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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 March 30, 2024

 

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 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

FBIN

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 April 19, 2024 was 125,078,708.

 

 

1


 

 

PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS.

FORTUNE BRANDS INNOVATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Thirteen Weeks Ended March 30, 2024 and April 1, 2023

(In millions, except per share amounts)

(Unaudited)

 

 

 

Thirteen Weeks Ended

 

 

 

March 30, 2024

 

 

April 1, 2023

 

Net sales

 

$

1,109.6

 

 

$

1,040.0

 

Cost of products sold

 

 

622.0

 

 

 

631.7

 

Selling, general and administrative expenses

 

 

311.6

 

 

 

260.8

 

Amortization of intangible assets

 

 

17.8

 

 

 

12.6

 

Restructuring charges

 

 

2.8

 

 

 

3.1

 

Operating income

 

 

155.4

 

 

 

131.8

 

Interest expense

 

 

30.1

 

 

 

26.8

 

Other expense (income), net

 

 

0.1

 

 

 

(6.3

)

Income from continuing operations before income taxes

 

 

125.2

 

 

 

111.3

 

Income tax

 

 

28.8

 

 

 

25.7

 

Income from continuing operations, net of tax

 

 

96.4

 

 

 

85.6

 

(Loss) from discontinued operations, net of tax

 

 

 

 

 

(1.0

)

Net Income

 

$

96.4

 

 

$

84.6

 

 

 

 

 

 

 

 

Basic earnings per common share

 

 

 

 

 

 

Continuing operations

 

$

0.77

 

 

$

0.67

 

Discontinued operations

 

 

 

 

 

(0.01

)

Basic earnings per share

 

$

0.77

 

 

$

0.66

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

 

 

 

 

 

Continuing operations

 

$

0.76

 

 

$

0.67

 

Discontinued operations

 

 

 

 

 

(0.01

)

Diluted earnings per share

 

$

0.76

 

 

$

0.66

 

 

 

 

 

 

 

 

Comprehensive income

 

$

84.4

 

 

$

83.9

 

 

See notes to condensed consolidated financial statements.

 

2


 

FORTUNE BRANDS INNOVATIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

 

March 30,
2024

 

 

December 30,
2023

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

359.7

 

 

$

366.4

 

Accounts receivable less allowances for discounts and credit losses

 

 

615.9

 

 

 

534.2

 

Inventories

 

 

1,025.2

 

 

 

982.3

 

Other current assets

 

 

171.3

 

 

 

162.8

 

Total current assets

 

 

2,172.1

 

 

 

2,045.7

 

Property, plant and equipment, net

 

 

982.6

 

 

 

975.0

 

Operating lease assets

 

 

170.6

 

 

 

173.8

 

Goodwill

 

 

1,988.7

 

 

 

1,906.8

 

Other intangible assets, net of accumulated amortization

 

 

1,354.7

 

 

 

1,354.7

 

Other assets

 

 

122.8

 

 

 

109.0

 

Total assets

 

$

6,791.5

 

 

$

6,565.0

 

Liabilities and equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

571.4

 

 

$

568.1

 

Other current liabilities

 

 

491.1

 

 

 

632.3

 

Total current liabilities

 

 

1,062.5

 

 

 

1,200.4

 

Long-term debt

 

 

3,044.7

 

 

 

2,670.1

 

Deferred income taxes

 

 

118.6

 

 

 

111.3

 

Accrued defined benefit plans

 

 

43.8

 

 

 

47.3

 

Operating lease liabilities

 

 

140.5

 

 

 

143.3

 

Other non-current liabilities

 

 

100.6

 

 

 

99.2

 

Total liabilities

 

 

4,510.7

 

 

 

4,271.6

 

Commitments and contingencies (see Note 17)

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock(a)

 

 

1.9

 

 

 

1.9

 

Paid-in capital

 

 

3,150.5

 

 

 

3,134.5

 

Accumulated other comprehensive income

 

 

51.3

 

 

 

63.3

 

Retained earnings

 

 

2,701.8

 

 

 

2,605.3

 

Treasury stock

 

 

(3,624.7

)

 

 

(3,511.6

)

Total stockholders' equity

 

 

2,280.8

 

 

 

2,293.4

 

Total liabilities and equity

 

$

6,791.5

 

 

$

6,565.0

 

(a) Common stock, par value $0.01 per share; 187.7 million shares and 187.1 million shares issued at March 30, 2024 and December 30, 2023, respectively.

 

See notes to condensed consolidated financial statements.

 

3


 

FORTUNE BRANDS INNOVATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Thirteen Weeks Ended March 30, 2024 and April 1, 2023

(In millions)

(Unaudited)

 

 

 

March 30, 2024

 

 

April 1, 2023

 

Operating activities

 

 

 

 

 

 

Net income

 

$

96.4

 

 

$

84.6

 

Non-cash adjustments:

 

 

 

 

 

 

Depreciation

 

 

28.3

 

 

 

19.3

 

Amortization of intangibles

 

 

17.8

 

 

 

12.6

 

Non-cash lease expense

 

 

9.3

 

 

 

8.1

 

Stock-based compensation

 

 

9.7

 

 

 

9.5

 

Deferred taxes

 

 

8.8

 

 

 

7.4

 

Amortization of deferred financing fees

 

 

0.9

 

 

 

1.0

 

Gain on sales of property, plant and equipment

 

 

0.3

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in accounts receivable

 

 

(81.4

)

 

 

(35.7

)

(Increase) decrease in inventories

 

 

(43.7

)

 

 

91.6

 

Increase in accounts payable

 

 

30.2

 

 

 

2.7

 

(Increase) decrease in other assets

 

 

(14.8

)

 

 

7.7

 

Decrease in accrued expenses and other liabilities

 

 

(137.1

)

 

 

(116.9

)

Increase (decrease) in accrued taxes

 

 

4.0

 

 

 

(15.8

)

Net cash (used in) provided by operating activities

 

 

(71.3

)

 

 

76.1

 

Investing activities

 

 

 

 

 

 

Capital expenditures (a)

 

 

(64.6

)

 

 

(42.6

)

Cost of acquisitions, net of cash acquired

 

 

(105.2

)

 

 

 

Net cash used in investing activities

 

 

(169.8

)

 

 

(42.6

)

Financing activities

 

 

 

 

 

 

Issuance of long-term debt

 

 

465.0

 

 

 

 

Repayment of long-term debt

 

 

(90.0

)

 

 

 

Proceeds from the exercise of stock options

 

 

6.3

 

 

 

2.3

 

Treasury stock purchases

 

 

(100.0

)

 

 

(100.0

)

Employee withholding taxes related to stock-based compensation

 

 

(12.4

)

 

 

(12.1

)

Dividends to stockholders

 

 

(30.1

)

 

 

(29.5

)

Other financing, net

 

 

(0.1

)

 

 

 

Net cash provided by (used in) financing activities

 

 

238.7

 

 

 

(139.3

)

Effect of foreign exchange rate changes on cash

 

 

(5.0

)

 

 

2.2

 

Net decrease in cash and cash equivalents

 

$

(7.4

)

 

$

(103.6

)

Cash, cash equivalents and restricted cash(b) at beginning of period

 

$

395.5

 

 

$

648.3

 

Cash, cash equivalents and restricted cash(b) at end of period

 

$

388.1

 

 

$

544.7

 

(a)
Capital expenditures of $9.2 million and $11.1 million that had not been paid as of March 30, 2024 and April 1, 2023, respectively, were excluded from the Statement of Cash Flows.
(b)
Restricted cash of $25.9 million and $2.5 million is included in Other current assets and Other assets, respectively, as of March 30, 2024 and restricted cash of $2.7 million and $2.9 million is included in Other current assets and Other assets, respectively, as of April 1, 2023. Restricted cash of $26.9 million and $2.2 million is included in Other current assets and Other assets, respectively, as of December 30, 2023.

 

The Condensed Consolidated Statements of Cash Flows presented above include cash flows from continuing and discontinued operations.

 

See notes to condensed consolidated financial statements.

 

4


 

FORTUNE BRANDS INNOVATIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

For the Thirteen Weeks Ended March 30, 2024 and April 1, 2023

(In millions)

(Unaudited)

 

 

 

Common
Stock

 

 

Paid-In
Capital

 

 

Accumulated
Other
Comprehensive
(Loss) Income

 

 

Retained
Earnings

 

 

Treasury
Stock

 

 

Total
Equity

 

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

 

 

 

 

 

 

 

 

 

 

 

84.6

 

 

 

 

 

 

84.6

 

Other comprehensive loss

 

 

 

 

 

 

 

 

(0.7

)

 

 

 

 

 

 

 

 

(0.7

)

Other

 

 

 

 

 

12.7

 

 

 

6.2

 

 

 

(6.0

)

 

 

 

 

 

12.9

 

Stock options exercised

 

 

 

 

 

2.3

 

 

 

 

 

 

 

 

 

 

 

 

2.3

 

Stock-based compensation

 

 

 

 

 

9.5

 

 

 

 

 

 

 

 

 

(12.2

)

 

 

(2.7

)

Treasury stock purchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(100.8

)

 

 

(100.8

)

Balance at April 1, 2023

 

$

1.9

 

 

$

3,094.1

 

 

$

42.9

 

 

$

2,402.4

 

 

$

(3,458.8

)

 

$

2,082.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 30, 2023

 

$

1.9

 

 

$

3,134.5

 

 

$

63.3

 

 

$

2,605.3

 

 

$

(3,511.6

)

 

$

2,293.4

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

96.4

 

 

 

 

 

 

96.4

 

Other comprehensive loss

 

 

 

 

 

 

 

 

(12.0

)

 

 

 

 

 

 

 

 

(12.0

)

Stock options exercised

 

 

 

 

 

6.3

 

 

 

 

 

 

 

 

 

 

 

 

6.3

 

Stock-based compensation

 

 

 

 

 

9.7

 

 

 

 

 

 

 

 

 

(12.4

)

 

 

(2.7

)

Treasury stock purchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(100.7

)

 

 

(100.7

)

Dividends

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

 

 

 

 

0.1

 

Balance at March 30, 2024

 

$

1.9

 

 

$

3,150.5

 

 

$

51.3

 

 

$

2,701.8

 

 

$

(3,624.7

)

 

$

2,280.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements.

 

 

5


 

 

FORTUNE BRANDS INNOVATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation and Principles of Consolidation

The Company is a leading innovation company focused on creating smarter, safer and more beautiful homes and improving lives that competes in attractive long-term growth markets in our product categories. References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Innovations, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires.

The condensed consolidated financial statements and notes are presented pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and do not contain certain information included in our annual audited consolidated financial statements and notes. The December 30, 2023 condensed consolidated balance sheet was derived from our audited consolidated financial statements, but does not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”). This Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 30, 2023.

The condensed consolidated balance sheets as of March 30, 2024, the related condensed consolidated statements of comprehensive income, equity and cash flows for the thirteen weeks ended March 30, 2024 and the condensed consolidated statements of comprehensive income, equity and cash flows for the thirteen weeks ended April 1, 2023 are unaudited. The presentation of these financial statements requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. In the opinion of management, all adjustments necessary for a fair statement of the financial statements have been included. Interim results may not be indicative of results for a full year.

On February 29, 2024, we acquired 100% of the outstanding equity of Wise Water Solutions LLC, doing business as SpringWell Water Filtration Systems ("SpringWell"), for a purchase price of $105.2 million, subject to post-closing adjustments, net of cash acquired of $1.4 million. We financed the transaction using cash on hand and borrowings under our existing credit facility. The results of SpringWell are reported as part of the Water Innovations ("Water") segment. We have not included pro forma financial information as the transaction is immaterial to our condensed consolidated statements of comprehensive income. The fair value allocated to assets acquired and liabilities assumed as of February 29, 2024, was $105.2 million, which includes $84.0 million of goodwill. Goodwill includes expected sales and cost synergies and is expected to be deductible for income tax purposes.

In June 2023, we acquired the Emtek and Schaub premium and luxury door and cabinet hardware business (the "Emtek and Schaub Business") and the U.S. and Canadian Yale and August residential smart locks business (the "Yale and August Business", and, collectively with the Emtek and Schaub Business, the "Acquired Businesses") from ASSA ABLOY, Inc. and its affiliates ("ASSA"). The Company completed the acquisition for a total purchase price of approximately $809.3 million, subject to post-closing adjustments, net of cash acquired of $16.3 million. As of the date of this filing, legal title to international operations in Vietnam has not yet transferred, but we expect a deferred closing, which will include a payment of approximately $23.5 million (which amount is already included in the overall purchase price but for which the cash payment has not yet been made) shortly following receipt of local regulatory approval. In preparation for the deferred closing, $23.5 million is classified as restricted cash within Other current assets and the corresponding payable is included within Other current liabilities. We financed the transaction with cash on hand. The results of the Emtek and Schaub Business are reported as part of the Water segment, and the results of the Yale and August Business are reported as part of the Security segment.

 

6


FORTUNE BRANDS INNOVATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

2. Recently Issued Accounting Standards

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, which improves segment disclosure reporting requirements, primarily though enhanced disclosures about significant segment expenses. The ASU is effective for fiscal years beginning after December 15, 2023, and early adoption is permitted. We are currently assessing the impact on our consolidated financial statements and related segment disclosures.

In December 2023, the FASB issued ASU 2023-09 which requires expanded disclosure of the effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. We are currently assessing the impact on our financial statement disclosures.

 

3. Balance Sheet Information

Supplemental information on our balance sheets is as follows:

 

(In millions)

 

March 30,
2024

 

 

December 30,
2023

 

Inventories:

 

 

 

 

 

 

Raw materials and supplies

 

$

348.1

 

 

$

352.4

 

Work in process

 

 

79.1

 

 

 

83.2

 

Finished products

 

 

598.0

 

 

 

546.7

 

Total inventories

 

$

1,025.2

 

 

$

982.3

 

 

 

 

 

 

 

 

Property, plant and equipment, gross

 

$

1,937.4

 

 

$

1,904.8

 

Less: accumulated depreciation

 

 

954.8

 

 

 

929.8

 

Property, plant and equipment, net

 

$

982.6

 

 

$

975.0

 

 

 

 

7


FORTUNE BRANDS INNOVATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

 

4. Acquisitions

SpringWell

 

On February 29, 2024, we acquired 100% of the outstanding equity of SpringWell for a purchase price of $105.2 million, subject to post-closing adjustments, net of cash acquired of $1.4 million. We financed the transaction using cash on hand and borrowings under our existing credit facility. The results of SpringWell are reported as part of the Water segment. We have not included pro forma financial information as the transaction is immaterial to our condensed consolidated statements of comprehensive income. The fair value allocated to assets acquired and liabilities assumed as of February 29, 2024, was $105.2 million, which includes $84.0 million of goodwill. Goodwill includes expected sales and cost synergies and is expected to be deductible for income tax purposes.

 

Acquired Businesses

 

In June 2023, we acquired the Acquired Businesses from ASSA. The Company completed the acquisition for a total purchase price of approximately $809.3 million, subject to post-closing adjustments, net of cash acquired of $16.3 million. As of the date of this filing, legal title to international operations in Vietnam has not yet transferred, but we expect a deferred closing, which will include a payment of approximately $23.5 million (which amount is already included in the overall purchase price but for which the cash payment has not yet been made) shortly following receipt of local regulatory approval. In preparation for the deferred closing, $23.5 million is classified as restricted cash within Other current assets and the corresponding payable is included within Other current liabilities. We financed the transaction with cash on hand. The results of the Emtek and Schaub Business are reported as part of the Water segment, and the results of the Yale and August Business are reported as part of the Security segment.

 

The following unaudited pro forma summary presents consolidated financial information as if the Acquired Businesses had been acquired on January 1, 2022. The unaudited pro forma financial information is based on historical results of operations and financial position of the Company and the Acquired Businesses. The pro forma results include:

estimated amortization of finite-lived intangible assets, including customer relationships and proprietary technology,
the estimated cost of the inventory adjustment to fair value,
the reclassification of Acquired Businesses transaction costs from 2023 to the first quarter of 2022,
the removal of certain transactions recorded in the historical financial statements of the Acquired Businesses related to assets and activities which were retained by the seller, and
adjustments to conform accounting policies.


The unaudited pro forma financial information does not necessarily represent the results that would have occurred had the acquisition occurred on January 1, 2022. In addition, the unaudited pro forma information should not be deemed to be indicative of future results.

 

(In millions)

 

 

Thirteen Weeks Ended April 1, 2023

 

Net sales

 

 

$

1,144.1

 

Income from continuing operations, net of tax

 

 

$

97.4

 

 

5. Goodwill and Identifiable Intangible Assets

We had goodwill of $1,988.7 million and $1,906.8 million as of March 30, 2024 and December 30, 2023, respectively. The change in the net carrying amount of goodwill by segment was as follows:

 

(In millions)

 

Water

 

 

Outdoors

 

 

Security

 

 

Total
Goodwill

 

Goodwill at December 30, 2023(a)

 

$

1,129.3

 

 

$

651.1

 

 

$

126.4

 

 

$

1,906.8

 

Year-to-date foreign currency translation adjustments

 

 

(2.4

)

 

 

 

 

 

(0.3

)

 

 

(2.7

)

Acquisition-related adjustments

 

 

84.1

 

 

 

 

 

 

0.5

 

 

 

84.6

 

Goodwill at March 30, 2024(a)

 

$

1,211.0

 

 

$

651.1

 

 

$

126.6

 

 

$

1,988.7

 

(a) Net of accumulated impairment losses of $399.5 million in the Outdoors segment.

 

8


FORTUNE BRANDS INNOVATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

The gross carrying value and accumulated amortization by class of identifiable intangible assets as of March 30, 2024 and December 30, 2023 were as follows:

(In millions)

 

As of March 30, 2024

 

 

As of December 30, 2023

 

 

 

Gross
Carrying
Amounts

 

 

Accumulated
Amortization

 

 

Net
Book
Value

 

 

Gross
Carrying
Amounts

 

 

Accumulated
Amortization

 

 

Net
Book
Value

 

Indefinite-lived tradenames

 

$

519.7

 

 

$

 

 

$

519.7

 

 

$

520.1

 

 

$

 

 

$

520.1

 

Amortizable intangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tradenames

 

 

76.3

 

 

 

(10.0

)

 

 

66.3

 

 

 

58.4

 

 

 

(9.3

)

 

 

49.1

 

Customer and contractual relationships

 

 

1,017.9

 

 

 

(303.4

)

 

 

714.5

 

 

 

1,017.3

 

 

 

(289.4

)

 

 

727.9

 

Patents/proprietary technology

 

 

138.0

 

 

 

(83.8

)

 

 

54.2

 

 

 

138.2

 

 

 

(80.6

)

 

 

57.6

 

Total

 

 

1,232.2

 

 

 

(397.2

)

 

 

835.0

 

 

 

1,213.9

 

 

 

(379.3

)

 

 

834.6

 

Total identifiable intangibles

 

$

1,751.9

 

 

$

(397.2

)

 

$

1,354.7

 

 

$

1,734.0

 

 

$

(379.3

)

 

$

1,354.7

 

We had net identifiable intangible assets of $1,354.7 million and $1,354.7 million as of March 30, 2024 and December 30, 2023, respectively. The $17.9 million increase in gross identifiable intangible assets was primarily due to the SpringWell acquisition.

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.

 

6. External Debt and Financing Arrangements

Senior Notes

At March 30, 2024, the Company had aggregate outstanding senior notes in the principal amount of $2.7 billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company. The following table provides a summary of the Company’s outstanding Notes, including the net carrying value of the Notes, net of underwriting commissions, price discounts, and debt issuance costs as of March 30, 2024 and December 30, 2023:

 

 

 

 

 

 

 

 

Net Carrying Value

 

 (in millions)

Principal Amount

 

 

Issuance Date

 

Maturity Date

 

March 30, 2024

 

 

December 30, 2023

 

4.000% Senior Notes

$

500.0

 

 

June 2015

 

June 2025

 

$

499.1

 

 

$

498.9

 

3.250% Senior Notes

$

700.0

 

 

September 2019

 

September 2029

 

 

695.9

 

 

 

695.7

 

4.000% Senior Notes

$

450.0

 

 

March 2022

 

March 2032

 

 

446.4

 

 

 

446.2

 

4.500% Senior Notes

$

450.0

 

 

March 2022

 

March 2052

 

 

436.0

 

 

 

435.9

 

5.875% Senior Notes

$

600.0

 

 

June 2023

 

June 2033

 

 

593.6

 

 

 

593.4

 

Total Senior Notes

 

 

 

 

 

 

 

$

2,671.0

 

 

$

2,670.1

 

 

Credit Facilities

 

In August 2022, the Company entered into a third amended and restated $1.25 billion revolving credit facility (the “Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. The maturity date of the facility is August 2027. Interest rates under the Revolving Credit Agreement are variable based on 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 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. There were no outstanding borrowings under this facility as of March 30, 2024 and December 30, 2023. As of March 30, 2024, we were in compliance with all covenants under this facility.

We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $30.5 million in aggregate as of March 30, 2024 and December 30, 2023. There were no outstanding balances as of March 30, 2024 and December 30, 2023.

 

 

9


FORTUNE BRANDS INNOVATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

Commercial Paper

The Company operates a commercial paper program (the “Commercial Paper Program”) pursuant to which the Company may issue unsecured commercial paper notes. The Company’s Revolving Credit Agreement is the liquidity backstop for the repayment of any notes issued under the Commercial Paper Program, and as such, borrowings under the Commercial Paper Program are included in Long-term debt in the condensed consolidated balance sheets. Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed, with the aggregate principal amount outstanding at any time, including borrowings under the Revolving Credit Agreement, not to exceed $1.25 billion. The Company will use any issuances under the Commercial Paper Program for general corporate purposes. Outstanding borrowings under the Commercial Paper Program as of March 30, 2024 and December 30, 2023 were $373.7 million and zero, respectively.

 

10


FORTUNE BRANDS INNOVATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

7. Financial Instruments

 

We do not enter into financial instruments for trading or speculative purposes. We principally use financial instruments to reduce the impact of changes in foreign currency exchange rates and commodities used as raw materials in our products. The principal derivative financial instruments we enter into on a routine basis are foreign exchange contracts. Derivative financial instruments are recorded at fair value. The counterparties to derivative contracts are major financial institutions. We are subject to credit risk on these contracts equal to the fair value of these instruments. Management currently believes that the risk of incurring material losses is unlikely and that the losses, if any, would be immaterial to the Company.

 

Raw materials used by the Company are subject to price volatility caused by weather, supply conditions, geopolitical and economic variables, and other unpredictable external factors. As a result, from time to time, we enter into commodity swaps to manage the price risk associated with forecasted purchases of materials used in our operations.

 

We may be exposed to interest rate risk on existing debt or forecasted debt issuance. To mitigate this risk, we may enter into interest rate hedge contracts. As of March 30, 2024, we had no outstanding interest rate hedges.

 

Our primary foreign currency hedge contracts pertain to the British pound, the Canadian dollar, the Mexican peso and the Chinese yuan. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding at March 30, 2024 was $497.9 million. Based on foreign exchange rates as of March 30, 2024, we estimate that $11.2 million of net derivative gains included in accumulated other comprehensive income as of March 30, 2024 will be reclassified to earnings within the next twelve months.

The fair values of derivative instruments on the consolidated balance sheets as of March 30, 2024 and December 30, 2023 were as follows:

 

 

 

 

 

Fair Value

 

(In millions)

 

Location

 

March 30,
2024

 

 

December 30,
2023

 

Assets:

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other current assets

 

$

1.2

 

 

$

0.8

 

 

Total assets

 

$

1.2

 

 

$

0.8

 

Liabilities:

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other current liabilities

 

$

2.1

 

 

$

2.7

 

 

Total liabilities

 

$

2.1

 

 

$

2.7

 

 

 

11


FORTUNE BRANDS INNOVATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

The effects of derivative financial instruments on the statements of comprehensive income for the thirteen weeks ended March 30, 2024 and April 1, 2023 were as follows:

 

(In millions)

 

Classification and Amount of Gain (Loss)
   Recognized in Income on Fair Value and
   Cash Flow Hedging Relationships

 

 

 

March 30, 2024

 

 

 

Cost of
products sold

 

 

Interest
expense

 

 

Other expense, net

 

Total amounts per Consolidated Statements of Comprehensive Income

 

$

622.0

 

 

$

30.1

 

 

$

0.1

 

The effects of fair value and cash flow hedging:

 

 

 

 

 

 

 

 

 

Gain (loss) on fair value hedging relationships

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Hedged items

 

 

 

 

 

 

 

 

0.8

 

Derivative designated as hedging instruments

 

 

 

 

 

 

 

 

(1.9

)

Gain (loss) on cash flow hedging relationships

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income

 

 

0.1

 

 

 

 

 

 

 

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

 

 

 

 

 

3.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(In millions)

 

Classification and Amount of Gain (Loss)
   Recognized in Income on Fair Value and
   Cash Flow Hedging Relationships

 

 

 

April 1, 2023

 

 

 

Cost of
products sold

 

 

Interest
expense

 

 

Other income, net

 

Total amounts per Consolidated Statements of Comprehensive Income

 

$

631.7

 

 

$

26.8

 

 

$

6.3

 

The effects of fair value and cash flow hedging:

 

 

 

 

 

 

 

 

 

Gain (loss) on fair value hedging relationships

 

 

 

 

 

 

 

 

 

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

Hedged items

 

 

 

 

 

 

 

 

1.3

 

Derivative designated as hedging instruments

 

 

 

 

 

 

 

 

(0.8

)

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

 

 

0.2

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income

 

 

 

 

 

1.1

 

 

 

 

 

 

 

12


FORTUNE BRANDS INNOVATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

8. Fair Value Measurements

 

Financial Accounting Standards Board Accounting Standards Codification requirements for Fair Value Measurements and Disclosures establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs, the highest priority, are quoted prices in active markets for identical assets or liabilities. Level 2 inputs reflect other than quoted prices included in Level 1 that are either observable directly or through corroboration with observable market data. Level 3 inputs are unobservable inputs, due to little or no market activity for the asset or liability, such as internally-developed valuation models. We do not have any assets or liabilities measured at fair value on a recurring basis that are Level 3, except for pension assets discussed in Note 11.

The carrying value and fair value of debt as of March 30, 2024 and December 30, 2023 were as follows:

 

(In millions)

 

March 30, 2024

 

 

December 30, 2023

 

 

 

Carrying
Value

 

 

Fair
Value

 

 

Carrying
Value

 

 

Fair
Value

 

Notes, net of underwriting commissions, price discounts and debt issuance costs

 

$

2,671.0

 

 

$

2,516.3

 

 

$

2,670.1

 

 

$

2,562.4

 

Commercial paper borrowings

 

 

373.7

 

 

 

373.7

 

 

 

 

 

 

 

Total debt

 

$

3,044.7

 

 

$

2,890.0

 

 

$

2,670.1

 

 

$

2,562.4

 

 

The estimated fair value of our Notes is determined by using quoted market prices of our debt securities, which are Level 1 inputs. The estimated fair value of borrowings under our Commercial Paper Program is determined primarily using broker quotes, which are Level 2 inputs.

Assets and liabilities measured at fair value on a recurring basis as of March 30, 2024 and December 30, 2023 were as follows:

 

(In millions)

 

Fair Value

 

 

 

March 30,
2024

 

 

December 30,
2023

 

Assets

 

 

 

 

 

 

Derivative financial instruments (Level 2)

 

$

1.2

 

 

$

0.8

 

Deferred compensation program assets (Level 2)

 

 

18.1

 

 

 

14.7

 

Total assets

 

$

19.3

 

 

$

15.5

 

Liabilities

 

 

 

 

 

 

Derivative financial instruments (Level 2)

 

$

2.1

 

 

$

2.7

 

 

 

 

13


FORTUNE BRANDS INNOVATIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

 

 

 

9. Accumulated Other Comprehensive Income (Loss)

 

Total accumulated other comprehensive income (loss) consists of net income and other changes in business equity from transactions and other events from sources other than stockholders. It includes currency translation gains and losses, unrealized gains and losses from derivative instruments designated as cash flow hedges, and defined benefit plan adjustments. The after-tax components of and changes in accumulated other comprehensive (loss) income for the thirteen weeks ended March 30, 2024 and April 1, 2023 were as follows:

 

(In millions)

 

Foreign
Currency
Adjustments

 

 

Derivative
Hedging
Gain (Loss)

 

 

Defined
Benefit
Plan
Adjustments

 

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Balance at December 31, 2022

 

$

(12.1

)

 

$

93.5

 

 

$

(44.0

)

 

$

37.4

 

Amounts classified into accumulated other
   comprehensive (loss) income

 

 

8.0

 

 

 

(5.8

)

 

 

(0.2

)

 

 

2.0

 

Other

 

 

 

 

 

 

 

 

6.2

 

 

 

6.2

 

Amounts reclassified from accumulated other
   comprehensive (loss) income

 

 

 

 

 

(2.7

)

 

 

 

 

 

(2.7

)

Net current-period other comprehensive (loss) income

 

 

8.0

 

 

 

(8.5

)

 

 

6.0

 

 

 

5.5

 

Balance at April 1, 2023

 

$

(4.1

)

 

$

85.0

 

 

$

(38.0

)

 

$

42.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 30, 2023

 

$

5.3

 

 

$

86.0

 

 

$

(28.0

)

 

$

63.3

 

Amounts classified into accumulated other
   comprehensive (loss) income

 

 

(10.3

)

 

 

1.0

 

 

 

(0.2

)

 

 

(9.5

)

Amounts reclassified from accumulated other
   comprehensive (loss) income

 

 

 

 

 

(2.5

)

 

 

 

 

 

(2.5

)

Net current-period other comprehensive (loss) income

 

 

(10.3

)

 

 

(1.5

)

 

 

(0.2

)

 

 

(12.0

)

Balance at March 30, 2024

 

$

(5.0

)

 

$

84.5

 

 

$

(28.2

)

 

$

51.3

 

 

The reclassifications out of accumulated other comprehensive loss for the thirteen weeks ended March 30, 2024 and April 1, 2023 were as follows:

 

(In millions)

Details about Accumulated Other
Comprehensive Loss Components

 

Amount Reclassified from
Accumulated Other Comprehensive Loss

 

 

Affected Line Item in
the Statement of
Comprehensive Income

 

 

March 30, 2024

 

 

April 1, 2023

 

 

 

Gains (losses) on cash flow hedges