2017 MASONITE
ANNUAL
REPORT
R E S U LT S
Our Vision
To be the best provider of building products in the eyes of our customers,
employees, shareholders, suppliers and communities.
Dear shareholders, customers, suppliers and colleagues,
2017 was a year of important milestones for Masonite. We began the year by
launching a completely refreshed brand, including a new logo and the tagline “Open to
Extraordinary”, signifying our belief in a door’s potential to serve as a defining design
element in a home or workspace.
conversation around doors by bringing key influencers like architects and designers
into the discussion and publishing our first ever trend report to help our customers and
distribution channel partners bring design trend focus to the door category.
In similar fashion, we further changed the
At Masonite we have a clear purpose - we help people walk through walls. Both
physically by offering great door products and also metaphorically through our culture,
engaging each other and providing our teams with the tools, training, development, and
confidence to cross new thresholds and encouraging people in our communities to be
part of our team. This includes the role we play in helping high school students and
legal immigrants prepare for a career in manufacturing, creating a virtuous economic
cycle that helps us identify and develop the workforce we will need to grow our
company in the future. Our local communities are the primary source for our future
employees and we never take that for granted. Being a responsible partner to our
employees means putting safety first in everything we do at our company. We are very
proud of the fact that our strong safety culture culminated in Masonite achieving a
safety rate of less than 1.5 total recordable incidents per 100 employees in 2017, the
lowest in our history and meaningfully lower than the Bureau of Labor Statistics
average of 6.0 for manufacturing companies overall. Of course, we aspire to prevent
all workplace injuries at Masonite and will continue our efforts to make our workspaces
as safe as possible for our employees and visitors.
A related aspect of our purpose is environmental stewardship, which has long been an
underlying tenet for our company. After all, Masonite was founded over ninety years
ago on the principle that saw mill wood waste could be transformed into valuable
building products. We continue that legacy today by continually seeking ways to
reduce our environmental footprint, using programs like our Masonite Environmental
Excellence Awards to reward our factory teams for identifying creative ways to reduce
waste streams and energy consumption.
While we are proud of these important initiatives and accomplishments, we must not
ignore that our financial performance did not meet our expectations in 2017.
Operating inefficiencies in our manufacturing and distribution operations, particularly
in North America, offset benefits we realized from higher average unit prices and
cost savings elsewhere in the business, resulting in Adjusted EBITDA margins1 that
were slightly lower than 2016. We worked intensely throughout the year to correct
these shortfalls, resulting in improved performance in the second half of the year.
We have upgraded and added to our leadership team in key parts of our global
operations and supply chain organization and continue to make investments in our
plants which we believe will further improve productivity and efficiency over time.
As a result, we believe we have entered 2018 with a stronger foundation to resume
continued margin growth.
At Masonite, we continue to focus on being responsible stewards of capital for the
benefit of the business and our shareholders. We achieved our target of 100% free
cash flow conversion in 2017 and utilized strong cash generation of the business to
simultaneously maintain capital investment levels consistent with 2016 and
opportunistically repurchase $120 million of our shares. We also continue to explore
opportunities to deploy capital for acquisitions that can help grow and diversify our
business. In the fourth quarter of 2017, we completed the acquisition of A&F Wood
Products, which strengthened our position in the quick-ship commercial and
architectural door business. In the first quarter of 2018 we completed the acquisition
of DW3 in the United Kingdom, which further builds our product offering and position
as a leading provider of quick-ship residential entry door systems using web-enabled
configurator tools.
We enter 2018 excited about the future prospects of the company and keenly aware
that we must deliver improved financial performance as compared to 2017 in order
to fully restore the enthusiasm of our investors. We are greatly appreciative of your
continued support and the trust you place in us to operate your company.
Frederick J. Lynch
President and Chief Executive Officer
Masonite International Corporation
March 26, 2018
1 Adjusted EBITDA margin is defined as Adjusted EBITDA divided by Net Sales. See Note 15 to our consolidated
financial statements beginning on page 94 of our Annual Report on Form 10-K for the definition of Adjusted EBITDA,
a non-GAAP measure, and a reconciliation to net income (loss) attributable to us.
2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-11796
____________________________
Masonite International Corporation
(Exact name of registrant as specified in its charter)
____________________________
British Columbia, Canada
(State or other jurisdiction of incorporation or organization)
98-0377314
(I.R.S. Employer Identification No.)
2771 Rutherford Road
Concord, Ontario L4K 2N6 Canada
(Address of principal executive offices, zip code)
(800) 895-2723
(Registrant’s telephone number, including area code)
____________________________
Securities Registered Pursuant to Section 12(b) of the Act:
Common Stock (no par value)
(Title of class)
New York Stock Exchange
(Name of exchange on which registered)
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of July 2, 2017, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the shares
of voting common stock held by non-affiliates of the registrant, computed by reference to the closing sales price of such shares on the New York
Stock Exchange on July 2, 2017, was $2.2 billion.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of the securities under a plan confirmed by a court. Yes
No
The registrant had outstanding 28,113,872 shares of Common Stock, no par value, as of February 22, 2018.
Portions of the registrant’s definitive Proxy Statement for its 2017 Annual General Meeting of Shareholders scheduled to be held on May 10, 2018,
to be filed with the Securities and Exchange Commission not later than 120 days after December 31, 2017, are incorporated by reference into Part
III, Items 10-14 of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
MASONITE INTERNATIONAL CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
December 31, 2017
PART I
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
PART II
Item 5
Item 6
Item 7
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A
Quantitative and Qualitative Disclosures About Market Risk
Item 8
Item 9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A
Controls and Procedures
Item 9B
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page No.
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11
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25
25
26
27
30
31
54
55
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107
108
109
109
109
109
110
114
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains "forward-looking statements" within the meaning of the federal
securities laws, including, without limitation, statements concerning the conditions in our industry, our operations, our
economic performance and financial condition, including, in particular, statements relating to our business and growth
strategy and product development efforts under "Management’s Discussion and Analysis of Financial Condition and
Results of Operations." Forward-looking statements include all statements that do not relate solely to historical or
current facts and can be identified by the use of words such as "may," "might," "will," "should," "estimate," "project,"
"plan," "anticipate," "expect," "intend," "outlook," "believe" and other similar expressions. You are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking
statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are
inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without
limitation, those identified under "Risk Factors" and elsewhere in this Annual Report.
The following list represents some, but not necessarily all, of the factors that could cause actual results to differ
from historical results or those anticipated or predicted by these forward-looking statements:
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our ability to successfully implement our business strategy;
general economic, market and business conditions;
levels of residential new construction; residential repair, renovation and remodeling; and non-residential
building construction activity;
the United Kingdom's formal trigger of the two year process for its exit from the European Union, and related
negotiations;
competition;
our ability to manage our operations including integrating our recent acquisitions and companies or assets we
acquire in the future;
our ability to generate sufficient cash flows to fund our capital expenditure requirements, to meet our pension
obligations, and to meet our debt service obligations, including our obligations under our senior notes and our
ABL Facility;
labor relations (i.e., disruptions, strikes or work stoppages), labor costs and availability of labor;
increases in the costs of raw materials or wages or any shortage in supplies or labor;
our ability to keep pace with technological developments;
the actions taken by, and the continued success of, certain key customers;
our ability to maintain relationships with certain customers;
the ability to generate the benefits of our restructuring activities;
retention of key management personnel;
environmental and other government regulations; and
limitations on operating our business as a result of covenant restrictions under our existing and future
indebtedness, including our senior notes and our ABL Facility.
We caution you that the foregoing list of important factors is not exclusive. In addition, in light of these risks
and uncertainties, the matters referred to in the forward-looking statements contained in this Annual Report may not in
fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new
information, future events or otherwise, except as otherwise required by law.
ii
Unless we state otherwise or the context otherwise requires, in this Annual Report all references to "Masonite", "we",
"us", "our" and the "Company" refer to Masonite International Corporation and its subsidiaries.
PART I
Item 1. Business
Overview
We are a leading global designer, manufacturer and distributor of interior and exterior doors for the new
construction and repair, renovation and remodeling sectors of the residential and non-residential building construction
markets. Since 1925, we have provided our customers with innovative products and superior service at compelling
values. In order to better serve our customers and create sustainable competitive advantages, we focus on developing
innovative products, advanced manufacturing capabilities and technology-driven sales and service solutions. Today, we
believe we hold either the number one or two market positions in the seven product categories we target in North
America: interior molded residential doors; interior stile and rail residential doors; exterior fiberglass residential doors;
exterior steel residential doors; interior architectural wood doors; wood veneers and molded door facings; and door
core.
We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers,
lumberyards, commercial and general contractors and architects through well-established wholesale and retail
distribution channels. Our broad portfolio of brands, including Masonite®, Marshfield®, Premdor®, Mohawk®,
Megantic®, Algoma®, Birchwood Best®, Door-StopTM, Harring DoorsTM, Performance Doorset SolutionsTM and
National HickmanTM are among the most recognized in the door industry and are associated with innovation, quality
and value. In the year ended December 31, 2017, we sold approximately 35 million doors to approximately 7,000
customers in 65 countries. Our fiscal year 2017 net sales by segment and global net sales of doors by end market are set
forth below:
Net Sales
by Segment - 2017
Global Net Sales of Doors
by End Market - 2017
See Note 15 to our consolidated financial statements for additional information about our segments.
Over the past several years, we have invested in advanced technologies to increase the automation of our
manufacturing processes, increase quality and shorten lead times and introduced targeted e-commerce and other
marketing initiatives to improve our sales and marketing efforts and customer experience. In addition, we implemented
a disciplined acquisition strategy that solidified our presence in the United Kingdom's interior and exterior residential
door markets, the North American residential molded and stile and rail interior door markets and created leadership
positions in the attractive North American commercial and architectural interior wood door, door core and wood veneer
markets.
We operate 64 manufacturing and distribution facilities in 8 countries in North America, Europe, South
America and Asia, which are strategically located to serve our customers. We are one of the few vertically integrated
door manufacturers in the world and one of only two in the North American residential molded interior door industry as
well as the only vertically integrated door manufacturer in the North American architectural interior wood door industry.
Our vertical integration extends to all steps of the production process from initial design, development and production
1
of steel press plates to produce interior molded and exterior fiberglass door facings to the manufacturing of door
components, such as door cores, wood veneers and molded facings, to door slab assembly. We also offer incremental
value by pre-machining doors for hardware, hanging doors in frames with glass and hardware and pre-finishing doors
with paint or stain. We believe that our vertical integration and automation enhance our ability to develop new and
proprietary products, provide greater value and improved customer service and create high barriers to entry. We also
believe vertical integration enhances our ability to cut costs, although our cost structure is subject to certain factors
beyond our control, such as global commodity shocks.
Competitive Strengths
We believe the following competitive strengths differentiate us from other building product companies and
position us for significant growth as part of a multi-year, multi stage recovery in our end markets.
Leading Market Positions in Targeted End Markets
Within the North American door market, we believe we hold either the number one or two market position in
the seven product categories we target. We are one of the largest manufacturers of doors and door components in the
world, selling approximately 35 million residential and architectural interior and exterior doors in 2017; approximately
23 million of which were sold in the United States, our largest market. We believe our scale and leadership positions
support our commitment to invest in advanced manufacturing and e-commerce initiatives and develop innovative new
products, to effectively service regional and national customers and to offer broad product lines across our markets,
while reducing our materials and unit production costs.
Extensive Portfolio with Strong Brand Recognition
Our broad portfolio of brands is among the most recognized in the door industry and is associated with
superior design, innovation, reliability and quality. Builder Magazine recognized the Masonite® brand as one of the
leading door brands in the United States in 2017 in the following categories: Brand Familiarity, Brand Used in Past Two
Years and Brand Used the Most.
Long-Term Customer Relationships and Well-Established Multi-Channel Distribution
As a result of our longstanding commitment to customer service and product innovation, we have well-
established relationships within the wholesale and retail channels. All of our top 20 customers have purchased doors
from us for at least 10 years, although we generally do not enter into long-term contracts with our customers and they
generally do not have an obligation to purchase our products. In addition, our manufacturing and distribution facilities
are strategically located to best serve our customers. We believe that our long-term relationships with leading retailers,
wholesale distributors, major homebuilders, contractors and architects will enable us to continue to increase our market
penetration in the residential and architectural construction markets.
Leading Technological Innovation Within the Door Industry
We believe we are a leader in technological innovation in the design of doors and door components and in the
complex processes required to manufacture high quality products quickly and consistently. We intend to continue
developing new and innovative products at our 145 thousand square foot innovation center in West Chicago, Illinois,
while improving critical processes in the manufacturing and selling of our products. Our future success will depend on
our ability to develop and introduce new or improved products, to continue to improve our manufacturing and product
service processes, and to protect our rights to the technologies used in our products. We have also created proprietary
web-based sales and marketing tools, including MAX Masonite Xpress Configurator® for our residential and
DoorbuilderTM for our architectural customer networks, to improve selection and order processes, reduce order entry
errors, create more accurate quotes, improve communication and facilitate a better customer experience. As of
December 31, 2017, we had 238 design patents and design patent applications and 176 utility patents and patent
applications in the United States, and 195 foreign design patents and patent applications and 252 foreign utility patents
and patent applications.
2
Vertically Integrated Operations Across the Production Process
We are one of the few vertically integrated door manufacturers in the world. In North America, we are one of
only two vertically integrated manufacturers of molded interior residential doors and the only vertically integrated
manufacturer of non-residential interior wood doors. Our vertical integration extends across the production process,
which we believe enhances our ability to develop products and respond quickly to changing consumer preferences,
provides greater value and better service for our customers, and potentially lowers our costs. We leverage our assets
through our vertically integrated operations in a manner that is difficult to replicate without significant capital
investment.
Experienced Management Team with Extensive Experience and a Successful Track Record
We are managed by results-driven executives with a proven track record of successfully managing multiple
brands, winning new business, reducing costs and identifying, executing and integrating strategic acquisitions. Several
members of our management team previously worked at Fortune 500 companies, including Honeywell International
Inc. (formerly AlliedSignal Inc.), General Motors Company and Newell Rubbermaid Inc., where they utilized advanced
technologies to improve cost structures and create competitive advantages.
Growth Strategy
Our vision is to be the premier provider of doors and door components for the global door industry. We are
committed to executing the following balanced and complementary strategies to continue to further strengthen our
leadership positions, create value for our customers, enhance our portfolio of leading brands and achieve our top and
bottom line growth objectives.
Develop Innovative, Market-Leading Products
We intend to continue developing new and innovative products to grow our sales and enhance our returns. We
plan to capitalize on the anticipated growth in door demand and evolving style trends by continuing to introduce new,
value-added products that build upon our comprehensive portfolio of door styles, designs, textures, components,
options, applications, and materials. We have consistently demonstrated the ability to develop products that are
differentiated by compelling design features and recognized for their reliability and quality. For example, we recently
introduced our Heritage Series exterior fiberglass doors to complement our Heritage interior doors, with a combination
of crisp, clean lines inspired by classic craftsman architecture coupled with the proven reliability of fiberglass. We also
recently added additional glass sizes and new fir textured offerings to our Vista Grande line of exterior doors that
integrate glass into the door in a seamless assembly, giving a wider view through the door and clean, modern design
lines. Within our interior line, we recently introduced our Barn Door Hardware kits to provide contemporary style to
interior openings.
As more consumers are requesting products that are factory finished, we continue to develop and invest in
factory finished products tailored to the needs of our residential and architectural markets. We are also focused on
managing our product complexity through programs to consolidate products and components without compromising
customer value, in addition to selectively canceling products that are no longer on trend or that are replaced by new
offerings.
Expand our Presence in Attractive Markets to Accelerate Growth and Improve Margins
We plan to continue to focus our operations on attractive new market and channel opportunities. For example,
we believe we can expand our leading position in the North American architectural wood door market by focusing on
strategic sectors within this market, such as education, health care and hospitality. By expanding our market presence
and achieving greater economies of scale, we intend to capitalize on the ongoing recovery in the U.S. non-residential
construction market. Additionally, we believe we can expand our market growth in the architectural wood door market
through the introduction of products with high design and performance attributes. We are also focused on expanding our
business in the residential new construction market and with professional repair, renovation and remodeling contractors,
both domestically and internationally.
3
We are also increasing our focus on multi-location in-home remodeling distributors and contractors. This
channel is expected to grow with a shift in certain demographics from a "Do it Yourself" to a "Do it For You" offering.
Using enhanced marketing, training and e-commerce tools, our teams plan to target specific multi-location remodeling
distributors and contractors and attempt to increase our overall presence in the important repair, renovation and
remodeling business.
Leverage Our Marketing, Sales and Customer Service Activities to Further Drive Sales
We intend to continue to pursue additional growth opportunities by leveraging our extensive sales, marketing
and customer service efforts in innovative ways. In 2017, we re-launched the Masonite brand with a goal to change the
conversation around doors through the compilation and sharing of design trend knowledge. This represents an
investment in the success of our customers to drive higher consideration of doors in the homebuilding and renovation
process, allowing us to unlock the door’s full potential to be a defining element in the home. We have also developed
several proprietary web-based tools for our customers, including MAX Masonite Xpress Configurator®, MC2 and
MConnectTM, to enhance communication and information flow with our customers in our wholesale dealer network by
providing a more customized buying experience, customer leads and quoting capabilities and simplifying the
procurement process. We also intend to capture additional share in the attractive professional repair, renovation and
remodeling markets by helping professional contractors produce customized marketing materials to assist them in their
sales efforts. In addition, we plan to continue developing effective marketing initiatives to expand our business with
professional dealers and homebuilders.
Continue to Pursue Operational Excellence
As part of our commitment to continuous improvement, we have launched initiatives to make our operations
lean and efficient. We utilize a Lean Six Sigma Continuous Improvement program, and more recently, we have
expanded our commitment by adopting a complete lean operating philosophy known as MVantage. During 2017, we
strategically focused on key manufacturing sites in an effort to improve quality, service and delivery performance. In
2018, we intend to focus on three tenets: plant transformation, process improvement and training. We believe that our
commitment to MVantage will not only assist Masonite in its efforts to set the industry benchmark for innovation,
quality, delivery, service and support but also help improve safety, productivity and financial performance.
Pursue Strategic Acquisitions to Create Leadership Positions
We intend to continue our disciplined approach to identifying, executing and integrating strategic acquisitions
while maintaining a strong balance sheet, although we expect competition for the best candidates. We target companies
who produce components for our existing operations, manufacture niche products and provide value-added services.
Additionally, we target companies with strong brands, complementary technologies, attractive geographic footprints and
opportunities for cost and distribution synergies. For example, since 2011 we have made 14 strategic acquisitions to
create leadership positions in (i) the attractive North American architectural wood door and door core market through
the acquisitions of Porta Industries, Inc. (“Marshfield”), Algoma Holding Company (“Algoma”), Les Portes
Baillargeon, Inc. (“Baillargeon”), Harring Doors Corporation ("Harring"), USA Wood Door, Inc. ("USA Wood Door"),
FyreWerks Inc. ("FyreWerks") and A&F Wood Products, Inc. ("A&F Wood Products"), (ii) the North American interior
stile and rail residential door market through the acquisitions of Portes Lemieux Inc. (“Lemieux”) and the assets of a
door manufacturing operation located in Chile (the "Chile" acquisition) for servicing the North American market, (iii)
the production and sale of wood veneers with the acquisition of Birchwood Lumber & Veneer Co., Inc. (“Birchwood”)
and (iv) various markets in the United Kingdom with the acquisitions of Door-Stop International Limited ("Door-
Stop"), Performance Doorset Solutions Limited ("PDS"), Hickman Industries Limited ("Hickman") and DW3 Products
Holdings Limited ("DW3").
Product Lines
Residential Doors
We sell an extensive range of interior and exterior doors in a wide array of designs, materials and sizes. While
substantially all interior doors are made with wood and related materials such as hardboard (including wood composite
molded and flat door facings), the use of wood in exterior doors in North America and Europe has declined over the last
two decades as a result of the increased penetration of steel and fiberglass doors. Our exterior doors are made primarily
of steel or fiberglass. Our residential doors are molded panel, flush, stile and rail, routed medium-density fiberboard
(“MDF”), steel or fiberglass.
4
Molded panel doors are interior doors available either with a hollow or solid core and are made by assembling
two molded door skin panels around a wood or MDF frame. Molded panel doors are routinely used for closets,
bedrooms, bathrooms and hallways. Our molded panel product line is subdivided into several distinct product groups:
our original Molded Panel series is a combination of classic styling, durable construction and variety of design preferred
by our customers when price sensitivity is a critical component in the product selection; the four doors within our
Anniversary Collection® embody themed, period and architectural style specific designs; the West EndTM Collection
strengthens our tradition of design innovation by introducing the clean and simple aesthetics found in modern linear
designs to the molded panel interior door category; and the Heritage® Series, which features recessed, flat panels and
sharp, Shaker-style profiles which speak to a clean, modern aesthetic while retaining comfortable familiarity found in
today’s interiors. All of our molded panel doors can be upgraded with our proprietary, wheat straw based Safe ‘N
Sound® door core or our environmentally friendly EmeraldTM door construction which enables home owners, builders
and architects to meet specific product requirements and “green” specifications to attain LEED certification for a
building or dwelling.
Flush interior doors are available either with a hollow or solid core and are made by assembling two facings of
plywood, MDF, composite wood or hardboard over a wood or MDF frame. These doors can either have a wood veneer
surface suitable for paint or staining or a composite wood surface suitable for paint. Our flush doors range from base
residential flush doors consisting of unfinished composite wood to the ultra high-end exotic wood veneer doors.
Stile and rail doors are made from wood or MDF with individual vertical stiles, horizontal rails and panels,
which have been cut, milled, veneered and assembled from lumber such as clear pine, knotty pine, oak and cherry.
Within our stile and rail line, glass panels can be inserted to create what is commonly referred to as a French door and
we have over 50 glass designs for use in making French doors. Where horizontal slats are inserted between the stiles
and rails, the resulting door is referred to as a louver door. For interior purposes, stile and rail doors are primarily used
for hallways, room dividers, closets and bathrooms. For exterior purposes, these doors are used as entry doors with
decorative glass inserts (known as lites) often inserted into these doors.
Routed MDF doors are produced by using a computer controlled router carver to machine a single piece of
double refined MDF. Our routed MDF door category is comprised of two distinct product lines known as the Bolection®
and CymaTM door. The offering of designs in this category is extensive, as the manufacturing of routed MDF doors is
based on a routing program where the milling machine selectively removes material to reveal the final design.
Steel doors are exterior doors made by assembling two interlocking steel facings (paneled or flat) or attaching
two steel facings to a wood or steel frame and injecting the core with polyurethane insulation. With our functional
Utility Steel series, the design centric High Definition family and the prefinished Sta-Tru® HD, we offer customers the
freedom to select the right combination of design, protection and compliance required for essentially any paint grade
exterior door application. In addition, our product offering is significantly increased through our variety of compatible
clear or decorative glass designs.
Fiberglass doors are considered premier exterior doors and are made by assembling two fiberglass door facings
to a wood frame or composite material and injecting the core with polyurethane insulation. Led by the Barrington®
door, our fiberglass door lines offer innovative designs, construction and finishes. The Barrington® family of doors is
specifically designed to replicate the construction, look and feel of a real wood door. The Door-StopTM branded
fiberglass doors are manufactured into prehung door sets and shipped to our customers with industry-leading lead times.
We believe that our patented panel designs, sophisticated wood grain texturing and multiple application-specific
construction processes will help our Barrington® and Belleville® fiberglass lines retain a distinct role in the exterior
product category in the future.
Architectural Doors
Architectural doors are typically highly specified products designed, constructed and tested to ensure
regulatory compliance and that certification requirements such as FSC and LEED certifications are met. We offer an
extensive line of architectural interior doors meeting custom market requirements and ranging from the entry level
molded panel doors to the high end custom designed flush wood doors with exotic veneer inlay designs. Our
architectural doors are molded panel, flush, stile and rail or routed MDF and can be offered with varying levels of fire
and sound rating as well as radiation shielding. Our architectural flush doors can also be produced with a laminate
veneer facing. High pressure laminates are used when durability and aesthetics are the customer’s main concern, while
low pressure laminates are utilized when consistency in surface color, texture and value are equal requirements.
5
Components
In addition to residential and architectural doors, we also sell several door components to the building
materials industry. Within the residential new construction market, we provide interior door facings, agri-fiber and
particleboard door cores, MDF and wood cut-stock components to multiple manufacturers. Within the architectural
building construction market, we are a leading component supplier of various critical door components and the largest
wood veneer door skin supplier. Additionally, we are one of the leading providers of mineral and particleboard door
cores to the North American architectural door market.
Molded door facings are thin sheets of molded hardboard produced by grinding or defibrating wood chips,
adding resin and other ingredients, creating a thick fibrous mat composed of dry wood fibers and pressing the mat
between two steel press plates to form a molded sheet, the surface of which may be smooth or may contain a wood
grain pattern. Following pressing, molded door facings are trimmed, painted and shipped to door manufacturing plants
where they are mounted on frames to produce molded doors.
Door framing materials, commonly referred to as cut stock, are wood or MDF components that constitute the
frame on which interior and exterior door facings are attached. Door cores are pressed fiber mats of refined wood chips
or agri-fiber used in the construction of solid core doors. For doors that must achieve a fire rating higher than 45
minutes, the door core consists of an inert mineral core or inorganic intumescent compounds.
Sales and Marketing
Our sales and marketing efforts are focused around several key initiatives designed to drive organic growth,
influence the mix sold and strengthen our customer relationships.
Multi-Level/Segment Distribution Strategy
We market our products through and to wholesale distributors, retail stores, independent and pro dealers,
builders, remodelers, architects, door and hardware distributors and general contractors.
In the residential market, we deploy an "All Products" cross merchandising strategy, which provides certain of
our retail and wholesale customers with access to our entire product range. Our "All Products" customers benefit from
consolidating their purchases, leveraging our branding, marketing and selling strategies and improving their ability to
influence the mix of products sold to generate greater value. We service our big box retail customers directly from our
own door fabrication facilities which provide value added services and logistics, including store direct delivery of doors
and entry systems and a full complement of in-store merchandising, displays and field service. Our wholesale
residential channel customers are managed by our own sales professionals who focus on down channel initiatives
designed to ensure our products are "pulled" through our North American wholesale distribution network.
Our architectural building construction customers are serviced by a separate and distinct sales team providing
architects, door and hardware distributors, general contractors and project owners a wide variety of technical
specifications, specific brand differentiation, compliance and regulatory approvals, product application advice and
multisegment specialization work across North America. Additionally, our sales team is supported by marketing
strategies aimed to drive product specification throughout our value chains via distributors, architects and end users.
Service Innovation
We leverage our marketing, sales and customer service activities to ensure our products are strategically pulled
through our multiple distribution channels rather than deploying a more common, tactical "push" strategy like some of
our competitors. Our marketing approach is designed to increase the value of each and every door opening we fill with
our doors and entry systems, regardless of the channel being used to access our products.
Our proprietary web based tools accessible on our website also provide our customers with a direct link to our
information systems to allow for accelerated and easier access to a wide variety of information and selling aids designed
to increase customer satisfaction. Within our North American Residential business, our web-based tools include
MConnect®, an online service allowing our customers access to several other E-Commerce tools designed to enhance
the manufacturer-customer relationship. Once connected to our system, customers have access to MAX®, Masonite’s
Xpress Configurator®, a web based tool created to design customized door systems and influence the mix, improve
selection and ordering processes, reduce order entry and quoting errors, and improve overall communication throughout
the channel; MC2, our self-service, custom literature tool; the Product Corner, a section advising customers of the
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features and benefits of our newest products; Market Intelligence Section, which provides some of the latest economic
statistics influencing our industry; the Treasure Chest, which is a collection of discontinued glass products providing
customers with promotional based pricing on obsolete products; and Order Tracker, which allows customers to follow
their purchase orders through the production process and confirm delivery dates. MConnect®, in conjunction with our
website, improves transaction execution, enhances communication and information flow with our customers and their
dealers providing a more customized buying experience. In Europe, our Door-Stop International website is a fully
functional configuration and order platform that supports our entry door customers in the United Kingdom. The
dynamic integration of Door-Stop's ERP and its website ensure that the products customers see, configure and order are
in stock, which ensures that we are able to deliver on our promise of dependability. In our Architectural business, we
have constructed a dedicated ordering platform for our distribution customers through our USA Wood Door website,
which affords customers the ability to configure and purchase prefinished and machined wood doors through the
streamlined Door Builder utility. Architectural distributors are able to make, retain and track quotes all within the USA
Wood Door application.
Customers
During fiscal year 2017, we sold our products worldwide to approximately 7,000 customers. We have
developed strong relationships with these customers through our "All Products" cross merchandising strategy. Our
vertical integration facilitates our "All Products" strategy with our door fabrication facilities in particular providing
value-added fabrication and logistical services to our customers, including store delivery of pre-hung interior and
exterior doors to our customers in North America. All of our top 20 customers have purchased doors from us for at least
10 years.
Although we have a large number of customers worldwide, our largest customer, The Home Depot, accounted
for approximately 18% of our total net sales in fiscal year 2017. Due to the depth and breadth of the relationship with
this customer, which operates in multiple North American geographic regions and which sells a variety of our products,
our management believes that this relationship is likely to continue.
Distribution
Residential doors are primarily sold through wholesale and retail distribution channels.
• Wholesale. In the wholesale channel, door manufacturers sell their products to homebuilders,
contractors, lumber yards, dealers and building products retailers in two-steps or one step. Two-step
distributors typically purchase doors from manufacturers in bulk and customize them by installing
windows, or "lites", and pre-hanging them. One-step distributors sell doors directly to homebuilders
and remodeling contractors who install the doors.
• Retail. The retail channel generally targets consumers and smaller remodeling contractors who
purchase doors through retail home centers and smaller specialty retailers. Retail home centers offer
large, warehouse size retail space with large selections, while specialty retailers are niche players that
focus on certain styles and types of doors.
Architectural doors are primarily sold through specialized one-step wholesale distribution channels where
distributors sell to contractors and installers.
Research and Development
We believe we are a leader in technological innovation and development of doors, door components and door
entry systems and the manufacturing processes involved in making such products. We believe that research and
development is a competitive advantage for us, and we intend to capitalize on our leadership in this area through the
development of more new and innovative products. Our research and development and engineering capabilities enable
us to develop and implement product and manufacturing process improvements that enhance the manufacturing
efficiency of our products, improve quality and reduce costs.
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As an integrated manufacturer, we believe that we are well positioned to take advantage of the growing global
demand for a variety of molded door facing designs. We have an internal capability to create new molded door facing
designs and manufacture our own molds for use in our own facilities. We believe this provides us with the ability to
develop proprietary designs that enjoy a strong identity in the marketplace; more flexibility in meeting customer
demand; quicker reaction time in the production of new designs or design changes; and greater responsiveness to
customer needs. This capability also enables us to develop and implement product and process improvements with
respect to the production of molded door facings and doors which enhance production efficiency and reduce costs.
In the past few years, our research and development activities have had a significant focus on process and
material improvements in our products. These improvements have led to reductions in manufacturing costs and
improvements in product quality. We have also directed our design innovation to address the growing need for safety
and security, sound dampening and fire resistant products in the architectural wood door market.
Manufacturing Process
Our Manufacturing operations consist of three major manufacturing processes: (1) component manufacturing,
(2) door slab assembly and (3) value-added ready to install door fabrication.
We have a leading position in the manufacturing of door components, including internal framing components
(stile and rails), glass inserts (lites), door core, interior door facings (molded and veneer) and exterior door facings. The
manufacturing of interior molded door facings is the most complex of these processes requiring a significant investment
in large scale wood fiber processing equipment. Interior molded door facings are produced by combining fine wood
particles, synthetic resins and other additives under heat and pressure in large multi-opening automated presses utilizing
Masonite proprietary steel plates. The facings are then primed, cut and inspected in a second highly automated
continuous operation prior to being packed for shipping to our door assembly plants. We operate five interior molded
door facing plants around the world, two in North America and one in each of South America, Europe and Asia. Our
sole United States based plant in Laurel, Mississippi, is one of the largest door facing plants in the world and we believe
one of the most technologically advanced in the industry.
Interior residential hollow and solid core door manufacturing is an assembly operation that is primarily
accomplished in the United States through the use of semi-skilled manual labor. The construction process for a standard
flush or molded interior door is based on assembly of door facings and various internal framing and support
components, followed by the doors being trimmed to their final specifications.
The assembly process varies by type of door, from a relatively simple process for flush and molded doors,
where the door facings are glued to a wood frame, to more complex processes where many pieces of solid and
engineered wood are converted to louver or stile and rail door slabs. Architectural interior doors require another level of
customization and sophistication employing the use of solid cores with varying degrees of sound dampening and fire
retarding attributes, furniture quality wood veneer facings, as well as secondary machining operations to incorporate
more sophisticated commercial hardware, openers and locks. Additionally, architectural doors are typically pre-finished
prior to sale.
The manufacturing of steel and fiberglass exterior door slabs is a semi-automated process that entails
combining laminated wood or rot free composite framing components between two door facings and then injecting the
resulting hollow core structure with insulating polyurethane expanding foam core materials. We invested in fiberglass
manufacturing technology, including the vertical integration of our own fiberglass sheet molding compound plant at our
Laurel, Mississippi, facility in 2006. In 2008, we consolidated fiberglass slab manufacturing from multiple locations
throughout North America into a single highly automated facility in Dickson, Tennessee, significantly improving the
reliability and quality of these products while simultaneously lowering cost and reducing lead times.
Short set-up times, proper production scheduling and coordinated material movement are essential to achieve a
flexible process capable of producing a wide range of door types, sizes, materials and styles. We make use of our
vertically integrated and flexible manufacturing operations together with scalable logistics primarily through the use of
common carriers to fill customers’ orders and to minimize our investment in finished goods inventory.
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Finally, interior flush and molded, stile and rail, louver and exterior door slabs manufactured at our door
assembly plants are either sold directly to our customers or transferred to our door fabrication facilities where value
added services are performed. These value added services include machining doors for hinges and locksets, installing
the door slabs into ready to install frames, installing hardware, adding glass inserts and side lites, painting and staining,
packaging and logistical services to our customers.
Raw Materials
While Masonite is vertically integrated, we require a regular supply of raw materials, such as wood chips,
some cut stock components, various composites, steel, glass, paint, stain and primer as well as petroleum-based
products such as binders, resins and plastic injection frames to manufacture and assemble our products. Our materials
cost accounts for approximately 53% of the total cost of the finished product. In certain instances, we depend on a
single or limited number of suppliers for these supplies. Wood chips, logs, resins, binders and other additives utilized in
the manufacturing of interior molded facings, exterior fiberglass door facings and door cores are purchased from global,
regional and local suppliers taking into consideration the relative freight cost of these materials. Internal framing
components, MDF, cut stock and internal door cores are manufactured internally at our facilities and supplemented from
suppliers located throughout the world. We utilize a network of suppliers based in North America, Europe, South
America and Asia to purchase other components including steel coils for the stamping of steel door facings, MDF,
plywood and hardboard facings, door jambs and frames and glass frames and inserts.
Safety
We believe that safety is as important to our success as productivity and quality. We also believe that incidents
can be prevented through proper management, employee involvement, standardized operations and equipment and
attention to detail. Safety programs and training are provided throughout the company to ensure employees and
managers have effective tools to help identify and address both unsafe conditions and at-risk behaviors.
Through a sustained commitment to improve our safety performance, we have been successful in reducing the
number of injuries sustained by our employees over the long term. In 2017 we experienced a total incident rate, or the
annual number of injuries per 100 full time equivalent employees, of 1.5 compared to 1.7 in 2016.
Environmental and Other Regulatory Matters
We strive to minimize any adverse environmental impact our operations might have to our employees, the
general public and the communities of which we are a part. We are subject to extensive environmental laws and
regulations. The geographic breadth of our facilities subjects us to environmental laws, regulations and guidelines in a
number of jurisdictions, including, among others, the United States, Canada, Mexico, the United Kingdom, the
Republic of Ireland, the Czech Republic, Chile and Malaysia. Such laws, regulations and guidelines relate to, among
other things, the discharge of contaminants into water and air and onto land, the storage and handling of certain
regulated materials used in the manufacturing process, waste minimization, the disposal of wastes and the remediation
of contaminated sites. Many of our products are also subject to various regulations such as building and construction
codes, product safety regulations, health and safety laws and regulations and mandates related to energy efficiency.
Our efforts to ensure environmental compliance include the review of our operations on an ongoing basis
utilizing in-house staff and on a selective basis by specialized environmental consultants. The Environmental, Health
and Safety team participates in industry groups to monitor developing regulatory actions and actively develop
comments on specific issues. Furthermore, for our prospective acquisition targets, environmental assessments are
conducted as part of our due diligence review process. Based on recent experience and current projections,
environmental protection requirements and liabilities are not expected to have a material effect on our business, capital
expenditures, operations or financial position.
In addition to the various environmental laws and regulations, our operations are subject to numerous foreign,
federal, state and local laws and regulations, including those relating to the presence of hazardous materials and
protection of worker health and safety, consumer protection, trade, labor and employment, tax, and others. We believe
we are in compliance in all material respects with existing applicable laws and regulations affecting our operations.
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Intellectual Property
In North America, our doors are marketed primarily under the Masonite® brand. Other North American brands
include: Premdor®, Belleville®, Barrington®, Oakcraft®, Sta-Tru® HD, AvantGuard®, Flagstaff®, Hollister®, Sierra®,
Specialty®, Fast-Frame®, Safe ’N Sound®, Palazzo Series®, Heritage®, Bellagio®, Capri®, Treviso®, Cheyenne®,
Glenview®, Riverside®, Saddlebrook®, West EndTM, Mohawk®, Megantic®, Marshfield®, Birchwood Best®, Algoma®,
NovodorTM, ArtisanTM, Artisan SFTM, RhinoDoor®, WeldrockTM, SuperstileTM, UnicolTM, Lemieux®, Harring DoorsTM
and FyreWerks®. In Europe, doors are marketed under the Masonite®, Premdor®, CrosbyTM, Door-StopTM, Performance
Doorset SolutionsTM and National HickmanTM brands. We consider the use of trademarks and trade names to be
important in the development of product awareness, and for differentiating products from competitors and between
customers.
We protect the intellectual property that we develop through, among other things, filing for patents in the
United States and various foreign countries. In the United States, we currently have 238 design patents and design
patent applications and 176 utility patents and patent applications. We currently have 195 foreign design patents and
patent applications and 252 foreign utility patents and patent applications. Our U.S. utility patents are generally
applicable for 20 years from the earliest filing date, our U.S. design patents for 15 years and our U.S. registered
trademarks and trade names are generally applicable for 10 years and are renewable. Our foreign patents and trademarks
have terms as set by the particular country, although trademarks generally are renewable.
Competition
The North American door industry is highly competitive and includes a number of global and local
participants. In the North American residential interior door market, the primary participants are Masonite and JELD-
WEN, which are the only vertically integrated manufacturers of molded door facings. There are also a number of
smaller competitors in the residential interior door market that primarily source door facings from third party suppliers.
In the North American residential exterior door market, the primary participants are Masonite, JELD-WEN, Plastpro,
Therma-Tru, Feather River and Novatech. In the North American non-residential building construction door market, the
primary participants are Masonite, VT Industries, Graham Wood Doors and Eggers Industries. Our primary market in
Europe is the United Kingdom. The United Kingdom door industry is similarly competitive, including a number of
global and local participants. The primary participants in the United Kingdom are our subsidiary Premdor, JELD-WEN,
Vicaima and Distinction Doors. Competition in these markets is primarily based on product quality, design
characteristics, brand awareness, service ability, distribution capabilities and value. We also face competition in the
other countries in which we operate. In Europe, South America and Asia, we face significant competition from a
number of regionally based competitors and importers.
A large portion of our products are sold through large home centers and other large retailers. The consolidation
of our customers and our reliance on fewer larger customers has increased the competitive pressures as some of our
largest customers, such as The Home Depot, perform periodic product line reviews to assess their product offerings and
suppliers.
We are one of the largest manufacturers of molded door facings in the world. The rest of the industry consists
of one other large, integrated door manufacturer and a number of smaller regional manufacturers. Competition in the
molded door facing business is based on quality, price, product design, logistics and customer service. We produce
molded door facings to meet our own requirements and outside of North America we serve as an important supplier to
the door industry at large. We manufacture molded door facings at our facilities in Mississippi, Ireland, Chile, Canada
and Malaysia.
Employees
As of December 31, 2017, we employed approximately 10,000 employees and contract personnel. This
includes approximately 2,400 unionized employees, approximately 70% of whom are located in North America with the
remainder in various foreign locations. Nine of our North American facilities have individual collective bargaining
agreements, which are negotiated locally and the terms of which vary by location.
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History and Reporting Status
Masonite was founded in 1925 in Laurel, Mississippi, by William H. Mason, to utilize vastly available
quantities of sawmill waste to manufacture a usable end product. Masonite was acquired by Premdor from International
Paper Company in August 2001.
Prior to 2005, Masonite was a public company with shares of our predecessor’s common stock listed on both
the New York and Toronto Stock Exchanges. In March 2005, we were acquired by an affiliate of Kohlberg Kravis
Roberts & Co. L.P.
On March 16, 2009, Masonite International Corporation and several affiliated companies, voluntarily filed to
reorganize under the Company's Creditors Arrangement Act (the "CCAA") in Canada in the Ontario Superior Court of
Justice. Additionally, Masonite International Corporation and Masonite Inc. (the former parent of the Company) and all
of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the
U.S. Bankruptcy Court in the District of Delaware. On June 9, 2009, we emerged from reorganization proceedings
under the CCAA in Canada and under Chapter 11 of the U.S. Bankruptcy Code in the United States.
Effective July 4, 2011, pursuant to an amalgamation under the Business Corporations Act (British Columbia),
Masonite Inc. amalgamated with Masonite International Corporation to form an amalgamated corporation named
Masonite Inc., which then changed its name to Masonite International Corporation.
On September 9, 2013, our shares commenced listing on the New York Stock Exchange under the symbol
"DOOR" and we became subject to periodic reporting requirements under the United States federal securities laws. We
are currently not a reporting issuer, or the equivalent, in any province or territory of Canada and our shares are not listed
on any recognized Canadian stock exchange.
Our United States executive offices are located at One Tampa City Center, 201 North Franklin Street, Suite
300, Tampa, Florida 33602 and our Canadian executive offices are located at 2771 Rutherford Road, Concord, Ontario
L4K 2N6 Canada.
Available Information
We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K
and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 available through our website, free of charge, as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the Securities and Exchange Commission. Our website is www.masonite.com.
Information on our website does not constitute part of this Annual Report on Form 10-K.
Item 1A. Risk Factors
You should carefully consider the following factors in addition to the other information set forth in this Annual
Report before investing in our common shares. The risks and uncertainties described below are not the only ones facing
us. If any of the following risks actually occur, our business, financial condition or results of operations would likely
suffer. In such case, the trading price of our common shares could fall, and you may lose all or part of your investment.
Risks Related to Our Business
Downward trends in our end markets or in economic conditions could negatively impact our business and financial
performance.
Our business may be adversely impacted by changes in United States, Canadian, European, Asian, South
American or global economic conditions, including inflation, deflation, interest rates, availability and cost of capital,
consumer spending rates, energy availability and costs, and the effects of governmental initiatives to manage economic
conditions. Volatility in the financial markets in the regions in which we operate and the deterioration of national and
global economic conditions have in the past and could in the future materially adversely impact our operations,
financial results and liquidity.
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Trends in our primary end markets (residential new construction, repair, renovation and remodeling and non-
residential building construction) directly impact our financial performance because they are directly correlated to the
demand for doors and door components. Accordingly, the following factors may have a direct impact on our business in
the countries and regions in which our products are sold:
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the strength of the economy;
the amount and type of residential and non-residential construction;
housing sales and home values;
the age of existing home stock, home vacancy rates and foreclosures;
non-residential building occupancy rates;
increases in the cost of raw materials or wages, or any shortage in supplies or labor;
the availability and cost of credit;
employment rates and consumer confidence; and
demographic factors such as immigration and migration of the population and trends in household formation.
In the United States, the housing market crisis had a negative impact on residential housing construction and
related product suppliers. In addition, the current housing recovery is characterized by new construction levels still well
below historical levels, and at times including an increased number of multi-family new construction starts, which
generally use fewer of our products and generate less net sales at a lower margin than typical single family homes.
In many of the non-North American markets in which we manufacture and sell our products, economic
conditions deteriorated as various countries suffered from the after effects of the global financial downturn that began in
the United States in 2006. Certain of our non-North American markets were acutely affected by the housing downturn
and future downturns could cause excess capacity in housing and building products, including doors and door products,
which may make it difficult for us to raise prices. Due in part to both market and operating conditions, we exited certain
markets in the past several years, including the Ukraine, Turkey, Romania, Hungary, Poland, Israel, France and South
Africa.
Our relatively narrow focus within the building products industry amplifies the risks inherent in a prolonged
global market downturn. The impact of this weakness on our net sales, net income and margins will be determined by
many factors, including industry capacity, industry pricing, and our ability to implement our business plan.
Increases in mortgage rates, changes in mortgage interest deductions and the reduced availability of financing for the
purchase of new homes and home construction and improvements could have a material adverse impact on our sales
and profitability.
In general, demand for new homes and home improvement products may be adversely affected by increases in
mortgage rates and the reduced availability of consumer financing. Mortgage rates remain near historic lows but have
recently increased and will likely increase in the future. If mortgage rates increase and, consequently, the ability of
prospective buyers to finance purchases of new homes or home improvement products is adversely affected, our
business, financial condition and results of operations may be materially and adversely affected.
Members of Congress and government officials have from time to time suggested the elimination of the
mortgage interest deduction for federal income tax purposes, either entirely or in part, based on borrower income, type
of loan or principal amount. The recently enacted Tax Cuts and Jobs Act in the United States placed a cap on the amount
of mortgage debt on which interest can be deducted and also made interest on home equity debt non-deductible. These
changes and future changes in policies set to encourage home ownership and improvement, such as changes to the tax
rules allowing for deductions of mortgage interest, may adversely impact demand for our products and have a material
adverse impact on us.
Our performance may also depend upon consumers having the ability to finance the purchase of new homes
and other buildings and repair and remodeling projects with credit from third-parties. The ability of consumers to
finance these purchases is affected by such factors as new and existing home prices, homeowners’ equity values, interest
rates and home foreclosures. Adverse developments affecting any of these factors could result in a tightening of lending
standards by financial institutions and reduce the ability of some consumers to finance home purchases or repair and
remodeling expenditures. The most recent economic downturn, including declining home and other building values,
increased home foreclosures and tightening of credit standards by lending institutions, have negatively impacted the
home and other building new construction and repair and remodeling sectors. If these credit market trends were to
continue or worsen, our net sales and net income may be adversely affected.
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We operate in a competitive business environment. If we are unable to compete successfully, we could lose customers
and our sales could decline.
The building products industry is highly competitive. Some of our principal competitors may have greater
financial, marketing and distribution resources than we do and may be less leveraged than we are, providing them with
more flexibility to respond to new technology or shifting consumer demand. Accordingly, these competitors may be
better able to withstand changes in conditions within the industry in which we operate and may have significantly
greater operating and financial flexibility than we do. Also, certain of our competitors may have excess production
capacity, which may lead to pressure to decrease prices in order for us to remain competitive and may limit our ability
to raise prices even in markets where economic and market conditions have improved. For these and other reasons,
these competitors could take a greater share of sales and cause us to lose business from our customers or hurt our
margins.
As a result of this competitive environment, we face pressure on the sales prices of our products. Because of
these pricing pressures, we may in the future experience limited growth and reductions in our profit margins, sales or
cash flows, and may be unable to pass on future raw material price, labor cost and other input cost increases to our
customers which would also reduce profit margins.
Because we depend on a core group of significant customers, our sales, cash flows from operations and results of
operations may be negatively affected if our key customers reduce the amount of products they purchase from us.
Our customers consist mainly of wholesalers, retail home centers and contractors. Our top ten customers
together accounted for approximately 44% of our net sales in fiscal year 2017, while our largest customer, The Home
Depot, accounted for approximately 18% of our net sales in fiscal year 2017. We expect that a small number of
customers will continue to account for a substantial portion of our net sales for the foreseeable future. However, net
sales from customers that have accounted for a significant portion of our net sales in past periods, individually or as a
group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period. For
example, many of our largest customers, including The Home Depot, perform periodic line reviews to assess their
product offerings, which have, on past occasions, led to loss of business and pricing pressures. In addition, as a result of
competitive bidding processes, we may not be able to increase or maintain the margins at which we sell our products to
our most significant customers. Moreover, if any of these customers fails to remain competitive in the respective
markets or encounters financial or operational problems, our net sales and profitability may decline. We generally do
not enter into long-term contracts with our customers and they generally do not have an obligation to purchase products
from us. Therefore, we could lose a significant customer with little or no notice. The loss of, or a significant adverse
change in, our relationships with The Home Depot or any other major customer could cause a material decrease in our
net sales.
Our competitors may adopt more aggressive sales policies and devote greater resources to the development,
promotion and sale of their products than we do, which could result in a loss of customers. The loss of, or a reduction in
orders from, any significant customers, losses arising from customer disputes regarding shipments, fees, merchandise
condition or related matters, or our inability to collect accounts receivable from any major customer, could have a
material adverse effect on us. Also, we have no operational or financial control over these customers and have limited
influence over how they conduct their businesses.
Consolidation of our customers and their increasing size could adversely affect our results of operations.
In many of the countries in which we operate, an increasingly large number of building products are sold
through large retail home centers and other large retailers. In addition, we have experienced consolidation of distributors
in our wholesale distribution channel and among businesses operating in different geographic regions resulting in more
customers operating nationally and internationally. If the consolidation of our customers and distributors were to
continue, leading to the further increase of their size and purchasing power, we may be challenged to continue to
provide consistently high customer service levels for increasing sales volumes, while still offering a broad portfolio of
innovative products and on-time and complete deliveries. If we fail to provide high levels of service, broad product
offerings, competitive prices and timely and complete deliveries, we could lose a substantial amount of our customer
base and our profitability, margins and net sales could decrease. We have also experienced the consolidation of our
wholesale distributors by our competitors, such as JELD-WEN's acquisition of Miliken Millwork, Inc. in 2017.
Consolidation of our customers could also result in the loss of a customer or a substantial portion of a customer's
business.
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If we are unable to accurately predict future demand preferences for our products, our business and results of
operations could be materially affected.
A key element to our continued success is the ability to maintain accurate forecasting of future demand
preferences for our products. Our business in general is subject to changing consumer and industry trends, demands and
preferences. Changes to consumer shopping habits and potential trends towards "online" purchases could also impact
our ability to compete as we currently sell our products mainly through our distribution channel. Our continued success
depends largely on the introduction and acceptance by our customers of new product lines and improvements to existing
product lines that respond to such trends, demands and preferences. Trends within the industry change often and our
failure to anticipate, identify or quickly react to changes in these trends could lead to, among other things, rejection of a
new product line and reduced demand and price reductions for our products, and could materially adversely affect us. In
addition, we are subject to the risk that new products could be introduced that would replace or reduce demand for our
products. Furthermore, new proprietary designs and/or changes in manufacturing technologies may render our products
obsolete or we may not be able to manufacture products or designs at prices that would be competitive in the
marketplace. We may not have sufficient resources to make necessary investments or we may be unable to make the
investments or acquire the intellectual property rights necessary to develop new products or improve our existing
products.
Our business is seasonal which may affect our net sales, cash flows from operations and results of operations.
Our business is moderately seasonal and our sales vary from quarter to quarter based upon the timing of the
building season in our markets. Severe weather conditions in any quarter, such as unusually prolonged warm or cold
conditions, rain, blizzards or hurricanes, could accelerate, delay or halt construction and renovation activity. The impact
of these types of events on our business may adversely impact our sales, cash flows from operations and results of
operations. Also, we cannot predict the effects on our business that may result from global climate change, including
potential new related laws or regulations. If sales were to fall substantially below what we would normally expect
during certain periods, our annual financial results would be adversely impacted. Moreover, our facilities are vulnerable
to severe weather conditions.
A disruption in our operations could materially affect our operating results.
We operate facilities worldwide. Many of our facilities are located in areas that are vulnerable to hurricanes,
earthquakes and other natural disasters. In the event that a hurricane, earthquake, natural disaster, fire or other
catastrophic event were to interrupt our operations for any extended period of time, particularly at one or more of our
door facing facilities or architectural door plants, such as when Marshfield experienced an autoclave explosion in July
2011, prior to our acquisition, it could delay shipment of merchandise to our customers, damage our reputation or
otherwise have a material adverse effect on our financial condition and results of operations. Closure of one of our door
facing facilities, which are our most capital intensive and least replaceable production facilities, could have a substantial
negative effect on our earnings.
In addition, our operations may be interrupted by terrorist attacks or other acts of violence or war. These
attacks may directly impact our suppliers’ or customers’ physical facilities. Furthermore, these attacks may make travel
and the transportation of our supplies and products more difficult and more expensive and ultimately affect our
operating results. The United States has entered into, and may enter into, additional armed conflicts which could have a
further impact on our sales and our ability to deliver product to our customers in the United States and elsewhere.
Political and economic instability in some regions of the world, including the current instabilities in the Middle East and
North Korea, may also negatively impact our business. The consequences of any of these armed conflicts are
unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your
investment. More generally, any of these events could cause consumer confidence and spending to decrease or result in
increased volatility in the United States and worldwide financial markets and economy. They could also result in
economic recession in the United States or abroad. Any of these occurrences could have a significant impact on our
operating results.
Manufacturing realignments may result in a decrease in our short-term earnings, until the expected cost reductions are
achieved, as well as reduce our flexibility to respond quickly to improved market conditions.
We continually review our manufacturing operations and sourcing capabilities. Effects of periodic
manufacturing realignments and cost savings programs have in the past and could in the future result in a decrease in
our short-term earnings until the expected cost reductions are achieved. We also cannot assure you we will achieve all
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of our cost savings. Such programs may include the consolidation, integration and upgrading of facilities, functions,
systems and procedures. The success of these efforts will depend in part on market conditions, and such actions may not
be accomplished as quickly as anticipated and the expected cost reductions may not be achieved or sustained.
In connection with our manufacturing realignment and cost savings programs, we have closed or consolidated
a substantial portion of our global operations and reduced our personnel, which may reduce our flexibility to respond
quickly to improved market conditions. For example, in 2017 we closed our Algoma, Wisconsin, facility in order to
improve our cost structure, expand operational efficiencies and align our plant optimization portfolio. As a result, a
failure to anticipate a sharp increase in levels of residential new construction, residential repair, renovation and
remodeling and non-residential building construction activity could result in operational difficulties, adversely
impacting our ability to provide our products to our customers. This may result in the loss of business to our
competitors in the event they are better able to forecast or respond to market demand. There can be no assurance that we
will be able to accurately forecast the level of market demand or react in a timely manner to such changes, which may
have a material adverse effect on our business, financial condition and results of operations.
We are subject to the credit risk of our customers.
We provide credit to our customers in the normal course of business. We generally do not require collateral in
extending such credit. An increase in the exposure, coupled with material instances of default, could have a material
adverse effect on our business, financial condition, results of operations and cash flow.
Increased prices for raw materials or finished goods used in our products or interruptions in deliveries of raw materials
or finished goods could adversely affect our profitability, margins and net sales.
Our profitability is affected by the prices of raw materials and finished goods used in the manufacture of our
products. These prices have fluctuated and may continue to fluctuate based on a number of factors beyond our control,
including world oil prices, changes in supply and demand, general economic or environmental conditions, labor costs,
competition, import duties, tariffs, currency exchange rates and, in some cases, government regulation. The
commodities we use may undergo major price fluctuations and there is no certainty that we will be able to pass these
costs through to our customers. Significant increases in the prices of raw materials or finished goods are more difficult
to pass through to customers in a short period of time and may negatively impact our short-term profitability, margins
and net sales. In the current competitive environment, opportunities to pass on these cost increases to our customers
may be limited.
We require a regular supply of raw materials, such as wood, wood composites, cut stock, steel, glass, core
material, paint, stain and primer as well as petroleum-based products such as binders, resins and frames. In certain
instances, we depend on a single or limited number of suppliers for these supplies. We typically do not have long-term
contracts with our suppliers. If we are not able to accurately forecast our supply needs, the limited number of suppliers
may make it difficult to obtain additional raw materials to respond to shifting or increased demand. Our dependency
upon regular deliveries from particular suppliers means that interruptions or stoppages in such deliveries could
adversely affect our operations until arrangements with alternate suppliers could be made. Furthermore, because our
products and the components of some of our products are subject to regulation, such alternative suppliers, even if
available, may not be substituted until regulatory approvals for such substitution are received, thereby delaying our
ability to respond to supply changes. Moreover, some of our raw materials, especially those that are petroleum or
chemical based, interact with other raw materials used in the manufacture of our products and therefore significant lead
time may be required to procure a compatible substitute. Substitute materials may also not be of the same quality as our
original materials.
If any of our suppliers were unable to deliver materials to us for an extended period of time (including as a
result of delays in land or sea shipping), or if we were unable to negotiate acceptable terms for the supply of materials
with these or alternative suppliers, our business could suffer. In the future, we may not be able to find acceptable supply
alternatives, and any such alternatives could result in increased costs for us. Even if acceptable alternatives are found,
the process of locating and securing such alternatives might be disruptive to our business.
Furthermore, raw material prices could increase, and supply could decrease, if other industries compete with us
for such materials. For example, we are highly dependent upon our supply of wood chips used for the production of our
door facings and wood composite materials. Failure to obtain significant supply may disrupt our operations and even if
we are able to obtain sufficient supply, we may not be able to pass increased supply costs on to our customers in the
form of price increases, thereby resulting in reduced margins and profits.
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A rapid and prolonged increase in fuel prices may significantly increase our costs and have an adverse impact on our
results of operations.
Fuel prices have been volatile and are significantly influenced by international, political and economic
circumstances. While fuel prices have fallen from historical highs over the last several years, they have more recently
risen and lower fuel prices may not be permanent. If fuel prices were to rise for any reason, including fuel supply
shortages or unusual price volatility, the resulting higher fuel prices could materially increase our shipping costs,
adversely affecting our results of operations. In addition, competitive pressures in our industry may have the effect of
inhibiting our ability to reflect these increased costs in the prices of our products.
We rely on the continuous operation of our information technology and enterprise resource planning systems.
Our information technology systems allow us to accurately maintain books and records, record transactions,
provide information to management and prepare our consolidated financial statements. We may not have sufficient
redundant operations to cover a loss or failure in a timely manner. Our operations depend on our network of information
technology systems, which are vulnerable to damage from hardware failure, fire, power loss, telecommunications
failure, impacts of terrorism, cybersecurity vulnerabilities (such as threats and attacks), computer viruses, natural
disasters or other disasters Any damage to our information technology systems could cause interruptions to our
operations that materially adversely affect our ability to meet customers’ requirements, resulting in an adverse impact to
our business, financial condition and results of operations. Periodically, these systems need to be expanded, updated or
upgraded as our business needs change. For example, we are in the process of implementing a new enterprise resource
planning system in our architectural business. We may not be able to successfully implement changes in our information
technology systems without experiencing difficulties, which could require significant financial and human resources
and impact our ability to efficiently service our customers. Moreover, our recent technological initiatives and increasing
dependence on technology may exacerbate this risk.
Potential cyber threats and attacks could disrupt our information security systems and cause damage to our business
and our reputation.
Information security threats, which pose a risk to the security of our network of systems and the confidentiality
and integrity of our data, are increasing in frequency and sophistication, We have established policies, processes and
multiple layers of defenses designed to help identify and protect against intentional and unintentional misappropriation
or corruption of our network of systems. Should damage to our network of systems occur, it could lead to the
compromise of confidential information, manipulation and destruction of data and product specifications, production
downtimes, disruption in the availability of financial data, or misrepresentation of information via digital media. While
we have not experienced any material breaches in information security, the occurrence of any of these events could
adversely affect our reputation and could result in litigation, regulatory action, financial loss, project delay claims and
increased costs and operational consequences of implementing further data protection systems.
Increases in labor costs, potential labor disputes and work stoppages at our facilities or the facilities of our suppliers
could materially adversely affect our financial performance.
Our financial performance is affected by the availability of qualified personnel and the cost of labor. We have
approximately 10,000 employees worldwide, including approximately 2,400 unionized workers. Employees represented
by these unions are subject to collective bargaining agreements that are subject to periodic negotiation and renewal,
including our agreements with employees and their respective work councils in Chile, Mexico and the United Kingdom,
which are subject to annual negotiation. If we are unable to enter into new, satisfactory labor agreements with our
unionized employees upon expiration of their agreements, we could experience a significant disruption of our
operations, which could cause us to be unable to deliver products to customers on a timely basis. If our workers were to
engage in strikes, a work stoppage or other slowdowns, we could also experience disruptions of our operations. Such
disruptions could result in a loss of business and an increase in our operating expenses, which could reduce our net sales
and profit margins. In addition, our non-unionized labor force may become subject to labor union organizing efforts,
such as the attempt to organize our Northumberland facility in 2015, which could cause us to incur additional labor
costs and increase the related risks that we now face.
We believe many of our direct and indirect suppliers and customers also have unionized workforces. Strikes,
work stoppages or slowdowns experienced by these suppliers and customers could result in slowdowns or closures of
facilities where components of our products are manufactured or delivered. Any interruption in the production or
delivery of these components could reduce sales, increase costs and have a material adverse effect on us.
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Our pension obligations are currently underfunded. We may have to make significant cash payments to our pension
plans, which would reduce the cash available for our business.
As of December 31, 2017, our accumulated benefit obligations under our United States and United Kingdom
defined benefit pension plans exceeded the fair value of plan assets by $12.2 million and $5.7 million, respectively.
During the years ended December 31, 2017, January 1, 2017 and January 3, 2016, we contributed $5.0 million, $5.0
million and $5.2 million, respectively, to the United States pension plan and $1.0 million, $0.8 million and $0.9 million,
respectively, to the United Kingdom pension plan. Additional contributions will be required in future years. We
currently anticipate making $5.0 million and $0.7 million of contributions to our United States and United Kingdom
pension plans, respectively, in 2018. If the performance of the assets in our pension plans does not meet our
expectations or other actuarial assumptions are modified, our contributions to our pension plans could be materially
higher than we expect, which would reduce the cash available for our businesses. In addition, our United States pension
plans are subject to Title IV of the United States Employee Retirement Income Security Act of 1974, or ERISA. Under
ERISA, the Pension Benefit Guaranty Corporation, or the PBGC, generally has the authority to terminate an
underfunded pension plan if the possible long-run loss to the PBGC with respect to the plan may reasonably be
expected to increase substantially if the plan is not terminated. In the event our pension plans are terminated for any
reason while the plans are underfunded, we may incur a liability to the PBGC which could be equal to the entire amount
of the underfunding.
Our recent acquisitions and any future acquisitions, if available, could be difficult to integrate and could adversely
affect our operating results.
In the past several years we completed several strategic acquisitions of door and door component
manufacturers in North America and the United Kingdom. Historically, we have made acquisitions to vertically
integrate and expand our operations, such as our acquisitions of DW3 in 2018; A&F Wood Products in 2017; FyreWerks
in 2016; USA Wood Door, Hickman and PDS in 2015; Harring and Door-Stop in 2014; the assets of a door
manufacturing operation located in Chile in 2013; Lemieux, Algoma, and Baillargeon in 2012; and Birchwood and
Marshfield in 2011. From time to time, we have evaluated and we continue to evaluate possible acquisition transactions
on an on-going basis. Our acquisitions may not be accretive. At any time we may be engaged in discussions or
negotiations with respect to possible acquisitions or may have entered into non-binding letters of intent. As part of our
strategy, we expect to continue to pursue complementary acquisitions and investments and may expand into product
lines or businesses with which we have little or no operating experience. For example, future acquisitions may involve
building product categories other than doors. We may also engage in further vertical integration. However, we may face
competition for attractive targets and we may not be able to source appropriate acquisition targets at prices acceptable to
us, or at all. In addition, in order to pursue our acquisition strategy, we will need significant liquidity, which, as a result
of the other factors described herein, may not be available on terms favorable to us, or at all.
Our recent and any future acquisitions involve a number of risks, including:
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our inability to integrate the acquired business;
our inability to manage acquired businesses or control integration and other costs relating to acquisitions;
our lack of experience with a particular business should we invest in a new product line;
diversion of management attention;
our failure to achieve projected synergies or cost savings;
impairment of goodwill affecting our reported net income;
our inability to retain the management or other key employees of the acquired business;
our inability to establish uniform standards, controls, procedures and policies;
our inability to retain customers of our acquired companies;
risks associated with the internal controls of acquired companies;
exposure to legal claims for activities of the acquired business prior to the acquisition;
our due diligence procedures could fail to detect material issues related to the acquired business;
unforeseen management and operational difficulties, particularly if we acquire assets or businesses in new
foreign jurisdictions where we have little or no operational experience;
damage to our reputation as a result of performance or customer satisfaction problems relating to an acquired
businesses;
the performance of any acquired business could be lower than we anticipated; and
our inability to enforce indemnifications and non-compete agreements.
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The integration of any future acquisition into our business will likely require substantial time, effort, attention
and dedication of management resources and may distract our management in unpredictable ways from our ordinary
operations. The integration may also result in consolidation of certain existing operations. If we cannot successfully
execute on our investments on a timely basis, we may be unable to generate sufficient net sales to offset acquisition,
integration or expansion costs, we may incur costs in excess of what we anticipate, and our expectations of future
results of operations, including cost savings and synergies, may not be achieved. If we are not able to effectively
manage recent or future acquisitions or realize their anticipated benefits, it may harm our results of operations.
We are exposed to political, economic and other risks that arise from operating a multinational business.
We have operations in the United States, Canada, Europe and, to a lesser extent, other foreign jurisdictions. In
the year ended December 31, 2017, approximately 66% of our net sales were in the United States, 16% in Canada and
12% in the United Kingdom. Further, certain of our businesses obtain raw materials and finished goods from foreign
suppliers. Accordingly, our business is subject to political, economic and other risks that are inherent in operating in
numerous countries.
These risks include:
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the difficulty of enforcing agreements and collecting receivables through foreign legal systems;
trade protection measures and import or export licensing requirements;
tax rates in foreign countries and the imposition of withholding requirements on foreign earnings;
the imposition of tariffs or other restrictions;
difficulty in staffing and managing widespread operations and the application of foreign labor regulations;
required compliance with a variety of foreign laws and regulations; and
changes in general economic and political conditions in countries where we operate.
Our business success depends in part on our ability to anticipate and effectively manage these and other risks.
We cannot assure you that these and other factors will not have a material adverse effect on our international operations
or on our business as a whole.
The United Kingdom's formal trigger of the two year process for its exit from the European Union, and related
negotiations
In June 2016, voters in the United Kingdom voted for a non-binding referendum in favor of the United
Kingdom exiting the European Union. The United Kingdom formally initiated the withdrawal process on March 29,
2017, and the terms of any withdrawal are subject to a negotiation period that could last until March 29, 2019. The
eventual exit of the United Kingdom from the European Union and negotiations leading up to that exit could adversely
affect European and worldwide economic and market conditions. As a result, there has been, and may continue to be,
instability in global financial and foreign exchange markets, including volatility in the value of the Pound Sterling and
the Euro. Uncertainty about global or regional economic conditions poses a risk as consumers and businesses may
postpone spending in response to tighter credit, negative financial news and declines in income or asset values, which
could have a material negative effect on the European housing market, particularly in the United Kingdom, and demand
for our products in the foreseeable future.
Fluctuating exchange and interest rates could adversely affect our financial results.
Our financial results may be adversely affected by fluctuating exchange rates. Net sales generated outside of
the United States were approximately 34% for the year ended December 31, 2017. In addition, a significant percentage
of our costs during the same period were not denominated in U.S. dollars. For example, for most of our manufacturing
facilities, the prices for a significant portion of our raw materials are quoted in the domestic currency of the country
where the facility is located or other currencies that are not U.S. dollars. We also have substantial assets outside the
United States. As a result, the volatility in the price of the U.S. dollar has exposed, and in the future may continue to
expose, us to currency exchange risks. For example, we are subject to currency exchange rate risk to the extent that
some of our costs will be denominated in currencies other than those in which we earn revenues. Also, since our
financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and
other currencies have had, and will continue to have, an impact on many aspects of our financial results. Changes in
currency exchange rates for any country in which we operate may require us to raise the prices of our products in that
country and may result in the loss of business to our competitors that sell their products at lower prices in that country.
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Moreover, as our current indebtedness is denominated in a currency that is different from the currencies in
which we derive a significant portion of our net sales, we are also exposed to currency exchange rate risk with respect
to those financial obligations. When the outstanding indebtedness is repaid, we may be subject to taxes on any
corresponding foreign currency gain.
Borrowings under our current ABL Facility are incurred at variable rates of interest, which exposes us to
interest rate fluctuation risk. If interest rates increase, the payments we are required to make on any variable rate
indebtedness will increase.
We may fail to continue to innovate, face claims that we infringe third party intellectual property rights, or be unable to
protect our intellectual property from infringement by others except by incurring substantial costs as a result of
litigation or other proceedings relating to patent or trademark rights, any of which could cause our net sales or
profitability to decline.
Our continued success depends on our ability to develop and introduce new or improved products, to improve
our manufacturing and product service processes, and to protect our rights to the technologies used in our products. If
we fail to do so, or if existing or future competitors achieve greater success than we do in these areas, our results of
operations and our profitability may decline.
We rely on a combination of United States, Canadian and, to a lesser extent, European patent, trademark,
copyright and trade secret laws as well as licenses, nondisclosure, confidentiality and other contractual restrictions to
protect certain aspects of our business. We have registered trademarks, copyrights and our patent and trademark
applications may not be allowed by the applicable governmental authorities to issue as patents or register as trademarks
at all, or in a form that will be advantageous to us. In addition, we have selectively pursued patent and trademark
protection, and in some instances we may not have registered important patent and trademark rights in these and other
countries. Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent
as the laws of the United States. The failure to obtain worldwide patent and trademark protection may result in other
companies copying and marketing products based upon our technologies or under our brand or trade names outside the
jurisdictions in which we are protected. This could impede our growth in existing regions and into new regions, create
confusion among consumers and result in a greater supply of similar products that could erode prices for our protected
products.
Our success depends in part on our ability to protect our patents, trademarks, copyrights, trade secrets and
licensed intellectual property from unauthorized use by others. We cannot be sure that the patents we have obtained, or
other protections such as confidentiality, trade secrets and copyrights, will be adequate to prevent imitation of our
products by others. If we are unable to protect our products through the enforcement of intellectual property rights, our
ability to compete based on our current advantages may be harmed. If we fail to prevent substantial unauthorized use of
our trade secrets, we risk the loss of those intellectual property rights and whatever competitive advantage they embody.
Although we are not aware that any of our products or intellectual property rights materially infringe upon the
proprietary rights of third parties, third parties may accuse us of infringing or misappropriating their patents,
trademarks, copyrights or trade secrets. Third parties may also challenge our trademark rights and branding practices in
the future. We may be required to institute or defend litigation to defend ourselves from such accusations or to enforce
our patent, trademark and copyright rights from unauthorized use by others, which, regardless of the outcome, could
result in substantial costs and diversion of resources and could negatively affect our competitive position, sales,
profitability and reputation. If we lose a patent infringement suit, we may be liable for money damages and be enjoined
from selling the infringing product unless we can obtain a license or are able to redesign our product to avoid
infringement. A license may not be available at all or on terms acceptable to us, and we may not be able to redesign our
products to avoid any infringement, which could negatively affect our profitability. In addition, our patents, trademarks
and other proprietary rights may be subject to various attacks claiming they are invalid or unenforceable. These attacks
might invalidate, render unenforceable or otherwise limit the scope of the protection that our patents and trademarks
afford. If we lose the use of a product name, our efforts spent building that brand may be lost and we will have to
rebuild a brand for that product, which we may or may not be able to do. Even if we prevail in a patent infringement
suit, there is no assurance that third parties will not be able to design around our patents, which could harm our
competitive position.
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If we are unable to replace our expiring patents, our ability to compete both domestically and internationally will be
harmed. In addition, our products face the risk of obsolescence, which, if realized, could have a material adverse effect
on our business.
We depend on our door manufacturing intellectual property and products to generate revenue. Some of our
patents will begin to expire in the next several years. While we will continue to work to add to our patent portfolio to
protect the intellectual property of our products, we believe it is possible that new competitors will emerge in door
manufacturing. We do not know whether we will be able to develop additional proprietary designs, processes or
products. If any protection we obtain is reduced or eliminated, others could use our intellectual property without
compensating us, resulting in harm to our business. Moreover, as our patents expire, competitors may utilize the
information found in such patents to commercialize their own products. While we seek to offset the losses relating to
important expiring patents by securing additional patents on commercially desirable improvements, and new products,
designs and processes, there can be no assurance that we will be successful in securing such additional patents, or that
such additional patents will adequately offset the effect of the expiring patents.
Further, we face the risk that third parties will succeed in developing or marketing products that would render
our products obsolete or noncompetitive. New, less expensive methods could be developed that replace or reduce the
demand for our products or may cause our customers to delay or defer purchasing our products. Accordingly, our
success depends in part upon our ability to respond quickly to market changes through the development and
introduction of new products. The relative speed with which we can develop products, complete regulatory clearance or
approval processes and supply commercial quantities of the products to the market are expected to be important
competitive factors. Any delays could result in a loss of market acceptance and market share. We cannot provide
assurance that our new product development efforts will result in any commercially successful products.
We may be the subject of product liability claims or product recalls, we may not accurately estimate costs related to
such claims or recalls, and we may not have sufficient insurance coverage available to cover potential liabilities.
Our products are used and have been used in a wide variety of residential and architectural applications. We
face an inherent business risk of exposure to product liability or other claims, including class action lawsuits, in the
event our products are alleged to be defective or that the use of our products is alleged to have resulted in harm to others
or to property. Because we manufacture a significant portion of our products based on the specific requirements of our
customers, failure to provide our customers the products and services they specify could result in product-related claims
and reduced or cancelled orders and delays in the collection of accounts receivable. We may in the future incur liability
if product liability lawsuits against us are successful. Moreover, any such lawsuits, whether or not successful, could
result in adverse publicity to us, which could cause our sales to decline materially. In addition, it may be necessary for
us to recall defective products, which would also result in adverse publicity, as well as resulting in costs connected to
the recall and loss of net sales. We maintain insurance coverage to protect us against product liability claims, but that
coverage may not be adequate to cover all claims that may arise or we may not be able to maintain adequate insurance
coverage in the future at an acceptable cost. Any liability not covered by insurance or that exceeds our established
reserves could materially and adversely impact our financial condition and results of operations.
In addition, consistent with industry practice, we provide warranties on many of our products and we may
experience costs of warranty or breach of contract claims if our products have defects in manufacture or design or they
do not meet contractual specifications. We estimate our future warranty costs based on historical trends and product
sales, but we may fail to accurately estimate those costs and thereby fail to establish adequate warranty reserves for
them.
The loss of certain members of our management may have an adverse effect on our operating results.
Our success will depend, in part, on the efforts of our senior management and other key employees. These
individuals possess sales, marketing, engineering, manufacturing, financial and administrative skills and know-how that
are critical to the operation of our business. If we lose or suffer an extended interruption in the services of one or more
of our senior officers or other key employees, our financial condition and results of operations may be negatively
affected. Moreover, the pool of qualified individuals may be highly competitive and we may not be able to attract and
retain qualified personnel to replace or succeed members of our senior management or other key employees, should the
need arise. The loss of the services of any key personnel, or our inability to hire new personnel with the requisite skills,
could impair our ability to develop new products or enhance existing products, sell products to our customers or manage
our business effectively.
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Lack of transparency, threat of fraud, public sector corruption and other forms of criminal activity involving
government officials increases risk for potential liability under anti-bribery or anti-fraud legislation, including the
United States Foreign Corrupt Practices Act.
We operate facilities in 8 countries and sell our products in 65 countries around the world. As a result of these
international operations, we may enter from time to time into negotiations and contractual arrangements with parties
affiliated with foreign governments and their officials. In connection with these activities, we are subject to the United
States Foreign Corrupt Practices Act ("FCPA"), the United Kingdom Bribery Act and other anti-bribery laws that
prohibit improper payments or offers of payments to foreign governments and their officials and political parties by
United States and other business entities for the purpose of obtaining or retaining business, or otherwise receiving
discretionary favorable treatment of any kind and requires the maintenance of internal controls to prevent such
payments. In particular, we may be held liable for actions taken by our local partners and agents in foreign countries
where we operate, even though such parties are not always subject to our control. As part of our Masonite Values
Operating Guide we have established FCPA and other anti-bribery policies and procedures and offer several channels
for raising concerns in an effort to comply with applicable U.S. and international laws and regulations. However, there
can be no assurance that our policies and procedures will effectively prevent us from violating these laws and
regulations in every transaction in which we may engage. Any determination that we have violated the FCPA or other
anti-bribery laws (whether directly or through acts of others, intentionally or through inadvertence) could result in
sanctions that could have a material adverse effect on our results of operations and financial condition.
As we continue to expand our business globally, we may have difficulty anticipating and effectively managing
these and other risks that our international operations may face, which may adversely impact our business outside of
North America and our financial condition and results of operations. In addition, any acquisition of businesses with
operations outside of North America may exacerbate this risk.
Environmental requirements and other government regulation may impose significant environmental and legal
compliance costs and liabilities on us.
Our operations are subject to numerous Canadian (federal, provincial and local), United States (federal, state
and local), European (European Union, national and local) and other laws and regulations relating to pollution and the
protection of human health and the environment, including, without limitation, those governing emissions to air,
discharges to water, storage, treatment and disposal of waste, releases of contaminants or hazardous or toxic substances,
remediation of contaminated sites and protection of worker health and safety. From time to time, our facilities are
subject to investigation by governmental regulators. Despite our efforts to comply with environmental requirements, we
are at risk of being subject to civil, administrative or criminal enforcement actions, of being held liable, of being subject
to an order or of incurring costs, fines or penalties for, among other things, releases of contaminants or hazardous or
toxic substances occurring on or emanating from currently or formerly owned or operated properties or any associated
offsite disposal location, or for contamination discovered at any of our properties from activities conducted by us or by
previous occupants. Although, with the exception of costs incurred relating to compliance with Maximum Achievable
Control Technology requirements (as described below), we have not incurred significant costs for environmental
matters in prior years, future expenditures required to comply with any changes in environmental requirements are
anticipated to be undertaken as part of our ongoing capital investment program, which is primarily designed to improve
the efficiency of our various manufacturing processes. The amount of any resulting liabilities, costs, fines or penalties
may be material.
In addition, the requirements of such laws and enforcement policies have generally become more stringent
over time. Changes in environmental laws and regulations or in their enforcement or the discovery of previously
unknown or unanticipated contamination or non-compliance with environmental laws or regulations relating to our
properties or operations could result in significant environmental liabilities or costs which could adversely affect our
business. In addition, we might incur increased operating and maintenance costs and capital expenditures and other
costs to comply with increasingly stringent air emission control laws or other future requirements (such as, in the United
States, those relating to compliance with Maximum Achievable Control Technology requirements under the Clean Air
Act, for which we made capital expenditures totaling approximately $49 million from 2008 through 2010), which may
decrease our cash flow. Also, discovery of currently unknown or unanticipated conditions could require responses that
would result in significant liabilities and costs. Accordingly, we are unable to predict the ultimate costs of compliance
with or liability under environmental laws, which may be larger than current projections.
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Changes in government regulation may have a material effect on our results of operations.
Our manufacturing facilities and components of our products are subject to numerous foreign, federal, state
and local laws and regulations, including those relating to the presence of hazardous materials and protection of worker
health and safety. Liability under these laws involves inherent uncertainties. Changes in such laws and regulations or in
their enforcement could significantly increase our costs of operations which could adversely affect our business.
Violations of health and safety laws are subject to civil, and, in some cases, criminal sanctions. As a result of these
uncertainties, we may incur unexpected interruptions to operations, fines, penalties or other reductions in income which
could adversely impact our business, financial condition and results of operations.
Further, in order for our products to obtain the energy efficient “ENERGYSTAR” label, they must meet certain
requirements set by the Environmental Protection Agency, or the EPA. Changes in the energy efficiency requirements
established by the EPA for the ENERGYSTAR label could increase our costs, and, if there is a lapse in our ability to
label our products as such or we are not able to comply with the new standards at all, negatively affect our net sales and
results of operations.
Moreover, many of our products are regulated by building codes and require specific fire, penetration or wind
resistance characteristics. A change in the building codes could have a material impact on the manufacturing cost for
these products, which we may not be able to pass on to our customers.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure,
including the Sarbanes-Oxley Act, the Dodd-Frank Act and related regulations implemented by the Securities and
Exchange Commission, or the SEC, and the stock exchanges are creating uncertainty for public companies, increasing
legal and financial compliance costs and making some activities more time-consuming. We are currently evaluating and
monitoring developments with respect to new and proposed rules and cannot predict or estimate the amount of
additional costs we may incur or the timing of such costs. These laws, regulations and standards are subject to varying
interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve
over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance
practices.
We intend to invest resources to comply with evolving laws, regulations and standards, and this investment
may result in increased general and administrative expenses and a diversion of management’s time and attention from
revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards
differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, regulatory
authorities may initiate legal proceedings against us and our business may be harmed. We also expect that being a
public company and these new rules and regulations will make it more expensive for us to obtain director and officer
liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain
coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of
directors, particularly to serve on our audit committee and compensation committee, and attract and retain qualified
executive officers.
To service our consolidated indebtedness, we will require a significant amount of cash. Our ability to generate cash
depends on many factors beyond our control, and any failure to meet our debt service obligations could harm our
business, financial condition and results of operations.
Our estimated annual payment obligation for 2018 with respect to our consolidated indebtedness is $35.2
million of interest payments. When we draw funds under the ABL Facility, we incur additional interest expense. Our
ability to pay interest on and principal of the senior notes and our ability to satisfy our other debt obligations will
principally depend upon our future operating performance. As a result, prevailing economic conditions and financial,
business and other factors, many of which are beyond our control, will affect our ability to make these payments.
If we do not generate sufficient cash flow from operations to satisfy our consolidated debt service obligations,
we may have to undertake alternative financing plans, such as refinancing or restructuring our indebtedness, selling
assets, reducing or delaying capital investments or seeking to raise additional capital. Our ability to restructure or
refinance our debt will depend on the capital markets and our financial condition at such time. Any refinancing of our
debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further
restrict our business operations. In addition, the terms of existing or future debt instruments, including the ABL Facility
and the indenture governing the senior notes, may restrict us from adopting some of these alternatives. If we are unable
22
to generate sufficient cash flow to satisfy our debt service obligations, or to refinance our obligations on commercially
reasonable terms, it would have an adverse effect, which could be material, on our business, financial condition and
results of operations.
Under such circumstances, we may be unable to comply with the provisions of our debt instruments, including
the financial covenants in the ABL Facility. If we are unable to satisfy such covenants or other provisions at any future
time, we would need to seek an amendment or waiver of such financial covenants or other provisions. The lenders
under the ABL Facility may not consent to any amendment or waiver requests that we may make in the future, and, if
they do consent, they may not do so on terms which are favorable to us. The lenders will also have the right in these
circumstances to terminate any commitments they have to provide further borrowings. If we are unable to obtain any
such waiver or amendment, our inability to meet the financial covenants or other provisions of the ABL Facility would
constitute an event of default thereunder, which would permit the lenders to accelerate repayment of borrowings under
the ABL Facility, which in turn would constitute an event of the default under the indenture governing the senior notes,
permitting the holders of the senior notes to accelerate payment thereon. Our assets and/or cash flow, and/or that of our
subsidiaries, may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon
an event of default, and the secured lenders under the ABL Facility could proceed against the collateral securing that
indebtedness. Such events would have a material adverse effect on our business, financial condition and results of
operations, as well as on our ability to satisfy our obligations in respect of the senior notes.
The terms of the ABL Facility and the indenture governing the senior notes may restrict our current and future
operations, particularly our ability to respond to changes in our business or to take certain actions.
The credit agreement governing the ABL Facility and the indenture governing the senior notes contain, and the
terms of any future indebtedness of ours would likely contain, a number of restrictive covenants that impose significant
operating and financial restrictions, including restrictions on our ability to engage in acts that may be in our best long-
term interests. The indenture governing the senior notes and the credit agreements governing the ABL Facility include
covenants that, among other things, restrict our and our subsidiaries’ ability to:
incur additional indebtedness and issue disqualified or preferred stock;
•
• make restricted payments;
•
•
•
•
• merge or consolidate with other entities; and
•
enter into transactions with affiliates.
sell assets;
create restrictions on the ability of their restricted subsidiaries to pay dividends or distributions;
create or incur liens;
enter into sale and lease-back transactions;
The operating and financial restrictions and covenants in the debt agreements we will enter into in connection
with this offering and the ABL Facility and any future financing agreements may adversely affect our ability to finance
future operations or capital needs or to engage in other business activities.
Risks Related to Ownership of Our Common Shares
Our share price may change significantly and you could lose all or part of your investment as a result.
The trading price of our common shares could fluctuate due to a number of factors such as those listed in
“Risks Related to Our Business” and the following, some of which are beyond our control:
•
•
•
•
•
•
•
•
quarterly variations in our results of operations;
results of operations that vary from the expectations of securities analysts and investors;
results of operations that vary from those of our competitors;
changes in expectations as to our future financial performance, including financial estimates by securities
analysts and investors;
announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint marketing
relationships, joint ventures or capital commitments;
announcements by third parties of significant claims or proceedings against us;
future sales of our common shares; and
general domestic and international economic conditions.
23
Furthermore, the stock market has experienced extreme volatility that, in some cases, has been unrelated or
disproportionate to the operating performance of particular companies. These broad market and industry fluctuations
may adversely affect the market price of our common shares, regardless of our actual operating performance.
In the past, following periods of market volatility, shareholders have instituted securities class action litigation.
If we were involved in securities litigation, it could have a substantial cost and divert resources and the attention of
executive management from our business regardless of the outcome of such litigation.
The availability of shares for sale in the future could reduce the market price of our common shares.
In the future, we may issue securities to raise cash for acquisitions or otherwise. We may also acquire interests
in other companies by using a combination of cash and our common shares or just our common shares. We may also
issue securities convertible into our common shares. Any of these events may dilute your ownership interest in our
company and have an adverse impact on the price of our common shares.
In addition, sales of a substantial amount of our common shares in the public market, or the perception that
these sales may occur, could reduce the market price of our common shares. This could also impair our ability to raise
additional capital through the sale of our securities.
A small number of our shareholders could be able to significantly influence our business and affairs, limiting your
ability to influence corporate matters.
As of December 31, 2017, shareholders owning 5% or more of our outstanding common shares reported their
significant ownership positions in their Schedule 13G filings. As a result of their holdings, these shareholders may be
able to significantly influence the outcome of any matters requiring approval by our shareholders, including the election
of directors, mergers and takeover offers, regardless of whether others believe that approval of those matters is in our
best interests.
United States civil liabilities may not be enforceable against us.
We exist under the laws of the Province of British Columbia, Canada. As a result, it may be difficult for
investors to effect service of process within the United States upon us and those experts, or to enforce outside the
United States judgments obtained in United States courts, in any action, including actions predicated upon the civil
liability provisions of United States securities laws. Additionally, it may be difficult for investors to enforce, in original
actions brought in courts in jurisdictions located outside the United States, rights predicated upon United States
securities laws. In particular, there is uncertainty as to the enforceability in Canada by a court in original actions, or in
actions to enforce judgments of United States courts, of the civil liabilities predicated upon the United States securities
laws. Based on the foregoing, there can be no assurance that United States investors will be able to enforce against us or
certain experts named herein who are residents of countries other than the United States any judgments obtained in
United States courts in civil and commercial matters, including judgments under the United States federal securities
laws. In addition, there is doubt as to whether a court in the Province of British Columbia would impose civil liability
on us, our directors, officers or certain experts named herein in an original action predicated solely upon the federal
securities laws of the United States brought in a court of competent jurisdiction in the Province of British Columbia
against us or such directors, officers or experts, respectively.
Canadian laws differ from the laws in effect in the United States and may afford less protection to holders of our
securities.
We are a company that exists under the laws of the Province of British Columbia, Canada and are subject to
the Business Corporations Act (British Columbia) and certain other applicable securities laws as a Canadian issuer
(nonreporting issuer), which laws may differ from those governing a company formed under the laws of a United States
jurisdiction. The provisions under the Business Corporations Act (British Columbia) and other relevant laws may affect
the rights of shareholders differently than those of a company governed by the laws of a United States jurisdiction, and
may, together with our amended and restated articles of amalgamation, or the Articles, have the effect of delaying,
deferring or discouraging another party from acquiring control of our company by means of a tender offer, a proxy
contest or otherwise, or may affect the price an acquiring party would be willing to offer in such an instance.
24
If securities or industry research analysts do not publish or cease publishing research or reports about our business or
if they issue unfavorable commentary or downgrade our common shares, our share price and trading volume could
decline.
The trading market for our common shares relies in part on the research and reports that securities and industry
research analysts publish about us, our industry, our competitors and our business. We do not have any control over
these analysts. Our share price and trading volumes could decline if one or more securities or industry analysts
downgrade our common shares, issue unfavorable commentary about us, our industry or business, cease to cover our
Company or fail to regularly publish reports about us, our industry or our business.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our United States executive headquarters are located in Tampa, Florida, and consist of approximately 80,000
square feet of leased office space at two sites. Our Canadian executive offices are located in a single leased site in
Concord, Ontario. As of December 31, 2017, we owned and leased the following number of properties, by reportable
segment:
Manufacturing
Warehouse
Support
Total
Owned properties:
North American Residential
Europe
Architectural
Corporate & Other
Total owned properties
Leased properties:
North American Residential
Europe
Architectural
Corporate & Other
Total leased properties
Total owned and leased properties
23
7
6
—
36
16
5
6
1
28
64
7
—
—
—
7
14
7
6
—
27
34
—
2
—
1
3
2
1
1
4
8
11
30
9
6
1
46
32
13
13
5
63
109
Our properties in the North American Residential and Architectural segments are distributed across 24 states in
the United States and four provinces in Canada, as well as one manufacturing facility and one support facility in Mexico
and four manufacturing facilities in Chile. Our properties in the Europe segment are distributed across the United
Kingdom, as well as one manufacturing facility in each of Ireland and the Czech Republic. Our properties in the
Corporate and Other category include one manufacturing facility in Malaysia and six support facilities in the United
States. As of December 31, 2017, total floor space at our manufacturing facilities was 12.0 million square feet,
including 3.2 million square feet in our five molded door facings facilities. In addition to the properties outlined above,
we own one idle manufacturing facility in Canada, we lease one idle manufacturing facility in the United Kingdom and
we own two parcels of land: 17,000 acres of forestland in Costa Rica and 48 acres of undeveloped land in California.
We believe that our facilities are suitable to our respective businesses and have production capacity adequate to
support our current level of production to meet our customers’ demand. Additional investments in manufacturing
facilities are made as appropriate to balance our capacity with our customers’ demand.
Item 3. Legal Proceedings
The information required with respect to this item can be found under "Commitments and Contingencies" in
Note 9 to the consolidated financial statements in this Annual Report and is incorporated by reference into this Item 3.
25
Item 4. Mine Safety Disclosures
Not applicable.
Executive Officers of the Registrant
Information about the Company's executive officers is incorporated herein by reference from Part III, Item 10
hereof.
26
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common shares have been listed on the New York Stock Exchange (“NYSE”) under the symbol “DOOR”
since September 9, 2013. Prior to that time, there was no public market for our common shares, although our common
shares were quoted on the OTC Grey Market under the symbol “MASWF” from June 2009 until our listing on the
NYSE. The following table sets forth the high and low sales prices per share of our common stock as reported on the
NYSE for the periods indicated:
First quarter
Second quarter
Third quarter
Fourth quarter
Holders
2017
2016
High
Low
High
Low
$
81.95
$
63.70
$
66.61
$
85.30
79.90
75.95
71.45
50.40
62.45
72.11
72.75
68.55
45.14
61.22
61.56
55.60
As of February 27, 2018, we had three record holders of our common shares, including Cede & Co., the
nominee of the Depository Trust Corporation.
Dividends
We do not intend to pay any cash dividends on our common shares for the foreseeable future and instead may
retain earnings, if any, for future operations and expansion, share repurchases or debt repayment, among other things.
Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will
depend on, among other things, our results of operations, liquidity requirements, financial condition, contractual
restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends is
limited by covenants in our ABL Facility and in the indenture governing our senior notes. Future agreements may also
limit our ability to pay dividends. See Note 8 to our audited consolidated financial statements contained elsewhere in
this Annual Report for restrictions on our ability to pay dividends.
27
Stock Performance Graph
The following graph depicts the total return to shareholders from September 9, 2013, the date our common
shares became listed on the NYSE, through December 31, 2017, relative to the performance of the Standard & Poor's
500 Index and the Standard & Poor's 1500 Building Products Index. The graph assumes an investment of $100 in our
common stock and each index on September 9, 2013, and the reinvestment of dividends paid since that date. The stock
performance shown in the graph is not necessarily indicative of future price performance.
Comparison of Cumulative Total Stockholder Return
Masonite International Corporation, Standard & Poor's 500 Index and
Standard & Poor's 1500 Building Products Index
(Performance Results through December 31, 2017)
Masonite International
Corporation
Standard & Poor's 500
Index
Standard & Poor's 1500
Building Products Index
September 9,
2013
December 29,
2013
December 28,
2014
January 3,
2016
January 1,
2017
December 31,
2017
$
100.00
$
114.49
$
117.57
$
118.32
$
127.15
$
143.29
100.00
100.00
113.98
124.93
129.58
136.49
124.85
148.91
149.88
182.34
179.20
209.99
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
On December 12, 2017, and October 2, 2017, we issued to two former non-executive employees 534 and 2,089
common shares, respectively, for cash consideration to be paid over time of $37,565 and $140,341, respectively. The
shares were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
28
Repurchases of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended December 31, 2017, we repurchased 139,473 of our common shares in the open
market.
Total Number
of Shares
Purchased as
Part of
Publicly
Announced
Plans or
Programs
Approximate
Dollar Value
of Shares that
May Yet be
Purchased
Under the
Plans or
Programs
Total Number
of Shares
Purchased
Average Price
Paid per Share
October 2, 2017, through October 29, 2017
October 30, 2017, through November 26, 2017
— $
—
November 27, 2017, through December 31, 2017
139,473
Total
139,473
$
—
—
71.86
71.86
— $ 130,930,781
—
130,930,781
139,473
139,473
120,908,784
We currently have in place a $350 million share repurchase authorization, stemming from two separate
authorizations by our Board of Directors. On February 23, 2016, our Board of Directors authorized a share repurchase
program whereby we may repurchase up to $150 million worth of our outstanding common shares and on February 22,
2017, our Board of Directors authorized an additional $200 million (collectively, the “share repurchase programs”). The
share repurchase programs have no specified end date. While the share repurchase programs may take two years to
complete, the timing and amount of any share repurchases will be determined by management based on our evaluation
of market conditions and other factors. Any repurchases under the share repurchase programs may be made in the open
market, in privately negotiated transactions or otherwise, subject to market conditions, applicable legal requirements
and other relevant factors. The share repurchase programs do not obligate us to acquire any particular amount of
common shares, and they may be suspended or terminated at any time at our discretion. Repurchases under the share
repurchase programs are permitted to be made under one or more Rule 10b5-1 plans, which would permit shares to be
repurchased when we might otherwise be precluded from doing so under applicable insider trading laws. As of
December 31, 2017, $120.9 million was available for repurchase in accordance with the share repurchase programs.
29
Item 6. Selected Financial Data
The following table sets forth selected historical consolidated financial data as of the dates and for the periods
indicated. The selected historical consolidated financial data as of December 31, 2017, and January 1, 2017, and for the
years ended December 31, 2017, January 1, 2017, and January 3, 2016, have been derived from the audited
consolidated financial statements included elsewhere in this Annual Report. The selected historical consolidated
financial data as of January 3, 2016, December 28, 2014, and December 29, 2013, and for the years ended December
28, 2014, and December 29, 2013, have been derived from the audited consolidated financial statements not included in
this Annual Report.
This historical data includes, in the opinion of management, all adjustments necessary for a fair presentation of
the operating results and financial condition of the Company for such periods and as of such dates. The results of
operations for any period are not necessarily indicative of the results of future operations. During the periods included
below, we have completed several acquisitions and dispositions. The results of these acquired entities are included in
our consolidated statements of comprehensive income (loss) for the periods subsequent to their respective acquisition
dates. The results of these disposed entities are included in our consolidated statements of comprehensive income (loss)
for the periods up to their respective disposal dates. The selected historical consolidated financial data set forth below
should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto
included elsewhere in this Annual Report.
(In thousands of U.S. dollars, except for
share and per share amounts)
December 31,
2017
January 1,
2017
Year Ended
January 3,
2016
December 28,
2014
December 29,
2013
Operating Results:
Net sales
Gross profit
Income (loss) from continuing operations
Net income (loss)
Net income (loss) attributable to Masonite
Income (loss) from continuing operations
attributable to Masonite shareholders per
common share (basic)
Income (loss) from continuing operations
attributable to Masonite shareholders per
common share (diluted)
Net income (loss) attributable to Masonite
shareholders per common share (basic)
Net income (loss) attributable to Masonite
shareholders per common share (diluted)
Cash Flow Data:
Capital expenditures
Balance Sheet Data:
Working capital (1)
Total assets
Total debt
Total equity
$
2,032,925
$
1,973,964
$
1,871,965
$
1,837,700
$
1,731,143
406,983
157,564
156,981
151,739
409,645
104,894
104,142
98,622
350,850
(41,741)
(42,649)
(47,111)
265,399
(33,488)
(34,118)
(37,340)
225,507
(8,362)
(8,960)
(11,010)
5.20
5.11
5.18
5.09
3.27
3.19
3.25
3.17
(1.53)
(1.24)
(0.37)
(1.53)
(1.56)
(1.56)
(1.24)
(1.26)
(1.26)
(0.37)
(0.39)
(0.39)
73,782
82,287
51,065
50,147
45,971
499,745
1,680,258
625,657
735,902
347,559
1,475,861
470,745
659,776
326,428
1,499,149
468,856
655,566
455,335
1,616,146
503,785
735,499
377,312
1,566,345
370,383
825,562
____________
(1) Working capital is defined as current assets less current liabilities and includes cash restricted by letters of credit.
30
MASONITE INTERNATIONAL CORPORATION
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations
("MD&A") is based upon accounting principles generally accepted in the United States of America and discusses the
financial condition and results of operations for Masonite International Corporation for the years ended December 31,
2017, January 1, 2017, and January 3, 2016. In this MD&A, "Masonite," "we," "us," "our" and the "Company" refer to
Masonite International Corporation and its subsidiaries.
This discussion should be read in conjunction with the consolidated financial statements and related notes
included elsewhere in this Annual Report on Form 10-K. The following discussion should also be read in conjunction
with the disclosure under "Special Note Regarding Forward Looking Statements" and Part I, Item 1A, "Risk Factors",
elsewhere in this Annual Report on Form 10-K. Our actual results could differ materially from the forward-looking
statements as a result of these risks and uncertainties.
Overview
We are a leading global designer, manufacturer and distributor of interior and exterior doors for the new
construction and repair, renovation and remodeling sectors of the residential and non-residential building construction
markets. Since 1925, we have provided our customers with innovative products and superior service at compelling
values. In order to better serve our customers and create sustainable competitive advantages, we focus on developing
innovative products, advanced manufacturing capabilities and technology-driven sales and service solutions.
We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers,
lumberyards, commercial and general contractors and architects through well-established wholesale, retail and direct
distribution channels as part of our cross-merchandising strategy. Customers are provided a broad product offering of
interior and exterior doors and entry systems at various price points. We manufacture a broad line of interior doors,
including residential molded, flush, stile and rail, louver and specially-ordered commercial and architectural doors; door
components for internal use and sale to other door manufacturers; and exterior residential steel, fiberglass and wood
doors and entry systems.
We operate 64 manufacturing and distribution facilities in 8 countries in North America, South America, Europe
and Asia, which are strategically located to serve our customers through multiple distribution channels. These
distribution channels include: (i) direct distribution to retail home center customers; (ii) one-step distribution that sells
directly to homebuilders and contractors; and (iii) two-step distribution through wholesale distributors. For retail home
center customers, numerous door fabrication facilities provide value-added fabrication and logistical services, including
pre-finishing and store delivery of pre-hung interior and exterior doors. We believe our ability to provide: (i) a broad
product range; (ii) frequent, rapid, on-time and complete delivery; (iii) consistency in products and merchandising; (iv)
national service; and (v) special order programs enables retail customers to increase comparable store sales and helps to
differentiate us from our competitors. We believe investments in innovative new product manufacturing and distribution
capabilities, coupled with an ongoing commitment to operational excellence, provide a strong platform for future growth.
Our reportable segments are currently organized and managed principally by end market: North American
Residential, Europe and Architectural. In the year ended December 31, 2017, we generated net sales of $1,428.9 million
or 70.3%, $291.9 million or 14.4% and $288.5 million or 14.2% in our North American Residential, Europe and
Architectural segments, respectively. See "Components of Results of Operations - Segment Information" below for a
description of our reportable segments.
Key Factors Affecting Our Results of Operations
Product Demand
There are numerous factors that influence overall market demand for our products. Demand for new homes,
home improvement products and other building construction products have a direct impact on our financial condition and
results of operations. Demand for our products may be impacted by changes in United States, Canadian, European, Asian
or other global economic conditions, including inflation, deflation, interest rates, availability of capital, consumer
spending rates, energy availability and costs, and the effects of governmental initiatives to manage economic conditions.
Additionally, trends in residential new construction, repair, renovation and remodeling and architectural building
31
MASONITE INTERNATIONAL CORPORATION
construction may directly impact our financial performance. Accordingly, the following factors may have a direct impact
on our business in the countries and regions in which our products are sold:
•
•
•
•
•
•
•
•
•
the strength of the economy;
the amount and type of residential and commercial construction;
housing sales and home values;
the age of existing home stock, home vacancy rates and foreclosures;
non-residential building occupancy rates;
increases in the cost of raw materials or wages or any shortage in supplies or labor;
the availability and cost of credit;
employment rates and consumer confidence; and
demographic factors such as immigration and migration of the population and trends in household
formation.
Additionally, the United Kingdom's formal trigger of the two year process for its exit from the European Union, and
related negotiations, has created uncertainty in European demand, particularly in the United Kingdom, which could have
a material adverse effect on the demand for our products in the foreseeable future.
Product Pricing and Mix
The building products industry is highly competitive and we therefore face pressure on sales prices of our
products. In addition, our competitors may adopt more aggressive sales policies and devote greater resources to the
development, promotion and sale of their products than we do, which could result in a loss of customers. Our business in
general is subject to changing consumer and industry trends, demands and preferences. Trends within the industry
change often and our failure to anticipate, identify or quickly react to changes in these trends could lead to, among other
things, rejection of a new product line and reduced demand and price reductions for our products, which could materially
adversely affect us. Changes in consumer preferences may also lead to increased demand for our lower margin products
relative to our higher margin products, which could reduce our future profitability.
Business Wins and Losses
Our customers consist mainly of wholesalers and retail home centers. In fiscal year 2017, our top ten customers
together accounted for approximately 44% of our net sales and our top customer, The Home Depot, Inc. accounted for
approximately 18% of our net sales in fiscal year 2017. Net sales from customers that have accounted for a significant
portion of our net sales in past periods, individually or as a group, may not continue in future periods, or if continued,
may not reach or exceed historical levels in any period. Certain customers perform periodic product line reviews to
assess their product offerings, which have, on past occasions, led to business wins and losses. In addition, as a result of
competitive bidding processes, we may not be able to increase or maintain the margins at which we sell our products to
our customers.
Organizational Restructuring
Over the past several years we have initiated, and in the future we may initiate, restructuring plans designed to
eliminate excess capacity in order to align our manufacturing capabilities with reductions in demand, as well as to
streamline our organizational structure and reposition our business for improved long-term profitability.
During 2016, we began implementing a plan (the "2016 Plan") to close one manufacturing facility in the
Architectural segment, which included the reduction of approximately 140 positions. The 2016 Plan was implemented to
improve our cost structure and enhance operational efficiencies. Costs associated with the 2016 Plan include closure
costs and severance and the 2016 Plan is substantially completed. As of December 31, 2017, we do not expect to incur
any future charges relating to the 2016 Plan. The actions taken as part of the 2016 Plan are expected to increase our
annual earnings and cash flows by approximately $4 million.
During 2015, we began implementing a multi-year plan to reorganize and consolidate certain aspects of our
global head office (the "2015 Plan"). The 2015 Plan includes the creation of a new shared services function and the
rationalization of certain of our European facilities, including related headcount reductions. The 2015 Plan was
implemented in response to the need for more effective business processes enabled by the planned implementation of our
32
MASONITE INTERNATIONAL CORPORATION
new enterprise resource planning system in our architectural business as well as ongoing weak market conditions in
Africa and Europe outside of the United Kingdom. Costs associated with the 2015 Plan included severance and closure
charges and are substantially completed. As of December 31, 2017, we do not expect to incur any material future charges
for the 2015 Plan. Once fully implemented, the actions taken as part of the 2015 Plan are estimated to increase our
annual earnings and cash flows by approximately $6 million.
Foreign Exchange Rate Fluctuation
Our financial results may be adversely affected by fluctuating exchange rates. In the years ended December 31,
2017, January 1, 2017, and January 3, 2016 approximately 34%, 35% and 36% of our net sales were generated outside of
the United States, respectively. In addition, a significant percentage of our costs during the same period were not
denominated in U.S. dollars. For example, for most of our manufacturing and distribution facilities, the prices for a
significant portion of our raw materials are quoted in the domestic currency of the country where the facility is located or
other currencies that are not U.S. dollars. We also have substantial assets outside the United States. As a result, the
volatility in the price of the U.S. dollar has exposed, and in the future may continue to expose, us to currency exchange
risks. Also, since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between
the U.S. dollar and other currencies have had, and will continue to have, an impact on many aspects of our financial
results. Changes in currency exchange rates for any country in which we operate may require us to raise the prices of our
products in that country or allow our competitors to sell their products at lower prices in that country. Unrealized
exchange gains and losses arising from the translation of the financial statements of our non-U.S. functional currency
operations are accumulated in the cumulative translation adjustments account in accumulated other comprehensive
income (loss). Net gains from currency translation adjustments as a result of translating our foreign assets and liabilities
into U.S. dollars during the year ended December 31, 2017, were $39.0 million, which were primarily driven by the
weakening of the U.S. dollar against the other major currencies in which we transact.
Inflation
An increase in inflation could have a significant impact on the cost of our raw material inputs. Wage inflation,
increased prices for raw materials or finished goods used in our products and/or interruptions in deliveries of raw
materials or finished goods could adversely affect our profitability, margins and net sales, particularly if we are not able
to pass these incurred costs on to our customers. In addition, interest rates normally increase during periods of rising
inflation. Historically, as interest rates increase, demand for new homes and home improvement products decreases. An
environment of gradual interest rate increases may, however, signify an improving economy or increasing real estate
values, which in turn may stimulate increased home buying activity.
Seasonality
Our business is moderately seasonal and our net sales vary from quarter to quarter based upon the timing of the
building season in our markets. Severe weather conditions in any quarter, such as unusually prolonged warm or cold
conditions, rain, blizzards or hurricanes, could accelerate, delay or halt construction and renovation activity.
Acquisitions and Dispositions
We are pursuing a strategic initiative of optimizing our global business portfolio. As part of this strategy, in the
last several years we have pursued strategic acquisitions targeting companies who produce components for our existing
operations, manufacture niche products and provide value-added services. Additionally, we target companies with strong
brands, complementary technologies, attractive geographic footprints and opportunities for cost and distribution
synergies. We also continuously analyze our operations to determine which businesses, market channels and products
create the most value for our customers and acceptable returns for our shareholders.
33
MASONITE INTERNATIONAL CORPORATION
Acquisitions
• DW3: On January 29, 2018, we completed the acquisition of DW3 Products Holdings Limited (“DW3”), a
leading UK provider of high quality premium door solutions and window systems, supplying products
under brand names such as Solidor, Residor, Nicedor and Residence. We acquired 100% of the equity
interests in DW3 for consideration of approximately $96 million, net of cash acquired. DW3 is based in
Stoke-on-Trent and Gloucester, England, and their products and service model are a natural addition to our
existing UK business. DW3’s online quick ship capabilities and product portfolio both complement and
expand the strategies we are pursuing with our business.
• A&F: On October 2, 2017 we completed the acquisition of A&F Wood Products, Inc. (“A&F”), through
the purchase of 100% of the equity interests in A&F and certain assets of affiliates of A&F for
consideration of $13.8 million, net of cash acquired. A&F is based in Howell, Michigan, and is a
wholesaler and fabricator of architectural and commercial doors in the Midwest United States.
• FyreWerks: On November 3, 2016 we completed the acquisition of FyreWerks, Inc. (“FyreWerks”), based
in Westminster, Colorado. We acquired 100% of the equity interests in FyreWerks for consideration of $8.0
million, net of cash acquired. FyreWerks manufactures certified fire door core and frame components for
use with architectural stile and rail wood panel doors and door frames. The FyreWerks acquisition
complements our existing Architectural components business.
• USA Wood Door: On October 1, 2015, we completed the acquisition of USA Wood Door, Inc. (“USA
Wood Door”), based in Thorofare, New Jersey. We acquired 100% of the equity interests in USA Wood
Door for consideration of $13.7 million, net of cash acquired. USA Wood Door is a supplier of architectural
and commercial wood doors in the Eastern United States providing door and hardware distributors with
machined, re-sized and value-added additions to both unfinished and prefinished doors in short lead times.
• Hickman: On August 5, 2015, we completed the acquisition of Hickman Industries Limited (“Hickman”), a
leading supplier of doorkits (similar to fully finished prehung door units) and other millwork in the United
Kingdom. We acquired 100% of the equity interests in Hickman for consideration of $88.0 million, net of
cash acquired. Hickman is headquartered in Wolverhampton, England, and their leadership in providing
doorkit solutions to the homebuilder market in the United Kingdom is a natural extension of our existing
business in the United Kingdom. Hickman’s deployment of automation and product line leadership
complements the strategies we are pursuing with our business.
• PDS: On July 23, 2015, we completed the acquisition of Performance Doorset Solutions (“PDS”), a
leading supplier of custom doors and millwork in the United Kingdom that specializes in non-standard
product specifications, manufacturing both wood and composite solutions. We acquired 100% of the equity
interests in PDS for consideration of $15.7 million, net of cash acquired. PDS is based in Lancashire,
United Kingdom, and is a producer of high quality niche product lines that complement our existing United
Kingdom business.
Dispositions
•
South Africa: On December 22, 2015, following a comprehensive assessment of Masonite (Africa) Limited
(“MAL”), our South African subsidiary, the MAL Board of Directors approved a plan to enter into Business
Rescue proceedings, the South African equivalent of bankruptcy proceedings in the United States, similar
to a Chapter 11 reorganization. As a result of this plan, a Business Rescue Practitioner was appointed to
manage the affairs of the business and we no longer maintained operational control over MAL. For this
reason, we deconsolidated MAL effective December 22, 2015.
Subsequent to deconsolidation, we used the cost method to account for our equity investment in MAL,
which was reflected as $10.0 million in our consolidated balance sheets as of January 1, 2017, based on the
estimated fair value of our portion of MAL’s net assets on the date of deconsolidation. During September
2016, we received $15.1 million as final pre-tax proceeds from the sale of our equity interest in MAL.
Upon receipt of these proceeds, our equity interest in MAL was eliminated and we accordingly reduced the
value of our cost investment in MAL to zero and recorded a gain on disposal of subsidiaries of $5.1
million.
34
MASONITE INTERNATIONAL CORPORATION
• France: On July 31, 2015, we completed the sale of all of the capital stock of Premdor, S.A.S., Masonite’s
door business in France, to a Paris-based independent investment firm (the "Buyer"). Pursuant to a stock
purchase agreement dated July 16, 2015, the Buyer acquired all of Masonite's door manufacturing and
distribution business in France for nominal consideration.
Components of Results of Operations
Net Sales
Net sales are derived from the sale of products to our customers. We recognize sales of our products when an
agreement with the customer in the form of a sales order is in place, the sales price is fixed or determinable, collection is
reasonably assured and the customer has taken ownership and assumes risk of loss. Certain customers are eligible to
participate in various incentive and rebate programs considered as a reduction of the sales price of our products.
Accordingly, net sales are reported net of such incentives and rebates. Additionally, shipping and other transportation
costs charged to customers are recorded in net sales in the consolidated statements of comprehensive income (loss).
Cost of Goods Sold
Our cost of goods sold is comprised of the cost to manufacture products for our customers and includes the cost
of materials, direct labor, overhead, distribution and depreciation associated with assets used to manufacture products.
Research and development costs are primarily included within cost of goods sold. We incur significant fixed and variable
overhead at our global component locations that manufacture interior molded door facings. Our overall average
production capacity utilization at these locations was approximately 77%, 77%, and 68% for the years ended
December 31, 2017, January 1, 2017, and January 3, 2016.
Selling, General and Administration Expenses
Selling, general and administration expenses primarily include the costs for our sales organization and support
staff at various plants and corporate offices. These costs include personnel costs for payroll, related benefits and stock
based compensation expense; professional fees including legal, accounting and consulting fees; depreciation and
amortization of our non-manufacturing equipment and assets; travel and entertainment expenses; director, officer and
other insurance policies; environmental, health and safety costs; advertising expenses and rent and utilities related to
administrative office facilities. Certain charges that are also incurred less frequently and are included in selling, general
and administration costs include gain or loss on disposal of property, plant and equipment and bad debt expense.
Restructuring Costs
Restructuring costs include all salary-related severance benefits that are accrued and expensed when a
restructuring plan has been put into place, the plan has received approval from the appropriate level of management and
the benefit is probable and reasonably estimable. In addition to salary-related costs, we incur other restructuring costs
when facilities are closed or capacity is realigned within the organization. Upon termination of a contract we record
liabilities and expenses pursuant to the terms of the relevant agreement. For non-contractual restructuring activities,
liabilities and expenses are measured and recorded at fair value in the period in which they are incurred.
Asset Impairment
Asset impairment includes charges that are taken when impairment testing indicates that the carrying values of
our long-lived assets or asset groups exceed their respective fair values. Definite-lived assets are evaluated for
impairment when events or changes in circumstances indicate that the carrying value of an asset or asset group may not
be recoverable. Indefinite-lived intangible assets and goodwill are tested annually for impairment on the last day of fiscal
November, or more frequently if events or changes in circumstances indicate the carrying value may not be recoverable.
An impairment loss is recognized when the carrying value of the asset or asset group being tested exceeds its fair value,
except in the case of goodwill, which is tested based on the fair value of the reporting unit where the goodwill is
recorded.
35
MASONITE INTERNATIONAL CORPORATION
Loss (Gain) on Disposal of Subsidiaries
Loss (gain) on disposal of subsidiaries represents the difference between proceeds received upon disposition
and the book value of a subsidiary which has been divested and was excluded from treatment as a discontinued
operation. Also included in loss (gain) on disposal of subsidiaries is recognition of the cumulative translation adjustment
out of accumulated other comprehensive income (loss).
Interest Expense, Net
Interest expense, net relates primarily to our consolidated senior unsecured indebtedness. Subsequent to March
23, 2015, interest expense, net relates to our $625.0 million aggregate principal amount of 5.625% senior unsecured
notes due March 15, 2023 (the "2023 Notes"). Prior to March 23, 2015, interest expense related to our $500.0 million
aggregate principal amount of 8.25% senior unsecured notes due April 15, 2021, which were redeemed on March 23,
2015, concurrent with the issuance of the 2023 Notes. Debt issuance costs incurred in connection with the 2023 Notes
were capitalized as a reduction to the carrying value of debt and are being accreted to interest expense over their
respective terms. The most recent issuance of our 2023 Notes resulted in a premium that is amortized to interest expense
over the term of the 2023 Notes. Additionally, we pay interest on any outstanding principal under our ABL Facility and
we are required to pay a commitment fee for unutilized commitments under the ABL Facility, both of which are recorded
in interest expense as incurred.
Loss on Extinguishment of Debt
Loss on extinguishment of debt represents the difference between the reacquisition price of debt and the net
carrying amount of the extinguished debt. The net carrying amount includes the principal, unamortized premium and
unamortized debt issuance costs.
Other Expense (Income), Net
Other expense (income), net includes profits and losses related to our non-majority owned unconsolidated
subsidiaries that we recognize under the equity method of accounting, unrealized gains and losses on foreign currency
remeasurements, pension settlement charges and other miscellaneous non-operating expenses.
Income Tax Expense (Benefit)
Income taxes are recorded using the asset and liability method of accounting for income taxes. Under the asset
and liability method, deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities due to a change in tax rates is recognized in income in the period that includes the date of enactment. A
valuation allowance is recorded to reduce deferred tax assets to an amount that is anticipated to be realized on a more
likely than not basis. Our combined effective income tax rate is primarily the weighted average of federal, state and
provincial rates in various countries where we have operations, including the United States, Canada, the United Kingdom
and Ireland. Our income tax rate is also affected by estimates of our ability to realize tax assets and changes in tax laws.
On December 22, 2017, Congress passed the Tax Cuts and Jobs Act ("Tax Reform"). Among other items, Tax
Reform reduces the federal corporate tax rate to 21% effective January 1, 2018. This has caused our net deferred tax
liabilities in the U.S. to be revalued.
Segment Information
Our reportable segments are organized and managed principally by end market: North American Residential,
Europe and Architectural. The North American Residential reportable segment is the aggregation of the Wholesale and
Retail operating segments. The Europe reportable segment is the aggregation of the United Kingdom, Central Eastern
Europe and France (prior to disposal) operating segments. The Architectural reportable segment consists solely of the
Architectural operating segment. The Corporate & Other category includes unallocated corporate costs and the results of
immaterial operating segments which were not aggregated into any reportable segment, including the historical results of
our Africa operating segment (prior to deconsolidation). Operating segments are aggregated into reportable segments
only if they exhibit similar economic characteristics. In addition to similar economic characteristics we also consider the
36
MASONITE INTERNATIONAL CORPORATION
following factors in determining the reportable segments: the nature of business activities, the management structure
directly accountable to our chief operating decision maker for operating and administrative activities, availability of
discrete financial information and information presented to the Board of Directors and investors.
Our management reviews net sales and Adjusted EBITDA (as defined below) to evaluate segment performance
and allocate resources. Net assets are not allocated to the reportable segments. Adjusted EBITDA is a non-GAAP
financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparable to similar
measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or
operating cash flows determined in accordance with GAAP. Adjusted EBITDA is defined as net income (loss)
attributable to Masonite adjusted to exclude the following items:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
depreciation;
amortization;
share based compensation expense;
loss (gain) on disposal of property, plant and equipment;
registration and listing fees;
restructuring costs;
asset impairment;
loss (gain) on disposal of subsidiaries;
interest expense (income), net;
loss on extinguishment of debt;
other expense (income), net;
income tax expense (benefit);
loss (income) from discontinued operations, net of tax; and
net income (loss) attributable to non-controlling interest.
This definition of Adjusted EBITDA differs from the definitions of EBITDA contained in the indenture
governing the 2023 Notes and the credit agreement governing the ABL Facility. Adjusted EBITDA is used to evaluate
and compare the performance of the segments and it is one of the primary measures used to determine employee
incentive compensation. Intersegment transfers are negotiated on an arm’s length basis, using market prices.
We believe that Adjusted EBITDA, from an operations standpoint, provides an appropriate way to measure and
assess segment performance. Our management team has established the practice of reviewing the performance of each
segment based on the measures of net sales and Adjusted EBITDA. We believe that Adjusted EBITDA is useful to users
of the consolidated financial statements because it provides the same information that we use internally to evaluate and
compare the performance of the segments and it is one of the primary measures used to determine employee incentive
compensation.
37
Results of Operations
MASONITE INTERNATIONAL CORPORATION
(In thousands)
Net sales
Cost of goods sold
Gross profit
Gross profit as a % of net sales
Selling, general and administration expenses
Selling, general and administration expenses as a % of net sales
Restructuring costs, net
Asset impairment
Loss (gain) on disposal of subsidiaries
Operating income (loss)
Interest expense (income), net
Loss on extinguishment of debt
Other expense (income), net
Income (loss) from continuing operations before income tax
expense (benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Less: net income (loss) attributable to non-controlling interest
Net income (loss) attributable to Masonite
$
December 31,
2017
2,032,925
1,625,942
406,983
Year Ended
January 1,
2017
1,973,964
1,564,319
409,645
$
$
January 3,
2016
1,871,965
1,521,115
350,850
20.0%
246,855
12.1%
850
—
212
159,066
30,153
—
(1,091)
130,004
(27,560)
157,564
(583)
156,981
5,242
151,739
$
20.8%
260,364
13.2%
1,445
1,511
(6,575)
152,900
28,178
—
(1,959)
126,681
21,787
104,894
(752)
104,142
5,520
98,622
$
18.7%
244,145
13.0%
5,678
9,439
59,984
31,604
32,884
28,046
(1,757)
(27,569)
14,172
(41,741)
(908)
(42,649)
4,462
(47,111)
$
Year Ended December 31, 2017, Compared with Year Ended January 1, 2017
Net Sales
Net sales in the year ended December 31, 2017, were $2,032.9 million, an increase of $58.9 million or 3.0%
from $1,974.0 million in the year ended January 1, 2017. Net sales in 2017 were negatively impacted by $6.6 million as
a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by
$65.5 million or 3.3% due to changes in volume, average unit price and sales of components and other products. Average
unit price in 2017 increased net sales by $47.4 million or 2.4% compared to 2016. Higher volume in 2017 increased net
sales by $21.9 million or 1.1% compared to 2016. Partially offsetting these increases were decreased net sales of
components and other products to external customers, which were $3.8 million lower in 2017 compared to 2016. The
change in volume includes the incremental impacts of acquisitions and dispositions.
38
MASONITE INTERNATIONAL CORPORATION
Net Sales and Percentage of Net Sales by Reportable Segment
(In thousands)
North American Residential
North American Residential intersegment
North American Residential net sales to external customers
Percentage of consolidated net sales
Europe
Europe intersegment
Europe net sales to external customers
Percentage of consolidated net sales
Architectural
Architectural intersegment
Architectural net sales to external customers
Percentage of consolidated net sales
Year Ended
December 31,
2017
January 1,
2017
$
$
1,433,268
(4,338)
1,428,930
1,357,228
(5,926)
1,351,302
70.3%
68.5%
295,862
(3,936)
291,926
305,710
(4,543)
301,167
14.4%
15.3%
307,237
(18,773)
288,464
312,241
(14,353)
297,888
14.2%
15.1%
Corporate & Other net sales to external customers
23,605
23,607
Net sales to external customers
North American Residential
$
2,032,925
$
1,973,964
Net sales to external customers from facilities in the North American Residential segment in the year ended
December 31, 2017, were $1,428.9 million, an increase of $77.6 million or 5.7% from $1,351.3 million in the year ended
January 1, 2017. Net sales in 2017 were positively impacted by $5.0 million as a result of foreign exchange rate
fluctuations. Excluding this exchange rate impact, net sales would have increased by $72.6 million or 5.4% due to
changes in volume, average unit price and sales of components and other products. Higher volume in 2017 increased net
sales by $44.0 million or 3.3% compared to 2016. Average unit price increased net sales in 2017 by $30.5 million or
2.3% compared to 2016. Partially offsetting these increases were decreased net sales of components and other products
to external customers, which were $1.9 million lower in 2017 compared to 2016.
Europe
Net sales to external customers from facilities in the Europe segment in the year ended December 31, 2017,
were $291.9 million, a decrease of $9.3 million or 3.1% from $301.2 million in the year ended January 1, 2017. Net sales
in 2017 were negatively impacted by $12.1 million as a result of foreign exchange fluctuations. Excluding this exchange
rate impact, net sales would have increased by $2.8 million or 0.9% due to changes in volume, average unit price and
sales of components and other products. Average unit price increased net sales in 2017 by $5.6 million or 1.9% compared
to 2016. Higher volume in 2017 increased net sales by $0.3 million or 0.1% compared to 2016. Partially offsetting these
increases were decreased net sales of components and other products to external customers, which were $3.1 million
lower in 2017 compared to 2016.
Architectural
Net sales to external customers from facilities in the Architectural segment in the year ended December 31,
2017, were $288.5 million, a decrease of $9.4 million or 3.2% from $297.9 million in the year ended January 1, 2017.
Net sales in 2017 were positively impacted by $0.6 million as a result of foreign exchange fluctuations. Excluding this
exchange rate impact, net sales would have decreased by $10.0 million or 3.4% due to changes in volume, average unit
price and sales of components and other products. Lower volume decreased net sales in 2017 by $23.2 million or 7.8%
39
MASONITE INTERNATIONAL CORPORATION
compared to 2016. Partially offsetting this decrease, average unit price increased net sales in 2017 by $11.3 million or
3.8% compared to 2016. Net sales of components and other products to external customers were $1.9 million higher in
2017 compared to 2016. The change in volume includes the incremental impact of acquisitions and dispositions.
Cost of Goods Sold
Cost of goods sold as a percentage of net sales was 80.0% and 79.2% for the years ended December 31, 2017,
and January 1, 2017, respectively. Distribution, overhead and direct labor as a percentage of sales increased by 0.9%,
0.6% and 0.2%, respectively, over the 2016 period. The distribution increase was due to inflationary pressures, shipping
inefficiencies related to maintaining customer service levels and costs to complete the ramp-up of new retail business.
The overhead and direct labor increases were driven by operational inefficiencies and wage inflation, partly offset by
headcount reductions. Material cost of sales and depreciation as a percentage of net sales in 2017 decreased 0.8% and
0.1%, respectively, over the 2016 period. The decrease in material cost of sales was driven by favorable average unit
prices partially offset by a combination of inflation and inbound freight increases.
Selling, General and Administration Expenses
In the year ended December 31, 2017, selling, general and administration expenses, as a percentage of net sales,
were 12.1% compared to 13.2% in the year ended January 1, 2017, a decrease of 110 basis points.
Selling, general and administration expenses in the year ended December 31, 2017, were $246.9 million, a
decrease of $13.5 million from $260.4 million in the year ended January 1, 2017. The decrease included a $6.3 million
reduction of non-cash items in SG&A expenses, including share based compensation, depreciation and amortization,
deferred compensation and loss on sale of fixed assets. The overall decrease was also driven by a $12.2 million decrease
in personnel costs, primarily due to a reduction in our incentive pay accrual, and favorable foreign exchange impacts
of $1.4 million. These decreases were partially offset by a $3.6 million increase in marketing costs relating to our re-
branding, a net incremental increase of $0.5 million due to acquisitions and other increases of $2.3 million.
Restructuring Costs
Restructuring costs in the year ended December 31, 2017, were $0.9 million, compared to $1.4 million in the
year ended January 1, 2017. Restructuring costs in 2017 related to the final severance and closure costs for the 2016
plan, partly offset by the receipt of $1.1 million as final settlement in the Stay of Proceedings in Israel as part of the 2014
Plan and other reductions to the 2014 Plan accrual. Restructuring costs in 2016 primarily related to the severance costs
incurred during the implementation of the 2016 Plan.
Asset Impairment
Asset impairment charges were $1.5 million in the year ended January 1, 2017. There were no asset impairment
charges in the year ended December 31, 2017. Asset impairment charges in 2016 resulted from restructuring actions
associated with the 2016 Plan.
Loss (Gain) on Disposal of Subsidiaries
Loss on disposal of subsidiaries was $0.2 million in the year ended December 31, 2017, compared to the gain
on disposal of subsidiaries of $6.6 million in the year ended January 1, 2017. The current year loss arose as a result of the
liquidation of our legal entity in Hungary. The gain in 2016 arose as a result of the sale of our equity interest in MAL and
the liquidation of our legal entity in Romania. The current year loss and the prior year gain related to Hungary and
Romania are comprised of the recognition of the cumulative translation adjustment out of accumulated other
comprehensive income (loss). The prior year gain relating to MAL represents the excess of pre-tax cash received upon
closing of the sale over the book value of the investment.
Interest Expense, Net
Interest expense, net, in the year ended December 31, 2017, was $30.2 million, compared to $28.2 million in the
year ended January 1, 2017. This increase primarily relates to the issuance of $150.0 million aggregate principal amount
of additional 2023 Senior Notes on September 27, 2017.
40
MASONITE INTERNATIONAL CORPORATION
Other Expense (Income), Net
Other expense (income), net, in the year ended December 31, 2017, was $(1.1) million, compared to $(2.0)
million in the year ended January 1, 2017. The change in other expense (income), net, is primarily due to unrealized
gains and losses on foreign currency remeasurements. Also contributing to the change were our portion of dividends and
the net gains and losses related to our non-majority owned unconsolidated subsidiaries that are recognized under the
equity method of accounting and other miscellaneous non-operating expenses.
Income Tax Expense (Benefit)
Our income tax (benefit) in the year ended December 31, 2017, was $(27.6) million, a change of $49.3 million
from $21.8 million of income tax expense in the year ended January 1, 2017. The increase in income tax benefit is
primarily attributable to recognition of $24.1 million of deferred tax assets in Canada through reversal of valuation
allowances, a $27.2 million increase in income tax benefit associated with the change in enacted tax rate applied to
existing U.S. deferred tax assets and liabilities due to U.S. Tax Reform, the mix of income or losses within the tax
jurisdictions with various tax rates in which we operate and losses in tax jurisdictions with existing valuation allowances
as of December 31, 2017.
Segment Information
(In thousands)
Adjusted EBITDA
Adjusted EBITDA as a percentage of
segment net sales
Year Ended December 31, 2017
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
200,179
$
33,564
$
30,050
$
(8,225)
$
255,568
14.0%
11.5%
10.4%
12.6%
(In thousands)
Adjusted EBITDA
Adjusted EBITDA as a percentage of
segment net sales
Year Ended January 1, 2017
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
212,619
$
38,795
$
25,160
$
(24,061)
$
252,513
15.7%
12.9%
8.4%
12.8%
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MASONITE INTERNATIONAL CORPORATION
The following reconciles Adjusted EBITDA to net income (loss) attributable to Masonite:
(In thousands)
Adjusted EBITDA
Less (plus):
Depreciation
Amortization
Share based compensation expense
Loss (gain) on disposal of property,
plant and equipment
Restructuring costs
Loss (gain) on disposal of subsidiaries
Interest expense (income), net
Other expense (income), net
Income tax expense (benefit)
Loss (income) from discontinued
operations, net of tax
Net income (loss) attributable to non-
controlling interest
Net income (loss) attributable to
Masonite
(In thousands)
Adjusted EBITDA
Less (plus):
Depreciation
Amortization
Share based compensation expense
Loss (gain) on disposal of property,
plant and equipment
Restructuring costs
Asset impairment
Loss (gain) on disposal of subsidiaries
Interest expense (income), net
Other expense (income), net
Income tax expense (benefit)
Loss (income) from discontinued
operations, net of tax
Net income (loss) attributable to non-
controlling interest
Net income (loss) attributable to
Masonite
Year Ended December 31, 2017
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
200,179
$
33,564
$
30,050
$
(8,225) $
255,568
29,798
3,369
—
770
—
—
—
—
—
—
3,519
9,588
7,867
—
293
(27)
212
—
(24)
—
—
—
9,032
8,742
—
328
2,394
—
—
—
—
—
—
9,110
4,397
11,644
502
(1,517)
—
30,153
(1,067)
(27,560)
583
1,723
57,528
24,375
11,644
1,893
850
212
30,153
(1,091)
(27,560)
583
5,242
$
162,723
$
15,655
$
9,554
$
(36,193) $
151,739
Year Ended January 1, 2017
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
212,619
$
38,795
$
25,160
$
(24,061) $
252,513
31,159
4,383
—
1,094
—
—
—
—
—
—
—
3,389
8,480
9,069
—
564
19
—
(1,431)
—
557
—
—
—
9,622
7,999
—
484
1,313
1,511
—
—
—
—
—
—
8,343
3,276
18,790
(31)
113
—
(5,144)
28,178
(2,516)
21,787
752
2,131
57,604
24,727
18,790
2,111
1,445
1,511
(6,575)
28,178
(1,959)
21,787
752
5,520
$
172,594
$
21,537
$
4,231
$
(99,740) $
98,622
42
MASONITE INTERNATIONAL CORPORATION
Adjusted EBITDA in our North American Residential segment decreased $12.4 million, or 5.8%, to $200.2
million in the year ended December 31, 2017, from $212.6 million in the year ended January 1, 2017. Adjusted EBITDA
in the North American Residential segment included corporate allocations of shared costs of $54.7 million and $50.7
million in 2017 and 2016, respectively. The allocations generally consist of certain costs of human resources, legal,
finance, information technology, research and development and share based compensation.
Adjusted EBITDA in our Europe segment decreased $5.2 million, or 13.4%, to $33.6 million in the year ended
December 31, 2017, from $38.8 million in the year ended January 1, 2017.
Adjusted EBITDA in our Architectural segment increased $4.9 million or 19.4% to $30.1 million in the year
ended December 31, 2017, from $25.2 million in the year ended January 1, 2017. Adjusted EBITDA in the Architectural
segment also included corporate allocations of shared costs of $8.9 million and $7.8 million in 2017 and 2016,
respectively. The allocations generally consist of certain costs of human resources, legal, finance and information
technology.
Year Ended January 1, 2017, Compared with Year Ended January 3, 2016
Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. In a 52-week year,
each fiscal quarter consists of 13 weeks. For ease of disclosure, the 13-week periods are referred to as three-month
periods and the 52- or 53-week periods are referred to as years. Our 2015 fiscal year, which ended on January 3, 2016,
contained 53 weeks of operating results, with the additional week occurring in the fourth quarter.
Net Sales
Net sales in the year ended January 1, 2017, were $1,974.0 million, an increase of $102.0 million or 5.4% from
$1,872.0 million in the year ended January 3, 2016. Net sales in 2016 were negatively impacted by $47.4 million as a
result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by
$149.4 million or 8.0% due to changes in volume, average unit price and sales of components and other products. Higher
volume in 2016 increased net sales by $99.2 million or 5.3% compared to 2015. Average unit price in 2016 increased net
sales by $48.8 million or 2.6% compared to 2015. Also contributing to this increase were higher net sales of components
and other products to external customers, which were $1.4 million higher in 2016 compared to 2015. The change in
volume includes the incremental impacts of acquisitions and dispositions.
43
MASONITE INTERNATIONAL CORPORATION
Net Sales and Percentage of Net Sales by Reportable Segment
(In thousands)
North American Residential
North American Residential intersegment
North American Residential net sales to external customers
Percentage of consolidated net sales
Europe
Europe intersegment
Europe net sales to external customers
Percentage of consolidated net sales
Architectural
Architectural intersegment
Architectural net sales to external customers
Percentage of consolidated net sales
Year Ended
January 1,
2017
January 3,
2016
$
$
1,357,228
(5,926)
1,351,302
1,197,330
(4,106)
1,193,224
68.5%
63.7%
305,710
(4,543)
301,167
312,560
(719)
311,841
15.3%
16.7%
312,241
(14,353)
297,888
302,129
(10,310)
291,819
15.1%
15.6%
Corporate & Other net sales to external customers
23,607
75,081
Net sales to external customers
North American Residential
$
1,973,964
$
1,871,965
Net sales to external customers from facilities in the North American Residential segment in the year ended
January 1, 2017, were $1,351.3 million, an increase of $158.1 million or 13.3% from $1,193.2 million in the year ended
January 3, 2016. Net sales in 2016 were negatively impacted by $17.8 million as a result of foreign exchange rate
fluctuations. Excluding this exchange rate impact, net sales would have increased by $175.9 million or 14.7% due to
changes in volume, average unit price and sales of components and other products. Higher volume in 2016 increased net
sales by $160.4 million or 13.4% compared to 2015. Average unit price increased net sales in 2016 by $14.2 million or
1.2% compared to 2015. Also contributing to this increase were higher net sales of components and other products to
external customers, which were $1.3 million higher in 2016 compared to 2015.
Europe
Net sales to external customers from facilities in the Europe segment in the year ended January 1, 2017, were
$301.2 million, a decrease of $10.6 million or 3.4% from $311.8 million in the year ended January 3, 2016. Net sales in
2016 were negatively impacted by $28.0 million as a result of foreign exchange fluctuations. Excluding this exchange
rate impact, net sales would have increased by $17.4 million or 5.6% due to changes in volume, average unit price and
sales of components and other products. Average unit price increased net sales in 2016 by $24.2 million or 7.8%
compared to 2015. Partially offsetting this increase were lower volume in 2016, which decreased net sales by $4.8
million or 1.5%, and net sales of components and other products to external customers, which were $2.0 million lower in
2016 compared to 2015. The change in volume includes the incremental impacts of acquisitions and dispositions.
44
MASONITE INTERNATIONAL CORPORATION
Architectural
Net sales to external customers from facilities in the Architectural segment in the year ended January 1, 2017,
were $297.9 million, an increase of $6.1 million or 2.1% from $291.8 million in the year ended January 3, 2016. Net
sales in 2016 were negatively impacted by $1.3 million as a result of foreign exchange fluctuations. Excluding this
exchange rate impact, net sales would have increased by $7.4 million or 2.5% due to changes in volume, average unit
price and sales of components and other products. Average unit price increased net sales in 2016 by $10.4 million or
3.6% compared to 2015. Net sales of components and other products to external customers were $2.4 million higher in
2016 compared to 2015. Lower volume decreased net sales in 2016 by $5.4 million or 1.9%.
Cost of Goods Sold
Cost of goods sold as a percentage of net sales was 79.2% and 81.3% for the year ended January 1, 2017, and
January 3, 2016, respectively. The primary reasons for the decrease in cost of goods sold as a percentage of net sales
were the favorable impact of average unit price on our net sales, our increased operating leverage and our continued cost
control efforts. Material cost of sales, overhead and depreciation as a percentage of net sales in 2016 decreased 1.5%,
0.7%, 0.3%, respectively, over the 2015 period. Direct labor and distribution as a percentage of sales increased by 0.3%
and 0.1%, respectively, over the 2015 period.
Selling, General and Administration Expenses
In the year ended January 1, 2017, selling, general and administration expenses, as a percentage of net sales,
were 13.2% compared to 13.0% in the year ended January 3, 2016, an increase of 20 basis points.
Selling, general and administration expenses in the year ended January 1, 2017, were $260.4 million, an
increase of $16.3 million from $244.1 million in the year ended January 3, 2016. The increase included $6.7 million of
non-cash items in SG&A expenses, including share based compensation, depreciation and amortization, deferred
compensation and loss on sale of fixed assets. The increase was also driven by an $8.3 million increase in personnel
costs due to a combination of wage inflation and investments in additional personnel, a $3.9 million increase in
professional fees, primarily related to IT and digital initiatives, a $1.2 million increase in marketing costs, a $0.8 million
increase in travel expenses and other increases of $0.8 million. These increases were partially offset by favorable foreign
exchange impacts of $5.0 million and a net incremental decrease of $0.4 million due to acquisitions and dispositions.
Restructuring Costs
Restructuring costs in the year ended January 1, 2017, were $1.4 million, compared to $5.7 million in the year
ended January 3, 2016. Restructuring costs in 2016 were related primarily to expenses incurred as part of the 2016 Plan.
Costs incurred in 2015 were related primarily to the 2015 Plan.
Asset Impairment
Asset impairment charges were $1.5 million in the year ended January 1, 2017, compared to $9.4 million in the
year ended January 3, 2016. Asset impairment charges in 2016 resulted from restructuring actions associated with the
2016 Plan. Asset impairment charges in 2015 resulted from the sale of Premdor S.A.S., Masonite's door business in
France, which was determined to be a triggering event requiring a test of the indefinite-lived trade name assets of the
Europe segment. This charge represents the excess of the carrying value over the fair value as determined using the relief
of royalty discounted cash flows method.
Loss (Gain) on Disposal of Subsidiaries
Gain on disposal of subsidiaries was $6.6 million in the year ended January 1, 2017, compared to the loss on
disposal of subsidiaries of $60.0 million in the year ended January 3, 2016. The gain in 2016 arose as a result of the sale
of our equity interest in MAL and the liquidation of our legal entity in Romania. The gain relating to MAL represents the
excess of pre-tax cash received upon closing of the sale over the book value of the investment, and the gain relating to
Romania is comprised of the recognition of the cumulative translation adjustment out of accumulated other
comprehensive income (loss). The charge in 2015 arose as a result of the deconsolidation of MAL and the disposition of
Premdor S.A.S., our door business in France.
45
MASONITE INTERNATIONAL CORPORATION
Interest Expense, Net
Interest expense, net, in the year ended January 1, 2017, was $28.2 million, compared to $32.9 million in the
year ended January 3, 2016. This decrease primarily relates to the refinancing of $500.0 million of 8.25% senior
unsecured notes for $475.0 million of 5.625% senior unsecured notes issued on March 23, 2015.
Loss on Extinguishment of Debt
Loss on extinguishment of debt was zero in the year ended January 1, 2017, compared to $28.0 million in the
year ended January 3, 2016. The charge in 2015 represents the difference between the redemption price of our senior
unsecured notes due 2021 of $531.7 million and the net carrying amount of such notes of $503.7 million. In addition to
the $500.0 million of principal, the redemption price included a make-whole premium of $31.7 million and the net
carrying amount included unamortized premiums of $11.5 million, partially offset by unamortized debt issuance costs of
$7.8 million.
Other Expense (Income), Net
Other expense (income), net, in the year ended January 1, 2017, was $(2.0) million, compared to $(1.8) million
in the year ended January 3, 2016. The change in other expense (income), net, is primarily due to unrealized gains and
losses on foreign currency remeasurements. Also contributing to the change were our portion of dividends and the net
gains and losses related to our non-majority owned unconsolidated subsidiary that are recognized under the equity
method of accounting and other miscellaneous non-operating expenses.
Income Tax Expense (Benefit)
Our income tax expense in the year ended January 1, 2017, was $21.8 million, an increase of $7.6 million from
$14.2 million of income tax expense in the year ended January 3, 2016. The increase in income tax expense (benefit) is
primarily due to the mix of income or losses within the tax jurisdictions with various tax rates in which we operate and
losses in tax jurisdictions with existing valuation allowances.
Segment Information
(In thousands)
Adjusted EBITDA
Adjusted EBITDA as a percentage of
segment net sales
(In thousands)
Adjusted EBITDA
Adjusted EBITDA as a percentage of
segment net sales
Year Ended January 1, 2017
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
212,619
$
38,795
$
25,160
$
(24,061)
$
252,513
15.7%
12.9%
8.4%
12.8%
Year Ended January 3, 2016
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
165,560
$
30,468
$
23,281
$
(15,112)
$
204,197
13.9%
9.8%
8.0%
10.9%
46
MASONITE INTERNATIONAL CORPORATION
The following reconciles Adjusted EBITDA to net income (loss) attributable to Masonite:
Year Ended January 1, 2017
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
212,619
$
38,795
$
25,160
$
(24,061) $
252,513
Net income (loss) attributable to non-
controlling interest
3,389
Net income (loss) attributable to
Masonite
$
172,594
$
21,537
$
4,231
$
(99,740) $
98,622
Year Ended January 3, 2016
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
165,560
$
30,468
$
23,281
$
(15,112) $
204,197
(In thousands)
Adjusted EBITDA
Less (plus):
Depreciation
Amortization
Share based compensation expense
Loss (gain) on disposal of property,
plant and equipment
Restructuring costs
Asset impairment
Loss (gain) on disposal of subsidiaries
Interest expense (income), net
Other expense (income), net
Income tax expense (benefit)
Loss (income) from discontinued
operations, net of tax
(In thousands)
Adjusted EBITDA
Less (plus):
Depreciation
Amortization
Share based compensation expense
Loss (gain) on disposal of property,
plant and equipment
Restructuring costs
Asset impairment
Loss (gain) on disposal of subsidiaries
Interest expense (income), net
Loss on extinguishment of debt
Other expense (income), net
Income tax expense (benefit)
Loss (income) from discontinued
operations, net of tax
31,159
4,383
—
1,094
—
—
—
—
—
—
—
31,456
4,954
—
796
10
—
—
—
—
(50)
—
—
8,480
9,069
—
564
19
—
(1,431)
—
557
—
—
—
9,622
7,999
—
484
1,313
1,511
—
—
—
—
—
—
8,343
3,276
18,790
(31)
113
—
(5,144)
28,178
(2,516)
21,787
752
2,131
57,604
24,727
18,790
2,111
1,445
1,511
(6,575)
28,178
(1,959)
21,787
752
5,520
8,105
6,860
—
325
2,501
9,439
29,721
—
—
1,087
—
—
—
8,223
8,428
—
548
—
—
—
—
—
—
—
—
—
11,376
3,483
13,236
(298)
3,167
—
30,263
32,884
28,046
(2,794)
14,172
908
1,139
59,160
23,725
13,236
1,371
5,678
9,439
59,984
32,884
28,046
(1,757)
14,172
908
4,462
Net income (loss) attributable to non-
controlling interest
3,323
Net income (loss) attributable to
Masonite
$
125,071
$
(27,570) $
6,082
$
(150,694) $
(47,111)
47
MASONITE INTERNATIONAL CORPORATION
Adjusted EBITDA in our North American Residential segment increased $47.0 million, or 28.4%, to $212.6
million in the year ended January 1, 2017, from $165.6 million in the year ended January 3, 2016. Adjusted EBITDA in
the North American Residential segment included corporate allocations of shared costs of $50.7 million and $44.7
million in 2016 and 2015, respectively. The allocations generally consist of certain costs of human resources, legal,
finance, information technology, research and development and share based compensation.
Adjusted EBITDA in our Europe segment increased $8.3 million, or 27.2%, to $38.8 million in the year ended
January 1, 2017, from $30.5 million in the year ended January 3, 2016. Adjusted EBITDA in the Europe segment
included an incremental comparative benefit of $0.1 million from the disposal of France in 2015.
Adjusted EBITDA in our Architectural segment increased $1.9 million to $25.2 million in the year ended
January 1, 2017, from $23.3 million in the year ended January 3, 2016. Adjusted EBITDA in the Architectural segment
also included corporate allocations of shared costs of $7.8 million and $6.5 million in 2016 and 2015, respectively. The
allocations generally consist of certain costs of human resources, legal, finance and information technology.
Liquidity and Capital Resources
Our liquidity needs for operations vary throughout the year. Our principal sources of liquidity are cash flows
from operating activities, the borrowings under our ABL Facility and accounts receivable sales programs ("AR Sales
Programs") and our existing cash balance. Our anticipated uses of cash in the near term include working capital needs,
capital expenditures and share repurchases. As of December 31, 2017, we do not have any material commitments for
capital expenditures. We anticipate capital expenditures in fiscal year 2018 to be approximately $75 million to $80
million. On a continual basis, we evaluate and consider strategic acquisitions, divestitures, and joint ventures to create
shareholder value and enhance financial performance.
We believe that our cash balance on hand, future cash generated from operations, the use of our AR Sales
Programs, our ABL Facility, and ability to access the capital markets will provide adequate liquidity for the foreseeable
future. As of December 31, 2017, we had $176.7 million of cash and cash equivalents, availability under our ABL
Facility of $135.9 million and availability under our AR Sales Programs of $26.2 million.
Cash Flows
Year Ended December 31, 2017, Compared with Year Ended January 1, 2017
Cash provided by operating activities was $173.5 million during the year ended December 31, 2017, a nominal
decrease compared to $174.0 million during the year ended January 1, 2017.
Cash used in investing activities was $89.8 million during the year ended December 31, 2017, compared to
$76.5 million cash used during the year ended January 1, 2017. This $13.3 million increase in cash used in investing
activities was driven by an increase of $5.2 million in cash used in acquisitions (net of cash acquired), a decrease of
$15.1 million of cash proceeds from disposal of subsidiaries and other increases in investing outflows of $1.5 million.
These increases to investing cash outflows were partially offset by an $8.5 million decrease in cash additions to property,
plant and equipment.
Cash provided in financing activities was $21.2 million during the year ended December 31, 2017, compared to
$109.6 million of cash used in financing activities during the year ended January 1, 2017. This $130.8 million net
increase in financing inflows was driven by $153.9 million in net cash proceeds from the 2017 issuance of the 2023
Notes and other financing net inflows of $1.4 million. These net inflows were partially offset by a $10.7 million increase
in outflows for the repurchase of shares of our common stock in 2017 compared to 2016, a $10.5 million prior year
inflow from the exercise of warrants to purchase our common shares and a $3.3 million increase in tax withholding on
share based awards.
Year Ended January 1, 2017, Compared with Year Ended January 3, 2016
Cash provided by operating activities was $174.0 million during the year ended January 1, 2017, compared to
$161.0 million during the year ended January 3, 2016. This $13.0 million increase in cash provided by operating
activities was primarily due to a $55.6 million increase in our net income (loss) attributable to Masonite, adjusted for
non-cash and non-operating items, partially offset by an increase in net working capital in 2016 compared to 2015.
48
MASONITE INTERNATIONAL CORPORATION
Cash used in investing activities was $76.5 million during the year ended January 1, 2017, compared to $180.2
million cash used during the year ended January 3, 2016. This $103.7 million decrease in cash used in investing activities
was driven by a decrease of $108.8 million in cash used in acquisitions (net of cash acquired) and an increase of $27.0
million of cash proceeds from disposal of subsidiaries (net of cash disposed). These decreases to investing cash outflows
were partially offset by $31.2 million of higher additions to property, plant and equipment, due to investments to support
additional volume, and other increases in investing outflows of $0.9 million.
Cash used in financing activities was $109.6 million during the year ended January 1, 2017, compared to $72.0
million cash used during the year ended January 3, 2016. This $37.6 million increase in financing outflows was driven
by $109.2 million of cash outflow for the repurchase of shares of our common stock in 2016, partially offset by $3.0
million of year over year other outflows. These current year cash outflows were offset by $10.5 million of proceeds from
the exercise of warrants to purchase our common shares, as well as the prior year net cash use of $64.1 million related to
the issuance of the 2023 Notes and repurchase of the 2021 Notes (as described below).
Share Repurchases
We currently have in place a $350 million share repurchase authorization, stemming from two separate
authorizations by our Board of Directors. On February 23, 2016, our Board of Directors authorized a share repurchase
program whereby we may repurchase up to $150 million worth of our outstanding common shares and on February 22,
2017, our Board of Directors authorized an additional $200 million (collectively, the “share repurchase programs”). The
share repurchase programs have no specified end date. While the share repurchase programs may take two years to
complete, the timing and amount of any share repurchases will be determined by management based on our evaluation of
market conditions and other factors. Any repurchases under the share repurchase programs may be made in the open
market, in privately negotiated transactions or otherwise, subject to market conditions, applicable legal requirements and
other relevant factors. The share repurchase programs do not obligate us to acquire any particular amount of common
shares, and they may be suspended or terminated at any time at our discretion. Repurchases under the share repurchase
programs are permitted to be made under one or more Rule 10b5-1 plans, which would permit shares to be repurchased
when we might otherwise be precluded from doing so under applicable insider trading laws. During the year
ended December 31, 2017, we repurchased and retired 1,794,101 of our common shares in the open market at an
aggregate cost of $119.9 million as part of the share repurchase programs. During the year ended January 1, 2017, we
repurchased 1,668,057 of our common shares in the open market at an aggregate cost of $109.2 million. As
of December 31, 2017, $120.9 million was available for repurchase in accordance with the share repurchase programs.
Other Liquidity Matters
Our cash and cash equivalents balance includes cash held in foreign countries in which we operate. Cash held
outside Canada, in which we are incorporated, is free from significant restrictions that would prevent the cash from being
accessed to meet our liquidity needs including, if necessary, to fund operations and service debt obligations in Canada.
However, earnings from certain jurisdictions are indefinitely reinvested in those jurisdictions. Upon the repatriation of
any earnings to Canada, in the form of dividends or otherwise, we may be subject to Canadian income taxes and
withholding taxes payable to the various foreign countries. As of December 31, 2017, we do not believe adverse tax
consequences exist that restrict our use of cash or cash equivalents in a material manner.
We also routinely monitor the changes in the financial condition of our customers and the potential impact on
our results of operations. There has not been a change in the financial condition of a customer that has had a material
adverse effect on our results of operations. However, if economic conditions were to deteriorate, it is possible that there
could be an impact on our results of operations in a future period and this impact could be material.
49
MASONITE INTERNATIONAL CORPORATION
Accounts Receivable Sales Programs
We maintain an accounts receivable sales program with a third party (the "AR Sales Program"). Under the AR
Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold
outright to a third party who assumes the full risk of collection, without recourse to us in the event of a loss. Transfers of
receivables under this program are accounted for as sales. Proceeds from the transfers reflect the face value of the
accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts
receivable in the consolidated balance sheets and are included in cash flows from operating activities in the consolidated
statements of cash flows. The discounts on the sales of trade accounts receivable sold under the AR Sales Program were
not material for any of the periods presented and were recorded in selling, general and administration expense within the
consolidated statements of comprehensive income (loss).
Senior Notes
On September 27, 2017, and March 23, 2015, we issued $150.0 million and $475.0 million aggregate principal
senior unsecured notes, respectively (the "2023 Notes"). The 2023 Notes were issued in two private placements for resale
to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities
Act"), and to buyers outside the United States pursuant to Regulation S under the Securities Act. The 2023 Notes were
issued without registration rights and are not listed on any securities exchange. The 2023 Notes bear interest at 5.625%
per annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and are due March 15,
2023. The 2023 Notes were issued at 104.0% and par in 2017 and 2015, respectively, and the resulting premium of $6.0
million is being amortized to interest expense over the term of the 2023 Notes using the effective interest method. We
received net proceeds of $153.9 million and $467.9 million, respectively, after deducting $2.1 million and $7.1 million of
debt issuance costs in 2017 and 2015, respectively. The debt issuance costs were capitalized as a reduction to the
carrying value of debt and are being accreted to interest expense over the term of the 2023 Notes using the effective
interest method. The net proceeds from the 2017 issuance of the 2023 Notes were for general corporate purposes. The net
proceeds from the 2015 issuance of the 2023 Notes, together with available cash balances, were used to redeem $500.0
million aggregate principal of prior 8.25% senior unsecured notes due 2021 and to pay related premiums, fees and
expenses.
Obligations under the 2023 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior
unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries. We may redeem the 2023 Notes
under certain circumstances specified therein. The indenture governing the 2023 Notes contains restrictive covenants
that, among other things, limit our ability and our subsidiaries’ ability to: (i) incur additional debt and issue disqualified
or preferred stock, (ii) make restricted payments, (iii) sell assets, (iv) create or permit restrictions on the ability of our
restricted subsidiaries to pay dividends or make other distributions to us, (v) create or incur certain liens, (vi) enter into
sale and leaseback transactions, (vii) merge or consolidate with other entities and (viii) enter into transactions with
affiliates. The foregoing limitations are subject to exceptions as set forth in the indenture governing the 2023 Notes. In
addition, if in the future the 2023 Notes have an investment grade rating from at least two nationally recognized
statistical rating organizations, certain of these covenants will be replaced with a less restrictive covenant. The indenture
governing the 2023 Notes contains customary events of default (subject in certain cases to customary grace and cure
periods). As of December 31, 2017, we were in compliance with all covenants under the indenture governing the 2023
Notes.
ABL Facility
On April 9, 2015, we and certain of our subsidiaries entered into a $150.0 million asset-based revolving credit
facility (the "ABL Facility") maturing on April 9, 2020. The borrowing base is calculated based on a percentage of the
value of selected U.S. and Canadian accounts receivable and inventory, less certain ineligible amounts. Obligations
under the ABL Facility are secured by a first priority security interest in substantially all of the current assets of Masonite
and our subsidiaries. In addition, obligations under the ABL Facility are fully and unconditionally guaranteed, jointly and
severally, on a senior secured basis, by certain of our directly or indirectly wholly-owned subsidiaries. Borrowings under
the ABL Facility bear interest at a rate equal to, at our option, (i) the Base Rate, Canadian Prime Rate or Canadian Base
Rate (each as defined in the Amended and Restated Credit Agreement) plus a margin ranging from 0.25% to 0.75% per
annum, or (ii) the Eurodollar Base Rate or BA Rate (each as defined in the Amended and Restated Credit Agreement),
plus a margin ranging from 1.25% to 1.75% per annum. In addition to paying interest on any outstanding principal under
50
MASONITE INTERNATIONAL CORPORATION
the ABL Facility a commitment fee is payable on the undrawn portion of the ABL Facility in an amount equal
to 0.25% per annum of the average daily balance of unused commitments during each calendar quarter.
The ABL Facility contains various customary representations, warranties and covenants by us that, among other
things, and subject to certain exceptions, restrict Masonite's ability and the ability of our subsidiaries to: (i) pay dividends
on our common shares and make other restricted payments, (ii) make investments and acquisitions, (iii) engage in
transactions with our affiliates, (iv) sell assets, (v) merge and (vi) create liens. The Amended and Restated Credit
Agreement amended the ABL Facility to, among other things, (i) permit us to incur unlimited unsecured debt as long as
such debt does not contain covenants or default provisions that are more restrictive than those contained in the ABL
Facility, (ii) permit us to incur debt as long as the pro forma secured leverage ratio is less than 4.5 to 1.0, and (iii) add
certain additional exceptions and exemptions under the restricted payment, investment and indebtedness covenants
(including increasing the amount of certain debt permitted to be incurred under an existing exception). As
of December 31, 2017, and January 1, 2017, we were in compliance with all covenants under the credit agreement
governing the ABL Facility and there were no amounts outstanding under the ABL Facility.
Supplemental Guarantor Financial Information
Our obligations under the 2023 Notes and the ABL Facility are fully and unconditionally guaranteed, jointly and
severally, by certain of our directly or indirectly wholly-owned subsidiaries. The following unaudited supplemental
financial information for our non-guarantor subsidiaries is presented:
Our non-guarantor subsidiaries generated external net sales of $1.8 billion in the year ended December 31, 2017
and $1.6 billion in each of the years ended January 1, 2017, and January 3, 2016. Our non-guarantor subsidiaries
generated Adjusted EBITDA of $209.2 million, $204.5 million and $166.6 million for the years ended December 31,
2017, January 1, 2017, and January 3, 2016, respectively. Our non-guarantor subsidiaries had total assets of $1.6 billion
and $1.3 billion as of December 31, 2017, and January 1, 2017; and total liabilities of $693.8 million and $771.2 million
as of December 31, 2017, and January 1, 2017, respectively.
Contractual Obligations
The following table presents our contractual obligations over the periods indicated as of December 31, 2017:
(In thousands)
Long-term debt
maturities
Scheduled interest
payments
Operating leases
Pension contributions
Total (1)
$
2018
2019
2020
2021
2022
Thereafter
Total
Fiscal Year Ended
$
— $
— $
— $
— $
— $ 625,000
$ 625,000
35,156
23,177
5,669
64,002
$
35,156
21,336
926
57,418
$
35,156
18,447
972
54,575
$
35,156
13,806
1,021
49,983
$
35,156
9,906
1,071
46,133
17,578
62,855
193,358
149,527
5,872
$ 711,305
15,531
$ 983,416
____________
(1) As of December 31, 2017, we have $5.3 million recorded as a long-term liability for uncertain tax positions. We are not able to reasonably
estimate the timing of payments, or the amount by which our liability for these uncertain tax positions will increase or decrease over time, and
accordingly, this liability has been excluded from the above table.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
51
Critical Accounting Policies and Estimates
MASONITE INTERNATIONAL CORPORATION
Our significant accounting policies are fully disclosed in our annual consolidated financial statements included
elsewhere in this Annual Report. We consider the following policies to be most critical in understanding the judgments
that are involved in preparing our consolidated financial statements.
Business Acquisition Accounting
We use the acquisition method of accounting for all business acquisitions. We allocate the purchase price of
our business acquisitions based on the fair value of identifiable tangible and intangible assets. The difference between
the total cost of the acquisitions and the sum of the fair values of the acquired tangible and intangible assets less
liabilities is recorded as goodwill.
Goodwill
We evaluate all business combinations for intangible assets that should be recognized and reported apart from
goodwill. Goodwill is not amortized but instead is tested annually for impairment on the last day of fiscal November, or
more frequently if events or changes in circumstances indicate the carrying amount may not be recoverable. The test for
impairment is performed at the reporting unit level by comparing the reporting unit’s carrying amount to its fair value.
Possible impairment in goodwill is first analyzed using qualitative factors such as macroeconomic and market
conditions, changing costs and actual and projected performance, amongst others, to determine whether it is more likely
than not that the book value of the reporting unit exceeds its fair value. If it is determined more likely than not that the
book value exceeds fair value, a quantitative analysis is performed to test for impairment. When quantitative steps are
determined necessary, the fair values of the reporting units are estimated through the use of discounted cash flow
analyses and market multiples. If the carrying amount exceeds fair value, then goodwill is impaired. Any impairment in
goodwill is measured by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation
and comparing the notional goodwill from the fair value allocation to the carrying value of the goodwill. We performed
a quantitative impairment test during the fourth quarter of 2017 and determined that goodwill was not impaired.
Intangible Assets
Intangible assets with definite lives include customer relationships, non-compete agreements, patents, supply
agreements, certain acquired trademarks and system software development. Definite-lived intangible assets are
amortized on a straight-line basis over their estimated useful lives. Amortizable intangible assets are tested for
impairment whenever events or changes in circumstances indicate that the carrying value may be greater than the fair
value. An impairment loss is recognized when the estimate of undiscounted future cash flows generated by such assets
is less than the carrying amount. Measurement of the impairment loss is based on the fair value of the asset, determined
using discounted cash flows when quoted market prices are not readily available. Indefinite-lived intangible assets are
tested for impairment annually on the last day of fiscal November, or more frequently if events or circumstances
indicated that the carrying value may exceed the fair value. The inputs utilized to derive projected cash flows are subject
to significant judgments and uncertainties. As such, the realized cash flows could differ significantly from those
estimated. We performed a quantitative impairment test during the fourth quarter of 2017 and determined that
indefinite-lived intangible assets were not impaired.
Long-lived Assets
Long-lived assets other than goodwill and indefinite-lived intangible assets, which are separately tested for
impairment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. When evaluating long-lived assets for potential impairment, we first compare the carrying
value of the asset to the estimates of asset’s useful lives and undiscounted future cash flows based on market participant
assumptions. If the undiscounted expected future cash flows are less than the carrying amount of the asset and the
carrying amount of the asset exceeds its fair value, an impairment loss is recognized.
Income Taxes
As a multinational corporation, we are subject to taxation in many jurisdictions and the calculation of our tax
liabilities involves dealing with inherent uncertainties in the application of complex tax laws and regulations in various
taxing jurisdictions. We assess the income tax positions and record tax liabilities for all years subject to examination
based upon our evaluation of the facts, circumstances and information available as of the reporting date.
52
MASONITE INTERNATIONAL CORPORATION
We account for income taxes using the asset and liability method. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences of temporary differences between the carrying amounts and the
tax basis of assets and liabilities at enacted rates. We base our estimate of deferred tax assets and liabilities on current
tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. We record a
valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we
have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need
for the valuation allowance, in the event that we were to determine that we would be able to realize our deferred tax
assets in the future in excess of our net recorded amount, an adjustment to the deferred tax assets would be a credit to
income in the period such determination was made. The consolidated financial statements include increases in the
valuation allowances as a result of uncertainty regarding our ability to realize certain deferred tax assets in the future.
Our accounting for deferred tax consequences represents our best estimate of future events that can be
appropriately reflected in the accounting estimates. Changes in existing tax laws, regulations, rates and future operating
results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. The application
of tax laws and regulations is subject to legal and factual interpretation, judgment and uncertainty. Tax laws and
regulations themselves are also subject to change as a result in changes in fiscal policy, changes in legislation, the
evolution of regulations and court rulings.
Although we believe the measurement of liabilities for uncertain tax positions is reasonable, no assurance can
be given that the final outcomes of these matters will not be different than what is reflected in the historical income tax
provisions and accruals. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability
is reversed and a tax benefit is recognized in the period in which such determination is made. Conversely, additional tax
charges are recorded in a period in which it is determined that a recorded tax liability is less than the ultimate
assessment is expected to be. If additional taxes are assessed as a result of an audit or litigation, there could be a
material effect on our income tax provision and net income in the period or periods for which that determination is
made.
Inventory
We value inventories at the lower of cost or replacement cost for raw materials, and the lower of cost or net
realizable value for finished goods, with expense estimates made for obsolescence or unsaleable inventory. In
determining net realizable value, we consider such factors as yield, turnover and aging, expected future demand and
market conditions, as well as past experience. A change in the underlying assumptions related to these factors could
affect the valuation of inventory and have a corresponding effect on cost of goods sold. Historically, actual results have
not significantly deviated from those determined using these estimates.
Share Based Compensation Plan
We have a share based compensation plan, which governs the issuance of common shares to employees as
compensation through various grants of share instruments. We apply the fair value method of accounting using the
Black-Scholes-Merton option pricing model to determine the compensation expense for stock appreciation rights. The
compensation expense for the Restricted Stock Units awarded is based on the fair value of the restricted stock units at
the date of grant. Additionally, the compensation expense for certain performance based awards is determined using the
Monte Carlo simulation method. Compensation expense is recorded in the consolidated statements of comprehensive
income (loss) and is recognized over the requisite service period. The determination of obligations and compensation
expense requires the use of several mathematical and judgmental factors, including stock price, expected volatility, the
anticipated life of the award, estimated risk free rate and the number of shares or share options expected to vest. Any
difference in the number of shares or share options that actually vest can affect future compensation expense. Other
assumptions are not revised after the original estimate.
Variable Interest Entity
The accounting method used for our investments is dependent upon the influence we have over the investee.
We consolidate subsidiaries when we are able to exert control over the financial and operating policies of the investee,
which generally occurs if we own a 50% or greater voting interest.
53
MASONITE INTERNATIONAL CORPORATION
Pursuant to ASC 810, “Consolidation”, for certain investments where the risks and rewards of ownership are
not directly linked to voting interests (“variable interest entities” or “VIEs”), an investee may be consolidated if we are
considered the primary beneficiary of the VIE. The primary beneficiary of a VIE is the party that has the power to direct
the activities of the VIE which most significantly impact the VIE’s economic performance and that has the obligation to
absorb losses of the VIE which could potentially be significant to the VIE.
Significant judgment is required in the determination of whether we are the primary beneficiary of a VIE.
Estimates and assumptions made in such analyses include, but are not limited to, the market price of input costs, the
market price for finished products, market demand conditions within various regions and the probability of certain other
outcomes.
Changes in Accounting Standards and Policies
Changes in accounting standards and policies are discussed in Note 1. Business Overview and Significant
Accounting Policies in the Notes to the Consolidated Financial Statements in this Annual Report.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to market risk from changes in foreign currency exchange rates, interest rates and commodity
prices, which can affect our operating results and overall financial condition. We manage exposure to these risks
through our operating and financing activities and, when deemed appropriate, through the use of derivative financial
instruments. Derivative financial instruments are viewed as risk management tools and are not used for speculation or
for trading purposes. Derivative financial instruments are generally contracted with a diversified group of investment
grade counterparties to reduce exposure to nonperformance on such instruments. We held no such material derivative
financial instruments as of December 31, 2017, or January 1, 2017.
We have in place an enterprise risk management process that involves systematic risk identification and
mitigation covering the categories of enterprise, strategic, financial, operation and compliance and reporting risk. The
enterprise risk management process receives Board of Directors and Management oversight, drives risk mitigation
decision-making and is fully integrated into our internal audit planning and execution cycle.
Foreign Exchange Rate Risk
We have foreign currency exposures related to buying, selling, and financing in currencies other than the local
currencies in which we operate. When deemed appropriate, we enter into various derivative financial instruments to
preserve the carrying amount of foreign currency-denominated assets, liabilities, commitments, and certain anticipated
foreign currency transactions. We held no such material derivative financial instruments as of December 31, 2017, or
January 1, 2017.
Interest Rate Risk
We are subject to market risk from exposure to changes in interest rates with respect to borrowings under our
ABL Facility to the extent it is drawn on and due to our other financing, investing and cash management activities. As
of December 31, 2017, or January 1, 2017, there were no outstanding borrowings under our ABL Facility.
Impact of Inflation, Deflation and Changing Prices
We have experienced inflation and deflation related to our purchase of certain commodity products. We believe
that volatile prices for commodities have impacted our net sales and results of operations. We maintain strategies to
mitigate the impact of higher raw material, energy and commodity costs, which include cost reduction, sourcing and
other actions, which typically offset only a portion of the adverse impact. Inflation and deflation related to our
purchases of certain commodity products could have an adverse impact on our operating results in the future.
54
Item 8. Financial Statements and Supplementary Data
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Certified Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Supplemental Unaudited Quarterly Financial Information
58
59
58
59
60
61
62
104
55
Report of Independent Registered Certified Public Accounting Firm
To the Shareholders and the Board of Directors of Masonite International Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Masonite International Corporation and subsidiaries (the
Company) as of December 31, 2017, and the related consolidated statement of comprehensive income (loss), consolidated
statement of changes in equity, and consolidated statement of cash flows for the year then ended, and the related notes
(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 at December 31, 2017, and the results of its operations and its
cash flows for the year ended December 31, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
Framework) and our report dated February 27, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audit. We are a public accounting firm registered with the 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 audit 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 financial statements are free of material misstatement, whether due to error
or fraud. Our audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audit provided a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Tampa, Florida
February 27, 2018
56
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Masonite International Corporation
Tampa, Florida
We have audited the accompanying consolidated balance sheet of Masonite International Corporation and subsidiaries (the
"Company") as of January 1, 2017, and the related consolidated statements of comprehensive income (loss), changes in equity,
and cash flows for each of the two years in the period ended January 1, 2017. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Masonite
International Corporation and subsidiaries as of January 1, 2017, and the results of their operations and their cash flows for each
of the two years in the period ended January 1, 2017, in conformity with accounting principles generally accepted in the United
States of America.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Tampa, Florida
March 1, 2017
57
MASONITE INTERNATIONAL CORPORATION
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of U.S. dollars, except per share amounts)
Net sales
Cost of goods sold
Gross profit
Selling, general and administration expenses
Restructuring costs, net
Asset impairment
Loss (gain) on disposal of subsidiaries
Operating income (loss)
Interest expense (income), net
Loss on extinguishment of debt
Other expense (income), net
Income (loss) from continuing operations before income tax expense (benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Less: net income (loss) attributable to non-controlling interest
Net income (loss) attributable to Masonite
Earnings (loss) per common share attributable to Masonite:
Basic
Diluted
Earnings (loss) per common share from continuing operations attributable to
Masonite:
Basic
Diluted
Comprehensive income (loss):
Net income (loss)
Other comprehensive income (loss):
Foreign currency translation gain (loss)
Pension and other post-retirement adjustment
Amortization of actuarial net losses
Pension settlement charges
Income tax benefit (expense) related to other comprehensive income (loss)
Other comprehensive income (loss), net of tax:
Comprehensive income (loss)
Less: comprehensive income (loss) attributable to non-controlling interest
December 31,
2017
Year Ended
January 1,
2017
January 3,
2016
$
2,032,925
$
1,973,964
$
1,871,965
1,625,942
1,564,319
1,521,115
406,983
246,855
850
—
212
159,066
30,153
—
(1,091)
130,004
(27,560)
157,564
(583)
156,981
5,242
409,645
260,364
1,445
1,511
(6,575)
152,900
28,178
—
(1,959)
126,681
21,787
104,894
(752)
104,142
5,520
350,850
244,145
5,678
9,439
59,984
31,604
32,884
28,046
(1,757)
(27,569)
14,172
(41,741)
(908)
(42,649)
4,462
151,739
$
98,622
$
(47,111)
5.18
5.09
5.20
5.11
$
$
$
$
3.25
3.17
3.27
3.19
$
$
$
$
(1.56)
(1.56)
(1.53)
(1.53)
156,981
$
104,142
$
(42,649)
38,970
529
1,113
—
(1,026)
39,586
196,567
5,994
(37,097)
(5,941)
1,070
—
1,155
(40,813)
63,329
5,745
(34,637)
(1,826)
889
2,400
385
(32,789)
(75,438)
3,362
$
$
$
$
$
$
Comprehensive income (loss) attributable to Masonite
$
190,573
$
57,584
$
(78,800)
See accompanying notes to the consolidated financial statements.
58
MASONITE INTERNATIONAL CORPORATION
Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts)
ASSETS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories, net
Prepaid expenses
Income taxes receivable
Total current assets
Property, plant and equipment, net
Investment in equity investees
Goodwill
Intangible assets, net
Long-term deferred income taxes
Other assets, net
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Total current liabilities
Long-term debt
Long-term deferred income taxes
Other liabilities
Total liabilities
Commitments and Contingencies (Note 9)
Equity:
Share capital: unlimited shares authorized, no par value, 28,369,877 and 29,774,784 shares
issued and outstanding as of December 31, 2017, and January 1, 2017, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total equity attributable to Masonite
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
December 31,
2017
January 1,
2017
$
176,669
$
11,895
269,235
234,042
27,665
2,364
721,870
573,559
11,310
138,449
182,484
29,899
22,687
71,714
12,196
242,197
225,940
24,291
2,399
578,737
542,088
9,302
129,286
190,154
9,478
16,816
$
1,680,258
$
1,475,861
$
94,497
$
126,759
869
222,125
625,657
60,820
35,754
944,356
624,403
226,528
(18,150)
(110,152)
722,629
13,273
735,902
96,178
133,799
1,201
231,178
470,745
70,423
43,739
816,085
650,007
234,926
(89,063)
(148,986)
646,884
12,892
659,776
$
1,680,258
$
1,475,861
See accompanying notes to the consolidated financial statements.
59
MASONITE INTERNATIONAL CORPORATION
Consolidated Statements of Changes in Equity
(In thousands of U.S. dollars, except share amounts)
Common
Shares
Outstanding
Share Capital
Additional
Paid-In
Capital
Accumulated
Deficit
Accumulated
Other
Comprehensive
Income (Loss)
Total Equity
Attributable to
Masonite
Equity
Attributable to
Non-
controlling
Interests
Total Equity
Balances as of December 28, 2014
30,015,321
$
657,292
$
225,918
$
(97,517) $
(76,259) $
709,434
$
26,065
$
735,499
Net income (loss)
Other comprehensive income (loss),
net of tax
Dividends to non-controlling
interests
Deconsolidation of non-controlling
interest
Share based compensation expense
Common shares issued for delivery
of share based awards
Common shares withheld to cover
income taxes payable due to
delivery of share based awards
Common shares issued under
employee stock purchase plan
Common shares issued for exercise
of warrants
399,198
5,460
(5,460)
13,236
12,913
433
846
2
(2,114)
(215)
(2)
(47,111)
(47,111)
4,462
(42,649)
(31,689)
(31,689)
(1,100)
(32,789)
—
—
13,236
—
(2,114)
631
—
(5,797)
(5,797)
(10,451)
(10,451)
13,236
—
(2,114)
631
—
Balances as of January 3, 2016
30,427,865
$
663,600
$
231,363
$
(144,628) $
(107,948) $
642,387
$
13,179
$
655,566
Cumulative effect of new
accounting principle
Balances as of January 3, 2016, as
adjusted
Net income (loss)
Other comprehensive income (loss),
net of tax
Dividends to non-controlling
interests
Share based compensation expense
Common shares issued for delivery
of share based awards
Common shares withheld to cover
income taxes payable due to
delivery of share based awards
Common shares issued under
employee stock purchase plan
Common shares issued for exercise
of warrants
Common shares repurchased and
retired
30,427,865
$
663,600
$
231,363
$
(114,468) $
(107,948) $
672,547
$
13,179
$
685,726
30,160
30,160
30,160
366,556
7,901
(7,901)
18,790
17,469
630,951
1,090
13,401
(4,210)
(202)
(2,914)
98,622
98,622
(41,038)
(41,038)
—
18,790
—
(4,210)
888
10,487
5,520
225
(6,032)
104,142
(40,813)
(6,032)
18,790
—
(4,210)
888
10,487
(1,668,057)
(35,985)
(73,217)
(109,202)
(109,202)
Balances as of January 1, 2017
29,774,784
$
650,007
$
234,926
$
(89,063) $
(148,986) $
646,884
$
12,892
$
659,776
Net income (loss)
Other comprehensive income (loss),
net of tax
Dividends to non-controlling
interests
Share based compensation expense
Common shares issued for delivery
of share based awards
Common shares withheld to cover
income taxes payable due to
delivery of share based awards
Common shares issued under
employee stock purchase plan
Common shares repurchased and
retired
151,739
38,834
372,826
12,290
(12,290)
11,644
16,368
1,168
(7,466)
(286)
(1,794,101)
(39,062)
(80,826)
151,739
38,834
—
11,644
—
(7,466)
882
(119,888)
5,242
752
(5,613)
156,981
39,586
(5,613)
11,644
—
(7,466)
882
(119,888)
Balances as of December 31, 2017
28,369,877
$
624,403
$
226,528
$
(18,150) $
(110,152) $
722,629
$
13,273
$
735,902
See accompanying notes to the consolidated financial statements.
60
MASONITE INTERNATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash flow provided by (used in) operating activities:
December 31,
2017
Year Ended
January 1,
2017
January 3,
2016
$
156,981
$
104,142
$
(42,649)
Loss (income) from discontinued operations, net of tax
Loss (gain) on disposal of subsidiaries
Loss on extinguishment of debt
Depreciation
Amortization
Share based compensation expense
Deferred income taxes
Unrealized foreign exchange loss (gain)
Share of loss (income) from equity investees, net of tax
Dividend from equity investee
Pension and post-retirement expense (funding), net
Non-cash accruals and interest
Loss (gain) on sale of property, plant and equipment
Asset impairment
Changes in assets and liabilities, net of acquisitions:
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued expenses
Other assets and liabilities
Net cash flow provided by (used in) operating activities
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment
Additions to property, plant and equipment
Cash used in acquisitions, net of cash acquired
Cash proceeds from sale of subsidiaries, net of cash disposed
Restricted cash
Other investing activities
Net cash flow provided by (used in) investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Repayments of long-term debt
Payments of long-term debt extinguishment costs
Payment of debt issuance costs
Proceeds from borrowings on revolving credit facilities
Repayments of borrowings on revolving credit facilities
Tax withholding on share based awards
Distributions to non-controlling interests
Proceeds from exercise of common stock warrants
Repurchases of common shares
Net cash flow provided by (used in) financing activities
Net foreign currency translation adjustment on cash
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, at end of period
583
212
—
57,528
24,375
11,644
(34,230)
1,496
(2,008)
—
(6,806)
1,226
1,893
—
(15,926)
692
(2,026)
(15,809)
(6,344)
173,481
1,114
(73,782)
(13,813)
—
301
(3,653)
(89,833)
156,746
(422)
—
(2,141)
—
—
(7,466)
(5,613)
—
(119,888)
21,216
91
104,955
71,714
752
(6,575)
—
57,604
24,727
18,790
12,918
829
(2,183)
1,733
(6,276)
2,612
2,111
1,511
(29,514)
(23,022)
(2,102)
16,560
(587)
174,030
1,268
(82,287)
(8,551)
15,103
449
(2,449)
(76,467)
390
(1,071)
—
—
—
—
(4,210)
(6,032)
10,487
(109,202)
(109,638)
(5,398)
(17,473)
89,187
$
176,669
$
71,714
$
908
59,984
28,046
59,160
23,725
13,236
9,097
(3,238)
(1,473)
1,440
(3,727)
1,587
1,371
9,439
27,150
(2,071)
(5,424)
(8,246)
(7,304)
161,011
1,316
(51,065)
(117,398)
(11,851)
539
(1,765)
(180,224)
475,000
(500,038)
(31,691)
(7,393)
17,000
(17,000)
(2,114)
(5,797)
—
—
(72,033)
(11,604)
(102,850)
192,037
89,187
See accompanying notes to the consolidated financial statements.
61
MASONITE INTERNATIONAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Business Overview and Significant Accounting Policies
Unless we state otherwise or the context otherwise requires, references to “Masonite,” “we,” “our,” “us” and the
“Company” in these notes to the consolidated financial statements refer to Masonite International Corporation and its
subsidiaries.
Description of Business
Masonite International Corporation is one of the largest manufacturers of doors in the world, with significant
market share in both interior and exterior door products. Masonite operates 64 manufacturing locations in 8 countries and
sells doors to customers throughout the world, including the United States, Canada and the United Kingdom.
Basis of Presentation
We prepare these consolidated financial statements in accordance with accounting principles generally accepted
in the United States of America (“GAAP”). These consolidated financial statements include the accounts of Masonite
International Corporation, a company incorporated under the laws of British Columbia, and its subsidiaries, as of
December 31, 2017, and January 1, 2017, and for the years ended December 31, 2017, January 1, 2017 and January 3,
2016.
Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. In a 52-week year,
each fiscal quarter consists of 13 weeks. For ease of disclosure, the 13-week periods are referred to as three-month
periods and the 52- or 53-week periods are referred to as years. Our 2015 fiscal year, which ended on January 3, 2016,
contained 53 weeks of operating results, with the additional week occurring in the fourth quarter.
Changes in Accounting Standards and Policies
Adoption of Recent Accounting Pronouncements
In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update
("ASU") 2015-11, "Simplifying the Measurement of Inventory," which amended ASC 330, "Inventory." This ASU
requires the measurement of inventory at the lower of cost or net realizable value. Net realizable value is the estimated
selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within
those fiscal years; early adoption is permitted. The adoption of this standard did not have a material impact on the
presentation of our financial statements.
Other Recent Accounting Pronouncements not yet Adopted
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and
Net Periodic Postretirement Benefit Cost,” which amends ASC 715, “Retirement Benefits”. This ASU requires
disaggregation of the service cost component from the other components of net benefit cost. The other components of net
benefit cost are required to be presented in the income statement separately from the service cost component and outside
a subtotal of income from operations. This standard is effective for fiscal years beginning after December 15, 2017, and
interim periods within those fiscal years; early adoption is permitted and retrospective application is required. This new
guidance will change the presentation of the other components of net benefit cost in our consolidated statements of
comprehensive income (loss), which are quantified in Note 16, and will be applied retrospectively beginning in the first
quarter of 2018.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment", which
amends ASC 350 "Intangibles - Goodwill and Other". This ASU simplifies the accounting for goodwill impairments and
allows a goodwill impairment charge to be based upon the amount of a reporting unit's carrying value in excess of its fair
value; thus, eliminating what is currently known as "Step 2" under the current guidance. This ASU is effective for annual
periods beginning after December 15, 2019, and interim periods within those annual periods; early adoption is permitted
and prospective application is required. We are in the process of evaluating this guidance to determine the impact it may
have on our financial statements.
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
In November 2016, the FASB issued ASU 2016-18, "Restricted Cash Flows", which amends ASC 230
"Statement of Cash Flows". This ASU clarifies how entities should present restricted cash and restricted cash equivalents
in the statement of cash flows. The new guidance requires entities to show the changes in the total of cash, cash
equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no
longer present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the
statement of cash flows. This ASU is effective for annual periods beginning after December 15, 2017, and interim
periods within those annual periods; early adoption is permitted and retrospective application is required. This new
guidance will change the presentation of restricted cash in our consolidated statements of cash flows and will be applied
retrospectively beginning in the first quarter of 2018.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which will replace the existing
guidance in ASC 840, "Leases." The updated standard aims to increase transparency and comparability among
organizations by requiring lessees to recognize lease assets and lease liabilities on the balance sheet and requiring
disclosure of key information about leasing arrangements. This ASU is effective for annual periods beginning after
December 15, 2018, and interim periods within those annual periods; early adoption is permitted and modified
retrospective application is required. While we are currently assessing the impact that ASU 2016-02 will have on our
consolidated financial statements, we anticipate that the primary impact upon adoption will be to our consolidated
balance sheets from the recognition, on a discounted basis, of our minimum commitments under non-cancelable
operating leases, resulting in the recognition of right to use assets and lease obligations. Our current minimum
undiscounted lease commitments under non-cancelable operating leases are disclosed in Note 9.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which created ASC
606 and largely supersedes the existing guidance of ASC 605, including industry specific guidance. This standard
outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with
customers. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with
Customers - Deferral of the Effective Date," and the guidance will now be effective for annual and interim periods
beginning on or after December 15, 2017. While we are still finalizing the evaluation of our contracts with our customers
and the effect of adoption on our consolidated financial statements, we do not currently expect the adoption of the new
standard to have a material impact on consolidated net income (loss) attributable to Masonite, cash flows or our
consolidated balance sheets. We intend to adopt this standard using the modified retrospective method due to the lack of
material impact of the adoption. We plan to apply the standard to only those contracts which were not completed as of
the transition date and adoption will be effective as of January 1, 2018.
Summary of Significant Accounting Policies
(a) Principles of consolidation:
These consolidated financial statements include the accounts of Masonite and our subsidiaries and the accounts
of any variable interest entities for which we are the primary beneficiary. Intercompany accounts and transactions have
been eliminated upon consolidation. The results of subsidiaries acquired during the periods presented are consolidated
from their respective dates of acquisition using the acquisition method. Subsidiaries are prospectively deconsolidated as
of the date when we no longer have effective control of the entity.
(b) Translation of consolidated financial statements into U.S. dollars:
These consolidated financial statements are expressed in U.S. dollars. The accounts of the majority of our self-
sustaining foreign operations are maintained in functional currencies other than the U.S. dollar. Assets and liabilities for
these subsidiaries have been translated into U.S. dollars at the exchange rates prevailing at the end of the period and
results of operations at the average exchange rates for the period. Unrealized exchange gains and losses arising from the
translation of the financial statements of our non-U.S. functional currency operations are accumulated in the cumulative
translation adjustments account in accumulated other comprehensive income (loss). For our foreign subsidiaries where
the U.S. dollar is the functional currency, all foreign currency-denominated accounts are remeasured into U.S. dollars.
Unrealized exchange gains and losses arising from remeasurements of foreign currency-denominated assets and
liabilities are included within other expense (income), net, in the consolidated statements of comprehensive income
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(loss). Gains and losses arising from international intercompany transactions that are of a long-term investment nature
are reported in the same manner as translation gains and losses. Realized exchange gains and losses are included in net
income (loss) for the periods presented.
(c) Cash and cash equivalents:
Cash includes cash equivalents which are short-term highly liquid investments with original maturities of three
months or less.
(d) Restricted cash:
Restricted cash includes cash we have placed as collateral for letters of credit.
(e) Accounts receivable:
We record accounts receivable as our products are received by our customers. Our customers are primarily
retailers, distributors and contractors. We record an allowance for doubtful accounts for known collectability issues, as
such issues relate to specific transactions or customer balances. When it becomes apparent, based on age or customer
circumstances, that such amounts will not be collected, they are expensed as bad debt and payments subsequently
received are credited to the bad debt expense account, included within selling, general and administration expense in the
consolidated statements of comprehensive income (loss). Generally, we do not require collateral for our accounts
receivable.
(f) Inventories:
Raw materials are valued at the lower of cost or market value, where market value is determined using
replacement cost. Finished goods are valued at the lower of cost or net realizable value. Cost is determined on a first in,
first out basis. In determining the net realizable value, we consider factors such as yield, turnover, expected future
demand and past experience.
The cost of inventories includes all costs of purchase, costs of conversion and other costs incurred in bringing
the inventories to their present location and condition. The costs of conversion of inventories include costs directly
related to the units of production, such as direct labor. They also include a systematic allocation of fixed and variable
production overheads that are incurred in converting raw materials into finished goods. Fixed production overheads are
those indirect costs of production that remain relatively constant regardless of the volume of production, such as
depreciation and maintenance of factory buildings and equipment, and the cost of factory management and
administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly,
with the volume of production, such as indirect materials and indirect labor.
To determine the cost of inventory, we allocate fixed expenses to the cost of production based on the normal
capacity, which refers to a range of production levels and is considered the production expected to be achieved over a
number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from
planned maintenance. Fixed overhead costs allocated to each unit of production are not increased due to abnormally low
production. Those excess costs are recognized as a current period expense. When a production facility is completely shut
down temporarily, it is considered idle, and all related expenses are charged to cost of goods sold.
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(g) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is recorded based on the carrying values of
buildings, machinery and equipment using the straight-line method over the estimated useful lives set forth as follows:
Buildings
Machinery and equipment
Tooling
Machinery and equipment
Molds and dies
Office equipment, fixtures and fittings
Information technology systems
Useful Life (Years)
20 - 40
10 - 25
5 - 25
12 - 25
3 - 12
5 - 15
Improvements and major maintenance that extend the life of an asset are capitalized; other repairs and
maintenance are expensed as incurred. When assets are retired or otherwise disposed, their carrying values and
accumulated depreciation are removed from the accounts.
Property, plant and equipment are tested for impairment when events or changes in circumstances indicate that
the carrying value of an asset or asset group may not be recoverable. An impairment loss is recognized when the carrying
amount of an asset or asset group being tested for recoverability exceeds the sum of the undiscounted cash flows
expected from its use and disposal. Impairments are measured as the amount by which the carrying amount of the asset
or asset group exceeds its fair value, as determined using a discounted cash flows approach when quoted market prices
are not available.
(h) Goodwill:
We use the acquisition method of accounting for all business combinations. We evaluate all business
combinations for intangible assets that should be recognized apart from goodwill. Goodwill adjustments are recorded for
the effect on goodwill of changes to net assets acquired during the measurement period (up to one year from the date of
acquisition) for new information obtained about facts and circumstances that existed as of the acquisition date that, if
known, would have affected the measurement of the amounts recognized as of that date.
Goodwill is not amortized, but instead is tested annually for impairment on the last day of fiscal November, or
more frequently if events or changes in circumstances indicate the carrying amount may not be recoverable. The test for
impairment is performed at the reporting unit level by comparing the reporting unit’s carrying amount to its fair value.
Possible impairment in goodwill is first analyzed using qualitative factors such as macroeconomic and market
conditions, changing costs and actual and projected performance, amongst others, to determine whether it is more likely
than not that the book value of the reporting unit exceeds its fair value. If it is determined more likely than not that the
book value exceeds fair value, a quantitative analysis is performed to test for impairment. When quantitative steps are
determined necessary, the fair values of the reporting units are estimated through the use of discounted cash flow
analysis and market multiples. If the carrying amount exceeds fair value, then goodwill is impaired. Any impairment in
goodwill is measured by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation
and comparing the notional goodwill from the fair value allocation to the carrying value of the goodwill. There were no
impairment charges recorded against goodwill in any period presented.
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(i) Intangible assets:
Intangible assets with definite lives include customer relationships, non-compete agreements, patents, system
software development, supply agreements and acquired trademarks and tradenames. Definite lived intangible assets are
amortized over their estimated useful lives. Information pertaining to the estimated useful lives of intangible assets is as
follows:
Customer relationships
Non-compete agreements
Patents
System software development
Supply agreements
Acquired trademarks and tradenames
Estimated Useful Life
Over expected relationship period, not exceeding 10 years
Straight-line over life of the agreement
Over expected useful life, not exceeding 17 years
Over expected useful life, not exceeding 5 years
Straight-line over life of the agreement
Straight-line over expected useful life
Amortizable intangible assets are tested for impairment whenever events or changes in circumstances indicate
that the carrying value may be greater than fair value. An impairment loss is recognized when the estimate of
undiscounted future cash flows generated by such assets is less than the carrying amount. Measurement of the
impairment loss is based on the fair value of the asset. Fair value is measured using discounted cash flows.
Indefinite lived intangible assets are not amortized, but instead are tested for impairment annually on the last
day of fiscal November, or more frequently if events or circumstances indicate the carrying value may exceed the fair
value.
(j) Income taxes:
We use the asset and liability method of accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a
change in tax rates is recognized in income in the period that includes the date of enactment. A valuation allowance is
recorded to reduce deferred tax assets to an amount that is anticipated to be realized on a more likely than not basis.
We account for uncertain taxes in accordance with ASC 740, “Income Taxes”. The initial benefit recognition
model follows a two-step approach. First we evaluate if the tax position is more likely than not of being sustained if
audited based solely on the technical merits of the position. Second, we measure the appropriate amount of benefit to
recognize. This is calculated as the largest amount of tax benefit that has a greater than 50% likelihood of ultimately
being realized upon settlement. Subsequently at each reporting date, the largest amount that has a greater than 50%
likelihood of ultimately being realized, based on information available at that date, will be measured and recognized.
We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in
the consolidated statements of comprehensive income (loss). Accrued interest and penalties are included within the
related tax liability line in the consolidated balance sheets.
(k) Employee future benefits:
We maintain defined benefit pension plans. Earnings are charged with the cost of benefits earned by employees
as services are rendered. The cost reflects management’s best estimates of the pension plans’ expected investment yields,
wage and salary escalation, mortality of members, terminations and the ages at which members will retire. Changes in
these assumptions could impact future pension expense. The excess of the net actuarial gain (loss) over 10% of the
greater of the benefit obligation or fair value of plan assets at the beginning of the year is amortized over the average
remaining service lives of the members.
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets are valued at fair value for the purpose of calculating the expected return on plan assets. Past service
costs arising from plan amendments are amortized on a straight-line basis over the average remaining service period of
employees active at the date of amendment.
When a restructuring of a benefit plan gives rise to both a curtailment and a settlement of obligations, the
curtailment is accounted for prior to the settlement. Curtailment gains are offset against unrecognized losses and any
excess gains and all curtailment losses are recorded in the period in which the curtailment occurs.
(l) Restructuring costs:
All salary-related severance benefits are accrued and expensed when a plan has been put into place, the plan has
received approval from the appropriate level of management and the benefit is probable and reasonably estimable, which
is generally when the decision to terminate the employee is made by management of sufficient authority. A liability and
expense are recorded for termination benefits based on their fair value when it is probable that employees will be entitled
to the benefits, and the amount can be reasonably estimated. This occurs when management approves and commits us to
the obligation, management’s termination plan specifically identifies all significant actions to be taken, actions required
to fulfill management’s plan are expected to begin as soon as possible and significant changes to the plan are not likely.
All salary-related non-contractual benefits are accrued and expensed at fair value at the communication date.
In addition to salary-related costs, we incur other restructuring costs when facilities are closed or capacity is
realigned within the organization. A liability and expense are recorded for contractual exit activities when we terminate
the contract within the provisions of the agreement, generally by way of written notice to the counterparty. For non-
contractual exit activities, a liability and expense are measured at fair value in the period in which the liability is
incurred.
Restructuring-related costs are presented separately in the consolidated statements of comprehensive income
(loss) whereas non-restructuring severance benefits are charged to cost of goods sold or selling, general and
administration expense depending on the nature of the job responsibilities.
(m) Financial instruments:
We have applied a framework consistent with ASC 820, “Fair Value Measurement and Disclosure”, and have
disclosed all financial assets and liabilities measured at fair value and non-financial assets and liabilities measured at fair
value on a non-recurring basis (at least annually).
We classify and disclose assets and liabilities carried at fair value in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The estimated fair value of a financial instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than a forced or liquidation sale. These estimates, although based on
the relevant market information about the financial instrument, are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
(n) Share based compensation expense:
We have a share based compensation plan, which is described in detail in Note 10. We apply the fair value
method of accounting using comprehensive valuation models, including the Black-Scholes-Merton option pricing model,
to determine the compensation expense.
(o) Revenue recognition:
Revenue from the sale of products is recognized when an agreement with the customer in the form of a sales
order is in place, the sales price is fixed or determinable, collection is reasonably assured and the customer has taken
ownership and assumes risk of loss. Volume rebates and incentives to customers are considered as a reduction of the
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
sales price of our products. Accordingly, revenue is reported net of such rebates and incentives. Shipping and other
transportation costs charged to buyers are recorded in both revenues and cost of goods sold in the consolidated
statements of comprehensive income (loss).
(p) Product warranties:
We warrant certain qualitative attributes of our door products. We have recorded provisions for estimated
warranty and related costs based on historical experience and periodically adjust these provisions to reflect actual
experience. The rollforward of our warranty provision is as follows for the periods indicated:
(In thousands)
Balance at beginning of period
Additions charged to expense
Deductions
Balance at end of period
(q) Vendor rebates:
Year Ended
December 31, 2017
January 1, 2017
January 3, 2016
$
$
2,717
$
5,715
(6,243)
2,189
$
3,318
$
3,219
(3,820)
2,717
$
3,555
3,113
(3,350)
3,318
We account for cash consideration received from a vendor as a reduction of cost of goods sold and inventory, in
the consolidated statements of comprehensive income (loss) and consolidated balance sheets, respectively. The cash
consideration received represents agreed-upon vendor rebates that are earned in the normal course of operations.
(r) Advertising costs:
We recognize advertising costs as they are incurred. Advertising costs incurred primarily relate to tradeshows
and are included within selling, general and administration expense in the consolidated statements of comprehensive
income (loss). Advertising costs were $12.9 million, $9.3 million and $8.7 million in the years ended December 31,
2017, January 1, 2017, and January 3, 2016, respectively.
(s) Research and development costs:
We recognize research and development costs as they are incurred. Research and development costs incurred
primarily relate to the development of new products and the improvement of manufacturing processes, and are primarily
included within cost of goods sold in the consolidated statements of comprehensive income (loss). These costs exclude
the significant investments in other areas such as advanced automation and e-commerce. Research and development
costs were $7.5 million, $6.7 million and $6.4 million in the years ended December 31, 2017, January 1, 2017, and
January 3, 2016, respectively.
(t) Insurance losses and proceeds:
All involuntary conversions of property, plant and equipment are recorded as losses within loss (gain) on
disposal of property, plant and equipment, which is included within selling, general and administration expense in the
consolidated statements of comprehensive income (loss) and as reductions to property, plant and equipment in the
consolidated balance sheets. Any subsequent proceeds received for insured losses of property, plant and equipment are
also recorded as gains within loss (gain) in disposal of property, plant and equipment, and are classified as cash flows
from investing activities in the consolidated statements of cash flows in the period in which the cash is received.
Proceeds received for business interruption recoveries are recorded as a reduction to selling, general and administration
expense in the consolidated statements of comprehensive income (loss) and are classified as cash flows from operating
activities in the consolidated statements of cash flows in the period in which an acknowledgment from the insurance
carrier of settlement or partial settlement of a non-refundable nature has been presented to us.
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(u) Discontinued operations:
We account for discontinued operations by segregating assets, liabilities and earnings (net of tax) in the
consolidated balance sheets and consolidated statements of comprehensive income (loss), respectively. Operations are
classified as discontinued when the operations and cash flows of the component has been or will be eliminated as a result
of a disposal transaction and represents a strategic shift that has or will have a major impact on our operations and
financial results.
(v) Equity investments:
We account for investments in affiliates of between 20% and 50% ownership, over which we have significant
influence, using the equity method. We record our share of earnings of the affiliate within other expense (income) in the
consolidated statements of comprehensive income (loss) and dividends as a reduction of the investment in the affiliate in
the consolidated balance sheets when declared.
(w) Segment Reporting:
Our reportable segments are organized and managed principally by end market: North American Residential,
Europe and Architectural. The North American Residential reportable segment is the aggregation of the Wholesale and
Retail operating segments. The Europe reportable segment is the aggregation of the United Kingdom, Central Eastern
Europe and France (prior to disposal) operating segments. The Architectural reportable segment consists solely of the
Architectural operating segment. The Corporate & Other category includes unallocated corporate costs and the results of
immaterial operating segments which were not aggregated into any reportable segment, including the historical results of
our Africa operating segment (prior to deconsolidation). Operating segments are aggregated into reportable segments
only if they exhibit similar economic characteristics. In addition to similar economic characteristics we also consider the
following factors in determining the reportable segments: the nature of business activities, the management structure
directly accountable to our chief operating decision maker for operating and administrative activities, availability of
discrete financial information and information presented to the Board of Directors and investors.
(x) Use of estimates:
The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities as of the date of the consolidated financial statements and the reported amounts of net sales and expenses
during the reporting periods. During 2017, there were no material changes in the methods or policies used to establish
estimates and assumptions. Matters subject to significant estimation and judgment include the valuation of the allowance
for doubtful accounts; the realizable values of inventories; the valuation of acquired tangible assets and liabilities; the
determination of the fair value of financial instruments; the determination of the fair value of goodwill and intangible
assets and the useful lives of intangible assets and long-lived assets, as well as the determination of impairment thereon;
the determination of obligations under employee future benefit plans; the determination of the valuation of share based
awards; and the recoverability of deferred tax assets and uncertain tax positions. Actual results may differ significantly
from our estimates.
2. Acquisitions and Dispositions
2017 Acquisition
On October 2, 2017 we completed the acquisition of A&F Wood Products, Inc. (“A&F”), through the purchase
of 100% of the equity interests in A&F and certain assets of affiliates of A&F for consideration of $13.8 million, net of
cash acquired. A&F is based in Howell, Michigan, and is a wholesaler and fabricator of architectural and commercial
doors in the Midwest United States. The excess purchase price over the fair value of net assets acquired of $5.9 million
was allocated to goodwill. The goodwill principally represents anticipated synergies from A&F's integration into our
existing Architectural door business. This goodwill is not deductible for tax purposes and relates to the Architectural
segment.
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The aggregate consideration paid for acquisitions during 2017 was as follows:
(In thousands)
Accounts receivable
Inventory
Property, plant and equipment
Goodwill
Intangible assets
Accounts payable and accrued expenses
Other assets and liabilities, net
Cash consideration, net of cash acquired
A&F
2,169
1,230
2,716
5,895
4,400
(694)
(1,903)
13,813
$
$
The fair values of intangible assets acquired are based on management’s estimates and assumptions including
variations of the income approach, the cost approach and the market approach. Intangible assets acquired from A&F
consist of customer relationships and are being amortized over the weighted average amortization period of 10.0 years.
The intangible assets are not expected to have any residual value. The gross contractual value of acquired trade
receivables was $2.2 million for the A&F acquisition.
The following schedule represents the amounts of net sales and net income (loss) attributable to Masonite from
the A&F acquisition which have been included in the consolidated statements of comprehensive income (loss) for the
periods indicated subsequent to the acquisition date.
(In thousands)
Net sales
Net income (loss) attributable to Masonite
2016 Acquisition
Year Ended
December 31, 2017
$
3,883
825
On November 3, 2016 we completed the acquisition of FyreWerks, Inc. (“FyreWerks”), based in Westminster,
Colorado. We acquired 100% of the equity interests in FyreWerks for consideration of $8.0 million, net of cash acquired.
FyreWerks manufacturers certified fire door and frame cores for use with architectural stile and rail wood panel doors
and door frames. The excess purchase price over the fair value of net assets acquired of $7.3 million was allocated to
goodwill in our Architectural segment. The goodwill principally represents anticipated synergies from FyreWerks'
integration into our existing Architectural door business. Under Section 338 of the Internal Revenue Code, the
acquisition was treated as if it was an asset purchase. Generally, the tax basis of the assets will equal the fair market
value at the time of the acquisition and the goodwill is deductible for tax purposes. The purchase price allocation, net
sales, net income (loss) attributable to Masonite and pro forma information for FyreWerks are not presented as they were
not material for any period presented.
2015 Acquisitions
On October 1, 2015, we completed the acquisition of USA Wood Door, Inc. (“USA Wood Door”), based in
Thorofare, New Jersey. We acquired 100% of the equity interests in USA Wood Door for consideration of $13.7 million,
net of cash acquired. USA Wood Door is a supplier of architectural and commercial wood doors in the Eastern United
States providing door and hardware distributors with machining, resizing and value-added additions to both unfinished
and prefinished doors in short lead times. The excess purchase price over the fair value of net assets acquired of $8.9
million was allocated to goodwill in our Architectural segment. The goodwill principally represents the anticipated
synergies to be gained from the integration into our existing North America door business. Under Section 338 of the
Internal Revenue Code, the acquisition was treated as if it was an asset purchase. Generally, the tax basis of the assets
will equal the fair market value at the time of the acquisition and the goodwill is deductible for tax purposes. The USA
Wood Door acquisition acts as an extension of our distribution network in North America.
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
On August 5, 2015, we completed the acquisition of Hickman Industries Limited (“Hickman”), headquartered
in Wolverhampton, England, for total consideration of $88.0 million, net of cash acquired. We acquired 100% of the
equity interests in Hickman through the purchase of all of the outstanding shares of common stock at the acquisition
date. Hickman is a leading supplier of doorkits (similar to fully finished prehung door units) and other millwork in the
United Kingdom and their business of providing doorkit solutions to the homebuilder market in the United Kingdom is a
natural extension of our existing business in the United Kingdom. The excess purchase price over the fair value of net
assets acquired of $18.2 million was allocated to goodwill. The goodwill principally represents anticipated synergies to
be gained from the integration into our existing United Kingdom business. This goodwill is not deductible for tax
purposes and relates to the Europe segment. The Hickman acquisition complements strategies we are pursuing with our
existing United Kingdom business.
On July 23, 2015, we completed the acquisition of Performance Doorset Solutions Limited (“PDS”),
headquartered in Lancashire, England, for total consideration of $15.7 million, net of cash acquired. We acquired 100%
of the equity interests in PDS through the purchase of all of the outstanding shares of common stock at the acquisition
date. PDS is a leading supplier of custom doors and millwork in the United Kingdom that specializes in non-standard
product specifications, manufacturing both wood and composite solutions. The excess purchase price over the fair value
of net assets acquired of $3.1 million was allocated to goodwill. The goodwill principally represents the future expected
value of the operations of the business. This goodwill is not deductible for tax purposes and relates to the Europe
segment. The PDS acquisition complements our existing United Kingdom business.
The aggregate consideration paid for acquisitions during 2015 was as follows:
(In thousands)
Accounts Receivable
Inventory
Property, plant and equipment
Goodwill
Intangible assets
Accounts payable and accrued expenses
Other assets and liabilities, net
Cash consideration, net of cash acquired
$
USA Wood
Door
Hickman
PDS
Total 2015
Acquisitions
$
2,235
$
20,870
$
3,000
$
1,677
2,600
8,921
—
(1,654)
(81)
13,698
$
11,090
14,057
18,215
55,634
(23,972)
(7,918)
87,976
$
1,438
5,684
3,145
6,437
(2,218)
(1,762)
15,724
$
26,105
14,205
22,341
30,281
62,071
(27,844)
(9,761)
117,398
The fair values of intangible assets acquired are based on management’s estimates and assumptions including
variations of the income approach, the cost approach and the market approach. Intangible assets acquired from the 2015
acquisitions consist of customer relationships and are being amortized over the weighted average amortization period of
9.6 years and 9.7 years for the Hickman and PDS acquisitions, respectively. The intangible assets are not expected to
have any residual value. The gross contractual value of acquired trade receivables was $1.7 million, $21.0 million and
$2.6 million for the USA Wood Door, Hickman and PDS acquisitions, respectively.
The following schedule represents the amounts of net sales and net income (loss) attributable to Masonite from
the 2015 acquisitions which have been included in the consolidated statements of comprehensive income (loss) for the
periods indicated subsequent to the acquisition date.
Year Ended January 3, 2016
USA Wood
Door
Hickman
PDS
Total 2015
Acquisitions
$
4,790
$
46,657
$
$
7,059
(251)
58,506
929
(In thousands)
Net sales
Net income (loss) attributable to Masonite
367
813
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pro Forma Information
The following unaudited pro forma financial information represents the consolidated financial information as if
the acquisitions had been included in our consolidated results beginning on the first day of the fiscal year prior to their
respective acquisition dates. Pro forma information relating to the FyreWerks acquisition has been excluded as it is not
materially different from amounts reported. The pro forma results have been calculated after adjusting the results of the
acquired entities to remove intercompany transactions and transaction costs incurred and to reflect the additional
depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and
equipment and intangible assets had been applied on the first day of the fiscal year prior to the respective acquisitions,
together with the consequential tax effects. The pro forma results do not reflect any cost savings, operating synergies or
revenue enhancements that the combined company may achieve as a result of the acquisitions; the costs to combine the
companies' operations; or the costs necessary to achieve these costs savings, operating synergies and revenue
enhancements. The pro forma results do not necessarily reflect the actual results of operations of the combined
companies' under our ownership and operation.
(In thousands, except per share amounts)
Masonite
A&F Acquisition
Pro Forma
Year Ended December 31, 2017
Net sales
Net income (loss) attributable to Masonite
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
(In thousands, except per share amounts)
Net sales
Net income (loss) attributable to Masonite
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
(In thousands, except per share amounts)
Masonite
$
$
$
$
2,032,925
$
11,104
$
151,739
1,299
2,044,029
153,038
5.18
5.09
$
5.22
5.13
Year Ended January 1, 2017
Masonite
A&F Acquisition
Pro Forma
1,973,964
$
13,861
$
1,987,825
98,622
999
99,621
3.25
3.17
$
3.28
3.20
Year Ended January 3, 2016
2015
Acquisitions
Historical Sales
to 2015
Acquisitions
Pro Forma
Net sales
$
1,871,965
$
89,013
$
Net income (loss) attributable to Masonite
(47,111)
5,109
(11,625) $
(1,951)
1,949,353
(43,953)
Basic earnings (loss) per common share
$
Diluted earnings (loss) per common share
(1.56)
(1.56)
$
(1.45)
(1.45)
Dispositions
Hungary
On June 28, 2017, we completed the liquidation of our legal entity in Hungary. As a result, we recognized $0.2
million of cumulative translation adjustment in loss (gain) on disposal of subsidiaries from accumulated other
comprehensive income during the year ended December 31, 2017.
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Africa
On December 22, 2015, following a comprehensive assessment of Masonite (Africa) Limited (“MAL”), our
South African subsidiary, the MAL Board of Directors approved a plan to enter into Business Rescue proceedings, the
South African equivalent of bankruptcy proceedings in the United States, similar to a Chapter 11 reorganization. As a
result of this plan, a Business Rescue Practitioner was appointed to manage the affairs of the business and we no longer
maintained operational control over MAL. For this reason, we deconsolidated MAL effective December 22, 2015.
Subsequent to deconsolidation, we used the cost method to account for our equity investment in MAL, which
was reflected as $10.0 million in our consolidated balance sheets as of January 3, 2016, based on the estimated fair value
of our portion of MAL’s net assets on the date of deconsolidation. During September 2016, we received $15.1 million as
final pre-tax proceeds from the sale of our equity interest in MAL. Upon receipt of these proceeds, our equity interest in
MAL was eliminated and we accordingly reduced the value of our cost investment in MAL to zero and recorded a gain
on disposal of subsidiaries of $5.1 million.
Romania
On April 22, 2016, we completed the liquidation of our legal entity in Romania. As a result, we recognized a
$1.4 million cumulative translation adjustment in loss (gain) on disposal of subsidiaries from accumulated other
comprehensive income during the year ended December 31, 2017.
France
On July 31, 2015, we completed the sale of all of the capital stock of Premdor S.A.S., Masonite’s door business
in France, to a Paris-based independent investment firm (the “Buyer”). Pursuant to a stock purchase agreement dated
July 16, 2015, the Buyer acquired all of Masonite’s door manufacturing and distribution business in France for nominal
consideration. The disposition of this business resulted in a loss on disposal of $29.7 million, which was recognized
during the third quarter of 2015 in the Europe segment and is included in loss (gain) on disposal of subsidiaries in the
consolidated statements of comprehensive income (loss). The loss on disposal is comprised of the carrying value of the
net assets disposed of $25.3 million and the recognition of $4.4 million of cumulative translation adjustment into net
income. Additionally, the sale of Premdor S.A.S. was determined to be a triggering event requiring a test of the
indefinite-lived intangible trade name assets of the Europe segment, resulting in an impairment charge of $9.4 million.
This charge represents the excess of the carrying value over the fair value as determined using the relief of royalty
discounted cash flows method. This valuation was performed on a non-recurring basis and is categorized as having Level
3 valuation inputs as established by the FASB's Fair Value Framework. The Level 3 unobservable inputs include an
estimate of future revenues for the asset group. This impairment charge was partially offset by income tax benefits of
$3.2 million.
Premdor S.A.S. generated $13.4 million of losses from continuing operations before income tax expense
(benefit) during the year ended January 3, 2016. All Premdor S.A.S. figures exclude amounts recognized for loss on
deconsolidation.
3. Accounts Receivable
Our customers consist mainly of wholesale distributors, dealers, and retail home centers. Our ten largest
customers accounted for 56.2% and 57.3% of total accounts receivable as of December 31, 2017, and January 1, 2017,
respectively. Our largest two customers, The Home Depot, Inc. and Lowe's Co. Inc., each accounted for more than 10%
of the consolidated gross accounts receivable balance as of December 31, 2017, and January 1, 2017. No other individual
customer accounted for greater than 10% of the consolidated gross accounts receivable balance at either December 31,
2017, or January 1, 2017.
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The changes in the allowance for doubtful accounts were as follows for the periods indicated:
(In thousands)
Balance at beginning of period
Additions charged to expense
Deductions
Balance at end of period
Year Ended
December 31, 2017
January 1, 2017
January 3, 2016
$
$
1,010
$
793
(18)
1,785
$
3,125
$
103
(2,218)
1,010
$
2,616
2,083
(1,574)
3,125
We maintain an accounts receivable sales program with a third party (the "AR Sales Program"). Under the AR
Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold
outright to a third party who assumes the full risk of collection, without recourse to us in the event of a loss. Transfers of
receivables under this program are accounted for as sales. Proceeds from the transfers reflect the face value of the
accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts
receivable in the consolidated balance sheets and are included in cash flows from operating activities in the consolidated
statements of cash flows. The discounts on the sales of trade accounts receivable sold under the AR Sales Program were
not material for any of the periods presented and were recorded in selling, general and administration expense within the
consolidated statements of comprehensive income (loss).
4. Inventories
The amounts of inventory on hand were as follows as of the dates indicated:
(In thousands)
Raw materials
Finished goods
Provision for obsolete or aged inventory
Inventories, net
December 31,
2017
January 1,
2017
$
$
172,960
$
68,851
(7,769)
234,042
$
165,896
65,791
(5,747)
225,940
We carry an inventory provision which is the result of obsolete or aged inventory. The rollforward of our
inventory provision is as follows for the periods indicated:
(In thousands)
Balance at beginning of period
Additions charged to expense
Deductions
Balance at end of period
Year Ended
December 31, 2017
January 1, 2017
January 3, 2016
$
$
5,747
$
3,283
(1,261)
7,769
$
6,508
$
1,724
(2,485)
5,747
$
6,548
2,713
(2,753)
6,508
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Property, Plant and Equipment
The carrying amounts of our property, plant and equipment and accumulated depreciation were as follows as of
the dates indicated:
(In thousands)
Land
Buildings
Machinery and equipment
Property, plant and equipment, gross
Accumulated depreciation
Property, plant and equipment, net
December 31,
2017
January 1,
2017
$
26,790
$
176,077
661,026
863,893
(290,334)
573,559
$
$
24,562
163,802
595,929
784,293
(242,205)
542,088
Total depreciation expense was $57.5 million, $57.6 million, and $59.2 million for the years ended
December 31, 2017, January 1, 2017, and January 3, 2016, respectively. Depreciation expense is included primarily
within cost of goods sold in the consolidated statements of comprehensive income (loss).
6. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill were as follows as of the dates indicated:
(In thousands)
January 3, 2016
Goodwill from 2016 acquisitions
Measurement period adjustment
Foreign exchange fluctuations
January 1, 2017
Goodwill from 2017 acquisitions
Foreign exchange fluctuations
North American
Residential
Europe
Architectural
Total
$
2,835
$
39,306
$
86,029
$
—
—
8
2,843
—
24
—
—
(6,896)
32,410
—
3,021
7,331
599
74
94,033
5,895
223
128,170
7,331
599
(6,814)
129,286
5,895
3,268
December 31, 2017
$
2,867
$
35,431
$
100,151
$
138,449
We performed a quantitative impairment test of each of our reporting units during the fourth quarter of 2017 and
determined that goodwill was not impaired. During 2016 we recorded a $0.6 million increase in goodwill as a
measurement period adjustment relating to the USA Wood Door acquisition, due to finalization of certain income tax-
related items.
Changes in the net book value of intangible assets were as follows for the periods indicated:
(In thousands)
Customer
Relationships
Patents
Software
Other
Trademarks
and
Tradenames
Total
January 1, 2017
$
75,904
$
10,276
$
4,123
$
1,250
$
98,601
$
190,154
Acquisitions
Additions (write-offs)
Reclassifications
Amortization
Translation adjustment
4,400
—
—
(14,866)
3,923
—
1,301
—
(2,317)
285
—
2,352
—
(4,318)
44
—
—
2,966
(2,689)
102
—
—
(2,966)
—
4,113
4,400
3,653
—
(24,190)
8,467
December 31, 2017
$
69,361
$
9,545
$
2,201
$
1,629
$
99,748
$
182,484
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands)
Customer
Relationships
Patents
Software
Other
Trademarks
and
Tradenames
Total
January 3, 2016
$
102,254
$
11,590
$
6,435
$
2,860
$
102,793
$
225,932
Additions (write-offs)
Amortization
Translation adjustment
—
(16,737)
(9,613)
1,055
(2,283)
(86)
1,392
(3,678)
(26)
—
(1,294)
(316)
—
—
(4,192)
2,447
(23,992)
(14,233)
January 1, 2017
$
75,904
$
10,276
$
4,123
$
1,250
$
98,601
$
190,154
The cost and accumulated amortization values of our intangible assets were as follows for the periods indicated:
(In thousands)
Definite life intangible assets:
Customer relationships
Patents
Software
Other
Indefinite life intangible assets:
Trademarks and tradenames
Total intangible assets
(In thousands)
Definite life intangible assets:
Customer relationships
Patents
Software
Other
Indefinite life intangible assets:
Trademarks and tradenames
Total intangible assets
December 31, 2017
Cost
Accumulated
Amortization
Translation
Adjustment
Net Book
Value
$
160,327
$
31,999
33,574
15,246
241,146
(79,628) $
(21,768)
(31,183)
(11,836)
(144,415)
(11,338) $
(686)
(190)
(1,781)
(13,995)
69,361
9,545
2,201
1,629
82,736
108,572
—
$
349,718
$
(144,415) $
(8,824)
(22,819) $
99,748
182,484
January 1, 2017
Cost
Accumulated
Amortization
Translation
Adjustment
Net Book
Value
$
155,927
$
30,698
31,222
12,280
230,127
(64,762) $
(19,451)
(26,865)
(9,147)
(120,225)
(15,261) $
(971)
(234)
(1,883)
(18,349)
75,904
10,276
4,123
1,250
91,553
111,538
—
$
341,665
$
(120,225) $
(12,937)
(31,286) $
98,601
190,154
Amortization of intangible assets was $24.2 million, $24.0 million and $22.2 million for the years ended
December 31, 2017, January 1, 2017, and January 3, 2016 respectively. Amortization expense is classified within selling,
general and administration expenses in the consolidated statements of comprehensive income (loss).
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimated future amortization of intangible assets with definite lives as of December 31, 2017, is as
follows:
(In thousands)
Fiscal year:
2018
2019
2020
2021
2022
7. Accrued Expenses
The details of our accrued expenses were as follows as of the dates indicated:
$
19,294
17,087
13,648
10,740
7,541
(In thousands)
Accrued payroll
Accrued rebates
Accrued interest
Other accruals
Total accrued expenses
8. Long-Term Debt
(In thousands)
5.625% senior unsecured notes due 2023
Unamortized premium on 2023 Notes
Debt issuance costs for 2023 Notes
Capital lease obligations
Other long-term debt
Total long-term debt
December 31,
2017
January 1,
2017
$
$
38,296
$
34,488
10,688
43,287
49,032
30,620
8,335
45,812
126,759
$
133,799
December 31,
2017
January 1,
2017
$
625,000
$
475,000
5,714
(6,635)
378
1,200
—
(5,393)
768
370
$
625,657
$
470,745
Interest expense related to our consolidated indebtedness under senior unsecured notes was $29.7 million, $27.8
million, and $32.0 million for years ended December 31, 2017, January 1, 2017, and January 3, 2016, respectively.
5.625% Senior Notes due 2023
On September 27, 2017, and March 23, 2015, we issued $150.0 million and $475.0 million aggregate principal
senior unsecured notes, respectively (the “2023 Notes”). The 2023 Notes were issued in two private placements for
resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the
“Securities Act”), and to buyers outside the United States pursuant to Regulation S under the Securities Act. The 2023
Notes were issued without registration rights and are not listed on any securities exchange. The 2023 Notes bear interest
at 5.625% per annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and are due
March 15, 2023. The 2023 Notes were issued at 104.0% and par in 2017 and 2015, respectively, and the resulting
premium of $6.0 million is being amortized to interest expense over the term of the 2023 Notes using the effective
interest method. We received net proceeds of $153.9 million and $467.9 million, respectively, after deducting $2.1
million and $7.1 million of debt issuance costs in 2017 and 2015, respectively. The debt issuance costs were capitalized
as a reduction to the carrying value of debt and are being accreted to interest expense over the term of the 2023 Notes
using the effective interest method. The net proceeds from the 2017 issuance of the 2023 Notes are for general corporate
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
purposes. The net proceeds from the 2015 issuance of the 2023 Notes, together with available cash balances, were used
to redeem the $500.0 million aggregate principal of 8.25% senior unsecured notes due 2021 (the "2021 Notes") and to
pay related premiums, fees and expenses.
In conjunction with the closing of the 2023 Notes offering, the 2021 Notes were fully redeemed and considered
extinguished as of March 23, 2015. Under the terms of the indenture governing the 2021 Notes, we paid the applicable
premium, as described in the indenture, of $31.7 million. Additionally, the unamortized premium of $11.5 million and
unamortized debt issuance costs of $7.8 million relating to the 2021 Notes were written off in conjunction with the
extinguishment of the 2021 Notes. The resulting loss on extinguishment of debt was $28.0 million and is recorded as part
of income (loss) from continuing operations before income tax expense (benefit) in the consolidated statements of
comprehensive income (loss). Additionally, the cash payment of interest accrued to, but not including, the redemption
date was accelerated to the redemption date.
We may redeem the 2023 Notes, in whole or in part, at any time prior to March 15, 2018, at a price equal to
100% of the principal amount plus the applicable premium, plus accrued and unpaid interest, if any, to the date of
redemption. The applicable premium means, with respect to a note at any date of redemption, the greater of (i) 1.00% of
the then-outstanding principal amount of such note and (ii) the excess of (a) the present value at such date of redemption
of (1) the redemption price of such note at March 15, 2018, plus (2) all remaining required interest payments due on such
note through such date (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate
equal to the Treasury Rate, as described in the indenture, plus 50 basis points, over (b) the principal amount of such note
on such redemption date. We may also redeem the 2023 Notes, in whole or in part, at any time on or after March 15,
2018, at the applicable redemption prices specified under the indenture governing the 2023 Notes, plus accrued and
unpaid interest, if any, to the date of redemption. If we experience certain changes of control or consummate certain asset
sales and do not reinvest the net proceeds, we must offer to repurchase all of the 2023 Notes at a purchase price of
101.00% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.
Obligations under the 2023 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior
unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries.
The indenture governing the 2023 Notes contains restrictive covenants that, among other things, limit our
ability and the ability of our subsidiaries to: (i) incur additional debt and issue disqualified or preferred stock, (ii) make
restricted payments, (iii) sell assets, (iv) create or permit restrictions on the ability of our restricted subsidiaries to pay
dividends or make other distributions to the parent company, (v) create or incur certain liens, (vi) enter into sale and
leaseback transactions, (vii) merge or consolidate with other entities and (viii) enter into transactions with affiliates. The
foregoing limitations are subject to exceptions as set forth in the indenture governing the 2023 Notes. In addition, if in
the future the 2023 Notes have an investment grade rating from at least two nationally recognized statistical rating
organizations, certain of these covenants will be replaced with a less restrictive covenant.
The indenture governing the 2023 Notes contains customary events of default (subject in certain cases to
customary grace and cure periods). As of December 31, 2017, we were in compliance with all covenants under the
indenture governing the 2023 Notes.
ABL Facility
On April 9, 2015, we and certain of our subsidiaries entered into a $150.0 million asset-based revolving credit
facility (the "ABL Facility") maturing on April 9, 2020. The borrowing base is calculated based on a percentage of the
value of selected U.S. and Canadian accounts receivable and inventory, less certain ineligible amounts. Obligations
under the ABL Facility are secured by a first priority security interest in substantially all of the current assets of Masonite
and our subsidiaries. In addition, obligations under the ABL Facility are fully and unconditionally guaranteed, jointly and
severally, on a senior secured basis, by certain of our directly or indirectly wholly-owned subsidiaries. Borrowings under
the ABL Facility bear interest at a rate equal to, at our option, (i) the Base Rate, Canadian Prime Rate or Canadian Base
Rate (each as defined in the Amended and Restated Credit Agreement) plus a margin ranging from 0.25% to 0.75% per
annum, or (ii) the Eurodollar Base Rate or BA Rate (each as defined in the Amended and Restated Credit Agreement),
plus a margin ranging from 1.25% to 1.75% per annum. In addition to paying interest on any outstanding principal under
the ABL Facility a commitment fee is payable on the undrawn portion of the ABL Facility in an amount equal
to 0.25% per annum of the average daily balance of unused commitments during each calendar quarter.
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The ABL Facility contains various customary representations, warranties and covenants by us that, among other
things, and subject to certain exceptions, restrict Masonite's ability and the ability of our subsidiaries to: (i) pay dividends
on our common shares and make other restricted payments, (ii) make investments and acquisitions, (iii) engage in
transactions with our affiliates, (iv) sell assets, (v) merge and (vi) create liens. The Amended and Restated Credit
Agreement amended the ABL Facility to, among other things, (i) permit us to incur unlimited unsecured debt as long as
such debt does not contain covenants or default provisions that are more restrictive than those contained in the ABL
Facility, (ii) permit us to incur debt as long as the pro forma secured leverage ratio is less than 4.5 to 1.0, and (iii) add
certain additional exceptions and exemptions under the restricted payment, investment and indebtedness covenants
(including increasing the amount of certain debt permitted to be incurred under an existing exception). As
of December 31, 2017, and January 1, 2017, we were in compliance with all covenants under the credit agreement
governing the ABL Facility and there were no amounts outstanding under the ABL Facility.
9. Commitments and Contingencies
Leases
For lease agreements that provide for escalating rent payments or rent-free occupancy periods, we recognize
rent expense on a straight line basis over the non-cancelable lease term and any option renewal period where failure to
exercise such option would result in an economic penalty in such amount that renewal appears, at the inception of the
lease, to be reasonably assured. The lease term commences on the date when all conditions precedent to our obligation to
pay rent are satisfied. The leases contain provisions for renewal ranging from zero to three options of generally five years
each. Minimum payments, for the following future periods, under non-cancelable operating leases and service
agreements with initial or remaining terms of one year or more consist of the following:
(In thousands)
Fiscal year:
2018
2019
2020
2021
2022
Thereafter
$
23,177
21,336
18,447
13,806
9,906
62,855
Total future minimum lease payments
$
149,527
Total rent expense, including non-cancelable operating leases and month-to-month leases, was $28.8 million,
$26.3 million, and $24.0 million for years ended December 31, 2017, January 1, 2017, and January 3, 2016, respectively.
We have provided customary indemnifications to our landlords under certain property lease agreements for
claims by third parties in connection with their use of the premises. We also have provided routine indemnifications
against adverse effects related to changes in tax laws and patent infringements by third parties. The maximum amount of
these indemnifications cannot be reasonably estimated due to their nature. In some cases, we have recourse against other
parties to mitigate the risk of loss from these indemnifications. Historically, we have not made any significant payments
relating to such indemnifications.
Legal Proceedings
On January 12, 2018, Desmond Mathis, a current employee at our location in Greenville, Texas, filed suit
against us in the U.S. District Court for the Northern District of Texas (Dallas Division). He asserts that we violated the
Fair Labor Standards Act ("FLSA") in regard to overtime pay. The case was brought as a collective action under the
FLSA. The potential claimants in the collective action are alleged to be national in scope. Plaintiff claims that we paid
only one half time instead of time and a half for certain instances of overtime work. Plaintiff also claims that we did not
properly include bonus money in computing a proper overtime rate. Our responsive pleading is due on March 2, 2018.
While we intend to defend the lawsuit vigorously, there can be no assurance that the ultimate resolution of this lawsuit
will not have a material, adverse effect on our consolidated financial condition or results of operations.
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
In November 2015, Derrick Byrd, a former hourly employee in California, filed a putative class action lawsuit
against us in California Superior Court alleging violations of California wage and hour laws with respect to meal periods
and rest breaks and other technical wage and hour issues. In January 2016, we removed the lawsuit to the United States
District Court for the Central District of California and on February 25, 2016, the court dismissed the complaint in its
entirety. On March 18, 2016, the plaintiff filed an amended complaint, which we moved to dismiss, and we moved to
strike several of the plaintiff’s causes of action. On July 7, 2016, the court dismissed several of the plaintiff’s causes of
action and gave the plaintiff leave to amend. On July 29, 2016, the plaintiff filed a second amended complaint containing
a narrower version of nine of the eleven original claims. We answered this amended complaint on August 12, 2016, and
amended our answer on September 14, 2016. On November 28, 2016, the plaintiff filed a third amended complaint to
add an additional individual as a plaintiff. On December 19, 2016, we answered this amended complaint. The plaintiffs
continued to allege violations with respect to overtime pay, meal periods, rest breaks, minimum wage, timely pay, wage
statement detail and reimbursement of business expenses and sought damages, penalties, attorney’s fees and an award
under the California Private Attorney General Act (“PAGA”). On August 2, 2017, the parties entered into a Joint
Stipulation of Class Action and PAGA Settlement and Release (the “Settlement”), which was amended on October 26,
2017. In entering into the Settlement, we denied all claims made in the lawsuit and denied any wrongdoing. On
December 11, 2017 the court preliminary approved the Settlement. The Settlement is subject to final court approval and
the court has scheduled the final approval hearing for March 5, 2018. Pursuant to the Settlement, payment of the
settlement amount would occur after final court approval. The amount we have agreed to pay as part of the Settlement
has not had and is not expected to have a material impact on our financial condition or operating results.
In addition, from time to time, we are involved in various claims and legal actions. In the opinion of
management, the ultimate disposition of these matters, individually and in the aggregate, will not have a material adverse
effect on our financial condition, results of operations or cash flows.
10. Share Based Compensation Plans
Share-based compensation expense was $11.6 million, $18.8 million, and $13.2 million for the years ended
December 31, 2017, January 1, 2017, and January 3, 2016, respectively. As of December 31, 2017, the total remaining
unrecognized compensation expense related to share based compensation amounted to $12.6 million, which will be
amortized over the weighted average remaining requisite service period of 1.4 years. Share based compensation expense
is recognized using a graded-method approach, or to a lesser extent a cliff-vesting approach, depending on the terms of
the individual award and is classified within selling, general and administration expenses in the consolidated statements
of comprehensive income (loss). All share based awards are settled through issuance of new shares of our common stock.
The share based award agreements contain restrictions on sale or transfer other than in limited circumstances. All other
transfers would cause the share based awards to become null and void.
In March 2016, the FASB issued ASU 2016-09, "Improvements to Employee Share-Based Payment
Accounting", which amended ASC 718 "Compensation - Stock Compensation". This ASU simplified several aspects of
the accounting for employee share-based award transactions, including the accounting for income taxes, forfeitures and
statutory tax withholding requirements, as well as classification in the statement of cash flows. Under the ASU, an entity
recognizes all excess tax benefits and shortfalls resulting from the exercise or vesting of a share-based award to an
employee. It also allowed an entity to elect, as an accounting policy, either to continue to estimate forfeitures of share-
based awards (as was previously required) or to account for forfeitures when they occur. Additionally, the ASU modified
the prior exception to liability classification of an award when an employer used a net-settlement feature to withhold
shares to meet the employer’s minimum statutory tax withholding requirement. We adopted this guidance during the year
ended January 1, 2017. The aspect of the standard dealing with excess tax benefits and tax deficiencies was adopted
using the modified-retrospective method, and resulted in an increase to previously-presented retained earnings of $30.2
million as of January 3, 2016. As a result of the adoption of this standard, we elected to account for forfeitures when they
occur. The forfeitures aspect of the standard and the tax withholding aspect of the standard were adopted using a
modified retrospective approach and had no impact on any previously-presented amounts. All other aspects of the
standard were adopted using a retrospective approach and had no impact on any previously-presented amounts.
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Equity Incentive Plan
Prior to July 9, 2012, we had a management equity incentive plan (the "2009 Plan"). The 2009 Plan required
granting by June 9, 2012, equity instruments which upon exercise would result in management (excluding directors)
owning 9.55% of our common equity (3,554,811 shares) on a fully diluted basis, after giving consideration to the
potential exercise of warrants and the equity instruments granted to directors. Under the 2009 Plan, we were required to
issue equity instruments to directors that represented 0.90% (335,004 shares) of the common equity on a fully diluted
basis. The requirement for issuance to employees was satisfied in June 2012, and the requirement for issuance to
directors was satisfied in July 2009. No awards have been granted under the 2009 Plan since May 30, 2012, and no
future awards will be granted under the 2009 Plan; however, all outstanding awards under the 2009 Plan will continue to
be governed by their existing terms. Aside from shares issuable for outstanding awards, there are no further shares of
common stock available for future issuance under the 2009 Plan.
On July 12, 2012, the Board of Directors adopted the Masonite International Corporation 2012 Equity Incentive
Plan, which was amended on June 21, 2013, by our Board of Directors, further amended and restated by our Board of
Directors on February 23, 2015, and approved by our shareholders on May 12, 2015 (as amended and restated, the "2012
Plan"). The 2012 Plan was adopted because the Board believes awards granted will help to attract, motivate and retain
employees and non-employee directors, align employee and stockholder interests and encourage a performance-based
culture built on employee stock ownership. The 2012 Plan permits us to offer eligible directors, employees and
consultants cash and share-based incentives, including stock options, stock appreciation rights, restricted stock, other
share-based awards (including restricted stock units) and cash-based awards. The 2012 Plan is effective for ten years
from the date of its adoption. Awards granted under the 2012 Plan are at the discretion of the Human Resources and
Compensation Committee of the Board of Directors. The Human Resources and Compensation Committee may grant
any award under the 2012 Plan in the form of a performance award. The 2012 Plan may be amended, suspended or
terminated by the Board at any time; provided, that any amendment, suspension or termination which impairs the rights
of a participant is subject to such participant's consent and; provided further, that certain material amendments are
subject to shareholder approval. The aggregate number of common shares that can be issued with respect to equity
awards under the 2012 Plan cannot exceed 2,000,000 shares plus the number of shares subject to existing grants under
the 2009 plan that may expire or be forfeited or cancelled. As of December 31, 2017, there were 1,042,221 shares of
common stock available for future issuance under the 2012 Plan.
Deferred Compensation Plan
We offer to certain of our employees and directors a Deferred Compensation Plan ("DCP"). The DCP is an
unfunded non-qualified deferred compensation plan that permits those certain employees and directors to defer a portion
of their compensation to a future time. Eligible employees may elect to defer a portion of their base salary, bonus and/or
restricted stock units and eligible directors may defer a portion of their director fees or restricted stock units. All
contributions to the DCP on behalf of the participant are fully vested (other than restricted stock unit deferrals which
remain subject to the vesting terms of the applicable equity incentive plan) and placed into a grantor trust, commonly
referred to as a "rabbi trust." Although we are permitted to make matching contributions under the terms of the DCP, we
have not elected to do so. The DCP invests the contributions in diversified securities from a selection of investments and
the participants choose their investments and may periodically reallocate the assets in their respective accounts.
Participants are entitled to receive the benefits in their accounts upon separation of service or upon a specified date, with
benefits payable as a single lump sum or in annual installments. All plan investments are categorized as having Level 1
valuation inputs as established by the FASB’s Fair Value Framework.
Assets of the rabbi trust, other than Company stock, are recorded at fair value and included in other assets in the
consolidated balance sheets. These assets in the rabbi trust are classified as trading securities and changes in their fair
values are recorded in other income (loss) in the consolidated statements of comprehensive income (loss). The liability
relating to deferred compensation represents our obligation to distribute funds to the participants in the future and is
included in other liabilities in the consolidated balance sheets. As of December 31, 2017, the liability and asset relating to
deferred compensation had a fair value of $5.5 million and $5.6 million, respectively. As of January 1, 2017, the liability
and asset relating to deferred compensation each had a fair value of $3.3 million. Any unfunded gain or loss relating to
changes in the fair value of the deferred compensation liability is recognized in selling, general and administration
expense in the consolidated statements of comprehensive income (loss).
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2017, participation in the deferred compensation plan is limited and no restricted stock
awards have been deferred into the deferred compensation plan.
Stock Appreciation Rights
We have granted Stock Appreciation Rights ("SARs") to certain employees under both the 2009 Plan and the
2012 Plan, which entitle the recipient to the appreciation in value of a number of common shares over the exercise price
over a period of time, each as specified in the applicable award agreement. The exercise price of any SAR granted may
not be less than the fair market value of our common shares on the date of grant. The compensation expense for the
SARs is measured based on the fair value of the SARs at the date of grant and is recognized over the requisite service
period. The SARs vest over a maximum of four years, have a life of ten years and settle in common shares. It is assumed
that all time-based SARs will vest.
The total fair value of SARs vested was $0.4 million, $2.4 million, and $0.6 million, in the years ended
December 31, 2017, January 1, 2017, and January 3, 2016, respectively.
Twelve months ended December 31, 2017
Stock
Appreciation
Rights
Aggregate
Intrinsic Value
(in thousands)
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Life (Years)
Outstanding, beginning of period
790,290
$
32,659
$
Granted
Exercised
Forfeited
Outstanding, end of period
Exercisable, end of period
59,265
(281,444)
(30,181)
537,930
443,998
$
$
16,378
23,263
22,588
$
$
24.47
77.00
17.96
54.28
32.00
24.28
4.6
4.5
3.7
Twelve months ended January 1, 2017
Outstanding, beginning of period
Granted
Exercised
Forfeited
Outstanding, end of period
Exercisable, end of period
Twelve months ended January 3, 2016
Outstanding, beginning of period
Exercised
Forfeited
Outstanding, end of period
Exercisable, end of period
Stock
Appreciation
Rights
Aggregate
Intrinsic Value
(in thousands)
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Life (Years)
891,147
$
36,681
$
121,805
(176,416)
(46,246)
790,290
712,331
$
$
8,954
32,659
32,080
$
$
20.07
58.37
17.09
57.47
24.47
20.77
4.9
4.6
4.1
Stock
Appreciation
Rights
Aggregate
Intrinsic Value
(in thousands)
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Life (Years)
48,516
$
15,943
36,681
31,395
$
$
19.59
17.15
47.64
20.07
16.62
5.9
4.9
4.2
1,231,468
(326,933)
(13,388)
891,147
703,827
$
$
$
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The value of SARs granted in the year ended December 31, 2017, as determined using the Black-Scholes
Merton valuation model, was $1.3 million and is expected to be recognized over the average requisite service period of
2.0 years. Expected volatility is based upon the historical volatility of our public industry peers’ common shares amongst
other considerations. The expected term is calculated using the simplified method, due to insufficient exercise activity
during recent years as a basis from which to estimate future exercise patterns. The weighted average grant date
assumptions used for the SARs granted were as follows for the periods indicated:
SAR value (model conclusion)
Risk-free rate
Expected dividend yield
Expected volatility
Expected term (years)
Restricted Stock Units
2017 Grants
2016 Grants
$
22.65
$
16.78
2.0%
0.0%
25.8%
6.0
1.6%
0.0%
26.2%
6.0
We have granted Restricted Stock Units ("RSUs") to directors and certain employees under both the 2009 Plan
and the 2012 Plan. The RSUs confer the right to receive shares of our common stock at a specified future date or when
certain conditions are met. The compensation expense for the RSUs awarded is based on the fair value of the RSUs at the
date of grant and is recognized over the requisite service period. The RSUs vest over a maximum of three years and call
for the underlying shares to be delivered no later than 30 days following the vesting date unless the participant is subject
to a blackout period. In such case, the shares are to be delivered once the blackout restriction has been lifted. It is
assumed that all time-based RSUs will vest.
December 31, 2017
Year Ended
January 1, 2017
January 3, 2016
Total
Restricted
Stock Units
Outstanding
Weighted
Average
Grant Date
Fair Value
Total
Restricted
Stock Units
Outstanding
Weighted
Average
Grant Date
Fair Value
Total
Restricted
Stock Units
Outstanding
Weighted
Average
Grant Date
Fair Value
Outstanding, beginning of
period
Granted
Delivered
Withheld to cover (1)
Forfeited
58.51
70.67
501,926
$
242,047
(197,255)
(58,739)
(70,381)
49.31
46.05
526,930
$
288,683
(234,791)
(61,894)
(17,002)
543,373
$
257,775
(157,356)
(32,123)
(84,739)
34.56
61.56
Outstanding, end of period
417,598
$
66.14
501,926
$
58.51
526,930
$
49.31
____________
(1) A portion of the vested RSUs delivered were net share settled to cover statutory requirements for income and other employment
taxes. We remit the equivalent cash to the appropriate taxing authorities. These net share settlements had the effect of share
repurchases by us as we reduced and retired the number of shares that would have otherwise been issued as a result of the vesting.
Approximately one-third of the RSUs granted during the year ended December 31, 2017, vest at specified future
dates with only service requirements, while the remaining portion of the RSUs vest based on both performance and
service requirements. The value of RSUs granted in the year ended December 31, 2017, was $17.1 million and is being
recognized over the weighted average requisite service period of 2.7 years. During the year ended December 31, 2017,
there were 255,994 RSUs vested at a fair value of $14.4 million.
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Warrants
On June 9, 2009, we issued 5,833,335 warrants, representing the right to purchase our common shares for
$55.31 per share, subsequently adjusted to $50.77 per share for the $4.54 per share return of capital in 2011. Of these,
3,333,334 had an expiration date of June 9, 2014 (the "2014 Warrants"), and 2,500,001 had an expiration date of June 9,
2016 (the "2016 Warrants"). During the six months prior to their respective expiration dates, the warrants provided the
holders with a cashless exercise option. There was no activity related to warrants during the year ended December 31,
2017. During the twelve months ended January 1, 2017, holders of the 2016 Warrants paid $10.5 million to
exercise 2,496,493 warrants and we issued 630,951 new common shares to the holders. During the same
period, 1,478 warrants were forfeited by the holders upon their expiration. We have accounted for these warrants as
equity instruments. As of both December 31, 2017, and January 1, 2017, all outstanding warrants to purchase our
common shares were either exercised or forfeited.
11. Restructuring Costs
The following table summarizes the restructuring charges recorded for the periods indicated:
(In thousands)
2016 Plan
2015 Plan
2014 Plan
2012 and Prior Plans
Total Restructuring Costs
(In thousands)
2016 Plan
2015 Plan
Total Restructuring Costs
(In thousands)
2015 Plan
2013 Plan
2012 and Prior Plans
Total Restructuring Costs
Year Ended December 31, 2017
Corporate &
Other
Architectural
Total
Europe
—
—
—
(27)
(27) $
2,394
—
—
—
2,394
$
— $
(7)
(1,510)
—
(1,517) $
2,394
(7)
(1,510)
(27)
850
Year Ended January 1, 2017
Europe
Architectural
Corporate &
Other
Total
—
19
19
1,313
—
$
1,313
$
— $
113
113
$
1,313
132
1,445
Year Ended January 3, 2016
North
American
Residential
Europe
Corporate &
Other
Total
— $
2,316
$
3,168
$
9
—
9
144
41
—
—
$
2,501
$
3,168
$
5,484
153
41
5,678
$
$
$
$
$
$
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands)
2016 Plan
2015 Plan
2014 Plan
2013 Plan
2012 and Prior Plans
Cumulative Amount Incurred Through
December 31, 2017
North
American
Residential
Europe
Architectural
Corporate &
Other
Total
$
— $
— $
3,707
$
— $
—
—
3,025
2,378
2,335
—
2,733
12,668
—
—
—
—
3,274
7,993
2,157
3,609
3,707
5,609
7,993
7,915
18,655
43,879
Total Restructuring Costs $
5,403
$
17,736
$
3,707
$
17,033
$
During 2016, we began implementing a plan (the "2016 Plan") to close one manufacturing facility in the
Architectural segment, which included the reduction of approximately 140 positions. The 2016 Plan was implemented to
improve our cost structure and enhance operational efficiencies. Costs associated with the 2016 Plan include closure
costs and severance and the 2016 Plan is substantially completed. As of December 31, 2017, we do not expect to incur
any future charges relating to the 2016 Plan.
During 2015, we began implementing a multi-year plan to reorganize and consolidate certain aspects of our
global head office (the "2015 Plan"). The 2015 Plan includes the creation of a new shared services function and the
rationalization of certain of our European facilities, including related headcount reductions. The 2015 Plan was
implemented in response to the need for more effective business processes enabled by the planned implementation of our
new enterprise resource planning system in our architectural business as well as ongoing weak market conditions in
Africa and Europe outside of the United Kingdom. Costs associated with the 2015 Plan included severance and closure
charges and are substantially completed. As of December 31, 2017, we do not expect to incur any material future charges
for the 2015 Plan.
On August 20, 2014, the Board of Directors of Masonite Israel Ltd. (“Israel”), one of our wholly-owned
subsidiaries, decided to voluntarily seek a Stay of Proceedings from the Israeli courts in an attempt to restructure the
business (the “2014 Plan”). The court filing was made on August 21, 2014, and the court appointed a trustee to oversee
the operation of the business. On June 28, 2017 the Stay of Proceedings was finalized, which resulted in a settlement
payment to us as creditor in the amount of $1.1 million, which was recorded as a reduction to restructuring costs. As of
December 31, 2017, we do not expect to incur any future charges relating to the 2014 Plan.
During 2013, we began implementing plans to rationalize certain of our facilities, including related headcount
reductions, in Canada due to synergy opportunities related to recent acquisitions in the residential interior wood door
markets. We have also rationalized certain of our operations, including related headcount reductions, in Ireland, South
Africa and Israel in order to respond to declines in demand in international markets. Additionally, the decision was made
to discontinue sales into the Polish market subsequent to the decision to cease manufacturing operations in 2012
(collectively, the "2013 Plan"). Costs associated with the 2013 Plan include severance and closure charges, including
impairment of certain property, plant and equipment, and are substantially completed. As of December 31, 2017, we do
not expect to incur any future charges for the 2013 Plan.
Prior years’ restructuring costs relate to the closure of certain of our U.S. manufacturing facilities due to the
start-up of our highly automated interior door slab assembly plant in Denmark, South Carolina, synergy opportunities
related to acquisitions in the architectural interior wood door market and footprint optimization efforts resulting from
declines in demand in specific markets, primarily in Europe. In response to the decline in demand, we reviewed the
required levels of production and reduced the workforce and plant capacity accordingly, resulting in severance and
closure charges. These actions were taken in order to rationalize capacity with existing and forecasted market demand
conditions. The restructuring plans initiated in 2012 and prior years (the "2012 and Prior Plans") are substantially
completed, although cash payments are expected to continue through 2019, primarily related to lease payments at closed
facilities. As of December 31, 2017, we do not expect to incur any material future charges for the 2012 and Prior Plans.
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The changes in the accrual for restructuring by activity were as follows for the periods indicated:
(In thousands)
January 1, 2017
Severance
Closure Costs
Cash Payments
2016 Plan
2015 Plan
2014 Plan
2012 and Prior
Plans
Total
$
$
1,300
$
116
$
2,278
$
3,604
$
282
426
465
(7)
—
—
2,473
$
109
$
—
(1,510)
(27)
741
$
275
(1,084)
244
3,039
$
December 31,
2017
90
—
—
194
284
(In thousands)
January 3, 2016
Severance
Closure Costs
Cash Payments
January 1, 2017
2016 Plan
2015 Plan
2014 Plan
2013 Plan
2012 and Prior
Plans
Total
(In thousands)
2015 Plan
2014 Plan
2013 Plan
2012 and Prior
Plans
Total
$
$
$
$
— $
1,313
$
— $
13
$
774
442
316
858
107
—
—
—
2,390
$
1,420
$
25
—
—
—
25
624
16
316
393
$
1,362
$
1,300
282
426
—
465
2,473
December 28,
2014
Severance
Closure Costs
— $
839
341
1,153
2,333
$
2,519
—
—
—
2,519
$
$
2,965
—
153
41
3,159
Cash Payments
4,710
$
397
178
January 3, 2016
774
$
442
316
$
336
5,621
$
858
2,390
12. Asset Impairment
During the year ended January 1, 2017, we recognized asset impairment charges of $1.5 million related to one
asset group in the Architectural segment, as a result of the 2016 Plan. The resulting non-cash impairment charge for the
asset group was determined based upon the excess of the asset group's carrying value of property, plant and equipment
over the fair value of such assets, determined using a discounted cash flows approach. This valuation was performed on a
non-recurring basis and is categorized as having Level 3 valuation inputs as established by the FASB's Fair Value
Framework. The Level 3 unobservable inputs include an estimate of future cash flows for the asset group and a salvage
value for the asset group. The fair value of the asset group was determined to be $0.6 million, compared to a book value
of $2.1 million, with the difference representing the asset impairment charge recorded in the consolidated statements of
comprehensive income (loss).
During the year ended January 3, 2016, we recognized asset impairment charges of $9.4 million, related to the
disposition of Premdor S.A.S., as described in Note 2.
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Income Taxes
For financial reporting purposes, income before income taxes includes the following components:
(In thousands)
December 31, 2017
January 1, 2017
January 3, 2016
Year Ended
Income (loss) from continuing operations before
income tax expense (benefit):
Canada
Foreign
Total income (loss) from continuing operations
before income tax expense (benefit):
$
$
25,617
$
104,387
25,982
$
100,699
(97,626)
70,057
130,004
$
126,681
$
(27,569)
Income tax expense (benefit) for income taxes consists of the following:
(In thousands)
December 31, 2017
Current income tax expense (benefit):
Canada
Foreign
Total current income tax expense (benefit):
Deferred income tax expense (benefit):
Canada
Foreign
Total deferred income tax expense (benefit):
Income tax expense (benefit)
$
$
$
7,293
(623)
6,670
(22,287)
(11,943)
(34,230)
(27,560) $
Year Ended
January 1, 2017
January 3, 2016
6,740
$
2,129
8,869
3,045
9,873
12,918
21,787
$
5,541
(466)
5,075
2,063
7,034
9,097
14,172
On December 22, 2017, Congress passed the Tax Cuts and Jobs Act ("Tax Reform"). Among other items, Tax
Reform reduces the federal corporate tax rate to 21% effective January 1, 2018. As a result, this has caused our net
deferred tax liabilities in the U.S. to be revalued. We performed an analysis to determine the impact of the revaluation of
the deferred tax assets and liabilities and have recorded a net income tax benefit of $27.2 million primarily associated
with the revaluation of these deferred tax items.
In accordance with SAB 118, we have reflected the income tax effects of the aspects of Tax Reform for which
the accounting under ASC 740 is complete. Our provision for income taxes does include estimates around the timing of
certain deductions. To the extent those estimates change, there could be effects to income tax expense due to the change
in the tax rate. We would expect to be complete with this analysis upon filing of our tax return in 2018.
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Canadian statutory rate is 26.5%, 26.6% and 26.6% for the years ended December 31, 2017, January 1,
2017, and January 3, 2016, respectively. A summary of the differences between expected income tax expense (benefit)
calculated at the Canadian statutory rate and the reported consolidated income tax expense (benefit) follows:
(In thousands)
December 31, 2017
January 1, 2017
January 3, 2016
Year Ended
$
34,477
$
33,710
$
Income tax expense (benefit) computed at
statutory income tax rate
Foreign rate differential
Permanent differences
Deconsolidation and disposition
Income attributable to a permanent establishment
Change in valuation allowance
Tax exempt income
Share based compensation
Income tax credits
Foreign exchange gains (losses)
Unrecognized tax benefits
Functional currency adjustments
Change in tax rate
Change in tax rate due to U.S. reform
Impact of Canadian tax legislation
Withholding taxes
Other
Income tax expense (benefit)
$
(7,325)
(637)
1,166
15,354
1,436
18,906
(9,855)
(1,542)
(2,026)
(2,020)
(142)
1,240
16
—
(293)
—
(106)
14,172
2,772
1,527
(160)
347
(27,603)
(6,469)
(7,583)
(1,833)
770
(116)
(283)
1,209
(27,138)
—
1,943
580
(27,560) $
6,125
1,159
(2,027)
637
(586)
(9,411)
(6,080)
(2,389)
(277)
2,232
(157)
(1,130)
—
—
—
(19)
21,787
$
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred tax assets arise from available net operating losses and deductions. Our ability to use those net
operating losses is dependent upon our results of operations in the tax jurisdictions in which such losses or deductions
arose. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and
liabilities are presented below:
(In thousands)
Deferred tax assets:
Non-capital loss carryforwards
Capital loss carryforwards
Deferred interest expense
Pension and post-retirement liability
Accruals and reserves currently not deductible for tax purposes
Share based compensation
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Plant and equipment
Intangibles
Basis difference in subsidiaries
Unrealized foreign exchange loss (gain)
Other
Total deferred tax liabilities
Net deferred tax asset (liability)
Year Ended
December 31, 2017
January 1, 2017
$
34,605
$
13,498
8,671
4,493
14,954
6,137
7,588
89,946
(13,912)
76,034
(60,571)
(30,578)
(6,558)
(6,753)
(2,495)
(106,955)
(30,921) $
$
52,051
13,748
10,563
9,457
20,909
10,805
7,525
125,058
(36,800)
88,258
(88,241)
(41,222)
(8,824)
(7,944)
(2,972)
(149,203)
(60,945)
Management assesses the available positive and negative evidence to estimate if sufficient future taxable
income will be generated to use the existing deferred tax assets.
As of December 31, 2017, our deferred tax assets in Canada were primarily the result of non-capital losses,
capital losses and tax credit carryforwards. For the year ended December 31, 2017, we recorded a net valuation
allowance release of $24.1 million on the basis of management’s reassessment of the amount of our deferred tax assets
that are more likely than not to be realized. A valuation allowance of $8.0 million and $30.9 million was recorded against
our Canada gross deferred tax asset balance for the years ended December 31, 2017, and January 1, 2017, respectively.
As of each reporting date, management considers new evidence, both positive and negative, that could affect
our view of the future realization of deferred tax assets. As of December 31, 2017, due in part to cumulative pretax
income in the current year in the Canada federal tax jurisdiction, management determined that there is sufficient positive
evidence to conclude that it is more likely than not that additional deferred taxes of $24.1 million are realizable.
Therefore, the valuation allowance was reduced accordingly.
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2017 and January 1, 2017, a valuation allowance of $13.9 million and $36.8 million,
respectively, has been established to reduce the deferred tax assets to an amount that is more likely than not to be
realized. We have established valuation allowances on certain deferred tax assets resulting from net operating loss
carryforwards and other assets in Luxembourg, Mexico and the United Kingdom. Additionally, we have established
valuations allowances on capital loss carryforwards in Canada. The amount of the deferred tax assets considered
realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced
or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight
may be given to subjective evidence such as our projections for growth.
The following is a rollforward of the valuation allowance for deferred tax assets:
Year Ended
(In thousands)
December 31, 2017
January 1, 2017
January 3, 2016
Balance at beginning of period
Additions charged to expense and other
Deductions
Balance at end of period
$
$
36,800
$
5,566
(28,454)
13,912
$
40,857
$
2,433
(6,490)
36,800
$
35,766
27,877
(22,786)
40,857
The losses carried forward for tax purposes are available to reduce future income taxes by $134.2 million. We
can apply these losses against future taxable income as follows:
(In thousands)
2018-2025
2026-2045
Indefinitely
Total tax losses carried forward
Canada
United
States
Other
Foreign
— $
— $
4,201
$
50,441
—
32,577
—
965
46,010
Total
4,201
83,983
46,010
50,441
$
32,577
$
51,176
$
134,194
$
$
We believe that it is more likely than not that the benefit from certain net operating loss carryforwards will not
be realized. In recognition of this risk, we have provided valuation allowances of $4.4 million on these gross net
operating loss carryforwards. If or when recognized, the tax benefit related to any reversal of the valuation allowance on
deferred tax assets as of December 31, 2017, will be accounted for as a reduction of income tax expense.
We have outside basis differences, including undistributed earnings in our foreign subsidiaries. For those
subsidiaries in which we are considered to be indefinitely reinvested, no provision for Canadian income or local country
withholding taxes has been recorded. Upon reversal of the outside basis difference and/or repatriation of those earnings,
in the form of dividends or otherwise, we may be subject to both Canadian income taxes and withholding taxes payable
to the various foreign countries. For those subsidiaries where the earnings are not considered indefinitely reinvested,
taxes have been provided as required. The determination of the unrecorded deferred tax liability for temporary
differences related to investments in foreign subsidiaries that are considered to be indefinitely reinvested is not
considered practical.
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of December 31, 2017, and January 1, 2017, our unrecognized tax benefits were $8.6 million and $9.0
million, respectively, excluding interest and penalties. Included in the balance of unrecognized tax benefits as
of December 31, 2017 and January 1, 2017, are $5.9 million and $2.7 million, respectively, of tax benefits that, if
recognized, would favorably impact the effective tax rate. The unrecognized tax benefits are recorded in other long-term
liabilities and as a reduction to related long-term deferred income taxes in the consolidated balance sheets. The changes
to our unrecognized tax benefits were as follows:
Year Ended
(In thousands)
December 31, 2017
January 1, 2017
January 3, 2016
Unrecognized tax benefit at beginning of period
$
9,004
$
3,382
$
Gross increases in tax positions in current period
Gross decreases in tax positions in prior period
Gross increases in tax positions in prior period
Lapse of statute of limitations
Decrease due to change in tax rate
Unrecognized tax benefit at end of period
$
1,208
(464)
1,336
(17)
(2,507)
8,560
$
5,950
(335)
271
(264)
—
9,004
$
3,693
—
(172)
—
(139)
—
3,382
We recognize interest and penalties accrued related to unrecognized tax benefits as income tax expense. During
the years ended December 31, 2017, January 1, 2017, and January 3, 2016, we recorded accrued interest of $0.4
million, $0.5 million and $0.5 million, respectively. Additionally, we have recognized a liability for penalties of $0.4
million, $0.5 million and $0.6 million, and interest of $3.2 million, $5.5 million and $5.0 million, respectively.
We estimate that the amount of unrecognized tax benefits will not significantly increase or decrease within the
12 months following the reporting date.
We are subject to taxation in Canada, the United States and other foreign jurisdictions. As of December 31,
2017, our tax years for 2013 and 2012 are subject to Canadian income tax examinations. We are no longer subject to
Federal tax examinations in the United States for years prior to 2014 (except to the extent of loss carryforwards in 2012
and prior years). However, we are subject to United States state and local income tax examinations for years prior to
2013.
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing earnings attributable to Masonite by the weighted
average number of our common shares outstanding during the period. Diluted EPS is calculated by dividing earnings
attributable to Masonite by the weighted average number of common shares plus the incremental number of shares
issuable from non-vested and vested RSUs, SARs and warrants outstanding during the period.
(In thousands, except share and per share information)
Net income (loss) attributable to Masonite
Less: income (loss) from discontinued operations, net of tax
Income (loss) from continuing operations attributable to
Masonite
Shares used in computing basic earnings per share
Effect of dilutive securities:
Incremental shares issuable under share compensation
plans and warrants
Shares used in computing diluted earnings per share
Basic earnings (loss) per common share attributable to
Masonite:
Continuing operations attributable to Masonite
Discontinued operations attributable to Masonite, net of
tax
Total Basic earnings per common share attributable to
Masonite
Diluted earnings (loss) per common share attributable to
Masonite:
Continuing operations attributable to Masonite
Discontinued operations attributable to Masonite, net of
tax
Total Diluted earnings per common share attributable to
Masonite
Anti-dilutive instruments excluded from diluted earnings per
common share:
Warrants
Stock appreciation rights
Restricted stock units
December 31,
2017
Year Ended
January 1,
2017
January 3,
2016
$
$
$
$
$
$
$
151,739
(583)
$
98,622
(752)
(47,111)
(908)
152,322
$
99,374
$
(46,203)
29,298,236
30,359,193
30,266,747
516,423
741,883
—
29,814,659
31,101,076
30,266,747
5.20
$
3.27
$
(0.02)
(0.02)
5.18
$
3.25
$
5.11
$
3.19
$
(0.02)
(0.02)
5.09
$
3.17
$
(1.53)
(0.03)
(1.56)
(1.53)
(0.03)
(1.56)
—
51,129
—
—
—
—
2,497,971
408,682
336,673
The weighted average number of shares outstanding utilized for the diluted EPS calculation contemplates the
exercise of all currently outstanding SARs and warrants and the conversion of all RSUs. The dilutive effect of such
equity awards is calculated based on the weighted average share price for each fiscal period using the treasury stock
method. For the year ended January 3, 2016, no potential common shares relating to our equity awards were included in
the computation of diluted loss per share, as their effect would have been anti-dilutive given our net loss position for the
period.
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Segment Information
Our reportable segments are organized and managed principally by end market: North American Residential,
Europe and Architectural. The North American Residential reportable segment is the aggregation of the Wholesale and
Retail operating segments. The Europe reportable segment is the aggregation of the United Kingdom, Central Eastern
Europe and France (prior to disposal) operating segments. The Architectural reportable segment consists solely of the
Architectural operating segment. The Corporate & Other category includes unallocated corporate costs and the results of
immaterial operating segments which were not aggregated into any reportable segment, including the historical results of
our Africa operating segment. Operating segments are aggregated into reportable segments only if they exhibit similar
economic characteristics. In addition to similar economic characteristics we also consider the following factors in
determining the reportable segments: the nature of business activities, the management structure directly accountable to
our chief operating decision maker for operating and administrative activities, availability of discrete financial
information and information presented to the Board of Directors and investors.
Our management reviews net sales and Adjusted EBITDA (as defined below) to evaluate segment performance
and allocate resources. Net assets are not allocated to the reportable segments. Adjusted EBITDA is a non-GAAP
financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparable to similar
measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or
operating cash flows determined in accordance with GAAP. Adjusted EBITDA is defined as net income (loss)
attributable to Masonite adjusted to exclude the following items:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
depreciation;
amortization;
share based compensation expense;
loss (gain) on disposal of property, plant and equipment;
registration and listing fees;
restructuring costs;
asset impairment;
loss (gain) on disposal of subsidiaries;
interest expense (income), net;
loss on extinguishment of debt;
other expense (income), net;
income tax expense (benefit);
loss (income) from discontinued operations, net of tax; and
net income (loss) attributable to non-controlling interest.
This definition of Adjusted EBITDA differs from the definitions of EBITDA contained in the indenture
governing the 2023 Notes and the credit agreement governing the ABL Facility. Although Adjusted EBITDA is not a
measure of financial condition or performance determined in accordance with GAAP, it is used to evaluate and compare
the operating performance of the segments and it is one of the primary measures used to determine employee incentive
compensation. Intersegment transfers are negotiated on an arm’s length basis, using market prices.
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Certain information with respect to reportable segments is as follows for the periods indicated:
(In thousands)
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Adjusted EBITDA
Depreciation and amortization
Interest expense (income), net
Income tax expense (benefit)
(In thousands)
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Adjusted EBITDA
Depreciation and amortization
Interest expense (income), net
Income tax expense (benefit)
(In thousands)
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Adjusted EBITDA
Depreciation and amortization
Interest expense (income), net
Income tax expense (benefit)
Year Ended December 31, 2017
North
American
Residential
Europe
Architectural
Corporate &
Other
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,433,268
(4,338)
1,428,930
200,179
33,167
—
—
North
American
Residential
1,357,228
(5,926)
1,351,302
212,619
35,542
—
—
$
$
$
North
American
Residential
1,197,330
(4,106)
1,193,224
165,560
36,410
—
—
$
$
$
295,862
(3,936)
291,926
33,564
17,455
—
—
$
$
$
307,237
(18,773)
288,464
30,050
17,774
—
—
23,605
—
23,605
$
$
(8,225) $
13,507
30,153
(27,560)
Year Ended January 1, 2017
Europe
Architectural
Corporate &
Other
$
$
$
305,710
(4,543)
301,167
38,795
17,549
—
—
$
$
$
312,241
(14,353)
297,888
25,160
17,621
—
—
23,607
—
23,607
$
$
(24,061) $
11,619
28,178
21,787
Year Ended January 3, 2016
Europe
Architectural
Corporate &
Other
$
$
$
312,560
(719)
311,841
30,468
14,965
—
—
$
$
$
302,129
(10,310)
291,819
23,281
16,651
—
—
75,081
—
75,081
$
$
(15,112) $
14,859
32,884
14,172
Total
2,059,972
(27,047)
2,032,925
255,568
81,903
30,153
(27,560)
Total
1,998,786
(24,822)
1,973,964
252,513
82,331
28,178
21,787
Total
1,887,100
(15,135)
1,871,965
204,197
82,885
32,884
14,172
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of our consolidated Adjusted EBITDA to net income (loss) attributable to Masonite is set forth
as follows for the periods indicated:
(In thousands)
Adjusted EBITDA
Less (plus):
Depreciation
Amortization
Share based compensation expense
Loss (gain) on disposal of property, plant and equipment
Restructuring costs
Asset impairment
Loss (gain) on disposal of subsidiaries
Interest expense (income), net
Loss on extinguishment of debt
Other expense (income), net
Income tax expense (benefit)
Loss (income) from discontinued operations, net of tax
Net income (loss) attributable to non-controlling interest
December 31,
2017
Year Ended
January 1,
2017
January 3,
2016
$
255,568
$
252,513
$
204,197
57,528
24,375
11,644
1,893
850
—
212
30,153
—
(1,091)
(27,560)
583
5,242
57,604
24,727
18,790
2,111
1,445
1,511
(6,575)
28,178
—
(1,959)
21,787
752
5,520
59,160
23,725
13,236
1,371
5,678
9,439
59,984
32,884
28,046
(1,757)
14,172
908
4,462
(47,111)
Net income (loss) attributable to Masonite
$
151,739
$
98,622
$
We derive revenues from two major product lines: interior and exterior products. We do not review or analyze
our two major product lines below net sales. Additionally, we sell door components to external customers which are not
otherwise consumed in our vertical operations. Sales for the product lines are summarized as follows for the periods
indicated:
(In thousands)
Net sales to external customers:
Interior products
Exterior products
Components
Total
December 31, 2017
January 1, 2017
January 3, 2016
Year Ended
$
$
1,407,041
$
1,378,959
$
1,254,056
526,487
99,397
496,617
98,388
475,161
142,748
2,032,925
$
1,973,964
$
1,871,965
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net sales information with respect to geographic areas exceeding 10% of consolidated net sales is as follows for
the periods indicated:
(In thousands)
December 31, 2017
January 1, 2017
January 3, 2016
Net sales to external customers from facilities in:
Year Ended
United States
Canada
United Kingdom(1)
Other
Total
$
$
1,333,223
$
1,284,982
$
327,644
253,564
118,494
306,130
262,854
119,998
2,032,925
$
1,973,964
$
1,150,889
275,882
—
445,194
1,871,965
(1) Amount was less than 10% of consolidated net sales in the year ended January 3, 2016, and was included as part of Other.
In the years ended December 31, 2017, January 1, 2017, and January 3, 2016, net sales to The Home Depot,
Inc., were $356.5 million, $316.2 million and $302.2 million, respectively, which are included in the North American
Residential segment. No other individual customer's net sales exceeded 10% of consolidated net sales for any of the
periods presented.
Geographic information regarding property, plant and equipment which exceed 10% of consolidated property,
plant and equipment used in continuing operations is as follows as of the dates indicated:
(In thousands)
United States
Canada
Other
Total
16. Employee Future Benefits
United States Defined Benefit Pension Plan
December 31, 2017
January 1, 2017
January 3, 2016
$
$
369,630
$
350,899
$
67,358
136,571
60,086
131,103
573,559
$
542,088
$
333,822
55,440
144,972
534,234
We have a defined benefit pension plan covering certain active and former employees in the United States
(“U.S.”). Benefits under the plan were frozen at various times in the past. The measurement date used for the accounting
valuation of the defined benefit pension plan was December 31, 2017. Information about the U.S. defined benefit
pension plan is as follows for the periods indicated:
(In thousands)
December 31, 2017
January 1, 2017
January 3, 2016
Year Ended
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on assets
Amortization of actuarial net losses
Settlement loss (gain)
Net pension expense (benefit)
$
$
811
$
286
$
3,421
(5,852)
1,113
—
(507) $
3,570
(5,373)
1,070
—
(447) $
288
4,627
(6,350)
889
2,400
1,854
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
During 2015, we offered lump sum payments over a limited time to certain former employees in our U.S.
pension plans. Payments of $12.6 million related to this offer were made from existing plan assets in the fourth quarter of
2015. As a result, total lump sum payments from these plans exceeded annual service and interest cost in 2015, and we
recognized a pre-tax pension settlement charge of $2.4 million in the fourth quarter of 2015. This non-cash charge is
recorded within other expense (income), net in the consolidated statements of comprehensive income (loss).
Information with respect to the assets, liabilities and net accrued benefit obligation of the U.S. defined benefit
pension plan is set forth as follows for the periods indicated:
(In thousands)
Pension assets:
Year Ended
December 31, 2017
January 1, 2017
Fair value of plan assets, beginning of year
$
83,550
$
Company contributions
Actual return on plan assets
Benefits paid
Administrative expenses paid
Fair value of plan assets, end of year
Pension liability:
Accrued benefit obligation, beginning of year
Current service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Administrative expenses paid
Accrued benefit obligation, end of year
Net accrued benefit obligation, end of year
5,000
10,704
(5,915)
(623)
92,716
100,887
811
3,421
6,328
(5,915)
(623)
104,909
$
12,193
$
76,691
5,000
7,823
(5,061)
(903)
83,550
97,686
286
3,570
5,309
(5,061)
(903)
100,887
17,337
The net accrued benefit obligation is carried within other long-term liabilities in the consolidated balance sheets.
Pension fund assets are invested primarily in equity and debt securities. Asset allocation between equity and
debt securities and cash is adjusted based on the expected life of the plan and the expected retirement age of the plan
participants. No plan assets are expected to be returned to us in the next twelve months. Information with respect to the
amounts and types of securities that are held in the U.S. defined benefit pension plan is set forth as follows for the
periods indicated:
(In thousands)
Equity securities
Debt securities
Other
Year Ended
December 31, 2017
January 1, 2017
Amount
% of Total
Plan
Amount
% of Total
Plan
$
$
54,517
33,470
4,729
92,716
58.8% $
36.1%
5.1%
100.0% $
48,793
30,162
4,595
83,550
58.4%
36.1%
5.5%
100.0%
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Under our investment policy statement, plan assets are invested to achieve a fully-funded status based on
actuarial calculations, maintain a level of liquidity that is sufficient to pay benefit and expense obligations when due,
maintain flexibility in determining the future level of contributions and maximize returns within the limits of risk. The
target asset allocation for plan assets in the U.S. defined benefit pension plan for 2017 is 60% equity securities, 38% debt
securities and 2% of other securities. Our pension funds are not invested directly in the debt or equity of Masonite, but
may have been invested indirectly as a result of inclusion of Masonite in certain market or investment funds.
The weighted average actuarial assumptions adopted in measuring our U.S. accrued benefit obligations and
costs were as follows for the periods indicated:
December 31, 2017
Year Ended
January 1, 2017
January 3, 2016
Discount rate applied for:
Accrued benefit obligation
Net periodic pension cost
Expected long-term rate of return on plan assets
3.6%
4.2%
7.0%
4.2%
4.5%
7.0%
4.5%
4.1%
7.0%
The rate of compensation increase for the accrued benefit obligation and net periodic pension costs for the U.S.
defined benefit pension plan is not applicable, as benefits under the plan are not affected by compensation increases.
The expected long-term rate of return on plan assets assumption is derived by taking into consideration the
target plan asset allocation, historical rates of return on those assets, projected future asset class returns and net
outperformance of the market by active investment managers. An asset return model is used to develop an expected
range of returns on the plan investments over a 30-year period, with the expected rate of return selected from a best
estimate range within the total range of projected results.
United Kingdom Defined Benefit Pension Plan
We also have a defined benefit pension plan in the United Kingdom (“U.K.”), which has been curtailed in prior
years. The measurement date used for the accounting valuation of the U.K. defined benefit pension plan was
December 31, 2017. Information about the U.K. defined benefit pension plan is as follows for the periods indicated:
Components of net periodic benefit cost:
Interest cost
Expected return on assets
Net pension expense (benefit)
December 31, 2017
Year Ended
January 1, 2017
January 3, 2016
$
$
685
(429)
256
$
$
873
(640)
233
$
$
1,098
(756)
342
98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information with respect to the assets, liabilities and net accrued benefit obligation of the U.K. defined benefit
pension plan is as follows for the periods indicated:
(In thousands)
Pension assets:
Year Ended
December 31, 2017
January 1, 2017
Fair value of plan assets, beginning of year
$
21,011
$
Company contributions
Actual return on plan assets
Benefits paid
Translation adjustment
Fair value of plan assets, end of year
Pension liability
Accrued benefit obligation, beginning of year
Interest cost
Actuarial loss (gain)
Benefits paid
Translation adjustment
Accrued benefit obligation, end of year
Net accrued benefit obligation, end of year
1,002
1,867
(800)
2,061
25,141
29,095
685
(833)
(800)
2,665
30,812
$
5,671
$
21,922
801
3,765
(1,595)
(3,882)
21,011
29,361
873
5,746
(1,595)
(5,290)
29,095
8,084
The net accrued benefit obligation is carried within other long-term liabilities in the consolidated balance sheets.
Pension fund assets are invested primarily in equity and debt securities. Asset allocation between equity and
debt securities and cash is adjusted based on the expected life of the plan and the expected retirement age of the plan
participants. Information with respect to the amounts and types of securities that are held in the U.K. defined benefit
pension plan is set forth as follows for the periods indicated:
(In thousands)
Equity securities
Debt securities
Other
Year Ended
December 31, 2017
January 1, 2017
Amount
% of Total
Plan
Amount
% of Total
Plan
$
$
11,855
12,949
337
25,141
47.2% $
51.5%
1.3%
100.0% $
9,448
11,462
101
21,011
45.0%
54.5%
0.5%
100.0%
Under our investment policy and strategy, plan assets are invested to achieve a fully funded status based on
actuarial calculations, maintain a level of liquidity that is sufficient to pay benefit and expense obligations when due,
maintain flexibility in determining the future level of contributions and maximize returns within the limits of risk. The
target asset allocation for plan assets in the U.K. defined benefit pension plan for 2017 is 50% equity securities
and 50% debt securities.
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The weighted average actuarial assumptions adopted in measuring our U.K. accrued benefit obligations and
costs were as follows for the periods indicated:
December 31, 2017
Year Ended
January 1, 2017
January 3, 2016
Discount rate applied for:
Accrued benefit obligation
Net periodic pension cost
Expected long-term rate of return on plan assets
2.4%
2.2%
4.0%
2.6%
2.3%
3.9%
3.7%
3.3%
4.0%
The rate of compensation increase for the accrued benefit obligation and net pension cost for the U.K. defined
benefit pension plan is not applicable, as the plan was curtailed in prior years and benefits under the plan are not affected
by compensation increases.
The expected long-term rate of return on plan assets assumption is derived by taking into consideration the
target plan asset allocation, historical rates of return on those assets, projected future asset class returns and net
outperformance of the market by active investment managers. An asset return model is used to develop an expected
range of returns on the plan investments over a 10-year period, with the expected rate of return selected from a best
estimate range within the total range of projected results.
Overall Pension Obligation
For all periods presented, the U.S. and U.K. defined benefit pension plans were invested in equity securities,
equity funds, bonds, bond funds and cash and cash equivalents. All investments are publicly traded and possess a high
level of marketability or liquidity. All plan investments are categorized as having Level 1 valuation inputs as established
by the FASB’s Fair Value Framework.
The change in the net difference between the pension plan assets and projected benefit obligation that is not
attributed to our recognition of pension expense or funding of the plan is recognized in other comprehensive income
(loss) within the consolidated statements of comprehensive income (loss) and the balance of such changes is included in
accumulated other comprehensive income (loss) (“AOCI”) in the consolidated balance sheets. The estimated actuarial
net losses that will be amortized from AOCI into net periodic benefit cost during 2018 are $1.3 million.
As of December 31, 2017, the estimated future benefit payments from the U.S. and U.K. defined benefit
pension plans for the following future periods are set forth as follows:
(In thousands)
Fiscal year:
2018
2019
2020
2021
2022
2023 through 2027
Total estimated future benefit payments
Expected Future Benefit Payments
$
$
6,885
7,001
7,238
7,500
7,595
38,861
75,080
Expected contributions to the U.S. and U.K. defined benefit pension plans during 2018 are $5.7 million.
100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Other Comprehensive Income and Accumulated Other Comprehensive Income
A rollforward of the components of accumulated other comprehensive income (loss) is as follows for the
periods indicated:
(In thousands)
December 31,
2017
Year Ended
January 1,
2017
January 3,
2016
Accumulated foreign exchange gains (losses), beginning of
period
$
Foreign exchange gain (loss)
Income tax benefit (expense) on foreign exchange gain (loss)
Cumulative translation adjustment recognized upon
deconsolidation of subsidiaries
Less: foreign exchange gain (loss) attributable to non-controlling
interest
Accumulated foreign exchange gains (losses), end of period
(127,433) $
38,758
(609)
(90,111) $
(35,666)
—
(57,473)
(63,664)
899
212
(1,431)
29,027
752
(89,824)
225
(127,433)
(1,100)
(90,111)
Accumulated pension and other post-retirement adjustments,
beginning of period
Pension and other post-retirement adjustments
Income tax benefit (expense) on pension and other post-
retirement adjustments
Amortization of actuarial net losses
Income tax benefit (expense) on amortization of actuarial net
losses
Pension settlement charges
Income tax benefit (expense) on pension settlement charges
Accumulated pension and other post-retirement adjustments
(21,553)
529
39
1,113
(456)
—
—
(20,328)
(17,837)
(5,941)
1,578
1,070
(423)
—
—
(21,553)
(18,786)
(1,826)
820
889
(364)
2,400
(970)
(17,837)
Accumulated other comprehensive income (loss)
Other comprehensive income (loss), net of tax:
Less: other comprehensive income (loss) attributable to non-
controlling interest
Other comprehensive income (loss) attributable to Masonite
$
$
$
(110,152) $
(148,986) $
(107,948)
39,586
$
(40,813) $
(32,789)
752
38,834
$
225
(41,038) $
(1,100)
(31,689)
Cumulative translation adjustments are reclassified out of accumulated other comprehensive income (loss) into
loss (gain) on disposal of subsidiaries in the year ended December 31, 2017, and restructuring costs in the year ended
January 1, 2017, in the consolidated statements of comprehensive income (loss). Actuarial net losses are reclassified out
of accumulated other comprehensive income (loss) into cost of goods sold in the consolidated statements of
comprehensive income (loss). Pension settlement charges are reclassified out of accumulated other comprehensive
income (loss) into other expense (income), net, in the consolidated statements of comprehensive income (loss).
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. Supplemental Cash Flow Information
Certain cash and non-cash transactions were as follows for the periods indicated:
(In thousands)
Transactions involving cash:
Interest paid
Interest received
Income taxes paid
Income tax refunds
Non-cash transactions:
Property, plant and equipment additions in
accounts payable
19. Variable Interest Entity
December 31, 2017
January 1, 2017
January 3, 2016
Year Ended
$
27,396
$
26,862
$
381
10,169
68
279
9,475
1,469
33,340
614
6,984
303
8,431
7,724
11,417
As of December 31, 2017, and January 1, 2017, we held an interest in one variable interest entity ("VIE"),
Magna Foremost Sdn Bhd, which is located in Bintulu, Malaysia. The VIE is integrated into our supply chain and
manufactures door facings. We are the primary beneficiary of the VIE based on the terms of the existing supply
agreement with the VIE. As primary beneficiary via the supply agreement, we receive a disproportionate amount of
earnings on sales to third parties in relation to our voting interest, and as a result, receive a majority of the VIE’s residual
returns. Sales to third parties did not have a material impact on our consolidated financial statements. We also have the
power to direct activities of the VIE that most significantly impact the entity’s economic performance. As its primary
beneficiary, we have consolidated the results of the VIE. Our net cumulative investment in the VIE was comprised of the
following as of the dates indicated:
(In thousands)
Current assets
Property, plant and equipment, net
Long-term deferred income taxes
Other assets, net
Current liabilities
Other long-term liabilities
Non-controlling interest
December 31,
2017
January 1,
2017
$
7,213
$
11,344
5,472
3,386
(2,326)
(1,699)
(4,029)
19,361
$
6,633
13,673
6,505
1,789
(2,044)
(2,115)
(4,664)
19,777
Net assets of the VIE consolidated by Masonite
$
Current assets include $3.2 million and $2.6 million of cash and cash equivalents as of December 31, 2017 and
January 1, 2017, respectively. Assets recognized as a result of consolidating this VIE do not represent additional assets
that could be used to satisfy claims against our general assets. Furthermore, liabilities recognized as a result of
consolidating these entities do not represent additional claims on our general assets; rather, they represent claims against
the specific assets of the consolidated VIE.
102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
20. Fair Value of Financial Instruments
The carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, income taxes
receivable, accounts payable, accrued expenses and income taxes payable approximate fair value because of the short-
term maturity of those instruments. The estimated fair value of the 2023 Notes as of December 31, 2017, was $653.6
million, compared to a carrying value of $624.1 million, and the estimated fair value of the 2023 Notes as of January 1,
2017, was $485.4 million, compared to a carrying value of $469.6 million. This estimate is based on market quotes and
calculations based on current market rates available to us and is categorized as having Level 2 valuation inputs as
established by the FASB’s Fair Value Framework. Market quotes used in these calculations are based on bid prices for
our debt instruments and are obtained from and corroborated with multiple independent sources. The market quotes
obtained from independent sources are within the range of management’s expectations.
21. Subsequent Event
On January 29, 2018, we completed the acquisition of DW3 Products Holdings Limited (“DW3”), a leading
UK provider of high quality premium door solutions and window systems, supplying products under brand names such
as Solidor, Residor, Nicedor and Residence. We acquired 100% of the equity interests in DW3 for consideration of
approximately $96 million, net of cash acquired. DW3 is based in Stoke-on-Trent and Gloucester, England, and their
products and service model are a natural addition to our existing UK business. DW3’s online quick ship capabilities and
product portfolio both complement and expand the strategies we are pursuing with our business. Due to the timing of
the completion of the acquisition, the purchase price allocation was not complete as of the date the financial statements
were issued.
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Supplemental Unaudited Quarterly Financial Information
The following table sets forth the historical unaudited quarterly financial data for the periods indicated. The
information for each of these periods has been prepared on the same basis as the audited consolidated financial
statements and, in our opinion, reflects all adjustments necessary to present fairly our financial results. Operating results
for previous periods do not necessarily indicate results that may be achieved in any future period.
(In thousands, except per share information)
Net sales
Cost of goods sold
Gross profit
Selling, general and administration expenses
Restructuring costs
Loss (gain) on disposal of subsidiaries
Operating income (loss)
Interest expense (income), net
Other expense (income), net
Income (loss) from continuing operations before income tax expense
(benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Less: Net income (loss) attributable to non-controlling interest
Net income (loss) attributable to Masonite
Earnings (loss) per common share attributable to Masonite:
Basic
Diluted
$
$
$
Quarter Ended
December 31,
2017
October 1,
2017
July 2,
2017
April 2,
2017
$
508,500
$
517,503
$
519,741
$
408,386
100,114
59,608
(136)
—
40,642
8,804
(634)
32,472
(40,802)
73,274
(65)
73,209
1,397
71,812
2.52
2.48
$
$
$
413,517
103,986
58,798
1,393
—
43,795
7,213
(186)
36,768
5,989
30,779
(139)
30,640
1,162
29,478
1.01
1.00
$
$
$
412,415
107,326
63,604
(700)
212
44,210
7,112
(22)
37,120
8,932
28,188
(134)
28,054
1,170
26,884
0.90
0.89
$
$
$
487,181
391,624
95,557
64,845
293
—
30,419
7,024
(249)
23,644
(1,679)
25,323
(245)
25,078
1,513
23,565
0.79
0.77
Net sales
Cost of goods sold
Gross profit
Selling, general and administration expenses
Restructuring costs
Asset impairment
Loss (gain) on disposal of subsidiaries
Operating income (loss)
Interest expense (income), net
Other expense (income), net
Income (loss) from continuing operations before income tax expense
(benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Less: Net income (loss) attributable to non-controlling interest
Net income (loss) attributable to Masonite
Earnings (loss) per common share attributable to Masonite:
Basic
Diluted
Quarter Ended
January 1,
2017
October 2,
2016
July 3,
2016
April 3,
2016
$
481,027
$
489,647
$
513,985
$
384,533
96,494
63,488
1,314
1,511
—
30,181
7,028
(745)
23,898
6,196
17,702
(144)
17,558
2,128
15,430
0.51
0.50
$
$
$
385,845
103,802
63,017
215
—
(5,144)
45,714
6,985
(1,199)
39,928
6,526
33,402
(236)
33,166
1,157
32,009
1.05
1.03
$
$
$
402,881
111,104
68,961
(103)
—
(1,431)
43,677
6,933
(801)
37,545
2,855
34,690
(184)
34,506
1,151
33,355
1.09
1.06
$
$
$
$
$
$
104
489,305
391,060
98,245
64,898
19
—
—
33,328
7,232
786
25,310
6,210
19,100
(188)
18,912
1,084
17,828
0.58
0.57
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act that are
designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is
accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated
the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were effective.
Management's Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act). Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief
Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of
December 31, 2017, based on the Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013. Based upon our evaluation, management concluded that our internal
control over financial reporting was effective as of December 31, 2017.
The effectiveness of our internal control over financial reporting as of December 31, 2017, has been audited by
Ernst & Young, an independent registered certified public accounting firm, as stated in their report which is included
herein, and which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting
as of December 31, 2017. See "Report of Independent Registered Certified Public Accounting Firm" elsewhere in this
Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the most recently completed
quarter covered by this Annual Report that have materially affected, or that are reasonably likely to materially affect,
our internal control over financial reporting.
105
Report of Independent Registered Certified Public Accounting Firm
To the Shareholders and the Board of Directors of Masonite International Corporation
Opinion on Internal Control over Financial Reporting
We have audited Masonite International Corporation and subsidiaries’ internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSO criteria). In our opinion,
Masonite International Corporation and subsidiaries (the Company) maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheet of Masonite International Corporation and subsidiaries as of
December 31, 2017 and the related consolidated statement of comprehensive income, consolidated statement of changes
in equity, and consolidated statement of cash flows for the year ended December 31, 2017, and the related notes and our
report dated February 27, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s
Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with
the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material aspects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ Ernst & Young LLP
Tampa, Florida
February 27, 2018
106
Item 9B. Other Information
Annual Meeting and Record Date. The Board of Directors has set the date of the 2018 Annual General Meeting
of Shareholders and the related record date. The Annual General Meeting will be held in Tampa, Florida, on May 10,
2018, and the shareholders entitled to receive notice of and vote at the meeting will be the shareholders of record at the
close of business on March 12, 2018.
107
Item 10. Directors, Executive Officers and Corporate Governance
PART III
Some of the information required in response to this item with regard to directors is incorporated by reference
into this Annual Report on Form 10-K from our definitive Proxy Statement for our 2018 Annual General Meeting of
Shareholders (the "2018 Proxy Statement"). Such information will be included under the captions "Election of
Directors," "Corporate Governance; Board and Committee Matters - Certain Legal Proceedings", "Section 16(a)
Beneficial Ownership Reporting Compliance," "Corporate Governance; Board and Committee Matters - Corporate
Governance Guidelines and Code of Ethics", "Corporate Governance; Board and Committee Matters - Board Structure
and Director Independence" and "Corporate Governance; Board and Committee Matters - Board Committees;
Membership - Audit Committee".
The following table sets forth information as of February 27, 2018, regarding each of our executive officers:
Name
Frederick J. Lynch
Russell T. Tiejema
Randal A. White
James A. "Tony" Hair
Robert E. Lewis
Robert A. Paxton
Biographies
Age Positions
53
President and Chief Executive Officer and Director
49
47
51
57
44
Executive Vice President and Chief Financial Officer
Senior Vice President, Global Operations and Supply Chain
President, Global Residential
Senior Vice President, General Counsel and Secretary
Senior Vice President, Human Resources
The present principal occupations and recent employment history of each of the executive officers and
directors listed above are as follows:
Frederick J. Lynch, (age 53) has served as President of Masonite since July 2006 and as President and Chief
Executive Officer of Masonite since May 2007. Mr. Lynch has served as a Director of Masonite since June 2009. Mr.
Lynch joined Masonite from Alpharma Inc., where he served as President of the human generics division and Senior
Vice President of global supply chain from 2003 until 2006. Prior to joining Alpharma Inc. in 2003, Mr. Lynch spent
nearly 18 years at Honeywell International Inc. (formerly AlliedSignal Inc.), most recently as vice president and general
manager of the specialty chemical business. Mr. Lynch is a Director of Ingevity Corporation.
Russell T. Tiejema, (age 49) is Executive Vice President and Chief Financial Officer of Masonite. Mr. Tiejema
joined Masonite in November 2015, from Lennox International, a global leader in the heating, ventilation, air
conditioning and refrigeration industry, where he served as the Vice President of Finance and Chief Financial Officer of
LII Residential, the largest reporting segment of Lennox International, since 2013. From 2011 to 2013, Mr. Tiejema
served as the Vice President, Business Analysis & Planning, of Lennox International. Prior to joining Lennox in 2011,
Mr. Tiejema spent 20 years with General Motors in a variety of financial leadership roles across a number of operating
units and staffs, including Finance Director for GM Fleet & Commercial and Director of Financial Planning and
Analysis.
Randal A. White, (age 47) joined Masonite in September 2017 as Senior Vice President, Global Operations
and Supply Chain. Prior to joining Masonite, Mr. White was with Joy Global, Inc., a leading manufacturer of high
productivity mining equipment now operating as Komatsu Mining, where he served in various operations and
manufacturing roles since 2008, most recently serving as the Vice President Operations, Supply Chain, Quality and
Operational Excellence (Lean) since 2014. Prior to joining Joy Global, Inc., Mr. White held various marketing and
operational positions with Magnum Magnetics Inc. and Cooper Crouse-Hinds.
108
James A. "Tony" Hair, (age 51) joined Masonite in November 2013 as Vice President and Business Leader
for the Residential Door Business and he has served most recently as President of the Global Residential Door Business.
Prior to joining Masonite, Mr. Hair was with Newell Rubbermaid, a global manufacturer and marketer of consumer and
commercial products, from 2005 to 2013, most recently serving as Senior Vice President and General Manager of the
Décor Business Unit. Mr. Hair also held executive leadership positions in the Home Solutions and Tools business
groups. Prior to joining Newell Rubbermaid, Mr. Hair held various engineering, supply chain and sales positions with
Maytag Corporation.
Robert E. Lewis, (age 57) has served as the Senior Vice President, General Counsel and Secretary of Masonite
since April 2012. Mr. Lewis joined Masonite from Gerdau Ameristeel Corporation, a mini-mill steel producer, where he
served as Vice President, General Counsel and Corporate Secretary from January 2005 to May 2011. Prior to joining
Gerdau, Mr. Lewis served as Senior Vice President, General Counsel and Secretary of Eckerd Corporation, a national
retail drugstore chain from 1994 to January 2005. Prior to joining Eckerd, Mr. Lewis was an attorney and shareholder
with the Tampa law firm of Shackleford, Farrior, Stallings & Evans, P.A.
Robert A. Paxton, (age 44) has served as Masonite’s Senior Vice President, Human Resources since February
2018. Prior to joining Masonite, Mr. Paxton was with Owens Corning, a global developer and producer of insulation,
roofing and fiberglass composites, where he served as Vice President, Human Resources and Vice President, Business
Integration from May 2010 to February 2018. Prior to joining Owens Corning, he served as Senior Vice President,
Human Resources of Broadwind Energy from 2008 to 2010. Prior to joining Broadwind, he served Whirlpool
Corporation in various human resources leadership roles from 2002 to 2008, most recently serving as Vice President,
Global Human Resources from 2007 to 2008. Mr. Paxton began his career with British Petroleum in 1995.
Item 11. Executive Compensation
Information required in response to this item is incorporated by reference into this Annual Report on Form
10-K from the 2018 Proxy Statement. Such information will be included in the 2018 Proxy Statement under the
captions "Director Compensation", "Compensation Committee Report", "Executive Compensation" and "Corporate
Governance; Board and Committee Matters - Compensation Interlocks and Insider Participation".
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information required in response to this item is incorporated by reference into this Annual Report on Form
10-K from the 2018 Proxy Statement. Such information will be included in the 2018 Proxy Statement under the
captions "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance
Under Equity Compensation Plans".
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required in response to this item is incorporated by reference into this Annual Report on Form
10-K from the 2018 Proxy Statement. Such information will be included under the captions "Corporate Governance;
Board and Committee Matters - Board Structure and Director Independence", "Corporate Governance; Board and
Committee Matters - Board Committees; Membership" and "Certain Relationships and Related Party Transactions".
Item 14. Principal Accountant Fees and Services
Information required in response to this item is incorporated by reference into this Annual Report on Form
10-K from the 2018 Proxy Statement. Such information will be included under the caption "Appointment of
Independent Registered Public Accounting Firm".
109
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a) The following documents are filed as part of this Form 10-K:
Page No.
1. Consolidated Financial Statements:
Report of Independent Registered Certified Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Balance Sheets
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
2. Financial Statement Schedules
58
57
58
59
60
61
62
All schedules have been omitted because they are not required, not applicable, not present in
amounts sufficient to require submission of the schedule or the required information is otherwise
included.
3. See “Index to Exhibits” below.
(b) The exhibits listed on the “Index to Exhibits” below are filed with this Form 10-K or incorporated by
reference as set forth below.
(c) Additional Financial Statement Schedules
None.
The following is a list of all exhibits filed or furnished as part of this report:
INDEX TO EXHIBITS
Exhibit No. Description
3.1
Amended and Restated Articles of Masonite International Corporation (incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K (File No. 001-11796) filed with the
Securities and Exchange Commission on February 26, 2015)
4.1
4.2
4.3
10.1 ^
10.2 ^
Indenture, dated as of March 23, 2015, by and among the Company, the guarantors named therein and
Wells Fargo Bank, National Association, as trustee, governing the 5.625% Senior Notes due 2023.
(incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No.
001-11796) filed with the Securities and Exchange Commission on March 23, 2015)
Transfer Agency and Registrar Services, dated July 1, 2013, between Masonite International
Corporation and American Stock Transfer & Trust Company, LLC of New York (incorporated by
reference to Exhibit 4.3(e) to the Company's Annual Report on Form 10-K (File No. 001-11796) filed
with the Securities and Exchange Commission on February 27, 2014)
Form of Second Amended and Restated Shareholders Agreement (Incorporated by reference to Exhibit
3.2 to the Company's Current Report on Form 8-K (File No. 001-11796) filed with the Securities and
Exchange Commission on May 15, 2014)
Masonite International Corporation 2014 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K (File No. 001-11796) filed with the
Securities and Exchange Commission on May 15, 2014)
Masonite International Corporation Deferred Compensation Plan, effective as of August 13, 2012
(incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form 10 (File
No. 001-11796) filed with the Securities and Exchange Commission on August 19, 2013)
10.3(a) ^
Masonite International Corporation Amended and Restated 2012 Equity Incentive Plan (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K(File No. 011-11796) filed with
the Securities and Exchange Commission on May 18, 2015)
110
Exhibit No. Description
10.3(b) ^
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation 2012
Equity Incentive Plan for United States Directors (incorporated by reference to Exhibit 10.3(b) to the
Company's Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and
Exchange Commission on August 19, 2013)
10.3(c) ^
10.3(d) ^
10.3(e) ^
10.3(f) ^
10.3(g) ^
10.3(h) ^
10.3(i) ^
10.3(j) ^
10.3(k) ^
10.3(l) ^
10.3(m) ^
10.3(n) ^
10.3(o) ^
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation 2012
Equity Incentive Plan for United States Employees (incorporated by reference to Exhibit 10.3(c) to the
Company's Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and
Exchange Commission on August 19, 2013)
Form of Stock Appreciation Rights Agreement pursuant to the Masonite International Corporation 2012
Equity Incentive Plan for United States Employees (incorporated by reference to Exhibit 10.3(d) to the
Company's Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and
Exchange Commission on August 19, 2013)
Form of Amendment to Restricted Stock Unit Agreement pursuant to the Masonite International
Corporation 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.3(e) to the Company's
Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and Exchange
Commission on August 19, 2013)
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation 2012
Equity Incentive Plan for United States Directors (incorporated by reference to Exhibit 10.3(h) to the
Company's Quarterly Report on Form 10-Q (File No. 001-11796) filed with the Securities and
Exchange Commission on November 6, 2013)
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation 2012
Equity Incentive Plan for United States employees (incorporated by reference to Exhibit 10.3(b) to the
Company's Quarterly Report on Form 10-Q (File No. 001-11796) filed with the Securities and
Exchange Commission on May 8, 2014)
Form of Performance Restricted Stock Unit Agreement pursuant to the Masonite International
Corporation 2012 Equity Incentive Plan (incorporated by reference to Exhibit 10.3(f) to the Company's
Quarterly Report on Form 10-Q (File No. 001-11796) filed with the Securities and Exchange
Commission on May 8, 2014)
Form of Restricted Stock Unit Agreement Pursuant to the Masonite International Corporation 2012
Equity Incentive Plan for United States Employees (incorporated by reference to Exhibit 10.3(k) to the
Company's Annual Report on Form 10-K (File No. 001-11796) filed with the Securities and Exchange
Commission on February 26, 2015)
Form of Performance Restricted Stock Unit Agreement Pursuant to the Masonite International
Corporation 2012 Equity Incentive Plan for United States employees (incorporated by reference to
Exhibit 10.3(l) to the Company's Annual Report on Form 10-K (File No. 001-11796) filed with the
Securities and Exchange Commission on February 26, 2015)
Performance Restricted Stock Unit Agreement Pursuant to the Masonite International Corporation
Amended and Restated 2012 Equity Incentive Plan, dated as of November 5, 2015, by and between
Masonite International Corporation and Frederick J. Lynch (incorporated by reference to Exhibit
10.3(k) to the Company's Annual Report on Form 10-K (File No. 001-11796) filed with the Securities
and Exchange Commission on March 2, 2016)
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended
and Restated 2012 Equity Incentive Plan for United States Directors (2015) (incorporated by reference
to Exhibit 10.3(m) to the Company's Annual Report on Form 10-K (File No. 001-11796) filed with the
Securities and Exchange Commission on March 2, 2016)
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended
and Restated 2012 Equity Incentive Plan for United States Employees (November 2015) (incorporated
by reference to Exhibit 10.3(n) to the Company's Annual Report on Form 10-K (File No. 001-11796)
filed with the Securities and Exchange Commission on March 2, 2016)
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended
and Restated 2012 Equity Incentive Plan for United States Employees (December 2015) (incorporated
by reference to Exhibit 10.3(o) to the Company's Annual Report on Form 10-K (File No. 001-11796)
filed with the Securities and Exchange Commission on March 2, 2016)
Form of Performance Restricted Stock Unit Agreement pursuant to the Masonite International
Corporation Amended and Restated 2012 Equity Incentive Plan for United States Employees (February
2016) (incorporated by reference to Exhibit 10.3(p) to the Company's Annual Report on Form 10-K
(File No. 001-11796) filed with the Securities and Exchange Commission on March 2, 2016)
111
Exhibit No. Description
10.3(p) ^
Form of Stock Appreciation Rights Agreement pursuant to the Masonite International Corporation
Amended and Restated 2012 Equity Incentive Plan for United States Employees (February 2016)
(incorporated by reference to Exhibit 10.3(q) to the Company's Annual Report on Form 10-K (File No.
001-11796) filed with the Securities and Exchange Commission on March 2, 2016)
10.3(q) ^
10.3(r) ^
10.3(s) ^
10.3(t) ^
10.3(u) ^
10.3(v)* ^
10.4(a) ^
10.4(b) ^
10.4(c) ^
10.4(d) ^
10.4(e) ^
10.4(f) ^
10.4(g) ^
10.4(h) ^
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended
and Restated 2012 Equity Incentive Plan for United States Employees (February 2016) (incorporated by
reference to Exhibit 10.3(r) to the Company's Annual Report on Form 10-K (File No. 001-11796) filed
with the Securities and Exchange Commission on March 2, 2016)
Amendment No. 1 to Masonite International Corporation Amended and Restated 2012 Equity Incentive
Plan dated February 7, 2017 (incorporated by reference to Exhibit 10.3(s) to the Company's Annual
Report on Form 10-K (File No. 001-11796) filed with the Securities and Exchange Commission on
March 1, 2017)
Form of Performance Restricted Stock Unit Agreement pursuant to the Masonite International
Corporation Amended and Restated 2012 Equity Incentive Plan for United States Employees (February
2017) (incorporated by reference to Exhibit 10.3(t) to the Company's Annual Report on Form 10-K (File
No. 001-11796) filed with the Securities and Exchange Commission on March 1, 2017)
Form of Stock Appreciation Rights Agreement pursuant to the Masonite International Corporation
Amended and Restated 2012 Equity Incentive Plan for United States Employees (February 2017)
(incorporated by reference to Exhibit 10.3(u) to the Company's Annual Report on Form 10-K (File No.
001-11796) filed with the Securities and Exchange Commission on March 1, 2017)
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended
and Restated 2012 Equity Incentive Plan for United States Employees (February 2017) (incorporated by
reference to Exhibit 10.3(v) to the Company's Annual Report on Form 10-K (File No. 001-11796) filed
with the Securities and Exchange Commission on March 1, 2017)
Omnibus Amendment to Masonite International Corporation restricted stock unit agreements,
performance restricted stock unit agreements, and stock appreciation rights agreements, dated as of
December 31, 2017 by and between Masonite International Corporation and Gail N. Auerbach
Masonite Worldwide Holdings Inc. 2009 Equity Incentive Plan (incorporated by reference to Exhibit
10.4(a) to the Company's Registration Statement on Form 10 (File No. 001-11796) filed with the
Securities and Exchange Commission on August 19, 2013)
Form of Restricted Stock Unit Agreement Pursuant to the Masonite Worldwide Holdings Inc. 2009
Equity Incentive Plan for Directors (incorporated by reference to Exhibit 10.4(b) to the Company's
Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and Exchange
Commission on August 19, 2013)
Form of Restricted Stock Unit Agreement Pursuant to the Masonite Worldwide Holdings Inc. 2009
Equity Incentive Plan (incorporated by reference to Exhibit 10.4(c) to the Company's Registration
Statement on Form 10 (File No. 001-11796) filed with the Securities and Exchange Commission on
August 19, 2013)
Form of Stock Appreciation Rights Agreement Pursuant to the Masonite Worldwide Holdings Inc. 2009
Equity Incentive Plan (incorporated by reference to Exhibit 10.4(d) to the Company's Registration
Statement on Form 10 (File No. 001-11796) filed with the Securities and Exchange Commission on
August 19, 2013)
Form of Restricted Stock Unit Agreement Pursuant to the Masonite Worldwide Holdings Inc. 2009
Equity Incentive Plan for United States Executives (incorporated by reference to Exhibit 10.4(e) to the
Company's Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and
Exchange Commission on August 19, 2013)
Form of Stock Appreciation Rights Agreement Pursuant to the Masonite Worldwide Holdings Inc. 2009
Equity Incentive Plan for United States Executives (incorporated by reference to Exhibit 10.4(f) to the
Company's Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and
Exchange Commission on August 19, 2013)
Form of Restricted Stock Unit Agreement Pursuant to the Masonite Worldwide Holdings Inc. 2009
Equity Incentive Plan (2011 Grant) (incorporated by reference to Exhibit 10.4(g) to the Company's
Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and Exchange
Commission on August 19, 2013)
Form of Stock Appreciation Rights Agreement Pursuant to the Masonite Worldwide Holdings Inc. 2009
Equity Incentive Plan (2011 Grant) (incorporated by reference to Exhibit 10.4(h) to the Company's
Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and Exchange
Commission on August 19, 2013)
112
Exhibit No. Description
10.4(i) ^
10.4(j) ^
10.4(k) ^
10.4(l) ^
10.4(m) ^
10.5(a) ^
10.5(b) ^
10.5(c) ^
10.5(d) ^
10.5(e) ^
10.5(f) ^
10.5(g)* ^
10.5(h)* ^
10.6 ^
Form of Performance Restricted Stock Unit Agreement Pursuant to the Masonite Worldwide Holdings
Inc. 2009 Equity Incentive Plan (2011 Grant) (incorporated by reference to Exhibit 10.4(i) to the
Company's Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and
Exchange Commission on August 19, 2013)
Form of Restricted Stock Unit Agreement Pursuant to the Masonite Worldwide Holdings Inc. 2009
Equity Incentive Plan for United States Executives (Exchange Agreement) (incorporated by reference to
Exhibit 10.4(j) to the Company's Registration Statement on Form 10 (File No. 001-11796) filed with the
Securities and Exchange Commission on August 19, 2013)
Form of Stock Appreciation Rights Agreement Pursuant to the Masonite Worldwide Holdings Inc. 2009
Equity Incentive Plan for United States Executives (Exchange Agreement) (incorporated by reference to
Exhibit 10.4(k) to the Company's Registration Statement on Form 10 (File No. 001-11796) filed with
the Securities and Exchange Commission on August 19, 2013)
Form of Amendment to Restricted Stock Unit Agreement Pursuant to the Masonite Worldwide Holdings
Inc. 2009 Equity Incentive Plan (incorporated by reference to Exhibit 10.4(l) to the Company's
Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and Exchange
Commission on August 19, 2013)
Amendment No. 1 to Masonite Worldwide Holdings Inc. 2009 Equity Incentive Plan dated February 7,
2017 (incorporated by reference to Exhibit 10.4(m) to the Company's Annual Report on Form 10-K
(File No. 001-11796) filed with the Securities and Exchange Commission on March 1, 2017)
Amended and Restated Employment Agreement, dated as of December 31, 2015, by and between
Masonite International Corporation and Frederick J. Lynch (incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K (File No. 011-11796) filed with the Securities and
Exchange Commission on December 23, 2015)
Employment Agreement, dated as of December 31, 2015, by and between Masonite International
Corporation and Russell T. Tiejema (incorporated by reference to Exhibit 10.4 to the Company's
Current Report on Form 8-K (File No. 011-11796) filed with the Securities and Exchange Commission
on December 23, 2015)
Amended and Restated Employment Agreement, dated as of December 31, 2015, by and between
Masonite International Corporation and Robert E. Lewis (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K (File No. 011-11796) filed with the Securities and
Exchange Commission on December 23, 2015)
Employment Agreement, dated as of December 31, 2015, by and between Masonite International
Corporation and James A. Hair (incorporated by reference to Exhibit 10.5(f) to the Company's Annual
Report on Form 10-K (File No. 001-11796) filed with the Securities and Exchange Commission on
March 1, 2017)
Offer letter to Randy White dated August 31, 2017 (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K (File No. 001-11796) filed with the Securities and Exchange
Commission on September 12, 2017)
Amended and Restated Employment Agreement, dated as of December 31, 2015, by and between
Masonite International Corporation and Gail N. Auerbach (incorporated by reference to Exhibit 10.5(f)
to the Company's Annual Report on Form 10-K (File No. 001-11796) filed with the Securities and
Exchange Commission on March 2, 2016)
Consulting Agreement, dated as of December 31, 2017 by and between Masonite International
Corporation and Gail N. Auerbach
Letter Agreement, dated as of December 31, 2017, by and between Masonite International Corporation
and Gail N. Auerbach
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.6 to
the Company's Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and
Exchange Commission on August 19, 2013)
113
Exhibit No. Description
10.7(a)
Amended and Restated Credit Agreement, dated as of April 9, 2015, by and among Masonite
International Corporation, as Canadian borrower and parent borrower, Masonite Corporation and certain
other subsidiaries of Masonite Corporation, as U.S. borrowers, Wells Fargo Bank, National Association,
as administrative agent and letter of credit issuer, Bank of America, N.A., as a syndication agent, Royal
Bank of Canada and Deutsche Bank Securities Inc., as co-documentation agents, Wells Fargo Capital
Finance, LLC, Bank of America, N.A., Royal Bank of Canada, Deutsche Bank Securities Inc. and
Barclays Bank PLC, as joint lead arrangers and book managers, and the lenders from time to time party
thereto. (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File
No. 001-11796) filed with the Securities and Exchange Commission on April 14, 2015)
10.7(b)
10.7(c)
10.7(d)
10.7(e)
21.1*
23.1*
23.2*
31.1*
31.2*
32.1*
32.2*
U.S. Security Agreement, dated as of May 17, 2011, among Masonite Corporation, as Lead U.S.
Borrower, the other U.S. Borrowers from time to time party thereto and Wells Fargo Bank, National
Association, as Collateral Agent (incorporated by reference to Exhibit 4.1 (b) to the Company's
Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and Exchange
Commission on August 19, 2013)
U.S. Guaranty, dated as of May 17, 2011, among Masonite Corporation, as Lead U.S. Borrower, the
other U.S. Borrowers from time to time party thereto and Wells Fargo Bank, National Association, as
Administrative Agent (incorporated by reference to Exhibit 4.1 (c) to the Company's Registration
Statement on Form 10 (File No. 001-11796) filed with the Securities and Exchange Commission on
August 19, 2013)
Canadian Security Agreement, dated as of May 17, 2011, among Masonite International Corporation, as
Canadian Borrower, Masonite Inc., as Holdings, the Canadian Subsidiary Guarantors from time to time
party thereto and Wells Fargo Bank, National Association, as Collateral Agent (incorporated by
reference to Exhibit 4.1(d) to the Company's Registration Statement on Form 10 (File No. 001-11796)
filed with the Securities and Exchange Commission on August 19, 2013)
Canadian Guarantee, dated as of May 17, 2011, among Masonite International Corporation, as Parent
Borrower, Masonite Inc., as Holdings, the Canadian Subsidiary Guarantors from time to time party
thereto and Wells Fargo Capital Finance, LLC, as Administrative Agent (incorporated by reference to
Exhibit 4.1(e) to the Company's Registration Statement on Form 10 (File No. 001-11796) filed with the
Securities and Exchange Commission on August 19, 2013)
Subsidiaries of the Registrant
Consent of Ernst & Young LLP, an Independent Registered Certified Public Accounting Firm
Consent of Deloitte & Touche LLP, an Independent Registered Public Accounting Firm
Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley
Act of 2002
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema Document
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
*
^
Filed herewith.
Denotes management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
114
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 27, 2018
MASONITE INTERNATIONAL CORPORATION
(Registrant)
By /s/ Russell T. Tiejema
Russell T. Tiejema
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the
following persons on behalf of the registrant in the capacities and on the dates indicated.
Signatures
/s/ Frederick J. Lynch
Frederick J. Lynch
/s/ Russell T. Tiejema
Russell T. Tiejema
/s/ Robert J. Byrne
Robert J. Byrne
/s/ Jody L. Bilney
Jody L. Bilney
/s/ Peter R. Dachowski
Peter R. Dachowski
/s/ Jonathan F. Foster
Jonathan F. Foster
/s/ Thomas W. Greene
Thomas W. Greene
/s/ Daphne E. Jones
Daphne E. Jones
/s/ George A. Lorch
George A. Lorch
/s/ Rick J. Mills
Rick J. Mills
/s/ William S. Oesterle
William S. Oesterle
/s/ Francis M. Scricco
Francis M. Scricco
/s/ John C. Wills
John C. Wills
President and Chief Executive Officer and Director
February 27, 2018
Title
Date
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
February 27, 2018
(Principal Financial Officer and Principal Accounting Officer)
Director and Chairman of the Board
February 27, 2018
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
115
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
February 27, 2018
Forward-looking Statements
This annual report, including the letter to shareholders contained herein, includes forward-looking
statements within the meaning of the federal securities laws, all of which are subject to risks and uncertainties. One
can identify these forward-looking statements by their use of words such as "may," "might," “could”, "will,"
"should," "would," "expects," "believes," "outlook," “predicts,” "forecasts," “objectives,” “remains,”
"anticipates," "estimates," “potential,” “continues,” "plans," "projects," "intends," "targets," and other words of
similar meaning, or by the fact that they do not relate strictly to historical or current facts. Such forward-looking
statements reflect management's current beliefs and are based on information currently available to management.
All forward-looking statements in this document are qualified by these cautionary statements. These forward-
looking statements are likely to address, but may not be limited to, the Company's strategies relating to growth and
cost containment; the Company's future operations; the Company's ability to effectively integrate acquisitions and
achieve the intended benefits and synergies of the acquisitions; political and economic stability, especially in the
geographic areas where the Company manufactures or sells its product; and improving global conditions in the
door manufacturing and housing industries consistent with the Company's assumed levels of housing starts and
repair, renovation and remodeling. Readers must carefully consider any such statements and should understand
that such statements are based on management's current estimates and assumptions and are subject to many
factors, risks and uncertainties which could cause actual results and developments to differ materially from the
Company's forward-looking statements. These factors may include inaccurate assumptions and a broad variety of
other known and unknown risks and uncertainties, including: our ability to successfully implement our business
strategy; general economic, market and business conditions; levels of residential new construction, residential
repair, renovation and remodeling and non-residential building construction activity; the United Kingdom’s
formal trigger of the two year process for its exit from the European Union and related negotiations; competition;;
our ability to manage our operations including integrating our recent acquisitions and companies or assets we
acquire in the future; our ability to generate sufficient cash flows to fund our capital expenditure requirements and
to meet our debt service obligations, including our obligations under our senior notes and our ABL facility; labor
relations (i.e., disruptions, strikes or work stoppages), labor costs and availability of labor; increases in the costs
of raw materials or any shortage in supplies; our ability to keep pace with technological developments;
cybersecurity threats and attacks; the actions by, and the continued success of, certain key customers; our ability
to maintain relationships with certain customers; new contractual commitments; the ability to generate the benefits
of our restructuring activities; retention of key management personnel; environmental and other government
regulations; limitations on operating our business as a result of covenant restrictions under our existing and future
indebtedness, including our senior notes and our ABL Facility; and other factors publicly disclosed by the
Company from time to time (including those discussed in our Annual Report on Form 10-K and Quarterly Reports
on Form 10-Q (available through the Investors section of our website at www.masonite.com) under the sections
entitled “Risk Factors.” No forward-looking statement can be guaranteed and actual future results may vary
materially. Therefore, we caution you not to place undue reliance on our forward-looking statements. The
Company disclaims any responsibility to update these forward-looking statements, whether as a result of new
information, future events or otherwise unless required by applicable law.
CORPORATE INFORMATION
Corporate Office
2771 Rutherford Road
Concord, Ontario L4K 2N6 Canada
Investor Contact
Joanne Freiberger, CPA, CTP, IRC
Vice President and Treasurer
Website
www.masonite.com
Legal Counsel
Cassels Brock Lawyers
Simpson Thatcher & Bartlett LLP
Brian M. Prenoveau, CFA
Director of Investor Relations & Treasury
201 North Franklin Street
Suite 300
Tampa, Florida 33602
Telephone: (813) 877-2726
Email: investorrelations@masonite.com
Independent Auditors
Ernst & Young
Stock Symbol
NYSE: DOOR
Transfer Agent
American Stock Transfer and Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Toll Free# (800) 937-5449
Foreign Holders: (718) 921-8124
www.amstock.com
Quarterly Earnings, News Summaries,
Copies of News Releases and Corporate
Publications
Investor.masonite.com
KEY BRANDS
BOARD OF DIRECTORS
Robert J. Byrne
Chairman of the Board,
Founder and Former
President of Power
Pro-Tech Services, Inc.
Jody L. Bilney
Chief Consumer Officer
of Humana, Inc.
Peter R. Dachowski
Senior Advisor,
Graham Partners
Retired Chairman and
Chief Executive Officer of
CertainTeed Corporation
Jonathan F. Foster
Founder and Managing
Director of Current
Capital Partners LLC
Thomas W. Greene
Chief Information and
Business Services Officer
of Colgate-Palmolive
Daphne E. Jones
Retired Senior Vice
President – Digital/
Future of Work of
GE Healthcare
George A. Lorch
Retired Chief Executive
Officer and President
of Armstrong World
Industries, Inc.
Frederick J. Lynch
President and Chief
Executive Officer of
Masonite International
Corporation
Rick J. Mills
Retired Corporate Vice
President and President
of the Components
Group of Cummins, Inc.
William S. Oesterle
Chief Executive Officer,
tMap, L.L.C. and Co-
Founder of Angie’s List
Francis M. Scricco
Retired Senior
Vice President,
Manufacturing, Logistics
and Procurement
of Avaya, Inc.
Former President and
Chief Executive Officer
of Arrow Electronics
John C. Wills
Retired Group President
of Masco Corporation
OFFICERS
Frederick J. Lynch
President and Chief
Executive Officer
Russell T. Tiejema
Executive Vice
President and Chief
Financial Officer
James A. “Tony” Hair
President – Global
Residential
Robert E. Lewis
Senior Vice President,
General Counsel and
Corporate Secretary
Robert A. Paxton
Senior Vice President,
Human Resources
Clare R. Doyle
Senior Vice President
and Business Leader
– Components
Steven B.
Swartzmiller
Senior Vice
President and Chief
Technology Officer
Andrew G. “Graham”
Thayer
Senior Vice President
and Business Leader
– Architectural
Randal A. White
Senior Vice President,
Global Operations
and Supply Chain
BLAKE HIGH SCHOOL PARTNERSHIP
In keeping with Masonite’s purpose, We Help People Walk
Through Walls, Masonite offered real-world business
experience to Tampa visual arts students.
Masonite’s partnership with the Blake High School
students resulted in turning 24 unpainted doors into
art — demonstrating the visual impact doors can provide to
the home.
The students painted what “open to extraordinary” means
to them and worked for three months on their own time,
outside of classes, to complete the project in late December.
The doors were showcased side-by-side at the International
Builders’ Show in Orlando this year to bring the 24 doors — or
800 square feet of visual impact — to life. The students and
their parents were honored for their work during a ceremony
at the show and also had a chance to talk to Elias Kababie,
an internationally-renowned architect from Mexico.
For the students, it was an opportunity to see how their
art skills can come to life in the real world — about meeting
deadlines and professional expectations, while having the
self-confidence and tools to walk through virtual walls.
To view the highlight video of the student art project , visit
masonite.com/visual-impact/kickoff.
2016
Masonite
annual report
masonite.com
©2018 Masonite International Corporation. All rights reserved.