MBC filing — read by section

Item 8. Financial Statements and Supplementary Data

Item 8. Financial Statements and Supplementary Data 
 Consolidated Statements of Income 
 MasterBrand, Inc. 
 
 For years ended 
 (In millions, 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 
 Average Number of Shares of Common Stock Outstanding 
 Basic 128.0 128.0 128.0 
 Diluted 129.1 128.0 128.0 
 Earnings Per Common Share 
 Basic $ 1.21 $ 1.43 $ 1.14 
 Diluted $ 1.20 $ 1.43 $ 1.14 

 See Notes to Consolidated Financial Statements. 
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 Consolidated Statements of Comprehensive Income MasterBrand, Inc. 

 For years ended 
 (In millions) 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: 
 Unrealized holding gains (losses) arising during period 7.2 0.5 (1.4) 
 Less: reclassification adjustment for (gains) losses included in net income (4.5) (2.9) 2.3 
 Unrealized gains (losses) on derivatives 2.7 (2.4) 0.9 
 Defined benefit plans: 
 Net actuarial (losses) gains arising during period (6.1) 9.4 0.2 
 Less: Amortization of net actuarial loss and curtailment 1.7 — — 
 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 

 See Notes to Consolidated Financial Statements. 
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 Consolidated Balance Sheets MasterBrand, Inc. 

 (In millions) December 25,
2022 December 26,
2021 
 ASSETS 
 Current assets 
 Cash and cash equivalents $ 101.1 $ 141.4 
 Accounts receivable (net of allowances for credit losses of $11.6 million in 2022 and $2.5 million in 2021) 289.6 305.3 
 Inventories 373.1 304.3 
 Other current assets 66.2 59.0 
 TOTAL CURRENT ASSETS 830.0 810.0 
 Property, plant and equipment, net of accumulated depreciation 352.6 338.7 
 Operating lease right-of-use assets, net of accumulated amortization 52.3 61.2 
 Goodwill 924.2 926.2 
 Other intangible assets, net of accumulated amortization 349.8 415.7 
 Related party receivable — 419.7 
 Other assets 20.5 33.4 
 TOTAL ASSETS $ 2,529.4 $ 3,004.9 
 LIABILITIES AND EQUITY 
 Current liabilities 
 Accounts payable 219.2 203.9 
 Current portion of long-term debt 17.5 — 
 Current operating lease liabilities 13.9 13.2 
 Other current liabilities 160.5 147.0 
 TOTAL CURRENT LIABILITIES 411.1 364.1 
 Long-term debt 961.5 — 
 Deferred income taxes 87.3 88.9 
 Pension and other postretirement plan liabilities 12.2 9.8 
 Operating lease liabilities 40.7 50.0 
 Related party payable — 9.1 
 Other non-current liabilities 7.4 29.2 
 TOTAL LIABILITIES 1,520.2 551.1 
 Commitments (Note 15) and Contingencies (Note 16) 
 Equity 
 Common stock (par value $0.01 per share; authorized 750.0 million shares, issued and outstanding 128.0 million shares as of December 25, 2022) 1.3 — 
 Paid-in capital — 272.2 
 Treasury stock, at cost (0.1) — 
 Accumulated other comprehensive loss (14.5) (3.9) 
 Retained earnings 1,022.5 2,185.5 
 TOTAL EQUITY 1,009.2 2,453.8 
 TOTAL LIABILITIES AND EQUITY $ 2,529.4 $ 3,004.9 

 See Notes to Consolidated Financial Statements. 
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 Consolidated Statements of Cash Flows MasterBrand, Inc. 

 For years ended 
 (In millions) 2022 2021 2020 
 OPERATING ACTIVITIES 
 Net income $ 155.4 $ 182.6 $ 145.7 
 Non-cash expense (income): 
 Depreciation 47.3 44.4 48.0 
 Amortization of intangibles 17.2 17.8 17.8 
 Restructuring charges, net of cash payments 13.0 (0.4) (2.1) 
 
 Stock-based compensation 10.9 9.3 9.7 
 Asset impairment charges 46.4 — 9.5 
 
 Deferred taxes 2.3 (7.7) (10.0) 
 Changes in operating assets and liabilities: 
 Accounts receivable 13.5 (72.2) (25.6) 
 Inventories (70.1) (58.5) (42.3) 
 Other current assets (5.3) (1.7) (2.3) 
 Accounts payable 18.3 44.7 32.2 
 Accrued expenses and other current liabilities 1.8 3.0 22.2 
 Other items (15.1) (13.1) 1.8 
 NET CASH PROVIDED BY OPERATING ACTIVITIES 235.6 148.2 204.6 
 INVESTING ACTIVITIES 
 Capital expenditures (a) 
 (55.9) (51.6) (27.3) 
 Proceeds from the disposition of assets — 0.1 0.6 
 NET CASH USED IN INVESTING ACTIVITIES (55.9) (51.5) (26.7) 
 FINANCING ACTIVITIES 
 Issuance of long-term and short-term debt 985.0 — — 
 
 Related party borrowings 2,754.5 2,614.2 2,385.9 
 Related party repayments (3,009.4) (2,767.1) (2,616.5) 
 Net contributions from Fortune Brands 5.3 43.7 51.7 
 Dividend to Fortune Brands (940.0) — — 
 Payment of financing fees (10.1) — — 
 Payments of employee taxes withheld from share-based awards (0.1) — — 
 Shares of common stock returned for taxes 0.2 — — 
 Repayment of finance lease facilities (0.7) (0.5) (0.3) 
 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 

 a) Capital expenditures of $1.6 million, $4.1 million and $1.1 million that have not been paid as of December 25, 2022, December 26, 2021 and December 27, 2020, respectively, were excluded from the Consolidated Statement of Cash Flows. 
 b) Income taxes paid directly to taxing authorities, net of refunds received, were $10.3 million, $15.3 million, and $5.8 million during the years ended December 25, 2022, December 26, 2021 and December 27, 2020, respectively. Prior to the Separation in 2022, federal and state income tax payments and refunds were paid and received by Fortune Brands on our behalf. 
 
 See Notes to Consolidated Financial Statements. 
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 Consolidated Statements of Equity 
 MasterBrand, Inc. 
 
 Common Stock 
 (In millions) 
 Shares Amount Paid-In 
 Capital 
 Treasury stock, at cost 
 Accumulated 
 Other 
 Comprehensive 
 (Loss) Income 
 Retained 
 Earnings 
 Total 
 Equity 
 
 Balance at December 29, 2019 0.0 $ 0.0 $ 157.8 $ — $ (12.7) $ 1,857.2 $ 2,002.3 
 Comprehensive income: 
 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 
 Comprehensive income: 
 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 
 Comprehensive income: 
 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 

 See Notes to Consolidated Financial Statements. 
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 Notes to Consolidated Financial Statements 
 
 1. Background and Basis of Presentation 
 Background MasterBrand, Inc. is a leading manufacturer of residential cabinets in North America with a portfolio of leading residential cabinetry products for the kitchen, bathroom and other parts of the home. References to “Cabinets,” “MasterBrand,” “the Company,” “we,” “our” and “us” refer to MasterBrand, Inc. and its consolidated subsidiaries as a whole, unless the context otherwise requires. 
 
 On April 28, 2022, Fortune Brands announced that its Board of Directors approved in principle a separation of its Cabinets segment into a standalone publicly-traded company (the “Separation”). The Cabinets segment of Fortune Brands Home & Security, Inc. (“Fortune Brands” or the “Parent”) 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. 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”). 
 
 On December 14, 2022, the Separation was completed by way of a pro rata dividend of our common stock to stockholders of Fortune Brands common stock (the “Distribution”). On December 14, 2022, the date of Separation, 128.0 million shares of MasterBrand, Inc. common stock were issued. Fortune Brand shareholders received one share of MasterBrand, Inc. common stock for each share of Fortune Brands common stock held on the record date. 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. All share and per share amounts for all periods presented in the consolidated financial statements, including Note 19, “Common Stock” and Note 5, “Earnings Per Share,” 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. 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. MasterBrand, Inc. is the registrant and the financial reporting entity following the consummation of the Separation and Distribution. 
 
 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. 
 
 Basis of Presentation The accompanying financial statements are now presented on a consolidated basis as the company is a standalone public company. We have historically existed and functioned as a reporting segment of the consolidated business of Fortune Brands up until the Separation on December 14, 2022, at which time we became a standalone public company. Certain information from prior to the Separation on December 14, 2022 was derived from Fortune Brands consolidated financial statements and accounting records. The consolidated f inancial statements and notes to consolidated financial statements as of and subsequent to December 14, 2022, the date of the Separation, reflect the consolidated financial position, results of operations and cash flows for MasterBrand as an independent company. Prior to the Separation, the consolidated financial statements and notes to consolidated financial statements were prepared on a carve-out basis using the financial statements and accounting records of Fortune Brands. The carve-out basis financial statements represent the historical financial position, results of operations, and cash flows of MasterBrand as they were historically managed in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and 
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 reflect significant assumptions and allocations. The carve-out financial statements may not include all expenses that would have been incurred had MasterBrand existed as a standalone entity. 
 
 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. Fiscal 2022 consisted of 52 weeks ended on December 25, 2022. Fiscal 2021 consisted of 52 weeks ending on December 26, 2021. Fiscal 2020 consisted of 52 weeks ending on December 27, 2020. References herein to years are to our fiscal years. 
 
 The consolidated financial statements have been prepared in accordance with GAAP. 
 
 The Company has one operating segment based on the nature of products the Company sells, its production and distribution model, the internal management structure and information that is regularly reviewed by the chief executive officer (“CEO”), who is the chief operating decision maker, for the purpose of assessing performance and allocating resources. 
 
 The consolidated statements of income include all revenues and costs directly attributable to our business, including costs for facilities, functions, and services we utilize. The consolidated statements of income also include an allocation of expenses related to certain Fortune Brands corporate functions through the Separation, including information technology, finance, executive, human resources, supply chain, internal audit, governance and legal services. 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. Prior to the Separation, total expenses allocated for the 2022, 2021 and 2020 years were $92.5 million, $62.0 million and $61.6 million, respectively, of which $72.4 million, $42.3 million and $42.4 million, respectively, were not previously allocated to us. Such amounts are primarily included within selling, general and administrative expenses in the consolidated statements of income. 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 all of the periods presented. Actual costs that we may have incurred during the time periods we were not 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. Accordingly, historical allocations may not be indicative of future costs we incur operating as an independent, publicly-traded company. 
 
 The consolidated statements of income also include $15.4 million of costs related to the separation from Fortune Brands for the year ended December 25, 2022. The separation related costs include advisory fees, professional fees and other transaction related costs incurred directly by us. These costs are included within selling, general and administrative expenses. 
 
 The income tax amounts in the consolidated financial statements have been calculated on a separate-return method and presented as if our operations were separate taxpayers in the respective jurisdictions. 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. 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. 
 
 Following the Separation, a limited number of services that Fortune Brands provided to us, or we provided to them, prior to the Separation are continuing to be provided for a period of time under a Transition Services Agreement. 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 and legal services, as well as ongoing additional costs associated with operating as an independent, publicly-traded company. 
 
 For more information regarding related party transactions with Fortune Brands, see Note 20, “Related Party Transactions,” of our audited consolidated financial statements. Fortune Brands utilized a central approach to treasury management, and we historically participated in related cash pooling arrangements. Our cash and cash equivalents on our consolidated balance sheets represent cash balances held in bank accounts owned by the Company and its subsidiaries. Prior to the Separation, we had no third-party borrowings, and all borrowings attributable to our business and due to Fortune Brands were recorded as “related party payable” in our consolidated balance sheets and classified as current or noncurrent based on loan maturity dates. Fortune Brands’ third-party debt and related interest expense were not attributed to us as we were not 
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 the legal obligor of the debt, and the borrowings were not specifically identifiable to us. However, in connection with the Separation, we completed a financing transaction, which resulted in additional interest expense beginning in the fourth quarter of 2022. See Note 11, “Debt” for additional information. 
 
 During the fourth quarter of 2022, we recognized $8.7 million of additional expense in cost of goods sold as an out-of-period adjustment. This adjustment was to correct errors for expenses that should have been recognized of $5.1 million, $1.6 million and $2.0 million in the thirteen weeks ended March 27, 2022, June 26, 2022 and September 25, 2022, respectively. The adjustment did not have any impact on our annual consolidated financial statements for the year ended December 25, 2022. 
 
 2. Significant Accounting Policies 
 Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 
 
 Revenue Recognition In accordance with ASC 606, Revenue from Contracts with Customers, the Company recognizes revenue for the sale of goods based on its assessment of when control transfers to our customers. See Note 3, “Revenue from Contracts with Customers,” for additional information. 
 
 Customer Program Costs Customer programs and incentives are a common practice in our business. Our business incurs customer program costs to obtain favorable product placement, to promote sales of products and to maintain competitive pricing. These costs are recognized as either a reduction of revenue or within the selling, general and administrative expenses category, depending on the underlying nature of the cost. 
 
 We record estimates to reduce revenue for customer programs and incentives, which are considered variable consideration, and include price discounts, volume-based incentives, promotions and cooperative advertising when revenue is recognized in order to determine the amount of consideration the Company will ultimately be entitled to receive. These estimates are based on historical and projected experience for each type of customer. Volume allowances are accrued based on management’s estimates of customer volume achievement and other factors incorporated into customer agreements, such as new products, store sell-through, merchandising support, levels of returns and customer training. Management periodically reviews accruals for these rebates and allowances, and adjusts accruals when circumstances indicate, typically as a result of a change in volume expectations. 
 
 Cost of Products Sold Cost of products sold includes all costs to make products saleable, including the cost of materials, as well as labor costs, inbound freight, purchasing and receiving costs, inspection costs and internal transfer costs. In addition, all depreciation expense associated with assets used to manufacture products and make them saleable is included in cost of products sold. 
 
 Selling, General and Administrative Expenses Selling, general and administrative expenses include advertising costs; marketing costs; selling costs, including commissions; research and development costs; shipping and handling costs, including warehousing costs; and general and administrative expenses. Shipping and handling costs included in selling, general and administrative expenses wer e $209.9 million, $170.1 million and $124.8 million in 2022, 2021 and 2020, respectively . 
 
 Advertising costs, which amounted to $69.1 million, $65.6 million and $69.5 million in 2022, 2021 and 2020, respectively, are principally expensed as incurred. Advertising costs paid to customers as pricing rebates include product displays, marketing administration costs, media production costs and point of sale materials. Advertising costs recorded as a reduction to net sales, primarily cooperative advertising, were $29.4 million, $24.4 million and $26.4 million in 2022, 2021 and 2020, respectively. Advertising costs recorded in selling, general and administrative expenses were $39.7 million, $41.2 million and $43.1 million in 2022, 2021 and 2020, respectively. 
 
 Stock-based Compensation Some of our employees participate in stock-based compensation plans sponsored by the Company. Stock based compensation plans may include stock options, restricted stock, restricted stock units, performance shares, performance units, other types of stock-based awards, and other cash-based compensation. Stock-based compensation expense, measured as the fair value of an award on the date of grant, is recognized in the financial statements over the period that an employee is required to provide services in exchange for the award. Compensation expense is 
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 recorded net of estimated forfeitures. The fair value of each option award is measured on the date of grant using the Black-Scholes option-pricing model. The fair value of each performance share award is based on the average of the high and low share prices on the date of grant and the probability of meeting performance targets. The fair value of each restricted stock unit granted is equal to the average of the high and low share prices on the date of grant. See Note 17, “Stock-Based Compensation,” for additional information. 
 
 Foreign Currency Translation Foreign currency balance sheet accounts are translated into U.S. dollars at the actual rates of exchange at the balance sheet date. Income and expenses are translated at the average rates of exchange in effect during the period for the foreign subsidiaries where the local currency is the functional currency. The related translation adjustments are made directly to a separate component of the “accumulated other comprehensive income (loss)” (“AOCI”) caption in equity. Transactions denominated in a currency other than the functional currency of a subsidiary are translated into the functional currency with resulting transaction gains or losses recorded in other expense, net. 
 
 Income Taxes The income tax expense in our Consolidated Financial Statements has been determined on a stand-alone return basis in accordance with ASC Topic 740, Income Taxes, which requires the recognition of income taxes using the liability method. The tax provision and current and deferred tax balances have been prepared on a separate-return basis as if the Company were a separate filer. The income taxes of the Company, as presented in the consolidated financial statements, may not be indicative of the income taxes that the Company will incur in the future. 
 
 For taxable periods prior to and including the Separation, our operations were included in the consolidated U.S. federal and certain state and local income tax returns of Fortune Brands, as applicable. The Company filed separate foreign income tax returns. Indemnification related tax balances, including allocated amounts of estimated income taxes for the year ended December 25, 2022, will be settled with Fortune Brands pursuant to their filing of relevant income tax returns, including operations of the Company for taxable periods prior to and including the Separation. 
 
 Post-Separation, our income tax provisions are calculated based on the Company’s operating footprint, as well as our tax return elections and assertions. Income tax liabilities related to unrecognized tax benefits (“UTBs”), including interest and penalties, are reported as a liability within the Consolidated Balance Sheets based upon tax authorities’ ability to assert the Company may be legally liable for UTBs. For taxable periods ended after the Separation, the Company will file a consolidated U.S. federal income tax return and various state and local income tax returns. The Company’s foreign income tax returns will continue to be filed on a full-year basis. 
 
 The Company is subject to income taxes in the U.S. and various foreign jurisdictions. The determination of the Company’s income tax positions involves consideration of uncertainties, changing fiscal policies, tax laws, court rulings, regulations, and related legislation. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020, and includes several measures intended to assist companies during the COVID-19 pandemic including temporary changes to income and non-income-based laws. Accordingly, significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities, unrecognized tax benefits and the valuation allowance recorded against deferred tax assets. 
 
 Deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The recognition and measurement of deferred tax asset and liability balances, and the corresponding deferred tax expense or benefit, are determined for each tax-paying component in each relevant jurisdiction. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period the new tax rate is enacted. 
 
 The Company recognizes liabilities for unrecognized tax benefits which are recognized if the weight of available evidence indicates that it is not more-likely-than-not that the positions will be sustained on examination, including resolution of the related appeals or litigation processes, if any. We record liabilities for uncertain income tax positions based on a two-step process. The first step is recognition, where we evaluate whether an individual tax position has a likelihood of greater than 50 percent of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have a less than 50 percent likelihood of being sustained, no tax benefit is recorded. Considerable management judgment is necessary to assess the inherent uncertainties related to the interpretations of complex tax laws, regulations, and taxing authority rulings. For tax positions that have met the recognition threshold in the first step, we perform the second step of measuring the benefit to be recorded. The actual benefits ultimately realized may differ from our estimates. As of each balance sheet date, unrecognized tax benefits are reassessed and adjusted if the Company’s judgment changes as a result of new information, and changes in facts or circumstances Changes in recognition and measurement estimates are recorded in the Consolidated Statement of Income and Consolidated Balance Sheet in the period in which such changes occur. 
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 We reduce our deferred tax assets by a valuation allowance if it is more likely than not that we will not realize some portion or all of the deferred tax assets. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. In the event we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance in the period in which such changes occur, which would reduce the provision for income taxes. 
 
 The U.S. Tax Act introduced Global Intangible Low-Taxed Income (“GILTI”), which subjects a U.S. shareholder to current tax on income earned by certain foreign subsidiaries. GAAP allows companies to either (i) recognize deferred taxes for temporary differences that are expected to reverse as GILTI in future years or (ii) account for taxes on GILTI as period costs in the year the tax is incurred. The Company has elected to recognize GILTI tax as a period cost. 
 
 The Company recognizes tax-related interest and penalties as a component of income tax expense. 
 
 Earnings Per Share Earnings per common share is calculated by dividing net income attributable to MasterBrand, Inc. by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share include the impact of all potentially dilutive securities outstanding during the year. For comparative purposes, 2021 and 2020 have been retroactively recast to reflect the effects of the changes in equity structure resulting from the Reorganization, Separation and Distribution and assume the same basic weighted average shares. For years prior to the Separation, it is assumed that there are no dilutive securities as there were no stock-based awards of MasterBrand outstanding. See Note 5, “Earnings Per Share,” for further discussion. 
 
 Cash and Cash Equivalents We consider all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. We do not believe we are exposed to any significant credit risk on cash and cash equivalents. The carrying amounts of cash and cash equivalents approximate fair value. 
 
 Allowances for Credit Losses Trade receivables are recorded at the stated amount, less allowances for discounts and credit losses. The allowances represent estimated uncollectible receivables associated with potential customer defaults on contractual obligations (usually due to customers’ potential insolvency) or discounts related to early payment of accounts receivables by our customers. The allowances for credit losses include provisions for certain customers where a risk of default has been specifically identified. In addition, the allowances include a provision for expected customer defaults on a general formula basis when it cannot yet be associated with specific customers. Expected credit losses are estimated using various factors, including the length of time the receivables are past due, historical collection experience and existing economic conditions. In accordance with this policy, our allowance for credit losses was $11.6 million and $2.5 million as of December 25, 2022 and December 26, 2021, respectively. 
 
 Inventories Inventories are stated at the lower of cost or net realizable value, cost being determined on a first-in, first-out (FIFO) basis and net realizable value being determined on the basis of replacement cost. Inventory costs include direct materials, including freight, labor and manufacturing overhead. 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. If actual market conditions differ from our projections, and our estimates prove to be inaccurate, write-downs of inventory values and adjustments to cost of sales may be required. 
 
 Property, Plant and Equipment Property, plant and equipment are carried at cost. Depreciation is provided, principally on a straight-line basis, over the estimated useful lives of the assets. Gains or losses resulting from dispositions are included in operating income. Betterments and renewals, which improve and extend the life of an asset, are capitalized; maintenance and repair costs are expensed as incurred. Assets held for use to be disposed of at a future date are depreciated over the remaining useful life. Assets to be sold are written down to fair value less costs to sell at the time the assets are being actively marketed for sale. Estimated useful lives of the related assets are as follows: 
 
 Buildings and improvements to leaseholds 1 to 40 years 
 Machinery and equipment 1 to 20 years 

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 Long-lived Assets A long-lived asset (including amortizable identifiable intangible assets) or asset group held for use is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Examples of events or circumstances indicating that its carrying amount may not be recoverable include changes in volume, margin, customers and the industry. When such events occur, we compare the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of a long-lived asset or asset group. The cash flows are based on our best estimate of future cash flows derived from the most recent business projections. If this comparison indicates that there is an impairment, the amount of the impairment is calculated based on fair value. Fair value is estimated primarily using discounted expected future cash flows on a market-participant basis. 
 
 In 2022, we concluded we had triggering events requiring assessment of impairment for certain of our long-lived assets due to the impairment of certain indefinite-lived tradenames, as well as specific restructuring actions announced in 2022. We performed quantitative impairment analyses during the year and determined there were no impairments of long-lived assets through December 25, 2022. 
 
 Leases Operating lease assets and operating lease liabilities are recognized based on the present value of the future lease payments over the lease term at commencement date. As most of our lease contracts do not provide an explicit interest rate, we use our incremental borrowing rate in determining the present value of future lease payments. Our incremental borrowing rates include estimates related to the impact of collateralization and the economic environment where the leased asset is located. The operating lease assets also include any prepaid lease payments and initial direct costs incurred, but exclude lease incentives received at lease commencement. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Our leases have remaining lease terms of 1 to 33 years, some of which may include options to extend or terminate the lease. Operating lease expense is recognized on a straight-line basis over the lease term. 
 
 We do not recognize leases with an initial term of twelve months or less on the balance sheet and instead recognize the related lease payments as expense in the consolidated statements of income on a straight-line basis over the lease term. We account for lease and non-lease components as a single lease component for all asset classes. Additionally, for certain equipment leases, we apply a portfolio approach and account for multiple lease components as a single lease component. 
 
 Certain lease agreements include variable rental payments, including rental payments adjusted periodically for inflation. Variable rental payments are expensed during the period they are incurred and therefore are excluded from our lease assets and liabilities. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. 
 
 Goodwill and Indefinite-lived Intangible Assets We account for goodwill and other intangible assets in accordance with the provisions of Accounting Standards Codification (“ASC”) 350, Intangibles-Goodwill and Other, and account for business combinations using the acquisition method of accounting and, accordingly, the assets and liabilities of the entities acquired are recorded at their estimated fair values at the acquisition date. 
 
 Goodwill 
 Goodwill is tested for impairment at least annually in the fourth quarter and written down when impaired. An interim impairment test is performed if an event occurs or conditions change that would more likely than not reduce the fair value of the reporting unit below the carrying value. 
 
 To evaluate the recoverability of goodwill, we first assess qualitative factors to determine whether it is more likely than not that goodwill is impaired. Qualitative factors include changes in volume, margin, customers and the industry. If it is deemed more likely than not that goodwill for a reporting unit is impaired, we will perform a quantitative impairment test using a weighting of the income and market approaches. We may also elect to bypass the qualitative testing and proceed directly to the quantitative testing. Assessing qualitative factors during 2022 would not have resulted in us performing a quantitative impairment test. In 2022, we elected to bypass the qualitative testing and performed quantitative tests for all goodwill given the Separation from Fortune Brands. 
 
 For the income approach, we use a discounted cash flow model, estimating the future cash flows of the reporting units to which the goodwill relates and then discounting the future cash flows at a market-participant-derived discount rate. In determining the estimated future cash flows, we consider current and projected future levels of income based on management’s plans for that business; business trends, prospects and market and economic conditions; and market-participant considerations. For the market approach, we apply market multiples for peer groups to the current operating results of the reporting units to determine the reporting unit’s fair value. The Company’s reporting units are operating 
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 segments, or one level below operating segments when appropriate. When the estimated fair value of a reporting unit is less than its carrying value, we measure and recognize the amount of the goodwill impairment loss based on that difference. 
 
 The significant assumptions that are used to determine the estimated fair value for goodwill impairment testing include the following: third-party market forecasts of U.S. new home starts and home repair and remodel spending; management’s sales, operating income and cash flow forecasts; peer company EBITDA earnings multiples; the market-participant-based discount rate; and the perpetuity growth rate. Our estimates of reporting unit fair values are based on certain assumptions that may differ from our historical and future actual operating performance. Specifically, assumptions related to growth in the new construction and repair and remodel segments of the U.S. home products markets drive our forecasted sales growth. The market forecasts are developed using independent third-party forecasts from multiple sources. In addition, estimated future operating income and cash flow consider our historical performance at similar levels of sales volume and management’s future operating plans as reflected in annual and long-term plans that are reviewed and approved by management. As a result of the annual impairment assessments performed for 2022, 2021 and 2020, there were no goodwill impairments. 
 
 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 the Company indefinitely. Indefinite-lived intangible assets are not amortized, but are evaluated at least annually to determine whether the indefinite useful life is appropriate. We measure the fair value of identifiable intangible assets upon acquisition and we review for impairment annually in the fourth quarter and whenever market or business events indicate there may be a potential impairment of that intangible. Impairment losses are recorded to the extent that the carrying value of the indefinite-lived intangible asset exceeds its fair value. 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. 
 
 Our cash flow projections used to assess impairment of our goodwill and other intangible assets are significantly influenced by our projection for the U.S. home products market, our annual operating plans finalized in the fourth quarter of each fiscal year, and our ability to execute on various planned cost reduction initiatives supporting operating income improvements. Our projection for the U.S. home products market is inherently uncertain and is subject to a number of factors, such as employment, home prices, 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. Qualitative factors include changes in volume, customers and the industry. If it is deemed more likely than not that an intangible asset is impaired, we will perform a quantitative impairment test. We may also elect to bypass the qualitative testing and proceed directly to the quantitative testing. Utilizing this historical approach during fiscal 2022 would have required us to perform qualitative impairment tests over certain indefinite-lived tradenames. However, we elected to bypass the qualitative testing given the Separation from Fortune Brands and tested all of our indefinite-lived tradenames quantitatively during 2022. 
 
 We measure fair value of our indefinite-lived tradenames using the relief-from-royalty approach which estimates the present value of royalty income that could be hypothetically earned by licensing the brand name to a third party over the remaining useful life. The 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 quantitatively test the entire $183.1 million of indefinite-lived tradenames. In future years, we would expect to first assess qualitative factors prior to determining the need to perform a quantitative impairment test. During our 2021 annual impairment test, of our $231.8 million indefinite lived tradenames, we tested $180.7 million quantitatively, and the remainder was assessed using qualitative factors. We recognized impairment charges, which are classified as “Asset impairment charges” on our consolidated statements of income, related to certain indefinite-lived tradenames of $46.4 million and $9.5 million in 2022 and 2020, respectively. We did not recognize an impairment charge in 2021. See Note 8, “Goodwill and Identifiable Intangible Assets,” for additional information. 
 
 Events or circumstances that could have a potential negative effect on the estimated fair value of our reporting units and indefinite-lived tradenames include: lower than forecasted revenues, actual new construction and repair and remodel growth rates that fall below our assumptions, actions of key customers, increases in discount rates, continued economic uncertainty, higher levels of unemployment, weak consumer confidence, lower levels of discretionary consumer spending, a decrease in royalty rates and decline in the trading price of our common stock. We cannot predict the occurrence of 
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 certain events or changes in circumstances that might adversely affect the carrying value of goodwill and indefinite-lived assets. 
 
 Derivative Financial Instruments In accordance with ASC requirements for Derivatives and Hedging, we recognize all derivative contracts as either assets or liabilities on the balance sheet, and the measurement of those instruments is at fair value. If the derivative is designated as a fair value hedge and is effective, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings in the same period. If the derivative is designated as a cash flow hedge, the changes in the fair value of the derivative are recorded in other comprehensive income (loss) (“OCI”) and are recognized in the consolidated statement of income when the hedged item affects earnings. If the derivative is designated as an effective economic hedge of the net investment in a foreign operation, the changes in the fair value of the derivative is reported in the cumulative translation adjustment section of OCI. Similar to foreign currency translation adjustments, these changes in fair value are recognized in earnings only when realized upon sale or upon complete or substantially complete liquidation of the investment in the foreign entity. 
 
 Deferred currency gains (losses) o f $4.5 million, $2.9 million and $(2.3) million (before tax impact) were reclassified into earnings for the years ended 2022, 2021 and 2020, respectively. 
 
 Pension and Postretirement Benefits Other than Pensions We have a pension plan in the United States covering many of the Company’s employees. However, the plan has been frozen to new participants and benefit accruals were frozen for active participants on or before December 31, 2016. In addition, the Company provides postretirement health care and life insurance benefits to certain retirees. 
 
 We record amounts relating to these plans based on calculations in accordance with ASC requirements for Compensation—Retirement Benefits, which include various actuarial assumptions, including discount rates, assumed rates of return, turnover and mortality rates and health care cost trend rates. We recognize changes in the fair value of pension plan assets and net actuarial gains or losses in excess of 10 percent of the greater of the fair value of pension plan assets and each plan’s projected benefit obligation (the “corridor”) in earnings immediately upon remeasurement, which is at least annually in the fourth quarter of each year. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current economic conditions and trends. The discount rate used to measure obligations is based on a spot-rate yield curve on a plan-by-plan basis that matches projected future benefit payments with the appropriate interest rate applicable to the timing of the projected future benefit payments. The expected rate of return on plan assets is determined based on the nature of the plans’ investments, our current asset allocation and our expectations for long-term rates of return. For postretirement benefits, our health care trend rate assumptions are based on historical cost increases and expectations for long-term increases. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior employee service (prior service cost), is deferred and included in expense on a straight-line basis over the average remaining service period of the related employees. We believe that the assumptions utilized in recording obligations under our plans, which are presented in Note 14, “Pension and Other Postretirement Plans,” are reasonable based on our experience and on advice from our independent actuaries; however, differences in actual experience or changes in the assumptions may materially affect our financial position and results of operations. We will continue to monitor these assumptions as market conditions warrant. 
 
 Insurance Reserves We provide for expenses associated with workers’ compensation and product liability obligations when such amounts are probable and can be reasonably estimated. The accruals are adjusted as new information develops or circumstances change that would affect the estimated liability. 
 
 Litigation Contingencies Our business is subject to risks related to threatened or pending litigation and we are routinely defendants in lawsuits associated with the normal conduct of business. Liabilities and costs associated with litigation-related loss contingencies require estimates and judgments based on our knowledge of the facts and circumstances surrounding each matter and the advice of our legal counsel. We record liabilities for litigation-related losses when a loss is probable and we can reasonably estimate the amount of the loss in accordance with ASC Topic 450, Contingencies. We evaluate the measurement of recorded liabilities each reporting period based on the then-current facts and circumstances specific to each matter. The ultimate losses incurred upon final resolution of litigation-related loss contingencies may differ materially from the estimated liability recorded at any particular balance sheet date. Changes in estimates are recorded in earnings in the period in which such changes occur. 
 
 Accumulated Other Comprehensive Loss Accumulated Other Comprehensive Loss refers to gains and losses that under GAAP are included in comprehensive income but are excluded from net earnings as these amounts are recorded directly as an adjustment to equity. 
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 Recently Issued Accounting Standards 
 
 Accounting Standards Issued and Adopted 
 
 Disclosures by Business Entities About Government Assistance 
 In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, Government Assistance (Topic 832). The new guidance, codified in ASC 832, requires business entities that account for transactions with a government by applying a grant or contribution model by analogy to disclose information about government assistance recorded during the period. ASU 2021-10 is effective for all entities for annual reporting periods beginning after December 15, 2021. The adoption of this guidance did not have a material effect on our financial statements. 
 
 Simplifying the Accounting for Income Taxes 
 In December 2020, the FASB issued ASU 2019-12, which intended to simplify accounting for income taxes and improve consistency in application. ASU 2019-12 amended certain elements of income tax accounting, including but not limited to intraperiod tax allocations, step-ups in tax basis of goodwill, and calculating taxes on year-to-date losses in interim periods. The guidance was effective for the Company’s fiscal year beginning December 28, 2020. The adoption of this guidance did not have a material effect on our financial statements. 
 Accounting Standards Issued, But Not Yet Adopted 
 There are no recently issued accounting pronouncements that we have not yet adopted that are expected to have a material effect on our financial position, results of operations or cash flows. 
 
 3. Revenue from Contracts with Customers 
 Our principal performance obligations are the sale of high quality stock, semi-custom and premium cabinetry, as well as vanities, for the kitchen, bath and other parts of the home (collectively, “goods” or “products”). We recognize revenue for the sale of goods based on our assessment of when control transfers to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods to our customers. Payment terms on our product sales normally range from 30 to 90 days. Taxes assessed by a governmental authority that we collect are excluded from revenue. The expected costs associated with our contractual warranties are recognized as expense when the products are sold. See Note 16, “Contingencies and Accrued Product Warranties” for further discussion. 
 
 We record estimates to reduce revenue for customer programs and incentives, which are considered variable consideration, and include price discounts, volume-based incentives, promotions and cooperative advertising when revenue is recognized in order to determine the amount of consideration the Company will ultimately be entitled to receive. These estimates are based on historical and projected experience for each type of customer. In addition, for certain customer program incentives, we receive an identifiable benefit (goods or services) in exchange for the consideration given and record the associated expenditure in selling, general and administrative expenses. We account for shipping and handling costs that occur after the customer has obtained control of a product as a fulfillment activity (i.e., as an expense) rather than as a promised service (i.e., as a revenue element). These costs are classified within selling, general and administrative expenses. 
 
 Settlement of our outstanding accounts receivable balances is normally within 30 to 90 days of the original sale transaction date. Obligations arise for us from customer rights to return our goods for any reason, including among others, product obsolescence, stock rotations, trade-in agreements for newer products and upon termination of a customer contract. We estimate future product returns at the time of sale based on historical experience and record a corresponding refund obligation, which amounted to $3.0 million and $2.4 million as of December 25, 2022 and December 26, 2021, respectively. Refund obligations are classified within other current liabilities in our consolidated balance sheet. Return assets related to the refund obligation are measured at the carrying amount of the goods at the time of sale, less any expected costs to recover the goods and any expected reduction in value. 
 
 Net sales to two of the Company’s customers, Lowe’s Companies, Inc. (“Lowe’s”) and The Home Depot, Inc. (“The Home Depot”) each accounted for greater than 10 percent of the Company’s net sales in 2022, 2021 and 2020. Both of these customers have sales included in both the domestic “Retailers” and “International” categories in the disaggregated revenue table below. Net sales to Lowe’s were 20 percent, 18 percent and 21 percent of net sales in 2022, 2021 and 2020, 
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 respectively. Net sales to The Home Depot were 17 percent in 2022, and 18 percent of net sales in each of our 2021 and 2020 fiscal years. 
 
 The Company disaggregates revenue from contracts with customers into (i) major sales distribution channels in the U.S. and (ii) total sales to customers outside the U.S. market, as these categories depict the nature, amount, timing and uncertainty of revenues and cash flows that are affected by economic factors. The following table disaggregates our consolidated revenue by major sales distribution channels for 2022, 2021 and 2020. 
 
 (In millions) December 25,
2022 December 26, 
2021 December 27, 
2020 
 Dealers (a) 
 $ 1,674.0 $ 1,489.6 $ 1,220.0 
 Retailers (b) 
 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 (c) 
 188.7 174.8 149.7 
 Net sales $ 3,275.5 $ 2,855.3 $ 2,469.3 

 a) Represents sales to customers whose business is oriented towards builders, professional trades and home remodelers, inclusive of sales through our customers’ respective internet website portals. 
 b) Represents sales to domestic “Do-It-Yourself” retailers, including our two largest customers: 1) The Home Depot, Inc., and 2) Lowe’s Companies, Inc., inclusive of sales through their respective internet website portals. 
 c) Represents sales in markets outside the United States, principally in Canada and Mexico. 
 Practical Expedients 
 Incremental costs of obtaining a contract include only those costs the Company incurs that would not have been incurred if the contract had not been obtained. These costs are required to be recognized as assets and amortized over the period that the related goods or services transfer to the customer. As a practical expedient, we expense as incurred costs to obtain a contract when the expected amortization period is one year or less. These costs are recorded within selling, general and administrative expenses in the accompanying consolidated statements of income. 
 
 Allowance for Credit Losses 
 Our primary allowance for credit losses is the allowance for doubtful accounts. The allowance for doubtful accounts reduces the trade accounts receivable balance to the estimated net realizable value equal to the amount that is expected to be collected. The allowance is based on assessments of current creditworthiness of customers, historical collection experience, the aging of receivables and other currently available evidence. Trade accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. All provisions for allowances for doubtful collection of accounts are included in selling, general and administrative expenses. 
 
 The following table summarizes the activity for the allowance for the years ended December 25, 2022 and December 26, 2021: 
 
 (In millions) 
 2022 2021 
 Beginning balance 
 $ 2.5 $ 2.4 
 Bad debt provision 
 12.1 1.9 
 Uncollectible accounts written off, net of recoveries 
 (3.0) (1.8) 
 Ending balance 
 $ 11.6 $ 2.5 

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 4. Other Expense, Net 
 The components of other expense, net for the years ended December 25, 2022, December 26, 2021 and December 27, 2020 were as follows: 
 
 (In millions) 2022 2021 2020 
 Pension and postretirement benefits other than pensions $ (1.3) $ (2.0) $ 0.6 
 Foreign currency losses 1.1 1.4 1.3 
 Other items, net 0.8 1.2 0.3 
 Total other expense, net $ 0.6 $ 0.6 $ 2.2 

 5. Earnings Per Share 
 On December 14, 2022, 128.0 million MasterBrand common shares were distributed to Fortune Brands’ shareholders in conjunction with the Separation. For comparative purposes, 2021 and 2020 have been retroactively recast to reflect the effects of the changes in equity structure resulting from the Reorganization, Separation and Distribution and assume the same basic weighted average shares. In addition, for the fiscal year ended December 25, 2022, diluted earnings per share is computed by giving effect to all potentially dilutive stock awards that are outstanding. For years prior to the Separation, it is assumed that there are no dilutive securities as there were no stock-based awards of MasterBrand outstanding. 
 
 The following table sets forth the reconciliation of the numerator and the denominator of basic earnings per share and diluted earnings per share for the fiscal years ended December 25, 2022, December 26, 2021, and December 27, 2020: 
 
 (in millions, except per share amounts) 2022 2021 2020 
 Numerator: 
 Numerator for basic and diluted earnings per share - Net income $ 155.4 $ 182.6 $ 145.7 
 Denominator: 
 Denominator for basic earnings per share - weighted average shares outstanding 128.0 128.0 128.0 
 Effect of dilutive securities - stock-based awards 1.1 — — 
 Denominator for diluted earnings per share - weighted average shares outstanding 
 129.1 128.0 128.0 
 Earnings per share: 
 Basic $ 1.21 $ 1.43 $ 1.14 
 Diluted $ 1.20 $ 1.43 $ 1.14 

 Approximately 1.3 million shares are excluded from the calculation of diluted earnings per share for the year ended December 25, 2022, because their inclusion would have been anti-dilutive. 
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 6. Balance Sheet Information 
 Supplemental information on our year-end consolidated balance sheets is as follows: 
 
 (In millions) 2022 2021 
 Inventories: 
 Raw materials and supplies $ 292.1 $ 207.8 
 Work in process 23.6 28.3 
 Finished products 57.4 68.2 
 Total inventories $ 373.1 $ 304.3 
 Property, plant and equipment: 
 Land and improvements $ 32.9 $ 31.8 
 Buildings and improvements to leaseholds 304.0 280.6 
 Machinery and equipment 518.8 487.3 
 Construction in progress 37.7 46.2 
 Property, plant and equipment, gross 893.4 845.9 
 Less: accumulated depreciation 540.8 507.2 
 Property, plant and equipment, net of accumulated depreciation $ 352.6 $ 338.7 
 Accounts payable: 
 Third party $ 175.1 $ 203.9 
 Fortune Brands (a) 44.1 — 
 Total accounts payable $ 219.2 $ 203.9 
 Other current liabilities: 
 Accrued salaries, wages and other compensation $ 49.0 $ 46.3 
 Accrued restructuring 15.4 2.4 
 Accrued taxes 14.3 24.9 
 Accrued product warranties 11.2 7.0 
 Other accrued expenses 70.6 66.4 
 Total other current liabilities $ 160.5 $ 147.0 

 (a) The $44.1 million payable to Fortune Brands represents various items Fortune Brands paid on our behalf, for which we owe reimbursement, including income taxes incurred prior to the Separation of $32.6 million. 
 
 7. Leases 
 We have operating and finance leases for buildings and certain machinery and equipment. Operating leases are included in operating lease right-of-use assets, other current liabilities, and operating lease liabilities in our consolidated balance sheets. Amounts recognized for finance leases as of and for the years ended December 25, 2022 and December 26, 2021 were immaterial. 
 
 Operating lease expense recognized in the consolidated statement of income for the years ended 2022, 2021 and 2020 were $27.4 million, $24.7 million and $21.7 million, respectively, including approximately $11.7 million , $9.4 million and $7.5 million of short-term and variable lease costs for the years ended 2022, 2021 and 2020, respectively. 
 
 Other information related to leases was as follows: 
 
 (In millions, except lease term and discount rate) December 25,
2022 December 26, 
2021 December 27, 
2020 
 Cash paid for amounts included in the measurement of lease liabilities: 
 Operating cash flows from operating leases $ 15.4 $ 14.7 $ 13.2 
 Right-of-use assets obtained in exchange for operating lease obligations $ 5.2 $ 35.8 $ 6.1 
 Weighted average remaining lease term—operating leases 5.1 years 5.9 years 4.6 years 
 Weighted average discount rate—operating leases 3.0 % 2.8 % 3.4 % 

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 Total lease payments under non-cancellable operating leases as of December 25, 2022 are expected to be: 
 
 (In millions) 
 Fiscal Years Ending, 
 2023 $ 15.2 
 2024 13.5 
 2025 8.8 
 2026 6.2 
 2027 5.8 
 Thereafter 9.5 
 Total lease payments 59.0 
 Less imputed interest (4.4) 
 Total $ 54.6 
 Reported as of December 25, 2022 
 Current operating lease liabilities $ 13.9 
 Operating lease liabilities (non-current) 40.7 
 Total $ 54.6 

 8. Goodwill and Identifiable Intangible Assets 
 We had goodwill of $924.2 million and $926.2 million as of December 25, 2022 and December 26, 2021, respectively. The change in the net carrying amount of goodwill was as follows: 
 
 (In millions) 
 Total 
Goodwill 
 Balance at December 27, 2020 $ 926.1 
 2021 translation adjustments 0.1 
 Balance at December 26, 2021 $ 926.2 
 2022 translation adjustments (2.0) 
 Balance at December 25, 2022 $ 924.2 

 The gross carrying value and accumulated amortization by class of intangible assets as of December 25, 2022 and December 26, 2021 were as follows: 
 
 As of December 25, 2022 As of December 26, 2021 
 (In millions) Gross 
Carrying 
Amounts Accumulated 
Amortization Net 
Book 
Value Gross 
Carrying 
Amounts Accumulated 
Amortization Net 
Book 
Value 
 Indefinite-lived tradenames $ 183.1 $ — $ 183.1 $ 231.8 $ — $ 231.8 
 Amortizable intangible assets 
 Tradenames 10.3 (10.2) 0.1 10.6 (10.2) 0.4 
 Customer and contractual relationships 362.9 (196.8) 166.1 364.5 (182.4) 182.1 
 Patents/proprietary technology 11.0 (10.5) 0.5 11.0 (9.6) 1.4 
 Total 384.2 (217.5) 166.7 386.1 (202.2) 183.9 
 Total identifiable intangibles $ 567.3 $ (217.5) $ 349.8 $ 617.9 $ (202.2) $ 415.7 

 Amortizable intangible assets, principally customer relationships, are subject to amortization on a straight-line basis over their estimated useful life, ranging from 10 to 20 years, based on the assessment of a number of factors that may impact useful life which include customer attrition rates and other relevant factors. We expect to record annual intangible amortization of $15.3 million in 2023, and $14.7 million annually in 2024, 2025, 2026, and 2027. 
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 In the first quarter of 2020, we recognized an impairment charge of $9.5 million related to an indefinite-lived tradename. This charge was primarily the result of lower expected sales of custom cabinetry products related to the impact of COVID-19. At both December 25, 2022 and December 26, 2021, the carrying value of this tradename was $29.1 million. 
 
 In the second quarter of 2022, subsequent to the balance sheet date, we recognized an impairment charge of $26.0 million related to a second indefinite-lived tradename. During the second quarter of 2022, production was shifted within our manufacturing footprint to enable what we expect to be a higher value purpose and growth opportunity, which led to downward revisions to forecasted revenue growth rates associated with the tradename. In the fourth quarter of 2022, we recognized an impairment charge of $12.8 million related to the same indefinite-lived tradename as a result of further shifts within our product portfolio to better align with forecasted future customer demand as a result of a significant decrease in sales during the fourth quarter of 2022, driven by continued and persistent inflation, as well as elevated interest rates and economic uncertainty. 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 and $85.0 million, respectively. 
 
 In the fourth quarter of 2022, we recognized an impairment charge of $7.6 million to a third indefinite-lived tradename. This was primarily due to a shift in customer demand 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. As of December 25, 2022 and December 26, 2021, the carrying value of this tradename was $19.1 million and $26.7 million, respectively. 
 
 The fair values of the impaired tradenames were measured using the relief-from-royalty approach, which estimates the present value of royalty income that could be hypothetically earned by licensing the tradename to a third party over its remaining useful life. Some of the more significant assumptions inherent in estimating the fair values include forecasted revenue growth rates, assumed royalty rates, and market-participant discount rates that reflect the level of risk associated with the tradenames’ future revenues and profitability. We selected the assumptions used in the financial forecasts using historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management plans. These assumptions represent Level 3 inputs of the fair value hierarchy (refer to Note 10, “Fair Value Measurements” ). 
 
 A reduction in the estimated fair value of any of our tradenames could trigger impairment charges in future periods. Events or circumstances that could have a potential negative effect on the estimated fair value of our reporting units and indefinite-lived tradenames include: lower than forecasted revenues, more severe impacts of the COVID-19 pandemic than currently expected, actual new construction and repair and remodel growth rates that fall below our assumptions, actions of key customers, increases in discount rates, continued economic uncertainty, higher levels of unemployment, weak consumer confidence, higher interest rates, lower levels of discretionary consumer spending, a decrease in royalty rates and a decline in the trading price of our common stock. We cannot predict with certainty the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill and indefinite-lived assets. 
 
 There were no impairments of goodwill or indefinite-lived assets for the year ended December 26, 2021. The significant assumptions used to estimate the fair values of the tradenames impaired during the years ended December 25, 2022, and December 27, 2020 were as follows: 
 
 2022 2020 
 Unobservable Input Min Max Wtd 
 Avg (a) 
 Min Max Wtd 
 Avg (a) 
 
 Discount rate 11.6 % 12.6 % 12.1 % 14.8 % 14.8 % 14.8 % 
 Royalty rate (b) 
 2.5 % 3.0 % 2.8 % 4.0 % 4.0 % 4.0 % 
 Long-term revenue growth rate (c) 
 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 1.0 % 

 __________ 
 a) Weighted by relative fair value of the impaired tradenames. 
 b) Represents estimated percentage of sales a market-participant would pay to license the impaired tradenames. 
 c) Selected long-term revenue growth rate within 10-year projection period of the impaired tradenames. 
 
 9. Financial Instruments 
 We do not enter into financial instruments for trading or speculative purposes. We principally use financial instruments to reduce the impact of changes in foreign currency exchange rates. The principal derivative financial instruments we enter 
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 into on a routine basis are foreign exchange contracts. Derivative financial instruments are recorded at fair value. The counterparties to derivative contracts are major financial institutions. We are subject to credit risk on these contracts equal to the fair value of these instruments. Management currently believes that the risk of incurring material losses is unlikely and that the losses, if any, would be immaterial to the Company. 
 
 We may enter into foreign currency forward contracts to protect against foreign exchange risks associated with certain existing assets and liabilities, forecasted future cash flows, and net investments in foreign subsidiaries. Foreign exchange contracts related to forecasted future cash flows correspond to the periods of the forecasted transactions, which generally do not exceed 12 to 15 months subsequent to the latest balance sheet date. 
 
 For derivative instruments that are designated as fair value hedges, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item, are recognized on the same line of the consolidated statements of income. The changes in the fair value of cash flow hedges are reported in OCI and are recognized in the consolidated statements of income when the hedged item affects earnings. The changes in fair value for net investment hedges are recognized in the consolidated statements of income when realized upon sale or upon complete or substantially complete liquidation of the investment in the foreign entity. In addition, changes in the fair value of all economic hedge transactions are immediately recognized in current period earnings. 
 
 Our primary foreign currency hedge contracts pertain to the Mexican peso and the Canadian dollar. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding at December 25, 2022 was $92.9 million, representing a net settlement asset of $3.2 million. Based on foreign exchange rates as of December 25, 2022, we estimate that $2.8 million of net derivative gains associated with cash flow hedges and included in accumulated other comprehensive inco me as of December 25, 2022 will be reclassified to earnings within the next twelve months. 
 
 The fair values of foreign exchange derivative instruments on the consolidated balance sheets as of December 25, 2022 and December 26, 2021 were: 
 
 (In millions) Location 2022 2021 
 Assets: 
 Foreign exchange contracts Other current assets $ 3.7 $ 0.5 
 Total assets $ 3.7 $ 0.5 
 Liabilities: 
 Foreign exchange contracts Other current liabilities $ 0.5 $ 0.7 
 Total liabilities $ 0.5 $ 0.7 

 The effects of derivative financial instruments on the consolidated statements of income in 2022, 2021 and 2020 were: 
 
 Classification and Amount of Gain (Loss)
Recognized in Income on Fair Value and 
Cash Flow Hedging Relationships 
 2022 
 (In millions) Cost of 
 products sold 
 Related party 
 interest income, 
 net 
 Other expense, 
net 
 Total amounts per Consolidated Statements of Income $ 2,335.0 $ (12.9) $ 0.6 
 The effects of fair value and cash flow hedging: 
 Gain (loss) on fair value hedging relationships 
 Foreign exchange contracts: 
 
 Derivative designated as hedging instruments — — (7.2) 
 Gain (loss) on cash flow hedging relationships 
 Foreign exchange contracts: 
 Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income 4.5 — — 
 
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 Classification and Amount of Gain (Loss)
Recognized in Income on Fair Value and 
Cash Flow Hedging Relationships 
 2021 
 (In millions) Cost of 
 products sold 
 Related party 
 interest income, 
 net 
 Other income, 
net 
 Total amounts per Consolidated Statements of Income $ 2,071.4 $ 4.6 $ 0.6 
 The effects of fair value and cash flow hedging: 
 Gain (loss) on fair value hedging relationships 
 Foreign exchange contracts: 
 
 Derivative designated as hedging instruments — — (0.5) 
 Gain (loss) on cash flow hedging relationships 
 Foreign exchange contracts: 
 Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income 2.9 — — 
 
 Classification and Amount of Gain (Loss)
Recognized in Income on Fair Value and Cash Flow Hedging Relationships 
 2020 
 (In millions) Cost of 
 products 
 sold 
 Related party 
 interest income, 
 net 
 Other expense, 
net 
 Total amounts per Consolidated Statements of Income $ 1,766.3 $ 2.4 $ 2.2 
 The effects of fair value and cash flow hedging: 
 Gain (loss) on fair value hedging relationships 
 Foreign exchange contracts: 
 Hedged items — — (0.6) 
 Derivative designated as hedging instruments — — 1.0 
 Gain (loss) on cash flow hedging relationships 
 Foreign exchange contracts: 
 Amount of gain or (loss) reclassified from accumulated other comprehensive (loss) income into income (2.3) — — 
 
 The cash flow hedges recognized in other comprehensive income during the period were net gains (losses) of $7.2 million, $0.5 million and $(1.4) million in 2022, 2021 and 2020 respectively. 
 
 10. Fair Value Measurements 
 ASC requirements for Fair Value Measurements and Disclosures establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels. Level 1 inputs, the highest priority, are quoted prices in active markets for identical assets or liabilities. Level 2 inputs reflect other than quoted prices included in Level 1 that are either observable directly or through corroboration with observable market data. Level 3 inputs are unobservable inputs due to little or no market activity for the asset or liability, such as internally-developed valuation models. We do not have any assets or liabilities measured at fair value on a recurring basis that are Level 3, except for pension assets discussed in Note 14, “Pension and Other Postretirement Plans” and certain assumptions in estimating the fair value of indefinite-lived tradenames, as discussed in Note 8, “Goodwill and Identifiable Intangible Assets.” 
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 Assets and liabilities measured at fair value on a recurring basis as of December 25, 2022 and December 26, 2021 were as follows: 
 
 (In millions) Fair Value 
 2022 2021 
 Assets: 
 Derivative asset financial instruments (Level 2) $ 3.7 $ 0.5 
 Deferred compensation program assets (Level 2) 3.6 5.2 
 Total assets $ 7.3 $ 5.7 
 Liabilities: 
 Derivative liability financial instruments (Level 2) $ 0.5 $ 0.7 

 The principal derivative financial instruments we enter into on a routine basis are foreign exchange contracts. Derivative financial instruments are recorded at fair value. 
 
 11. Debt 
 The following table provides a summary of the Company’s debt as of December 25, 2022, including the carrying value of the debt less debt issuance costs: 
 
 (In millions) 2022 
 Current Long-term 
 Revolving credit facility due November 2027 $ — $ 235.0 
 Term loan due November 2027 18.8 731.3 
 $ 18.8 $ 966.3 
 Less: Unamortized debt issuance costs (1.3) (4.8) 
 Total $ 17.5 $ 961.5 

 On November 18, 2022, the Company 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 from the credit agreement were received at the time of Separation from Fortune Brands and were used to fund the dividend paid to Fortune Brands, with any future proceeds to be used for general corporate purposes. The credit agreement is secured by certain assets as well as the guarantee of certain of our subsidiaries. Total amounts outstanding under the Term Loan and Revolving Credit Facility as of December 25, 2022 were $750.0 million and $235.0 million, respectively. The $750.0 million Term Loan has quarterly required amortization payments beginning in March 2023. 
 
 Debt issuance costs related to the 2022 Credit Agreement were $10.1 million and will be amortized over the term of the debt. At December 25, 2022, $0.8 million is included in other current assets, $3.2 million is included in other assets, $1.3 million is included in the current portion of long-term debt and $4.8 million is included in long-term debt in our Consolidated Balance Sheets. 
 
 Interest rates under these facilities are variable based on SOFR at the time of the borrowing, and the Company’s net leverage ratio as measured by Net Leverage to Consolidated EBITDA. Interest rates can range from SOFR plus 1.85 percent to SOFR plus 2.60 percent. Net Leverage is defined as consolidated total indebtedness minus certain cash and cash equivalents. Consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, depreciation, amortization of intangible assets, losses from asset impairments, and certain other one-time adjustments. 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. The Company also is required 
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 to maintain a minimum Interest Coverage Ratio, defined as Consolidated EBITDA to consolidated interest expense, of 3.0 to 1.0. 
 
 The Company’s 2022 Credit Agreement contains additional covenants which limit or preclude certain corporate actions based upon the measurement of certain financial covenant metrics. The Company was in compliance with all of its debt covenants as of December 25, 2022. 
 
 Over the next five years, debt due to be paid by the Company is as follows: 
 
 (In millions) Future Debt Payments 
 2023 $ 18.8 
 2024 37.5 
 2025 37.5 
 2026 37.5 
 2027 853.7 

 Interest paid on debt was $0.3 million in 2022. We did not record any material capitalized interest during 2022, 2021 and 2020. 
 
 12. Restructuring Charges 
 Restructuring charges of $25.1 million in 2022 are largely related to severance costs and other employee-related costs associated with the relocation and closure of certain production facilities within our manufacturing footprint, resulting in a more flexible facility footprint. These actions included the consolidation of two manufacturing facilities in Winnipeg, Canada into one facility, the idling a manufacturing facility in Newton, Kansas, and the closure of our Lynchburg, Virginia manufacturing facility. 
 
 Restructuring charges of $4.2 million in 2021 are largely related to severance costs and costs associated with closing a facility. 
 
 Restructuring charges of $6.1 million in 2020 are largely related to headcount actions associated with COVID-19 . 
 Reconciliation of Restructuring Liability 
 
 (In millions) Balance at 
December 26, 2021 2022
Provision Cash Expenditures (a) 
 Balance at 
December 25, 
2022 
 Workforce reduction costs $ 2.2 $ 24.5 $ (11.4) $ 15.3 
 Other 0.2 0.6 (0.7) 0.1 
 $ 2.4 $ 25.1 $ (12.1) $ 15.4 

 a) Cash expenditures primarily related to severance charges. 
 
 (In millions) Balance at
December 27, 2020 2021
Provision Cash Expenditures (a) 
 Balance at
December 26, 2021 
 Workforce reduction costs $ 2.2 $ 2.9 $ (2.9) $ 2.2 
 Other 0.6 1.3 (1.7) 0.2 
 $ 2.8 $ 4.2 $ (4.6) $ 2.4 

 a) Cash expenditures primarily related to severance charges. 
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 13. Income Taxes 
 The U.S. Tax Cuts and Jobs Act (“Tax Act”), enacted on December 22, 2017, made broad and complex changes to the U.S. tax code that are subject to continuous guidance and interpretation. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020, and includes several measures intended to assist companies during the COVID-19 pandemic, including temporary changes to income and non-income-based laws. As a result of the Tax Act and global tax policy initiatives, additional legislative and regulatory guidance has been and may continue to be issued, including final regulations that could impact the Company’s effective tax rate in future periods. 
 
 For taxable periods prior to and including the Separation, our operations were included in the consolidated U.S. federal and certain state and local income tax returns of Fortune Brands, as applicable. The Company filed separate foreign income tax returns. The tax provisions have been prepared on a separate return basis as if the Company was a separate group of companies under common ownership. The operations have been combined as if the Company was filing on a combined basis for U.S. federal and state income tax purposes, as allowable by law and relevant tax elections. 
 
 Post-Separation, as a stand-alone entity, we will file consolidated U.S. federal income tax returns and various state and local income tax returns. The Company’s foreign income tax returns will continue to be filed on a full-year basis. The Company’s deferred taxes and effective tax rate may differ from those in the pre-Separation taxable periods. 
 
 The components of income from continuing operations before income taxes were as follows: 
 
 (In millions) 2022 2021 2020 
 Domestic operations $ 162.2 $ 204.0 $ 142.7 
 Foreign operations 51.2 34.3 53.5 
 Income before income taxes $ 213.4 $ 238.3 $ 196.2 

 Income tax expense in the consolidated statement of income consisted of the following: 
 
 (In millions) 2022 2021 2020 
 Current 
 Federal $ 30.9 $ 43.7 $ 41.9 
 State 14.2 10.8 9.8 
 Foreign 10.6 8.9 8.8 
 Deferred 
 Federal 3.7 (5.4) (8.3) 
 State (2.3) (0.2) (1.7) 
 Foreign 0.9 (2.1) — 
 Total income tax expense $ 58.0 $ 55.7 $ 50.5 

 A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows: 
 
 (in percentages) 2022 2021 2020 
 Income tax expense at U.S. federal statutory income tax rate 21.0 % 21.0 % 21.0 % 
 State and local income taxes, net of federal tax benefit 4.3 3.9 3.3 
 Foreign taxes at a different rate than U.S. federal statutory income tax rate (0.4) (0.2) (1.5) 
 Unrecognized tax benefits (6.6) (0.5) 2.0 
 IRS audit adjustments 8.1 — — 
 Miscellaneous other, net 0.8 (0.8) 0.9 
 Effective income tax rate 27.2 % 23.4 % 25.7 % 

 For 2022, the Company’s effective tax rate was 27.2 percent, compared to an effective tax rate of 23.4 percent for 2021. The increase in effective tax rate was primarily the result of state and local income taxes and IRS audit adjustments 
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 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 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 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. 
 
 For 2021, our effective tax rate was 23.4 percent, compared to an effective tax rate of 25.7 percent for 2020. The decrease in effective tax rate was primarily the result of a favorable benefit for the release of uncertain tax positions, partially offset by higher state and local income taxes and reduction in the benefit for foreign income taxed at lower rates . The 25.7 percent effective income tax rate for 2020 was unfavorably impacted by state and local income taxes and increases in uncertain tax positions that were partially offset by a favorable benefit for foreign income taxed at lower rates . 
 
 Deferred income tax assets and liabilities are provided for the impact of temporary differences between amounts of assets and liabilities recognized for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. These temporary differences result in taxable or deductible amounts in future years. As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view regarding the future realization of deferred tax assets. 
 
 The components of net deferred tax assets (liabilities) as of December 25, 2022 and December 26, 2021 were as follows: 
 
 (In millions) 2022 2021 
 Deferred tax assets: 
 Compensation and benefits $ 14.6 $ 16.5 
 Defined benefit plans 2.4 1.0 
 Capitalized inventories 6.0 7.5 
 Accounts receivable 18.8 15.5 
 Operating lease liabilities 14.6 16.2 
 Other accrued expenses 15.9 17.6 
 Net operating loss and other tax carryforwards 2.4 1.6 
 Valuation allowance (1.2) (1.2) 
 Other 4.6 2.8 
 Total deferred tax assets 78.1 77.5 
 Deferred tax liabilities: 
 Fixed assets (25.3) (25.2) 
 Intangible assets (118.0) (111.8) 
 Operating lease assets (14.0) (15.9) 
 Prepaid marketing (4.1) (5.3) 
 Unremitted earnings of foreign subsidiaries (0.2) (5.0) 
 Other (2.2) (2.1) 
 Total deferred tax liabilities (163.8) (165.3) 
 Net deferred tax liability $ (85.7) $ (87.8) 

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 Deferred taxes were classified in the Consolidated Balance Sheets as of December 25, 2022 and December 26, 2021 as follows: 
 
 (In millions) 2022 2021 
 Other assets $ 1.6 $ 1.1 
 Deferred income taxes (87.3) (88.9) 
 Net deferred tax liability $ (85.7) $ (87.8) 

 As of December 25, 2022 and December 26, 2021, the Company had deferred tax assets related to net operating losses and other tax credit carryforwards of $2.4 million and $1.6 million, respectively. The net operating losses expire between 2023 and 2042, and the tax credit carryforwards expire between 2023 and 2030. 
 
 The Company evaluated its ability to realize tax benefits associated with deferred tax assets and concluded, based on all available positive and negative evidence, that it is more likely than not that a portion of the deferred tax assets are not expected to be realized. Accordingly, a valuation allowance of $1.2 million as of both December 25, 2022 and December 26, 2021 was recorded to reduce the deferred tax assets related to the net operating losses and tax credit carryforwards. 
 
 The Company did not make any income tax payments for the post-Separation period of 2022. 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. Included in our $44.1 million payable to Fortune Brands at December 25, 2022, within accounts payable on our Consolidated Balance Sheets, are income taxes incurred prior to the Separation of $17.6 million and $15.0 million, for federal income taxes and state income taxes, respectively. 
 
 A reconciliation of the Company’s gross change in unrecognized tax benefits (“UTBs”), including accrued interest and penalties, is as follows: 
 
 (In millions) 2022 2021 2020 
 Unrecognized tax benefits—beginning of year $ 20.2 $ 21.5 $ 18.2 
 Gross additions—current year tax positions 0.1 0.1 4.3 
 Gross additions—prior year tax positions — 0.1 — 
 Gross reductions—prior year tax positions (17.8) (1.5) (0.8) 
 Gross reductions—settlements with taxing authorities (1.3) — (0.2) 
 Unrecognized tax benefits—end of year $ 1.2 $ 20.2 $ 21.5 
 Unrecognized tax benefits—accrued interest and penalties 0.5 3.0 3.0 
 Gross unrecognized tax benefits $ 1.7 $ 23.2 $ 24.5 

 The Internal Revenue Service (“IRS”) completed its examination of the Company’s tax filings for 2017 and 2018 in the third quarter of 2022. As a result of closing the IRS examination and other changes to UTBs, the Company realized a $19.0 million net reduction in UTBs, which was partially offset by related tax expenses to adjust current and deferred income tax liabilities. As a result of the IRS audit, the Company is now recognizing a deferred tax liability for various foreign entities whose income is currently includable for U.S. federal income tax purposes. 
 
 Post-Separation, liabilities related to UTBs, including interest and penalties, are reported as a liability within the Consolidated Balance Sheet based upon tax authorities’ ability to assert the Company may be legally liable for UTBs. The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. 
 
 The Company classifies interest and penalty accruals related to UTBs as income tax expense. In 2022, the Company recognized interest and penalty expense of approximately $0.1 million. In 2021 and 2020, the Company recognized interest and penalty expenses of approximately $0.1 million and $0.4 million, respectively. 
 
 The amount of UTBs that, if recognized as of December 25, 2022, would affect the Company’s effective tax rate is $1.2 million. It is reasonably possible that, within the next twelve months, total UTBs may decrease in the range of $0.3 million 
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 to $1.2 million primarily as a result of the conclusion of U.S. federal, state, and foreign income tax proceedings or expiration of the relevant statute of limitations. 
 
 As of December 25, 2022, the Company believed that it is more-likely-than-not that the tax positions it has taken would be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position, results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company’s estimates and/or from its historical income tax provisions and accruals and could have a material effect on operating results and/or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, interest and/or penalty assessments. 
 
 For pre-Separation periods, the Company’s federal income tax returns, and various state income tax returns that included operations of the Company, were filed by Fortune Brands and remain open and subject to examination for tax years after 2018. In addition to the U.S., the Company has tax years that remain open and subject to examination by tax authorities in the following major taxing jurisdictions: Canada for years after 2017 and Mexico for years after 2016. 
 
 Accumulated foreign earnings and profits of the Company’s foreign subsidiaries as of December 31, 2017 were subject to a deemed repatriation tax and should not be subject to additional U.S. federal income tax upon an actual repatriation of these earnings. 
 
 As of December 25, 2022, the Company is not permanently reinvested with respect to all earnings generated by foreign operations. There was no material deferred tax expense recorded for foreign and state tax costs associated with the future remittance of these undistributed earnings. The change in presumption for post-2017 earnings is primarily due to the Company entering into relevant credit obligations post-Separation, for which foreign earnings may be used tax efficiently to partially prepay such obligations. This assertion will be evaluated as warranted based on facts and circumstances. 
 
 Accordingly, the Company’s foreign earnings are subject to the general presumption of APB 23, including the 100 percent dividends-received deduction and previously taxed income components, or includable in U.S. federal taxable income as a result of closing the 2017-2018 IRS examination. 
 
 14. Pension and Other Postretirement Plans 
 We have a pension plan in the United States covering many of the Company’s employees. However, the plan has been frozen to new participants and benefit accruals were frozen for active participants on or before December 31, 2016. In addition, the Company provides postretirement health care and life insurance benefits to certain retirees. Service cost for 2022 relates to benefit accruals for an employee group in Mexico who receive statutorily-mandated retiree health and welfare benefits. The plans provide for payment of retirement benefits, mainly commencing between the ages of 55 and 65. After meeting certain qualifications, an employee acquires a vested right to future benefits. The benefits payable under the plans are generally determined on the basis of an employee’s length of service and/or earnings. Employer contributions to the plans are made, as necessary, to ensure legal funding requirements are satisfied. Also, from time to time, we may make contributions in excess of the legal funding requirements. 
 
 Net actuarial gains and losses occur when actual experience differs from any of the assumptions used to value the plans or when assumptions change as they may each year. The primary factors contributing to actuarial gains and losses are changes in the discount rate used to value obligations as of the measurement date and the differences between expected and actual returns on pension plan assets. 
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 (In millions) Pension Benefits Postretirement Benefits 
 Obligations and Funded Status December 25,
2022 December 26,
2021 December 25,
2022 December 26,
2021 
 Change in the Projected Benefit Obligation (PBO): 
 Projected benefit obligation at beginning of year $ 173.3 $ 182.9 $ 3.5 $ 2.8 
 Service cost — — 0.5 0.4 
 Interest cost 5.1 4.7 0.3 0.2 
 Actuarial (loss) gain (41.1) (6.2) 0.4 0.3 
 Benefits paid (8.4) (8.1) (0.9) (0.2) 
 Settlements/Curtailments $ — $ — $ (0.6) $ — 
 Projected benefit obligation at end of year $ 128.9 $ 173.3 $ 3.2 $ 3.5 
 Accumulated benefit obligation at end of year (excludes the impact of future compensation increases) $ 128.9 $ 173.3 $ — $ — 
 Change in Plan Assets 
 Fair value of plan assets at beginning of year $ 166.2 $ 160.7 $ — $ — 
 Actual return on plan assets (39.5) 10.6 — — 
 Employer contributions 1.1 3.0 0.9 0.5 
 Benefits paid (8.4) (8.1) (0.9) (0.5) 
 Fair value of plan assets at end of year $ 119.4 $ 166.2 $ — $ — 
 Funded status (Fair value of plan assets less PBO) $ (9.5) $ (7.1) $ (3.2) $ (3.5) 

 The actuarial loss is primarily a result of the difference in the expected long-term rate of return compared to the actual return on plan assets for the year ended December 25, 2022. The actuarial loss is primarily a result of changes in discount rates from year to year for the year ended December 26, 2021. 
 
 The accumulated benefit obligation exceeds the fair value of the pension plan assets. Amounts recognized in the consolidated balance sheets consist of: 
 
 Pension Benefits Postretirement Benefits 
 (In millions) December 25,
2022 December 26,
2021 December 25,
2022 December 26,
2021 
 Current liabilities $ (0.1) $ (0.1) $ (0.4) $ (0.7) 
 Noncurrent liabilities (9.4) (7.0) (2.8) (2.8) 
 Net amount recognized $ (9.5) $ (7.1) $ (3.2) $ (3.5) 

 As of December 25, 2022, we utilized an aggregate Pri-2012 mortality table with the Society of Actuaries’ MP-2021 projection scale and an adjustment to reflect increased rates of mortality subsequent to the Society of Actuaries’ MP-2021 projection scale, resulting in an immaterial decrease in plan benefit obligation and ongoing expenses. As of December 26, 2021, we adopted the new Society of Actuaries MP-2021 mortality tables resulting in an immaterial decrease in plan benefit obligation and ongoing expenses. 
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 The amounts in accumulated other comprehensive loss on the Consolidated Balance Sheets that have not yet been recognized as components of net periodic benefit cost were as follows: 
 
 (In millions) Pension Benefits Postretirement Benefits 
 Net actuarial loss at December 27, 2020 $ 16.4 $ 0.6 
 Recognition of actuarial loss — (0.2) 
 Current year actuarial gain (9.2) — 
 Net actuarial loss at December 26, 2021 $ 7.2 $ 0.4 
 Recognition of actuarial loss (0.2) (0.4) 
 Current year actuarial loss 5.8 0.3 
 Current year net actuarial gain due to curtailment $ — $ (0.3) 
 Net actuarial loss at December 25, 2022 $ 12.8 $ — 

 Components of net periodic cost (benefit) were as follows: 
 
 Components of Net Periodic Cost (Benefit) Pension Benefits Postretirement Benefits 
 (In millions) 2022 2021 2020 2022 2021 2020 
 Service cost $ — $ — $ — $ 0.5 $ 0.4 $ 0.4 
 Interest cost 5.1 4.7 5.6 0.3 0.2 0.2 
 Expected return on plan assets (7.3) (7.5) (6.9) — — — 
 Recognition of actuarial losses 0.2 — 0.5 0.7 0.2 0.2 
 Settlement/Curtailment losses / (gains) — — 0.6 (0.3) — — 
 
 Net periodic (benefit) cost $ (2.0) $ (2.8) $ (0.2) $ 1.2 $ 0.8 $ 0.8 

 Assumptions Pension Benefits Postretirement Benefits 
 2022 2021 2020 2022 2021 2020 
 Weighted-average assumptions used to determine benefit obligations at balance sheet date: 
 Discount rate 5.2 % 3.0 % 2.7 % 9.5 % 7.8 % 7.0 % 
 Weighted-average assumptions used to determine net cost (benefit) for years ended: 
 Discount rate 3.0% 2.7% 3.3% 8.9% 7.0% 7.5 % 
 Expected long-term rate of return on plan assets 6.2% 4.5% 4.8% — — — 

 Plan Assets 
 The fair value of the pension assets by major category of plan assets as of December 25, 2022 and December 26, 2021 were as follows: 
 
 (In millions) Total as of 
balance sheet date 
 2022 2021 
 Group annuity/insurance contracts (level 3) $ — $ 4.8 
 Collective trusts: 
 Cash and cash equivalents 5.4 2.5 
 Equity 31.0 46.3 
 Fixed income 76.6 102.4 
 Multi-strategy hedge funds 3.4 4.8 
 Real estate 3.0 5.4 
 Total $ 119.4 $ 166.2 

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 A reconciliation of Level 3 measurements was as follows: 
 
 Group annuity/ 
insurance 
contracts 
 (In millions) 2022 2021 
 Beginning of year $ 4.8 $ 4.8 
 
 Assets liquidated (4.8) — 
 End of year $ — $ 4.8 

 Our defined benefit plan Master Trust owns a variety of investment assets. All of these investment assets, except for group annuity/insurance contracts, are measured using net asset value per share as a practical expedient per ASC 820. Following the retrospective adoption of ASU 2015-07 (Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share) we excluded all investments measured using net asset value per share in the amount of $119.4 million and $161.4 million as of December 25, 2022 and December 26, 2021, respectively, from the tabular fair value hierarchy disclosure. 
 
 The terms and conditions for redemptions vary for each class of the investment assets valued at net asset value per share as a practical expedient. Real estate assets may be redeemed quarterly with a 105 day redemption notice period. Investment assets in multi-strategy hedge funds have a 1-year lockup with a 95 day redemption notice period. Equity, fixed income and cash and cash equivalents have no specified redemption frequency and notice period and may be redeemed daily. As of December 25, 2022, we did not have an intent to sell or otherwise dispose of these investment assets at prices different than the net asset value per share. 
 
 Our investment strategy is to optimize investment returns through a diversified portfolio of investments, taking into consideration underlying plan liabilities and asset volatility. The defined benefit asset allocation policy of the plan allows for an equity allocation of up to 75 percent, a fixed income allocation of 25 percent to 100 percent, a cash allocation of up to 25 percent and other investments of up to 20 percent. Asset allocations are based on the underlying liability structure. All retirement asset allocations are reviewed periodically to ensure the allocation meets the needs of the liability structure. 
 
 Our 2023 expected blended long-term rate of return on plan assets of 6.2 percent was determined based on the nature of the plans’ investments, our current asset allocation and projected long-term rates of return from pension investment consultants. 
 
 Estimated Future Retirement Benefit Payments 
 The following retirement benefit payments are expected to be paid: 
 
 (In millions) Pension 
Benefits Postretirement 
Benefits 
 2023 $ 8.8 $ 0.5 
 2024 9.0 0.4 
 2025 9.1 0.4 
 2026 9.2 0.4 
 2027 9.3 0.4 
 Years 2028-2032 45.5 2.7 

 Estimated future retirement benefit payments listed are estimates and could change significantly based on differences between actuarial assumptions and actual events and decisions related to lump sum distribution options that are available to certain participants. 
 
 Defined Contribution Plan Contributions 
 We sponsor a number of defined contribution plans. Contributions are determined under various formulas. Cash contributions by the Company related to these plans amounted to $14.0 million, $15.3 million, and $14.3 million in 2022, 2021 and 2020, respectively. 
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 15. Commitments 
 Purchase Obligations 
 Purchase obligations of the Company as of December 25, 2022 were $234.6 million, of which $223.9 million is due within one year. Purchase obligations include contracts for raw materials and finished goods purchases, selling and administrative services, and capital expenditures. 
 
 16. Contingencies and Accrued Product Warranties 
 Product Warranties 
 We generally record warranty expense related to contractual warranty terms at the time of sale. We may also provide customer concessions for claims made outside of the contractual warranty terms and those expenses are recorded in the period in which the concession is made. We offer our customers various warranty terms based on the type of product that is sold. Warranty expense is determined based on historic claim experience and the nature of the product category. The following table summarizes activity related to our product warranty liability for the years ended 2022, 2021 and 2020. 
 
 (In millions) 2022 2021 2020 
 Reserve balance at the beginning of the year $ 7.0 $ 5.5 $ 6.2 
 Provision for warranties issued 39.6 28.1 20.6 
 Settlements made (in cash or in kind) (35.4) (26.6) (21.3) 
 Reserve balance at end of year $ 11.2 $ 7.0 $ 5.5 

 Litigation 
 The Company is a defendant 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 the Company. The Company believes that there are meritorious defenses to these actions and that these actions will not have a material adverse effect upon the Company’s results of operations, cash flows or financial condition, and where appropriate, these actions are being vigorously contested. Accordingly, the Company believes the likelihood of material loss is remote. 
 Environmental 
 We 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, December 26, 2021 and December 27, 2020. 
 
 17. Stock-Based Compensation 
 Prior to the Separation, certain of Cabinets’ employees participated in stock-based compensation plans sponsored by Fortune Brands. In connection with the Separation, stock compensation awards granted under the Fortune Brands’ Long-Term Incentive Plans were adjusted as follows: 
 
 • Vested and unvested stock options were adjusted so that the grantee holds options to purchase MasterBrand, Inc. common shares. 
 
 • The adjustment to the stock options was intended to generally preserve the intrinsic value of each original option grant and the ratio of the exercise price to the fair market value of Fortune Brands’ common shares on December 14, 2022. 
 
 • For unvested performance share awards, progress against the targets was projected as of the conclusion of our fiscal third quarter of 2022. The unvested performance share awards were then converted into awards of restricted stock units. 
 
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 • Unvested restricted stock awards were replaced with adjusted, substitute awards for restricted shares or units, as applicable, of MasterBrand, Inc. common shares. The new awards of restricted stock were intended to generally preserve the intrinsic value of the original award determined as of December 14, 2022. 
 
 • Vesting periods of all awards described above were unaffected by the adjustment and substitution. 
 
 Subsequent to the Separation, certain of the Company’s employees participate in a stock-based compensation plan sponsored by MasterBrand, Inc. Our stock based compensation plan, the MasterBrand, Inc. 2022 Long-Term Incentive Plan (the “Plan”), includes stock options, restricted stock, restricted stock units, performance shares, performance units, other types of stock-based awards, and other cash-based compensation. As of December 25, 2022, approximately 11.1 million shares of common stock remained authorized for issuance under the Plan. In addition, shares of common stock that were granted and subsequently expired, terminated, cancelled or forfeited, or were used to satisfy the required withholding taxes with respect to existing awards under the Plan may be recycled back into the total numbers of shares available for issuance under the Plan. Upon the exercise or payment of stock-based awards, shares of common stock are issued from authorized common shares of MasterBrand, Inc. 
 
 Stock-based compensation expense, including expense recognized under both the Fortune Brands’ Long-Term Incentive Plans and the MasterBrand, Inc. 2022 Long-Term Incentive Plan, was as follows: 
 
 (In millions) 2022 2021 2020 
 Performance awards $ 3.2 $ 2.3 $ 3.1 
 Restricted stock units 6.2 6.2 5.9 
 Stock option awards 1.5 0.8 0.7 
 Total pre-tax expense 10.9 9.3 9.7 
 Tax benefit 3.0 2.0 2.5 
 Total after tax expense $ 7.9 $ 7.3 $ 7.2 

 Compensation expense for 2022 includes the recognition of $0.7 million of incremental compensation expense in the fourth quarter of 2022 resulting from the adjustment and substitution of awards settled in MasterBrand, Inc. stock. 
 
 Performance Share Awards 
 Performance share awards were granted to officers and certain employees of the Company and represent the right to earn shares of MasterBrand, Inc. common stock based on the achievement of their company-wide non-GAAP performance conditions, including average adjusted return on net tangible assets and cumulative adjusted EBITDA during the three-year performance period. Compensation cost is amortized into expense over the performance period, which is generally three years, and is based on the probability of meeting performance targets. The fair value of each performance share award is based on the average of the high and low stock price on the date of grant. 
 
 Upon Separation, the progress against the targets for all outstanding performance share awards was projected as of the conclusion of our fiscal third quarter of 2022, and were converted into awards of Restricted Stock Units, and the v esting periods of the performance share awards were unaffected by the adjustment and substitution. The fair value of performance share awards that vested during 2022 was $1.5 million ( 245,111 shares, as converted to MasterBrand, Inc. common stock). As of December 25, 2022, there were no unvested performance share awards outstanding. 
 
 Restricted Stock Units 
 Restricted stock units (“RSUs”) have been granted to officers and certain employees of the Company and represent the right to receive shares of MasterBrand, Inc. common stock subject to continued employment through each vesting date. RSUs generally vest ratably over a three-year period (i.e., 1/3 vests on the 1st anniversary of the grant date, 1/3 vests on the 2nd anniversary of the grant date, and 1/3 vests on the 3rd anniversary of the grant date). In addition, certain employees can elect to defer receipt of a portion of their RSU awards upon vesting. Compensation cost is recognized over the service period. We calculate the fair value of each RSU granted by using the average of the high and low share prices on the date of grant. 
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 The following table summarizes activity with respect to RSUs outstanding under the MasterBrand, Inc. Plan: 
 
 Number of
Restricted
Stock
Units Weighted-
Average Grant-
Date Fair Value 
 Non-vested at December 14, 2022 — $ — 
 Awards converted from Fortune Brands 2,133,999 $ 9.92 
 Granted 1,812,171 $ 7.88 
 Vested (21,194) $ 10.26 
 Forfeited — $ — 
 Non-vested at December 25, 2022 3,924,976 $ 8.98 

 The remaining unrecognized pre-tax compensation cost related to RSUs at December 25, 2022 was approximately $22.7 million, and the weighted-average period of time over which this cost will be recognized is 2.51 years. The fair value of RSUs that vested (including Fortune Brand’s RSUs that vested prior to the Separation) during 2022, 2021 and 2020 was $6.1 million, $6.6 million and $6.9 million, respectively. 
 
 Stock Option Awards 
 Stock options were granted to officers and certain employees of the Company and represent the right to purchase shares of MasterBrand, Inc. common stock subject to continued employment through each vesting date. Stock options granted under the Plan generally vest over a three-year period and generally have a maturity of ten years from the grant date. 
 
 All stock-based compensation to employees is required to be measured at fair value and expensed over the requisite service period. We recognize compensation expense on awards on a straight-line basis over the requisite service period for the entire award. 
 
 MasterBrand, Inc. did not grant any stock options in fiscal 2022 subsequent to the Separation. The fair value of MasterBrand, Inc. options granted in future periods will be estimated at the date of grant using a Black-Scholes option pricing model with assumptions for current expected dividend yield, expected volatility, risk-free interest rate, and an expected term. 
 
 A summary of MasterBrand, Inc. stock option activity for the year ended December 25, 2022 was as follows: 
 
 Options Weighted-
Average
Exercise
Price 
 Outstanding at December 14, 2022 — $ — 
 Awards converted from Fortune Brands 1,334,292 $ 9.36 
 Granted — $ — 
 Exercised — $ — 
 Expired/forfeited — $ — 
 Outstanding at December 25, 2022 1,334,292 $ 9.36 

 Options outstanding and exercisable at December 25, 2022 were as follows: 
 
 Options Outstanding (a) 
 Options Exercisable (b) 
 
 Range Of 
Exercise Prices Options 
Outstanding Weighted- 
Average
Remaining 
Contractual Life Weighted- 
Average 
Exercise 
Price Options 
Exercisable Weighted- 
Average 
Exercise 
Price 
 $5.92 to $10.76 
 1,334,292 7.62 $ 9.36 619,443 $ 8.34 
 
 a) At December 25, 2022, the aggregate intrinsic value of options outstanding was $0.2 million . 
 b) At December 25, 2022 the weighted-average remaining contractual life of options exercisable was 6 .7 years and the aggregate intrinsic value of options exercisable was $0.2 million. 
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 The remaining unrecognized compensation cost related to unvested awards at December 25, 2022 was $1.4 million , and the weighted-average period of time over which this cost will be recognized is 1.43 years . The fair value of options that vested (including Fortune Brand’s stock options that vested prior to the Separation) during the years ended 2022, 2021 and 2020 was $0.8 million, $0.7 million and $1.4 million, respectively. No options were exercised in 2022. The intrinsic value of stock options exercised in 2021 and 2020, was $2.6 million and $9.8 million, respectively. 
 
 18. Accumulated Other Comprehensive Loss 
 The reclassifications out of accumulated other comprehensive income (loss) for the years ended December 25, 2022 and December 26, 2021 were as follows: 
 
 (In millions) Affected Line Item in the 
Consolidated Statements of Income 
 Details about Accumulated Other 
Comprehensive Loss Components 2022 2021 
 Gains (losses) on cash flow hedges 
 Foreign exchange contracts 
 $ 4.5 $ 2.9 Cost of products sold 
 — — Tax expense 
 $ 4.5 $ 2.9 Net of tax 
 Pension and Other Postretirement Plans items 
 
 Recognition of actuarial losses 
 $ (1.7) $ — (a) 
 0.6 — Tax benefit 
 $ (1.1) $ — Net of tax 
 
 Total reclassifications for the period $ 3.4 $ 2.9 Net of tax 

 a) These accumulated other comprehensive (loss) income components are included in the computation of net periodic benefit cost. Refer to Note 14, “Pension and Other Postretirement Plans,” for additional information. 
 Total accumulated other comprehensive income (loss) consists of net income and other changes in business equity from transactions and other events from sources other than stockholders. It includes currency translation gains and losses, realized gains and losses from derivative instruments designated as cash flow hedges, and defined benefit plan adjustments. The after-tax components of and changes in accumulated other comprehensive (loss) income were as follows: 
 
 (In millions) Foreign 
Currency
Adjustments Derivative 
Hedging 
Gain (Loss) Pension and Other 
Postretirement Plans
Adjustments Accumulated 
Other 
Comprehensive 
(Loss) Income 
 Balance at December 29, 2019 $ (1.4) $ 1.6 $ (12.9) $ (12.7) 
 Amounts classified into accumulated other comprehensive (loss) income . 
 4.2 (1.4) (2.9) (0.1) 
 Amounts reclassified into earnings — 2.3 2.8 5.1 
 Net current period other comprehensive loss 4.2 0.9 (0.1) 5.0 
 Balance at December 27, 2020 $ 2.8 $ 2.5 $ (13.0) $ (7.7) 
 Amounts classified into accumulated other comprehensive (loss) income 
 (0.9) 0.5 7.1 6.7 
 Amounts reclassified into earnings — (2.9) — (2.9) 
 Net current period other comprehensive loss (0.9) (2.4) 7.1 3.8 
 Balance at December 26, 2021 $ 1.9 $ 0.1 $ (5.9) $ (3.9) 
 Amounts classified into accumulated other comprehensive (loss) income . 
 (9.9) 7.2 (4.5) (7.2) 
 Amounts reclassified into earnings — (4.5) 1.1 (3.4) 
 Net current period other comprehensive loss (9.9) 2.7 (3.4) (10.6) 
 Balance at December 25, 2022 $ (8.0) $ 2.8 $ (9.3) $ (14.5) 

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 19. Common Stock 
 Prior to the Separation, the Company had 5,000 authorized shares of common stock, par value $1.00 per share, of which 100 shares of common stock were issued. On December 14, 2022, the Separation was completed by way of a pro rata dividend of our common stock to stockholders of Fortune Brands common stock. Fortune Brand shareholders received one share of MasterBrand, Inc. common stock for each share of Fortune Brands common stock held on the record date. Upon Separation, the Company has authorized 750 million shares of common stock, par value of $0.01 per share, and 128.0 million MasterBrand common shares were distributed to Fortune Brands stockholders. 
 
 A rollforward of the activity impacting the number of shares of common stock during the fiscal year ended December 25, 2022 is as follows: 
 
 (In thousands) Common Shares 
 Balance at December 26, 2021 — 
 Incorporation of MasterBrand, Inc. (0.1) 
 Distribution of MasterBrand, Inc. stock to Fortune Brands stockholders 128,028.6 
 Vesting of restricted stock unit awards 21.2 
 Shares returned for taxes upon vesting of restricted stock unit awards (8.1) 
 Balance at December 25, 2022 128,041.6 

 20. Related Party Transactions 
 The accompanying financial statements are now presented on a consolidated basis as the company is a standalone public company. Certain information from prior to the Separation on December 14, 2022 was derived from Fortune Brands consolidated financial statements and accounting records. Transactions between MasterBrand and Fortune Brands prior to the Separation have been presented as related party transactions in the accompanying consolidated financial statements. After the Separation, Fortune Brands is not considered a related party of MasterBrand, Inc. 
 
 Fortune Brands performed, and continues to perform in some areas as part of a transitional services agreement, certain corporate functions, including information technology, finance, executive, human resources, supply chain, internal audit, governance and legal services on behalf of the Company. The expenses associated with these functions 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. Prior to the Separation, total expenses allocated for the 2022, 2021 and 2020 years were $92.5 million, $62.0 million and $61.6 million, respectively, and such amounts are primarily included within selling, general and administrative expenses in the Consolidated Statements of Income. These amounts include costs of $72.4 million, $42.3 million and $42.4 million for the 2022, 2021 and 2020 years, respectively, that were not historically allocated to us as part of Fortune Brands’ normal periodic management reporting process. 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. 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. 
 
 Cash Management 
 Fortune Brands utilized a central approach to treasury management, and prior to the Separation, we historically participated in related cash pooling arrangements to maximize the availability of cash for general operating and investing purposes. Under these cash pooling arrangements in the United States, cash balances were remitted regularly from our accounts. Our cash and cash equivalents on our consolidated balance sheets represent cash balances held in bank accounts owned by the Company and its subsidiaries. 
 
 Stock-Based Compensation 
 Prior to the Separation, our employees participated in Fortune Brands stock-based compensation plans, the costs of which have been allocated and recorded in cost of products sold, and selling, general and administrative expenses in the consolidated statements of income. Stock-based compensation costs related to our employees for 2022, 2021 and 2020 were $10.9 million, $9.3 million and $9.7 million, respectively. All of these amounts, except for $0.7 million of 
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 incremental compensation expense recognized in the fourth quarter of 2022, as described in Note 17, “Stock-based Compensation,” are included within the total expenses allocated, as noted above. 
 Related Party Sales 
 There were no material sales to or from Fortune Brands or its subsidiaries for any of the periods presented. 
 Balances Due to and From Related Parties 
 Related party balances consist of the following: 
 
 For the Years Ended 
 2022 2021 
 Related party receivable - Noncurrent — 419.7 
 Related party payable - Noncurrent — 9.1 

 Prior to Separation, the related party note receivable balance was the amount owed to the Company and its subsidiaries from Fortune Brands. We had written interest-bearing loan agreements in place with Fortune Brands. The receivable balance consisted of excess cash remitted to the Parent’s cash pooling arrangements, net of expenses incurred by us which were paid for by Fortune Brands. The loan agreements were to mature on April 14, 2026, but all amounts under these agreements were settled prior to the Separation. The receivable balance earned interest at a rate in-line with the Fortune Brands’ short-term borrowing rate, which was between 0.95 percent and 4.80 percent during 2022 and 2021. 
 Prior to Separation, the related party note payable balance was a note payable between a subsidiary of the Company and Fortune Brands. The balance comprised of a revolving loan that was due at the maturity of the agreement on April 15, 2026, but was settled prior to the Separation. The note bore interest at rates ranging between 1.20 percent and 5.05 percent during 2022, and at a rate of 1.65 percent during 2021. 
 The Company received interest income on related party receivables o f $14.4 million, $5.2 million and $3.3 million for 2022, 2021 and 2020, respectively. Additionally, the Company incurred interest expense on intercompany payables and notes of $1.5 million, $0.6 million and $0.9 million for 2022, 2021 a nd 2020, respectively. 
 
 21. Subsequent Events 
 Subsequent to the balance sheet date, on January 12, 2023, a tornado hit our leased operating facility in Jackson, Georgia, causing damage to the Company’s assets and disrupting operations. Our insurance policy, less applicable deductibles, is expected to cover the repair or replacement of the Company's assets that suffered loss or damage. The Company is working closely with its insurance carrier and claims adjusters to ascertain the full amount of insurance proceeds due to us as a result of the damages and the losses the Company suffered. The Company’s insurance policy also provides coverage for interruption to our business, including lost profits, and reimbursement for other expenses and costs that are incurred relating to the damages and losses suffered. We continue to evaluate the impact this event has had on our operations. At this point, the potential loss and related insurance recoveries are not known. 
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 Report of Independent Registered Public Accounting Firm 
 
 To the Board of Directors and Stockholders of MasterBrand, Inc. 
 
 Opinion on the Financial Statements 
 
 We have audited the accompanying consolidated balance sheets of MasterBrand, Inc. and its subsidiaries (the “Company”) as of December 25, 2022 and December 26, 2021, and the related consolidated statements of income, of comprehensive income, of equity and of cash flows for each of the three years in the period ended December 25, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 25, 2022 appearing under Item 15(a)2 (collectively referred to as the “consolidated financial statements”). 
 
 In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 25, 2022 and December 26, 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 25, 2022 in conformity with accounting principles generally accepted in the United States of America. 
 
 Basis for Opinion 
 
 These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 
 
 We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. 
 
 Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable 
 basis for our opinion. 
 
 Critical Audit Matters 
 
 The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. 
 
 Quantitative Impairment Tests - Certain Indefinite-Lived Tradenames 
 As described in Notes 2 and 8 to the consolidated financial statements, the Company’s consolidated indefinite-lived tradenames balance was $183.1 million as of December 25, 2022, which included two tradenames with remaining carrying values of $46.2 million and $19.1 million, for which a quantitative impairment test was performed. Management reviews indefinite-lived tradenames 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 tradename exceeds its fair value. Management first assesses qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If it is more likely than not that an intangible asset is impaired, management performs a quantitative impairment test. Management may also elect to bypass the qualitative testing and proceed directly to the quantitative testing. Fair value is measured by management using the relief-from-royalty approach. Significant assumptions inherent in estimating fair values include forecasted revenue growth rates, assumed royalty rates and market-participant discount rates. 
 
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 The principal considerations for our determination that performing procedures relating to the quantitative impairment test for certain tradenames is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the tradenames; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to forecasted revenue growth rates and market-participant discount rates, and for the tradename with a carrying value of $46.2 million, the assumed royalty rate; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge. 
 
 Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s indefinite-lived tradename impairment tests, including controls over the valuation of the Company’s indefinite-lived tradenames. These procedures also included, among others, (i) testing management’s process for developing the fair value estimates of the two tradenames requiring a quantitative annual impairment test, (ii) evaluating the appropriateness of the relief-from-royalty approach; (iii) testing the completeness and accuracy of underlying data used in the relief-from-royalty approach; and (iv) evaluating the reasonableness of the significant assumptions used by management related to forecasted revenue growth rates, market-participant discount rates, and assumed royalty rate. Evaluating management’s significant assumptions related to forecasted revenue growth rates and assumed royalty rate involved evaluating whether the significant assumptions used by management were reasonable considering, (i) the current and past performance of the business associated with the tradenames; (ii) the consistency with external market and industry data; and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating (i) the appropriateness of the Company’s relief-from-royalty approach and (ii) the reasonableness of the assumed market-participant discount rate and royalty rate significant assumptions. 
 
 /s/ PricewaterhouseCoopers LLP 
 Milwaukee, Wisconsin 
 March 10, 2023 
 
 We have served as the Company's auditor since 2021. 
 
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 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
 None.
MasterBrand, Inc. 10-K

Item 8. Financial Statements and Supplementary Data
