What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-19 compared with 2024-02-27 · 148 added, 113 removed, 315 unchanged (45% of the section changed)

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• Our ability to develop and expand our business;

• Our ability to develop new products or respond to changing consumer preferences and purchasing practices;

• Our anticipated financial resources and capital spending;

• Our ability to manage costs;

◦ The impact of our dependence on third parties with respect to sourcing our raw materials;

• Our ability to effectively manage manufacturing operations and capacity, or an inability to maintain the quality of our products;

• The impact of our dependence on third parties to source raw materials and our ability to obtain raw materials in a timely manner or fluctuations in raw material costs;

• Our ability to accurately price our products;

◦ Our anticipated future revenues and expectations of operational performance;

• Our projections of future performance, including future revenues, capital expenditures, gross margins, and cash flows;

• The effects of competition and consolidation of competitors in our industry;

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• The effect of climate change and unpredictable seasonal and weather factors;

◦ Failure to realize the anticipated benefits of the Separation;

• Conditions in the housing market in the United States and Canada;

◦ The expected strength of our existing customers and consumers;

◦ Worldwide economic, geopolitical and business conditions and risks associated with doing business on a global basis;

◦ The effects of the COVID-19 pandemic or another public health crisis or other unexpected event;

• The expected strength of our existing customers and consumers and any loss or reduction in business from one or more of our key customers or increased buying power of large customers;

• Information systems interruptions or intrusions or the unauthorized release of confidential information concerning customers, employees, or other third parties;

• Worldwide economic, geopolitical and business conditions and risks associated with doing business on a global basis, including risks associated with uncertain trade environments and changes to the U.S.

administration;

• The effects of a public health crisis or other unexpected event;

• The inability to recognize, or delays in obtaining, anticipated benefits of the acquisition of Supreme, including synergies, which may be affected by, among other things, competition, the ability of the combined company to grow and manage growth profitably, maintain relationships with customers and suppliers and retain key employees;

• The impact of our current and any additional future debt obligations on our business, current and future operations, profitability and our ability to meet other obligations;

• Business disruption following the acquisition of Supreme;

• Diversion of management time on acquisition-related issues;

• The reaction of customers and other persons to the acquisition of Supreme;

• Other statements contained in this Annual Report on Form 10-K regarding items that are not historical facts or that involve predictions.

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This section identifies and summarizes those accounting policies that significantly impact our reported results of operations and financial condition and require significant judgment or estimates on the part of management in their application.

Founded nearly 70 years ago, we are the largest manufacturer of residential cabinets in North America based on 2022 reported net sales.

Founded over 70 years ago, we are the largest manufacturer of residential cabinets in North America.

Our superior product quality, innovative design and service excellence drives a compelling value proposition.

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We expect to further extend our competitive advantages by using technology and data to enhance the consumer’s experience from visualization to ordering to delivery and installation.

On July 10, 2024, we acquired all of the issued and outstanding limited liability interests of Dura Investment Holdings LLC, parent company of Supreme, a cabinetry company, from GHK Capital Partners LP.

Supreme is a domestic manufacturer of residential cabinetry with a portfolio of product lines significantly focused on premium products.

Supreme, with manufacturing facilities located in Minnesota, Iowa and North Carolina, and its two brands, Dura Supreme and Bertch cabinetry, crafts framed and frameless cabinetry for a nationwide network of dealers.

The combined company is reaching more customers, through its highly complementary dealer networks, with greater efficiency and effectiveness.

Through this transaction, MasterBrand broadened its portfolio of premium cabinetry in the resilient and attractive kitchen and bath categories, further diversifying its channel distribution and adding to its strategically located facility footprint.

The acquisition was funded with a combination of cash on hand and proceeds from our revolving credit facility.

Separation from Fortune Brands

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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 prior periods presented in the consolidated financial statements, as discussed in further detail in Note 5, "Earnings Per Share," of our audited consolidated financial statements within this Annual Report on Form 10-K have been retroactively recast to reflect the effects of the changes in equity structure resulting from the Reorganization, Separation and Distribution.

All share and per share amounts for the period presented in the consolidated financial statements, as discussed in further detail in Note 6, "Earnings Per Share," of our audited consolidated financial statements within this Annual Report on Form 10-K have been retroactively recast to reflect the effects of the changes in equity structure resulting from the Reorganization, Separation and Distribution.

The historical activity of the Company is that of MBCI prior to the Reorganization.

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• Separation and Distribution Agreement – sets forth the principal actions to be taken in connection with the Separation, including the transfer of assets and assumption of liabilities, among others, and sets forth other agreements governing aspects of the relationship between MasterBrand and Fortune Brands.

• Transition Services Agreement – allows for Fortune Brands and MasterBrand to provide certain transition services to each other for a limited time, up to 24 months following the Separation.

• Tax Allocation Agreement – governs the respective rights, responsibilities and obligations of MasterBrand and Fortune Brands with respect to tax liabilities and benefits, tax attributes, tax contests and other matters regarding income taxes, non-income taxes and related tax returns.

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These expenses have been allocated based on direct usage or benefit where specifically identifiable, with the remainder allocated on a proportional cost allocation method based primarily on net sales, associate headcount or number of facilities, as applicable.

Prior to the Separation, total expenses allocated for our 2022 and 2021 fiscal years were $92.5 million and $62.0 million, respectively.

Of these allocations, $72.4 million and $42.3 million, respectively, were not previously allocated to us for our 2022 and 2021 fiscal years.

Prior to the Separation, total expenses allocated for our 2022 fiscal year was $92.5 million.

Of these allocations, $72.4 million was not previously allocated to us for our 2022 fiscal year.

Such amounts are primarily included within selling, general and administrative expenses in our 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 during all periods presented.

Actual costs that we may have incurred had we been a standalone company during all periods presented would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by our associates and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.

We consider the expense methodology and resulting allocation to be reasonable for the period presented;

however, the allocations may not be indicative of actual expenses that would have been incurred had we operated as an independent, publicly-traded company during the period presented.

Actual costs that we may have incurred had we been a standalone company during the period presented would depend on a number of factors, including the chosen organizational structure, whether functions were outsourced or performed by our associates and strategic decisions made in areas such as manufacturing, selling and marketing, research and development, information technology and infrastructure.

Accordingly, historical allocations may not be indicative of future costs we incur operating as an independent, publicly-traded company.

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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, was recorded in accounts payable on the Consolidated Balance Sheets and settled in 2023.

Following the Separation, a limited number of services that Fortune Brands provided to us, or we provided to them, prior to the Separation continue to be provided for a period of time under a Transition Services Agreement.

Accordingly, the net tax payable of $32.6 million to Fortune Brands as of December 25, 2022, was recorded in accounts payable and settled in 2023.

Following the Separation, a limited number of services that Fortune Brands provided to us, or we provided to them, prior to the Separation continued 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, supply chain, internal audit, governance and legal services, as well as ongoing additional costs associated with operating as an independent, publicly-traded company.

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Results of Operations

The following discussion includes a comparison of results of operations for the fifty-three weeks ended December 31, 2023 compared to the fifty-two weeks ended December 25, 2022.

The following discussion includes a comparison of results of operations for the fifty-two weeks ended December 29, 2024 compared to the fifty-three weeks ended December 31, 2023.

For comparisons of our 2023 fiscal year compared to our 2022 fiscal year, please refer to the heading “Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC.

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Amortization of intangible assets 20.2 4.9 32.0 % 15.3

Asset impairment charges — (46.4) n/m (1)

Restructuring charges 18.0 7.9 78.2 % 10.1

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235.7 (70.6) (23.0) % 306.3

Related party interest income, net — 12.9 n/m (1)

Interest expense 65.2 63.0 n/m (1)

Other expense, net 2.4 1.8 300.0 % 0.6

Interest expense 74.0 8.8 13.5 % 65.2

Gain on sale of asset (4.3) (4.3) n/m (1)

Other (income) expense, net (2.3) (4.7) n/m (1)

INCOME BEFORE TAXES

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Net sales were $2,700.4 million for 2024 compared to $2,726.2 million for 2023, a decrease of $25.8 million, or 0.9 percent.

The lower net sales compared to 2022 was driven mainly by a decrease in sales unit volume, partially offset by favorable price, including the carryover of price increases implemented in the second half of 2022.

The second half of 2024 includes $121.2 million of incremental sales related to the Supreme acquisition.

Excluding the impact of Supreme, the $147.0 million decrease in net sales in 2024 compared to 2023 was driven primarily by the combined net impact of price and mix on our overall average selling price, which accounted for 77.0 percent of the decrease, while lower sales unit volume represented 23.0 percent of the decrease from 2023 to 2024.

Overall end-market demand was softer in 2024 as compared to 2023 in the repair and remodel markets, while single-family new construction strengthened in 2024.

Foreign currency impact was unfavorable by $1.2 million during 2024 as compared to 2023.

Compared to 2023, net sales to dealers, whose end customers include builders, professional trades and home remodelers, declined $25.2 million, or 1.7 percent, and net sales to retailers, including through their respective retail internet website portals, declined $39.4 million, or 4.1 percent.

Net sales directly to builders increased $38.8 million, or 12.4 percent.

Cost of products sold

Cost of products sold decreased by $1.4 million, or 0.1 percent, to $1,823.4 million (67.5 percent of net sales) in 2024 as compared to $1,824.8 million (66.9 percent of net sales) in 2023.

In addition to the impact of decreased sales unit volume, the lower cost of products sold as a percentage of net sales in 2023 is due to the favorable carryover of price increases implemented in the second half of 2022, as well as realized savings from various cost reduction actions taken in the fourth quarter of 2022 and throughout 2023.

Fiscal 2023 was also favorably impacted by deflation in commodity costs and inbound transportation.

These factors were partially offset by labor inflation.

Additionally, 2023 included $9.4 million of incremental costs, less $7.4 million of insurance recoveries, related to the tornado that occurred during the first quarter at our Jackson, GA facility.

The inclusion of Supreme in the second half of 2024 resulted in an incremental $83.4 million of cost of products sold.

Excluding the impact of Supreme, the $84.8 million decrease in cost of products sold was driven primarily by the combined net impact of costs and mix, which accounted for 74.0 percent of the decrease, while lower sales unit volume represented 26.0 percent of the $84.8 million decrease.

Year-over-year increases in realized savings from various cost reduction actions and carry over deflation in commodity costs and inbound transportation contributed to the decreased net impact of costs and mix.

Additionally, 2023 included $9.4 million of incremental costs, less $7.4 million of insurance recoveries, related to the tornado that occurred during the first quarter of 2023 at our Jackson, Georgia facility.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $78.8 million, or 12.2 percent, to $569.7 million (20.9 percent of net sales) in 2023 compared to $648.5 million (19.8 percent of net sales) in the prior year.

2023 includes lower unit volume related costs, including distribution costs ($40.4 million) and commission costs ($18.1 million), offset by increased associate-related costs ($40.3 million), including salaries, incentive compensation and stock-based compensation, and professional support fees ($37.0 million).

2023 reflects associate-related and professional support fee costs for newly established MasterBrand corporate functions, as compared to 2022, which included $92.5 million of allocated costs from Fortune Brands that did not recur in 2023.

In 2023, we incurred $2.4 million of additional costs directly related to the Separation from Fortune Brands, as compared to $15.4 million in 2022.

Asset impairment charges

During 2022, we incurred $46.4 million of asset impairment charges related to indefinite-lived tradenames.

During the second quarter of 2022, we incurred an asset impairment charge of $26.0 million related to an indefinite-lived tradename, as 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 and the recognition of the corresponding asset impairment charge.

In the fourth quarter of 2022, we incurred an additional asset 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.

In the fourth quarter of 2022, we also incurred an impairment charge of $7.6 million related to another indefinite-lived tradename, due to a shift in customer demand in the fourth quarter from this tradename to a lower price point product, as a result of continued and persistent inflation, as well as elevated interest rates and economic uncertainty .

We did not incur any asset impairment charges in 2023.

Selling, general and administrative expenses increased by $33.4 million, or 5.9 percent, to $603.1 million (22.3 percent of net sales) in 2024 compared to $569.7 million (20.9 percent of net sales) in the prior year.

The increase in 2024 is primarily due to increased acquisition-related costs ($25.4 million) associated with the acquisition of Supreme, the inclusion of Supreme ($24.4 million) and increased associate-related costs, net of lower variable compensation ($9.1 million).

These increases were partially offset by lower distribution and commission costs ($21.4 million), as a result of the decrease in sales unit volume.

In 2023, we incurred $2.4 million of costs directly related to the separation from Fortune Brands.

Restructuring charges

Restructuring charges were $18.0 million in 2024 as compared to $10.1 million in 2023.

Restructuring charges for all periods presented are largely related to severance costs and other associate-related costs in order to better align our workforce with our forecasted demand within our manufacturing footprint.

In the fourth quarter of 2023, we also recorded an asset impairment charge associated with a decision to permanently close our Newton, Kansas manufacturing facility, which had previously been idled.

Operating income

We recorded operating income of $306.3 million for 2023, compared to operating income of $203.3 million for 2022.

The $103.0 million, or 50.7 percent, increase in operating income was driven by the favorable carryover of price increases implemented in 2022, realized savings from various cost reduction actions taken in the fourth quarter of 2022 and fiscal 2023, and lower commodity costs and inbound transportation.

Additionally, 2023 included lower selling, general and administrative expenses, decreased restructuring charges and the non-recurrence of the impairment of indefinite-lived tradenames of $46.4 million occurring in fiscal 2022.

Related party interest income, net

Related party interest income, net, was $12.9 million in 2022 based upon the related party loan receivable from Fortune Brands.

Prior to the Separation, excess cash generated by our operations was remitted to Fortune Brands on a regular basis through the cash pooling arrangements.

At the date of the Separation, such arrangements ceased.

Charges in 2024 include severance costs and other associate-related costs in order to better align our workforce with our forecasted demand within our manufacturing footprint.

2024 restructuring charges also include an asset impairment charge associated with the decision to exit a leased manufacturing facility.

Restructuring charges in 2023 are largely related to severance costs and other associate-related costs, as well as an asset impairment charge resulting from the decision to permanently close a previously idled manufacturing facility.

Interest expense

We incurred indebtedness in connection with the Separation and Distribution, which resulted in $65.2 million of interest expense in fiscal 2023, as compared to $2.2 million in fiscal 2022 .

Prior to the Separation, we had no third-party borrowings in 2022.

Other expense, net

Other expense, net of $2.4 million in 2023 was comparable to other expense, net of $0.6 million in 2022.

Interest expense was $74.0 million in 2024, as compared to $65.2 million in 2023 .

The increase in interest expense is due to the higher outstanding debt balance in 2024 as a result of the second quarter debt refinancing transaction.

Interest expense in 2024 also includes $6.5 million of nonrecurring interest expense incurred in connection with the debt refinancing transaction, including the write-off of deferred financing fees.

Gain on sale of asset

The gain on sale of asset resulted from the sale of a warehouse and land in the fourth quarter of 2024.

The location was previously closed in conjunction with the consolidation of our warehouse facilities to enable efficiencies and increase annual savings.

The facility sold for a purchase price of $6.6 million, resulting in a $4.3 million gain.

Other (income) expense, net

Other income, net was $2.3 million in 2024 compared to other expense, net of $2.4 million in 2023.

The increase was due primarily to transactional foreign currency gains recorded in 2024, partially offset by increased pension costs, including $2.9 million of settlement charges resulting from the termination of our defined benefit pension plan.

Our consolidated income tax expense, income before taxes, and effective tax rate for the fiscal years ended December 29, 2024 and December 31, 2023 were as follows:

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For 2024, the Company’s effective tax rate was 25.2 percent, compared to an effective tax rate of 23.8 percent for 2023.

The decrease in effective tax rate in 2023 was primarily the result of changes in state and local income taxes and the nonrecurrence of IRS audit adjustments in 2022, including recognition of a deferred tax liability for earnings of various foreign entities, partially offset by benefits for the release of uncertain tax positions in 2022 and foreign income taxed at higher rates.

The 2023 effective income tax rate of 23.8 percent was unfavorably impacted by net changes in state and local income taxes, and foreign income taxed at higher rates.

The 27.2 percent effective income tax rate for 2022 was unfavorably impacted by IRS audit adjustments, including recognition of a deferred tax liability for earnings of various foreign entities, and state and local income taxes, partially offset by favorable benefits for the release of uncertain tax positions and foreign income taxed at lower rates.

Net income was $182.0 million for 2023 compared to $155.4 million for 2022.

The $26.6 million, or 17.1 percent, increase in net income was primarily due to the increase in operating income partially offset by the $65.2 million of interest expense in 2023 resulting from the indebtedness we incurred upon Separation from Fortune Brands.

The increase in effective tax rate was primarily the result of an increase in the valuation allowance, nondeductible transaction costs related to the Supreme acquisition and foreign income inclusions net of foreign tax credits, partially offset by foreign exclusions, return-to-provision adjustments and the release of specific uncertain tax positions.

The 2024 effective income tax rate of 25.2 percent compared to the U.S.

federal statutory rate of 21.0 percent was unfavorably impacted by net changes in state and local income taxes, foreign income taxed at higher rates, an increase in the valuation allowance, nondeductible transaction costs related to the Supreme acquisition and executive compensation.

These were partially offset by favorable benefits for the partial release of uncertain tax positions, return-to-provision adjustments, tax credits and foreign exclusions.

The 23.8 percent effective income tax rate for 2023 was unfavorably impacted by net changes in state and local income taxes and foreign income taxed at higher rates.

Liquidity and Capital Resources

Our primary liquidity needs have historically been to support working capital requirements and fund capital expenditures.

Subsequent to the Separation, we may have liquidity needs to finance acquisitions and return cash to stockholders, if and when appropriate.

Subsequent to the Separation, we may have liquidity needs to finance acquisitions and return cash to stockholders, such as the 2024 acquisition of Supreme.

Historically, prior to Separation, our principal sources of liquidity were cash on hand, cash flows from operating activities and financial support from Fortune Brands via participation in Fortune Brands’ centralized approach to treasury management, including financing and cash management activities.

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All cash balances specifically identifiable to us are included in our consolidated balance sheets and statement of cash flows.

The cash flows presented in our consolidated statement of cash flows may not be indicative of the cash flows we would have recognized had we operated as a standalone publicly-traded company for the periods presented prior to the Separation.

After the Separation, we no longer have financial support from Fortune Brands.

Our operating income is generated by our subsidiaries.

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

There are generally no restrictions on the ability of our subsidiaries to pay dividends or make other distributions to MasterBrand, other than the fact our subsidiaries have financial obligations that must be satisfied before funding us and such dividends are subject to applicable local law and may be limited due to terms of other contractual arrangements, including our indebtedness.

We periodically review our portfolio of brands, manufacturing and supply chain footprint, and evaluate potential strategic transactions to increase stockholder value.

However, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, or what impact any such transactions could have on our results of operations.

However, we cannot predict whether or when we may enter into acquisitions, joint ventures or dispositions, or what impact any such transactions could have on our results of operations, cash flows or financial condition.

Our cash flows from operations, borrowing availability and overall liquidity are subject to certain risks and uncertainties, including those described in the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

On November 18, 2022, we entered into a 5-year, $1.25 billion credit agreement, consisting of a $750.0 million term loan and a $500.0 million revolving credit facility (the “2022 Credit Agreement”).

Initial proceeds of $955.0 million from the credit agreement were received at the time of Separation from Fortune Brands.

The proceeds were primarily used to make a cash dividend payment of $940.0 million to Fortune Brands and to pay related fees and expenses at the Separation.

The 2022 Credit Agreement was secured by certain assets as well as the guarantee of certain of our subsidiaries.

On June 27, 2024, the Company refinanced this debt by completing a private offering (the “Offering”) of $700.0 million aggregate principal amount of 7.00 percent Senior Notes due 2032 (the “Senior Notes”) and entered into an amended and restated credit agreement (the “2024 Credit Agreement”).

The Company used the funds from the refinancing transaction, and cash on-hand, to:

1) refinance the 2022 Credit Agreement (including repaying all amounts outstanding under the existing term loan, inclusive of accrued and unpaid interest), 2) fund the acquisition of Supreme on July 10, 2024, and 3) to pay all fees and expenses related to the foregoing transactions.

In July 2024, upon closing, we funded the acquisition with a combination of cash on hand and $430.0 million of proceeds from the revolving credit facility provided for by the 2024 Credit Agreement (see Note 12, "Debt," for further details).

The Senior Notes were issued under the Indenture dated as of June 27, 2024 (the “Indenture”) and will mature on July 15, 2032.

Interest on the Senior Notes will accrue at a rate of 7.00 percent per annum and is payable semi-annually in arrears on January 15 and July 15, beginning on January 15, 2025.

The Indenture contains certain covenants, including, but not limited to, limitations and restrictions on the ability of the Company and its restricted subsidiaries (as defined in the Indenture) to (i) incur additional indebtedness and guarantee indebtedness, (ii) make restricted payments, (iii) create, incur or assume liens or use assets as security in other transactions, (iv) merge, consolidate, or sell, transfer, lease or dispose of substantially all of their assets, (v) sell or transfer certain assets, (vi) enter into or conduct transactions with affiliates of the Company and (vii) agree to certain restrictions or encumbrances on the ability of restricted subsidiaries to pay dividends, make loans or advances, or to otherwise transfer property or assets to the Company or other restricted subsidiaries.

These covenants are subject to a number of important conditions, qualifications, exceptions and limitations.

The Indenture also includes customary events of default.

Certain of the foregoing covenants will be suspended in the event that (i) the Senior Notes receive investment grade ratings from any two of Fitch Ratings Inc., Moody’s Investors Service, Inc.

or S&P Global Ratings and (ii) no default or event of default has occurred and is continuing under the Indenture.

The Company was in compliance with all of its debt covenants under the Indenture as of December 29, 2024.

The revolving credit facility under the 2024 Credit Agreement is not subject to amortization and will mature in June 2029.

The 2024 Credit Agreement is secured by certain assets as well as the guarantee of certain of our subsidiaries.

Interest rates under these facilities are variable based on the Secured Overnight Financing Rate (“SOFR”) at the time of the borrowing, and our net leverage ratio as measured by our Net Leverage to our consolidated earnings before interest, taxes, depreciation and amortization (“Consolidated EBITDA”).

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 could not exceed 3.875 to 1.0 at the initial borrowing through the second fiscal quarter of 2023, adjusting downward in various future quarters before settling at 3.25 to 1.0 in January 2025.

As of December 31, 2023, the net leverage ratio could not exceed 3.75 to 1.0.

Interest rates can range from SOFR plus 1.85 percent to SOFR plus 2.60 percent.

We also are required to maintain a minimum Interest Coverage Ratio of 3.0 to 1.0.

The Interest Coverage Ratio is defined as Consolidated EBITDA to consolidated interest expense.

Our 2022 Credit Agreement contains additional covenants which limit or preclude certain corporate actions based upon the measurement of certain financial covenant metrics.

The $750.0 million Term Loan has quarterly required amortization payments, which began in March 2023.

During the third quarter of fiscal 2023 , the Company made total payments of $28.1 million on the term loan, consisting of a $4.7 million required payment due September 2023, and $23.4 million of required amortization payments due during each of the next three quarters.

We did not make any additional term loan payments during the fourth quarter of fiscal 2023, and, as of December 31, 2023, we were paid in advance for our next two scheduled quarterly payments due during the first and second quarters of 2024.

Additionally, the revolving credit facility was paid in full during the third quarter of 2023.

These additional amortization payments, made possible due to the generation of strong operating cash flow, were made to reduce future interest expense and provide financial flexibility.

As of December 31, 2023, the Company was in compliance with all financial covenants set forth in the 2022 Credit Agreement, and expects to remain in compliance for the foreseeable future.

Interest rates on the revolving credit facility are variable based on the Secured Overnight Financing Rate (“SOFR”), or, at the Company’s option, at a base reference rate equal to the highest of (i) the federal funds rate plus 0.50 percent, (ii) the rate of interest last quoted by the Administrative Agent (as defined in the 2024 Credit Agreement) as its “prime rate” and (iii) the one-month SOFR rate plus 1.00 percent (the “Base Rate”), plus, as applicable, a margin ranging from 1.625 percent to 2.25 percent per annum for SOFR-based loans and ranging from 0.625 percent to 1.25 percent per annum for Base Rate-based loans, in each case, depending on the Company’s net leverage ratio.

The Company will also pay customary agency fees and a commitment fee based on the daily unused portion of the revolving credit facility ranging from 0.20 percent to 0.30 percent per annum, depending on its net leverage ratio.

The 2024 Credit Agreement contains customary representations and warranties, affirmative covenants and restrictive covenants.

The restrictive covenants limit the Company and its subsidiaries’ ability to, among other things, (i) incur indebtedness, (ii) create liens on the Company’s or such subsidiaries’ assets, (iii) engage in fundamental changes, (iv) make investments, (v) sell or otherwise dispose of assets, (vi) engage in sale-leaseback transactions, (vii) make restricted payments, (viii) engage in certain transactions with affiliates and (ix) enter into agreements restricting the ability of the Company’s subsidiaries to make distributions to the Company or incur liens on their assets.

The 2024 Credit Agreement also contains a financial covenant that does not permit the Company to allow its net leverage ratio to exceed (i) in the case of any fiscal quarter ending on or prior to December 31, 2024, 3.50 to 1:00 and (ii) in the case of any fiscal quarter ending on or following March 31, 2025, 3.25 to 1:00 or, if the Company consummates any material acquisition, then the Company’s net leverage ratio shall not exceed 3.75 to 1.00 for the applicable fiscal quarter in which such acquisition is consummated and the three consecutive fiscal quarters thereafter.

The Company is also required to maintain a minimum interest coverage ratio of 3.00 to 1.00.

The 2024 Credit Agreement also contains customary events of default.

The occurrence of an event of default could result in the termination of commitments under the revolving credit facility, the acceleration of all outstanding amounts thereunder and the requirement to cash collateralize outstanding letters of credit.

The Company was in compliance with all of its debt covenants under the 2024 Credit Agreement as of December 29, 2024.

As of December 29, 2024 , we had $1,007.8 million outstanding in third-party borrowings, net of deferred financing fees.

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Net cash used in investing activities (580.8) (56.9)

Net cash used in financing activities (299.9) (215.3)

Net cash used in (provided by) financing activities 269.6 (299.9)

Effect of foreign exchange rate changes on cash (7.9) (1.2)

Net increase (decrease) in cash and cash equivalents

$ 47.6 $ (40.3)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (27.1) $ 47.6

Fiscal 2024 as compared to Fiscal 2023

Net cash provided by operating activities increased to $405.6 million in 2023 as compared to $235.6 million in 2022.

Net cash provided by operating activities included net income of $182.0 million in 2023, as compared to net income of $155.4 million in 2022.

Net income in 2023 included interest expense of $65.2 million on external debt that was entered into at the Separation, which resulted in cash outflows of $64.0 million for interest in the period.

In 2023, accounts receivable generated $88.1 million of cash, as a result of improvements in our collection processes and decreased sales.

In 2022, our accounts receivable generated $13.5 million.

In 2023, the movement in inventory was $123.6 million favorable, as compared to 2022, which had an unfavorable movement in inventory of $70.1 million.

In 2022, we executed an intentional build in inventory in the first three quarters of the year in order to mitigate the impact of an uncertain and volatile global supply chain environment.

The favorable inventory movement in 2023 reflects our efforts to more efficiently manage our inventory levels in the current supply chain environment and in alignment with sales volume.

Accounts payable was $69.4 million unfavorable in 2023 as a result of decreased purchasing levels aligned with our lower inventory levels, as well as a reduction in the payable to Fortune Brands of $42.4 million, primarily related to income tax related payments.

This compares to the favorable accounts payable movement of $18.3 million in 2022 in conjunction with our increasing inventory levels.

Fiscal 2023 was also unfavorably impacted by $9.4 million of restructuring charges net of cash payments, primarily for reserves established in fiscal 2022, as compared to favorable restructuring charges net of cash payments of $13.0 million in fiscal 2022.

Net cash used in investing activities of $56.9 million in 2023 was comparable to net cash used in investing activities of $55.9 million in 2022.

Net cash used in financing activities was $299.9 million in 2023 as compared to $215.3 million in 2022.

Fiscal 2023 included net payments on external debt of $272.5 million, as we used cash generated from operations to pay off our revolving credit facility and make advanced payments on our term loan.

Fiscal 2023 also includes $22.0 million of stock repurchases made under the $50.0 million stock repurchase program authorized in the second quarter of 2023.

Financing activities in 2022 reflect the payment of a dividend of $940.0 million to Fortune Brands in conjunction with the Separation.

This dividend was funded by the borrowing of $985.0 million of external debt at, and subsequent to, the Separation date.

The remaining activity in 2022 primarily reflects our cash remittances to Fortune Brands, net of cash lending from Fortune Brands, to finance our operations prior to the Separation.

The financing relationship with Fortune Brands ceased as of the date of Separation.

Net cash provided by operating activities decreased to $292.0 million in 2024 as compared to $405.6 million in 2023.

The decrease in operating cash flows was partially driven by the Company’s decreased net income in 2024 of $125.9 million, as compared to net income of $182.0 million in 2023.

In 2024, accounts receivable generated $21.7 million of cash, compared to 2023, which generated $88.1 million of cash.

Our increased cash generation in accounts receivable in 2023 was a result of improvements in our collection processes throughout 2023, which we maintained in 2024.

In 2024, the movement in inventory was $10.7 million unfavorable, reflective of the normal seasonal build in inventory from year-end.

2023 had favorable movement in inventory of $123.6 million.

In 2022, we executed an intentional build in inventory in order to mitigate the impact of an uncertain and volatile global supply chain environment.

The favorable inventory movement in 2023 reflected our efforts to more efficiently manage our inventory levels in the supply chain environment.

Accounts payable was $23.8 million favorable in 2024, partially due to the increased purchasing associated with the higher inventory balance from year-end, as compared to unfavorable accounts payable movement of $69.4 million in 2023 as a result of decreased purchasing levels aligned with our inventory management.

Restructuring charges, net of cash payments, were $10.5 million favorable in 2024 as compared to $9.4 million unfavorable in 2023 due to the timing of actions and associated cash impact.

Net cash used in investing activities was $580.8 million in 2024, compared to net cash used in investing activities of $56.9 million in 2023.

The year-over-year increase is due to the acquisition of Supreme, net of cash acquired, of $514.5 million and increased capital expenditures as compared to the prior year due to Supreme integration efforts and incremental tech-enabled initiatives.

These increases were partially offset by the proceeds from the sale of former manufacturing warehouse facility sites in 2024.

Net cash provided by financing activities was $269.6 million in 2024 as compared to net cash used of $299.9 million in 2023.

In 2024, as a result of the refinancing transaction completed in the second quarter, our $712.5 million term loan was repaid, and replaced with $700.0 million of Senior Notes.

Additionally, we used $470.0 million of proceeds from the revolving credit facility provided for by the 2024 Credit Agreement to fund the Supreme acquisition.

We have subsequently paid down $150.0 million on the revolving credit facility through the usage of cash flow from operations in the second half of 2024.

We also paid $17.8 million of financing fees in 2024 related to the refinancing transaction.

In 2023, we used strong cash flows from operations to pay down $272.5 million of debt.

We believe that our cash and cash equivalent balances, along with available cash from operating cash flows and credit facilities, will be adequate to fund our typical needs, including working capital requirements and projected capital expenditures.

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As of December 29, 2024 , the aggregate fair value of our pension plan assets was $81.5 million, representing 99.1 percent of the accumulated benefit obligation liability.

During fiscal 2023, we made pension contributions of $8.1 million.

During fiscal 2024, we did not make any pension contributions to the plan.

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

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The termination and settlement process, which preserves retirement benefits due to participants but changes the ultimate payor of such benefits, is expected to take up to 24 months to complete, subject to receipt of customary regulatory approvals.

During 2024, the Company expects to offer a lump-sum benefit payout option to certain plan participants.

During 2024, the Company offered a lump-sum benefit payout option to certain plan participants, resulting in $41.9 million of payments to participants who elected this option, equivalent to approximately 34 percent of the Company’s benefit obligation for the plan.

Due to the size of the lump-sum distribution, in accordance with U.S.

GAAP, the Company was required to recognize a non-cash settlement charge of $2.9 million in the fourth quarter of 2024.

During 2025, we expect to complete the purchase of group annuity contracts that will transfer any remaining pension benefit obligation to an insurance company.

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The purchase obligations in the table above include contracts for raw materials and finished goods purchases, selling and administrative services and capital expenditures.

(b) Debt payments include our $750.0 million term loan and $500.0 revolving credit facility under the 2022 Credit Agreement.

(b) Debt payments include our $700.0 million term loan and $750.0 million revolving credit facility under the 2024 Credit Agreement.

In addition to the contractual obligations and commitments described above, we also had other corporate commercial commitments for which we are contingently liable as of December 29, 2024.

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• Derivative instruments that are designated as net investment hedges - The changes in fair value of the derivative instrument 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.

Deferred currency gains of $10.2 million, $4.5 million, and $2.9 million (before tax impact) were reclassified into earnings for the 2023, 2022, and 2021 fiscal years, respectively.

Based on foreign exchange rates as of December 31, 2023 , we estimate that $2.2 million of net derivative gain included in other comprehensive income (“AOCI”) as of December 31, 2023 , will be reclassified to earnings within the next twelve months.

Deferred currency losses of $2.9 million were reclassified into earnings for the 2024 fiscal year.

Deferred currency gains of $10.2 million and $4.5 million were reclassified into earnings for the 2023 and 2022 fiscal years, respectively.

Based on foreign exchange rates as of December 29, 2024 , we estimate that $5.0 million of net derivative loss included in accumulated other comprehensive loss as of December 29, 2024 , will be reclassified to earnings within the next twelve months.

Foreign Currency Risk

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We believe that of our accounting estimates and assumptions, those described in the following sections involve a high degree of judgment and complexity.

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.

Business Combinations

We allocate the cost of an acquired business to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition.

The excess value of the purchase price for an acquired business over the estimated fair value of the assets acquired and liabilities assumed is recognized as goodwill.

The valuation of the acquired assets and liabilities will impact the determination of future operating results.

We use a variety of information sources to determine the fair value of acquired assets and liabilities including:

third-party appraisers for the values and lives of property, identifiable intangibles and inventories;

and actuaries and other third-party specialists, workers' compensation and general and product liabilities, as necessary.

Transaction costs related to the acquisition of a business are expensed as incurred.

We estimate the fair value of acquired customer relationships using the multi-period excess earnings method.

Fair value is estimated as the present value of the benefits anticipated from ownership of the asset, in excess of the returns required on the investment in contributory assets which are necessary to realize those benefits.

The intangible asset’s estimated earnings are determined as the residual earnings after quantifying estimated earnings from contributory assets.

Assumptions used in these calculations are considered from a market participant perspective and include forecasted revenue growth rates, estimated earnings, customer attrition rates and market-participant discount rates.

We estimate the fair value of tradenames using the relief from royalty method, which calculates the cost savings associated with owning rather than licensing the assets.

Assumed royalty rates are applied to projected revenue for the remaining useful lives of the assets to estimate the royalty savings.

Assumptions used in the determination of the fair value of a trade name include forecasted revenue growth rates, the assumed royalty rate and the market-participant discount rate.

While we use our best estimates and assumptions, fair value estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Any adjustments required after the measurement period are recorded in the consolidated statement of operations.

Future changes in the judgments, assumptions and estimates that are used in our acquisition valuations and intangible asset and goodwill impairment testing, including market-participant discount rates or future operating results and related cash flow projections, could result in significantly different estimates of the fair values in the future.

An increase in market-participant discount rates, a reduction in projected cash flows or a combination of the two could lead to a reduction in the estimated fair values, which may result in impairment charges that could materially affect our financial statements in any given year.

In accordance with this policy, our inventory provision was $17.0 million and $15.9 million as of December 29, 2024 and December 31, 2023 , respectively.

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In the fourth quarter ended December 25, 2022, we incurred an additional asset 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.

In 2023, we did not recognize any impairment charges related to this indefinite-lived tradename.

These downward revisions to forecasted revenue growth rates were not known when recording the impairment charge during the second quarter of 2022.

In 2023 and 2024, we did not recognize any impairment charges related to this indefinite-lived tradename.

As of both December 29, 2024 and December 31, 2023, the carrying value of this tradename was $46.2 million .

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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.

In 2023, we did not recognize any impairment charges related to this indefinite-lived tradename.

In 2023 and 2024, we did not recognize any impairment charges related to this indefinite-lived tradename.

As of both December 29, 2024 and December 31, 2023, the carrying value of this tradename was $19.1 million .

The fair values of the impaired tradenames were measured using the relief-from-royalty approach.

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.

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’ forecasted revenue growth rates 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.

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See Note 9, "Goodwill and Identifiable Intangible Assets," and Note 11, "Fair Value Measurements," of our audited consolidated financial statements within this Annual Report on Form 10-K, for additional information.

During our 2023 impairment test, we elected to bypass the qualitative test and tested all of our indefinite lived tradenames quantitatively.

During our 2024, 2023 and 2022 impairment tests, we elected to bypass the qualitative test and tested all of our indefinite lived tradenames quantitatively.

The significant assumptions used to estimate the fair values of the tradenames tested quantitatively during the fiscal years ended December 29, 2024, December 31, 2023 and December 25, 2022 were as follows:

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(c) Selected long-term revenue growth rate within 10-year projection period of the tradenames that were tested quantitatively.

A 50 basis point change in any of the significant assumptions used during the fiscal year ended December 31, 2023 would not have resulted in an impairment being recognized when estimating the fair value of our indefinite-lived tradenames.

A 50 basis point change in any of the significant assumptions used during the fiscal year ended December 29, 2024 or December 31, 2023 would not have resulted in an impairment being recognized when estimating the fair value of our indefinite-lived tradenames.

A 50 basis point change in any of the significant assumptions used during the fiscal year ended December 25, 2022 would not have resulted in an impairment being recognized when estimating the fair value of our indefinite-lived tradenames, with the exception of the fourth quarter indefinite-lived tradename impairments noted above, which were subject to partial impairments of $20.4 million.

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federal income tax return and various state and local income tax returns.

Our foreign income tax returns will continue to be filed on a full-year basis.

Our foreign income tax returns continue to be filed on a full-year basis.

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.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis