UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at October 13, 2023 was
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
FORTUNE BRANDS INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirty-Nine and Thirteen Weeks Ended September 30, 2023 and Nine and Three Months Ended September 30, 2022
(In millions, except per share amounts)
(Unaudited)
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Thirty-Nine Weeks Ended September 30, 2023 |
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Nine Months Ended September 30, 2022 |
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Thirteen Weeks Ended September 30, 2023 |
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Three Months Ended September 30, 2022 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of products sold |
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Selling, general and administrative expenses |
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Amortization of intangible assets |
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Restructuring charges |
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Operating income |
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Interest expense |
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Other income, net |
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Income from continuing operations before income taxes |
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Income tax |
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Income from continuing operations, net of tax |
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(Loss) income from discontinued operations, net of tax |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Basic earnings per common share |
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Continuing operations |
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$ |
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$ |
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$ |
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$ |
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Discontinued operations |
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Basic earnings per share |
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$ |
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$ |
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$ |
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$ |
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Diluted earnings per common share |
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Continuing operations |
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$ |
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$ |
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$ |
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$ |
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Discontinued operations |
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Diluted earnings per share |
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$ |
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$ |
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$ |
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$ |
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Comprehensive income |
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$ |
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$ |
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$ |
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$ |
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See notes to condensed consolidated financial statements.
2
FORTUNE BRANDS INNOVATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
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September 30, |
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December 31, |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable less allowances for discounts and credit losses |
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Inventories |
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Other current assets |
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Total current assets |
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Property, plant and equipment, net of accumulated depreciation |
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Operating lease assets |
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Goodwill |
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Other intangible assets, net of accumulated amortization |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and equity |
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Current liabilities |
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Short-term debt |
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$ |
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$ |
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Accounts payable |
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Other current liabilities |
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Total current liabilities |
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Long-term debt |
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Deferred income taxes |
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Accrued defined benefit plans |
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Operating lease liabilities |
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Other non-current liabilities |
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Total liabilities |
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Stockholders' equity |
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Common stock(a) |
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Paid-in capital |
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Accumulated other comprehensive loss |
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Retained earnings |
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Treasury stock |
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( |
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Total stockholders' equity |
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Total liabilities and equity |
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$ |
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$ |
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(a)
See notes to condensed consolidated financial statements.
3
FORTUNE BRANDS INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Thirty-Nine Weeks Ended September 30, 2023 and Nine Months Ended September 30, 2022
(In millions)
(Unaudited)
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Thirty-Nine Weeks Ended September 30, 2023 |
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Nine Months Ended September 30, 2022 |
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Operating activities |
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Net income |
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$ |
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$ |
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Non-cash adjustments: |
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Depreciation |
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Amortization of intangibles |
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Non-cash lease expense |
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Stock-based compensation |
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Recognition of actuarial (gain) loss |
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Deferred taxes |
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( |
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Restructuring Charges |
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Asset impairment charges |
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Amortization of deferred financing fees |
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(Gain) on sale of property, plant and equipment |
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( |
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( |
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Changes in assets and liabilities: |
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Increase in accounts receivable |
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( |
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Decrease (increase) in inventories |
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( |
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Increase (decrease) in accounts payable |
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( |
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Decrease in other assets |
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Decrease in accrued expenses and other liabilities |
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( |
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( |
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Decrease in accrued taxes |
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( |
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( |
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Net cash provided by operating activities |
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Investing activities |
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Capital expenditures (a) |
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( |
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Proceeds from the disposition of assets |
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Cost of acquisitions, net of cash acquired |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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Financing activities |
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Issuance of short-term debt |
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Repayment of short-term debt |
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( |
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( |
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Issuance of long-term debt |
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Repayment of long-term debt |
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( |
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( |
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Proceeds from the exercise of stock options |
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Treasury stock purchases |
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( |
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( |
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Employee withholding taxes related to stock-based compensation |
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( |
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( |
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Dividends to stockholders |
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( |
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( |
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Other financing, net |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Effect of foreign exchange rate changes on cash |
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( |
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( |
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Net decrease in cash and cash equivalents |
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$ |
( |
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$ |
( |
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Cash, cash equivalents and restricted cash(b) at beginning of period |
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$ |
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$ |
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Cash, cash equivalents and restricted cash(b) at end of period |
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$ |
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$ |
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See notes to condensed consolidated financial statements.
4
FORTUNE BRANDS INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Thirty-Nine and Thirteen Weeks Ended September 30, 2023 and Nine and Three Months Ended September 30, 2022
(In millions)
(Unaudited)
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Common |
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Paid-In |
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Accumulated |
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Retained |
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Treasury |
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Total |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Comprehensive income: |
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Net income |
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- |
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- |
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- |
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- |
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Other comprehensive income (loss) |
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- |
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- |
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- |
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- |
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Stock options exercised |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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( |
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Treasury stock purchases |
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- |
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- |
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- |
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- |
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( |
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( |
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Dividends ($ |
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- |
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- |
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- |
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( |
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- |
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( |
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Balance at September 30, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Comprehensive income: |
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Net income |
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- |
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- |
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- |
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- |
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Other comprehensive income (loss) |
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- |
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- |
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( |
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- |
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- |
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( |
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Other |
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- |
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( |
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- |
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Stock options exercised |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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( |
) |
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Treasury stock purchases |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Dividends ($ |
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- |
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- |
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- |
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( |
) |
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- |
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( |
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Balance at September 30, 2023 |
|
$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Common |
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Paid-In |
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Accumulated |
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Retained |
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Treasury |
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Total |
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Balance at June 30, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Comprehensive income: |
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Net income |
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- |
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- |
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- |
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- |
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Other comprehensive income (loss) |
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- |
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- |
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( |
) |
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- |
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- |
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( |
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Stock options exercised |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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- |
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- |
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- |
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( |
) |
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Treasury stock purchases |
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- |
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- |
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- |
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- |
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( |
) |
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( |
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Dividends ($ |
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- |
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- |
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- |
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( |
) |
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- |
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|
( |
) |
Balance at September 30, 2022 |
|
$ |
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$ |
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$ |
( |
) |
|
$ |
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$ |
( |
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$ |
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||||||
Balance at July 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Comprehensive income: |
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Net income |
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- |
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- |
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- |
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- |
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Other comprehensive income (loss) |
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- |
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- |
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|
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( |
) |
|
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- |
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- |
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( |
) |
Other |
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- |
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- |
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( |
) |
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- |
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Stock options exercised |
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- |
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- |
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- |
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- |
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Stock-based compensation |
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|
- |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
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( |
) |
|
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||
Treasury stock purchases |
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|
- |
|
|
|
- |
|
|
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- |
|
|
|
- |
|
|
|
( |
) |
|
|
( |
) |
Dividends ($ |
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- |
|
|
|
- |
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- |
|
|
|
( |
) |
|
|
- |
|
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|
( |
) |
Balance at September 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
See notes to condensed consolidated financial statements.
5
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Principles of Consolidation
The Company is a leading home and security products company with a portfolio of leading branded products used for residential home repair, remodeling, new construction and security applications. References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Innovations, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires.
On December 14, 2022, the Company completed the separation of its Cabinets business, MasterBrand, Inc. (“MasterBrand”), via a tax-free spin-off transaction (the “Separation”) to create an independent, publicly-traded company. Immediately following completion of the Separation, the Company changed its name from “Fortune Brands Home & Security, Inc.” to “Fortune Brands Innovations, Inc.” and its stock ticker changed from “FBHS” to “FBIN” to better reflect its focus on activities related to core brands and innovation. As a result of the Separation, our former Cabinets segment was disposed of and the operating results of the Cabinets business are reported as discontinued operations for all periods presented within this Quarterly Report on Form 10-Q. All amounts, percentages and disclosures for all periods presented reflect only the continuing operations of the Company unless otherwise noted. See Note 4, Acquisitions and Dispositions, in the condensed consolidated financial statements, and Note 5, Discontinued Operations, in the consolidated financial statements in Item 8 of our 2022 Annual Report on Form 10-K for additional information.
The condensed consolidated financial statements and notes are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not contain certain information included in our annual audited consolidated financial statements and notes. The December 31, 2022 condensed consolidated balance sheet was derived from our audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”). 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, 2022.
In June 2023, we acquired the Emtek and Schaub premium and luxury door and cabinet hardware business (the "Emtek and Schaub Business"), and the U.S. and Canadian Yale and August residential smart home locks business (the "Yale and August Business", and collectively with the Emtek and Schaub Business, the "ASSA Businesses") from ASSA ABLOY, Inc. and its affiliates ("ASSA"). The Company completed the acquisition for a total purchase price of approximately $
In January 2023, the Board of Directors of the Company approved a change to the Company’s fiscal year end from December 31 to a 52- or 53-week fiscal year ending on the Saturday closest but not subsequent to December 31, effective as of the commencement of the Company’s fiscal year on January 1, 2023. This change was made in order to align the Company’s fiscal year with that of its operating businesses and to align the Company’s reporting calendar with how the Company evaluates its businesses. As a result, the Company’s fiscal quarters for the 2023 fiscal year end on April 1, 2023, July 1, 2023, September 30, 2023, and December 30, 2023.
The condensed consolidated balance sheet as of September 30, 2023, the related condensed consolidated statements of comprehensive income and equity for the thirty-nine weeks and thirteen weeks ended September 30, 2023, the related condensed consolidated statements of comprehensive income and equity for the nine and three months ended September 30, 2022, the related condensed consolidated statements of cash flows for the thirty-nine weeks ended September 30, 2023, and the related condensed consolidated statements of cash flows for the nine months ended September 30, 2022 are unaudited. The presentation of these financial statements requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. 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.
Effective in the first quarter of 2023, the Company revised its segment reporting from two reportable segments, Water Innovations and Outdoors & Security, to three reportable segments, Water, Outdoors and Security. The change in segment reporting was made to align with changes made in the manner our chief operating decision maker reviews the Company’s operating results in assessing performance and allocating resources. Comparative prior periods amounts have been recast to conform to the new segment presentation.
6
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On July 29, 2022, we acquired
In January 2022, we acquired
2. Recently Issued Accounting Standards
No material impacts noted from recently issued accounting standards.
3. Balance Sheet Information
Supplemental information on our balance sheets is as follows:
(In millions) |
|
September 30, |
|
|
December 31, |
|
||
Inventories: |
|
|
|
|
|
|
||
Raw materials and supplies |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished products |
|
|
|
|
|
|
||
Total inventories |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Property, plant and equipment, gross |
|
$ |
|
|
$ |
|
||
Less: accumulated depreciation |
|
|
|
|
|
|
||
Property, plant and equipment, net |
|
$ |
|
|
$ |
|
||
4. Acquisitions and Dispositions
ASSA Businesses
In June 2023, we acquired the ASSA Businesses. The Company completed the acquisition for a total purchase price of approximately $
7
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the preliminary allocation of the ASSA Businesses purchase price to the fair value of assets acquired and liabilities assumed as of the date of the acquisition.
(In millions) |
|
|||
Accounts receivable |
|
$ |
|
|
Inventories |
|
|
|
|
Property, plant and equipment |
|
|
|
|
Goodwill |
|
|
|
|
Identifiable intangible assets |
|
|
|
|
Operating lease assets |
|
|
|
|
Other assets |
|
|
|
|
Total assets |
|
|
|
|
Accounts payable |
|
|
|
|
Other current liabilities and accruals |
|
|
|
|
Other non-current liabilities |
|
|
|
|
Net assets acquired(a) |
|
$ |
|
|
(a) Net assets exclude $
We apply significant judgment in determining the estimates and assumptions used to determine the fair value of the identifiable intangible assets, including forecasted revenue growth rates, EBITDA margins, percentage of revenue attributable to the tradenames, contributory asset charges, customer attrition rate, market-participant discount rates and the assumed royalty rates. Any change in the acquisition date fair value of the acquired assets and liabilities will change the amount of the purchase price allocable to goodwill.
Goodwill includes expected sales and cost synergies. The goodwill is included in our Security and Water segments. Substantially all of the tax goodwill is expected to be deductible for income tax purposes, subject to the finalization of the purchase price allocation. ASSA Businesses identifiable intangible assets consist of finite-lived customer relationship assets of $
The following unaudited pro forma summary presents consolidated financial information as if the ASSA Businesses had been acquired on January 1, 2022. The unaudited pro forma financial information is based on historical results of operations and financial position of the Company and the ASSA Businesses. The pro forma results include:
The unaudited pro forma financial information does not necessarily represent the results that would have occurred had the acquisition occurred on January 1, 2022. In addition, the unaudited pro forma information should not be deemed to be indicative of future results.
(In millions) |
|
Thirty-Nine Weeks Ended September 30, 2023 |
|
|
Thirteen Weeks Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2022 |
|
|
Three Months Ended September 30, 2022 |
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Income from continuing operations, net of tax |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
8
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cabinets
On December 14, 2022, the Company completed the separation of MasterBrand, Inc., via a tax-free spin-off transaction (the “Separation”) to create an independent, publicly-traded company. Immediately following completion of the Separation, the Company changed its name from “Fortune Brands Home & Security, Inc.” to “Fortune Brands Innovations, Inc.” and its stock ticker changed from “FBHS” to “FBIN” to better reflect its focus on activities related to core brands and innovation.
The condensed consolidated statements of income and consolidated balance sheets for all prior periods have been adjusted to reflect the presentation of MasterBrand as discontinued operations. For the nine months ended September 30, 2022, the condensed consolidated statement of cash flows includes net cash provided from operations related to discontinued operations of $
Aqualisa
In July 2022, we acquired
Solar
In January 2022, we acquired
Flo Technologies
In 2018, our Water segment entered into a strategic partnership with, and acquired non-controlling equity interests in Flo Technologies ("Flo"). In January 2020, we entered into an agreement to acquire the remaining outstanding shares of Flo in a multi-phase transaction. As part of this agreement, we acquired a majority of Flo’s outstanding shares during 2020 and entered into a forward contract to purchase all remaining shares of Flo during the first quarter of 2022. On January 30, 2022, we made a final cash payment of $
5. Goodwill and Identifiable Intangible Assets
We had goodwill of $
(In millions) |
|
Water |
|
|
Outdoors |
|
|
Security |
|
|
Total |
|
||||
Goodwill at December 31, 2022(a) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Year-to-date translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Acquisition-related adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goodwill at September 30, 2023(a) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(a)
9
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The gross carrying value and accumulated amortization by class of identifiable intangible assets as of September 30, 2023 and December 31, 2022 were as follows:
(In millions) |
|
As of September 30, 2023 |
|
|
As of December 31, 2022 |
|
||||||||||||||||||
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
||||||
Indefinite-lived tradenames |
|
$ |
|
|
$ |
- |
|
|
$ |
|
|
$ |
|
|
$ |
- |
|
|
$ |
|
||||
Amortizable intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tradenames |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Customer and contractual relationships |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Patents/proprietary technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Total |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Total identifiable intangibles |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
We had net identifiable intangible assets of $
Amortizable identifiable intangible assets, principally customer relationships, are subject to amortization over their estimated useful life, ranging from
6. External Debt and Financing Arrangements
Senior Notes
In September 2023, we paid off all $
In June 2023, the Company issued $
In March 2022, the Company issued $
On September 30, 2023, the Company had aggregate outstanding senior notes in the amount of $
|
|
|
|
|
|
|
|
Net Carrying Value |
|
||||||
(in millions) |
Principal Amount |
|
|
Issuance Date |
|
Maturity Date |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|||
4.000% Senior Notes |
$ |
|
|
|
|
$ |
|
|
$ |
|
|||||
4.000% Senior Notes |
|
|
|
|
|
|
|
|
|
|
|||||
3.250% Senior Notes |
|
|
|
|
|
|
|
|
|
|
|||||
4.000% Senior Notes |
|
|
|
|
|
|
|
|
|
|
|||||
4.500% Senior Notes |
|
|
|
|
|
|
|
|
|
|
|||||
5.875% Senior Notes |
|
|
|
|
|
|
|
|
|
|
|||||
Total Senior Notes |
$ |
|
|
|
|
|
|
$ |
|
|
$ |
|
|||
10
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Credit Facilities
In August 2022, the Company entered into a third amended and restated $
In November 2021, the Company entered into a 364-day, $
We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $
Commercial Paper
The Company operates a commercial paper program (the “Commercial Paper Program”) pursuant to which the Company may issue unsecured commercial paper notes. The Company’s 2022 Revolving Credit Agreement is the liquidity backstop for the repayment of any notes issued under the Commercial Paper Program, and as such, borrowings under the Commercial Paper Program are included in Long-term debt in the condensed consolidated balance sheets. Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed, with the aggregate principal amount outstanding at any time, including borrowings under the 2022 Revolving Credit Agreement, not to exceed $
11
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. Derivative financial instruments are recorded at fair value. The counterparties to derivative contracts are major financial institutions. We are subject to credit risk on these contracts equal to the fair value of these instruments. Management currently believes that the risk of incurring material losses is unlikely and that the losses, if any, would be immaterial to the Company.
Raw materials used by the Company are subject to price volatility caused by weather, supply conditions, geopolitical and economic variables, and other unpredictable external factors. As a result, from time to time, we enter into commodity swaps to manage the price risk associated with forecasted purchases of materials used in our operations.
We may be exposed to interest rate risk on existing debt or forecasted debt issuance. To mitigate this risk, we may enter into interest rate hedge contracts. The Company entered into a total of $
Our primary foreign currency hedge contracts pertain to the British pound, the Canadian dollar, the Mexican peso and the Chinese yuan. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding at September 30, 2023 was $
The fair values of derivative instruments on the consolidated balance sheets as of September 30, 2023 and December 31, 2022 were as follows:
|
|
|
|
|
Fair Value |
|
|||||
(In millions) |
|
Location |
|
|
September 30, |
|
|
December 31, |
|
||
Assets: |
|
|
|
|
|
|
|
|
|
||
Foreign exchange contracts |
|
Other current assets |
|
|
$ |
|
|
$ |
|
||
Interest rate contracts |
|
Other current assets |
|
|
|
|
|
|
|
||
|
|
Total assets |
|
|
$ |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
|
||
Foreign exchange contracts |
|
Other current liabilities |
|
|
$ |
|
|
$ |
|
||
Commodity contracts |
|
Other current liabilities |
|
|
|
|
|
|
|
||
|
|
Total liabilities |
|
|
$ |
|
|
$ |
|
||
12
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The effects of derivative financial instruments on the statements of comprehensive income for the thirty-nine weeks ended September 30, 2023 and nine months ended September 30, 2022 were as follows:
(In millions) |
|
Classification and Amount of Gain (Loss) |
|
|||||||||
|
|
Thirty-Nine Weeks Ended September 30, 2023 |
|
|||||||||
|
|
Cost of |
|
|
Interest |
|
|
Other income, net |
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
||||
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|||
Hedged items |
|
|
- |
|
|
|
- |
|
|
|
|
|
Derivative designated as hedging instruments |
|
|
- |
|
|
|
- |
|
|
|
|
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
- |
|
|
|
- |
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|||
(In millions) |
|
Classification and Amount of Gain (Loss) |
|
|||||||||
|
|
Nine Months Ended September 30, 2022 |
|
|||||||||
|
|
Cost of |
|
|
Interest |
|
|
Other income, net |
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
||||
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|||
Hedged items |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Derivative designated as hedging instruments |
|
|
- |
|
|
|
- |
|
|
|
|
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
- |
|
|
|
- |
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
- |
|
|
|
|
|
|
- |
|
|
13
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The effects of derivative financial instruments on the statements of comprehensive income for the thirteen weeks ended September 30, 2023 and three months ended September 30, 2022 were as follows:
(In millions) |
|
Classification and Amount of Gain (Loss) |
|
|||||||||
|
|
Thirteen Weeks Ended September 30, 2023 |
|
|||||||||
|
|
Cost of |
|
|
Interest |
|
|
Other income, net |
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
||||
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|||
Hedged items |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Derivative designated as hedging instruments |
|
|
- |
|
|
|
- |
|
|
|
|
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
- |
|
|
|
- |
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
- |
|
|
|
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|||
(In millions) |
|
Classification and Amount of Gain (Loss) |
|
|||||||||
|
|
Three Months Ended September 30, 2022 |
|
|||||||||
|
|
Cost of |
|
|
Interest |
|
|
Other income, net |
|
|||
|
$ |
|
|
$ |
|
|
$ |
|
||||
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|||
Hedged items |
|
|
- |
|
|
|
- |
|
|
|
( |
) |
Derivative designated as hedging instruments |
|
|
- |
|
|
|
- |
|
|
|
|
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
|
- |
|
|
|
- |
|
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
( |
) |
|
|
- |
|
|
|
- |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|||
of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
- |
|
|
|
|
|
|
- |
|
|
8. Fair Value Measurements
FASB ASC requirements for Fair Value Measurements and Disclosures establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs, the highest priority, are quoted prices in active markets for identical assets or liabilities. Level 2 inputs reflect other than quoted prices included in Level 1 that are either observable directly or through corroboration with observable market data. Level 3 inputs are unobservable inputs, due to little or
14
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The carrying value and fair value of debt as of September 30, 2023 and December 31, 2022 were as follows:
(In millions) |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
Notes, net of underwriting commissions, price discounts and debt issuance costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
2022 Revolving Credit Agreement |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper borrowings |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The estimated fair value of our Notes is determined by using quoted market prices of our debt securities, which are Level 1 inputs. The estimated fair value of our 2022 Revolving Credit Facility, borrowings under our Commercial Paper Program and 2021 Term Loan is determined primarily using broker quotes, which are Level 2 inputs.
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022 were as follows:
(In millions) |
|
Fair Value |
|
|||||
|
|
September 30, |
|
|
December 31, |
|
||
Assets |
|
|
|
|
|
|
||
Derivative financial instruments (Level 2) |
|
$ |
|
|
$ |
|
||
Deferred compensation program assets (Level 2) |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
||
Derivative financial instruments (Level 2) |
|
$ |
|
|
$ |
|
||
9. Accumulated Other Comprehensive Income (Loss)
Total accumulated other comprehensive income (loss) consists of net income and other changes in business equity from transactions and other events from sources other than stockholders. It includes currency translation gains and losses, unrealized gains and losses from derivative instruments designated as cash flow hedges, and defined benefit plan adjustments.
In order to mitigate interest rate risk associated with forecasted debt issuances, we entered into a total of $
15
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The after-tax components of and changes in accumulated other comprehensive (loss) income for the thirty-nine and thirteen weeks ended September 30, 2023 and nine and three months ended September 30, 2022 were as follows:
(In millions) |
|
Foreign |
|
|
Derivative |
|
|
Defined |
|
|
Accumulated |
|
||||
Balance at December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
Amounts classified into accumulated other |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Amounts reclassified from accumulated other |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Net current-period other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Balance at September 30, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 31, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Amounts classified into accumulated other |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amounts reclassified from accumulated other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net current-period other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at September 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
(In millions) |
|
Foreign |
|
|
Derivative |
|
|
Defined |
|
|
Accumulated |
|
||||
Balance at June 30, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
Amounts classified into accumulated other |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from accumulated other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net current-period other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at September 30, 2022 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at July 1, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Amounts classified into accumulated other |
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
||
Other |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Amounts reclassified from accumulated other |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net current-period other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
16
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The reclassifications out of accumulated other comprehensive loss for the thirty-nine and thirteen weeks ended September 30, 2023 and nine and three months ended September 30, 2022 were as follows:
(In millions) |
||||||||||
Details about Accumulated Other |
|
Amount Reclassified from |
|
|
Affected Line Item in |
|||||
|
|
Thirty-Nine Weeks Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2022 |
|
|
|
||
Gains (losses) on cash flow hedges |
|
|
|
|
|
|
|
|
||
Foreign exchange contracts |
|
$ |
|
|
$ |
|
|
Cost of products sold |
||
Commodity contracts |
|
|
( |
) |
|
|
( |
) |
|
Cost of products sold |
Interest rate contracts |
|
|
|
|
|
|
|
Interest expense |
||
|
|
|
|
|
|
|
|
Total before tax |
||
|
|
|
( |
) |
|
|
|
|
Tax expense |
|
|
|
$ |
|
|
$ |
|
|
Net of tax |
||
Defined benefit plan items |
|
|
|
|
|
|
|
|
||
Recognition of actuarial losses |
|
|
|
|
$ |
( |
) |
|
Other (income) expense, net |
|
|
|
|
|
|
|
( |
) |
|
Total before tax |
|
|
|
|
( |
) |
|
|
|
|
Tax expense |
|
|
|
$ |
|
|
$ |
( |
) |
|
Net of tax |
|
Total reclassifications for the period |
|
$ |
|
|
$ |
|
|
Net of tax |
||
|
|
|
|
|
|
|
|
|
||
(In millions) |
||||||||||
Details about Accumulated Other |
|
Amount Reclassified from |
|
|
Affected Line Item in |
|||||
|
|
Thirteen Weeks Ended September 30, 2023 |
|
|
Three Months Ended September 30, 2022 |
|
|
|
||
Gains (losses) on cash flow hedges |
|
|
|
|
|
|
|
|
||
Foreign exchange contracts |
|
$ |
|
|
$ |
|
|
Cost of products sold |
||
Commodity contracts |
|
|
( |
) |
|
|
( |
) |
|
Cost of products sold |
Interest rate contracts |
|
|
|
|
|
|
|
Interest expense |
||
|
|
|
|
|
|
( |
) |
|
Total before tax |
|
|
|
|
( |
) |
|
|
|
|
Tax expense |
|
|
|
$ |
|
|
$ |
( |
) |
|
Net of tax |
|
Defined benefit plan items |
|
|
|
|
|
|
|
|
||
Recognition of actuarial gains (losses) |
|
$ |
|
|
$ |
( |
) |
|
Other (income) expense, net |
|
|
|
|
|
|
|
( |
) |
|
Total before tax |
|
|
|
|
( |
) |
|
|
|
|
Tax expense |
|
|
|
$ |
|
|
$ |
( |
) |
|
Net of tax |
|
Total reclassifications for the period |
|
$ |
|
|
$ |
( |
) |
|
Net of tax |
|
The amounts in the table above reflect continuing operations, and exclude income amounts, net of tax, related to discontinued operations of $
17
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Revenue
The following table disaggregates our consolidated revenues by major sales distribution channels for the thirty-nine and thirteen weeks ended September 30, 2023 and nine and three months ended September 30, 2022:
|
|
Thirty-Nine Weeks Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2022 |
|
|
Thirteen Weeks Ended September 30, 2023 |
|
|
Three Months Ended September 30, 2022 |
|
||||
Wholesalers(a) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Home Center retailers(b) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other retailers(c) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. net sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
International(d) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
11. Defined Benefit Plans
The components of net periodic benefit income for pension benefits for the thirty-nine and thirteen weeks ended September 30, 2023 and nine and three months ended September 30, 2022 were as follows:
|
Pension Benefits |
|
|||||||||||||
(In millions) |
Thirty-Nine Weeks Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2022 |
|
|
Thirteen Weeks Ended September 30, 2023 |
|
|
Three Months Ended September 30, 2022 |
|
||||
Service cost |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
||||
Expected return on plan assets |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recognition of actuarial losses |
|
- |
|
|
|
|
|
|
- |
|
|
|
|
||
Net periodic benefit income |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Service cost relates to benefit accruals in an hourly union defined benefit plan in our Security segment. All other defined benefit pension plans were frozen as of December 31, 2016.
12. Income Taxes
The effective income tax rates for the thirty-nine and thirteen weeks ended September 30, 2023 were
The difference between the Company’s effective tax rate for the thirty-nine weeks ended September 30, 2023, and the U.S. statutory rate of
18
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Product Warranties
We generally record warranty expense related to contractual warranty terms at the time of sale. We may also provide customer concessions for claims made outside of the contractual warranty terms, and these expenses are recorded in the period in which the concession is made. We offer our customers various warranty terms based on the type of product that is sold. Warranty expense is determined based on historic claim experience and the nature of the product category.
(In millions) |
|
Thirty-Nine Weeks Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2022 |
|
||
Reserve balance at January 1, |
|
$ |
|
|
$ |
|
||
Provision for warranties issued |
|
|
|
|
|
|
||
Settlements made (in cash or in kind) |
|
|
( |
) |
|
|
( |
) |
Acquisition |
|
|
|
|
|
|
||
Foreign translation adjustments |
|
|
( |
) |
|
|
( |
) |
Reserve balance at end of period |
|
$ |
|
|
$ |
|
||
14. Information on Business Segments
Net sales and operating income for the thirty-nine and thirteen weeks ended September 30, 2023 and nine and three months ended September 30, 2022 by segment were as follows:
(In millions) |
|
Thirty-Nine Weeks Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2022 |
|
|
% Change |
|||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|||
Water |
|
$ |
|
|
$ |
|
|
|
( |
) |
% |
||
Outdoors |
|
|
|
|
|
|
|
|
( |
) |
|
||
Security |
|
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
|
|
$ |
|
|
|
( |
) |
% |
||
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|||
Water |
|
$ |
|
|
$ |
|
|
|
( |
) |
% |
||
Outdoors |
|
|
|
|
|
|
|
|
( |
) |
|
||
Security |
|
|
|
|
|
|
|
|
( |
) |
|
||
Less: Corporate expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Operating income |
|
$ |
|
|
$ |
|
|
|
( |
) |
% |
||
|
|
|
|
|
|
|
|
|
|
|
|||
(In millions) |
|
Thirteen Weeks Ended September 30, 2023 |
|
|
Three Months Ended September 30, 2022 |
|
|
% Change |
|||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|||
Water |
|
$ |
|
|
$ |
|
|
|
|
% |
|||
Outdoors |
|
|
|
|
|
|
|
|
( |
) |
|
||
Security |
|
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
|
|
$ |
|
|
|
|
% |
|||
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|||
Water |
|
$ |
|
|
$ |
|
|
|
|
% |
|||
Outdoors |
|
|
|
|
|
|
|
|
|
|
|||
Security |
|
|
|
|
|
|
|
|
( |
) |
|
||
Less: Corporate expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Operating income |
|
$ |
|
|
$ |
|
|
|
|
% |
|||
19
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Restructuring and Other Charges
Pre-tax restructuring and other charges for the thirty-nine and thirteen weeks ended September 30, 2023 and nine and three months ended September 30, 2022 are shown below.
(In millions) |
|
Thirty-Nine Weeks Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2022 |
|
||||||||||||||||||
|
|
Restructuring |
|
|
Other |
|
|
Total |
|
|
Restructuring |
|
|
Other |
|
|
Total |
|
||||||
Water |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Outdoors |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
(a) |
“Other Charges (Gains)” 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 or losses on the sale of previously closed facilities. |
Restructuring and other charges (gains) in the thirty-nine weeks ended September 30, 2023 are largely related to costs associated with the planned closure of a manufacturing facility within our Security segment and headcount actions across all segments. Restructuring and other charges (gains) in the nine months ended September 30, 2022 were largely related to severance, asset impairment and other costs associated with plant closures within our Outdoors business and headcount actions across all of our businesses.
(In millions) |
|
Thirteen Weeks Ended September 30, 2023 |
|
|
Three Months Ended September 30, 2022 |
|
||||||||||||||||||
|
|
Restructuring |
|
|
Other |
|
|
Total |
|
|
Restructuring |
|
|
Other |
|
|
Total |
|
||||||
Water |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Outdoors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Corporate |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
(a) |
“Other Charges (Gains)” 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 or losses on the sale of previously closed facilities. |
Restructuring and other charges (gains) in the thirteen weeks ended September 30, 2023 are largely related to costs associated with the planned closure of a manufacturing facility within our Security segment. Restructuring and other charges in the three months ended September 30, 2022 were largely related to severance, asset impairment and other costs associated with plant closures within our Outdoors business and headcount actions across all our businesses.
Reconciliation of Restructuring Liability
(In millions) |
|
Balance at |
|
|
2023 |
|
|
Cash |
|
|
Non-Cash |
|
|
Balance at |
|
|||||
Workforce reduction costs |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
|
|
|
$ |
|
||||
Other |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
20
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In millions) |
|
Balance at |
|
|
2022 |
|
|
Cash |
|
|
Balance at |
|
||||
Workforce reduction costs |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
(a) Cash expenditures primarily relate to severance charges.
16. Earnings Per Share
The computations of earnings per common share for the thirty-nine and thirteen weeks ended September 30, 2023 and nine and three months ended September 30, 2022 were as follows:
(In millions, except per share data) |
|
Thirty-Nine Weeks Ended September 30, 2023 |
|
|
Nine Months Ended September 30, 2022 |
|
|
Thirteen Weeks Ended September 30, 2023 |
|
|
Three Months Ended September 30, 2022 |
|
||||
Income from continuing operations, net of tax |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(Loss) income from discontinued operations, net of tax |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Continuing operations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Continuing operations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Discontinued operations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted earnings per share |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Diluted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Antidilutive stock-based awards excluded from weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
||||
17. Commitments and Contingencies
Litigation
The Company is a defendant in lawsuits that are ordinary, routine litigation matters incidental to its businesses. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is possible that these actions could be decided unfavorably to the Company. The Company believes that there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon our results of operations, cash flows or financial condition, and where appropriate, these actions are being vigorously contested. Accordingly, the Company believes the likelihood of material loss is remote.
21
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Environmental
We are involved in remediation activities to clean up hazardous wastes as required by federal and state laws. Liabilities for remediation costs of each site are based on our best estimate of undiscounted future costs, excluding possible insurance recoveries or recoveries from other third parties. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop estimates of environmental remediation exposures. Some of the potential liabilities relate to sites we own, and some relate to sites we no longer own or never owned. Several of our subsidiaries have been designated as potentially responsible parties (“PRP”) under Superfund or similar state laws. In most instances where our subsidiaries are named as a PRP, we enter into cost-sharing arrangements with other PRPs. We give notice to insurance carriers of potential PRP liability, but very rarely, if ever, receive reimbursement from insurance for PRP costs. We believe 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.
22
Item 2. FORTUNE BRANDS INNOVATIONS, 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 unaudited condensed consolidated financial statements and the notes thereto, which are included in this report, as well as our audited consolidated financial statements for the year ended December 31, 2022, which are included in our Annual Report on Form 10-K for the year ended December 31, 2022.
This discussion contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations for our business, operations, financial performance or financial condition in addition to statements regarding our general business strategies, the market potential of our brands, trends in the housing market, the potential impact of costs, including material and labor costs, the potential impact of inflation, expected capital spending, expected pension contributions, the expected impact of acquisitions, dispositions and other strategic transactions including the expected benefits of the Separation of MasterBrand and the tax-free nature of the Separation, the anticipated impact of recently issued accounting standards on our financial statements, and other matters that are not historical in nature. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “outlook,” “positioned” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on current expectations, estimates, assumptions and projections of our management about our industry, business and future financial results, available at the time this report is filed with the Securities and Exchange Commission. Although we believe that these statements are based on reasonable assumptions, they are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those indicated in such statements, including but not limited to: (i) our reliance on the North American and Chinese home improvement, repair and remodel and new home construction activity levels, (ii) the housing market, downward changes in the general economy, unfavorable interest rates or other business conditions, (iii) the competitive nature of consumer and trade brand businesses, (iv) our ability to execute on our strategic plans and the effectiveness of our strategies in the face of business competition, (v) our reliance on key customers and suppliers, including wholesale distributors and dealers and retailers, (vi) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (vii) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (viii) delays or outages in our information technology systems or computer networks, (ix) risks associated with doing business globally, including changes in trade-related tariffs and risks with uncertain trade environments, (x) risks associated with the disruption of operations, (xi) our inability to obtain raw materials and finished goods in a timely and cost-effective manner, (xii) risks associated with strategic acquisitions and joint ventures, including difficulties integrating acquired companies and the inability to achieve the expected financial results and benefits of transactions, (xiii) impairments in the carrying value of goodwill or other acquired intangible assets, (xiv) risk of increases in our defined benefit-related costs and funding requirements, (xv) the uncertainties relating to the impact of COVID-19 on the Company’s business, financial performance and operating results, (xvi) our ability to attract and retain qualified personnel and other labor constraints, (xvii) the effect of climate change and the impact of related changes in government regulations and consumer preferences, (xviii) risks associated with environmental, social and governance matters, (xix) changes in government and industry regulatory standards, (xx) future tax law changes or the interpretation of existing tax laws, (xxi) our ability to secure and protect our intellectual property rights, (xxii) potential liabilities and costs from claims and litigation, (xxiii) our ability to achieve the expected benefits of the Separation of MasterBrand, (xxiv) the risk that we may be required to indemnify MasterBrand in connection with the Separation or that MasterBrand’s indemnities to us may not be sufficient to hold us harmless for the full amount of liabilities for which MasterBrand has been allocated responsibility and (xxv) the potential that the Separation fails to qualify as tax-free for U.S. federal income tax purposes. These and other factors are discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to, and expressly disclaim any such obligation to, update or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise, except as required by law.
23
OVERVIEW
References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Innovations, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires. The Company is a leading home, security and commercial building products company that competes in attractive long-term growth markets in our product categories.
On December 14, 2022, the Company completed the separation of its Cabinets business, MasterBrand, Inc. (“MasterBrand”), via a tax-free spin-off transaction (the “Separation”) to create an independent, publicly-traded company. Immediately following completion of the Separation, the Company changed its name from “Fortune Brands Home & Security, Inc.” to “Fortune Brands Innovations, Inc.” and its stock ticker changed from “FBHS” to “FBIN” to better reflect its focus on activities related to core brands and innovation. As a result of the Separation, our former Cabinets segment was disposed of and the operating results of the Cabinets business are reported as discontinued operations for all periods presented within this Quarterly Report on Form 10-Q. All amounts, percentages and disclosures for all periods presented reflect only the continuing operations of the Company unless otherwise noted. See Note 4, Acquisitions and Dispositions, in the condensed consolidated financial statements, and Note 5, Discontinued Operations, in the consolidated financial statements in Item 8 of our 2022 Annual Report on Form 10-K for additional information.
We believe that the Company has certain competitive advantages including market-leading brands, a diversified mix of channels, lean and flexible supply chains, a decentralized business model and a strong capital structure, as well as a tradition of strong innovation and customer service. We are focused on outperforming our markets in growth, profitability and returns in order to drive increased stockholder value. We believe the Company’s track record reflects the long-term attractiveness and potential of the categories we serve and our leading brands. The long-term outlook for our products remains favorable, and our strategic advantages, including the set of capabilities we refer to as the Fortune Brands Advantage, helps us to continue to achieve profitable organic growth.
We continue to believe our most attractive opportunities are to invest in profitable organic growth initiatives, pursue accretive strategic acquisitions, non-controlling equity investments, and joint ventures, and return cash to stockholders through a combination of dividends and repurchases of shares of our common stock under our share repurchase program as explained in further detail under “Liquidity and Capital Resources” below.
The U.S. market for our products primarily consists of spending on both new home construction and repair and remodel activities within existing homes, with a substantial majority of the markets we serve consisting of repair and remodel spending. Continued growth in the U.S. market for our home products will largely depend on consumer confidence, employment, wage growth, home prices, stable mortgage rates and credit availability. Recent increases in inflation and mortgage rates have slowed the pace of single-family and existing home sales activity and new home construction and repair and remodel activities. However, we believe we are well positioned to manage what we expect to be a short-term slowdown in the housing market as we believe the fundamental drivers of the housing market remain intact.
We have been and may continue to be impacted by near-term supply, labor and freight constraints, a volatile global supply chain environment, as well as sustained increased rates of inflation, rising interest rates, unfavorable fluctuations in foreign exchange rates and the ongoing costs of tariffs. We continue to manage these challenges and are diligently working to offset potential unfavorable impacts of these items through continuous productivity improvement initiatives and price increases.
In January 2023, the Board of Directors of the Company approved a change to the Company’s fiscal year end from December 31 to a 52-or 53-week fiscal year ending on the Saturday closest but not subsequent to December 31, effective as of the commencement of the Company’s fiscal year on January 1, 2023. This change was made in order to align the Company’s fiscal year with that of its operating businesses and to align the Company’s reporting calendar with how the Company evaluates its businesses. There was no material impact to any of our previously disclosed financial information. As a result, the Company’s fiscal quarters for the 2023 fiscal year end on April 1, 2023, July 1, 2023, September 30, 2023, and December 30, 2023.
In February 2023, we publicly announced an internal reorganization to separate our Outdoors & Security segment under separate leadership to drive innovation, accelerate product development, and enhance investments and business processes. In conjunction with the reorganization, we changed how our chief operating decision maker evaluates and allocates the resources for the two businesses. Separate reporting for the new Outdoors and Security segments began in the first quarter of 2023 and comparative prior period amounts have been recast to conform to the new segment presentation. There was no impact on our Water Innovations segment (which we refer to as “Water”).
24
In June 2023, we acquired the Emtek and Schaub premium and luxury door and cabinet hardware business (the "Emtek and Schaub Business"), and the U.S. and Canadian Yale and August residential smart home locks business (the "Yale and August Business", and collectively with the Emtek and Schaub Business, the "ASSA Businesses") from ASSA ABLOY, Inc. and its affiliates ("ASSA"). The Company completed the acquisition for a total purchase price of approximately $809.3 million, subject to post-closing adjustments, net of cash acquired of $16.3 million. We financed the transaction with cash on hand. As of the date of this filing, legal title to international operations in Vietnam has not yet transferred, but we expect a deferred closing, which will include a payment of approximately $23.4 million (which amount is already included in the overall purchase price but for which the cash payment has not yet been made), shortly following receipt of local regulatory approval, which is expected to occur later in 2023. The results of the Emtek and Schaub Business are reported as part of the Water segment and the results of the Yale and August Business are reported as part of the Security segment.
In July 2022, we acquired 100% of the outstanding equity of Aqualisa Holdings (International) Ltd. (“Aqualisa”), a leading U.K. manufacturer of shower products known for premium, innovative and smart digital shower systems, for a purchase price of $156.0 million, net of cash acquired of $4.8 million. We financed the transaction using cash on hand and borrowings under our revolving credit facility. The results of Aqualisa are reported as part of the Water segment.
In January 2022, we acquired 100% of the outstanding equity of Solar Innovations LLC and an affiliated entity (together, “Solar”), a leading producer of wide-opening exterior door systems and outdoor enclosures, for a purchase price of $61.6 million, net of cash acquired. We financed the transaction using cash on hand and borrowings under our revolving credit facility. The results of Solar are reported as part of the Outdoors segment.
In the first quarter of 2022, our Plumbing segment was renamed Water Innovations to better align with our key brands and organizational purpose. The Plumbing segment name change had no impact on the Company’s historical financial position, results of operations, cash flow or segment-level results previously reported.
25
RESULTS OF OPERATIONS
Thirty-Nine Weeks Ended September 30, 2023 Compared To Nine Months Ended September 30, 2022
|
|
Net Sales |
|||||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
% Change |
|||||
Water |
|
$ |
1,899.2 |
|
|
$ |
1,928.7 |
|
|
|
(1.5 |
) |
% |
Outdoors |
|
|
1,031.9 |
|
|
|
1,184.4 |
|
|
|
(12.9 |
) |
|
Security |
|
|
533.8 |
|
|
|
478.0 |
|
|
|
11.7 |
|
|
Net sales |
|
$ |
3,464.9 |
|
|
$ |
3,591.1 |
|
|
|
(3.5 |
) |
% |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Operating Income (Loss) |
|||||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|
|
|||
Water |
|
$ |
434.7 |
|
|
$ |
462.7 |
|
|
|
(6.1 |
) |
% |
Outdoors |
|
|
126.2 |
|
|
|
154.6 |
|
|
|
(18.4 |
) |
|
Security |
|
|
37.8 |
|
|
|
68.7 |
|
|
|
(45.0 |
) |
|
Less: Corporate expenses |
|
|
(117.7 |
) |
|
|
(94.0 |
) |
|
|
(25.2 |
) |
|
Operating income |
|
$ |
481.0 |
|
|
$ |
592.0 |
|
|
|
(18.8 |
) |
% |
The following discussion of consolidated results of operations and segment results refers to the thirty-nine weeks ended September 30, 2023 compared to the nine months ended September 30, 2022. Consolidated results of operations should be read in conjunction with segment results of operations.
Net sales
Net sales decreased by $126.2 million, or 3.5%, due to lower sales unit volume in the U.S. and lower sales in our international markets ($32.6 million) as well as unfavorable foreign exchange of approximately $21 million. These factors were partially offset by the benefit from the acquisitions of the ASSA Businesses in June 2023 and Aqualisa in July 2022 (approximately $150 million combined), price increases to help mitigate the impact of cumulative commodity cost increases across all of our segments and favorable channel mix.
Cost of products sold
Cost of products sold decreased by $82.1 million, or 3.9%, due to lower sales volumes and manufacturing productivity improvements in all of our segments. These factors were partially offset by the impact from the acquisitions of the ASSA Businesses in June 2023 and Aqualisa in July 2022, including amortization of the inventory fair value adjustment ($10.9 million), manufacturing inefficiencies related to the lower sales unit volume across all of our businesses, costs associated with the planned closure of a manufacturing facility within our Security segment and the absence of the $6.2 million gain on sale of a previously closed manufacturing facility in our Outdoors business in 2022.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $51.9 million, or 6.4%, due to the impact from the acquisition of the ASSA Businesses and higher headcount-related costs across our segments. These factors were partially offset by lower advertising and marketing costs and savings associated with our 2022 corporate reorganization and restructuring activities.
Amortization of intangible assets
Amortization of intangible assets increased by $8.3 million, primarily due to the acquisitions of the ASSA Businesses in June 2023 and Aqualisa in July 2022.
Restructuring charges
Restructuring charges of $28.9 million in the thirty-nine weeks ended September 30, 2023 are largely related to costs associated with the planned closure of a manufacturing facility within our Security segment and headcount actions across all segments. Restructuring charges of $22.2 million in the nine months ended September 30, 2022 were largely related to severance, asset impairment and other costs associated with plant closures within our Outdoors business and headcount actions across all of our businesses.
26
RESULTS OF OPERATIONS (Continued)
Operating income
Operating income decreased by $111.0 million, or 18.8%, primarily due to the lower sales unit volume in the U.S., lower international sales ($32.6 million decrease), manufacturing inefficiencies related to the lower sales unit volume, amortization of the inventory fair-value adjustment related to the acquisition of the ASSA Businesses ($10.9 million), higher restructuring costs associated with the planned closure of a manufacturing facility in our Security segment, higher headcount-related costs, as well as unfavorable foreign exchange of approximately $14 million. These factors were partially offset by the benefit from the acquisition of the ASSA Businesses, price increases to help mitigate the impact of cumulative commodity cost increases across all of our businesses, manufacturing productivity improvements and lower advertising and marketing costs.
Interest expense
Interest expense increased by $2.6 million to $87.9 million due to higher average fixed rate debt balances with the new issuance of $600 million of 5.875% Senior Notes due in June 2033.
Other income, net
Other income, net, was $20.9 million in the thirty-nine weeks ended September 30, 2023, compared to $5.2 million in the nine months ended September 30, 2022. The increase in other income, net is primarily due to an increase in foreign currency transaction income ($9.8 million) and an increase in interest income ($8.0 million). These benefits were partially offset by a decrease in defined benefit plan income ($2.3 million).
Income taxes
The effective income tax rates for the thirty-nine weeks ended September 30, 2023 and nine months ended September 30, 2022 were 21.7% and 19.5%, respectively. The 2022 effective rate was lower due to decreases in uncertain tax positions largely as a result of audit settlements.
Income from Continuing Operations, net of tax
Income from continuing operations, net of tax, was $324.2 million in the thirty-nine weeks ended September 30, 2023, compared to $411.9 million in the nine months ended September 30, 2022. The decrease was due to lower operating income and higher interest expense, partially offset by lower income tax expense and higher other income.
Income from Discontinued Operations, net of tax
Income from discontinued operations, net of income taxes, was $165.2 million for the nine months ended September 30, 2022 and includes the results from operations of our former Cabinets segment.
Results By Segment
Water
Net sales decreased by $29.5 million, or 1.5%, due to lower organic sales unit volume in the U.S., lower international sales ($17.1 million decrease), higher customer sales incentives and unfavorable foreign exchange of approximately $25 million. These factors were partially offset by the benefit from the acquisition of the Emtek and Schaub Business in June 2023 and Aqualisa in July 2022 (approximately $110 million combined) and price increases to help mitigate the impact of cumulative commodity cost increases.
Operating income decreased by $28.0 million, or 6.1%, due to the lower net sales, and the impact of costs associated with manufacturing inefficiencies related to the lower sales unit volume. These factors were partially offset by the benefit from the acquisition of the Emtek and Schaub Business and Aqualisa, manufacturing productivity improvements and lower advertising and marketing costs.
27
Outdoors
Net sales decreased by $152.5 million, or 12.9%, due to lower sales unit volume of our doors and decking products. These were partially offset by the benefit from price increases to help mitigate the impact of cumulative commodity cost increases and lower customer sales incentives.
Operating income decreased by $28.4 million, or 18.4%, due to lower net sales, the impact of costs associated with manufacturing inefficiencies related to the lower sales unit volume, the absence of the 2022 gain of $6.2 million on the sale of a previously closed manufacturing facility and higher employee-related costs. These factors were partially offset by manufacturing productivity improvements and cost savings resulting from the rationalization of certain of our production facilities during the second half of 2022.
Security
Net sales increased by $55.8 million, or 11.7%, due to the benefit from the acquisition of the Yale and August Business (approximately $40 million) and price increases to help mitigate the impact of cumulative commodity cost increases. These benefits were partially offset by lower sales unit volume.
Operating income decreased by $30.9 million, or 45.0%, due to higher restructuring costs associated with the planned closure of a manufacturing facility and the amortization of the Yale and August Business inventory fair value adjustment ($8.9 million), partially offset by higher net sales, and manufacturing productivity improvements.
Corporate
Corporate expenses increased by $23.7 million, or 25.2%, due to costs related to the acquisition of the ASSA Businesses in June 2023 and higher headcount-related costs.
28
Thirteen Weeks Ended September 30, 2023 Compared To Three Months Ended September 30, 2022
|
|
Net Sales |
|||||||||||
(In millions) |
|
2023 |
|
|
2022 |
|
|
% Change |
|||||
Water |
|
$ |
688.0 |
|
|
$ |
635.1 |
|
|
|
8.3 |
|
% |
Outdoors |
|
|
366.4 |
|
|
|
403.6 |
|
|
|
(9.2 |
) |
|
Security |
|
|
206.8 |
|
|
|
156.8 |
|
|
|
31.9 |
|
|
Net sales |
|
$ |
1,261.2 |
|
|
$ |
1,195.5 |
|
|
|
5.5 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Operating Income (Loss) |
|||||||||||
|
|
2023 |
|
|
2022 |
|
|
% Change |
|||||
Water |
|
$ |
164.2 |
|
|
$ |
152.7 |
|
|
|
7.5 |
|
% |
Outdoors |
|
|
52.0 |
|
|
|
47.4 |
|
|
|
9.7 |
|
|
Security |
|
|
17.0 |
|
|
|
23.2 |
|
|
|
(26.7 |
) |
|
Less: Corporate expenses |
|
|
(36.7 |
) |
|
|
(30.6 |
) |
|
|
(19.9 |
) |
|
Operating income |
|
$ |
196.5 |
|
|
$ |
192.7 |
|
|
|
2.0 |
|
% |
The following discussion of consolidated results of operations and segment results refers to the thirteen-week period ended September 30, 2023 compared to the three months ended September 30, 2022. Consolidated results of operations should be read in conjunction with segment results of operations.
Net sales
Net sales increased by $65.7 million, or 5.5%, due to the benefit of net sales from our acquisition of the ASSA Businesses in June 2023 and Aqualisa in July 2022 (approximately $120 million combined) and price increases to help mitigate the impact of cumulative commodity cost increases across all of our segments. These factors were partially offset by lower sales unit volume in the U.S. as well as lower international sales ($7.4 million).
Cost of products sold
Cost of products sold increased by $4.5 million, or 0.6%, due to the impact of the acquisition of the ASSA Businesses, including amortization of the inventory fair value adjustment ($10.9 million), as well as costs associated with the planned closure of a manufacturing facility within our Security segment. These factors were partially offset by the benefit of manufacturing productivity improvements and raw material cost deflation.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $68 million, or 26.9%, due to the impact from the acquisition of the ASSA Businesses and higher headcount-related costs partially offset by lower transportation, advertising and marketing costs, as well as savings associated with our 2022 corporate reorganization and restructuring activities.
Amortization of intangible assets
Amortization of intangible assets increased by $6.3 million primarily due to the acquisitions of the ASSA Businesses in June 2023 and Aqualisa in July 2022.
Restructuring charges
Restructuring charges of $3.7 million in the thirteen-week period ended September 30, 2023 are largely related to costs associated with the planned closure of a manufacturing facility within our Security segment. Restructuring charges of $20.6 million in the three months ended September 30, 2022 were largely related to severance, asset impairment and other costs associated with plant closures within our Outdoors business and headcount actions across all our businesses.
Operating income
Operating income increased by $3.8 million, or 2.0%, primarily due to higher net sales, including the benefit from the acquisition of the ASSA Businesses, and manufacturing productivity improvements. These factors were partially offset by restructuring costs associated with the planned closure of a manufacturing facility within our Security segment and higher headcount-related costs, as well as unfavorable foreign exchange of approximately $3 million.
29
Interest expense
Interest expense increased by $0.3 million to $33.3 million due to higher average fixed rate debt balances during the thirteen-week period ended September 30, 2023 as compared to the three months ended September 30, 2022.
Other income, net
Other income, net, was $9.4 million in the thirteen-week period ended September 30, 2023, compared to $2.8 million in the three months ended September 30, 2022. The increase in other income, net is primarily due to an increase in interest income ($2.6 million), defined benefit plan income and foreign currency transactions.
Income taxes
The effective income tax rates for the thirteen weeks ended September 30, 2023 and three months ended September 30, 2022 were 20.9% and 13.0%, respectively. The 2022 effective rate was lower due to decreases in uncertain tax positions largely as a result of audit settlements.
Income from Continuing Operations, net of tax
Income from continuing operations, net of tax, was $136.5 million in the thirteen weeks ended September 30, 2023, compared to $141.4 million in the three months ended September 30, 2022. The decrease was due to higher income tax expense, partially offset by higher operating income and higher other income.
Income from Discontinued Operations, net of tax
Income from discontinued operations, net of income taxes, was $62.8 million for the quarter ended September 30, 2022 and includes the results from operations of our former Cabinets segment.
Results By Segment
Water
Net sales increased by $52.9 million, or 8.3%, due to the benefit from the acquisition of the Emtek and Schaub Business in June 2023 and Aqualisa in July 2022 (approximately $80 million combined) and price increases to help mitigate the impact of cumulative commodity cost increases. These factors were partly offset by lower organic sales unit volume in the U.S., higher customer sales incentives and the impact from unfavorable foreign exchange of approximately $6 million.
Operating income increased by $11.5 million, or 7.5%, due to the higher net sales inclusive of the benefit from the acquisition of the Emtek and Schaub Business in June 2023, manufacturing productivity improvements and lower transportation, advertising and marketing costs. These factors were partially offset by higher headcount-related costs, the amortization of the Emtek and Schaub Business inventory fair value adjustment ($2.0 million) and unfavorable foreign exchange of approximately $2 million.
Outdoors
Net sales decreased by $37.2 million, or 9.2%, due to lower sales unit volume for our doors products, partially offset by volume increases in our decking products and lower customer sales incentives.
Operating income increased by $4.6 million, or 9.7%, due to the lower restructuring and other charges ($16.6 million decrease) and cost savings resulting from the rationalization of certain of our production facilities during the second half of 2022. These factors were partially offset by the impact of the lower net sales.
Security
Net sales increased by $50.0 million, or 31.9%, due to the benefit from the acquisition of the Yale and August Business in June 2023 (approximately $40 million), continued growth in our commercial and international businesses and price increases to help mitigate the impact of cumulative commodity cost increases.
Operating income decreased by $6.2 million, or 26.7%, due to higher restructuring and other charges associated with the planned closure of a manufacturing facility and manufacturing inefficiencies related to the lower sales unit volume and amortization of the Yale and August Business inventory fair value adjustment ($8.9 million). These factors were partially offset by the benefit from manufacturing productivity improvements.
30
Corporate
Corporate expenses increased by $6.1 million, or 19.9%, due to costs related to the acquisition of the ASSA Businesses in June 2023 and higher headcount-related costs.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash on hand, cash flows from operating activities, cash borrowed under our credit facility and cash from debt issuances in the capital markets. Our operating income is generated by our subsidiaries. We believe our operating cash flows, including funds available under the credit facility and access to capital markets, provide sufficient liquidity to support the Company’s working capital requirements, capital expenditures and service of indebtedness, as well as to finance acquisitions, repurchase shares of our common stock and pay dividends to stockholders, as the Board of Directors deems appropriate.
Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section of our Annual Report on Form 10-K for the year-ended December 31, 2022 entitled “Item 1A. Risk Factors.” In addition, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, repurchase shares of our common stock under our share repurchase program, 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.
Long-Term Debt
In September 2023, we paid off all $600 million in aggregate principal of our 2023 4.000% senior unsecured notes that matured in September 2023 at their maturity date using cash on hand.
In June 2023, the Company issued $600 million in aggregate principal 5.875% senior unsecured notes maturing in 2033 in a registered public offering. The Company used the net proceeds from the notes offering to pay off its 2023 4.000% senior unsecured notes that matured in September 2023 and for general corporate purposes.
In March 2022, the Company issued $900 million in aggregate principal amount of senior unsecured notes in a registered public offering consisting of $450 million of 4.000% senior unsecured notes maturing in 2032 and $450 million of 4.500% senior unsecured notes maturing in 2052 (together, the “2022 Notes”). The Company used the net proceeds from the 2022 Notes offering to pay down a portion of the outstanding balance on the 2021 Term Loan.
On September 30, 2023, the Company had aggregate outstanding senior notes in the amount of $2.7 billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company. The following table provides a summary of the Company’s outstanding Notes, including the net carrying value of the Notes, net of underwriting commissions, price discounts and debt issuance costs as of September 30, 2023 and December 31, 2022:
|
|
|
|
|
|
|
|
Net Carrying Value |
|
||||||
(in millions) |
Principal Amount |
|
|
Issuance Date |
|
Maturity Date |
|
September 30, 2023 |
|
|
December 31, 2022 |
|
|||
4.000% Senior Notes |
$ |
500.0 |
|
|
June 2015 |
|
June 2025 |
|
$ |
498.7 |
|
|
$ |
498.1 |
|
4.000% Senior Notes |
|
600.0 |
|
|
September 2018 |
|
September 2023 |
|
|
- |
|
|
|
599.2 |
|
3.250% Senior Notes |
|
700.0 |
|
|
September 2019 |
|
September 2029 |
|
|
695.5 |
|
|
|
695.0 |
|
4.000% Senior Notes |
|
450.0 |
|
|
March 2022 |
|
March 2032 |
|
|
446.1 |
|
|
|
445.8 |
|
4.500% Senior Notes |
|
450.0 |
|
|
March 2022 |
|
March 2052 |
|
|
435.8 |
|
|
|
435.4 |
|
5.875% Senior Notes |
|
600.0 |
|
|
June 2023 |
|
June 2033 |
|
|
593.3 |
|
|
|
- |
|
Total Senior Notes |
$ |
3,300.0 |
|
|
|
|
|
|
$ |
2,669.4 |
|
|
$ |
2,673.5 |
|
31
Credit Facilities
In August 2022, the Company entered into a third amended and restated $1.25 billion revolving credit facility (the “2022 Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. The maturity date of the facility is August 2027. Interest rates under the 2022 Revolving Credit Agreement are variable based on the Secured Overnight Financing Rate (“SOFR”) at the time of the borrowing and the Company’s long-term credit rating and can range from SOFR + 1.02% to SOFR + 1.525%. Under the 2022 Revolving Credit Agreement, the Company is required to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0. Consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments. In addition, the Company's ratio of consolidated debt minus certain cash and cash equivalents to consolidated EBITDA generally may not exceed 3.5 to 1.0. On September 30, 2023 and December 31, 2022, our outstanding borrowings under this facility were $110.0 million and zero, respectively. As of September 30, 2023, we were in compliance with all covenants under this facility.
We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $30.5 million and $20.5 million in aggregate as of September 30, 2023 and December 31, 2022, respectively. There were no outstanding balances as of September 30, 2023 and December 31, 2022.
Commercial Paper
The Company operates a commercial paper program (the “Commercial Paper Program”) pursuant to which the Company may issue unsecured commercial paper notes. The Company's 2022 Revolving Credit Agreement is the liquidity backstop for the repayment of any notes issued under the Commercial Paper Program, and as such borrowings under the Commercial Paper Program are included in Long-term debt in the condensed consolidated balance sheets. Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed, with the aggregate principal amount outstanding at any time, including borrowings under the 2022 Revolving Credit Agreement, not to exceed $1.25 billion. The Company will use any issuances under the Commercial Paper Program for general corporate purposes. On September 30, 2023 and December 31, 2022, outstanding borrowings under our Commercial Paper Program were $49.9 million and zero, respectively, which is included in Long-term debt in the condensed consolidated balance sheet.
Cash and Seasonality
On September 30, 2023, we had cash and cash equivalents of $453.4 million, of which $302.5 million was held at non-U.S. subsidiaries. We manage our global cash requirements considering (i) available funds among the subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay and record tax expense on those funds that are repatriated.
Our operating cash flows are significantly impacted by the seasonality of our business. We typically generate most of our operating cash flow in the third and fourth fiscal quarters of each year.
We believe that our current cash position, cash flow generated from operations, and amounts available under our revolving credit facility should be sufficient for our operating requirements and enable us to fund our capital expenditures, share repurchases, dividend payments, and any required long-term debt payments.
Share Repurchases and Dividends
In the thirty-nine weeks ended September 30, 2023, we repurchased 2.2 million shares of our outstanding common stock under the Company’s share repurchase program for $130.1 million. As of September 30, 2023, the Company’s total remaining share repurchase authorization under its share repurchase program was approximately $455 million. The share repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares and may be suspended or discontinued at any time.
In the thirty-nine weeks ended September 30, 2023, we paid dividends in the amount of $87.8 million to the Company’s stockholders. Our Board of Directors will continue to evaluate dividend payment opportunities on a quarterly basis. There can be no assurance as to when and if future dividends will be paid, and at what level, because the payment of dividends is dependent on our financial condition, results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Fortune Brands.
32
Acquisitions
In June 2023, we acquired the ASSA Businesses. The Company completed the acquisition for a total purchase price of approximately $809.3 million, subject to post-closing adjustments, net of cash acquired of $16.3 million. We financed the transaction with cash on hand. As of the date of this filing, legal title to international operations in Vietnam has not yet transferred, but we expect a deferred closing, which will include a payment of approximately $23.4 million (which amount is already included in the overall purchase price but for which the cash payment has not yet been made). The results of the Emtek and Schaub Business are reported as part of the Water segment and the results of the Yale and August Business are reported as part of the Security segment.
We periodically review our portfolio of brands and evaluate potential strategic transactions and other capital initiatives to increase stockholder value.
Cash Flows
Below is a summary of cash flows for the thirty-nine weeks ended September 30, 2023 and nine months ended September 30, 2022.
'(In millions) |
|
Thirty-Nine Weeks Period Ended |
|
|
Nine Months Ended September 30, 2022 |
|
||
Net cash provided by operating activities |
|
$ |
835.6 |
|
|
$ |
288.8 |
|
Net cash used in investing activities |
|
|
(957.0 |
) |
|
|
(381.0 |
) |
Net cash used in financing activities |
|
|
(60.6 |
) |
|
|
(8.9 |
) |
Effect of foreign exchange rate changes on cash |
|
|
(7.7 |
) |
|
|
(26.0 |
) |
Net decrease in cash and cash equivalents |
|
$ |
(189.7 |
) |
|
$ |
(127.1 |
) |
Net cash provided by operating activities was $835.6 million in the thirty-nine weeks ended September 30, 2023, compared to net cash provided by operating activities of $288.8 million in the nine months ended September 30, 2022. The increase in cash provided of $546.8 million was primarily due to an increase in net cash provided by working capital items, primarily inventory, accounts receivable and accounts payable resulting from an initiative to align working capital with current U.S. home product market activity and expected sales volume. The $84.2 million settlement of our interest rate swaps during the current year-to-date period and increased accrued expenses and other liabilities also contributed to the increase in cash provided by operating activities. The increase in cash provided by operating activities was partially offset by lower net income in 2023.
Net cash used in investing activities was $957.0 million in the thirty-nine weeks ended September 30, 2023, compared to net cash used in investing activities of $381.0 million in the nine months ended September 30, 2022. The increase in cash used of $576 million reflects the net cash paid to date as part of the acquisition of the ASSA Businesses of $784.1 million as compared to the acquisitions of Aqualisa and Solar for $214.0 million in 2022.
Net cash used in financing activities was $60.6 million in the thirty-nine weeks ended September 30, 2023, compared to cash used in financing activities of $8.9 million in the nine months ended September 30, 2022. The increase in cash used of $51.7 million was primarily driven by lower net borrowings in 2023 compared to 2022 ($524.3 million decrease) offset by lower share repurchases in 2023 compared to 2022 ($411.0 million decrease), a decrease in dividends paid to stockholders, lower cash used related to stock option activity and the absence in 2023 of the final payment for the remaining equity interest in Flo ($16.7 million) that was made in 2022.
Pension Plans
Subsidiaries of Fortune Brands sponsor their respective defined benefit pension plans that are funded by a portfolio of investments maintained within our benefit plan trust. As of December 31, 2022, the fair value of our total pension plan assets was $482.5 million, representing funding of 89% of the accumulated benefit obligation liability. For the foreseeable future, we believe that we have sufficient liquidity to meet the minimum funding that may be required by the Pension Protection Act of 2006.
Foreign Exchange
We have operations in various foreign countries, principally Canada, Mexico, the United Kingdom, China, South Africa, Vietnam and France. Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S. dollars.
33
RECENTLY ISSUED ACCOUNTING STANDARDS
The adoption of recent accounting standards, as discussed in Note 2, “Recently Issued Accounting Standards,” to our Condensed Consolidated Financial Statements, has not had and is not expected to have a significant impact on our revenue, earnings or liquidity.
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, 2022.
Item 4. CONTROLS AND PROCEDURES.
The Company’s management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Changes in Internal Control Over Financial Reporting.
The Company acquired the ASSA Businesses on June 20, 2023. As a result of the acquisition, management is in the process of integrating, evaluating and, where necessary, implementing changes in controls and procedures. Other than with respect to the acquisition, there have been no changes in the Company’s internal control over financial reporting during the thirteen weeks ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
34
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
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. The Company believes 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. Accordingly, the Company believes the likelihood of material loss is remote.
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. Some of the potential liabilities relate to sites we own, and some relate to sites we no longer own or never owned. Several of our subsidiaries have been designated as potentially responsible parties (“PRP”) under Superfund or similar state laws. In most instances where our subsidiaries are named as a PRP, we enter into cost-sharing arrangements with other PRPs. We give notice to insurance carriers of potential PRP liability, but very rarely, if ever, receive reimbursement from insurance for PRP costs. We believe 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, 2022.
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 thirteen-week period ended September 30, 2023:
Issuer Purchases of Equity Securities
Thirteen Weeks Ended September 30, 2023 |
|
Total |
|
|
Average |
|
|
Total number of |
|
|
Maximum dollar |
|
||||
July 2 – July 29 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
484,580,514 |
|
July 30 – August 26 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
484,580,514 |
|
August 27 – September 30 |
|
|
479,693 |
|
|
|
62.6 |
|
|
|
479,693 |
|
|
|
454,550,984 |
|
Total |
|
|
479,693 |
|
|
$ |
62.6 |
|
|
|
479,693 |
|
|
|
|
|
Authorization date |
|
Announcement date |
|
Authorization amount of shares |
|
Expiration date |
March 2, 2022 |
|
March 2, 2022 |
|
$750,000,000 |
|
March 2, 2024 |
35
Item 5. OTHER INFORMATION.
Securities Trading Plans of Directors and Officers
A significant portion of the compensation of our officers is delivered in the form of equity awards, including performance share awards, restricted stock units and stock options. The Company’s compensation programs and practices are designed to pay for performance and to align management’s interests with those of the Company’s stockholders while attracting, motivating and retaining superior talent to lead our Company. In addition, members of the Board of Directors receive a portion of their compensation in Company common stock. Our executive officers and directors may engage from time to time in the open-market sale or other transactions involving those securities and may also purchase our securities.
Transactions in our securities by our directors and officers are required to be made in accordance with our Insider Trading Policy, which, among other things, requires that the transactions be in accordance with applicable U.S. federal securities laws that prohibit trading while in possession of material nonpublic information. Rule 10b5-1 under the Exchange Act provides an affirmative defense that enables prearranged transactions in securities in a manner that avoids concerns about initiating transactions at a future date while possibly in possession of material nonpublic information. Our directors and officers are permitted to enter into trading plans designed to comply with Rule 10b5-1.
During the third quarter of 2023, none of our directors or officers
36
Item 6. EXHIBITS
3.1 |
|
|
|
3.2 |
|
|
|
10.1* |
|
|
|
10.2* |
|
|
|
10.3* |
|
|
|
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, 2023 formatted in Inline eXtensible Business Reporting Language (iXBRL): (i) the Cover Page, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Equity, and (vi) the Notes to the Condensed Consolidated Financial Statements. |
|
|
104.* |
Cover Page Interactive Data File (embedded within the iXBRL document). |
* Filed or furnished herewith.
37
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 INNOVATIONS, INC. |
|
(Registrant) |
|
|
Date: October 27, 2023 |
/s/ David V. Barry |
|
David V. Barry |
|
Executive Vice President and Chief Financial Officer |
|
(Duly authorized officer and principal financial officer of the Registrant) |
38
SECOND AMENDMENT TO THE FORTUNE BRANDS HOME & SECURITY, INC.
DEFERRED COMPENSATION PLAN
Except as specified, the captioned plan (“Plan”) is amended as follows, effective December 15, 2022:
Fortune Brands Innovations, Inc. (the "Company") (previously named Fortune Brands Home and Security, Inc.) established the Fortune Brands Innovations, Inc. Deferred Compensation Plan (the "Plan"), effective November 1, 2015, and the Plan was subsequently amended and restated, effective February 27, 2017, and December 15, 2022. The purpose of the Plan is to attract and retain key personnel by providing opportunities to defer receipt of salary, bonus, or other specified compensation. The Plan is not intended to meet the qualification requirements of Code Section 40l(a), but is intended to meet the requirements of Code Section 409A, and shall be operated and interpreted consistent with that intent.
The Plan constitutes an unsecured promise by a Participating Employer to pay benefits in the future. Participants in the Plan shall have the status of general unsecured creditors of the Company or the Adopting Employer, as applicable. Each Participating Employer shall be solely responsible for payment of the benefits of its employees and their beneficiaries. The Plan is unfunded for Federal tax purposes and is intended to be an unfunded arrangement for eligible employees who are part of a select group of management or highly compensated employees of the Employer within the meaning of Sections 201(2), 30l(a)(3) and 40l(a)(l) of ERISA. Any amounts set aside to defray the liabilities assumed by the Company or an Adopting Employer will remain the general assets of the Company or the Adopting Employer and shall remain subject to the claims of the Company's or the Adopting Employer's creditors until such amounts are distributed to the Participants.
Company. Company means Fortune Brands Innovations, Inc., a Delaware corporation, or any successor.
Plan. Generally, the term Plan means the "Fortune Brands Innovations, Inc. Deferred Compensation Plan" (previously named the Fortune Brands Home & Security, Inc. Deferred Compensation Plan) as documented herein and as may be amended from time to time hereafter. However, to the extent permitted or required under Code Section 409A, the term Plan may in the appropriate context also mean a portion of the Plan that is treated as a single plan under Treas. Reg. Section l.409A-l(c), or the Plan or portion of the Plan and any other nonqualified deferred compensation plan or portion thereof that is treated as a single plan under such section.
Plan Administrator. Plan Administrator means the Employee Benefits Committee of the Company or such other committee or person(s) as may be appointed by the Committee as its delegate to serve as the Plan Administrator with one or more of the authorities, duties, responsibilities, or obligations described herein. In the absence of any such appointment, the Plan Administrator shall be the Committee.
Notice. Any notice or filing required or permitted to be delivered to the Plan Administrator under this Plan shall be delivered in writing, in person, or through such electronic means as is established by the Plan Administrator. Notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Written transmission shall be sent by certified mail to:
FORTUNE BRANDS INNOVATIONS, INC.
ATTN: VICE PRESIDENT, TOTAL REWARDS
520 LAKE COOK ROAD
SUITE 300
DEERFIELD, IL 60015
Any notice or filing required or permitted to be given to a Participant under this Plan shall be sufficient if in writing or hand-delivered or sent by mail to the last known address of the Participant.
The undersigned hereby certifies that the foregoing is a correct copy of an amendment duly adopted by the Fortune Brands Innovations, Inc. Employee Benefits Action Committee.
Dated this 29th day of September 2023.
By: /s/ Mike Lei a
Mike Lei
Its: Chairperson
FORTUNE BRANDS INNOVATIONS, INC.
NON-EMPLOYEE DIRECTOR STOCK ELECTION PROGRAM
1. |
Purpose of Program |
The purpose of this Non-Employee Director Stock Election Program (the “Program”) is to enable non-employee directors (as defined below) of Fortune Brands Innovations, Inc. (the “Company”) to elect to receive shares of common stock of the Company (“Common Stock”) in lieu of the cash retainers payable to them for their service on the Board of Directors of the Company (the “Board”).
2. |
Administration of Program |
The Program is adopted and administered under the Fortune Brands Home & Security, Inc. 2022 Long-Term Incentive Plan and any other equity compensation plan subsequently adopted by the Company and in effect as of the date the non-employee director receives the applicable cash retainer in Common Stock (the “LTIP”). Further, this Program is administered by the Nominating, Environmental, Social and Governance Committee of the Board (the “Committee”). The Committee shall have the power and authority to administer, construe and interpret the Program, to make rules for administering the Program and to make changes in such rules.
3. |
Participation |
All non-employee directors shall be eligible to participate in the Program. The term “non-employee director” means a member of the Board who, at the time of performance of the services relevant to payment under the Program, is not an employee of the Company or any of its subsidiaries.
4. |
Election to Receive Fees in Common Stock |
(a) The Company generally pays certain fees, including, but not limited to, an annual retainer, committee membership fees and chairperson fees, to non-employee directors in cash. Each non-employee director shall have the right to elect, at any time, subject to the Company’s general policies with respect to “quiet periods” and investment elections during such quiet periods, to receive payment of all such fees in shares of Common Stock, and shall have the right, at any time, to reverse such an election, by filing with the Committee, or such person as the Committee shall designate, a Payment Election Form, as attached hereto as Exhibit A. Any election to receive fees in shares of Common Stock, or any reversal of such an election, will become effective for the next regularly scheduled quarterly payment after the date the Payment Election Form is filed with the Company, except that if the Payment Election Form is filed at the time a non-employee director is first elected to the Board, then such election shall be effective for the non-employee director’s first payment.
(b) If an election is made pursuant to Section 4(a), then, after the election becomes effective, the Company shall pay any amounts due to the non-employee director that are subject to the election in whole shares of Common Stock and, in the case of amounts attributable to fractional shares, in cash. The number of shares of Common Stock to be issued to the
non-employee director shall be determined by dividing the amount to be paid to the non-employee director by the closing price of a share of Common Stock on the New York Stock Exchange (or such other national exchange on which the stock is listed) on the first day of trading at the beginning of the quarter in which the payment is scheduled to be made, and rounding down to the nearest whole share. Any amounts attributable to a fractional share shall be paid to the non-employee director in cash on an annual basis no later than December 31 of the year in such fees are earned.
5. Limitations and Conditions
(a) Shares issued under the Program shall be, and hereby are deemed to be, granted pursuant to the LTIP and shall be subject to the terms and conditions of the LTIP.
(b) Prior to each issuance to a non-employee director of shares of Common Stock pursuant to the Program, such non-employee director must make representations satisfactory to the Committee to the effect that such shares are to be held for investment purposes and not with a view to or for resale or distribution except in compliance with the Securities Act of 1933, as amended (the “Securities Act”), and must give a written undertaking to the Company in form and substance satisfactory to the Committee that he or she will not publicly offer or sell or otherwise distribute such shares other than (i) in the manner and to the extent permitted by Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act, (ii) pursuant to any other exemption from the registration provisions of the Securities Act or (iii) pursuant to an effective registration statement thereunder.
(c) Nothing contained herein shall be deemed to create the right in any non-employee director to remain a member of the Board or in service with the Company, to be nominated for reelection or to be reelected as such or, after ceasing to be such a member, to receive any shares of Common Stock under the Program to which he or she is not already entitled with respect to any year.
6. |
Amendment and Termination |
The Board and the Administrator shall have the power to amend or terminate the Program at any time, subject to stockholder approval requirements under applicable laws; provided, however, that, to be effective, any amendment of the Program shall comply with the requirements of the rules and regulations promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended, to the extent necessary so that the receipt of shares of Common Stock by a non-employee director under the Program shall be exempt from such Section 16(b).
7. Miscellaneous
(a) Indemnification. No member of the Board or Committee nor any person to whom the Committee delegates any of its power and authority, shall be liable for any act, omission, interpretation, construction or determination made in connection with this Program in good faith, and the members of the Board and the Committee and such other person to whom authority has been delegated shall be entitled to indemnification and reimbursement by the Company for any claims, losses, damages or expenses (including attorneys’ fees) arising from any such act, omission, interpretation, construction or determination to the full extent permitted by law (except as otherwise may be provided in the Company’s Restated Certificate of Incorporation and/or
Amended and Restated Bylaws) and under any directors’ and officers’ liability insurance that may be in effect from time to time.
(b) Gender and Number. Except where otherwise indicated by the context, any masculine term used herein will also include the feminine; the plural will include the singular and the singular will include the plural.
(c) Severability. If any provision of the Program is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Program, and the Program will be construed and enforced as if the illegal or invalid provision had not been included.
(d) Requirements of Law. The issuance of payments under the Program will be subject to all applicable laws, rules, and regulations, and to any approvals required by any governmental agencies or national securities exchanges.
(e) Unfunded Status of the Program. The Program is intended to constitute an “unfunded” plan. With respect to any payments not yet made to a non-employee director by the Company, nothing contained herein will give any rights to a non-employee director that are greater than those of a general creditor of the Company.
(f) Governing Law. The Program will be construed in accordance with and governed by the laws of the State of Delaware, determined without regard to its conflict of law rules.
8. |
Effective Date |
The Program shall be effective as of January 1, 2024.
FORTUNE BRANDS INNOVATIONS, INC.
NON-EMPLOYEE DIRECTOR STOCK ELECTION PROGRAM
PAYMENT ELECTION FORM
As of , 20 , the individual whose name appears below, who is a non-employee director of Fortune Brands Innovations, Inc. (the “Company”), executes this election (the “Payment Election Form”) with respect to cash retainers payable to him or her described in Section 4(a) of the Fortune Brands Innovations, Inc. Non-Employee Director Stock Election Program (the “Program”). Any term capitalized herein but not defined will have the meaning set forth in the Program.
In accordance with the terms of the Program and to the extent permitted by the Program, the non-employee director hereby elects to receive all cash retainers described in Section 4(a) of the Program payable to him or her, in their entirety, in the following form:
Common Stock |
OR |
Cash |
This election will become effective for the next regularly scheduled quarterly payment date after the date this Payment Election Form is filed with the Company. Unless the Payment Election Form is being filed at the time of a non-employee director’s election to the Board of Directors, then such election will become effective for the first payment made to such non-employee director. This Payment Election Form will, upon becoming effective, supersede any prior Payment Election Form filed by the non-employee director. If no Payment Election Form is filed by the non-employee director, or if a Payment Election Form is internally inconsistent or conflicts with a concurrent Payment Election Form, payment under the Program will be made to the non-employee director in cash.
IN WITNESS WHEREOF, the non-employee director has duly executed this Payment Election Form as of the date first written above.
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FORTUNE BRANDS INNOVATIONS, INC.
DIRECTORS’ DEFERRED COMPENSATION PLAN
Fortune Brands Innovations, Inc. (the “Company”) established this Directors’ Deferred Compensation Plan (the “Plan”) to assist the Company in attracting and retaining persons of competence and stature to serve as directors of the Company (“Directors”) by giving those Directors the option of deferring the receipt of the cash fees and shares of Company common stock (“Common Stock”) payable to them by the Company for their services as Directors.
No member of the Board or Administrator, and no employee of the Company to whom the Administrator delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Board and the Administrator and such employees shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys’ fees) arising therefrom to the full extent permitted by law (except as otherwise may be provided in the Company’s Certificate of Incorporation and/or Bylaws) and under any directors’ and officers’ liability insurance that may be in effect from time to time.
The Plan is unfunded and no funds will be segregated into the Deferral Account of Participants.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
Executive Vice President, Chief Legal Officer and Secretary, this 18th day of September 2023.
FORTUNE BRANDS INNOVATIONS, INC.
By:/s/ Hiranda S. Donoghue a
FORTUNE BRANDS INNOVATIONS, INC.
DIRECTORS’ DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION
Complete only if you have not previously filed a Deferral Election, or you now wish to change your previous Deferral Election(s) or Conversion Election for the upcoming year.
I, _____________________________________, make the following election under the Fortune Brands Innovations, Inc. Directors’ Deferred Compensation Plan (the “Plan”) with respect to fees earned beginning January 1, 202__ for services as a Director of Fortune Brands Innovations, Inc. (the “Company”). Any capitalized term that is not defined will have the meaning set forth in the Plan.
A. Deferral Election. I elect to defer receipt of my Directors’ Fees as follows:
DIRECTOR CASH FEES |
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DIRECTOR SHARES |
□ all of my Director Cash Fees or |
AND/OR |
□ all of my Director Shares or |
□ $___________ per calendar quarter of my Director Cash Fees (may not be less than $5,000 per calendar quarter) |
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□ ___________ of my annual grant of Director Shares |
B. Conversion Election. I elect to convert ___% of the deferred Director Cash Fees described in Part A. into share equivalents under the Plan.
This Deferral Election (and, if applicable, Conversion Election) supersedes any prior deferral or conversion elections under the Plan and will remain in effect for future years unless changed through a future election or operation of the Plan. The Plan is unfunded. All deferrals and interest are maintained as general assets of the Company. You should carefully review the enclosed Plan before you elect to defer.
If you have any questions regarding the Plan, please call Angela Pla at (847) 484-4455. Please remember that if you would like to participate, this Deferral Election must be returned by December 31st preceding the year in which the fees are earned (or, in the case of the first year in which you are eligible to participate in the Plan, you may make this Deferral Election with respect to services to be performed subsequent to the date of the Deferral Election if you return such election no later than thirty (30) days after the date on which you became eligible to participate in the Plan).
____________________________________ ________________________
Director’s Signature Date
____________________________________
Director’s Name (please print)
FORTUNE BRANDS INNOVATIONS, INC.
DIRECTORS’ DEFERRED COMPENSATION PLAN
BENEFICIARY DESIGNATION
In accordance with the terms of the Fortune Brands Innovations, Inc. Directors’ Deferred Compensation Plan (the “Plan”), the individual whose name appears below, who serves as a Director of Fortune Brands Innovations, Inc. (the “Company”), hereby designates the individual(s) named below as his or her beneficiary or beneficiaries with respect to his or her Deferral Account (and any other amounts due to him or her) under the Plan. This designation shall supersede any and all previous beneficiary designations made by the Director with respect to his or her Deferral Account under the Plan. Any capitalized term that is not defined will have the meaning set forth in the Plan.
1. Primary Beneficiary. The following person, or persons, are designated as primary beneficiary with respect to the percentage of the Director’s unpaid Deferral Account (and any other amounts due to him or her) indicated for each person:
Name: _____________________________________
Relationship: _____________________________________
Address: _____________________________________
_____________________________________
_____________________________________
Percent: _____________________________________
Name: _____________________________________
Relationship: _____________________________________
Address: _____________________________________
_____________________________________
_____________________________________
Percent: _____________________________________
Name: _____________________________________
Relationship: _____________________________________
Address: _____________________________________
_____________________________________
_____________________________________
Percent: _____________________________________
2. Secondary Beneficiary. The following person, or persons, are designated as secondary Beneficiary with respect to the percentage of the Director’s unpaid Deferral Account (and any other amounts due to him or her) indicated for each person:
Name: _____________________________________
Relationship: _____________________________________
Address: _____________________________________
_____________________________________
_____________________________________
Percent: _____________________________________
Name: _____________________________________
Relationship: _____________________________________
Address: _____________________________________
_____________________________________
_____________________________________
Percent: _____________________________________
Name: _____________________________________
Relationship: _____________________________________
Address: _____________________________________
_____________________________________
_____________________________________
Percent: _____________________________________
____________________________________ ________________________
Director’s Signature Date
____________________________________
Director’s Name (please print)
EXHIBIT 31.1
CERTIFICATION
I, Nicholas I. Fink, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2023 of Fortune Brands Innovations, 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;
4. 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:
a) 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;
d) 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):
a) 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
b) 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: October 27, 2023
/s/ Nicholas I. Fink |
Nicholas I. Fink |
Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
I, David V. Barry, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2023 of Fortune Brands Innovations, 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;
4. 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:
a) 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;
d) 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):
a) 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
b) 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: October 27, 2023
/s/ David V. Barry |
David V. Barry |
Executive 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 Executive Vice President and Chief Financial Officer of Fortune Brands Innovations, 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, 2023, 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: October 27, 2023
/s/ Nicholas I. Fink |
Nicholas I. Fink |
Chief Executive Officer |
/s/ David V. Barry |
David V. Barry |
Executive Vice President and |
Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to Fortune Brands Innovations, Inc. and will be retained by Fortune Brands Innovations, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.