What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-07 compared with 2024-11-07 · 83 added, 137 removed, 93 unchanged (70% of the section changed)

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This discussion contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include all statements that are not historical statements of fact and those regarding our intent, belief or expectations for our business, operations, financial performance or financial condition in addition to statements regarding our expectations for the markets in which we operate, general business strategies, expected impacts from recently-announced organizational and leadership changes, 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 or de-risking initiatives, the expected impact of acquisitions, dispositions and other strategic transactions, the anticipated impact of recently issued accounting standards on our financial statements, and other matters that are not historical in nature.

Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” “outlook,” “positioned,” “confident,” “opportunity,” “focus” 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.

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Although we believe that these statements are based on reasonable assumptions, they are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results to be materially different from those indicated in such statements, including but not limited to:

(i) our reliance on the North American and Chinese home improvement, repair and remodel and new home construction activity levels, (ii) the housing market, downward changes in the general economy, unfavorable interest rates or other business conditions, (iii) the competitive nature of consumer and trade brand businesses, (iv) our ability to execute on our strategic plans and the effectiveness of our strategies in the face of business competition, (v) our reliance on key customers and suppliers, including wholesale distributors and dealers and retailers, (vi) risks relating to rapidly evolving technological change, (vii) risks associated with our ability to improve organizational productivity and global supply chain efficiency and flexibility, (viii) risks associated with global commodity and energy availability and price volatility, as well as the possibility of sustained inflation, (ix) delays or outages in our information technology systems or computer networks, or breaches of our information technology systems or other cybersecurity incidents, (x) risks associated with doing business globally, including changes in trade-related tariffs and risks with uncertain trade environments, (xi) risks associated with the disruption of operations, (xii) our inability to obtain raw materials and finished goods in a timely and cost-effective manner, (xiii) risks associated with entering into potential strategic acquisitions and joint ventures and related integration activities, (xiv) impairments in the carrying value of goodwill or other acquired intangible assets, (xv) risks of increases in our defined benefit-related costs and funding requirements, (xvi) our ability to attract and retain qualified personnel and other labor constraints, (xvii) the effect of climate change and the impact of related changes in government regulations and consumer preferences, (xviii) risks associated with environmental, social and governance matters, (xix) potential liabilities and costs from claims and litigation, (xx) changes in government and industry regulatory standards, (xxi) future tax law changes or the interpretation of existing tax laws, (xxii) our ability to secure and protect our intellectual property rights, (xxiii) the impact of COVID-19 on the business, (xxiv) our ability to achieve the expected benefits of the separation of MasterBrand, Inc.

(“MasterBrand”), the Company’s Cabinets business (the “Separation”) (xxv) the risk that we may be required to indemnify MasterBrand in connection with the Separation or that MasterBrand’s indemnities to us may not be sufficient to hold us harmless for the full amount of liabilities for which MasterBrand has been allocated responsibility and (xxvi) the potential that the Separation fails to qualify as tax-free for U.S.

tariffs announced or imposed on China, Canada, Mexico and other countries and any reciprocal actions taken by such countries) and risks with uncertain trade environments, (xi) risks associated with the disruption of operations, including as a result of severe weather events, (xii) our inability to obtain raw materials and finished goods in a timely and cost-effective manner, (xiii) risks associated with strategic acquisitions, divestitures and joint ventures, including difficulties integrating acquired companies and the inability to achieve the expected financial results and benefits of transactions, (xiv) impairments in the carrying value of goodwill or other acquired intangible assets, (xv) risks of increases in our defined benefit-related costs and funding requirements, (xvi) our ability to attract and retain qualified personnel and other labor constraints, (xvii) the effect of climate change and the impact of related changes in government regulations and consumer preferences, (xviii) risks associated with environmental, social and governance matters, (xix) potential liabilities and costs from claims and litigation, (xx) changes in government and industry regulatory standards, (xxi) future tax law changes or the interpretation of existing tax laws, (xxii) our ability to secure and protect our intellectual property rights, (xxiii) our ability to achieve the expected benefits of the separation of MasterBrand, Inc.

(“MasterBrand”), the Company’s Cabinets business (the “Separation”) (xxiv) the risk that we may be required to indemnify MasterBrand in connection with the Separation or that MasterBrand’s indemnities to us may not be sufficient to hold us harmless for the full amount of liabilities for which MasterBrand has been allocated responsibility and (xxv) the potential that the Separation fails to qualify as tax-free for U.S.

federal income tax purposes.

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and its consolidated subsidiaries as a whole, unless the context otherwise requires.

The Company is a leading innovation company dedicated to creating smarter, safer and more beautiful homes and improving lives that competes in attractive long-term growth markets in our product categories.

The Company is a leading innovation company focused on creating smarter, safer and more beautiful homes and improving lives that competes in attractive long-term growth markets in our product categories.

The Company’s driving purpose is to elevate every life by transforming spaces into havens.

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We believe the Company’s track record reflects the long-term attractiveness and potential of the categories we serve and our leading brands.

The long-term outlook for our products remain favorable, and our strategic advantages, including the set of capabilities we refer to as the Fortune Brands Advantage, helps us to continue to achieve profitable organic growth.

We believe 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, will helps us to continue to achieve profitable organic growth over time.

We continue to believe our most attractive opportunities are to invest in profitable organic growth initiatives, pursue accretive strategic acquisitions, non-controlling equity investments, and joint ventures, and return cash to stockholders through a combination of dividends and repurchases of shares of our common stock under our share repurchase program as explained in further detail under “Liquidity and Capital Resources” below.

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.

Growth in the U.S.

market for our home products will largely depend on consumer confidence, employment, wage growth, home prices, equity levels and rates of extraction, stable mortgage rates and credit availability.

Increases in inflation and mortgage rates during the preceding years 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 but easing increased rates of inflation, changes in interest rates, unfavorable fluctuations in foreign exchange rates and the ongoing costs of tariffs.

We continue to manage these challenges and are diligently working to offset potential unfavorable impacts of these items through continuous productivity improvement initiatives and price increases.

On February 29, 2024, we acquired 100% of the outstanding equity of Wise Water Solutions LLC, doing business as SpringWell Water Filtration Systems ("SpringWell"), for a purchase price of $105.6 million, subject to post-closing adjustments, net of cash acquired of $1.4 million.

We financed the transaction using cash on hand and borrowings under our existing credit arrangements.

The results of SpringWell are reported as part of the Water Innovations ("Water") segment.

We have not included pro forma financial information as the transaction is immaterial to our condensed consolidated statements of comprehensive income.

The fair value allocated to assets acquired and liabilities assumed as of February 29, 2024, was $105.6 million, which includes $84.4 million of goodwill.

Goodwill includes expected sales and cost synergies and is expected to be deductible for income tax purposes.

In June 2023, we acquired the Emtek and Schaub premium and luxury door and cabinet hardware business (the "Emtek and Schaub Business") and the U.S.

and Canadian Yale and August residential smart locks business (the "Yale and August Business", and, collectively with the Emtek and Schaub Business, the "Acquired Businesses") from ASSA ABLOY, Inc.

and its affiliates ("ASSA").

The Company completed the acquisition for a total purchase price of approximately $813.9 million, net of cash acquired of $21.9 million.

During the second quarter of 2024, legal title to international operations in Vietnam transferred to us, which included a payment of approximately $23.5 million, net of cash of $5.6 million (which amount is already included in the overall purchase price).

We financed the transaction with cash on hand.

The results of the Emtek and Schaub Business are reported as part of the Water segment, and the results of the Yale and August Business are reported as part of the Security segment.

However, we believe we are well positioned to manage the continued 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 geopolitical environment, as well as increased rates of inflation, increased interest rates, unfavorable fluctuations in foreign exchange rates and the ongoing and worsening costs of tariffs (including recent U.S.

tariffs announced or imposed on China, Canada, Mexico and other countries and any reciprocal actions taken by such countries).

We anticipate that, absent any mitigation efforts, our costs of goods sold would increase based on the tariffs that have been announced or imposed (either by the United States or by other countries, including China) as of the date of this report.

The Company is actively working to mitigate the anticipated impacts of tariffs through a combination of supply chain actions, cost-out activities and strategic pricing actions across all of our channels and brands.

However, this is a rapidly evolving landscape, and the Company’s ability to mitigate the anticipated impacts of tariffs could be affected by a number of factors, including additional tariffs or trade-related sanctions imposed by the U.S.

or other countries, and if the Company is ultimately not able to substantially mitigate the impacts of tariffs, there would be negative impacts to the Company’s results of operations.

We are also unable at this time to determine any future negative impacts from reduced consumer spending as a result of inflationary or other macroeconomic pressures or uncertainty that may result from the imposition of current or future tariffs.

We are currently monitoring, and will continue to monitor, potential changes to these tariffs or the imposition of reciprocal or other tariffs or trade restrictions by other countries.

RESULTS OF OPERATIONS

Thirty-Nine Weeks Ended September 28, 2024 Compared To Thirty-Nine Weeks Ended September 30, 2023

Thirteen Weeks Ended March 29, 2025 Compared to Thirteen Weeks Ended March 30, 2024

(In millions)

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Operating income

The following discussion of consolidated results of operations and segment results refers to the thirty-nine weeks ended September 28, 2024 compared to the thirty-nine weeks ended September 30, 2023.

The following discussion of consolidated results of operations and segment results refers to the thirteen weeks ended March 29, 2025 compared to the thirteen weeks ended March 30, 2024.

Consolidated results of operations should be read in conjunction with segment results of operations.

Net sales increased by $39.9 million, or 1.2%, primarily due to the benefit from the acquisitions of SpringWell and the Acquired Businesses ($199.1 million), partially offset by lower sales in our international markets ($91.9 million), higher customer sales incentives and unfavorable foreign exchange ($5.0 million).

Net sales decreased by $76.5 million, or 6.9%, primarily due to lower sales volume in the U.S.

as well as in our international markets ($28.9 million) and unfavorable foreign exchange ($6.6 million), partially offset by incremental sales from a prior year acquisition ($6.5 million).

Cost of products sold

Cost of products sold decreased by $102.0 million, or 5.0%, primarily due to raw material cost deflation, lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies.

These factors were partially offset by the impact of the acquisitions of SpringWell and the Acquired Businesses.

Cost of products sold decreased by $43.6 million, or 7.0%, primarily due to the lower sales volume, lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $66.9 million, or 7.8%, primarily due to the acquisition of SpringWell and the Acquired Businesses, higher advertising and marketing costs, higher headcount related costs and higher distribution expenses.

Selling, general and administrative expenses increased by $3.3 million, or 1.1%, primarily due to higher restructuring-related charges, higher research and development expenses and higher advertising and marketing costs, partially offset by lower headcount-related expenses and lower freight and shipping expenses.

Restructuring charges

Restructuring charges of $14.1 million in the thirty-nine weeks ended September 28, 2024 are largely related to costs associated with a product line rationalization within our Outdoors segment, the previously announced closure of a manufacturing facility within our Security segment, and headcount actions across all segments.

Restructuring charges of $28.9 million in the thirty-nine weeks ended September 30, 2023 are largely related to costs associated with the closure of a manufacturing facility within our Security segment and headcount actions across all segments.

Restructuring charges of $24.8 million are primarily attributable to costs associated with the previously announced decision to consolidate our U.S.

regional offices into one campus headquarters and related organizational and personnel changes, product-line rationalizations within our Outdoors segment, and plant closures in both our Water and Security segments.

Operating income

Operating income increased by $78.6 million, or 16.3%, primarily due to the impacts of the acquisitions of SpringWell and the Acquired Businesses, raw material cost deflation, lower transportation costs, lower restructuring charges and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies.

These factors were partially offset by increased intangible amortization expense as a result of the acquisitions of SpringWell and the Acquired Businesses ($18.4 million), higher customer sales incentives, higher advertising and marketing costs, higher headcount related costs and higher distribution expenses.

Operating income decreased by $58.4 million, or 37.6%, primarily due to the lower sales volume and higher restructuring and restructuring-related charges, partially offset by lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies as well as lower headcount-related costs.

RESULTS OF OPERATIONS (Continued)

Interest expense

Interest expense increased by $4.7 million to $92.6 million primarily due to higher floating rate debt balances ($104.7 million outstanding as of September 28, 2024) and higher fixed rate debt interest rates with the issuance of the $600 million outstanding principal amount of 5.875% Senior Notes due in June 2033 relative to the maturity and settlement of the $600 million outstanding principal amount of 4.000% Senior Notes due in September 2023.

Other income, net

Other income, net, was $5.2 million in the thirty-nine weeks ended September 28, 2024, compared to $20.9 million in the thirty-nine weeks ended September 30, 2023.

The decrease in other income, net is primarily due to a decrease in foreign currency transaction income and lower interest income, partially offset by an increase in net periodic benefit income.

The effective income tax rates for the thirty-nine weeks ended September 28, 2024 and thirty-nine weeks ended September 30, 2023 were 22.3% and 21.7%, respectively.

The difference between the Company’s effective income tax rate for the thirty-nine weeks ended September 28, 2024, and the U.S.

statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates, partially offset by favorable benefits related to a valuation allowance release, provision to return adjustments, decreases in uncertain tax positions, and tax credits.

The difference between the Company’s effective tax rate for the thirty-nine weeks ended September 30, 2023, and the U.S.

federal statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates, partially offset by favorable benefits related to provision to return adjustments, decreases in uncertain tax positions, and tax credits.

Income from continuing operations, net of tax

Income from continuing operations, net of tax, was $366.8 million in the thirty-nine weeks ended September 28, 2024, compared to $324.2 million in the thirty-nine weeks ended September 30, 2023.

The increase was due to higher operating income, partly offset by higher interest expense, higher income tax expense and lower other income, net.

Interest expense decreased $1.5 million to $28.6 million primarily due to lower commercial paper borrowings net of repayments during the thirteen weeks ended March 29, 2025, as compared to the thirteen weeks ended March 30, 2024 ($280.0 million in 2025 versus $375.0 million in 2024).

Other (income) expense, net

Other income, net, was $1.0 million in the thirteen weeks ended March 29, 2025, compared to other expense, net of $0.1 million in the thirteen weeks ended March 30, 2024.

The increase in other income, net is primarily due to an increase in interest income partially offset by an increase in foreign currency transaction expense and an increase in net periodic benefit expense.

The effective income tax rates for the thirteen weeks ended March 29, 2025, and thirteen weeks ended March 30, 2024, were 25.9% and 23.0%, respectively.

The difference between the Company’s effective income tax rate for the thirteen weeks ended March 29, 2025, and the U.S.

statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates.

The difference between the Company’s effective income tax rate for the thirteen weeks ended March 30, 2024, and the U.S.

statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates, partially offset by a valuation allowance release and tax credits.

Net income was $51.4 million in the thirteen weeks ended March 29, 2025, compared to $96.4 million in the thirteen weeks ended March 30, 2024.

The decrease in net income was due to lower operating income ($58.4 million), partly offset by lower income tax expense ($10.8 million), lower interest expense ($1.5 million) and higher other income ($1.1 million).

Results By Segment

Net sales increased by $20.8 million, or 1.1%, primarily due to the benefit from the acquisitions of SpringWell and the Emtek and Schaub Business ($140.8 million) partially offset by lower organic sales volume, higher customer sales incentives and unfavorable foreign exchange ($4.6 million).

Operating income increased by $8.9 million, or 2.0%, primarily due to the benefit from the acquisitions of SpringWell and the Emtek and Schaub Business, productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, lower transportation costs and raw material cost deflation.

These factors were partially offset by increased intangible amortization expense due to the impact of the acquisitions of SpringWell and the Emtek and Schaub Business ($15.9 million) and higher headcount related costs.

Net sales increased by $15.2 million, or 1.5%, primarily due to higher sales unit volume, partially offset by higher customer sales incentives and unfavorable channel mix.

Operating income increased by $17.7 million, or 14.0%, primarily due to the higher sales unit volume, raw material deflation and productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by higher headcount related costs.

Net sales increased by $3.9 million, or 0.7%, primarily due to the benefit from the acquisition of the Yale and August Business ($58.3 million), partially offset by lower sales unit volume and higher customer sales incentives.

Operating income increased by $48.7 million, or 128.8%, primarily due to lower restructuring charges, the benefit from the acquisition of the Yale and August Business, and productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by lower sales unit volume.

Corporate expenses decreased by $3.3 million, or 2.8%, primarily due to the absence in the current period of nonrecurring costs related to the acquisition of the Acquired Businesses, partially offset by higher headcount related costs and costs related to our digital transformation efforts.

Thirteen Weeks Ended September 28, 2024 Compared To Thirteen Weeks Ended September 30, 2023

(In millions)

Operating Income (Loss)

Net sales decreased by $59.9 million, or 9.6%, primarily due to lower sales unit volume (including a sales volume decline within our China business of approximately $21.3 million), higher customer sales incentives and unfavorable foreign exchange ($5.4 million), partially offset by the impact of higher product pricing and the incremental sales from a prior year acquisition ($6.5 million).

Operating income decreased by $38.1 million, or 27.0%, primarily due to the lower sales volume and higher restructuring and restructuring-related charges ($10.0 million), partially offset by productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies and lower transportation costs.

Net sales decreased by $10.3 million, or 3.3%, primarily due to lower sales unit volume for our exterior doors products and lower product pricing, partially offset by lower customer sales incentives and favorable product mix.

Operating income decreased by $11.7 million, or 34.1%, primarily due to the lower sales unit volume and higher restructuring and restructuring-related charges ($5.6 million), partially offset by productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies.

Net sales decreased by $6.3 million, or 3.7%, primarily due to lower sales unit volume and unfavorable foreign exchange ($1.2 million), partially offset by lower customer sales incentives.

Operating income decreased by $3.1 million, or 16.2%, primarily due to the lower sales unit volume, partially offset by productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies.

Corporate expenses

Operating income

The following discussion of consolidated results of operations and segment results refers to the thirteen weeks ended September 28, 2024 compared to the thirteen weeks ended September 30, 2023.

Consolidated results of operations should be read in conjunction with segment results of operations.

Net sales decreased by $105.9 million, or 8.4%, primarily due to lower sales in our international markets ($55.7 million), higher customer sales incentives, and unfavorable foreign exchange ($0.6 million).

Cost of products sold

Cost of products sold decreased by $95.6 million, or 13.3%, primarily due to the lower sales volume, raw material cost deflation, lower transportation costs and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by unfavorable product mix.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $22.9 million, or 7.1%, primarily due to lower headcount related costs, partially offset by higher selling, advertising and marketing costs.

Restructuring charges

Restructuring charges of $7.4 million in the thirteen weeks ended September 28, 2024 are largely related to costs associated with headcount actions across all segments, a product line rationalization within our Outdoors segment, and the previously announced closure of a manufacturing facility within our Security segment.

Restructuring charges of $3.7 million in the thirteen weeks ended September 30, 2023 relate to costs associated with the closure of a manufacturing facility within our Security segment.

Operating income

Operating income increased by $8.6 million, or 4.4%, primarily due to raw material cost deflation, lower transportation costs, lower restructuring charges, and productivity improvements in all of our segments as a result of strategic sourcing initiatives and manufacturing efficiencies.

These factors were partially offset by lower sales unit volume, higher customer sales incentives, higher headcount related costs and increased intangible amortization expense as a result of the acquisitions of SpringWell and the Acquired Businesses ($6.2 million).

Interest expense

Interest expense decreased $3.1 million to $30.2 million primarily due to lower average fixed rate debt balances, partially offset by higher floating rate debt balances ($104.7 million outstanding as of September 28, 2024).

Other income, net

Other income, net, was $1.6 million in the thirteen weeks ended September 28, 2024, compared to $9.4 million in the thirteen weeks ended September 30, 2023.

The decrease in other income, net is primarily due to a decrease in foreign currency transaction income and interest income.

The effective income tax rates for the thirteen weeks ended September 28, 2024 and thirteen weeks ended September 30, 2023 were 22.6% and 20.9%, respectively.

The difference between the Company’s effective income tax rate for the thirteen weeks ended September 28, 2024, and the U.S.

statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates, partially offset by favorable benefits related to provision to return adjustments and tax credits.

The difference between the Company’s effective income tax rate for the thirteen weeks ended September 30, 2023, and the U.S.

statutory rate of 21% primarily relates to state income taxes and foreign income taxed at higher rates, more than offset by favorable benefits related to decreases in uncertain tax positions and provision to return adjustments .

Income from continuing operations, net of tax

Income from continuing operations, net of tax, was $136.6 million in the thirteen weeks ended September 28, 2024, compared to $136.5 million in the thirteen weeks ended September 30, 2023.

The increase was due to higher operating income and lower interest expense, partially offset by higher income tax expense and lower other income, net.

Results By Segment

Net sales decreased by $52.9 million, or 7.7%, primarily due to lower sales volume as well as higher customer sales incentives.

Operating income decreased by $12.8 million, or 7.8%, primarily due to lower sales volume, higher customer incentive costs, higher restructuring charges, higher headcount related costs and increased intangible amortization expense due to the impact of the acquisitions of SpringWell and the Emtek and Schaub Business ($5.4 million).

These factors were partially offset by productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, lower transportation costs and raw material cost deflation.

Net sales decreased by $23.7 million, or 6.5%, due to lower sales unit volume and higher customer sales incentives, partially offset by favorable channel mix.

Operating income increased by $5.8 million, or 11.2%, primarily due to productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by lower sales unit volume and higher headcount related costs.

Net sales decreased by $29.3 million, or 14.2%, primarily due to lower sales unit volume and higher customer sales incentives.

Operating income increased by $16.0 million, or 94.1%, primarily due to lower restructuring and other charges associated with the closure of a manufacturing facility as well as productivity improvements as a result of strategic sourcing initiatives and manufacturing efficiencies, partially offset by lower sales unit volume.

Corporate expenses increased by $0.4 million, or 1.1%, primarily due to higher headcount related costs and costs related to our digital transformation efforts.

Corporate expenses increased by $5.5 million, or 14.0%, primarily due to higher restructuring and restructuring-related charges ($12.2 million), partially offset by lower headcount-related costs.

LIQUIDITY AND CAPITAL RESOURCES

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Our operating income is generated by our subsidiaries.

We believe our operating cash flows, including funds available under the credit facility and access to capital markets, provide sufficient liquidity to support the Company’s working capital requirements, capital expenditures and service of indebtedness, as well as to finance acquisitions, repurchase shares of our common stock and pay dividends to stockholders, as the Board of Directors deems appropriate.

Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section of our Annual Report on Form 10-K for the year ended December 28, 2024 entitled “Item 1A.

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Long-Term Debt

At September 28, 2024, the Company had aggregate outstanding notes in the principal amount of $2.7 billion, with varying maturities (the “Notes”).

As of March 29, 2025, 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.

In addition, we believe that we have the ability to obtain alternative sources of financing if required.

The following table provides a summary of the Company’s outstanding Notes, including the net carrying value of the Notes, net of underwriting commissions, price discounts and debt issuance costs as of September 28, 2024 and December 30, 2023:

Net Carrying Value

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Maturity Date

September 28, 2024

March 29, 2025

December 28, 2024

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Total Senior Notes

current portion

Total Senior Notes long-term

Credit Facilities

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The maturity date of the facility is August 2027.

Interest rates under the Revolving Credit Agreement are variable based on Secured Overnight Financing Rate ("SOFR") at the time of the borrowing and the Company’s long-term credit rating and can range from SOFR + 1.02% to SOFR + 1.525%.

Interest rates under the Revolving Credit Agreement are variable based on the Secured Overnight Financing Rate (“SOFR”) at the time of the borrowing and the Company’s long-term credit rating and can range from SOFR + 1.02% to SOFR + 1.525%.

Under the Revolving Credit Agreement, the Company is required to maintain a minimum ratio of consolidated EBITDA to consolidated interest expense of 3.0 to 1.0.

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In addition, the Company's ratio of consolidated debt minus certain cash and cash equivalents to consolidated EBITDA generally may not exceed 3.5 to 1.0.

There were no outstanding borrowings under this facility as of September 28, 2024 and December 30, 2023.

As of September 28, 2024, we were in compliance with all covenants under this facility.

We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $30.5 million in aggregate as of September 28, 2024 and December 30, 2023.

There were no outstanding balances as of September 28, 2024 and December 30, 2023.

On March 29, 2025 and December 28, 2024, there were no outstanding borrowings under this facility.

As of March 29, 2025, we were in compliance with all covenants under this facility.

We currently have uncommitted bank lines of credit in China, which provide for unsecured borrowings for working capital of up to $30.5 million in aggregate as of March 29, 2025 and December 28, 2024, respectively.

There were no outstanding balances as of March 29, 2025 and December 28, 2024.

Commercial Paper

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Amounts available under the Commercial Paper Program may be borrowed, repaid and re-borrowed, with the aggregate principal amount outstanding at any time, including borrowings under the Revolving Credit Agreement, not to exceed $1.25 billion.

The Company will use any issuances under the Commercial Paper Program

for general corporate purposes.

Outstanding borrowings under the Commercial Paper Program as of September 28, 2024 and December 30, 2023 were $104.7 million and zero, respectively.

The Company expects to use any issuances under the Commercial Paper Program for general corporate purposes.

Outstanding borrowings under the Commercial Paper Program as of March 29, 2025 and December 28, 2024 were $279.4 million and zero, respectively.

Cash and Seasonality

On September 28, 2024, we had cash and cash equivalents of $344.8 million, of which $314.9 million was held at non-U.S.

On March 29, 2025, we had non-restricted cash and cash equivalents of $340.0 million, of which $306.0 million was held at non-U.S.

subsidiaries.

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We typically generate most of our operating cash flow in the third and fourth fiscal quarters of each year.

We believe that our current cash position, cash flow generated from operations, and amounts available under our revolving credit facility should be sufficient for our operating requirements and enable us to fund our capital expenditures 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.

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

Share Repurchases and Dividends

On January 29, 2024, the Company's Board of Directors authorized the repurchase of up to $650 million of shares of the Company’s outstanding common stock over the next two years on the open market or in privately negotiated transactions or otherwise (including pursuant to a Rule 10b5-1 trading plan, block trades and accelerated share repurchase transactions), in accordance with applicable securities laws.

In the first thirty-nine weeks of 2024, we repurchased 2.6 million shares of our outstanding common stock under the Company’s share repurchase program for $190.4 million.

As of September 28, 2024, the Company’s total remaining share repurchase authorization under its share repurchase program was approximately $534 million.

On February 6, 2025, the Company announced that on February 4, 2025, the Company's Board of Directors authorized the repurchase of up to $1 billion of shares of the Company’s outstanding common stock over the next two years on the open market or in privately negotiated transactions or otherwise (including pursuant to a Rule 10b5-1 trading plan, block trades and accelerated share repurchase transactions), which share repurchase authorization will expire on February 4, 2027, in accordance with applicable securities laws.

The $1 billion share repurchase authorization replaced the then existing authorization, effective on February 4, 2025, that otherwise would have expired on January 29, 2026.

In the thirteen weeks ended March 29, 2025, we repurchased 2.6 million shares of our outstanding common stock under the Company’s share repurchase program for $175.0 million.

As of March 29, 2025, the Company’s total remaining share repurchase authorization under its share repurchase program was approximately $900.0 million.

The share repurchase program does not obligate the Company to repurchase any specific dollar amount or number of shares and may be suspended or discontinued at any time.

In the first thirty-nine weeks of 2024, we paid dividends in the amount of $90.0 million to the Company’s stockholders.

In the thirteen weeks ended March 29, 2025, we paid dividends in the amount of $30.5 million to the Company’s stockholders.

Our Board of Directors will continue to evaluate dividend payment opportunities on a quarterly basis.

There can be no assurance as to when and if future dividends will be paid, and at what level, because the payment of dividends is dependent on our financial condition, results of operations, cash flows, capital requirements and other factors deemed relevant by our Board of Directors.

There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Fortune Brands.

On February 29, 2024, we acquired 100% of the outstanding equity of SpringWell for a purchase price of $105.6 million, subject to post-closing adjustments, net of cash acquired of $1.4 million.

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 29, 2024, we acquired 100% of the outstanding equity interests of Wise Water Solutions, LLC, doing business as Springwell Water Filtration Systems ("SpringWell") for a purchase price of $105.6 million, net of cash acquired of $1.4 million.

We financed the transaction using cash on hand and borrowings under our existing credit facility.

The results of SpringWell are reported as part of the Water segment.

The results of SpringWell are reported as part of the Water Innovations ("Water") segment.

We have not included pro forma financial information as the transaction is immaterial to our condensed consolidated statements of comprehensive income.

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Goodwill includes expected sales and cost synergies and is expected to be deductible for income tax purposes.

In June 2023, we acquired the Acquired Businesses from ASSA.

The Company completed the acquisition for a total purchase price of approximately $813.9 million, net of cash acquired of $21.9 million.

We financed the transaction with cash on hand.

The results of the Emtek and Schaub Business are reported as part of the Water segment and the results of the Yale and August Business are reported as part of the Security segment.

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

Below is a summary of cash flows for the thirty-nine weeks ended September 28, 2024 and September 30, 2023.

Below is a summary of cash flows for the thirteen weeks ended March 29, 2025 and the thirteen weeks ended March 30, 2024.

'(In millions)

Thirty-Nine Weeks Ended September 28, 2024

Thirty-Nine Weeks Ended September 30, 2023

Net cash provided by operating activities

Thirteen Weeks Ended March 29, 2025

Thirteen Weeks Ended March 30, 2024

Net cash used in operating activities

Net cash used in investing activities

Net cash used in financing activities

Net cash provided by financing activities

Effect of foreign exchange rate changes on cash

Net decrease in cash and cash equivalents

Net cash provided by operating activities was $395.5 million in the thirty-nine weeks ended September 28, 2024, compared to net cash provided by operating activities of $835.6 million in the thirty-nine weeks ended September 30, 2023.

The decrease in cash provided by operating activities of $440.1 million was primarily due to an increase in inventory balances compared to the prior period as result of our 2023 initiative to decrease inventory balances to align with the U.S.

home product market activity, as well as a decrease in accounts payable.

The $84.2 million settlement of our interest rate swaps in 2023 and decreased accrued expenses and other liabilities also contributed to the decrease in cash provided by operating activities.

The decrease in cash provided by operating activities was partially offset by higher net income in 2024.

Net cash used in investing activities was $258.7 million in the thirty-nine weeks ended September 28, 2024, compared to net cash used in investing activities of $957.0 million in the thirty-nine weeks ended September 30, 2023.

The decrease in cash used investing activities of $698.3 million reflects the acquisition of the Acquired Businesses for approximately $800 million in June 2023 as compared to the acquisition of SpringWell for $105.6 million in 2024, as well as a decrease in capital expenditures of $42.6 million.

Net cash used in financing activities was $183.1 million in the thirty-nine weeks ended September 28, 2024, compared to cash used in financing activities of $60.6 million in the thirty-nine weeks ended September 30, 2023.

The increase in cash used in financing activities of $122.5 million was primarily due to higher share repurchases in 2024 as compared to 2023 ($70.3 million) and lower net borrowings in 2024 as compared to 2023 ($50.1 million).

Net cash used in operating activities was $83.4 million in the thirteen weeks ended March 29, 2025, compared to net cash used in operating activities of $71.3 million in the thirteen weeks ended March 30, 2024.

The increase in cash used of $12.1 million was primarily due to lower net income and changes in working capital items (primarily accounts receivable, inventories and accounts payable) as well as changes in accrued expenses and accrued taxes.

Net cash used in investing activities was $29.2 million in the thirteen weeks ended March 29, 2025, compared to net cash used in investing activities of $169.8 million in the thirteen weeks ended March 30, 2024.

The decrease in cash used of $140.6 million reflects the cash used in the SpringWell acquisition in February 2024 ($105.2 million) as well as a decrease in capital expenditures.

Net cash provided by financing activities was $68.0 million in the thirteen weeks ended March 29, 2025, compared to net cash provided by financing activities of $238.7 million in the thirteen weeks ended March 30, 2024.

The decrease in cash provided of $170.7 million was primarily due to lower net borrowings under our commercial paper program as well as higher shares repurchases in 2025 as compared to 2024.

Pension Plans

Subsidiaries of Fortune Brands sponsor their respective defined benefit pension plans that are funded by a portfolio of investments maintained within our benefit plan trust.

As of December 30, 2023, the fair value of our total pension plan assets was $468.0 million, representing funding of about 96% of the accumulated benefit obligation liability.

During the thirty-nine weeks ended September 28, 2024, we made no pension contributions.

As of December 28, 2024, the fair value of our total pension plan assets was $177.1 million, representing funding of approximately 95% of the accumulated qualified benefit obligation liability.

During the thirteen weeks ended March 29, 2025, we made no pension contributions.

For the foreseeable future, we believe that we have sufficient liquidity to meet the minimum funding that may be required by the Pension Protection Act of 2006.

Refer to Note 18, "Subsequent Events," in Item 1 for a discussion of the settlement of a portion of the Company's pension obligations as a part of our de-risking strategy.

Foreign Exchange

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Therefore, changes in the value of the related currencies affect our financial statements when translated into U.S.

RECENTLY ISSUED ACCOUNTING STANDARDS

Refer to Note 2, "Recently Issued Accounting Standards," in Item 1 for a discussion of recently issued accounting standards.

CRITICAL ACCOUNTING ESTIMATES

There have been no material changes in the information provided in the section entitled “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 28, 2024.

QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis