Fortune Brands Innovations, Inc 10-Q for FY2024 Q1
Fortune Brands Innovations, Inc. (FBIN)
About this 10-Q
Fortune Brands Innovations, Inc filed this 10-Q on May 1, 2024, covering the quarter ended March 30, 2024 (FY2024 Q1).
Headline figures
Quarter ended March 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.11B
- up 6.7% from $1.04B a year earlier
- Net income
- $96.4M
- up 13.9% from net income of $84.6M a year earlier
- Diluted EPS
- $0.76
- up 15.2% from $0.66 a year earlier
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 ☐ No
The number of shares outstanding of the registrant’s common stock, par value $0.01 per share, at April 19, 2024 was
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
FORTUNE BRANDS INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Thirteen Weeks Ended March 30, 2024 and April 1, 2023
(In millions, except per share amounts)
(Unaudited)
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Thirteen Weeks Ended |
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March 30, 2024 |
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April 1, 2023 |
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Net sales |
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$ |
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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 expense (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) from discontinued operations, net of tax |
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Net Income |
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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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Discontinued operations |
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— |
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Basic earnings per share |
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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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Discontinued operations |
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— |
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Diluted earnings per share |
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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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See notes to condensed consolidated financial statements.
2
FORTUNE BRANDS INNOVATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
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March 30, |
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December 30, |
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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 |
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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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Accounts payable |
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$ |
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$ |
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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 income |
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Retained earnings |
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Treasury stock |
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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 Thirteen Weeks Ended March 30, 2024 and April 1, 2023
(In millions)
(Unaudited)
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March 30, 2024 |
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April 1, 2023 |
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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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Deferred taxes |
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Amortization of deferred financing fees |
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Gain on sales of property, plant and equipment |
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Changes in assets and liabilities: |
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Increase in accounts receivable |
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(Increase) decrease in inventories |
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Increase in accounts payable |
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(Increase) decrease in other assets |
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Decrease in accrued expenses and other liabilities |
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( |
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Increase (decrease) in accrued taxes |
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( |
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Net cash (used in) 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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Cost of acquisitions, net of cash acquired |
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Net cash used in investing activities |
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( |
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Financing activities |
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Issuance of long-term debt |
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Repayment of long-term debt |
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Proceeds from the exercise of stock options |
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Treasury stock purchases |
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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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Net cash provided by (used in) financing activities |
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( |
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Effect of foreign exchange rate changes on cash |
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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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The Condensed Consolidated Statements of Cash Flows presented above include cash flows from continuing and discontinued operations.
See notes to condensed consolidated financial statements.
4
FORTUNE BRANDS INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Thirteen Weeks Ended March 30, 2024 and April 1, 2023
(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, 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 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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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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( |
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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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Balance at April 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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Balance at December 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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$ |
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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 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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( |
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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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Balance at March 30, 2024 |
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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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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 innovation company focused on creating smarter, safer and more beautiful homes and improving lives that competes in attractive long-term growth markets in our product categories. 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 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 30, 2023 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 30, 2023.
The condensed consolidated balance sheets as of March 30, 2024, the related condensed consolidated statements of comprehensive income, equity and cash flows for the thirteen weeks ended March 30, 2024 and the condensed consolidated statements of comprehensive income, equity and cash flows for the thirteen weeks ended April 1, 2023 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.
On February 29, 2024, we acquired
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 locks business (the "Yale and August Business", and, collectively with the Emtek and Schaub Business, the "Acquired Businesses") from ASSA ABLOY, Inc. and its affiliates ("ASSA"). The Company completed the acquisition for a total purchase price of approximately $
6
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Recently Issued Accounting Standards
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, which improves segment disclosure reporting requirements, primarily though enhanced disclosures about significant segment expenses. The ASU is effective for fiscal years beginning after December 15, 2023, and early adoption is permitted. We are currently assessing the impact on our consolidated financial statements and related segment disclosures.
In December 2023, the FASB issued ASU 2023-09 which requires expanded disclosure of the effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. We are currently assessing the impact on our financial statement disclosures.
3. Balance Sheet Information
Supplemental information on our balance sheets is as follows:
(In millions) |
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March 30, |
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December 30, |
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Inventories: |
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Raw materials and supplies |
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$ |
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$ |
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Work in process |
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Finished products |
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Total inventories |
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$ |
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$ |
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Property, plant and equipment, gross |
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$ |
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$ |
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Less: accumulated depreciation |
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Property, plant and equipment, net |
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$ |
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$ |
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7
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. Acquisitions
SpringWell
On February 29, 2024, we acquired
Acquired Businesses
In June 2023, we acquired the Acquired Businesses from ASSA. The Company completed the acquisition for a total purchase price of approximately $
The following unaudited pro forma summary presents consolidated financial information as if the Acquired 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 Acquired 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) |
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Thirteen Weeks Ended April 1, 2023 |
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Net sales |
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$ |
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Income from continuing operations, net of tax |
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$ |
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5. Goodwill and Identifiable Intangible Assets
We had goodwill of $
(In millions) |
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Water |
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Outdoors |
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Security |
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Total |
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Goodwill at December 30, 2023(a) |
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$ |
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$ |
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$ |
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$ |
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Year-to-date foreign currency translation adjustments |
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( |
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( |
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( |
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Acquisition-related adjustments |
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Goodwill at March 30, 2024(a) |
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$ |
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$ |
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$ |
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$ |
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(a)
8
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 March 30, 2024 and December 30, 2023 were as follows:
(In millions) |
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As of March 30, 2024 |
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As of December 30, 2023 |
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Gross |
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Accumulated |
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Net |
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Gross |
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Accumulated |
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Net |
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Indefinite-lived tradenames |
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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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Amortizable intangible assets |
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Tradenames |
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Customer and contractual relationships |
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( |
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( |
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Patents/proprietary technology |
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( |
) |
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( |
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Total |
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( |
) |
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( |
) |
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Total identifiable intangibles |
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$ |
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$ |
( |
) |
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$ |
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$ |
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|
$ |
( |
) |
|
$ |
|
||||
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
At March 30, 2024, the Company had aggregate outstanding senior notes in the principal amount of $
|
|
|
|
|
|
|
|
Net Carrying Value |
|
||||||
(in millions) |
Principal Amount |
|
|
Issuance Date |
|
Maturity Date |
|
March 30, 2024 |
|
|
December 30, 2023 |
|
|||
4.000% Senior Notes |
$ |
|
|
|
|
$ |
|
|
$ |
|
|||||
3.250% Senior Notes |
$ |
|
|
|
|
|
|
|
|
|
|||||
4.000% Senior Notes |
$ |
|
|
|
|
|
|
|
|
|
|||||
4.500% Senior Notes |
$ |
|
|
|
|
|
|
|
|
|
|||||
5.875% Senior Notes |
$ |
|
|
|
|
|
|
|
|
|
|||||
Total Senior Notes |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|||
Credit Facilities
In August 2022, the Company entered into a third amended and restated $
We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $3
9
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 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 Revolving Credit Agreement, not to exceed $
10
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. As of March 30, 2024, we had no outstanding interest rate hedges.
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 March 30, 2024 was $
The fair values of derivative instruments on the consolidated balance sheets as of March 30, 2024 and December 30, 2023 were as follows:
|
|
|
|
Fair Value |
|
|||||
(In millions) |
|
Location |
|
March 30, |
|
|
December 30, |
|
||
Assets: |
|
|
|
|
|
|
|
|
||
Foreign exchange contracts |
|
Other current assets |
|
$ |
|
|
$ |
|
||
|
|
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities: |
|
|
|
|
|
|
|
|
||
Foreign exchange contracts |
|
Other current liabilities |
|
$ |
|
|
$ |
|
||
|
|
Total liabilities |
|
$ |
|
|
$ |
|
||
11
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 March 30, 2024 and April 1, 2023 were as follows:
(In millions) |
|
Classification and Amount of Gain (Loss) |
|
|||||||||
|
|
March 30, 2024 |
|
|||||||||
|
|
Cost of |
|
|
Interest |
|
|
Other expense, 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) |
|
|||||||||
|
|
April 1, 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 |
|
|
— |
|
|
|
|
|
|
— |
|
|
12
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Fair Value Measurements
Financial Accounting Standards Board Accounting Standards Codification 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
The carrying value and fair value of debt as of March 30, 2024 and December 30, 2023 were as follows:
(In millions) |
|
March 30, 2024 |
|
|
December 30, 2023 |
|
||||||||||
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
Notes, net of underwriting commissions, price discounts and debt issuance costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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 borrowings under our Commercial Paper Program is determined primarily using broker quotes, which are Level 2 inputs.
Assets and liabilities measured at fair value on a recurring basis as of March 30, 2024 and December 30, 2023 were as follows:
(In millions) |
|
Fair Value |
|
|||||
|
|
March 30, |
|
|
December 30, |
|
||
Assets |
|
|
|
|
|
|
||
Derivative financial instruments (Level 2) |
|
$ |
|
|
$ |
|
||
Deferred compensation program assets (Level 2) |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
Liabilities |
|
|
|
|
|
|
||
Derivative financial instruments (Level 2) |
|
$ |
|
|
$ |
|
||
13
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 millions) |
|
Foreign |
|
|
Derivative |
|
|
Defined |
|
|
Accumulated |
|
||||
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 April 1, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Balance at December 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Amounts classified into accumulated other |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from accumulated other |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Net current-period other comprehensive (loss) income |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Balance at March 30, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||
The reclassifications out of accumulated other comprehensive loss for the thirteen weeks ended March 30, 2024 and April 1, 2023 were as follows:
(In millions) |
||||||||||
Details about Accumulated Other |
|
Amount Reclassified from |
|
|
Affected Line Item in |
|||||
|
|
March 30, 2024 |
|
|
April 1, 2023 |
|
|
|
||
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 |
Total reclassifications for the period |
|
$ |
2.5 |
|
|
$ |
2.7 |
|
|
Net of tax |
14
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. Revenue
The following table disaggregates our consolidated revenue by major sales distribution channels for the thirteen weeks ended March 30, 2024 and April 1, 2023:
(In millions) |
|
March 30, 2024 |
|
|
April 1, 2023 |
|
||
Wholesalers(a) |
|
$ |
|
|
$ |
|
||
Home Center retailers(b) |
|
|
|
|
|
|
||
Other retailers(c) |
|
|
|
|
|
|
||
Builder direct |
|
|
|
|
|
|
||
U.S. net sales |
|
|
|
|
|
|
||
International(d) |
|
|
|
|
|
|
||
Net sales |
|
$ |
|
|
$ |
|
||
As part of our contracts with customers, we recognize contract liabilities, principally deferred revenue. Deferred revenue liabilities represents advanced payments and billings in excess of revenue recognized. Deferred revenue liabilities of $
11. Defined Benefit Plans
The components of net periodic benefit income for pension benefits for the thirteen weeks ended March 30, 2024 and April 1, 2023 were as follows:
(In millions) |
|
Pension Benefits |
|
|||||
|
|
March 30, 2024 |
|
|
April 1, 2023 |
|
||
Interest cost |
|
$ |
|
|
$ |
|
||
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
Net periodic benefit income |
|
$ |
( |
) |
|
$ |
( |
) |
12. Income Taxes
The effective income tax rates for the thirteen weeks ended March 30, 2024 and thirteen weeks ended April 1, 2023 were
15
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 those expenses are recorded in the period in which the concession is made. We offer our customers various warranty terms based on the type of product that is sold. Warranty expense is determined based on historic claim experience and the nature of the product category.
(In millions) |
|
March 30, 2024 |
|
|
April 1, 2023 |
|
||
Reserve balance at beginning of period |
|
$ |
|
|
$ |
|
||
Provision for warranties issued |
|
|
|
|
|
|
||
Settlements made (in cash or in kind) |
|
|
( |
) |
|
|
( |
) |
Foreign translation adjustments |
|
|
( |
) |
|
|
|
|
Reserve balance at end of period |
|
$ |
|
|
$ |
|
||
14. Information on Business Segments
Net sales and operating income for the thirteen weeks ended March 30, 2024 and April 1, 2023 by segment were as follows:
(In millions) |
|
March 30, 2024 |
|
|
April 1, 2023 |
|
|
% Change |
|||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|||
Water |
|
$ |
|
|
$ |
|
|
|
|
% |
|||
Outdoors |
|
|
|
|
|
|
|
|
|
|
|||
Security |
|
|
|
|
|
|
|
|
|
|
|||
Net sales |
|
$ |
|
|
$ |
|
|
|
|
% |
|||
Operating Income |
|
|
|
|
|
|
|
|
|
|
|||
Water |
|
$ |
|
|
$ |
|
|
|
|
% |
|||
Outdoors |
|
|
|
|
|
|
|
|
|
|
|||
Security |
|
|
|
|
|
|
|
|
( |
) |
|
||
Less: Corporate expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Operating income |
|
$ |
|
|
$ |
|
|
|
|
% |
|||
15. Restructuring and Other Charges
Pre-tax restructuring and other charges (gains) for the thirteen weeks ended March 30, 2024 and April 1, 2023 are shown below.
(In millions) |
|
March 30, 2024 |
|
|
April 1, 2023 |
|
||||||||||||||||||
|
|
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. |
16
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restructuring and other charges (gains) for the thirteen weeks ended March 30, 2024 are largely related to costs associated with the previously announced planned closure of a manufacturing facility within our Security segment, a product line rationalization within our Outdoors segment and headcount actions across all segments. Restructuring and other charges (gains) for the thirteen weeks ended April 1, 2023 were largely related to severance costs associated with the relocation of manufacturing facilities in the Outdoors segment and headcount actions across all segments.
Reconciliation of Restructuring Liability
(In millions) |
|
Balance at |
|
|
2024 |
|
|
Cash |
|
|
Non-Cash |
|
|
Balance at |
|
|||||
Workforce reduction costs |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Other |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
(In millions) |
|
Balance at |
|
|
2023 |
|
|
Cash |
|
|
Non-Cash |
|
|
Balance at |
|
|||||
Workforce reduction costs |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Other |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
16. Earnings Per Share
The computations of earnings per common share for the thirteen weeks ended March 30, 2024 and April 1, 2023 were as follows:
(In millions, except per share data) |
|
March 30, 2024 |
|
|
April 1, 2023 |
|
||
Income from continuing operations, net of tax |
|
$ |
|
|
$ |
|
||
Loss 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
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
18
Item 2.
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 30, 2023, which are included in our Annual Report on Form 10-K for the year ended December 30, 2023.
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. 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,” “confident,” “opportunity” 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 relating to rapidly evolving technological change, (vii) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (viii) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (ix) delays or outages in our information technology systems or computer networks, or breaches of our information technology systems or other cybersecurity incidents, (x) risks associated with doing business globally, including changes in trade-related tariffs and risks with uncertain trade environments, (xi) risks associated with the disruption of operations, (xii) our inability to obtain raw materials and finished goods in a timely and cost-effective manner, (xiii) risks associated with entering into potential strategic acquisitions and joint ventures and related integration activities, (xiv) impairments in the carrying value of goodwill or other acquired intangible assets, (xv) risks of increases in our defined benefit-related costs and funding requirements, (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) potential liabilities and costs from claims and litigation, (xx) changes in government and industry regulatory standards, (xxi) future tax law changes or the interpretation of existing tax laws, (xxii) our ability to secure and protect our intellectual property rights, (xxiii) the impact of COVID-19 on the business, (xxiv) our ability to achieve the expected benefits of the separation of MasterBrand, Inc. (“MasterBrand”), the Company’s Cabinets business (the “Separation”) (xxv) 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 (xxvi) 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 30, 2023. 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.
19
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 innovation company focused on creating smarter, safer and more beautiful homes and improving lives that competes in attractive long-term growth markets in our product categories.
We believe that the Company has certain competitive advantages including market-leading brands, a diversified mix of channels, lean and flexible supply chains, 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 remain 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. Increases in inflation and mortgage rates during the preceding years 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 slow-down 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, increased 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.
On February 29, 2024, we acquired 100% of the outstanding equity of Wise Water Solutions LLC, doing business as SpringWell Water Filtration Systems ("SpringWell"), for a purchase price of $105.2 million, subject to post-closing adjustments, net of cash acquired of $1.4 million. We financed the transaction using cash on hand and borrowings under our existing credit facility. The results of SpringWell are reported as part of the Water Innovations ("Water") segment. We have not included pro forma financial information as the transaction is immaterial to our condensed consolidated statements of comprehensive income. The fair value allocated to assets acquired and liabilities assumed as of February 29, 2024, was $105.2 million, which includes $84.0 million of goodwill. Goodwill includes expected sales and cost synergies and is expected to be deductible for income tax purposes.
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 locks business (the "Yale and August Business", and, collectively with the Emtek and Schaub Business, the "Acquired 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. 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 $23.5 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. In preparation for the deferred closing, $23.5 million is classified as restricted cash within Other current assets and the corresponding payable is included within Other current liabilities. We financed the transaction with cash on hand. 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.
20
RESULTS OF OPERATIONS
Thirteen Weeks Ended March 30, 2024 Compared to Thirteen Weeks Ended April 1, 2023
|
|
Net Sales |
|||||||||||
(In millions) |
|
2024 |
|
|
2023 |
|
|
% Change |
|||||
Water |
|
$ |
625.3 |
|
|
$ |
594.2 |
|
|
|
5.2 |
|
% |
Outdoors |
|
|
315.0 |
|
|
|
289.9 |
|
|
|
8.7 |
|
|
Security |
|
|
169.3 |
|
|
|
155.9 |
|
|
|
8.6 |
|
|
Net sales |
|
$ |
1,109.6 |
|
|
$ |
1,040.0 |
|
|
|
6.7 |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Operating Income (Loss) |
|||||||||||
|
|
2024 |
|
|
2023 |
|
|
% Change |
|
|
|||
Water |
|
$ |
141.3 |
|
|
$ |
128.4 |
|
|
|
10.0 |
|
% |
Outdoors |
|
|
34.3 |
|
|
|
13.0 |
|
|
|
163.8 |
|
|
Security |
|
|
19.1 |
|
|
|
21.1 |
|
|
|
(9.5 |
) |
|
Less: Corporate expenses |
|
|
(39.3 |
) |
|
|
(30.7 |
) |
|
|
(28.0 |
) |
|
Operating income |
|
$ |
155.4 |
|
|
$ |
131.8 |
|
|
|
17.9 |
|
% |
The following discussion of consolidated results of operations and segment results refers to the thirteen weeks ended March 30, 2024 compared to the thirteen weeks ended April 1, 2023. Consolidated results of operations should be read in conjunction with segment results of operations.
Net sales
Net sales increased by $69.6 million, or 6.7%, due to the benefit from the acquisition of the Acquired Businesses ($93.7 million) and higher sales in our international markets ($14.9 million), partially offset by higher customer sales incentives, lower sales unit volume in the U.S. and unfavorable foreign exchange ($1.0 million).
Cost of products sold
Cost of products sold decreased by $9.7 million, or 1.5%, due to raw material cost deflation, lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies. These factors were partially offset by the impact of the acquisition of the Acquired Businesses.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $50.8 million, or 19.5%, due to higher headcount related costs and higher advertising and marketing costs mainly as a result of the acquisition of the Acquired Businesses in addition to higher corporate expenses.
Restructuring charges
Restructuring charges of $2.8 million in the thirteen weeks ended March 30, 2024 are largely related to costs associated with the previously announced planned closure of a manufacturing facility within our Security segment, a product line rationalization within our Outdoors segment and headcount actions across all segments. Restructuring charges for the thirteen weeks ended April 1, 2023 were $3.1 million.
Operating income
Operating income increased by $23.6 million, or 17.9%, primarily due to raw material cost deflation, lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies, and the impacts of the acquisition of the Acquired Businesses. These factors were partially offset by increased intangible amortization expense as a result of the acquisition of the Acquired Businesses ($5.2 million), higher customer sales incentives, higher headcount related costs, and unfavorable foreign exchange of approximately $1 million.
21
RESULTS OF OPERATIONS (Continued)
Interest expense
Interest expense increased by $3.3 million to $30.1 million due to higher floating rate debt balances ($373.7 million outstanding as of March 30, 2024) and higher fixed rate debt interest rates with the issuance of the $600 million outstanding principal amount of 5.875% Senior Notes due in June 2033 relative to the maturity and settlement of the $600 million outstanding principal amount of 4.000% Senior Notes due in September 2023.
Other (income) expense, net
Other expense, net, was $0.1 million in the thirteen weeks ended March 30, 2024, compared to other income, net of $6.3 million in the thirteen weeks ended April 1, 2023. The decrease in other income, net is primarily due to a decrease in foreign currency transaction income and interest income.
Income taxes
The effective income tax rates for the thirteen weeks ended March 30, 2024 and thirteen weeks ended April 1, 2023 were 23.0% and 23.1%, respectively.
The difference between the Company’s effective income tax rate for the thirteen weeks ended March 30, 2024, and the U.S. statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates, partially offset by a valuation allowance release and tax credits.
The difference between the Company’s effective income tax rate for the thirteen weeks ended April 1, 2023, and the U.S. statutory rate of 21% primarily relates to state income taxes, foreign income taxed at higher rates, partially offset by a favorable benefit related to decreases in uncertain tax positions and a valuation allowance release.
Income from Continuing Operations, net of tax
Income from continuing operations, net of tax, was $96.4 million in the thirteen weeks ended March 30, 2024, compared to $85.6 million in the thirteen weeks ended April 1, 2023. The increase was due to higher operating income, partly offset by higher interest expense, higher income tax expense and lower other income.
Results By Segment
Water
Net sales increased by $31.1 million, or 5.2%, due to the benefit from the acquisition of the Acquired Businesses ($67.6 million) partially offset by higher customer sales incentives, lower sales unit volume in the U.S. and unfavorable foreign exchange ($1.2 million).
Operating income increased by $12.9 million, or 10.0%, primarily due to the benefit from the acquisition of the Acquired Businesses, productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, lower transportation costs and raw material cost deflation. These factors were partially offset by increased intangible amortization expense due to the impact of the acquisition of the Acquired Businesses ($4.8 million) and higher headcount related costs.
Outdoors
Net sales increased by $25.1 million, or 8.7%, due to higher sales unit volume for our exterior doors products, partially offset by higher customer sales incentives and unfavorable channel mix.
Operating income increased by $21.3 million, or 163.8%, due to the higher sales unit volume and productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies.
Security
Net sales increased by $13.4 million, or 8.6%, due to the benefit from the acquisition of the Acquired Businesses ($26.1 million) partially offset by lower sales unit volume.
Operating income decreased by $2.0 million, or 9.5%, due to lower sales unit volume and higher restructuring and other charges associated with the planned closure of a manufacturing facility, partially offset by productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, lower transportation costs and raw material cost deflation.
22
Corporate
Corporate expenses increased by $8.6 million, or 28.0%, due to headcount related costs and costs related to our digital transformation efforts.
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 30, 2023 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 or pay dividends, or what impact any such transactions could have on our results of operations, cash flows or financial condition, whether as a result of the issuance of debt or equity securities, or otherwise.
Long-Term Debt
At March 30, 2024, the Company had aggregate outstanding notes in the principal amount of $2.7 billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company. In addition, we believe that we have the ability to obtain alternative sources of financing if required. 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 March 30, 2024 and December 30, 2023:
|
|
|
|
|
|
|
|
Net Carrying Value |
|
||||||
(in millions) |
Principal Amount |
|
|
Issuance Date |
|
Maturity Date |
|
March 30, 2024 |
|
|
December 30, 2023 |
|
|||
4.000% Senior Notes |
$ |
500.0 |
|
|
June 2015 |
|
June 2025 |
|
$ |
499.1 |
|
|
$ |
498.9 |
|
3.250% Senior Notes |
$ |
700.0 |
|
|
September 2019 |
|
September 2029 |
|
|
695.9 |
|
|
|
695.7 |
|
4.000% Senior Notes |
$ |
450.0 |
|
|
March 2022 |
|
March 2032 |
|
|
446.4 |
|
|
|
446.2 |
|
4.500% Senior Notes |
$ |
450.0 |
|
|
March 2022 |
|
March 2052 |
|
|
436.0 |
|
|
|
435.9 |
|
5.875% Senior Notes |
$ |
600.0 |
|
|
June 2023 |
|
June 2033 |
|
|
593.6 |
|
|
|
593.4 |
|
Total Senior Notes |
|
|
|
|
|
|
|
$ |
2,671.0 |
|
|
$ |
2,670.1 |
|
|
Credit Facilities
In August 2022, the Company entered into a third amended and restated $1.25 billion revolving credit facility (the “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 Revolving Credit Agreement are variable based on 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 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 March 30, 2024 and December 30, 2023, there were no outstanding borrowings under this facility. As of March 30, 2024, 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 in aggregate as of March 30, 2024 and December 30, 2023, respectively. There were no outstanding balances as of March 30, 2024 and December 30, 2023.
23
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 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 Revolving Credit Agreement, not to exceed $1.25 billion. The Company will use any issuances under the Commercial Paper Program for general corporate purposes. Outstanding borrowings under the Commercial Paper Program as of March 30, 2024 and December 30, 2023 were $373.7 million and zero, respectively.
Cash and Seasonality
On March 30, 2024, we had cash and cash equivalents of $359.7 million, of which $274.2 million was held at non-U.S. subsidiaries. We manage our global cash requirements considering (i) available funds among the subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay and record tax expense on those funds that are repatriated.
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
On January 29, 2024, the Company's Board of Directors authorized the repurchase of up to $650 million of shares of the Company’s outstanding common stock over the next two years on the open market or in privately negotiated transactions or otherwise (including pursuant to a Rule 10b5-1 trading plan, block trades and accelerated share repurchase transactions), in accordance with applicable securities laws.
In the thirteen weeks ended March 30, 2024, we repurchased 1.3 million shares of our outstanding common stock under the Company’s share repurchase program for $100.0 million. As of March 30, 2024, the Company’s total remaining share repurchase authorization under its share repurchase program was approximately $624.8 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 thirteen weeks ended March 30, 2024, we paid dividends in the amount of $30.1 million to the Company’s stockholders. Our Board of Directors will continue to evaluate dividend payment opportunities on a quarterly basis. There can be no assurance as to when and if future dividends will be paid, and at what level, because the payment of dividends is dependent on our financial condition, results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors. There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Fortune Brands.
Acquisitions
On February 29, 2024, we acquired 100% of the outstanding equity of SpringWell for a purchase price of $105.2 million, subject to post-closing adjustments, net of cash acquired of $1.4 million. We financed the transaction using cash on hand and borrowings under our existing credit facility. The results of SpringWell are reported as part of the Water segment. We have not included pro forma financial information as the transaction is immaterial to our condensed consolidated statements of comprehensive income. The fair value allocated to assets acquired and liabilities assumed as of February 29, 2024, was $105.2 million, which includes $84.0 million of goodwill. Goodwill includes expected sales and cost synergies and is expected to be deductible for income tax purposes.
In June 2023, we acquired the Acquired Businesses from 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 $23.5 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. In preparation for the deferred closing, $23.5 million is classified as restricted cash within Other current assets and the corresponding payable is included within Other current liabilities. 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.
24
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 thirteen weeks ended March 30, 2024 and the thirteen weeks ended April 1, 2023.
(In millions) |
|
|
|
|||||
|
|
March 30, 2024 |
|
|
April 1, 2023 |
|
||
Net cash (used in) provided by operating activities |
|
$ |
(71.3 |
) |
|
$ |
76.1 |
|
Net cash used in investing activities |
|
|
(169.8 |
) |
|
|
(42.6 |
) |
Net cash provided by (used in) financing activities |
|
|
238.7 |
|
|
|
(139.3 |
) |
Effect of foreign exchange rate changes on cash |
|
|
(5.0 |
) |
|
|
2.2 |
|
Net decrease in cash and cash equivalents |
|
$ |
(7.4 |
) |
|
$ |
(103.6 |
) |
Net cash used in operating activities was $71.3 million in the thirteen weeks ended March 30, 2024, compared to net cash provided by operating activities of $76.1 million in the thirteen weeks ended April 1, 2023. The increase in cash used of $147.4 million was primarily due to an increase in inventory balances compared to the prior period as a result of our 2023 initiative to decrease inventory balances to align with the U.S. home product market activity and increases in accounts receivables resulting from higher net sales, partially offset by increases in accounts payable.
Net cash used in investing activities was $169.8 million in the thirteen weeks ended March 30, 2024, compared to net cash used in investing activities of $42.6 million in the thirteen weeks ended April 1, 2023. The increase in cash used of $127.2 million reflects the cash used in the SpringWell acquisition in February 2024 ($105.2 million) and an increase in capital expenditures.
Net cash provided by financing activities was $238.7 million in the thirteen weeks ended March 30, 2024, compared to cash used in financing activities of $139.3 million in the thirteen weeks ended April 1, 2023. The increase in cash provided of $378 million was primarily due to net issuances under our commercial paper program ($375.0 million) and an increase in proceeds from the exercise of stock options.
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 30, 2023, the fair value of our total pension plan assets was $468.0 million, representing funding of about 96% of the accumulated benefit obligation liability. During the thirteen weeks ended March 30, 2024, we made no pension contributions. 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to Note 2, "Recently Issued Accounting Standards," in Item 1 for discussion of recently issued accounting standards.
25
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 30, 2023.
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.
There have not been any changes in the Company's internal control over financial reporting that occurred during the fiscal quarter ended March 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
26
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
The Company is a defendant in lawsuits that are ordinary, routine litigation matters incidental to its businesses. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is possible that these actions could be decided unfavorably to the Company. The Company believes that there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon 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 fiscal year ended December 30, 2023.
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 weeks ended March 30, 2024:
Issuer Purchases of Equity Securities
Thirteen Weeks Ended March 30, 2024 |
|
Total |
|
|
Average |
|
|
Total number of |
|
|
Maximum dollar |
|
||||
December 31 – January 27 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
434,580,518 |
|
January 28 – February 24 |
|
|
947,363 |
|
|
|
78.92 |
|
|
|
947,363 |
|
|
|
1,009,815,585 |
|
February 25 – March 30 |
|
|
316,894 |
|
|
|
79.63 |
|
|
|
316,894 |
|
|
|
624,764,985 |
|
Total |
|
|
1,264,257 |
|
|
$ |
79.10 |
|
|
|
1,264,257 |
|
|
|
|
|
Authorization date |
|
Announcement date |
|
Authorization amount of shares |
|
Expiration date |
March 1, 2022 |
|
March 2, 2022 |
|
$750,000,000 |
|
March 1, 2024 |
January 29, 2024 |
|
January 29, 2024 |
|
$650,000,000 |
|
January 29, 2026 |
27
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 first quarter of 2024, none of our directors or officers
28
Item 6. EXHIBITS
3.1 |
|
|
|
3.2 |
|
|
|
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 March 30, 2024 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.
29
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: May 1, 2024 |
/s/ David V. Barry |
|
David V. Barry |
|
Executive Vice President and Chief Financial Officer |
|
(Duly authorized officer and principal financial officer of the Registrant) |
30
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 March 30, 2024 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: May 1, 2024
/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 March 30, 2024 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: May 1, 2024
/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 March 30, 2024, 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: May 1, 2024
/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.