Fortune Brands Innovations Inc

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. On December 14, 2022, in connection with the completion of the Separation, we also received a one-time cash payment, in the form of a dividend, from MasterBrand in the amount of $940.0 million. Our operating income is generated by our subsidiary businesses. We believe our cash on hand, operating cash flows, funds available under the credit facility and access to capital markets, provide sufficient liquidity to support the Company’s working capital requirements, capital expenditures, other contractual commitments 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, both for the 12-month period following the 2024 fiscal year, and in the long-term.

Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section 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 September 2023, we repaid all $600 million in aggregate principal of our 2023 4.000% senior unsecured notes at their maturity date in September 2023 using cash on hand.

In June 2023, the Company issued $600 million in aggregate principal 5.875% senior unsecured notes maturing in 2033 in a registered public offering. The Company used the net proceeds from the notes offering to redeem its 2023 4.000% senior unsecured notes that matured in September 2023 and for general corporate purposes.

In March 2022, the Company issued $900 million in aggregate principal amount of senior unsecured notes in a registered public offering consisting of $450 million of 4.00% 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 redeem a portion of the outstanding balance on the 2021 Term Loan (as defined below).

At December 28, 2024, the Company had aggregate outstanding notes in the principal amount of $2.7 billion, with varying maturities (the “Notes”). The Notes are unsecured senior obligations of the Company. The following table provides a summary of the Company’s outstanding Notes, including the carrying value of the Notes, net of underwriting commissions, price discounts and debt issuance costs as of December 28, 2024 and December 30, 2023:

Credit Facilities

In August 2022, the Company entered into a third amended and restated $1.25 billion revolving credit facility (the “2022 Revolving Credit Agreement”), and borrowings thereunder will be used for general corporate purposes. The maturity date of the facility is August 2027. Interest rates under the 2022 Revolving Credit Agreement are variable based on the Secured Overnight Financing Rate (“SOFR”) at the time of the borrowing and the Company’s long-term credit rating and can range from SOFR + 1.02% to SOFR + 1.525%. Under the 2022 Revolving Credit Agreement, the Company is required to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0. Consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments. In addition, the Company's ratio of consolidated debt minus certain cash and cash equivalents to consolidated EBITDA generally may not exceed 3.5 to 1.0. There were no outstanding borrowings under this facility as of December 28, 2024 or December 30, 2023. As of December 28, 2024, 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, set 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. 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. The outstanding $1.1 billion under the 2021 Term Loan was repaid on March 25, 2022 with proceeds from the 2022 Notes offering (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 $30.5 million in aggregate as of December 28, 2024 and December 30, 2023, of which there were no outstanding balances as of December 28, 2024 and December 30, 2023. The weighted-average interest rates on these borrowings were zero in 2024 and 2023.

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 expects to use any issuances under the Commercial Paper Program for general corporate purposes. There were no outstanding borrowings under our Commercial Paper facility as of December 28, 2024 or December 30, 2023.

In our debt agreements, there are normal and customary events of default which would permit the lenders to accelerate the debt if not cured, in certain cases within applicable grace periods, such as failure to pay principal or interest when due or a change in control of the Company. There were no events of default as of December 28, 2024.

Cash and Seasonality

In 2024, we invested approximately $60 million in incremental capacity to support long-term growth potential and new products inclusive of cost reduction and productivity initiatives. We expect capital spending in 2025 to be in the range of $100 million to $140 million. On December 28, 2024, we had cash and cash equivalents $381.1 million, of which $335.4 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 quarters of each year and we typically use operating cash in the first quarter of the year. We believe that our current cash position, cash flow generated from operations, amounts available under our revolving credit facility and access to the capital markets should be sufficient for our operating requirements and enable us to fund our capital expenditures, share repurchases dividend payments, and required long-term debt payments.

Share Repurchases

In 2024, we repurchased 3.3 million shares of our outstanding common stock under the Company’s share repurchase programs for $240.4 million. As of December 28, 2024, the Company’s total remaining share repurchase authorization under the then current program was approximately $484.4 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. Shares may be repurchased on the open market, in privately negotiated transactions or otherwise (including pursuant to a Rule 10b5-1 trading plan, block trades and accelerated share repurchase transactions), in accordance with applicable securities laws.

Dividends

In 2024, we paid dividends in the amount of $119.6 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. Our subsidiaries are not limited by long-term debt or other agreements in their abilities to pay cash dividends or to make other distributions with respect to their capital stock or other payments to the Company.

Acquisitions

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

On February 29, 2024, we acquired SpringWell for a purchase price of $105.6 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 arrangements. 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 $105.6 million, which includes $85.2 million of goodwill. Goodwill includes expected sales and cost synergies and is expected to be deductible for income tax purposes.

In June 2023, we acquired the Acquired Businesses from ASSA. The Company completed the acquisition for a total purchase price of approximately $813.9 million, net of cash acquired of $21.9 million. During the second quarter of 2024, legal title to international operations in Vietnam transferred to us, which included a payment of approximately $23.5 million, net of cash of $5.6 million (which amount is already included in the overall purchase price). 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.

In July 2022, we acquired 100% of the outstanding equity of Aqualisa for a purchase price of $156.0 million, net of cash acquired of $4.8 million. The results of Aqualisa are reported as part of the Water segment. We financed the transaction with borrowings under our existing credit facility.

In January 2022, we acquired 100% of the outstanding equity of Solar Innovations LLC and an affiliated entity (together, "Solar") for a purchase price of $61.6 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 Solar are reported as part of the Outdoors segment.

Cash Flows

Below is a summary of cash flows for 2024, 2023, and 2022, including continuing and discontinued operations. See Note 5, "Discontinued Operations," of the Notes to the consolidated financial statements in Item 8 of this Annual Report on Form 10-K for additional information on cash flows from discontinued operations.

Net cash provided by operating activities was $667.8 million in 2024, compared to $1,055.8 million in 2023. The $388.0 million decrease in net cash provided by operating activities from 2023 to 2024 was primarily due to a decrease in the rate of reduction in inventory balances compared to the prior period as result of our 2023 initiative to decrease inventory balances to align with the U.S. home product market activity, as well as a decrease in accounts payable. The absence of the $84.2 million settlement of our interest rate swaps in 2023 and a decrease in accrued expenses and other liabilities also contributed to the decrease in cash provided by operating activities. The decrease in cash provided by operating activities was partially offset by higher net income in 2024. The $489.5 million increase in net cash provided by operating activities from 2022 to 2023 was driven by a $702.5 million increase in net cash provided by continuing operations due to an increase in net cash provided by working capital items resulting from initiatives 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 in 2023 and increased accrued expenses and other liabilities also contributed to the increase in net cash provided by operating activities. These amounts were partially offset by lower net income in 2023 and the absence of operating cash flows as a result of the Separation ($213.0 million in 2022).

Net cash used in investing activities was $302.9 million in 2024 compared to $1,037.8 million in 2023. The decrease in net cash used in investing activities of $734.9 million from 2023 to 2024 reflects the net cash paid for the acquisition of the Acquired Businesses of $784.1 million in 2023, as compared to the acquisition of SpringWell for $105.6 million in 2024, as well as a decrease in capital expenditures of $63.2 million. The increase in net cash used in investing activities of $582.3 million from 2022 to 2023 reflects the net cash paid for the Acquired Businesses of $784.1 million as compared to the acquisitions of Aqualisa and Solar ($217.6 million combined) in 2022.

Net cash used in financing activities was $363.4 million in 2024 compared to $271.3 million in 2023. The increase in net cash used in financing activities of $92.1 million was primarily higher share repurchases in 2024 as compared to 2023 ($90.4 million). The increase in net cash used in financing activities of $343.8 million from 2022 to 2023 was primarily driven by the absence of cash flow items related to the dividend received from MasterBrand as a result of the Separation ($940.0 million), partially offset by lower share repurchases in 2023 compared to 2022 ($430.1 million decrease), a decrease in dividends paid to stockholders and the absence in 2023 of the final payment for the remaining equity interest in Flo Technologies ($16.7 million) which was made during 2022.

Pension Plans

During the fourth quarter of 2024, the Company entered into two agreements with an insurance company to purchase group annuity contracts and transferred $266.6 million of pension plan obligations and related assets of two of its defined benefit pension plans, the MasterLock Pension Plan and Moen Incorporated Pension Plan (collectively, the "Plans"). The partial plan settlements resulted in a loss of $19.0 million, which is included in Other (expense) income, net on the Consolidated Statements of Income. The agreements cover approximately 4,100 retirees and other beneficiaries (the "Transferred Participants"). All Transferred Participants continued to receive their benefits from the Plans until January 1, 2025, at which time the insurance company began paying and administering the retirement benefits of the Transferred Participants. The transactions resulted in no changes to the amount of the benefits payable to the Transferred Participants.

Subsidiaries of Fortune Brands sponsor their respective defined benefit pension plans, related to our continuing operations, that are funded by a portfolio of investments maintained within our benefit plan trust. We made no pension contributions to our qualified pension plans in 2024 and made voluntary contributions of $4.0 million and $9.0 million in 2023 and 2022, respectively. In 2025, we do not expect to make any pension contributions. As of December 28, 2024, the fair value of our total pension plan assets was $177.1 million, representing funding of about 95% of the accumulated qualified benefit obligation liability. For the foreseeable future, we believe that we have sufficient liquidity to meet the minimum funding that may be required by the Pension Protection Act of 2006.

Foreign Exchange

We have operations in various foreign countries, principally Canada, Mexico, the United Kingdom, China, South Africa, Vietnam and France. Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S. dollars.

Contractual Obligations and Other Commercial Commitments

The following summarizes our contractual obligations and commitments as of December 28, 2024. Purchase obligations were $545.1 million, of which $522.4 million is due within one year. Purchase obligations include contracts for raw materials and finished goods purchases, selling and administrative services, and capital expenditures. Total lease payments under non-cancellable operating leases as of December 28, 2024 were $38.6 million in 2025, $33.7 million in 2026, $26.0 million in 2027, $21.0 million in 2028, $16.6 million in 2029 and $44.7 million thereafter.

Due to the uncertainty of the timing of settlement with taxing authorities, we are unable to make reasonably reliable estimates of the period of cash settlement of unrecognized tax benefits. Therefore, $25.2 million of unrecognized tax benefits as of December 28, 2024 have been excluded from the paragraph above.

In addition to the contractual obligations and commitments described above, we also had other commercial commitments for which we are contingently liable as of December 28, 2024. Other corporate commercial commitments include standby letters of credit of $20.2 million, in the aggregate, all of which expire in less than one year, and surety bonds of $25.5 million, the majority of which matures in less than two years. These contingent commitments are not expected to have a significant impact on our liquidity.

Debt payments due during the next five years as of December 28, 2024 are $500 million in 2025, zero in 2026, zero in 2027, zero in 2028, $700 million in 2029 and $1,500 million in 2030 and beyond. Interest payments due during the next five years as of December 28, 2024 are $106.3 million in 2025, $192.5 million in 2026 through 2027, $192.5 million in 2028 through 2029 and $624.0 million in 2030 and beyond.

Foreign Currency Risk

Certain anticipated transactions, assets and liabilities are exposed to foreign currency risk. Principal currencies hedged include the Canadian dollar, the Mexican peso, the British pound, Chinese yuan and the South African rand. We regularly monitor our foreign currency exposures in order to maximize the overall effectiveness of our foreign currency hedge positions. For additional information on this risk, see Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in this Annual Report on Form 10-K.

Derivative Financial Instruments

In accordance with Accounting Standards Codification ("ASC") requirements for Derivatives and Hedging, we recognize all derivative contracts as either assets or liabilities on the balance sheet, and the measurement of those instruments is at fair value. If the derivative is designated as a fair value hedge and is effective, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings in the same period. If the derivative is designated as a cash flow hedge, the changes in the fair value of the derivative are recorded in other comprehensive income (“OCI”) and are recognized in the consolidated statement of income when the hedged item affects earnings. If the derivative is designated as an effective economic hedge of the net investment in a foreign operation, the changes in the fair value of the derivative is reported in the cumulative translation adjustment section of OCI. Similar to foreign currency translation adjustments, these changes in fair value are recognized in earnings only when realized upon sale or upon complete or substantially complete liquidation of the investment in the foreign entity.

Deferred currency gains (losses) of $(0.4) million, $5.2 million and $4.7 million (before tax impact) were reclassified into earnings for 2024, 2023 and 2022, respectively. Based on foreign exchange rates as of December 28, 2024, we estimate that $12.5 million of net derivative gains included in accumulated other comprehensive income ("AOCI") as of December 28, 2024, will be reclassified to earnings within the next twelve months.

Recently Issued Accounting Standards

Refer to Note 2, “Significant Accounting Policies,” of the Notes to consolidated financial statements in Item 8 of this Annual Report on Form 10-K for discussion of recently issued accounting standards.