UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30,July 1, 20222023
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 1-35166
FORTUNE BRANDS HOME & SECURITY, INC.Fortune Brands Innovations, Inc.
(Exact name of Registrant as specified in its charter)
Delaware | 62-1411546 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
520 Lake Cook Road, Deerfield, Illinois 60015-5611
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (847) 484-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock |
| New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant 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 October 14, 2022July 21, 2023 was 128,242,529126,890,520.
1
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
FORTUNE BRANDS HOME & SECURITY,INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the NineTwenty-six and Thirteen Weeks Ended July 1, 2023 and Six and Three Months Ended SeptemberJune 30, 2022 and 2021
(In millions, except per share amounts)
(Unaudited)
|
| Nine Months Ended |
|
| Three Months Ended |
| ||||||||||||||||||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
|
| Thirteen Weeks Ended July 1, 2023 |
|
| Three Months Ended June 30, 2022 |
| ||||||||
Net sales |
| $ | 6,082.0 |
|
| $ | 5,693.4 |
|
| $ | 2,053.7 |
|
| $ | 1,986.3 |
|
| $ | 2,203.7 |
|
| $ | 2,395.6 |
|
| $ | 1,163.7 |
|
| $ | 1,255.4 |
|
Cost of products sold |
|
| 3,895.9 |
|
|
| 3,637.2 |
|
|
| 1,310.2 |
|
|
| 1,280.0 |
|
|
| 1,327.2 |
|
|
| 1,413.8 |
|
|
| 695.6 |
|
|
| 742.0 |
|
Selling, general and administrative expenses |
|
| 1,259.4 |
|
|
| 1,166.3 |
|
|
| 415.3 |
|
|
| 400.2 |
|
|
| 541.7 |
|
|
| 557.7 |
|
|
| 280.7 |
|
|
| 281.3 |
|
Amortization of intangible assets |
|
| 48.9 |
|
|
| 48.5 |
|
|
| 16.8 |
|
|
| 15.9 |
|
|
| 25.2 |
|
|
| 23.2 |
|
|
| 12.6 |
|
|
| 11.6 |
|
Asset impairment charges |
|
| 26.0 |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||
Restructuring charges |
|
| 33.1 |
|
|
| 11.5 |
|
|
| 30.2 |
|
|
| 3.6 |
|
|
| 25.2 |
|
|
| 1.6 |
|
|
| 22.2 |
|
|
| 1.0 |
|
Operating income |
|
| 818.7 |
|
|
| 829.9 |
|
|
| 281.2 |
|
|
| 286.6 |
|
|
| 284.4 |
|
|
| 399.3 |
|
|
| 152.6 |
|
|
| 219.5 |
|
Interest expense |
|
| 85.4 |
|
|
| 63.2 |
|
|
| 33.1 |
|
|
| 20.6 |
|
|
| 54.6 |
|
|
| 52.3 |
|
|
| 27.7 |
|
|
| 30.5 |
|
Other (income) expense, net |
|
| (3.6 | ) |
|
| 0.7 |
|
|
| (2.1 | ) |
|
| (1.3 | ) | ||||||||||||||||
Income before taxes |
|
| 736.9 |
|
|
| 766.0 |
|
|
| 250.2 |
|
|
| 267.3 |
| ||||||||||||||||
Other income, net |
|
| (11.6 | ) |
|
| (2.4 | ) |
|
| (5.2 | ) |
|
| (0.2 | ) | ||||||||||||||||
Income from continuing operations before income taxes |
|
| 241.4 |
|
|
| 349.4 |
|
|
| 130.1 |
|
|
| 189.2 |
| ||||||||||||||||
Income tax |
|
| 159.8 |
|
|
| 168.9 |
|
|
| 46.0 |
|
|
| 65.2 |
|
|
| 53.7 |
|
|
| 78.9 |
|
|
| 28.0 |
|
|
| 44.9 |
|
Income from continuing operations, net of tax |
|
| 187.7 |
|
|
| 270.5 |
|
|
| 102.1 |
|
|
| 144.3 |
| ||||||||||||||||
(Loss) income from discontinued operations, net of tax |
|
| (1.0 | ) |
|
| 102.4 |
|
|
| - |
|
|
| 47.7 |
| ||||||||||||||||
Net income |
| $ | 577.1 |
|
| $ | 597.1 |
|
| $ | 204.2 |
|
| $ | 202.1 |
|
| $ | 186.7 |
|
| $ | 372.9 |
|
| $ | 102.1 |
|
| $ | 192.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic earnings per common share |
| $ | 4.40 |
|
| $ | 4.32 |
|
| $ | 1.58 |
|
| $ | 1.47 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
| $ | 1.47 |
|
| $ | 2.05 |
|
| $ | 0.81 |
|
| $ | 1.11 |
| ||||||||||||||||
Discontinued operations |
|
| - |
|
|
| 0.78 |
|
|
| - |
|
|
| 0.36 |
| ||||||||||||||||
Basic earnings per share |
| $ | 1.47 |
|
| $ | 2.83 |
|
| $ | 0.81 |
|
| $ | 1.47 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Diluted earnings per common share |
| $ | 4.37 |
|
| $ | 4.26 |
|
| $ | 1.57 |
|
| $ | 1.45 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Continuing operations |
| $ | 1.47 |
|
| $ | 2.03 |
|
| $ | 0.80 |
|
| $ | 1.10 |
| ||||||||||||||||
Discontinued operations |
|
| (0.01 | ) |
|
| 0.77 |
|
|
| - |
|
|
| 0.36 |
| ||||||||||||||||
Diluted earnings per share |
| $ | 1.46 |
|
| $ | 2.80 |
|
| $ | 0.80 |
|
| $ | 1.46 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Comprehensive income |
| $ | 599.5 |
|
| $ | 598.4 |
|
| $ | 174.2 |
|
| $ | 186.7 |
|
| $ | 198.4 |
|
| $ | 425.3 |
|
| $ | 114.5 |
|
| $ | 184.5 |
|
See notes to condensed consolidated financial statements.
2
FORTUNE BRANDS HOME & SECURITY,INNOVATIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
|
| September 30, |
|
| December 31, |
| ||
Assets |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 345.3 |
|
| $ | 471.5 |
|
Accounts receivable less allowances for discounts and credit losses |
|
| 936.1 |
|
|
| 885.7 |
|
Inventories |
|
| 1,502.3 |
|
|
| 1,193.8 |
|
Other current assets |
|
| 223.9 |
|
|
| 193.5 |
|
Total current assets |
|
| 3,007.6 |
|
|
| 2,744.5 |
|
Property, plant and equipment, net of accumulated depreciation |
|
| 1,097.7 |
|
|
| 1,009.5 |
|
Operating lease assets |
|
| 177.0 |
|
|
| 191.7 |
|
Goodwill |
|
| 2,546.2 |
|
|
| 2,465.1 |
|
Other intangible assets, net of accumulated amortization |
|
| 1,375.9 |
|
|
| 1,383.8 |
|
Other assets |
|
| 211.2 |
|
|
| 141.6 |
|
Total assets |
| $ | 8,415.6 |
|
| $ | 7,936.2 |
|
Liabilities and equity |
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
| ||
Short-term debt |
| $ | 600.3 |
|
| $ | 400.0 |
|
Accounts payable |
|
| 672.6 |
|
|
| 764.9 |
|
Other current liabilities |
|
| 775.0 |
|
|
| 806.2 |
|
Total current liabilities |
|
| 2,047.9 |
|
|
| 1,971.1 |
|
Long-term debt |
|
| 2,786.9 |
|
|
| 2,309.8 |
|
Deferred income taxes |
|
| 222.7 |
|
|
| 176.0 |
|
Accrued defined benefit plans |
|
| 62.3 |
|
|
| 79.7 |
|
Operating lease liabilities |
|
| 142.4 |
|
|
| 158.8 |
|
Other non-current liabilities |
|
| 123.3 |
|
|
| 176.0 |
|
Total liabilities |
|
| 5,385.5 |
|
|
| 4,871.4 |
|
Commitments and contingencies (see Note 17) |
|
|
|
|
|
| ||
Stockholders' equity |
|
|
|
|
|
| ||
Common stock(a) |
|
| 1.9 |
|
|
| 1.9 |
|
Paid-in capital |
|
| 3,058.9 |
|
|
| 3,018.3 |
|
Accumulated other comprehensive loss |
|
| (2.2 | ) |
|
| (24.6 | ) |
Retained earnings |
|
| 3,277.0 |
|
|
| 2,807.9 |
|
Treasury stock |
|
| (3,305.5 | ) |
|
| (2,738.7 | ) |
Total stockholders' equity |
|
| 3,030.1 |
|
|
| 3,064.8 |
|
Total liabilities and equity |
| $ | 8,415.6 |
|
| $ | 7,936.2 |
|
|
| July 1, |
|
| December 31, |
| ||
Assets |
|
|
|
|
|
| ||
Current assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 681.7 |
|
| $ | 642.5 |
|
Accounts receivable less allowances for discounts and credit losses |
|
| 621.2 |
|
|
| 521.8 |
|
Inventories |
|
| 954.5 |
|
|
| 1,021.3 |
|
Other current assets |
|
| 186.2 |
|
|
| 274.8 |
|
Total current assets |
|
| 2,443.6 |
|
|
| 2,460.4 |
|
Property, plant and equipment, net of accumulated depreciation |
|
| 866.6 |
|
|
| 783.7 |
|
Operating lease assets |
|
| 114.1 |
|
|
| 118.9 |
|
Goodwill |
|
| 1,910.7 |
|
|
| 1,640.7 |
|
Other intangible assets, net of accumulated amortization |
|
| 1,421.5 |
|
|
| 1,000.8 |
|
Other assets |
|
| 116.7 |
|
|
| 116.4 |
|
Total assets |
| $ | 6,873.2 |
|
| $ | 6,120.9 |
|
Liabilities and equity |
|
|
|
|
|
| ||
Current liabilities |
|
|
|
|
|
| ||
Short-term debt |
| $ | 599.8 |
|
| $ | 599.2 |
|
Accounts payable |
|
| 489.5 |
|
|
| 421.6 |
|
Other current liabilities |
|
| 551.4 |
|
|
| 523.9 |
|
Total current liabilities |
|
| 1,640.7 |
|
|
| 1,544.7 |
|
Long-term debt |
|
| 2,668.5 |
|
|
| 2,074.3 |
|
Deferred income taxes |
|
| 138.2 |
|
|
| 136.9 |
|
Accrued defined benefit plans |
|
| 66.1 |
|
|
| 79.9 |
|
Operating lease liabilities |
|
| 89.0 |
|
|
| 95.4 |
|
Other non-current liabilities |
|
| 93.6 |
|
|
| 102.8 |
|
Total liabilities |
|
| 4,696.1 |
|
|
| 4,034.0 |
|
Commitments and contingencies (see Note 17) |
|
|
|
|
|
| ||
Stockholders' equity |
|
|
|
|
|
| ||
Common stock(a) |
|
| 1.9 |
|
|
| 1.9 |
|
Paid-in capital |
|
| 3,103.5 |
|
|
| 3,069.6 |
|
Accumulated other comprehensive loss |
|
| 55.3 |
|
|
| 37.4 |
|
Retained earnings |
|
| 2,475.4 |
|
|
| 2,323.8 |
|
Treasury stock |
|
| (3,459.0 | ) |
|
| (3,345.8 | ) |
Total stockholders' equity |
|
| 2,177.1 |
|
|
| 2,086.9 |
|
Total liabilities and equity |
| $ | 6,873.2 |
|
| $ | 6,120.9 |
|
(a) Common stock, par value $0.01 per share; 186.1186.8 million shares and 185.3186.2 million shares issued at September 30, 2022July 1, 2023 and December 31, 2021,2022, respectively.
See notes to condensed consolidated financial statements.
3
FORTUNE BRANDS HOME & SECURITY,INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the NineTwenty-Six Weeks Ended July 1, 2023 and Six Months Ended SeptemberJune 30, 2022 and 2021
(In millions)
(Unaudited)
|
| 2022 |
|
| 2021 |
|
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
| ||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 577.1 |
|
| $ | 597.1 |
|
| $ | 186.7 |
|
| $ | 372.9 |
|
Non-cash adjustments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation |
|
| 93.5 |
|
|
| 92.9 |
|
|
| 40.9 |
|
|
| 61.7 |
|
Amortization of intangibles |
|
| 48.9 |
|
|
| 48.5 |
|
|
| 25.2 |
|
|
| 32.1 |
|
Non-cash lease expense |
|
| 33.8 |
|
|
| 31.8 |
|
|
| 15.8 |
|
|
| 22.2 |
|
Stock-based compensation |
|
| 40.0 |
|
|
| 36.0 |
|
|
| 16.2 |
|
|
| 27.5 |
|
Recognition of actuarial losses |
|
| 0.4 |
|
|
| 1.1 |
| ||||||||
Deferred taxes |
|
| 34.9 |
|
|
| 9.6 |
|
|
| (1.0 | ) |
|
| (0.5 | ) |
Restructuring charges |
|
| 7.5 |
|
|
| - |
| ||||||||
Asset impairment charges |
|
| 26.0 |
|
|
| - |
|
|
| - |
|
|
| 26.0 |
|
Amortization of deferred financing fees |
|
| 2.8 |
|
|
| 2.8 |
|
|
| 2.1 |
|
|
| 1.8 |
|
Loss on equity investments |
|
| - |
|
|
| 2.9 |
| ||||||||
(Gain) loss on sale of property, plant and equipment |
|
| (5.6 | ) |
|
| 1.5 |
| ||||||||
(Gain) on sale of property, plant and equipment |
|
| (1.6 | ) |
|
| (5.9 | ) | ||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Increase in accounts receivable |
|
| (51.0 | ) |
|
| (186.2 | ) |
|
| (65.4 | ) |
|
| (110.8 | ) |
Increase in inventories |
|
| (302.7 | ) |
|
| (258.0 | ) | ||||||||
(Decrease) increase in accounts payable |
|
| (79.3 | ) |
|
| 116.5 |
| ||||||||
Decrease (increase) in inventories |
|
| 177.3 |
|
|
| (247.4 | ) | ||||||||
Increase (decrease) in accounts payable |
|
| 49.6 |
|
|
| (1.0 | ) | ||||||||
Decrease (increase) in other assets |
|
| 6.2 |
|
|
| (0.6 | ) |
|
| 130.3 |
|
|
| (17.1 | ) |
Decrease in accrued expenses and other liabilities |
|
| (117.6 | ) |
|
| (65.0 | ) |
|
| (46.5 | ) |
|
| (110.2 | ) |
Decrease in accrued taxes |
|
| (26.1 | ) |
|
| (0.1 | ) |
|
| (26.0 | ) |
|
| (9.4 | ) |
Net cash provided by operating activities |
|
| 288.8 |
|
|
| 430.8 |
|
|
| 503.6 |
|
|
| 41.9 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Capital expenditures (a) |
|
| (175.1 | ) |
|
| (113.0 | ) |
|
| (112.2 | ) |
|
| (115.6 | ) |
Proceeds from the disposition of assets |
|
| 8.1 |
|
|
| 1.7 |
|
|
| 2.7 |
|
|
| 8.0 |
|
Cost of acquisitions, net of cash acquired |
|
| (214.0 | ) |
|
| 5.2 |
|
|
| (781.8 | ) |
|
| (61.6 | ) |
Net cash used in investing activities |
|
| (381.0 | ) |
|
| (106.1 | ) |
|
| (891.3 | ) |
|
| (169.2 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Issuance of short-term debt |
|
| 701.4 |
|
|
| - |
|
|
| - |
|
|
| 700.0 |
|
Repayment of short-term debt |
|
| (1,100.0 | ) |
|
| - |
|
|
| - |
|
|
| (1,100.0 | ) |
Issuance of long-term debt |
|
| 4,973.9 |
|
|
| 825.0 |
|
|
| 595.1 |
|
|
| 4,123.7 |
|
Repayment of long-term debt |
|
| (3,895.9 | ) |
|
| (770.0 | ) |
|
| - |
|
|
| (3,073.3 | ) |
Proceeds from the exercise of stock options |
|
| 0.6 |
|
|
| 32.6 |
|
|
| 5.0 |
|
|
| 0.4 |
|
Treasury stock purchases(b) |
|
| (531.1 | ) |
|
| (252.9 | ) | ||||||||
Treasury stock purchases |
|
| (100.0 | ) |
|
| (505.0 | ) | ||||||||
Employee withholding taxes related to stock-based compensation |
|
| (25.7 | ) |
|
| (10.5 | ) |
|
| (12.4 | ) |
|
| (24.8 | ) |
Dividends to stockholders |
|
| (109.8 | ) |
|
| (107.9 | ) |
|
| (58.6 | ) |
|
| (73.6 | ) |
Other financing, net |
|
| (22.3 | ) |
|
| (1.4 | ) |
|
| (1.3 | ) |
|
| (20.3 | ) |
Net cash used in financing activities |
|
| (8.9 | ) |
|
| (285.1 | ) | ||||||||
Net cash provided by financing activities |
|
| 427.8 |
|
|
| 27.1 |
| ||||||||
Effect of foreign exchange rate changes on cash |
|
| (26.0 | ) |
|
| 1.0 |
|
|
| (2.1 | ) |
|
| (11.3 | ) |
Net (decrease) increase in cash and cash equivalents |
| $ | (127.1 | ) |
| $ | 40.6 |
| ||||||||
Cash, cash equivalents and restricted cash(c) at beginning of period |
| $ | 476.1 |
|
| $ | 425.0 |
| ||||||||
Cash, cash equivalents and restricted cash(c) at end of period |
| $ | 349.0 |
|
| $ | 465.6 |
| ||||||||
Net increase (decrease) in cash and cash equivalents |
| $ | 38.0 |
|
| $ | (111.5 | ) | ||||||||
Cash, cash equivalents and restricted cash(b) at beginning of period |
| $ | 648.3 |
|
| $ | 476.1 |
| ||||||||
Cash, cash equivalents and restricted cash(b) at end of period |
| $ | 686.3 |
|
| $ | 364.6 |
|
See notes to condensed consolidated financial statements.
4
FORTUNE BRANDS HOME & SECURITY,INNOVATIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the NineTwenty-six and Thirteen Weeks Ended July 1, 2023 and Six and Three Months Ended SeptemberJune 30, 2022 and 2021
(In millions)
(Unaudited)
|
| Common |
|
| Paid-In |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Total |
| ||||||||||||||||||||||||||||||
Balance at December 31, 2020 |
| $ | 1.8 |
|
| $ | 2,926.3 |
|
| $ | (55.1 | ) |
| $ | 2,180.2 |
|
| $ | (2,277.7 | ) |
| $ | 2,775.5 |
| ||||||||||||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 597.1 |
|
|
| - |
|
|
| 597.1 |
| ||||||||||||||||||||||||
Other comprehensive income (loss) |
|
| - |
|
|
| - |
|
|
| 1.3 |
|
|
| - |
|
|
| - |
|
|
| 1.3 |
| ||||||||||||||||||||||||
Stock options exercised |
|
| 0.1 |
|
|
| 32.5 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 32.6 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| - |
|
|
| 36.0 |
|
|
| - |
|
|
| - |
|
|
| (10.5 | ) |
|
| 25.5 |
| ||||||||||||||||||||||||
Treasury stock purchases |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (270.1 | ) |
|
| (270.1 | ) | ||||||||||||||||||||||||
Dividends ($0.78 per common share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (107.3 | ) |
|
| - |
|
|
| (107.3 | ) | ||||||||||||||||||||||||
Balance at September 30, 2021 |
| $ | 1.9 |
|
| $ | 2,994.8 |
|
| $ | (53.8 | ) |
| $ | 2,670.0 |
|
| $ | (2,558.3 | ) |
| $ | 3,054.6 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common |
|
| Paid-In |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Total |
| ||||||||||||
Balance at December 31, 2021 |
| $ | 1.9 |
|
| $ | 3,018.3 |
|
| $ | (24.6 | ) |
| $ | 2,807.9 |
|
| $ | (2,738.7 | ) |
| $ | 3,064.8 |
|
| $ | 1.9 |
|
| $ | 3,018.3 |
|
| $ | (24.6 | ) |
| $ | 2,807.9 |
|
| $ | (2,738.7 | ) |
| $ | 3,064.8 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 577.1 |
|
|
| - |
|
|
| 577.1 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 372.9 |
|
|
| - |
|
|
| 372.9 |
|
Other comprehensive income (loss) |
|
| - |
|
|
| - |
|
|
| 22.4 |
|
|
| - |
|
|
| - |
|
|
| 22.4 |
|
|
| - |
|
|
| - |
|
|
| 52.4 |
|
|
| - |
|
|
| - |
|
|
| 52.4 |
|
Stock options exercised |
|
| - |
|
|
| 0.6 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.6 |
|
|
| - |
|
|
| 0.4 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.4 |
|
Stock-based compensation |
|
| - |
|
|
| 40.0 |
|
|
| - |
|
|
| - |
|
|
| (25.7 | ) |
|
| 14.3 |
|
|
| - |
|
|
| 27.5 |
|
|
| - |
|
|
| - |
|
|
| (24.8 | ) |
|
| 2.7 |
|
Treasury stock purchases |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (541.1 | ) |
|
| (541.1 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (505.0 | ) |
|
| (505.0 | ) |
Dividends ($0.84 per common share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (108.0 | ) |
|
| - |
|
|
| (108.0 | ) | ||||||||||||||||||||||||
Balance at September 30, 2022 |
| $ | 1.9 |
|
| $ | 3,058.9 |
|
| $ | (2.2 | ) |
| $ | 3,277.0 |
|
| $ | (3,305.5 | ) |
| $ | 3,030.1 |
| ||||||||||||||||||||||||
Dividends ($0.28 per common share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (35.8 | ) |
|
| - |
|
|
| (35.8 | ) | ||||||||||||||||||||||||
Balance at June 30, 2022 |
| $ | 1.9 |
|
| $ | 3,046.2 |
|
| $ | 27.8 |
|
| $ | 3,145.0 |
|
| $ | (3,268.5 | ) |
| $ | 2,952.4 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Balance at December 31, 2022 |
| $ | 1.9 |
|
| $ | 3,069.6 |
|
| $ | 37.4 |
|
| $ | 2,323.8 |
|
| $ | (3,345.8 | ) |
| $ | 2,086.9 |
| ||||||||||||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 186.7 |
|
|
| - |
|
|
| 186.7 |
| ||||||||||||||||||||||||
Other comprehensive income (loss) |
|
| - |
|
|
| - |
|
|
| 11.7 |
|
|
| - |
|
|
| - |
|
|
| 11.7 |
| ||||||||||||||||||||||||
Other |
|
| - |
|
|
| 12.7 |
|
|
| 6.2 |
|
|
| (6.0 | ) |
|
| - |
|
|
| 12.9 |
| ||||||||||||||||||||||||
Stock options exercised |
|
| - |
|
|
| 5.0 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 5.0 |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| - |
|
|
| 16.2 |
|
|
| - |
|
|
| - |
|
|
| (12.4 | ) |
|
| 3.8 |
| ||||||||||||||||||||||||
Treasury stock purchases |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (100.8 | ) |
|
| (100.8 | ) | ||||||||||||||||||||||||
Dividends ($0.23 per common share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (29.1 | ) |
|
| - |
|
|
| (29.1 | ) | ||||||||||||||||||||||||
Balance at July 1, 2023 |
| $ | 1.9 |
|
| $ | 3,103.5 |
|
| $ | 55.3 |
|
| $ | 2,475.4 |
|
| $ | (3,459.0 | ) |
| $ | 2,177.1 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Common |
|
| Paid-In |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Total |
|
| Common |
|
| Paid-In |
|
| Accumulated |
|
| Retained |
|
| Treasury |
|
| Total |
| ||||||||||||
Balance at June 30, 2021 |
| $ | 1.9 |
|
| $ | 2,982.8 |
|
| $ | (38.4 | ) |
| $ | 2,539.3 |
|
| $ | (2,442.1 | ) |
| $ | 3,043.5 |
| ||||||||||||||||||||||||
Balance at March 31, 2022 |
| $ | 1.9 |
|
| $ | 3,030.8 |
|
| $ | 35.3 |
|
| $ | 2,989.4 |
|
| $ | (3,142.6 | ) |
| $ | 2,914.8 |
| ||||||||||||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 202.1 |
|
|
| - |
|
|
| 202.1 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 192.0 |
|
|
| - |
|
|
| 192.0 |
|
Other comprehensive income (loss) |
|
| - |
|
|
| - |
|
|
| (15.4 | ) |
|
| - |
|
|
| - |
|
|
| (15.4 | ) |
|
| - |
|
|
| - |
|
|
| (7.5 | ) |
|
| - |
|
|
| - |
|
|
| (7.5 | ) |
Stock options exercised |
|
| - |
|
|
| 0.4 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.4 |
|
|
| - |
|
|
| 0.2 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.2 |
|
Stock-based compensation |
|
| - |
|
|
| 11.6 |
|
|
| - |
|
|
| - |
|
|
| (2.1 | ) |
|
| 9.5 |
|
|
| - |
|
|
| 15.2 |
|
|
| - |
|
|
| - |
|
|
| (0.5 | ) |
|
| 14.7 |
|
Treasury stock purchases |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (114.1 | ) |
|
| (114.1 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (125.4 | ) |
|
| (125.4 | ) |
Dividends ($0.52 per common share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (71.4 | ) |
|
| - |
|
|
| (71.4 | ) | ||||||||||||||||||||||||
Balance at September 30, 2021 |
| $ | 1.9 |
|
| $ | 2,994.8 |
|
| $ | (53.8 | ) |
| $ | 2,670.0 |
|
| $ | (2,558.3 | ) |
| $ | 3,054.6 |
| ||||||||||||||||||||||||
Dividends ($0.28 per common share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (36.4 | ) |
|
| - |
|
|
| (36.4 | ) | ||||||||||||||||||||||||
Balance at June 30, 2022 |
| $ | 1.9 |
|
| $ | 3,046.2 |
|
| $ | 27.8 |
|
| $ | 3,145.0 |
|
| $ | (3,268.5 | ) |
| $ | 2,952.4 |
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at June 30, 2022 |
| $ | 1.9 |
|
| $ | 3,046.2 |
|
| $ | 27.8 |
|
| $ | 3,145.0 |
|
| $ | (3,268.5 | ) |
| $ | 2,952.4 |
| ||||||||||||||||||||||||
Balance at April 1, 2023 |
| $ | 1.9 |
|
| $ | 3,094.1 |
|
| $ | 42.9 |
|
| $ | 2,402.4 |
|
| $ | (3,458.8 | ) |
| $ | 2,082.5 |
| ||||||||||||||||||||||||
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 204.2 |
|
|
| - |
|
|
| 204.2 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 102.1 |
|
|
| - |
|
|
| 102.1 |
|
Other comprehensive income (loss) |
|
| - |
|
|
| - |
|
|
| (30.0 | ) |
|
| - |
|
|
| - |
|
|
| (30.0 | ) |
|
| - |
|
|
| - |
|
|
| 12.4 |
|
|
| - |
|
|
| - |
|
|
| 12.4 |
|
Other |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||||||||||
Stock options exercised |
|
| - |
|
|
| 0.2 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.2 |
|
|
| - |
|
|
| 2.7 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2.7 |
|
Stock-based compensation |
|
| - |
|
|
| 12.5 |
|
|
| - |
|
|
| - |
|
|
| (0.9 | ) |
|
| 11.6 |
|
|
| - |
|
|
| 6.7 |
|
|
| - |
|
|
| - |
|
|
| (0.2 | ) |
|
| 6.5 |
|
Treasury stock purchases |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (36.1 | ) |
|
| (36.1 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Dividends ($0.56 per common share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (72.2 | ) |
|
| - |
|
|
| (72.2 | ) | ||||||||||||||||||||||||
Balance at September 30, 2022 |
| $ | 1.9 |
|
| $ | 3,058.9 |
|
| $ | (2.2 | ) |
| $ | 3,277.0 |
|
| $ | (3,305.5 | ) |
| $ | 3,030.1 |
| ||||||||||||||||||||||||
Dividends ($0.23 per common share) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (29.1 | ) |
|
| - |
|
|
| (29.1 | ) | ||||||||||||||||||||||||
Balance at July 1, 2023 |
| $ | 1.9 |
|
| $ | 3,103.5 |
|
| $ | 55.3 |
|
| $ | 2,475.4 |
|
| $ | (3,459.0 | ) |
| $ | 2,177.1 |
|
See notes to condensed consolidated financial statements.
5
FORTUNE BRANDS HOME & SECURITY,INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Principles of Consolidation
References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Home & Security, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires.
The Company is a leading home and security products company with a portfolio of leading branded products used for residential home repair, remodeling, new construction and security applications. References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Innovations, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires.
On December 14, 2022, the Company completed the separation of its Cabinets business, MasterBrand, Inc. (“MasterBrand”), via a tax-free spin-off transaction (the “Separation”) to create an independent, publicly-traded company. Immediately following completion of the Separation, the Company changed its name from “Fortune Brands Home & Security, Inc.” to “Fortune Brands Innovations, Inc.” and its stock ticker changed from “FBHS” to “FBIN” to better reflect its focus on activities related to core brands and innovation. As a result of the Separation, our former Cabinets segment was disposed of and the operating results of the Cabinets business are reported as discontinued operations for all periods presented within this Quarterly Report on Form 10-Q. All amounts, percentages and disclosures for all periods presented reflect only the continuing operations of the Company unless otherwise noted. See Note 4, Acquisitions and Dispositions, in the condensed consolidated financial statements, and Note 5, Discontinued Operations, in the consolidated financial statements in Item 8 of our 2022 Annual Report on Form 10-K for additional information.
The condensed consolidated financial statements and notes are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not contain certain information included in our annual audited consolidated financial statements and notes. The December 31, 2022 condensed consolidated balance sheet was derived from our audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”). This Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022.
On June 20, 2023, we acquired the Emtek and Schaub premium and luxury door and cabinet hardware business, and the U.S. and Canadian Yale and August residential smart home locks business (collectively the "ASSA Businesses") from ASSA ABLOY, Inc. ("ASSA"). The Company completed the acquisition for a total purchase price of approximately $800 million, subject to post-closing adjustments. 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 $24 million (which amount is already included in the overall purchase price but for which the cash payment has not yet been made), shortly following receipt of local regulatory approval, which is expected to occur later in 2023. The results of Emtek and Schaub premium and luxury door and cabinet hardware business are reported as part of the Water segment and the results of the U.S. and Canadian Yale and August residential smart lock business are reported as part of the Security segment. The financial results of the ASSA Businesses were included in the Company’s consolidated balance sheet as of July 1, 2023. The results of operations and cash flows of the ASSA Businesses from the date of acquisition to July 1, 2023 were not material to the Company.
In January 2023, the Board of Directors of the Company approved a change to the Company’s fiscal year end from December 31 to a 52- or 53-week fiscal year ending on the Saturday closest but not subsequent to December 31, effective as of the commencement of the Company’s fiscal year on January 1, 2023. This change was made in order to align the Company’s fiscal year with that of its operating businesses and to align the Company’s reporting calendar with how the Company evaluates its businesses. As a result, the Company’s fiscal quarters for the 2023 fiscal year end on April 1, 2023, July 1, 2023, September 30, 2023, and December 30, 2023.
The condensed consolidated balance sheet as of September 30, 2022,July 1, 2023, the related condensed consolidated statements of comprehensive income and equity for the nine26 weeks and 13 weeks ended July 1, 2023, the related condensed consolidated statements of comprehensive income and equity for the six and three months ended SeptemberJune 30, 2022, and 2021,the related condensed consolidated statements of cash flows for the 26 weeks ended July 1, 2023, and the related condensed consolidated statements of cash flows for the ninesix months ended SeptemberJune 30, 2022 and 2021 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.
In
Effective in the first quarter of 2022, our Plumbing2023, the Company revised its segment reporting from two reportable segments, Water Innovations and Outdoors & Security, to three reportable segments, Water, Outdoors and Security. The change in segment reporting was renamed “Water Innovations”made to better align with changes made in the manner our key brandschief operating decision maker reviews the Company’s operating results in assessing performance and organizational purpose. The Plumbing segment name change isallocating resources. Comparative prior periods amounts have been recast to conform to the name only and had no impact on the Company’s historical financial position, results of operations, cash flow ornew segment level results previously reported.presentation.
In
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On July 29, 2022, we acquired 100% of the outstanding equity of Aqualisa Holdings (International) Ltd. (“Aqualisa” ),), a leading U.K. manufacturer of shower products known for premium, innovative and smart digital shower systems, for a purchase price of $156.0 million, net of cash acquired of $4.8 million. We financed the transaction using cash on hand and borrowings under our revolving credit facility. The results of Aqualisa are reported as part of the Water Innovations segment. We believe its product offerings will enable us to continue to leverage growing trends in water management and connected products. We financed the transaction with borrowings under our existing credit facility. We have not included pro forma financial information as it is immaterial to our condensed consolidated statements of comprehensive income. The fair value allocated to assets acquired and liabilities assumed as of July 29, 2022 was $156.0 million.
In January 2022, we acquired 100% of the outstanding equity of Solar Innovations LLC and an affiliated entity (together, “Solar” ),), a leading producer of wide-opening exterior door systems and outdoor enclosures, for a purchase price of $61.6 million, net of cash acquired of $4.8 million. The purchase price is subject to a final post-closing working capital adjustment. We financed the transaction using cash on hand and borrowings under our revolving credit facility. The results of Solar are reported as part of the Outdoors & Security segment. Its complementary product offerings support the segment’s outdoor living strategy.
TheWe have not included pro forma financial information as it is immaterial to our condensed consolidated financial statements of comprehensive income. The fair value allocated to assets acquired and notes are presented pursuant to the rules and regulationsliabilities assumed as of the Securities and Exchange Commission (“SEC” ) and do not contain certain information included in our annual audited consolidated financial statements and notes. The DecemberJanuary 31, 2021 condensed consolidated balance sheet2022 was derived from our audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP” ). This Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2021.$61.6 million.
2. Recently Issued Accounting Standards
Disclosures by Business Entities About Government Assistance
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832). The new guidance, codified in Accounting Standards Codification (“ASC”) 832, requires business entities that account for transactions with a government by applying a grant or contribution model by analogy to disclose information about government assistance recorded during the period. ASU 2021-10 is effective for all entities for annual reporting periods beginning after December 15, 2021. The adoption of this guidance did not have a material effect on our financial statements.
6
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)No material impacts noted from recently issued accounting standards.
3. Balance Sheet Information
Supplemental information on our balance sheets is as follows:
(In millions) |
| September 30, |
|
| December 31, |
|
| July 1, |
|
| December 31, |
| ||||
Inventories: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Raw materials and supplies |
| $ | 619.9 |
|
| $ | 455.1 |
|
| $ | 338.7 |
|
| $ | 309.4 |
|
Work in process |
|
| 110.6 |
|
|
| 93.0 |
|
|
| 76.8 |
|
|
| 83.5 |
|
Finished products |
|
| 771.8 |
|
|
| 645.7 |
|
|
| 539.0 |
|
|
| 628.4 |
|
Total inventories |
| $ | 1,502.3 |
|
| $ | 1,193.8 |
|
| $ | 954.5 |
|
| $ | 1,021.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Property, plant and equipment, gross |
| $ | 2,438.8 |
|
| $ | 2,278.0 |
|
| $ | 1,734.8 |
|
| $ | 1,614.3 |
|
Less: accumulated depreciation |
|
| 1,341.1 |
|
|
| 1,268.5 |
|
|
| 868.2 |
|
|
| 830.6 |
|
Property, plant and equipment, net |
| $ | 1,097.7 |
|
| $ | 1,009.5 |
|
| $ | 866.6 |
|
| $ | 783.7 |
|
4. Acquisitions and Dispositions
ASSA Businesses
On June 20, 2023, we acquired the Emtek and Schaub premium and luxury door and cabinet hardware business, and the U.S. and Canadian Yale and August residential smart home locks business (collectively the "ASSA Businesses") from ASSA ABLOY, Inc. ("ASSA"). The Company completed the acquisition for a total purchase price of approximately $800 million, subject to post-closing adjustments. 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 $24 million (which amount is already included in the overall purchase price but for which the cash payment has not yet been made), shortly following receipt of local regulatory approval, which is expected to occur later in 2023. The results of Emtek and Schaub premium and luxury door and cabinet hardware business are reported as part of the Water segment and the results of the U.S. and Canadian Yale and August residential smart lock business are reported as part of the Security segment. The financial results of the ASSA Businesses were included in the Company’s consolidated balance sheet as of July 1, 2023. The results of operations and cash flows of the ASSA Businesses from the date of acquisition to July 1, 2023 were not material to the Company.
The following table summarizes the preliminary allocation of the ASSA Businesses purchase price to the fair value of assets acquired and liabilities assumed as of the date of the acquisition.
7
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In millions) |
| |||
Accounts receivable |
| $ | 32.3 |
|
Inventories |
|
| 109.7 |
|
Property, plant and equipment |
|
| 18.6 |
|
Goodwill |
|
| 261.8 |
|
Identifiable intangible assets |
|
| 439.4 |
|
Operating lease assets |
|
| 6.8 |
|
Other assets |
|
| 2.4 |
|
Total assets |
|
| 871.0 |
|
Accounts payable |
|
| 28.7 |
|
Other current liabilities and accruals |
|
| 33.4 |
|
Other non-current liabilities |
|
| 3.7 |
|
Net assets acquired(a) |
| $ | 805.2 |
|
(a) Net assets exclude $16.0 million of cash transferred to the Company as the result of the acquisition.
The purchase price allocation is expected to change after asset and liability valuations are finalized. We apply significant judgment in determining the estimates and assumptions used to determine the fair value of the identifiable intangible assets, including forecasted revenue growth rates, EBITDA margins, percentage of revenue attributable to the tradename, contributory asset charges, customer attrition rate, market-participant discount rates and the assumed royalty rates. The Company is in the process of finalizing valuations of certain tangible and intangible assets, including property, plant and equipment. The provisional measurement of property, plant and equipment and goodwill is subject to change. Any change in the acquisition date fair value of the acquired assets and liabilities will change the amount of the purchase price allocable to goodwill.
Goodwill includes expected sales and cost synergies. The goodwill is included in our Security and Water segments. Substantially all of the goodwill is expected to be deductible for income tax purposes, subject to the finalization of the purchase price allocation. ASSA Businesses identifiable intangible assets consist of finite-lived customer relationship assets of $336.6 million, indefinite-lived tradenames of $74.9 million, definite-lived tradenames of $16.8 million and finite-lived proprietary technology assets of $11.1 million. We will finalize our determination of useful lives and amortization methodology when the asset valuations are completed.
The following unaudited pro forma summary presents consolidated financial information as if the ASSA Businesses had been acquired on January 1, 2022. The unaudited pro forma financial information is based on historical results of operations and financial position of the Company and the ASSA Businesses. The pro forma results include:
The unaudited pro forma financial information does not necessarily represent the results that would have occurred had the acquisition occurred on January 1, 2022. In addition, the unaudited pro forma information should not be deemed to be indicative of future results.
(In millions) |
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
|
| Thirteen Weeks Ended July 1, 2023 |
|
| Three Months Ended June 30, 2022 |
| ||||
Net sales |
| $ | 2,403.7 |
|
| $ | 2,599.1 |
|
| $ | 1,259.6 |
|
| $ | 1,356.4 |
|
Income from continuing operations, net of tax |
| $ | 218.1 |
|
| $ | 275.6 |
|
| $ | 120.7 |
|
| $ | 154.1 |
|
Cabinets
On April 28,December 14, 2022, the Company announced thatcompleted the separation of its Board of Directors authorized the Company to develop a plan to separate the Company into two independent, publicly-traded companiesCabinets business, MasterBrand, Inc. (“MasterBrand”), via a tax-free spin-off transaction (the “Separation”) to create an independent, publicly-traded company. Immediately following completion of the Separation, the Company changed its name from “Fortune Brands Home & Security, Inc.” to “Fortune Brands Innovations,
8
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inc.” and its stock ticker changed from “FBHS” to “FBIN” to better reflect its focus on activities related to core brands and innovation.
The condensed consolidated statements of income and consolidated balance sheets for all prior periods have been adjusted to reflect the presentation of MasterBrand Cabinets, Inc. business into a separate standalone publicly-traded company (the “Spin-Off”). The Spin-Off is expectedas discontinued operations. For the six months ended June 30, 2022, the condensed consolidated statement of cash flows includes net cash provided from operations related to be completed within twelvediscontinued operations of $128.3 million and net cash in investing activities of $22.0 million. Depreciation, amortization and capital expenditures attributable to discontinued operations for the six months from the announcement date, subject to a number of conditions including the approval by the Company’s Board of Directorsended June 30, 2022, were $21.5 million, $8.9 million and the effectiveness of a registration statement on Form 10 to be filed with the SEC.$22.0 million, respectively.
Aqualisa
In July 2022, we acquired 100% of the outstanding equity of Aqualisa Holdings (International) Ltd. (“Aqualisa”), a leading U.K. manufacturer of shower products known for premium, innovative and smart digital shower systems, for a purchase price of $156.0 million, net of cash acquired of $4.8 million. We financed the transaction using cash on hand and borrowings under our revolving credit facility. The results of Aqualisa are reported as part of the Water Innovations segment. We believe its product offerings will enable us to continue to leverage growing trends in water management and connected products. We financed the transaction with borrowings under our existing credit facility. 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 July 29, 2022, was $156.0 million, which includes $87.388.7 million of goodwill. Goodwill includes expected sales and cost synergies and is not expected to be deductible for income tax purposes.
Solar
In January 2022, we acquired 100% of the outstanding equity of Solar for a purchase price of $61.6 million, net of cash acquired of $4.8 million. The purchase price is subject to a final post-closing working capital adjustment. We financed the transaction using cash on hand and borrowings under our revolving credit facility. The results of Solar are reported as part of the Outdoors & Security segment. Its complementary product offerings support the segment’s outdoor living strategy. Solar's net sales and operating income for the three and nine months ended September 30, 2022 were not material to the Company. 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 January 31, 2022, was $61.6 million, which includes $21.023.3 million of goodwill. Goodwill includes expected sales and cost synergies and is expected to be deductible for income tax purposes.
Flo Technologies
In 2018, our Water Innovations segment entered into a strategic partnership with, and acquired non-controlling equity interests in, Flo Technologies, Inc. (“Flo”), a U.S. manufacturer of comprehensive water monitoring and shut-off systems with leak detection technologies. In January 2020, we entered into an agreement to acquire the remaining outstanding shares of Flo in a multi-phase transaction. As part of this agreement, we acquired a majority of Flo’s outstanding shares during 2020 and entered into a forward contract to purchase all remaining shares of Flo during the first quarter of 2022 for a price based on a multiple of Flo’s 2021 sales and adjusted earnings before interest and taxes.2022. On January 30, 2022, we made a final cash payment of $16.7 million to the legacy minority shareholders to acquire such shares which is reflected within Other financing, net in our consolidated statements of cash flows.
7
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The minority shareholders’ substantive participating rights expired on January 1, 2021, at which time we obtained control of, and began consolidating, Flo in our results of operations and statements of financial positions and cash flows. Immediately prior to consolidating Flo, we recognized a non-cash loss of $4.5 million within other expense during the three months ended March 31, 2021 related to the remeasurement of our previously existing investment in Flo. The fair value allocated to assets acquired and liabilities assumed as of January 1, 2021 was $87.8 million,net of cash acquired of $9.7 million, which includes $65.3 million of goodwill. Goodwill includes expected sales and cost synergies and is not expected to be deductible for income tax purposes.
5. Goodwill and Identifiable Intangible Assets
We had goodwill of $2,546.21,910.7 million and $2,465.11,640.7 million as of September 30, 2022July 1, 2023 and December 31, 2021,2022, respectively.The change in the net carrying amount of goodwill by segment was as follows:
(In millions) |
| Water Innovations |
|
| Outdoors & |
|
| Cabinets |
|
| Total |
|
| Water |
|
| Outdoors |
|
| Security |
|
| Total |
| ||||||||
Goodwill at December 31, 2021(a) |
| $ | 814.1 |
|
| $ | 724.8 |
|
| $ | 926.2 |
|
| $ | 2,465.1 |
| ||||||||||||||||
Goodwill at December 31, 2022(a) |
| $ | 893.4 |
|
| $ | 651.0 |
|
| $ | 96.3 |
|
| $ | 1,640.7 |
| ||||||||||||||||
Year-to-date translation adjustments |
|
| (24.5 | ) |
|
| (0.8 | ) |
|
| (1.9 | ) |
|
| (27.2 | ) |
|
| 7.7 |
|
|
| - |
|
|
| 0.4 |
|
|
| 8.1 |
|
Acquisition-related adjustments |
|
| 87.3 |
|
|
| 21.0 |
|
|
| - |
|
|
| 108.3 |
|
|
| 222.4 |
|
|
| 0.1 |
|
|
| 39.4 |
|
|
| 261.9 |
|
Goodwill at September 30, 2022(a) |
| $ | 876.9 |
|
| $ | 745.0 |
|
| $ | 924.3 |
|
| $ | 2,546.2 |
| ||||||||||||||||
Goodwill at July 1, 2023(a) |
| $ | 1,123.5 |
|
| $ | 651.1 |
|
| $ | 136.1 |
|
| $ | 1,910.7 |
|
(a) Net of accumulated impairment losses of $399.5 million in the Outdoors & Security segment.
9
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The gross carrying value and accumulated amortization by class of identifiable intangible assets as of September 30, 2022July 1, 2023 and December 31, 20212022 were as follows:
(In millions) |
| As of September 30, 2022 |
|
| As of December 31, 2021 |
| ||||||||||||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| ||||||
Indefinite-lived tradenames |
| $ | 681.5 |
|
| $ | - |
|
| $ | 681.5 |
|
| $ | 711.1 |
|
| $ | - |
|
| $ | 711.1 |
|
Amortizable intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Tradenames |
|
| 54.3 |
|
|
| (16.4 | ) |
|
| 37.9 |
|
|
| 36.4 |
|
|
| (15.5 | ) |
|
| 20.9 |
|
Customer and contractual relationships |
|
| 1,016.5 |
|
|
| (422.0 | ) |
|
| 594.5 |
|
|
| 975.7 |
|
|
| (388.2 | ) |
|
| 587.5 |
|
Patents/proprietary technology |
|
| 139.0 |
|
|
| (77.0 | ) |
|
| 62.0 |
|
|
| 133.1 |
|
|
| (68.8 | ) |
|
| 64.3 |
|
Total |
|
| 1,209.8 |
|
|
| (515.4 | ) |
|
| 694.4 |
|
|
| 1,145.2 |
|
|
| (472.5 | ) |
|
| 672.7 |
|
Total identifiable intangibles |
| $ | 1,891.3 |
|
| $ | (515.4 | ) |
| $ | 1,375.9 |
|
| $ | 1,856.3 |
|
| $ | (472.5 | ) |
| $ | 1,383.8 |
|
(In millions) |
| As of July 1, 2023 |
|
| As of December 31, 2022 |
| ||||||||||||||||||
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| ||||||
Indefinite-lived tradenames |
| $ | 553.5 |
|
| $ | - |
|
| $ | 553.5 |
|
| $ | 478.1 |
|
| $ | - |
|
| $ | 478.1 |
|
Amortizable intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Tradenames |
|
| 66.1 |
|
|
| (8.0 | ) |
|
| 58.1 |
|
|
| 47.5 |
|
|
| (6.8 | ) |
|
| 40.7 |
|
Customer and contractual relationships |
|
| 1,004.3 |
|
|
| (259.5 | ) |
|
| 744.8 |
|
|
| 662.6 |
|
|
| (239.6 | ) |
|
| 423.0 |
|
Patents/proprietary technology |
|
| 140.1 |
|
|
| (75.0 | ) |
|
| 65.1 |
|
|
| 128.5 |
|
|
| (69.5 | ) |
|
| 59.0 |
|
Total |
|
| 1,210.5 |
|
|
| (342.5 | ) |
|
| 868.0 |
|
|
| 838.6 |
|
|
| (315.9 | ) |
|
| 522.7 |
|
Total identifiable intangibles |
| $ | 1,764.0 |
|
| $ | (342.5 | ) |
| $ | 1,421.5 |
|
| $ | 1,316.7 |
|
| $ | (315.9 | ) |
| $ | 1,000.8 |
|
We had net identifiable intangible assets of $1,375.91,421.5 million and $1,383.81,000.8 million as of September 30, 2022July 1, 2023 and December 31, 2021,2022, respectively. The $35.0447.3 million increase in gross identifiable intangible assets was primarily due to the acquisition of AqualisaASSA Businesses and Solar partially offset by the tradename impairment charges of $26.0 million in our Cabinets segment (as discussed below) andforeign translation adjustments.
Amortizable identifiable intangible assets, principally customer relationships, are subject to amortization over their estimated useful life, ranging from 5 to 30 years, based on the assessment of a number of factors that may impact useful life, which includes customer attrition rates and other relevant factors.
The asset impairment charge of $26.0 million in 2022 relates to an indefinite-lived tradename within our Cabinets segment. During the second quarter of 2022, production was shifted at a historical make-to-order plant to a stock product line, to enable what we expect to be a higher value purpose and growth opportunity. This production shift led to downward revisions to forecasted revenue growth rates associated with the tradename.
The fair value of this tradename was measured using the relief-from-royalty approach, which estimates the present value of royalty income that could be hypothetically earned by licensing the tradename to a third party over its remaining useful life. Some of the more significant assumptions inherent in estimating the fair values include forecasted revenue growth rates for the tradename, assumed royalty rate, and a market-participant discount rate that reflects the level of risk associated with the tradenames’ future revenues and profitability. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management plans. These assumptions represent Level 3 inputs of the fair value hierarchy (refer to Note 8).
8
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The significant assumptions used to estimate the fair value of the tradename impaired in the second quarter of 2022 were as follows:
|
| |||
|
|
| ||
|
|
| ||
|
|
|
(a)Represents estimated percentage of sales a market-participant would pay to license the impaired tradename.
(b)Selected long-term revenue growth rate within 10-year projection period of the impaired tradename.
As of September 30, 2022, the estimated fair value of this tradename equaled its carrying value of $59.0 million. A reduction in the estimated fair value of this tradename could trigger additional impairment charges in future periods. Events or circumstances that could have a potential negative effect on the estimated fair value of our reporting units and indefinite-lived tradenames include: lower than forecasted revenues, more severe impacts of the COVID-19 pandemic than currently expected, including due to resurgences of the virus, actual new construction and repair and remodel growth rates that fall below our assumptions, actions of key customers, increases in discount rates, continued economic uncertainty, higher levels of unemployment, weak consumer confidence, lower levels of discretionary consumer spending, a decrease in royalty rates and a decline in the trading price of our common stock. We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill and indefinite-lived assets.
6. External Debt and Financing Arrangements
Senior Notes
In June 2023, the Company issued $600 million in aggregate principal 5.875% senior unsecured notes maturing in 2033 in a registered public offering. The Company intends to use the net proceeds from the notes offering to pay off its 2023 4.000% senior unsecured notes maturing in September 2023 and for general corporate purposes.
In March 2022, the Company issued $900 million in aggregate principal amount of senior unsecured notes in a registered public offering consisting of $450 million of 4.004.000% senior unsecured notes maturing in 2032 and $450 million of 4.504.500% senior unsecured notes maturing in 2052 (together, the “2022 Notes”). The Company used the net proceeds from the 2022 Notes offering to pay down a portion of the outstanding balance on the 2021 Term Loan, as described below.
At September 30, 2022,On July 1, 2023, the Company had aggregate outstanding senior notes in the amount of $2.73.3 billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company.The following table provides a summary of the Company’s outstanding Notes, including the net carrying value of the Notes, net of underwriting commissions, price discounts, and debt issuance costs as of September 30, 2022July 1, 2023 and December 31, 2021:2022:
|
|
| Net Carrying Value |
|
|
| Net Carrying Value |
| ||||||||||||||||||||||
(in millions) | Principal Amount |
|
| Issuance Date |
| Maturity Date |
| September 30, 2022 |
|
| December 31, 2021 |
| Principal Amount |
|
| Issuance Date |
| Maturity Date |
| July 1, 2023 |
|
| December 31, 2022 |
| ||||||
4.000% Senior Notes | $ | 500.0 |
|
| June 2015 |
| June 2025 |
| $ | 497.9 |
|
| $ | 497.4 |
| $ | 500.0 |
|
| June 2015 |
| June 2025 |
| $ | 498.5 |
|
| $ | 498.1 |
|
4.000% Senior Notes |
| 600.0 |
|
| September 2018 |
| September 2023 |
|
| 599.0 |
|
|
| 598.2 |
|
| 600.0 |
|
| September 2018 |
| September 2023 |
|
| 599.8 |
|
|
| 599.2 |
|
3.250% Senior Notes |
| 700.0 |
|
| September 2019 |
| September 2029 |
|
| 694.8 |
|
|
| 694.2 |
|
| 700.0 |
|
| September 2019 |
| September 2029 |
|
| 695.3 |
|
|
| 695.0 |
|
4.000% Senior Notes |
| 450.0 |
|
| March 2022 |
| March 2032 |
|
| 445.6 |
|
|
| - |
|
| 450.0 |
|
| March 2022 |
| March 2032 |
|
| 446.0 |
|
|
| 445.8 |
|
4.500% Senior Notes |
| 450.0 |
|
| March 2022 |
| March 2052 |
|
| 435.3 |
|
|
| - |
|
| 450.0 |
|
| March 2022 |
| March 2052 |
|
| 435.6 |
|
|
| 435.4 |
|
5.875% Senior Notes |
| 600.0 |
|
| June 2023 |
| June 2033 |
|
| 593.1 |
|
|
| - |
| |||||||||||||||
Total Senior Notes | $ | 2,700.0 |
|
| $ | 2,672.6 |
|
| $ | 1,789.8 |
| $ | 3,300.0 |
|
| $ | 3,268.3 |
|
| $ | 2,673.5 |
|
Credit Facilities
In August 2022, the Company entered into a third amended and restated $1.25 billion revolving credit facility (the “2022 Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. The maturity date of the facility is August 2027. August 2027.Interest rates under the 2022 Revolving Credit Agreement are variable based on the Secured Overnight Financing Rate (“SOFR”) at the time of the borrowing and the Company’s long-term credit rating and can range from SOFR + 1.02% to SOFR + 1.525%. Under the 2022 Revolving Credit Agreement, the Company is required to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0. Consolidated EBITDA is defined as consolidated net income before interest
10
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 1.0.1.0. On September 30, 2022July 1, 2023, and December 31, 2021, our2022, there were no outstanding borrowings under this facility and our previous revolving credit facility were $100.0 million and $520.0 million, respectively. This facility is included in Long-term debt in the condensed consolidated balance sheets.facility. As of September 30, 2022,July 1, 2023, we were in compliance with all covenants under this facility.
9
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In November 2021, the Company entered into a 364-day, $400 million term loan credit agreement (the “2021 Term Loan”), for general corporate purposes, to mature in November 2022.2022. On March 1, 2022, the Company entered into a First Amendment and Incremental Agreement to the 2021 Term Loan (the “First Amendment”). The First Amendment provided for an increase in the principal amount from $400 million to $600 million as well as the transition from LIBOR to SOFR interest rates. As a result, interest rates under the 2021 Term Loan were variable based on SOFR at the time of the borrowing and the Company’s long-term credit rating and could range from SOFR + 0.725% to SOFR + 1.350%.On March 18, 2022, the Company entered into a Second Amendment and Incremental Agreement to the 2021 Term Loan (the “Second Amendment”), increasing the principal amount from $600 million to $1.1 billion. All other terms and conditions remained the same under the First Amendment and Second Amendment. Proceeds from the increased 2021 Term Loan were used to repay outstanding balances under our previous revolving credit facility. The outstanding $1.1 billion under the 2021 Term Loan was repaid on March 25, 2022 with proceeds from the senior notes offering in March 2022 (as described above) and other existing sources of liquidity.
We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $20.5 million and $17.5 million in aggregate as of September 30, 2022July 1, 2023 and December 31, 2021,2022, respectively. There were outstanding balances of $1.4 million as of September 30, 2022 and no outstanding balancebalances as of July 1, 2023 and December 31, 2021.2022.
Commercial Paper
In November 2021, the
The Company establishedoperates a commercial paper program (the “Commercial Paper Program”) pursuant to which the Company may issue unsecured commercial paper notes. The Company’s 2022 Revolving Credit Agreement is the liquidity backstop for the repayment of any notes issued under the Commercial Paper Program, and as such, borrowings under the Commercial Paper Program are included in Long-term debt in the condensed consolidated balance sheets. Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed, with the aggregate principal amount outstanding at any time, including borrowings under the 2022 Revolving Credit Agreement, not to exceed $1.25 billion. The Company plans towill use net proceeds from any issuances under the Commercial Paper Program for general corporate purposes. On September 30, 2022 and December 31, 2021 ourThere were no outstanding borrowings under the Commercial Paper Program were $613.3millionas of July 1, 2023 and zero, respectively.December 31, 2022.
1011
FORTUNE BRANDS HOME & SECURITY,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. AsThe Company entered into a total of September 30, 2022, we had outstanding interest rate hedges with a notional value of $600 million which have been accounted for as cash flow hedges.
We terminated $600 million of interest rate hedgeshedge contracts during the fourth quarter of 2021 and first quarter of 2022, concurrent2022. These contracts were terminated during the second quarter of 2023 in parallel with the issuance of new$600 million of long-term debt. Total realizedTerminating the contracts resulted in a pre-tax gainsgain of $39.084.2 million related to these interest rate hedges have beenwhich was recorded in accumulated other comprehensive income and will be reclassified to earnings over the related10-year maturity ofassociated with the related interest rate hedging instrument.new long-term debt.
Our primary foreign currency hedge contracts pertain to the British pound, the Canadian dollar, the British pound, the Mexican peso and the Chinese yuan. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding at September 30, 2022July 1, 2023 was $553.7325.8 million. Based on foreign exchange rates as of September 30, 2022,July 1, 2023, we estimate that $2.512.5 million of net derivative lossesgains included in accumulated other comprehensive income as of September 30, 2022July 1, 2023 will be reclassified to earnings within the next twelve months.
The fair values of derivative instruments on the consolidated balance sheets as of September 30, 2022July 1, 2023 and December 31, 20212022 were as follows:
|
|
|
| Fair Value |
|
|
|
| Fair Value |
| ||||||||||||
(In millions) |
| Location |
|
| September 30, |
|
| December 31, |
|
| Location |
|
| July 1, |
|
| December 31, |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign exchange contracts |
| Other current assets |
| $ | 9.5 |
|
| $ | 4.1 |
|
| Other current assets |
| $ | 2.3 |
|
| $ | 5.0 |
| ||
Interest rate hedges |
| Other non-current assets |
|
| 88.8 |
|
|
| - |
| ||||||||||||
Interest rate contracts |
| Other current assets |
|
| - |
|
|
| 84.6 |
| ||||||||||||
|
| Total assets |
| $ | 98.3 |
|
| $ | 4.1 |
|
| Total assets |
| $ | 2.3 |
|
| $ | 89.6 |
| ||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Foreign exchange contracts |
| Other current liabilities |
| $ | 10.9 |
|
| $ | 1.4 |
|
| Other current liabilities |
| $ | 2.7 |
|
| $ | 0.7 |
| ||
Commodity contracts |
| Other current liabilities |
|
| 7.6 |
|
|
| 0.1 |
|
| Other current liabilities |
|
| 0.3 |
|
|
| 3.6 |
| ||
|
| Total liabilities |
| $ | 18.5 |
|
| $ | 1.5 |
|
| Total liabilities |
| $ | 3.0 |
|
| $ | 4.3 |
|
1112
FORTUNE BRANDS HOME & SECURITY,INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The effects of derivative financial instruments on the statements of comprehensive income for the ninetwenty-six weeks ended July 1, 2023 and six months ended SeptemberJune 30, 2022 and 2021 were as follows:
(In millions) |
| Classification and Amount of Gain (Loss) |
|
| Classification and Amount of Gain (Loss) |
| ||||||||||||||||||
|
| Nine Months Ended September 30, 2022 |
|
| Twenty-Six Weeks Ended July 1, 2023 |
| ||||||||||||||||||
|
| Cost of |
|
| Interest |
|
| Other income, net |
|
| Cost of |
|
| Interest |
|
| Other income, net |
| ||||||
Total amounts per Consolidated Statements of Comprehensive Income |
| $ | 3,895.9 |
|
| $ | 85.4 |
|
| $ | 3.6 |
|
| $ | 1,327.2 |
|
| $ | 54.6 |
|
| $ | 11.6 |
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Hedged items |
|
| - |
|
|
| - |
|
|
| (26.1 | ) |
|
| - |
|
|
| - |
|
|
| 4.4 |
|
Derivative designated as hedging instruments |
|
| - |
|
|
| - |
|
|
| 21.6 |
|
|
| - |
|
|
| - |
|
|
| (2.9 | ) |
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 4.3 |
|
|
| - |
|
|
| - |
|
|
| 4.0 |
|
|
| - |
|
|
| - |
|
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| (4.2 | ) |
|
| - |
|
|
| - |
| ||||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| (0.1 | ) |
|
| - |
|
|
| - |
| ||||||||||||
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| - |
|
|
| 2.5 |
|
|
| - |
|
|
| - |
|
|
| 2.6 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
(In millions) |
| Classification and Amount of Gain (Loss) |
|
| Classification and Amount of Gain (Loss) |
| ||||||||||||||||||
|
| Nine Months Ended September 30, 2021 |
|
| Six Months Ended June 30, 2022 |
| ||||||||||||||||||
|
| Cost of |
|
| Interest |
|
| Other expense, net |
|
| Cost of |
|
| Interest |
|
| Other income, net |
| ||||||
Total amounts per Consolidated Statements of Comprehensive Income |
| $ | 3,637.2 |
|
| $ | 63.2 |
|
| $ | 0.7 |
|
| $ | 1,413.8 |
|
| $ | 52.3 |
|
| $ | 2.4 |
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Hedged items |
|
| - |
|
|
| - |
|
|
| (2.1 | ) |
|
| - |
|
|
| - |
|
|
| (10.4 | ) |
Derivative designated as hedging instruments |
|
| - |
|
|
| - |
|
|
| (0.6 | ) |
|
| - |
|
|
| - |
|
|
| 7.7 |
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 0.2 |
|
|
| - |
|
|
| - |
| ||||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 1.3 |
|
|
| - |
|
|
| - |
| ||||||||||||
Commodity contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 0.9 |
|
|
| - |
|
|
| - |
|
|
| (0.3 | ) |
|
| - |
|
|
| - |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| - |
|
|
| 0.5 |
|
|
| - |
|
|
| - |
|
|
| 1.4 |
|
|
| - |
|
1213
FORTUNE BRANDS HOME & SECURITY,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 July 1, 2023 and three months ended SeptemberJune 30, 2022 and 2021 were as follows:
(In millions) |
| Classification and Amount of Gain (Loss) |
| |||||||||
|
| Three Months Ended September 30, 2022 |
| |||||||||
|
| Cost of |
|
| Interest |
|
| Other income, net |
| |||
Total amounts per Consolidated Statements of Comprehensive Income |
| $ | 1,310.2 |
|
| $ | 33.1 |
|
| $ | 2.1 |
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
| |||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
| |||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
| |||
Hedged items |
|
| - |
|
|
| - |
|
|
| (17.2 | ) |
Derivative designated as hedging instruments |
|
| - |
|
|
| - |
|
|
| 16.5 |
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
| |||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 1.3 |
|
|
| - |
|
|
| - |
|
Commodity contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| (3.9 | ) |
|
| - |
|
|
| - |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| - |
|
|
| 1.1 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
| |||
(In millions) |
| Classification and Amount of Gain (Loss) |
| |||||||||
|
| Three Months Ended September 30, 2021 |
| |||||||||
|
| Cost of |
|
| Interest |
|
| Other income, net |
| |||
Total amounts per Consolidated Statements of Comprehensive Income |
| $ | 1,280.0 |
|
| $ | 20.6 |
|
| $ | 1.3 |
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
| |||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
| |||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
| |||
Hedged items |
|
| - |
|
|
| - |
|
|
| (3.8 | ) |
Derivative designated as hedging instruments |
|
| - |
|
|
| - |
|
|
| 3.1 |
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
| |||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 0.9 |
|
|
| - |
|
|
| - |
|
Commodity contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
|
|
|
| - |
|
|
| - |
| |
Interest rate contracts: |
|
| - |
|
|
|
|
|
|
| ||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| - |
|
|
| 0.2 |
|
|
| - |
|
(In millions) |
| Classification and Amount of Gain (Loss) |
| |||||||||
|
| Thirteen Weeks Ended July 1, 2023 |
| |||||||||
|
| Cost of |
|
| Interest |
|
| Other income, net |
| |||
Total amounts per Consolidated Statements of Comprehensive Income |
| $ | 695.6 |
|
| $ | 27.7 |
|
| $ | 5.2 |
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
| |||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
| |||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
| |||
Hedged items |
|
| - |
|
|
| - |
|
|
| 3.1 |
|
Derivative designated as hedging instruments |
|
| - |
|
|
| - |
|
|
| (2.1 | ) |
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
| |||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 2.0 |
|
|
| - |
|
|
| - |
|
Commodity contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| (0.3 | ) |
|
| - |
|
|
| - |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| - |
|
|
| 1.5 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
| |||
(In millions) |
| Classification and Amount of Gain (Loss) |
| |||||||||
|
| Three Months Ended June 30, 2022 |
| |||||||||
|
| Cost of |
|
| Interest |
|
| Other income, net |
| |||
Total amounts per Consolidated Statements of Comprehensive Income |
| $ | 742.0 |
|
| $ | 30.5 |
|
| $ | 0.2 |
|
The effects of fair value and cash flow hedging: |
|
|
|
|
|
|
|
|
| |||
Gain (loss) on fair value hedging relationships |
|
|
|
|
|
|
|
|
| |||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
| |||
Hedged items |
|
| - |
|
|
| - |
|
|
| (8.4 | ) |
Derivative designated as hedging instruments |
|
| - |
|
|
| - |
|
|
| 7.2 |
|
Gain (loss) on cash flow hedging relationships |
|
|
|
|
|
|
|
|
| |||
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| 0.9 |
|
|
| - |
|
|
| - |
|
Commodity contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| (0.4 | ) |
|
| - |
|
|
| - |
|
Interest rate contracts: |
|
|
|
|
|
|
|
|
| |||
Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income |
|
| - |
|
|
| 1.2 |
|
|
| - |
|
The cash flow hedges recognized in other comprehensive income were a net gain of $125.9 million and a net gain of $1.8 million in the nine months ended September 30, 2022 and 2021, respectively. The cash flow hedges recognized in other comprehensive income were a net gain of $126.4 million and a net gain of $2.4 million in the three months ended September 30, 2022 and 2021, respectively.
13
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Fair Value Measurements
FASB ASC requirements for Fair Value Measurements and Disclosures establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs, the highest priority, are quoted prices in active markets for identical assets or liabilities. Level 2 inputs reflect other than quoted prices included in Level 1 that are either observable directly or through corroboration with observable market data. Level 3 inputs are unobservable inputs, due to little or no market
14
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
activity for the asset or liability, such as internally-developed valuation models. We do not have any assets or liabilities measured at fair value on a recurring basis that are Level 3.
The carrying value and fair value of debt as of September 30, 2022July 1, 2023 and December 31, 20212022 were as follows:
(In millions) |
| September 30, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||
Notes, net of underwriting commissions, price discounts and debt issuance costs |
| $ | 2,672.6 |
|
| $ | 2,338.9 |
|
| $ | 1,789.8 |
|
| $ | 1,902.9 |
|
2022 Revolving Credit Agreement |
|
| 100.0 |
|
|
| 100.0 |
|
|
| 520.0 |
|
|
| 520.0 |
|
Commercial paper borrowings |
|
| 613.3 |
|
|
| 615.2 |
|
|
| - |
|
|
| - |
|
2021 Term Loan |
|
| - |
|
|
| - |
|
|
| 400.0 |
|
|
| 400.0 |
|
Total debt |
| $ | 3,385.9 |
|
| $ | 3,054.1 |
|
| $ | 2,709.8 |
|
| $ | 2,822.9 |
|
(In millions) |
| July 1, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Carrying |
|
| Fair |
|
| Carrying |
|
| Fair |
| ||||
Notes, net of underwriting commissions, price discounts and debt issuance costs |
| $ | 3,268.3 |
|
| $ | 3,038.5 |
|
| $ | 2,673.5 |
|
| $ | 2,412.6 |
|
The estimated fair value of our Notes is determined by using quoted market prices of our debt securities, which are Level 1 inputs. The estimated fair value of our 2022 Revolving Credit Agreement,Facility, borrowings under our Commercial paper borrowingsPaper Program and 2021 Term Loan is determined primarily using broker quotes, which are Level 2 inputs.
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2022July 1, 2023 and December 31, 20212022 were as follows:
(In millions) |
| Fair Value |
|
| Fair Value |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| July 1, |
|
| December 31, |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative financial instruments (Level 2) |
| $ | 98.3 |
|
| $ | 4.1 |
|
| $ | 2.3 |
|
| $ | 89.6 |
|
Deferred compensation program assets (Level 2) |
|
| 18.8 |
|
|
| 19.8 |
|
|
| 15.9 |
|
|
| 14.9 |
|
Total assets |
| $ | 117.1 |
|
| $ | 23.9 |
|
| $ | 18.2 |
|
| $ | 104.5 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative financial instruments (Level 2) |
| $ | 18.5 |
|
| $ | 1.5 |
|
| $ | 3.0 |
|
| $ | 4.3 |
|
14
FORTUNE BRANDS HOME & SECURITY, 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 order to mitigate interest rate risk associated with forecasted debt issuances, Fortune Brands entered into a total of $600 million of interest rate hedges during the fourth quarter of 2021 and first quarter of 2022. These hedges were terminated during the second quarter of 2023 in parallel with the issuance of $600 million of long-term debt. Terminating the hedges resulted in a pre-tax gain of $84.2 million which was recorded in accumulated other comprehensive income and will be reclassified to earnings over the 10-year maturity associated with the new long-term debt.
The after-tax components of and changes in accumulated other comprehensive (loss) income for the ninetwenty-six and thirteen weeks ended July 1, 2023 and six and three months ended SeptemberJune 30, 2022 and 2021 were as follows:
(In millions) |
| Foreign |
|
| Derivative |
|
| Defined |
|
| Accumulated |
| ||||
Balance at December 31, 2020 |
| $ | 7.2 |
|
| $ | 4.2 |
|
| $ | (66.5 | ) |
| $ | (55.1 | ) |
Amounts classified into accumulated other |
|
| 2.9 |
|
|
| 1.4 |
|
|
| (2.6 | ) |
|
| 1.7 |
|
Amounts reclassified from accumulated other |
|
| - |
|
|
| (1.8 | ) |
|
| 1.4 |
|
|
| (0.4 | ) |
Net current-period other comprehensive (loss) income |
|
| 2.9 |
|
|
| (0.4 | ) |
|
| (1.2 | ) |
|
| 1.3 |
|
Balance at September 30, 2021 |
| $ | 10.1 |
|
| $ | 3.8 |
|
| $ | (67.7 | ) |
| $ | (53.8 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2021 |
| $ | 3.3 |
|
| $ | 2.9 |
|
| $ | (30.8 | ) |
| $ | (24.6 | ) |
Amounts classified into accumulated other |
|
| (70.5 | ) |
|
| 97.3 |
|
|
| (1.6 | ) |
|
| 25.2 |
|
Amounts reclassified from accumulated other |
|
| - |
|
|
| (3.1 | ) |
|
| 0.3 |
|
|
| (2.8 | ) |
Net current-period other comprehensive (loss) income |
|
| (70.5 | ) |
|
| 94.2 |
|
|
| (1.3 | ) |
|
| 22.4 |
|
Balance at September 30, 2022 |
| $ | (67.2 | ) |
| $ | 97.1 |
|
| $ | (32.1 | ) |
| $ | (2.2 | ) |
(In millions) |
| Foreign |
|
| Derivative |
|
| Defined |
|
| Accumulated |
| ||||
Balance at June 30, 2021 |
| $ | 25.0 |
|
| $ | 3.3 |
|
| $ | (66.7 | ) |
| $ | (38.4 | ) |
Amounts classified into accumulated other |
|
| (14.9 | ) |
|
| 1.7 |
|
|
| (2.4 | ) |
|
| (15.6 | ) |
Amounts reclassified from accumulated other |
|
| - |
|
|
| (1.2 | ) |
|
| 1.4 |
|
|
| 0.2 |
|
Net current-period other comprehensive (loss) income |
|
| (14.9 | ) |
|
| 0.5 |
|
|
| (1.0 | ) |
|
| (15.4 | ) |
Balance at September 30, 2021 |
| $ | 10.1 |
|
| $ | 3.8 |
|
| $ | (67.7 | ) |
| $ | (53.8 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at June 30, 2022 |
| $ | (12.8 | ) |
| $ | 71.5 |
|
| $ | (30.9 | ) |
| $ | 27.8 |
|
Amounts classified into accumulated other |
|
| (54.4 | ) |
|
| 24.9 |
|
|
| (1.5 | ) |
|
| (31.0 | ) |
Amounts reclassified from accumulated other |
|
| - |
|
|
| 0.7 |
|
|
| 0.3 |
|
|
| 1.0 |
|
Net current-period other comprehensive (loss) income |
|
| (54.4 | ) |
|
| 25.6 |
|
|
| (1.2 | ) |
|
| (30.0 | ) |
Balance at September 30, 2022 |
| $ | (67.2 | ) |
| $ | 97.1 |
|
| $ | (32.1 | ) |
| $ | (2.2 | ) |
15
FORTUNE BRANDS HOME & SECURITY,INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In millions) |
| Foreign |
|
| Derivative |
|
| Defined |
|
| Accumulated |
| ||||
Balance at December 31, 2021 |
| $ | 3.3 |
|
| $ | 2.9 |
|
| $ | (30.8 | ) |
| $ | (24.6 | ) |
Amounts classified into accumulated other |
|
| (16.1 | ) |
|
| 72.4 |
|
|
| (0.1 | ) |
|
| 56.2 |
|
Amounts reclassified from accumulated other |
|
| - |
|
|
| (3.8 | ) |
|
| - |
|
|
| (3.8 | ) |
Net current-period other comprehensive (loss) income |
|
| (16.1 | ) |
|
| 68.6 |
|
|
| (0.1 | ) |
|
| 52.4 |
|
Balance at June 30, 2022 |
| $ | (12.8 | ) |
| $ | 71.5 |
|
| $ | (30.9 | ) |
| $ | 27.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at December 31, 2022 |
| $ | (12.1 | ) |
| $ | 93.5 |
|
| $ | (44.0 | ) |
| $ | 37.4 |
|
Amounts classified into accumulated other |
|
| 13.0 |
|
|
| 4.4 |
|
|
| (0.2 | ) |
|
| 17.2 |
|
Other |
|
| - |
|
|
| - |
|
|
| 6.2 |
|
|
| 6.2 |
|
Amounts reclassified from accumulated other |
|
| - |
|
|
| (5.5 | ) |
|
| - |
|
|
| (5.5 | ) |
Net current-period other comprehensive (loss) income |
|
| 13.0 |
|
|
| (1.1 | ) |
|
| 6.0 |
|
|
| 17.9 |
|
Balance at July 1, 2023 |
| $ | 0.9 |
|
| $ | 92.4 |
|
| $ | (38.0 | ) |
| $ | 55.3 |
|
(In millions) |
| Foreign |
|
| Derivative |
|
| Defined |
|
| Accumulated |
| ||||
Balance at March 31, 2022 |
| $ | 14.9 |
|
| $ | 51.0 |
|
| $ | (30.6 | ) |
| $ | 35.3 |
|
Amounts classified into accumulated other |
|
| (27.7 | ) |
|
| 23.2 |
|
|
| (0.3 | ) |
|
| (4.8 | ) |
Amounts reclassified from accumulated other |
|
| - |
|
|
| (2.7 | ) |
|
| - |
|
|
| (2.7 | ) |
Net current-period other comprehensive (loss) income |
|
| (27.7 | ) |
|
| 20.5 |
|
|
| (0.3 | ) |
|
| (7.5 | ) |
Balance at June 30, 2022 |
| $ | (12.8 | ) |
| $ | 71.5 |
|
| $ | (30.9 | ) |
| $ | 27.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at April 1, 2023 |
| $ | (4.1 | ) |
| $ | 85.0 |
|
| $ | (38.0 | ) |
| $ | 42.9 |
|
Amounts classified into accumulated other |
|
| 5.0 |
|
|
| 10.2 |
|
|
| - |
|
|
| 15.2 |
|
Other |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Amounts reclassified from accumulated other |
|
| - |
|
|
| (2.8 | ) |
|
| - |
|
|
| (2.8 | ) |
Net current-period other comprehensive (loss) income |
|
| 5.0 |
|
|
| 7.4 |
|
|
| - |
|
|
| 12.4 |
|
Balance at July 1, 2023 |
| $ | 0.9 |
|
| $ | 92.4 |
|
| $ | (38.0 | ) |
| $ | 55.3 |
|
16
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The reclassifications out of accumulated other comprehensive loss for the ninetwenty-six and thirteen weeks ended July 1, 2023 and six and three months ended SeptemberJune 30, 2022 and 2021 were as follows:
(In millions) | (In millions) | (In millions) | ||||||||||||||||||
Details about Accumulated Other |
| Amount Reclassified from |
|
| Affected Line Item in |
| Amount Reclassified from |
|
| Affected Line Item in | ||||||||||
|
| 2022 |
|
| 2021 |
|
|
|
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
|
|
| ||||
Gains (losses) on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts |
| $ | 4.3 |
|
| $ | 0.2 |
|
| Cost of products sold |
| $ | 4.0 |
|
| $ | 1.3 |
|
| Cost of products sold |
Commodity contracts |
|
| (4.2 | ) |
|
| 0.9 |
|
| Cost of products sold |
|
| (0.1 | ) |
|
| (0.3 | ) |
| Cost of products sold |
Interest rate contracts |
|
| 2.5 |
|
|
| 0.5 |
|
| Interest expense |
|
| 2.6 |
|
|
| 1.4 |
|
| Interest expense |
|
|
| 2.6 |
|
|
| 1.6 |
|
| Total before tax | ||||||||||
|
|
| 0.5 |
|
|
| 0.2 |
|
| Tax expense | ||||||||||
|
| $ | 3.1 |
|
| $ | 1.8 |
|
| Net of tax | ||||||||||
Defined benefit plan items |
|
|
|
|
|
|
|
| ||||||||||||
Recognition of actuarial losses |
| $ | (0.4 | ) |
| $ | (1.1 | ) |
| Other (income) expense, net | ||||||||||
|
|
| (0.4 | ) |
|
| (1.1 | ) |
| Total before tax | ||||||||||
|
|
| 0.1 |
|
|
| (0.3 | ) |
| Tax expense |
|
| 6.5 |
|
|
| 2.4 |
|
| Total before tax |
|
| $ | (0.3 | ) |
| $ | (1.4 | ) |
| Net of tax |
|
| (1.0 | ) |
|
| (0.3 | ) |
| Tax expense |
Total reclassifications for the period |
| $ | 2.8 |
|
| $ | 0.4 |
|
| Net of tax |
| $ | 5.5 |
|
| $ | 2.1 |
|
| Net of tax |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||
(In millions) | (In millions) | (In millions) | ||||||||||||||||||
Details about Accumulated Other |
| Amount Reclassified from |
|
| Affected Line Item in |
| Amount Reclassified from |
|
| Affected Line Item in | ||||||||||
|
| 2022 |
|
| 2021 |
|
|
|
| Thirteen Weeks Ended July 1, 2023 |
|
| Three Months Ended June 30, 2022 |
|
|
| ||||
Gains (losses) on cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Foreign exchange contracts |
| $ | 1.3 |
|
| $ | 0.9 |
|
| Cost of products sold |
| $ | 2.0 |
|
| $ | 0.9 |
|
| Cost of products sold |
Commodity contracts |
|
| (3.9 | ) |
|
| - |
|
| Cost of products sold |
|
| (0.3 | ) |
|
| (0.4 | ) |
| Cost of products sold |
Interest rate contracts |
|
| 1.1 |
|
|
| 0.2 |
|
| Interest expense |
|
| 1.5 |
|
|
| 1.2 |
|
| Interest expense |
|
|
| (1.5 | ) |
|
| 1.1 |
|
| Total before tax |
|
| 3.2 |
|
|
| 1.7 |
|
| Total before tax |
|
|
| 0.8 |
|
|
| 0.1 |
|
| Tax expense |
|
| (0.4 | ) |
|
| (0.2 | ) |
| Tax expense |
Total reclassifications for the period |
| $ | (0.7 | ) |
| $ | 1.2 |
|
| Net of tax |
| $ | 2.8 |
|
| $ | 1.5 |
|
| Net of tax |
Defined benefit plan items |
|
|
|
|
|
|
|
| ||||||||||||
Recognition of actuarial losses |
| $ | (0.4 | ) |
| $ | (1.1 | ) |
| Other (income) expense, net | ||||||||||
|
|
| (0.4 | ) |
|
| (1.1 | ) |
| Total before tax | ||||||||||
|
|
| 0.1 |
|
|
| (0.3 | ) |
| Tax expense | ||||||||||
|
| $ | (0.3 | ) |
| $ | (1.4 | ) |
| Net of tax | ||||||||||
Total reclassifications for the period |
| $ | (1.0 | ) |
| $ | (0.2 | ) |
| Net of tax |
16
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)The amounts in the table above reflect continuing operations, and exclude income amounts, net of tax, related to discontinued operations of $
1.7 million and $1.2 million in the six months and three months ended, June 30, 2022, respectively.
10. Revenue
The following table disaggregates our consolidated revenue by major sales distribution channels for the ninetwenty-six and thirteen weeks ended July 1, 2023 and six and three months ended SeptemberJune 30, 2022 and 2021:2023:
(In millions) |
| Nine Months Ended |
|
| Three Months Ended |
|
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
|
| Thirteen Weeks Ended July 1, 2023 |
|
| Three Months Ended June 30, 2022 |
| ||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||
Wholesalers(a) |
| $ | 2,874.4 |
|
| $ | 2,594.4 |
|
| $ | 987.6 |
|
| $ | 933.6 |
|
| $ | 966.2 |
|
| $ | 1,053.2 |
|
| $ | 505.7 |
|
| $ | 565.3 |
|
Home Center retailers(b) |
|
| 1,787.5 |
|
|
| 1,642.0 |
|
|
| 580.6 |
|
|
| 524.9 |
|
|
| 605.1 |
|
|
| 666.9 |
|
|
| 309.7 |
|
|
| 347.4 |
|
Other retailers(c) |
|
| 309.9 |
|
|
| 326.6 |
|
|
| 99.7 |
|
|
| 128.5 |
|
|
| 191.7 |
|
|
| 210.3 |
|
|
| 96.2 |
|
|
| 117.1 |
|
Builder direct |
|
| 248.1 |
|
|
| 194.8 |
|
|
| 88.1 |
|
|
| 65.7 |
|
|
| 0.5 |
|
|
| - |
|
|
| - |
|
|
| - |
|
U.S. net sales |
|
| 5,219.9 |
|
|
| 4,757.8 |
|
|
| 1,756.0 |
|
|
| 1,652.7 |
|
|
| 1,763.5 |
|
|
| 1,930.4 |
|
|
| 911.6 |
|
|
| 1,029.8 |
|
International(d) |
|
| 862.1 |
|
|
| 935.6 |
|
|
| 297.7 |
|
|
| 333.6 |
|
|
| 440.2 |
|
|
| 465.2 |
|
|
| 252.1 |
|
|
| 225.6 |
|
Net sales |
| $ | 6,082.0 |
|
| $ | 5,693.4 |
|
| $ | 2,053.7 |
|
| $ | 1,986.3 |
|
| $ | 2,203.7 |
|
| $ | 2,395.6 |
|
| $ | 1,163.7 |
|
| $ | 1,255.4 |
|
17
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Defined Benefit Plans
The components of net periodic benefit income for pension benefits for the ninetwenty-six and thirteen weeks ended July 1, 2023 and six and three months ended SeptemberJune 30, 2022 and 2021 were as follows:
Pension Benefits |
| |||||||||||||||||||||||||||||||
(In millions) |
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
|
| Thirteen Weeks Ended July 1, 2023 |
|
| Three Months Ended June 30, 2022 |
| ||||||||||||||
|
| Pension Benefits |
|
| Pension Benefits |
|
| |||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| |||||||||||||||||||
Service cost |
| $ | 0.2 |
|
| $ | 0.3 |
|
| $ | - |
|
| $ | 0.1 |
|
| $ | 0.1 |
|
| $ | 0.2 |
|
| $ | 0.1 |
|
| $ | 0.1 |
|
Interest cost |
|
| 19.1 |
|
|
| 18.0 |
|
|
| 6.4 |
|
|
| 6.0 |
|
|
| 13.6 |
|
|
| 10.2 |
|
|
| 6.7 |
|
|
| 5.1 |
|
Expected return on plan assets |
|
| (26.6 | ) |
|
| (26.2 | ) |
|
| (8.9 | ) |
|
| (8.7 | ) |
|
| (14.3 | ) |
|
| (14.1 | ) |
|
| (7.1 | ) |
|
| (7.1 | ) |
Recognition of actuarial losses |
|
| 0.4 |
|
|
| 1.1 |
|
|
| 0.4 |
|
|
| 1.1 |
|
| |||||||||||||||
Net periodic benefit income |
| $ | (6.9 | ) |
| $ | (6.8 | ) |
| $ | (2.1 | ) |
| $ | (1.5 | ) |
| $ | (0.6 | ) |
| $ | (3.7 | ) |
| $ | (0.3 | ) |
| $ | (1.9 | ) |
Service cost relates to benefit accruals in an hourly Union defined benefit plan in our Outdoors & Security segment. All other defined benefit pension plans were frozen as of December 31, 2016.
12. Income Taxes
The effective income tax rates for the ninetwenty-six and thirteen weeks ended July 1, 2023 were 22.2% and 21.5% respectively. The effective income tax rates for the six and three months ended SeptemberJune 30, 2022 were 21.722.6% and 18.423.7% for 2022 and , respectively.22.0% and 24.4% for 2021, respectively.
The difference between the Company’s effective tax rate for the nine and three monthstwenty-six weeks ended September 30, 2022,July 1, 2023, and the U.S. federal statutory rate of 21.021% primarily relates to state income taxes (net of federal income tax benefit)benefits), theforeign income taxed at higher rates, partially offset by a favorable benefit forrelated to decreases in uncertain tax positions and tax expense related to the tax audit settlement.
In the third quarter of 2022, the Internal Revenue Service (“IRS”) completed its examination of the Company’s tax filings for 2017 and 2018. As a result of closing the IRS examination, the Company realized a net tax benefit related to the release of uncertain tax positions reduced by tax expenses to adjust accrued current and deferred income tax liabilities. As a result of the IRS audit, the Company is now recognizing deferred tax liability for full inclusion entities where the Company cannot assert permanent reinvestment.valuation allowance release.
17
FORTUNE BRANDS HOME & SECURITY, 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. The following table summarizes activity related to our product warranty liability for the ninetwenty-six weeks ended July 1, 2023 and six months ended SeptemberJune 30, 2022, and 2021, respectively.
(In millions) |
| Nine Months Ended |
|
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
| |||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
Reserve balance at January 1, |
| $ | 26.5 |
|
| $ | 24.5 |
|
| $ | 20.1 |
|
| $ | 19.5 |
|
Provision for warranties issued |
|
| 35.1 |
|
|
| 26.5 |
|
|
| 4.3 |
|
|
| 3.9 |
|
Settlements made (in cash or in kind) |
|
| (32.1 | ) |
|
| (25.5 | ) |
|
| (5.1 | ) |
|
| (4.2 | ) |
Acquisitions |
|
| 1.1 |
|
|
| 0.3 |
| ||||||||
Acquisition |
|
| - |
|
|
| 0.4 |
| ||||||||
Foreign translation adjustments |
|
| (0.5 | ) |
|
| 0.1 |
|
|
| - |
|
|
| (0.2 | ) |
Reserve balance at September 30, |
| $ | 30.1 |
|
| $ | 25.9 |
| ||||||||
Reserve balance at end of period |
| $ | 19.3 |
|
| $ | 19.4 |
|
18
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Information on Business Segments
Net sales and operating income for the ninetwenty-six and thirteen weeks ended July 1, 2023 and six and three months ended SeptemberJune 30, 2022 and 2021 by segment were as follows:
|
| Nine Months Ended September 30, | ||||||||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| % Change |
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
|
| % Change | ||||||||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Water Innovations |
| $ | 1,928.6 |
|
| $ | 2,057.6 |
|
|
| (6.3 | ) | % | |||||||||||||
Outdoors & Security |
|
| 1,662.4 |
|
|
| 1,525.4 |
|
|
| 9.0 |
|
| |||||||||||||
Cabinets |
|
| 2,491.0 |
|
|
| 2,110.4 |
|
|
| 18.0 |
|
| |||||||||||||
Water |
| $ | 1,211.3 |
|
| $ | 1,293.6 |
|
|
| (6.4 | ) | % | |||||||||||||
Outdoors |
|
| 665.5 |
|
|
| 780.8 |
|
|
| (14.8 | ) |
| |||||||||||||
Security |
|
| 326.9 |
|
|
| 321.2 |
|
|
| 1.8 |
|
| |||||||||||||
Net sales |
| $ | 6,082.0 |
|
| $ | 5,693.4 |
|
|
| 6.8 |
| % |
| $ | 2,203.7 |
|
| $ | 2,395.6 |
|
|
| (8.0 | ) | % |
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Water Innovations |
| $ | 462.7 |
|
| $ | 483.3 |
|
|
| (4.3 | ) | % | |||||||||||||
Outdoors & Security |
|
| 223.3 |
|
|
| 211.7 |
|
|
| 5.5 |
|
| |||||||||||||
Cabinets |
|
| 243.3 |
|
|
| 214.2 |
|
|
| 13.6 |
|
| |||||||||||||
Water |
| $ | 270.5 |
|
| $ | 310.0 |
|
|
| (12.7 | ) | % | |||||||||||||
Outdoors |
|
| 74.2 |
|
|
| 107.2 |
|
|
| (30.8 | ) |
| |||||||||||||
Security |
|
| 20.8 |
|
|
| 45.5 |
|
|
| (54.3 | ) |
| |||||||||||||
Less: Corporate expenses |
|
| (110.6 | ) |
|
| (79.3 | ) |
|
| (39.5 | ) |
|
|
| (81.1 | ) |
|
| (63.4 | ) |
|
| (27.9 | ) |
|
Operating income |
| $ | 818.7 |
|
| $ | 829.9 |
|
|
| (1.3 | ) | % |
| $ | 284.4 |
|
| $ | 399.3 |
|
|
| (28.8 | ) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Three Months Ended September 30, | ||||||||||||||||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| % Change |
| Thirteen Weeks Ended July 1, 2023 |
|
| Three Months Ended June 30, 2022 |
|
| % Change | ||||||||||
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Water Innovations |
| $ | 635.1 |
|
| $ | 741.4 |
|
|
| (14.3 | ) | % | |||||||||||||
Outdoors & Security |
|
| 560.4 |
|
|
| 528.4 |
|
|
| 6.1 |
|
| |||||||||||||
Cabinets |
|
| 858.2 |
|
|
| 716.5 |
|
|
| 19.8 |
|
| |||||||||||||
Water |
| $ | 617.1 |
|
| $ | 650.0 |
|
|
| (5.1 | ) | % | |||||||||||||
Outdoors |
|
| 375.6 |
|
|
| 437.2 |
|
|
| (14.1 | ) |
| |||||||||||||
Security |
|
| 171.0 |
|
|
| 168.2 |
|
|
| 1.7 |
|
| |||||||||||||
Net sales |
| $ | 2,053.7 |
|
| $ | 1,986.3 |
|
|
| 3.4 |
| % |
| $ | 1,163.7 |
|
| $ | 1,255.4 |
|
|
| (7.3 | ) | % |
Operating Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Water Innovations |
| $ | 152.7 |
|
| $ | 166.5 |
|
|
| (8.3 | ) | % | |||||||||||||
Outdoors & Security |
|
| 70.6 |
|
|
| 80.4 |
|
|
| (12.2 | ) |
| |||||||||||||
Cabinets |
|
| 100.9 |
|
|
| 67.2 |
|
|
| 50.1 |
|
| |||||||||||||
Water |
| $ | 142.1 |
|
| $ | 160.7 |
|
|
| (11.6 | ) | % | |||||||||||||
Outdoors |
|
| 61.2 |
|
|
| 67.4 |
|
|
| (9.2 | ) |
| |||||||||||||
Security |
|
| (0.4 | ) |
|
| 25.1 |
|
|
| (101.6 | ) |
| |||||||||||||
Less: Corporate expenses |
|
| (43.0 | ) |
|
| (27.5 | ) |
|
| (56.4 | ) |
|
|
| (50.3 | ) |
|
| (33.7 | ) |
|
| (49.3 | ) |
|
Operating income |
| $ | 281.2 |
|
| $ | 286.6 |
|
|
| (1.9 | ) | % |
| $ | 152.6 |
|
| $ | 219.5 |
|
|
| (30.5 | ) | % |
|
|
|
|
|
|
|
|
18
FORTUNE BRANDS HOME & SECURITY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Restructuring and Other Charges
Pre-tax restructuring and other charges (gains) for the ninetwenty-six and thirteen weeks ended July 1, 2023 and six and three months ended SeptemberJune 30, 2022 and 2021 are shown below.
(In millions) |
| Nine Months Ended September 30, 2022 |
|
| Nine Months Ended September 30, 2021 |
|
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
| ||||||||||||||||||||||||||||||||||||
|
| Restructuring |
|
| Other |
|
| Total |
|
| Restructuring |
|
| Other |
|
| Total |
|
| Restructuring |
|
| Other |
|
| Total |
|
| Restructuring |
|
| Other |
|
| Total |
| ||||||||||||
Water Innovations |
| $ | 3.8 |
|
| $ | 0.7 |
|
| $ | 4.5 |
|
| $ | - |
|
| $ | 2.8 |
|
| $ | 2.8 |
| ||||||||||||||||||||||||
Outdoors & Security |
|
| 18.9 |
|
|
| (6.1 | ) |
|
| 12.8 |
|
|
| 8.5 |
|
|
| (0.4 | ) |
|
| 8.1 |
| ||||||||||||||||||||||||
Cabinets |
|
| 10.9 |
|
|
| 6.3 |
|
|
| 17.2 |
|
|
| 3.0 |
|
|
| 3.5 |
|
|
| 6.5 |
| ||||||||||||||||||||||||
Water |
| $ | 1.3 |
|
| $ | 0.2 |
|
| $ | 1.5 |
|
| $ | 0.9 |
|
| $ | 0.8 |
|
| $ | 1.7 |
| ||||||||||||||||||||||||
Outdoors |
|
| 3.0 |
|
|
| (1.7 | ) |
|
| 1.3 |
|
|
| 0.7 |
|
|
| (6.3 | ) |
|
| (5.6 | ) | ||||||||||||||||||||||||
Security |
|
| 20.2 |
|
|
| 7.5 |
|
|
| 27.7 |
|
|
| - |
|
|
| - |
|
|
| - |
| ||||||||||||||||||||||||
Corporate |
|
| (0.5 | ) |
|
| - |
|
|
| (0.5 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 0.7 |
|
|
| - |
|
|
| 0.7 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 33.1 |
|
| $ | 0.9 |
|
| $ | 34.0 |
|
| $ | 11.5 |
|
| $ | 5.9 |
|
| $ | 17.4 |
|
| $ | 25.2 |
|
| $ | 6.0 |
|
| $ | 31.2 |
|
| $ | 1.6 |
|
| $ | (5.5 | ) |
| $ | (3.9 | ) |
(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. |
19
FORTUNE BRANDS INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restructuring and other charges (gains) in the first nine monthstwenty-six weeks of 20222023 are largely related to severance, asset impairment and other costs associated with plant closuresthe planned closure of a manufacturing facility within our Security segment and headcount actions across all segments. Restructuring and other charges (gains) in the first ninesix months of 20212022 were largely related to severance costs associated witha gain on the relocationsale of a previously closed manufacturing facilitiesfacility within our CabinetsOutdoors segment, partially offset by severance actions within our Water and Outdoors & Security segments.
(In millions) |
| Three Months Ended September 30, 2022 |
|
| Three Months Ended September 30, 2021 |
| ||||||||||||||||||
|
| Restructuring |
|
| Other |
|
| Total |
|
| Restructuring |
|
| Other |
|
| Total |
| ||||||
Water Innovations |
| $ | 2.9 |
|
| $ | - |
|
| $ | 2.9 |
|
| $ | - |
|
| $ | 1.2 |
|
| $ | 1.2 |
|
Outdoors & Security |
|
| 18.2 |
|
|
| 0.2 |
|
|
| 18.4 |
|
|
| 2.4 |
|
|
| (0.4 | ) |
|
| 2.0 |
|
Cabinets |
|
| 9.6 |
|
|
| 3.9 |
|
|
| 13.5 |
|
|
| 1.2 |
|
|
| 0.9 |
|
|
| 2.1 |
|
Corporate |
|
| (0.5 | ) |
|
| - |
|
|
| (0.5 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 30.2 |
|
| $ | 4.1 |
|
| $ | 34.3 |
|
| $ | 3.6 |
|
| $ | 1.7 |
|
| $ | 5.3 |
|
(In millions) |
| Thirteen Weeks Ended July 1, 2023 |
|
| Three Months Ended June 30, 2022 |
| ||||||||||||||||||
|
| Restructuring |
|
| Other |
|
| Total |
|
| Restructuring |
|
| Other |
|
| Total |
| ||||||
Water |
| $ | 1.1 |
|
| $ | 0.1 |
|
| $ | 1.2 |
|
| $ | 0.9 |
|
| $ | - |
|
| $ | 0.9 |
|
Outdoors |
|
| 1.5 |
|
|
| (1.7 | ) |
|
| (0.2 | ) |
|
| 0.1 |
|
|
| - |
|
|
| 0.1 |
|
Security |
|
| 19.6 |
|
|
| 7.5 |
|
|
| 27.1 |
|
|
| - |
|
|
| - |
|
|
| - |
|
Total |
| $ | 22.2 |
|
| $ | 5.9 |
|
| $ | 28.1 |
|
| $ | 1.0 |
|
| $ | - |
|
| $ | 1.0 |
|
(a) | “Other Charges (Gains)” represent charges directly related to restructuring initiatives that cannot be reported as restructuring under GAAP. Such costs may include losses on disposal of inventories, trade receivables allowances from exiting product lines, accelerated depreciation resulting from the closure of facilities and gains or losses on the sale of previously closed facilities. |
Restructuring and other charges (gains) in the thirdsecond quarter of 20222023 are largely related to severance, asset impairment and other costs associated with plant closures and headcount actions across all segments.the planned closure of a manufacturing facility within our Security segment. Restructuring and other charges (gains) in the thirdsecond quarter of 20212022 were largely related to severance costs associated with headcount actions within our Outdoor & Security and Cabinets segments.Water segment.
Reconciliation of Restructuring Liability
(In millions) |
| Balance at |
|
| 2022 |
|
| Cash |
|
| Balance at |
| ||||
Workforce reduction costs |
| $ | 4.7 |
|
| $ | 24.5 |
|
| $ | (7.1 | ) |
| $ | 22.1 |
|
Other |
|
| 1.0 |
|
|
| 8.6 |
|
|
| (0.4 | ) |
|
| 9.2 |
|
Total |
| $ | 5.7 |
|
| $ | 33.1 |
|
| $ | (7.5 | ) |
| $ | 31.3 |
|
(In millions) |
| Balance at |
|
| 2023 |
|
| Cash |
|
| Non-Cash |
|
| Balance at |
| |||||
Workforce reduction costs |
| $ | 16.2 |
|
| $ | 14.2 |
|
| $ | (14.1 | ) |
|
| 0.7 |
|
| $ | 17.0 |
|
Other |
|
| 13.5 |
|
|
| 11.0 |
|
|
| (1.1 | ) |
|
| (14.3 | ) |
|
| 9.1 |
|
Total |
| $ | 29.7 |
|
| $ | 25.2 |
|
| $ | (15.2 | ) |
| $ | (13.6 | ) |
| $ | 26.1 |
|
(a) Cash expenditures primarily relate to severance charges.
(In millions) |
| Balance at |
|
| 2021 |
|
| Cash |
|
| Balance at |
|
| Balance at |
|
| 2022 |
|
| Cash |
|
| Balance at |
| ||||||||
Workforce reduction costs |
| $ | 6.9 |
|
| $ | 9.6 |
|
| $ | (11.2 | ) |
| $ | 5.3 |
|
| $ | 3.2 |
|
| $ | 1.6 |
|
| $ | (3.4 | ) |
| $ | 1.4 |
|
Other |
|
| 0.7 |
|
|
| 1.9 |
|
|
| (1.5 | ) |
|
| 1.1 |
|
|
| 0.8 |
|
|
| - |
|
|
| - |
|
|
| 0.8 |
|
Total |
| $ | 7.6 |
|
| $ | 11.5 |
|
| $ | (12.7 | ) |
| $ | 6.4 |
|
| $ | 4.0 |
|
| $ | 1.6 |
|
| $ | (3.4 | ) |
| $ | 2.2 |
|
(a) Cash expenditures primarily relate to severance charges.
1920
FORTUNE BRANDS HOME & SECURITY,INNOVATIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Earnings Per Share
The computations of earnings per common share for the ninetwenty-six and thirteen weeks ended July 1, 2023 and six and three months ended SeptemberJune 30, 2022 and 2021werewere as follows:
(In millions, except per share data) |
| Nine Months Ended |
|
| Three Months Ended |
|
| Twenty-Six Weeks Ended July 1, 2023 |
|
| Six Months Ended June 30, 2022 |
|
| Thirteen Weeks Ended July 1, 2023 |
|
| Three Months Ended June 30, 2022 |
| ||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||||||||||||||
Income from continuing operations, net of tax |
| $ | 187.7 |
|
| $ | 270.5 |
|
| $ | 102.1 |
|
| $ | 144.3 |
| ||||||||||||||||
(Loss) income from discontinued operations, net of tax |
|
| (1.0 | ) |
|
| 102.4 |
|
|
| - |
|
|
| 47.7 |
| ||||||||||||||||
Net income |
| $ | 577.1 |
|
| $ | 597.1 |
|
| $ | 204.2 |
|
| $ | 202.1 |
|
| $ | 186.7 |
|
| $ | 372.9 |
|
| $ | 102.1 |
|
| $ | 192.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic earnings per common share |
| $ | 4.40 |
|
| $ | 4.32 |
|
| $ | 1.58 |
|
| $ | 1.47 |
| ||||||||||||||||
Diluted earnings per common share |
| $ | 4.37 |
|
| $ | 4.26 |
|
| $ | 1.57 |
|
| $ | 1.45 |
| ||||||||||||||||
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Basic |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Continuing operations |
| $ | 1.47 |
|
| $ | 2.05 |
|
| $ | 0.81 |
|
| $ | 1.11 |
| ||||||||||||||||
Discontinued operations |
|
| - |
|
|
| 0.78 |
|
|
| - |
|
|
| 0.36 |
| ||||||||||||||||
Basic earnings per share |
| $ | 1.47 |
|
| $ | 2.83 |
|
| $ | 0.81 |
|
| $ | 1.47 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Diluted |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Continuing operations |
| $ | 1.47 |
|
| $ | 2.03 |
|
| $ | 0.80 |
|
| $ | 1.10 |
| ||||||||||||||||
Discontinued operations |
|
| (0.01 | ) |
|
| 0.77 |
|
|
| - |
|
|
| 0.36 |
| ||||||||||||||||
Diluted earnings per share |
| $ | 1.46 |
|
| $ | 2.80 |
|
| $ | 0.80 |
|
| $ | 1.46 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Basic average shares outstanding |
|
| 131.0 |
|
|
| 138.3 |
|
|
| 129.3 |
|
|
| 137.8 |
|
|
| 127.3 |
|
|
| 131.9 |
|
|
| 126.8 |
|
|
| 130.3 |
|
Stock-based awards |
|
| 1.0 |
|
|
| 1.9 |
|
|
| 0.8 |
|
|
| 1.9 |
|
|
| 0.7 |
|
|
| 1.1 |
|
|
| 0.7 |
|
|
| 0.9 |
|
Diluted average shares outstanding |
|
| 132.0 |
|
|
| 140.2 |
|
|
| 130.1 |
|
|
| 139.7 |
|
|
| 128.0 |
|
|
| 133.0 |
|
|
| 127.5 |
|
|
| 131.2 |
|
Antidilutive stock-based awards excluded from weighted- |
|
| 1.2 |
|
|
| 0.3 |
|
|
| 1.6 |
|
|
| 0.4 |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| 1.6 |
|
17. Commitments and Contingencies
Litigation
We are defendants
The Company is a defendant in lawsuits associated with the normal conduct of our businesses and operations.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
Compliance with federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, did not have a material effect on capital expenditures, earnings or the competitive position of Fortune Brands during the nine and three months ended September 30, 2022 and 2021.
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.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.
2021
Item 2. FORTUNE BRANDS HOME & SECURITY,INNOVATIONS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto, which are included in this report, as well as our audited consolidated financial statements for the year ended December 31, 2021,2022, which are included in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
This discussion contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”),. Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations for our business, operations, financial performance or financial condition in addition to statements regarding our general business strategies, the market potential, the potential of our brands, trends in the housing market, the potential impact of costs, including material and other matters,labor costs, the potential impact of inflation, expected capital spending, expected timing for completionpension contributions, the expected impact of acquisitions, dispositions and other strategic transactions including the expected benefits of the Spin-Off, expected pension contributions,Separation of MasterBrand and the tax-free nature of the Separation, the anticipated impact of recently issued accounting standards on our financial statements, the anticipated impact of acquisitions, expectations for other strategic transactions and other matters that are not historical in nature, including the expected or potential impact of the novel coronavirus (“COVID-19”) pandemic.nature. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans”“plans,” “outlook,” “positioned” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on current expectations, estimates, assumptions and projections of our management about our industry, business and future financial results, available at the time this report is filed with the Securities and Exchange Commission. OurAlthough 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 could differto be materially different from the results contemplated by these forward-lookingthose indicated in such statements, due to a number of factors, 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 develop new products or processesexecute on our strategic plans and improve existing products and processes,the effectiveness of our strategies in the face of business competition, (v) our reliance on key customers and suppliers, including wholesale distributors and dealers and retailers, (vi) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (vii) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (viii) delays or outages in our information technology systems or computer networks, (ix) risks associated with doing business globally, including changes in trade-related tariffs and risks with uncertain trade environments, (x) risks associated with the disruption of operations, (xi) our inability to obtain raw materials and finished goods in a timely and cost-effective manner, (xii) risks associated with entering into potential strategic acquisitions and joint ventures and related integration activities, (xiii) impairments in the carrying value of goodwill or other acquired intangible assets, (xiv) risk of increases in our defined benefit-related costs and funding requirements, (xv) the uncertainties relating to the impact of COVID-19 on the Company’s business, financial performance and operating results, (xvi) our ability to attract and retain qualified personnel and other labor constraints, (xvii) the effect of climate change and the impact of related changes in government regulations and consumer preferences, (xviii) risks associated with environmental, social and governance matters, (xix) changes in government and industry regulatory standards, (xx) future tax law changes or the interpretation of existing tax laws, (xxi) our ability to secure and protect our intellectual property rights, (xxii) potential liabilities and costs from claims and litigation, (xxiii) the potential costs and disruption to our business of implementing the Spin-Off, (xxiv) our ability to consummate the Spin-Off and achieve the expected benefits of the Spin-Off transaction,Separation of MasterBrand, (xxiv) the risk that we may be required to indemnify MasterBrand in connection with the Separation or that MasterBrand’s indemnities to us may not be sufficient to hold us harmless for the full amount of liabilities for which MasterBrand has been allocated responsibility and (xxv) the loss of synergies from operating the businesses that could negatively impact the balance sheet, profit margins or earnings of both businesses and (xxvi) the potential that the combined value of the common stock of the two publicly-traded companies resulting from the Spin-Off does not equal or exceed the value that the Company’s common stock could have had if the Spin-Off had not occurred.Separation fails to qualify as tax-free for U.S. federal income tax purposes. These and other factors are discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021 and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022. We undertake no obligation to, and expressly disclaim any such obligation to, update or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise, except as required by law.
2122
OVERVIEW
References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Home & Security,Innovations, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires. The Company is a leading home, security and securitycommercial building products company with a portfolio of leading branded products used for residential home repair, remodeling, new construction and security applications.that competes in attractive long-term growth markets in our product categories.
On April 28,December 14, 2022, the Company announced thatcompleted the separation of its Board of Directors authorized the Company to develop a plan to separate the Company into two independent, publicly-traded companiesCabinets business, MasterBrand, Inc. (“MasterBrand”), via a tax-free spin-off transaction (the “Separation”) to create an independent, publicly-traded company. Immediately following completion of the MasterBrandSeparation, the Company changed its name from “Fortune Brands Home & Security, Inc.” to “Fortune Brands Innovations, Inc.” and its stock ticker changed from “FBHS” to “FBIN” to better reflect its focus on activities related to core brands and innovation. As a result of the Separation, our former Cabinets Inc. business into a separate standalone publicly-traded company (the “Spin-Off”). The Spin-Off is expected to be completed within twelve months from the announcement date, subject to a numbersegment was disposed of conditions including the approval by the Company’s Board of Directors and the effectivenessoperating results of a registration statementthe Cabinets business are reported as discontinued operations for all periods presented within this Quarterly Report on Form 10 to be filed with10-Q. All amounts, percentages and disclosures for all periods presented reflect only the SEC.continuing operations of the Company unless otherwise noted. See Note 4, Acquisitions and Dispositions, in the condensed consolidated financial statements, and Note 5, Discontinued Operations, in the consolidated financial statements in Item 8 of our 2022 Annual Report on Form 10-K for additional information.
We believe that the Company has certain competitive advantages including market-leading brands, a diversified mix of channels, lean and flexible supply chains, a decentralized business model and a strong capital structure, as well as a tradition of strong innovation and customer service. We are focused on outperforming our markets in growth, profitability and returns in order to drive increased stockholder value. We believe the Company’s track record reflects the long-term attractiveness and potential of the categories we serve and our leading brands. The long-term outlook for our products 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. Recent increases in inflation and mortgage rates have slowed the pace of single-family and existing home sales activity and new home construction and repair and remodel activities. However, we believe we are well positioned to manage what we expect to be a short-term 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, rising interest rates, unfavorable fluctuations in foreign exchange rates and the ongoing costs of tariffs. We continue to manage these challenges and are diligently working to offset potential unfavorable impacts of these items through continuous productivity improvement initiatives and price increases.
In January 2023, the Board of Directors of the Company approved a change to the Company’s fiscal year end from December 31 to a 52-or 53-week fiscal year ending on the Saturday closest but not subsequent to December 31, effective as of the commencement of the Company’s fiscal year on January 1, 2023. This change was made in order to align the Company’s fiscal year with that of its operating businesses and to align the Company’s reporting calendar with how the Company evaluates its businesses. There was no material impact to any of our previously disclosed financial information. As a result, the Company’s fiscal quarters for the 2023 fiscal year end on April 1, 2023, July 1, 2023, September 30, 2023, and December 30, 2023.
In February 2023, we publicly announced an internal reorganization to separate our Outdoors & Security segment under separate leadership to drive innovation, accelerate product development, and enhance investments and business processes. In conjunction with the reorganization, we changed how our chief operating decision maker evaluates and allocates the resources for the two businesses. Separate reporting for the new Outdoors and Security segments began in the first quarter of 2022, our Plumbing2023 and comparative prior period amounts have been recast to conform to the new segment presentation. There was renamed “Water Innovations” to better align with our key brands and organizational purpose. The Plumbing segment name change had no impact to our Water Innovations segment (which we refer to as “Water”).
On June 20, 2023, we acquired the Emtek and Schaub premium and luxury door and cabinet hardware business, and the U.S. and Canadian Yale and August residential smart home locks business (collectively the "ASSA Businesses") from ASSA ABLOY, Inc. ("ASSA"). The Company completed the acquisition for a total purchase price of approximately $800 million, subject to post-closing adjustments. 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 $24 million (which amount is already included in the overall purchase price but for which the cash payment has not yet been made), shortly following receipt of local regulatory approval, which is expected to occur later in 2023. The results of Emtek and Schaub premium and luxury
23
door and cabinet hardware business are reported as part of the Water segment and the results of the U.S. and Canadian Yale and August residential smart lock business are reported as part of the Security segment. The financial results of the ASSA Businesses were included in the Company’s historical financial position,consolidated balance sheet as of July 1, 2023. The results of operations and cash flow or segment-level results previously reported.flows of the ASSA Businesses from the date of acquisition to July 1, 2023 were not material to the Company.
In July 2022, we acquired 100% of the outstanding equity of Aqualisa Holdings (International) Ltd. (“Aqualisa”), a leading U.K. manufacturer of shower products known for premium, innovative and smart digital shower systems, for a purchase price of $156.0 million, net of cash acquired of $4.8 million. We believe the acquisition of Aqualisa will enable us to continue to leverage growing trends in water management and connected products. We financed the transaction withusing cash on hand and borrowings under our existingrevolving credit facility. The assets and liabilitiesresults of Aqualisa were included in the Company’s consolidated balance sheetare reported as part of September 30, 2022. Aqualisa's net sales, operating income and cash flows from the date of acquisition to September 30, 2022 were not material to the Company and are included in the Water Innovations segment.
In January 2022, we acquired 100% of the outstanding equity of Solar Innovations LLC and an affiliated entity (together, “Solar”), a leading producer of wide-opening exterior door systems and outdoor enclosures, for a purchase price of $61.6 million, net of cash acquired. The purchase price is subject to a final post-closing working capital adjustment. We financed the transaction using cash on hand and borrowings under our revolving credit facility. The results of Solar are reported as part of the Outdoors & Security segment. Its complementary product offerings support the segment’s outdoor living strategy.
In the first quarter of 2022, our Plumbing segment was renamed Water Innovations to better align with our key brands and organizational purpose. The Plumbing segment name change had no impact on the Company’s historical financial position, results of operations, cash flow or segment-level results previously reported.
2224
RESULTS OF OPERATIONS
NineTwenty-Six Weeks Ended July 1, 2023 Compared To Six Months Ended SeptemberJune 30, 2022 Compared To Nine Months Ended September 30, 2021
|
| Net Sales | |||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| % Change | |||||
Water |
| $ | 1,211.3 |
|
| $ | 1,293.6 |
|
|
| (6.4 | ) | % |
Outdoors |
|
| 665.5 |
|
|
| 780.8 |
|
|
| (14.8 | ) |
|
Security |
|
| 326.9 |
|
|
| 321.2 |
|
|
| 1.8 |
|
|
Net sales |
| $ | 2,203.7 |
|
| $ | 2,395.6 |
|
|
| (8.0 | ) | % |
|
|
|
|
|
|
|
|
|
|
| |||
|
| Operating Income (Loss) | |||||||||||
|
| 2023 |
|
| 2022 |
|
| % Change |
|
| |||
Water |
| $ | 270.5 |
|
| $ | 310.0 |
|
|
| (12.7 | ) | % |
Outdoors |
|
| 74.2 |
|
|
| 107.2 |
|
|
| (30.8 | ) |
|
Security |
|
| 20.8 |
|
|
| 45.5 |
|
|
| (54.3 | ) |
|
Less: Corporate expenses |
|
| (81.1 | ) |
|
| (63.4 | ) |
|
| (27.9 | ) |
|
Operating income |
| $ | 284.4 |
|
| $ | 399.3 |
|
|
| (28.8 | ) | % |
|
| Net Sales | |||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| % Change | |||||
Water Innovations |
| $ | 1,928.6 |
|
| $ | 2,057.6 |
|
|
| (6.3 | ) | % |
Outdoors & Security |
|
| 1,662.4 |
|
|
| 1,525.4 |
|
|
| 9.0 |
|
|
Cabinets |
|
| 2,491.0 |
|
|
| 2,110.4 |
|
|
| 18.0 |
|
|
Net sales |
| $ | 6,082.0 |
|
| $ | 5,693.4 |
|
|
| 6.8 |
| % |
|
|
|
|
|
|
|
|
|
|
| |||
|
| Operating Income (Loss) | |||||||||||
|
| 2022 |
|
| 2021 |
|
| % Change |
|
| |||
Water Innovations |
| $ | 462.7 |
|
| $ | 483.3 |
|
|
| (4.3 | ) | % |
Outdoors & Security |
|
| 223.3 |
|
|
| 211.7 |
|
|
| 5.5 |
|
|
Cabinets |
|
| 243.3 |
|
|
| 214.2 |
|
|
| 13.6 |
|
|
Less: Corporate expenses |
|
| (110.6 | ) |
|
| (79.3 | ) |
|
| (39.5 | ) |
|
Operating income |
| $ | 818.7 |
|
| $ | 829.9 |
|
|
| (1.3 | ) | % |
The following discussion of consolidated results of operations and segment results refers to the nine monthstwenty-six weeks ended September 30, 2022July 1, 2023 compared to the ninesix months ended SeptemberJune 30, 2021.2022. Consolidated results of operations should be read in conjunction with segment results of operations.
Net sales
Net sales decreased by $191.9 million, or 8.0%, due to lower sales unit volume in the U.S. and lower sales in our international markets ($25.0 million) as well as unfavorable foreign exchange of approximately $18 million. These factors were partially offset by the benefit from price increases to help mitigate the impact of cumulative commodity cost increases across all of our segments and from the Aqualisa acquisition ($27.7 million) in 2022.
Cost of products sold
Cost of products sold decreased by $86.6 million, or 6.1%, due to lower sales volumes and productivity improvements in all of our segments. These factors were partially offset by manufacturing inefficiencies related to the lower sales unit volume in all of our segments, the impact of the Aqualisa acquisition in 2022 and costs associated with the planned closure of a manufacturing facility within our Security segment ($7.5 million).
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by $16.0 million, or 2.9%, due to lower advertising and marketing costs. These factors were partially offset by costs related to the acquisition of the ASSA Businesses, increased headcount-related costs and expenses related to the Aqualisa acquisition in 2022.
Amortization of intangible assets
Amortization of intangible assets increased by $2.0 million primarily due to the Aqualisa acquisition in our Water segment ($2.2 million).
Restructuring charges
Restructuring charges of $25.2 million in the twenty-six weeks ended July 1, 2023 are largely related to costs associated with the planned closure of a manufacturing facility within our Security segment and headcount actions across all segments. Restructuring charges of $1.6 million in the six months ended June 30, 2022 were largely related to a gain on the sale of a previously closed manufacturing facility within our Outdoors segment, partially offset by severance actions within our Water and Outdoors segments.
25
RESULTS OF OPERATIONS (Continued)
Operating income
Operating income decreased by $114.9 million, or 28.8%, primarily due to manufacturing inefficiencies related to the lower sales unit volume, restructuring costs associated with the planned closure of a manufacturing facility within our Security segment, unfavorable channel mix in our Water segment, higher commodity, transportation and headcount-related costs, as well as unfavorable foreign exchange of approximately $5 million. These factors were partially offset by productivity improvements and lower advertising and marketing costs.
Interest expense
Interest expense increased by $2.3 million to $54.6 million due to higher fixed rate debt balances with the new issuance of $600 million of 5.875% Senior Notes due 2033.
Other income, net
Other income, net, was $11.6 million in the twenty-six weeks ended July 1, 2023, compared to $2.4 million in the six months ended June 30, 2022. The increase in other income, net is primarily due to an increase in foreign currency transaction income ($7.4 million) and an increase in interest income ($5.4 million). These benefits were partially offset by an increase in defined benefit expenses ($3.1 million).
Income taxes
The effective income tax rates for the twenty-six weeks ended July 1, 2023 and six months ended June 30, 2022 were 22.2% and 22.6%, respectively. The effective income tax rate in 2023 was lower than the prior period primarily due to change in jurisdictional mix of income and greater tax benefits from uncertain tax positions.
Income from Continuing Operations, net of tax
Income from continuing operations, net of tax, was $187.7 million in the twenty-six weeks ended July 1, 2023, compared to $270.5 million in the six months ended June 30, 2022. The decrease was due to lower operating income and higher interest expense, partly offset by lower income tax expense and higher other income.
Income from Discontinued Operations, net of tax
Income from discontinued operations, net of income taxes, was $102.4 million for the six months ended June 30, 2022 and includes the results from operations of our former Cabinets segment.
Results By Segment
Water
Net sales decreased by $82.3 million, or 6.4%, due to lower sales unit volume primarily in the U.S. and unfavorable foreign exchange of approximately $19 million. These factors were partially offset by the benefit from the Aqualisa acquisition ($27.7 million) in 2022, volume increases in China due primarily to the non-recurrence of 2022 COVID lockdowns and price increases to help mitigate the impact of cumulative commodity cost increases.
Operating income decreased by $39.5 million, or 12.7%, due to the lower net sales, including unfavorable channel mix, and manufacturing inefficiencies related to the lower sales unit volume. These factors were partially offset by productivity improvements and lower advertising and marketing costs.
Outdoors
Net sales decreased by $115.3 million, or 14.8%, due to lower sales unit volume of our doors and decking products. These were partially offset by the benefit from price increases to help mitigate the impact of cumulative commodity cost increases.
Operating income decreased by $33.0 million, or 30.8%, due to lower net sales, the impact of costs associated with manufacturing inefficiencies related to the lower sales unit volume, the absence of the 2022 gain of $6.2 million on the sale of a previously closed manufacturing facility and higher commodity and employee-related costs. These factors were partially offset by savings resulting from the rationalization of certain of our production facilities and lower transportation costs.
26
Security
Net sales increased by $5.7 million, or 1.8%, due to price increases to help mitigate the impact of cumulative commodity cost increases and favorable foreign exchange of approximately $1 million. These benefits were partially offset by lower sales unit volume.
Operating income decreased by $24.7 million, or 54.3%, due to higher restructuring costs associated with the planned closure of a manufacturing facility and the impact of costs associated with manufacturing inefficiencies related to lower sales unit volume, partially offset by the benefit from higher net sales and productivity improvements.
Corporate
Corporate expenses increased by $17.7 million, or 27.9%, due to costs related to the acquisition of the ASSA Businesses.
27
Thirteen Weeks Ended July 1, 2023 Compared To Three Months Ended June 30, 2022
|
| Net Sales | |||||||||||
(In millions) |
| 2023 |
|
| 2022 |
|
| % Change | |||||
Water |
| $ | 617.1 |
|
| $ | 650.0 |
|
|
| (5.1 | ) | % |
Outdoors |
|
| 375.6 |
|
|
| 437.2 |
|
|
| (14.1 | ) |
|
Security |
|
| 171.0 |
|
|
| 168.2 |
|
|
| 1.7 |
|
|
Net sales |
| $ | 1,163.7 |
|
| $ | 1,255.4 |
|
|
| (7.3 | ) | % |
|
|
|
|
|
|
|
|
|
|
| |||
|
| Operating Income (Loss) | |||||||||||
|
| 2023 |
|
| 2022 |
|
| % Change | |||||
Water |
| $ | 142.1 |
|
| $ | 160.7 |
|
|
| (11.6 | ) | % |
Outdoors |
|
| 61.2 |
|
|
| 67.4 |
|
|
| (9.2 | ) |
|
Security |
|
| (0.4 | ) |
|
| 25.1 |
|
|
| (101.6 | ) |
|
Less: Corporate expenses |
|
| (50.3 | ) |
|
| (33.7 | ) |
|
| (49.3 | ) |
|
Operating income |
| $ | 152.6 |
|
| $ | 219.5 |
|
|
| (30.5 | ) | % |
The following discussion of consolidated results of operations and segment results refers to the thirteen-weeks period ended July 1, 2023 compared to the three months ended June 30, 2022. Consolidated results of operations should be read in conjunction with segment results of operations.
Net sales
Net sales increaseddecreased by $388.6$91.7 million, or 6.8% principally7.3%, due to lower sales unit volume in the U.S. and higher customer sales incentives due to a stronger single family new-home construction market. These factors were partially offset by higher net sales in our international markets ($26.5 million), the benefit from price increases to help mitigate the impact of cumulative commodity and transportation cost increases across all of our segments the benefitand from the Solar and Aqualisa acquisitionsacquisition ($15.5 million combined). These benefits were partially offset by lower sales unit volume13.0 million) in our Water Innovations and Outdoors & Security segments due to the impact of inventory reductions by our distribution channelpartners, lower sales demand in the US and Canada and slowing housing market activity in China and higher sales incentives, as well as unfavorable foreign exchange of approximately $24 million.2022.
Cost of products sold
Cost of products sold increaseddecreased by $258.7$46.4 million, or 7.1%6.3%, due to the impactlower sales volumes, the benefit of productivity improvements and raw material cost increases and labor cost increasesdeflation across all segments, the impact of acquisitions, as well as unfavorable inventory-related expense write-offs in our Outdoors & Security and Cabinets segments,segments. These factors were partially offset by manufacturing inefficiencies related to the benefit from productivity improvements across all segments, a gain onlower sales unit volume, costs associated with the saleplanned closure of a previously closed manufacturing facility within our Outdoors & Security segment ($7.5 million) and the impact of Larson'sthe Aqualisa acquisition related inventory fair value adjustment amortization of $3.3 million in 2021, which did not recur in 2022.
Selling, general and administrative expenses
Selling, general and administrative expenses increaseddecreased by $93.1$0.6 million, or 8.0%0.2%, due to higherlower advertising, marketing and transportation, headcount-related costsas well as savings associated with our 2022 corporate reorganization and costs related to the planned Spin-Off.restructuring activities. These factors were partially offset by lower advertisingcosts related to the acquisition of the ASSA Businesses, higher headcount-related costs and marketing costs.the impact of the Aqualisa acquisition in 2022.
Asset impairment chargeAmortization of intangible assets
The asset impairment charge
Amortization of $26.0intangible assets increased by $1.0 million in 2022 relatesprimarily due to an indefinite-lived tradename within our Cabinets segment. During the second quarter of 2022, production was shifted at a historical make-to-order plant to a stock product line, to enable what we expect to be a higher value purpose and growth opportunity. This production shift led to downward revisions to forecasted revenue growth rates associated with the tradename.Aqualisa acquisition.
Restructuring charges
Restructuring charges of $33.1$22.2 million in the nine monthsthirteen-weeks period ended September 30, 2022July 1, 2023 are largely related to severance, asset impairment and other costs associated with plant closures and headcount actions across all segments.the planned closure of a manufacturing facility within our Security segment. Restructuring charges of $11.5$1.0 million in the ninethree months ended SeptemberJune 30, 20212022 were largely related to severance costs associated with the relocation of manufacturing facilitiesheadcount actions within our Cabinets and Outdoors & Security segments.
23
RESULTS OF OPERATIONS (Continued)Water segment.
Operating income
Operating income decreased by $11.2$66.9 million, or 1.3%30.5%, primarily due to higher commodity, transportation and headcount-relatedlower net sales, restructuring costs an asset impairment chargeassociated with the planned closure of $26.0 million,a manufacturing facility within our Security segment, costs related to the planned Spin-Off, a continued shiftacquisition of the ASSA Businesses, manufacturing inefficiencies related to value-priced products in our Cabinets segment,the lower sales unit volume and higher restructuring and sales rebateheadcount-related costs, as well as unfavorable foreign exchange of approximately $8$2 million. These factors were partially offset by the benefit from higher net sales, productivity improvements and lower advertising and marketing costs.raw material cost deflation.
28
Interest expense
Interest expense increased by $22.2decreased $2.8 million to $85.4$27.7 million due to higher average borrowings and higher average interest rates.no short-term borrowing from our Revolving Credit Facility or Commercial Paper program during the quarter.
Other (income) expense,income, net
Other income, net, was $3.6$5.2 million in the nine monthsthirteen-weeks period ended September 30, 2022,July 1, 2023, compared to other expense, net of $0.7$0.2 million in the ninethree months ended SeptemberJune 30, 2021.2022. The increase in other income, net is primarily due to the absence of a non-cash loss of $4.5 million related to the 2021 remeasurement of our investment in Flo immediately prior to consolidation and an increase in foreign currency transaction income ($4.3 million) and interest income partly($2.9 million). These benefits were partially offset by an increase foreign currency transaction losses.in defined benefit expenses ($1.6 million).
Income taxes
The effective income tax rates for the ninethirteen weeks ended July 1, 2023 and three months ended SeptemberJune 30, 2022 were 21.5% and 2021 were 21.7% and 22.0%23.7%, respectively. The effective income tax rate in 20222023 was lower than the prior period primarily due primarily to change in jurisdictional mix of income and greater tax benefits from uncertain tax positions reduced by tax expenses related to the tax audit settlement.positions.
Net income
Net incomeIncome from Continuing Operations, net of tax
Income from continuing operations, net of tax, was $577.1$102.1 million in the nine monthsthirteen weeks ended September 30, 2022July 1, 2023, compared to $597.1$144.3 million in the ninethree months ended SeptemberJune 30, 2021.2022. The decrease was due to higher interest expense and lower operating income, partly offset by lower income tax expense, and higher other income.income and lower interest expense.
Income from Discontinued Operations, net of tax
Income from discontinued operations, net of income taxes, was $47.7 million for the quarter ended June 30, 2022 and includes the results from operations of our former Cabinets segment.
Results By Segment
Water Innovations
Net sales decreased by $129.0$32.9 million, or 6.3%5.1%, due to lower sales unit volume drivenprimarily in the U.S. and higher customer sales incentives due to a stronger single family new-home construction market. These factors were partially offset by inventory reductionsvolume increases in China due primarily to the non-recurrence of 2022 COVID lockdowns, the benefit from the Aqualisa acquisition ($13.0 million) in 2022 and price increases to help mitigate the impact of cumulative commodity cost increases.
Operating income decreased by our distribution channelpartners,$18.6 million, or 11.6%, due to lower net sales, manufacturing inefficiencies related to the lower sales demand in the USunit volume, higher headcount-related costs and Canada, slowing housing market activity in China and higher promotion and sales rebate costs, as well as unfavorable foreign exchange of approximately $14$1 million. These factors were partially offset by productivity improvements, raw material cost deflation, lower advertising, marketing and transportation costs.
Outdoors
Net sales decreased by $61.6 million, or 14.1%, due to lower sales unit volume for our doors and decking products. These were partially offset by the benefit from price increases to help mitigate the impact of cumulative commodity cost increases.
Operating income decreased by $6.2 million, or 9.2%, due to the impact of costs associated with manufacturing inefficiencies related to the lower sales unit volume, lower net sales and higher headcount-related costs. These factors were partially offset by savings resulting from the rationalization of certain of our production facilities, raw material cost deflation, lower advertising and marketing costs and lower transportation costs.
Security
Net sales increased by $2.8 million, or 1.7%, due to price increases to help mitigate the impact of cumulative commodity cost increases and continued growth in the commercial business. These benefits were partially offset by lower sales unit volume in our retail locks and retail safe businesses.
Operating income decreased by $25.5 million, or 101.6%, due to higher restructuring and other charges associated with the planned closure of a manufacturing facility and manufacturing inefficiencies related to the lower sales unit volume. These factors were partially offset by the benefit from price increases to help mitigate the impact of cumulative commodity and transportation cost increases, a sales increase in our U.S. e-commerce channelraw material cost deflation, productivity improvements and the benefit from the Aqualisa acquisition ($7 million).
Operating income decreased by $20.6 million, or 4.3%, due to lower net sales, the impact of higher commodity and freight costs as well as unfavorable foreign exchange of approximately $7 million. These factors were partially offset by cost reductions, including employee-relatedmarketing and advertising and marketing costs.
Outdoors & Security
Net sales increased by $137.0 million, or 9.0%, due to price increases to help mitigate the impact of cumulative commodity and transportation cost increases and the benefit from the Solar acquisition ($8 million). These benefits were partially offset by lower sales unit volume due to the impact of inventory reductions by our distribution channelpartners and lower sales demand in the US and Canada in our exterior doors, as well as unfavorable foreign exchange of approximately $7 million.
Operating income increased by $11.6 million, or 5.5%, due to the benefit from higher net sales, productivity improvements, an increase in wholesale doors products versus retail doors products and a gain of $6.2 million on the sale of a previously closed manufacturing facility. These benefits were partially offset by higher commodity, headcount-related and freight costs, higher restructuring costs and an unfavorable inventory-related expense write-off, as well as unfavorable foreign exchange of approximately $1 million.
Cabinets
Net sales increased by $380.6 million, or 18.0% due to price increases to help mitigate the impact of cumulative commodity and transportation cost increases. These benefits were partially offset by unfavorable foreign exchange of approximately $3 million.
2429
Operating income increased by $29.1 million, or 13.6%, due to the benefit from higher net sales and productivity improvements. These benefits were partially offset by increased commodity and freight costs, higher headcount-related costs, an asset impairment charge, higher restructuring costs, costs related to the planned Spin-Off and an unfavorable inventory-related expense write-off.
Corporate
Corporate expenses increased by $31.3$16.6 million, or 39.5% 49.3%, due to costs related to the planned Spin-Off and higher consulting costs relating to our digital transformation initiatives.
Three Months Ended September 30, 2022 Compared To Three Months Ended September 30, 2021
|
| Net Sales | |||||||||||
(In millions) |
| 2022 |
|
| 2021 |
|
| % Change | |||||
Water Innovations |
| $ | 635.1 |
|
| $ | 741.4 |
|
|
| (14.3 | ) | % |
Outdoors & Security |
|
| 560.4 |
|
|
| 528.4 |
|
|
| 6.1 |
|
|
Cabinets |
|
| 858.2 |
|
|
| 716.5 |
|
|
| 19.8 |
|
|
Net sales |
| $ | 2,053.7 |
|
| $ | 1,986.3 |
|
|
| 3.4 |
| % |
|
|
|
|
|
|
|
|
|
|
| |||
|
| Operating Income (Loss) | |||||||||||
|
| 2022 |
|
| 2021 |
|
| % Change | |||||
Water Innovations |
| $ | 152.7 |
|
| $ | 166.5 |
|
|
| (8.3 | ) | % |
Outdoors & Security |
|
| 70.6 |
|
|
| 80.4 |
|
|
| (12.2 | ) |
|
Cabinets |
|
| 100.9 |
|
|
| 67.2 |
|
|
| 50.1 |
|
|
Less: Corporate expenses |
|
| (43.0 | ) |
|
| (27.5 | ) |
|
| (56.4 | ) |
|
Operating income |
| $ | 281.2 |
|
| $ | 286.6 |
|
|
| (1.9 | ) | % |
The following discussionacquisition of consolidated results of operations and segment results refers to the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Consolidated results of operations should be read in conjunction with segment results of operations.
Net salesASSA Businesses.
Net sales increased by $67.4 million, or 3.4% due to price increases to help mitigate the impact of cumulative commodity and transportation cost increases across all our segments, the benefit from the Solar and Aqualisa acquisitions ($15.6 million combined). These benefits were partially offset by lower sales unit volume across all our segments due to inventory reductions by our distribution channelpartners, lower sales demand in the US and Canada, slowing housing market activity in China and higher sales incentive costs, as well as unfavorable foreign exchange of approximately $14 million.
Cost of products sold
Cost of products sold increased by $30.2 million, or 2.4% due to the impact of raw material and labor cost increases, the impact of acquisitions and an unfavorable inventory-related expense write-off in our Outdoors & Security segment, partially offset by the benefit of productivity improvements across all segments.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $15.1 million, or 3.8%, due to costs related to the planned Spin-Off, higher transportation and headcount-related costs, partially offset by the benefit of lower advertising and marketing costs.
Restructuring charges
Restructuring charges of $30.2 million in the three months ended September 30, 2022 are largely related to severance, asset impairment and other costs associated with plant closures and headcount actions across all segments. Restructuring charges of $3.6 million in the three months ended September 30, 2021 were largely related to severance costs associated with headcount actions within our Outdoor & Security and Cabinets segments.
Operating income
25
Operating income decreased by $5.4 million, or 1.9% primarily due to higher commodity costs, lower sales unit volume across all our segments due to inventory reductions by our distribution channelpartners, lower sales demand in the US and Canada, slowing housing market activity in China, higher headcount-related, restructuring and transportation costs, costs related to the planned Spin-Off and an unfavorable inventory-related expense write-off in our Outdoors & Security segment, as well as unfavorable foreign exchange of approximately $5 million. These factors were partially offset by the benefit from price increases to help mitigate the impact of cumulative commodity and transportation cost increases, the benefit from productivity improvements and lower advertising and marketing costs.
Interest expense
Interest expense increased by $12.5 million to $33.1 million due to higher average borrowings and higher average interest rates.
Other income, net
Other income, net, was $2.1 million in the three months ended September 30, 2022 , compared to $1.3 million in the three months ended September 30, 2021. The increase in other income, net is primarily due to an increase in interest income.
Income taxes
The effective income tax rates for the three months ended September 30, 2022 and 2021 were 18.4% and 24.4%, respectively. The effective income tax rate in 2022 was lower due primarily to tax benefits from uncertain tax positions reduced by tax expenses related to the tax audit settlement.
Net income
Net income was $204.2 million in the three months ended September 30, 2022 compared to $202.1 million in the three months ended September 30, 2021. The increase was due to lower income tax expense and higher other income, these factors were partially offset by higher interest expense and lower operating income.
Results By Segment
Water Innovations
Net sales decreased by $106.3 million, or 14.3%, due to lower sales unit volume due to inventory reductions by our distribution channelpartners, lower sales demand in the US and Canada, slowing housing market activity in China and higher promotion and sales rebate costs, as well as unfavorable foreign exchange of approximately $9 million. These factors were partially offset by the benefit from price increases to help mitigate the impact of cumulative commodity and transportation cost increases and the benefit from the Aqualisa acquisition ($7 million).
Operating income decreased by $13.8 million, or 8.3%, due to lower net sales and the impact of higher commodity, freight and restructuring costs, as well as unfavorable foreign exchange of approximately $5 million. These factors were partially offset by the benefit from favorable sales mix, productivity improvements and lower employee-related and advertising and marketing costs.
Outdoors & Security
Net sales increased by $32.0 million, or 6.1%, due to price increases to help mitigate the impact of cumulative commodity and transportation cost increases and the benefit from the Solar acquisition ($8 million). These benefits were partially offset by lower exterior door sales unit volume due to inventory reductions by our distribution channelpartners and lower sales demand in the US and Canada, as well as unfavorable foreign exchange of approximately $4 million.
Operating income decreased by $9.8 million, or 12.2%, due to higher commodity costs, higher restructuring costs, an unfavorable inventory-related expense write-off and higher sales incentive, headcount-related and freight costs, as well as unfavorable foreign exchange of approximately $1 million. These factors were partially offset by the benefit from higher net sales, productivity improvements, an increase in wholesale doors products versus retail doors products and the benefit from the Solar acquisition ($1 million).
Cabinets
Net sales increased by $141.7 million, or 19.8%, due to price increases to help mitigate the impact of cumulative commodity and transportation cost increases. These benefits were partially offset by lower sales unit volume due to inventory reductions by our distribution channelpartners and lower sales demand in the US and Canada, as well as foreign exchange of approximately $1 million.
26
Operating income increased by $33.7 million, or 50.1%, due to higher net sales and productivity improvements. These benefits were partly offset by commodity cost inflation, higher headcount-related, freight and restructuring costs and costs related to the planned Spin-Off .
Corporate
Corporate expenses increased by $15.5 million, or 56.4%, due to costs related to the planned Spin-Off and higher consulting costs relating to our digital transformation initiatives.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash on hand, cash flows from operating activities, cash borrowed under our credit facility and cash from debt issuances in the capital markets. Our operating income is generated by our subsidiaries. We believe our operating cash flows, including funds available under the credit facility and access to capital markets, provide sufficient liquidity to support the Company’s working capital requirements, capital expenditures and service of indebtedness, as well as to finance acquisitions, repurchase shares of our common stock and pay dividends to stockholders, as the Board of Directors deems appropriate.
Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section of our Annual Report on Form 10-K for the year-ended December 31, 20212022 entitled “Item 1A. Risk Factors” and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.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
In June 2023, the Company issued $600 million in aggregate principal 5.875% senior unsecured notes maturing in 2033 in a registered public offering. The Company intends to use the net proceeds from the notes offering to pay off its 2023 4.000% senior unsecured notes maturing in September 2023 and for general corporate purposes.
In March 2022, the Company issued $900 million in aggregate principal amount of senior unsecured notes in a registered public offering consisting of $450 million of 4.00%4.000% senior unsecured notes maturing in 2032 and $450 million of 4.50%4.500% senior unsecured notes maturing in 2052 (together, the “2022 Notes”). The Company used the net proceeds from the 2022 Notes offering to pay down a portion of the outstanding balance on the 2021 Term Loan (as defined below).Loan.
At September 30, 2022On July 1, 2023, the Company had aggregate outstanding senior notes in the amount of $2.7$3.3 billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company. The following table provides a summary of the Company’s outstanding Notes, including the net carrying value of the Notes, net of underwriting commissions, price discounts and debt issuance costs as of September 30, 2022July 1, 2023 and December 31, 2021:2022:
|
|
| Net Carrying Value |
|
|
| Net Carrying Value |
| ||||||||||||||||||||||
(in millions) | Principal Amount |
|
| Issuance Date |
| Maturity Date |
| September 30, 2022 |
|
| December 31, 2021 |
| Principal Amount |
|
| Issuance Date |
| Maturity Date |
| July 1, 2023 |
|
| December 31, 2022 |
| ||||||
4.000% Senior Notes | $ | 500.0 |
|
| June 2015 |
| June 2025 |
| $ | 497.9 |
|
| $ | 497.4 |
| $ | 500.0 |
|
| June 2015 |
| June 2025 |
| $ | 498.5 |
|
| $ | 498.1 |
|
4.000% Senior Notes |
| 600.0 |
|
| September 2018 |
| September 2023 |
|
| 599.0 |
|
|
| 598.2 |
|
| 600.0 |
|
| September 2018 |
| September 2023 |
|
| 599.8 |
|
|
| 599.2 |
|
3.250% Senior Notes |
| 700.0 |
|
| September 2019 |
| September 2029 |
|
| 694.8 |
|
|
| 694.2 |
|
| 700.0 |
|
| September 2019 |
| September 2029 |
|
| 695.3 |
|
|
| 695.0 |
|
4.000% Senior Notes |
| 450.0 |
|
| March 2022 |
| March 2032 |
|
| 445.6 |
|
|
| - |
|
| 450.0 |
|
| March 2022 |
| March 2032 |
|
| 446.0 |
|
|
| 445.8 |
|
4.500% Senior Notes |
| 450.0 |
|
| March 2022 |
| March 2052 |
|
| 435.3 |
|
|
| - |
|
| 450.0 |
|
| March 2022 |
| March 2052 |
|
| 435.6 |
|
|
| 435.4 |
|
5.875% Senior Notes |
| 600.0 |
|
| June 2023 |
| June 2033 |
|
| 593.1 |
|
|
| - |
| |||||||||||||||
Total Senior Notes | $ | 2,700.0 |
|
| $ | 2,672.6 |
|
| $ | 1,789.8 |
| $ | 3,300.0 |
|
| $ | 3,268.3 |
|
| $ | 2,673.5 |
|
Credit Facilities
In August 2022, the Company entered into a third amended and restated $1.25 billion revolving credit facility (the “2022 Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. The maturity date of the facility is August 2027. Interest rates under the 2022 Revolving Credit Agreement are variable based on SOFRthe Secured Overnight Financing Rate (“SOFR”) at the time of the borrowing and the Company’s long-term credit rating and can range from SOFR + 1.02% to SOFR + 1.525%. Under the 2022 Revolving Credit Agreement, the Company is required to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0. Consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments. In addition, the Company's ratio of consolidated debt minus certain cash and cash equivalents to consolidated EBITDA generally may not exceed 3.5 to 1.0. On September 30, 2022July 1, 2023 and December 31, 2021, our2022, there were no outstanding borrowings under this facility and our previous revolving credit facility were $100.0 million and $520.0 million, respectively. This facility is included in Long-term debt in the condensed consolidated balance sheets.facility. As of September 30, 2022July 1, 2023, we were in compliance with all covenants under this facility.
27
30
In November 2021, the Company entered into a 364-day, $400We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $20.5 million term loan credit agreement (the “2021 Term Loan”), for general corporate purposes, to mature in November 2022. On Marchaggregate as of July 1, 2023 and December 31, 2022, the Company entered into a First Amendment and Incremental Agreement to the 2021 Term Loan (the “First Amendment”). The First Amendment provided for an increase in the principal amount from $400 million to $600 million as well as the transition from LIBOR to SOFR interest rates. As a result, interest rates under the 2021 Term Loanrespectively. There were variable based on SOFR at the time of the borrowing and the Company’s long-term credit rating and could range from SOFR + 0.725% to SOFR + 1.350%. On March 18, 2022, the Company entered into a Second Amendment and Incremental Agreement to the 2021 Term Loan (the “Second Amendment”), increasing the principal amount from $600 million to $1.1 billion. All other terms and conditions remained the same under the First Amendment and Second Amendment. Proceeds from the increased 2021 Term Loan were used to repayno outstanding balances under our previous revolving credit facility. The outstanding $1.1 billion under the 2021 Term Loan was repaid on March 25, 2022 with proceeds from the 2022 Notesas of July 1, 2023 and other existing sources of liquidity.December 31, 2022.
Commercial Paper
In November 2021, the
The Company establishedoperates a commercial paper program (the “Commercial Paper Program”) pursuant to which the Company may issue unsecured commercial paper notes. The Company's 2022 Revolving Credit Agreement is the liquidity backstop for the repayment of any notes issued under the Commercial Paper Program, and as such borrowings under the Commercial Paper Program are included in Long-term debt in the condensed consolidated balance sheets. Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed, with the aggregate principal amount outstanding at any time, including borrowings under the 2022 Revolving Credit Agreement, not to exceed $1.25 billion. The Company plans towill use net proceeds from any issuances under the Commercial Paper Program for general corporate purposes. On September 30, 2022July 1, 2023 and December 31, 2021 our2022, there were no outstanding borrowings under the Commercial Paper Program were $613.3 million and zero, respectively.Program.
Cash and Seasonality
On September 30, 2022,July 1, 2023, we had cash and cash equivalents of $345.3$681.7 million, of which $298.9321.3 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 use operating cash in the first quarter of the 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. The Company intends to repay or refinance the $600 million outstanding principal amount of 4.00% Senior Notes due September 2023 on or before the maturity date. In addition, we believe that we have the ability to obtain alternative sources of financing if required.
Share Repurchases and Dividends
In the first nine monthstwenty-six weeks of 2022,2023, we repurchased 6.91.7 million shares of our outstanding common stock under the Company’s share repurchase program for $541.1$100.0 million. As of September 30, 2022,July 1, 2023, the Company’s total remaining share repurchase authorization under its share repurchase program was approximately $624$485 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 first nine monthstwenty-six weeks of 2022,2023, we paid dividends in the amount of $109.8$58.6 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
28
On June 20, 2023, we acquired the Emtek and Schaub premium and luxury door and cabinet hardware business, and the U.S. and Canadian Yale and August residential smart home locks business (collectively the "ASSA Businesses") from ASSA ABLOY, Inc. ("ASSA"). The Company completed the acquisition for a total purchase price of approximately $800 million, subject to post-closing adjustments. 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 $24 million (which amount is already included in the overall purchase price but for which the cash payment has not yet been made), shortly following receipt of local regulatory approval, which is expected to occur later in 2023. The results of Emtek and Schaub premium and luxury door and cabinet hardware business are reported as part of the Water segment and the results of the U.S. and Canadian Yale and August residential smart lock business are reported as part of the Security segment. The financial results of the ASSA Businesses were
31
Acquisitionsincluded in the Company’s consolidated balance sheet as of July 1, 2023. The results of operations and cash flows of the ASSA Businesses from the date of acquisition to July 1, 2023 were not material to the Company.
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 ninetwenty-six weeks ended July 1, 2023 and six months ended SeptemberJune 30, 2022 and 2021.2022.
(In millions) |
| Nine Months Ended |
| |||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
'(In millions) |
| Twenty-Six-Weeks Period Ended |
|
| Six Months Ended June 30, 2022 |
| ||||||||||
Net cash provided by operating activities |
| $ | 288.8 |
|
| $ | 430.8 |
|
| $ | 503.6 |
|
| $ | 41.9 |
|
Net cash used in investing activities |
|
| (381.0 | ) |
|
| (106.1 | ) |
|
| (891.3 | ) |
|
| (169.2 | ) |
Net cash used in financing activities |
|
| (8.9 | ) |
|
| (285.1 | ) | ||||||||
Net cash provided by financing activities |
|
| 427.8 |
|
|
| 27.1 |
| ||||||||
Effect of foreign exchange rate changes on cash |
|
| (26.0 | ) |
|
| 1.0 |
|
|
| (2.1 | ) |
|
| (11.3 | ) |
Net (decrease) increase in cash and cash equivalents |
| $ | (127.1 | ) |
| $ | 40.6 |
| ||||||||
Net increase (decrease) in cash and cash equivalents |
| $ | 38.0 |
|
| $ | (111.5 | ) |
Net cash provided by operating activities was $288.8$503.6 million in the nine monthstwenty-six weeks ended September 30, 2022,July 1, 2023, compared to net cash provided by operating activities of $430.8$41.9 million in the ninesix months ended SeptemberJune 30, 2021.2022. The decreaseincrease in cash provided of $142$461.7 million was primarily due to an increase in ournet cash provided by working capital items, primarily inventory, investments to mitigate the impact of an uncertainaccounts receivable and volatile global supply chain environment, a decrease in accounts payable drivenresulting from an initiative to align working capital with current U.S. home product market activity and expected sales volume. The $84.2 million settlement of our interest rate swaps during the period and increased accrued expenses and other liabilities also contributed to the increase in cash provided by reduced net sales growthoperating activities. The increase in the third quarter of 2022, a decrease in accrued taxes,cash provided by operating activities was partially offset by lower increasesnet income in accounts receivable in the third quarter of 2022.2023.
Net cash used in investing activities was $381.0$891.3 million in the nine monthstwenty-six weeks ended September 30, 2022,July 1, 2023, compared to net cash used in investing activities of $106.1$169.2 million in the ninesix months ended SeptemberJune 30, 2021.2022. The increase in cash used of $274.9$722.1 million reflects our acquisitions ($214.0 million), and a planned increasethe acquisition of the ASSA Businesses for approximately $800 million in capital expenditures, partly offset by proceeds fromJune 2023 as compared to the saleacquisition of previously closed manufacturing facilities.Solar for $61.6 million in 2022.
Net cash used inprovided by financing activities was $8.9$427.8 million in the nine monthstwenty-six weeks ended September 30, 2022,July 1, 2023, compared to cash used inprovided by financing activities of $285.1$27.1 million in the ninesix months ended SeptemberJune 30, 2021.2022. The decreaseincrease in cash usedprovided of $276.2$400.7 million was primarily due to higherlower share repurchases in 2023 compared to 2022 ($405.0 million decrease), lower net borrowings in 20222023 compared to 20212022 ($624.455.3 million increase)decrease), partly offset by higher share repurchases in 2022 compared to 2021, a decrease in dividends paid to stockholders, lower cash used related to stock option activity and the proceeds from the exerciseabsence of stock options and the final payment for the remaining equity interest in Flo ($16.7 million). made in 2022.
Pension Plans
Subsidiaries of Fortune Brands sponsor their respective defined benefit pension plans that are funded by a portfolio of investments maintained within our benefit plan trust. As of December 31, 2021,2022, the fair value of our total pension plan assets was $816.0$482.5 million, representing 92%funding of 89% of the accumulated benefit obligation liability. During the nine months ended September 30, 2022, we made pension contributions of approximately $10.0 million. For the foreseeable future, we believe that we have sufficient liquidity to meet the minimum funding that may be required by the Pension Protection Act of 2006.
Foreign Exchange
We have operations in various foreign countries, principally Canada, Mexico, the United Kingdom, China, South Africa France and Japan.France. Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S. dollars.
RECENTLY ISSUED ACCOUNTING STANDARDS
The adoption of recent accounting standards, as discussed in Note 2, “Recently Issued Accounting Standards,” to our Condensed Consolidated Financial Statements, has not had and is not expected to have a significant impact on our revenue, earnings or liquidity.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There have been no material changes in the information provided in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.
Item 4. CONTROLS AND PROCEDURES.
The Company’s management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.
(b) Changes in Internal Control Over Financial Reporting.
There
The Company acquired the ASSA Businesses on June 20, 2023. As a result of the acquisition, management is in the process of integrating, evaluating and, where necessary, implementing changes in controls and procedures. Other than with respect to the acquisition, there have not been anyno changes in the Company'sCompany’s internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2022July 1, 2023 that have materially affected, or are reasonably likely to materially affect, the Company'sour internal control over financial reporting. The Company is in the process of reviewing the internal control structures of Aqualisa and Solar and if necessary, will make appropriate changes as we incorporate our controls and procedure into this recently acquired business.
30
33
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
We are defendants in lawsuits associated with the normal conduct of our businesses and operations. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is possible that these actions could be decided unfavorably to the Company. The Company believes that there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon our results of operations, cash flows or financial condition, and, where appropriate, these actions are being vigorously contested. Accordingly, the Company believes the likelihood of material loss is remote.
Compliance with federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, did not have a material effect on capital expenditures, earnings or the competitive position of Fortune Brands during the nine and three months ended September 30, 2022 and 2021.
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. Uncertainties about the status of laws, regulations, technology and information related to individual sites make it difficult to develop estimates of environmental remediation exposures.
Item 1A. RISK FACTORS.
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 in the section entitled “Risk Factors” and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Below are the repurchases of common stock by the Company or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) for the three monthsthirteen-weeks period ended September 30, 2022:July 1, 2023:
Issuer Purchases of Equity Securities
Three Months Ended September 30, 2022 |
| Total |
|
| Average |
|
| Total number of |
|
| Maximum dollar |
| ||||
July 1 – July 31 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 659,669,166 |
|
August 1 – August 31 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 659,669,166 |
|
September 1 – September 30 |
|
| 647,720 |
|
|
| 55.7 |
|
|
| 647,720 |
|
|
| 623,568,876 |
|
Total |
|
| 647,720 |
|
| $ | 55.7 |
|
|
| 647,720 |
|
|
|
|
Thirteen Weeks Ended July 1, 2023 |
| Total |
|
| Average |
|
| Total number of |
|
| Maximum dollar |
| ||||
April 2 – April 29 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | 484,580,514 |
|
April 30 – May 27 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 484,580,514 |
|
May 28 – July 1 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 484,580,514 |
|
Total |
|
| — |
|
| $ | — |
|
|
| — |
|
|
|
|
Authorization date | Announcement date | Authorization amount of shares | Expiration date | |||
March 2, 2022 | March 2, 2022 | $750,000,000 | March 2, 2024 |
31Item 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
34
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 second quarter of 2023, none of our directors or officers adopted or terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).
35
Item 6. EXHIBITS
| |
| |
| |
4.1 | |
4.2 | |
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 |
104.* | Cover Page Interactive Data File (embedded within the iXBRL document). |
* Filed or furnished herewith.
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36
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 | |
(Registrant) | |
Date: | /s/ |
| |
| |
(Duly authorized officer and principal financial officer of the Registrant) |
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