Fortune Brands Innovations, Inc. Income Taxes Disclosure
15. Income Taxes
The components of Income before income taxes was as follows:
(In millions) |
|
|
2025 |
|
|
|
2024 |
|
|
2023 |
|
|||
Domestic operations |
|
|
$ |
330.2 |
|
|
|
$ |
518.8 |
|
|
$ |
418.1 |
|
Foreign operations |
|
|
|
74.8 |
|
|
|
|
86.7 |
|
|
|
99.8 |
|
Income before income taxes |
|
|
$ |
405.0 |
|
|
|
$ |
605.5 |
|
|
$ |
517.9 |
|
Income tax expense in the Consolidated Statement of Income consisted of the following:
(In millions) |
|
|
2025 |
|
|
|
2024 |
|
|
2023 |
|
|||
Current |
|
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
$ |
25.0 |
|
|
|
$ |
97.3 |
|
|
$ |
86.9 |
|
Foreign |
|
|
|
37.0 |
|
|
|
|
20.7 |
|
|
|
38.3 |
|
State and other |
|
|
|
10.4 |
|
|
|
|
15.6 |
|
|
|
15.2 |
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
|
35.2 |
|
|
|
|
1.4 |
|
|
|
(21.2 |
) |
Foreign |
|
|
|
(4.6 |
) |
|
|
|
0.2 |
|
|
|
(3.5 |
) |
State and Local |
|
|
|
3.2 |
|
|
|
|
(1.6 |
) |
|
|
(3.3 |
) |
Total income tax expense |
|
|
$ |
106.2 |
|
|
|
$ |
133.6 |
|
|
$ |
112.4 |
|
The Company adopted ASU 2023-09 “Income Taxes: Improvement to Income Tax Disclosures” on a prospective basis beginning with the year ended December 27, 2025. The following table is the required disclosure pursuant to ASU 2023-09 and is a reconciliation between the federal statutory tax rate and the effective tax rate.
(In millions) |
|
|
2025 |
|
|||||
|
|
|
Amount |
|
|
Percentage |
|
||
U.S. federal statutory tax rate |
|
|
$ |
85.1 |
|
|
|
21.0 |
% |
State and local income taxes, net of federal effect (1) |
|
|
|
16.5 |
|
|
|
4.1 |
|
Foreign Tax Effects |
|
|
|
|
|
|
|
||
China withholding tax |
|
|
|
11.4 |
|
|
|
2.8 |
|
Other foreign jurisdictions |
|
|
|
3.9 |
|
|
|
1.0 |
|
Effects of cross-border tax laws |
|
|
|
(6.1 |
) |
|
|
(1.5 |
) |
Tax credits |
|
|
|
(2.7 |
) |
|
|
(0.7 |
) |
Valuation allowance increase |
|
|
|
1.3 |
|
|
|
0.3 |
|
Nontaxable or nondeductible items |
|
|
|
4.3 |
|
|
|
1.1 |
|
Changes in unrecognized tax benefits |
|
|
|
(6.1 |
) |
|
|
(1.5 |
) |
Other |
|
|
|
(1.4 |
) |
|
|
(0.4 |
) |
Income tax expense as reported |
|
|
$ |
106.2 |
|
|
|
26.2 |
% |
(1) State taxes in California, Pennsylvania, Florida, Texas, and Wisconsin made up the majority (greater than 50%) of the Company’s State and local income taxes.
The following table is the required reconciliation between the federal statutory tax rate and the effective tax rate prior to the adoption of ASU 2023-09.
(In millions) |
|
|
2024 |
|
|
2023 |
|
||
Income tax expense computed at federal statutory income tax rate |
|
|
$ |
127.2 |
|
|
$ |
108.8 |
|
State and local income taxes, net of federal tax benefit |
|
|
|
18.9 |
|
|
|
13.2 |
|
Foreign taxes at a different rate than U.S. federal statutory income tax rate |
|
|
|
4.6 |
|
|
|
5.2 |
|
Net adjustments for uncertain tax positions |
|
|
|
(4.7 |
) |
|
|
(8.0 |
) |
Share-based compensation |
|
|
|
(2.0 |
) |
|
|
(1.3 |
) |
Valuation allowance (decrease) increase |
|
|
|
(7.8 |
) |
|
|
1.7 |
|
Non-deductible executive compensation |
|
|
|
3.9 |
|
|
|
3.5 |
|
Research and development credit |
|
|
|
(4.4 |
) |
|
|
(5.1 |
) |
Miscellaneous other, net |
|
|
|
(2.1 |
) |
|
|
(5.6 |
) |
Income tax expense as reported |
|
|
$ |
133.6 |
|
|
$ |
112.4 |
|
Effective income tax rate |
|
|
|
22.1 |
% |
|
|
21.7 |
% |
The 2025 effective income tax rate was unfavorably impacted by state and local income taxes and dividend withholding tax, partially offset by decreases in uncertain tax positions.
The 2024 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, partially offset by favorable benefits related to a valuation allowance release and decreases in uncertain tax positions and tax credits.
The 2023 effective income tax rate was unfavorably impacted by state and local income taxes and foreign income taxed at higher rates. This expense was offset by favorable benefits for the release of uncertain tax positions due to statute of limitations lapses and federal tax credits.
A reconciliation of the beginning and ending amount of unrecognized tax benefits (“UTBs”) is as follows:
(In millions) |
|
|
2025 |
|
|
|
2024 |
|
|
2023 |
|
|||
Unrecognized tax benefits—beginning of year |
|
|
$ |
25.2 |
|
|
|
$ |
25.6 |
|
|
$ |
33.4 |
|
Gross additions—current year tax positions |
|
|
|
1.9 |
|
|
|
|
1.9 |
|
|
|
2.1 |
|
Gross additions—prior year tax positions |
|
|
|
0.3 |
|
|
|
|
5.7 |
|
|
|
0.2 |
|
Gross reductions—prior year tax positions |
|
|
|
(6.3 |
) |
|
|
|
(8.0 |
) |
|
|
(10.1 |
) |
Gross reductions—settlements with taxing authorities |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
Unrecognized tax benefits—end of year |
|
|
$ |
21.1 |
|
|
|
$ |
25.2 |
|
|
$ |
25.6 |
|
The amount of UTBs that, if recognized as of December 27, 2025, would affect the Company’s effective tax rate is $21.1 million.
The Company classifies interest and penalty accruals related to UTBs as income tax expense. In 2025, the Company recognized an interest and penalty benefit of $1.9 million. In 2024 and 2023, the Company recognized an interest and penalty benefit of approximately $1.6 million and a $1.2 million expense, respectively.
The Company files income tax returns in the U.S., various state, and foreign jurisdictions. The Company is currently under audit by the U.S. Internal Revenue Service (IRS) for 2022 and 2023 and is generally subject to examination by the IRS for years 2022 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 2020, Mexico for years after 2019, and China for years after 2019.
The components of net deferred tax assets (liabilities) as of December 27, 2025 and December 28, 2024 were as follows:
(In millions) |
|
|
2025 |
|
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
|
|
||
Compensation and benefits |
|
|
$ |
20.4 |
|
|
|
$ |
27.2 |
|
Defined benefit plans |
|
|
|
7.3 |
|
|
|
|
7.7 |
|
Capitalized inventories |
|
|
|
26.7 |
|
|
|
|
18.1 |
|
Capitalized research and development costs |
|
|
|
31.0 |
|
|
|
|
54.0 |
|
Accounts receivable |
|
|
|
3.7 |
|
|
|
|
6.5 |
|
Operating lease liabilities |
|
|
|
65.1 |
|
|
|
|
37.7 |
|
Other accrued expenses |
|
|
|
42.0 |
|
|
|
|
35.8 |
|
Net operating loss and other tax carryforwards |
|
|
|
33.6 |
|
|
|
|
29.1 |
|
Miscellaneous |
|
|
|
7.3 |
|
|
|
|
7.8 |
|
Total deferred tax assets |
|
|
|
237.1 |
|
|
|
|
223.9 |
|
Less: valuation allowance |
|
|
|
(9.6 |
) |
|
|
|
(8.0 |
) |
Deferred tax assets, net of valuation allowance |
|
|
|
227.5 |
|
|
|
|
215.9 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
||
Fixed assets |
|
|
|
(82.2 |
) |
|
|
|
(81.3 |
) |
Intangible assets |
|
|
|
(184.2 |
) |
|
|
|
(163.5 |
) |
Operating lease assets |
|
|
|
(61.9 |
) |
|
|
|
(36.4 |
) |
Other investments |
|
|
|
(20.0 |
) |
|
|
|
(24.8 |
) |
Miscellaneous |
|
|
|
(6.2 |
) |
|
|
|
(7.9 |
) |
Total deferred tax liabilities |
|
|
|
(354.5 |
) |
|
|
|
(313.9 |
) |
Net deferred tax liability |
|
|
$ |
(127.0 |
) |
|
|
$ |
(98.0 |
) |
In accordance with ASC requirements for Income Taxes, deferred taxes were classified in the Consolidated Balance Sheets as of December 27, 2025 and December 28, 2024 as follows:
(In millions) |
|
|
2025 |
|
|
|
2024 |
|
||
Other assets |
|
|
$ |
19.9 |
|
|
|
$ |
19.4 |
|
Deferred income taxes |
|
|
|
(146.9 |
) |
|
|
|
(117.4 |
) |
Net deferred tax liability |
|
|
$ |
(127.0 |
) |
|
|
$ |
(98.0 |
) |
As of December 27, 2025 and December 28, 2024, the Company had deferred tax assets related to net operating losses and other tax carryforwards of $33.6 million and $29.1 million, respectively. Approximately $4.6 million expires between 2026 and 2030, and the remainder will expire in 2031 and thereafter.
The Company has provided a valuation allowance to reduce the carrying value of certain deferred tax assets. The valuation allowance is $9.6 million in 2025 and $8.0 million in 2024. 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 the deemed repatriation tax and therefore should not be subject to additional U.S. federal income tax upon an actual repatriation of these earnings. As of December 27, 2025, the Company has recorded an estimated deferred tax liability of $1.0 million, primarily related to taxes that will be payable upon distribution of these earnings. The liability also reflects the reversal of a prior indefinite reinvestment assertion with respect to one of the Company’s foreign subsidiaries.
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. The amount of unrecognized deferred tax liabilities associated with local country withholding taxes on the unremitted earnings of these indefinitely reinvested foreign subsidiaries is $6.4 million.
ASU 2023-09, which the Company adopted prospectively for the year ended December 27, 2025, requires the disclosure of income taxes paid (net of refunds received) as follows:
(In millions) |
|
|
2025 |
|
|
U.S. federal |
|
|
$ |
31.5 |
|
U.S. state and local |
|
|
|
14.8 |
|
Foreign |
|
|
|
|
|
Canada |
|
|
|
13.4 |
|
China |
|
|
|
14.9 |
|
All other foreign |
|
|
|
4.4 |
|
Total |
|
|
$ |
79.0 |
|
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 23, 2026 | Showing above |
| 2024 | Feb 25, 2025 | |
| 2023 | Feb 27, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 26, 2020 | |
| 2018 | Feb 25, 2019 | |
| 2017 | Feb 28, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 25, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.