MasterBrand(MBC) - 2022 Q4 - Annual Report

PART I Item 1. Business MasterBrand, Inc., North America's largest residential cabinet manufacturer, focuses on operational excellence and strategic growth post-spin-off - MasterBrand, Inc. was founded in 1954 and is the largest manufacturer of residential cabinets in North America based on 2021 net sales[10] - On December 14, 2022, the company completed a tax-free spin-off from Fortune Brands Innovations, Inc., becoming an independent, publicly-traded company[11] - The company's strategy, 'The MasterBrand Way,' focuses on three initiatives: Align to Grow (reduce complexity, standardize platforms), Lead Through Lean (engage teams, foster problem-solving), and Tech Enabled (leverage digital, data, and analytics for profitable growth and enhanced customer experience)[15][16][19] - Products are sold through three primary channels: dealers (over 4,500 across U.S. and Canada), top North American retailers (Lowe's, Home Depot), and strategic builders. The company is also actively growing its presence in the e-commerce channel[22][24] Net Sales by Key Customer (2022 vs. 2021) | Customer | 2022 Net Sales (%) | 2021 Net Sales (%) | | :--------------- | :--------------- | :--------------- | | Lowe's Companies | 20% | 18% |\ | The Home Depot | 17% | 18% |\ | International | 6% | 6% | Workforce Distribution (as of Dec 25, 2022) | Role | Number of Associates | | :------------------------ | :------------------- | | Production and Distribution | 11,392 |\ | Office | 2,262 |\ | Total | 13,654 | Safety Measures (2022 vs. 2021) | Metric | 2022 | 2021 | BLS 2021 Industry Average | | :----- | :----- | :----- | :------------------------ | | TRIR | 1.04 | 1.10 | 3.4 |\ | LTR | 0.26 | 0.34 | 1.1 | Item 1A. Risk Factors The company faces risks from economic conditions, competition, operations, its spin-off, and common stock - Risks related to the business include: downward changes in the general economy, housing market, or interest rates; intense competition in the cabinet industry with low barriers to entry; competition from countries with lower labor costs; failure to develop new products; reliance on dealer/retailer performance; loss of significant customers (Lowe's and Home Depot account for ~37% of net sales in 2022); and challenges in improving organizational productivity and supply chain efficiency[48][56][58][61][62][64][65][69] - Operational risks include: global commodity and energy price volatility, sustained inflation, inability to attract/retain qualified personnel, labor disputes, COVID-19 disruptions, IT system delays/breaches, and risks associated with international operations (e.g., political, economic, trade environments)[49][71][73][75][76][78][81][82][83][84] - Risks related to the Separation and Distribution include: short independent operating history, reduced diversification compared to Fortune Brands, potential inability to achieve expected benefits of independence, significant time/expense involved in separation, less beneficial terms in agreements with Fortune Brands, and potential tax liabilities if the spin-off fails to qualify as tax-free[52][111][112][113][116][117][118][119][122][123][124] - Risks related to common stock include: no historical public market for common stock, potential significant fluctuations in market price, future dilution from equity issuances, reliance on subsidiary dividends (as a holding company), and anti-takeover provisions in corporate documents[53][134][136][137][138][139] Item 1B. Unresolved Staff Comments There are no unresolved staff comments from the SEC Item 2. Properties MasterBrand, Inc. operates 48 manufacturing and distribution facilities across North America, primarily in the United States Operational Facilities by Type and Region (as of Dec 25, 2022) | Type 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 | - 18 manufacturing facilities are owned and 5 are leased; 21 distribution centers and warehouses are leased and 4 are owned[156] Item 3. Legal Proceedings Routine litigation matters are not expected to materially affect the company's financial condition or operations - The company is a defendant in routine litigation matters but believes these will not materially adversely affect its financial condition, results of operations, or cash flows[158] Item 4. Mine Safety Disclosures This item is not applicable to the company PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities MasterBrand's common stock is listed on the NYSE under 'MBC', with no short-term cash dividends expected - MasterBrand's common stock is listed on the New York Stock Exchange under the trading symbol "MBC"[161] - The company currently intends to retain future earnings to finance its business or reduce debt and does not expect to pay cash dividends in the short term[162] - As of March 7, 2023, there were 8,090 record holders of the company's common stock[164] - No equity securities were purchased by the issuer during the thirteen-week period ended December 25, 2022[166] Item 6. Reserved This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations This section analyzes MasterBrand's financial condition, operations, liquidity, and critical accounting estimates post-spin-off Overview MasterBrand, North America's largest cabinet manufacturer, reported $3.28 billion in net sales and $203.3 million in operating income for 2022, impacted by charges - MasterBrand is the largest manufacturer of residential cabinets in North America, leveraging superior product quality, innovative design, and service excellence[174] Financial Performance Overview (2022 vs. 2021) | Metric | 2022 (Millions USD) | 2021 (Millions USD) | Change (Millions USD) | Change (%) | | :-------------- | :-------- | :-------- | :---------- | :--------- | | Net Sales | $3,275.5 | $2,855.3 | $420.2 | 14.7% |\ | Operating Income| 203.3 | 234.3 | (31.0) | (13.2%) | - The decrease in operating income was primarily due to $46.4 million in indefinite-lived tradename impairment, $20.9 million in additional restructuring charges, and $30.1 million in increased corporate expense allocations from Fortune Brands[175] Separation from Fortune Brands MasterBrand completed a tax-free spin-off from Fortune Brands on December 14, 2022, becoming an independent public company - On December 14, 2022, Fortune Brands completed a tax-free spin-off of its Cabinets segment, MasterBrand, Inc., to its stockholders, making MasterBrand an independent, publicly-traded company listed on the NYSE under 'MBC'[176][177][178] - The separation was facilitated by several agreements, including a Separation and Distribution Agreement, Transition Services Agreement, Tax Allocation Agreement, and Employee Matters Agreement, to govern ongoing relationships and ensure an orderly transition[179][272] - Benefits of the separation include sharpened strategic and management focus, tailored resource allocation and capital deployment, and distinct investment opportunities for investors[179] Basis of Presentation Financial statements reflect historical carve-out information and corporate expense allocations from Fortune Brands on a 52- or 53-week fiscal year - The consolidated financial statements are prepared on a 52- or 53-week fiscal year basis, ending on the last Sunday in December, and reflect historical carve-out financial information prior to the Separation[180][274] - Historical financial statements include allocations of corporate expenses from Fortune Brands, totaling $92.5 million in 2022, $62.0 million in 2021, and $61.6 million in 2020, which may not be indicative of future standalone costs[181][276] - Income tax amounts are calculated on a separate return method, and pre-Separation tax payments/refunds were handled by Fortune Brands, with net taxes payable to Fortune Brands recorded as $32.6 million as of December 25, 2022[182][278] - The company incurred $2.2 million in interest expense in 2022 due to new indebtedness incurred post-Separation, whereas prior periods had no third-party borrowings[196] Results of Operations Net sales increased by 14.7% to $3.28 billion in 2022, while operating income decreased by 13.2% to $203.3 million due to charges and expenses Consolidated Statements of Income (2022 vs. 2021) | (Millions USD) | 2022 | 2021 | Change (Millions USD) | Change (%) | | :---------------------------------- | :-------- | :-------- | :---------- | :--------- | | Net sales | $3,275.5 | $2,855.3 | $420.2 | 14.7% |\ | Cost of products sold | 2,335.0 | 2,071.4 | 263.6 | 12.7% |\ | Gross Profit | 940.5 | 783.9 | 156.6 | 20.0% |\ | Selling, general and administrative expenses | 648.5 | 527.6 | 120.9 | 22.9% |\ | Amortization of intangible assets | 17.2 | 17.8 | (0.6) | (3.4%) |\ | Asset impairment charges | 46.4 | — | 46.4 | n/m |\ | Restructuring charges | 25.1 | 4.2 | 20.9 | n/m |\ | Operating income | 203.3 | 234.3 | (31.0) | (13.2%) |\ | Related party interest income, net | (12.9) | (4.6) | (8.3) | 180.4% |\ | Interest expense | 2.2 | — | 2.2 | n/m |\ | Other expense, net | 0.6 | 0.6 | — | n/m |\ | Income before taxes | 213.4 | 238.3 | (24.9) | (10.4%) |\ | Income tax expense | 58.0 | 55.7 | 2.3 | 4.1% |\ | Net income | $155.4 | $182.6 | $(27.2) | (14.9%) | - Net sales increased by $420.2 million (14.7%) in 2022, driven by favorable pricing, partially offset by lower sales volume and unfavorable foreign currency impact[188] - Cost of products sold increased by $263.6 million (12.7%) due to commodity and labor inflation, and higher inbound transportation costs, partially offset by manufacturing productivity improvements[189] - Selling, general and administrative expenses rose by $120.9 million (22.9%) due to higher distribution costs, employee-related costs, increased corporate expense allocations from Fortune Brands, and direct separation-related costs[190] - Asset impairment charges of $46.4 million were recognized in 2022, primarily related to indefinite-lived tradenames due to shifts in production and customer demand amid inflation and elevated interest rates[191][192] - Restructuring charges increased by $20.9 million to $25.1 million in 2022, mainly for severance and employee-related costs from facility relocations and closures[193] - Operating income decreased by $31.0 million (13.2%) in 2022, primarily due to the aforementioned impairment, restructuring, and increased corporate expense allocations[194] Income Tax Expense and Effective Tax Rate (2022 vs. 2021) | (Millions USD) | 2022 | 2021 | | :------------------ | :----- | :----- | | Income before taxes | $213.4 | $238.3 |\ | Income tax expense | 58.0 | 55.7 |\ | Effective tax rate | 27.2% | 23.4% | - The effective tax rate increased to 27.2% in 2022 from 23.4% in 2021, mainly due to state and local income taxes and IRS audit adjustments, partially offset by benefits from uncertain tax position releases and lower foreign tax rates[199][200] Liquidity and Capital Resources MasterBrand established its own treasury post-spin-off, securing a $1.25 billion credit agreement for working capital and capital expenditures - Post-Separation, MasterBrand no longer receives financial support from Fortune Brands and has established its own centralized treasury and cash management. The company's primary liquidity needs are for working capital, capital expenditures, and potential acquisitions[202][203] - On November 18, 2022, MasterBrand entered into a 5-year, $1.25 billion credit agreement, comprising a $750 million term loan and a $500 million revolving credit facility. Initial proceeds of $955 million were used to pay a $940.0 million cash dividend to Fortune Brands and cover related fees[204] - As of December 25, 2022, the company had $985.0 million in outstanding third-party borrowings and was in compliance with all financial covenants of the 2022 Credit Agreement[207][206] Cash Flows Summary (2022 vs. 2021) | (Millions USD) | 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) |\ | Net (decrease) in cash and cash equivalents | $(40.3) | $(12.9) | - Operating cash flow increased in 2022 due to net income and non-cash charges, despite increases in inventory driven by higher material costs and strategic inventory build-up[210] - Financing activities in 2022 reflect the $940.0 million dividend payment to Fortune Brands, funded by new external debt, and the cessation of financing relationships with Fortune Brands[212] - The company believes its cash, operating cash flows, and credit facilities are adequate for future needs, with access to additional capital markets for strategic initiatives[214] Allowance for Doubtful Accounts (2022 vs. 2021) | (Millions USD) | 2022 | 2021 | | :------------ | :---- | :---- | | Ending balance| $11.6 | $2.5 | - The pension plan, frozen since 2016, had assets of $119.4 million (92.6% of accumulated benefit obligation) as of December 25, 2022, with $1.1 million in contributions during fiscal 2022[217] Contractual Obligations (as of Dec 25, 2022) | Obligation Type | Total (Millions USD) | Due within 1 year (Millions USD) | | :-------------------- | :--------- | :--------------------- | | Purchase obligations | $234.6 | $223.9 |\ | Operating lease payments | $59.0 | $15.2 |\ | Debt payments | $985.0 | $18.8 |\ | Interest payments | $301.9 | $70.6 | Recently Issued Accounting Standards Recent accounting standards for government assistance and income taxes did not materially affect the company's financial statements - The adoption of ASU 2021-10 (Government Assistance) and ASU 2019-12 (Simplifying the Accounting for Income Taxes) did not have a material effect on the company's financial statements[225][331][332] - There are no other recently issued accounting pronouncements expected to have a material effect on the company's financial position, results of operations, or cash flows[333] Critical Accounting Estimates Critical accounting estimates include inventories, intangible assets, defined benefit plans, income taxes, and customer program costs, with $46.4 million in 2022 impairment charges - Critical accounting estimates include inventories (provisions for obsolete/slow-moving items), goodwill and indefinite-lived intangible assets (annual impairment testing using discounted cash flow and relief-from-royalty approaches), defined benefit plans (actuarial assumptions for discount rates, asset returns, mortality), income taxes (deferred taxes, uncertain tax benefits, valuation allowances), and customer program costs (revenue reductions for incentives)[227][228][241][247][253] - In 2022, the company recognized $46.4 million in asset impairment charges related to indefinite-lived tradenames due to shifts in production and customer demand, influenced by inflation and elevated interest rates[234][235][236] Key Assumptions for Indefinite-Lived Tradenames Impairment Testing (2022 vs. 2021 vs. 2020) | Unobservable Input | 2022 (Weighted Average) | 2021 (Weighted Average) | 2020 (Weighted Average) | | :-------------------------- | :------------- | :------------- | :------------- | | Discount rate | 12.2% | 11.2% | 12.9% |\ | Royalty rate | 3.5% | 3.4% | 3.3% |\ | Long-term revenue growth rate | 2.0% | 2.6% | 2.6% | - A 50 basis point change in discount rate, royalty rate, or long-term revenue growth rate at December 25, 2022, would have resulted in incremental impairments of $2.8 million, $12.2 million, and $1.5 million, respectively, for the impaired tradenames[240] Pension Expense (Income) and Actuarial Loss (2022 vs. 2021 vs. 2020) | (Millions USD) | 2022 | 2021 | 2020 | | :---------------------------------- | :----- | :----- | :----- | | Total pension expense (income) | $(2.0) | $(2.8) | $(0.2) |\ | Actuarial loss component of expense | 0.2 | — | 0.5 | - The 2022 actuarial losses were primarily due to negative asset returns, partially offset by increased discount rates (5.2% in 2022 vs. 3.0% in 2021 for benefit obligations)[245][244] Item 7A. Quantitative and Qualitative Disclosures About Market Risk MasterBrand is exposed to market risks from interest rates, foreign currency, and commodity prices, using forward foreign exchange contracts for hedging - MasterBrand is exposed to market risks from changes in interest rates, foreign currency exchange rates, and commodity prices[254] - The company uses forward foreign exchange contracts to hedge currency fluctuations, primarily for the Canadian dollar and Mexican peso, but does not use derivatives for trading or speculation[256][254] - A hypothetical 100 basis point increase in interest rates on the $985.0 million variable rate borrowings as of December 25, 2022, would increase annual pre-tax borrowing costs by $9.9 million[255] Item 8. Financial Statements and Supplementary Data This section presents audited consolidated financial statements, notes, and the independent auditor's report Consolidated Statements of Income This section presents consolidated statements of income for 2022, 2021, and 2020, detailing net sales, gross profit, operating income, and net income Consolidated Statements of Income (2022, 2021, 2020) | (Millions USD, except per share amounts) | 2022 | 2021 | 2020 | | :-------------------------------------- | :-------- | :-------- | :-------- | | NET SALES | $3,275.5 | $2,855.3 | $2,469.3 |\ | Cost of products sold | 2,335.0 | 2,071.4 | 1,766.3 |\ | GROSS PROFIT | 940.5 | 783.9 | 703.0 |\ | Selling, general and administrative expenses | 648.5 | 527.6 | 473.6 |\ | Amortization of intangible assets | 17.2 | 17.8 | 17.8 |\ | Asset impairment charges | 46.4 | — | 9.5 |\ | Restructuring charges | 25.1 | 4.2 | 6.1 |\ | OPERATING INCOME | 203.3 | 234.3 | 196.0 |\ | Related party interest income, net | (12.9) | (4.6) | (2.4) |\ | Interest expense | 2.2 | — | — |\ | Other expense, net | 0.6 | 0.6 | 2.2 |\ | Income before taxes | 213.4 | 238.3 | 196.2 |\ | Income tax expense | 58.0 | 55.7 | 50.5 |\ | NET INCOME | $155.4 | $182.6 | $145.7 |\ | Basic Earnings Per Common Share | $1.21 | $1.43 | $1.14 |\ | Diluted Earnings Per Common Share | $1.20 | $1.43 | $1.14 | Consolidated Statements of Comprehensive Income This section presents consolidated statements of comprehensive income for 2022, 2021, and 2020, detailing net income and other comprehensive income components Consolidated Statements of Comprehensive Income (2022, 2021, 2020) | (Millions USD) | 2022 | 2021 | 2020 | | :---------------------------------------------- | :-------- | :-------- | :-------- | | NET INCOME | $155.4 | $182.6 | $145.7 |\ | Other comprehensive (loss) income, before tax: | | | |\ | Foreign currency translation adjustments | (9.9) | (0.9) | 4.2 |\ | Unrealized gains (losses) on derivatives | 2.7 | (2.4) | 0.9 |\ | Defined benefit plans | (4.4) | 9.4 | 0.2 |\ | Other comprehensive (loss) income, before tax | (11.6) | 6.1 | 5.3 |\ | Income tax benefit (expense) related to items of other comprehensive income | 1.0 | (2.3) | (0.3) |\ | Other comprehensive (loss) income, net of tax | (10.6) | 3.8 | 5.0 |\ | COMPREHENSIVE INCOME | $144.8 | $186.4 | $150.7 | Consolidated Balance Sheets This section presents consolidated balance sheets as of December 25, 2022, and December 26, 2021, detailing assets, liabilities, and equity Consolidated Balance Sheets (as of Dec 25, 2022 vs. Dec 26, 2021) | (Millions USD) | 2022 | 2021 | | :---------------------------------------------- | :-------- | :-------- | | ASSETS | | |\ | Cash and cash equivalents | $101.1 | $141.4 |\ | Accounts receivable, net | 289.6 | 305.3 |\ | Inventories | 373.1 | 304.3 |\ | TOTAL CURRENT ASSETS | 830.0 | 810.0 |\ | Property, plant and equipment, net | 352.6 | 338.7 |\ | Goodwill | 924.2 | 926.2 |\ | Other intangible assets, net | 349.8 | 415.7 |\ | Related party receivable | — | 419.7 |\ | TOTAL ASSETS | $2,529.4 | $3,004.9 |\ | LIABILITIES AND EQUITY | | |\ | Accounts payable | $219.2 | $203.9 |\ | Current portion of long-term debt | 17.5 | — |\ | TOTAL CURRENT LIABILITIES | 411.1 | 364.1 |\ | Long-term debt | 961.5 | — |\ | Deferred income taxes | 87.3 | 88.9 |\ | Related party payable | — | 9.1 |\ | TOTAL LIABILITIES | 1,520.2 | 551.1 |\ | TOTAL EQUITY | 1,009.2 | 2,453.8 |\ | TOTAL LIABILITIES AND EQUITY | $2,529.4 | $3,004.9 | Consolidated Statements of Cash Flows This section presents consolidated statements of cash flows for 2022, 2021, and 2020, detailing operating, investing, and financing activities Consolidated Statements of Cash Flows (2022, 2021, 2020) | (Millions USD) | 2022 | 2021 | 2020 | | :-------------------------------------- | :-------- | :-------- | :-------- | | NET CASH PROVIDED BY OPERATING ACTIVITIES | $235.6 | $148.2 | $204.6 |\ | NET CASH USED IN INVESTING ACTIVITIES | (55.9) | (51.5) | (26.7) |\ | NET CASH USED IN FINANCING ACTIVITIES | (215.3) | (109.7) | (179.2) |\ | Effect of foreign exchange rate changes on cash | (4.7) | 0.1 | 0.8 |\ | NET DECREASE IN CASH AND CASH EQUIVALENTS | $(40.3) | $(12.9) | $(0.5) |\ | Cash and cash equivalents at beginning of year | $141.4 | $154.3 | $154.8 |\ | Cash and cash equivalents at end of year | $101.1 | $141.4 | $154.3 | Consolidated Statements of Equity This section presents consolidated statements of equity for 2022, 2021, and 2020, detailing changes in common stock, paid-in capital, and retained earnings Consolidated Statements of Equity (2022, 2021, 2020) | (Millions USD) | Common Stock Shares | Common Stock Amount (Millions USD) | Paid-In Capital (Millions USD) | Treasury stock, at cost (Millions USD) | Accumulated Other Comprehensive (Loss) Income (Millions USD) | Retained Earnings (Millions USD) | Total Equity (Millions USD) | | :---------------------------------------------- | :------------------ | :------------------ | :-------------- | :---------------------- | :-------------------------------------------- | :---------------- | :----------- | | Balance at December 29, 2019 | 0.0 | $0.0 | $157.8 | $— | $(12.7) | $1,857.2 | $2,002.3 |\ | Net income | — | — | — | — | — | 145.7 | 145.7 |\ | Other comprehensive income | — | — | — | — | 5.0 | — | 5.0 |\ | Stock-based compensation | — | — | 9.7 | — | — | — | 9.7 |\ | Net contributions from Fortune Brands | — | — | 51.7 | — | — | — | 51.7 |\ | Balance at December 27, 2020 | 0.0 | $0.0 | $219.2 | $— | $(7.7) | $2,002.9 | $2,214.4 |\ | Net income | — | — | — | — | — | 182.6 | 182.6 |\ | Other comprehensive income | — | — | — | — | 3.8 | — | 3.8 |\ | Stock-based compensation | — | — | 9.3 | — | — | — | 9.3 |\ | Net contributions from Fortune Brands | — | — | 43.7 | — | — | — | 43.7 |\ | Balance at December 26, 2021 | — | $— | $272.2 | $— | $(3.9) | $2,185.5 | $2,453.8 |\ | Distribution of MasterBrand, Inc. stock to Fortune Brands shareholders | 128.0 | 1.3 | — | | — | — | 1.3 |\ | Net income | — | — | — | — | — | 155.4 | 155.4 |\ | Other comprehensive loss | — | — | — | — | (10.6) | — | (10.6) |\ | Stock-based compensation | — | — | 10.9 | (0.1) | — | — | 10.8 |\ | Dividend to Fortune Brands | — | — | — | — | — | (940.0) | (940.0) |\ | Net contributions from (distributions to) Fortune Brands | — | — | 110.6 | — | — | (105.3) | 5.3 |\ | Return of capital to Fortune Brands | — | — | (393.7) | — | — | (273.1) | (666.8) |\ | Balance at December 25, 2022 | 128.0 | $1.3 | $— | $(0.1) | $(14.5) | $1,022.5 | $1,009.2 | Notes to Consolidated Financial Statements This section provides detailed notes to the financial statements, covering accounting policies, debt, income taxes, pension plans, and related party transactions - Note 1 details the company's background, including its spin-off from Fortune Brands on December 14, 2022, and the basis of presentation for its consolidated financial statements as a standalone public company[269][271][272] - Note 2 outlines significant accounting policies, including revenue recognition, customer program costs, cost of products sold, SG&A expenses, stock-based compensation, foreign currency translation, income taxes, earnings per share, allowances for credit losses, inventories, property/plant/equipment, leases, goodwill, indefinite-lived intangible assets, derivative financial instruments, pension/postretirement benefits, insurance reserves, and litigation contingencies[283][284][285][287][288][290][292][293][302][303][304][305][306][307][309][312][318][324][326][328][329][330] Disaggregated Revenue by Channel (2022, 2021, 2020) | (Millions USD) | 2022 | 2021 | 2020 | | :------------ | :-------- | :-------- | :-------- | | Dealers | $1,674.0 | $1,489.6 | $1,220.0 |\ | Retailers | 1,083.0 | 931.4 | 879.9 |\ | Builders | 329.8 | 259.5 | 219.7 |\ | U.S. net sales| 3,086.8 | 2,680.5 | 2,319.6 |\ | International | 188.7 | 174.8 | 149.7 |\ | Net sales | $3,275.5 | $2,855.3 | $2,469.3 | - Note 11 details the company's debt, including a $1.25 billion credit agreement (a $750 million term loan and a $500 million revolving credit facility) entered into on November 18, 2022, with $985.0 million outstanding as of December 25, 2022[369] - Note 12 reports restructuring charges of $25.1 million in 2022, primarily for severance and employee-related costs due to facility relocations and closures[374] - Note 13 discusses income taxes, with an effective tax rate of 27.2% in 2022, up from 23.4% in 2021, influenced by IRS audit adjustments and state/local taxes[381] - Note 14 covers pension and other postretirement plans, noting the pension plan was frozen in 2016. Actuarial losses in 2022 were mainly due to negative asset returns[401][404] - Note 17 details stock-based compensation, including the adjustment of Fortune Brands' awards into MasterBrand stock awards post-Separation. Total pre-tax expense was $10.9 million in 2022[421][424] - Note 20 addresses related party transactions, explaining the historical financial support and expense allocations from Fortune Brands prior to the Separation, and the cessation of these arrangements[438][439][440] - Note 21 reports a subsequent event: a tornado hit the Jackson, Georgia facility on January 12, 2023, causing damage and disrupting operations, with potential insurance coverage for losses[447] Report of Independent Registered Public Accounting Firm PricewaterhouseCoopers LLP issued an unqualified opinion on the financial statements, highlighting indefinite-lived tradename impairment as a critical audit matter - PricewaterhouseCoopers LLP issued an unqualified opinion, stating that the consolidated financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows in conformity with GAAP[452] - A Critical Audit Matter identified was the quantitative impairment tests for certain indefinite-lived tradenames, due to significant management judgment in fair value estimates and the complexity of evaluating assumptions like forecasted revenue growth rates, royalty rates, and discount rates[457][458] Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures There have been no changes in or disagreements with accountants on accounting and financial disclosures Item 9A. Controls and Procedures Management concluded disclosure controls were effective as of December 25, 2022, with no material changes in internal control over financial reporting - As of December 25, 2022, the CEO and CFO concluded that disclosure controls and procedures were effective[463] - The report does not include a management's assessment or auditor attestation on internal control over financial reporting due to a transition period for newly public companies[464] - There were no material changes in internal control over financial reporting during the quarter ended December 25, 2022[465] Item 9B. Other Information This item contains no other information Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company PART III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[470] - The company's code of conduct is available on its website under the 'Investors' section[471] Item 11. Executive Compensation Information on executive compensation is incorporated by reference from the 2023 Proxy Statement - Information on executive compensation is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[472] Item 12. Security Ownership of Certain Beneficial Owner and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2023 Proxy Statement - Information on security ownership and related stockholder matters is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[473] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Proxy Statement - Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[474] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the 2023 Annual Meeting of Shareholders Proxy Statement[475] PART IV Item 15. Exhibits, Financial Statement Schedules This section lists consolidated financial statements, schedules, and exhibits, including key spin-off agreements and corporate governance documents - The report includes Consolidated Statements of Income, Comprehensive Income, Balance Sheets, Cash Flows, and Equity for the years ended December 25, 2022, December 26, 2021, and December 27, 2020, along with Notes to Consolidated Financial Statements and the Report of Independent Registered Public Accounting Firm[478] - Financial statement schedules include Valuation and Qualifying Accounts for allowances related to cash discounts, sales allowances, customer programs, and deferred tax assets[479] - Exhibits include the Separation and Distribution Agreement, Amended and Restated Certificate of Incorporation and Bylaws, Transition Services Agreement, Tax Allocation Agreement, Employee Matters Agreement, and various incentive plans[482] Item 16. Form 10-K Summary This item is not applicable and contains no summary Signatures This section contains the required signatures for the Annual Report on Form 10-K from the CEO, CFO, Chief Accounting Officer, and Board of Directors - The report is signed by R. David Banyard, Jr. (President & CEO), Andrea H. Simon (EVP & CFO), Mark A. Young (VP & Chief Accounting Officer), and several Directors, dated March 10, 2023[487][490] Schedule II Valuation and Qualifying Accounts This schedule summarizes changes in valuation and qualifying accounts for 2022, 2021, and 2020, including allowances for discounts, customer programs, and deferred tax assets Valuation and Qualifying Accounts Activity (2022, 2021, 2020) | (Millions USD) | Balance at Beginning of Period | Charges (Millions USD) | Write-offs and (Millions USD) Deductions | Balance at End of Period | | :---------------------------------------------- | :----------------------------- | :---------- | :---------------------------- | :----------------------- | | 2022: | | | | |\ | Allowance for cash discounts and sales allowances | $5.6 | $85.2 | $85.2 | $5.6 |\ | Customer program allowance | 55.3 | 141.0 | 138.0 | 58.3 |\ | Allowance for deferred tax assets | 1.2 | — | — | 1.2 |\ | 2021: | | | | |\ | Allowance for cash discounts and sales allowances | $5.9 | $66.5 | $66.8 | $5.6 |\ | Customer program allowance | 37.2 | 157.1 | 139.0 | 55.3 |\ | Allowance for deferred tax assets | 1.3 | (0.1) | — | 1.2 |\ | 2020: | | | | |\ | Allowance for cash discounts and sales allowances | $4.8 | $98.7 | $97.6 | $5.9 |\ | Allowance for credit losses | 0.8 | 2.5 | 0.9 | 2.4 |\ | Customer program allowance | 28.1 | 9.1 | — | 37.2 |\ | Allowance for deferred tax assets | 0.2 | 1.1 | — | 1.3 | - Charges for cash discounts, sales allowances, and customer program allowances are classified as a reduction in net sales. Charges for credit losses are classified as selling, general and administrative expenses. Charges for deferred tax assets are classified as income tax expense[491]