demand from semi-custom cabinetry products to value-priced cabinetry products, which led to
consecutive downward adjustments of internal sales forecasts and future growth rates associated with the
tradename. As of December 31, 2021, the carrying value of this tradename was $85.0 million.
The fair values of the impaired tradenames were measured using the relief-from-royalty approach, which
estimates the present value of royalty income that could be hypothetically earned by licensing the
tradename to a third party over its remaining useful life. Some of the more significant assumptions
inherent in estimating the fair values include forecasted revenue growth rates, assumed royalty rates, and
market-participant discount rates that reflect the level of risk associated with the tradenames’ future
revenues and profitability. We selected the assumptions used in the financial forecasts using historical
data, supplemented by current and anticipated market conditions, estimated growth rates, and
management plans. These assumptions represent level 3 inputs of the fair value hierarchy (refer to Note
9).
33
The significant assumptions used to estimate the fair values of the tradenames tested quantitatively
during the years ended December 31, 2021 and 2020 were as follows:
Unobservable Input
Minimum
Maximum
Weighted
Average(a)
Minimum
Maximum
Discount rates
Royalty rates(b)
Long-term revenue growth rates(c)
10.2%
1.0%
1.0%
12.4%
5.0%
3.0%
11.4%
3.4%
2.6%
11.2%
1.0%
1.0%
13.2%
5.0%
3.0%
Weighted
Average(a)
12.7%
3.3%
2.7%
2021
2020
(a) Weighted by the relative fair value of the tradenames that were tested quantitatively.
(b) Represents estimated percentage of sales a market-participant would pay to license the tradenames that were tested
quantitatively.
(c) Selected long-term revenue growth rate within 10-year projection period of the tradenames that were tested quantitatively.
A 50 basis point change in any of the significant assumptions used during the year ended December 31,
2021 would not have resulted in an impairment being recognized when estimating the fair value of our
indefinite-lived tradenames.
Defined Benefit Plans
We have a number of pension plans in the United States, covering many of the Company’s employees. In
addition, the Company provides postretirement health care and life insurance benefits to certain retirees.
Service cost for 2021 relates to benefit accruals for an hourly Union group within the defined benefit plan
for our Outdoors & Security segment. All other benefit accruals under our defined benefit pension plans
were frozen as of, or prior to, December 31, 2016.
We recognize changes in the fair value of pension plan assets and net actuarial gains or losses in excess
of 10 percent of the greater of the fair value of pension plan assets or each plan’s projected benefit
obligation (the “corridor”) in earnings immediately upon remeasurement, which is at least annually in the
fourth quarter of each year. Net actuarial gains and losses occur when actual experience differs from any
of the assumptions used to value defined benefit plans or when assumptions change as they may each
year. The primary factors contributing to actuarial gains and losses are changes in the discount rate used
to value obligations as of the measurement date and the differences between expected and actual returns
on pension plan assets. This accounting method results in the potential for volatile and difficult to forecast
gains and losses. The pre-tax recognition of actuarial losses was $0.8 million and $2.8 million in 2021 and
2020, respectively. The total net actuarial losses in accumulated other comprehensive income for all
defined benefit plans were $39.6 million as of December 31, 2021, compared to $87.1 million as of
December 31, 2020.
We record amounts relating to these defined benefit plans based on various actuarial assumptions,
including discount rates, assumed rates of return, compensation increases, turnover rates and health
care cost trend rates. We review our actuarial assumptions on an annual basis and make modifications to
the assumptions based on current economic conditions and trends. We believe that the assumptions
utilized in recording our obligations under our plans are reasonable based on our experience and on
advice from our independent actuaries; however, differences in actual experience or changes in the
assumptions may materially affect our financial condition or results of operations. The expected rate of
return on plan assets is determined based on the nature of the plans’ investments, our current asset
allocation and our expectations for long-term rates of return. The weighted-average long-term expected
rate of return on pension plan assets for the years ended December 31, 2021 and 2020 was 4.4% and
4.5%, respectively. Compensation increases reflect expected future compensation trends. The discount
rate used to measure obligations is based on a spot-rate yield curve on a plan-by-plan basis that matches
projected future benefit payments with the appropriate interest rate applicable to the timing of the
projected future benefit payments. The bond portfolio used for the selection of the discount rate is from
the top quartile of bonds rated by nationally recognized statistical rating organizations, and includes only
non-callable bonds and those that are deemed to be sufficiently marketable with a Moody’s credit rating
34
of Aa or higher. The weighted-average discount rate for defined benefit liabilities as of December 31,
2021 and 2020 was 2.9% and 2.6%, respectively.
For postretirement benefits, our health care trend rate assumption is based on historical cost increases
and expectations for long-term increases. As of December 31, 2021, for postretirement medical and
prescription drugs in the next year, our assumption was an assumed rate of increase of 6.3% for pre-65
retirees and 6.7% for post-65 retirees, declining until reaching an ultimate assumed rate of increase of
4.5% per year in 2028. As of December 31, 2020, for postretirement medical and prescription drugs in the
next year, our assumption was an assumed rate of increase of 6.4% for pre-65 retirees and 7.4% for
post-65 retirees, declining until reaching an ultimate assumed rate of increase of 4.5% per year in 2027.
Below is a table showing pre-tax pension and postretirement expenses, including the impact of actuarial
gains and losses:
(In millions)
Total pension (income) expense
Actuarial loss component of expense above
Total postretirement expense
Actuarial (gain) loss component of expense above
$
2021
(9.4) $
1.1
0.7
(0.3)
2020
(0.8)
2.7
0.7
0.1
The actuarial losses in 2021 were principally due to lower than expected return on plan assets. The
actuarial losses in 2020 were principally due to changes in discount rates offset by positive asset returns.
Discount rates in 2021 used to determine benefit obligations increased by an average of 30 basis points
for pension benefits. Discount rates for 2021 postretirement benefits decreased an average of 200 basis
points mainly due to the acquisition of Larson. Discount rates in 2020 used to determine benefit
obligations decreased by an average of 70 basis points for pension benefits. Discount rates for 2020
postretirement benefits decreased an average of 50 basis points. Our actual return on plan assets in
2021 was 6.6% compared to an actuarial assumption of an average 4.4% expected return. Our actual
return on plan assets in 2020 was 16.5% compared to an actuarial assumption of an average 4.5%
expected return. Significant actuarial losses in future periods would be expected if discount rates decline,
actual returns on plan assets are lower than our expected return, or a combination of both occurs.
A 25 basis point change in our discount rate assumption would lead to an increase or decrease in our
pension and postretirement liability of approximately $27 million. A 25 basis point change in the long-term
rate of return on plan assets used in accounting for our pension plans would have a $2.0 million impact
on pension expense. In addition, if required, actuarial gains and losses will be recorded in accordance
with our defined benefit plan accounting method as previously described. It is not possible to forecast or
predict whether there will be actuarial gains and losses in future periods, and if required, the magnitude of
any such adjustment. These gains and losses are driven by differences in actual experience or changes
in the assumptions that are beyond our control, such as changes in interest rates and the actual return on
pension plan assets.
Income Taxes
In accordance with ASC requirements for Income Taxes, we establish deferred tax liabilities or assets for
temporary differences between financial and tax reporting basis and subsequently adjust them to reflect
changes in tax rates expected to be in effect when the temporary differences reverse. We record a
35
valuation allowance reducing deferred tax assets when it is more likely than not that such assets will not
be realized.
We record liabilities for uncertain income tax positions based on a two-step process. The first step is
recognition, where we evaluate whether an individual tax position has a likelihood of greater than 50% of
being sustained upon examination based on the technical merits of the position, including resolution of
any related appeals or litigation processes. For tax positions that are currently estimated to have a less
than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the
recognition threshold in the first step, we perform the second step of measuring the benefit to be
recorded. The actual benefits ultimately realized may differ from our estimates. In future periods, changes
in facts, circumstances, and new information may require us to change the recognition and measurement
estimates with regard to individual tax positions. Changes in recognition and measurement estimates are
recorded in the consolidated statement of income and consolidated balance sheet in the period in which
such changes occur. As of December 31, 2021, we had liabilities for unrecognized tax benefits pertaining
to uncertain tax positions totaling $83.1 million. It is reasonably possible that the unrecognized tax
benefits may decrease in the range of $4.1 million to $41.9 million in the next 12 months primarily as a
result of the conclusion of U.S. federal, state and foreign income tax proceedings.
Customer Program Costs
Customer programs and incentives are a common practice in our businesses. Our businesses incur
customer program costs to obtain favorable product placement, to promote sales of products and to
maintain competitive pricing. We record estimates to reduce revenue for customer programs and
incentives, which are considered variable consideration, and include price discounts, volume-based
incentives, promotions and cooperative advertising when revenue is recognized in order to determine the
amount of consideration the Company will ultimately be entitled to receive. These estimates are based on
historical and projected experience for each type of customer. In addition, for certain customer program
incentives, we receive an identifiable benefit (goods or services) in exchange for the consideration given
and record the associated expenditure in selling, general and administrative expenses. Volume
allowances are accrued based on management’s estimates of customer volume achievement and other
factors incorporated into customer agreements, such as new products, store sell-through, merchandising
support, levels of returns and customer training. Management periodically reviews accruals for these
rebates and allowances, and adjusts accruals when circumstances indicate (typically as a result of a
change in volume expectations).
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to various market risks, including changes in interest rates, foreign currency exchange
rates and commodity prices. Market risk is the potential loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not
enter into derivatives or other financial instruments for trading or speculative purposes. We enter into
financial instruments to manage and reduce the impact of changes in foreign currency exchange rates
and commodity prices. The counterparties are major financial institutions.
Interest Rate Risk
The Company had $920 million of external variable rate borrowings as of December 31, 2021. A
hypothetical 100 basis point change in interest rates affecting the Company’s external variable rate
borrowings as of December 31, 2021 would be $9.2 million on a pre-tax basis.
36
Foreign Exchange Rate Risk
We enter into forward foreign exchange contracts principally to hedge currency fluctuations in
transactions denominated in certain foreign currencies, thereby limiting our risk that would otherwise
result from changes in exchange rates. The periods of the forward foreign exchange contracts correspond
to the periods of the hedged transactions.
The estimated fair value of foreign currency contracts represents the amount required to enter into
offsetting contracts with similar remaining maturities based on quoted market prices.
The estimated potential loss under foreign exchange contracts from movement in foreign exchange rates
would not have a material impact on our results of operations, cash flows or financial condition. As part of
our risk management procedure, we use a value-at-risk (“VAR”) sensitivity analysis model to estimate the
maximum potential economic loss from adverse changes in foreign exchange rates over a one-day period
given a 95% confidence level. The VAR model uses historical foreign exchange rates to estimate the
volatility and correlation of these rates in future periods. The estimated maximum one-day loss in the fair
value of the Company’s foreign currency exchange contracts using the VAR model was $0.6 million at
December 31, 2021. The 95% confidence interval signifies our degree of confidence that actual losses
under foreign exchange contracts would not exceed the estimated losses. The amounts disregard the
possibility that foreign currency exchange rates could move in our favor. The VAR model assumes that all
movements in the foreign exchange rates will be adverse. These amounts should not be considered
projections of future losses, since actual results may differ significantly depending upon activity in the
global financial markets. The VAR model is a risk analysis tool and should not be construed as an
endorsement of the VAR model or the accuracy of the related assumptions.
Commodity Price Risk
We are subject to commodity price volatility caused by weather, supply conditions, geopolitical and
economic variables, and other unpredictable external factors. From time to time, we use derivative
contracts to manage our exposure to commodity price volatility.
Item 8. Financial Statements and Supplementary Data.
37
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Fortune Brands Home & Security, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Fortune Brands Home & Security,
Inc. and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related
consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the
three years in the period ended December 31, 2021, including the related notes and schedule of valuation
and qualifying accounts for each of the three years in the period ended December 31, 2021 appearing
after the signature page (collectively referred to as the “consolidated financial statements”). We also have
audited the Company's internal control over financial reporting as of December 31, 2021, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2021 in
conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in Management’s Report on Internal Control Over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based on
our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
38
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the
consolidated financial statements that was communicated or required to be communicated to the audit
committee and that (i) relates to accounts or disclosures that are material to the consolidated financial
statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing
a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Indefinite-Lived Intangible Asset Impairment Tests for Certain Tradenames Where Management
Performed a Quantitative Annual Impairment Test
As described in Notes 2 and 5 to the consolidated financial statements, the Company’s consolidated
indefinite-lived tradenames balance was $711.1 million as of December 31, 2021. The carrying value of
tradenames where management performed a quantitative annual impairment test was $355.4 million.
Management reviews indefinite-lived tradename intangible assets for impairment annually in the fourth
quarter and whenever market or business events indicate there may be a potential impairment of that
intangible. Impairment losses are recorded to the extent that the carrying value of the indefinite-lived
intangible asset exceeds its fair value. Fair value is measured by management using the relief-from-
royalty approach. Significant assumptions inherent in estimating fair values include forecasted revenue
growth rates, assumed royalty rates and market-participant discount rates.
The principal considerations for our determination that performing procedures relating to certain
tradenames where management performed a quantitative annual impairment test is a critical audit matter
are (i) the significant judgment by management when developing the fair value measurement of the
tradenames; (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and
evaluating management’s significant assumptions related to the forecasted revenue growth rates, the
assumed royalty rates, and the market-participant discount rates; and (iii) the audit effort involved the use
of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing
the effectiveness of controls relating to management’s indefinite-lived intangible asset impairment tests,
including controls over the valuation of the Company’s indefinite-lived tradenames. These procedures
also included, among others (i) testing management’s process for developing the fair value
measurements of certain tradenames where management performed a quantitative annual impairment
test; (ii) evaluating the appropriateness of the relief-from-royalty approach; (iii) testing the completeness
and accuracy of underlying data used in the approach; and (iv) evaluating the reasonableness of
significant assumptions used by management related to the forecasted revenue growth rates, the
assumed royalty rates, and the market-participant discount rates. Evaluating management’s assumptions
related to the forecasted revenue growth rates and assumed royalty rates involved evaluating whether the
39
assumptions used by management were reasonable considering, as applicable, (i) the current and past
performance of the business associated with the tradenames; (ii) the consistency with external market
and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other
areas of the audit. Professionals with specialized skill and knowledge were used to assist in the
evaluation of (i) the appropriateness of the relief-from-royalty approach and (ii) the reasonableness of the
significant assumptions related to the assumed royalty rates and market-participant discount rates.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 28, 2022
We have served as the Company’s auditor since 2011.
Consolidated Statements of Income
Fortune Brands Home & Security, Inc. and Subsidiaries
(In millions, except per share amounts)
NET SALES
Cost of products sold
Selling, general and administrative expenses
Amortization of intangible assets
Asset impairment charges
Restructuring charges
OPERATING INCOME
Interest expense
Other expense (income), net
Income before taxes
Income taxes
Income after tax
Equity in losses of affiliate
NET INCOME
Less: Noncontrolling interests
NET INCOME ATTRIBUTABLE TO FORTUNE BRANDS
BASIC EARNINGS PER COMMON SHARE
DILUTED EARNINGS PER COMMON SHARE
Basic average number of shares outstanding
Diluted average number of shares outstanding
$
$
$
$
For years ended December 31
2021
7,656.1 $
4,909.1
1,579.0
64.1
—
13.5
1,090.4
84.4
0.9
1,005.1
232.7
772.4
—
772.4
—
772.4 $
5.62 $
5.54 $
137.5
139.5
2020
6,090.3 $
3,925.9
1,282.6
42.0
22.5
15.9
801.4
83.9
(13.3)
730.8
168.8
562.0
7.6
554.4
1.3
553.1 $
3.99 $
3.94 $
138.7
140.2
2019
5,764.6
3,712.2
1,256.3
41.4
41.5
14.7
698.5
94.2
29.0
575.3
144.0
431.3
—
431.3
(0.6)
431.9
3.09
3.06
139.9
141.3
See Notes to Consolidated Financial Statements.
Consolidated Statements of Comprehensive
Income
Fortune Brands Home & Security, Inc. and Subsidiaries
For years ended December 31
(In millions)
NET INCOME
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments
Unrealized (losses) gains on derivatives:
Unrealized holding gains (losses) arising during period
Less: reclassification adjustment for (gains) losses included in
net income
Unrealized (losses) gains on derivatives
Defined benefit plans:
Net actuarial gains (loss) arising during period
Defined benefit plans
Other comprehensive income (loss), before tax
Income tax (expense) benefit related to items of other
comprehensive income (a)
Other comprehensive income, net of tax
COMPREHENSIVE INCOME
Less: comprehensive income attributable to noncontrolling interest
COMPREHENSIVE INCOME ATTRIBUTABLE TO FORTUNE
BRANDS
2021
2019
772.4 $ 554.4 $ 431.3
2020
$
(3.9)
18.7
1.5
(2.2)
(0.7)
47.5
47.5
42.9
(12.4)
30.5
802.9
—
(3.2)
2.4
(0.8)
0.3
0.3
18.2
(0.7)
17.5
571.9
1.3
13.8
4.8
(4.4)
0.4
(15.9)
(15.9)
(1.7)
4.7
3.0
434.3
(0.6)
$
802.9 $ 570.6 $ 434.9
(a)
Income tax (expense) benefit on unrealized (losses) gains on derivatives of $(0.5) million, $(0.5) million and $0.9 million and on
defined benefit plans of $(11.9) million, $(0.2) million and $3.8 million in 2021, 2020 and 2019, respectively.
See Notes to Consolidated Financial Statements.
Consolidated Balance Sheets
Fortune Brands Home & Security, Inc. and Subsidiaries
(In millions)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable less allowances for discounts and credit
losses
Inventories
Other current assets
TOTAL CURRENT ASSETS
Property, plant and equipment, net of accumulated depreciation
Operating lease assets
Goodwill
Other intangible assets, net of accumulated amortization
Other assets
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities
Short-term debt
Accounts payable
Other current liabilities
TOTAL CURRENT LIABILITIES
Long-term debt
Deferred income taxes
Accrued defined benefit plans
Operating lease liabilities
Other non-current liabilities
TOTAL LIABILITIES
Commitments (Note 17) and Contingencies (Note 21)
Equity
Common stock (a)
Paid-in capital
Accumulated other comprehensive loss
Retained earnings
Treasury stock
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
December 31
2021
2020
$
471.5 $
419.1
885.7
1,193.8
193.5
2,744.5
1,009.5
191.7
2,465.1
1,383.8
141.6
7,936.2 $
400.0
764.9
806.2
1,971.1
2,309.8
176.0
79.7
158.8
176.0
4,871.4
734.9
867.2
187.3
2,208.5
917.4
170.2
2,394.8
1,420.3
247.5
7,358.7
—
620.5
724.6
1,345.1
2,572.2
160.5
159.5
140.5
205.4
4,583.2
1.9
3,018.3
(24.6)
2,807.9
(2,738.7)
3,064.8
7,936.2 $
1.8
2,926.3
(55.1)
2,180.2
(2,277.7)
2,775.5
7,358.7
$
$
(a) Common stock, par value $0.01 per share, 185.3 million shares and 184.1 million shares issued at December 31, 2021 and
2020, respectively.
See Notes to Consolidated Financial Statements.
43
Consolidated Statements of Cash Flows
Fortune Brands Home & Security, Inc. and Subsidiaries
(In millions)
OPERATING ACTIVITIES
Net income
Non-cash expense (income):
Depreciation
Amortization of intangibles
Non-cash lease expense
Stock-based compensation
Loss (gain) on sale of property, plant and equipment
Loss (gain) on equity investments
Asset impairment charges
Recognition of actuarial losses
Deferred taxes
Amortization of deferred financing costs
Changes in assets and liabilities including effects subsequent to
acquisitions
Increase in accounts receivable
Increase in inventories
Increase in accounts payable
Decrease (increase) in other assets
Increase in accrued taxes
(Decrease) increase in accrued expenses and other liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures(a)
Proceeds from the disposition of assets
Cost of acquisitions, net of cash acquired
Cost of investments in equity securities
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Increase (decrease) in short-term debt
Issuance of long-term debt
Repayment of long-term debt
Proceeds from the exercise of stock options
Employee withholding taxes paid related to stock-based
compensation
Deferred acquisition payments
Dividends to stockholders
Dividends paid to non-controlling interests
Treasury stock purchases
Other financing activities, net
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Effect of foreign exchange rate changes on cash
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash, cash equivalents and restricted cash(b) at beginning of year
Cash, cash equivalents and restricted cash(b) at end of year
Cash paid during the year for
Interest
Income taxes paid directly to taxing authorities
Dividends declared but not paid
$
$
$
$
For years ended December 31
2021
2020
2019
$
772.4 $
554.4 $
431.3
125.0
64.1
42.5
50.2
1.6
5.0
—
0.8
1.7
3.6
(151.5)
(324.3)
137.7
1.0
8.4
(49.5)
688.7
(214.2)
1.9
5.2
—
(207.1)
121.5
42.0
37.4
47.6
2.4
(6.6)
26.1
3.2
(14.6)
4.5
(85.7)
(91.8)
142.9
(41.1)
12.5
71.0
825.7
(150.5)
1.6
(715.2)
(59.4)
(923.5)
111.3
41.4
35.9
30.5
(0.4)
—
43.2
34.1
(7.5)
3.4
(50.7)
(38.3)
8.7
(10.5)
(5.3)
10.1
637.2
(131.8)
4.2
—
—
(127.6)
400.0
1,245.0
(1,510.0)
41.8
—
1,850.0
(1,465.0)
64.9
(525.0)
1,719.3
(1,345.0)
17.3
(13.3)
—
(143.0)
—
(447.7)
(1.4)
(428.6)
(1.9)
51.1 $
425.0 $
476.1 $
(10.7)
—
(133.3)
(2.5)
(187.6)
(4.2)
111.6
16.3
30.1 $
394.9 $
425.0 $
76.8 $
76.2 $
228.8
37.8
175.5
36.1
(8.7)
(19.0)
(123.0)
—
(100.0)
(5.6)
(389.7)
4.3
124.2
270.7
394.9
81.0
144.5
33.5
(a) Capital expenditures of $19.6 million, $13.6 million and $10.0 million that have not been paid as of December 31, 2021, 2020
and 2019, respectively, were excluded from the Consolidated Statement of Cash Flows.
(b) Restricted cash of $1.3 million and $3.3 million is included in Other current assets and Other assets, respectively, as of
December 31, 2021, $1.0 million and $4.9 million is included in Other current assets and Other assets, respectively, as of
December 31, 2020 and $0.9 million and $6.1 million is included in Other current assets and Other assets, respectively, as of
December 31, 2019 within our Consolidated Balance Sheet.
See Notes to Consolidated Financial Statements.
44
Consolidated Statements of Equity
Fortune Brands Home & Security, Inc. and Subsidiaries
(In millions)
Balance at December 31,
2018
Comprehensive income:
Net income
Other comprehensive
income (loss)
Stock options exercised
Stock-based compensation
Adoption of ASU 2018-02
Treasury stock purchase
Dividends ($0.90 per
Common share)
Balance at December 31,
2019
Comprehensive income:
Net income
Other comprehensive
income (loss)
Stock options exercised
Stock-based compensation
Treasury stock purchase
Dividends to non-controlling
interest
Dividends ($0.98 per
Common share)
Balance at December 31,
2020
Comprehensive income:
Net income
Other comprehensive
income (loss)
Stock options exercised
Stock-based compensation
Treasury stock purchase
Dividends ($1.06 per
Common share)
Balance at December 31,
2021
Common
Stock
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings
Treasury
Stock
Non-
controlling
Interests
Total
Equity
$
1.8 $ 2,766.0 $
(67.0) $ 1,448.1 $ (1,970.7) $
1.8 $ 2,180.0
—
—
—
—
—
—
—
—
—
17.3
30.5
—
—
—
—
431.9
—
(0.6)
431.3
3.0
—
—
(8.6)
—
—
—
—
8.6
—
—
—
(8.7)
—
(100.0)
—
(125.6)
—
—
—
—
—
—
—
3.0
17.3
21.8
—
(100.0)
(125.6)
$
1.8 $ 2,813.8 $
(72.6) $ 1,763.0 $ (2,079.4) $
1.2 $ 2,427.8
—
—
—
—
—
—
—
—
—
64.9
47.6
—
—
—
—
553.1
—
1.3
554.4
17.5
—
—
—
—
—
—
—
—
—
—
(135.9)
—
—
(10.7)
(187.6)
—
—
—
—
—
—
17.5
64.9
36.9
(187.6)
(2.5)
(2.5)
—
(135.9)
$
1.8 $ 2,926.3 $
(55.1) $ 2,180.2 $ (2,277.7) $
— $ 2,775.5
—
—
0.1
—
—
—
—
—
41.8
50.2
—
—
—
772.4
—
30.5
—
—
—
—
—
—
—
—
—
(13.3)
(447.7)
—
(144.7)
—
—
—
—
—
—
—
772.4
30.5
41.9
36.9
(447.7)
(144.7)
$
1.9 $ 3,018.3 $
(24.6) $ 2,807.9 $ (2,738.7) $
— $ 3,064.8
See Notes to Consolidated Financial Statements.
45
Notes to Consolidated Financial Statements
1. Background and Basis of Presentation
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.
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.
Basis of Presentation The consolidated financial statements in this Annual Report on Form 10-K have
been derived from the accounts of the Company and its wholly-owned subsidiaries. The Company’s
consolidated financial statements are based on a fiscal year ending December 31. Certain of the
Company’s subsidiaries operate on a 52 or 53 week fiscal year ending during the month of December. In
December 2021, there were certain transactions that resulted in approximately $59 million of net cash
outflows, relating to payments made to third parties in the normal course of business during the period
between the year-end of our wholly-owned subsidiaries and the Company’s year-end.
In 2018 our Plumbing segment entered into a strategic partnership with, and acquired non-controlling
equity interests in, Flo Technologies, Inc. (“Flo”), a U.S. manufacturer of comprehensive water monitoring
and shut-off systems with leak detection technologies. In January 2020, we entered into an agreement to
acquire 100% of the outstanding shares of Flo in a multi-phase transaction, which was completed in
January 2022. The minority shareholders' substantive participating rights expired on January 1, 2021, at
which time we obtained control of, and began consolidating, Flo in our results of operations and
statements of financial positions and cash flows. Immediately prior to consolidating Flo, we recognized a
non-cash loss of $4.5 million within other expense for the year-ended December 31, 2021, related to the
remeasurement of our previously existing investment in Flo. During the fourth quarter of 2021 we
recorded a mark-to-market expense of $2.2 million related to the remaining shares held by the minority
shareholders. The financial results of Flo are included in the Company’s consolidated statements of
comprehensive income for the year-ended December 31, 2021, the consolidated statement of cash flow
for the year-ended December 31, 2021 and the consolidated balance sheet as of December 31, 2021.
The results of operations are included in the Plumbing segment.
In December 2020, we acquired 100% of the outstanding equity of Larson Manufacturing ("Larson"), the
North American market leading brand of storm, screen and security doors. Larson also sells related
outdoor living products including retractable screens and porch windows. The acquisition of Larson is
aligned with our strategic focus on the fast-growing outdoor living space. See Note 4 "Acquisitions and
Dispositions," for additional information.
2. Significant Accounting Policies
Use of Estimates The presentation of financial statements in accordance with U.S. generally accepted
accounting principles (“GAAP”) requires us to make estimates and assumptions that affect reported
amounts and related disclosures. Actual results in future periods could differ from those estimates.
Cash and Cash Equivalents Highly liquid investments with an original maturity of three months or less
are included in cash and cash equivalents.
Allowances for Credit Losses Trade receivables are recorded at the stated amount, less allowances for
discounts and credit losses. The allowances represent estimated uncollectible receivables associated
with potential customer defaults on contractual obligations (usually due to customers’ potential
insolvency) or discounts related to early payment of accounts receivables by our customers. The
allowances for credit losses include provisions for certain customers where a risk of default has been
specifically identified. In addition, the allowances include a provision for expected customer defaults on a
general formula basis when it cannot yet be associated with specific customers. Expected credit losses
are estimated using various factors, including the length of time the receivables are past due, historical
collection experience and existing economic conditions. In accordance with this policy, our allowance for
credit losses was $8.2 million and $6.7 million as of December 31, 2021 and 2020, respectively.
46
Inventories We use first-in, first-out inventory method. Inventory provisions are recorded to reduce
inventory to the net realizable dollar value for obsolete or slow moving inventory based on assumptions
about future demand and marketability of products, the impact of new product introductions, inventory
levels and turns, product spoilage and specific identification of items, such as product discontinuance,
engineering/material changes, or regulatory-related changes.
Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is
provided, principally on a straight-line basis, over the estimated useful lives of the assets. Gains or losses
resulting from dispositions are included in operating income. Betterments and renewals, which improve
and extend the life of an asset, are capitalized; maintenance and repair costs are expensed as incurred.
Assets held for use to be disposed of at a future date are depreciated over the remaining useful life.
Assets to be sold are written down to fair value less costs to sell at the time the assets are being actively
marketed for sale. Estimated useful lives of the related assets are as follows:
Buildings and leasehold improvements
Machinery and equipment
Software
15 to 40 years
3 to 15 years
3 to 7 years
Long-lived Assets In accordance with Accounting Standards Codification ("ASC") requirements for
Property, Plant and Equipment, a long-lived asset (including amortizable identifiable intangible assets) or
asset group held for use is tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. When such events occur, we compare the sum
of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or
asset group to the carrying amount of a long-lived asset or asset group. The cash flows are based on our
best estimate of future cash flows derived from the most recent business projections. If this comparison
indicates that there is an impairment, the amount of the impairment is calculated based on fair value. Fair
value is estimated primarily using discounted expected future cash flows on a market-participant basis.
We recorded impairments of $0.2 million and $3.6 million related to a long-lived asset to be disposed of in
selling, general and administrative expenses in 2021 and 2020, respectively. During 2019, we recorded
an impairment of $1.7 million related to a long-lived asset to be disposed of in cost of products sold.
Leases Operating lease assets and operating lease liabilities are recognized based on the present value
of the future lease payments over the lease term at commencement date. As most of our lease contracts
do not provide an explicit interest rate, we use our incremental borrowing rate in determining the present
value of future lease payments. Our incremental borrowing rates include estimates related to the impact
of collateralization and the economic environment where the leased asset is located. The operating lease
assets also include any prepaid lease payments and initial direct costs incurred, but exclude lease
incentives received at lease commencement. Our lease terms include options to extend or terminate the
lease when it is reasonably certain that we will exercise that option. Our leases have remaining lease
terms of 1 to 34 years, some of which may include options to extend or terminate the lease. Operating
lease expense is recognized on a straight-line basis over the lease term.
We do not recognize leases with an initial term of twelve months or less on the balance sheet and instead
recognize the related lease payments as expense in the consolidated statements of income on a straight-
line basis over the lease term. We account for lease and non-lease components as a single lease
component for all asset classes. Additionally, for certain equipment leases, we apply a portfolio approach
and account for multiple lease components as a single lease component.
Certain lease agreements include variable rental payments, including rental payments adjusted
periodically for inflation. Variable rental payments are expensed during the period they are incurred and
therefore are excluded from our lease assets and liabilities. Our lease agreements do not contain any
material residual value guarantees or material restrictive covenants.
Business Combinations We account for business combinations under the acquisition method of
accounting in accordance with ASC Topic 805, Business Combinations, which requires an allocation of
the consideration we paid to the identifiable assets, intangible assets and liabilities based on the
estimated fair values as of the closing date of the acquisition. The excess of the fair value of the purchase
price over the fair values of these identifiable assets, intangible assets and liabilities is recorded as
goodwill.
47
Purchased intangibles other than goodwill are initially recognized at fair value and amortized over their
useful lives unless those lives are determined to be indefinite. The valuation of acquired assets will impact
future operating results. The fair value of identifiable intangible assets is determined using an income
approach on an individual asset basis. Specifically, we use the multi-period excess earnings method to
determine the fair value of customer relationships and the relief-from-royalty approach to determine the
fair value of the tradename and proprietary technology. Determining the fair value of acquired intangibles
involves significant estimates and assumptions, including forecasted revenue growth rates, EBITDA
margins, percentage of revenue attributable to the tradename, contributory asset charges, customer
attrition rate, market-participant discount rates and the assumed royalty rates.
The determination of the useful life of an intangible asset other than goodwill is based on factors including
historical tradename performance with respect to consumer name recognition, geographic market
presence, market share, plans for ongoing tradename support and promotion, customer attrition rate, and
other relevant factors.
Goodwill and Indefinite-lived Intangible Assets In accordance with ASC requirements for Intangibles -
Goodwill and Other, goodwill is tested for impairment at least annually in the fourth quarter and written
down when impaired. An interim impairment test is performed if an event occurs or conditions change that
would more likely than not reduce the fair value of the reporting unit below the carrying value.
To evaluate the recoverability of goodwill, we first assess qualitative factors to determine whether it is
more likely than not that goodwill is impaired. Qualitative factors include changes in volume, margin,
customers and the industry. If it is deemed more likely than not that goodwill for a reporting unit is
impaired, we will perform a quantitative impairment test using a weighting of the income and market
approaches. For the income approach, we use a discounted cash flow model, estimating the future cash
flows of the reporting units to which the goodwill relates and then discounting the future cash flows at a
market-participant-derived discount rate. In determining the estimated future cash flows, we consider
current and projected future levels of income based on management’s plans for that business; business
trends, prospects and market and economic conditions; and market-participant considerations.
Furthermore, our cash flow projections used to assess impairment of our goodwill and other intangible
assets are significantly influenced by our projection for the U.S. home products market, our annual
operating plans finalized in the fourth quarter of each year, and our ability to execute on various planned
cost reduction initiatives supporting operating income improvements. Our projection for the U.S. home
products market is inherently uncertain and is subject to a number of factors, such as employment, home
prices, credit availability, new home starts and the rate of home foreclosures. For the market approach,
we apply market multiples for peer groups to the current operating results of the reporting units to
determine each reporting unit’s fair value. The Company’s reporting units are operating segments, or one
level below operating segments when appropriate. When the estimated fair value of a reporting unit is
less than its carrying value, we measure and recognize the amount of the goodwill impairment loss based
on that difference.
The significant assumptions that are used to determine the estimated fair value for goodwill impairment
testing include the following: third-party market forecasts of U.S. new home starts and home repair and
remodel spending; management’s sales, operating income and cash flow forecasts; peer company
EBITDA earnings multiples; the market-participant-based discount rate; and the perpetuity growth rate.
Our estimates of reporting unit fair values are based on certain assumptions that may differ from our
historical and future actual operating performance. Specifically, assumptions related to growth in the new
construction and repair and remodel segments of the U.S. home products markets drive our forecasted
sales growth. The market forecasts are developed using independent third-party forecasts from multiple
sources. In addition, estimated future operating income and cash flow consider our historical performance
at similar levels of sales volume and management’s future operating plans as reflected in annual and
long-term plans that are reviewed and approved by management.
Certain of our tradenames have been assigned an indefinite life as we currently anticipate that these
tradenames will contribute cash flows to the Company indefinitely. Indefinite-lived intangible assets are
not amortized, but are evaluated at least annually to determine whether the indefinite useful life is
appropriate. We measure the fair value of identifiable intangible assets upon acquisition and we review
for impairment annually in the fourth quarter and whenever market or business events indicate there may
be a potential impairment of that intangible. Impairment losses are recorded to the extent that the carrying
48
value of the indefinite-lived intangible asset exceeds its fair value. The significant assumptions that are
used to determine the estimated fair value for indefinite-lived intangible assets upon acquisition and
subsequent impairment testing are forecasted revenue growth rates; the assumed royalty rates; and the
market-participant discount rates.
We first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived
intangible asset is impaired. Qualitative factors include changes in volume, customers and the industry. If
it is deemed more likely than not that an intangible asset is impaired, we will perform a quantitative
impairment test. We measure fair value of our indefinite-lived tradenames using the relief-from-royalty
approach which estimates the present value of royalty income that could be hypothetically earned by
licensing the brand name to a third party over the remaining useful life. The determination of fair value
using this technique requires the use of estimates and assumptions related to forecasted revenue growth
rates, the assumed royalty rates and the market-participant discount rates. During our 2021 annual
impairment test, of our $711.1 million indefinite lived tradenames, we tested $355.4 million quantitatively,
and the remainder was assessed using qualitative factors. There were no impairments for the year ended
December 31, 2021. See Note 5, “Goodwill and Identifiable Intangible Assets,” for additional information.
Events or circumstances that could have a potential negative effect on the estimated fair value of our
reporting units and indefinite-lived tradenames include: lower than forecasted revenues, actual new
construction and repair and remodel growth rates that fall below our assumptions, actions of key
customers, increases in discount rates, continued economic uncertainty, higher levels of unemployment,
weak consumer confidence, lower levels of discretionary consumer spending, a decrease in royalty rates
and decline in the trading price of our common stock. We cannot predict the occurrence of certain events
or changes in circumstances that might adversely affect the carrying value of goodwill and indefinite-lived
assets.
Investments in Equity Securities In accordance with ASC requirements for investments in equity
securities, we utilize the equity method to account for investments when we possess the ability to
exercise significant influence, but not control, over the operating and financial policies of the investee.
The ability to exercise significant influence is presumed when the investor possesses more than 20% of
the voting interests of the investee. This presumption may be overcome based on specific facts and
circumstances that demonstrate that the ability to exercise significant influence is restricted. In applying
the equity method, we record our investment at cost and subsequently increase or decrease the carrying
amount of the investment by our proportionate share of the net earnings or losses of the investee. We
record dividends or other equity distributions as reductions in the carrying value of our investment.
When we do not have the ability to exercise significant influence over the operating and financial policies
of the investee, we account for non-controlling investments in equity securities at fair value, with any
gains or losses recognized through other income and expense. Equity securities without readily
determinable fair values are recorded at cost minus impairment, plus or minus any changes resulting from
observable price changes in orderly transactions for identical or similar investments of the same issuer.
As of December 31, 2021, all of our investments in our strategic partners where we do not have
significant influence over the investee do not have readily determinable fair values. As of December 31,
2021 and 2020, the carrying value of our investments were $3.5 million and $3.5 million, respectively,
which is included in other assets within our Consolidated Balance Sheet. There were no impairments or
other changes resulting from observable prices changes recorded during the years ended December 31,
2021, 2020 or 2019.
Defined Benefit Plans We have a number of pension plans in the United States, covering many of the
Company’s employees. In addition, the Company provides postretirement health care and life insurance
benefits to certain retirees. Service cost for 2021 relates to benefit accruals for an hourly Union group
within the defined benefit plan for our Outdoors & Security segment. All other benefit accruals under our
defined benefit pension plans were frozen as of, or prior to, December 31, 2016.
We record amounts relating to these plans based on calculations in accordance with ASC requirements
for Compensation – Retirement Benefits, which include various actuarial assumptions, including discount
rates, assumed rates of return, compensation increases, turnover rates and health care cost trend rates.
49
We recognize changes in the fair value of pension plan assets and net actuarial gains or losses in excess
of 10 percent of the greater of the fair value of pension plan assets or each plan’s projected benefit
obligation (the “corridor”) in earnings immediately upon remeasurement, which is at least annually in the
fourth quarter of each year. We review our actuarial assumptions on an annual basis and make
modifications to the assumptions based on current economic conditions and trends. The discount rate
used to measure obligations is based on a spot-rate yield curve on a plan-by-plan basis that matches
projected future benefit payments with the appropriate interest rate applicable to the timing of the
projected future benefit payments. The expected rate of return on plan assets is determined based on the
nature of the plans’ investments, our current asset allocation and our expectations for long-term rates of
return. Compensation increases reflect expected future compensation trends. For postretirement benefits,
our health care trend rate assumption is based on historical cost increases and expectations for long-term
increases. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior
employee service (prior service cost), is deferred and included in expense on a straight-line basis over
the average remaining service period of the related employees. We believe that the assumptions utilized
in recording obligations under our plans, which are presented in Note 14, “Defined Benefit Plans,” are
reasonable based on our experience and on advice from our independent actuaries; however, differences
in actual experience or changes in the assumptions may materially affect our financial position and results
of operations. We will continue to monitor these assumptions as market conditions warrant.
Insurance Reserves We provide for expenses associated with workers’ compensation and product
liability obligations when such amounts are probable and can be reasonably estimated. The accruals are
adjusted as new information develops or circumstances change that would affect the estimated liability.
Litigation Contingencies Our businesses are subject to risks related to threatened or pending litigation
and are routinely defendants in lawsuits associated with the normal conduct of business. Liabilities and
costs associated with litigation-related loss contingencies require estimates and judgments based on our
knowledge of the facts and circumstances surrounding each matter and the advice of our legal counsel.
We record liabilities for litigation-related losses when a loss is probable and we can reasonably estimate
the amount of the loss in accordance with ASC requirements for Contingencies. We evaluate the
measurement of recorded liabilities each reporting period based on the then-current facts and
circumstances specific to each matter. The ultimate losses incurred upon final resolution of litigation-
related loss contingencies may differ materially from the estimated liability recorded at any particular
balance sheet date. Changes in estimates are recorded in earnings in the period in which such changes
occur.
Income Taxes In accordance with ASC requirements for Income Taxes, we establish deferred tax
liabilities or assets for temporary differences between financial and tax reporting basis and subsequently
adjust them to reflect changes in tax rates expected to be in effect when the temporary differences
reverse. We record a valuation allowance reducing deferred tax assets when it is more likely than not that
such assets will not be realized.
We record liabilities for uncertain income tax positions based on a two-step process. The first step is
recognition, where we evaluate whether an individual tax position has a likelihood of greater than 50% of
being sustained upon examination based on the technical merits of the position, including resolution of
any related appeals or litigation processes. For tax positions that are currently estimated to have a less
than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the
recognition threshold in the first step, we perform the second step of measuring the benefit to be
recorded. The actual benefits ultimately realized may differ from our estimates. In future periods, changes
in facts, circumstances, and new information may require us to change the recognition and measurement
estimates with regard to individual tax positions. Changes in recognition and measurement estimates are
recorded in the consolidated statement of income and consolidated balance sheet in the period in which
such changes occur. As of December 31, 2021, we had liabilities for unrecognized tax benefits pertaining
to uncertain tax positions totaling $83.1 million. It is reasonably possible that the unrecognized tax
benefits may decrease in the range of $4.1 million to $41.9 million in the next 12 months primarily as a
result of the conclusion of U.S. federal, state and foreign income tax proceedings.
50
Revenue Recognition The Company recognizes revenue for the sale of goods based on its assessment
of when control transfers to our customers. See Note 13, “Revenue,” for additional information.
Cost of Products Sold Cost of products sold includes all costs to make products saleable, such as labor
costs, inbound freight, purchasing and receiving costs, inspection costs and internal transfer costs. In
addition, all depreciation expense associated with assets used to manufacture products and make them
saleable is included in cost of products sold.
Customer Program Costs Customer programs and incentives are a common practice in our businesses.
Our businesses incur customer program costs to obtain favorable product placement, to promote sales of
products and to maintain competitive pricing. We record estimates to reduce revenue for customer
programs and incentives, which are considered variable consideration, and include price discounts,
volume-based incentives, promotions and cooperative advertising when revenue is recognized in order to
determine the amount of consideration the Company will ultimately be entitled to receive. These
estimates are based on historical and projected experience for each type of customer. In addition, for
certain customer program incentives, we receive an identifiable benefit (goods or services) in exchange
for the consideration given and record the associated expenditure in selling, general and administrative
expenses. Volume allowances are accrued based on management’s estimates of customer volume
achievement and other factors incorporated into customer agreements, such as new products, store sell-
through, merchandising support, levels of returns and customer training. Management periodically
reviews accruals for these rebates and allowances, and adjusts accruals when circumstances indicate
(typically as a result of a change in volume expectations). The costs typically recognized in selling,
general and administrative expenses include product displays, point of sale materials and media
production costs. The costs included in the selling, general and administrative expenses category were
$63.5 million, $64.7 million and $66.3 million for the years ended December 31, 2021, 2020 and 2019,
respectively.
Selling, General and Administrative Expenses Selling, general and administrative expenses include
advertising costs; marketing costs; selling costs, including commissions; research and development
costs; shipping and handling costs, including warehousing costs; and general and administrative
expenses. Shipping and handling costs included in selling, general and administrative expenses were
$334.1 million, $232.6 million and $225.5 million in 2021, 2020 and 2019, respectively.
Advertising costs, which amounted to $297.3 million, $259.4 million and $251.7 million in 2021, 2020 and
2019, respectively, are principally expensed as incurred. Advertising costs paid to customers as pricing
rebates include product displays, marketing administration costs, media production costs and point of
sale materials. Advertising costs recorded as a reduction to net sales, primarily cooperative advertising,
were $65.1 million, $66.7 million and $74.0 million in 2021, 2020 and 2019, respectively. Advertising
costs recorded in selling, general and administrative expenses were $232.2 million, $192.7 million and
$177.7 million in 2021, 2020 and 2019, respectively.
Research and development expenses include product development, product improvement, product
engineering and process improvement costs. Research and development expenses, which were $65.6
million, $49.9 million and $48.2 million in 2021, 2020 and 2019, respectively, are expensed as incurred
within selling, general and administrative expenses.
Stock-based Compensation Stock-based compensation expense, measured as the fair value of an
award on the date of grant, is recognized in the financial statements over the period that an employee is
required to provide services in exchange for the award. Compensation expense is recorded net of
forfeitures, which we have elected to record in the period they occur. The fair value of each option award
is measured on the date of grant using the Black-Scholes option-pricing model. The fair value of each
performance share award is based on the average of the high and low share prices on the date of grant
and the probability of meeting performance targets. The fair value of each restricted stock unit granted is
equal to the average of the high and low share prices on the date of grant. See Note 12, “Stock-Based
Compensation,” for additional information.
51
Earnings Per Share Earnings per common share is calculated by dividing net income attributable to
Fortune Brands by the weighted-average number of shares of common stock outstanding during the year.
Diluted earnings per common share include the impact of all potentially dilutive securities outstanding
during the year. See Note 19, “Earnings Per Share,” for further discussion.
Foreign Currency Translation Foreign currency balance sheet accounts are translated into U.S. dollars
at the actual rates of exchange at the balance sheet date. Income and expenses are translated at the
average rates of exchange in effect during the period for the foreign subsidiaries where the local currency
is the functional currency. The related translation adjustments are made directly to a separate component
of the “accumulated other comprehensive income” (“AOCI”) caption in equity. Transactions denominated
in a currency other than the functional currency of a subsidiary are translated into functional currency with
resulting transaction gains or losses recorded in other expense, net.
Derivative Financial Instruments In accordance with ASC requirements for Derivatives and Hedging,
we recognize all derivative contracts as either assets or liabilities on the balance sheet, and the
measurement of those instruments is at fair value. If the derivative is designated as a fair value hedge
and is effective, the changes in the fair value of the derivative and of the hedged item attributable to the
hedged risk are recognized in earnings in the same period. If the derivative is designated as a cash flow
hedge, the changes in the fair value of the derivative are recorded in other comprehensive income (“OCI”)
and are recognized in the consolidated statement of income when the hedged item affects earnings. If the
derivative is designated as an effective economic hedge of the net investment in a foreign operation, the
changes in the fair value of the derivative is reported in the cumulative translation adjustment section of
OCI. Similar to foreign currency translation adjustments, these changes in fair value are recognized in
earnings only when realized upon sale or upon complete or substantially complete liquidation of the
investment in the foreign entity.
Deferred currency gains (loss) of $0.3 million, $(3.0) million and $4.1 million (before tax impact) were
reclassified into earnings for the years ended December 31, 2021, 2020 and 2019, respectively. Based
on foreign exchange rates as of December 31, 2021, we estimate that $1.9 million of net derivative gain
included in AOCI as of December 31, 2021, will be reclassified to earnings within the next twelve months.
Recently Issued Accounting Standards
Simplifying the Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") 2019-12, which is intended to simplify accounting for income taxes and improve
consistency in application. ASU 2019-12 amends certain elements of income tax accounting, including
but not limited to intraperiod tax allocations, step-ups in tax basis of goodwill, and calculating taxes on
year-to-date losses in interim periods. The guidance was effective for the Company’s fiscal year
beginning January 1, 2021. The adoption of this guidance did not have a material effect on our financial
statements.
Effects of Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, which provides relief from accounting analysis and
impacts that may otherwise be required for modifications to agreements necessitated by reference rate
reform. It also provides optional expedients to enable the continuance of hedge accounting where certain
hedging relationships are impacted by reference rate reform. In January 2021, the FASB issued ASU
2021-01 which further clarifies the scope of ASU 2020-04. This optional guidance is effective
immediately, and available to be used through December 31, 2022. The adoption of this guidance did not
have a material effect on our financial statements.
52
Disclosures by Business Entities About Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832). The new
guidance, codified in ASC 832, requires business entities that account for transactions with a government
by applying a grant or contribution model by analogy to disclose information about government assistance
recorded during the period. ASU 2021-10 is effective for all entities for annual reporting periods beginning
after December 15, 2021. We are assessing the impact that this guidance may have on our financial
statements.
3. Balance Sheet Information
Supplemental information on our year-end consolidated balance sheets is as follows:
(In millions)
Inventories:
Raw materials and supplies
Work in process
Finished products
Total inventories
Property, plant and equipment:
Land and improvements
Buildings and improvements to leaseholds
Machinery and equipment
Construction in progress
Property, plant and equipment, gross
Less: accumulated depreciation
Property, plant and equipment, net of accumulated
depreciation
Other current liabilities:
Accrued salaries, wages and other compensation
Accrued customer programs
Accrued taxes
Dividends payable
Other accrued expenses
Total other current liabilities
2021
455.1
93.0
645.7
1,193.8
76.6
551.5
1,461.9
188.0
2,278.0
1,268.5
1,009.5
178.7
250.4
90.1
37.8
249.2
806.2
$
$
$
$
$
$
2020
346.6
76.7
443.9
867.2
75.9
552.4
1,411.5
110.3
2,150.1
1,232.7
917.4
167.3
196.2
70.8
36.1
254.2
724.6
$
$
$
$
$
$
4. Acquisitions and Dispositions
Flo Technologies
In 2018 our Plumbing segment entered into a strategic partnership with, and acquired non-controlling
equity interests in, Flo Technologies, Inc. (“Flo”), a U.S. manufacturer of comprehensive water monitoring
and shut-off systems with leak detection technologies. In January 2020, we entered into an agreement to
acquire 100% of the outstanding shares of Flo in a multi-phase transaction which was completed in
January 2022. As part of this agreement, we acquired additional shares for $44.2 million in cash,
including direct transactions costs, and entered into a forward contract to purchase all remaining shares
of Flo at a future date in exchange for an additional $7.9 million in cash, which is included in other assets
in our consolidated balance sheet. In April 2020, we acquired additional shares of Flo under a separate
option agreement which resulted in a non-cash gain of $4.4 million on the forward contract as included
within other income for the year-ended December 31, 2020.
As of December 31, 2020, we owned approximately 80% of Flo’s outstanding shares. Starting in the first
quarter of 2020, we applied the equity method of accounting to our investment in Flo as the minority
stockholders had substantive participating rights which precluded consolidation in our results of
operations and statements of financial position and cash flows. Immediately prior to applying the equity
method of accounting, we recognized a non-cash gain of $6.6 million within other income during the year-
53
ended December 31, 2020 related to the remeasurement of our previously existing investment in Flo. The
carrying value of our investment as of December 31, 2020 was $76.2 million.
The minority shareholders' substantive participating rights expired on January 1, 2021, at which time we
obtained control of and began consolidating Flo in our results of operations and statements of financial
positions and cash flows. Immediately prior to consolidating Flo, we recognized a non-cash loss of $4.5
million within other expense for the year-ended December 31, 2021, related to the remeasurement of our
previously existing investment in Flo. The fair value allocated to assets acquired and liabilities assumed
as of January 1, 2021 was $87.8 million, net of cash acquired of $9.7 million, which includes $65.3 million
of goodwill. Goodwill includes expected sales and cost synergies and is not expected to be deductible for
income tax purposes. During the fourth quarter of 2021, we recorded a mark-to-market expense of $2.2
million related to the remaining shares held by the minority shareholders. Flo's net sales and operating
income for the year-ended December 31, 2021 were not material to the Company.
Larson Manufacturing
In December 2020, we acquired 100% of the outstanding equity of Larson, the North American market
leading brand of storm, screen and security doors. Larson also sells related outdoor living products
including retractable screens and porch windows. The acquisition of Larson is aligned with our strategic
focus on the fast-growing outdoor living space. The Company completed the acquisition for a total
purchase price of approximately $717.5 million, net of cash acquired. We financed the transaction with
borrowings under our existing credit facilities. The financial results of Larson were included in the
Company’s December 31, 2021 and 2020 consolidated balance sheets and the Company's consolidated
statements of income and statements of cash flow beginning January 2021. Larson's net sales, operating
income and cash flows from the date of acquisition to December 31, 2020 were not material to the
Company. The results of operations are included in the Outdoors & Security segment. We incurred $4.5
million of Larson acquisition-related transaction costs in the year ended December 31, 2020. The goodwill
deductible for income tax purposes is approximately $290 million.
The following table summarizes the final allocation of the purchase price to the fair value of assets
acquired and liabilities assumed as of the date of the acquisition.
(In millions)
Accounts receivable
Inventories
Property, plant and equipment
Goodwill
Identifiable intangible assets
Operating lease assets
Other assets
$
Total assets
Accounts payable
Other current liabilities and accruals
Other non-current liabilities
Net assets acquired(a)
(a) Net assets exclude $0.4 million of cash transferred to the Company as the result of the Larson acquisition.
$
42.3
49.8
66.6
307.0
313.0
6.2
3.7
788.6
6.6
32.1
32.4
717.5
Goodwill includes expected sales and cost synergies. The goodwill will be included in our Outdoors &
Security segment. Identifiable intangible assets consist of a finite-lived customer relationships asset of
$168.0 million, an indefinite-lived tradename of $111.0 million and a finite-lived proprietary technology
asset of $34.0 million. The useful life of the customer relationship intangible asset is estimated to be 13
years. The Larson tradename has been assigned an indefinite life as we currently anticipate that this
tradename will contribute cash flows to the Company indefinitely. The useful life of the proprietary
technology intangible asset is estimated to be 7 years. Customer and contractual relationships and
proprietary technology are amortized on a straight-line basis over their useful lives.
54
The following unaudited pro forma summary presents consolidated financial information as if Larson had
been acquired on January 1, 2019. The unaudited pro forma financial information is based on historical
results of operations and financial position of the Company and Larson. The pro forma results include:
•
•
•
•
•
•
estimated amortization of finite-lived intangible asset, including customer relationships and
proprietary technology,
the estimated cost of the inventory adjustment to fair value,
interest expense associated with debt that would have been incurred in connection with the
acquisition,
the reclassification of Larson transaction costs from 2020 to the first quarter of 2019, and
the removal of certain transactions recorded in the historical financial statements of Larson
related to assets and activities which were retained by the seller, and
adjustments to conform accounting policies.
The unaudited pro forma financial information does not necessarily represent the results that would have
occurred had the acquisition occurred on January 1, 2019. In addition, the unaudited pro forma
information should not be deemed to be indicative of future results.
(In millions)
Net sales
Net income
2020
6,493.2 $
592.5 $
$
$
2019
6,100.4
410.8
5. Goodwill and Identifiable Intangible Assets
We had goodwill of $2,465.1 million and $2,394.8 million as of December 31, 2021 and 2020,
respectively. The change in the net carrying amount of goodwill by segment was as follows:
(In millions)
Balance at December 31, 2019(a)
2020 translation adjustments
Acquisition-related adjustments
Balance at December 31, 2020(a)
2021 translation adjustments
Acquisition-related adjustments
Balance at December 31, 2021(a)
Plumbing
747.3
2.8
—
750.1
(1.3)
65.3
814.1
$
$
$
Outdoors &
Security
417.4
0.3
300.9
718.6
0.1
6.1
724.8
$
$
$
Cabinets
925.5
0.6
—
926.1
0.1
—
926.2
$
$
$
Total
Goodwill
$ 2,090.2
3.7
300.9
$ 2,394.8
(1.1)
71.4
$ 2,465.1
(a) Net of accumulated impairment losses of $399.5 million in the Outdoors & Security segment.
55
The gross carrying value and accumulated amortization by class of intangible assets as of December 31,
2021 and 2020 were as follows:
(In millions)
Indefinite-lived
tradenames
Amortizable intangible
assets
Tradenames
Customer and contract
ual relationships
Patents/proprietary
technology
Total
Total identifiable
intangibles
As of December 31, 2021
As of December 31, 2020
Gross
Carrying
Amounts
Accumulated
Amortization
Net Book
Value
Gross
Carrying
Amounts
Accumulated
Amortization
Net Book
Value
$
711.1 $
— $
711.1
$
711.0 $
— $
711.0
36.4
(15.5)
20.9
34.8
(14.0)
20.8
975.7
(388.2)
587.5
973.2
(337.3)
635.9
133.1
1,145.2
(68.8)
(472.5)
64.3
672.7
109.6
1,117.6
(57.0)
(408.3)
52.6
709.3
$ 1,856.3 $
(472.5) $ 1,383.8
$ 1,828.6 $
(408.3) $ 1,420.3
We had identifiable intangible assets, principally tradenames and customer relationships, of $1,383.8
million and $1,420.3 million as of December 31, 2021 and 2020, respectively. The $27.7 million increase
in gross identifiable intangible assets was primarily due to the consolidation of Flo.
Amortizable intangible assets, principally customer relationships, are subject to amortization on a straight-
line basis over their estimated useful life, ranging from 5 to 30 years, based on the assessment of a
number of factors that may impact useful life which include customer attrition rates and other relevant
factors. We expect to record intangible amortization of approximately $62 million in 2022, $60 million in
2023, $60 million in 2024, $60 million in 2025, and $59 million in 2026.
During the second quarter of 2020, extended closures of luxury plumbing showrooms associated with
COVID-19 led to lower than expected sales related to an indefinite-lived tradename within the Plumbing
segment, which combined with the updated financial outlook compared to previous forecasts and the
continued uncertainty of the pandemic on the sales and profitability related to the tradename led us to
conclude that it was more likely than not that the indefinite-lived tradename was impaired. Therefore, we
performed an interim impairment test as of June 30, 2020, and as a result we recognized a pre-tax
impairment charge of $13.0 million related to this tradename. We also performed an evaluation of the
useful life of this tradename and determined it was no longer indefinite-lived due to changes in long-term
management expectations and future operating plans. As a result, the remaining carrying value of this
tradename is being amortized over its estimated useful life of 30 years.
In the first quarter of 2020, we recognized an impairment charge of $9.5 million related to an indefinite-
lived tradename in our Cabinets segment. This charge was primarily the result of lower expected sales of
custom cabinetry products related to the impact of COVID-19. In the fourth quarter of 2019, we
recognized an impairment charge of $12.0 million related to the same indefinite-lived tradename, which
was the result of a strategic shift associated with new segment leadership and acceleration of our
capacity rebalancing initiatives from custom cabinetry products to value-based cabinetry products as a
result of lower than expected sales of custom cabinetry products compared to prior forecasts. As of
December 31, 2021, the carrying value of this tradename was $29.1 million.
In the third quarter of 2019, we recognized an impairment charge of $29.5 million related to a second
indefinite-lived tradename in our Cabinets segment, which was primarily the result of a continuing shift in
consumer demand from semi-custom cabinetry products to value-priced cabinetry products, which led to
consecutive downward adjustments of internal sales forecasts and future growth rates associated with the
tradename. As of December 31, 2021, the carrying value of this tradename was $85.0 million.
56
The fair values of the impaired tradenames were measured using the relief-from-royalty approach, which
estimates the present value of royalty income that could be hypothetically earned by licensing the
tradename to a third party over its remaining useful life. Some of the more significant assumptions
inherent in estimating the fair values include forecasted revenue growth rates, assumed royalty rates, and
market-participant discount rates that reflect the level of risk associated with the tradenames’ future
revenues and profitability. We selected the assumptions used in the financial forecasts using historical
data, supplemented by current and anticipated market conditions, estimated growth rates, and
management plans. These assumptions represent level 3 inputs of the fair value hierarchy (refer to Note
9).
A reduction in the estimated fair value of any of our tradenames could trigger impairment charges in
future periods. Events or circumstances that could have a potential negative effect on the estimated fair
value of our reporting units and indefinite-lived tradenames include: lower than forecasted revenues,
more severe impacts of the COVID-19 pandemic than currently expected, actual new construction and
repair and remodel growth rates that fall below our assumptions, actions of key customers, increases in
discount rates, continued economic uncertainty, higher levels of unemployment, weak consumer
confidence, lower levels of discretionary consumer spending, a decrease in royalty rates and a decline in
the trading price of our common stock. We cannot predict the occurrence of certain events or changes in
circumstances that might adversely affect the carrying value of goodwill and indefinite-lived assets.
There were no impairments for the year ended December 31, 2021. The significant assumptions used to
estimate the fair values of the tradenames impaired during the years ended December 31, 2020 and 2019
were as follows:
Unobservable Input
Minimum
Maximum
Weighted
Average(a)
Minimum
Maximum
Discount rates
Royalty rates(b)
Long-term revenue growth rates(c)
14.8%
4.0%
1.0%
15.8%
5.0%
3.0%
15.1%
4.3%
1.6%
13.0%
3.0%
3.0%
13.5%
4.0%
3.0%
Weighted
Average(a)
13.3%
3.3%
3.0%
2020
2019
(a) Weighted by relative fair value of the impaired tradenames.
(b) Represents estimated percentage of sales a market-participant would pay to license the impaired tradenames.
(c) Selected long-term revenue growth rate within 10-year projection period of the impaired tradenames.
6. Leases
We have operating and finance leases for buildings and certain machinery and equipment. Operating
leases are included in operating lease assets, other current liabilities, and operating lease liabilities in our
consolidated balance sheets. Amounts recognized for finance leases as of and for the years ended
December 31, 2021 and 2020 were immaterial.
Operating lease expense recognized in the consolidated statement of comprehensive income for the
years ended December 31, 2021, 2020 and 2019 and were $60.3 million, $53.9 million and $51.0 million,
respectively, including approximately $11.2 million, $9.3 million and $8.2 million of short-term and variable
lease costs for the years ended December 31, 2021, 2020 and 2019, respectively.
57
Other information related to leases was as follows:
(In millions, except lease term and discount rate)
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for operating
lease obligations
Weighted average remaining lease term - operating
leases
Weighted average discount rate - operating leases
December 31,
2021
December 31,
2020
December 31,
2019
$
$
48.0
69.7
$
$
43.5
40.5
$
$
41.3
24.5
6.1 years
6.4 years
7.1 years
3.3%
3.8%
4.2%
Total lease payments under non-cancellable operating leases as of December 31, 2021 were as follows:
(In millions)
Year Ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less imputed interest
Total
Reported as of December 31, 2021
Other current liabilities
Operating lease liabilities
Total
$
48.2
43.3
34.0
24.6
20.4
55.2
225.7
(24.2)
$ 201.5
$
42.7
158.8
$ 201.5
7. External Debt and Financing Arrangements
Unsecured Senior Notes
At December 31, 2021, the Company had aggregate outstanding notes in the principal amount of $1.8
billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company.
The following table provides a summary of the Company’s outstanding Notes, including the carrying value
of the Notes, net of underwriting commissions, price discounts, and debt issuance costs as of
December 31, 2021 and December 31, 2020:
(in millions)
Net Carrying Value
Coupon Rate
4.000% Senior Notes
4.000% Senior Notes
3.250% Senior Notes
Total Senior Notes
Principal
Amount
Issuance Date
Maturity Date
$
June 2015
500.0
600.0 September 2018 September 2023
700.0 September 2019 September 2029
June 2025
$ 1,800.0
December 31,
2021
December 31,
2020
$
$
497.4 $
598.2
694.2
1,789.8 $
496.6
597.1
693.5
1,787.2
During June 2020, we repaid all outstanding 3.000% Senior Notes issued in June 2015 at their maturity
date using borrowings under our 2019 Revolving Credit Agreement (as defined below). In September
2019, we issued $700 million of 3.25% Senior Notes due 2029 (“2019 Notes”) in a registered public
58
offering. The Company used the proceeds from the 2019 Notes offering to repay in full the Company’s
$350 million term loan and to pay down outstanding balances under our revolving credit facility.
In September 2018, we issued $600 million of unsecured senior notes (“2018 Notes”) in a registered
public offering. The 2018 Notes are due in 2023 with a coupon rate of 4%. We used the proceeds from
the 2018 Notes offering to pay down our revolving credit facility.
Credit Facilities
In November 2021, the Company entered into a 364-day, $400 million term loan credit agreement (“2021
Term Loan”) for general corporate purposes that matures in November 2022. Interest rates under the
2021 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 2021 Term
Loan are the same as the existing $1.25 billion revolving credit agreement. As of December 31, 2021, we
were in compliance with all covenants under this facility.
In September 2019, the Company entered into a second amended and restated $1.25 billion revolving
credit facility (the “2019 Revolving Credit Agreement”), and borrowings thereunder will be used for
general corporate purposes. The maturity date of the facility is September 2024. Interest rates under the
2019 Revolving Credit Agreement are variable based on LIBOR at the time of the borrowing and the
Company’s long-term credit rating and can range from LIBOR + 0.91% to LIBOR + 1.4%. Under the 2019
Revolving Credit Agreement, the Company is required to maintain a minimum ratio of consolidated
EBITDA to consolidated interest expense of 3.0 to 1.0. Consolidated EBITDA is defined as consolidated
net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses
from asset impairments, and certain other one-time adjustments. In addition, the Company’s ratio of
consolidated debt minus certain cash and cash equivalents to consolidated EBITDA generally may not
exceed 3.5 to 1.0. On December 31, 2021 and December 31, 2020, our outstanding borrowings under
these credit facilities were $520.0 million and $785.0 million, respectively, which is included in Long-term
debt in the consolidated balance sheets. As of December 31, 2021, we were in compliance with all
covenants under this facility.
We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for
working capital of up to $17.5 million in aggregate as of December 31, 2021 and December 31, 2020, of
which there were no outstanding balances as of December 31, 2021 and 2020. The weighted-average
interest rates on these borrowings were zero in both 2021 and 2020.
Commercial Paper
In November 2021, the Company established a commercial paper program (the "Commercial Paper
Program") pursuant to which the Company may issue short-term, unsecured commercial paper notes.
Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed, with
the aggregate principal amount outstanding at any time not to exceed $1.25 billion. The Company’s 2019
Revolving Credit Agreement is the liquidity backstop for the repayment of any notes issued under the
Commercial Paper Program. The Company plans to use net proceeds from any issuances under the
Commercial Paper Program for general corporate purposes. There was no commercial paper outstanding
as of December 31, 2021.
As of December 31, 2021, the components of long-term debt were as follows:
(In millions)
Notes (due 2023 to 2029)
2019 Revolving Credit Agreement
2021 Term Loan
Total debt
Less: current portion
Total long-term debt
$
$
2021
1,789.8 $
520.0
400.0
2,709.8
400.0
2,309.8 $
2020
1,787.2
785.0
—
2,572.2
—
2,572.2
59
In our debt agreements, there are normal and customary events of default which would permit the lenders
to accelerate the debt if not cured within applicable grace periods, such as failure to pay principal or
interest when due or a change in control of the Company. There were no events of default as of
December 31, 2021.
Debt payments due during the next five years as of December 31, 2021 are $400 million in 2022, $600
million in 2023, $520 million in 2024, $500 million in 2025, zero in 2026 and $700 million in 2027 and
beyond. Interest payments due during the next five years as of December 31, 2021 are $78 million in
2022, $124 million in 2023 through 2024, $56 million in 2025 through 2026 and $68 million in 2027 and
beyond.
8. Financial Instruments
We do not enter into financial instruments for trading or speculative purposes. We principally use financial
instruments to reduce the impact of changes in foreign currency exchange rates and commodities used
as raw materials in our products. The principal derivative financial instruments we enter into on a routine
basis are foreign exchange contracts. Derivative financial instruments are recorded at fair value. The
counterparties to derivative contracts are major financial institutions. We are subject to credit risk on these
contracts equal to the fair value of these instruments. Management currently believes that the risk of
incurring material losses is unlikely and that the losses, if any, would be immaterial to the Company.
Raw materials used by the Company are subject to price volatility caused by weather, supply conditions,
geopolitical and economic variables, and other unpredictable external factors. As a result, from time to
time, we enter into commodity swaps to manage the price risk associated with forecasted purchases of
materials used in our operations. We account for these commodity derivatives as economic hedges or
cash flow hedges. Changes in the fair value of economic hedges are recorded directly into current period
earnings. The gross notional amount of all commodity derivatives outstanding at December 31, 2021 was
$5.0 million, representing a net settlement asset of zero. The gross notional amount of all commodity
derivatives outstanding at December 31, 2020 was $9.8 million, representing a net settlement asset of
$1.9 million.
We may enter into foreign currency forward contracts to protect against foreign exchange risks associated
with certain existing assets and liabilities, forecasted future cash flows, and net investments in foreign
subsidiaries. Foreign exchange contracts related to forecasted future cash flows correspond to the
periods of the forecasted transactions, which generally do not exceed 12 to 15 months subsequent to the
latest balance sheet date.
We may enter into interest rate swap contracts to protect against interest rate risks associated with
certain of our debt obligations. Interest rate swap contracts related to forecasted future interest payments
correspond to the periods of the forecasted transactions. We account for these derivatives as cash flow
hedges. These contracts were immaterial to the financial statements at December 31, 2021.
For derivative instruments that are designated as fair value hedges, the gain or loss on the derivative
instrument, as well as the offsetting loss or gain on the hedged item, are recognized on the same line of
the consolidated statements of income. The changes in the fair value of cash flow hedges are reported in
OCI and are recognized in the consolidated statements of income when the hedged item affects earnings.
The changes in fair value for net investment hedges are recognized in the consolidated statements of
income when realized upon sale or upon complete or substantially complete liquidation of the investment
in the foreign entity. In addition, changes in the fair value of all economic hedge transactions are
immediately recognized in current period earnings. Our primary foreign currency hedge contracts pertain
to the Canadian dollar, the British pound, the Mexican peso and the Chinese yuan. The gross U.S. dollar
equivalent notional amount of all foreign currency derivative hedges outstanding at December 31, 2021
was $559.0 million, representing a net settlement asset of $2.7 million. Based on foreign exchange rates
as of December 31, 2021, we estimate that $1.9 million of net derivative gains included in accumulated
other comprehensive income as of December 31, 2021 will be reclassified to earnings within the next
twelve months.
The fair values of foreign exchange and commodity derivative instruments on the consolidated balance
sheets as of December 31, 2021 and 2020 were:
(In millions)
Assets:
Foreign exchange contracts
Commodity contracts
Liabilities:
Foreign exchange contracts
Commodity contracts
Location
Other current assets
Other current assets
Total assets
Other current liabilities
Other current liabilities
Total liabilities
$
$
$
$
Fair Value
2021
4.1
—
4.1
1.4
0.1
1.5
$
$
$
$
2020
3.7
1.9
5.6
6.5
—
6.5
61
The effects of derivative financial instruments on the consolidated statements of income in 2021, 2020
and 2019 were:
(In millions)
Total amounts per Consolidated Statements of Income
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items
Derivative designated as hedging instruments
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
Commodity contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
Interest rate contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
(In millions)
Total amounts per Consolidated Statements of Income
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items
Derivative designated as hedging instruments
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
Commodity contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
Interest rate contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
62
Classification and Amount of Gain (Loss)
Recognized in Income on Fair Value and
Cash Flow Hedging Relationships
Cost of
products sold
$
4,909.1 $
2021
Interest
expense
Other expense,
net
84.4 $
0.9
—
—
0.3
1.3
—
—
—
—
—
0.6
(4.7)
1.6
—
—
—
Classification and Amount of Gain (Loss)
Recognized in Income on Fair Value and
Cash Flow Hedging Relationships
Cost of
products sold
$
3,925.9 $
2020
Interest
expense
Other income,
net
83.9 $
13.3
—
—
(3.0)
—
—
—
—
—
—
0.6
2.9
(1.8)
—
—
—
(In millions)
Total amounts per Consolidated Statements of Income
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items
Derivative designated as hedging instruments
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
Commodity contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
Interest rate contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
Classification and Amount of Gain (Loss)
Recognized in Income on Fair Value and
Cash Flow Hedging Relationships
Cost of
products sold
$
3,712.2 $
2019
Interest
expense
Other expense,
net
94.2 $
29.0
—
—
4.1
(0.1)
—
—
—
—
—
0.4
4.0
(3.0)
—
—
—
The cash flow hedges recognized in other comprehensive income were net gains (losses) of $1.5 million,
$(3.2) million and $4.8 million in 2021, 2020 and 2019 respectively.
9. Fair Value Measurements
ASC requirements for Fair Value Measurements and Disclosures establish a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs,
the highest priority, are quoted prices in active markets for identical assets or liabilities. Level 2 inputs
reflect other than quoted prices included in level 1 that are either observable directly or through
corroboration with observable market data. Level 3 inputs are unobservable inputs due to little or no
market activity for the asset or liability, such as internally-developed valuation models. We do not have
any assets or liabilities measured at fair value on a recurring basis that are level 3, except for pension
assets discussed in Note 14.
The carrying value and fair value of debt as of December 31, 2021 and 2020 were as follows:
(In millions)
Notes, net of underwriting commissions, price
discounts and debt issuance costs
2019 Revolving Credit Agreement
2021 Term Loan
December 31, 2021
Fair
Value
Carrying
Value
December 31, 2020
Fair
Value
Carrying
Value
$ 1,789.8 $ 1,902.9 $ 1,787.2 $ 1,994.9
785.0
—
785.0
—
520.0
400.0
520.0
400.0
The estimated fair value of our term loan and revolving credit facility is determined primarily using broker
quotes, which are level 2 inputs. The estimated fair value of our Notes is determined by using quoted
market prices of our debt securities, which are level 1 inputs.
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020 were
as follows:
(In millions)
Assets:
Derivative asset financial instruments (level 2)
Deferred compensation program assets (level 2)
Total assets
Liabilities:
Derivative liability financial instruments (level 2)
Fair Value
2021
4.1
19.8
23.9
1.5
$
$
$
2020
5.6
16.3
21.9
6.5
$
$
$
The principal derivative financial instruments we enter into on a routine basis are foreign exchange
contracts. In addition, from time to time, we enter into commodity swaps. Derivative financial instruments
are recorded at fair value.
10. Common Stock
The Company has 750 million authorized shares of common stock, par value $0.01 per share and 60
million authorized shares of preferred stock, par value $0.01 per share. The number of shares of common
stock and treasury stock and the share activity for 2021 and 2020 were as follows:
Balance at the beginning of the year
Stock plan shares issued
Shares surrendered by optionees
Common stock repurchases
Balance at the end of the year
Common Shares
Treasury Shares
2021
138,660,154
1,250,550
(144,280)
(4,702,128)
135,064,296
2020
139,555,487
2,175,510
(159,089)
(2,911,754)
138,660,154
2021
45,406,158
—
144,280
4,702,128
50,252,566
2020
42,335,315
—
159,089
2,911,754
45,406,158
At December 31, 2021, no shares of our preferred stock were outstanding. Our Board of Directors has the
authority, without action by the Company’s stockholders, to designate and issue our preferred stock in
one or more series and to designate the rights, preferences, limitations and privileges of each series of
preferred stock, which may be greater than the rights of the Company’s common stock.
In 2021, we repurchased 4.7 million shares of outstanding common stock under the Company’s share
repurchase program for $447.7 million. As of December 31, 2021, the Company’s total remaining share
repurchase authorization under the remaining program was approximately $414.7 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.
64
11. Accumulated Other Comprehensive Income (Loss)
The reclassifications out of accumulated other comprehensive income (loss) for the years ended
December 31, 2021 and 2020 were as follows:
(In millions)
Details about Accumulated Other
Comprehensive Loss Components
Gains (losses) on cash flow hedges
Foreign exchange contracts
Interest rate contracts
Commodity contracts
Defined benefit plan items
Recognition of actuarial losses
Total reclassifications for the period
$
$
$
$
$
Affected Line Item in the
Consolidated Statements of Income
2020
$
$
(3.0) Cost of products sold
0.6 Interest expense
— Cost of products sold
(2.4) Total before tax
— Tax expense
(2.4) Net of tax
2021
0.3
0.6
1.3
2.2
0.2
2.4
(0.8) $
0.2
(0.6) $
$
1.8
(3.2) (a)
0.4 Tax benefit
(2.8) Net of tax
(5.2) Net of tax
(a) These accumulated other comprehensive (loss) income components are included in the computation of net periodic benefit
cost. Refer to Note 14, “Defined Benefit Plans,” for additional information.
Total accumulated other comprehensive income (loss) consists of net income and other changes in
business equity from transactions and other events from sources other than stockholders. It includes
currency translation gains and losses, unrealized gains and losses from derivative instruments
designated as cash flow hedges, and defined benefit plan adjustments. The after-tax components of and
changes in accumulated other comprehensive (loss) income were as follows:
Foreign
Currency
Adjustments
Derivative
Hedging
Gain (Loss)
Defined Benefit
Plan
Adjustments
$
(25.3) $
4.2 $
(45.9) $
Accumulated
Other
Comprehensive
(Loss) Income
(67.0)
(In millions)
Balance at December 31, 2018
Amounts classified into accumulated other
comprehensive (loss) income
Amounts reclassified into earnings
Adoption of ASU 2018-02
Net current period other comprehensive (loss)
income
Balance at December 31, 2019
Amounts classified into accumulated other
comprehensive (loss) income
Amounts reclassified into earnings
Net current period other comprehensive (loss)
income
Balance at December 31, 2020
Amounts classified into accumulated other
comprehensive (loss) income
Amounts reclassified into earnings
13.8
—
5.1
(3.8)
(37.9)
25.8
(8.6)
13.8
(11.5) $
$
1.3
5.5 $
(20.7)
(66.6) $
18.7
—
18.7
$
7.2 $
(3.9)
—
(3.7)
2.4
(1.3)
4.2 $
1.1
(2.4)
(2.7)
2.8
0.1
(66.5) $
35.1
0.6
Net current period other comprehensive (loss)
income
Balance at December 31, 2021
$
(3.9)
3.3 $
(1.3)
2.9 $
35.7
(30.8) $
65
(19.0)
22.0
(8.6)
(5.6)
(72.6)
12.3
5.2
17.5
(55.1)
32.3
(1.8)
30.5
(24.6)
12. Stock-Based Compensation
As of December 31, 2021, we had awards outstanding under two Long-Term Incentive Plans, the Fortune
Brands Home & Security, Inc. 2013 Long-Term Incentive Plan (the “Plan”) and the 2011 Long-Term
Incentive Plan (the “2011 Plan”, and together with the Plan - the “Plans”). No new stock-based awards
can be made under the 2011 Plan, but there are outstanding stock options under the 2011 Plan that
continue to be exercisable. Our stockholders approved the Plan in 2013, which provides for the granting
of stock options, performance share awards, restricted stock units, and other equity-based awards, to
employees, directors and consultants. As of December 31, 2021, approximately 2.2 million shares of
common stock remained authorized for issuance under the Plan. In addition, shares of common stock
that were granted and subsequently expired, terminated, cancelled or forfeited, or were used to satisfy
the required withholding taxes with respect to existing awards under the Plans may be recycled back into
the total numbers of shares available for issuance under the Plan. Upon the exercise or payment of stock-
based awards, shares of common stock are issued from authorized common shares.
Stock-based compensation expense was as follows:
(In millions)
Restricted stock units
Stock option awards
Performance awards
Director awards
Total pre-tax expense
Tax benefit
Total after tax expense
2021
24.0 $
6.1
23.0
1.3
54.4
9.9
44.5 $
2020
21.5 $
5.3
22.6
0.9
50.3
8.7
41.6 $
2019
19.4
7.0
4.2
1.2
31.8
6.0
25.8
$
$
Included in compensation costs are cash-settled restricted stock units of $3.3 million, $2.3 million and
$1.4 million that are classified as a liability as of December 31, 2021, 2020 and 2019, respectively.
Compensation costs that were capitalized in inventory were not material.
Restricted Stock Units
Restricted stock units (“RSUs”) have been granted to officers and certain employees of the Company and
represent the right to receive shares of Company common stock subject to continued employment
through each vesting date. RSUs generally vest ratably over a three-year period. In addition, certain
employees can elect to defer receipt of a portion of their RSU awards upon vesting. Compensation cost is
recognized over the service period. We calculate the fair value of each RSU granted by using the average
of the high and low share prices on the date of grant.
A summary of activity with respect to RSUs outstanding under the Plans for the year ended
December 31, 2021 was as follows:
Non-vested at December 31, 2020
Granted
Vested
Forfeited
Non-vested at December 31, 2021
Number of
Restricted
Stock Units
708,338 $
263,536 $
(359,290) $
(39,982) $
572,602 $
Weighted-
Average
Grant-Date
Fair Value
61.48
90.02
59.98
74.20
74.92
The remaining unrecognized pre-tax compensation cost related to RSUs at December 31, 2021 was
approximately $21.4 million, and the weighted-average period of time over which this cost will be
recognized is 1.8 years. The fair value of RSUs that vested during 2021, 2020 and 2019 was $22.2
million, $24.0 million and $15.2 million, respectively.
66
Stock Option Awards
Stock options were granted to officers and certain employees of the Company and represent the right to
purchase shares of Company common stock subject to continued employment through each vesting date.
Stock options granted under the Plans generally vest over a three-year period and generally have a
maturity of ten years from the grant date.
All stock-based compensation to employees is required to be measured at fair value and expensed over
the requisite service period. We recognize compensation expense on awards on a straight-line basis over
the requisite service period for the entire award.
The fair value of Fortune Brands options was estimated at the date of grant using a Black-Scholes option
pricing model with the assumptions shown in the following table:
Current expected dividend yield
Expected volatility
Risk-free interest rate
Expected term
2021
1.2%
35.1%
0.6%
5.2
years
2020
1.4%
25.9%
1.2%
5.3
years
2019
1.5%
27.0%
2.5%
5.0
years
Beginning in 2020, the determination of expected volatility is based on the volatility of Fortune Brands
common stock. The determination of expected volatility in prior years is based on a blended peer group
volatility for companies in similar industries, at a similar stage of life and with similar market capitalization.
The risk-free interest rate is based on U.S. government issues with a remaining term equal to the
expected life of the stock options. The expected term is the period over which our employees are
expected to hold their options. The expected term was determined based on the historical employee
exercise behavior and the contractual term of the options. The dividend yield is based on the Company’s
estimated dividend over the expected term. The weighted-average grant date fair value of stock options
granted under the Plans during the years ended December 31, 2021, 2020 and 2019 was $24.55, $15.21
and $11.36, respectively.
A summary of Fortune Brands stock option activity related to Fortune Brands and former employees of
Fortune Brands, Inc., the Company from which we spun off from in 2011, for the year ended
December 31, 2021 was as follows:
Outstanding at December 31, 2020
Granted
Exercised
Expired/forfeited
Outstanding at December 31, 2021
Weighted-
Average
Exercise
Price
55.54
86.94
49.27
72.54
62.56
Options
2,539,029 $
277,038 $
(848,895) $
(20,378) $
1,946,794 $
Options outstanding and exercisable at December 31, 2021 were as follows:
Range Of
Options
Outstanding
Exercise Prices
$13.00 to $20.00
4,556
$20.01 to $87.54 1,942,238
1,946,794
Options Outstanding (a)
Options Exercisable (b)
Weighted-
Average
Remaining
Contractual
Life
0.15 $
6.69 $
6.68 $
Weighted-
Average
Exercise
Price
19.46
62.67
62.56
Options
Exercisable
4,556 $
1,217,180 $
1,221,736 $
Weighted-
Average
Exercise
Price
19.46
56.22
56.07
(a) At December 31, 2021, the aggregate intrinsic value of options outstanding was $86.3 million.
(b) At December 31, 2021 the weighted-average remaining contractual life of options exercisable was 5.6 years and the
aggregate intrinsic value of options exercisable was $62.1 million.
67
The remaining unrecognized compensation cost related to unvested awards at December 31, 2021 was
$6.4 million, and the weighted-average period of time over which this cost will be recognized is 1.7 years.
The fair value of options that vested during the years ended December 31, 2021, 2020 and 2019 was
$5.5 million, $9.4 million and $7.1 million, respectively. The intrinsic value of Fortune Brands stock
options exercised in the years ended December 31, 2021, 2020 and 2019 was $42.7 million, $64.0 million
and $26.0 million, respectively.
Performance Share Awards
Performance share awards were granted to officers and certain employees of the Company and
represent the right to earn shares of Company common stock based on the achievement of company-
wide non-GAAP performance conditions, including average return on net tangible assets and cumulative
EBITDA during the three-year performance period. Compensation cost is amortized into expense over the
performance period, which is generally three years, and is based on the probability of meeting
performance targets. The fair value of each performance share award is based on the average of the high
and low stock price on the date of grant.
The following table summarizes information about performance share awards as of December 31, 2021,
as well as activity during the year then ended. The number of performance share awards granted are
shown below at the target award amounts:
Non-vested at December 31, 2020
Granted
Vested
Forfeited
Non-vested at December 31, 2021
Number of
Performance
Share
Awards
576,459 $
194,644 $
(30,295) $
(102,072) $
638,736 $
Weighted-
Average
Grant-Date
Fair Value
57.54
90.57
63.42
65.06
66.12
The remaining unrecognized pre-tax compensation cost related to performance share awards at
December 31, 2021 was approximately $20.3 million, and the weighted-average period of time over which
this cost will be recognized is 1.6 years. The fair value of performance share awards that vested during
2021 was $1.9 million (30,295 shares).
Director Awards
Stock awards are used as part of the compensation provided to outside directors under the Plan. Awards
are issued annually in the second quarter. In addition, outside directors can elect to have director cash
compensation paid in stock or can elect to defer payment of stock. Compensation cost is expensed at the
time of an award based on the fair value of a share at the date of the award. In 2021, 2020 and 2019, we
awarded 12,114, 20,181 and 21,746 shares of Company common stock to outside directors with a
weighted-average fair value on the date of the award of $107.73, $46.82 and $54.48, respectively.
13. Revenue
Our principal performance obligations are the sale of faucets and accessories, fiberglass and steel entry-
door systems and locks, safes, safety, security devices and decking, and kitchen and bath cabinets
(collectively, “goods” or “products”). We recognize revenue for the sale of goods based on our
assessment of when control transfers to our customers. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring goods to our customers. Payment terms
on our product sales normally range from 30 to 90 days. Taxes assessed by a governmental authority
that we collect are excluded from revenue. The expected costs associated with our contractual warranties
will continue to be recognized as expense when the products are sold. See Note 17, “Product
Warranties,” for further discussion.
68
We record estimates to reduce revenue for customer programs and incentives, which are considered
variable consideration, and include price discounts, volume-based incentives, promotions and
cooperative advertising when revenue is recognized in order to determine the amount of consideration
the Company will ultimately be entitled to receive. These estimates are based on historical and projected
experience for each type of customer. In addition, for certain customer program incentives, we receive an
identifiable benefit (goods or services) in exchange for the consideration given and record the associated
expenditure in selling, general and administrative expenses.
We account for shipping and handling costs that occur after the customer has obtained control of a
product as a fulfillment activity (i.e., as an expense) rather than as a promised service (i.e., as a revenue
element). These costs are classified within selling, general and administrative expenses.
Settlement of our outstanding accounts receivable balances is normally within 30 to 90 days of the
original sale transaction date. Obligations arise for us from customer rights to return our goods for any
reason, including among others, product obsolescence, stock rotations, trade-in agreements for newer
products and upon termination of a customer contract. We estimate future product returns at the time of
sale based on historical experience and record a corresponding refund obligation, which amounted to
$25.3 million and $30.5 million as of December 31, 2021 and 2020, respectively. Refund obligations are
classified within other current liabilities in our consolidated balance sheet. Return assets related to the
refund obligation are measured at the carrying amount of the goods at the time of sale, less any expected
costs to recover the goods and any expected reduction in value. Return assets are classified within other
current assets and were approximately $2.2 million and $2.9 million as of December 31, 2021 and 2020,
respectively.
The Company disaggregates revenue from contracts with customers into (i) major sales distribution
channels in the U.S. and (ii) total sales to customers outside the U.S. market as these categories depict
the nature, amount, timing and uncertainty of revenues and cash flows that are affected by economic
factors. The following table disaggregates our consolidated revenue by major sales distribution channels
for the years ended December 31, 2021, 2020 and 2019.
(In millions)
Wholesalers(a)
Home Center retailers(b)
Other retailers(c)
Builder direct
U.S. net sales
International(d)
Net sales
December 31,
2021
3,517.2 $
2,185.5
440.6
259.5
6,402.8
1,253.3
7,656.1 $
$
$
December 31,
2020
2,720.6 $
1,808.1
345.6
220.0
5,094.3
996.0
6,090.3 $
December 31,
2019
2,682.8
1,606.7
304.8
229.4
4,823.7
940.9
5,764.6
(a) Represents sales to customers whose business is oriented towards builders, professional trades and home remodelers,
inclusive of sales through our customers’ respective internet website portals.
(b) Represents sales to the three largest “Do-It-Yourself” retailers; The Home Depot, Inc., Lowes Companies, Inc. and
Menards, Inc., inclusive of sales through their respective internet website portals.
(c) Represents sales principally to our mass merchant and standalone independent e-commerce customers.
(d) Represents sales in markets outside the United States, principally in China, Canada, Europe and Mexico.
Practical Expedients
Incremental costs of obtaining a contract include only those costs the Company incurs that would not
have been incurred if the contract had not been obtained. These costs are required to be recognized as
assets and amortized over the period that the related goods or services transfer to the customer. As a
practical expedient, we expense as incurred costs to obtain a contract when the expected amortization
period is one year or less. These costs are recorded within selling, general and administrative expenses.
14. Defined Benefit Plans
We have a number of pension plans in the United States, covering many of the Company’s employees;
however, the majority of these plans have been frozen to new participants and benefit accruals were
frozen for active participants on December 31, 2016. The plans provide for payment of retirement
69
benefits, mainly commencing between the ages of 55 and 65. After meeting certain qualifications, an
employee acquires a vested right to future benefits. The benefits payable under the plans are generally
determined on the basis of an employee’s length of service and/or earnings. Employer contributions to
the plans are made, as necessary, to ensure legal funding requirements are satisfied. Also, from time to
time, we may make contributions in excess of the legal funding requirements. Service cost for 2021
relates to benefit accruals for an hourly Union group within the defined benefit plan for our Outdoors &
Security segment. All other benefit accruals under our defined benefit pension plans were frozen as of, or
prior to, December 31, 2016.
Net actuarial gains and losses occur when actual experience differs from any of the assumptions used to
value defined benefit plans or when assumptions change as they may each year. The primary factors
contributing to actuarial gains and losses are changes in the discount rate used to value obligations as of
the measurement date and the differences between expected and actual returns on pension plan assets.
In addition, the Company provides postretirement health care and life insurance benefits to certain
retirees.
(In millions)
Obligations and Funded Status at December 31
Change in the Projected Benefit Obligation (PBO):
Projected benefit obligation at beginning of year
Projected benefit obligation acquired(a)
Service cost
Interest cost
Actuarial (loss) gain
Benefits paid
Projected benefit obligation at end of year
Accumulated benefit obligation at end of year
Pension Benefits
2021
2020
Postretirement Benefits
2021
2020
$ 933.5
—
0.4
24.0
(32.4)
(40.2)
$ 885.3
$ 877.1
—
0.4
28.3
70.6
(42.9)
$ 933.5
$
$
$
13.4
—
0.6
0.4
(0.7)
(0.4)
13.3
$
3.6
9.6
0.4
0.2
0.2
(0.6)
$ 13.4
— $ —
(excludes the impact of future compensation increases) $ 885.3
$ 933.5
Change in Plan Assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Funded status (Fair value of plan assets less PBO)
(a)
Related to the Larson acquisition discussed in Note 4.
$ 784.9
48.4
22.9
(40.2)
$ 816.0
$ (69.3)
$
— $ —
$ 677.2
—
—
101.3
0.6
0.4
49.3
(0.6)
(0.4)
(42.9)
$ 784.9
— $ —
$ (148.6) $ (13.3) $ (13.4)
$
The actuarial loss is primarily a result of changes in discount rates from year to year.
The accumulated benefit obligation exceeds the fair value of assets for all pension plans. Amounts
recognized in the consolidated balance sheets consist of:
(In millions)
Current benefit payment liability
Accrued benefit liability
Net amount recognized
Pension Benefits
Postretirement Benefits
2021
(1.4) $
(67.9)
(69.3) $
2020
(1.4)
(147.2)
(148.6)
$
$
2021
(1.5) $
(11.8)
(13.3) $
2020
(1.1)
(12.3)
(13.4)
$
$
As of December 31, 2021, we adopted the new Society of Actuaries MP-2021 mortality tables resulting in
an immaterial decrease in plan benefit obligation and ongoing expenses. As of December 31, 2020, we
adopted the new Society of Actuaries MP-2020 mortality tables, resulting in an immaterial increase in
plan benefit obligation, and deferred actuarial losses in accumulated other comprehensive income.
70
The amounts in accumulated other comprehensive loss on the consolidated balance sheets that have not
yet been recognized as components of net periodic benefit cost were as follows:
(In millions)
Net actuarial loss (gain) at December 31, 2019
Recognition of actuarial loss
Current year actuarial loss
Net actuarial loss due to curtailment
Net actuarial loss (gain) at December 31, 2020
Recognition of actuarial loss
Current year actuarial gain
Net actuarial loss at December 31, 2021
Components of net periodic benefit cost were as follows:
Pension Benefits
87.7
(2.7)
2.1
(0.6)
86.5
(1.1)
(45.8)
39.6
$
$
$
$
$
Postretirement Benefits
$
(0.3)
(0.1)
1.0
—
0.6
0.3
(0.9)
(0.0)
Components of Net Periodic Benefit (Income) Cost
(In millions)
Service cost
Interest cost
Expected return on plan assets
Recognition of actuarial losses (gains)
Settlement/Curtailment losses (gains)
Amortization of prior service credits
Net periodic benefit (income) cost
Pension Benefits
Postretirement Benefits
$
$
2021
0.4
24.0
(34.9)
1.1
—
—
$
(9.4) $
2020
0.4 $
28.3
(32.8)
2.7
0.6
—
(0.8) $
2019
0.4
32.9
(35.2)
34.1
0.1
—
32.3
$
$
2021
0.6
0.4
—
(0.3)
—
—
0.7
$
$
2020
0.4 $
0.2
—
0.1
—
—
0.7 $
2019
0.2
0.2
—
0.6
(0.1)
0.2
1.1
Assumptions
Weighted-Average Assumptions Used to
Determine Benefit Obligations at
December 31:
Pension Benefits
Postretirement Benefits
2021
2020
2019
2021
2020
2019
Discount rate
2.9%
2.6% 3.3%
3.9%
5.9% 6.4%
Weighted-Average Assumptions Used to
Determine Net Cost for Years Ended
December 31:
Discount rate
Expected long-term rate of return on plan
assets
2.6%
3.3% 4.4%
5.9%
6.4% 4.2%
4.4%
4.5% 4.9%
—
—
—
Assumed Health Care Cost Trend Rates Used to Determine
Benefit Obligations and Net Cost at December 31:
Health care cost trend rate assumed for next year
Rate that the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
Postretirement Benefits
2021
2020
6.3/6.7 %(a)
6.4/7.4% (a)
4.5 %
2028
4.5%
2027
(a) The pre-65 initial health care cost trend rate is shown first / followed by the post-65 rate.
71
Plan Assets
The fair value of the pension assets by major category of plan assets as of December 31, 2021 and 2020
were as follows:
(In millions)
Group annuity/insurance contracts (level 3)
Collective trusts:
Cash and cash equivalents
Equity
Fixed income
Multi-strategy hedge funds
Real estate
Total
A reconciliation of Level 3 measurements was as follows:
(In millions)
January 1
Actual return on assets related to assets still held
December 31
Total as of
balance sheet date
2021
25.5 $
$
10.5
221.1
512.1
22.0
24.8
$
816.0 $
Group annuity/
insurance contracts
2021
24.8
0.7
25.5
$
$
$
$
2020
24.8
16.0
287.6
410.0
24.6
21.9
784.9
2020
24.2
0.6
24.8
Our defined benefit plans Master Trust own a variety of investment assets. All of these investment assets,
except for group annuity/insurance contracts are measured using net asset value per share as a practical
expedient per ASC 820. Following the retrospective adoption of ASU 2015-07 (Fair Value Measurement
(Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share) we
excluded all investments measured using net asset value per share in the amount of $790.5 million and
$760.1 million as of December 31, 2021 and 2020, respectively, from the tabular fair value hierarchy
disclosure.
The terms and conditions for redemptions vary for each class of the investment assets valued at net
asset value per share as a practical expedient. Real estate assets may be redeemed quarterly with a 45
day redemption notice period. Investment assets in multi-strategy hedge funds may be redeemed semi-
annually with a 95 day redemption notice period. Equity, fixed income and cash and cash equivalents
have no specified redemption frequency and notice period and may be redeemed daily. As of
December 31, 2021 we do not have an intent to sell or otherwise dispose of these investment assets at
prices different than the net asset value per share.
Our investment strategy is to optimize investment returns through a diversified portfolio of investments,
taking into consideration underlying plan liabilities and asset volatility. The defined benefit asset allocation
policy of the plans allow for an equity allocation of 0% to 75%, a fixed income allocation of 25% to 100%,
a cash allocation of up to 25% and other investments of up to 20%. Asset allocations are based on the
underlying liability structure. All retirement asset allocations are reviewed periodically to ensure the
allocation meets the needs of the liability structure.
Our 2022 expected blended long-term rate of return on plan assets of 4.4% was determined based on the
nature of the plans’ investments, our current asset allocation and projected long-term rates of return from
pension investment consultants.
72
Estimated Future Retirement Benefit Payments
The following retirement benefit payments are expected to be paid:
(In millions)
2022
2023
2024
2025
2026
Years 2027-2031
$
$
Pension
Benefits
42.6
43.4
44.3
45.5
46.4
237.3
Postretirement
Benefits
1.2
1.1
1.1
1.1
1.1
5.9
Estimated future retirement benefit payments above are estimates and could change significantly based
on differences between actuarial assumptions and actual events and decisions related to lump sum
distribution options that are available to participants in certain plans.
Defined Contribution Plan Contributions
We sponsor a number of defined contribution plans. Contributions are determined under various
formulas. Cash contributions by the Company related to these plans amounted to $48.4 million, $36.7
million and $36.3 million in 2021, 2020 and 2019, respectively.
15.
Income Taxes
The components of income from continuing operations before income taxes and noncontrolling interests
were as follows:
(In millions)
Domestic operations
Foreign operations
Income before income taxes and noncontrolling interests
2021
836.0
169.1
1,005.1
$
$
$
$
2020
576.8 $
154.0
730.8 $
2019
438.2
137.1
575.3
Income tax expense in the consolidated statement of income consisted of the following:
(In millions)
Current
Federal
Foreign
State and other
Deferred
Federal
Foreign
State and Local
Total income tax expense
2021
153.0
49.1
30.7
2.5
(2.8)
0.2
232.7
2020
$
100.0 $
55.9
27.5
(1.8)
(11.5)
(1.3)
168.8 $
$
2019
94.9
35.1
21.5
(6.9)
(3.1)
2.5
144.0
$
$
73
A reconciliation between the federal statutory tax rate and the effective tax rate is as follows:
(In millions)
Income tax expense computed at federal statutory income tax
rate
State and local income taxes, net of federal tax benefit
Foreign taxes at a different rate than U.S. federal statutory
income tax rate
Provision for foreign earnings repatriation, net
Net adjustments for uncertain tax positions
Share-based compensation (ASU 2016-09)
Deferred tax impact of state tax rate changes
Valuation allowance (decrease) increase
Expiration of loss carryforwards
Miscellaneous other, net
Income tax expense as reported
Effective income tax rate
2021
2020
2019
$ 211.1
33.9
$ 153.5
22.3
$ 120.8
18.0
9.0
0.3
(12.6)
(10.4)
(0.9)
4.6
—
(2.3)
$ 232.7
3.0
3.2
(0.2)
(11.5)
(0.7)
(7.1)
6.1
0.2
$ 168.8
1.4
0.4
7.5
(3.7)
3.1
3.4
—
(6.9)
$ 144.0
23.2%
23.1%
25.0%
The 2021 effective income tax rate was unfavorably impacted by state and local income taxes, foreign
income taxed at higher rates and a valuation allowance increase. This expense was offset by favorable
benefits for the release of uncertain tax positions, primarily related to statute of limitations lapses, and
share-based compensation.
The 2020 and 2019 effective income tax rates were unfavorably impacted by state and local income taxes
and foreign income taxed at higher rates. The 2019 effective income tax rate was also unfavorably
impacted by increases in uncertain tax positions and valuation allowances. Both 2020 and 2019
expenses were offset by a tax benefit related to share-based compensation.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTBs”) is as follows:
(In millions)
Unrecognized tax benefits—beginning of year
Gross additions—current year tax positions
Gross additions—prior year tax positions
Gross additions (reductions)—purchase accounting
adjustments
Gross reductions—prior year tax positions
Gross reductions—settlements with taxing authorities
Unrecognized tax benefits—end of year
$
$
2021
96.1
2.6
2.0
—
(16.6)
(1.0)
83.1
$
$
2020
88.0 $
7.2
3.7
12.1
(11.7)
(3.2)
96.1 $
2019
83.5
9.2
2.9
—
(6.9)
(0.7)
88.0
The amount of UTBs that, if recognized as of December 31, 2021, would affect the Company’s effective
tax rate is $69.2 million. It is reasonably possible that, within the next twelve months, total UTBs may
decrease in the range of $4.1 million to $41.9 million primarily as a result of the conclusion of U.S.
federal, state and foreign income tax proceedings.
The Company classifies interest and penalty accruals related to UTBs as income tax expense. In 2021,
the Company recognized an interest and penalty benefit of approximately $1.9 million. In 2020 and 2019,
the Company recognized interest and penalty expenses of approximately $0.7 million and $3.0 million,
respectively. As of December 31, 2021 and 2020, the Company had accruals for the payment of interest
and penalties of $15.5 million and $17.6 million, respectively.
74
The Company files income tax returns in the U.S., various state and foreign jurisdictions. The Company is
currently under examination by the U.S. Internal Revenue Service for the periods related to 2017 and
2018. In addition to the U.S., the Company has tax years that remain open and subject to examination by
tax authorities in the following major taxing jurisdictions: Canada for years after 2016, Mexico for years
after 2016 and China for years after 2017.
The components of net deferred tax assets (liabilities) as of December 31, 2021 and 2020 were as
follows:
(In millions)
Deferred tax assets:
Compensation and benefits
Defined benefit plans
Capitalized inventories
Accounts receivable
Operating lease liabilities
Other accrued expenses
Net operating loss and other tax carryforwards
Valuation allowance
Miscellaneous
Total deferred tax assets
Deferred tax liabilities:
Fixed assets
Intangible assets
Operating lease assets
Other investments
Miscellaneous
Total deferred tax liabilities
Net deferred tax liability
2021
46.1
18.7
28.4
20.6
50.9
85.5
25.3
(20.5)
0.1
255.1
(98.3)
(239.0)
(48.5)
(0.2)
(16.3)
(402.3)
(147.2)
$
$
2020
43.3
38.9
18.4
16.0
43.3
79.7
14.4
(9.7)
1.2
245.5
(86.4)
(220.9)
(43.3)
(6.8)
(17.8)
(375.2)
(129.7)
$
$
In accordance with ASC requirements for Income Taxes, deferred taxes were classified in the
consolidated balance sheets as of December 31, 2021 and 2020 as follows:
(In millions)
Other assets
Deferred income taxes
Net deferred tax liability
2021
28.8
(176.0)
(147.2)
$
2020
30.8
(160.5)
(129.7)
$
As of December 31, 2021, and 2020, the Company had deferred tax assets related to net operating
losses and other tax carryforwards of $25.3 million and $14.4 million, respectively. Approximately $2.9
million expires between 2022 and 2026, and the remainder will expire in 2027 and thereafter.
The Company evaluated its ability to realize tax benefits associated with deferred tax assets and
concluded, based on the available evidence, that is more likely than not that certain of these deferred tax
assets will not be fully realized. The valuation allowance at December 31, 2021, includes amounts set up
against acquired federal and state net operating losses of Flo, that are limited in utilization. See Note 4,
"Acquisitions and Dispositions" for additional information.
Accumulated foreign earnings and profits of the Company’s foreign subsidiaries as of December 31, 2017
were subject to a deemed repatriation tax and should not be subject to additional U.S. federal income tax
upon an actual repatriation of these earnings. As of December 31, 2021, the Company has recorded an
estimated deferred tax liability of $7.3 million for foreign and state taxes that will be payable upon
distribution of these earnings.
75
Subsequent to December 31, 2017, we consider the unremitted earnings of certain foreign subsidiaries
that impose local country taxes on dividends to be indefinitely reinvested. We have not provided deferred
taxes on the remaining book over tax outside basis difference of $201.1 million related to these
subsidiaries. The amount of unrecognized deferred tax liabilities for local country withholding taxes that
would be owed related to these earnings is $13.2 million.
16. Restructuring and Other Charges
Pre-tax restructuring and other charges for the year ended December 31, 2021 were as follows:
(In millions)
Plumbing
Outdoors & Security
Cabinets
Total
Year Ended December 31, 2021
Other Charges (a)
Restructuring
Charges
$
$
(1.1) $
10.4
4.2
13.5
$
Cost of
Products
Sold
2.0 $
—
3.7
5.7 $
SG&A(b)
2.1
(0.6)
—
1.5
$
$
Total
Charges
3.0
9.8
7.9
20.7
(a)
“Other Charges” represent charges or gains directly related to restructuring initiatives that cannot be reported as restructuring
under GAAP. Such charges or gains may include losses on disposal of inventories, trade receivables allowances from exiting
product lines, write-off of displays from exiting a customer relationship, accelerated depreciation resulting from the closure of
facilities, and gains and losses on the sale of previously closed facilities.
(b) Selling, general and administrative expenses
Restructuring and other charges in 2021 are largely related to severance costs associated with the
relocation of manufacturing facilities within our Outdoor & Security and Cabinets segments.
Pre-tax restructuring and other charges for the year ended December 31, 2020 were as follows:
(In millions)
Plumbing
Outdoors & Security
Cabinets
Corporate
Total
Restructuring
Charges
6.0
3.0
5.5
1.4
15.9
$
$
$
Year Ended December 31, 2020
Other Charges (a)
Cost of
Products
Sold
4.4 $
0.9
5.1
—
10.4 $
SG&A(b)
$
(1.7) $
—
0.2
0.3
(1.2) $
Total
Charges
8.7
3.9
10.8
1.7
25.1
(a)
“Other Charges” represent charges or gains directly related to restructuring initiatives that cannot be reported as restructuring
under GAAP. Such charges or gains may include losses on disposal of inventories, trade receivables allowances from exiting
product lines, write-off of displays from exiting a customer relationship, accelerated depreciation resulting from the closure of
facilities, and gains and losses on the sale of previously closed facilities.
(b) Selling, general and administrative expenses
Restructuring and other charges in 2020 are largely related to headcount actions associated with COVID-
19 across all segments and costs associated with changes in our manufacturing processes within our
Plumbing segment.
Pre-tax restructuring and other charges for the year ended December 31, 2019 were as follows:
(In millions)
Plumbing
Outdoors & Security
Cabinets
Total
$
$
Restructuring
Charges
Year Ended December 31, 2019
Other Charges (a)
Cost of
Products
Sold
2.6 $
1.6
(0.1)
4.1 $
SG&A(b)
2.8 $
—
0.6
3.4 $
2.8 $
1.7
10.2
14.7 $
Total
Charges
8.2
3.3
10.7
22.2
(a)
“Other Charges” represent charges or gains directly related to restructuring initiatives that cannot be reported as restructuring
under GAAP. Such charges or gains may include losses on disposal of inventories, trade receivables allowances from exiting
product lines, write-off of displays from exiting a customer relationship, accelerated depreciation resulting from the closure of
facilities, and gains and losses on the sale of previously closed facilities.
(b) Selling, general and administrative expenses
Restructuring and other charges in 2019 largely related to severance costs and costs associated with
closing facilities across all our segments.
Reconciliation of Restructuring Liability
(In millions)
Workforce reduction costs
Other
Balance at
12/31/20
2021
Provision
$
$
6.9 $
0.7
7.6 $
11.4 $
2.1
13.5 $
Cash
Expenditures
(a)
(13.6) $
(1.8)
(15.4) $
Non-Cash
Write-offs
- $
-
- $
(a) Cash expenditures primarily related to severance charges.
(In millions)
Workforce reduction costs
Other
Balance at
12/31/19
2020
Provision
Cash
Expenditures (a)
Non-Cash
Write-offs
$
$
6.7 $
0.1
6.8 $
14.6 $
1.3
15.9 $
(14.4) $
(0.7)
(15.1) $
— $
—
— $
(a) Cash expenditures primarily related to severance charges.
Balance at
12/31/21
4.7
1.0
5.7
Balance at
12/31/20
6.9
0.7
7.6
17. Commitments
Purchase Obligations
Purchase obligations of the Company as of December 31, 2021 were $959.1 million, of which $900.3
million is due within one year. Purchase obligations include contracts for raw materials and finished goods
purchases, selling and administrative services, and capital expenditures.
Product Warranties
We generally record warranty expense related to contractual warranty terms at the time of sale. We may
also provide customer concessions for claims made outside of the contractual warranty terms and those
expenses are recorded in the period in which the concession is made. We offer our customers various
warranty terms based on the type of product that is sold. Warranty expense is determined based on
historic claim experience and the nature of the product category. The following table summarizes activity
related to our product warranty liability for the years ended December 31, 2021, 2020 and 2019.
(In millions)
Reserve balance at the beginning of the year
Provision for warranties issued
Settlements made (in cash or in kind)
Acquisition
Foreign currency
Reserve balance at end of year
2021
24.5
36.6
(35.0)
0.3
0.1
26.5
$
$
2020
24.7 $
25.4
(27.2)
1.5
0.1
24.5 $
2019
24.9
25.4
(25.8)
—
0.2
24.7
$
$
77
18.
Information on Business Segments
We report our operating segments based on how operating results are regularly reviewed by our chief
operating decision maker for making decisions about resource allocations to segments and assessing
performance. The Company’s operating segments and types of products from which each segment
derives revenues are described below.
The Plumbing segment manufactures or assembles and sells faucets, accessories, kitchen sinks and
waste disposals, predominantly under the Moen, ROHL, Riobel, Victoria+Albert, Perrin & Rowe and
Shaws brands. The Outdoors & Security segment includes fiberglass and steel entry door systems under
the Therma-Tru brand name, storm, screen and security doors under the Larson brand name, composite
decking and railing under the Fiberon brand name, urethane millwork under the Fypon brand name,
locks, safety and security devices, and electronic security products under the Master Lock and American
Lock brands, and fire resistant safes, security containers and commercial cabinets under the SentrySafe
brand. The Cabinets segment includes stock, semi-custom and custom cabinetry, as well as vanities, for
the kitchen, bath and other parts of the home under brand names including AOK, Diamond Brands,
KitchenCraft, Homecrest, Omega and EVE. Corporate expenses consist of headquarters administrative
expenses. Corporate assets consist primarily of cash.
The Company’s subsidiaries operate principally in the United States, Canada, Mexico, China and
Western Europe.
(In millions)
Net sales:
Plumbing
Outdoors & Security
Cabinets
Net sales
2021
2020
2019
$
$
2,761.2
2,039.9
2,855.0
7,656.1
$
$
2,202.1
1,419.2
2,469.0
6,090.3
$
$
2,027.2
1,348.9
2,388.5
5,764.6
Net sales to two of the Company’s customers, The Home Depot, Inc. (“The Home Depot”) and Lowe’s
Companies, Inc. (“Lowe’s”) each accounted for greater than 10% of the Company’s net sales in 2021,
2020 and 2019. All segments sell to both The Home Depot and Lowe’s. Net sales to The Home Depot
were 14%, 15% and 14% of net sales in 2021, 2020 and 2019, respectively. Net sales to Lowe’s were
16%, 15% and 14% of net sales in 2021, 2020 and 2019, respectively.
(In millions)
Operating income:
Plumbing
Outdoors & Security
Cabinets
Corporate
Operating income
2021
2020
2019
$
$
629.7
291.9
279.3
(110.5)
1,090.4
$
$
467.9
201.3
235.7
(103.5)
801.4
$
$
427.6
172.3
178.3
(79.7)
698.5
78
(In millions)
Total assets:
Plumbing
Outdoors & Security
Cabinets
Corporate
Total assets
Depreciation expense:
Plumbing
Outdoors & Security
Cabinets
Corporate
Depreciation expense
Amortization of intangible assets:
Plumbing
Outdoors & Security
Cabinets
Amortization of intangible assets
Capital expenditures:
Plumbing
Outdoors & Security
Cabinets
Corporate
Capital expenditures, gross
Less: proceeds from disposition of assets
Capital expenditures, net
Net sales by geographic region (a):
United States
China
Canada
Other international
Net sales
Property, plant and equipment, net:
United States
Mexico
Canada
China
Other international
Property, plant and equipment, net
(a) Based on country of destination
2021
2020
2019
$
$
$
$
$
$
$
$
$
$
$
$
2,614.7
2,619.4
2,489.7
212.4
7,936.2
37.1
40.7
44.4
2.8
125.0
14.9
31.5
17.7
64.1
38.1
124.2
51.6
0.3
214.2
(1.9)
212.3
6,402.8
510.4
542.6
200.3
7,656.1
807.2
122.1
40.4
23.7
16.1
1,009.5
$
$
$
$
$
$
$
$
$
$
$
$
2,262.9
2,453.8
2,366.8
275.2
7,358.7
37.6
33.3
47.9
2.7
121.5
10.8
13.4
17.8
42.0
30.5
76.4
27.3
16.3
150.5
(1.6)
148.9
5,094.3
416.7
414.2
165.1
6,090.3
732.4
104.7
41.2
25.0
14.1
917.4
$
$
$
$
$
$
$
$
$
$
$
$
2,110.8
1,596.6
2,355.7
228.2
6,291.3
32.0
32.3
44.3
2.7
111.3
10.3
13.3
17.8
41.4
35.7
63.6
30.9
1.6
131.8
(4.2)
127.6
4,823.7
355.4
401.0
184.5
5,764.6
641.9
103.2
43.9
22.5
12.7
824.2
79
19. Earnings Per Share
The computations of earnings per common share were as follows:
(In millions, except per share data)
Net income
Less: Noncontrolling interests
Net income attributable to Fortune Brands
Basic earnings per common share
Diluted earnings per common share
Basic average shares outstanding(a)
Stock-based awards
Diluted average shares outstanding(a)
Antidilutive stock-based awards excluded from weighted-average
number of shares outstanding for diluted earnings per share
$
$
$
$
2021
772.4
—
772.4
5.62
5.54
137.5
2.0
139.5
0.3
2020
554.4 $
1.3
553.1 $
3.99 $
3.94 $
$
$
$
$
138.7
1.5
140.2
0.8
2019
431.3
(0.6)
431.9
3.09
3.06
139.9
1.4
141.3
1.8
(a) Reflects the impact of share repurchases during the years ended December 31, 2021, 2020 and 2019, respectively.
20. Other Expense (Income), Net
The components of other expense (income), net for the years ended December 31, 2021, 2020 and 2019
were as follows:
(In millions)
Defined benefit plan
Foreign currency losses (gains)
Losses (gains) on equity investment
Other items, net
Total other expense (income), net
$
$
2021
(9.1) $
6.0
5.0
(1.0)
0.9
$
2020
(1.3) $
2.8
(11.0)
(3.8)
(13.3) $
2019
31.9
(0.7)
—
(2.2)
29.0
80
21. Contingencies
Litigation
The Company is a defendant in lawsuits that are ordinary routine litigation matters incidental to its
businesses. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is
possible that these actions could be decided unfavorably to the Company. The Company believes that
there are meritorious defenses to these actions and that these actions will not have a material adverse
effect upon the Company’s results of operations, cash flows or financial condition, and, where
appropriate, these actions are being vigorously contested. Accordingly, the Company believes the
likelihood of material loss is remote.
Environmental
We are involved in remediation activities to clean up hazardous wastes as required by federal and state
laws. Liabilities for remediation costs of each site are based on our best estimate of undiscounted future
costs, excluding possible insurance recoveries or recoveries from other third parties. Uncertainties about
the status of laws, regulations, technology and information related to individual sites make it difficult to
develop estimates of future environmental remediation exposures. Some of the potential liabilities relate
to sites we own, and some relate to sites we no longer own or never owned. Several of our subsidiaries
have been designated as potentially responsible parties (“PRP”) under Superfund or similar state
laws. As of December 31, 2021, twelve such instances have not been dismissed, settled or otherwise
resolved. In 2021, none of our subsidiaries were identified as a PRP in a new instance and no instances
were settled, dismissed or otherwise resolved. In most instances where our subsidiaries are named as a
PRP, we enter into cost-sharing arrangements with other PRPs. We give notice to insurance carriers of
potential PRP liability, but very rarely, if ever, receive reimbursement from insurance for PRP costs. At
December 31, 2021 and 2020, we had accruals of $0.4 million and $0.3 million, respectively, relating to
environmental compliance and cleanup including, but not limited to, the above mentioned Superfund
sites.
22. Subsequent Events
In January 2022, we acquired 100% of the outstanding equity of Solar Innovations LLC, a leading
producer of wide-opening exterior door systems and outdoor enclosures, for a total gross purchase price
of approximately $63 million. The acquisition cost is further subject to the final post-closing working
capital adjustment. We financed the transaction using cash on hand and borrowings under our existing
revolving credit facilities. Solar Innovations will be part of Fortune Brands’ Outdoors & Security business
segment. Its complementary product offerings will support the segment’s outdoor living strategy.
81
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(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 December 31, 2021.
(b) Management’s Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f). Under the supervision
and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Based on our evaluation
under the framework in Internal Control — Integrated Framework (2013) issued by the COSO, our
management concluded that our internal control over financial reporting was effective as of December 31,
2021.
PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, has audited
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, as
stated in their report which appears herein.
(c) 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 Company’s fiscal quarter ended December 31, 2021 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
See the information under the captions “Proposal 1 – Election of Directors,” “Corporate Governance -
Board Committees - Audit Committee” and “Delinquent Section 16(a) Reports” contained in the 2022
Proxy Statement, which information is incorporated herein by reference. See the information under the
caption "information about our Executive Officers" contained in Part I of this Annual Report on Form 10-K.
The Company’s Board of Directors has adopted a Code of Business Conduct & Ethics which sets forth
various policies and procedures intended to promote the ethical behavior of all of the Company’s
employees. The Company’s Board of Directors has also adopted a Code of Ethics for Senior Financial
Officers that applies to the Company’s principal executive officer, principal financial officer and principal
accounting officer. The Code of Business Conduct & Ethics and the Code of Ethics for Senior Financial
Officers are available, free of charge, on the Company’s website, http://ir.fbhs.com/governing-high-
standards. A copy of these documents is also available and will be sent to stockholders free of charge
upon written request to the Company’s Secretary. Any amendment to, or waiver from, the provisions of
the Code of Business Conduct & Ethics or the Code of Ethics for Senior Financial Officers that applies to
any of those officers will be posted to the same location on the Company’s website.
Item 11. Executive Compensation.
See the information under the captions “Director Compensation,” “Corporate Governance - Board
Committees - Compensation Committee,” “Compensation Committee Interlocks and Insider Participation,”
“Compensation Discussion and Analysis,” “2021 Executive Compensation,” “CEO Pay Ratio” and
“Compensation Committee Report” contained in the 2022 Proxy Statement, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
See the information under the caption “Certain Information Regarding Security Holdings” contained in the
2022 Proxy Statement, which information is incorporated herein by reference. See also the “Equity
Compensation Plan Information” table contained in the 2022 Proxy Statement, which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
See the information under the captions “Director Independence,” “Board Committees,” “Policies with
Respect to Transactions with Related Persons” and “Certain Relationships and Related Transactions”
contained in the 2022 Proxy Statement, which information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
See the information under the captions “Fees of Independent Registered Public Accounting Firm” and
“Approval of Audit and Non-Audit Services” in the 2022 Proxy Statement, which information is
incorporated herein by reference.
83
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
(1)
Financial Statements, Financial Statement Schedules and Exhibits.
Financial Statements (all financial statements listed below are of the Company and its
consolidated subsidiaries):
Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019
contained in Item 8 hereof.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021,
2020 and 2019 contained in Item 8 hereof.
Consolidated Balance Sheets as of December 31, 2021 and 2020 contained in Item 8 hereof.
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019
contained in Item 8 hereof.
Consolidated Statements of Equity for the years ended December 31, 2021, 2020 and 2019
contained in Item 8 hereof.
Notes to Consolidated Financial Statements contained in Item 8 hereof.
Report of Independent Registered Public Accounting Firm contained in Item 8 hereof. (PCAOB ID
Number: 238)
(2)
Financial Statement Schedules
See Financial Statement Schedule of the Company and subsidiaries at page 89.
(3)
Exhibits
2.1.
3.1.
3.2.
4.1.
4.2.
4.3.
4.4.
Equity Purchase Agreement dated November 16, 2020 between Fortune Brands Doors, Inc.,
Fortune Brands Home & Security, Inc. and the owners of Larson Manufacturing Company of
South Dakota and its affiliated companies, is incorporated herein by reference to Exhibit 2.1 to the
Company's Annual Report on Form 10-K filed on February 24, 2021.
Restated Certificate of Incorporation of Fortune Brands Home & Security, Inc., dated as of
September 27, 2011, is incorporated herein by reference to Exhibit 3(i) to the Company’s
Quarterly Report on Form 10-Q filed on November 5, 2012.
Amended and Restated Bylaws of Fortune Brands Home & Security, Inc., effective February 23,
2021, are incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on
Form 8-K filed on February 23, 2021.
Description of Securities are incorporated herein by reference to Exhibit 4.1 to the Company’s
Annual Report on Form 10-K filed on February 26, 2020.
Indenture, dated as of June 15, 2015, by and among Fortune Brands Home & Security, Inc.,
Wilmington Trust, National Association, as Trustee, and Citibank, N.A., as Securities Agent is
incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed
on June 16, 2015.
First Supplemental Indenture, dated as of June 15, 2015, by and among Fortune Brands Home &
Security, Inc., Wilmington Trust, National Association, as Trustee, and Citibank, N.A., as
Securities Agent is incorporated herein by reference to Exhibit 4.2 to the Company’s Current
Report on Form 8-K filed on June 16, 2015.
Second Supplemental Indenture, dated as of September 21, 2018, by and among Fortune Brands
Home & Security, Inc. Wilmington Trust National Association as Trustee, and Citibank, N.A., as
Securities Agent is incorporated by reference to Exhibit 4.2 to the Company’s current report on
Form 8-K filed on September 21, 2018.
4.5.
4.6.
4.7.
4.8.
Third Supplemental Indenture, dated as of September 13, 2019, by and among Fortune Brands
Home & Security, Inc., Wilmington Trust, National Association, as Trustee, and Citibank, N.A., as
Securities Agent is incorporated by reference to Exhibit 4.1 to the Company’s current report on
Form 8-K filed on September 13, 2019.
Form of global certificate for the Company’s 4.000% Senior Notes due 2025 is incorporated herein
by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K on June 16, 2015.
Form of global certificate for the Company’s 4.000% Senior Notes due 2023 is incorporated herein
by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on September 21,
2018.
Form of global certificate for the Company’s 3.250% Senior Notes due 2029 is incorporated herein
by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on September 13,
2019.
10.1. Tax Allocation Agreement, dated as of September 28, 2011, by and between Fortune Brands
Home & Security, Inc. and Fortune Brands, Inc. (N/K/A Beam Suntory Inc.) is incorporated herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 30,
2011.
10.2.
Indemnification Agreement, dated as of September 14, 2011, by and between Fortune Brands
Home & Security, Inc. and Fortune Brands, Inc. (N/K/A Beam Suntory Inc.) is incorporated herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 15,
2011.
10.3. $1,250,000,000 Second Amended and Restated Credit Agreement by and among the Company,
the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent, dated
September 30, 2019 is incorporated herein by reference to Exhibit 10.2 to the Company’s
Quarterly Report on Form 10-Q filed on October 31, 2019.
10.4. $400,000,000 Credit Agreement among the Company, the lenders party thereto and JP Morgan
Chase Bank, N.A., as Administrative Agent, dated April 29, 2020, is incorporated herein by
reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 1, 2020.
10.5. 364-Day Term Loan Credit Agreement between Fortune Brands Home & Security, Inc., as
borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, is
incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
filed on December 2, 2021.
10.6. Form of Commercial Paper Dealer Agreement between Fortune Brands Home & Security, Inc., as
issuer, and the Dealer parties thereto, is incorporated herein by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K filed on December 2, 2021.
10.7. Fortune Brands Home & Security, Inc. Annual Executive Incentive Compensation Plan is
incorporated herein by reference to Appendix B to the Company’s Definitive Proxy Statement filed
on March 5, 2013.*
10.8. Fortune Brands Home & Security, Inc. 2011 Long-Term Incentive Plan is incorporated herein by
reference to Exhibit 10.1 to the Company’s registration Statement on Form S-8 filed on October 3,
2011.*
10.9. Fortune Brands Home & Security, Inc. 2013 Long-Term Incentive Plan is incorporated herein by
reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 5, 2013.*
10.10. Amendment Number One to the Fortune Brands Home & Security, Inc. 2013 Long-Term Incentive
Plan, dated as of August 2, 2016, is incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 10-Q filed on November 2, 2016.*
10.11. Form of 2012 Option Award Notice and Agreement for awards under the Fortune Brands Home &
Security, Inc. 2011 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.11
to the Company’s Annual Report on Form 10-K filed on February 22, 2012.*
85
10.12. Form of 2013 Stock Option Award Notice and Agreement for awards under the Fortune Brands
Home & Security, Inc. 2011 Long-Term Incentive Plan is incorporated herein by reference to
Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed on February 27, 2013.*
10.13. Form of 2014 Stock Option Award Notice and Agreement for awards under the Fortune Brands
Home & Security, Inc. 2013 Long-Term Incentive Plan is incorporated herein by reference to
Exhibit 10.18 to the Company’s Annual Report on Form 10-K filed on February 26, 2014.*
10.14. Form of 2016 Stock Option Award Notice and Agreement for awards under the Fortune Brands
Home & Security, Inc. 2013 Long-Term Incentive Plan is incorporated herein by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on April 28, 2016.*
10.15. Form of Stock Option Agreement for awards under the Fortune Brands Home & Security, Inc.
2013 Long-Term Incentive, is incorporated herein by reference to Exhibit 10.13 to the Company’s
Annual Report on Form 10-K filed on February 26, 2020.*
10.16. Form of Performance Share Award Agreement for awards under the Fortune Brands Home &
Security, Inc. 2013 Long-Term Incentive Plan, is incorporated herein by reference to Exhibit 10.14
to the Company’s Annual Report on Form 10-K filed on February 26, 2020.*
10.17. Form of Restricted Stock Unit Award Agreement for awards under the Fortune Brands Home &
Security, Inc. 2013 Long-Term Incentive Plan, is incorporated herein by reference to Exhibit 10.15
to the Company’s Annual Report on Form 10-K filed on February 26, 2020.*
10.18. Form of Agreement for the Payment of Benefits Following Termination of Employment between
the Company and each of Nicholas I. Fink, Patrick D. Hallinan, Hiranda S. Donoghue, Sheri R.
Grissom, John D. Lee, May Russell, Marty Thomas and Tracey L. Belcourt, is incorporated herein
by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed on February 28,
2018.*
10.19. Form of Agreement for the Payment of Benefits Following Termination of Employment for each of
R. David Banyard, Jr., Brett E. Finley and Cheri M. Phyfer, is incorporated herein by reference to
Exhibit 10.24 to the Company’s annual Report on Form 10-K filed on February 28, 2018.*
10.20. Fortune Brands Home & Security, Inc. Directors’ Deferred Compensation Plan (as Amended and
Restated Effective January 1, 2013) is incorporated herein by reference to Exhibit 10.19 to the
Company’s Annual Report on Form 10-K filed on February 27, 2013.*
10.21. Fortune Brands Home & Security, Inc. Non-Employee Director Stock Election Program is
incorporated herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K
filed on February 22, 2012.*
10.22. Fortune Brands Home & Security, Inc. Deferred Compensation Plan, amended & restated as of
February 27, 2017 is incorporated herein by reference to Exhibit 10.30 to the Company’s Annual
Report on Form 10-K filed on February 28, 2017.*
21.
23.
24.
Subsidiaries of the Company.**
Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP.**
Powers of Attorney relating to execution of this Annual Report on Form 10-K.**
31.1. Certificate of Chief Executive Officer Required Under Section 302 of the Sarbanes-Oxley Act of
2002.**
31.2. Certificate of Chief Financial Officer Required Under Section 302 of the Sarbanes-Oxley Act of
2002.**
32.
Joint CEO/CFO Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002.**
86
101.
The following materials from the Fortune Brands Home & Security, Inc. Annual Report on Form
10-K for the year ended December 31, 2021 formatted in Inline eXtensible Business Reporting
Language (iXBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of
Comprehensive Income (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of
Cash Flows, (vi) the Consolidated Statements of Equity, and (vi) the Notes to the Consolidated
Financial Statements.**
104.
The cover page of the Company’s Annual Report on Form 10-K for the year ended December 31,
2021, formatted in Inline XBRL and contained in Exhibit 101.**
* Indicates the exhibit is a management contract or compensatory plan or arrangement.
** Indicates the exhibit is being furnished or filed herewith, as applicable.
Item 16. Form 10-K Summary
None.
87
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FORTUNE BRANDS HOME & SECURITY, INC.
(The Company)
Date: February 28, 2022
By:
/s/ NICHOLAS I. FINK
Nicholas I. Fink
Chief Executive Officer (principal executive officer)
/s/ PATRICK D. HALLINAN
Patrick D. Hallinan
Senior Vice President and Chief Financial Officer
(principal financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ NICHOLAS I. FINK
Nicholas I. Fink, Chief Executive Officer and
Director
(principal executive officer)
Date: February 28, 2022
/s/ PATRICK D. HALLINAN
Patrick D. Hallinan, Senior Vice President and
Chief Financial Officer (principal financial
officer)
Date: February 28, 2022
/s/ DANNY LUBURIC
Danny Luburic, Vice President – Controller
(principal accounting officer)
Date: February 28, 2022
/s/ AMIT BANATI*
Amit Banati, Director
Date: February 28, 2022
/s/ IRIAL FINAN*
Irial Finan, Director
Date: February 28, 2022
/s/ ANN FRITZ HACKETT*
Ann Fritz Hackett, Director
Date: February 28, 2022
/s/ SUSAN S. KILSBY*
Susan S. Kilsby, Director
Date: February 28, 2022
/s/ A.D. DAVID MACKAY*
A.D. David Mackay, Director
Date: February 28, 2022
/s/ JOHN G. MORIKIS *
John G. Morikis, Director
Date: February 28, 2022
/s/ JEFFERY S. PERRY*
Jeffery S. Perry, Director
Date: February 28, 2022
/s/ DAVID M. THOMAS*
David M. Thomas, Director
Date: February 28, 2022
/s/ RONALD V. WATERS, III*
Ronald V. Waters, III, Director
Date: February 28, 2022
*By: /s/ Hiranda Donaghue
Hiranda Donaghue, Attorney-in-Fact
88
Schedule II Valuation and Qualifying Accounts
For the years ended December 31, 2021, 2020 and 2019
Balance at
Beginning
of
Period
Charged
to
Expense
Reclassifications
(c)
Write-offs
and
Deductions
(a)
Business
Acquisition (b)
Balance at
End of
Period
(In millions)
2021:
Allowance for cash discounts and
sales
allowances
$
21.0 $ 241.8 $
(3.5) $ 245.8 $
Allowance for credit losses
Customer program allowance
Allowance for deferred tax assets
2020:
Allowance for cash discounts and
sales
6.7
132.0
9.7
5.9
278.7
4.6
—
23.4
6.2
4.4
250.8
—
— $ 13.5
—
8.2
— 183.3
20.5
—
allowances
$
17.0 $ 258.3 $
Allowance for credit losses
Customer program allowance
Allowance for deferred tax assets
2019:
Allowance for cash discounts and
sales
3.0
79.9
16.8
5.1
—
(7.1)
(28.8) $ 228.3
3.6
—
—
2.2
52.1
—
2.8 $ 21.0
6.7
—
— 132.0
9.7
—
allowances
$
16.4 $ 198.6 $
(11.7) $ 186.3 $
Allowance for credit losses
Customer program allowance
Allowance for deferred tax assets
3.7
68.2
13.3
1.6
—
3.5
—
11.7
—
2.3
—
—
— $ 17.0
3.0
—
79.9
—
16.8
—
(a) Net of recoveries of amounts written off in prior years and immaterial foreign currency impact.
(b) Represents purchase accounting adjustment related to the Larson acquisition within our Outdoors & Security segment in 2020.
(c) Represents the reclassification of certain liabilities to customer program allowance due to the adoption of CECL across all
segments for 2021, 2020 and 2019.
89
Reconciliation of Operating Income Before Charges/Gains to GAAP Operating Income
(In millions)
(Unaudited)
Twelve Months Ended December 31,
2021
2020
% Change
2021 vs
2020
2019
2018
2017
2012
% Change
2021 vs
2012
PLUMBING
Operating income before charges/gains
Restructuring charges (a)
Other charges (a)
$632.7
1.1
$489.6
(6.0)
29
(118)
$435.8
(2.8)
$396.0
(2.6)
$365.8
(2.8)
$169.3
—
Cost of products sold
Selling, general and administrative expenses
Asset impairment charges (c)
Change in inventory costing method (b)
(2.0)
(2.1)
—
—
(4.4)
1.7
(13.0)
—
(55)
(224)
(100)
—
(2.6)
(2.8)
—
—
(6.0)
(8.3)
—
(3.8)
(2.1)
(2.4)
—
—
—
—
—
—
Operating income (GAAP)
$629.7
$467.9
35
$427.6
$375.3
$358.5
$169.3
OUTDOORS & SECURITY
Operating income before charges/gains
Restructuring charges (a)
Other charges (a)
$305.0
(10.4)
$205.2
(3.0)
49
247
$177.4
(1.7)
$155.3
(4.7)
$163.0
(4.1)
$60.6
—
Cost of products sold
Selling, general and administrative expenses
Change in inventory costing method (b)
Asset impairment charges (c)
Loss on sale of product line
(3.4)
0.7
—
—
—
(0.9)
—
—
—
—
Operating income (GAAP)
$291.9
$201.3
278
100
—
—
—
45
(3.4)
—
—
—
—
(7.3)
1.2
11.1
—
—
(5.6)
(0.8)
—
(3.2)
(2.4)
—
—
—
(7.3)
—
$172.3
$155.6
$146.9
$53.3
CABINETS
Operating income before charges/gains
Restructuring charges (a)
Other charges (a)
Cost of products sold
Selling, general and administrative expenses
Asset impairment charges (c)
Operating income (GAAP)
CORPORATE
Operating income (loss) before charges/gains
Restructuring charges (a)
Other charges (a)
$287.2
(4.2)
$256.0
(5.5)
12
(24)
$230.5
(10.2)
$232.3
(16.8)
$272.4
(1.4)
$40.2
(4.7)
(3.7)
—
—
(5.1)
(0.2)
(9.5)
(27)
(100)
(100)
0.1
(0.6)
(41.5)
(9.1)
(0.3)
(62.6)
(1.6)
(2.2)
—
(8.9)
—
(5.9)
$279.3
$235.7
18
$178.3
$143.5
$267.2
$20.7
1,249
$(108.6)
—
$(93.7)
(1.4)
16
(100)
$(79.7)
—
$(78.9)
—
$(85.0)
—
$(59.5)
—
Selling, general and administrative expenses
Asset impairment charges (c)
Corporate expense (GAAP)
(1.9)
—
(8.4)
—
$(110.5)
$(103.5)
(77)
—
7
—
—
(0.3)
—
—
(5.1)
—
—
$(79.7)
$(79.2)
$(90.1)
$(59.5)
FORTUNE BRANDS HOME & SECURITY
Operating income before charges/gains
Restructuring charges (a)
Other charges (a)
$1,116.3
(13.5)
$857.1
(15.9)
30
(15)
$764.0
(14.7)
$704.7
(24.1)
$716.2
(8.3)
$210.6
(4.7)
Cost of products sold
Selling, general and administrative expenses
Change in inventory costing method (b)
Asset impairment charges (c)
Loss on sale of product line
(9.1)
(3.3)
—
—
—
(10.4)
(6.9)
—
(22.5)
—
(13)
(52)
—
(100)
—
(5.9)
(3.4)
—
(41.5)
—
(22.4)
(7.7)
7.3
(62.6)
—
(9.3)
(5.4)
—
(8.3)
(2.4)
(8.9)
—
—
(13.2)
—
Operating income (GAAP)
$1,090.4
$801.4
36
$698.5
$595.2
$682.5
$183.8
Operating income before charges/gains is operating income derived in accordance with U.S. generally accepted accounting principles
(“GAAP”) excluding restructuring and other charges, a benefit from an inventory costing change, asset impairment charges and the loss on sale
of product line. 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.
(a) (b) (c) For definitions of Non-GAAP measures, see Definitions of Terms page
90
274
100
(100)
(100)
—
—
272
403
(100)
(100)
100
—
(100)
—
448
614
(11)
(58)
—
(100)
83
—
(100)
—
86
430
187
2
(100)
—
(100)
—
493
Before Charges/Gains Operating Margin to Operating Margin
(Unaudited)
Twelve Months Ended
PLUMBING
Before charges/gains operating margin
Restructuring & Other Charges (a)
Change in inventory costing method (b)
Asset impairment charges (c)
Operating margin
OUTOORS & SECURITY
Before charges/gains operating margin
Restructuring & Other Charges (a)
Change in inventory costing method (b)
Asset impairment charges (c)
Loss on sale of product line
Operating margin
CABINETS
Before charges/gains operating margin
Restructuring & Other Charges (a)
Asset impairment charges (c)
Operating margin
FORTUNE BRANDS HOME & SECURITY
Before charges/gains operating margin
Restructuring & Other Charges (a)
Change in inventory costing method (b)
Asset impairment charges (c)
Loss on sale of product line
Operating margin
2021
2020
22.9%
(0.1%)
—
—
22.8%
14.9%
(0.6%)
—
—
—
14.3%
10.1%
(0.3%)
—
9.8%
14.6%
(0.4%)
—
—
—
14.2%
22.2%
(0.4%)
—
(0.6%)
21.2%
14.5%
(0.3%)
—
—
—
14.2%
10.4%
(0.5%)
(0.4%)
9.5%
14.1%
(0.5%)
—
(0.4%)
—
13.2%
% Change
2021 vs 2020
70 bps
160 bps
40 bps
10 bps
(30) bps
30 bps
50 bps
100 bps
2019
2018
2017
21.5%
(0.4%)
—
—
21.1%
13.2%
(0.4%)
—
—
—
12.8%
9.7%
(0.4%)
(1.8%)
7.5%
13.3%
(0.5%)
—
(0.7%)
—
12.1%
21.0%
(0.9%)
(0.2%)
—
19.9%
13.1%
(0.8%)
0.9%
—
—
13.2%
9.6%
(1.1%)
(2.6%)
5.9%
12.8%
(1.0%)
0.1%
(1.0%)
—
10.9%
21.3%
(0.5%)
—
—
20.8%
14.9%
(1.0%)
—
(0.3%)
(0.2%)
13.4%
11.0%
(0.2%)
—
10.8%
13.6%
(0.4%)
—
(0.2%)
(0.1%)
12.9%
Operating margin is calculated as operating income derived in accordance with GAAP divided by GAAP net sales. Before charges/gains
operating margin is operating income derived in accordance with GAAP excluding restructuring and other charges, a benefit from an inventory
costing change, asset impairment charges and the loss on sale of product line, divided by GAAP net sales. Before charges/gains operating
margin is a measure not derived in accordance with GAAP. Management uses this measure to evaluate the returns generated by FBHS and
its business segments. Management believes this measure provides investors with helpful supplemental information regarding the underlying
performance of the Company from period to period. This measure may be inconsistent with similar measures presented by other companies.
(a) (b) (c) For definitions of Non-GAAP measures, see Definitions of Terms page
91
Diluted EPS Before Charges/Gains Reconciliation
(Unaudited)
Twelve Months Ended December 31,
2021
2020
% Change
2021 vs 2020
2019
2018
2017
2012
% Change
2021 vs 2012
Earnings Per Common Share — Diluted
Diluted EPS before charges/gains (e)
$5.73
$4.19
37
$3.60
$3.34
$3.08
$0.83
Restructuring and other charges (a)
Change in inventory costing method (b)
Asset impairment charges (c)
Tax items
Loss on sale of product line
(Loss) gain on equity investments (g)
Defined benefit plan actuarial losses (d)
(0.17)
—
—
—
—
(0.02)
—
(0.19)
—
(0.13)
0.03
—
0.06
(0.02)
(11)
—
(100)
(100)
—
(133)
(100)
(0.13)
—
(0.22)
(0.01)
—
—
(0.18)
(0.30)
0.04
(0.35)
(0.05)
—
—
(0.02)
(0.10)
—
(0.07)
0.16
(0.02)
—
—
(0.05)
—
(0.05)
0.08
—
—
(0.16)
590
240
—
(100)
(100)
—
—
(100)
Diluted EPS — continuing operations
$5.54
$3.94
41
$3.06
$2.66
$3.05
$0.65
752
For the twelve months ended December 31, 2021, diluted EPS before charges/gains is net income less noncontrolling interests calculated on
a diluted per-share basis excluding $28.1 million ($22.9 million after tax or $0.17 per diluted share) of restructuring and other charges; including
$2.2 million of mark-to-market expense classified in the other expense, net associated with the acquisition of the remaining outstanding shares
of Flo, which occurred in January 2022, loss on equity investments of $4.5 million ($3.4 million net of tax or $0.02 per diluted share), the impact
from actuarial losses associated with our defined benefit plans of $1.0 million ($0.7 million net of tax) and a net tax expense of $0.2 million.
For the twelve months ended December 31, 2020, diluted EPS before charges/gains is net income less noncontrolling interests calculated on
a diluted per-share basis excluding $33.2 million ($27.1 million after tax or $0.19 per diluted share) of restructuring and other charges, asset
impairment charges of $22.5 million ($17.6 million after tax or $0.13 per diluted share), gain on equity investments of $11.0 million ($8.3 million
net of tax or $0.06 per diluted share), the impact from actuarial losses associated with our defined benefit plans of $3.2 million ($2.3 million
after tax or $0.02 per diluted share) and a tax benefit of $3.8 million ($0.03 per diluted share).
For the twelve months ended December 31, 2019, diluted EPS before charges/gains is net income less noncontrolling interests calculated on a
diluted per-share basis excluding $24.0 million ($18.1 million after tax or $0.13 per diluted share) of restructuring and other charges, intangible
asset impairment charges of $41.5 million ($31.4 million after tax or $0.22 per diluted share), the impact from actuarial losses associated with
our defined benefit plans of $34.1 million ($25.8 million after tax or $0.18 per diluted share) and a net tax charge of $1.3 million ($0.01 per
diluted share).
For the twelve months ended December 31, 2018, diluted EPS before charges/gains is net income from continuing operations, net of tax less
noncontrolling interests calculated on a diluted per-share basis excluding $54.2 million ($43.4 million after tax or $0.30 per diluted share) of
restructuring and other charges, asset impairment charges of $62.6 million ($50.8 million after tax or $0.35 per diluted share), a benefit from
an inventory costing change of $7.3 million ($5.5 million after tax or $0.04 per diluted share), a net tax charge principally related to an update
to the estimated impact from the Tax Cuts and Jobs Act of 2017 ($7.2 million or $0.05 per diluted share) and the impact from actuarial losses
associated with our defined benefit plans of $3.9 million ($2.9 million after tax or $0.02 per diluted share).
For the twelve months ended December 31, 2017, diluted EPS before charges/gains is income from continuing operations, net of tax less
noncontrolling interests calculated on a diluted per-share basis excluding $23.0 million ($16.3 million after tax or $0.10 per diluted share)
of restructuring and other charges, asset impairments of $15.3 million ($11.1 million after tax or $0.07 per diluted share), the loss on sale of
product line of $2.4 million ($2.5 million after tax or $0.02 per diluted share), the impact from actuarial gains associated with our defined benefit
plans of $0.5 million ($0.3 million after tax) and an income tax gain arising from a net benefit related to the Tax Cuts and Jobs Act of 2017 of
$25.7 million ($0.16 per diluted share).
For the twelve months ended December 31, 2012, diluted EPS before charges/gains is income from continuing operations, net of tax less
noncontrolling interests calculated on a diluted per-share basis excluding $13.6 million ($8.9 million after tax or $0.05 per diluted share) of
restructuring and other charges, asset impairment charges of $13.2 million ($8.1 million after tax or $0.05 per diluted share) pertaining to
the impairment of certain indefinite lived trade names, income tax gains pertaining to the favorable resolution of tax audits of $12.7 million
($0.08 per diluted share) and the impact from actuarial losses associated with our defined benefit plans of $42.2 million ($26.2 million after tax
or $0.16 per diluted share).
(a) (b) (c) (d) (e) (g) For definitions of Non-GAAP measures, see Definitions of Terms page.
92
Reconciliation of EBITDA Before Charges/Gains to Income From Continuing Operations
(net of tax)
(Unaudited)
Twelve Months Ended December 31,
2021
2020
2019
2018
2017
2012
% Change
2021 vs 2012
EBITDA before charges/gains (f)
$1,308.2
$1,017.6
$919.9
$868.3
$854.7
$289.7
352
Depreciation *
Amortization of intangible assets
Interest expense
Restructuring and other charges (a)
Change in inventory costing method (b)
Asset impairment charges (c)
Equity in losses of affiliate
(Loss) gain on equity investments (g)
Loss on sale of product line
Defined benefit plan actuarial gains/(losses) (d)
Income taxes
$(121.1)
(64.1)
(84.4)
(28.1)
—
—
—
(4.5)
—
(0.9)
(232.7)
$(113.0)
(42.0)
(83.9)
(33.2)
—
(22.5)
(7.6)
11.0
—
(3.2)
(168.8)
$(109.4)
(41.4)
(94.2)
(24.0)
—
(41.5)
—
—
—
(34.1)
(144.0)
$(107.3)
(36.1)
(74.5)
(54.2)
7.3
(62.6)
—
—
—
(3.9)
(147.0)
$(98.6)
(31.7)
(49.4)
(23.0)
—
(15.3)
—
—
(2.4)
0.5
(159.5)
$(69.6)
(7.4)
(8.5)
(13.6)
—
(13.2)
—
—
—
(42.2)
(26.9)
74
766
893
107
—
(100)
—
(100)
—
(98)
765
Income from continuing operations,
net of tax
$772.4
$554.4
$431.3
$390.0
$475.3
$108.3
613
*Depreciation excludes accelerated depreciation expense for the twelve months ended December 31, 2021 of ($3.9) million, 2020 of
($8.5) million, 2019 of ($1.9) million, 2018 of ($6.2) million, and ($8.7) million for 2012. Accelerated depreciation is included in restructuring and
other charges.
(a) (b) (c) (d) (f) (g) For definitions of Non-GAAP measures, see Definitions of Terms page
93
Definitions of Terms: Non-GAAP Measures
(a) Restructuring charges are costs incurred to implement significant cost reduction initiatives and include workforce reduction costs. “Other
charges” represent pre-tax 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, write-off of displays from exiting a customer relationship, impairments related to previously closed
facilities and gains or losses on the sale of previously closed facilities.
In total, the Company recognized other charges of $7.2 million for the twelve months ended December 31, 2021, $9.2 million for the twelve
months ended December 31, 2020, $7.5 million for the twelve months ended December 31, 2019, $11.3 million for the twelve months
ended December 31, 2018, $10.2 million for the twelve months ended December 31, 2017 and $8.9 million for the twelve months ended
December 31, 2012.
At Corporate, other charges for the twelve months ended December 31, 2021 include $0.3 million for banking, legal, accounting and
other similar services directly related to the acquisition of LARSON classified in selling, general and administrative expenses, a charge of
$0.2 million for a loss on sale of a Corporate asset and $1.3 million of external costs directly related to evaluation of acquisition targets,
these external costs include expenditures for accounting, tax and other similar services. Other charges for the twelve months ended
December 31, 2020 include expenditures of $4.5 million for banking, legal, accounting and other similar services directly related to the
acquisition of LARSON classified in selling, general and administrative expenses and a charge of $3.6 million for an impairment of a
Corporate asset. Other charges for the twelve months ended December 31, 2018 include $0.3 million of expense associated with our
assessment of impact on the Company from the Tax Cuts and Jobs Act of 2017.
In our Outdoors & Security segment, other charges for the twelve months ended December 31, 2021 include an acquisition-related
inventory step-up expense (LARSON) of $3.4 million classified in cost of products sold. Other charges also include an acquisition-related
inventory step-up expense (Fiberon) classified in cost of products sold of $1.8 million for the twelve months ended December 31, 2019 and
$4.9 million for the twelve months ended December 31, 2018.
In our Plumbing segment, other charges for the twelve months ended December 31, 2018 include compensation expense classified in
selling, general and administrative expense of $8.1 million and $5.5 million associated with acquisition-related inventory step-up expense
(Victoria + Albert) classified in cost of products sold. Other charges for the twelve months ended December 31, 2017 include $2.1 million
associated with acquisition-related inventory step-up expense (Victoria + Albert), and $1.6 million related to deferred purchase price
consideration payable to certain former (Victoria + Albert) shareholders contingent on their employment through October 2018, and
$0.7 million of transaction related to U.K. stamp duty resulting from our acquisition of (Victoria + Albert).
(b) During the fourth quarter of 2018, we determined that it was preferable to change our accounting policy for product groups in which metals
inventory comprise a significant portion of inventories from last-in, first-out (“LIFO”) to first-in, first-out (“FIFO”). As a result, we recorded a
pre-tax benefit of $7.3 million within cost of products sold during the twelve months ended December 31, 2018.
(c) Asset impairments charges for the twelve months ended December 31, 2020 represent impairment charges of $22.5 million related
to indefinite-lived tradenames in our Cabinets and Plumbing segments. Asset impairments charges for the twelve months ended
December 31, 2019 represent impairment charge of $29.5 million related to indefinite-lived tradenames in our Cabinets segment. Asset
impairments charges for the twelve months ended December 31, 2018 represent impairment charges of $62.6 million related to two
indefinite-lived tradenames within our Cabinets segment. Asset impairments charges for the twelve months ended December 31, 2017
represent an impairment of a cost investment in a developmental stage home security company classified in other expense and at
Corporate, an impairment of a long-lived asset classified in selling, general and administrative expenses and impairments related to the sale
of the Field ID product line. Asset impairments charges for the twelve months ended December 31, 2012 represent impairment charges of
$13.2 million related to two indefinite-lived tradenames within our Cabinets and Security segments.
(d) 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 other income (expense) 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 other income (expense) 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 diluted EPS 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 diluted EPS as measured on a GAAP basis. We present this supplemental information because such actuarial gains
or losses may create volatility in our diluted EPS 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
94
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)
Actual return on plan assets
Expected return on plan assets
Discount rate at December 31:
2021
$
%
6.6% $48.4
34.9
4.4%
2020
Years Ending December 31,
2019
2018
2017
2012
%
$
%
$
%
$
%
$
%
$
16.5% $101.3
32.8
4.5%
19.7% $106.8
35.2
4.9%
(3.5)% ($30.7)
41.0
6.0%
16.3% $83.2
37.3
6.4%
14.5% $63.7
36.8
7.8%
Pension benefits
Postretirement benefits
2.9%
3.9%
2.6%
5.9%
3.3%
3.0%
4.4%
4.2%
3.8%
3.4%
4.2%
3.7%
(e) 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, a benefit from a change in inventory costing method, asset impairment charges, tax
items, loss on sale of product line, gain (loss) on equity investments, gains (losses) associated with our defined benefit plans, and the write-
off of prepaid debt issuance costs. 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.
(f) EBITDA before charges/gains is income from continuing operations, net of tax, derived in accordance with GAAP excluding depreciation,
amortization of intangible assets, interest expense, restructuring and other charges, a benefit from a change in inventory costing method,
asset impairment charges, equity in losses of affiliate, gain (loss) on equity investments, loss on sale of product line, gains (losses)
associated with our defined benefit plans and income taxes. EBITDA before charges/gains is a measure not derived in accordance with
GAAP. Management uses this measure to assess returns generated by the Company. Management believes this measure provides
investors with helpful supplemental information about the Company’s ability to fund internal growth, make acquisitions and repay debt and
related interest. This measure may be inconsistent with similar measures presented by other companies.
(g) Gain (loss) on equity investments is related to our investment in Flo Technologies.
Cautionary Statement Concerning Forward-Looking Statements
This Annual Report contains certain “forward-looking statements” regarding business strategies, market potential, future financial performance
and other matters, including all statements with words such as “will,” “should,” “could,” “expects,” “look to” or “potential.” 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 the current
plans and expectations at the time of this Annual Report. Although we believe that these statements are based on reasonable assumptions,
they are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from
those indicated in such statements, including the risks described in Item 1A of our Annual Report on Form 10-K as filed with the Securities
and Exchange Commission. Except as required by law, we undertake no obligation to update or revise 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.
Use of Non-GAAP Financial Information
This Annual Report includes financial measures, including operating income before charges/gains, operating margin before charges/gains,
EBITDA before charges/gains, segment income and diluted EPS before charges/gains, that are derived on the basis of methodologies other
than in accordance with U.S. generally accepted accounting principles (GAAP). We offer these measures to assist investors in assessing our
financial performance and liquidity under GAAP, but investors should not rely on these measures as a substitute for any GAAP measure. In
addition, these measures may be inconsistent with similarly titled measures presented by other companies. For more information, including
reconciliations of these non-GAAP financial measures to the most comparable GAAP measures, please see the reconciliation tables in this
Annual Report.
95
CO R P O R ATE DATA
Transfer Agent for Common Stock
EQ Shareowner Services
1110 Centre Pointe Curve
Suite 101
Mendota Heights, MN 55120-4100
800-468-9716
Earnings & News
ir.FBHS.com
Duplicate mailings of proxy materials
to the same address are costly and
may be inconvenient. Stockholders
who wish to eliminate duplicate
mailings must provide their request in
writing. Eliminating duplicate mailings
will not affect your voting rights.
For Inquiries
Fortune Brands Home & Security, Inc.
Shareholder Services
520 Lake Cook Road
Suite 300
Deerfield, IL 60015-5611
SEC Filings
Our Annual Report on Form 10-K, as
filed with the SEC for the last fiscal year,
and this 2021 Annual Report are being
distributed in connection with our 2022
Annual Meeting of Stockholders. You
may also view electronic copies of our
Annual Report on Form 10-K and other
documents we file with the SEC on our
investor relations website, ir.FBHS.com.
Fortune Brands Home & Security, Inc.
is a holding company with subsidiaries
engaged in the manufacture and sale of
home and security products. To make this
Annual Report easier to read, we’ve used
“we,” “our,” “FBHS,” “Fortune Brands”
and similar terms to describe the
activities of Fortune Brands Home &
Security, Inc., or its subsidiary companies
or both, depending on the context.
Executive Office
520 Lake Cook Road
Suite 300
Deerfield, IL 60015-5611
847-484-4400
Website
FBHS.com
Email
Mail@FBHS.com
Registered Office
251 Little Falls Drive
Wilmington, DE 19808
Common Stock
Fortune Brands Home & Security,
Inc., common stock is listed on
the New York Stock Exchange.
Our trading symbol is FBHS.
Annual Meeting
The Annual Meeting of
Stockholders will take place on
May 3, 2022, at 8:00 a.m. (CDT).
Visit ir.fbhs.com for details.
K E Y B R AN DS
Cabinets
Plumbing
Outdoors & Security
Throughout this Annual Report, we refer to numerous
trademarks, trade names and brands. Moen, Riobel,
ROHL, Perrin & Rowe, Shaws, Victoria + Albert, Fiberon,
Therma-Tru, LARSON, Master Lock, SentrySafe, and
MasterBrand Cabinets are among the trademarks or trade
names held by subsidiaries of Fortune Brands Home &
Security, Inc., and are registered, pending registration, and/
or common law marks in the U.S. and/or various countries.
Occasionally, in conveying information, we refer to
trademarks of third parties. Such trademarks are the
property of their respective owners.
Therma-Tru was awarded the No. 1 most-used entry door
brand in the United States among residential building
professionals, based on the 2021 Builder magazine Brand
Use Study.
Fortune Brands Home & Security, Inc. was named
to Newsweek’s 2022 list of America’s Most
Responsible Companies.
Fortune Brands Home & Security, Inc. was named to Fortune
magazine's 2022 list of World's Most Admired Companies.
From Fortune. ©2022 Fortune Media IP Limited. All rights
reserved. Used under license. Fortune and Fortune Media
IP Limited are not affiliated with, and do not endorse the
products or services of Fortune Brands Home & Security, Inc.
9696
Board of Directors
Susan Saltzbart
Kilsby
Non-executive Chair of
the Board
Former Senior Advisor
Credit Suisse Group AG
Nicholas I. Fink
Chief Executive Officer
Fortune Brands Home
& Security, Inc.
Amit Banati
Senior Vice President
& Chief Financial
Officer
Kellogg Company
Irial Finan
Former Executive
Vice President of
The Coca-Cola
Company &
President of Bottling
Investments Group
Ann Fritz Hackett
Former Strategy
Consulting Partner &
Co-Founder Personal
Pathways LLC
A.D. David Mackay
Former President &
Chief Executive Officer
Kellogg Company
John G. Morikis
Chairman & Chief
Executive Officer
The Sherwin-
Williams Company
Jeffery Perry
Founder & Chief
Executive Officer
Lead Mandates LLC
David M. Thomas
Former Chairman &
Chief Executive Officer
IMS Health Incorporated
Ronald V. Waters, III
Former President &
Chief Executive Officer
LoJack Corporation
Leadership Team
Nicholas I. Fink
Chief Executive Officer
Patrick D. Hallinan
Senior Vice President &
Chief Financial Officer
R. David Banyard, Jr.
President, Cabinets
Hiranda S. Donoghue
Senior Vice President,
General Counsel
& Secretary
Brett E. Finley
President,
Outdoors & Security
Sheri R. Grissom
Senior Vice President
& Chief Human
Resources Officer
John D. Lee
Senior Vice President,
Global Growth
& Development
Cheri M. Phyfer
President, Plumbing
May Russell
Senior Vice President &
Chief Digital Officer
Marty Thomas
Senior Vice President,
Operations & Supply
Chain Strategy
Fortune Brands is a home and security
consumer products company built on
industry-leading brands and innovative
products for kitchens, bathrooms,
entryways and outdoor living spaces,
and for protection and security.
To learn more, visit www.FBHS.com.
520 Lake Cook Road, Suite 300
Deerfield, IL 60015-5611
iv / FORTUNE BRANDS