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What changed in MasterBrand, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MasterBrand, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+329 added−390 removedSource: 10-K (2024-02-27) vs 10-K (2023-03-10)

Top changes in MasterBrand, Inc.'s 2023 10-K

329 paragraphs added · 390 removed · 248 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeWe reserve for remediation activities to clean up potential environmental liabilities as required by federal and state laws based on our best estimate of undiscounted future costs, excluding possible insurance recoveries or recoveries from other third parties. There were no material environmental accruals for the years ended December 25, 2022 and December 26, 2021.
Biggest changeWe support NFF’s campaign to plant 50 million trees across national forests by the end of 2025, of which, the NFF has planted 32.9 million trees as of December 31, 2023. 5 Table of Contents We reserve for remediation activities to clean up potential environmental liabilities as required by federal and state laws based on our best estimate of undiscounted future costs, excluding possible insurance recoveries or recoveries from other third parties.
Based on foundational lean tools, The MasterBrand Way enables our associates across all locations and levels of work to operate under common frameworks and consistent lexicon to effectively develop cross-functional solutions to complex business issues. The MasterBrand Way organizes these proven lean tools around three guiding principles: The Four Basics, Continuous Improvement and Associate Engagement.
Based on foundational lean tools, The MasterBrand Way enables our associates across all locations and levels of work to operate under common frameworks and a consistent lexicon to effectively develop cross-functional solutions to complex business issues. The MasterBrand Way organizes these proven lean tools around three guiding principles: The Four Basics, Continuous Improvement and Associate Engagement.
This helps drive our best-in-class programs designed to reinforce positive behaviors, to empower our associates 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.
This team helps drive our best-in-class programs designed to reinforce positive behaviors, to empower our associates 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.
Further, our decades of experience have informed how we use global geographies to optimize procurement and manufacturing costs. Finally, with the most extensive dealer network throughout the United States and Canada, we have an advantaged distribution model that cannot be easily replicated.
Further, our decades of experience have informed how we use global geographies to optimize procurement and manufacturing costs. Finally, with the most extensive dealer network throughout the United States and Canada, we have an advantaged distribution model that we believe cannot be easily replicated.
In addition, we believe there is ongoing potential in the e-commerce channel for cabinets and vanities. We believe there is opportunity for us to expand in this channel, through known large e-commerce platforms, our existing retailers’ websites, digital native specialized e-tailors or direct-to-consumer opportunities.
In addition, we believe there is ongoing potential in the e-commerce channel for cabinets and vanities. We believe there is opportunity for us to expand in this channel, through commonly known large e-commerce platforms, our existing retailers’ websites, digital native specialized e-tailors or direct-to-consumer opportunities.
In addition, we are actively growing our presence in the emerging cabinets e-commerce channel, including through our channel partners’ online presence, and are actively partnering with leading players to develop continuing opportunities to penetrate and innovate in this exciting category.
In addition, we are actively growing our presence in the emerging cabinets e-commerce channel, including through our retail channel partners’ online presence, and are actively partnering with leading players to develop continuing opportunities to penetrate and innovate in this exciting category.
Channels Our products are sold throughout the United States and Canada to the remodeling and new construction markets through three primary channels: dealers, retailers and builders. 1.
Channels Our products are sold primarily throughout the United States and Canada to the remodeling and new construction markets through three primary channels: Dealers, Retailers and Builders. 1.
We are focused on reducing complexity that consumers do not notice or value, without reducing the variety of choices available. Our ability to reduce complexity in our product offering, and move to common platforms, enables us to simplify our manufacturing processes as well. Common platforms across plants and standard work allows us to drive supply chain efficiencies.
We are focused on reducing complexity that consumers do not notice or value, without reducing the variety of choices available. Our ability to reduce complexity in our product offering, and move to common platforms, enables us to simplify our manufacturing processes as well. Common platforms across plants and standard work allow us to drive supply chain efficiencies.
Align to Grow – Deliver on the unique needs of each customer As an organization that historically grew through acquisitions, processes across the disparate acquired companies was inherently different. We believe we have further opportunities to both commercially and operationally align our business to reduce complexity in our product offering to customers.
Align to Grow – Deliver on the unique needs of each customer As an organization that historically grew through acquisitions, processes across the disparate acquired companies were inherently different. We believe we have further opportunities to both commercially and operationally align our business to reduce complexity in our product offering to customers.
The information contained on or accessible through the Company’s website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered a part of this report. 6 Table of Contents
The information contained on or accessible through the Company’s website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered a part of this report. 8 Table of Contents
The importance of human capital, specifically the ability to attract, retain and develop associates, has become more 2 Table of Contents apparent in a post-pandemic world. Through weekly kaizen events across our manufacturing facilities and offices, we provide the individuals closest to our business problems with the training and tools required to fix these issues.
The importance of human capital, specifically the ability to attract, retain and develop associates, has become more apparent in a post-pandemic world. Through weekly kaizen events across our manufacturing facilities and offices, we provide the individuals closest to our business problems with the training and tools required to fix these issues.
We believe these factors will allow us to deliver on the unique needs of each customer and in the most efficient way possible. Lead Through Lean – Engage teams and foster problem-solving The MasterBrand Way and the associated lean tools not only drive efficiencies, but engage our associates in the process.
We believe these factors will allow us to deliver on the unique needs of each customer and in the most efficient way possible. 3 Table of Contents Lead Through Lean – Engage teams and foster problem-solving The MasterBrand Way and the associated lean tools not only drive efficiencies, but engage our associates in the process.
Item 1. Business MasterBrand, Inc. (“we,” “us,” “our,” “MasterBrand” or the “Company”) was founded nearly 70 years ago in 1954 under the name United Cabinet Incorporated. We are the largest manufacturer of residential cabinets in North America, based on 2021 net sales.
Item 1. Business MasterBrand, Inc. (“we,” “us,” “our,” “MasterBrand” or the “Company”) was founded nearly 70 years ago in 1954 under the name United Cabinet Incorporated. We are the largest manufacturer of residential cabinets in North America, based on 2022 reported net sales.
Products We offer a comprehensive portfolio of leading residential cabinetry products for the kitchen, bathroom and other parts of the home. Our products are available in a wide variety of designs, finishes and styles and span the most attractive 3 Table of Contents categories of the cabinets market: stock, semi-custom and premium cabinetry.
Products We offer a comprehensive portfolio of leading residential cabinetry products for the kitchen, bathroom and other parts of the home. Our products are available in a wide variety of designs, finishes and styles and span the most attractive categories of the cabinets market: stock, semi-custom and premium cabinetry.
Our disciplined deployment of these tools in recent years drove our strategic transformation and improvements in commercial and operational efficiency. To derive further efficiencies, we added three incremental initiatives to The MasterBrand Way: Align to Grow, Lead Through Lean and Tech Enabled.
Our disciplined deployment of these tools in recent years has driven our strategic transformation and improvements in commercial and operational efficiency. To derive further efficiencies, we added three incremental initiatives to The MasterBrand Way: Align to Grow, Lead Through Lean and Tech Enabled.
Customers Our business competes based on quality, price, service and responsiveness to dealer, retailer and builder needs, as well as end-user consumer preferences. Our markets are very competitive. Lowe’s Companies, Inc. (“Lowe’s”) comprised approximately 20 percent and 18 percent of our net sales for our 2022 and 2021 fiscal years, respectively. The Home Depot, Inc.
Customers Our business competes based on quality, price, service and responsiveness to dealer, retailer and builder needs, as well as end-user consumer preferences. Our markets are very competitive. Lowe’s Companies, Inc. (“Lowe’s”) comprised approximately 21 percent and 20 percent of our net sales for our 2023 and 2022 fiscal years, respectively. The Home Depot, Inc.
Through empowering associates to remedy issues locally, it fosters problem-solving and enhances our culture of continuous improvement. Beyond improved engagement and retention, we are able to witness leadership amongst our associates and develop internal talent. As opportunities present themselves across the organization, we are positioned to staff these roles internally.
Through empowering associates to remedy issues locally, the MasterBrand Way fosters problem-solving and enhances our culture of continuous improvement. Beyond improved engagement and retention, we are able to witness leadership among our associates and develop internal talent. As opportunities present themselves across the organization, we are positioned to staff these roles internally.
For our 2022 fiscal year, our TRIR was 1.04, compared to 1.10 for our 2021 fiscal year, and our LTR was 0.26 for our 2022 fiscal year, compared to 0.34 for our 2021 fiscal year. Our safety focus is also demonstrated by comparing our TRIR and LTR to the Bureau of Labor Statistics (“BLS”) industry averages.
For our 2023 fiscal year, our TRIR was 0.84, compared to 1.04 for our 2022 fiscal year, and our LTR was 0.18 for our 2023 fiscal year, compared to 0.26 for our 2022 fiscal year. Our safety focus is also demonstrated by comparing our TRIR and LTR to the Bureau of Labor Statistics (“BLS”) industry averages.
Available Information The Company makes available free of charge, on or through its website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the U.S.
These obligations include debt service and obligations to trade creditors, among others. 7 Table of Contents Available Information The Company makes available free of charge, on or through its website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after it electronically files such material with, or furnishes it to, the U.S.
During 2022, compliance with the applicable regulations did not have a material effect on our capital expenditures, earnings, or competitive position. 4 Table of Contents Human Capital Resources As of December 25, 2022, we had more than 13,000 full-time and part-time associates (excluding contract workers).
During 2023, compliance with the applicable regulations did not have a material effect on our capital expenditures, earnings, or competitive position. Human Capital Resources As of December 31, 2023, we had more than 12,000 full-time and part-time associates (excluding contract workers).
We are committed to increasing representation of professionals of color and women through hiring and promoting the right talent, ensuring an inclusive culture through proactive programs, business practices and education and by demonstrating support for equality in our communities through outreach and investment.
We are committed to increasing the representation of professionals of color and women through building and developing robust talent pools, ensuring an inclusive, team-based culture through proactive programs, business practices and education, and by demonstrating support for equality in our communities through outreach and investment.
In addition, as a holding company, the source of our unconsolidated revenues and funds is dividends and other payments from subsidiaries. Our subsidiaries have financial obligations that must be satisfied before funding us. These obligations include debt service and obligations to trade creditors, among others.
In addition, as a holding company, the source of our unconsolidated revenues and funds is dividends and other payments from subsidiaries. Our subsidiaries have financial obligations that must be satisfied before funding us.
Approximately 83 percent of our workforce is composed of hourly production and distribution associates and the remaining population is composed of associates in administrative roles. As of December 25, 2022, approximately 33 percent of our associates worked under collective bargaining agreements.
Approximately 82 percent of our workforce is composed of hourly production and distribution associates and the remaining population is comprised of associates in administrative roles. As of December 31, 2023, approximately 37 percent of our associates worked under collective bargaining agreements.
(“The Home Depot”) comprised approximately 17 percent and 18 percent of our net sales for our 2022 and 2021 fiscal years, respectively. Approximately 6 percent of our net sales for both of our 2022 and 2021 fiscal years were to international markets.
(“The Home Depot”) comprised approximately 16 percent and 17 percent of our net sales for our 2023 and 2022 fiscal years, respectively. Net sales to international markets represented approximately 5 percent and 6 percent for our 2023 and 2022 fiscal years, respectively.
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. We use performance management programs to support a high-performance culture, strengthening our associate engagement and helping to retain our top talent.
We invest heavily in goal setting to create clarity and alignment and use performance management programs to support this high-performance culture. We understand that our most critical roles serve as points of leverage to deliver value, and we place our best people in those roles, while attracting new talent and capabilities in support of continuous improvement in all we do.
Our Employee Safety & Environmental Policies set standards for how we maintain a safe work environment and guides our business operations. We also have an Environmental, Health & Safety Leadership team comprised of representatives from across our operations that share best practices and are responsible for driving environmental, health and safety strategy.
We also have an Environmental, Health & Safety Leadership team comprised of representatives from across our operations that share best practices and are responsible for driving environmental, health and safety strategy.
We build associate opportunity, purpose, and reward into everything we do creating a culture where our associates can thrive. We invest in our teams and develop our associates to become the next generation of leaders who seek out a continuous improvement mindset in all aspects of our business to unlock our full potential.
We invest in our teams and develop our associates to become the next generation of leaders who seek out a continuous improvement mindset in all aspects of our business to unlock our full potential.
Creating a Culture of DEI We continue to take measured actions that create an inclusive culture and diverse workforce, increase representation and celebrate our diverse team of associates and experiences. We believe that attracting and engaging talented and diverse associates enables us to be more innovative, responsive to consumer needs and deliver strong performance and growth.
Creating an Inclusive, Team-Based Culture We value fostering an inclusive, team-based culture and celebrate our diverse team of associates and experiences. We believe attracting and engaging talented and diverse associates enables us to be more innovative, responsive to consumer needs and deliver strong performance and growth.
Governmental Regulations We are subject to a wide variety of local, state, and federal laws and regulations in the countries where we conduct business.
Governmental Regulations We are subject to a wide variety of local, state, and federal laws and regulations in the countries where we conduct business. These laws and regulations often require the dedication of time and effort of associates, as well as financial resources.
Below is a summary of the number of associates by role as of December 25, 2022: Production and Distribution Office Total 11,392 2,262 13,654 We are a values-based organization and believe our strong culture is a true differentiator.
Below is a summary of the number of associates by role as of December 31, 2023: Production and Distribution Office Total 10,055 2,252 12,307 We are a values-based organization and believe our strong culture is a true differentiator. We are guided by our purpose of building great experiences together.
Attracting and Retaining Superior Talent To attract and retain superior talent at all levels of our Company, we have designed our offerings to be competitive and are seen as a community leader where our associates live and work.
For our 2023 fiscal year, our TRIR and LTR were below the 2022 BLS industry averages of 3.3 and 1.3, respectively. 6 Table of Contents Attracting and Retaining Superior Talent To attract and retain superior talent at all levels of our Company, we have designed our offerings to be competitive and are seen as a leader in the communities where our associates live and work.
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, wellness and associate assistance services.
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, wellness and associate assistance services. In 2023, we strengthened inclusivity in our benefit offerings by providing enhanced parental support from fertility through post-partum for our U.S. associates.
We also make 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.
We make a significant investment in assessing our talent against our human capital needs 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. Legal Structure MasterBrand, Inc. is a holding company that was initially organized as a Delaware corporation in July 2022.
Although we rely on certain patents and patent groups that provide important protections to us, no single patent or patent group is material to our business as a whole. Seasonality We traditionally experience lower sales in the first quarter of the year when new home construction and R&R activity are at their lowest.
Although we rely on certain patents and patent groups that provide important protections to us, no single patent or patent group is material to our business as a whole. Seasonality There is year-round demand for our products.
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 endeavor to be a leader in environmental compliance and sustainability. Since 2018, we have partnered with the National Forest Foundation (“NFF”) tree planting campaign. NFF works with U.S.
Environmental Matters We endeavor to be a leader in environmental compliance and sustainability. Since 2018, we have partnered with the National Forest Foundation (“NFF”) tree planting campaign. NFF works with U.S. Forest Service to promote the health and public enjoyment of our 193-million-acre National Forest System.
We also endeavor to create a best place to work environment that keeps our associates safe, values their unique experiences and perspectives and fosters a culture of collaboration and belonging. We do this through the programs summarized below, and the objectives and related risks of each are overseen by our Board of Directors or its committees.
We also endeavor to create a best place to work environment that keeps our associates safe, values their unique experiences and perspectives and fosters a culture of ethical behavior, transparency, honesty, business integrity, collaboration and belonging.
Retailers : We serve the top retailers in North America and have developed strong and lasting partnerships with them, as a result of our category management and commitment to best-in-class execution. 3. Builders : We strategically partner with the industry’s best and most profitable builders for single-family construction.
Our extensive dealer network allows us to have exceptional market reach and the ability to target key growth markets . 2. Retailers : We serve a variety of retailers, including the top continental retailers in North America, and have developed strong and lasting partnerships with them as a result of our deliberate category management and commitment to best-in-class execution.
Dealers : We have built the industry’s largest and, we believe, strongest network, with well-established relationships with over 4,500 cabinet dealers across the United States and Canada, many with whom we have worked for decades.
Dealers : We built the industry’s largest and, we believe, strongest network, with well-established relationships with over 4,400 cabinet dealers across the United States and Canada, many of whom have been partners for decades. Our dealers cover a wide spectrum of the market. Some specialize in remodeling, while others provide regional service to a variety of new construction home builders.
Health and Safety Safety is a critical element to our growth strategy, integral to our 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.
This is reflected in our goal of zero safety incidents and through our efforts to create an injury-free workplace. Our Employee Safety & Environmental Policies set standards for how we maintain a safe work environment and guide our business operations.
As of December 25, 2022, our worldwide 5 Table of Contents workforce was composed of approximately 37 percent women, while our workforce in the U.S. and Canada was composed of approximately 33 percent people of color.
As of December 31, 2023, our worldwide workforce was composed of approximately 35 percent women, while our workforce in the U.S. and Canada was composed of approximately 34 percent people of color. Our engagement pulse survey fosters our associate listening strategy, providing routine feedback and meaningful action to drive improvement in our culture and awareness of diversity, equity, and inclusion.
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Our dealers cover a wide portion of the market, with some specializing in R&R, while others provide regional service to a variety of new construction home builders. Our extensive dealer network allows us to have exceptional market reach and the ability to target key growth areas. 2.
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Retail sales occur in-store and through various emerging and established e-commerce channels, including our retail channel partners’ online presence . 4 Table of Contents 3.
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Forest Service to promote the health and public enjoyment of our 193-million-acre National Forest System. We support NFF’s campaign to plant 50 million trees across national forests.
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Builders : We strategically partner with the industry’s regional and large scale builders for single-family construction throughout North America, serving them directly or through a large distribution network, allowing us to customize our service to each builder’s expectations.
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This includes compliance with the Lacey Act, governing trade in wildlife, fish, and plants in the U.S., and the Toxic Substances Act, which relates to the production, importation, use, and disposal of specific chemicals in the U.S. Compliance with these laws and regulations often requires the dedication of time and effort of employees, as well as financial resources.
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Our relationships with our key builders and our channel partners that service them have existed for decades, and we continue to work together to penetrate new and growing single-family construction markets .
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We are guided by “The MasterBrand Way;” a cultural foundation of empowering teams to trust the process and knowledge from those closest to the work, embracing the full, diverse team of individuals and experiences, and a drive to move forward and be better every day.
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However, we traditionally experience lower sales in the first quarter of the year when new home construction and R&R activity are at their lowest. As a result of the seasonal demand pattern and associated timing of working capital fluctuations, our cash flow from operating activities is typically higher in the second half of the year.
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For our 2022 fiscal year, our TRIR and LTR were below the 2021 BLS industry averages for each of 3.4 and 1.1, respectively.
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There were no material environmental accruals for the years ended December 31, 2023 and December 25, 2022.
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In 2022, we strengthened inclusivity in our benefit offerings 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.
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We do this through The MasterBrand Way, a cultural foundation where every individual plays a role to make the team better, be bold to drive our business forward and champion improvement in all that we do.
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All managers participated in an unconscious bias learning program, which was a 3 year program completed in 2022, and we hosted several roundtable discussions to learn where we can better support underrepresented talent. Our engagement pulse survey fosters our associate listening strategy, providing routine feedback and meaningful action to drive improvement in our culture and DEI awareness.
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We build opportunity, purpose, and reward into our associate experience and create a culture where our associates can thrive and bring the full power of MasterBrand to all that we do.
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Talent Development and Succession We leverage our MasterBrand Way culture as the foundation for our talent development philosophy by empowering teams to trust the tools and learn from those closest to the work, empower each team member and move forward by equipping our associates with tools to grow and be their best every day.
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We do this through the programs summarized below, and the objectives and related risks of each are overseen by our Board of Directors or its committees. Health and Safety Safety is a critical element to our growth strategy, integral to our culture and one of our core values.
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We provide associates the tools to be successful in their current role and help them to develop the skills to build on opportunities to grow their career through career ladders and learning programs.
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Talent Development and Succession Our talent philosophy guides our talent management approach from hiring to talent development and succession planning. We believe that it is about the team, and individual success cannot be achieved without exceptional team performance.
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We provide associates with relevant skills training and provide leadership training for production and distribution associates in a supervisory role and mid-level office associates.
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We provide associates the tools to be successful in their current role and invest in front-line leader training across the organization to ensure we are developing those with the greatest impact on our associate experience. We expect high performance and raise the bar on ourselves every year.
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Succession and development plans are created and monitored to ensure progress is made along established timelines. Legal Structure MasterBrand, Inc. is a holding company that was initially organized as a Delaware corporation in July 2022.
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Our culture of making the team better, being bold and championing improvement is embedded in our performance management programs to drive alignment across teams. Finally, we know that we grow through transparency and have courageous conversations about expectations and development to ensure that we are helping each other be better every day.
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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.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeNotwithstanding the private letter ruling or opinion of counsel, the IRS could determine on audit that the Distribution or any of certain related transactions is taxable if it determines that any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the private letter ruling, or for other reasons, including as a result of certain significant changes in the stock ownership of Fortune Brands or us after the Distribution. 20 Table of Contents If the Distribution were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Code, each stockholder that is subject to U.S. federal income tax who received our common stock in the Distribution would generally be treated as having received a distribution in an amount equal to the fair market value of our common stock received, which would generally result in: (1) a taxable dividend to such stockholder to the extent of that such stockholder’s pro rata share of Fortune Brand’s current or accumulated earnings and profits; (2) a reduction in such stockholder’s basis (but not below zero) in Fortune Brand common stock to the extent the amount received exceeds the stockholder’s share of Fortune Brand’s earnings and profits; and (3) taxable gain from the exchange of Fortune Brand common stock to the extent the amount received exceeded the sum of such stockholder’s share of Fortune Brand’s earnings and profits and such stockholder’s basis in its Fortune Brand common stock.
Biggest changeIf the Distribution were determined not to qualify for non-recognition of gain or loss under Section 355 and related provisions of the Code, each stockholder that is subject to U.S. federal income tax who received our common stock in the Distribution would generally be treated as having received a distribution in an amount equal to the fair market value of our common stock received, which would generally result in: (1) a taxable dividend to such stockholder to the extent of that such stockholder’s pro rata share of Fortune Brand’s current or accumulated earnings and profits; (2) a reduction in such stockholder’s basis (but not below zero) in Fortune Brand common stock to the extent the amount received exceeds the stockholder’s share of Fortune Brand’s earnings and profits; and (3) taxable gain from the exchange of Fortune Brand common stock to the extent the amount received exceeded the sum of such stockholder’s share of Fortune Brand’s earnings and profits and such stockholder’s basis in its Fortune Brand common stock. 20 Table of Contents We might not be able to engage in desirable strategic transactions and equity issuances following the Distribution because of certain restrictions relating to requirements for tax-free distributions.
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.
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.
After the Separation, as a standalone company, we may be unable to obtain similar arrangements to the same extent as Fortune Brands did, or on terms as favorable as those Fortune obtained. • Other significant changes may occur in our cost structure, management, financing and business operations as a result of our operation as a company separate from Fortune Brands.
After the Separation, we may be unable to obtain similar arrangements to the same extent as Fortune Brands did, or on terms as favorable as those Fortune Brands obtained. • Other significant changes may occur in our cost structure, management, financing and business operations as a result of our operation as a company separate from Fortune Brands.
However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board of Directors determines is not in our best interests or the best interests of our stockholders. Our charter contains an exclusive forum provision that may discourage lawsuits against us and our directors and officers.
These provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board of Directors determines is not in our best interests or the best interests of our stockholders. Our charter contains an exclusive forum provision that may discourage lawsuits against us and our directors and officers.
Fortune Brands has historically performed various corporate functions for us, including, but not limited to, tax administration, treasury activities, accounting, legal, ethics and compliance program administration, investor and public relations, certain governance functions, including the board of directors and related committees, internal audit and external reporting.
Fortune Brands historically performed various corporate functions for us, including, but not limited to, tax administration, treasury activities, accounting, legal, ethics and compliance program administration, investor and public relations, certain governance functions, including the board of directors and related committees, internal audit and external reporting.
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., Mexico, Canada and Asia.
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., Mexico, Canada and Southeast Asia.
Lowe’s and The Home Depot comprised approximately 37 percent and 36 percent of our net sales for our 2022 and 2021 fiscal years. We cannot guarantee that we will maintain or improve our relationships with these customers or that we will supply these customers at historical levels.
Lowe’s and The Home Depot comprised approximately 37 percent, 37 percent and 36 percent of our net sales for our 2023, 2022 and 2021 fiscal years. We cannot guarantee that we will maintain or improve our relationships with these customers or that we will supply these customers at historical levels.
This debt could potentially have important consequences to us and our debt and equity investors, including: • requiring a substantial portion of our cash flow from operations to make interest payments, which could reduce our profitability; • making it more difficult to satisfy debt service and other obligations; • if we have a credit rating, increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing; • increasing our vulnerability to adverse economic and industry conditions; • reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business; • limiting our flexibility in planning for, or reacting to, changes in our business and the industry; • placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and • limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase shares of our common stock.
This debt could potentially have important consequences to us and our debt and equity investors, including: ▪ requiring a substantial portion of our cash flow from operations to make interest and principal payments, which could reduce our profitability; ▪ making it more difficult to satisfy debt service and other obligations; ▪ if we have a credit rating, increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing; ▪ increasing our vulnerability to adverse economic and industry conditions, such as adverse interest rates; ▪ reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow our business; ▪ limiting our flexibility in planning for, or reacting to, changes in our business and the industry; ▪ placing us at a competitive disadvantage relative to our competitors that may not be as highly leveraged with debt; and ▪ limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase shares of our common stock.
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.
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, trade and tax matters and other proceedings and litigation, including class actions.
Pursuant to the Separation and Distribution Agreement and certain other agreements between Fortune Brands and us, each party agrees to indemnify the other for certain liabilities, in each case for uncapped amounts. Indemnities that we may be required to provide Fortune Brands are not subject to any cap, may be significant and could negatively impact our business.
Pursuant to the Separation and certain other agreements between Fortune Brands and us, each party agrees to indemnify the other for certain liabilities, in each case for uncapped amounts. Indemnities that we may be required to provide Fortune Brands are not subject to any cap, may be significant and could negatively impact our business.
E-commerce brings an increased number of competitors and greater pricing transparency for consumers, which could affect our results of operations and financial position. In addition, our relationships with our customers, including our retailers, may be affected if we increase the amount of business we transact in the e-commerce channel.
E-commerce brings an increased number of competitors and greater pricing transparency for consumers, which could affect our results of operations. In addition, our relationships with our customers, including our retailers, may be affected if we increase the amount of business we transact in the e-commerce channel.
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.
Although we believe that competition in our business 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.
Accordingly, we are subject to risks associated with potential disruption caused by changes in political, economic and social environments, including 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.
Accordingly, we are subject to risks associated with potential disruption caused by changes in political, economic and social environments, including civil and political unrest, illnesses declared as a public health emergency (including global pandemics such as the COVID-19 pandemic), 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.
The loss of any of our significant customers or a reduction in the quantity of products they purchase could affect our financial health. Our ten largest customers generated approximately 52 percent and 50 percent of our net sales for our 2022 and 2021 fiscal years, respectively.
The loss of any of our significant customers or a reduction in the quantity of products they purchase could affect our financial health. Our ten largest customers generated approximately 55 percent, 52 percent and 50 percent of our net sales for our 2023, 2022 and 2021 fiscal years, respectively.
If we are unable to enter into new, satisfactory labor agreements with our unionized employees upon expiration of their agreements, we could experience a significant disruption of our operations, which could cause us to be unable to deliver products to customers on a timely basis.
If we are unable to enter into new, satisfactory labor agreements with our unionized associates upon expiration of their agreements, we could experience a significant disruption of our operations, which could cause us to be unable to deliver products to customers on a timely basis.
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.
Government regulations and policies pertaining to trade agreements, health and safety (including protection of associates 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.
There are many government and industry regulatory standards focused on wood, including the Toxic Substance Control Act and the Lacey Act. In particular, there may be additional tariffs or taxes related to our imported raw materials, components and finished goods.
There are many government and industry regulatory standards focused on wood, including the Toxic Substances Control Act and the Lacey Act. In particular, there may be additional tariffs or taxes related to our imported raw materials, components and finished goods.
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.
Our success depends in part on the efforts and abilities of qualified personnel at all levels, including our senior management team and other key associates. Their motivation, skills, experience, contacts and industry knowledge significantly benefit our operations and administration.
Accordingly, these competitors may be able to produce their products at lower costs compared to the costs we incur to produce similar products. These competitors may also benefit from certain local government subsidies or other incentives which are not available to us.
Accordingly, these competitors may be able to produce their products at lower costs compared to the costs we incur to produce similar products. These competitors may also benefit from certain local government subsidies or other incentives that are not available to us.
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 affect our results of operations, cash flows and financial condition.
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 affect our results of operations, cash flows and financial condition, (“results of operations”).
Compliance with new or changed laws, regulations and other requirements, including as a part of government or industry response to climate change, may require us to alter our product designs, our manufacturing processes, our packaging or our sourcing. These compliance activities are costly and require significant management attention and resources.
Compliance with new or changed laws, regulations and other requirements, including as a part of government or industry response to climate change, may require us to alter our product designs, our manufacturing processes, our packaging or our sourcing. Existing and new compliance activities are or may be costly and require significant management attention and resources.
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 plan may become 14 Table of Contents more significant.
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 plan may become more significant.
Further, the indemnities from Fortune 19 Table of Contents Brands for our benefit may not be sufficient to protect us against the full amount of such liabilities, and Fortune Brands may not be able to fully satisfy its indemnification obligations, and we could incur operational difficulties or losses.
Further, the indemnities from Fortune Brands for our benefit may not be sufficient to protect us against the full amount of such liabilities, and Fortune Brands may not be able to fully satisfy its indemnification obligations, and we could incur operational difficulties or losses.
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 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.
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. Because our component products have few distinguishing properties from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand.
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. Because our component products have few distinguishing properties from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand.
Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors 21 Table of Contents or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due.
Fraudulent conveyances or transfers are defined to include transfers made or obligations incurred with the actual intent to hinder, delay or defraud current or future creditors or transfers made or obligations incurred for less than reasonably equivalent value when the debtor was insolvent, or that rendered the debtor insolvent, inadequately capitalized or unable to pay its debts as they become due.
In addition to complying with current requirements and known future requirements, we may be subject to new or more stringent requirements in the future. As we sell new types of products or existing products in new geographic areas or channels, we are subject to the requirements applicable to those sales.
In addition to complying with current requirements and known future requirements, we may be subject to new or more stringent requirements in the future. 16 Table of Contents As we sell new types of products or existing products in new geographic areas or channels, we are subject to the requirements applicable to those sales.
Due to the highly competitive nature of the cabinets industry and the low barriers to entry in our markets, we are continually subject to the risk of losing market share, which may adversely affect our profitability and revenue levels, as well as our results of operations, cash flows and financial condition. We also use e-commerce to sell our products.
Due to the highly competitive nature of the cabinets industry and the low barriers to entry in our markets, we are continually subject to the risk of losing market share, which may adversely affect our profitability and revenue levels, as well as our results of operations. We also use e-commerce to sell our products.
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.
Our business could be negatively impacted over the longer term if the disruptions related to global pandemics 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.
While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, 23 Table of Contents there is uncertainty as to whether other courts will enforce our federal forum provision described above.
While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our federal forum provision described above.
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.
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.
New income, sales, use, or other tax laws, treaties, statutes, rules, regulations, or court rulings could be enacted at any time, which could adversely affect our business operations and financial performance. Additionally, existing tax laws, treaties, statutes, rules, regulations, or court rulings could be interpreted, changed, modified, or applied adversely to us. The U.S.
New income, sales, use, or other tax laws, treaties, statutes, rules, regulations, interpretations, or court rulings could be enacted at any time, which could adversely affect our business operations and financial performance. Additionally, existing tax laws, treaties, statutes, rules, regulations, or court rulings could be interpreted, changed, modified, or applied adversely to us.
Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our results of operations, cash flows and financial condition.
Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could negatively affect our results of operations.
If we do not effectively and timely comply with such regulations and other requirements, our results of operations, cash flows and financial condition could be adversely affected. We may be subject to significant compliance costs, as well as liabilities under environmental, health, and safety laws and regulations.
If we do not effectively and timely comply with such regulations and other requirements, our results of operations could be adversely affected. We may be subject to significant compliance costs, as well as liabilities under environmental, health, and safety laws and regulations.
We will need to 16 Table of Contents 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.
We 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.
Additionally, there are few barriers to entry in the U.S. and Canadian cabinet markets and new competitors may enter these markets at any time. Since our competitors offer products that are similar to ours, we face significant price competition from our competitors, which tends to intensify during economic downturns.
Additionally, there are few barriers to entry in the U.S. and Canadian cabinet markets and new competitors may enter these markets at any time. Since our competitors offer products that are similar to ours, we face significant price competition from our competitors, which tends to intensify during economic downturns, such as during the recent inflationary environment.
In addition, the loss of critical suppliers, or a substantial decrease in the availability of products or components from our suppliers, could disrupt our business and may adversely affect our results of operations, cash flows and financial condition. Many of the suppliers we rely upon are located in foreign countries.
In addition, the loss of critical suppliers, or a substantial decrease in the availability of products or components from our suppliers, could disrupt our business and may adversely affect our results of operations. Many of the suppliers we rely upon are located in foreign countries.
Our historical consolidated financial statements included in this Annual Report on Form 10-K do not necessarily reflect the results of operations, cash flows and financial condition that we would have achieved as an independent, publicly-traded company during the periods presented or those that we will achieve in the future, including as a result of the following factors: • Historically, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, have been financed by Fortune Brands.
Our historical consolidated financial statements included in this Annual Report on Form 10-K do not necessarily reflect the results of operations that we would have achieved as an independent, publicly-traded company during the periods presented or those that we will achieve in the future, including as a result of the following factors: ▪ Historically, prior to Separation, our working capital requirements and capital for our general corporate purposes, including acquisitions and capital expenditures, were financed by Fortune Brands.
There can be no assurance that our efforts to assess possible third party intellectual property rights will ensure our ability to 17 Table of Contents manufacture, distribute, market or sell our products in any given country or territory.
There can be no assurance that our efforts to assess possible third party intellectual property rights will ensure our ability to manufacture, distribute, market or sell our products in any given country or territory.
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.
Any prolonged disruption in our manufacturing operations, whether due to technical or labor difficulties, continued labor shortages, transportation-related shortages, supply chain constraints, global pandemics such as 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.
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.
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 associates from acquired companies; implementing and maintaining consistent standards, controls, policies and information systems; incurrence of acquisition and integration costs and diversion of management’s attention from other business and strategic matters.
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.
Potential liabilities and costs from claims and litigation could adversely affect our results of operations. We are, from time to time, involved in various claims, litigation matters, audits and regulatory proceedings that arise in the ordinary course of our business and that could have an adverse effect on us.
In addition, the diversification of our revenues, costs and cash flows will diminish as a standalone company, such that our results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and our ability to fund capital expenditures and investments, pay dividends and service debt may be diminished.
In addition, the diversification of our revenues, costs and cash flows are diminished as a standalone company, such that our results of operations, cash flows, working capital and financing requirements may be subject to increased volatility and our ability to fund capital expenditures and investments and service debt may be diminished.
Moreover, even if we ultimately succeed in recovering from Fortune Brands any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our results of operations, cash flows and financial condition.
Moreover, even if we ultimately succeed in recovering from Fortune Brands any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our results of operations.
Import tariffs or other adverse trade actions 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.
Import tariffs or other adverse trade actions 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.
If the products we introduce do not gain widespread acceptance or if our competitors improve their products more rapidly or effectively than we do, we could lose market share or be required to reduce our prices, which could adversely impact our results of operations, cash flows and financial condition.
If the products we introduce do not gain widespread acceptance or if our competitors improve their products more rapidly or effectively than we do, we could lose market share or be required to reduce our prices, which could adversely impact our results of operations.
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.
This has resulted in higher associate costs, increased attrition and significant shifts in the labor market and associate 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.
These allocations may be more or less than the comparable expenses we would have incurred had we operated as an independent, publicly-traded company. • Prior to the Separation that occurred on December 14, 2022, we took advantage of Fortune Brands’ overall size and scope to obtain more advantageous procurement terms.
These allocations may be more or less than the comparable expenses we would have incurred had we operated as an independent, publicly-traded company. • Prior to the Separation, we took advantage of Fortune Brands’ overall size and scope to obtain more advantageous procurement terms.
Moreover, in the event of any economic downturn, some of our customers may exit or severely curtail activity in certain of our markets. The loss of one or more of our significant customers or deterioration in our relations with any of them could significantly affect our results of operations, cash flows and financial condition.
Moreover, in the event of any economic downturn, some of our customers may exit or severely curtail activity in certain of our markets. The loss of one or more of our significant customers or deterioration in our relations with any of them could significantly affect our results of operations.
The loss or termination of, or significant reduction in sales to, one or more of our major dealers or retailers, the failure of one or more of our dealers or retailers to effectively promote our products, or changes in the financial or business condition of these dealers or retailers could adversely affect our ability to bring products to market and our results of operations, cash flows and financial condition.
The loss or termination of, or significant reduction in sales to, one or more of our major dealers or retailers, the failure of one or more of our dealers or retailers to effectively promote our products, or changes in the financial or business condition of these dealers or retailers could adversely affect our ability to bring products to market.
The agreements we entered into with Fortune Brands in connection with the Separation, including the Separation and Distribution Agreement, a tax allocation agreement (the “Tax Allocation Agreement”), a Transition Services Agreement and an employee matters agreement (the “Employee Matters Agreement”), were prepared in the context of the Separation while we were still a wholly-owned subsidiary of Fortune Brands.
The agreements we entered into with Fortune Brands in connection with the Separation, including the Separation and Distribution Agreement, a tax allocation agreement (the “Tax Allocation Agreement”), Transition Services Agreement and an associate matters agreement (the “Employee Matters Agreement,”) that are still in effect, were prepared in the context of the Separation while we were still a wholly-owned subsidiary of Fortune Brands.
No impairments were recorded during our 2021 fiscal year. Future events may occur that would adversely affect the fair value of our goodwill or other acquired intangible assets and require impairment charges.
No intangible asset impairments were recorded during 2023. Future events may occur that would adversely affect the fair value of our goodwill or other acquired intangible assets and require impairment charges.
Additionally, Fortune Brands has historically managed and retained cash we have generated. Following completion of the Separation as of December 14, 2022, Fortune Brands no longer provides us with funds to finance our working capital or other cash requirements.
Additionally, Fortune Brands historically managed and retained cash we generated prior to Separation. Following completion of the Separation 18 Table of Contents as of December 14, 2022, Fortune Brands no longer provides us with funds to finance our working capital or other cash requirements.
If any of these risks materialize, our results of operations, cash flows and financial condition could be materially adversely affected, and the trading price of our common stock could materially decline.
If any of these risks materialize, our results of operations could be materially adversely affected, and the trading price of our common stock could materially decline.
During 2021 and 2022, we experienced and will likely continue to experience price increases in nearly all raw materials due to inflation and continued global supply chain issues.
During 2021 and 2022, we experienced price increases in nearly all raw materials due to inflation and continued global supply chain issues.
Our charter provides that unless we consent in writing to the selection of an alternative forum, the state courts within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for (1) any state derivative action or proceeding brought or purporting to be brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any current or former director or officer of ours to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the DGCL, our charter or our bylaws, (4) any action asserting a claim relating to or involving us governed by the internal affairs doctrine or (5) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL.
Our charter provides that unless we consent in writing to the selection of an alternative forum, the state courts within the State of Delaware (or, if no state court located within the State of Delaware has jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for (1) any state derivative action or proceeding brought or purporting to be brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any current or former director or officer of ours to us or our stockholders, (3) any action asserting a claim against us arising pursuant to any provision of the DGCL, our charter or our bylaws, (4) any action asserting a claim relating to or involving us governed by the internal affairs doctrine or (5) any action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL. 22 Table of Contents Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
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 asset assumptions.
Increases in the costs of pension benefits and accelerated expenses 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; the decision by the Company to transfer administration of the pension plan to a third-party; and changes to our investment strategy that may impact our expected return on pension plan asset assumptions.
Additionally, if any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if successfully defended, could be costly to defend and a distraction to management. Stockholder percentage ownership in us may be diluted in the future.
Additionally, if any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if successfully defended, could be costly to defend and a distraction to management.
Many factors could cause the market price of our common stock to rise and fall, including the following: • a shift in our investor base; • our quarterly or annual earnings, or those of other companies in our industry or in similar industries; • actual or anticipated fluctuations in our operating results; • success or failure of our business strategy; • our ability to obtain financing as needed; • changes in accounting standards, policies, guidance, interpretations or principles; • changes in laws and regulations affecting our business; • announcements by us or our competitors of significant acquisitions or dispositions; • the failure of securities analysts to cover our common stock after the Distribution; • changes in earnings estimates by securities analysts or our ability to meet our earnings guidance; • the operating and stock price performance of other comparable companies; and • overall market fluctuations and general economic and geopolitical conditions.
Our common stock has been listed and is being traded on the NYSE under the trading symbol “MBC.” Many factors could cause the market price of our common stock to rise and fall, including the following: ▪ a shift in our investor base; • our quarterly or annual earnings, or those of other companies in our industry or in similar industries; • actual or anticipated fluctuations in our operating results; • success or failure of our business strategy; • our ability to obtain financing as needed; 21 Table of Contents • changes in accounting standards, policies, guidance, interpretations or principles; • changes in laws and regulations affecting our business; • announcements by us or our competitors of significant acquisitions or dispositions; • the failure of securities analysts to cover our common stock after the Distribution; • changes in earnings estimates by securities analysts or our ability to meet our earnings guidance; • the operating and stock price performance of other comparable companies; and • overall market fluctuations and general economic and geopolitical conditions.
The cabinet industry is highly competitive with relatively low barriers to entry and market share losses could occur. Competition is further intensified during economic downturns. We compete with numerous large national and regional companies for, among other things, customers, raw materials, skilled management and labor resources. The cabinet industry in which we operate is highly competitive.
The cabinet industry is highly competitive with relatively low barriers to entry and market share losses could occur. Competition has further intensified as a result of current economic conditions. We compete with numerous large national and regional companies for, among other things, customers, raw materials, skilled management and labor resources. The cabinet industry in which we operate is highly competitive.
Failure of our suppliers to timely provide us quality products or services on commercially reasonable terms or to comply with applicable legal and regulatory requirements, could have an adverse 13 Table of Contents effect on our results of operations, cash flows and financial condition or could damage our reputation.
Failure of our suppliers to timely provide us quality products or services on commercially reasonable terms or to comply with applicable legal and regulatory requirements, could have an adverse effect on our results of operations or could damage our reputation.
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.
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. We are dependent on third-party suppliers and service providers.
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.
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. From time to time, we have had to address non-material security incidents.
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.
It is not possible to predict the outcome of pending or future claims, litigation, audits and regulatory proceedings 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.
If we are required to pay under these indemnities to Fortune Brands, our results of operations, cash flows and financial condition could be negatively impacted.
If we are required to pay under these indemnities to Fortune Brands, our results of operations could be negatively impacted.
A court could void the transactions or impose substantial liabilities upon us, which could adversely affect our results of operations, cash flows and financial condition.
A court could void the transactions or impose substantial liabilities upon us, which could adversely affect our results of operations.
We currently do not expect to pay any cash dividends in the short term. We presently intend to retain future earnings, if any, to finance our business or reduce debt. As a result, we do not currently expect to pay any cash dividends; although we may do so in the future.
Consequently, we rely on dividends or advances from our subsidiaries. We presently intend to retain future earnings, if any, to finance our business or reduce debt. As a result, we do not currently expect to pay any cash dividends, although we may do so in the future.
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, or third-party systems that we rely upon, may be subject to information technology system failures and network disruptions caused by delays or disruptions due to system updates, natural disasters, malicious attacks and threats, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, physical or electronic break-ins, or similar events or disruptions.
Should our customers purchase our products in significantly lower quantities than they have in the past, such decreased purchases could adversely impact our results of operations, cash flows and financial condition. Certain of our customers may expand through consolidation and internal growth, which may increase their buying power.
Should our customers purchase our products in significantly lower quantities than they have in the past, such decreased purchases could adversely impact our results of operations. Certain of our customers may expand through consolidation and internal growth, which may increase their buying power. The increased size of our customers could have an adverse effect on our results of operations.
As of December 25, 2022, approximately 33 percent of our associates worked under collective bargaining agreements. These collective bargaining agreements are subject to periodic negotiation and renewal.
As of December 31, 2023, approximately 37 percent of our associates worked under collective bargaining agreements. These collective bargaining agreements are subject to periodic negotiation and renewal.
In addition, we source certain raw materials, components and finished goods from Asia where we have experienced higher manufacturing costs and longer lead times due to higher tariffs, currency fluctuations, higher wage rates, labor shortages and higher raw material costs. Disruption of operations could adversely affect our results of operations, cash flows and financial condition.
In addition, we source certain raw materials, components and finished goods from Southeast Asia where we have experienced higher manufacturing costs and longer lead times due to higher tariffs, currency fluctuations, higher wage rates, labor shortages and higher raw material costs. 13 Table of Contents Disruption of operations could adversely affect our profitability and competitive position.
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 our financial results.
Future acquisitions could cause us to incur additional debt or issue additional shares, resulting in increased financial leverage, increased borrowing costs, dilution in earnings per share or decreased return on capital. 14 Table of Contents Impairment charges could have a material adverse effect on our financial results.
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.
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, or the decision to transfer administration of the pension plan to a third-party.
Such competitors may be able to offer lower prices for their products as compared to the prices we offer, which could harm our competitive position and result in the loss of our market share.
Such competitors may be able to offer lower prices for their products as compared to the prices we offer, which could harm our competitive position and result in the loss of our market share. We could lose market share if we do not successfully develop new products or processes or improve existing products or processes.
Our ability to offer a wide variety of products and provide high levels of service to our customers depend on our ability to obtain an adequate and timely supply of products and components.
We are dependent on third parties for many of our products and components and for certain services. Our ability to offer a wide variety of products and provide high levels of service to our customers depend on our ability to obtain an adequate and timely supply of products and components.
If we are unable to effectively manage our supply chain or if we experience transportation constraints, disruptions and higher costs for timely delivery of our products or components, our results of operations, cash flows and financial condition could be adversely affected.
If we are unable to effectively manage our supply chain or if we experience transportation constraints, disruptions and higher costs for timely delivery of our products or components, our results of operations could be adversely affected. Risks associated with strategic acquisitions and joint ventures could adversely affect our results of operations.
We are subject to a wide variety of federal, state, local and foreign laws and regulations pertaining to: • securities matters; • taxation; • anti-bribery/anti-corruption; • employment and labor matters; • wage and hour matters; • environment, health and safety matters; • the protection of employees and consumers; • product safety and performance; • competition practices; • trade, including duties and tariffs; • data privacy and the collection and storage of information; and • climate change and protection of the environment.
We are subject to a wide variety of federal, state, local and foreign laws and regulations pertaining to: ▪ securities matters; ▪ taxation (including import and export related taxes); ▪ anti-bribery/anti-corruption; ▪ employment and labor matters; ▪ wage and hour matters; ▪ environment, health and safety matters; ▪ the protection of associates and consumers; • unclaimed property (i.e., aged outstanding checks to vendors & associates, aged unused credits issued to customers, etc.) ▪ product safety and performance; ▪ competition practices; ▪ trade, including duties and tariffs; ▪ data privacy and the collection and storage of information; and ▪ climate change and protection of the environment.
As a result, we do not currently expect to pay any cash dividends, although we may do so in the future. To the extent that we determine in the future to pay cash dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends.
To the extent that we determine in the future to pay cash dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends.
We may face challenges in: (1) maintaining, developing or expanding our customer relationships; (2) sourcing raw materials on a timely basis or for a cost- effective price due to ongoing global supply chain issues and elevated inflation; and (3) attracting and retaining qualified personnel at all levels, including our senior management team and other key employees.
We may face challenges in: (1) maintaining, developing or expanding our customer relationships; (2) sourcing raw materials on a timely basis or for a cost-effective price due to ongoing global supply chain issues and elevated inflation; and (3) attracting and retaining qualified personnel at all levels, including our senior management team and other key associates. 9 Table of Contents We face competition with respect to some of our products from competitors who operate in countries with lower labor and compliance costs.
Consolidation could decrease the number of potential significant customers for our products and increase our reliance on key customers. Further, the increased size of our customers could result in our customers seeking more favorable terms, including pricing, for the products that they purchase from us.
Further, the increased size of our customers could result in our customers seeking more favorable terms, including pricing, for the products that they purchase from us.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeType of Facility United States Mexico Canada Total Manufacturing facilities* ............................... 17 4 2 23 Distribution centers and warehouses** ......... 20 5 0 25 Total .............................................................. 37 9 2 48 * Manufacturing facilities include 18 which are owned and 5 which are leased. ** Distribution centers and warehouses include 21 which are leased and 4 which are owned.
Biggest changeAs of December 31, 2023, we principally operated 41 manufacturing facilities, distribution centers and warehouses throughout North America. 24 Table of Contents Type of Facility United States Mexico Canada Total Manufacturing facilities* ............................... 15 4 1 20 Distribution centers and warehouses** ......... 14 6 1 21 Total .............................................................. 29 10 2 41 * Manufacturing facilities include 15 which are owned and 5 which are leased. ** Distribution centers and warehouses include 4 which are owned and 17 which are leased.
Item 2. Properties Our principal executive office is located at One MasterBrand Cabinets Drive, Jasper, Indiana, 47546. As of December 25, 2022, we principally operated 48 manufacturing facilities, distribution centers and warehouses throughout North America.
Item 2. Properties As of December 31, 2023, our principal executive office was located at One MasterBrand Cabinets Drive, Jasper, Indiana, 47546. In February 2024, we relocated our corporate headquarters to Beachwood, Ohio. While our new corporate headquarters will be in Beachwood, Ohio, our operations headquarters will remain in Jasper, Indiana.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings We are defendants in lawsuits that are ordinary routine litigation matters incidental to our business and operations. 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 us.
Biggest changeIt is not possible to predict the outcome of the pending actions, and, as with any such matters, it is possible that these actions could be decided unfavorably to us.
We believe that there are meritorious defenses to these actions and that these actions will not have a material adverse effect on our results of operations, cash flows or financial condition, and, where appropriate, these actions are being vigorously contested. Accordingly, we believe the likelihood of material loss is remote.
We believe that there are meritorious defenses to these actions and that these actions will not have a material adverse effect on our results of operations, and, where appropriate, these actions are being vigorously contested. Accordingly, we believe the likelihood of material loss is remote.
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In the future, such costs could have a materially greater impact on our consolidated results of operations and financial position than in the past. Item 4. Mine Safety Disclosures Not applicable. 25 Table of Contents PART II
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Item 3. Legal Proceedings We are defendants in lawsuits that are ordinary routine litigation matters incidental to our business and operations. In addition, other matters, including tax assessments, audits, claims and governmental investigations and proceedings covering a wide range of matters are pending against us.
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However, such matters are subject to inherent uncertainties and unfavorable rulings or other events could occur. The Company regularly undergoes tax audits in various jurisdictions in which our products are sold or manufactured. In the future, such costs or an unfavorable outcome could have a material impact on our consolidated results of operations.
Added
Based on available information to date and subject to below, we do not consider any such action, assessment, claim, investigation or proceeding to be material, within the meaning of that term as used in “Item 103 of Regulation S-K” and the instructions thereto.
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Following an audit for the 2018 tax year, the Mexican tax administration service, the Servicio de Administración Tributaria, (the “SAT”), issued a tax assessment in the amount of approximately $54.9 million to our subsidiary, Woodcrafters Home Products, S. de R.L. de C.V., for allegedly failing to make certain tax payments and to export timely certain merchandise.
Added
The Company disputed these findings and the SAT annulled their decision on January 11, 2024.
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In order to prevent the 2018 tax year from further audit by the SAT, the Company has filed an action to declare this annulment final in the specialized court of trade and customs in Monterrey, Nuevo Leon, Sala Especializada en Materia de Comercio Exterior y Auxiliar – Noreste, Tribunal Federal de Justicia Administrativa.
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We have reserved an immaterial amount related to the 2018 tax year audit as our best estimate of our probable liability.
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While we cannot predict with certainty the outcome of any future review relating to the 2018 tax year or other open tax years, based on currently known information, we believe our risk of additional loss is remote and not estimable.
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For additional information regarding our legal proceedings, refer to Note 16, "Contingencies and Accrued Losses," of our audited consolidated financial statements within this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 25 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 25 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6 . Reserved 26 Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations 26 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 40 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 25 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 26 Item 6. Reserved 27 Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations 28 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 41 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeA substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers or other financial institutions. Stock Performance Graph As our post-spin fiscal year was less than 30 days, we have not presented a stock performance graph.
Biggest changeA substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares of record are held by banks, brokers or other financial institutions.
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. Holders On March 7, 2023, there were 8,090 record holders of our common stock, par value $0.01 per share.
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. Holders On February 23, 2024, there were 8,574 record holders of our common stock, par value $0.01 per share.
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We will include such a graph beginning with our Quarterly Report on Form 10-Q for our first quarter of fiscal 2023.
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Stockholder Return Comparison We include in our Annual Report a line graph presentation comparing the relative performance of our stock compared with the S&P SmallCap 600 Index and the S&P 600 Building Products Industry Index from the date we became publicly traded, December 15, 2022, through December 31, 2023.
Removed
Purchases of Equity Securities by the Issuer and Affiliated Purchasers During the thirteen week period ended December 25, 2022, we did not purchase any of our equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
Added
We have selected the S&P SmallCap 600 Index and the S&P 600 Building Products Industry Index for comparison due to the similarities of the companies in those indexes with respect to our market capitalization and line of business, respectively.
Added
The following chart assumes a hypothetical $100 investment on December 15, 2022 and shows the cumulative value at the end of each succeeding year. 26 Table of Contents Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table presents information with respect to purchases of common stock of the Company made during the fourteen week period that ended on December 31, 2023 by the Company or any “affiliated purchaser” as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended: Period Total number of shares purchased Average price paid per share (2) Total number of shares purchased as part of publicly announced plans or programs Maximum dollar amount that may yet be purchased under the plans or programs (1) September 25, 2023 through October 22, 2023 298,742 $ 11.59 298,742 $ 30,597,909 October 23, 2023 through November 19, 2023 228,288 $ 11.36 228,288 $ 28,003,421 November 20, 2023 through December 31, 2023 — $ — — $ 28,003,421 Q4 Total 527,030 $ 11.49 527,030 (1) On May 9, 2023, we announced our authorization of a stock repurchase program under which we may repurchase up to $50.0 million of MasterBrand common stock over a twenty-four month period at management’s discretion for general corporate purposes.
Added
(2) Average price paid per share excludes commissions paid.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeFor comparisons of our 2021 fiscal year compared to our 2020 fiscal year and our 2020 fiscal year compared to our 2019 fiscal year, please refer to the section entitled, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” within the Information Statement filed with the SEC on December 1, 2022. 30 Table of Contents Fiscal 2022 Compared to Fiscal 2021 Fifty-Two Weeks Ended (In millions) December 25, 2022 $ change % change December 26, 2021 Net sales $ 3,275.5 $ 420.2 14.7 % $ 2,855.3 Cost of products sold 2,335.0 263.6 12.7 % 2,071.4 Gross Profit 940.5 156.6 20.0 % 783.9 Selling, general and administrative expenses 648.5 120.9 22.9 % 527.6 Amortization of intangible assets 17.2 (0.6) (3.4) % 17.8 Asset impairment charges 46.4 46.4 n/m (1) — Restructuring charges 25.1 20.9 n/m (1) 4.2 Operating income 203.3 (31.0) (13.2) % 234.3 Related party interest income, net (12.9) (8.3) 180.4 % (4.6) Interest expense 2.2 2.2 n/m (1) — Other expense, net 0.6 — n/m (1) 0.6 Income before taxes 213.4 (24.9) (10.4 %) 238.3 Income tax expense 58.0 2.3 4.1 % 55.7 Net income $ 155.4 $ (27.2) (14.9) % $ 182.6 __________ (1) Not meaningful.
Biggest changeDollars presented in millions) December 31, 2023 $ change % change December 25, 2022 NET SALES $ 2,726.2 $ (549.3) (16.8 %) $ 3,275.5 Cost of products sold 1,824.8 (510.2) (21.9 %) 2,335.0 GROSS PROFIT 901.4 (39.1) (4.2 %) 940.5 Selling, general and administrative expenses 569.7 (78.8) (12.2 %) 648.5 Amortization of intangible assets 15.3 (1.9) (11.0) % 17.2 Asset impairment charges — (46.4) n/m (1) 46.4 Restructuring charges 10.1 (15.0) (59.8 %) 25.1 OPERATING INCOME 306.3 103.0 50.7 % 203.3 Related party interest income, net — 12.9 n/m (1) (12.9) Interest expense 65.2 63.0 n/m (1) 2.2 Other expense, net 2.4 1.8 300.0 % 0.6 INCOME BEFORE TAXES 238.7 25.3 11.9 % 213.4 Income tax expense 56.7 (1.3) (2.2 %) 58.0 NET INCOME $ 182.0 $ 26.6 17.1 % $ 155.4 __________ (1) Not meaningful.
The 2022 effective income tax rate of 27.2 percent was unfavorably impacted by IRS audit adjustments including recognition of a deferred tax liability for earnings of various foreign entities, and state and local income taxes, partially offset by favorable benefits for the release of uncertain tax positions and foreign income taxed at lower rates.
The 27.2 percent effective income tax rate for 2022 was unfavorably impacted by IRS audit adjustments, including recognition of a deferred tax liability for earnings of various foreign entities, and state and local income taxes, partially offset by favorable benefits for the release of uncertain tax positions and foreign income taxed at lower rates.
Certain of our tradenames have been assigned an indefinite life as we currently anticipate that these tradenames will contribute cash flows to us indefinitely. Indefinite-lived intangible assets are not amortized, but are evaluated at least annually to determine whether the indefinite useful life is appropriate.
Indefinite-Lived Intangible Assets Certain of our tradenames have been assigned an indefinite life as we currently anticipate that these tradenames will contribute cash flows to us indefinitely. Indefinite-lived intangible assets are not amortized, but are evaluated at least annually to determine whether the indefinite useful life is appropriate.
Post-Separation, our income tax provisions are calculated based on our operating footprint, as well as our tax return elections and assertions. For taxable periods ended after the Separation, we will file a consolidated U.S. federal income tax return and various state and local income tax returns. Our foreign income tax returns will continue to be filed on a full-year basis.
Post-Separation, our income tax provisions are calculated based on our operating footprint, as well as our tax return elections and assertions. For taxable periods ended after the Separation, we file a consolidated U.S. federal income tax return and various state and local income tax returns. Our foreign income tax returns will continue to be filed on a full-year basis.
Following the incorporation of MasterBrand, Inc., the following occurred: (1) Fortune Brands contributed all of the issued and outstanding shares of capital stock of MBCI to MasterBrand, Inc., resulting in MBCI becoming a wholly-owned subsidiary of MasterBrand, Inc. through a transaction between entities under common control; and (2) MBCI was converted into a Delaware limited liability company, MasterBrand Cabinets LLC (collectively, the “Reorganization”).
After the incorporation of MasterBrand, Inc., the following occurred: (1) Fortune Brands contributed all of the issued and outstanding shares of capital stock of MBCI to MasterBrand, Inc., resulting in MBCI becoming a wholly-owned subsidiary of MasterBrand, Inc. through a transaction between entities under common control; and (2) MBCI was converted into a Delaware limited liability company, MasterBrand Cabinets LLC (collectively, the “Reorganization”).
In order to govern the ongoing relationships between MasterBrand, Inc. and Fortune Brands after the Separation and to facilitate an orderly transition, the parties entered into a series of agreements including the following: • Separation and Distribution Agreement – sets forth the principal actions to be taken in connection with the Separation, including the transfer of assets and assumption of liabilities, among others, and sets forth other agreements governing aspects of the relationship between MasterBrand, Inc. and Fortune Brands. • Transition Services Agreement – allows for Fortune Brands and MasterBrand to provide certain transition services to each other for a limited time, up to 24 months following the Separation. • Tax Allocation Agreement – governs the respective rights, responsibilities and obligations of MasterBrand, Inc. and Fortune Brands with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes, non-income taxes and related tax returns. • Employee Matters Agreement – addresses certain employment, compensation and benefits matters, including the allocation and treatment of certain assets and liabilities relating to MasterBrand, Inc. employees.
In order to govern the ongoing relationships between MasterBrand, Inc. and Fortune Brands after the Separation and to facilitate an orderly transition, the parties entered into a series of agreements including the following: • Separation and Distribution Agreement – sets forth the principal actions to be taken in connection with the Separation, including the transfer of assets and assumption of liabilities, among others, and sets forth other agreements governing aspects of the relationship between MasterBrand and Fortune Brands. • Transition Services Agreement – allows for Fortune Brands and MasterBrand to provide certain transition services to each other for a limited time, up to 24 months following the Separation. • Tax Allocation Agreement – governs the respective rights, responsibilities and obligations of MasterBrand and Fortune Brands with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes, non-income taxes and related tax returns. • Employee Matters Agreement – addresses certain employment, compensation and benefits matters, including the allocation and treatment of certain assets and liabilities relating to MasterBrand associates.
Some of the important factors that could cause our actual results to differ materially from those projected in any such forward-looking statements include: ◦ Our ability to develop and expand our business; ◦ Our anticipated financial resources and capital spending; ◦ Our ability to manage costs; ◦ The impact of our dependence on third parties with respect to sourcing our raw materials; ◦ Our ability to accurately price our products; ◦ Our anticipated future revenues and expectations of operational performance; ◦ The effects of competition and consolidation of competitors in our industry; ◦ Costs of complying with evolving regulatory requirements and the effect of actual or alleged violations of environmental laws; ◦ The effect of climate change and unpredictable seasonal and weather factors; ◦ Failure to realize the anticipated benefits of the Separation; ◦ Conditions in the housing market in the United States and Canada; ◦ The expected strength of our existing customers and consumers; ◦ Worldwide economic, geopolitical and business conditions and risks associated with doing business on a global basis; ◦ Unfavorable or unexpected effects of the Distribution and Separation; ◦ The effects of the COVID-19 pandemic or another public health crisis or other unexpected event; and ◦ Other statements contained in this Annual Report on Form 10-K regarding items that are not historical facts or that involve predictions.
Some of the important factors that could cause our actual results to differ materially from those projected in any such forward-looking statements include: ◦ Our ability to develop and expand our business; ◦ Our anticipated financial resources and capital spending; ◦ Our ability to manage costs; ◦ The impact of our dependence on third parties with respect to sourcing our raw materials; ◦ Our ability to accurately price our products; ◦ Our anticipated future revenues and expectations of operational performance; ◦ The effects of competition and consolidation of competitors in our industry; ◦ Costs of complying with evolving tax and other regulatory requirements and the effect of actual or alleged violations of tax, environmental or other laws; ◦ The effect of climate change and unpredictable seasonal and weather factors; ◦ Failure to realize the anticipated benefits of the Separation; ◦ Conditions in the housing market in the United States and Canada; ◦ The expected strength of our existing customers and consumers; ◦ Worldwide economic, geopolitical and business conditions and risks associated with doing business on a global basis; ◦ The effects of the COVID-19 pandemic or another public health crisis or other unexpected event; and ◦ Other statements contained in this Annual Report on Form 10-K regarding items that are not historical facts or that involve predictions.
On November 18, 2022, we entered into a 5-year, $1.25 billion credit agreement, consisting of a $750 million term loan and a $500 million revolving credit facility (the “2022 Credit Agreement”). Initial proceeds of $955 million from the credit agreement were received at the time of Separation from Fortune Brands.
On November 18, 2022, we entered into a 5-year, $1.25 billion credit agreement, consisting of a $750.0 million term loan and a $500.0 million revolving credit facility (the “2022 Credit Agreement”). Initial proceeds of $955.0 million from the credit agreement were received at the time of Separation from Fortune Brands.
We consider the expense methodology and resulting allocation to be reasonable for all periods presented; however, the allocations may not be indicative of actual expenses that would have been incurred had we operated as an independent, publicly-traded company for the periods presented.
We consider the expense methodology and resulting allocation to be reasonable for all periods presented; however, the allocations may not be indicative of actual expenses that would have been incurred had we operated as an independent, publicly-traded company during all periods presented.
The proceeds were primarily used to make a cash dividend payment of $940.0 million to Fortune Brands and to pay related fees and expenses at the Separation. The credit agreement is secured by certain assets as well as the guarantee of certain of our subsidiaries.
The proceeds were primarily used to make a cash dividend payment of $940.0 million to Fortune Brands and to pay related fees and expenses at the Separation. The 2022 Credit Agreement is secured by certain assets as well as the guarantee of certain of our subsidiaries.
MD&A is organized as follows: • Overview: This section provides a general description of our business, as well as recent developments we believe are important in understanding our results of operations and financial condition or in understanding anticipated future trends. • Separation from Fortune Brands: This section provides a general discussion of our Separation from Fortune Brands. • Basis of Presentation: This section provides a discussion of the basis on which our consolidated financial statements were prepared, including our historical results of operations and adjustments thereto, primarily allocations of general corporate expenses from Fortune Brands. 27 Table of Contents • Results of Operations: Our consolidated financial statements are based on a 52- or 53-week fiscal year ending on the last Sunday in December in each calendar year.
MD&A is organized as follows: • Overview : This section provides a general description of our business, as well as recent developments we believe are important in understanding our results of operations and financial condition or in understanding anticipated future trends. • Separation from Fortune Brands : This section provides a general discussion of our Separation from Fortune Brands. 28 Table of Contents • Basis of Presentation : This section provides a discussion of the basis on which our consolidated financial statements were prepared, including our historical results of operations and adjustments thereto, primarily allocations of general corporate expenses from Fortune Brands. • Results of Operations : Our consolidated financial statements are based on a 52- or 53-week fiscal year ending on the last Sunday in December in each calendar year.
Following the Separation, a limited number of services that Fortune Brands provided to us, or we provided to them, prior to the Separation will continue to be provided for a period of time under a Transition Services Agreement.
Following the Separation, a limited number of services that Fortune Brands provided to us, or we provided to them, prior to the Separation continue to be provided for a period of time under a Transition Services Agreement.
For the pre-Separation period in 2022, including the Separation, federal and state income tax payments and refunds were paid and received by Fortune Brands on our behalf. The net taxes paid on our behalf are payable to Fortune Brands, as provided in the indemnification provisions of the Tax Allocation Agreement.
For the period prior to the Separation in 2022, including the Separation, federal and state income tax payments and refunds were paid and received by Fortune Brands on our behalf. The net taxes paid on our behalf are payable to Fortune Brands, as provided in the indemnification provisions of the Tax Allocation Agreement.
This section also provides a discussion of our contractual obligations, other purchase commitments and customer credit risk that existed at December 25, 2022 and December 26, 2021, as well as a discussion of our ability to fund our future commitments and ongoing operating activities through internal and external sources of capital. • Recently Issued Accounting Standards: This section identifies our adoption of recently issued accounting standards. • 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.
This section also provides a discussion of our contractual obligations, other purchase commitments and customer credit risk that existed at December 31, 2023 and December 25, 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. • Recently Issued Accounting Standards : This section identifies our adoption of recently issued accounting standards. • 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.
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our historical financial statements through the date of Separation include allocations of expenses related to certain Fortune Brands corporate functions, including information technology, finance, executive, 29 Table of Contents human resources, supply chain, internal audit, governance and legal services.
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our historical financial statements through the date of Separation include allocations of expenses related to certain Fortune Brands corporate functions, including information technology, finance, executive, human resources, supply chain, internal audit, governance and legal services.
Our projection for the U.S. home products market is inherently uncertain and is subject to a number of factors, such as employment rates, home prices, interest rates, credit availability, new home starts and the rate of home foreclosures. We first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired.
Our projection for the U.S. home products market is inherently uncertain and is subject to a number of factors, such as employment rates, home prices, interest rates, credit availability, new home starts and the rate of home foreclosures. 39 Table of Contents We first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired.
A dedicated management team and board of directors streamlines operational and strategic decision-making, and ensures management incentives are optimized and aligned with our strategic priorities and financial objectives are in line with our industry. • Resource Allocation and Capital Deployment : The Separation provides us an opportunity to implement a tailored capital structure that ties specifically to our industry and business that provides greater financial and operational flexibility and increased agility.
A dedicated management team and board of directors streamlines operational and strategic decision-making, and ensures management incentives are optimized and aligned with our strategic priorities and financial objectives are in line with our industry. 30 Table of Contents • Resource Allocation and Capital Deployment : The Separation provides us with an opportunity to implement a tailored capital structure that ties specifically to our industry and business that provides greater financial and operational flexibility and increased agility.
In the fourth quarter of 2022, we also incurred an impairment charge of $7.6 million related to another indefinite-lived tradename, due to a shift in customer demand in the fourth quarter from 31 Table of Contents this tradename to a lower price point product, as a result of continued and persistent inflation as well as elevated interest rates and economic uncertainty .
In the fourth quarter of 2022, we also incurred an impairment charge of $7.6 million related to another indefinite-lived tradename, due to a shift in customer demand in the fourth quarter from this tradename to a lower price point product, as a result of continued and persistent inflation, as well as elevated interest rates and economic uncertainty .
Historically, our principal sources of liquidity have been cash on hand, cash flows from operating activities and financial support from Fortune Brands via participation in Fortune Brands’ centralized approach to treasury, including financing and cash management activities. Subsequent to the Separation, we implemented our own centralized approach to treasury, including cash management performed through cash pooling arrangements.
Historically, prior to Separation, our principal sources of liquidity were cash on hand, cash flows from operating activities and financial support from Fortune Brands via participation in Fortune Brands’ centralized approach to treasury management, including financing and cash management activities. Subsequent to the Separation, we implemented our own centralized approach to treasury, including cash management performed through cash pooling arrangements.
Allowances for doubtful accounts include provisions for certain customers where a risk of default has been specifically identified, as well as provisions determined on a general formula basis when it is determined that the risk of some default is probable and estimable but cannot yet be associated with specific customers.
Allowances for credit losses include provisions for certain customers where a risk of default has been specifically identified, as well as provisions determined on a general formula basis when it is determined that the risk of some default is probable and estimable but cannot yet be associated with specific customers.
Separating the Cabinets segment into a standalone publicly-traded company significantly enhances the long-term growth and return prospects of our Company and offers substantially greater long-term value to stockholders, customers and employees.
Separating the former Cabinets segment into a standalone publicly-traded company significantly enhances the long-term growth and return prospects of our Company and offers substantially greater long-term value to stockholders, customers and associates.
The remaining activity in 2022, as well as that in 2021, primarily reflects our cash remittances to Fortune Brands, net of cash lending from Fortune Brands, to finance our operations prior to the Separation. The financing relationship with Fortune Brands ceased as of the date of Separation.
The remaining activity in 2022 primarily reflects our cash remittances to Fortune Brands, net of cash lending from Fortune Brands, to finance our operations prior to the Separation. The financing relationship with Fortune Brands ceased as of the date of Separation.
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. These factors include those listed under “Risk Factors” in this Annual Report on Form 10-K.
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. These factors include those listed under “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
For more information regarding related party transactions with Fortune Brands, see Note 20, “Related Party Transactions” of our audited consolidated financial statements within this Annual Report on Form 10-K. Fortune Brands utilized a central approach to treasury management, and we historically participated in related cash pooling arrangements.
For more information regarding related party transactions with Fortune Brands, see Note 20, "Related Party Transactions," of our audited consolidated financial statements within this Annual Report on Form 10-K. Fortune Brands utilized a central approach to treasury management, and we historically participated in related cash pooling arrangements prior to the Separation.
Based on foreign exchange rates as of December 25, 2022, we estimate that $2.8 million of net derivative gain included in other comprehensive income (“AOCI”) as of December 25, 2022, will be reclassified to earnings within the next twelve months. Foreign Currency Risk We have operations in various foreign countries, principally Canada and Mexico.
Based on foreign exchange rates as of December 31, 2023 , we estimate that $2.2 million of net derivative gain included in other comprehensive income (“AOCI”) as of December 31, 2023 , will be reclassified to earnings within the next twelve months. Foreign Currency Risk We have operations in various foreign countries, principally Canada and Mexico.
This section provides an analysis of our results of operations for the 52-week period that ended on December 25, 2022 as compared to December 26, 2021. Unless the context otherwise requires, references to years and quarters contained in this Annual Report on Form 10-K pertain to our fiscal years and fiscal quarters.
This section provides an analysis of our results of operations for the 53-week period that ended on December 31, 2023 as compared to the 52-week period that ended on December 25, 2022. Unless the context otherwise requires, references to years and quarters contained in this Annual Report on Form 10-K pertain to our fiscal years and fiscal quarters.
Actual costs that we may have incurred had we been a standalone company would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by our employees and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.
Actual costs that we may have incurred had we been a standalone company during all periods presented would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by our associates and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.
Overview Founded nearly 70 years ago, we are the largest manufacturer of residential cabinets in North America. Our superior product quality, innovative design and service excellence drives a compelling value proposition. We have insight into the fashion and features consumers desire, which we use to tailor our product lines across price points.
Overview Founded nearly 70 years ago, we are the largest manufacturer of residential cabinets in North America based on 2022 reported net sales. Our superior product quality, innovative design and service excellence drives a compelling value proposition. We have insight into the fashion and features consumers desire, which we use to tailor our product lines across price points.
Like many of its competitors and peers, our Company believes that it will be more effective in managing its capital structure with credit tied more specifically to its industry and business performance and achieving greater margin expansion by focusing on its operational effectiveness specific to its products.
Like many of our competitors and peers, we believe that we will be more effective in managing our capital structure with credit tied more specifically to its industry and business performance and achieving greater margin expansion by focusing on our operational effectiveness specific to its products.
We also incurred $15.4 million of additional costs in 2022 as compared to 2021 directly related to the Separation from Fortune Brands. Asset impairment charges During 2022, we incurred $46.4 million of asset impairment charges related to indefinite-lived tradenames.
In 2023, we incurred $2.4 million of additional costs directly related to the Separation from Fortune Brands, as compared to $15.4 million in 2022. Asset impairment charges During 2022, we incurred $46.4 million of asset impairment charges related to indefinite-lived tradenames.
There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to MasterBrand. We periodically review our portfolio of brands, manufacturing and supply chain footprint, and evaluate potential strategic transactions to increase stockholder value.
Our operating income is generated by our subsidiaries. There are no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to MasterBrand. We periodically review our portfolio of brands, manufacturing and supply chain footprint, and evaluate potential strategic transactions to increase stockholder value.
Additionally, unless the context otherwise requires, references in this Annual Report on Form 10-K to: (1) “2022,” “fiscal 2022” or our “2022 fiscal year” refers to our 2022 fiscal year that is a 52-week period that ended on December 25, 2022; (2)“2021,” “fiscal 2021” or our “2021 fiscal year” refers to our 2021 fiscal year that was a 52-week period that ended on December 26, 2021; and (3) “2020,” “fiscal 2020” or our “2020 fiscal year” refers to our 2020 fiscal year that was a 52-week period that ended on December 27, 2020. • Liquidity and Capital Resources: This section provides a discussion of our financial condition and an analysis of our cash flows for our 2022 fiscal year as compared to our 2021 fiscal year.
Additionally, unless the context otherwise requires, references in this Annual Report on Form 10-K to: (1) “2023,” “fiscal 2023” or our “2023 fiscal year” refers to our 2023 fiscal year that is a 53-week period that ended on December 31, 2023; (2)“2022,” “fiscal 2022” or our “2022 fiscal year” refers to our 2022 fiscal year that was a 52-week period that ended on December 25, 2022; and (3) “2021,” “fiscal 2021” or our “2021 fiscal year” refers to our 2021 fiscal year that was a 52-week period that ended on December 26, 2021. • Liquidity and Capital Resources : This section provides a discussion of our financial condition and an analysis of our cash flows for our 2023 fiscal year as compared to our 2022 fiscal year.
However, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, or what impact any such transactions could have on our results of operations, cash flows or financial condition.
However, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, or what impact any such transactions could have on our results of operations.
Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section entitled “Risk Factors” in this Annual Report on Form 10-K.
Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.
In accordance with this policy, our inventory provision was $19.6 million and $13.6 million as of December 25, 2022 and December 26, 2021 , respectively. Goodwill and Indefinite-lived Intangible Assets In accordance with ASC Topic 350, Intangibles—Goodwill and Other , goodwill is tested for impairment at least annually in the fourth quarter and written down when impaired.
In accordance with this policy, our inventory provision was $15.9 million and $19.6 million as of December 31, 2023 and December 25, 2022 , respectively. Goodwill and Indefinite-lived Intangible Assets Goodwill In accordance with ASC Topic 350, Intangibles—Goodwill and Other , goodwill is tested for impairment at least annually in the fourth quarter and written down when impaired.
While we believe current allowances for doubtful accounts are adequate, it is possible that continued weak economic conditions may cause significantly higher levels of customer defaults and bad debt expense in future periods. Pension Plan We sponsor a defined benefit pension plan.
While we believe current allowances for credit losses are adequate, it is possible that continued weak economic conditions may cause significantly higher levels of customer defaults and bad debt expense in future periods. 36 Table of Contents Pension Plan We sponsor a defined benefit pension plan.
Deferred currency gains (losses) of $4.5 million , $2.9 million, and $(2.3) million (before tax impact) were reclassified into earnings for the 2022, 2021, and 2020 fiscal years, respectively.
Deferred currency gains of $10.2 million, $4.5 million, and $2.9 million (before tax impact) were reclassified into earnings for the 2023, 2022, and 2021 fiscal years, respectively.
Accordingly, the net tax payable of $32.6 million to Fortune Brands as of December 25, 2022, is recorded in accounts payable on the Consolidated Balance Sheets.
Accordingly, the net tax payable of $32.6 million to Fortune Brands as of December 25, 2022, was recorded in accounts payable on the Consolidated Balance Sheets and settled in 2023.
The cash flows presented in our consolidated statement of cash flows may not be indicative of the cash flows we would have recognized had we operated as a standalone publicly-traded company for the periods presented prior to the Separation. After the Separation, we no longer have financial support from Fortune Brands. Our operating income is generated by our subsidiaries.
The cash flows presented in our consolidated statement of cash flows may not be indicative of the cash flows we would have recognized had we operated as a standalone publicly-traded company for the periods presented prior to the Separation. 34 Table of Contents After the Separation, we no longer have financial support from Fortune Brands.
Fortune Brands’ third-party debt and related interest expense have not historically been attributed to us as we were not the legal obligor of the debt, and the borrowings are not specifically identifiable to us. However, we incurred indebtedness in connection with the Separation and Distribution, which will result in additional interest expense in future periods.
Fortune Brands’ third-party debt and related interest expense have not historically been attributed to us as we were not the legal obligor of the debt, and the borrowings are not specifically identifiable to us. However, we incurred indebtedness in connection with the Separation and Distribution, which resulted in additional interest expense beginning in the fourth quarter of 2022.
The increase in effective tax rate was primarily the result of state and local income taxes and IRS audit adjustments including recognition of a deferred tax liability for earnings of various foreign entities, partially offset by increased benefits for the release of uncertain tax positions and foreign income taxed at lower rates.
The decrease in effective tax rate in 2023 was primarily the result of changes in state and local income taxes and the nonrecurrence of IRS audit adjustments in 2022, including recognition of a deferred tax liability for earnings of various foreign entities, partially offset by benefits for the release of uncertain tax positions in 2022 and foreign income taxed at higher rates.
Results of Operations The following discussion includes a comparison of results of operations for the fifty-two weeks ended December 25, 2022 compared to the fifty-two weeks ended December 26, 2021.
Results of Operations The following discussion includes a comparison of results of operations for the fifty-three weeks ended December 31, 2023 compared to the fifty-two weeks ended December 25, 2022.
Customer Credit Risk We routinely grant unsecured credit to customers in the normal course of business. Accounts receivable were $289.6 million and $305.3 million as of December 25, 2022 and December 26, 2021, respectively, and are recorded at their stated amount less allowances for discounts and doubtful accounts.
Customer Credit Risk We routinely grant unsecured credit to customers in the normal course of business. Accounts receivable, net, were $203.0 million and $289.6 million as of December 31, 2023 and December 25, 2022, respectively, and are recorded at their stated amount less allowances for discounts and credit losses.
In July 2022, Fortune Brands incorporated MasterBrand, Inc. in the State of Delaware and subscribed to all shares of MasterBrand, Inc.’s common stock upon its incorporation.
The Cabinets segment of Fortune Brands had historically been operated by MasterBrand Cabinets, Inc. (“MBCI”). In July 2022, Fortune Brands incorporated MasterBrand, Inc. in the State of Delaware and subscribed to all of the shares of MasterBrand, Inc.’s common stock upon its incorporation.
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.
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.
Impairment losses are recorded to the extent that the 36 Table of Contents carrying value of the indefinite-lived intangible asset exceeds its fair value. 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.
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.
Fortune Brand shareholders received one share of MasterBrand, Inc. common stock for each share of Fortune Brands common stock held on the record date. 28 Table of Contents Following the Distribution, Fortune Brands stockholders owned 100 percent of the shares of MasterBrand, Inc. common stock and MasterBrand, Inc. became an independent, publicly-traded company, listed under the symbol “MBC” on the New York Stock Exchange beginning December 15, 2022.
Following the Distribution, Fortune Brands stockholders owned 100 percent of the shares of MasterBrand, Inc. common stock, and MasterBrand, Inc. became an independent, publicly-traded company, listed under the symbol “MBC” on the New York Stock Exchange beginning December 15, 2022.
The Company’s equity structure prior to the Separation and Distribution included 5,000 shares of MasterBrand, Inc. common stock authorized and 100 shares issued. Prior to the incorporation of MasterBrand, Inc. in July 2022, the equity structure of MBCI included 1,000 authorized and issued shares of common stock.
Prior to the incorporation of MasterBrand, Inc. in July 2022, the equity structure of MBCI included 1,000 authorized and issued shares of common stock. MasterBrand, Inc. is the registrant and the financial reporting entity following the consummation of the Separation and Distribution.
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.
We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity. 38 Table of Contents 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 addition to the contractual obligations and commitments described above, we also had other corporate commercial commitments for which we are contingently liable as of December 25, 2022. Other corporate commercial commitments include standby letters of credit of $0.4 million as of December 25, 2022.
In addition to the contractual obligations and commitments described above, we also had other corporate commercial commitments for which we are contingently liable as of December 31, 2023.
As of December 25, 2022, the aggregate fair value of our pension plan assets was $119.4 million , representing 92.6 percent of the accumulated benefit obligation liability. During fiscal 2022, we made pension contributions of approximately $1.1 million.
As of December 31, 2023 , the aggregate fair value of our pension plan assets was $131.1 million, representing 96.7 percent of the accumulated benefit obligation liability. During fiscal 2023, we made pension contributions of $8.1 million.
The Net Leverage Ratio may not exceed 3.875 to 1.0 at the initial borrowing through the second fiscal quarter of 2023, adjusting downward in various future quarters before settling at 3.25 to 1.0 in January 2025. Interest rates can range from SOFR plus 1.85 percent to SOFR plus 2.60 percent.
The Net Leverage Ratio could not exceed 3.875 to 1.0 at the initial borrowing through the second fiscal quarter of 2023, adjusting downward in various future quarters before settling at 3.25 to 1.0 in January 2025. As of December 31, 2023, the net leverage ratio could not exceed 3.75 to 1.0.
We regularly monitor our foreign currency exposures in order to maximize the overall effectiveness of our foreign currency hedge positions. 35 Table of Contents Recently Issued Accounting Standards The adoption of recent accounting standards, as discussed in Note 2, “Significant Accounting Policies” of our audited consolidated financial statements, which are included elsewhere in this Annual Report on Form 10-K, has not had and is not expected to have a significant impact on our revenue, earnings or liquidity.
Recently Issued Accounting Standards The adoption of recent accounting standards, as discussed in Note 2, "Significant Accounting Policies," of our audited consolidated financial statements within this Annual Report on Form 10-K, has not had and is not expected to have a significant impact on our revenue, earnings or liquidity.
These downward revisions to forecasted revenue growth were not known when recording the impairment charge during the second quarter of 2022. As of December 25, 2022 and December 26, 2021, the carrying value of this tradename was $46.2 million a nd $85.0 million, respectively.
These downward revisions to forecasted revenue growth were not known when recording the impairment charge during the second quarter of 2022. In 2023, we did not recognize any impairment charges related to this indefinite-lived tradename. As of both December 31, 2023 and December 25, 2022, the carrying value of this tradename was $46.2 million .
See Note 8, “Goodwill and Identifiable Intangible Assets” and Note 10, “Fair Value Measurements” of our audited consolidated financial statements, which are included elsewhere in this Annual Report on Form 10-K, for additional information. 37 Table of Contents The significant assumptions used to estimate the fair values of the tradenames tested quantitatively during the fiscal years ended December 25, 2022, December 26, 2021 and December 27, 2020 were as follows: 2022 2021 2020 Unobservable Input Min Max Wtd Avg (a) Min Max Wtd Avg (a) Min Max Wtd Avg (a) Discount rate 11.9 % 12.6 % 12.2 % 10.9 % 11.5 % 11.2 % 12.8 % 13.2 % 12.9 % Royalty rate (b) 2.5 % 4.0 % 3.5 % 2.4 % 4.0 % 3.4 % 2.4 % 4.0 % 3.3 % Long-term revenue growth rate (c) 1.0 % 3.0 % 2.0 % 1.0 % 3.0 % 2.6 % 1.0 % 3.0 % 2.6 % __________ (a) Weighted by the relative fair value of the tradenames that were tested quantitatively.
The significant assumptions used to estimate the fair values of the tradenames tested quantitatively during the fiscal years ended December 31, 2023, December 25, 2022 and December 26, 2021 were as follows: 2023 2022 2021 Unobservable Input Min Max Wtd Avg (a) Min Max Wtd Avg (a) Min Max Wtd Avg (a) Discount rate 10.5 % 11.0 % 10.8 % 11.9 % 12.6 % 12.2 % 10.9 % 11.5 % 11.2 % Royalty rate (b) 3.0 % 4.0 % 3.6 % 2.5 % 4.0 % 3.5 % 2.4 % 4.0 % 3.4 % Long-term revenue growth rate (c) 2.0 % 2.5 % 2.3 % 1.0 % 3.0 % 2.0 % 1.0 % 3.0 % 2.6 % (a) Weighted by the relative fair value of the tradenames that were tested quantitatively.
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.
We do not curren tly have any off-balance sheet arrangements that are material or reasonably likely to be material to our financial condition or results of operations. 37 Table of Contents 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.
(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.
(b) Represents estimated percentage of sales a market-participant would pay to license the tradenames that were tested quantitatively.
These expenses have been allocated based on direct usage or benefit where specifically identifiable, with the remainder allocated on a proportional cost allocation method based primarily on net sales, employee headcount or number of facilities, as applicable.
These expenses have been allocated based on direct usage or benefit where specifically identifiable, with the remainder allocated on a proportional cost allocation method based primarily on net sales, associate headcount or number of facilities, as applicable. Prior to the Separation, total expenses allocated for our 2022 and 2021 fiscal years were $92.5 million and $62.0 million, respectively.
The $27.2 million, or 14.9 percent, decrease in net income was primarily due to the decrease in operating income. Liquidity and Capital Resources Our primary liquidity needs have historically been to support working capital requirements and fund capital expenditures. Prospectively, we may have liquidity needs to finance acquisitions and return cash to stockholders, if and when appropriate.
Liquidity and Capital Resources Our primary liquidity needs have historically been to support working capital requirements and fund capital expenditures. Subsequent to the Separation, we may have liquidity needs to finance acquisitions and return cash to stockholders, if and when appropriate.
A 50 basis point change in any of the significant assumptions used during the fiscal year ended December 26, 2021 would not have resulted in an impairment being recognized when estimating the fair value of our indefinite-lived tradenames.
(c) Selected long-term revenue growth rate within 10-year projection period of the tradenames that were tested quantitatively. 40 Table of Contents A 50 basis point change in any of the significant assumptions used during the fiscal year ended December 31, 2023 would not have resulted in an impairment being recognized when estimating the fair value of our indefinite-lived tradenames.
For years ended (In millions) 2022 2021 Net cash provided by operating activities 235.6 148.2 Net cash used in investing activities (55.9) (51.5) Net cash used in financing activities (215.3) (109.7) Effect of foreign exchange rate changes on cash (4.7) 0.1 Net (decrease) in cash and cash equivalents $ (40.3) $ (12.9) Fiscal 2022 as compared to Fiscal 2021 Net cash provided by operating activities included net income of $155.4 million in 2022, as compared to net income of $182.6 million in 2021.
Dollars presented in millions) 2023 2022 Net cash provided by operating activities $ 405.6 $ 235.6 Net cash used in investing activities (56.9) (55.9) Net cash used in financing activities (299.9) (215.3) Effect of foreign exchange rate changes on cash (1.2) (4.7) Net increase (decrease) in cash and cash equivalents $ 47.6 $ (40.3) 35 Table of Contents Fiscal 2023 as compared to Fiscal 2022 Net cash provided by operating activities increased to $405.6 million in 2023 as compared to $235.6 million in 2022.
Income taxes Our consolidated income tax expense, income before taxes, and effective tax rate for the years ended December 25, 2022 and December 26, 2021 were as follows: Fifty-Two Weeks Ended (In millions) December 25, 2022 December 26, 2021 Income before taxes $ 213.4 $ 238.3 Income tax expense 58.0 55.7 Effective tax rate 27.2 % 23.4 % For 2022, the Company’s effective tax rate was 27.2 percent, compared to an effective tax rate of 23.4 percent for 2021.
Dollars presented in millions) December 31, 2023 December 25, 2022 Income before taxes $ 238.7 $ 213.4 Income tax expense 56.7 58.0 Effective tax rate 23.8 % 27.2 % For 2023, the Company’s effective tax rate was 23.8 percent, compared to an effective tax rate of 27.2 percent for 2022.
All share and per share amounts for all periods presented in the consolidated financial statements have been retroactively recast to reflect the effects of the changes in equity structure resulting from the Reorganization, Separation and Distribution. The historical activity of the Company is that of MBCI prior to the Reorganization.
All share and per share amounts for all prior periods presented in the consolidated financial statements, as discussed in further detail in Note 5, "Earnings Per Share," of our audited consolidated financial statements within this Annual Report on Form 10-K have been retroactively recast to reflect the effects of the changes in equity structure resulting from the Reorganization, Separation and Distribution.
On December 14, 2022, the date of Separation, 128.0 million shares of MasterBrand, Inc. common stock were issued.
On December 14, 2022, the Separation was completed via the Distribution. On December 14, 2022, the date of Separation, 128.0 million shares of MasterBrand, Inc. common stock were issued. Fortune Brands shareholders received one share of MasterBrand, Inc. common stock for each share of Fortune Brands common stock held on the record date.
In accordance with our policy, our allowance for doubtful accounts was $11.6 34 Table of Contents million and $2.5 million as of December 25, 2022 and December 26, 2021, respectively.
In accordance with our policy, our allowance for credit losses was $4.6 million and $11.6 million as of December 31, 2023 and December 25, 2022 , respectively.
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 (loss) (“OCI”) and are recognized in the consolidated statement of income when the hedged item affects earnings.
We account for derivative instruments as follows: • Derivative instruments that are designated as cash flow hedges - The changes in the fair value of the derivative instrument are reported in other comprehensive income and are recognized in the consolidated statements of income when the hedged item affects earnings.
Finally, with the most extensive dealer network throughout the United States and Canada, we have an advantaged distribution model that cannot be easily replicated. We expect to further extend our competitive advantages by using technology and data to enhance the consumer’s experience from visualization to ordering to delivery and installation.
Finally, with the most extensive dealer network throughout the United States and Canada, we have an advantaged distribution model that cannot be easily replicated.
We expect to incur certain costs to establish ourselves as a standalone public company, including services provided by our own resources or through third-party service providers relating to corporate functions, including information technology, finance, executive, human resources, supply chain, internal audit, governance and legal services, as well as ongoing additional costs associated with operating as an independent, publicly-traded company.
We are now incurring certain costs as a standalone public company, including services provided by our own resources or through third-party service providers relating to corporate functions, including information technology, finance, executive, human resources, supply chain, internal audit, governance and legal services, as well as ongoing additional costs associated with operating as an independent, publicly-traded company. 31 Table of Contents All transactions between us and Fortune Brands previously resulting in related party balances were settled in our consolidated financial statements immediately prior to the Distribution, or were settled shortly thereafter, including by making a distribution of capital by us to Fortune Brands of any remaining related party receivable owed by Fortune Brands to us.
Interest expense Upon Separation, we incurred indebtedness in connection with the Separation and Distribution, which resulted in interest expense of $2.2 million in 2022. Prior to Separation, we had no third-party borrowings. Other expense, net Other expense, net was $0.6 million in 2022 was comparable to other expense, net of $0.6 million in 2021.
At the date of the Separation, such arrangements ceased. 33 Table of Contents Interest expense We incurred indebtedness in connection with the Separation and Distribution, which resulted in $65.2 million of interest expense in fiscal 2023, as compared to $2.2 million in fiscal 2022 . Prior to the Separation, we had no third-party borrowings in 2022.
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.
Critical Accounting Estimates The consolidated financial statements are prepared in accordance with GAAP, which require us to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses for the reporting period.
We may also incur additional indebtedness in the future. 33 Table of Contents Cash Flows Below is a summary of cash flows for the fiscal years ended December 25, 2022 and December 26, 2021.
As of December 31, 2023 , we had $707.8 million outstanding in third-party borrowings, net of deferred financing fees. We may also incur additional indebtedness in the future. Cash Flows Below is a summary of cash flows for the fiscal years ended December 31, 2023 and December 25, 2022. For years ended (U.S.
The determination of fair value using this technique requires the use of estimates and assumptions related to forecasted revenue growth rates, the assumed royalty rates and the market-participant discount rates. During our 2022 annual impairment test, we elected to bypass the qualitative testing given the Separation from Fortune Brands and tested all of our indefinite-lived tradenames quantitatively.
The determination of fair value using this technique requires the use of estimates and assumptions related to forecasted revenue growth rates, the assumed royalty rates and the market-participant discount rates. In the second quarter ended June 26, 2022, we recognized an impairment charge of $26.0 million related to an indefinite-lived tradename.
Prior to the Separation, total expenses allocated for our 2022, 2021, and 2020 fiscal years were $92.5 million , $62.0 million , and $61.6 million , respectively. Of these allocations, $72.4 million , $42.3 million , and $42.4 million , respectively, were not previously allocated to us for our 2022, 2021, and 2020 fiscal years.
Of these allocations, $72.4 million and $42.3 million, respectively, were not previously allocated to us for our 2022 and 2021 fiscal years. Such amounts are primarily included within selling, general and administrative expenses in our consolidated statements of income.
Net cash used in investing activities was $55.9 million in 2022 compared to net cash used in investing activities of $51.5 million in 2021. The increase of $4.4 million was primarily due to continued investment in manufacturing capabilities and technology. Net cash used in financing activities was $215.3 million in 2022 as compared to $109.7 million in 2021.
Net cash used in investing activities of $56.9 million in 2023 was comparable to net cash used in investing activities of $55.9 million in 2022. Net cash used in financing activities was $299.9 million in 2023 as compared to $215.3 million in 2022.
The increase of $8.3 million was primarily due to an increase in a related party loan receivable from Fortune Brands, as excess cash generated by our operations was remitted to Fortune Brands on a regular basis through the cash pooling arrangements up to the date of the Separation, at which time such arrangements ceased.
Prior to the Separation, excess cash generated by our operations was remitted to Fortune Brands on a regular basis through the cash pooling arrangements.
We also are required to maintain a minimum Interest Coverage Ratio of 3.0 to 1.0. The Interest Coverage Ratio is defined as Consolidated EBITDA to consolidated interest expense. Our 2022 Credit Agreement contains additional covenants which limit or preclude certain corporate actions based upon the measurement of certain financial covenant metrics.
Our 2022 Credit Agreement contains additional covenants which limit or preclude certain corporate actions based upon the measurement of certain financial covenant metrics. The $750.0 million Term Loan has quarterly required amortization payments, which began in March 2023.
The 23.4 percent effective income tax rate for 2021 was unfavorably impacted by state and local income taxes, partially offset by a favorable benefit for the release of uncertain tax positions and foreign income taxed at lower rates. 32 Table of Contents Net income Net income was $155.4 million for 2022 compared to $182.6 million for 2021.
The 2023 effective income tax rate of 23.8 percent was unfavorably impacted by net changes in state and local income taxes, and foreign income taxed at higher rates.
The $750 million Term Loan has quarterly required amortization payments beginning in March 2023. As of December 25, 2022, the Company was in compliance with all financial covenants set forth in the 2022 Credit Agreement, and expects to remain in compliance for the foreseeable future. As of December 25, 2022, we had $985.0 million outstanding in third-party borrowings.
These additional amortization payments, made possible due to the generation of strong operating cash flow, were made to reduce future interest expense and provide financial flexibility. As of December 31, 2023, the Company was in compliance with all financial covenants set forth in the 2022 Credit Agreement, and expects to remain in compliance for the foreseeable future.
Net sales Net sales were $3,275.5 million for 2022 compared to $2,855.3 million for 2021, an increase of $420.2 million, or 14.7 percent. The increase was due to favorable price, including price increases which helped to mitigate the impact of cumulative commodity and transportation cost increases, partially offset by lower sales volume of $41.6 million.
Net sales Net sales were $2,726.2 million for 2023 compared to $3,275.5 million for 2022, a decrease of $549.3 million, or 16.8 percent. The lower net sales compared to 2022 was driven mainly by a decrease in sales unit volume, partially offset by favorable price, including the carryover of price increases implemented in the second half of 2022.
Foreign currency impact was $4.8 million unfavorable during 2022 as compared to 2021. Cost of products sold Cost of products sold increased by $263.6 million, or 12.7 percent, to $2,335.0 million in 2022 as compared to $2,071.4 million in 2021, primarily due to commodity cost inflation, labor inflation and higher inbound transportation costs.
Foreign currency impact was unfavorable by $3.8 million during 2023 as compared to 2022. 32 Table of Contents Cost of products sold Cost of products sold decreased by $510.2 million, or 21.9 percent, to $1,824.8 million (66.9 percent of net sales) in 2023 as compared to $2,335.0 million (71.3 percent of net sales) in 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeA hypothetical 100 basis point change in interest rates affecting our external borrowings as of December 25, 2022 would increase our borrowing costs by $9.9 million on a pre-tax basis annually.
Biggest changeThe counterparties are major financial institutions. 41 Table of Contents Interest Rate Risk We had $712.5 million of external variable rate borrowings as of December 31, 2023 . A hypothetical 100 basis point increase in interest rates affecting our external borrowings as of December 31, 2023 would increase our borrowing costs by $7.1 million on a pre-tax basis annually.
Commodity Price Risk We are subject to commodity price volatility caused by weather, supply conditions, geopolitical and economic variables, and other unpredictable external factors. 40 Table of Contents
Commodity Price Risk We are subject to commodity price volatility caused by weather, supply conditions, geopolitical and economic variables, and other unpredictable external factors. 42 Table of Contents
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.
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.
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. The counterparties are major financial institutions. Interest Rate Risk We had $985.0 million of external variable rate borrowings as of December 25, 2022.
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.

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