SUPERCHARGED
GROWTH
OPPORTUNITIES
2022 Annual Report
FORTUNE BRANDS / 1
Introducing
FORTUNE
BRANDS
INNOVATIONS
Fortune Brands Innovations, Inc.
(NYSE: FBIN) is a brand, innovation
and channel leader with a proven track
record of creating value. With our
newly aligned organization, we are
positioned to drive accelerated growth
and productivity.
In this annual report, all data presented is from continuing operations for Fortune Brands Innovations, Inc., and all references to earnings per
share, operating income, operating margin and EBITDA are on a before charges/gains basis, unless noted otherwise. Reconciliations of non‑GAAP
measures are presented on pages 98–103.
Certain forward‑looking statements included in this report are made within the meaning of the Private Securities Litigation Reform Act of 1995.
Read more on page 103.
FORTUNE BRANDS / 1
SUPERCHARGED GROWTH
OPPORTUNITIES
Fortune Brands Innovations operates in three high-growth categories.
WATER
OUTDOORS
SECURITY
These are powered by strong secular tailwinds.
Water
Management
Connected
Products
Material
Conversion
Outdoor
Living
Safety &
Wellness
Sustainability
And underpinned by our leading brands.
Behind those brands is the Fortune Brands Advantage,
our capabilities that empower us to execute in any environment.
Any of these factors alone could lead to growth; with all of them,
we believe we can achieve supercharged growth.
2 / FORTUNE BRANDS
LETTER TO SHAREHOLDERS
Dear Shareholders:
2022 was a year of transformation for FBIN, as we repositioned the business for
future accelerated growth opportunities.
During 2022, we completed the separation of our
Cabinets business, allowing both companies to better
invest in unique growth opportunities. Our portfolio is
increasingly focused on our supercharged categories—
those parts of the market with the highest potential
for growth due to their secular tailwinds. In 2022,
we strategically acquired three businesses to further
expand our product offerings powered by the key
secular tailwinds of outdoor living, water management
and connected products.
This past year we also reorganized from a
decentralized structure to an operating model
structure designed to drive brand, innovation and
channel leadership. This aligned structure will enable
us to be more productive and to fully harness the
power of our operational excellence, scale, digital
insights and other key capabilities within our Fortune
Brands Advantage.
Finally, we rebranded our company to better reflect
our new focus. Today, we are proudly Fortune Brands
Innovations, Inc. (NYSE: FBIN), a growth company
powered by secular tailwinds, underpinned by leading
brands, innovation and channel management, and
supported by our Fortune Brands Advantage.
“Today, we are proudly
Fortune Brands Innovations,
Inc. (NYSE: FBIN), a growth
company powered by secular
tailwinds, underpinned by
leading brands, innovation
and channel management, and
supported by our Fortune
Brands Advantage.”
Nicholas I. Fink
Chief Executive Officer
Financial Highlights*
12/31/2022
Capital Performance*
12/31/2022
Total Net Sales
Operating Income
Earnings Per Share**
EBITDA**
$4,723
Cash
$810
Debt
$4.24
$952
Debt‑to‑Capital***
Market Capitalization (in billions)
$643
$2,673
56.2%
$7.30
* In millions, except per-share amounts.
** Presented on a before charges/gains basis and includes corporate SG&A.
*** Debt-to-Capital represents gross debt (both short term and long term) divided by the sum of gross debt plus stockholders' equity.
FORTUNE BRANDS / 3
Sales by Country
North American Housing
Market by Channel
United States
Canada
China
EU/UK
Rest of World
80%
8%
8%
2%
2%
Company data for the year ended December 31, 2022.
R&R
Single‑Family New Construction
Multifamily New Construction
66%
24%
10%
2022 Performance Overview
Our team executed these transformational initiatives
Positioned to Drive
Supercharged Growth
amid a challenging macroenvironment that negatively
We are expecting challenges in 2023. However, we
impacted our results. An unprecedented series
believe the actions we took in 2022 have prepared
of interest rate increases and persistent inflation
us to face all of these expected headwinds. We will
impacted affordability in the homebuilding and
continue to prioritize strategic investments in areas
remodel markets, which led to a rapid slowdown in
that will have the biggest impact for future FBIN
both U.S. new construction and repair and remodel
growth, like adding capacity and investing in such
demand. Additionally, typical business seasonality
digital initiatives as connected products, building our
returned after the prior years of uniquely high demand,
great brands, and other Fortune Brands Advantage
and we experienced inventory destocking across
capabilities that help us perform. We also continue
the portfolio.
Total FBIN 2022 sales from continuing operations
were $4.7 billion. Operating margin from continuing
operations was 17.1 percent.** Earnings per share
were $4.24.**
to be fueled by our culture of doing the right thing,
as evidenced by our industry‑leading safety records,
leading ESG programs and our focus on innovating
products that help address some of the world’s most
pressing sustainability and safety issues.
** Presented on a before charges/gains basis and includes corporate SG&A.
4 / FORTUNE BRANDS
RECENT ACQUISITIONS
Solar Innovations, a leading producer of wide-
Fortune Brands acquired Aqualisa, a leading U.K.
opening exterior door systems and outdoor
manufacturer of shower products, in July 2022.
enclosures, joined Fortune Brands in January
Aqualisa is a recognized innovator known for
2022. Its product offerings help us further
smart digital shower systems and exceptional
capitalize on outdoor living trends.
customer care, strengthening our focus on water
management and connected products.
FBIN has
exciting M&A
opportunities in
our high-growth
categories.
Our team is the foundation upon which our business is
built, driving our next phase of growth. I am so proud
of the tenacity and commitment of our associates
throughout 2022. Together, we are navigating this
coming year with renewed focus, alignment and
ambition. Fortune Brands has distinguished itself
time and again in challenging situations, and I am
confident we will continue to rise to the moment and
drive value for our shareholders regardless of the
external environment.
The future of Fortune Brands Innovations is bright.
Regards,
Nicholas I. Fink
Chief Executive Officer
February 28, 2023
FORTUNE BRANDS / 5
WATER INNOVATIONS
Our Water Innovations segment achieved impressive operating margins for the year, reflecting actions taken
in anticipation of the market slowdown. We continued to expand the Moen Smart Water Ecosystem; took full
ownership of Flo and its smart water management technologies; acquired Aqualisa, a U.K. leader in digital
showers; and our House of Rohl luxury portfolio continues to grow. This segment is well positioned to capture
supercharged growth opportunities associated with the secular tailwinds of connected products, water
management and sustainability.
LEADING BRANDS INCLUDE
2022 Segment Net Sales
(In billions)
$2.6B
2022 Operating Margin*
(OM%)
24.2%
2022 Segment Operating Income*
(In millions)
$623M
* Presented on a before charges/gains basis
6 / FORTUNE BRANDS
OUTDOORS & SECURITY
Our Therma‑Tru and Larson brands remain the brands of choice for consumers and professionals. Together with
recently acquired Solar Innovations’ wide opening doors, we are exploring new synergistic product offerings to
excite consumers and customers. Our Fiberon decking business is increasingly optimized for operational and sales
outperformance. Our security brands remained strong this year, in particular our growing commercial security
business. This segment benefits from ESG tailwinds with our products that are made from recycled materials and
conserve energy for our customers, and solutions that keep people safe. Additionally, Master Lock continues to
have exciting opportunities in connected products.
LEADING BRANDS INCLUDE
2022 Segment Net Sales
(In billions)
$2.2B
2022 Operating Margin*
(OM%)
14.5%
2022 Segment Operating Income*
(In millions)
$312M
FORTUNE BRANDS / 7
Excited for
Our Future
Poised to Deliver
Accelerated Growth
8 / FORTUNE BRANDS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
☐ 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
(State or Other Jurisdiction of
Incorporation or Organization)
62-1411546
(IRS Employer
Identification No.)
520 Lake Cook Road, Deerfield, IL 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 Symbols(s)
Name of each exchange on which
registered
Common Stock, par value $0.01 per share
FBIN
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒
No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
No ☒
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 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, a smaller
reporting company or 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
Emerging growth company
☒ Accelerated filer
☐
☐ Non-accelerated filer
☐ Smaller reporting 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 has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previouslyi ssued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
No ☒
The aggregate market value of the registrant’s voting common equity held by non-affiliates of the registrant at June 30, 2022 (the
last day of the registrant’s most recent second quarter) was $6,596,443,912. The number of shares outstanding of the registrant’s
common stock, par value $0.01 per share, at February 10, 2023, was 128,272,026.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information contained in the registrant’s proxy statement for its Annual Meeting of Stockholders to be held on May 16, 2023
(to be filed not later than 120 days after the end of the registrant’s fiscal year) (the “2023 Proxy Statement”) is incorporated by
reference into Part III hereof.
Form 10-K Table of Contents
PART I
Item 1. Business.
Item 1A. Risk Factors.
Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3.
Item 4. Mine Safety Disclosures.
Legal Proceedings.
Information about our Executive Officers.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Item 6. Reserved.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations.
Liquidity and Capital Resources.
Critical Accounting Estimates.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Item 8. Financial Statements and Supplementary Data.
Notes to Consolidated Financial Statements.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accountant Fees and Services.
PART IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Schedule II Valuation and Qualifying Accounts
Page
3
9
17
17
17
17
19
21
22
24
30
36
41
42
52
89
89
89
89
90
90
90
90
90
91
94
95
96
PART I
Item 1. Business.
Cautionary Statement Concerning Forward-Looking Statements
This Annual Report on Form 10-K contains certain “forward-looking statements” made pursuant to the
safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”),
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 and
costs of the spin-off of MasterBrand, Inc. and the tax-free nature of the spin-off transaction, the
anticipated effects of recently issued accounting standards on our financial statements, and other matters
that are not historical in nature. Statements that 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, plans,
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 (the
“SEC”). 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 those listed in the
section below entitled “Risk Factors.” We undertake no obligation to, and expressly disclaim any such
obligation to, update, amend, clarify or revise 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.
Unless the context otherwise requires, references in this Annual Report on Form 10-K to “Fortune
Brands,” the “Company,” “we,” “our” or “us” refer to Fortune Brands Innovations, Inc. (formerly known as
Fortune Brands Home & Security, Inc.) and its consolidated subsidiaries.
Our Company
We are a leading home, security and commercial building products company that competes in attractive
long-term growth markets in our product categories. We sell our products through a wide array of sales
channels, including kitchen and bath dealers, wholesalers oriented toward builders or professional
remodelers, industrial and locksmith distributors, “do-it-yourself” remodeling-oriented home centers,
showrooms, e-commerce and other retail outlets.
Historically, Fortune Brands operated a Cabinets business segment that manufactured and sold cabinets
and vanities for the kitchen, bath and other parts of the home. 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"). The Separation created two independent, publicly traded companies.
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 symbol changed
from "FBHS" to "FBIN" to better reflect its focus on activities core to 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 Annual Report on
Form 10-K. All amounts, percentages and disclosures for all periods presented reflect only the continuing
operations of the Company unless otherwise noted. See Note 5, Discontinued Operations, in the
consolidated financial statements in Item 8 for additional information.
3
In addition, during 2022, the Company underwent a reorganization and shifted from a decentralized
structure with separate businesses to a more aligned operating model that prioritizes activities that are
core to brand, innovation, and channel and placed our global supply chain resources under one
leadership team to fully leverage the scale and execution excellence of our total business. We believe
that the newly aligned structure will allow the Company to better drive accelerated growth and
productivity.
Our Strategy
Building on leading business and brand positions in attractive growth and return categories. We
have leading brands with what we believe to be sustainable competitive advantages in many of our
product categories, which we sell primarily in North America and China. We believe that established
brands are meaningful to both consumers and trade customers in their respective categories and that we
have the opportunity to, among other things, gain share in the marketplace and continue to strengthen
many of our brands through cross-branding, expanding into adjacent product categories, and expanding
in international and e-commerce markets. For example, we are continuing to align our Water Innovations,
Outdoors and Security products with long-term secular trends within connected products, outdoor living,
sustainability, water management, material conversion, and safety and wellness. We are committed to
continuing to invest in our capacity and supply chain through strategic sourcing, automation, machine
learning, artificial intelligence, data-driven insights and processes, and leveraging our global scale to
strengthen our business and continue to meet demand for our products.
Developing innovative products and processes for customers and consumers. We have a long
track record of successful product and process innovations that introduce valued new products to our
customers and consumers, including products that save water, utilize recycled materials, conserve energy
and protect people. We are committed to continuing to invest in new product development and enhance
customer service to strengthen our leading brands and penetrate adjacent markets, including in the digital
space and connected products.
Building an aligned organization using the Fortune Brands Advantage to drive results. While our
business segments are focused on distinct product categories and are responsible for their own
performance, the Fortune Brands Advantage is an operating model consisting of a set of unifying
capabilities that we believe are critical to our strategic growth across all of our businesses. The Fortune
Brands Advantage currently consists of four critical pillars:
•
•
•
•
Category Management - Partnering with our channel partners to drive optimal performance
and best serve our consumers through actionable category insights.
Business Simplification - Simplifying workstreams to be even more efficient. As part of the
Company’s reorganization and shift to a more aligned operating model under one leadership
team, we expect to further prioritize activities that are core to brand, innovation, and channel.
Global Supply Chain Excellence - Leveraging our robust, global supply chain to strategically
drive scale efficiencies with cutting-edge capabilities.
Digital Transformation - Supporting our products of the future with best-in-class services,
technology, data and analytics and using data science to unlock valuable consumer and
business insights. We are advancing our digital strategy to fuel growth and aim to become a
digital leader in our industry. We continue to invest in our digital capabilities to leverage our
scale across technology, data and talent to further drive sustainable productivity and
efficiency, enhance employee development, satisfaction and retention, and accelerate and
sustain growth in e-commerce and connected products, sourcing and data science. This
includes integrating our digital organization to improve speed to market and further develop a
culture that fosters innovation, collaboration and value creation, and developing products
supported by service technology, data and analytics.
4
We continue to grow our competencies in these areas, allowing each of our businesses to take
advantage of available opportunities for revenue growth and margin improvement, no matter the market
environment.
Driving value through talent. The Company has built a diverse and talented leadership team that is well
positioned to execute on our transformation to a more aligned operating model. We believe that investing
in our employees is a critical component of our business strategy. We endeavor to do this through talent
acquisition, development, succession planning and fostering a diverse and inclusive workforce.
Enhancing returns and deploying our cash flow to high-return opportunities. 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 our common stock.
We believe that advancing environmental, social and governance (“ESG”) initiatives and conducting
business ethically is an important factor in allowing us to attract and retain the best talent. We continue to
look for ways to improve our ESG programs and practices by focusing on ways to improve water
conservation, waste reduction, and carbon and climate impact, keep our employees safe, and create a
culture where all employees are treated with dignity and respect.
Business Segments
Following the Separation, we have two business segments: Water Innovations (previously referred to as
Plumbing) and Outdoors & Security.
Our segments compete on the basis of innovation, fashion, quality, price, service and responsiveness to
distributor, retailer and installer needs, as well as end-user consumer preferences. Our markets are very
competitive. Approximately 20% of 2022 net sales were to international markets, and sales to two of the
Company’s customers, Lowe’s Companies, Inc. (“Lowe’s”) and The Home Depot, Inc. (“The Home
Depot”), accounted for 12.0% and 11.7% of the Company’s net sales, respectively, in 2022. Sales to all
U.S. home centers in the aggregate were approximately 27% of net sales in 2022. In 2022, sales to our
top ten customers represented approximately one-half of total sales.
Water Innovations. Our Water Innovations segment manufactures or assembles and sells faucets,
accessories, kitchen sinks and waste disposals, predominantly under the Moen, ROHL, Riobel,
Victoria+Albert, Perrin & Rowe, Aqualisa and Shaws brands. Although this segment sells products
principally in the U.S., China and Canada, this segment also sells in Europe, Mexico, Southeast Asia and
South America. Approximately 29% of 2022 net sales were to international markets. This segment sells
directly through its own sales force and indirectly through independent manufacturer's representatives,
primarily to wholesalers, home centers and mass merchandisers. This segment is increasingly investing
in digital trends and “smart” home capabilities. In aggregate, sales to The Home Depot and Lowe’s
comprised approximately 22% of net sales of the Water Innovations segment in 2022. This segment’s
chief competitors include Masco, Kohler, LIXIL Group, InSinkErator (owned by Whirlpool Corporation),
Huida, Hgill, and Jomoo and imported private-label brands.
Outdoors & Security. Our Outdoors & Security segment manufactures and sells fiberglass and steel
entry door systems under the Therma-Tru brand, storm, screen and security doors under the Larson
brand, composite decking, railing and cladding under the Fiberon brand, and urethane millwork under the
Fypon brand. It also manufactures, sources and distributes locks, safety and security devices, and
electronic security products under the Master Lock and American Lock brands and fire-resistant safes,
security containers and commercial cabinets under the SentrySafe brand. This segment sells products
principally in the U.S., Canada, Europe, Central America and Australia. Approximately 10% of 2022 net
sales were to international markets. This segment’s principal customers are home centers, hardware and
other retailers, millwork building products and wholesale distributors, industrial distributors and specialty
dealers that provide products to the residential new construction market, as well as to the remodeling and
renovation markets. In addition, it sells lock systems and fire-resistant safes to locksmiths, industrial and
institutional users, and original equipment manufacturers. In aggregate, sales to The Home Depot and
Lowe’s comprised approximately 26% of net sales of the Outdoors & Security segment in 2022. Therma-
5
Tru, Larson, Fiberon and Fypon brands compete with Masonite, JELD-WEN, Andersen, Trex, Azek,
Plastpro, Pella, and various regional and local suppliers. The Master Lock brand competes with Abus,
W.H. Brady, Hampton, Allegion, Assa Abloy and various imports. The SentrySafe brand competes with
Magnum, Fortress and Interlocks.
Other Information
Raw materials. The table below indicates the principal raw materials used by each of our segments.
These materials are available from a number of sources. Volatility in the prices of commodities and
energy used in making and distributing our products impacts the cost of manufacturing our products.
Segment
Water Innovations
Outdoors & Security
Raw Materials
Brass, zinc, resins, stainless steel and aluminum
Wood, aluminum, steel, plastics, resins, glass, vinyl and insulating foam
Intellectual property. Product innovation and branding are important to the success of our business. In
addition to the brand protection offered by our trademarks, patent protection helps distinguish our unique
product features in the market by preventing copying and making it more difficult for competitors to benefit
unfairly from our design innovation. We hold U.S. and foreign patents covering various features used in
products sold within all of our business segments. Although each of our segments relies on a number of
patents and patent groups that, in the aggregate, provide important protections to the Company, no single
patent or patent group is material to any of the Company’s segments.
Human capital resources. As of December 31, 2022, Fortune Brands had more than 11,200 full-time
and part-time employees worldwide (excluding contract workers). Approximately 59% of our workforce is
composed of hourly production and distribution associates and the remaining population is composed of
associates in an office role. Approximately 3% of employees in the U.S. work under collective bargaining
agreements. Below is a summary of the number of employees by segment and role:
Segment
Water Innovations
Outdoors & Security
Corporate
Production and Distribution
Office
Total
1,724
4,915
—
2,123
2,310
164
3,847
7,225
164
We believe our associates are the key to our success. We invest in our teams and develop our
associates to become the next generation of leaders to fuel innovation and drive Company growth. The
Company also endeavors to create a home for all that keeps our employees safe, treats them with dignity
and respect, and fosters a culture of performance. We also endeavor to create a culture where doing the
right thing is embedded in the way we conduct business. Fortune Brands does this through the programs
summarized below, and the objectives and related risks of each is overseen by our Board of Directors or
its committees.
Health and Safety
Safety is a critical element to Fortune Brands’ growth strategy, integral to Company culture and one of our
core values. This is reflected in our goal of zero safety incidents and through our efforts to create an
injury-free workplace. Our Employee Safety & Environmental Stewardship Principles set standards for
how we maintain a safe work environment and guides our business operations. The Company also has
an Environmental, Health & Safety Leadership council composed of representatives from across the
Company’s businesses that share best practices and is responsible for driving environmental, health and
safety strategy. This helps drive our best-in-class programs designed to reinforce positive behaviors, to
empower our employees to actively take part in maintaining a safe work environment, to heighten
awareness and to mitigate risk on critical safety components. Within each of our manufacturing and
distribution facilities, we have site-specific safety and environmental plans designed to reduce risk.
Through a continued commitment to improve our safety performance, we have historically been
successful in reducing the number of injuries sustained by our employees. Two of our primary safety
measures are the Total Recordable Incidence Rate ("TRIR") and Lost Time Rate ("LTR"). For the year
6
ended December 31, 2022, our TRIR was 1.16, compared to 1.65 for the year ended December 31,
2021, and our LTR was 0.45, compared to 0.66 for the year ended December 31, 2021. The year-over-
year decrease in these numbers is reflective of the focus on improving newly acquired businesses.
Attracting and Retaining Superior Talent
Fortune Brands is committed to investing in the physical, emotional and financial well-being of our
employees and we believe that this is a critical component of our business strategy. To attract and retain
superior talent at all levels of the Company, our total rewards are designed to be market competitive,
align employee incentives with Company performance and support our employees across many aspects
of their lives. We have a strong pay-for-performance culture that is supported by incentive programs that
take into consideration business results and employee performance. We also offer a range of benefits
including retirement savings plans, comprehensive healthcare and mental-health benefits including
medical, dental and vision coverage, health savings and spending accounts, and employee assistance
services. In 2022, we took steps to enhance our benefit plans to further enhance inclusivity by providing
enhanced parental support benefits for our U.S. associates, including fertility benefits and specialized
support from adoption and surrogacy assistance to pregnancy and post-partum. Many of our businesses
also offer paid parental leave.
Creating a Culture of Diversity, Equity and Inclusion (“DEI”)
We continue to take measured actions that create an inclusive culture and diverse workforce, that
increase representation and engagement of underrepresented associates and that are reflective of our
consumers and communities. We believe that attracting and retaining talented and diverse employees will
enable us to be more innovative and responsive to consumer needs and deliver strong performance and
growth.
Fortune Brands has a comprehensive diversity, equity and inclusion strategy to increase representation of
underrepresented associates. The Company is committed to increasing representation of professionals of
color and women through new hires and promotions, ensuring an inclusive culture by reducing the
barriers to inclusion through our policies, programs, business practices and education and by
demonstrating support for racial equality in our communities through outreach and investment. As of
December 31, 2022, Fortune Brands’ workforce is composed of 40% women. Approximately 25% of
hourly production and distribution employees are people of color and 10% of employees in an office role
are people of color. All people leaders were included in our unconscious bias learning program over the
past two years, and bi-annual engagement survey fosters our employee listening strategy, providing
routine feedback and meaningful action to drive improvement in our culture and DEI awareness.
The Company also continued to expand its employee resource groups and diverse partnerships during
2022. We now have a dedicated employee resource group for our Women, Black, Hispanic, LGBTQ,
Military, and Parents and Caregivers employees that are focused on activating and educating leaders and
accelerating an inclusive culture. Our partnerships with Network of Executive Women (Next Up), Plexus
and The Historic Alliance for Career Advancement (HACE) support our employee resource groups and
talent acquisition teams. These actions supplement the Company’s (i) inclusive culture councils, which
are responsible for setting priorities and initiatives that support an inclusive work environment, and (ii)
employee resource groups that support DEI initiatives and provide networking and professional
development opportunities.
Talent Development and Succession
We aim to inspire and equip our associates to be successful in their current roles within the organization
and help them to develop the skills to build on opportunities to grow their career. We understand our most
critical roles that serve as points of leverage to deliver value and place our best people in those roles,
while attracting new talent and capabilities in support of continuous improvement in all we do. Fortune
Brands uses performance management programs to support a high-performance culture, strengthening
our employee engagement and helping to retain our top talent. The Company provides associates with
relevant skills training and provides leadership training for production and distribution associates in a
7
supervisory role and for mid-level office associates. The Company also makes a significant investment in
assessing our talent against the jobs both in the near term and the future and ensuring our leaders are
prepared for greater levels of responsibility and can successfully transition into new roles.
Succession planning for critical roles is an important part of our talent program. Succession and
development plans are created and monitored to ensure progress is made along established timelines.
Seasonality. All of our operating segments traditionally experience lower sales in the first quarter of the
year when new home construction, repair and remodel activity, and security buying are at their lowest. As
a result of sales seasonality and associated timing of working capital fluctuations, our cash flow from
operating activities is typically higher in the second half of the year.
Environmental matters. We believe that the cost of complying with the present environmental protection
laws, before considering estimated recoveries either from other potentially responsible parties under
Superfund or similar state laws or from insurance, will not have a material adverse effect on our
competitive position, results of operations, cash flows or financial condition.
Available Information. The Company’s website address is www.FBIN.com. The Company’s annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments
to these reports are available free of charge on the Company’s website as soon as reasonably practicable
after the reports are filed or furnished electronically with the SEC. Reports filed with the SEC are also
made available on its website at www.sec.gov.
8
Item 1A. Risk Factors.
There are inherent risks and uncertainties associated with our business that could adversely affect our
business, financial condition or operating results. Set forth below are descriptions of those risks and
uncertainties that we currently believe to be material, but the risks and uncertainties described below are
not the only risks and uncertainties that could adversely affect our business, financial condition or
operating results. If any of these risks materialize, our business, financial condition or operating results
could suffer. In this case, the trading price of our common stock could decline, and you may lose all or
part of your investment.
Industry Risks
Our business primarily relies on North American and Chinese home improvement, repair and
remodel, and new home construction activity levels, all of which are impacted by risks associated
with fluctuations in the housing market. Downward changes in the general economy, the housing
market, unfavorable interest rates or other business conditions could adversely affect our results
of operations, cash flows and financial condition.
Our business primarily relies on home improvement, repair and remodel, and new home construction
activity levels, principally in North America and China. The housing market is sensitive to changes in
economic conditions and other factors, such as the level of employment, access to and the cost of labor,
consumer confidence, demographic changes, consumer income, government tax programs, availability of
financing, inflation and interest rate levels. Adverse changes in any of these conditions generally, or in
any of the markets where we operate, could decrease demand and could adversely impact our
businesses by: causing consumers to delay or decrease home ownership; making consumers more price
conscious, resulting in a shift in demand to smaller, less expensive homes; making consumers more
reluctant to make investments in their existing homes or causing them to delay investments, including
kitchen and bath repair and remodel projects; or making it more difficult to secure loans for major
renovations. Due to heightened inflation and increases in interest rates during 2022, the pace of single-
family and existing home sales activity and new home construction and repair and remodel activities has
slowed, which adversely impacted our results, and it is uncertain when such activities will recover.
We operate in very competitive consumer and trade brand categories.
The markets in which we operate are very competitive. Although we believe that competition in our
businesses is based largely on product quality, consumer and trade brand reputation, customer service
and product features, as well as fashion trends, innovation and ease of installation, price is a significant
factor for consumers as well as our trade customers. Some of our competitors may resort to price
competition to sustain or grow market share and manufacturing capacity utilization. Also, certain large
customers continue to offer private-label brands that compete with some of our product offerings as a
lower-cost alternative. The strong competition that we face in all of our businesses may adversely affect
our profitability and revenue levels, as well as our results of operations, cash flows and financial
condition.
We may not successfully execute on our strategic plans, and our strategies may not prove
effective in the face of business competition or yield the intended results.
The success of our business and business strategies depends on meeting consumer needs and
anticipating changes in consumer preferences with successful new products and product improvements.
We aim to introduce products and new or improved production processes proactively to offset
obsolescence and decreases in sales of existing products. We may not be successful in product
development and our new products may not be commercially successful. In addition, it is possible that
competitors may improve their products or processes more rapidly or effectively, which could adversely
affect our sales. Furthermore, market demand may decline as a result of consumer preferences trending
away from our categories or trending down within our brands or product categories, which could
adversely impact our results of operations, cash flows and financial condition.
9
In connection with the Separation, we shifted from a decentralized structure with separate businesses to
a more aligned operating model that prioritizes activities that are core to brand, innovation, and channel,
among other changes. Although we believe that this transition allows us to fully leverage the scale and
execution excellence of our total business, such transitions can be inherently difficult to manage, and may
result in a diversion of management’s focus and attention from other aspects of our business. In addition,
our new operating model may not yield the intended results, and may have unexpected consequences,
which could negatively affect our business and results of operations and make it more difficult for us to
execute on our strategic plans.
Our businesses rely on the performance of wholesale distributors and dealers, retailers and other
marketing arrangements and could be adversely affected by poor performance or other
disruptions in our distribution channels and customers.
We rely on a distribution network comprised of consolidating customers. Any disruption to the existing
distribution channels could adversely affect our results of operations, cash flows and financial condition.
The consolidation of distributors or retailers or the financial instability or default of a distributor or one of
its major customers could potentially cause such a disruption. In addition to our own sales force, we offer
our products through a variety of third-party distributors, representatives and retailers. Certain of our
distributors, representatives or retailers may also market other products that compete with our products.
In addition, one or more retailers may stop carrying certain of our products, reduce the volume of
purchases of our products and/or replace certain of our products with the products of our competitors.
The loss or termination of, or significant reduction in sales to, one or more of our major distributors,
representatives or retailers, the failure of one or more of our distributors, representatives or retailers to
effectively promote our products, or changes in the financial or business condition of these distributors,
representatives or retailers could adversely affect our ability to bring products to market and our results of
operations, cash flows and financial condition.
Operational and Sourcing Risks
Risks associated with our ability to improve organizational productivity and global supply chain
efficiency and flexibility could adversely affect our results of operations, cash flows and financial
condition.
If we are unable to obtain sufficient components or raw materials on a timely basis or for a cost-effective
price or if we experience other manufacturing, supply or distribution difficulties, our business and results
of operations may be adversely affected. We acquire our components and raw materials from many
suppliers and vendors in various countries. We endeavor to ensure the continuity of our components and
materials and make efforts to diversify certain of our sources of components and materials, but we cannot
guarantee these efforts will be successful. A reduction or interruption in supply or an issue in the supply
chain, including as a result of our inability to quickly develop acceptable alternative sources for such
supply, could adversely affect our ability to manufacture, distribute and sell our products in a timely or
cost-effective manner.
We regularly evaluate our organizational productivity and global supply chains and assess opportunities
to increase capacity, reduce costs and enhance quality. We may be unable to enhance quality, speed
and flexibility to meet changing and uncertain market conditions, as well as manage continued cost
inflation, including wages, pension and medical costs. Our success depends in part on refining our cost
structure and supply chains to promote consistently flexible and low-cost supply chains that can respond
to market changes to protect profitability and cash flow or ramp up quickly and effectively to meet
demand. Supply chain disruptions could continue to impact our ability to timely source necessary
components and inputs. Import tariffs could potentially lead to increases in prices of raw materials or
components which are critical to our business. Failure to achieve the desired level of quality, capacity or
cost reductions could impair our results of operations, cash flows and financial condition.
Risks associated with global commodity and energy availability and price volatility, as well as the
possibility of sustained inflation, could adversely affect our results of operations, cash flows and
financial condition.
We are exposed to risks associated with global commodity price volatility arising from restricted or uneven
supply conditions, the sustained expansion and volatility of demand from emerging markets, potentially
unstable geopolitical and economic variables, severe weather and other unpredictable external factors.
10
We buy raw materials that contain commodities such as wood, petroleum-based products such as resins,
brass, zinc, steel, aluminum and glass. In addition, our distribution costs are significantly impacted by the
price of oil and diesel fuel. Decreased availability and increased or volatile prices for these commodities,
as well as energy used in making, distributing and transporting our products, could increase the costs of
our products. 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 ongoing tariffs, all of which
have increased our costs. While in the past we have been able to mitigate the impact of these cost
increases through productivity improvements and passing on increasing costs to our customers over time,
there is no assurance that we will be able to offset such cost increases in the future, and the risk of
potentially sustained high levels of inflation could adversely impact our results of operations, cash flows
and financial condition. While we may use derivative contracts to limit our short-term exposure to
commodity price volatility, the commodity exposures under these contracts could still be material to our
results of operations, cash flows and financial condition. In addition, in periods of declining commodity
prices, these derivative contracts may have the short-term effect of increasing our expenditures for these
raw materials.
We may experience delays or outages in our information technology systems and computer
networks. We may be subject to breaches of our information technology systems, which could
damage our reputation and consumer relationships. Such breaches could subject us to significant
financial, legal and operational consequences.
We, like most companies, may be subject to information technology system failures and network
disruptions caused by delays or disruptions due to system updates, natural disasters, malicious attacks,
accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses,
physical or electronic break-ins, or similar events or disruptions. We rely upon information technology
systems and infrastructure, including support provided by third parties, to support our business, our
products and our customers. Our businesses may implement digital systems or technologies, enterprise
resource planning systems or add applications to replace outdated systems and to operate more
efficiently. We may not be able to successfully implement these projects without experiencing difficulties.
Any expected benefits of implementing projects might not be realized or the costs of implementation
might outweigh the benefits realized.
We routinely rely on systems for manufacturing, customer orders, shipping, regulatory compliance and
various other matters, as well as information technology systems and infrastructure to aid us in the
collection, use, storage and transfer and other processing of data including confidential, business,
financial, and personal information. Security threats, including cyber and other attacks, are becoming
increasingly sophisticated, frequent and adaptive. In addition, a greater number of our employees are
working remotely in response to the COVID-19 pandemic, which (among other things) could expose us to
greater risks related to cybersecurity and our information technology systems. Third-party systems that
we rely upon could also become vulnerable to the same risks and may contain defects in design or
manufacture or other problems that could result in system disruption or compromise the information
security of our own systems. We believe we devote appropriate resources to network security, data
encryption, and other security measures to protect our systems and data, but these security measures
cannot provide absolute security. Breaches and breakdowns affecting our information technology
systems or protected data could have an adverse effect on our business, results of operations, cash flows
and financial condition.
We manufacture, source and sell products internationally and are exposed to risks associated
with doing business globally, including risks associated with uncertain trade environments.
We manufacture, source or sell our products in a number of locations throughout the world,
predominantly in the U.S., Asia, Canada, Europe, Mexico and Africa. Accordingly, we are subject to risks
associated with potential disruption caused by changes in political, economic and social environments,
including war, civil and political unrest, illnesses declared as a public health emergency (including viral
pandemics such as COVID-19), terrorism, expropriation, local labor conditions, changes in laws,
regulations and policies of foreign governments and trade disputes with the U.S., and U.S. laws affecting
activities of U.S. companies abroad. We could be adversely affected by higher manufacturing costs and
international trade regulations, including duties, tariffs and antidumping penalties. Risks inherent to
11
international operations include: potentially adverse tax laws; unfavorable changes or uncertainty relating
to trade agreements or importation duties; uncertainty regarding clearance and enforcement of intellectual
property rights; risks associated with the Foreign Corrupt Practices Act and other anti-bribery laws;
mandatory or voluntary shutdowns of our facilities or our suppliers due to changes in political dynamics
that could result in longer lead times, economic policies or health emergencies and difficulty enforcing
contracts. While we hedge certain foreign currency transactions, a change in the value of the currencies
will impact our financial statements when translated into U.S. dollars. In addition, fluctuations in currency
can adversely impact the cost position of our products in local currency, making it more difficult for us to
compete. Our success will depend, in part, on our ability to effectively manage our businesses through
the impact of these potential changes.
Disruption of operations could adversely affect our results of operations, cash flows and financial
condition.
We manufacture a significant portion of the products we sell. Any prolonged disruption in our
manufacturing operations, whether due to technical or labor difficulties, continued labor shortages,
transportation-related shortages, supply chain constraints, COVID-19, weather conditions (including due
to the impacts of climate change, particularly for those facilities near any shorelines or in any other area
traditionally impacted by extreme weather), lack of raw material or component availability, startup
inefficiencies for new operations, destruction of or damage to any facility (as a result of natural disasters,
fires and explosions, use and storage of hazardous materials or other events) or other reasons, could
negatively impact our profitability and competitive position and adversely affect our results of operations,
cash flows and financial condition.
Our inability to obtain raw materials and finished goods in a timely and cost-effective manner from
suppliers could adversely affect our ability to manufacture and market our products.
We purchase raw materials to be used in manufacturing our products and also rely on third-party
manufacturers to produce certain of the finished goods we sell. We often do not enter into long-term
contracts with our suppliers or sourcing partners. Instead, most raw materials and sourced goods are
obtained on a “purchase order” basis. In addition, in some instances, we maintain single-source or
limited-source sourcing relationships, either because multiple sources are not available or the relationship
is advantageous due to performance, quality, support, delivery, capacity or price considerations.
Financial, operating or other difficulties encountered by our suppliers or sourcing partners or changes in
our relationships with them could result in manufacturing or sourcing interruptions, delays and
inefficiencies, and prevent us from manufacturing or obtaining the finished goods necessary to meet
customer demand. If we are unable to meet customer demand, there could be an adverse effect on our
results of operations, cash flows and financial condition.
Risks associated with strategic acquisitions and joint ventures could adversely affect our results
of operations, cash flows and financial condition.
We consider acquisitions and joint ventures as a means of enhancing stockholder value. Acquisitions and
joint ventures involve risks and uncertainties, including difficulties integrating acquired companies and
operating joint ventures; difficulties retaining the acquired businesses’ customers; the inability to achieve
the expected financial results and benefits of transactions; the loss of key employees from acquired
companies; implementing and maintaining consistent standards, controls, policies and information
systems; and diversion of management’s attention from other business and strategic matters. Future
acquisitions could cause us to incur additional debt or issue additional shares, resulting in dilution in
earnings per share and return on capital.
Impairment charges could have a material adverse effect on the Company’s financial results.
Goodwill and other acquired intangible assets expected to contribute indefinitely to our cash flows are not
amortized, but must be evaluated for impairment by management at least annually. If the carrying value
exceeds the implied fair value of goodwill, the goodwill is considered impaired and is reduced to fair value
via a non-cash charge to earnings. If the carrying value of an indefinite-lived intangible asset is greater
than its fair value, the intangible asset is considered impaired and is reduced to fair value via a non-cash
charge to earnings. Future events may occur that would adversely affect the fair value of our goodwill or
other acquired intangible assets and require impairment charges. Such events may include, but are not
12
limited to, lower than forecasted revenues, actual new construction and repair and remodel growth rates
that fall below our assumptions, actions of key customers, increases in discount rates, continued
economic uncertainty, higher levels of unemployment, weak consumer confidence, lower levels of
discretionary consumer spending, a decrease in royalty rates and a decline in the trading price of our
common stock. We continue to evaluate the impact of economic and other developments to assess
whether impairment indicators are present. Accordingly, we may be required to perform impairment tests
based on changes in the economic environment and other factors, and these tests could result in
impairment charges in the future.
Our pension costs and funding requirements could increase as a result of volatility in the financial
markets and changes in interest rates and actuarial assumptions.
Increases in the costs of pension benefits may continue and negatively affect our business as a result of:
the effect of potential declines in the stock and bond markets on the performance of our pension plan
assets; potential reductions in the discount rate used to determine the present value of our benefit
obligations; and changes to our investment strategy that may impact our expected return on pension plan
assets assumptions. U.S. generally accepted accounting principles require that we calculate income or
expense for the plans using actuarial valuations. These valuations reflect assumptions about financial
markets and interest rates, which may change based on economic conditions. Our accounting policy for
defined benefit plans may subject earnings to volatility due to the recognition of actuarial gains and
losses, particularly due to the change in the fair value of pension assets and interest rates. Funding
requirements for our U.S. pension plans may become more significant. However, the ultimate amounts to
be contributed are dependent upon, among other things, interest rates, underlying asset returns and the
impact of legislative or regulatory changes related to pension funding obligations.
Legal, Regulatory and People Risks
COVID-19 has impacted our business and may cause further disruptions to our business, results
of operations and financial condition.
The COVID-19 pandemic has had an impact on many aspects of the Company’s business and operations
and may continue to impact the Company in the future, including impacting our ability to efficiently
operate our facilities across the globe, the ability of our suppliers to supply and manufacture key inputs,
availability and cost of transportation and logistics, customer behaviors, our employees, the distributors,
dealers and retailers who sell our products, and the market generally. Our business could be negatively
impacted over the longer term if the disruptions related to COVID-19 decrease consumer confidence and
housing investments, or precipitate a prolonged economic downturn and/or an extended rise in
unemployment or tempering of wage growth, any of which could lower demand for our products. The
COVID-19 pandemic may also exacerbate certain of the other risks described in this “Risk Factors”
section.
The COVID-19 pandemic has also resulted in and may continue to result in operational challenges in the
manufacturing of our products and the operation of the related domestic and international supply chains
supporting our ability to manufacture our products and distribute them through our channels. Restrictions
on or disruptions of transportation or increased border controls or closures, or other impacts on domestic
and global supply chains or distribution channels, have in the past and could in the future increase our
raw materials and commodity costs, increase demand for raw materials and commodities from competing
purchasers, limit our ability to manufacture and distribute products to meet customer demand or otherwise
have a material adverse effect on our business, results of operations and financial condition.
Our failure to attract and retain qualified personnel and other labor constraints could adversely
affect our results of operations, cash flows and financial condition.
Our success depends in part on the efforts and abilities of qualified personnel at all levels, including our
senior management team and other key employees. Their motivation, skills, experience, contacts and
industry knowledge significantly benefit our operations and administration.
13
Low unemployment rates in the U.S., rising wages, competition for qualified talent and attracting and
retaining personnel in remote locations could result in the failure to attract, motivate and retain personnel.
This has resulted in higher employee costs, increased attrition and significant shifts in the labor market
and employee expectations, and we may continue to face challenges in finding and retaining qualified
personnel, particularly at the production level, which could have an adverse effect on our results of
operations, cash flows and financial condition.
Climate change and related legislative and regulatory initiatives could adversely affect our
business and results of operations.
Concerns over the long-term effects of climate change have led to, and we expect will continue to lead to,
governmental efforts around the world to mitigate those effects. The Company will need to respond to any
new laws and regulations as well as to consumer, investor and business preferences resulting from
climate change concerns, which may increase our operational complexity and result in costs to us in
order to comply with any new laws, regulations or preferences. Further, the effects of climate change may
negatively impact international, regional and local economic activity, which may lower demand for our
products or disrupt our manufacturing or distribution operations. Overall, climate change, its effects and
the resulting, unknown impact on government regulation, consumer, investor and business preferences
could have a long-term material adverse effect on our business and results of operations.
Environmental, social and governance matters may adversely impact our business and
reputation.
In addition to the importance of their financial performance, companies are increasingly being judged by
their performance on a variety of environmental, social and governance (“ESG”) matters.
In light of the increased focus on ESG matters, there can be no certainty that we will manage such issues
successfully, or that we will successfully meet stakeholder expectations as to our proper role. Any failure
or perceived failure by us in this regard could adversely impact our business and reputation.
In addition, developing and acting on ESG initiatives, including collecting, measuring and reporting related
data, can be costly, difficult and time consuming. Significant expenditures and commitment of time by
management, employees and outside advisors is involved in developing, implementing and overseeing
policies, practices and internal controls related to ESG risk and performance, and we may undertake
additional costs to control, assess and report on ESG metrics as the nature, scope and complexity of
ESG reporting, diligence and disclosure requirements expand. Such costs may have an adverse impact
our business and results of operations.
We also may face potential governmental enforcement actions or private litigation challenging our ESG
and sustainability goals, or our disclosure of those goals and our metrics for measuring achievement of
them, which may increase our costs of compliance.
Changes in government and industry regulatory standards could adversely affect our results of
operations, cash flows and financial condition.
Government regulations and policies pertaining to trade agreements, health and safety (including
protection of employees as well as consumers), taxes and environment (including those specific to
climate change and the reduction of air and energy emissions) may continue to emerge in the U.S., as
well as internationally. In particular, there may be additional tariffs or taxes related to our imported raw
materials, components and finished goods. It is necessary for us to comply with current requirements
(including requirements that do not become effective until a future date), and even more stringent
requirements could be imposed on our products or processes in the future. Compliance with changes in
taxes, tariffs and other regulations may require us to further alter our manufacturing and installation
processes and our sourcing. Such actions may result in customers transitioning to available competitive
products; loss of market share; negative publicity; reputational damage; loss of customer confidence; or
other negative consequences (including a decline in stock price) and could increase our capital
expenditures and adversely impact our results of operations, cash flows and financial condition.
14
Future tax law changes or the interpretation of existing tax laws may materially impact our
effective income tax rate, the resolution of unrecognized tax benefits and cash tax payments.
Our businesses are subject to taxation in the U.S., as well as internationally, including income tax, value-
added tax and property tax. Our total tax expense could be affected by changes in tax rates in the
jurisdictions in which our businesses are subject to taxation, changes in the valuation of deferred tax
assets and liabilities, or changes in tax laws or the interpretation of such laws by tax authorities which
may have a material impact on our financial results. In addition, we are routinely audited by tax authorities
in many jurisdictions. Although we believe we record and accrue tax estimates that are reasonable and
appropriate, these estimates are based on assumptions and require the exercise of significant judgment,
and there are significant uncertainties in these estimates. As a result, the ultimate outcome from any audit
could be materially different from amounts reflected in our income tax provisions and accruals. Future
settlements of income tax audits may have a material adverse effect on earnings between the period of
initial recognition of tax estimates in our financial statements and the point of ultimate tax audit
settlement.
Our inability to secure and protect our intellectual property rights could negatively impact
revenues and brand reputation.
We have many patents, trademarks, brand names, trade names and trade secrets that, in the aggregate,
are important to our business. Unauthorized use of these intellectual property rights or other loss of our
intellectual property competitive position may not only erode sales of our products but also cause us to
incur substantial significant damage to our brand name and reputation, interfere with our ability to
effectively represent the Company to our customers, contractors and suppliers, and increase litigation
costs. There can be no assurance that our efforts to protect our brands and trademark rights will prevent
violations. In addition, existing patent, trade secret and trademark laws offer only limited protection, and
the laws of some countries in which our products are or may be developed, manufactured or sold may not
fully protect our intellectual property from infringement by others. There can be no assurance that our
efforts to assess possible third-party intellectual property rights will ensure the Company’s ability to
manufacture, distribute, market or sell in any given country or territory. Furthermore, others may assert
intellectual property infringement claims against us or our customers which may require us to incur
significant expense to defend such litigation or indemnify our customers.
Potential liabilities and costs from claims and litigation could adversely affect our results of
operations, cash flows and financial condition.
We are, from time to time, involved in various claims, litigation matters and regulatory proceedings that
arise in the ordinary course of our business and that could have an adverse effect on us. These matters
may include contract disputes, intellectual property disputes, product recalls, personal injury claims,
construction defects and home warranty claims, warranty disputes, environmental claims or proceedings,
other tort claims, employment and tax matters, and other proceedings and litigation, including class
actions. It is not possible to predict the outcome of pending or future litigation, and, as with any litigation, it
is possible that some of the actions could be decided unfavorably and could have an adverse effect on
our results of operations, cash flows and financial condition.
We are subject to product safety regulations, recalls and direct claims for product liability that can result in
significant liability and, regardless of the ultimate outcome, can be costly to defend. As a result of the
difficulty of controlling the quality of products or components sourced from other manufacturers, we are
exposed to risks relating to the quality of such products and to limitations on our recourse against such
suppliers.
15
Risks Related to the Separation of MasterBrand
The Separation may not achieve some or all of the benefits anticipated, and, following the
Separation, our stock price may underperform relative to our expectations.
By completing the Separation of MasterBrand, the Company created two independent, publicly traded
companies with the resources to enhance the long-term growth and return prospects and offer
substantially greater long-term value to the stockholders, customers and employees of each company.
Although we believe that the Separation will provide financial, operational and other benefits to us and our
stockholders, it may not provide such results on the scope or scale that we anticipate, and we may not
realize the full strategic and financial benefits we expect. Failure to achieve these benefits could
adversely impact our results of operations, cash flows, financial condition and stock price. We are now a
smaller and less diversified business than before the Separation, and accordingly certain business and
operational risks may be amplified by the Separation.
In connection with the Separation, the Company and MasterBrand have agreed to indemnify each
other for certain liabilities. If we are required to indemnify MasterBrand, our financial results could
be negatively impacted. Further, MasterBrand’s indemnities may not be sufficient to hold the
Company harmless from the full amount of liabilities for which MasterBrand has been allocated
responsibility, and MasterBrand may not be able to satisfy its indemnification obligations in the
future.
Pursuant to the Separation and Distribution Agreement and certain other agreements between the
Company and MasterBrand related to the Separation, each party has agreed to indemnify the other for
certain liabilities, in each case for uncapped amounts. Indemnities that MasterBrand is required to provide
to us are not subject to any cap and may be significant and could negatively impact our business. Third
parties could also seek to hold us responsible for any of the liabilities that MasterBrand has agreed to
retain. Any amounts that we may be required to pay pursuant to these indemnification obligations and
other liabilities could require us to divert cash that would otherwise have been used in furtherance of our
operating business. Further, the indemnities from MasterBrand for our benefit may not be sufficient to
protect us against the full amount of such liabilities, and MasterBrand may not be able to fully satisfy its
indemnification obligations.
Moreover, even if we ultimately succeed in recovering from MasterBrand any amounts for which we are
held liable, we may be temporarily required to bear these losses. Each of these risks could negatively
affect our results of operations, cash flows and financial condition.
If the Separation, together with certain related transactions, were to fail to qualify as tax-free for
U.S. federal income tax purposes, then we and our stockholders could be subject to significant
tax liability or tax indemnity obligations.
We received a private letter ruling from the Internal Revenue Service (the “IRS” and the “IRS Ruling”) and
an opinion from Sidley Austin LLP (the “Sidley Opinion”), together, substantially to the effect that the spin-
off and the Separation of MatserBrand will qualify as tax-free for U.S. federal income tax purposes under
Section 355 of the U.S. Internal Revenue Code of 1986 (except for any stockholders that received cash in
lieu of fractional shares of common stock).
Although a private letter ruling from the IRS is generally binding on the IRS, the IRS Ruling relied on
certain facts, assumptions and representations from us and MasterBrand, including representations
regarding the past and future conduct of our respective businesses. Moreover, the IRS Ruling is not a
comprehensive ruling regarding all aspects of the U.S. federal income tax consequences of the
Separation. The Sidley Opinion also relied on certain facts, assumptions and representations, as
described therein, as well as the continued validity of the IRS Ruling. The Sidley Opinion is not binding on
the IRS or the courts, and the IRS or the courts may not agree with such opinion.
16
Notwithstanding the IRS Ruling and the Sidley Opinion, the IRS could determine that the Separation
should be treated as taxable if it determines that any of these facts, assumptions, or representations is
not correct or has been violated or if it disagrees with the conclusions in the opinion that are not covered
by the IRS Ruling, or for other reasons, including as a result of a significant change in stock or asset
ownership after the Separation. If the Separation ultimately is determined to be taxable, the Separation
could be treated as a taxable dividend or capital gain to our stockholders for U.S. federal income tax
purposes. In addition, the Company could recognize gains in an amount equal to the excess of the fair
market value of the MasterBrand common stock distributed to Fortune Brands' stockholders on the date
of the Separation over Fortune Brands’ tax basis in such MasterBrand common stock. Furthermore,
Fortune Brands could incur significant tax indemnification obligations under the Tax Allocation Agreement
related to the Separation.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our principal executive office is located in Deerfield, Illinois. We operate 15 U.S. manufacturing facilities
in 8 states and have 14 manufacturing facilities in international locations (4 in Mexico, 4 in Europe, 4 in
Africa, 1 in Asia and 1 in Canada). In addition, we have 52 distribution centers and warehouses
worldwide, of which 41 are leased. The following table provides additional information with respect to
these properties.
Segment
Water Innovations
Outdoors & Security
Totals
Manufacturing
Facilities
Leased
5
3
8
Owned
7
14
21
Total
12
17
29
Distribution Centers
and Warehouses
Owned
7
4
11
Leased
23
18
41
Total
30
22
52
We are of the opinion that the properties are suitable to our respective businesses and have production
capacities adequate to meet the current needs of our businesses.
Item 3. Legal Proceedings.
The Company is a defendant in lawsuits that are ordinary, routine litigation matters incidental to its
businesses. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is
possible that these actions could be decided unfavorably to the Company. The Company believes that
there are meritorious defenses to these actions and that these actions will not have a material adverse
effect upon the Company’s results of operations, cash flows or financial condition, and, where
appropriate, these actions are being vigorously contested. Accordingly, the Company believes the
likelihood of material loss is remote.
Item 4. Mine Safety Disclosures.
Not applicable.
17
Information about our current Executive Officers
As of the date of this filing, our executive officers are:
Name
Nicholas I. Fink
Patrick D. Hallinan
Cheri M. Phyfer
Hiranda S. Donoghue
Sheri R. Grissom
John D. Lee
Ron Wilson
Dan Luburic
Age
48
55
51
44
58
50
57
51
Position
Chief Executive Officer
Executive Vice President & Chief Financial Officer*
Executive Vice President and Group President
Executive Vice President, Chief Legal Officer & Corporate Secretary
Executive Vice President, Chief Human Resources and Transformation
Officer
Executive Vice President, Chief Strategy and Growth Officer
Executive Vice President and Chief Supply Chain Officer
Vice President and Corporate Controller
Nicholas I. Fink has served as Chief Executive Officer since January 2020. From March 2019 to January
2020, Mr. Fink served as President and Chief Operating Officer of Fortune Brands. From July 2016 to
March 2019, Mr. Fink served as President of the Company’s Water Innovations business.
Patrick D. Hallinan has served as Executive Vice President & Chief Financial Officer of Fortune Brands
since July 2017. From January 2017 to July 2017, Mr. Hallinan served as Senior Vice President of
Finance of Fortune Brands.
Cheri M. Phyfer has served as Executive Vice President and Group President of Fortune Brands since
September 2022. From March 2019 to September 2022, Ms. Phyfer served as President of the
Company's Water Innovations segment. Ms. Phyfer served as President of Moen’s U.S. business from
February 2018 to March 2019. Prior to that, Ms. Phyfer held various positions at the Sherwin-Williams
Company, a manufacturer of paint and coatings products, including President of the Consumer Brands
Group in 2017 and President & General Manager – Diversified Brands from 2013 to 2017.
Hiranda S. Donoghue has served as Executive Vice President, Chief Legal Officer & Corporate
Secretary of Fortune Brands since December 2021. Ms. Donoghue served as Vice President & Deputy
General Counsel of Baxter International Inc., a healthcare company, from November 2018 to December
2021. Prior to that, Ms. Donoghue held various positions as a legal advisor at Walgreen Co., from
October 2007 to November 2018, including most recently as Vice President, Corporate and M&A Legal
from October 2017 to November 2018.
Sheri R. Grissom has served as Executive Vice President, Chief Human Resources and Transformation
Officer of Fortune Brands since February 2015.
John D. Lee has served as Executive Vice President, Chief Strategy and Growth Officer of Fortune
Brands since January 2020. Mr. Lee served as Senior Vice President, Global Growth & Development of
the Water Innovations segment from July 2016 to January 2020.
Ron Wilson has served as Executive Vice President and Chief Supply Chain Officer of Fortune Brands
since September 2022. Mr. Wilson joined Fortune Brands as Senior Vice President of Global Operations
of the Company’s Water Innovations segment from November 2019 to September 2022. Prior to that, Mr.
Wilson served as Vice President of Operations for ABB, an electrification and automation technology
company, from June 2018 to April 2019 and as Vice President of Operations for the Industrial Solutions
business of General Electric, an industrial technology company, from January to June 2018.
Dan Luburic has served as Vice President and Corporate Controller of Fortune Brands since October
2011.
*As previously announced, Mr. Patrick D. Hallinan notified the Company of his intention to resign as
Executive Vice President and Chief Financial Officer of the Company and Mr. David V. Barry has been
appointed by the Board of Directors to succeed Mr. Hallinan, each effective on March 2, 2023.
18
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
Market Information, Dividends and Holders of Record
Our common stock is listed on the New York Stock Exchange under the ticker symbol “FBIN”. On
December 15, 2022, our ticker symbol was changed from FBHS to FBIN.
In December 2022, our Board of Directors announced a quarterly cash dividend of $0.23 per share of our
common stock. 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, or at what
level, because the payment of dividends is dependent upon our financial condition, results of operations,
capital requirements and other factors deemed relevant by our Board of Directors.
The source of our unconsolidated revenues and funds is dividends and other payments from our
subsidiary businesses. 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.
On February 10, 2023, there were 7,691 record holders of the Company’s common stock, par value $0.01
per share. A substantially greater number of holders of the Company’s common stock are “street name”
or beneficial holders, whose shares of record are held by banks, brokers or other financial institutions.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Below are the repurchases of common stock by the Company or any “affiliated purchaser” (as defined in
Rule 10b-18(a)(3) under the Exchange Act) for the three months ended December 31, 2022:
Three Months Ended December 31, 2022
October 1 – October 31
November 1 – November 30
December 1 – December 31
Total
Total number of
shares purchased(a)
689,000
—
—
689,000
Average price
paid per share
56.54
$
—
—
56.54
$
(a) Information on the Company’s share repurchase program follows:
Total number of
shares purchased
as part of publicly
announced plans
or programs(a)
689,000
—
—
689,000
Approximate dollar
value of shares that may
yet be purchased under
the plans or programs(a)
584,610,783
$
584,610,783
584,610,783
Authorization date
March 2, 2022
Announcement date
March 2, 2022
Authorization amount of shares
of outstanding common stock
$750,000,000
Expiration date
March 2, 2024
19
Stock Performance
The above graph compares the relative performance of our common stock, the S&P 500 Index, the S&P
MidCap 400 Index, our Peer Group and the S&P MidCap 400 Consumer Durables Index. This graph
covers the period from December 31, 2017 through December 31, 2022. This graph assumes $100 was
invested in the stock or the index on December 31, 2017 and also assumes the reinvestment of
dividends. As a result of the Separation, we are no longer considered a component of the S&P 500 Index
as of December 31, 2022 and will no longer provide a comparison to that index in future years. We will
also no longer provide a comparison to our selected peer group index, as we believe that this group is no
longer representative of our peers following the Separation. We have selected the S&P MidCap 400
Index and S&P MidCap 400 Consumer Durables Index for comparison going forward due to the
similarities of the companies in those indexes with respect to our market capitalization and line of
business, respectively. The foregoing performance graph is being furnished as part of this Annual Report
on Form 10-K solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish our
stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by
reference into any filings by the Company under the Securities Act or the Exchange Act.
Peer Group Index. The 2022 peer group is composed of the following publicly traded companies
corresponding to the Company’s core businesses:
Armstrong World Industries Inc., Fastenal Co., American Woodmark, Masonite, Leggett & Platt Inc.,
Lennox International Inc, Masco Corp, Mohawk Industries, Inc., Newell Brands, Sherwin-Williams Co.,
and Stanley Black & Decker, Inc.
20
Calculation of Peer Group Index
The weighted-average total return of the entire peer group, for the period of December 31, 2017 through
December 31, 2022, is calculated in the following manner:
(1)
The total return of each peer group member is calculated by dividing the change in market
value of a share of its common stock during the period, assuming reinvestment of any
dividends, by the value of a share of its common stock at the beginning of the period; and
(2) Each peer group member’s total return is then weighted within the index based on its market
capitalization relative to the market capitalization of the entire index, and the sum of such
weighted returns results in a weighted-average total return for the entire Peer Group Index.
Item 6. Reserved.
Not applicable.
21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Introduction
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”)
is a supplement to the accompanying consolidated financial statements and provides additional
information on our business, recent developments, financial condition, liquidity and capital resources,
cash flows and results of operations. MD&A is organized as follows:
• Overview: This section provides a general description of our business and a discussion of
management’s general outlook regarding market demand, our competitive position and product
innovation, as well as recent developments we believe are important to understanding our results of
operations and financial condition or in understanding anticipated future trends.
•
Basis of Presentation: This section provides a discussion of the basis on which our consolidated
financial statements were prepared.
• Results of Operations: This section provides an analysis of our results of operations for the years
ended December 31, 2022, 2021 and 2020.
•
Liquidity and Capital Resources: This section provides a discussion of our financial condition and an
analysis of our cash flows for each of the three years ended December 31, 2022, 2021 and 2020.
This section also provides a discussion of our contractual obligations, other purchase commitments
and customer credit risk that existed at December 31, 2022, as well as a discussion of our ability to
fund our future commitments and ongoing operating activities through internal and external sources of
capital.
• Critical Accounting Estimates: This section identifies and summarizes those accounting policies that
significantly impact our reported results of operations and financial condition and require significant
judgment or estimates on the part of management in their application.
Overview
The Company is a leader in home, security and commercial building products focused on the design,
manufacture and sale of market-leading branded products in the following categories: plumbing and
accessories, entry door and storm door systems, security products, and outdoor performance materials
used in decking and railing products.
For the year ended December 31, 2022, net sales based on country of destination were:
(In millions)
United States
China
Canada
Other international
Total
$
$
3,763.6
363.9
368.2
227.3
4,723.0
80%
8
8
4
100%
We believe that the Company has certain competitive advantages including market-leading brands, a
diversified mix of channels, lean and flexible supply chains 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, has helped 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
22
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.
During the three years ended December 31, 2022, our net sales grew at a compounded annual rate of
11.8% as we benefited from a growing U.S. home products market, acquisitions and growth in
international markets. Operating income grew at a compounded annual rate of 14.2% with consolidated
operating margins between 15% and 17% from 2020 to 2022. Growth in operating income was primarily
due to higher sales volume, changes to our portfolio of businesses, control over our operating expenses
and the benefits of manufacturing productivity programs.
During 2022, the U.S. home products market grew due to increases in repair and remodel and new home
construction activity. We believe spending for home repair and remodeling increased approximately 4%
and new housing construction experienced approximately 3% growth in 2022 compared to 2021. In 2022,
net sales declined 1.6% due to slowing housing market activity in China, lower sales unit volume in both
of our segments due to the impact of inventory reductions by our distribution channel partners, lower
sales demand in the U.S. and Canada and higher sales incentives, as well as unfavorable foreign
exchange of approximately $41 million. These factors were partially offset by price increases to help
mitigate the impact of cumulative commodity and transportation cost increases in both of our segments
and the benefit from the Solar and Aqualisa acquisitions ($50.2 million combined). In 2022, operating
income decreased 4.5% over 2021 primarily due to lower net sales, higher commodity costs, separation
and other transaction costs related to the Separation ($83 million in 2022, of which $73 million is
presented within discontinued operations), and higher transportation, restructuring, sales rebate and
headcount related costs, as well as unfavorable foreign exchange of approximately $12 million. These
factors were partially offset by the benefit from productivity improvements, favorable geographic channel
mix in the Water Innovations segment and lower advertising and marketing costs.
Recent Developments
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.
n
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
23
and is expected to close in the second quarter of 2023. 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
believe the acquisition of Aqualisa will enable us to continue to leverage growing trends in water
management and connected products. We financed the transaction with borrowings under our existing
credit facility. The assets and liabilities of Aqualisa were included in the Company’s consolidated balance
sheet as of December 31, 2022. Aqualisa's net sales, operating income and cash flows from the date of
acquisition to December 31, 2022 were not material to the Company and are included in the Water
Innovations segment.
In January 2022, we acquired 100% of the outstanding equity of Solar Innovations LLC and an affiliated
entity (together, “Solar”), a leading producer of wide-opening exterior door systems and outdoor
enclosures, for a purchase price of $61.6 million, net of cash acquired. Its complementary product
offerings support the segment’s outdoor living strategy. The purchase price is subject to a final post-
closing working capital adjustment. We financed the transaction using cash on hand and borrowings
under our revolving credit facility. The assets and liabilities of Solar were included in the Company’s
consolidated balance sheet as of December 31, 2022. Solar's net sales, operating income and cash flows
from the date of acquisition to December 31, 2022 were not material to the Company and are included in
the Outdoors & Security segment.
On December 14, 2022, the Company completed the spin-off of its Cabinets business, MasterBrand, Inc.
("MasterBrand"), via a tax-free spin-off transaction (the "Separation"). The Separation created two
independent, publicly traded companies. 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 Annual Report on Form 10-K. All amounts, percentages
and disclosures for all periods presented reflect only the continuing operations of the Company unless
otherwise noted. See Note 5, Discontinued Operations, in the consolidated financial statements in Item 8
of this Annual Report on Form 10-K for additional information.
Basis of Presentation
The consolidated financial statements in this Annual Report on Form 10-K have been derived from the
accounts of the Company and its wholly-owned subsidiaries. The Company’s consolidated financial
statements are based on a fiscal year ending December 31. Certain of the Company’s subsidiaries
operate on a 52- or 53-week fiscal year ending during the month of December.
Results of Operations
The following discussion of both consolidated results of operations and segment results of operations
refers to the year ended December 31, 2022 compared to the year ended December 31, 2021, and the
year ended December 31, 2021 compared to the year ended December 31, 2020. The discussion of
consolidated results of operations should be read in conjunction with the discussion of segment results of
operations and our financial statements and notes thereto included in this Annual Report on Form 10-K.
Unless otherwise noted, all discussion of results of operations are for continuing operations.
24
Years Ended December 31, 2022, 2021 and 2020
(In millions)
Net Sales:
Water Innovations
Outdoors & Security
Total Fortune Brands
Operating Income:
Water Innovations
Outdoors & Security
Corporate
Total Fortune Brands
2022 % change
2021
%
change
2020
$ 2,570.2
2,152.8
$ 4,723.0
$
$
614.6
289.6
(129.9)
774.3
(6.9)% $ 2,761.2
5.5
2,039.9
(1.6)% $ 4,801.1
25.4% $ 2,202.1
43.7
1,419.2
32.6% $ 3,621.3
(2.4)% $
(0.8)
(17.6)
(4.5)% $
629.7
291.9
(110.5)
811.1
34.6% $
45.0
(8.9)
42.9% $
467.9
201.3
(101.5)
567.7
Certain items had a significant impact on our results in 2022, 2021 and 2020. These included
restructuring and other charges, asset impairment charges and the impact of changes in foreign currency
exchange rates.
In 2022, financial results included:
•
•
the impact of foreign exchange primarily due to movement in the Canadian dollar, Mexican peso,
British pound and Chinese yuan, which had an unfavorable impact compared to 2021, of
approximately $41 million on net sales and of approximately $12 million both on operating income
and net income; and
restructuring and other charges of $26.8 million before tax ($19.6 million after tax), largely related to
severance, asset impairment and other costs associated with plant closures and headcount actions
across both segments, net of a gain on the sale of a previously closed manufacturing facility within
our Outdoors & Security segment of approximately $6 million.
In 2021, financial results included:
•
•
the impact of foreign exchange primarily due to movement in the Canadian dollar, Mexican peso,
British pound and Chinese yuan, which had a favorable impact compared to 2021, of approximately
$55 million on net sales and of approximately $21 million on operating income; and
restructuring and other charges of $12.8 million before tax ($10.0 million after tax), largely related to
severance costs associated with the relocation of manufacturing facilities within the Outdoors &
Security segment.
In 2020, financial results included:
•
•
restructuring and other charges of $14.3 million before tax ($9.4 million after tax), largely related to
headcount actions associated with COVID-19 across both segments and costs associated with
changes in our manufacturing processes within our Water Innovations segment; and
asset impairment charges of $13.0 million related to the impairment of an indefinite-lived tradename
within our Water Innovations segment, which was primarily the result of forecasted sales declines
resulting from the COVID-19 pandemic.
25
2022 Compared to 2021
Total Fortune Brands
Net sales
Net sales decreased by $78.1 million, or 1.6%, due to slowing housing market activity in China, lower
sales unit volume in both of our segments due to the impact of inventory reductions by our distribution
channel partners, lower sales demand in the U.S. and Canada and higher sales incentives, as well as
unfavorable foreign exchange of approximately $41 million. These factors were partially offset by price
increases to help mitigate the impact of cumulative commodity and transportation cost increases in both
of our segments and the benefit from the Solar and Aqualisa acquisitions ($50.2 million combined).
Cost of products sold
Cost of products sold decreased by $50.5 million, or 1.8%, due to lower sales volume, productivity
improvements, a gain on the sale of a previously closed manufacturing facility within our Outdoors &
Security segment and the absence of Larson's 2021 acquisition-related inventory fair value adjustment
amortization of $3.3 million, which did not recur in 2022. These benefits are partially offset by the impact
of raw material cost increases, the impact of acquisitions and labor cost increases, as well as an
unfavorable inventory-related expense write-off in our Outdoors & Security segment.
Selling, general and administrative expenses
Selling, general and administrative expenses decreased by $15.8 million, or 1.4%, due to lower net sales
and lower advertising, marketing and headcount related costs. These factors were partially offset by
higher transportation costs and the impact of acquisitions.
Restructuring charges
Restructuring charges of $32.4 million in 2022 are largely related to severance, asset impairment and
other costs associated with plant closures and headcount actions across both segments. Restructuring
charges of $9.3 million in 2021 were largely related to severance costs associated with the relocation of
manufacturing facilities within our Outdoors & Security segment.
Operating income
Operating income decreased by $36.8 million, or 4.5%, primarily due to lower net sales, higher
commodity costs, separation and other transaction costs related to the Separation ($83 million in 2022, of
which $73 million is presented within discontinued operations), and higher transportation, restructuring,
sales rebate and headcount related costs, as well as unfavorable foreign exchange of approximately $12
million. These factors were partially offset by the benefit from productivity improvements, favorable
geographic channel mix in the Water Innovations segment and lower advertising and marketing costs.
Interest expense
Interest expense increased by $34.9 million, or 41.4%, due to higher average interest rates and higher
average borrowings.
26
Other (income) expense, net
Other (income) expense, net, was income of $12 million in 2022, compared to expense of $0.4 million in
2021. The increase in other income, net is primarily due to the absence of a non-cash loss of $4.5 million
related to the 2021 remeasurement of our investment in Flo immediately prior to consolidation, higher
defined benefit income ($3.7 million increase), higher interest income and favorable foreign currency
adjustments.
Income taxes
The 2022 effective income tax rate was unfavorably impacted by state and local income taxes, foreign
income taxed at higher rates, as well as non-deductible executive compensation. This expense was offset
by favorable benefits for the release of uncertain tax positions, primarily related to audit closures and
statute of limitations lapses, share-based compensation and a valuation allowance decrease.
The 2021 effective income tax rate was unfavorably impacted by state and local income taxes, foreign
income taxed at higher rates, as well as non-deductible executive compensation. The 2021 expense was
offset by favorable benefits for the release of uncertain tax positions, primarily related to statute of
limitations lapses, and share-based compensation.
Income from Continuing Operations, net of tax
Income from continuing operations, net of income taxes, decreased by $19.8 million, or 3.5%, due to
lower net sales, lower operating income and higher interest expense, partly offset by higher other income
and lower tax expense.
Income from discontinued operations, net of tax
Income from discontinued operations, net of income taxes, for the year ended December 31, 2022
included eleven and a half months of results of our former Cabinets segment. Income decreased by $65.9
million, or 31.0%, due to lower operating income including transaction costs related to the Separation
($73.1 million) and impairments related to two indefinite-lived tradenames ($46.4 million), higher income
tax expense and higher defined benefit costs. Refer to Note 5, Discontinued Operations, in the
consolidated financial statements in Item 8 in this Annual Report on Form 10k for additional details.
Results By Segment
Water Innovations
Net sales decreased by $191.0 million, or 6.9%, due to slowing housing market activity in China, lower
sales unit volume driven by inventory reductions by our distribution channel partners, lower sales demand
in the U.S. and Canada, and higher promotion and sales rebate costs, as well as unfavorable foreign
exchange of approximately $30 million. These factors were partially offset by the benefit from price
increases to help mitigate the impact of cumulative commodity and transportation cost increases, the
benefit from the Aqualisa acquisition ($22 million) and sales increases in our U.S. e-commerce channel.
Operating income decreased by $15.1 million, or 2.4%, due to lower net sales, the impact of higher
commodity, freight and restructuring costs and unfavorable foreign exchange of approximately $11
million. These factors were partially offset by lower employee-related costs, lower advertising and
marketing costs, and favorable geographic channel mix.
Outdoors & Security
Net sales increased by $112.9 million, or 5.5%, due to price increases to help mitigate the impact of
cumulative commodity and transportation cost increases and the benefit from the Solar acquisition ($28.5
million). These benefits were partially offset by lower sales demand for our exterior doors and decking
27
products and lower sales unit volume due to the impact of inventory reductions by our distribution channel
partners, as well as unfavorable foreign exchange of approximately $11 million.
Operating income decreased by $2.3 million, or 0.8%, due to commodity cost inflation, higher employee-
related and freight costs, and higher restructuring charges, as well as unfavorable foreign exchange of
approximately $1 million. These factors were partially offset by higher net sales and manufacturing
productivity improvements.
Corporate
Corporate expenses increased by $19.4 million, or 17.3%, due to higher consulting costs relating to our
digital transformation initiatives.
2021 Compared to 2020
Total Fortune Brands
Net sales
Net sales increased by $1,179.8 million, or 32.6%, due to higher sales volume including the favorable
comparison to 2020, when our volumes were impacted by the COVID-19 pandemic, the benefit from the
Larson acquisition ($403.4 million) and price increases to help mitigate the impact of cumulative
commodity and transportation cost increases, as well as favorable foreign exchange of approximately $55
million, partially offset by unfavorable mix.
Cost of products sold
Cost of products sold increased by $683.2 million, or 31.7%, due to higher net sales, the impact of the
Larson acquisition including higher amortization of the acquisition related inventory fair value adjustment
($3.3 million in 2021), commodity cost inflation, higher tariffs and labor inflation, partially offset by the
benefit from manufacturing productivity improvements and product mix.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $245.1 million, or 28.9%, due to higher
employee-related costs, the impact of the Larson acquisition and higher transportation and advertising
costs.
Amortization of intangible assets
Amortization of intangible assets increased by $22.2 million, or 91.7% primarily due to the Larson
acquisition in our Outdoors & Security segment ($18.2 million) and the 2021 consolidation of Flo in our
Water Innovations segment ($2.6 million).
Asset impairment charges
Asset impairment charges of $13.0 million in 2020 related to indefinite-lived tradenames within our Water
Innovations segment.
Restructuring charges
Restructuring charges of $9.3 million in 2021 largely related to severance costs associated with the
relocation of manufacturing facilities within our Outdoor & Security segment. Restructuring charges of
$10.4 million in 2020 largely related to headcount actions associated with COVID-19 across both
segments and costs associated with changes in our manufacturing processes within our Water
Innovations segment.
28
Operating income
Operating income increased by $243.4 million, or 42.9%, primarily due to higher net sales, the benefit
from the Larson acquisition, manufacturing productivity improvements, the absence of the 2020 asset
impairment charges, and lower restructuring and other charges, as well as favorable foreign exchange of
approximately $21 million. These benefits were partially offset by higher commodity, employee-related
transportation and advertising costs, higher amortization of intangible assets principally due to the Larson
acquisition, and higher tariffs.
Interest expense
Interest expense increased by $0.5 million to $84.3 million, due to higher average borrowings partially
offset by lower average interest rates.
Other expense (income), net
Other expense (income), net, was expense of $0.4 million in 2021, compared to income of $15.3 million in
2020. The decrease of $15.7 million of income is primarily due to losses of $5.0 million in 2021 and gains
of $11.0 million in 2020 related to our investment in Flo prior to its consolidation and unfavorable foreign
currency losses, partially offset by higher defined benefit income ($1.9 million increase).
Income taxes
The 2021 and 2020 effective income tax rates were unfavorably impacted by state and local income
taxes, foreign income taxed at higher rates and non-deductible executive compensation. Both 2021 and
2020 expenses were offset by favorable benefits for the release of uncertain tax positions, primarily
related to statute of limitations lapses, and share-based compensation.
Income from Continuing Operations, Net of Income Taxes
Income from discontinued operations, net of income taxes, increased by $178.9 million, or 47.0%, due to
higher operating income and lower equity in losses of affiliate, partly offset by higher income tax
expenses, higher other expense and higher interest expense.
Income from Discontinued Operations, Net of Income Taxes
Income from discontinued operations, net of income taxes, for the year ended December 31, 2021
included twelve months of results of our former Cabinets segment. Income increased by $39.1 million, or
22.6%, due to higher operating income and higher defined benefit income, partially offset by higher
income tax expense. Refer to Note 5, Discontinued Operations, in the consolidated financial statements
in Item 8 in this Annual Report on Form 10K for additional details.
Results By Segment
Water Innovations
Net sales increased by $559.1 million, or 25.4%, due to higher sales volume across all brands and
markets, including showroom customers whose locations were negatively impacted in 2020 by the
COVID-19 pandemic, and price increases to help mitigate the impact of cumulative commodity and
transportation cost increases, as well as favorable foreign exchange of approximately $53 million. These
benefits were partially offset by higher volume-based rebate costs.
Operating income increased by $161.8 million, or 34.6%, due to higher net sales, the benefit from
manufacturing productivity improvements, the absence of the 2020 asset impairment charge ($13.0
million) and favorable restructuring and other charges, as well as favorable foreign exchange of
approximately $21 million. These benefits were partially offset by the impact of higher employee-related,
29
freight, commodity, advertising and tariff costs, higher amortization of intangible assets related to the Flo
acquisition and higher volume-based rebate costs.
Outdoors & Security
Net sales increased by $620.7 million, or 43.7%, due to the benefit from the Larson acquisition ($403.4
million), higher sales volume including the favorable comparison to 2020, when our volumes were
impacted by the COVID-19 pandemic, price increases to help mitigate the impact of cumulative
commodity and transportation cost increases, and lower rebate costs due to timing of sales in 2021
versus prior year period, as well as favorable foreign exchange of approximately $1 million. These
benefits were partially offset by unfavorable mix primarily driven by materials availability.
Operating income increased by $90.6 million, or 45.0%, due to higher net sales, the benefit from the
Larson acquisition and manufacturing productivity improvements. These benefits were partially offset by
commodity cost inflation, higher freight and employee-related costs, and higher restructuring charges, as
well as unfavorable foreign exchange of approximately $1 million.
Corporate
Corporate expenses increased by $7.0 million, or 6.8%, due to higher employee-related and consulting
costs. These factors were partly offset by the absence of transaction costs associated with the Larson
acquisition in 2020 ($4.5 million) and the absence of the impairment of a long-lived asset in 2020 ($3.6
million).
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. 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 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 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).
30
At December 31, 2022, 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 31, 2022 and December 31, 2021:
(in millions)
Coupon Rate
4.000% Senior Notes $
4.000% Senior Notes
3.250% Senior Notes
4.000% Senior Notes
4.500% Senior Notes
Total Senior Notes $
Principal
Amount
500.0
600.0
700.0
450.0
450.0
2,700.0
Credit Facilities
Issuance Date
Maturity Date
June 2015
September 2018
September 2019
March 2022
March 2022
June 2025
September 2023
September 2029
March 2032
March 2052
Net Carrying Value
December 31,
2022
December 31,
2021
$
$
498.1
599.2
695.0
445.8
435.4
2,673.5
$
$
497.4
598.2
694.2
-
-
1,789.8
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 December 31, 2022 and December 31, 2021, our outstanding borrowings under
this credit facility and our previous revolving credit facility were zero and $520.0 million, respectively. As
of December 31, 2022, we believe we are in compliance with all covenants under this credit facility.
In November 2021, the Company entered into a 364-day, $400 million term loan credit agreement (“2021
Term Loan”) for general corporate purposes that matured 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 December 31, 2022 and December 31, 2021, of
which there were no outstanding balances as of December 31, 2022 and 2021. The weighted-average
interest rates on these borrowings were zero in 2022 and 2021.
Commercial Paper
In November 2021, the Company established 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
31
Program are included in Long-term debt in the consolidated balance sheets. Amounts available under the
Commercial Paper Program may be borrowed, repaid and re-borrowed, with the aggregate principal
amount outstanding at any time, including borrowings under the 2022 Revolving Credit Agreement, not to
exceed $1.25 billion. The Company plans to use net proceeds from any issuances under the Commercial
Paper Program for general corporate purposes. On December 31, 2022 and December 31, 2021, there
were no outstanding borrowings under the Commercial Paper Program.
As of December 31, 2022, the components of our long-term debt were as follows:
(In millions)
Notes (due 2023 to 2052)
2022 Revolving Credit Agreement
2021 Term Loan
Total debt
Less: current portion
Total long-term debt
$
$
2022
2,673.5 $
—
—
2,673.5
599.2
2,074.3 $
2021
1,789.8
520.0
400.0
2,709.8
400.0
2,309.8
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 31, 2022.
Cash and Seasonality
In 2022, we invested approximately $172.8 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 2023 to be in the range of $250 million to $300 million, reflecting incremental capacity
investments in our decking product line within Outdoors & Security. On December 31, 2022, we had cash
and cash equivalents of $642.5 million, of which $403.9 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. We use operating
cash in the first quarter of the year. We believe that our current cash position, cash flow generated from
operations, and amounts available under our revolving credit facility should be sufficient for our operating
requirements and enable us to fund our capital expenditures, share repurchases dividend payments, and
any required long-term debt payments. The Company intends to repay or refinance the $600 million
outstanding principal amount of 4.00% Senior Notes due September 2023 and to fund the approximately
$800 million purchase price of the pending acquisition discussed below with cash on hand and
borrowings under our existing credit facility. In addition, we believe that we have the ability to obtain
alternative sources of financing if required.
Share Repurchases
In 2022, we repurchased 7.6 million shares of our outstanding common stock under the Company’s share
repurchase program for $580.1 million. As of December 31, 2022, the Company’s total remaining share
repurchase authorization under the remaining program was approximately $584.6 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.
Dividends
In 2022, we paid dividends in the amount of $145.6 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
32
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
We periodically review our portfolio of brands and evaluate potential strategic transactions and other
capital initiatives to increase stockholder value.
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
and is expected to close in the second quarter of 2023. 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 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
Innovations segment. We believe its product offerings will enable us to continue to leverage growing
trends in water management and connected products. We financed the transaction with borrowings under
our existing credit facility. We have not included pro forma financial information as the transaction is
immaterial to our condensed consolidated statements of comprehensive income. The fair value allocated
to assets acquired and liabilities assumed as of July 29, 2022 was $156.0 million, which includes $88.7
million of goodwill. Goodwill includes expected sales and cost synergies and is not expected to be
deductible for income tax purposes.
In January 2022, we acquired 100% of the outstanding equity of Solar for a purchase price of $61.6
million, net of cash acquired of $4.8 million. The purchase price is subject to a final post-closing working
capital adjustment. We financed the transaction using cash on hand and borrowings under our revolving
credit facility. The results of Solar are reported as part of the Outdoors & Security segment. Its
complementary product offerings support the segment’s outdoor living strategy. Solar's net sales and
operating income for the three and nine months ended September 30, 2022 were not material to the
Company. We have not included pro forma financial information as the transaction is immaterial to our
condensed consolidated statements of comprehensive income. The fair value allocated to assets
acquired and liabilities assumed as of January 31, 2022 was $61.6 million, which includes $23.3 million of
goodwill. Goodwill includes expected sales and cost synergies and is expected to be deductible for
income tax purposes.
In December 2020, we acquired 100% of the outstanding equity of Larson for a total purchase price of
approximately $717.5 million, net of cash acquired.
Cash Flows
Below is a summary of cash flows for the years ended December 31, 2022, 2021 and 2020, including
continuing and discontinued operations. See Note 5, Discontinued Operations, in the consolidated
financial statements in Item 8 for additional information on the cash flow for discontinued operations.
(In millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of foreign exchange rate changes on cash
$
Net increase in cash, cash equivalents and restricted cash $
2022
566.3
(455.5)
72.5
(11.1)
172.2
$
$
2021
688.7 $
(207.1)
(428.6)
(1.9)
51.1 $
2020
825.7
(923.5)
111.6
16.3
30.1
33
Net cash provided by operating activities was $566.3 million in 2022, compared to $688.7 million in 2021.
The $122.4 million decrease in cash provided from 2021 to 2022 included a $47.5 million increase in cash
provided related to discontinued operations. The $169.9 million decrease in cash provided related to
continuing operations was primarily due to a decrease in accounts payable driven by lower sales growth,
lower employee incentive accruals, as the 2021 payout was greater than the 2022 accruals, and lower
advertising expense accruals, lower net income and a decrease in accrued taxes due to lower income
before taxes, partially offset by an reduction in the growth of our inventory investments and a decrease in
accounts receivable driven by decreased sales in the fourth quarter of 2022. The $137.0 million decrease
in cash provided from 2020 to 2021 included a $66.6 million decrease in cash provided related to
discontinued operations. The $70.4 million decrease in cash provided related to continuing operations
was primarily due to an increase in our inventory investments to mitigate the impact of an uncertain and
volatile global supply chain environment, a decrease in accrued expenses and increases in accounts
receivable associated with our sales growth. These factors were partially offset by higher net income.
Net cash used in investing activities was $455.5 million in 2022 compared to $207.1 million in 2021. The
increase in cash used of $248.4 million from 2021 to 2022 included an increase of $4.3 million in cash
used related to discontinued operations. The $244.1 million increase in cash used related to continuing
operations reflects our cost of acquisitions ($217.6 million in 2022) and an increase in capital
expenditures, partly offset by proceeds from the sale of previously closed manufacturing facilities. The
increase in cash used of $716.4 million from 2020 to 2021 included a $24.8 million decrease in cash used
related to discontinued operations. The $741.2 million decrease in cash used related to continuing
operations was primarily due to the acquisition of Larson in December 2020 ($713.0 million decrease),
the acquisition of additional shares of Flo in January and April 2020 ($59.4 million decrease) and the cash
acquired during the consolidation of Flo in January 2021, partially offset by higher capital expenditures.
Net cash provided by financing activities was $72.5 million in 2022 compared to cash used in financing
activities of $428.6 million in 2021. The increase in cash provided of $501.1 million from 2021 to 2022
was primarily due to dividends received from MasterBrand as a result of the Separation ($940.0 million),
partly offset by lower net borrowings in 2022 compared to 2021 ($172.1 million), higher share
repurchases in 2022 compared to 2021 ($132.4 million increase), cash retained by MasterBrand after the
Separation ($56.3 million), a decrease in the proceeds from the exercise of stock options and the final
payment for the remaining equity interest in Flo ($16.7 million). The increase in cash used of $540.2
million from 2020 to 2021 was primarily due to higher share repurchases in 2021 compared to 2020
($260.1 million increase), lower net borrowings in 2021 compared to 2020 ($250.0 million decrease),
lower proceeds from the exercise of stock options and higher dividends to shareholders ($9.7 million
increase).
Pension Plans
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. In 2022, 2021 and 2020 we contributed $9.0 million, $18.5 million and $34.6 million, respectively, to
our qualified pension plans. In 2023, we expect to make pension contributions of approximately $4.0
million. As of December 31, 2022, the fair value of our total pension plan assets was $482.5 million,
representing funding of 89% of the accumulated 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, France and Japan. Therefore, changes in the value of the related currencies affect our
financial statements when translated into U.S. dollars.
34
Contractual Obligations and Other Commercial Commitments
The following summarizes our contractual obligations and commitments as of December 31, 2022.
Purchase obligations were $561.3 million, of which $534.0 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 31, 2022 were $34.1 million in 2023, $26.4 million in 2024, $19.8 million in 2025, $17.0 million
in 2026, $14.2 million in 2027 and $28.6 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,
$33.4 million of unrecognized tax benefits as of December 31, 2022 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 31, 2022. Other corporate
commercial commitments include standby letters of credit of $31.6 million, in the aggregate, all of which
expire in less than one year, and surety bonds of $24.0 million, of which $16.2 million matures in less
than one year and $7.8 million matures in 1-3 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 31, 2022 are $600 million in 2023, zero in
2024, $500 million in 2025, zero in 2026, zero in 2027 and $1,600 million in 2028 and beyond. Interest
payments due during the next five years as of December 31, 2022 are $105 million in 2023, $152 million
in 2024 through 2025, $122 million in 2026 through 2027 and $642 million in 2028 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 and the Chinese
yuan. 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 (loss) of $4.7 million, $(2.6) million and $(0.7) million (before tax impact) were
reclassified into earnings for the years ended December 31, 2022, 2021 and 2020, respectively. Based
on foreign exchange rates as of December 31, 2022, we estimate that $2.3 million of net derivative gain
included in accumulated other comprehensive income ("AOCI") as of December 31, 2022, will be
reclassified to earnings within the next twelve months.
Recently Issued Accounting Standards
The adoption of recent accounting standards, as discussed in Note 2, “Significant Accounting Policies,” to
our consolidated financial statements, has not had and is not expected to have a significant impact on our
revenue, earnings or liquidity.
35
Critical Accounting Estimates
Our significant accounting policies are described in Note 2, “Significant Accounting Policies,” of the Notes
to consolidated financial statements in Item 8 of this Annual Report on Form 10-K. The consolidated
financial statements are prepared in conformity with U.S. generally accepted accounting principles
(“GAAP”). Preparation of the financial statements requires us to make judgments, estimates and
assumptions that affect the amounts of assets and liabilities reflected in the financial statements and
revenues and expenses reported for the relevant reporting periods. We believe the policies discussed
below are the Company’s critical accounting policies as they include the more significant, subjective and
complex judgments and estimates made when preparing our consolidated financial statements.
Inventories
Inventory provisions are recorded to reduce inventory to the net realizable dollar value for obsolete or
slow-moving inventory based on assumptions about future demand and marketability of products, the
impact of new product introductions, inventory levels and turns, product spoilage and specific
identification of items, such as product discontinuance, engineering/material changes, or regulatory-
related changes. In accordance with this policy, our inventory provision was $49.2 million and $37.1
million as of December 31, 2022 and 2021 respectively.
Long-lived Assets
In accordance with ASC requirements for Property, Plant and Equipment, a long-lived asset (including
amortizable identifiable intangible assets) or asset group held for use is tested for recoverability whenever
events or changes in circumstances indicate that its carrying amount may not be recoverable. When such
events occur, we compare the sum of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset or asset group to the carrying amount of a long-lived asset or asset
group. The cash flows are based on our best estimate of future cash flows derived from the most recent
business projections. If this comparison indicates that there is an impairment, the amount of the
impairment is calculated based on fair value. Fair value is estimated primarily using discounted expected
future cash flows on a market-participant basis.
No impairments of long-lived assets were recorded during 2022. During 2021, we recorded an
impairment of $0.2 million related to a long-lived asset to be disposed of in cost of products sold. During
2020, we recorded an impairment of $3.6 million related to a long-lived asset to be disposed of in selling,
general and administrative expenses.
Business Combinations
We account for business combinations under the acquisition method of accounting in accordance with
ASC Topic 805, Business Combinations, which requires an allocation of the consideration we paid to the
identifiable assets, intangible assets and liabilities based on the estimated fair values as of the closing
date of the acquisition. The excess of the fair value of the purchase price over the fair values of these
identifiable assets, intangible assets and liabilities is recorded as goodwill.
Purchased intangibles other than goodwill are initially recognized at fair value and amortized over their
useful lives unless those lives are determined to be indefinite. The valuation of acquired assets will impact
future operating results. The fair value of identifiable intangible assets is determined using an income
approach on an individual asset basis. Specifically, we use the multi-period excess earnings method to
determine the fair value of customer relationships and the relief-from-royalty approach to determine the
fair value of the tradename and proprietary technology. Determining the fair value of acquired intangibles
involves significant estimates and assumptions, including forecasted revenue growth rates, EBITDA
margins, percentage of revenue attributable to the tradename, contributory asset charges, customer
attrition rate, market-participant discount rates and the assumed royalty rates.
36
The determination of the useful life of an intangible asset other than goodwill is based on factors including
historical tradename performance with respect to consumer name recognition, geographic market
presence, market share, plans for ongoing tradename support and promotion, customer attrition rate and
other relevant factors.
Goodwill and Indefinite-lived Intangible Assets
In accordance with ASC requirements for Intangibles - Goodwill and Other, management reviews goodwill
for impairment annually in the fourth quarter and whenever market or business events indicate there may
be a potential impairment of the reporting unit. Impairment losses are recorded to the extent that the
carrying value of the reporting unit exceeds its fair value. The Company’s reporting units are operating
segments, or one level below operating segments when appropriate.
To evaluate the recoverability of goodwill, we first assess qualitative factors to determine whether it is
more likely than not that goodwill is impaired. Qualitative factors include changes in volume, margin,
customers and the industry. If it is deemed more likely than not that goodwill for a reporting unit is
impaired, we will perform a quantitative impairment test where fair value of each reporting unit is
estimated using the income approach using a discounted cash flow model based on estimates of future
cash flows combined with the market approach using comparable trading and transaction multiples based
on guideline public companies. We may also elect to bypass the qualitative testing and proceed directly to
the quantitative testing. For the income approach, using a discounted cash flow model, we estimate the
future cash flows of the reporting units to which the goodwill relates and then discount the future cash
flows at a market-participant-derived discount rate. In determining the estimated future cash flows, we
consider current and projected future levels of income based on management’s plans for that business;
business trends, prospects and market and economic conditions; and market-participant considerations.
Furthermore, our cash flow projections used to assess impairment of our goodwill and other intangible
assets are significantly influenced by our projection for the U.S. new home starts and home repair
remodel spending, our annual operating plans finalized in the fourth quarter of each year, and our ability
to execute on various planned cost reduction initiatives supporting operating income improvements. Our
projection for the U.S. home products market is inherently uncertain and is subject to a number of factors,
such as employment, home prices, credit availability, new home starts and the rate of home foreclosures.
For the market approach, we apply comparable trading and transaction multiples based on guideline
public companies to the current operating results of the reporting units to determine each reporting unit’s
fair value.
The significant assumptions that are used to determine the estimated fair value of reporting units for
impairment testing are forecasted revenue growth rates, operating income margins, market-participant
discount rates, EBITDA multiples and revenue multiples.
The assumptions used to estimate the fair values of the goodwill related to continuing operations tested
quantitatively during the year ended December 31, 2022 were as follows:
Unobservable Input
Minimum
Maximum
2022
Discount rates
Long-term revenue growth rates(b)
EBITDA multiple
Revenue multiple
10.0%
3.0%
9.0
1.5
Weighted
Average(a)
10.6%
3.0%
9.3
1.6
12.0%
3.0%
10.0
1.7
(a) Weighted by relative fair value of the goodwill that was tested quantitatively.
(b) Selected long-term revenue growth rate within 10-year projection period for the goodwill that was tested quantitatively.
A 50 basis point change in the discount rate or long-term revenue growth rate assumptions, or a
decrease in multiple of 0.2 in the EBITDA multiple or revenue multiple assumptions, during the year
ended December 31, 2022 would not have resulted in an impairment being recognized when estimating
the fair value of our reporting unit goodwill.
37
Certain of our tradenames have been assigned an indefinite life as we currently anticipate that these
tradenames will contribute cash flows to the Company indefinitely. Indefinite-lived intangible assets are
not amortized, but are evaluated at least annually to determine whether the indefinite useful life is
appropriate. We measure the fair value of identifiable intangible assets upon acquisition and we review
for impairment annually in the fourth quarter and whenever market or business events indicate there may
be a potential impairment of that intangible. Impairment losses are recorded to the extent that the carrying
value of the indefinite-lived intangible asset exceeds its fair value.
We first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived
intangible asset is impaired. Qualitative factors include changes in volume, customers and the industry. If
it is deemed more likely than not that an intangible asset is impaired, we will perform a quantitative
impairment test. We measure fair value of our indefinite-lived tradenames using the relief-from-royalty
approach which estimates the present value of royalty income that could be hypothetically earned by
licensing the brand name to a third party over the remaining useful life. The significant assumptions that
are used to determine the estimated fair value for indefinite-lived intangible assets upon acquisition and
subsequent impairment testing are forecasted revenue growth rates, the assumed royalty rates and the
market-participant discount rates. Of our $478.1 million indefinite-lived tradenames, $141.5 million relate
to our Water Innovations segment and $336.6 million relate to our Outdoors & Security segment as of
December 31, 2022. There were no impairments related to our continuing operations for the year ended
December 31, 2022. See Note 6, “Goodwill and Identifiable Intangible Assets,” for additional information.
During the second quarter of 2020, extended closures of luxury plumbing showrooms associated with
COVID-19 led to lower than expected sales related to an indefinite-lived tradename within the Water
Innovations segment, which combined with the updated financial outlook compared to previous forecasts
and the continued uncertainty of the pandemic on the sales and profitability related to the tradename, led
us to conclude that it was more likely than not that the indefinite-lived tradename was impaired.
Therefore, we performed an interim impairment test as of June 30, 2020, and as a result we recognized a
pre-tax impairment charge of $13.0 million related to this tradename. We also performed an evaluation of
the useful life of this tradename and determined it was no longer indefinite-lived due to changes in long-
term management expectations and future operating plans. As a result, the remaining carrying value of
this tradename is being amortized over its estimated useful life of 30 years.
The fair values of the impaired tradenames were measured using the relief-from-royalty approach, which
estimates the present value of royalty income that could be hypothetically earned by licensing the
tradename to a third party over its remaining useful life. Some of the more significant assumptions
inherent in estimating the fair values include forecasted revenue growth rates, assumed royalty rates, and
market-participant discount rates that reflect the level of risk associated with the tradenames’ future
revenues and profitability. We selected the assumptions used in the financial forecasts using historical
data, supplemented by current and anticipated market conditions, estimated growth rates and
management plans. These assumptions represent level 3 inputs of the fair value hierarchy (refer to Note
9).
The assumptions used to estimate the fair values of the tradenames tested quantitatively during the year
ended December 31, 2022 were as follows:
Unobservable Input
Minimum
Maximum
Discount rates
Royalty rates(b)
Long-term revenue growth rates(c)
12.2%
3.5%
3.0%
Weighted
Average(a)
12.9%
3.5%
3.0%
13.1%
3.5%
3.0%
(a) Weighted by the relative fair value of the tradenames that were tested quantitatively.
(b) Represents estimated percentage of sales a market-participant would pay to license the tradenames that were tested
quantitatively.
(c) Selected long-term revenue growth rate within 10-year projection period of the tradenames that were tested quantitatively.
2022
A 50 basis point change in the discount rate assumption, a 25 basis point change in the royalty rate
assumption, or a 25 basis point change in the long-term revenue growth rate assumption used during the
38
year ended December 31, 2022 would not have resulted in an impairment being recognized when
estimating the fair value of our indefinite-lived tradenames.
Included within income from discontinued operations, we recognized impairment charges of $46.4 million
and zero in 2022 and 2021, respectively, related to impairments of indefinite lived tradenames within our
legacy Cabinets segment.
Defined Benefit Plans
We have a number of pension plans in the United States, covering many of the Company’s employees. In
addition, the Company provides postretirement health care and life insurance benefits to certain retirees.
Service cost for 2022 relates to benefit accruals for an hourly Union group within the defined benefit plan
for our Outdoors & Security segment. All other benefit accruals under our defined benefit pension plans
were frozen as of, or prior to, December 31, 2016.
We recognize changes in the fair value of pension plan assets and net actuarial gains or losses in excess
of 10 percent of the greater of the fair value of pension plan assets or each plan’s projected benefit
obligation (the “corridor”) in earnings immediately upon remeasurement, which is at least annually in the
fourth quarter of each year. Net actuarial gains and losses occur when actual experience differs from any
of the assumptions used to value defined benefit plans or when assumptions change as they may each
year. The primary factors contributing to actuarial gains and losses are changes in the discount rate used
to value obligations as of the measurement date and the differences between expected and actual returns
on pension plan assets. This accounting method results in the potential for volatile and difficult to forecast
gains and losses. The pre-tax recognition of actuarial losses (gains) was $1.3 million and $(0.6) million in
2022 and 2021, respectively. The total net actuarial losses in accumulated other comprehensive income
for all defined benefit plans were $49.2 million as of December 31, 2022, compared to $32.0 million as of
December 31, 2021.
We record amounts relating to these defined benefit plans based on various actuarial assumptions,
including discount rates, assumed rates of return, compensation increases, turnover rates and health
care cost trend rates. We review our actuarial assumptions on an annual basis and make modifications to
the assumptions based on current economic conditions and trends. We believe that the assumptions
utilized in recording our obligations under our plans are reasonable based on our experience and on
advice from our independent actuaries; however, differences in actual experience or changes in the
assumptions may materially affect our financial condition or results of operations. The expected rate of
return on plan assets is determined based on the nature of the plans’ investments, our current asset
allocation and our expectations for long-term rates of return. The weighted-average long-term expected
rate of return on pension plan assets for the years ended December 31, 2022 and 2021 was 4.4% and
4.4%, respectively. Compensation increases reflect expected future compensation trends. The discount
rate used to measure obligations is based on a spot-rate yield curve on a plan-by-plan basis that matches
projected future benefit payments with the appropriate interest rate applicable to the timing of the
projected future benefit payments. The bond portfolio used for the selection of the discount rate is from
the top quartile of bonds rated by nationally recognized statistical rating organizations, and includes only
non-callable bonds and those that are deemed to be sufficiently marketable with a Moody’s credit rating
of Aa or higher. The weighted-average discount rate for defined benefit liabilities as of December 31,
2022 and 2021 was 5.2% and 2.9%, respectively.
For postretirement benefits, our health care trend rate assumption is based on historical cost increases
and expectations for long-term increases. As of December 31, 2022, for postretirement medical and
prescription drugs in the next year, our assumption was an assumed rate of increase of 5.8% for pre-65
retirees and 6.3% for post-65 retirees, declining until reaching an ultimate assumed rate of increase of
4.5% per year in 2028. As of December 31, 2021, for postretirement medical and prescription drugs in the
next year, our assumption was an assumed rate of increase of 6.3% for pre-65 retirees and 6.7% for
post-65 retirees, declining until reaching an ultimate assumed rate of increase of 4.5% per year in 2028.
39
Below is a table showing pre-tax pension and postretirement expenses, including the impact of actuarial
gains and losses:
(In millions)
Total pension income
Actuarial (gain) loss component of income above
Total postretirement income
Actuarial gain component of income above
$
2022
(7.8) $
(0.3)
(0.2)
(1.0)
2021
(6.6)
1.1
(0.1)
(0.5)
The actuarial losses in 2022 and 2021 were principally due to lower than expected return on plan assets.
Discount rates in 2022 used to determine benefit obligations increased by an average of 230 basis points
for pension benefits. Discount rates for 2022 postretirement benefits increased by an average of 190
basis points. Discount rates in 2021 used to determine benefit obligations increased by an average of 30
basis points for pension benefits. Discount rates for 2021 postretirement benefits decreased an average
of 200 basis points. Our actual loss on plan assets in 2022 was 22.6% compared to an actuarial
assumption of an average 4.4% expected return. Our actual return on plan assets in 2021 was 6.6%
compared to an actuarial assumption of an average 4.4% expected return. Significant actuarial losses in
future periods would be expected if discount rates decline, actual returns on plan assets are lower than
our expected return, or a combination of both occurs.
A 25 basis point change in our discount rate assumption would lead to an increase or decrease in our
pension and postretirement liability of approximately $14 million. A 25 basis point change in the long-term
rate of return on plan assets used in accounting for our pension plans would have a $1.2 million impact
on pension expense. In addition, if required, actuarial gains and losses will be recorded in accordance
with our defined benefit plan accounting method as previously described. It is not possible to forecast or
predict whether there will be actuarial gains and losses in future periods, and if required, the magnitude of
any such adjustment. These gains and losses are driven by differences in actual experience or changes
in the assumptions that are beyond our control, such as changes in interest rates and the actual return on
pension plan assets.
Income Taxes
In accordance with ASC requirements for Income Taxes, we establish deferred tax liabilities or assets for
temporary differences between financial and tax reporting basis and subsequently adjust them to reflect
changes in tax rates expected to be in effect when the temporary differences reverse. We record a
valuation allowance reducing deferred tax assets when it is more likely than not that such assets will not
be realized.
We record liabilities for uncertain income tax positions based on a two-step process. The first step is
recognition, where we evaluate whether an individual tax position has a likelihood of greater than 50% of
being sustained upon examination based on the technical merits of the position, including resolution of
any related appeals or litigation processes. For tax positions that are currently estimated to have a less
than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the
recognition threshold in the first step, we perform the second step of measuring the benefit to be
recorded. The actual benefits ultimately realized may differ from our estimates. In future periods, changes
in facts, circumstances, and new information may require us to change the recognition and measurement
estimates with regard to individual tax positions. Changes in recognition and measurement estimates are
recorded in the consolidated statement of income and consolidated balance sheet in the period in which
such changes occur. As of December 31, 2022, we had liabilities for unrecognized tax benefits pertaining
to uncertain tax positions totaling $33.4 million. It is reasonably possible that the unrecognized tax
benefits may decrease by $9.8 million in the next 12 months primarily as a result of the lapse of statutes
of U.S. federal, state and foreign income taxes.
40
Customer Program Costs
Customer programs and incentives are a common practice in our businesses. Our businesses incur
customer program costs to obtain favorable product placement, to promote sales of products and to
maintain competitive pricing. We record estimates to reduce revenue for customer programs and
incentives, which are considered variable consideration, and include price discounts, volume-based
incentives, promotions and cooperative advertising when revenue is recognized in order to determine the
amount of consideration the Company will ultimately be entitled to receive. These estimates are based on
historical and projected experience for each type of customer. In addition, for certain customer program
incentives, we receive an identifiable benefit (goods or services) in exchange for the consideration given
and record the associated expenditure in selling, general and administrative expenses. Volume
allowances are accrued based on management’s estimates of customer volume achievement and other
factors incorporated into customer agreements, such as new products, store sell-through, merchandising
support, levels of returns and customer training. Management periodically reviews accruals for these
rebates and allowances, and adjusts accruals when circumstances indicate (typically as a result of a
change in volume expectations).
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to various market risks, including changes in interest rates, foreign currency exchange
rates and commodity prices. Market risk is the potential loss arising from adverse changes in market rates
and prices, such as interest rates, foreign currency exchange rates and commodity prices. We do not
enter into derivatives or other financial instruments for trading or speculative purposes. We enter into
financial instruments to manage and reduce the impact of changes in foreign currency exchange rates
and commodity prices. The counterparties are major financial institutions.
Interest Rate Risk
The Company did not have any external variable rate borrowings as of December 31, 2022.
Foreign Exchange Rate Risk
We enter into forward foreign exchange contracts principally to hedge currency fluctuations in
transactions denominated in certain foreign currencies, thereby limiting our risk that would otherwise
result from changes in exchange rates. The periods of the forward foreign exchange contracts correspond
to the periods of the hedged transactions.
The estimated fair value of foreign currency contracts represents the amount required to enter into
offsetting contracts with similar remaining maturities based on quoted market prices.
The estimated potential loss under foreign exchange contracts from movement in foreign exchange rates
would not have a material impact on our results of operations, cash flows or financial condition. As part of
our risk management procedure, we use a value-at-risk (“VAR”) sensitivity analysis model to estimate the
maximum potential economic loss from adverse changes in foreign exchange rates over a one-day period
given a 95% confidence level. The VAR model uses historical foreign exchange rates to estimate the
volatility and correlation of these rates in future periods. The estimated maximum one-day loss in the fair
value of the Company’s foreign currency exchange contracts using the VAR model was $1.3 million at
December 31, 2022. The 95% confidence interval signifies our degree of confidence that actual losses
under foreign exchange contracts would not exceed the estimated losses. The amounts disregard the
possibility that foreign currency exchange rates could move in our favor. The VAR model assumes that all
movements in the foreign exchange rates will be adverse. These amounts should not be considered
projections of future losses, since actual results may differ significantly depending upon activity in the
global financial markets. The VAR model is a risk analysis tool and should not be construed as an
endorsement of the VAR model or the accuracy of the related assumptions.
41
Commodity Price Risk
We are subject to commodity price volatility caused by weather, supply conditions, geopolitical and
economic variables, and other unpredictable external factors. From time to time, we use derivative
contracts to manage our exposure to commodity price volatility.
Item 8. Financial Statements and Supplementary Data.
42
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Fortune Brands Innovations, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Fortune Brands Innovations, Inc. and
its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated
statements of income, of comprehensive income, of equity and of cash flows for each of the three years
in the period ended December 31, 2022, including the related notes and schedule of valuation and
qualifying accounts for each of the three years in the period ended December 31, 2022 appearing after
the signature page (collectively referred to as the “consolidated financial statements”). We also have
audited the Company's internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2022 in
conformity with accounting principles generally accepted in the United States of America. Also in our
opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting, included in Management’s Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s
consolidated financial statements and on the Company's internal control over financial reporting based on
our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our
audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
43
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the
consolidated financial statements that were communicated or required to be communicated to the audit
committee and that (i) relate to accounts or disclosures that are material to the consolidated financial
statements and (ii) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they
relate.
Quantitative Impairment Test for an Indefinite-Lived Tradename within the Outdoors & Security Segment
As described in Notes 2 and 6 to the consolidated financial statements, the Company’s consolidated
indefinite-lived tradenames balance was $478.1 million as of December 31, 2022, of which $336.6 million
relates to the Outdoors & Security segment. Management reviews indefinite-lived intangible assets for
impairment annually in the fourth quarter and whenever market or business events indicate there may be
a potential impairment of that intangible. Impairment losses are recorded to the extent that the carrying
value of the indefinite-lived intangible asset exceeds its fair value. Fair values of the Company’s
indefinite-lived tradenames are measured by management using the relief-from-royalty approach.
Significant assumptions inherent in estimating fair values include forecasted revenue growth rates,
assumed royalty rates and market-participant discount rates.
The principal considerations for our determination that performing procedures relating to the quantitative
impairment test for an indefinite-lived tradename within the Outdoors & Security segment is a critical audit
matter are (i) the significant judgment by management when developing the fair value estimate of the
tradename; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and
evaluating management’s significant assumptions related to forecasted revenue growth rates, assumed
royalty rate, and market-participant discount rate; and (iii) the audit effort involved the use of professionals
with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing
the effectiveness of controls relating to management’s quantitative impairment test for indefinite-lived
intangible assets, including controls over the valuation of the Company’s tradename within the Outdoors
& Security segment. These procedures also included, among others (i) testing management’s process for
developing the fair value estimate of the tradename; (ii) evaluating the appropriateness of the relief-from-
royalty approach; (iii) testing the completeness and accuracy of underlying data used in the relief-from-
royalty approach; and (iv) evaluating the reasonableness of significant assumptions used by management
related to forecasted revenue growth rates, assumed royalty rate, and market-participant discount rate.
Evaluating management’s significant assumptions related to forecasted revenue growth rates and
44
assumed royalty rate involved evaluating whether the assumptions used by management were
reasonable considering, (i) the current and past performance of the business associated with the
tradename; (ii) the consistency with external market and industry data; and (iii) whether the assumptions
were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and
knowledge were used to assist in the evaluation of (i) the appropriateness of the relief-from-royalty
approach and (ii) the reasonableness of the assumed royalty rate and market-participant discount rate
significant assumptions.
Quantitative Goodwill Impairment Test for a Reporting Unit within the Outdoors & Security Segment
As described in Notes 2 and 6 to the consolidated financial statements, the Company’s consolidated
goodwill balance was $1,640.7 million as of December 31, 2022, of which $747.3 million relates to the
Outdoors & Security segment. Management tests goodwill for impairment annually in the fourth quarter
and whenever market or business events indicate there may be a potential impairment of the reporting
unit. Fair value is estimated using the income approach using a discounted cash flow model based on
estimates of future cash flows combined with the market approach using comparable trading and
transaction multiples based on guideline public companies. The significant assumptions that are used to
determine the estimated fair value of reporting units for impairment testing are forecasted revenue growth
rates, operating income margins, market-participant discount rates, revenue multiples and EBITDA
(defined by the Company as net income before interest expense, income taxes, depreciation,
amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments)
multiples.
The principal considerations for our determination that performing procedures relating to the quantitative
goodwill impairment test for a reporting unit within the Outdoors & Security segment is a critical audit
matter are (i) the significant judgment by management when developing the fair value estimate of the
reporting unit; (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures
and evaluating management’s significant assumptions related to forecasted revenue growth rates,
forecasted operating income margins, market-participant discount rate and revenue and EBITDA
multiples; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with
forming our overall opinion on the consolidated financial statements. These procedures included testing
the effectiveness of controls relating to management’s quantitative goodwill impairment test, including
controls over the valuation of the reporting unit within the Outdoors & Security segment. These
procedures also included, among others (i) testing management’s process for developing the fair value
estimate of the reporting unit; (ii) evaluating the appropriateness of the income and market approaches;
(iii) testing the completeness and accuracy of underlying data used in the income and market
approaches; and (iv) evaluating the reasonableness of significant assumptions used by management
related to forecasted revenue growth rates, forecasted operating income margins, market-participant
discount rate and revenue and EBITDA multiples. Evaluating management’s significant assumptions
related to forecasted revenue growth rates and operating income margins involved evaluating whether
the assumptions used by management were reasonable considering, as applicable, (i) the current and
past performance of the reporting unit; (ii) the consistency with external market and industry data; and (iii)
whether the assumptions were consistent with evidence obtained in other areas of the audit.
Professionals with specialized skill and knowledge were used to assist in the evaluation of (i) the
appropriateness of the Company’s income and market approaches and (ii) the reasonableness of the
market-participant discount rate and revenue and EBITDA multiples significant assumptions.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 28, 2023
We have served as the Company’s auditor since 2011.
45
Consolidated Statements of Income
Fortune Brands Innovations, Inc. and Subsidiaries
For years ended December 31
(In millions, except per share amounts)
NET SALES
Cost of products sold
Selling, general and administrative expenses
Amortization of intangible assets
Asset impairment charges
Restructuring charges
OPERATING INCOME
Interest expense
Other expense (income), net
Income from continuing operations before income taxes
Income taxes
Income after tax
Equity in losses of affiliate
Income from continuing operations, net of tax
Income from discontinued operations, net of tax
NET INCOME
Less: Noncontrolling interests
2022
$ 4,723.0
2,790.1
1,077.9
48.3
—
32.4
774.3
119.2
(12.0)
667.1
127.2
539.9
—
539.9
146.8
686.7
—
686.7
NET INCOME ATTRIBUTABLE TO FORTUNE BRANDS $
BASIC EARNINGS PER COMMON SHARE
Continuing operations
Discontinued operations
Basic earnings per share attributable to Fortune Brands
DILUTED EARNINGS PER COMMON SHARE
Continuing operations
Discontinued operations
Diluted earnings per share attributable to Fortune Brands
Basic average number of shares outstanding
Diluted average number of shares outstanding
$
$
$
$
4.14
1.13
5.27
4.11
1.12
5.23
130.3
131.3
$
$
$
$
$
$
$
$
$
$
$
$
$
2021
4,801.1
2,840.6
1,093.7
46.4
—
9.3
811.1
84.3
0.4
726.4
166.7
559.7
—
559.7
212.7
772.4
—
772.4
4.07
1.55
5.62
4.01
1.53
5.54
137.5
139.5
2020
3,621.3
2,157.4
848.6
24.2
13.0
10.4
567.7
83.8
(15.3)
499.2
110.8
388.4
7.6
380.8
173.6
554.4
1.3
553.1
2.74
1.25
3.99
2.71
1.23
3.94
138.7
140.2
See Notes to Consolidated Financial Statements.
46
Consolidated Statements of Comprehensive
Income
Fortune Brands Innovations, Inc. and Subsidiaries
(In millions)
NET INCOME
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments
Unrealized (losses) gains on derivatives:
Unrealized holding gains (losses) arising during period
Less: reclassification adjustment for (gains) losses included in
net income
Unrealized (losses) gains on derivatives
Defined benefit plans:
Net actuarial gains (loss) arising during period
Defined benefit plans
Other comprehensive income (loss), before tax
Income tax (expense) benefit related to items of other
comprehensive income (a)
Other comprehensive income, net of tax
COMPREHENSIVE INCOME
Less: comprehensive income attributable to noncontrolling interest
COMPREHENSIVE INCOME ATTRIBUTABLE TO FORTUNE
BRANDS
For years ended December 31
2022
$ 686.7
2020
772.4 $ 554.4
2021
$
(23.4)
(3.9)
18.7
126.2
(5.5)
120.7
(21.7)
(21.7)
75.6
(21.9)
53.7
740.4
—
1.5
(2.2)
(0.7)
47.5
47.5
42.9
(12.4)
30.5
802.9
—
(3.2)
2.4
(0.8)
0.3
0.3
18.2
(0.7)
17.5
571.9
1.3
$ 740.4
$
802.9 $ 570.6
(a)
Income tax (expense) benefit on unrealized (losses) gains on derivatives of $(27.3) million, $(0.5) million and $(0.5) million and
on defined benefit plans of $5.4 million, $(11.9) million and $(0.2) million in 2022, 2021 and 2020, respectively.
See Notes to Consolidated Financial Statements.
47
Consolidated Balance Sheets
Fortune Brands Innovations, Inc. and Subsidiaries
(In millions)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable less allowances for discounts and
credit losses
Inventories
Other current assets
Current assets of discontinued operations
TOTAL CURRENT ASSETS
Property, plant and equipment, net of accumulated
depreciation
Operating lease assets
Goodwill
Other intangible assets, net of accumulated amortization
Other assets
Non-current assets of discontinued operations
TOTAL ASSETS
LIABILITIES AND EQUITY
Current liabilities
Short-term debt
Accounts payable
Other current liabilities
Current liabilities of discontinued operations
TOTAL CURRENT LIABILITIES
Long-term debt
Deferred income taxes
Accrued defined benefit plans
Operating lease liabilities
Other non-current liabilities
Non-current liabilities of discontinued operations
TOTAL LIABILITIES
Commitments (Note 18) and Contingencies (Note 22)
Equity
Common stock (a)
Paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Treasury stock
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
December 31
2022
2021
$
642.5
$
425.6
$
$
521.8
1,021.3
274.8
—
2,460.4
783.7
118.9
1,640.7
1,000.8
116.4
—
6,120.9
599.2
421.6
523.9
—
1,544.7
2,074.3
136.9
79.9
95.4
102.8
—
4,034.0
580.4
889.5
135.0
714.0
2,744.5
670.8
130.7
1,538.9
968.1
107.5
1,775.7
7,936.2
400.0
561.0
646.4
363.7
1,971.1
2,309.8
81.7
80.9
108.8
170.2
148.9
4,871.4
1.9
3,069.6
37.4
2,323.8
(3,345.8)
2,086.9
6,120.9
$
1.9
3,018.3
(24.6)
2,807.9
(2,738.7)
3,064.8
7,936.2
$
(a) Common stock, par value $0.01 per share,186.2 million shares and 185.3 million shares issued at December 31, 2022 and
2021, respectively.
See Notes to Consolidated Financial Statements.
48
Consolidated Statements of Cash Flows
Fortune Brands Innovations, Inc. and Subsidiaries
(In millions)
OPERATING ACTIVITIES
Net income
Non-cash expense (income):
Depreciation
Amortization of intangibles
Non-cash lease expense
Stock-based compensation
Restructuring charges
(Gain) loss on sale of property, plant and equipment
Loss (gain) on equity investments
Asset impairment charges
Recognition of actuarial (gain) loss
Deferred taxes
Amortization of deferred financing costs
Changes in assets and liabilities including effects subsequent to
acquisitions
Decrease (Increase) in accounts receivable
Increase in inventories
(Decrease) increase in accounts payable
Decrease (increase) in other assets
(Decrease) increase in accrued taxes
(Decrease) increase in accrued expenses and other liabilities
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures(a)
Proceeds from the disposition of assets
Cost of acquisitions, net of cash acquired
Other investing activities, net
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Increase in short-term debt
Repayment of short-term debt
Issuance of long-term debt
Repayment of long-term debt
Proceeds from the exercise of stock options
Employee withholding taxes paid related to stock-based
compensation
Dividends to stockholders
Dividends paid to non-controlling interests
Dividends received from MasterBrand
Cash retained by Masterbrand at Separation
Treasury stock purchases
Other financing activities, net
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Effect of foreign exchange rate changes on cash
NET INCREASE IN CASH AND CASH EQUIVALENTS
Cash, cash equivalents and restricted cash(b) at beginning of year
Cash, cash equivalents and restricted cash(b) at end of year
Cash paid during the year for
Interest
Income taxes paid directly to taxing authorities
Dividends declared but not paid
2022
2021
2020
$
686.7
$
772.4
$
554.4
126.5
65.1
45.2
50.2
8.0
(4.7)
—
46.4
(1.2)
14.8
3.8
66.3
(198.5)
(161.2)
14.0
(65.5)
(129.6)
566.3
(246.1)
8.2
(217.6)
—
(455.5)
125.0
64.1
42.5
50.2
—
1.6
5.0
—
0.8
1.7
3.6
(151.5)
(324.3)
137.7
1.0
8.4
(49.5)
688.7
(214.2)
1.9
5.2
—
(207.1)
121.5
42.0
37.4
47.6
—
2.4
(6.6)
26.1
3.2
(14.6)
4.5
(85.7)
(91.8)
142.9
(41.1)
12.5
71.0
825.7
(150.5)
1.6
(715.2)
(59.4)
(923.5)
700.0
(1,100.0)
5,975.4
(5,612.5)
1.1
400.0
—
1,245.0
(1,510.0)
41.8
—
—
1,850.0
(1,465.0)
64.9
(27.0)
(145.6)
—
940.0
(56.3)
(580.1)
(22.5)
72.5
(11.1)
172.2
476.1
648.3
102.9
278.3
29.4
$
$
$
$
$
$
$
$
(13.3)
(143.0)
—
—
—
(447.7)
(1.4)
(428.6)
(1.9)
51.1
425.0
476.1
76.8
228.8
37.8
$
$
$
$
(10.7)
(133.3)
(2.5)
—
—
(187.6)
(4.2)
111.6
16.3
30.1
394.9
425.0
76.2
175.5
36.1
(a) Capital expenditures of $14.2 million, $19.6 million and $13.6 million that have not been paid as of December 31, 2022, 2021
and 2020, respectively, were excluded from the Consolidated Statement of Cash Flows.
49
(b) Restricted cash of $2.1 million and $3.7 million is included in Other current assets and Other assets, respectively, as of
December 31, 2022, $1.3 million and $3.3 million is included in Other current assets and Other assets, respectively, as of
December 31, 2021 and $1.0 million and $4.9 million is included in Other current assets and Other assets, respectively, as of
December 31, 2020 within our Consolidated Balance Sheet.
The Consolidated Statements of Cash Flows presented above include cash flows from continuing and discontinued operations.
Refer to Note 5, Discontinued Operations, for additional details.
See Notes to Consolidated Financial Statements.
50
Consolidated Statements of Equity
Fortune Brands Innovations, Inc. and Subsidiaries
(In millions)
Balance at December 31, 2019
Comprehensive income:
Net income
Other comprehensive income (loss)
Stock options exercised
Stock-based compensation
Treasury stock purchase
Dividends to non-controlling interest
Dividends ($0.98 per Common share)
Balance at December 31, 2020
Comprehensive income:
Net income
Other comprehensive income (loss)
Stock options exercised
Stock-based compensation
Treasury stock purchase
Dividends ($1.06 per Common share)
Balance at December 31, 2021
Comprehensive income:
Net income
Other comprehensive income (loss)
Distribution of MasterBrand
Dividends received from MasterBrand
Stock options exercised
Stock-based compensation
Treasury stock purchase
Dividends ($1.07 per Common share)
Balance at December 31, 2022
Common
Stock
Paid-In
Capital
Accumulated
Other
Comprehensive
(Loss) Income
Retained
Earnings
Treasury
Stock
$
1.8 $ 2,813.8 $
(72.6) $ 1,763.0 $ (2,079.4) $
Non-
controlling
Interests
Total
Equity
1.2 $ 2,427.8
—
—
—
—
—
—
—
1.8 $ 2,926.3 $
—
—
64.9
47.6
—
—
—
—
—
0.1
—
—
—
1.9 $ 3,018.3 $
—
—
41.8
50.2
—
—
—
—
—
—
—
—
—
—
1.9 $ 3,069.6 $
—
—
—
—
1.1
50.2
—
—
$
$
$
—
17.5
—
—
—
—
—
553.1
—
—
—
—
—
(135.9)
—
—
—
(10.7)
(187.6)
—
—
(55.1) $ 2,180.2 $ (2,277.7) $
—
30.5
—
—
—
—
772.4
—
—
—
—
(144.7)
—
—
—
(13.3)
(447.7)
—
(24.6) $ 2,807.9 $ (2,738.7) $
—
53.7
8.3
—
—
—
—
—
686.7
—
(1,973.5)
940.0
—
—
—
(137.3)
—
—
—
—
—
(27.0)
(580.1)
—
37.4 $ 2,323.8 $ (3,345.8) $
554.4
1.3
17.5
—
64.9
—
36.9
—
(187.6)
—
(2.5)
(2.5)
(135.9)
—
— $ 2,775.5
772.4
—
30.5
—
41.9
—
36.9
—
(447.7)
—
—
(144.7)
— $ 3,064.8
686.7
—
—
53.7
— (1,965.2)
940.0
—
1.1
—
23.2
—
(580.1)
—
—
(137.3)
— $ 2,086.9
See Notes to Consolidated Financial Statements.
51
Notes to Consolidated Financial Statements
1. Background and Basis of Presentation
The Company is a leading home and security products company with a portfolio of leading branded
products used for residential home repair, remodeling, new construction and security applications.
References to “Fortune Brands,” “the Company,” “we,” “our” and “us” refer to Fortune Brands Innovations,
Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires.
Basis of Presentation The consolidated financial statements in this Annual Report on Form 10-K have
been derived from the accounts of the Company and its wholly-owned subsidiaries. The Company’s
consolidated financial statements are based on a fiscal year ending December 31. Certain of the
Company’s subsidiaries operate on a 52- or 53-week fiscal year ending during the month of December.
On December 14, 2022, the Company completed the spin-off of its Cabinets business, MasterBrand, Inc.
("MasterBrand") via a tax-free spin-off transaction (the "Separation"). The Separation created two
independent, publicly traded companies. 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 symbol changed from “FBHS” to “FBIN” to better reflect its focus on activities
core to 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 Annual Report on Form 10-K. All amounts, percentages and disclosures for
all periods presented reflect only the continuing operations of the Company unless otherwise noted. See
Note 5, Discontinued Operations, for additional information.
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 is to the name only and
had no impact on the Company’s historical financial position, results of operations, cash flow or segment
level results previously reported.
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.
In January 2022, we acquired 100% of the outstanding equity of Solar Innovations LLC and an affiliated
entity (together, “Solar”), a leading producer of wide-opening exterior door systems and outdoor
enclosures, for a purchase price of $61.6 million, net of cash acquired of $4.8 million.
In 2018 our Water Innovations segment entered into a strategic partnership with, and acquired non-
controlling equity interests in, Flo Technologies, Inc. (“Flo”), a U.S. manufacturer of comprehensive water
monitoring and shut-off systems with leak detection technologies. In January 2020, we entered into an
agreement to acquire 100% of the outstanding shares of Flo in a multi-phase transaction, which was
completed in January 2022. The minority shareholders' substantive participating rights expired on
January 1, 2021, at which time we obtained control of, and began consolidating, Flo in our results of
operations and statements of financial positions and cash flows. Immediately prior to consolidating Flo,
we recognized a non-cash loss of $4.5 million within other expense for the year-ended December 31,
2021, related to the remeasurement of our previously existing investment in Flo. During the fourth quarter
of 2021 we recorded a mark-to-market expense of $2.2 million related to the remaining shares held by the
minority shareholders. The financial results of Flo are included in the Company’s consolidated statements
of comprehensive income for the year-ended December 31, 2021, the consolidated statement of cash
flow for the year-ended December 31, 2021 and the consolidated balance sheet as of December 31,
2021. The results of operations are included in the Water Innovations segment.
2. Significant Accounting Policies
Use of Estimates The presentation of financial statements in accordance with U.S. generally accepted
accounting principles (“GAAP”) requires us to make estimates and assumptions that affect reported
amounts and related disclosures. Actual results in future periods could differ from those estimates.
52
Cash and Cash Equivalents Highly liquid investments with an original maturity of three months or less
are included in cash and cash equivalents.
Allowances for Credit Losses Trade receivables are recorded at the stated amount, less allowances for
discounts and credit losses. The allowances represent estimated uncollectible receivables associated
with potential customer defaults on contractual obligations (usually due to customers’ potential
insolvency) or discounts related to early payment of accounts receivables by our customers. The
allowances for credit losses include provisions for certain customers where a risk of default has been
specifically identified. In addition, the allowances include a provision for expected customer defaults on a
general formula basis when it cannot yet be associated with specific customers. Expected credit losses
are estimated using various factors, including the length of time the receivables are past due, historical
collection experience and existing economic conditions. In accordance with this policy, our allowance for
credit losses was $5.5 million and $5.7 million as of December 31, 2022 and 2021, respectively.
Inventories We use first-in, first-out inventory method. Inventory provisions are recorded to reduce
inventory to the net realizable dollar value for obsolete or slow moving inventory based on assumptions
about future demand and marketability of products, the impact of new product introductions, inventory
levels and turns, product spoilage and specific identification of items, such as product discontinuance,
engineering/material changes, or regulatory-related changes.
Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is
provided, principally on a straight-line basis, over the estimated useful lives of the assets. Gains or losses
resulting from dispositions are included in operating income. Betterments and renewals, which improve
and extend the life of an asset, are capitalized; maintenance and repair costs are expensed as incurred.
Assets held for use to be disposed of at a future date are depreciated over the remaining useful life.
Assets to be sold are written down to fair value less costs to sell at the time the assets are being actively
marketed for sale. Estimated useful lives of the related assets are as follows:
Buildings and leasehold improvements
Machinery and equipment
Software
15 to 40 years
3 to 15 years
3 to 7 years
Long-lived Assets In accordance with Accounting Standards Codification ("ASC") requirements for
Property, Plant and Equipment, a long-lived asset (including amortizable identifiable intangible assets) or
asset group held for use is tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. When such events occur, we compare the sum
of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or
asset group to the carrying amount of a long-lived asset or asset group. The cash flows are based on our
best estimate of future cash flows derived from the most recent business projections. If this comparison
indicates that there is an impairment, the amount of the impairment is calculated based on fair value. Fair
value is estimated primarily using discounted expected future cash flows on a market-participant basis.
We recorded impairments of $0.2 million and $3.6 million related to a long-lived asset to be disposed of in
selling, general and administrative expenses in 2021 and 2020, respectively. No impairments related to
long-lived assets were recorded in 2022.
Leases Operating lease assets and operating lease liabilities are recognized based on the present value
of the future lease payments over the lease term at commencement date. As most of our lease contracts
do not provide an explicit interest rate, we use our incremental borrowing rate in determining the present
value of future lease payments. Our incremental borrowing rates include estimates related to the impact
of collateralization and the economic environment where the leased asset is located. The operating lease
assets also include any prepaid lease payments and initial direct costs incurred, but exclude lease
incentives received at lease commencement. Our lease terms include options to extend or terminate the
lease when it is reasonably certain that we will exercise that option. Our leases have remaining lease
terms of 1 to 9 years, some of which may include options to extend or terminate the lease. Operating
lease expense is recognized on a straight-line basis over the lease term.
53
We do not recognize leases with an initial term of twelve months or less on the balance sheet and instead
recognize the related lease payments as expense in the consolidated statements of income on a straight-
line basis over the lease term. We account for lease and non-lease components as a single lease
component for all asset classes. Additionally, for certain equipment leases, we apply a portfolio approach
and account for multiple lease components as a single lease component.
Certain lease agreements include variable rental payments, including rental payments adjusted
periodically for inflation. Variable rental payments are expensed during the period they are incurred and
therefore are excluded from our lease assets and liabilities. Our lease agreements do not contain any
material residual value guarantees or material restrictive covenants.
Business Combinations We account for business combinations under the acquisition method of
accounting in accordance with ASC Topic 805, Business Combinations, which requires an allocation of
the consideration we paid to the identifiable assets, intangible assets and liabilities based on the
estimated fair values as of the closing date of the acquisition. The excess of the fair value of the purchase
price over the fair values of these identifiable assets, intangible assets and liabilities is recorded as
goodwill.
Purchased intangibles other than goodwill are initially recognized at fair value and amortized over their
useful lives unless those lives are determined to be indefinite. The valuation of acquired assets will impact
future operating results. The fair value of identifiable intangible assets is determined using an income
approach on an individual asset basis. Specifically, we use the multi-period excess earnings method to
determine the fair value of customer relationships and the relief-from-royalty approach to determine the
fair value of the tradename and proprietary technology. Determining the fair value of acquired intangibles
involves significant estimates and assumptions, including forecasted revenue growth rates, EBITDA
margins, percentage of revenue attributable to the tradename, contributory asset charges, customer
attrition rate, market-participant discount rates and the assumed royalty rates.
The determination of the useful life of an intangible asset other than goodwill is based on factors including
historical tradename performance with respect to consumer name recognition, geographic market
presence, market share, plans for ongoing tradename support and promotion, customer attrition rate, and
other relevant factors.
Goodwill and Indefinite-lived Intangible Assets In accordance with ASC requirements for Intangibles -
Goodwill and Other, management reviews goodwill for impairment annually in the fourth quarter and
whenever market or business events indicate there may be a potential impairment of the reporting unit.
Impairment losses are recorded to the extent that the carrying value of the reporting unit exceeds its fair
value. The Company’s reporting units are operating segments, or one level below operating segments
when appropriate.
To evaluate the recoverability of goodwill, we first assess qualitative factors to determine whether it is
more likely than not that goodwill is impaired. Qualitative factors include changes in volume, margin,
customers and the industry. If it is deemed more likely than not that goodwill for a reporting unit is
impaired, we will perform a quantitative impairment test where fair value of each reporting unit is
estimated using the income approach using a discounted cash flow model based on estimates of future
cash flows combined with the market approach using comparable trading and transaction multiples based
on guideline public companies. We may also elect to bypass the qualitative testing and proceed directly to
the quantitative testing. For the income approach, using a discounted cash flow model, we estimate the
future cash flows of the reporting units to which the goodwill relates and then discount the future cash
flows at a market-participant-derived discount rate. In determining the estimated future cash flows, we
consider current and projected future levels of income based on management’s plans for that business;
business trends, prospects and market and economic conditions; and market-participant considerations.
Furthermore, our cash flow projections used to assess impairment of our goodwill and other intangible
assets are significantly influenced by our projection for the U.S. new home starts and home repair
remodel spending, our annual operating plans finalized in the fourth quarter of each year, and our ability
to execute on various planned cost reduction initiatives supporting operating income improvements. Our
projection for the U.S. home products market is inherently uncertain and is subject to a number of factors,
such as employment, home prices, credit availability, new home starts and the rate of home foreclosures.
For the market approach, we apply comparable trading and transaction multiples based on guideline
54
public companies to the current operating results of the reporting units to determine each reporting unit’s
fair value.
The significant assumptions that are used to determine the estimated fair value of reporting units for
impairment testing are forecasted revenue growth rates, operating income margins, market-participant
discount rates, EBITDA multiples and revenue multiples.
Certain of our tradenames have been assigned an indefinite life as we currently anticipate that these
tradenames will contribute cash flows to the Company indefinitely. Indefinite-lived intangible assets are
not amortized, but are evaluated at least annually to determine whether the indefinite useful life is
appropriate. We measure the fair value of identifiable intangible assets upon acquisition and we review
for impairment annually in the fourth quarter and whenever market or business events indicate there may
be a potential impairment of that intangible. Impairment losses are recorded to the extent that the carrying
value of the indefinite-lived intangible asset exceeds its fair value.
We first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived
intangible asset is impaired. Qualitative factors include changes in volume, customers and the industry. If
it is deemed more likely than not that an intangible asset is impaired, we will perform a quantitative
impairment test. We measure fair value of our indefinite-lived tradenames using the relief-from-royalty
approach which estimates the present value of royalty income that could be hypothetically earned by
licensing the brand name to a third party over the remaining useful life. The significant assumptions that
are used to determine the estimated fair value for indefinite-lived intangible assets upon acquisition and
subsequent impairment testing are forecasted revenue growth rates, the assumed royalty rates and the
market-participant discount rates. Of our $478.1 million indefinite-lived tradenames, $141.5 million relate
to our Water Innovations segment and $336.6 million relate to our Outdoors & Security segment as of
December 31, 2022. There were no impairments related to our continuing operations for the year ended
December 31, 2022. See Note 6, “Goodwill and Identifiable Intangible Assets,” for additional information.
Events or circumstances that could have a potential negative effect on the estimated fair value of our
reporting units and indefinite-lived tradenames include: lower than forecasted revenues, actual new
construction and repair and remodel growth rates that fall below our assumptions, actions of key
customers, increases in discount rates, continued economic uncertainty, higher levels of unemployment,
weak consumer confidence, lower levels of discretionary consumer spending, a decrease in royalty rates
and decline in the trading price of our common stock. We cannot predict the occurrence of certain events
or changes in circumstances that might adversely affect the carrying value of goodwill and indefinite-lived
assets.
Investments in Equity Securities In accordance with ASC requirements for investments in equity
securities, we utilize the equity method to account for investments when we possess the ability to
exercise significant influence, but not control, over the operating and financial policies of the investee.
The ability to exercise significant influence is presumed when the investor possesses more than 20% of
the voting interests of the investee. This presumption may be overcome based on specific facts and
circumstances that demonstrate that the ability to exercise significant influence is restricted. In applying
the equity method, we record our investment at cost and subsequently increase or decrease the carrying
amount of the investment by our proportionate share of the net earnings or losses of the investee. We
record dividends or other equity distributions as reductions in the carrying value of our investment.
When we do not have the ability to exercise significant influence over the operating and financial policies
of the investee, we account for non-controlling investments in equity securities at fair value, with any
gains or losses recognized through other income and expense. Equity securities without readily
determinable fair values are recorded at cost minus impairment, plus or minus any changes resulting from
observable price changes in orderly transactions for identical or similar investments of the same issuer.
As of December 31, 2022, all of our investments in our strategic partners where we do not have
significant influence over the investee do not have readily determinable fair values. As of December 31,
2022 and 2021, the carrying value of our investments were $3.5 million and $3.5 million, respectively,
which is included in other assets within our Consolidated Balance Sheet. There were no impairments or
55
other changes resulting from observable prices changes recorded during the years ended December 31,
2022, 2021 or 2020.
Defined Benefit Plans We have a number of pension plans in the United States, covering many of the
Company’s employees. In addition, the Company provides postretirement health care and life insurance
benefits to certain retirees. Service cost for 2022 relates to benefit accruals for an hourly Union group
within the defined benefit plan for our Outdoors & Security segment. All other benefit accruals under our
defined benefit pension plans were frozen as of, or prior to, December 31, 2016.
We record amounts relating to these plans based on calculations in accordance with ASC requirements
for Compensation – Retirement Benefits, which include various actuarial assumptions, including discount
rates, assumed rates of return, compensation increases, turnover rates and health care cost trend rates.
We recognize changes in the fair value of pension plan assets and net actuarial gains or losses in excess
of 10 percent of the greater of the fair value of pension plan assets or each plan’s projected benefit
obligation (the “corridor”) in earnings immediately upon remeasurement, which is at least annually in the
fourth quarter of each year. We review our actuarial assumptions on an annual basis and make
modifications to the assumptions based on current economic conditions and trends. The discount rate
used to measure obligations is based on a spot-rate yield curve on a plan-by-plan basis that matches
projected future benefit payments with the appropriate interest rate applicable to the timing of the
projected future benefit payments. The expected rate of return on plan assets is determined based on the
nature of the plans’ investments, our current asset allocation and our expectations for long-term rates of
return. Compensation increases reflect expected future compensation trends. For postretirement benefits,
our health care trend rate assumption is based on historical cost increases and expectations for long-term
increases. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior
employee service (prior service cost), is deferred and included in expense on a straight-line basis over
the average remaining service period of the related employees. We believe that the assumptions utilized
in recording obligations under our plans, which are presented in Note 15, “Defined Benefit Plans,” are
reasonable based on our experience and on advice from our independent actuaries; however, differences
in actual experience or changes in the assumptions may materially affect our financial position and results
of operations. We will continue to monitor these assumptions as market conditions warrant.
Insurance Reserves We provide for expenses associated with workers’ compensation and product
liability obligations when such amounts are probable and can be reasonably estimated. The accruals are
adjusted as new information develops or circumstances change that would affect the estimated liability.
Litigation Contingencies Our businesses are subject to risks related to threatened or pending litigation
and are routinely defendants in lawsuits associated with the normal conduct of business. Liabilities and
costs associated with litigation-related loss contingencies require estimates and judgments based on our
knowledge of the facts and circumstances surrounding each matter and the advice of our legal counsel.
We record liabilities for litigation-related losses when a loss is probable and we can reasonably estimate
the amount of the loss in accordance with ASC requirements for Contingencies. We evaluate the
measurement of recorded liabilities each reporting period based on the then-current facts and
circumstances specific to each matter. The ultimate losses incurred upon final resolution of litigation-
related loss contingencies may differ materially from the estimated liability recorded at any particular
balance sheet date. Changes in estimates are recorded in earnings in the period in which such changes
occur.
Income Taxes In accordance with ASC requirements for Income Taxes, we establish deferred tax
liabilities or assets for temporary differences between financial and tax reporting basis and subsequently
adjust them to reflect changes in tax rates expected to be in effect when the temporary differences
reverse. We record a valuation allowance reducing deferred tax assets when it is more likely than not that
such assets will not be realized.
We record liabilities for uncertain income tax positions based on a two-step process. The first step is
recognition, where we evaluate whether an individual tax position has a likelihood of greater than 50% of
being sustained upon examination based on the technical merits of the position, including resolution of
56
any related appeals or litigation processes. For tax positions that are currently estimated to have a less
than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the
recognition threshold in the first step, we perform the second step of measuring the benefit to be
recorded. The actual benefits ultimately realized may differ from our estimates. In future periods, changes
in facts, circumstances and new information may require us to change the recognition and measurement
estimates with regard to individual tax positions. Changes in recognition and measurement estimates are
recorded in the consolidated statement of income and consolidated balance sheet in the period in which
such changes occur. As of December 31, 2022, we had liabilities for unrecognized tax benefits pertaining
to uncertain tax positions totaling $33.4 million. It is reasonably possible that the unrecognized tax
benefits may decrease by $9.8 million in the next 12 months primarily as a result of the lapse of statutes
of U.S. federal, state and foreign income taxes.
Revenue Recognition The Company recognizes revenue for the sale of goods based on its assessment
of when control transfers to our customers. See Note 14, “Revenue,” for additional information.
Cost of Products Sold Cost of products sold includes all costs to make products saleable, such as labor
costs, inbound freight, purchasing and receiving costs, inspection costs and internal transfer costs. In
addition, all depreciation expense associated with assets used to manufacture products and make them
saleable is included in cost of products sold.
Customer Program Costs Customer programs and incentives are a common practice in our businesses.
Our businesses incur customer program costs to obtain favorable product placement, to promote sales of
products and to maintain competitive pricing. We record estimates to reduce revenue for customer
programs and incentives, which are considered variable consideration, and include price discounts,
volume-based incentives, promotions and cooperative advertising when revenue is recognized in order to
determine the amount of consideration the Company will ultimately be entitled to receive. These
estimates are based on historical and projected experience for each type of customer. In addition, for
certain customer program incentives, we receive an identifiable benefit (goods or services) in exchange
for the consideration given and record the associated expenditure in selling, general and administrative
expenses. Volume allowances are accrued based on management’s estimates of customer volume
achievement and other factors incorporated into customer agreements, such as new products, store sell-
through, merchandising support, levels of returns and customer training. Management periodically
reviews accruals for these rebates and allowances, and adjusts accruals when circumstances indicate
(typically as a result of a change in volume expectations). The costs typically recognized in selling,
general and administrative expenses include product displays, point of sale materials and media
production costs. The costs included in the selling, general and administrative expenses category were
$24.7 million, $25.2 million and $22.6 million for the years ended December 31, 2022, 2021 and 2020,
respectively.
Selling, General and Administrative Expenses Selling, general and administrative expenses include
advertising costs; marketing costs; selling costs, including commissions; research and development
costs; shipping and handling costs, including warehousing costs; and general and administrative
expenses. Shipping and handling costs included in selling, general and administrative expenses were
$162.9 million, $164.0 million and $107.7 million in 2022, 2021 and 2020, respectively.
Advertising costs, which amounted to $220.7 million, $231.7 million and $189.9 million in 2022, 2021 and
2020, respectively, are principally expensed as incurred. Advertising costs paid to customers as pricing
rebates include product displays, marketing administration costs, media production costs and point-of-
sale materials. Advertising costs recorded as a reduction to net sales, primarily cooperative advertising,
were $47.7 million, $40.7 million and $40.4 million in 2022, 2021 and 2020, respectively. Advertising
costs recorded in selling, general and administrative expenses were $173.0 million, $191.0 million and
$149.5 million in 2022, 2021 and 2020, respectively.
Research and development expenses include product development, product improvement, product
engineering and process improvement costs. Research and development expenses, which were $62.0
57
million, $64.1 million and $48.4 million in 2022, 2021 and 2020, respectively, are expensed as incurred
within selling, general and administrative expenses.
Stock-based Compensation Stock-based compensation expense, measured as the fair value of an
award on the date of grant, is recognized in the financial statements over the period that an employee is
required to provide services in exchange for the award. Compensation expense is recorded net of
forfeitures, which we have elected to record in the period they occur. The fair value of each option award
is measured on the date of grant using the Black-Scholes option-pricing model. The fair value of each
performance share award is based on the average of the high and low share prices on the date of grant
and the probability of meeting performance targets. The fair value of each restricted stock unit granted is
equal to the average of the high and low share prices on the date of grant. See Note 13, “Stock-Based
Compensation,” for additional information.
Earnings Per Share Earnings per common share is calculated by dividing net income attributable to
Fortune Brands by the weighted-average number of shares of common stock outstanding during the year.
Diluted earnings per common share include the impact of all potentially dilutive securities outstanding
during the year. See Note 21, “Earnings Per Share,” for further discussion.
Foreign Currency Translation Foreign currency balance sheet accounts are translated into U.S. dollars
at the actual rates of exchange at the balance sheet date. Income and expenses are translated at the
average rates of exchange in effect during the period for the foreign subsidiaries where the local currency
is the functional currency. The related translation adjustments are made directly to a separate component
of the “accumulated other comprehensive income” (“AOCI”) caption in equity. Transactions denominated
in a currency other than the functional currency of a subsidiary are translated into functional currency with
resulting transaction gains or losses recorded in other expense, net.
Derivative Financial Instruments In accordance with 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 (loss) of $4.7 million, $(2.6) million and $(0.7) million (before tax impact) were
reclassified into earnings for the years ended December 31, 2022, 2021 and 2020, respectively. Based
on foreign exchange rates as of December 31, 2022, we estimate that $2.3 million of net derivative gain
included in AOCI as of December 31, 2022, will be reclassified to earnings within the next twelve months.
Recently Issued Accounting Standards
Simplifying the Accounting for Income Taxes
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards
Update ("ASU") 2019-12, which is intended to simplify accounting for income taxes and improve
consistency in application. ASU 2019-12 amends certain elements of income tax accounting, including
but not limited to intraperiod tax allocations, step-ups in tax basis of goodwill and calculating taxes on
year-to-date losses in interim periods. The guidance was effective for the Company’s fiscal year
beginning January 1, 2021. The adoption of this guidance did not have a material effect on our financial
statements.
58
Effects of Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, which provides relief from accounting analysis and
impacts that may otherwise be required for modifications to agreements necessitated by reference rate
reform. It also provides optional expedients to enable the continuance of hedge accounting where certain
hedging relationships are impacted by reference rate reform. In January 2021, the FASB issued ASU
2021-01, which further clarifies the scope of ASU 2020-04. This optional guidance is effective
immediately and available to be used through December 31, 2024. The adoption of this guidance did not
have a material effect on our financial statements.
Disclosures by Business Entities About Government Assistance
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832). The new
guidance, codified in ASC 832, requires business entities that account for transactions with a government
by applying a grant or contribution model by analogy to disclose information about government assistance
recorded during the period. ASU 2021-10 is effective for all entities for annual reporting periods beginning
after December 15, 2021. The adoption of this guidance did not have a material effect on our financial
statements.
3. Balance Sheet Information
Supplemental information on our year-end consolidated balance sheets is as follows:
(In millions)
Inventories:
Raw materials and supplies
Work in process
Finished products
Total inventories
Property, plant and equipment:
Land and improvements
Buildings and improvements to leaseholds
Machinery and equipment
Construction in progress
Property, plant and equipment, gross
Less: accumulated depreciation
Property, plant and equipment, net of accumulated
depreciation
Other current liabilities:
Accrued salaries, wages and other compensation
Accrued customer programs
Accrued taxes
Dividends payable
Other accrued expenses
Total other current liabilities
2022
309.4
83.5
628.4
1,021.3
51.9
285.1
1,052.2
225.1
1,614.3
830.6
783.7
57.6
227.6
24.8
29.4
184.5
523.9
$
$
$
$
$
$
2021
247.3
64.7
577.5
889.5
44.8
270.9
974.6
141.8
1,432.1
761.3
670.8
132.4
241.7
65.5
37.8
169.0
646.4
$
$
$
$
$
$
n4. Acquisitions
Aqualisa
In July 2022, we acquired 100% of the outstanding equity of Aqualisa Holdings (International) Ltd.
(“Aqualisa”), a leading U.K. manufacturer of shower products known for premium, innovative and smart
digital shower systems, for a purchase price of $156.0 million, net of cash acquired of $4.8 million. The
results of Aqualisa are reported as part of the Water Innovations segment. We believe its product
offerings will enable us to continue to leverage growing trends in water management and connected
products. We financed the transaction with borrowings under our existing credit facility. We have not
included pro forma financial information as the transaction is not material to our condensed consolidated
59
statements of comprehensive income. The fair value allocated to assets acquired and liabilities assumed
as of July 29, 2022 was $156.0 million, which includes $88.7 million of goodwill. Goodwill includes
expected sales and cost synergies and is not expected to be deductible for income tax purposes.
Solar
In January 2022, we acquired 100% of the outstanding equity of Solar for a purchase price of $61.6
million, net of cash acquired of $4.8 million. We financed the transaction using cash on hand and
borrowings under our revolving credit facility. The results of Solar are reported as part of the Outdoors &
Security segment. Its complementary product offerings support the segment’s outdoor living strategy.
Solar's net sales and operating income for the three and nine months ended September 30, 2022 were
not material to the Company. We have not included pro forma financial information as the transaction is
immaterial to our condensed consolidated statements of comprehensive income. The fair value allocated
to assets acquired and liabilities assumed as of January 31, 2022 was $61.6 million, which includes $23.3
million of goodwill. Goodwill includes expected sales and cost synergies and is expected to be deductible
for income tax purposes.
Flo Technologies
In 2018 our Water Innovations segment entered into a strategic partnership with, and acquired non-
controlling equity interests in, Flo Technologies, Inc. (“Flo”), a U.S. manufacturer of comprehensive water
monitoring and shut-off systems with leak detection technologies. In January 2020, we entered into an
agreement to acquire 100% of the outstanding shares of Flo in a multi-phase transaction, which was
completed in January 2022. As part of this agreement, we acquired additional shares for $44.2 million in
cash, including direct transactions costs, and entered into a forward contract to purchase all remaining
shares of Flo at a future date in exchange for an additional $7.9 million in cash, which is included in other
assets in our consolidated balance sheet. In April 2020, we acquired additional shares of Flo under a
separate option agreement, which resulted in a non-cash gain of $4.4 million on the forward contract as
included within other income for the year-ended December 31, 2020.
As of December 31, 2020, we owned approximately 80% of Flo’s outstanding shares. Starting in the first
quarter of 2020, we applied the equity method of accounting to our investment in Flo as the minority
stockholders had substantive participating rights which precluded consolidation in our results of
operations and statements of financial position and cash flows. Immediately prior to applying the equity
method of accounting, we recognized a non-cash gain of $6.6 million within other income during the year-
ended December 31, 2020 related to the remeasurement of our previously existing investment in Flo. The
carrying value of our investment as of December 31, 2020 was $76.2 million.
The minority shareholders' substantive participating rights expired on January 1, 2021, at which time we
obtained control of and began consolidating Flo in our results of operations and statements of financial
positions and cash flows. Immediately prior to consolidating Flo, we recognized a non-cash loss of $4.5
million within other expense for the year-ended December 31, 2021, related to the remeasurement of our
previously existing investment in Flo. The fair value allocated to assets acquired and liabilities assumed
as of January 1, 2021 was $87.8 million, net of cash acquired of $9.7 million, which includes $65.3 million
of goodwill. Goodwill includes expected sales and cost synergies and is not expected to be deductible for
income tax purposes. During the fourth quarter of 2021, we recorded a mark-to-market expense of $2.2
million related to the remaining shares held by the minority shareholders.
Larson Manufacturing
In December 2020, we acquired 100% of the outstanding equity of Larson Manufacturing ("Larson"), the
North American market leading brand of storm, screen and security doors. Larson also sells related
outdoor living products including retractable screens and porch windows. The acquisition of Larson is
aligned with our strategic focus on the fast-growing outdoor living space. The Company completed the
acquisition for a total purchase price of approximately $717.5 million, net of cash acquired. We financed
the transaction with borrowings under our existing credit facility. The financial results of Larson were
60
included in the Company’s December 31, 2021 and 2020 consolidated balance sheets and the
Company's consolidated statements of income and statements of cash flow beginning January 2021.
Larson's net sales, operating income and cash flows from the date of acquisition to December 31, 2020
were not material to the Company. The results of operations are included in the Outdoors & Security
segment. We incurred $4.5 million of Larson acquisition-related transaction costs in the year ended
December 31, 2020.
The following unaudited pro forma summary presents consolidated financial information as if Larson had
been acquired on January 1, 2019. The unaudited pro forma financial information is based on historical
results of operations and financial position of the Company's continuing operations and Larson. The pro
forma results include:
•
•
•
•
•
•
estimated amortization of finite-lived intangible asset, including customer relationships and
proprietary technology,
the estimated cost of the inventory adjustment to fair value,
interest expense associated with debt that would have been incurred in connection with the
acquisition,
the reclassification of Larson transaction costs from 2020 to the first quarter of 2019,
the removal of certain transactions recorded in the historical financial statements of Larson
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, 2019. In addition, the unaudited pro forma
information should not be deemed to be indicative of future results.
(In millions)
Net sales
Net income
5. Discontinued Operations
2020
4,024.2
418.9
$
$
On December 14, 2022, the Company completed the Separation of MasterBrand. The consolidated
statements of income and consolidated balance sheets for all prior periods have been adjusted to reflect
the presentation of MasterBrand as discontinued operations.
The following table summarizes the results of the discontinued operations for the years ended December
31, 2022, 2021 and 2020.
(In millions, except per share amounts)
NET SALES
Cost of products sold
Selling, general and administrative expense
Amortization of intangible asset
Asset impairment charges
Restructuring charges
DISCONTINUED OPERATING INCOME
Interest expense
Other expense, net
INCOME FROM DISCONTINUED OPERATIONS BEFORE INCOME
TAXES
Income taxes
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
$
2022
3,199.7 $
2,279.3
619.7
16.8
46.4
25.1
212.4
0.2
2.2
2021
2,855.0 $
2,068.5
485.3
17.8
—
4.2
279.2
0.1
0.4
210.0
63.2
146.8
278.7
66.0
212.7
2020
2,469.0
1,768.7
433.8
17.8
9.5
5.5
233.7
0.1
2.2
231.4
57.8
173.6
We incurred $63.2 million of transaction costs in connection with the Separation during the year ended
December 31, 2022, which are included in the consolidated statements of operations as discontinued
operations. These costs include legal, accounting and advisory fees, implementation and integration
61
costs, duplicative costs for subscriptions and information technology systems, employee and contract
costs, and other incremental separation costs related to the Separation.
The following table summarizes the major classes of assets and liabilities of MasterBrand,
which are now reflected as discontinued operations in the consolidated balance sheet:
$
(In millions)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable less allowances for discounts and credit losses
Inventories
Other current assets
TOTAL CURRENT ASSETS OF DISCONTINUED OPERATIONS
Property, plant and equipment, net of accumulated depreciation
Operating lease assets
Goodwill
Other intangible assets, net of accumulated amortization
Other assets
TOTAL ASSETS OF DISCONTINUED OPERATIONS
LIABILITIES
Current liabilities
Accounts payable
Other current liabilities
TOTAL CURRENT LIABILITIES OF DISCONTINUED OPERATIONS
Deferred income taxes
Accrued defined benefit plans
Operating lease liabilities
Other non-current liabilities
TOTAL LIABILITIES OF DISCONTINUED OPERATIONS
$
2021
45.9
305.3
304.3
58.5
714.0
338.7
61.2
926.2
415.7
33.9
2,489.7
203.9
159.8
363.7
94.3
(1.2)
50.0
5.8
512.6
The following table summarizes the cash flows of MasterBrand, which are reflected in the consolidated
statements of cash flows:
(In millions)
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
2022
213.0 $
(55.8)
—
(0.2)
157.0 $
2021
162.7 $
(51.5)
—
0.1
111.3 $
2020
232.9
(26.7)
—
0.8
207.0
$
$
MasterBrand depreciation for 2022, 2021 and 2020 was $43.6 million, $44.4 million and $48.0 million,
respectively. MasterBrand amortization of intangibles for 2022, 2021 and 2020 was $16.8 million, $17.8
million and $17.8 million, respectively. MasterBrand capital expenditures for 2022, 2021 and 2020 were
$55.8 million, $51.6 million and $27.3 million, respectively.
62
6. Goodwill and Identifiable Intangible Assets
We had goodwill of $1,640.7 million and $1,538.9 million as of December 31, 2022 and 2021,
respectively. The change in the net carrying amount of goodwill by segment was as follows:
(In millions)
Balance at December 31, 2020(a)
2021 translation adjustments
Acquisition-related adjustments
Balance at December 31, 2021(a)
2022 translation adjustments
Acquisition-related adjustments
Balance at December 31, 2022(a)
Water
Innovations
750.1
(1.3)
65.3
814.1
(9.4)
88.7
893.4
$
$
$
Outdoors &
Security
718.6 $
0.1
6.1
724.8 $
(0.8)
23.3
747.3 $
$
$
$
Total
Goodwill
1,468.7
(1.2)
71.4
1,538.9
(10.2)
112.0
1,640.7
(a) Net of accumulated impairment losses of $399.5 million in the Outdoors & Security segment.
The gross carrying value and accumulated amortization by class of intangible assets as of December 31,
2022 and 2021 were as follows:
(In millions)
Indefinite-lived tradenames
Amortizable intangible assets
$
As of December 31, 2022
Gross
Carrying
Amounts
478.1 $
Accumulated
Amortization
Net Book
Value
— $ 478.1$
As of December 31, 2021
Gross
Carrying
Amounts
479.2 $
Accumulated
Amortization
Net Book
Value
— $ 479.2
Tradenames
Customer and contractual relationships
Patents/proprietary technology
Total
47.5
662.6
128.5
838.6
Total identifiable intangibles
$ 1,316.7 $
40.7
(6.8)
423.0
(239.6)
59.0
(69.5)
(315.9)
522.7
(315.9)$1,000.8$ 1,238.3 $
25.8
611.2
122.1
759.1
20.6
(5.2)
405.5
(205.7)
62.8
(59.3)
(270.2)
488.9
(270.2)$ 968.1
We had identifiable intangible assets, principally tradenames and customer relationships, of $1,000.8
million and $968.1 million as of December 31, 2022 and 2021, respectively. The $78.4 million increase in
gross identifiable intangible assets was primarily due to the acquisitions of Aqualisa and Solar.
Amortizable intangible assets, principally customer relationships, are subject to amortization on a straight-
line basis 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 include customer attrition rates and other relevant
factors. We expect to record intangible amortization of approximately $50 million in 2023, $50 million in
2024, $50 million in 2025, $49 million in 2026 and $47 million in 2027.
During the second quarter of 2020, extended closures of luxury plumbing showrooms associated with
COVID-19 led to lower than expected sales related to an indefinite-lived tradename within the Water
Innovations segment, which combined with the updated financial outlook compared to previous forecasts
and the continued uncertainty of the pandemic on the sales and profitability related to the tradename, led
us to conclude that it was more likely than not that the indefinite-lived tradename was impaired.
Therefore, we performed an interim impairment test as of June 30, 2020, and as a result we recognized a
pre-tax impairment charge of $13.0 million related to this tradename. We also performed an evaluation of
the useful life of this tradename and determined it was no longer indefinite-lived due to changes in long-
term management expectations and future operating plans. As a result, the remaining carrying value of
this tradename is being amortized over its estimated useful life of 30 years.
The fair value of the impaired tradename was measured using the relief-from-royalty approach, which
estimates the present value of royalty income that could be hypothetically earned by licensing the
tradename to a third party over its remaining useful life. Some of the more significant assumptions
inherent in estimating the fair value include forecasted revenue growth rates, assumed royalty rates, and
market-participant discount rates that reflect the level of risk associated with the tradenames’ future
63
revenues and profitability. We selected the assumptions used in the financial forecasts using historical
data, supplemented by current and anticipated market conditions, estimated growth rates and
management plans. These assumptions represent level 3 inputs of the fair value hierarchy (refer to Note
10, Fair Value Measurements).
As of December 31, 2022, the fair value of one of our Outdoors & Security tradenames exceeded its
carrying value of $111.0 million by less than 10%. A reduction in the estimated fair value of any of our
tradenames could trigger impairment charges in future periods. Events or circumstances that could have
a potential negative effect on the estimated fair value of our reporting units and indefinite-lived
tradenames include: lower than forecasted revenues, more severe impacts of the COVID-19 pandemic
than currently expected, actual new construction and repair and remodel growth rates that fall below our
assumptions, actions of key customers, increases in discount rates, continued economic uncertainty,
higher levels of unemployment, weak consumer confidence, lower levels of discretionary consumer
spending, a decrease in royalty rates and a decline in the trading price of our common stock. We cannot
predict the occurrence of certain events or changes in circumstances that might adversely affect the
carrying value of goodwill and indefinite-lived assets.
The significant assumptions used to estimate the fair value of the tradename impaired during the year
ended December 31, 2020 were as follows:
Unobservable Input
2020
Discount rate
Royalty rate (a)
Long-term revenue growth rate (b)
15.8%
5.0%
3.0%
(a) Represents estimated percentage of sales a market-participant would pay to license the impaired tradename.
(b) Selected long-term revenue growth rate within 10-year projection period of the impaired tradename.
7. Leases
We have operating and finance leases for buildings and certain machinery and equipment. Operating
leases are included in operating lease assets, other current liabilities and operating lease liabilities in our
consolidated balance sheets. Amounts recognized for finance leases as of and for the years ended
December 31, 2022 and 2021 were immaterial.
Operating lease expense recognized in the consolidated statement of comprehensive income for the
years ended December 31, 2022, 2021 and 2020 and were $37.4 million, $35.6 million and $32.8 million,
respectively, including approximately $2.6 million, $1.8 million and $1.8 million of short-term and variable
lease costs for the years ended December 31, 2022, 2021 and 2020, respectively.
Other information related to leases was as follows:
(In millions, except lease term and discount rate)
Cash paid for amounts included in the measurement of
lease liabilities:
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for operating
lease obligations
Weighted average remaining lease term - operating
leases
Weighted average discount rate - operating leases
December 31,
2022
December 31,
2021
December 31,
2020
$
$
35.1
21.6
$
$
33.3
33.9
$
$
30.3
34.3
5.6 years
6.1 years
6.9 years
3.6%
3.5%
3.9%
64
Total lease payments under non-cancellable operating leases as of December 31, 2022 were as follows:
(In millions)
Year Ending December 31,
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less imputed interest
Total
Reported as of December 31, 2022
Other current liabilities
Operating lease liabilities
Total
$
34.1
26.4
19.8
17.0
14.2
28.6
140.1
(14.2)
$ 125.9
$
30.5
95.4
$ 125.9
8. External Debt and Financing Arrangements
Unsecured Senior Notes
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 described below.
At December 31, 2022, 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 31, 2022 and December 31, 2021:
(in millions)
Coupon Rate
$
4.000% Senior Notes
4.000% Senior Notes
3.250% Senior Notes
4.000% Senior Notes
4.500% Senior Notes
Total Senior Notes $
Principal
Amount
500.0
600.0
700.0
450.0
450.0
2,700.0
Issuance Date
Maturity Date
June 2015
September 2018
September 2019
March 2022
March 2022
June 2025
September 2023
September 2029
March 2032
March 2052
Net Carrying Value
December 31,
2022
December 31,
2021
$
$
498.1 $
599.2
695.0
445.8
435.4
2,673.5 $
497.4
598.2
694.2
-
-
1,789.8
As of December 31, 2022 and December 31, 2021, the components of long-term debt were as follows:
(In millions)
Notes (due 2023 to 2052)
2022 Revolving Credit Agreement
2021 Term Loan
Total debt
Less: current portion
Total long-term debt
$
$
2022
2,673.5 $
—
—
2,673.5
599.2
2,074.3 $
2021
1,789.8
520.0
400.0
2,709.8
400.0
2,309.8
65
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 December 31, 2022 and December 31, 2021, our outstanding borrowings under
this credit facility and our previous revolving credit facility were zero and $520.0 million, respectively. As
of December 31, 2022, we believe we are in compliance with all covenants under this credit facility.
In November 2021, the Company entered into a 364-day, $400 million term loan credit agreement (“2021
Term Loan”) for general corporate purposes that matured 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 December 31, 2022 and $17.5 million as of
December 31, 2021, of which there were no outstanding balances as of December 31, 2022 and 2021.
The weighted-average interest rates on these borrowings were zero in 2022 and 2021.
Commercial Paper
In November 2021, the Company established 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 consolidated balance sheets. Amounts available under the
Commercial Paper Program may be borrowed, repaid and re-borrowed, with the aggregate principal
amount outstanding at any time, including borrowings under the 2022 Revolving Credit Agreement, not to
exceed $1.25 billion. The Company plans to use net proceeds from any issuances under the Commercial
Paper Program for general corporate purposes.
In our debt agreements, there are normal and customary events of default which would permit the lenders
to accelerate the debt if not cured 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 31, 2022.
Debt payments due during the next five years as of December 31, 2022 are $600 million in 2023, zero in
2024, $500 million in 2025, zero in 2026, zero in 2027 and $1,600 million in 2028 and beyond. Interest
payments due during the next five years as of December 31, 2022 are $105 million in 2023, $152 million
in 2024 through 2025, $122 million in 2026 through 2027 and $642 million in 2028 and beyond.
66
9. 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 account for these commodity derivatives as economic hedges or
cash flow hedges. Changes in the fair value of economic hedges are recorded directly into current period
earnings. The gross notional amount of all commodity derivatives outstanding at December 31, 2022 was
$17.8 million, representing a net settlement liability of $3.6 million. The gross notional amount of all
commodity derivatives outstanding at December 31, 2021 was $5.0 million, representing a net settlement
asset of zero.
We may enter into foreign currency forward contracts to protect against foreign exchange risks associated
with certain existing assets and liabilities, forecasted future cash flows, and net investments in foreign
subsidiaries. Foreign exchange contracts related to forecasted future cash flows correspond to the
periods of the forecasted transactions, which generally do not exceed 12 to 15 months subsequent to the
latest balance sheet date.
We may enter into interest rate swap contracts to protect against interest rate risks associated with
certain of our debt obligations. Interest rate swap contracts related to forecasted future interest payments
correspond to the periods of the forecasted transactions. We account for these derivatives as cash flow
hedges. These contracts were immaterial to the financial statements at December 31, 2021.
For derivative instruments that are designated as fair value hedges, the gain or loss on the derivative
instrument, as well as the offsetting loss or gain on the hedged item, are recognized on the same line of
the consolidated statements of income. The changes in the fair value of cash flow hedges are reported in
OCI and are recognized in the consolidated statements of income when the hedged item affects earnings.
The changes in fair value for net investment hedges are recognized in the consolidated statements of
income when realized upon sale or upon complete or substantially complete liquidation of the investment
in the foreign entity. In addition, changes in the fair value of all economic hedge transactions are
immediately recognized in current period earnings. Our primary foreign currency hedge contracts pertain
to the Canadian dollar, the British pound, the Mexican peso and the Chinese yuan. The gross U.S. dollar
equivalent notional amount of all foreign currency derivative hedges outstanding at December 31, 2022
was $285.0 million, representing a net settlement asset of $4.2 million. Based on foreign exchange rates
as of December 31, 2022, we estimate that $2.3 million of net derivative gains included in accumulated
other comprehensive income as of December 31, 2022 will be reclassified to earnings within the next
twelve months.
The fair values of foreign exchange and commodity derivative instruments on the consolidated balance
sheets as of December 31, 2022 and 2021 were:
(In millions)
Assets:
Foreign exchange contracts
Interest rate contracts
Liabilities:
Foreign exchange contracts
Commodity contracts
Location
Other current assets
Other current assets
Total assets
Other current liabilities
Other current liabilities
Total liabilities
Fair Value
2022
5.0
84.6
89.6
0.7
3.6
4.3
$
$
$
$
2021
3.6
—
3.6
0.7
0.1
0.8
$
$
$
$
67
The effects of derivative financial instruments on the consolidated statements of income in 2022, 2021
and 2020 were:
(In millions)
Total amounts per Consolidated Statements of Income
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items
Derivative designated as hedging instruments
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
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
(In millions)
Total amounts per Consolidated Statements of Income
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items
Derivative designated as hedging instruments
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
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
68
Classification and Amount of Gain (Loss)
Recognized in Income on Fair Value and
Cash Flow Hedging Relationships
Cost of
products sold
$
2,790.1 $
2022
Interest
expense
Other income,
net
119.2 $
12.0
—
—
4.8
(7.3)
—
—
—
—
—
3.6
(22.4)
21.3
—
—
—
Classification and Amount of Gain (Loss)
Recognized in Income on Fair Value and
Cash Flow Hedging Relationships
Cost of
products sold
$
2,840.6 $
2021
Interest
expense
Other expense,
net
84.3 $
0.4
—
—
(2.6)
1.3
—
—
—
—
—
0.6
(4.7)
2.1
—
—
—
(In millions)
Total amounts per Consolidated Statements of Income
The effects of fair value and cash flow hedging:
Gain (loss) on fair value hedging relationships
Foreign exchange contracts:
Hedged items
Derivative designated as hedging instruments
Gain (loss) on cash flow hedging relationships
Foreign exchange contracts:
Amount of gain or (loss) reclassified from
accumulated other comprehensive (loss) income
into income
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
Classification and Amount of Gain (Loss)
Recognized in Income on Fair Value and
Cash Flow Hedging Relationships
Cost of
products sold
$
2,157.4 $
2020
Interest
expense
Other income,
net
83.8 $
15.3
—
—
(0.7)
—
—
—
—
—
—
0.6
3.5
(2.8)
—
—
—
The cash flow hedges from continuing operations recognized in other comprehensive income were net
gains (losses) of $119.0 million, $1.0 million and $(1.8) million in 2022, 2021 and 2020 respectively.
10. Fair Value Measurements
ASC requirements for Fair Value Measurements and Disclosures establish a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs,
the highest priority, are quoted prices in active markets for identical assets or liabilities. Level 2 inputs
reflect other than quoted prices included in level 1 that are either observable directly or through
corroboration with observable market data. Level 3 inputs are unobservable inputs due to little or no
market 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 14.
The carrying value and fair value of debt as of December 31, 2022 and 2021 were as follows:
(In millions)
Notes, net of underwriting commissions, price
discounts and debt issuance costs
2022 Revolving Credit Agreement
2021 Term Loan
December 31, 2022
Fair
Value
Carrying
Value
December 31, 2021
Fair
Value
Carrying
Value
$ 2,673.5 $ 2,412.6 $ 1,789.8 $ 1,902.9
520.0
400.0
520.0
400.0
—
—
—
—
The estimated fair value of our term loan and revolving credit facility is determined primarily using broker
quotes, which are level 2 inputs. The estimated fair value of our Notes is determined by using quoted
market prices of our debt securities, which are level 1 inputs.
69
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021 were
as follows:
(In millions)
Assets:
Derivative asset financial instruments (level 2)
Deferred compensation program assets (level 2)
Total assets
Liabilities:
Derivative liability financial instruments (level 2)
Fair Value
2022
89.6
14.9
104.5
4.3
$
$
$
$
$
$
2021
3.6
14.6
18.2
0.8
The principal derivative financial instruments we enter into on a routine basis are foreign exchange
contracts. In addition, from time to time, we enter into commodity swaps. Derivative financial instruments
are recorded at fair value.
11. Common Stock
The Company has 750 million authorized shares of common stock, par value $0.01 per share and 60
million authorized shares of preferred stock, par value $0.01 per share. The number of shares of common
stock and treasury stock and the share activity for 2022 and 2021 were as follows:
Balance at the beginning of the year
Stock plan shares issued
Shares surrendered by optionees
Common stock repurchases
Balance at the end of the year
Common Shares
Treasury Shares
2022
135,064,296
856,175
(316,450)
(7,563,462)
128,040,559
2021
138,660,154
1,250,550
(144,280)
(4,702,128)
135,064,296
2022
50,252,566
—
316,450
7,563,462
58,132,478
2021
45,406,158
—
144,280
4,702,128
50,252,566
At December 31, 2022, no shares of our preferred stock were outstanding. Our Board of Directors has the
authority, without action by the Company’s stockholders, to designate and issue our preferred stock in
one or more series and to designate the rights, preferences, limitations and privileges of each series of
preferred stock, which may be greater than the rights of the Company’s common stock.
In 2022, we repurchased 7.6 million shares of outstanding common stock under the Company’s share
repurchase program for $580.1 million. As of December 31, 2022, the Company’s total remaining share
repurchase authorization under the remaining program was approximately $584.6 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.
70
12. Accumulated Other Comprehensive Income (Loss)
The reclassifications out of accumulated other comprehensive income (loss) for the years ended
December 31, 2022 and 2021 were as follows:
(In millions)
Details about Accumulated Other
Comprehensive Income (Loss) Components
Gains (losses) on cash flow hedges
Foreign exchange contracts
Interest rate contracts
Commodity contracts
Defined benefit plan items
Recognition of actuarial losses
Total reclassifications for the period
Affected Line Item in the
Consolidated Statements of Income
2022
2021
$
$
$
$
4.8 $
3.6
(7.3)
1.1
0.6
1.7 $
1.3 $
0.4
1.7 $
3.4 $
(2.6) Cost of products sold
0.6 Interest expense
1.3 Cost of products sold
(0.7) Total before tax
0.2 Tax expense
(0.5) Net of tax
(0.8) Other income (expense)
0.2 Tax benefit
(0.6) Net of tax
(1.1) Net of tax
(a) These accumulated other comprehensive (loss) income components are included in the computation of net periodic benefit
cost. Refer to Note 15, “Defined Benefit Plans,” for additional information.
The amounts in the table above reflect continuing operations, and exclude amounts related to
discontinued operations of $4.5 million and $2.9 million in 2022 and 2021, respectively. 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 were as follows:
(In millions)
Balance at December 31, 2019
Amounts classified into accumulated other
comprehensive (loss) income
Amounts reclassified into earnings
Net current period other comprehensive (loss)
income
Balance at December 31, 2020
Amounts classified into accumulated other
comprehensive (loss) income
Amounts reclassified into earnings
Net current period other comprehensive (loss)
income
Balance at December 31, 2021
Amounts classified into accumulated other
comprehensive (loss) income
Amounts reclassified into earnings
Net current period other comprehensive (loss)
income
Distribution of Masterbrand
Balance at December 31, 2022
Foreign
Currency
Adjustments
Derivative
Hedging
Gain (Loss)
Defined Benefit
Plan
Adjustments
$
(11.5)$
5.5 $
(66.6)$
Accumulated
Other
Comprehensive
(Loss) Income
(72.6)
18.7
—
18.7
7.2 $
(3.9)
—
(3.9)
3.3 $
(23.4)
—
(23.4)
8.0
(12.1)$
(3.7)
2.4
(1.3)
4.2 $
1.1
(2.4)
(1.3)
2.9 $
99.6
(6.2)
93.4
(2.8)
93.5 $
(2.7)
2.8
0.1
(66.5)$
35.1
0.6
35.7
(30.8)$
(14.6)
(1.7)
(16.3)
3.1
(44.0)$
12.3
5.2
17.5
(55.1)
32.3
(1.8)
30.5
(24.6)
61.6
(7.9)
53.7
8.3
37.4
$
$
$
71
13. Stock-Based Compensation
As of December 31, 2022, we had awards outstanding under the Fortune Brands Home & Security, Inc.
2022 Long-Term Incentive Plan (the "2022 Plan"), the Fortune Brands Home & Security, Inc. 2013 Long-
Term Incentive Plan (the “2013 Plan”) and the 2011 Long-Term Incentive Plan (the “2011 Plan”)
(collectively, the "Plans"). In 2022, stockholders approved the 2022 Plan, which provides for the granting
of stock options, performance share awards ("PSAs"), restricted stock units ("RSUs') and other equity-
based awards to employees, directors and consultants. No new stock-based awards can be made under
the 2013 Plan or the 2011 Plan, but there are outstanding stock options under the Plans that continue to
be exercisable. As of December 31, 2022, approximately 5.1 million shares of common stock remained
authorized for issuance under the 2022 Plan. In addition, shares of common stock that were granted and
subsequently expired, terminated, cancelled or forfeited, or were used to satisfy the required withholding
taxes with respect to awards under the Plans may be recycled back into the total numbers of shares
available for issuance under the 2022 Plan. Upon the exercise or payment of stock-based awards, shares
of common stock are issued from authorized common shares.
In connection with the Separation, under the provisions of the Plans and the Employee Matters
Agreement entered into in connection with the Separation, the Company adjusted its outstanding equity
awards in order to preserve the intrinsic value of the awards immediately before and after the Separation.
At the time of the Separation, outstanding equity awards granted to Company service providers were
adjusted to preserve the intrinsic value of the awards held, with unvested PSAs converting into time-
based RSUs (“Adjusted RSUs”). All outstanding equity awards granted to MasterBrand service providers
were converted into replacement awards of MasterBrand equity under the same methodology and ceased
to represent equity awards with respect to the Company. Due to the adjustment of outstanding equity
awards as a result of the Separation, the Company compared the fair value of the outstanding equity
awards immediately before and after the Separation and, based on such comparison, no incremental fair
value was required to be recognized. The number of equity awards granted and forfeited in the tables
below primarily relate to the modifications in connection with the Separation, which resulted in the
adjustment of Company shares subject to outstanding awards held by Company service providers and
the forfeiture of Company equity awards by MasterBrand service providers.
Stock-based compensation expense was as follows:
(In millions)
Restricted stock units
Stock option awards
Performance awards
Director awards
Total pre-tax expense
Tax benefit
Total after tax expense
2022
16.6 $
6.6
15.6
1.3
40.1
9.2
30.9 $
2021
17.8 $
5.3
20.7
1.3
45.1
7.9
37.2 $
$
$
2020
15.6
4.6
19.5
0.9
40.6
6.2
34.4
Included in compensation costs are cash-settled restricted stock units of $0.3 million, $3.3 million and
$2.3 million that are classified as a liability as of December 31, 2022, 2021 and 2020, respectively.
Compensation costs that were capitalized in inventory were not material.
Restricted Stock Units
RSUs have been granted to officers and certain employees of the Company and represent the right to
receive shares of Company common stock subject to continued employment through each vesting date.
As a result of the Separation, the number of unvested RSUs awarded to the Company’s employees were
adjusted to preserve the intrinsic value of such awards following the Separation. Also, all annual cycle
PSAs outstanding on the date of the Separation were replaced with RSUs (“Adjusted RSUs”). For
purposes of determining the number of Adjusted RSUs, the number of Adjusted RSUs earned was based
upon projected performance results through the end of the applicable performance period, calculated
based on actual performance from the beginning of the applicable performance period through the end of
72
the fiscal quarter immediately preceding the Separation and expected performance through the remainder
of the applicable performance period had the Separation not occurred. RSUs generally vest ratably over a
three-year period, with the exception of the RSUs that were converted from PSAs, which vest at the end
of the original three-year performance cycles. In addition, certain employees can elect to defer receipt of
a portion of their RSU awards upon vesting. Compensation cost is recognized over the service period.
We calculate the fair value of each RSU granted by using the average of the high and low share prices on
the date of grant.
A summary of activity with respect to RSUs outstanding under the Plans for the year ended
December 31, 2022 was as follows:
Non-vested at December 31, 2021
Granted
Vested
Forfeited
Non-vested at December 31, 2022
Number of
Restricted
Stock Units
396,399 $
1,485,979 $
(184,290) $
(519,762) $
1,178,326 $
Weighted-
Average
Grant-Date
Fair Value
75.45
71.85
69.37
80.45
69.65
The remaining unrecognized pre-tax compensation cost related to RSUs at December 31, 2022 was
approximately $26.0 million, and the weighted-average period of time over which this cost will be
recognized is 1.7 years. The fair value of RSUs that vested during 2022, 2021 and 2020 was $16.8
million, $15.6 million and $17.1 million, respectively.
Stock Option Awards
Stock options were granted to officers and certain employees of the Company and represent the right to
purchase shares of Company common stock subject to continued employment through each vesting date.
Stock options granted under the Plans generally vest over a three-year period and generally expire ten
years from the grant date. As a result of the Separation, the number of stock options awarded to the
Company’s employees and the corresponding exercise price of each award was adjusted to preserve the
intrinsic value of such awards following the Separation.
All stock-based compensation to employees is required to be measured at fair value and expensed over
the requisite service period. We recognize compensation expense on awards on a straight-line basis over
the requisite service period for the entire award.
The fair value of Fortune Brands options was estimated at the date of grant using a Black-Scholes option
pricing model with the assumptions shown in the following table:
Current expected dividend yield
Expected volatility
Risk-free interest rate
Expected term
2022
1.2%
34.8%
2.3%
2021
1.2%
35.1%
0.6%
2020
1.4%
25.9%
1.2%
5.2 years
5.2 years
5.3 years
Beginning in 2020, the determination of expected volatility is based on the volatility of Fortune Brands
common stock. The determination of expected volatility in prior years is based on a blended peer group
volatility for companies in similar industries, at a similar stage of life and with similar market capitalization.
The risk-free interest rate is based on U.S. government issues with a remaining term equal to the
expected life of the stock options. The expected term is the period over which our employees are
expected to hold their options. The expected term was determined based on the historical employee
exercise behavior and the contractual term of the options. The dividend yield is based on the Company’s
estimated dividend over the expected term. The weighted-average grant date fair value of stock options
granted under the Plans during the years ended December 31, 2022, 2021 and 2020 was $24.50, $24.55
and $15.21, respectively.
73
A summary of Fortune Brands stock option activity related to Fortune Brands and former employees of
Fortune Brands, Inc., the Company from which we spun off from in 2011, for the year ended
December 31, 2022 was as follows:
Outstanding at December 31, 2021
Granted
Exercised
Expired/forfeited
Outstanding at December 31, 2022
Weighted-
Average
Exercise
Price
61.87
60.02
37.83
65.26
56.84
Options
1,819,151 $
2,715,899 $
(29,435) $
(2,179,188) $
2,326,427 $
Options outstanding and exercisable at December 31, 2022 were as follows:
Options Outstanding (a)
Options Exercisable (b)
Range Of
Exercise Prices
$20.01 to $76.63
Options
Outstanding
2,326,427
Weighted-
Average
Remaining
Contractual
Life
5.93 $
Weighted-
Average
Exercise
Price
56.84
Options
Exercisable
1,701,253 $
Weighted-
Average
Exercise
Price
51.98
(a) At December 31, 2022, the aggregate intrinsic value of options outstanding was $12.6 million.
(b) At December 31, 2022, the weighted-average remaining contractual life of options exercisable was 5.0 years and the
aggregate intrinsic value of options exercisable was $12.2 million.
The remaining unrecognized compensation cost related to unvested awards at December 31, 2022 was
$6.2 million, and the weighted-average period of time over which this cost will be recognized is 1.8 years.
The fair value of options that vested during the years ended December 31, 2022, 2021 and 2020 was
$26.2 million, $4.8 million and $8.0 million, respectively. The intrinsic value of Fortune Brands stock
options exercised in the years ended December 31, 2022, 2021 and 2020 was $1.1 million, $40.1 million
and $54.2 million, respectively.
Performance Share Awards
PSAs were granted to officers and certain employees of the Company in 2020, 2021 and 2022 and
represented the right to earn shares of Company common stock based on the achievement of company-
wide performance conditions during the three-year performance period. As a result of the Separation,
these three outstanding PSAs were replaced with Adjusted RSUs as described above. For purposes of
determining the number of Adjusted RSUs, the number of Adjusted RSUs earned was based upon
projected performance results through the end of the applicable performance period, calculated based on
actual performance from the beginning of the applicable performance period through the end of the fiscal
quarter immediately preceding the Separation and expected performance through the remainder of the
applicable performance period had the Separation not occurred. Compensation cost is amortized into
expense over the performance period, which is generally three years, and is based on the probability of
meeting performance targets. The fair value of each PSAs is based on the average of the high and low
stock prices on the date of grant.
74
The following table summarizes information about PSAs as of December 31, 2022, as well as activity
during the year then ended. The number of performance share awards granted are shown below at the
target award amounts:
Non-vested at December 31, 2021
Granted
Vested
Forfeited
Non-vested at December 31, 2022
Number of
Performance
Share
Awards
543,333 $
708,111 $
(475,760) $
(755,112) $
20,572 $
Weighted-
Average
Grant-Date
Fair Value
64.68
69.40
47.76
79.47
75.59
The remaining unrecognized pre-tax compensation cost related to PSAs at December 31, 2022 was
approximately $0.8 million, and the weighted-average period of time over which this cost will be
recognized is 1.9 years. The fair value of PSAs that vested during 2022 was $11.4 million (475,760
shares).
Director Awards
Stock awards are used as part of the compensation provided to outside directors under the Plans.
Awards are issued annually in the second quarter. In addition, outside directors can elect to have director
cash compensation paid in stock or can elect to defer payment of stock. Compensation cost is expensed
at the time of an award based on the fair value of a share at the date of the award. In 2022, 2021 and
2020, we awarded 17,649, 12,114 and 20,181 shares of Company common stock to outside directors
with a weighted-average fair value on the date of the award of $73.94, $107.73 and $46.82, respectively.
14. Revenue
Our principal performance obligations are the sale of faucets and accessories, fiberglass and steel entry-
door systems and locks, safes, safety, security devices and decking, and kitchen and bath cabinets
(collectively, “goods” or “products”). We recognize revenue for the sale of goods based on our
assessment of when control transfers to our customers. Revenue is measured as the amount of
consideration we expect to receive in exchange for transferring goods to our customers. Payment terms
on our product sales normally range from 30 to 90 days. Taxes assessed by a governmental authority
that we collect are excluded from revenue. The expected costs associated with our contractual warranties
will continue to be recognized as expense when the products are sold. See Note 18, Commitments, for
further discussion.
We record estimates to reduce revenue for customer programs and incentives, which are considered
variable consideration, and include price discounts, volume-based incentives, promotions and
cooperative advertising when revenue is recognized in order to determine the amount of consideration
the Company will ultimately be entitled to receive. These estimates are based on historical and projected
experience for each type of customer. In addition, for certain customer program incentives, we receive an
identifiable benefit (goods or services) in exchange for the consideration given and record the associated
expenditure in selling, general and administrative expenses.
We account for shipping and handling costs that occur after the customer has obtained control of a
product as a fulfillment activity (i.e., as an expense) rather than as a promised service (i.e., as a revenue
element). These costs are classified within selling, general and administrative expenses.
75
Settlement of our outstanding accounts receivable balances is normally within 30 to 90 days of the
original sale transaction date. Obligations arise for us from customer rights to return our goods for any
reason, including among others, product obsolescence, stock rotations, trade-in agreements for newer
products and upon termination of a customer contract. We estimate future product returns at the time of
sale based on historical experience and record a corresponding refund obligation, which amounted to
$27.2 million and $22.9 million as of December 31, 2022 and 2021, respectively. Refund obligations are
classified within other current liabilities in our consolidated balance sheet. Return assets related to the
refund obligation are measured at the carrying amount of the goods at the time of sale, less any expected
costs to recover the goods and any expected reduction in value. Return assets are classified within other
current assets and were approximately $2.9 million and $2.2 million as of December 31, 2022 and 2021,
respectively.
The Company disaggregates revenue from contracts with customers into (i) major sales distribution
channels in the U.S. and (ii) total sales to customers outside the U.S. market as these categories depict
the nature, amount, timing and uncertainty of revenues and cash flows that are affected by economic
factors. The following table disaggregates our consolidated revenue by major sales distribution channels
for the years ended December 31, 2022, 2021 and 2020.
(In millions)
Wholesalers(a)
Home Center retailers(b)
Other retailers(c)
U.S. net sales
International(d)
Net sales
December 31,
2022
2,100.0 $
1,270.7
392.9
3,763.6
959.4
4,723.0 $
December 31,
2021
2,027.9 $
1,254.1
440.7
3,722.7
1,078.4
4,801.1 $
December 31,
2020
1,500.6
928.2
346.0
2,774.8
846.5
3,621.3
$
$
(a) Represents sales to customers whose business is oriented toward builders, professional tradespeople and home
remodelers, inclusive of sales through our customers’ respective internet website portals.
(b) Represents sales to the three largest “Do-It-Yourself” retailers: The Home Depot, Inc., Lowe's Companies, Inc. and
Menards, Inc., inclusive of sales through their respective internet website portals.
(c) Represents sales principally to our mass merchant and standalone, independent e-commerce customers.
(d) Represents sales in markets outside the United States, principally in China, Canada, Europe and Mexico.
Practical Expedients
Incremental costs of obtaining a contract include only those costs the Company incurs that would not
have been incurred if the contract had not been obtained. These costs are required to be recognized as
assets and amortized over the period that the related goods or services transfer to the customer. As a
practical expedient, we expense as incurred costs to obtain a contract when the expected amortization
period is one year or less. These costs are recorded within selling, general and administrative expenses.
15. Defined Benefit Plans
We have a number of pension plans in the United States, covering many of the Company’s employees;
however, the majority of these plans have been frozen to new participants, and benefit accruals were
frozen for active participants on December 31, 2016. The plans provide for payment of retirement
benefits, mainly commencing between the ages of 55 and 65. After meeting certain qualifications, an
employee acquires a vested right to future benefits. The benefits payable under the plans are generally
determined on the basis of an employee’s length of service and/or earnings. Employer contributions to
the plans are made, as necessary, to ensure legal funding requirements are satisfied. Also, from time to
time, we may make contributions in excess of the legal funding requirements. Service cost for 2022
relates to benefit accruals for an hourly Union group within the defined benefit plan for our Outdoors &
Security segment. All other benefit accruals under our defined benefit pension plans were frozen as of, or
prior to, December 31, 2016.
Net actuarial gains and losses occur when actual experience differs from any of the assumptions used to
value defined benefit plans or when assumptions change as they may each year. The primary factors
contributing to actuarial gains and losses are changes in the discount rate used to value obligations as of
the measurement date and the differences between expected and actual returns on pension plan assets.
76
In addition, the Company provides postretirement health care and life insurance benefits to certain
retirees.
(In millions)
Obligations and Funded Status at December 31
Change in the Projected Benefit Obligation (PBO):
Projected benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (loss) gain
Benefits paid
Projected benefit obligation at end of year
Accumulated benefit obligation at end of year
(excludes the impact of future compensation
increases)
Change in Plan Assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid
Fair value of plan assets at end of year
Funded status (Fair value of plan assets less
PBO)
Pension Benefits
Postretirement Benefits
2022
2021
2022
2021
$
$
$
$
$
$
712.0
0.2
20.4
(155.9)
(33.1)
543.6
543.6
649.8
(144.8)
10.6
(33.1)
482.5
$
$
$
$
$
750.6
0.4
19.3
(26.2)
(32.1)
712.0
712.0
624.2
37.8
19.9
(32.1)
649.8
$
$
$
$
$
9.8
0.4
0.4
(1.2)
(0.4)
9.0
$
$
10.6
0.2
0.2
(1.0)
(0.2)
9.8
— $
—
— $
—
0.4
(0.4)
— $
—
—
(0.1)
0.1
—
(61.1) $
(62.2) $
(9.0) $
(9.8)
The actuarial loss is primarily a result of changes in discount rates from year to year.
The accumulated benefit obligation exceeds the fair value of assets for all pension plans. Amounts
recognized in the consolidated balance sheets consist of:
(In millions)
Current benefit payment liability
Accrued benefit liability
Net amount recognized
Pension Benefits
Postretirement Benefits
2022
(1.5) $
(59.6)
(61.1) $
2021
(1.3) $
(60.9)
(62.2) $
$
$
2022
(1.2) $
(7.8)
(9.0) $
2021
(0.8)
(9.0)
(9.8)
As of December 31, 2021, we adopted the new Society of Actuaries MP-2020 mortality tables, resulting in
an immaterial increase in plan benefit obligation, and deferred actuarial losses in accumulated other
comprehensive income.
The amounts in accumulated other comprehensive loss on the consolidated balance sheets that have not
yet been recognized as components of net periodic benefit cost were as follows:
(In millions)
Net actuarial loss (gain) at December 31, 2020
Recognition of actuarial loss
Current year actuarial loss
Net actuarial loss (gain) at December 31, 2021
Recognition of actuarial loss
Current year actuarial gain
Net actuarial loss at December 31, 2022
$
$
$
Pension Benefits
70.1
(1.1)
(36.6)
32.4
0.3
17.0
49.7
$
$
$
Postretirement Benefits
—
0.5
(0.9)
(0.4)
1.0
(1.1)
(0.5)
77
Components of net periodic benefit cost were as follows:
Components of Net Periodic Benefit (Income) Cost
(In millions)
Service cost
Interest cost
Expected return on plan assets
Recognition of actuarial losses (gains)
Settlement/Curtailment losses (gains)
Net periodic benefit (income) cost
Pension Benefits
Postretirement Benefits
$
$
2022
0.2
20.4
(28.1)
(0.3)
—
$
(7.8) $
2021
0.4 $
19.3
(27.4)
1.1
—
(6.6) $
2020
(5.2) $
35.2
(33.3)
2.1
0.6
(0.6) $
$
2022
0.4
0.4
—
(1.0)
—
(0.2) $
2021
0.2 $
0.2
—
(0.5)
—
(0.1) $
2020
—
—
—
(0.1)
—
(0.1)
Assumptions
Weighted-Average Assumptions Used to
Determine Benefit Obligations at
December 31:
Pension Benefits
Postretirement Benefits
2022
2021
2020
2022
2021
2020
Discount rate
5.2%
2.9% 2.6%
5.8%
3.9% 5.9%
Weighted-Average Assumptions Used to
Determine Net Cost for Years Ended
December 31:
Discount rate
Expected long-term rate of return on
plan assets
2.9%
2.6% 3.3%
3.9%
5.9% 6.4%
4.4%
4.4% 4.5%
—
—
—
Assumed Health Care Cost Trend Rates Used to Determine
Benefit Obligations and Net Cost at December 31:
Health care cost trend rate assumed for next year
Rate that the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
Postretirement Benefits
2022
2021
5.8/6.3 %(a)
6.3/6.7% (a)
4.5 %
2028
4.5%
2028
(a) The pre-65 initial health care cost trend rate is shown first / followed by the post-65 rate.
Plan Assets
The fair value of the pension assets by major category of plan assets as of December 31, 2022 and 2021
were as follows:
(In millions)
Group annuity/insurance contracts (level 3)
Collective trusts:
Cash and cash equivalents
Equity
Fixed income
Multi-strategy hedge funds
Real estate
Total
Total as of
balance sheet date
2022
26.0
$
6.3
113.8
291.6
21.3
23.5
482.5
$
2021
25.5
3.2
174.8
409.7
17.2
19.4
649.8
$
$
78
A reconciliation of Level 3 measurements was as follows:
(In millions)
January 1
Actual return on assets related to assets still held
December 31
Group annuity/
insurance contracts
2022
25.5
0.5
26.0
$
$
2021
24.8
0.7
25.5
$
$
Our defined benefit plans Master Trust own a variety of investment assets. All of these investment assets,
except for group annuity/insurance contracts, are measured using net asset value per share as a practical
expedient per ASC 820. Following the retrospective adoption of ASU 2015-07 (Fair Value Measurement
(Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share),
we excluded all investments measured using net asset value per share in the amount of $456.5 million
and $624.3 million as of December 31, 2022 and 2021, respectively, from the tabular fair value hierarchy
disclosure.
The terms and conditions for redemptions vary for each class of the investment assets valued at net
asset value per share as a practical expedient. Real estate assets may be redeemed quarterly with a 45
day redemption notice period. Investment assets in multi-strategy hedge funds may be redeemed semi-
annually with a 95 day redemption notice period. Equity, fixed income and cash and cash equivalents
have no specified redemption frequency and notice period and may be redeemed daily. As of
December 31, 2022, we do not have an intent to sell or otherwise dispose of these investment assets at
prices different than the net asset value per share.
Our investment strategy is to optimize investment returns through a diversified portfolio of investments,
taking into consideration underlying plan liabilities and asset volatility. The defined benefit asset allocation
policy of the plans allows for an equity allocation of 0% to 75%, a fixed income allocation of 25% to 100%,
a cash allocation of up to 25% and other investments of up to 20%. Asset allocations are based on the
underlying liability structure. All retirement asset allocations are reviewed periodically to ensure the
allocations meets the needs of the liability structure.
Our 2023 expected blended long-term rate of return on plan assets of 6.1% was determined based on the
nature of the plans’ investments, our current asset allocation and projected long-term rates of return from
pension investment consultants.
Estimated Future Retirement Benefit Payments
The following retirement benefit payments are expected to be paid:
(In millions)
2023
2024
2025
2026
2027
Years 2028-2032
$
Pension
Benefits
35.6
36.1
36.9
37.8
38.1
191.7
$
Postretirement
Benefits
1.1
1.1
1.1
1.1
1.1
5.7
Estimated future retirement benefit payments above are estimates and could change significantly based
on differences between actuarial assumptions and actual events and decisions related to lump sum
distribution options that are available to participants in certain plans.
Defined Contribution Plan Contributions
We sponsor a number of defined contribution plans. Contributions are determined under various
formulas. Cash contributions by the Company related to these plans amounted to $36.3 million, $33.1
million and $22.3 million in 2022, 2021 and 2020, respectively.
79
16.
Income Taxes
The components of income from continuing operations before income taxes and noncontrolling interests
were as follows:
(In millions)
Domestic operations
Foreign operations
Income before income taxes and noncontrolling interests
$
$
2022
563.1
104.0
667.1
$
$
2021
591.0 $
135.4
726.4 $
2020
396.1
103.1
499.2
Income tax expense in the consolidated statement of income consisted of the following:
(In millions)
Current
Federal
Foreign
State and other
Deferred
Federal
Foreign
State and Local
Total income tax expense
$
$
2022
62.4
34.3
16.0
15.3
1.5
(2.3)
127.2
$
2021
$
102.4 $
40.2
16.9
11.5
(4.9)
0.6
166.7 $
2020
50.5
49.0
15.9
7.6
(12.6)
0.4
110.8
A reconciliation between the federal statutory tax rate and the effective tax rate is as follows:
(In millions)
Income tax expense computed at federal statutory income tax rate
State and local income taxes, net of federal tax benefit
Foreign taxes at a different rate than U.S. federal statutory income
tax rate
Provision for foreign earnings repatriation, net
Net adjustments for uncertain tax positions
Share-based compensation
Deferred tax impact of state tax rate changes
Valuation allowance (decrease) increase
Non-deductible executive compensation
Expiration of loss carryforwards
Miscellaneous other, net
Income tax expense as reported
Effective income tax rate
$
$
2022
140.1
18.5
9.1
1.2
(26.2)
(5.4)
(1.9)
(5.8)
7.5
—
(9.9)
127.2
2021
$ 152.5
23.8
2020
$ 104.9
15.3
9.2
—
(11.3)
(9.0)
(0.7)
4.7
5.0
—
(7.5)
$ 166.7
6.7
2.1
(4.2)
(9.8)
(0.8)
(7.1)
1.6
6.6
(4.5)
$ 110.8
19.1%
22.9%
22.2%
The 2022 effective income tax rate was unfavorably impacted by state and local income taxes, foreign
income taxed at higher rates, as well as non-deductible executive compensation. This expense was offset
by favorable benefits for the release of uncertain tax positions, primarily related to audit closures and
statute of limitations lapses, share-based compensation, and a valuation allowance decrease.
The 2021 and 2020 effective income tax rates were unfavorably impacted by state and local income
taxes, foreign income taxed at higher rates, as well as non-deductible executive compensation. Both
2021 and 2020 expenses were offset by favorable benefits for the release of uncertain tax positions,
primarily related to statute of limitations lapses, and share-based compensation.
80
A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTBs”) is as follows:
(In millions)
Unrecognized tax benefits—beginning of year
Gross additions—current year tax positions
Gross additions—prior year tax positions
Gross additions (reductions)—purchase accounting adjustments
Gross reductions—prior year tax positions
Gross reductions—settlements with taxing authorities
Unrecognized tax benefits—end of year
2022
83.1
2.1
—
—
(50.5)
(1.3)
33.4
$
$
2021
96.1 $
2.6
2.0
—
(16.6)
(1.0)
83.1 $
$
$
2020
88.0
7.2
3.7
12.1
(11.7)
(3.2)
96.1
The amount of UTBs that, if recognized as of December 31, 2022, would affect the Company’s effective
tax rate is $33.4 million. It is reasonably possible that, within the next twelve months, total UTBs may
decrease by $9.8 million primarily as a result of the lapse of statutes of U.S. federal, state and foreign
income taxes.
The Company classifies interest and penalty accruals related to UTBs as income tax expense. In 2022
and 2021, the Company recognized an interest and penalty benefit of approximately $6.4 million and $1.9
million, respectively. In 2020, the Company recognized interest and penalty expense of approximately
$0.7 million. As of December 31, 2022, and 2021, the Company had accruals for the payment of interest
and penalties of $8.8 million and $15.5 million, respectively.
The Company files income tax returns in the U.S., various state, and foreign jurisdictions. The Company
has recently concluded its examination by the U.S. Internal Revenue Service for the periods related to
2017 and 2018 and is generally subject to examination by the IRS for years 2019 and later. In addition to
the U.S., the Company has tax years that remain open and subject to examination by tax authorities in
the following major taxing jurisdictions: Canada for years after 2017, Mexico for years after 2016 and
China for years after 2018.
The components of net deferred tax assets (liabilities) as of December 31, 2022 and 2021 were as
follows:
(In millions)
Deferred tax assets:
Compensation and benefits
Defined benefit plans
Capitalized inventories
Accounts receivable
Operating lease liabilities
Other accrued expenses
Net operating loss and other tax carryforwards
Valuation allowance
Miscellaneous
Total deferred tax assets
Deferred tax liabilities:
Fixed assets
Intangible assets
Operating lease assets
Other investments
Miscellaneous
Total deferred tax liabilities
Net deferred tax liability
2022
21.0
15.4
17.8
4.2
31.0
51.2
23.5
(13.8)
6.7
157.0
(60.3)
(152.5)
(29.3)
(28.2)
(6.5)
(276.8)
(119.8)
$
$
2021
30.8
16.5
21.0
5.0
34.5
50.8
24.1
(20.7)
24.0
186.0
(73.0)
(125.8)
(32.6)
(0.9)
(8.1)
(240.4)
(54.4)
$
$
81
In accordance with ASC requirements for Income Taxes, deferred taxes were classified in the
consolidated balance sheets as of December 31, 2022 and 2021 as follows:
(In millions)
Other assets
Deferred income taxes
Net deferred tax liability
2022
17.1
(136.9)
(119.8)
$
$
2021
27.3
(81.7)
(54.4)
As of December 31, 2022, and 2021, the Company had deferred tax assets related to net operating
losses and other tax carryforwards of $23.5 million and $24.1 million, respectively. Approximately $2.6
million expires between 2023 and 2027, and the remainder will expire in 2028 and thereafter.
The Company has provided a valuation allowance to reduce the carrying value of certain deferred tax
assets. Management has concluded that, based on the available evidence, it is more likely than not that
the deferred tax assets will not be fully realized.
Accumulated foreign earnings and profits of the Company’s foreign subsidiaries as of December 31,
2017, were subject to a deemed repatriation tax and should not be subject to additional U.S. federal
income tax upon an actual repatriation of these earnings. As of December 31, 2022, the Company has
recorded an estimated deferred tax liability of $0.5 million for taxes that will be payable upon distribution
of these earnings.
Subsequent to December 31, 2017, we consider the unremitted earnings of certain foreign subsidiaries
that impose local country taxes on dividends to be indefinitely reinvested. We have not provided deferred
taxes on the remaining book over tax outside basis difference of $191.8 million related to these
subsidiaries. The amount of unrecognized deferred tax liabilities for local country withholding taxes that
would be owed related to these earnings is $12.2 million.
17. Restructuring and Other Charges
Pre-tax restructuring and other charges for the year ended December 31, 2022 were as follows:
(In millions)
Water Innovations
Outdoors & Security
Corporate
Total
Year Ended December 31, 2022
Other Charges (a)
Cost of
Products
Sold
(0.2) $
(6.2)
—
(6.4) $
SG&A(b)
0.8
—
—
0.8
$
$
Total
Charges
6.9
18.9
1.0
26.8
$
$
$
Restructuring
Charges
6.3
25.1
1.0
32.4
$
(a)
“Other Charges” represent charges or gains directly related to restructuring initiatives that cannot be reported as restructuring
under GAAP. Such charges or gains may include losses on disposal of inventories, trade receivables allowances from exiting
product lines, write-off of displays from exiting a customer relationship, accelerated depreciation resulting from the closure of
facilities, and gains and losses on the sale of previously closed facilities.
(b) Selling, general and administrative expenses.
Restructuring and other charges in 2022 are largely related to severance, asset impairment and other
costs associated with plant closures and headcount actions across both segments.
Pre-tax restructuring and other charges for the year ended December 31, 2021 were as follows:
(In millions)
Water Innovations
Outdoors & Security
Total
Restructuring
Charges
Year Ended December 31, 2021
Other Charges (a)
Cost of
Products
Sold
2.0 $
—
2.0 $
SG&A(b)
2.1
(0.6)
1.5
$
(1.1) $
10.4
9.3
$
$
82
Total
Charges
3.0
9.8
12.8
$
$
(a)
“Other Charges” represent charges or gains directly related to restructuring initiatives that cannot be reported as restructuring
under GAAP. Such charges or gains may include losses on disposal of inventories, trade receivables allowances from exiting
product lines, write-off of displays from exiting a customer relationship, accelerated depreciation resulting from the closure of
facilities, and gains and losses on the sale of previously closed facilities.
(b) Selling, general and administrative expenses.
Restructuring and other charges in 2021 were largely related to severance costs associated with the
relocation of manufacturing facilities within our Outdoors & Security segment.
Pre-tax restructuring and other charges for the year ended December 31, 2020 were as follows:
(In millions)
Water Innovations
Outdoors & Security
Corporate
Total
Year Ended December 31, 2020
Other Charges (a)
Cost of
Products
Sold
4.4 $
0.9
—
5.3 $
SG&A(b)
$
$
(1.7) $
—
0.3
(1.4) $
Total
Charges
8.7
3.9
1.7
14.3
$
Restructuring
Charges
6.0
3.0
1.4
10.4
$
(a)
“Other Charges” represent charges or gains directly related to restructuring initiatives that cannot be reported as restructuring
under GAAP. Such charges or gains may include losses on disposal of inventories, trade receivables allowances from exiting
product lines, write-off of displays from exiting a customer relationship, accelerated depreciation resulting from the closure of
facilities, and gains and losses on the sale of previously closed facilities.
(b) Selling, general and administrative expenses.
Restructuring and other charges in 2020 largely related to headcount actions associated with COVID-19
across both segments and costs associated with changes in our manufacturing processes within our
Water Innovations segment.
Reconciliation of Restructuring Liability
(In millions)
Workforce reduction costs
Other
Balance at
12/31/21
2022
Provision
Cash
Expenditures (a)
Non-Cash
Write-offs
$
$
3.2 $
0.8
4.0 $
19.4 $
13.0
32.4 $
(6.4) $
(0.3)
(6.7) $
— $
—
— $
(a) Cash expenditures primarily related to severance charges.
(In millions)
Workforce reduction costs
Other
Balance at
12/31/20
2021
Provision
Cash
Expenditures (a)
Non-Cash
Write-offs
$
$
5.4 $
—
5.4 $
8.5 $
0.8
9.3 $
(10.7) $
—
(10.7) $
— $
—
— $
Balance at
12/31/22
16.2
13.5
29.7
Balance at
12/31/21
3.2
0.8
4.0
(a) Cash expenditures primarily related to severance charges.
18. Commitments
Purchase Obligations
Purchase obligations of the Company as of December 31, 2022 were $561.3 million, of which $534.0
million is due within one year. Purchase obligations include contracts for raw materials and finished goods
purchases, selling and administrative services, and capital expenditures.
Product Warranties
We generally record warranty expense related to contractual warranty terms at the time of sale. We may
also provide customer concessions for claims made outside of the contractual warranty terms, and those
expenses are recorded in the period in which the concession is made. We offer our customers various
warranty terms based on the type of product that is sold. Warranty expense is determined based on
historic claim experience and the nature of the product category. The following table summarizes activity
83
related to our product warranty liability for the years ended December 31, 2022, 2021 and 2020.
(In millions)
Reserve balance at the beginning of the year
Provision for warranties issued
Settlements made (in cash or in kind)
Acquisition
Foreign currency
Reserve balance at end of year
$
$
2022
19.5
8.1
(9.0)
1.7
(0.2)
20.1
$
$
2021
19.0 $
8.5
(8.4)
0.3
0.1
19.5 $
2020
18.5
4.8
(5.9)
1.5
0.1
19.0
19.
Information on Business Segments
Following the Separation, the operating results of our Cabinets segment have been classified as
discontinued operations for all periods presented, we have two operating segments. The tables below
reflect the results of operations of the Company's operating segments in continuing operations, consistent
with internal reporting used by the Company.
We report our operating segments based on how operating results are regularly reviewed by our chief
operating decision maker for making decisions about resource allocations to segments and assessing
performance. The Company’s operating segments and types of products from which each segment
derives revenues are described below.
The Water Innovations segment manufactures or assembles and sells faucets, accessories, kitchen sinks
and waste disposals, predominantly under the Moen, ROHL, Riobel, Victoria+Albert, Perrin & Rowe,
Aqualisa and Shaws brands. The Outdoors & Security segment includes fiberglass and steel entry door
systems under the Therma-Tru brand name, storm, screen and security doors under the Larson brand
name, composite decking and railing under the Fiberon brand name, urethane millwork under the Fypon
brand name, locks, safety and security devices, and electronic security products under the Master Lock
and American Lock brands, and fire-resistant safes, security containers and commercial cabinets under
the SentrySafe brand. Corporate expenses consist of headquarters administrative expenses. Corporate
assets consist primarily of cash.
The Company’s subsidiaries operate principally in the United States, Canada, Mexico, China and
Western Europe.
(In millions)
Net sales:
Water Innovations
Outdoors & Security
Net sales
2022
2021
2020
$
$
2,570.2
2,152.8
4,723.0
$
$
2,761.2
2,039.9
4,801.1
$
$
2,202.1
1,419.2
3,621.3
Net sales to two of the Company’s customers, The Home Depot, Inc. (“The Home Depot”) and Lowe’s
Companies, Inc. (“Lowe’s”) each accounted for greater than 10% of the Company’s net sales in 2022,
2021 and 2020. Both of our business segments sell to The Home Depot and Lowe’s. Net sales to The
Home Depot were 11.7%, 11.2% and 14.1% of net sales in 2022, 2021 and 2020, respectively. Net sales
to Lowe’s were 12.0%, 11.9% and 11.1% of net sales in 2022, 2021 and 2020, respectively.
(In millions)
Operating income:
Water Innovations
Outdoors & Security
Corporate
Operating income
2022
2021
2020
$
$
614.6
289.6
(129.9)
774.3
$
$
629.7
291.9
(110.5)
811.1
$
$
467.9
201.3
(101.5)
567.7
84
(In millions)
Total assets:
Water Innovations
Outdoors & Security
Corporate
Total assets
Depreciation expense:
Water Innovations
Outdoors & Security
Corporate
Depreciation expense
Amortization of intangible assets:
Water Innovations
Outdoors & Security
Amortization of intangible assets
Capital expenditures:
Water Innovations
Outdoors & Security
Corporate
Capital expenditures, gross
Less: proceeds from disposition of assets
Capital expenditures, net
Net sales by geographic region (a):
United States
China
Canada
Other international
Net sales
Property, plant and equipment, net:
United States
Mexico
Canada
China
Other international
Property, plant and equipment, net
(a) Based on country of destination.
2022
2021
2020
$
$
$
$
$
$
$
$
$
$
$
$
2,674.4
2,820.0
626.5
6,120.9
34.9
45.5
2.5
82.9
16.2
32.1
48.3
52.1
138.1
—
190.2
(8.2)
182.0
3,763.6
363.9
368.2
227.3
4,723.0
673.5
55.9
7.3
20.1
26.9
783.7
$
$
$
$
$
$
$
$
$
$
$
$
2,614.7
2,619.4
212.4
5,446.5
37.1
40.7
2.8
80.6
14.9
31.5
46.4
38.1
124.2
0.3
162.6
(1.8)
160.8
3,722.7
510.4
384.2
183.8
4,801.1
569.6
53.7
7.7
23.7
16.1
670.8
$
$
$
$
$
$
$
$
$
$
$
$
2,262.9
2,453.8
275.2
4,991.9
37.6
33.3
2.7
73.6
10.8
13.4
24.2
30.5
76.4
16.3
123.2
(1.0)
122.2
2,774.8
416.7
280.3
149.5
3,621.3
487.3
53.9
7.6
25.0
14.1
587.9
85
20. Quarterly Financial Data (Unaudited)
The following table sets forth our unaudited quarterly consolidated statements of operations data for each
of the quarters indicated and has been retrospectively adjusted to reflect MasterBrand historical financial
results as discontinued operations. The information for each quarter has been prepared on a basis
consistent with our audited consolidated financial statements included in this Annual Report on Form 10-
K, and reflect, in the opinion of management, all adjustments of a normal, recurring nature that are
necessary for a fair statement of the financial information contained in those statements. Our historical
results are not necessarily indicative of the results that may be expected in the future. The following
quarterly financial data should be read in conjunction with our consolidated financial statements included
elsewhere in this Annual Report on Form 10-K.
$
$
(In millions, except per share amounts)
2022
Net sales
Gross profit
Income from continuing operations before income taxes
Net income from continuing operations
Net income (loss) from discontinued operations
Basic income from continuing operations per share
Basic income(loss) from discontinued operations per
share
Diluted income from continuing operations per share
Diluted income (loss) from discontinued operations per
share
Shares used in computation of basic income per share
Shares used in computation of diluted income per share
2021
Net sales
Gross profit
Income from continuing operations before income taxes
Net income from continuing operations
Net income from discontinued operations
Basic income from continuing operations per share
Basic income from discontinued operations per share
Diluted income from continuing operations per share
Diluted income from discontinued operations per share
Shares used in computation of basic income per share
Shares used in computation of diluted income per share
1st
1,140.2 $
468.5
160.3
126.2
54.8
0.94
2nd
1,255.4 $
513.2
189.0
144.2
47.7
1.11
3rd
1,195.5 $
478.9
162.5
141.4
62.7
1.09
0.41
0.93
0.41
133.4
134.7
1st
1,083.1 $
448.7
151.3
121.1
56.7
0.88
0.41
0.85
0.40
138.6
140.6
0.37
1.10
0.37
130.3
131.2
2nd
1,230.1 $
504.7
200.5
159.4
57.7
1.15
0.42
1.14
0.41
138.4
140.4
0.49
1.09
0.48
129.3
130.1
3rd
1,269.9 $
511.2
200.1
151.7
50.6
1.10
0.37
1.09
0.36
137.8
139.7
4th
1,131.9
472.3
155.3
128.1
(18.4)
1.00
(0.14)
0.99
(0.14)
128.1
129.0
4th
1,218.0
495.9
174.5
127.5
47.7
0.94
0.35
0.93
0.36
135.3
137.3
86
21. Earnings Per Share
The computations of earnings per common share were as follows:
(In millions, except per share data)
Income from continuing operations, net of tax
Less: Noncontrolling interests
Income from continuing operations
Income from discontinued operations
Net income attributable to Fortune Brands
Earnings per common share
Basic
Continuing operations
Discontinued operations
Basic earnings per share attributable to Fortune Brands
Diluted
Continuing operations
Discontinued operations
Diluted earnings per share attributable to Fortune Brands
Basic average shares outstanding(a)
Stock-based awards
Diluted average shares outstanding(a)
Antidilutive stock-based awards excluded from weighted-average
number of shares outstanding for diluted earnings per share
$
$
$
$
$
$
$
$
$
2022
539.9
—
539.9
146.8
686.7
4.14
1.13
5.27
4.11
1.12
5.23
130.3
1.0
131.3
1.3
$
$
$
$
$
$
$
$
$
2021
559.7 $
—
559.7 $
212.7
772.4 $
4.07 $
1.55 $
5.62 $
4.01 $
1.53 $
5.54 $
137.5
2.0
139.5
0.3
2020
380.8
1.3
379.5
173.6
553.1
2.74
1.25
3.99
2.71
1.23
3.94
138.7
1.5
140.2
0.8
(a) Reflects the impact of share repurchases during the years ended December 31, 2022, 2021 and 2020, respectively.
22. Other (Income) Expense, Net
The components of other (income) expense, net, for the years ended December 31, 2022, 2021 and 2020
were as follows:
(In millions)
Defined benefit plan
Foreign currency losses
Losses (gains) on equity investment
Other items, net
Total other (income) expense, net
$
$
2022
(8.7)
3.3
—
(6.6)
(12.0)
$
$
2021
(7.1) $
4.6
5.0
(2.1)
0.4 $
2020
(1.1)
1.5
(11.0)
(4.7)
(15.3)
87
23. Contingencies
Litigation
The Company is a defendant in lawsuits that are ordinary, routine litigation matters incidental to its
businesses. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is
possible that these actions could be decided unfavorably to the Company. The Company believes that
there are meritorious defenses to these actions and that these actions will not have a material adverse
effect upon the Company’s results of operations, cash flows or financial condition, and, where
appropriate, these actions are being vigorously contested. Accordingly, the Company believes the
likelihood of material loss is remote.
Environmental
We are involved in remediation activities to clean up hazardous wastes as required by federal and state
laws. Liabilities for remediation costs of each site are based on our best estimate of undiscounted future
costs, excluding possible insurance recoveries or recoveries from other third parties. Uncertainties about
the status of laws, regulations, technology and information related to individual sites make it difficult to
develop estimates of future environmental remediation exposures. Some of the potential liabilities relate
to sites we own, and some relate to sites we no longer own or never owned. Several of our subsidiaries
have been designated as potentially responsible parties (“PRP”) under Superfund or similar state
laws. As of December 31, 2022, twelve such instances have not been dismissed, settled or otherwise
resolved. In 2022, none of our subsidiaries were identified as a PRP in a new instance and no instances
were settled, dismissed or otherwise resolved. In most instances where our subsidiaries are named as a
PRP, we enter into cost-sharing arrangements with other PRPs. We give notice to insurance carriers of
potential PRP liability, but very rarely, if ever, receive reimbursement from insurance for PRP costs. At
December 31, 2022 and 2021, we had accruals of $0.3 million and $0.4 million, respectively, relating to
environmental compliance and cleanup including, but not limited to, the above mentioned Superfund
sites.
24. Subsequent Events
Change in Reporting Segments
Effective as of the first quarter of 2023, the Company revised its segment reporting from 2 reportable
segments, Water Innovations and Outdoors & Security, to 3 reportable segments, Water Innovations,
Outdoors and Security. The change in segment reporting was made to align with changes made in the
manner our chief operating decision maker reviews the Company’s operating results in assessing
performance and allocating resources.
Fiscal Year Change
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.
88
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(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 December 31, 2022.
(b) Management’s Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over "financial
reporting", as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision
and with the participation of our management, including our principal executive officer and principal
financial officer, we conducted an evaluation of the effectiveness of our internal control over financial
reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organization of the Treadway Commission (“COSO”). Based on our evaluation
under the framework in Internal Control — Integrated Framework (2013) issued by the COSO, our
management concluded that our internal control over financial reporting was effective as of December 31,
2022.
PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, has audited
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, as
stated in their report, which appears herein.
(c) 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 Company’s fiscal quarter ended December 31, 2022 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
89
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
See the information under the captions “Proposal 1 – Election of Directors,” “Corporate Governance -
Board Committees - Audit Committee” and, if applicable, “Delinquent Section 16(a) Reports” contained in
the 2023 Proxy Statement, which information is incorporated herein by reference. See the information
under the caption "information about our Executive Officers" contained in Part I of this Annual Report on
Form 10-K.
The Company’s Board of Directors has adopted a Code of Business Conduct & Ethics that sets forth
various policies and procedures intended to promote the ethical behavior of all of the Company’s
employees. The Company’s Board of Directors has also adopted a Code of Ethics for Senior Financial
Officers that applies to the Company’s principal executive officer, principal financial officer and principal
accounting officer. The Code of Business Conduct & Ethics and the Code of Ethics for Senior Financial
Officers are available, free of charge, on the Company’s website, http://ir.fbin.com/governing-high-
standards. A copy of these documents is also available and will be sent to stockholders free of charge
upon written request to the Company’s Secretary. Any amendment to, or waiver from, the provisions of
the Code of Business Conduct & Ethics or the Code of Ethics for Senior Financial Officers that applies to
any of those officers will be posted to the same location on the Company’s website.
Item 11. Executive Compensation.
See the information under the captions “Director Compensation,” “Corporate Governance - Board
Committees - Compensation Committee,” “Compensation Committee Interlocks and Insider Participation,”
“Compensation Discussion and Analysis,” “2022 Executive Compensation,” “CEO Pay Ratio” and
“Compensation Committee Report” contained in the 2023 Proxy Statement, which information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
See the information under the caption “Certain Information Regarding Security Holdings” contained in the
2023 Proxy Statement, which information is incorporated herein by reference. See also the “Equity
Compensation Plan Information” table contained in the 2023 Proxy Statement, which information is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
See the information under the captions “Director Independence,” “Board Committees,” “Policies with
Respect to Transactions with Related Persons” and “Certain Relationships and Related Transactions”
contained in the 2023 Proxy Statement, which information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
See the information under the captions “Fees of Independent Registered Public Accounting Firm” and
“Approval of Audit and Non-Audit Services” in the 2023 Proxy Statement, which information is
incorporated herein by reference.
90
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)
(1)
Financial Statements, Financial Statement Schedules and Exhibits.
Financial Statements (all financial statements listed below are of the Company and its
consolidated subsidiaries):
Consolidated Statements of Income for the years ended December 31, 2022, 2021 and 2020
contained in Item 8 hereof.
Consolidated Statements of Comprehensive Income for the years ended December 31, 2022,
2021 and 2020 contained in Item 8 hereof.
Consolidated Balance Sheets as of December 31, 2022 and 2021 contained in Item 8 hereof.
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020
contained in Item 8 hereof.
Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020
contained in Item 8 hereof.
Notes to Consolidated Financial Statements contained in Item 8 hereof.
Report of Independent Registered Public Accounting Firm contained in Item 8 hereof. (PCAOB ID
Number: 238)
(2)
Financial Statement Schedules
See Financial Statement Schedule of the Company and subsidiaries at page 97.
(3)
Exhibits
2.1.
2.2.
2.3.
3.1.
3.2.
3.3.
4.1.
4.2.
Equity Purchase Agreement dated November 16, 2020 between Fortune Brands Doors, Inc.,
Fortune Brands Home & Security, Inc. and the owners of Larson Manufacturing Company of
South Dakota and its affiliated companies, is incorporated herein by reference to Exhibit 2.1 to
the Company's Annual Report on Form 10-K filed on February 24, 2021.
Separation and Distribution Agreement dated December 14, 2022, between Fortune Brands
Home & Security, Inc. and MasterBrand, Inc., is incorporated herein by reference to Exhibit 2.1 to
the Company's Current Report on Form 8-K filed on December 16, 2022.
Stock Purchase Agreement, dated December 1, 2022, by and among ASSA ABLOY Inc., Fortune
Brands Home & Security, Inc., and ASSA ABLOY AB, solely for purposes of Section 13.20
thereunder, is incorporated herein by reference to Exhibit 2.1 to the Company's Current Report
on Form 8-K filed on December 2, 2022.
Restated Certificate of Incorporation of Fortune Brands Home & Security, Inc., dated as of
September 27, 2011, is incorporated herein by reference to Exhibit 3(i) to the Company’s
Quarterly Report on Form 10-Q filed on November 5, 2012.
Certificate of Amendment to the Restated Certificate of Incorporation of Fortune Brands Home &
Security, Inc., dated as of December 15, 2022, is incorporated herein by reference to Exhibit 3.1
to the Company’s Current Report on Form 8-K filed on December 16, 2022.
Amended and Restated Bylaws as of Fortune Brands Innovations, Inc., effective December 13,
2022, are incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on
Form 8-k filed on December 16, 2022.
Description of Securities.**
Indenture, dated as of June 15, 2015, by and among Fortune Brands Home & Security, Inc.,
Wilmington Trust, National Association, as Trustee, and Citibank, N.A., as Securities Agent is
incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K
filed on June 16, 2015.
91
4.3.
4.4.
4.5.
4.6.
4.7
4.8.
4.9.
4.10
4.11
10.1.
10.2.
10.3.
10.4.
10.5.
First Supplemental Indenture, dated as of June 15, 2015, by and among Fortune Brands Home &
Security, Inc., Wilmington Trust, National Association, as Trustee, and Citibank, N.A., as
Securities Agent is incorporated herein by reference to Exhibit 4.2 to the Company’s Current
Report on Form 8-K filed on June 16, 2015.
Second Supplemental Indenture, dated as of September 21, 2018, by and among Fortune
Brands Home & Security, Inc. Wilmington Trust National Association as Trustee, and Citibank,
N.A., as Securities Agent is incorporated by reference to Exhibit 4.2 to the Company’s current
report on Form 8-K filed on September 21, 2018.
Third Supplemental Indenture, dated as of September 13, 2019, by and among Fortune Brands
Home & Security, Inc., Wilmington Trust, National Association, as Trustee, and Citibank, N.A., as
Securities Agent is incorporated by reference to Exhibit 4.1 to the Company’s current report on
Form 8-K filed on September 13, 2019.
Fourth Supplemental Indenture, dated as of March 25, 2022, by and among Fortune Brands
Home & Security, Inc., Wilmington Trust, National Association, as Trustee, and Citibank, N.A., as
Securities Agent, is incorporated herein by reference to Exhibit 4.9 to the Company's Current
Report on Form 8-K filed on March 25, 2022.
Form of global certificate for the Company’s 4.000% Senior Notes due 2025 is incorporated
herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K on June 16,
2015.
Form of global certificate for the Company’s 4.000% Senior Notes due 2023 is incorporated
herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on
September 21, 2018.
Form of global certificate for the Company’s 3.250% Senior Notes due 2029 is incorporated
herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on
September 13, 2019.
Form of global certificate for the 4.000% Senior Notes due 2032 is incorporated herein by
reference to Exhibit 4.10 to the Company's Current Report on Form 8-K filed on March 25, 2022.
Form of global certificate for the 4.500% Senior Notes due 2052 is incorporated herein by
reference to Exhibit 4.11 to the Company's Current Report on Form 8-K filed on March 25, 2022.
Transition Services Agreement, dated December 14, 2022, between Fortune Brands Home &
Security, Inc. and MasterBrand, Inc., is incorporated herein by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed on December 16, 2022.
Tax Allocation Agreement, dated December 14, 2022, by and between Fortune Brands Home &
Security, Inc. and MasterBrand, Inc. is incorporated herein by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8-K filed on December 16, 2022.
Employee Matters Agreement, dated December 14, 2022, between Fortune Brands Home &
Security, Inc. and MasterBrand, Inc., is incorporated herein by reference to Exhibit 10.3 to the
Company’s Current Report on Form 8-K filed on December 16, 2022.
Indemnification Agreement, dated as of September 14, 2011, by and between Fortune Brands
Home & Security, Inc. and Fortune Brands, Inc. (N/K/A Beam Suntory Inc.) is incorporated herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September
15, 2011.
Tax Allocation Agreement, dated as of September 28, 2011, by and between Fortune Brands
Home & Security, Inc. and Fortune Brands, Inc. (N/K/A Beam Suntory Inc.) is incorporated herein
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September
30, 2011.
92
10.6.
10.7.
10.8.
10.9.
$1,250,000,000 Third Amended and Restated Credit Agreement, dated as of August 2, 2022,
among Fortune Brands Home & Security, Inc., the lenders party thereto, Bank of America N.A.,
as Syndication Agent and JPMorgan Chase Bank, N.A., as Administrative Agent, is incorporated
herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August
4, 2022.
Form of Commercial Paper Dealer Agreement between Fortune Brands Home & Security, Inc.,
as issuer, and the Dealer parties thereto, is incorporated herein by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K filed on December 2, 2021.
Fortune Brands Home & Security, Inc. Annual Executive Incentive Compensation Plan is
incorporated herein by reference to Appendix B to the Company’s Definitive Proxy Statement
filed on March 5, 2013.*
Fortune Brands Home & Security, Inc. 2011 Long-Term Incentive Plan is incorporated herein by
reference to Exhibit 10.1 to the Company’s registration Statement on Form S-8 filed on October
3, 2011.*
10.10. Fortune Brands Home & Security, Inc. 2013 Long-Term Incentive Plan is incorporated herein by
reference to Appendix A to the Company’s Definitive Proxy Statement filed on March 5, 2013.*
10.11. Amendment Number One to the Fortune Brands Home & Security, Inc. 2013 Long-Term
Incentive Plan, dated as of August 2, 2016, is incorporated herein by reference to Exhibit 10.1 to
the Company’s Quarterly Report on Form 10-Q filed on November 2, 2016.*
10.12. Fortune Brands Home & Security, Inc. 2022 Long-Term Incentive Plan, effective as of May 3,
2022, is incorporated herein by reference to Appendix B to the Company’s Definitive Proxy
Statement filed on March 21, 2022.*
10.13. Form of 2012 Option Award Notice and Agreement for awards under the Fortune Brands Home &
Security, Inc. 2011 Long-Term Incentive Plan is incorporated herein by reference to Exhibit 10.11
to the Company’s Annual Report on Form 10-K filed on February 22, 2012.*
10.14. Form of 2013 Stock Option Award Notice and Agreement for awards under the Fortune Brands
Home & Security, Inc. 2011 Long-Term Incentive Plan is incorporated herein by reference to
Exhibit 10.14 to the Company’s Annual Report on Form 10-K filed on February 27, 2013.*
10.15. Form of 2014 Stock Option Award Notice and Agreement for awards under the Fortune Brands
Home & Security, Inc. 2013 Long-Term Incentive Plan is incorporated herein by reference to
Exhibit 10.18 to the Company’s Annual Report on Form 10-K filed on February 26, 2014.*
10.16. Form of 2016 Stock Option Award Notice and Agreement for awards under the Fortune Brands
Home & Security, Inc. 2013 Long-Term Incentive Plan is incorporated herein by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on April 28, 2016.*
10.17. Form of Stock Option Agreement for awards under the Fortune Brands Home & Security, Inc.
2013 Long-Term Incentive Plan, is incorporated herein by reference to Exhibit 10.13 to the
Company’s Annual Report on Form 10-K filed on February 26, 2020.*
10.18 Form of Stock Option Award Agreement for awards under the Fortune Brands Home & Security,
Inc. 2022 Long-Term Incentive Plan, is incorporated herein by reference to Exhibit 10.2 to the
Company’s Quarterly Report on Form 10-Q filed on July 22, 2022.*
10.19. Form of Performance Share Award Agreement for awards under the Fortune Brands Home &
Security, Inc. 2013 Long-Term Incentive Plan, is incorporated herein by reference to Exhibit
10.14 to the Company’s Annual Report on Form 10-K filed on February 26, 2020.*
10.20 Form of Performance Share Award Agreement for awards under the Fortune Brands Home &
Security, Inc. 2022 Long-Term Incentive Plan, is incorporated herein by reference to Exhibit 10.3
to the Company’s Quarterly Report on Form 10-Q filed on July 22, 2022.*
93
10.21. Form of Restricted Stock Unit Award Agreement for awards under the Fortune Brands Home &
Security, Inc. 2013 Long-Term Incentive Plan, is incorporated herein by reference to Exhibit
10.15 to the Company’s Annual Report on Form 10-K filed on February 26, 2020.*
10.22. Form of Restricted Stock Unit Agreement for awards under the Fortune Brands Home & Security
Inc. 2022 Long-Term Incentive Plan, is incorporated herein by reference to Exhibit 10.4 to the
Company’s Quarterly Report on Form 10-Q filed on July 28, 2022.*
10.23. Form of Agreement for the Payment of Benefits Following Termination of Employment between
the Company and each of Nicholas I. Fink, Patrick D. Hallinan, Hiranda S. Donoghue, Sheri R.
Grissom, John D. Lee, Cheri M. Phyfer, Ron Wilson and May Russell, is incorporated herein by
reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed on February 28,
2018.*
10.24. Form of Agreement for the Payment of Benefits Following Termination of Employment for each of
R. David Banyard, Jr. and Brett E. Finley is incorporated herein by reference to Exhibit 10.24 to
the Company’s annual Report on Form 10-K filed on February 28, 2018.*
10.25. Fortune Brands Home & Security, Inc. Directors’ Deferred Compensation Plan (as Amended and
Restated Effective January 1, 2013) is incorporated herein by reference to Exhibit 10.19 to the
Company’s Annual Report on Form 10-K filed on February 27, 2013.*
10.26. Fortune Brands Home & Security, Inc. Non-Employee Director Stock Election Program is
incorporated herein by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K
filed on February 22, 2012.*
10.27. Fortune Brands Home & Security, Inc. Deferred Compensation Plan, amended & restated as of
February 27, 2017 is incorporated herein by reference to Exhibit 10.30 to the Company’s Annual
Report on Form 10-K filed on February 28, 2017.*
21.
23.
24.
31.1.
31.2.
32.
101.
Subsidiaries of the Company.**
Consent of Independent Registered Public Accounting Firm, PricewaterhouseCoopers LLP.**
Powers of Attorney relating to execution of this Annual Report on Form 10-K.**
Certificate of Chief Executive Officer Required Under Section 302 of the Sarbanes-Oxley Act of
2002.**
Certificate of Chief Financial Officer Required Under Section 302 of the Sarbanes-Oxley Act of
2002.**
Joint CEO/CFO Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002.**
The following materials from the Fortune Brands Innovations, Inc. Annual Report on Form 10-K
for the year ended December 31, 2022 formatted in Inline eXtensible Business Reporting
Language (iXBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements
of Comprehensive Income (iii) the Consolidated Balance Sheets, (iv) the Consolidated
Statements of Cash Flows, (vi) the Consolidated Statements of Equity, and (vi) the Notes to the
Consolidated Financial Statements.**
104.
The cover page of the Company’s Annual Report on Form 10-K for the year ended December 31,
2022, formatted in Inline XBRL and contained in Exhibit 101.**
* Indicates the exhibit is a management contract or compensatory plan or arrangement.
** Indicates the exhibit is being furnished or filed herewith, as applicable.
Item 16. Form 10-K Summary
None.
94
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: February 28, 2023
By:
FORTUNE BRANDS INNOVATIONS, INC.
(The Company)
/s/ NICHOLAS I. FINK
Nicholas I. Fink
Chief Executive Officer (principal executive officer)
/s/ PATRICK D. HALLINAN
Patrick D. Hallinan
Executive Vice President and Chief Financial Officer
(principal financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ NICHOLAS I. FINK
Nicholas I. Fink, Chief Executive Officer and
Director
(principal executive officer)
Date: February 28, 2023
/s/ PATRICK D. HALLINAN
Patrick D. Hallinan, Executive Vice President
and Chief Financial Officer (principal financial
officer)
Date: February 28, 2023
/s/ DANNY LUBURIC
Danny Luburic, Vice President – Controller
(principal accounting officer)
Date: February 28, 2023
/s/ AMIT BANATI*
Amit Banati, Director
Date: February 28, 2023
/s/ IRIAL FINAN*
Irial Finan, Director
Date: February 28, 2023
/s/ ANN FRITZ HACKETT*
Ann Fritz Hackett, Director
Date: February 28, 2023
/s/ SUSAN S. KILSBY*
Susan S. Kilsby, Director
Date: February 28, 2023
/s/ A.D. DAVID MACKAY*
A.D. David Mackay, Director
Date: February 28, 2023
/s/ JOHN G. MORIKIS *
John G. Morikis, Director
Date: February 28, 2023
/s/ JEFFERY S. PERRY*
Jeffery S. Perry, Director
Date: February 28, 2023
/s/ DAVID M. THOMAS*
David M. Thomas, Director
Date: February 28, 2023
Ronald V. Waters, III, Director
*By: /s/ Hiranda Donaghue
Hiranda Donaghue, Attorney-in-Fact
95
Schedule II Valuation and Qualifying Accounts
For the years ended December 31, 2022, 2021 and 2020
(In millions)
2022:
Allowance for cash discounts and sales
allowances
Allowance for credit losses
Allowance for deferred tax assets
2021:
Allowance for cash discounts and sales
allowances
Allowance for credit losses
Allowance for deferred tax assets
2020:
Allowance for cash discounts and sales
allowances
Allowance for credit losses
Allowance for deferred tax assets
Balance at
Beginning of
Period
Charged to
Expense
Write-offs
and
Deductions
(a)
Business
Acquisition
(b)
Balance at
End of
Period
$
$
$
135.9 $
5.7
20.7
287.0 $ (306.7) $
3.7
(6.9)
(3.9)
—
— $
—
—
116.2
5.5
13.8
109.9 $
4.3
9.6
296.9 $ (270.9)
(2.6)
6.1
4.0
5.0
— $
—
135.9
5.7
20.7
64.0 $
2.2
16.8
173.8 $ (130.7) $
4.8
(7.2)
(2.7)
—
2.8 $
—
—
109.9
4.3
9.6
(a) Net of recoveries of amounts written off in prior years and immaterial foreign currency impact.
(b) Represents purchase accounting adjustment related to the Larson acquisition within our Outdoors & Security segment in 2020.
96
This page intentionally left blank.
(cid:28)(cid:26)
Reconciliations of Operating Income From Continuing Operations Before Charges/Gains to GAAP
Operating Income
(In millions)
(Unaudited)
Twelve Months Ended December 31,
WATER INNOVATIONS
Operating income before charges/gains (a)
Restructuring charges (b)
Other (charges)/gains (b)
Cost of products sold
Selling, general and administrative expenses
Operating income (GAAP)
OUTDOORS & SECURITY
Operating income before charges/gains (a)
Restructuring charges (b)
Other (charges)/gains (b)
Cost of products sold
Selling, general and administrative expenses
Operating income (GAAP)
CORPORATE
General and administrative expenses before charges/gains (a)
Restructuring charges (b)
Other (charges)/gains (b)
Selling, general and administrative expenses
Corporate expense (GAAP)
TOTAL COMPANY
Operating income from continuing operations before charges/gains (a)
Restructuring charges (b)
Other (charges)/gains (b)
Cost of products sold
Selling, general and administrative expenses
Operating income from continuing operations (GAAP)
(a) (b) For definitions of Non-GAAP measures, see Definitions of Terms page
2022
$622.8
(6.3)
(1.1)
(0.8)
$614.6
$311.6
(25.1)
5.5
(2.4)
$289.6
$(124.7)
(1.0)
(4.2)
$(129.9)
$809.7
(32.4)
4.4
(7.4)
$774.3
(cid:28)(cid:27)
Before Charges/Gains Operating Margin to Operating Margin
(Unaudited)
Twelve Months Ended December 31,
WATER INNOVATIONS
Before charges/gains operating margin
Restructuring & other (charges)/gains
Operating margin
OUTDOORS & SECURITY
Before charges/gains operating margin
Restructuring & other (charges)/gains
Operating margin
TOTAL COMPANY
Before charges/gains operating margin from continuing operations
Restructuring & other (charges)/gains
Operating margin from continuing operations (e)
(e) For definition of Non-GAAP measures, see Definitions of Terms page
2022
24.2%
(0.3%)
23.9%
14.5%
(1.0%)
13.5%
17.1%
(0.7%)
16.4%
(cid:28)(cid:28)
Reconciliation of Diluted EPS From Continuing Operations Before Charges/Gains
(Unaudited)
Twelve Months Ended December 31,
Earnings per common share (EPS) - Diluted
Diluted EPS from continuing operations before charges/gains (c)
Restructuring and other (charges)/gains
Defined benefit plan actuarial gains
Tax Items
Diluted EPS from continuing operations (GAAP)
2022
$4.24
(0.20)
0.01
0.06
$4.11
For the twelve months ended December 31, 2022, the diluted EPS before charges/gains is calculated as income from continuing operations on
a diluted per-share basis, excluding $35.4 million ($25.6 million after tax or $0.20 per diluted share) of restructuring and other charges/gains,
the impact for actuarial gains associated with our defined benefit plans of $1.2 million ($0.9 million after tax or $0.01 per diluted share) and a
tax benefit of $8.4 million ($0.06 per diluted share).
(c) For definitions of Non-GAAP measures, see Definitions of Terms page
(cid:20)(cid:19)(cid:19)
Reconciliations of EBITDA From Continuing Operations Before Charges/Gains to Income From
Continuing Operations, Net of Tax
(In Millions)
(Unaudited)
Twelve Months Ended December 31,
EBITDA from continuing operations before charges/gains (d)
Depreciation*
Amortization of intangible assets
Restructuring and other (charges)/gains
Interest expense
Defined benefit plan actuarial gains
Income taxes
Income from continuing operations, net of tax
2022
$951.5
$(82.7)
(48.3)
(35.4)
(119.2)
1.2
(127.2)
$539.9
*Depreciation excludes accelerated depreciation expense of ($0.1) million for the twelve months ended December 31, 2022. Accelerated
depreciation is included in restructuring and other charges/gains.
(d) For definitions of Non-GAAP measures, see Definitions of Terms page
(cid:20)(cid:19)(cid:20)
Definitions of Terms: Non-GAAP Measures
(a) Operating income (loss) from continuing operations before charges/gains is calculated as operating income derived in accordance with
GAAP, excluding restructuring and other charges/gains. Operating income (loss) from continuing operations before charges/gains is
a measure not derived in accordance with GAAP. Management uses this measure to evaluate the returns generated by the Company
and its business segments. Management believes this measure provides investors with helpful supplemental information regarding the
underlying performance of the Company from period to period. This measure may be inconsistent with similar measures presented by other
companies.
(b) Restructuring charges, which include costs incurred for significant cost-reduction initiatives and workforce reduction costs by segment,
totaled $32.4 million for the twelve months ended December 31, 2022. Other charges/gains represent costs that are directly related to
restructuring initiatives but cannot be reported as restructuring costs under GAAP. These costs can include losses from disposing of
inventories, trade receivables allowances from discontinued product lines, accelerated depreciation due to the closure of facilities, and
gains or losses from selling previously closed facilities. During the twelve months ended December 31, 2022, total other charges were
($5.6) million.
In the Water Innovations segment, other charges also include an acquisition-related inventory step-up expense of $1.4 million for Aqualisa
for the twelve months ended December 31, 2022, classified in the cost of products sold.
In the Outdoors & Security segment, other charges also include an acquisition-related inventory step-up expense of $0.7 million for Solar
Innovations and its affiliated entity for the twelve months ended December 31, 2022, classified in the cost of products sold. Additionally,
there was a $2.1 million compensation arrangement with the former owner of Solar Innovations for the twelve months ended December 31,
2022, classified in selling, general, and administrative expenses.
At the Corporate level, other charges also include expenditures of $1.2 million for the twelve months ended December 31, 2022, for
banking, legal, accounting, and other similar services directly related to the acquisition of Aqualisa. Additionally, there were expenditures of
$3.4 million for the twelve months ended December 31, 2022, for banking, legal, accounting, and other similar services directly related to
the planned acquisition of the Emtek and Schaub premium and luxury door and hardware business, as well as the U.S. and Canadian Yale
and August residential smart home lock businesses.
(c) Diluted earnings per share from continuing operations before charges/gains is calculated as income from continuing operations on a diluted
per-share basis, excluding restructuring and other charges/gains, defined benefit plan actuarial gains, and tax items. This measure is not in
accordance with GAAP. Management uses this measure to evaluate the Company’s overall performance and believes it provides investors
with helpful supplemental information about the Company’s underlying performance from period to period. However, this measure may not
be consistent with similar measures presented by other companies.
(d) EBITDA from continuing operations before charges/gains is calculated as income from continuing operations in accordance with GAAP,
excluding depreciation, amortization of intangible assets, restructuring and other charges/gains, interest expense, defined benefit plan
actuarial gains, and income taxes. EBITDA from continuing operations before charges/gains is a measure not derived in accordance
with GAAP. Management uses this measure to assess returns generated by the Company. Management believes this measure provides
investors with helpful supplemental information about the Company’s ability to fund internal growth, make acquisitions and repay debt and
related interest. This measure may be inconsistent with similar measures presented by other companies.
(e) Operating margin from continuing operations is calculated as the operating income from continuing operations in accordance with
GAAP, divided by the GAAP net sales. The before charges/gains operating margin is calculated as the operating income from continuing
operations, excluding restructuring and other charges/gains, divided by the GAAP net sales. This before charges/gains operating margin
is not a measure derived in accordance with GAAP. Management uses this measure to evaluate the returns generated by the Company
and its business segments. Management believes that this measure provides investors with helpful supplemental information about the
Company’s underlying performance from period to period. However, this measure may not be consistent with similar measures presented
by other companies.
(cid:20)(cid:19)(cid:21)
Cautionary Statement Concerning Forward-Looking Statements
Certain forward-looking statements included in this report are made within the meaning of the Private Securities Litigation Reform Act of
1995. 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, the 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 spinoff of MasterBrand, Inc. and the tax-free nature of the spinoff transaction, the anticipated
effects of recently issued accounting standards on our financial statements, and other matters that are not historical in nature. Statements that
include the words “believes,” “anticipates,” “projects,” “positioned,” “expects,” “estimates,” “plans,” “look to,” “outlook,” “intend,” 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, plans, 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 (the “SEC”). 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, those listed
in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC [and included with this report]. We
undertake no obligation to, and expressly disclaim any such obligation to, update, amend, clarify, or revise 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.
r
Use of Non-GAAP Financial Information
This annual report includes financial measures, including operating income before charges/gains, operating margin before charges/
gains, EBITDA before charges/gains, segment operating income and diluted EPS before charges/gains, that are derived on the basis of
methodologies other than in accordance with U.S. generally accepted accounting principles (GAAP). We offer these measures to assist
investors in assessing our financial performance and liquidity under GAAP, but investors should not rely on these measures as a substitute
for any GAAP measure. In addition, these measures may be inconsistent with similarly titled measures presented by other companies. For
more information, including reconciliations of these non-GAAP financial measures to the most comparable GAAP measures, please see the
reconciliation tables in this annual report.
(cid:20)(cid:19)(cid:22)
CO R P O R ATE DATA
Transfer Agent for Common Stock
EQ Shareowner Services
1110 Centre Pointe Curve
Suite 101
Mendota Heights, MN 55120-4100
800-468-9716
Earnings & News
ir.FBIN.com
Duplicate mailings of proxy materials
to the same address are costly and
may be inconvenient. Stockholders
who wish to eliminate duplicate
mailings must provide their request in
writing. Eliminating duplicate mailings
will not affect your voting rights.
For Inquiries
Fortune Brands Innovations, Inc.
Shareholder Services
520 Lake Cook Road
Suite 300
Deerfield, IL 60015-5611
Executive Office
520 Lake Cook Road
Suite 300
Deerfield, IL 60015-5611
847-484-4400
Website
FBIN.com
Email
Mail@FBHS.com
Registered Office
251 Little Falls Drive
Wilmington, DE 19808
Common Stock
Fortune Brands Innovations, Inc., common
stock is listed on the New York Stock
Exchange. Our trading symbol is FBIN.
Annual Meeting
The Annual Meeting of
Stockholders will take place on
May 16, 2023, at 8:00 a.m. CDT.
520 Lake Cook Road
(Starlight Cafe Entrance)
Deerfield, IL 60015-5611
SEC Filings
Our Annual Report on Form 10-K, as
filed with the SEC for the last fiscal year,
and this 2022 Annual Report are being
distributed in connection with our 2023
Annual Meeting of Stockholders. You
may also view electronic copies of our
Annual Report on Form 10-K and other
documents we file with the SEC on our
investor relations website, ir.FBIN.com.
Fortune Brands Innovations, Inc. is
a holding company with subsidiaries
engaged in the manufacture and sale of
home and security products. To make this
annual report easier to read, we’ve used
“we,” “our,” “FBIN,” “Fortune Brands”
and similar terms to describe the
activities of Fortune Brands Innovations,
Inc., or its subsidiary companies or
both, depending on the context.
Water Innovations
Outdoors & Security
B R AN DS
Throughout this annual report, we refer to numerous
trademarks, trade names and brands. Moen, Riobel,
ROHL, Perrin & Rowe, Shaws, Victoria + Albert, Fiberon,
Therma-Tru, LARSON, Master Lock, SentrySafe, Aqualisa
and Solar Innovations are among the trademarks or trade
names held by subsidiaries of Fortune Brands Innovations,
Inc., and are registered, pending registration, and/or
common law marks in the U.S. and/or various countries.
Occasionally, in conveying information, we refer to
trademarks of third parties. Such trademarks are the
property of their respective owners.
Therma-Tru was awarded the No. 1 most-used entry door
brand in the United States among residential building
professionals, based on the 2022 Builder magazine Brand
Use Study.
Fortune Brands Innovations, Inc., was named to
Newsweek Magazine’s 2023 list of America’s Most
Responsible Companies.
(cid:20)(cid:19)(cid:23)
BOARD OF DIRECTORS
Susan Saltzbart
Kilsby
Non‑Executive Chair of
the Board
Former Senior Advisor
Credit Suisse Group AG
Nicholas I. Fink
Chief Executive Officer
Fortune Brands
Innovations, Inc.
Amit Banati
Vice Chair and Chief
Financial Officer
Kellogg Company
Irial Finan
Former Executive
Vice President of
The Coca‑Cola
Company and
President of Bottling
Investments Group
Ann Fritz Hackett
Former Strategy
Consulting Partner and
Co‑Founder Personal
Pathways LLC
A.D. David Mackay
Former President and
Chief Executive Officer
Kellogg Company
John G. Morikis
Chairman and Chief
Executive Officer
The Sherwin‑
Williams Company
Jeffery Perry
Founder and Chief
Executive Officer
Lead Mandates LLC
David M. Thomas
Former Chairman and
Chief Executive Officer
IMS Health Incorporated
Ronald V. Waters, III
Former President and
Chief Executive Officer
LoJack Corporation
LEADERSHIP TEAM
Nicholas I. Fink
Chief Executive Officer
David V. Barry
Incoming Executive Vice
President and Chief
Financial Officer
Hiranda S. Donoghue
Executive Vice President,
Chief Legal Officer and
Corporate Secretary
Sheri R. Grissom
Executive Vice President,
Chief Human Resource
and Transformation
Officer
Patrick D. Hallinan
Executive Vice President
and Chief Financial
Officer
John D. Lee
Executive Vice President,
Chief Strategy and
Growth Officer
Cheri M. Phyfer
Executive Vice President
and Group President
Ron Wilson
Executive Vice President
and Chief Supply Chain
Officer
Fortune Brands Innovations is a brand, innovation and
channel leader focused on exciting, supercharged
growth opportunities within the home, security and
commercial building markets.
To learn more, visit FBIN.com
520 Lake Cook Road, Suite 300
Deerfield, IL 60015-5611
12 / FORTUNE BRANDS