# Fortune Brands Innovations, Inc.: Form 10-Q for the period ended Apr 1, 2023

- Company: [Fortune Brands Innovations, Inc.](/companies/fbin.md) (CIK 1519751)
- Form: 10-Q
- Filed: 2023-04-27
- Accepted by EDGAR: Apr 27, 2023, 16:18 ET
- Period: 2023-04-01
- Accession: 0000950170-23-015290
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1519751/000095017023015290/fbhs-20230401.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1519751/000095017023015290/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-04-01.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-01-01 to 2023-04-01 | $1.04bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-01-01 to 2023-04-01 | $631.7m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-01-01 to 2023-04-01 | $260.8m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-01-01 to 2023-04-01 | $131.8m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-04-01 | $26.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-04-01 | $25.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-04-01 | $84.6m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-04-01 | $0.66 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-04-01 | $0.66 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-04-01 | 128,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-04-01 | $76.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-04-01 | $42.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2023-01-01 to 2023-04-01 | $29.5m | us-gaap:PaymentsOfDividends |
| Share repurchases | 3 months, 2023-01-01 to 2023-04-01 | $100.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-04-01 | $539.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-04-01 | $2.30bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-04-01 | $5.97bn | us-gaap:Assets |
| Current liabilities | at 2023-04-01 | $1.41bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-04-01 | $3.89bn | us-gaap:Liabilities |
| Long-term debt | at 2023-04-01 | $2.07bn | us-gaap:LongTermDebtNoncurrent |
| Short-term borrowings | at 2023-04-01 | $599.5m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-04-01 | $2.08bn | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 34,088 characters.

### MANAGEMENT’S DISCUSSION AND ANALYSIS OF

### FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto, which are included in this report, as well as our audited consolidated financial statements for the year ended December 31, 2022, which are included in our Annual Report on Form 10-K for the year ended December 31, 2022.

This discussion contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations for our business, operations, financial performance or financial condition in addition to statements regarding our general business strategies, the market potential of our brands, trends in the housing market, the potential impact of costs, including material and labor costs, the potential impact of inflation, expected capital spending, expected pension contributions, the expected impact of acquisitions, dispositions and other strategic transactions including the expected benefits of the Separation of MasterBrand and the tax-free nature of the Separation, the anticipated impact of recently issued accounting standards on our financial statements, and other matters that are not historical in nature. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “outlook,” “positioned” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may” and “could” are generally forward-looking in nature and not historical facts. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on current expectations, estimates, assumptions and projections of our management about our industry, business and future financial results, available at the time this report is filed with the Securities and Exchange Commission. Although we believe that these statements are based on reasonable assumptions, they are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those indicated in such statements, including but not limited to: (i) our reliance on the North American and Chinese home improvement, repair and remodel and new home construction activity levels, (ii) the housing market, downward changes in the general economy, unfavorable interest rates or other business conditions, (iii) the competitive nature of consumer and trade brand businesses, (iv) our ability to execute on our strategic plans and the effectiveness of our strategies in the face of business competition, (v) our reliance on key customers and suppliers, including wholesale distributors and dealers and retailers, (vi) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (vii) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (viii) delays or outages in our information technology systems or computer networks, (ix) risks associated with doing business globally, including changes in trade-related tariffs and risks with uncertain trade environments, (x) risks associated with the disruption of operations, (xi) our inability to obtain raw materials and finished goods in a timely and cost-effective manner, (xii) risks associated with 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) our ability to achieve the expected benefits of the Separation of MasterBrand, (xxiv) the risk that we may be required to indemnify MasterBrand in connection with the Separation or that MasterBrand’s indemnities to us may not be sufficient to hold us harmless for the full amount of liabilities for which MasterBrand has been allocated responsibility and (xxv) the potential that the Separation fails to qualify as tax-free for U.S. federal income tax purposes. These and other factors are discussed in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022. We undertake no obligation to, and expressly disclaim any such obligation to, update or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or changes to future results over time or otherwise, except as required by law.

### OVERVIEW

References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Innovations, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires. The Company is a leading home, security and commercial building products company that competes in attractive long-term growth markets in our product categories.

On December 14, 2022, the Company completed the separation of its Cabinets business, MasterBrand, Inc. (“MasterBrand”), via a tax-free spin-off transaction (the “Separation”) to create an independent, publicly-traded company. Immediately following completion of the Separation, the Company changed its name from “Fortune Brands Home & Security, Inc.” to “Fortune Brands Innovations, Inc.” and its stock ticker changed from “FBHS” to “FBIN” to better reflect its focus on activities related to core brands and innovation. As a result of the Separation, our former Cabinets segment was disposed of and the operating results of the Cabinets business are reported as discontinued operations for all periods presented within this Quarterly Report on Form 10-Q. All amounts, percentages and disclosures for all periods presented reflect only the continuing operations of the Company unless otherwise noted. See Note 4, Acquisitions and Dispositions, in the condensed consolidated financial statements, and Note 5, Discontinued Operations, in the consolidated financial statements in Item 8 of our 2022 Annual Report on Form 10-K for additional information.

We believe that the Company has certain competitive advantages including market-leading brands, a diversified mix of channels, lean and flexible supply chains, a decentralized business model and a strong capital structure, as well as a tradition of strong innovation and customer service. We are focused on outperforming our markets in growth, profitability and returns in order to drive increased stockholder value. We believe the Company’s track record reflects the long-term attractiveness and potential of the categories we serve and our leading brands. The long-term outlook for our products 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.

On January 19, 2023, the Board of Directors of the Company approved a change to the Company’s fiscal year end from December 31 to a 52-or 53-week fiscal year ending on the Saturday closest but not subsequent to December 31, effective as of the commencement of the Company’s fiscal year on January 1, 2023. This change was made in order to align the Company’s fiscal year with that of its operating businesses and to align the Company’s reporting calendar with how the Company evaluates its businesses. There was no material impact to any of our previously disclosed financial information. As a result, the Company’s fiscal quarters for the 2023 fiscal year end on April 1, 2023, July 1, 2023, September 30, 2023, and December 30, 2023.

In February 2023, we publicly announced an internal reorganization to separate our Outdoors & Security segment under separate leadership to drive innovation, accelerate product development, and enhance investments and business processes. In conjunction with the reorganization, we changed how our chief operating decision maker evaluates and allocates the resources for the two businesses. Separate reporting for the new Outdoors and Security segments began in the first quarter of 2023 and comparative prior period amounts have been recast to conform to the new segment presentation. There was no impact to our Water Innovations segment (which we refer to as “Water”).

In December 2022, we entered into a definitive agreement to acquire the Emtek and Schaub premium and luxury door and cabinet hardware business and the United States and Canada Yale and August residential smart home locks business (collectively, the “ASSA Businesses”) from ASSA ABLOY, Inc. (“ASSA”), for a purchase price of $800 million in cash on a cash-free, debt-free basis, subject to customary adjustments. The transaction is conditioned on the successful closing of the acquisition by ASSA of Spectrum Brands, Inc.'s hardware and home improvement business division following a favorable resolution of the court proceedings with the U.S. Department of Justice. The Company intends to finance the transaction with cash on hand and borrowings under our existing credit facility.

In July 2022, we acquired 100% of the outstanding equity of Aqualisa Holdings (International) Ltd. (“Aqualisa”), a leading U.K. manufacturer of shower products known for premium, innovative and smart digital shower systems, for a purchase price of $156.0 million, net of cash acquired of $4.8 million. We financed the transaction using cash on hand and borrowings under our revolving credit facility. The results of Aqualisa are reported as part of the Water segment.

In January 2022, we acquired 100% of the outstanding equity of Solar Innovations LLC and an affiliated entity (together, “Solar”), a leading producer of wide-opening exterior door systems and outdoor enclosures, for a purchase price of $61.6 million, net of cash acquired. We financed the transaction using cash on hand and borrowings under our revolving credit facility. The results of Solar are reported as part of the Outdoors segment.

In the first quarter of 2022, our Plumbing segment was renamed Water Innovations to better align with our key brands and organizational purpose. The Plumbing segment name change had no impact on the Company’s historical financial position, results of operations, cash flow or segment-level results previously reported.

### RESULTS OF OPERATIONS

### Thirteen Weeks Ended April 1, 2023 Compared to Three Months Ended March 31, 2022

*(In millions)*

|  | Net Sales 2023 | 2022 | % Change vs. Prior Year |
| --- | ---: | ---: | ---: |
| Water | $594.2 | $643.6 | (7.7)% |
| Outdoors | 289.9 | 343.6 | (15.6) |
| Security | 155.9 | 153.0 | 1.9 |
| Net sales | $1,040.0 | $1,140.2 | (8.8)% |
|  | **Operating Income (Loss)** |  |  |
|  | **2023** | **2022** | **% Change vs. Prior Year** |
| Water | $128.4 | $149.3 | (14.0)% |
| Outdoors | 13.0 | 39.8 | (67.3) |
| Security | 21.1 | 20.4 | 3.4 |
| Less: Corporate expenses | (30.7) | (29.7) | (3.4) |
| Operating income | $131.8 | $179.8 | (26.7)% |

The following discussion of consolidated results of operations and segment results refers to the thirteen weeks ended April 1, 2023 compared to the three months ended March 31, 2022. Consolidated results of operations should be read in conjunction with segment results of operations.

#### Net sales

Net sales decreased by $100.2 million, or 8.8%, due to lower sales unit volume in the U.S. and Canada and slowing housing market activity in China, as well as unfavorable foreign exchange of approximately $11 million. These factors were partially offset by price increases to help mitigate the impact of cumulative commodity cost increases in all of our segments, the benefit from the Aqualisa acquisition ($14.7 million) and lower customer sales incentives in the Water segment as a result of lower sales.

#### Cost of products sold

Cost of products sold decreased by $40.1 million, or 6.0%, due to lower sales volumes, the benefit from favorable geographic channel mix in the Water segment and productivity improvements in the Water segment. These factors were partially offset by manufacturing inefficiencies related to the lower sales unit volume in the Water and Outdoors segments, the impact of the Aqualisa acquisition, raw material cost inflation and higher transportation costs.

#### Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $15.6 million, or 5.6%, due to lower transportation, advertising, marketing and headcount related costs, as well as savings associated with our 2022 corporate reorganization and restructuring activities. These factors were partially offset by the benefit related to the Aqualisa acquisition in 2022.

#### Restructuring charges

Restructuring charges of $3.1 million in the thirteen weeks ended April 1, 2023 are largely related to severance and headcount actions across all segments. Restructuring charges for three months ended March 31, 2022 were $0.6 million.

#### Operating income

Operating income decreased by $48.0 million, or 26.7%, primarily due to manufacturing inefficiencies related to the lower sales unit volume, higher commodity costs, higher transportation costs, lower net sales and higher headcount related costs, as well as unfavorable foreign exchange of approximately $2 million. These factors were partially offset by the benefit from favorable geographic channel mix in Water, productivity improvements and lower customer sales incentives in the Water segment and lower advertising and marketing costs.

### RESULTS OF OPERATIONS (Continued)

#### Interest expense

Interest expense increased by $5.1 million to $26.8 million due to higher fixed rate debt balances with the issuance of the $450 million of 4.000% Senior Notes due 2032 and $450 million of 4.500% Senior Notes due 2052. This amount was partially offset with a reduction of balances under floating rate facilities. As of April 1, 2023, there were no floating rate balances outstanding.

#### Other (income) expense, net

Other income, net, was $6.3 million in the thirteen weeks ended April 1, 2023, compared to other expense, net of $2.1 million in the three months ended March 31, 2022. The increase in other income, net is primarily due to an increase in foreign currency transaction income and an increase in interest income.

#### Income taxes

The effective income tax rates for the thirteen weeks ended, April 1, 2023, and three months ended March 31, 2022, were 23.1% and 21.3%, respectively. The difference between the Company’s effective income tax rate for the thirteen weeks ended April 1, 2023, and the U.S. statutory rate of 21% primarily relates to state income taxes (net of federal income tax benefits), foreign income taxed at higher rates, partially offset by a favorable benefit related to decreases in uncertain tax positions and a valuation allowance release.

#### Income from Continuing Operations, net of tax

Income from continuing operations, net of tax, was $85.6 million in the thirteen weeks ended April 1, 2023, compared to $126.2 million in the three months ended March 31, 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 $54.7 million for the quarter ending March 31, 2022 and includes the results from operations of our former Cabinets segment.

### Results By Segment

### Water

Net sales decreased by $49.4 million, or 7.7%, due to lower sales unit volume, and unfavorable foreign exchange of approximately $11 million. These factors were partially offset by the benefit from price increases to help mitigate the impact of cumulative commodity cost increases and the benefit from the Aqualisa acquisition ($14.7 million) and lower customer sales incentives as a result of the decrease in sales.

Operating income decreased by $20.9 million, or 14.0%, due to lower net sales and manufacturing inefficiencies related to the lower sales unit volume. These factors were partially offset by favorable geographic channel mix, productivity improvements, lower customer sales incentives and lower advertising and marketing costs.

### Outdoors

Net sales decreased by $53.7 million, or 15.6%, due to lower sales unit volume for our exterior doors and decking products. These were partially offset by price increases to help mitigate the impact of cumulative commodity cost increases.

Operating income decreased by $26.8 million, or 67.3%, due to 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.

### Security

Net sales increased by $2.9 million, or 1.9%, 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 safe business.

Operating income increased by $0.7 million, or 3.4%, due to the benefit from higher net sales and productivity improvements.

### Corporate

Corporate expenses increased by $1.0 million, or 3.4%, due to costs related to the planned acquisition of the ASSA Businesses.

### LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are cash on hand, cash flows from operating activities, cash borrowed under our credit facility and cash from debt issuances in the capital markets. Our operating income is generated by our subsidiaries. We believe our operating cash flows, including funds available under the credit facility and access to capital markets, provide sufficient liquidity to support the Company’s working capital requirements, capital expenditures and service of indebtedness, as well as to finance acquisitions, repurchase shares of our common stock and pay dividends to stockholders, as the Board of Directors deems appropriate.

Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section of our Annual Report on Form 10-K for the year ended December 31, 2022 entitled “Item 1A. Risk Factors”. In addition, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, repurchase shares of our common stock under our share repurchase program 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 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% senior unsecured notes maturing in 2032 and $450 million of 4.50% 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).

At April 1, 2023, the Company had aggregate outstanding notes in the amount of $2.7 billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company. 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. 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 April 1, 2023 and December 31, 2022:

*(in millions)*

|  | Principal Amount | Issuance Date | Maturity Date | Net Carrying Value April 1, 2023 | December 31, 2022 |
| --- | ---: | --- | --- | ---: | ---: |
| 4.000% Senior Notes | $500.0 | June 2015 | June 2025 | $498.3 | $498.1 |
| 4.000% Senior Notes | 600.0 | September 2018 | September 2023 | 599.5 | 599.2 |
| 3.250% Senior Notes | 700.0 | September 2019 | September 2029 | 695.2 | 695.0 |
| 4.000% Senior Notes | 450.0 | March 2022 | March 2032 | 445.9 | 445.8 |
| 4.500% Senior Notes | 450.0 | March 2022 | March 2052 | 435.5 | 435.4 |
| Total Senior Notes | $2,700.0 |  |  | $2,674.4 | $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 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 April 1, 2023, and December 31, 2022, there were no outstanding borrowings under this facility. As of April 1, 2023, we were in compliance with all covenants under this facility.

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. 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 2022 Notes 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 in aggregate as of April 1, 2023 and December 31, 2022, respectively. There were no outstanding balances as of April 1, 2023 and December 31, 2022.

#### Commercial Paper

The Company operates a commercial paper program (the “Commercial Paper Program”) pursuant to which the Company may issue unsecured commercial paper notes. The Company's 2022 Revolving Credit Agreement is the liquidity backstop for the repayment of any notes issued under the Commercial Paper Program, and as such borrowings under the Commercial Paper Program are included in Long-term debt in the condensed consolidated balance sheets. Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed, with the aggregate principal amount outstanding at any time, including borrowings under the 2022 Revolving Credit Agreement, not to exceed $1.25 billion. The Company will use any issuances under the Commercial Paper Program for general corporate purposes. On April 1, 2023 and December 31, 2022 there were no outstanding borrowings under the Commercial Paper Program.

#### Cash and Seasonality

On April 1, 2023, we had cash and cash equivalents of $539.1 million, of which $316.2 million was held at non-U.S. subsidiaries. We manage our global cash requirements considering (i) available funds among the subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. The repatriation of non-U.S. cash balances from certain subsidiaries could have adverse tax consequences as we may be required to pay and record tax expense on those funds that are repatriated.

Our operating cash flows are significantly impacted by the seasonality of our business. We typically generate most of our operating cash flow in the third and fourth fiscal quarters of each year.

We believe that our current cash position, cash flow generated from operations, and amounts available under our revolving credit facility should be sufficient for our operating requirements and enable us to fund our capital expenditures, share repurchases, dividend payments, and any required long-term debt payments.

#### Share Repurchases and Dividends

In the first quarter of 2023, we repurchased 1.7 million shares of our outstanding common stock under the Company’s share repurchase program for $100.0 million. As of April 1, 2023, the Company’s total remaining share repurchase authorization under its share repurchase program was approximately $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 quarter of 2023, we paid dividends in the amount of $29.5 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

In December 2022, we entered into a definitive agreement to acquire the Emtek and Schaub premium and luxury door and cabinet hardware business and the United States and Canada Yale and August residential smart home locks business from ASSA ABLOY, Inc. (“ASSA”), for a purchase price of $800 million in cash on a cash-free, debt-free basis, subject to customary adjustments. The transaction is conditioned on the successful closing of the acquisition of such businesses by ASSA from Spectrum Brands, Inc. following a favorable resolution of the court proceedings with the U.S. Department of Justice. The Company intends to finance the transaction with cash on hand and borrowings under our existing credit facility.

We periodically review our portfolio of brands and evaluate potential strategic transactions and other capital initiatives to increase stockholder value.

#### Cash Flows

Below is a summary of cash flows for the thirteen weeks ended April 1, 2023 and three months ended March 31, 2022, including

continuing and discontinued operations. See Note 4, Acquisitions and Dispositions, in the condensed consolidated financial statements for additional information.

*(In millions)*

|  | Thirteen Weeks Ended April 1, 2023 | Three Months Ended March 31, 2022 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $76.1 | $(183.1) |
| Net cash used in investing activities | (42.6) | (114.4) |
| Net cash (used in) provided by financing activities | (139.3) | 203.2 |
| Effect of foreign exchange rate changes on cash | 2.2 | 0.7 |
| Net decrease in cash and cash equivalents | $(103.6) | $(93.6) |

Net cash provided by operating activities was $76.1 million in the thirteen weeks ended April 1, 2023, compared to net cash used in operating activities of $183.1 million in the three months ended March 31, 2022. The increase in cash provided of $259.2 million was primarily due to an initiative to decrease inventory balances to align with current U.S. home product market activity and sales volumes, lower increases in accounts receivables, higher accounts payable payments in the comparative prior year period and lower customer and employee incentive payments, partially offset by a decrease in net income and a decrease in accrued taxes.

Net cash used in investing activities was $42.6 million in the thirteen weeks ended April 1, 2023, compared to net cash used in investing activities of $114.4 million in the three months ended March 31, 2022. The decrease in cash used of $71.8 million reflects the cash used in the Solar Innovations acquisition in January 2022 ($61.6 million) and a lower increase in capital expenditures, partly offset by the proceeds from the sale of previously closed manufacturing facilities in 2022.

Net cash used in financing activities was $139.3 million in the thirteen weeks ended April 1, 2023, compared to cash provided by financing activities of $203.2 million in the three months ended March 31, 2022. The increase in cash used of $342.5 million was primarily due to an absence of net debt issuances in 2023 compared to 2022 ($660.5 million increase), partly offset by lower share repurchases in 2023 compared to 2022, a decrease in the proceeds from the exercise of stock options in 2022 and the final payment for the remaining equity interest in Flo ($16.7 million) in 2022.

### Pension Plans

Subsidiaries of Fortune Brands sponsor their respective defined benefit pension plans that are funded by a portfolio of investments maintained within our benefit plan trust. As of December 31, 2022, the fair value of our total pension plan assets was $816.0 million, representing 92% of the accumulated benefit obligation liability. During the thirteen weeks ended April 1, 2023, we made no pension contributions. For the foreseeable future, we believe that we have sufficient liquidity to meet the minimum funding that may be required by the Pension Protection Act of 2006.

### Foreign Exchange

We have operations in various foreign countries, principally Canada, Mexico, the United Kingdom, China, South Africa, France and Japan. 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.

## Market risk

As filed, 220 characters.

There have been no material changes in the information provided in the section entitled “Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2022.

## Controls and procedures

As filed, 950 characters.

### (a) Evaluation of Disclosure Controls and Procedures.

The Company’s management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report.

### (b) Changes in Internal Control Over Financial Reporting.

There have not been any changes in the Company's internal control over financial reporting that occurred during the fiscal quarter ended April 1, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

## Risk factors

As filed, 148 characters.

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

Filed Apr 27, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-015290. Last ingested by Listed: Nov 4, 2026, 17:11 ET. No prices; not investment advice.