Fortune Brands Home & Security, Inc. (Form: 10-Q, Received: 11/05/2012 16:17:48)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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		62-1411546
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

520 Lake Cook Road, Deerfield, Illinois		60015-5611
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (847) 484-4400

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer (Do not check if a smaller reporting company) x Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at October 31, 2012 was 162,803,945.

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS.

FORTUNE BRANDS HOME & SECURITY, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(In millions, except per share amounts)

(Unaudited)


	Nine Months Ended September 30,					Three Months Ended September 30,
	2012			2011		2012			2011
Net sales	$	2,643.2		$	2,452.5	$	909.1		$	848.0

Cost of products sold		1,776.7			1,695.1		606.8			592.2
Selling, general and administrative expenses		699.6			648.4		236.2			228.0
Amortization of intangible assets		8.6			11.0		2.4			3.5
Restructuring charges		4.1			1.8		3.1			1.1
Business separation costs		—			2.4		—			2.4

Operating income		154.2			93.8		60.6			20.8

Related party interest expense, net		—			23.2		—			0.2
External interest expense (income)		6.6			0.2		2.0			(0.1	)
Other (income) expense, net		(0.6	)		1.9		(0.8	)		1.8

Income before income taxes		148.2			68.5		59.4			18.9

Income tax provision		47.1			32.2		19.2			16.4

Net income		101.1			36.3		40.2			2.5

Less: Noncontrolling interests		0.8			0.9		0.2			0.3

Net income attributable to Home & Security	$	100.3		$	35.4	$	40.0		$	2.2

Basic earnings per common share	$	0.63		$	0.23	$	0.25		$	0.01
Diluted earnings per common share	$	0.61		$	0.23	$	0.24		$	0.01

Comprehensive income (loss)	$	114.8		$	22.4	$	54.0		$	(19.4	)

See notes to condensed consolidated financial statements.

FORTUNE BRANDS HOME & SECURITY, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(In millions)

(Unaudited)


	September 30, 2012			December 31, 2011
Assets
Current assets
Cash and cash equivalents	$	216.1		$	120.8
Accounts receivable, net		407.1			346.1
Inventories		392.3			336.3
Other current assets		122.9			150.3

Total current assets		1,138.4			953.5
Property, plant and equipment, net		497.8			525.8
Goodwill resulting from business acquisitions		1,368.4			1,366.6
Other intangible assets, net of accumulated amortization		698.1			702.9
Other assets		81.8			89.1

Total assets	$	3,784.5		$	3,637.9

Liabilities and equity
Current liabilities
Notes payable to banks	$	5.3		$	3.8
Current portion of long-term debt		—			17.5
Accounts payable		253.5			260.7
Other current liabilities		339.0			315.8

Total current liabilities		597.8			597.8

Long-term debt		339.3			389.3
Deferred income taxes		205.0			204.1
Accrued defined benefit plans		229.9			248.2
Other non-current liabilities		78.2			74.0

Total liabilities		1,450.2			1,513.4


Equity
Home & Security stockholders’ equity
Common stock ^(a)		1.6			1.6
Paid-in capital		2,289.6			2,186.4
Accumulated other comprehensive income		24.3			10.6
Retained earnings (deficit)		22.6			(77.7	)
Treasury stock		(7.2	)		(0.1	)

Total Home & Security stockholders’ equity		2,330.9			2,120.8
Noncontrolling interests		3.4			3.7

Total equity		2,334.3			2,124.5


Total liabilities and equity	$	3,784.5		$	3,637.9

^(a)

Common stock par value $0.01 per share; 160.5 million shares issued and 750 million shares authorized.

See notes to condensed consolidated financial statements.

FORTUNE BRANDS HOME & SECURITY, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In millions)

(Unaudited)


	Nine Months Ended September 30,
	2012			2011
Operating activities
Net income	$	101.1		$	36.3
Non-cash pre-tax expense (income):
Depreciation		70.4			65.0
Amortization		8.6			11.0
Stock-based compensation		20.4			10.9
(Gain) loss on sale of property, plant and equipment		(3.0	)		0.9
Deferred income taxes		5.6			3.4
Changes in assets and liabilities:
Increase in accounts receivable		(58.8	)		(17.9	)
Increase in inventories		(53.6	)		(35.1	)
(Decrease) increase in accounts payable		(8.1	)		4.5
Decrease (increase) in other assets		14.2			(31.2	)
Increase (decrease) in accrued expenses and other liabilities		19.6			(28.8	)
Increase in accrued taxes		3.0			4.0

Net cash provided by operating activities		119.4			23.0


Investing activities
Capital expenditures		(46.0	)		(41.4	)
Proceeds from the disposition of assets		12.6			3.4
Acquisitions, net of cash acquired		—			(6.0	)
Other investing activities		(5.0	)		—

Net cash used in investing activities		(38.4	)		(44.0	)


Financing activities
Increase in short-term debt, net		1.5			0.7
Issuance of long-term debt		70.0			—
Repayment of long-term debt		(137.5	)		—
Proceeds from the exercise of stock options		80.6			—
Treasury stock purchases		(2.2	)		—
Net loan payments from Fortune Brands, Inc.		—			74.4
Capital contribution (to) from Fortune Brands, Inc. ^(a)		(6.0	)		15.9
Other financing, net		4.8			(2.1	)

Net cash provided by financing activities		11.2			88.9


Effect of foreign exchange rate changes on cash		3.1			(1.0	)

Net increase in cash and cash equivalents	$	95.3		$	66.9

Cash and cash equivalents at beginning of period	$	120.8		$	60.7
Cash and cash equivalents at end of period	$	216.1		$	127.6

^(a)

The 2011 allocation of general and administrative expenses provided by Fortune Brands, Inc. (net of tax) is included in the Consolidated Statement of Comprehensive Income and treated as a capital contribution. Refer to Note 3, “Related Party Transactions.”

See notes to condensed consolidated financial statements.

FORTUNE BRANDS HOME & SECURITY, INC.

CONDENSED CONSOLIDATED STATEMENT OF EQUITY

(In millions)

(Unaudited)


	Common Stock		Paid-In Capital			Accumulated Other Comprehensive Income			Retained Earnings (Deficit)			Treasury Stock			Non-controlling Interests			Total Equity
Balance at December 31, 2010	$	—	$	703.3		$	29.5		$	(793.0	)	$	—		$	3.5		$	(56.7	)
Comprehensive income:
Net income		—		—			—			35.4			—			0.9			36.3
Other comprehensive income		—		—			(13.9	)		—			—			—			(13.9	)
Common stock split		1.6		(1.6	)		—			—			—			—			—
Dividends paid to noncontrolling interests		—		—			—			—			—			(0.8	)		(0.8	)
Dividends declared to Fortune Brands, Inc.		—		(568.3	)		—			—			—			—			(568.3	)

Fortune Brands, Inc. capital contribution ^(a)		—		2,729.7			—			—			—			—			2,729.7

Balance at September 30, 2011	$	1.6	$	2,863.1		$	15.6		$	(757.6	)	$	—		$	3.6		$	2,126.3


Balance at December 31, 2011	$	1.6	$	2,186.4		$	10.6		$	(77.7	)	$	(0.1	)	$	3.7		$	2,124.5

Comprehensive income:
Net income		—		—			—			100.3			—			0.8			101.1
Other comprehensive income		—		—			13.7			—			—			—			13.7
Stock options exercised		—		80.6			—			—			—			—			80.6
Stock-based compensation		—		20.6			—			—			(4.9	)		—			15.7
Tax benefit on exercise of stock options		—		7.1			—			—			—			—			7.1
Separation-related adjustments (see note 3)		—		(5.1	)		—			—			—			—			(5.1	)
Treasury stock purchases		—		—			—			—			(2.2	)		—			(2.2	)
Dividends paid to noncontrolling interests		—		—			—			—			—			(1.1	)		(1.1	)

Balance at September 30, 2012	$	1.6	$	2,289.6		$	24.3		$	22.6		$	(7.2	)	$	3.4		$	2,334.3

(a)

The 2011 allocation of general and administrative expenses provided by Fortune Brands, Inc. (net of tax) and stock-based compensation are included in the Condensed Consolidated Statement of Comprehensive Income, and with the tax benefit on exercise of options, are treated as a capital contribution. In addition, in the first quarter of 2011, Fortune Brands, Inc. made a $2.7 billion equity contribution to the Company. All related party loan balances to/from Fortune Brands, Inc. were capitalized immediately prior to the spin-off. Refer to Note 3, “Related Party Transactions.”

See notes to condensed consolidated financial statements.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.	Background, Basis of Presentation and Principles of Consolidation

Separation - On October 3, 2011, the spin-off of Fortune Brands Home & Security, Inc. from Fortune Brands, Inc. (“Former Parent”) into an independent, publicly traded company (the “Separation”) was completed. For more information regarding the Separation, see our Annual Report on Form 10-K for the year-ended December 31, 2011. References to “Home & Security,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Home & Security, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires.

The Company is a leading home and security products company with a portfolio of leading branded products used for residential home repair, remodeling, new construction, security applications and storage.

Basis of Presentation - The condensed consolidated financial statements include the accounts of Home & Security and its majority-owned subsidiaries.

The condensed consolidated balance sheet as of September 30, 2012, the related condensed consolidated statement of comprehensive income for the nine-month and three-month periods ended September 30, 2012 and 2011 and the related condensed consolidated statements of cash flows and equity for the nine-month period ended September 30, 2012 and 2011 are unaudited. In the opinion of management, all adjustments necessary for a fair statement of the financial statements have been included. Interim results may not be indicative of results for a full year.

The condensed consolidated financial statements and notes are presented in accordance with U.S. generally accepted accounting principles (“GAAP”) and rules and regulations of the Securities and Exchange Commission for interim financial information and do not contain certain information included in our annual consolidated financial statements and notes. The year-end condensed consolidated balance sheet was derived from the audited financial statements, but does not include all annual disclosures required by GAAP. The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2011.

The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q may not necessarily reflect the Company’s results of operations, financial condition and cash flows in the future or what its results of operations, financial condition and cash flows would have been had the Company been a stand-alone company during the first nine months of 2011.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

1.	Background, Basis of Presentation and Principles of Consolidation (Continued)

The condensed consolidated financial statements and segment information included in this Quarterly Report on Form 10-Q have been derived principally from the consolidated financial statements of the Company. Prior to the Separation, the Company was a wholly-owned subsidiary of our Former Parent. Our financial statements from periods prior to the Separation were derived from the historical results of operations and historical basis of assets and liabilities and include allocations of general corporate expenses incurred directly by our Former Parent totaling $23.4 million and $8.1 million for the nine and three months ended September 30, 2011, respectively. These allocated expenses include costs associated with legal, finance, treasury, accounting, internal audit and general management services and are included in “Corporate” in the accompanying segment information. Management believes that the assumptions and methodologies underlying the allocation of these general corporate expenses were reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by the Company if it had operated as an independent company during the first nine months of 2011.

2.	Recently Issued Accounting Standards

Presentation of Comprehensive Income

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-05, “Statement of Comprehensive Income.” This standard requires entities to present items of net income and other comprehensive income either in one continuous statement or in two separate, but consecutive, statements. The new requirements were effective for public entities as of the beginning of the fiscal year that begins after December 15, 2011 (calendar year 2012 for Home & Security). Full retrospective application was required. Adoption of this standard did not have a material impact on our financial statements.

Testing Indefinite-Lived Intangible Assets for Impairment

In July 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment.” ASU 2012-02 allows an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. The amendment is effective for fiscal years beginning after September 15, 2012 (calendar year 2013 for Home & Security). We believe that adoption of this standard will not have a material impact on our financial statements.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

3.	Related Party Transactions

Prior to the Separation, Home & Security had certain related party relationships with our Former Parent and its subsidiaries, as discussed below. Pursuant to the Separation and Distribution Agreement, the Indemnification Agreement and certain other agreements, our Former Parent agreed to indemnify us from certain liabilities and we agreed to indemnify our Former Parent from certain liabilities. Indemnities that we may be required to provide our Former Parent may be significant and could negatively impact our business, financial condition and results of operations.

Upon the Separation, our Former Parent ceased providing financing, cash management and treasury services to the Company. Immediately prior to the Separation, on October 3, 2011, Home & Security paid a dividend to our Former Parent in the amount of $500 million. In addition, the Company paid a dividend of $48.9 million to our Former Parent prior to the Separation on October 3, 2011 and made a payment of $6.0 million to our Former Parent on January 3, 2012. These two payments represented U.S. cash balances generated from August 26, 2011, the date of the conversion of the Company from a Delaware limited liability company to a Delaware corporation, through the date of the Separation.

Financing and Cash Management - Historically, our Former Parent provided financing, cash management and treasury services to Home & Security. The Company’s U.S. cash balances were swept by our Former Parent on a daily basis, and the Company received funding from our Former Parent for operating and investing cash needs. Cash transferred to and from the Company was recorded in the form of loans from or to our Former Parent. Loans accrued interest at rates of up to 6.0%. The weighted-average interest rate on loans to/from our Former Parent was 3.4% and 2.1% in the nine-month and three-month periods ended September 30, 2011, respectively. Related party interest expense and income are shown below.


(In millions)	Nine Months Ended September 30, 2011			Three Months Ended September 30, 2011
Related party interest expense	$	29.3		$	1.9
Related party interest income		(6.1	)		(1.7	)

Related party interest, net	$	23.2		$	0.2

General and Administrative Services - Until consummation of the Separation, our Former Parent performed certain functions and services on behalf of Home & Security. Refer to Note 1, “Background, Basis of Presentation and Principles of Consolidation,” for additional information.

Separation-related Adjustments to Paid-in Capital - Paid-in capital adjustments in the nine months ended September 30, 2012 were primarily due to amounts owed to our Former Parent pursuant to the Tax Allocation Agreement entered into in connection with the Separation. The Company may have adjustments to paid-in capital in future periods until our Former Parent’s tax liabilities for periods prior to the Separation are finalized with taxing authorities.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

4.	Balance Sheet Information

Supplemental information on our balance sheets is as follows:


(In millions)	September 30, 2012		December 31, 2011
Inventories:
Raw materials and supplies	$	160.7	$	137.1
Work in process		36.8		39.9
Finished products		194.8		159.3

Total inventories	$	392.3	$	336.3

Property, plant and equipment, gross	$	1,479.3	$	1,477.4
Less: accumulated depreciation		981.5		951.6

Property, plant and equipment, net	$	497.8	$	525.8

5.	Goodwill and Other Identifiable Intangible Assets

The change in the net carrying amount of goodwill by segment in the nine months ended September 30, 2012 was as follows:


(In millions)	Kitchen & Bath Cabinetry		Plumbing & Accessories		Advanced Material Windows & Door Systems		Security & Storage		Total Goodwill
Goodwill at December 31, 2011 ^(a)	$	491.2	$	569.7	$	230.2	$	75.5	$	1,366.6
Year-to-date translation adjustments		1.6		—		—		0.2		1.8

Goodwill at September 30, 2012 ^(a)	$	492.8	$	569.7	$	230.2	$	75.7	$	1,368.4

^(a)

Net of accumulated impairment losses of $541.4 million ($451.3 million in the Advanced Material Windows & Door Systems segment and $90.1 million in the Security & Storage segment).

Amortizable identifiable intangible assets, principally tradenames and customer relationships, are subject to amortization over their estimated useful life, 5 to 30 years, based on the assessment of a number of factors that may impact useful life. These factors include historical and tradename performance with respect to consumer name recognition, geographic market presence, market share, plans for ongoing tradename support and promotion and other relevant factors.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

5.	Goodwill and Other Identifiable Intangible Assets (Continued)

The gross carrying value and accumulated amortization by class of intangible assets as of September 30, 2012 and December 31, 2011 were as follows:


	As of September 30, 2012							As of December 31, 2011
	Gross					Net		Gross					Net
	Carrying		Accumulated			Book		Carrying		Accumulated			Book
(In millions)	Amounts		Amortization			Value		Amounts		Amortization			Value
Indefinite-lived tradenames	$	620.8	$	(42.0	) ^(b)	$	578.8	$	616.8	$	(42.0	) ^(b)	$	574.8
Amortizable intangible assets
Tradenames		17.2		(6.8	)		10.4		16.8		(6.1	)		10.7
Customer and contractual relationships		271.9		(173.0	)		98.9		270.1		(163.6	)		106.5
Patents/proprietary technology		50.8		(40.8	)		10.0		50.2		(39.3	)		10.9

Total		339.9		(220.6	)		119.3		337.1		(209.0	)		128.1

Total identifiable intangibles	$	960.7	$	(262.6	)	$	698.1	$	953.9	$	(251.0	)	$	702.9

^(b)

Accumulated amortization prior to the adoption of revised authoritative guidance on goodwill and other intangibles assets (Accounting Standards Codification (“ASC”) 350).

We reclassified $5.6 million of internally-developed patents and tradenames as of December 31, 2011 on the balance sheet from other assets to identifiable intangible assets consistent with our current presentation.

At December 31, 2011, the estimated excess fair value in the reporting units of the Advanced Material Windows & Door Systems segment was less than 10% of the carrying value and accordingly, any further reduction in the estimated fair values could trigger a goodwill impairment charge in future periods. In addition, any future reduction in the estimated fair value of the indefinite-lived tradenames of that segment would result in an impairment charge. With regard to each of our segments, we cannot predict the occurrence of certain events that might adversely affect the carrying value of goodwill and indefinite-lived tradenames. Such events may include, but are not limited to, the impact of the economic environment, a material negative change in relationships with significant customers and strategic decisions made in response to economic and competitive conditions. Our cash flow projections used to assess impairment of our goodwill and indefinite-lived tradenames are significantly influenced by our projection for the recovery of the U.S. market for our home products in the next 3 to 5 years and our annual operating plans that are finalized in the fourth quarter of each year. Our projection for the U.S. market for our home products is inherently subject to a number of uncertainties, such as employment, home prices, credit availability and the rate of home foreclosures. Significant changes in these and other factors could cause us to change our cash flow projections in future periods which could trigger impairment of goodwill or indefinite-lived intangible assets in the period in which such changes occur.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

6.	External Debt and Financing Arrangements

We have a $650 million 5-year committed revolving credit facility, as well as a $332.5 million term loan, both of which expire in October 2016. There was no outstanding balance on the revolving credit facility on September 30, 2012. The interest rates under these facilities are variable based on LIBOR at the time of the borrowing and the Company’s leverage as measured by a debt to Adjusted EBITDA ratio. Based upon the Company’s debt to Adjusted EBITDA ratio, the Company’s borrowing rate could range from LIBOR + 1.0% to LIBOR + 2.0%.

At September 30, 2012 and December 31, 2011, we had $5.3 million and $3.8 million of external short-term borrowings outstanding, respectively, comprised of notes payable to banks that are used for general corporate purposes. These amounts pertained to uncommitted bank lines of credit in China and India, which provide for unsecured borrowings for working capital of up to $22.7 million, as of September 30, 2012 and December 31, 2011. The weighted-average interest rates on these borrowings were 12.3% and 11.1% in the nine-month periods ended September 30, 2012 and 2011, respectively. The weighted-average interest rates on these borrowings were 12.5% and 10.3% in the three-month periods ended September 30, 2012 and 2011, respectively.

In addition, we had an industrial revenue bond outstanding in the amount of $6.8 million as of September 30, 2012 and December 31, 2011, comprised of a long-term note maturing in 2016.

7.	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. In addition, from time to time, we enter into commodity swaps.

Our primary foreign currency hedge contracts pertain to the Canadian dollar, the Chinese yuan and the Mexican peso. The gross U.S. dollar equivalent notional amount of foreign currency derivative hedges outstanding at September 30, 2012 was $165.5 million, representing a net settlement liability of $2.2 million. Based on foreign exchange rates as of September 30, 2012, we estimate that $1.5 million of net foreign currency derivative losses included in other comprehensive income as of September 30, 2012 will be reclassified to earnings within the next twelve months. The gross U.S. dollar equivalent notional amount of commodity derivatives outstanding at September 30, 2012 was $8.1 million. We estimate that $0.3 million of commodity derivative gains included in other comprehensive income as of September 30, 2012 will be reclassified to earnings within the next twelve months.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

7.	Financial Instruments (Continued)

The fair values of foreign exchange and commodity derivative instruments on the consolidated balance sheets as of September 30, 2012 and December 31, 2011 were:


(In millions)		Fair Value
		September 30, 2012		December 31, 2011
Assets
Foreign exchange contracts	Other current assets	$	0.7	$	2.5
Commodity contracts	Other current assets		0.4		0.1

	Total assets	$	1.1	$	2.6
Liabilities
Foreign exchange contracts	Other current liabilities	$	2.9	$	1.0
Commodity contracts	Other current liabilities		—		0.5

	Total liabilities	$	2.9	$	1.5

The effects of derivative financial instruments on the statements of comprehensive income and other comprehensive income (“OCI”) for the nine and three months ended September 30, 2012 and 2011 were:


(In millions)	Gain (Loss) in Nine Months Ended September 30,
	Recognized in OCI					Recognized in Income
Type of hedge	2012			2011		Location of Gain (Loss) Recognized in Income	2012			2011
Cash flow	$	(1.3	)	$	0.9	Net sales	$	0.1		$	(0.7	)
						Cost of products sold		0.5			1.9
Fair value		—			—	Other (expense) income, net		(0.5	)		—

Total	$	(1.3	)	$	0.9	Total	$	0.1		$	1.2


(In millions)	Gain (Loss) in Three Months Ended September 30,
	Recognized in OCI					Recognized in Income
Type of hedge	2012			2011		Location of Gain (Loss) Recognized in Income	2012			2011
Cash flow	$	(1.4	)	$	1.1	Net sales	$	—		$	(0.3	)
						Cost of products sold		0.2			0.1
Fair value		—			—	Other (expense) income, net		(1.1	)		0.1

Total	$	(1.4	)	$	1.1	Total	$	(0.9	)	$	(0.1	)

In the nine and three months ended September 30, 2012, the ineffective portion of cash flow hedges recognized primarily in selling, general and administrative expense was a gain of $0.6 million and $0.8 million, respectively. In the nine and three months ended September 30, 2011, the ineffective portion of cash flow hedges recognized was insignificant.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

8.	Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011 were as follows:


(In millions)	September 30, 2012		December 31, 2011
Assets
Derivative financial instruments (Level 2)	$	1.1	$	2.6
Deferred compensation program assets (Level 1)		3.5		4.2

Total assets	$	4.6	$	6.8
Liabilities
Derivative financial instruments (Level 2)	$	2.9	$	1.5

Derivative financial instruments are recorded at fair value. Authoritative guidance on fair value measurement (ASC 820) establishes 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 inputs 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 that are Level 3.

The $339.3 million carrying value of the Company’s long-term debt as of September 30, 2012 and $406.8 million as of December 31, 2011 approximates its fair value. The fair value of the Company’s long-term debt was determined primarily by using broker quotes, which are level 2 inputs.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

9.	Defined Benefit Plans

The components of net periodic benefit cost for pension and postretirement benefits for the nine and three months ended September 30, 2012 and 2011 were as follows:


	Nine Months Ended September 30,
	Pension Benefits						Postretirement Benefits
(In millions)	2012			2011			2012		2011
Service cost	$	9.1		$	9.6		$	0.3	$	0.4
Interest cost		23.0			23.3			3.1		3.3
Expected return on plan assets		(27.7	)		(31.3	)		—		—
Amortization of prior service cost		0.3			0.2			0.3		0.2
Recognition of actuarial losses (gains)		1.9			33.2			1.8		(0.1	)
Curtailment and settlement losses		—			0.4			—		—

Net periodic benefit cost	$	6.6		$	35.4		$	5.5	$	3.8


	Three Months Ended September 30,
	Pension Benefits						Postretirement Benefits
(In millions)	2012			2011			2012		2011
Service cost	$	1.6		$	3.2		$	0.1	$	0.1
Interest cost		7.7			7.7			1.0		1.0
Expected return on plan assets		(9.2	)		(10.4	)		—		—
Amortization of prior service cost		0.1			—			0.1		0.1
Recognition of actuarial losses (gains)		1.9			32.4			1.8		(0.1	)
Curtailment and settlement losses		—			0.4			—		—

Net periodic benefit cost	$	2.1		$	33.3		$	3.0	$	1.1

In the third quarter of 2011, we communicated to employees our decision to freeze our salaried pension plans as of December 31, 2016. As a result, we remeasured our pension liability, updating our pension measurement assumptions and recognized actuarial losses as shown above.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10.

Income Taxes

The effective income tax rates for the nine months ended September 30, 2012 and 2011 were 31.8% and 47.0%, respectively. The effective income tax rate in 2012 was favorably impacted by a discrete foreign income tax benefit and a decrease in valuation allowance due to certain restructuring actions. The effective income tax rate in 2011 was unfavorably impacted by a tax charge of $8.5 million related to foreign dividends remitted to our Former Parent in preparation for the Separation and favorably impacted by enacted changes in state tax laws that reduced the net deferred tax liability by $2.0 million.

The effective income tax rates for the three months ended September 30, 2012 and 2011 were 32.3% and 86.8%, respectively. The effective income tax rate in 2012 was favorably impacted by a decrease in valuation allowance due to certain restructuring actions. The effective income tax rate in 2011 was unfavorably impacted by a tax charge of $8.5 million related to foreign dividends remitted to our Former Parent in preparation for the Separation.

It is reasonably possible that, within the next 12 months, total unrecognized tax benefits may decrease in the range of $13 million to $18 million, primarily as a result of the conclusion of pending U.S. federal, state and foreign income tax proceedings.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11.

Restructuring and Other Charges

Pre-tax restructuring and other charges for the nine and three months ended September 30, 2012 and 2011 are shown below.


(In millions)	Nine Months Ended September 30, 2012
	Restructuring Charges			Other Charges ^(a)			Total Charges
Kitchen & Bath Cabinetry	$	3.6		$	10.0		$	13.6
Advanced Material Windows & Door Systems		1.0			(3.5	)		(2.5	)
Security & Storage		(0.5	)		—			(0.5	)

Total	$	4.1		$	6.5		$	10.6


(In millions)	Nine Months Ended September 30, 2011
	Restructuring Charges		Other Charges ^(a)			Total Charges
Kitchen & Bath Cabinetry	$	0.8	$	(0.2	)	$	0.6
Plumbing & Accessories		—		(0.1	)		(0.1	)
Advanced Material Windows & Door Systems		1.0		1.9			2.9

Total	$	1.8	$	1.6		$	3.4


(In millions)	Three Months Ended September 30, 2012
	Restructuring Charges		Other Charges ^(a)			Total Charges
Kitchen & Bath Cabinetry	$	2.6	$	9.0		$	11.6
Advanced Material Windows & Door Systems		0.5		(3.5	)		(3.0	)

Total	$	3.1	$	5.5		$	8.6


(In millions)	Three Months Ended September 30, 2011
	Restructuring Charges		Other Charges ^(a ⁾			Total Charges
Kitchen & Bath Cabinetry	$	0.4	$	(0.2	)	$	0.2
Plumbing & Accessories		—		0.1			0.1
Advanced Material Windows & Door Systems		0.7		1.5			2.2

Total	$	1.1	$	1.4		$	2.5

^(a)

“Other Charges,” which are recorded in costs of products sold in the nine and three months ended September 30, 2012 and 2011, represent charges directly related to restructuring initiatives that cannot be reported as restructuring under GAAP. Such costs may include losses on disposal of inventories, trade receivables allowances from exiting product lines, accelerated depreciation resulting from the closure of facilities, and gains and losses on the sale of previously closed facilities.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

11.

Restructuring and Other Charges (Continued)

For the nine and three months ended September 30, 2012 and 2011, restructuring and other charges primarily related to previously announced supply-chain initiatives.

In August 2012, we announced and initiated a restructuring action in the Kitchen & Bath Cabinetry segment. As a result of the restructuring, in the third quarter of 2012 we recorded restructuring and other charges of approximately $12 million due to the planned closure of our Martinsville, Virginia cabinet manufacturing facility. Pre-tax charges included $2.5 million of workforce reduction and exit costs to close the facility and to consolidate manufacturing at other facilities and $9.7 million of other charges, primarily accelerated depreciation of long-lived assets associated with the closed facility. The restructuring actions are being undertaken to further enhance the efficiency and flexibility of the Company’s supply chains. The restructuring activities are expected to be substantially completed in the fourth quarter of 2012 and charges in future periods for this facility closure are not expected to be material.

The Company’s restructuring liability was not material as of September 30, 2012 and December 31, 2011.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12.

Information on Business Segments

Net sales and operating income by segment for the nine months ended September 30, 2012 and 2011 were as follows:


	Nine Months Ended September 30,
(In millions)	2012			2011			% Change vs. Prior Year
Net Sales
Kitchen & Bath Cabinetry	$	987.1		$	954.6			3.4	%
Plumbing & Accessories		804.2			704.7			14.1
Advanced Material Windows & Door Systems		431.4			399.2			8.1
Security & Storage		420.5			394.0			6.7

Net sales	$	2,643.2		$	2,452.5			7.8	%

Operating Income (Loss)
Kitchen & Bath Cabinetry	$	14.1		$	20.9			(32.5	)%
Plumbing & Accessories		127.5			98.9			28.9
Advanced Material Windows & Door Systems		4.4			(9.6	)		145.8
Security & Storage		54.2			45.7			18.6
Corporate expenses		(46.0	)		(62.1	)		25.9

Operating income	$	154.2		$	93.8			64.4	%

Corporate expenses
General and administrative expense ^(a)	$	(44.9	)	$	(29.9	)
Defined benefit plan expense ^(b)		(1.1	)		(29.8	)
Business separation costs		—			(2.4	)

Total Corporate expenses	$	(46.0	)	$	(62.1	)		25.9	%

^(a)

Includes a $24.6 million allocation of general corporate expenses incurred directly by our Former Parent in the nine months ended September 30, 2011.

^(b)

Includes actuarial losses of $3.7 million and $33.1 million recorded in the nine months ended September 30, 2012 and 2011, respectively.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12.

Information on Business Segments (Continued)

Net sales and operating income by segment for the three months ended September 30, 2012 and 2011 were as follows:


	Three Months Ended September 30,
(In millions)	2012			2011			% Change vs. Prior Year
Net Sales
Kitchen & Bath Cabinetry	$	329.7		$	310.7			6.1	%
Plumbing & Accessories		278.2			249.1			11.7
Advanced Material Windows & Door Systems		158.4			148.2			6.9
Security & Storage		142.8			140.0			2.0

Net sales	$	909.1		$	848.0			7.2	%
Operating Income (Loss)
Kitchen & Bath Cabinetry	$	1.5		$	7.8			(80.8	)%
Plumbing & Accessories		48.5			38.6			25.6
Advanced Material Windows & Door Systems		9.2			(0.3	)		—
Security & Storage		20.8			20.0			4.0
Corporate expenses		(19.4	)		(45.3	)		57.2

Operating income	$	60.6		$	20.8			191.3	%
Corporate expenses
General and administrative expense ^(a)	$	(16.2	)	$	(11.2	)
Defined benefit plan expense ^(b)		(3.2	)		(31.7	)
Business separation costs		—			(2.4	)

Total Corporate expenses	$	(19.4	)	$	(45.3	)		57.2	%

^(a)

Includes a $9.3 million allocation of general corporate expenses incurred directly by our Former Parent in the three months ended September 30, 2011.

^(b)

Includes actuarial losses of $3.7 million and $32.3 million recorded in the three months ended September 30, 2012 and 2011, respectively.

FORTUNE BRANDS HOME & SECURITY, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)

(Unaudited)

13.

Earnings Per Share

The computations of basic and diluted earnings per common share were as follows:


	Nine Months Ended September 30,				Three Months Ended September 30,
(In millions, except per share data)	2012		2011		2012		2011
Net income attributable to Home & Security	$	100.3	$	35.4	$	40.0	$	2.2

Basic earnings per common share	$	0.63	$	0.23	$	0.25	$	0.01

Diluted earnings per common share	$	0.61	$	0.23	$	0.24	$	0.01

Basic average shares outstanding		159.8		155.1		161.2		155.1
Stock-based awards		5.3		—		5.8		—

Diluted average shares outstanding		165.1		155.1		167.0		155.1
Antidilutive stock-based awards excluded from weighted-average number of shares outstanding for diluted earnings per share		0.8		—		0.4		—

Basic and diluted earnings per common share and the average number of shares of common stock outstanding in the nine and three months ended September 30, 2011 were retrospectively restated adjusting the number of shares of Home & Security common stock using the number of shares of common stock outstanding as of September 27, 2011. In periods prior to the Separation, the same number of shares was used to calculate basic and diluted earnings per share since no Home & Security stock-based awards were outstanding prior to the Separation.

14.

Contingencies

Litigation

We are defendants in lawsuits associated with the normal conduct of our businesses and operations. 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. We believe that there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon our results of operations, cash flows or financial condition, and where appropriate, these actions are being vigorously contested.

Environmental

Compliance with federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, did not have a material effect on capital expenditures, earnings or the competitive position of Home & Security in the nine months ended September 30, 2012 and 2011. 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 environmental remediation exposures.


Item 2.		FORTUNE BRANDS HOME & SECURITY, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto, which are included in this report, as well as our audited consolidated financial statements for the year ended December 31, 2011, which are included in our Annual Report on Form 10-K for the year ended December 31, 2011.

This discussion contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Act of 1934, as amended, regarding business strategies, market potential, future financial performance and other matters. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. The forward-looking statements are not historical facts, but rather are based on expectations, estimates, assumptions and projections about our industry, business and future financial results, based on information available at the time this report is filed with the Securities and Exchange Commission, or with respect to any document incorporated by reference, available as of the time such document was prepared. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011, which is hereby incorporated herein by reference. 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 law.

OVERVIEW

On October 3, 2011, the spin-off of Fortune Brands Home & Security, Inc. from Fortune Brands, Inc. (“Former Parent”) into an independent, publicly traded company (the “Separation”) was completed. References to “Home & Security,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Home & Security, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires. The Company is a leader in home and security products with companies focused on the design, manufacture and sale of market leading branded products in the following categories: kitchen and bath cabinetry, plumbing and accessories, advanced material windows products and entry door systems, and security and storage products.

With a foundation of market-leading brands across a diversified mix of channels and lean and flexible supply chains, as well as strong innovation and customer service, we are focused on outperforming our markets in both growth and returns and driving increased shareholder value. We believe the Company’s track record reflects the long-term attractiveness and potential of our categories and our leading brands. As consumer demand and the housing market improve from current levels, we expect the benefits of operating leverage and strategic spending will help us to substantially improve profitability.

OVERVIEW (Continued)

We believe our most attractive opportunities are to invest in profitable organic growth initiatives. In addition, we may invest in add-on acquisitions that leverage our existing brands and infrastructure, and we may undertake share repurchases under our share repurchase program as explained in further detail under “Liquidity and Capital Resources” below.

We expect that the recovery in the U.S. market for our home products from the current low levels may be gradual and uneven. The recovery will largely depend on consumer confidence, employment, home prices and credit availability. Over the long term, we believe that the U.S. home products market will benefit from favorable population and immigration trends, which will drive demand for new housing units, and from aging existing housing stock that will continue to need to be repaired and remodeled.

We remain focused on our initiatives designed to outperform our markets. We believe our strong brand positions across a diversified mix of channels, consumer-focused innovation, flexible and efficient supply chains and excellent customer service will position our business to perform well in the marketplace. While our markets have recently started to improve from historic lows, we expect that future market growth may be gradual and uneven. As a result, we expect that our near term results may be uneven and challenging as consumers remain cautious, particularly for big-ticket purchases such as cabinets, windows and doors. In addition, we expect costs may be higher for materials and transportation, a consumer preference for lower-priced value-oriented products may persist, and a heavy promotional environment for big-ticket discretionary purchases may continue through 2012 but remain at about the same level as we experienced in 2011. We strive to offset the unfavorable impact of these items with productivity initiatives and price increases.

RESULTS OF OPERATIONS

Basis of Presentation

The condensed consolidated financial statements and segment information included in this Quarterly Report on Form 10-Q have been derived principally from the consolidated financial statements of the Company. Prior to the Separation, the Company was a wholly-owned subsidiary of our Former Parent. Our financial statements from periods prior to the Separation were derived from the historical results of operations and the historical basis of assets and liabilities and include allocations of general corporate expenses incurred directly by our Former Parent totaling $23.4 million and $8.1 million for the nine and three months ended September 30, 2011, respectively. These allocated expenses include costs associated with legal, finance, treasury, accounting, internal audit and general management services and are included in “Corporate” in the accompanying segment information. Management believes that the assumptions and methodologies underlying the allocation of these general corporate expenses were reasonable. However, such expenses may not be indicative of the actual level of expense that would have been incurred by the Company if it had operated as an independent company during the first nine months of 2011. The condensed consolidated financial statements included in this Quarterly Report on Form 10-Q may not necessarily reflect the Company’s results of operations, financial condition and cash flows in the future or what its results of operations, financial condition and cash flows would have been had the Company been a stand-alone company during the first nine months of 2011.

RESULTS OF OPERATIONS (Continued)

Nine Months Ended September 30, 2012 Compared To Nine Months Ended September 30, 2011


	Net Sales
					% Change
(In millions)	2012		2011		vs. Prior Year
Kitchen & Bath Cabinetry	$	987.1	$	954.6		3.4	%
Plumbing & Accessories		804.2		704.7		14.1
Advanced Material Windows & Door Systems		431.4		399.2		8.1
Security & Storage		420.5		394.0		6.7

Net sales	$	2,643.2	$	2,452.5		7.8	%


	Operating Income (Loss)
							% Change
	2012			2011			vs. Prior Year
Kitchen & Bath Cabinetry	$	14.1		$	20.9			(32.5	)%
Plumbing & Accessories		127.5			98.9			28.9
Advanced Material Windows & Door Systems		4.4			(9.6	)		145.8
Security & Storage		54.2			45.7			18.6
Corporate expenses		(46.0	)		(62.1	)		25.9

Operating income	$	154.2		$	93.8			64.4	%

The following discussion of consolidated results of operations and segment results refers to the nine months ended September 30, 2012 compared to the nine months ended September 30, 2011. Consolidated results of operations should be read in conjunction with segment results of operations.

Certain items had a significant impact on our pre-tax operating income in the nine months ended September 30, 2012 and 2011. These included recognition of defined benefit plan actuarial losses, restructuring and other charges, business separation costs and corporate administrative expenses associated with operating as a stand-alone company:

•

Recognition of defined benefit plan actuarial losses, in the Corporate segment, in 2012 of $3.7 million compared to losses of $33.1 million in 2011 due to remeasurement of our pension liability as a result of a decision in the third quarter of 2011 to freeze our salaried pension plans.

•

Restructuring and other charges of $10.6 million in 2012, primarily due to closure of a cabinet manufacturing facility, compared to $3.4 million in 2011.

•

Business separation costs of $2.4 million in 2011.

•

Incremental corporate office administrative expenses of $15.0 million associated with operating as a stand-alone company in 2012.

Net Sales

Net sales increased $190.7 million, or 8%. The increase was primarily due to higher sales volume from improved U.S. market conditions (particularly new construction) and the impact of price increases to help mitigate raw material and transportation cost increases. These increases were partially offset by unfavorable mix, higher customer programs costs and approximately $10 million of unfavorable foreign exchange.

RESULTS OF OPERATIONS (Continued)

Cost of products sold

Cost of products sold increased $81.6 million, or 5%, primarily due to higher sales volume, $9.4 million of accelerated depreciation related to the previously announced closure of a cabinet manufacturing facility, and increased raw material costs (mainly for globally sourced products, wood, resins and steel). These increases were partially offset by $15.6 million of lower expense from actuarial losses related to defined benefit plans ($1.5 million in the first nine months of 2012 compared to $17.1 million for the same period in 2011). In addition, cost of goods sold benefited from productivity improvements, including previously announced restructuring actions.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $51.2 million, or 8%, primarily due to higher volume-related expenses, planned increases in strategic spending to support growth initiatives and new product introductions, higher incentive compensation expense and increased transportation costs, as well as $15.0 million of higher corporate office administrative expenses associated with operating as a stand-alone company. Selling, general and administrative expenses benefited from $13.8 million in lower expense from actuarial losses related to defined benefit plans ($2.2 million in the first nine months of 2012 compared to $16.0 million for the same period in 2011).

Amortization of intangible assets

Amortization of intangible assets decreased $2.4 million, primarily due to an identifiable intangible asset that was fully amortized in 2012.

Restructuring charges

Restructuring charges of $4.1 million and $1.8 million in the nine months ended September 30, 2012 and 2011, respectively, primarily related to supply chain initiatives in our Kitchen & Bath Cabinetry segment.

Business separation costs

In the third quarter of 2011, we recorded $2.4 million of business separation costs related to non-cash non-recurring costs associated with the modification of outstanding share-based compensation awards as a result of the Separation.

RESULTS OF OPERATIONS (Continued)

Operating income

Operating income increased $60.4 million, or 64%, primarily due to higher sales, the benefit of productivity initiatives, including previously announced restructuring actions, as well as price increases implemented to help mitigate approximately $25 million of higher raw material and transportation costs. These increases in operating income were partially offset by unfavorable changes in customer and product mix, higher incentive compensation expense, and increases in strategic spending to support growth initiatives and new product introductions. In addition, certain items had a significant impact on our operating income:


	Nine Months Ended September 30,
(In millions)	2012		2011		Increase/(decrease) in operating income
Defined benefit plan actuarial losses	$	3.7	$	33.1	$	29.4
Restructuring and other charges		10.6		3.4		(7.2	)
Business separation costs		—		2.4		2.4
Corporate office administrative costs		44.9		29.9		(15.0	)

Related party interest expense, net

Related party interest expense, net, was $23.2 million in the nine months ended September 30, 2011. This expense related to loans from our Former Parent prior to the Separation. There was no related party interest expense in 2012 because there were no loans with our Former Parent subsequent to the Separation.

External interest expense (income)

External interest expense (income) increased $6.4 million to $6.6 million predominantly from external borrowings as a stand-alone company.

Other (income) expense, net

Other (income) expense, net, was income of $0.6 million in the nine months ended September 30, 2012, compared to expense of $1.9 million in the same period of 2011, primarily due to interest income in 2012 compared to unfavorable foreign currency adjustments in 2011.

Income taxes

RESULTS OF OPERATIONS (Continued)

Net income attributable to Home & Security

Net income attributable to Home & Security was $100.3 million in the nine months ended September 30, 2012 compared to $35.4 million in the nine months ended September 30, 2011. The increase of $64.9 million was primarily due to higher operating income and the absence of 2011 related party interest expense.

Results By Segment

Kitchen & Bath Cabinetry

Net sales increased $32.5 million, or 3%, primarily due to higher sales volume related to new housing construction growth, expansion of existing programs, and price increases to help mitigate raw material and transportation cost increases. These increases were partially offset by unfavorable mix, higher customer program costs and approximately $5 million of unfavorable foreign exchange.

Operating income decreased $6.8 million, or 33%. The decrease was primarily due to $13.0 million of higher restructuring and other charges, reflecting accelerated depreciation, workforce reduction costs and facility exit costs related to the previously announced closure of our Martinsville, Virginia cabinet manufacturing facility. In addition, operating income was unfavorably impacted by higher customer program costs, increased costs for raw materials (wood-related and globally sourced product) and transportation, unfavorable mix, increased costs to support long-term growth initiatives, and higher incentive compensation expense. Operating income benefited from increased sales volume, price increases and productivity improvements, including previously announced restructuring actions.

Plumbing & Accessories

Net sales increased $99.5 million, or 14%, primarily due to higher sales volume in the U.S., driven by strength from the new construction market, as well as higher international sales, particularly in China. Net sales also benefited from price increases to help mitigate raw material cost increases. The increase in net sales was partially offset by higher customer program costs.

Operating income increased $28.6 million, or 29%, primarily due to higher sales volume, productivity improvements and price increases. Operating income was unfavorably impacted by the mix of business, higher incentive compensation expense and increased costs for raw materials.

Advanced Material Windows & Door Systems

Net sales increased $32.2 million, or 8%, primarily due to strength in the U.S. new construction market impacting both door and window products, new business and price increases implemented to help mitigate higher raw material and transportation costs.

Operating income improved $14.0 million, to income of $4.4 million, primarily due to higher sales volume, price increases, productivity initiatives, $5.4 million of lower restructuring and other charges, and $2.0 million of income attributable to a reduction of a contingent consideration liability related to an acquisition. Operating income was unfavorably impacted by higher incentive compensation expense and unfavorable mix.

RESULTS OF OPERATIONS (Continued)

Results By Segment (Continued)

Security & Storage

Net sales increased $26.5 million, or 7%, primarily due to strong global sales of security and safety products, as well as increased retailer-driven promotional volume in tool storage in the first quarter of 2012. Net sales were impacted by approximately $5 million of unfavorable foreign exchange.

Operating income increased $8.5 million, or 19%, primarily due to higher sales volume, partially offset by strategic growth spending. Price increases offset the impact of higher sourced material and steel costs.

Corporate

Corporate expenses decreased $16.1 million, primarily due to $29.4 million of lower expense from actuarial losses related to defined benefit plans ($3.7 million in the first nine months of 2012 compared to $33.1 million for the same period in 2011), as well as the absence of $2.4 million in 2011 of business separation costs. Corporate expenses were unfavorably impacted by $15.0 million in higher administrative expenses associated with operating as a stand-alone company. In the comparable period of 2011, the Company operated as a subsidiary of our Former Parent.

The interest cost, expected return on plan assets and actuarial gain or loss components of all the Company’s defined benefit plans are recorded in our Corporate segment. In future periods the Company may record in the Corporate segment material expense or income associated with actuarial gains and losses arising from periodic remeasurement of our liabilities for defined benefit plans. At a minimum, the Company will remeasure its defined benefit plan liabilities in the fourth quarter of each year. Remeasurement of these liabilities in the fourth quarter attributable to updating our liability discount rates and expected return on pension plan assets may, in particular, result in material income or expense recognition. Based on current relevant interest rate benchmarks and year-to-date pension asset returns, the Company estimates that it may incur additional defined benefit plan net actuarial losses in the range of $25 million to $35 million (pre-tax) in the fourth quarter of 2012, due to declining discount rates since December 31, 2011, the last remeasurement date. Any actual actuarial loss will be based upon spot discount rates as of December 31, 2012 and our full year 2012 pension asset returns, and may materially differ from this estimate. A decrease of 25 basis points in the discount rate would result in an increase in our defined benefit plan liability of approximately $25 million.

RESULTS OF OPERATIONS (Continued)

Results By Segment (Continued)

Corporate (Continued)

Corporate expenses prior to the Separation included allocations of certain Former Parent general corporate expenses incurred directly by our Former Parent. These allocated expenses include costs associated with legal, finance, treasury, accounting, internal audit and general management services. Corporate expenses also include the components of defined benefit plan expense other than service cost.


(In millions)	Nine Months Ended
	September 30,
	2012			2011
General and administrative expense ^(a)	$	(44.9	)	$	(29.9	)
Defined benefit plan expense ^(b)		(1.1	)		(29.8	)
Business separation costs		—			(2.4	)

Total Corporate expenses	$	(46.0	)	$	(62.1	)

^(a)

Includes a $24.6 million allocation of general corporate expenses incurred directly by our Former Parent in the nine months ended September 30, 2011.

^(b)

Includes actuarial losses of $3.7 million and $33.1 million recorded in the nine months ended September 30, 2012 and 2011, respectively.

Three Months Ended September 30, 2012 Compared To Three Months Ended September 30, 2011


	Net Sales
					% Change
(In millions)	2012		2011		vs. Prior Year
Kitchen & Bath Cabinetry	$	329.7	$	310.7		6.1	%
Plumbing & Accessories		278.2		249.1		11.7
Advanced Material Windows & Door Systems		158.4		148.2		6.9
Security & Storage		142.8		140.0		2.0

Net sales	$	909.1	$	848.0		7.2	%


	Operating Income (Loss)
							% Change
	2012			2011			vs. Prior Year
Kitchen & Bath Cabinetry	$	1.5		$	7.8			(80.8	)%
Plumbing & Accessories		48.5			38.6			25.6
Advanced Material Windows & Door Systems		9.2			(0.3	)		—
Security & Storage		20.8			20.0			4.0
Corporate expenses		(19.4	)		(45.3	)		57.2

Operating income	$	60.6		$	20.8			191.3	%

The following discussion of consolidated results of operations and segment results refers to the three months ended September 30, 2012 compared to the three months ended September 30, 2011. Consolidated results of operations should be read in conjunction with segment results of operations.

Certain items had a significant impact on our pre-tax operating income in the three months ended September 30, 2012 and 2011. These included recognition of defined benefit plan actuarial losses, restructuring and other charges, business separation costs and corporate administrative expenses associated with operating as a stand-alone company:

•

Recognition of defined benefit plan recognition of actuarial losses, in the Corporate segment, in 2012 of $3.7 million compared to losses of $32.3 million in 2011 due to remeasurement of our pension liability as a result of a decision in the third quarter of 2011 to freeze our salaried pension plans.

•

Restructuring and other charges of $8.6 million in 2012, primarily due to closure of a cabinet manufacturing facility, compared to $2.5 million in 2011.

•

Business separation costs of $2.4 million in 2011.

•

Incremental corporate office administrative costs of $5.0 million associated with operating as a stand-alone company in 2012.

Net Sales

Net sales increased $61.1 million, or 7%. The increase was primarily due to higher sales volume from new housing construction growth and the impact of price increases to help mitigate raw material and transportation cost increases. These increases were partially offset by approximately $5 million of unfavorable foreign exchange.

RESULTS OF OPERATIONS (Continued)

Cost of products sold

Cost of products sold increased $14.6 million, or 2%, primarily due to higher sales volume, $9.4 million of accelerated depreciation related to the previously announced closure of a cabinet manufacturing facility, and increased raw material costs (mainly for globally sourced products and wood). These increases were partially offset by $15.5 million in lower defined benefit plan expense from actuarial losses ($1.5 million in the three months ended September 30, 2012 compared to $17.0 million for the same period of 2011). Cost of products sold also benefited from productivity improvements.

Selling, general and administrative expenses

Selling, general and administrative expenses increased $8.2 million, or 4%, primarily due to higher volume-related expenses, higher incentive compensation expense, planned increases in strategic spending to support growth initiatives and new product introductions and $5.0 million of higher corporate office administrative expenses associated with operating as a stand-alone company. Selling, general and administrative expenses benefited from $13.1 million in lower expense from actuarial losses related to defined benefit plans ($2.2 million in the three months ended September 30, 2012 compared to $15.3 million for the same period of 2011).

Amortization of intangible assets

Amortization of intangible assets decreased $1.1 million due to an identifiable intangible asset that was fully amortized in the first half of 2012.

Restructuring charges

Restructuring charges of $3.1 million and $1.1 million in the three months ended September 30, 2012 and 2011, respectively, primarily related to supply chain initiatives in our Kitchen & Bath Cabinetry segment.

Business separation costs

RESULTS OF OPERATIONS (Continued)

Operating income

Operating income increased $39.8 million, or 191%, partly due to higher sales, the benefit of productivity initiatives and price increases implemented to help mitigate approximately $5 million of higher raw material costs. These increases in operating income were partially offset by higher incentive compensation expense. In addition, certain items had a significant impact on our operating income:


(In millions)	Three Months Ended September 30,
	2012		2011		Increase/(decrease) in operating income
Defined benefit plan actuarial losses	$	3.7	$	32.3	$	28.6
Restructuring and other charges		8.6		2.5		(6.1	)
Business separation costs		—		2.4		2.4
Corporate office administrative costs		16.2		11.2		(5.0	)

External interest expense (income)

External interest expense (income) increased $2.1 million to $2.0 million from external borrowings as a stand-alone company.

Other (income) expense, net

Other (income) expense, net, was income of $0.8 million in the three months ended September 30, 2012 compared to expense of $1.8 million in the same period of 2011 primarily due to interest income in 2012 compared to unfavorable foreign currency adjustments in 2011.

Income taxes

Net income attributable to Home & Security

The net income attributable to Home & Security was $40.0 million in the three months ended September 30, 2012 compared to $2.2 million in the three months ended September 30, 2011. The increase of $37.8 million was primarily due to higher operating income.

RESULTS OF OPERATIONS (Continued)

Results By Segment

Kitchen & Bath Cabinetry

Net sales increased $19.0 million, or 6%, primarily due to higher sales volume related to new housing construction growth, expansion of existing programs, favorable mix and price increases to help mitigate raw material and transportation cost increases.

Operating income decreased $6.3 million, or 81%, primarily due to $11.4 million in higher restructuring and other charges, reflecting accelerated depreciation, workforce reduction costs and facility exit costs related to the previously announced closure of our Martinsville, Virginia cabinet manufacturing facility, as well as higher incentive compensation expense. Operating income benefited from higher sales volume and productivity improvements, including previously announced restructuring actions.

Plumbing & Accessories

Net sales increased $29.1 million, or 12%, primarily due to higher sales volume in the U.S., driven by strength from the new construction market, as well as higher international sales, particularly in China.

Operating income increased $9.9 million, or 26%, primarily due to higher sales volume and productivity improvements, partially offset by planned increases in strategic spending to support growth initiatives and new product introductions.

Advanced Material Windows & Door Systems

Net sales increased $10.2 million, or 7%, primarily due to improved conditions in the U.S. new construction market, particularly impacting our doors products, and new business.

Operating income improved $9.5 million to income of $9.2 million, primarily due to higher sales volume, productivity improvements and $5.2 million lower restructuring and other charges. Operating income was unfavorably impacted by higher incentive compensation expense.

Security & Storage

Net sales increased $2.8 million, or 2%, primarily due to strong retail sales volume and increased global sales of security and safety products. Net sales increases were partially offset by lower tool storage sales.

Operating income increased $0.8 million, or 4%, primarily due to higher sales volume and the benefit of productivity improvements. These benefits were partially offset by planned increases in strategic spending to support growth initiatives and new product introductions.

RESULTS OF OPERATIONS (Continued)

Results By Segment (Continued)

Corporate

Corporate expenses decreased $25.9 million, primarily due to $28.6 million of lower expense from actuarial losses related to defined benefit plans ($3.7 million in the three months ended September 30, 2012 compared to $32.3 million for the same period in 2011 when we remeasured our pension liability as a result of a decision in the third quarter of 2011 to freeze our salaried pension plans), as well as the absence of $2.4 million in 2011 of business separation costs. Corporate expenses were unfavorably impacted by $5.0 million of higher administrative costs associated with operating as a stand-alone company. In the comparable period of 2011, the Company operated as a subsidiary of our Former Parent.


(In millions)	Three Months Ended
	September 30,
	2012			2011
General and administrative expense ^(a)	$	(16.2	)	$	(11.2	)
Defined benefit plan expense ^(b)		(3.2	)		(31.7	)
Business separation costs		—			(2.4	)

Total Corporate expenses	$	(19.4	)	$	(45.3	)

^(a)

Includes a $9.3 million allocation of general corporate expenses incurred directly by our Former Parent in the three months ended September 30, 2011.

^(b)

Includes actuarial losses of $3.7 million and $32.3 million in the three months ended September 30, 2012 and 2011, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to support working capital requirements, fund capital expenditures and service indebtedness. We may have liquidity needs to finance acquisitions, repurchase common stock and pay dividends, when appropriate. Our principal sources of liquidity have been cash on hand, cash flows from operating activities, availability under our credit agreements and, historically, financial support from our Former Parent. Following the Separation, we no longer have financial support from our Former Parent. Our operating income is generated by our subsidiaries. There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Home & Security. We expect that our Board of Directors will periodically evaluate establishing a dividend.

On July 25, 2012, our Board of Directors approved a share repurchase program that authorizes the Company to repurchase up to $150,000,000 of shares of our outstanding common stock over the next three years ending July 25, 2015. In the third quarter of 2012, we repurchased 100,000 shares of our outstanding common stock under the share repurchase program. As of September 30, 2012 the Company’s total remaining share repurchase authorization was $147,829,885. The share repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares and may be suspended or discontinued at any time.

We periodically review our portfolio of brands and evaluate potential strategic transactions to increase shareholder value. 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 program, or pay dividends, or what impact any such transactions could have on our results of operations, cash flows or financial condition, whether as a result of the issuance of debt or equity securities, or otherwise. Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section of our Annual Report on Form 10-K for the year-ended December 31, 2011 entitled “Item 1A. Risk Factors.”

Immediately prior to the Separation, on October 3, 2011, Home & Security paid a dividend to our Former Parent in the amount of $500 million. In addition, we paid a dividend of $48.9 million to our Former Parent prior to the Separation on October 3, 2011 and made a payment of $6.0 million to our Former Parent on January 3, 2012. These two payments represented U.S. cash balances generated from August 26, 2011, the date of the conversion of the Company from a Delaware limited liability company to a Delaware corporation, through the date of the Separation. In the first quarter of 2011, our Former Parent made equity contributions totaling $2.7 billion to the Company, capitalizing our loan balances with our Former Parent. On September 30, 2012, we had cash and cash equivalents of $216.1 million, a majority of which 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 permanent repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay and record income tax expense on those funds to the extent they were previously considered permanently reinvested.

We have a $650 million committed revolving credit facility, as well as a $332.5 million term loan, both of which expire in October 2016. There was no outstanding balance on the revolving credit facility on September 30, 2012. The interest rates under these facilities are variable based on LIBOR at the time of the borrowing and the Company’s leverage as measured by a debt to Adjusted EBITDA ratio. Based upon the Company’s debt to Adjusted EBITDA ratio, the Company’s borrowing rate could range from LIBOR + 1.0% to LIBOR + 2.0%. At September 30, 2012, we were in compliance with all covenants under these facilities.

Cash Flows

Below is a summary of cash flows for the nine months ended September 30, 2012 and 2011.


	Nine Months Ended
	September 30,
(In millions)	2012			2011
Net cash provided by operating activities	$	119.4		$	23.0
Net cash used in investing activities		(38.4	)		(44.0	)
Net cash provided by financing activities		11.2			88.9
Effect of foreign exchange rate changes on cash		3.1			(1.0	)

Net increase in cash and cash equivalents	$	95.3		$	66.9

Net cash provided by operating activities increased by $96.4 million primarily due to increased net income, as well as lower incentive compensation and customer program payments in the first nine months of 2012 compared to the first nine months of 2011. The increase was partially offset by the unfavorable impact of higher accounts receivable as a result of increased sales in September of 2012 compared to 2011 combined with higher December 2011 collections, higher inventory to support sales growth and customer service levels and $20 million in higher pension plan contributions in 2012.

Net cash used in investing activities decreased by $5.6 million primarily due to proceeds from the sale of previously closed facilities.

Net cash provided by financing activities decreased by $77.7 million primarily due to net debt repayments of $66.0 million and the absence of borrowings and capital contributions from our Former Parent ($90.3 million), partially offset by cash received in 2012 from the exercise of stock options in 2012 ($80.6 million).

Customer Credit Risk

We routinely grant unsecured credit to customers in the normal course of business. Accounts receivable were $407.1 million and $346.1 million as of September 30, 2012 and December 31, 2011, respectively, and are recorded at their stated amount less allowances for discounts, doubtful accounts and returns. Allowances for doubtful accounts include provisions for certain customers where a risk of default has been specifically identified, as well as provisions determined on a general formula basis when it is determined that the risk of some default is probable and estimable but cannot yet be associated with specific customers. The assessment of the likelihood of customer defaults is based on a variety of factors, including the length of time the receivables are past due, the historical collection experience and existing economic conditions. In accordance with our policy, our allowance for doubtful accounts was $9.7 million and $10.6 million as of September 30, 2012 and December 31, 2011, respectively. The conditions in the global economy and credit markets may reduce our customers’ ability to access sufficient liquidity and capital to fund their operations and make our estimation of customer defaults inherently uncertain. While we believe current allowances for doubtful accounts are adequate, it is possible that the Company could experience higher levels of customer defaults and bad debt expense in future periods.

Pension Plans

Subsidiaries of Home & Security sponsor their respective defined benefit pension plans that are funded by a portfolio of investments maintained within our benefit plan trust. We did not make any pension contributions to qualified pension plans in 2011. In the third quarter of 2012, we contributed $20 million to qualified pension plans. As of December 31, 2011, the fair value of our total pension plan assets was $477.9 million, representing 77% 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, China and France. Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S. dollars.

RECENTLY ISSUED ACCOUNTING STANDARDS

Presentation of Comprehensive Income

Testing Indefinite-Lived Intangible Assets for Impairment

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

There have been no material changes in the information provided in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 4.

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 Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b)

Changes in Internal Control Over Financial Reporting.

There have not been any changes in the Company’s internal control over financial reporting that occurred during the Company’s fiscal quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS.

(a)

Other Litigation.

The Company is a defendant in lawsuits associated with the normal conduct of its businesses and operations. 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.

(b)

Environmental Matters.

We are subject to laws and regulations relating to protection of the environment. It is not possible to quantify with certainty the potential impact of actions relating to environmental matters, particularly remediation and other compliance efforts that our subsidiaries may undertake in the future. In our opinion, however, compliance with current environmental protection laws (before taking into account estimated recoveries from third parties) will not have a material adverse effect upon our results of operations, cash flows or financial condition.

Item 1A.

RISK FACTORS.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011 in the section entitled “Risk Factors.”

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

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 September 30, 2012:


Three Months Ended September 30, 2012	Total number of shares purchased ^(a)(b)		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs ^(a)		Maximum dollar amount that may yet be purchased under the plans or programs ^(a)
July 1 – July 31		948	$	22.42		—	$	150,000,000
August 1 – August 31		100,000		21.70		100,000		147,829,885
September 1 – September 30		—		—		—		147,829,885

Total		100,948	$	21.71		100,000		—

^(a)

On July 25, 2012, the Company’s Board of Directors approved a share repurchase program which authorizes the Company to repurchase up to $150,000,000 of shares of our outstanding common stock from July 25, 2012 to July 25, 2015. During the three months ended September 30, 2012, the Company repurchased 100,000 shares of our outstanding common stock under the share repurchase program.

^(b)

The Company purchased 948 shares between July 1, 2012 and September 30, 2012 from the Company’s employees in connection with the exercise of stock options issued under the Company’s long-term incentive plans. The employees sold these shares to the Company in payment of the exercise price of the options exercised.

Item 6.

EXHIBITS



3(i).*		Restated Certificate of Incorporation of Fortune Brands Home & Security, Inc.

3(ii).		Amended and Restated By-laws of Fortune Brands Home & Security, Inc., as adopted September 27, 2011 (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 30, 2011).

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 Certificate Required Under Section 906 of the Sarbanes-Oxley Act of 2002.

101.*		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statement of Comprehensive Income, (ii) the Condensed Consolidated Balance Sheet, (iii) the Condensed Consolidated Statement of Cash Flows, (iv) the Condensed Consolidated Statement of Equity, and (v) the Notes to the Condensed Consolidated Financial Statements.

*	Filed herewith.

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

SIGNATURE

Pursuant to the requirements 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.
				(Registrant)

Date: November 5, 2012				/s/ E. Lee Wyatt, Jr.
				E. Lee Wyatt, Jr.
				Senior Vice President and Chief Financial Officer
				(Duly authorized officer and principal financial officer of the Registrant)

EXHIBIT INDEX


Exhibit

3(i).*		Restated Certificate of Incorporation of Fortune Brands Home & Security, Inc.

3(ii).		Amended and Restated By-laws of Fortune Brands Home & Security, Inc., as adopted September 27, 2011 (incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 30, 2011).

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 Certificate Required Under Section 906 of the Sarbanes-Oxley Act of 2002.

101.*		The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statement of Comprehensive Income, (ii) the Condensed Consolidated Balance Sheet, (iii) the Condensed Consolidated Statement of Cash Flows, (iv) the Condensed Consolidated Statement of Equity, and (v) the Notes to the Condensed Consolidated Financial Statements.

*	Filed herewith.

Exhibit 3.1

RESTATED CERTIFICATE OF INCORPORATION

FORTUNE BRANDS HOME & SECURITY, INC.

a Delaware corporation

Fortune Brands Home & Security, Inc., a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), hereby certifies as follows:

A. The name of the Corporation is Fortune Brands Home & Security, Inc. The Corporation was originally incorporated under the name AB Hardware Inc. The Corporation’s original certificate of incorporation was filed with the office of the Secretary of State of the State of Delaware on June 9, 1988.

B. This restated certificate of incorporation was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, as amended (the “ DGCL ”), restates and amends the provisions of the Corporation’s certificate of incorporation and has been duly approved by the written consent of the stockholders of the Corporation in accordance with Section 228 of the DGCL.

C. The text of the certificate of incorporation of this Corporation is hereby amended and restated to read in its entirety as follows:

ARTICLE I

NAME

The name of the Corporation is Fortune Brands Home & Security, Inc.

ARTICLE II

REGISTERED OFFICE

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, City of Wilmington, County of New Castle, Delaware 19802. The name of its registered agent at such address is Corporation Service Company.

ARTICLE III

PURPOSE

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

ARTICLE IV

CAPITAL STOCK

4.1 Authorized Capital Stock . The total number of shares of all classes of capital stock that the Corporation is authorized to issue is eight hundred ten million (810,000,000) shares, consisting of seven hundred fifty million (750,000,000) shares of common stock, par value $0.01 per share (“ Common Stock ”), and sixty million (60,000,000) shares of preferred stock, par value $0.01 per share (“ Preferred Stock ”).

4.2 Increase or Decrease in Authorized Capital Stock . The number of authorized shares of Preferred Stock or Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the Corporation entitled to vote generally in the election of directors, irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), voting together as a single class, without a separate vote of the holders of the class or classes the number of authorized shares of which are being increased or decreased, unless a vote by any holders of one or more series of Preferred Stock is required by the express terms of any series of Preferred Stock as provided for or fixed pursuant to the provisions of Section 4.4 of this Certificate of Incorporation (as defined below).

4.3 Common Stock .

(a) The holders of shares of Common Stock shall be entitled to one vote for each such share on each matter properly submitted to the stockholders on which the holders of shares of Common Stock are entitled to vote. The holders of shares of Common Stock shall not have cumulative voting rights. Except as otherwise required by law or this restated certificate of incorporation of the Corporation (as further amended from time to time in accordance with the provisions hereof and including, without limitation, the terms of any certificate of designation with respect to any series of Preferred Stock, this “ Certificate of Incorporation ”), and subject to the rights of the holders of Preferred Stock, if any, at any annual or special meeting of the stockholders of the Corporation, the holders of shares of Common Stock shall have the right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders; provided , however , that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation that relates solely to the terms, number of shares, powers, designations, preferences or relative, participating, optional or other special rights (including, without limitation, voting rights), or to qualifications, limitations or restrictions thereof, of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to this Certificate of Incorporation or pursuant to the DGCL.

(b) Subject to the rights of the holders of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the Corporation) when, as and if declared thereon by the board of directors of the Corporation (the “ Board ”) from time to time out of any assets or funds of the Corporation legally available therefor and shall share equally on a per share basis in such dividends and distributions.

(c) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, and subject to the rights of the holders of Preferred Stock in respect thereof, the holders of shares of Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them.

4.4 Preferred Stock .

(a) The Board is expressly authorized to issue from time to time the Preferred Stock in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board. The Board is further authorized, subject to limitations prescribed by law, to fix by resolution or resolutions and to set forth in a certification of designation filed pursuant to the DGCL the powers, designations, preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, of any wholly unissued series of Preferred Stock, including, without limitation, dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including, without limitation, sinking fund provisions), redemption price or prices and liquidation preferences of any such series, and the number of shares constituting any such series and the designation thereof, or any of the foregoing.

(b) The Board is further authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series of Preferred Stock, the number of which was fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, stated in this Certificate of Incorporation or the resolution of the Board originally fixing the number of shares of such series. If the number of shares of any series of Preferred Stock is so decreased, then the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.

ARTICLE V

BOARD OF DIRECTORS

5.1 General Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board.

5.2 Number of Directors; Election; Term .

(a) The number of directors that shall constitute the entire Board shall not be less than five (5) nor more than fifteen (15). Within such limit, the number of members of the entire Board shall be fixed, from time to time, exclusively by the Board, subject to the rights of the holders of preferred stock with respect to the election of directors, if any.

(b) Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, the directors of the Corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The Board is authorized to assign members of the Board already in office to such classes. The term of office of

the initial Class I directors shall expire upon the election of directors at the first annual meeting of stockholders following the effectiveness of this Article V ; the term of office of the initial Class II directors shall expire upon the election of directors at the second annual meeting of stockholders following the effectiveness of this Article V ; and the term of office of the initial Class III directors shall expire upon the election of directors at the third annual meeting of stockholders following the effectiveness of this Article V . At each annual meeting of stockholders, commencing with the first annual meeting of stockholders following the effectiveness of this Article V , each of the successors elected to replace the directors of a class whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting next succeeding his or her election and until his or her respective successor shall have been duly elected and qualified. Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, if the number of directors that constitutes the Board is changed, any newly created directorships or decrease in directorships shall be so apportioned by the Board among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the Board shall shorten the term of any incumbent director.

(c) Notwithstanding the foregoing provisions of this Section 5.2 , and subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, each director shall serve until such director’s successor is duly elected and qualified or until such director’s earlier death, resignation or removal.

(d) Elections of directors need not be by written ballot unless the bylaws of the Corporation (as amended from time to time in accordance with the provisions hereof and thereof, the “ Bylaws ”) shall so provide.

(e) Notwithstanding any of the other provisions of this Article V , whenever the holders of any one or more series of Preferred Stock issued by the Corporation shall have the right, voting separately by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of the certificate of designation for such series of Preferred Stock, and such directors so elected shall not be divided into classes pursuant to this Article V unless expressly provided by such terms. During any period when the holders of any series of Preferred Stock have the right to elect additional directors as provided for or fixed pursuant to the provisions of this Article V , then upon commencement and for the duration of the period during which such right continues; (i) the then otherwise total authorized number of directors of the Corporation shall automatically be increased by such specified number of directors, and the holders of such Preferred Stock shall be entitled to elect the additional directors so provided for or fixed pursuant to such provisions, and (ii) each such additional director shall serve until such director’s successor shall have been duly elected and qualified, or until such director’s right to hold such office terminates pursuant to such provisions, whichever occurs earlier, subject to such director’s earlier death, disqualification, resignation or removal. Except as otherwise provided by the Board in the resolution or resolutions establishing such series, whenever the holders of any series of Preferred Stock having such right to elect additional directors are divested of such right pursuant to the provisions of such series of stock, the terms of office of all such additional directors elected by the holders of such stock, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of such additional directors, shall forthwith terminate, and the total authorized number of directors of the Corporation shall be reduced accordingly.

5.3 Removal . Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, a director may be removed from office by the stockholders of the Corporation only for cause.

5.4 Vacancies and Newly Created Directorships . Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, vacancies occurring on the Board for any reason and newly created directorships resulting from an increase in the number of directors may be filled only by vote of a majority of the remaining members of the Board, although less than a quorum, or by a sole remaining director, at any meeting of the Board. A person so elected by the Board to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such person shall have been assigned by the Board and until such person’s successor shall be duly elected and qualified.

ARTICLE VI

AMENDMENT OF BYLAWS

In furtherance and not in limitation of the powers conferred by statute, the Board is expressly authorized to adopt, amend, alter or repeal the Bylaws. The Bylaws may also be adopted, amended, altered or repealed by the stockholders by the affirmative vote of the holders of at least 75% of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.

ARTICLE VII

STOCKHOLDERS

7.1 No Action by Written Consent of Stockholders . Except as otherwise expressly provided by the terms of any series of Preferred Stock permitting the holders of such series of Preferred Stock to act by written consent, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of the stockholders of the Corporation and may not be effected by written consent in lieu of a meeting.

7.2 Special Meetings . Except as otherwise expressly provided by the terms of any series of Preferred Stock permitting the holders of such series of Preferred Stock to call a special meeting of the holders of such series, special meetings of the stockholders of the Corporation may be called only by the chairperson of the Board, the chief executive officer of the Corporation or the Board, and the ability of the stockholders to call a special meeting of the stockholders is hereby specifically denied.

7.3 Advance Notice . Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws.

ARTICLE VIII

LIMITATION OF LIABILITY AND INDEMNIFICATION

8.1 Limitation of Personal Liability . No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL, as it presently exists or may hereafter be amended from time to time. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

8.2 Indemnification and Advancement of Expenses . The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by the DGCL, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of such person’s heirs, executors and personal and legal representatives. A director’s right to indemnification conferred by this Section 8.2 shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition, provided that such director presents to the Corporation a written undertaking to repay such amount if it shall ultimately be determined that such director is not entitled to be indemnified by the Corporation under this Article VIII or otherwise. Notwithstanding the foregoing, except for proceedings to enforce any officer’s or director’s rights to indemnification or any director’s rights to advancement of expenses, the Corporation shall not be obligated to indemnify any director or officer, or advance expenses of any director, (or such person’s heirs, executors or personal or legal representatives) in connection with any proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized by the Board.

8.3 Non-Exclusivity of Rights . The rights to indemnification and advancement of expenses conferred in Section 8.2 of this Certificate of Incorporation shall neither be exclusive of, nor be deemed in limitation of, any rights to which any person may otherwise be or become entitled or permitted under this Certificate of Incorporation, the Bylaws, any statute, agreement, vote of stockholders or disinterested directors or otherwise.

8.4 Insurance . To the fullest extent authorized or permitted by the DGCL, the Corporation may purchase and maintain insurance on behalf of any current or former director or officer of the Corporation against any liability asserted against such person, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of this Article VIII or otherwise.

8.5 Persons Other Than Directors and Officers . This Article VIII shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to, or to purchase and maintain insurance on behalf of, persons other than those persons described in the first sentence of Section 8.2 of this Certificate of Incorporation or to advance expenses to persons other than directors of the Corporation.

8.6 Effect of Modifications . Any amendment, repeal or modification of any provision contained in this Article VIII shall, unless otherwise required by law, be prospective only (except to the extent such amendment or change in law permits the Corporation to further limit or eliminate the liability of directors or officers) and shall not adversely affect any right or

protection of any current or former director or officer of the Corporation existing at the time of such amendment, repeal or modification with respect to any acts or omissions occurring prior to such amendment, repeal or modification.

ARTICLE IX

MISCELLANEOUS

9.1 Forum for Certain Actions . Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any state derivative action or proceeding brought or purporting to be brought on behalf of the Corporation, (b) any state action asserting a claim of breach of a fiduciary duty owed by any current or former director or officer of the Corporation to the Corporation or the Corporation’s stockholders, (c) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL, this Certificate of Incorporation or the Bylaws or (d) any action asserting a claim against the Corporation or any of its current or former directors or officers that relates to the internal affairs or governance of the Corporation and arises under or by virtue of the laws of the State of Delaware, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensible parties named as defendants therein.

9.2 Amendment . The Corporation reserves the right to amend, repeal or modify any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by this Certificate of Incorporation and the DGCL; and all rights, preferences and privileges herein conferred upon stockholders by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article IX . In addition to any other vote that may be required by law, applicable stock exchange rule or the terms of any series of Preferred Stock, the affirmative vote of the holders of at least a majority of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, repeal, modify or adopt any provision of this Certificate of Incorporation. Notwithstanding any other provision of this Certificate of Incorporation, and in addition to any other vote that may be required by law, applicable stock exchange rule or the terms of any series of Preferred Stock, the affirmative vote of the holders of at least 75% of the voting power of all then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend, repeal, modify or adopt any provision as part of this Certificate of Incorporation inconsistent with the purpose and intent of Article V , Article VI , Article VII or this Article IX (including, without limitation, any such Article as renumbered as a result of any amendment, repeal, modification or adoption of any other Article).

9.3 Severability . If any provision or provisions of this Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason whatsoever the validity, legality and enforceability of such provision in any other circumstance and of the remaining provisions of this Certificate of Incorporation (including, without limitation, each portion of any paragraph of this Certificate of Incorporation containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby.

IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of Incorporation to be signed by a duly authorized officer of the Corporation on this 27 ^th day of September , 2011.


		/s/ Christopher J. Klein
By:		Christopher J. Klein
Its:		President and Chief Executive Officer

EXHIBIT 31.1

CERTIFICATION

I, Christopher J. Klein, certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2012 of Fortune Brands Home & Security, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2012

/s/ Christopher J. Klein

Christopher J. Klein

Chief Executive Officer

EXHIBIT 31.2

CERTIFICATION

I, E. Lee Wyatt, Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2012 of Fortune Brands Home & Security, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 5, 2012

/s/ E. Lee Wyatt, Jr.

E. Lee Wyatt, Jr.

Senior Vice President and Chief Financial Officer

EXHIBIT 32

JOINT CEO/CFO CERTIFICATE REQUIRED PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned, the Chief Executive Officer and the Senior Vice President and Chief Financial Officer of Fortune Brands Home & Security, Inc. (the “Company”), hereby certifies pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of the Company on Form 10-Q for the period ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and the results of operations of the Company.

Dated: November 5, 2012

/s/ Christopher J. Klein

Christopher J. Klein

Chief Executive Officer

/s/ E. Lee Wyatt, Jr.

E. Lee Wyatt, Jr.

Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Fortune Brands Home & Security, Inc. and will be retained by Fortune Brands Home & Security, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.