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Front Cover
2018 MASONITE
ANNUAL
REPORT
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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,
We have a clear purpose at Masonite – we help people walk through walls – both physically by building
some of the best door products in the Industry, as well as metaphorically by breaking down barriers and
struggles that prevent our employees from being their best both at work and in their communities. We
take pride in being an industry leader that brings trend leading new products and services to market and
engages our channel partners and customers to recognize and promote the important role a door plays in
beautifying homes and workspaces.
Part of helping people walk through walls is about engaging our workforce by creating an environment and
providing the tools they need to deliver their best on behalf of customers every day. On a positive note,
our measures of employee engagement increased from 2017, as we worked to further improve our training
and development programs and added enhanced hourly employee recognition programs tied directly to
plant quality, delivery and productivity performance. We believe that highly engaged employees are an
important element of our success, particularly in the current environment of low unemployment in which
we operate.
Perhaps some of our most important progress in 2018 came in the form of the continued enhancements to
our manufacturing operations. Our Mvantage lean enterprise operating system is the foundation of these
efforts, supported by a strong and talented team of Continuous Improvement Engineers. We invested
further in our continuous improvement efforts in 2018, completing nearly 500 Kaizen events, and
conducted complete value stream plant transformations at seven manufacturing sites. These
transformations center around thirteen-week improvement events aimed at eliminating waste, reducing
process variability, improving productivity and increasing throughput. We also made investments to
optimize our manufacturing footprint to reduce costs, such as increasing the capacity of our Monterrey,
Mexico plant and automating production and material flow in our manufacturing operations. For example,
we began the process of building a new plant in Nevada that will use highly automated equipment to
optimize the yield of our cutstock production, which is designed to allow us to produce greater volume with
reduced headcount. This new plant is expected to open in the second quarter of 2019 replacing
production from an older, less efficient plant in California. We took additional steps to consolidate
distribution operations in the UK, which will allow us to reduce costs while simultaneously improving
service levels to our customers. As a result of these important initiatives launched in 2018, we recently
announced that we expect to reduce our total number of sites globally by over ten percent by the second
half of 2020.
Together with the introduction of new products at higher average unit prices, ongoing operational
efficiency initiatives are key to improving margins and growing our profitability. These strategies have
taken on even greater importance in the current inflationary environment we face. In 2018, Masonite
again delivered higher Net Sales and Adjusted EBITDA1 than the prior year. Despite our average unit
prices increasing by over three percent from 2017, our Adjusted EBITDA margins1 declined slightly as a
result of higher inflation in our input costs, as well as weaker demand as we approached the end of the
year, which led to fixed cost inefficiencies. The potential for a slowing housing market and lower
construction and renovation demand underscores the importance of our actions to stay ahead of the
curve by consolidating manufacturing sites and investing in our facilities and equipment to improve
manufacturing efficiency. Supporting our strong cadence of internal investment was excellent cash flow
performance again in 2018. As a result of our teams’ focus on improved working capital management, our
operating cash flow improved meaningfully.
At Masonite we continue to manage the business for strong cash flow performance and apply a balanced
approach in deploying that cash flow for the long-term health of the business. We prioritize internal
investments which have the opportunity to generate strong returns on invested capital, often in excess of
two to three times our cost of capital. When it comes to acquisitions, we consider those that we believe
can generate strong long-term returns, and in 2018 we made three acquisitions to further strengthen each
of our three business segments. In the first quarter we acquired DW3, a leading provider of quick-ship
residential entry door systems in the UK. In the second quarter we acquired the assets of Graham and
Maiman, the architectural wood door business of Assa Abloy. Finally, in the fourth quarter we acquired the
assets of Bridgewater Wholesalers, a leading provider of door systems in the Northeastern and Mid-
Atlantic regions of the U.S.
We’ve taken important steps to optimize the capital structure of the company. In the third quarter of 2018
we issued $300 million of new bonds, allowing us to partially redeem our existing bonds and divide the
maturities of our debt. Early in the first quarter of 2019 we announced an extension and upsizing of our
asset-based lending facility by $100 million, further improving our liquidity profile. We believe these
actions afford us improved flexibility to simultaneously invest in our business while returning cash to
investors in the form of share repurchases. In 2018, we repurchased $167 million of Masonite stock, the
highest annual amount since the repurchase program was initially authorized in the first quarter of 2016.
Given the strong slate of initiatives underway at Masonite, we enter 2019 optimistic about our ability to
continue growing our profitability and margins despite the potential for less robust end markets. Resuming
margin growth and continuing to improve our returns on capital are a top priority for our entire
management team. We are grateful for the support and trust you place in us to operate Masonite on your
behalf.
On a more personal note, it has been an honor to serve as the CEO of this great organization over the
past 12 years. I feel extremely fortunate to be surrounded by 10,000 employees that are continuously
focused on providing an extraordinary customer experience and helping each other walk through walls. I
believe that Masonite has strong and capable leadership in place that will continue to deliver on our vision
to be the best supplier of building products in the eyes of our employees, customers, suppliers,
shareholders and communities.
Frederick J. Lynch
President and Chief Executive Officer
Masonite International Corporation
March 25, 2019
1 Adjusted EBITDA margin is defined as Adjusted EBITDA divided by Net Sales. See Note 16 to our consolidated financial
statements beginning on page 87 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 30, 2018
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 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
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 1, 2018, 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 1, 2018, was $1.9 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 25,492,498 shares of Common Stock, no par value, as of February 21, 2019.
Portions of the registrant’s definitive Proxy Statement for its 2019 Annual General Meeting of Shareholders scheduled to be held on May 14, 2019,
to be filed with the Securities and Exchange Commission not later than 120 days after December 30, 2018, 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 30, 2018
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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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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downward trends in our end markets and in economic conditions;
reduced levels of residential new construction; residential repair, renovation and remodeling; and non-
residential building construction activity due to increases in mortgage rates, changes in mortgage interest
deductions and related tax changes and reduced availability of financing;
competition;
the continued success of, and our ability to maintain relationships with, certain key customers in light of
customer concentration and consolidation;
new tariffs and evolving trade policy between the United States and other countries, including China;
increases in prices of raw materials and fuel;
increases in labor costs, the availability of labor, or labor relations (i.e., disruptions, strikes or work stoppages);
our ability to manage our operations including anticipating demand for our products, managing disruptions in
our operations, managing manufacturing realignments (including related restructuring charges), managing
customer credit risk and successful integration of acquisitions;
the continuous operation of our information technology and enterprise resource planning systems and
management of potential cyber security threats and attacks;
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;
political, economic and other risks that arise from operating a multinational business;
uncertainty relating to the United Kingdom's anticipated exit from the European Union;
fluctuating exchange and interest rates;
our ability to innovate and keep pace with technological developments;
product liability claims and product recalls;
retention of key management personnel;
environmental and other government regulations, including the FCPA, and any changes in such 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®, Premdor®, Masonite ArchitecturalTM,
Marshfield-AlgomaTM, Mohawk®, Megantic®, Solidor®, Residor®, Nicedor®, Door-Stop InternationalTM, Harring
DoorsTM, National HickmanTM and Graham-MaimanTM are among the most recognized in the door industry and are
associated with innovation, quality and value. In the fiscal year ended December 30, 2018, we sold approximately
34 million doors to approximately 9,000 customers in 64 countries. Our fiscal year 2018 net sales by segment and
global net sales of doors by end market are set forth below:
Net Sales
by Segment - 2018
Global Net Sales of Doors
by End Market - 2018
See Note 16 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 industry, the North American residential molded and stile and rail interior door industry and created leadership
positions in the attractive North American commercial and architectural interior wood door, door core and wood veneer
industry.
We operate 71 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.
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.
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, period and architectural style-specific designs,
durable construction and variety of profiles preferred by our customers when price sensitivity is a critical component in
the product selection; 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.
2
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 that
regulatory compliance and environmental certifications such as FSC and LEED certifications are met. These doors are
sold into high-end architectural verticals (schools, healthcare and government facilities) and commercial verticals
(hotels, offices, commercial/retail and industrial facilities). We believe that the architectural door industry is shifting
focus from transactional, component sales to selling total opening solutions in key performance areas such as fire,
security, acoustics and technology. Our two primary product series for the architectural business, AspiroTM and
CenduraTM, are comprised of four product categories: stile and rail, flush wood veneer, painted and laminate doors. The
Aspiro series offers high-end aesthetic and performance qualities, and its doors are available in exotic and domestic
veneers, with acoustic, fire-rated and lead- and bullet-resistant options and include lifetime warranties. The Cendura
series provides a balance of performance and value and its doors are available with domestic veneers, with acoustic and
fire-rated options and include limited warranties. These product offerings provide general contractors and influencers
more of a singular source for the total opening.
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 industry.
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, primed 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
3
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; the Product Corner, a section advising customers of the features and benefits of our newest products;
Market Intelligence Section, which provides some of the latest economic statistics influencing our industry; 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 Solidor and Door-Stop International websites are fully functional configuration and order
platforms that support our entry door customers in the United Kingdom. The dynamic integration of Solidor's and Door-
Stop's ERPs and their websites ensures 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 launched our new door configurator, DoorBuilderTM Live, for mill direct
customers that makes selecting and ordering the right door easier and more intuitive. DoorBuilderTM Live is a cloud-
based software that streamlines the door ordering process for fast, accurate results. We continue to leverage and promote
our quick ship dedicated configurator through our USA Wood Door website, which allows customers to make, retain
and track quotes all within the USA Wood Door application. Additionally, we have developed the new DoorSelector
tool designed to educate architects to help them select the right products for the opening based on aesthetic and
performance attributes.
Customers
During fiscal year 2018, we sold our products worldwide to approximately 9,000 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 2018. 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.
4
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 enable new features, enhance the
manufacturing efficiency of our products, improve quality and reduce costs. In the past few years, our research and
development activities have had a significant focus on the development of new, differentiated products, while
continuing to focus on process and material improvements for our products. Further, we have 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.
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.
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.
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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.
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.
Within our manufacturing processes, we leverage the Mvantage operating system to systemically focus on the
elimination of waste and non-value-added activities within the organization. In 2018, we focused on driving operational
improvement to a new level using our three pronged Mvantage strategy which includes the Model Plant Transformation
Process, Process Improvement Teams and the focus on global standards and training. Our Model Plant Transformation
Process aims to allow the seamless flow of material through our facilities. Our Process Improvements Teams work
closely with manufacturing sites to utilize our Mvantage lean toolbox to diagnose operational inefficiencies and apply
corrective actions to stabilize and standardize our day-to-day operations. Our focus on training and implementing global
standards has allowed us to drive continuous improvement through an increased numbers of Kaizen events that are
being led by our trained facilitators. Through this structured approach, we realized improvements in certain key
performance indicators in 2018.
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. This is reflected in our goal of
Target Zero and our continued effort to create an injury-free workplace. 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.
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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 2018 we experienced an increase in the total
incident rate, or the annual number of injuries per 100 full time equivalent employees, of 2.1 compared to 1.5 in 2017.
In response to this increase, we initiated a new approach to risk identification and management in our plants in the
second half of 2018.
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.
Intellectual Property
In North America, our doors are marketed primarily under the Masonite® brand. Other North American brands
include: Premdor®, Masonite ArchitecturalTM, Belleville®, Barrington®, Oakcraft®, Sta-Tru® HD, AvantGuard®,
VistagrandeTM, Flagstaff®, Hollister®, Sierra®, Fast-Frame®, Safe ’N Sound®, Heritage SeriesTM, LivingstonTM,
AquaSealTM, Cheyenne®, Glenview®, Riverside®, Saddlebrook®, West End CollectionTM, Fast-Fit®, Mohawk®,
Megantic®, Birchwood Best®, Algoma®, VignetteTM, RhinoDoor®, Lemieux®, Harring DoorsTM , FyreWerks®, Graham-
MaimanTM, MaimanTM and Marshfield-AlgomaTM. In Europe, doors are marketed under the Masonite®, Premdor®,
Premdor Speed Set®, Door-Stop International®, National Hickman®, Defining Spaces®, Solidor®, Residor®, Nicedor®
and Residence Collection® 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 253 design patents and design
patent applications and 176 utility patents and patent applications. We currently have 176 foreign design patents and
patent applications and 235 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 industry, 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 industry that primarily source door facings from third party suppliers.
In the North American residential exterior door industry, the primary participants are Masonite, JELD-WEN, Plastpro,
Therma-Tru, Feather River and Novatech. In the North American non-residential building construction door industry,
7
the primary participants are Masonite and VT 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 30, 2018, we employed approximately 10,000 employees and contract personnel. This
includes approximately 2,300 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.
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.
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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, foreign exchange rate fluctuation,
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.
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 may 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.
9
Increases in mortgage rates, changes in mortgage interest deductions and related tax changes 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.
In addition, the 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 may adversely impact demand for our products
and have a material adverse impact on us.
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 global financial downturn that began
in the United States in 2006, included declining home and other building values, increased home foreclosures and
tightening of credit standards by lending institutions, negatively impacted the home and other building new construction
and repair and remodeling sectors. While these credit market trends have improved in recent years, if they were to
reoccur or worsen, our net sales and net income may be adversely affected.
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 2018, while our largest customer, The Home
Depot, accounted for approximately 18% of our net sales in fiscal year 2018. 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
10
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 acquisitions of American Building Supply, Inc., in
2018 and Milliken 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.
New tariffs and evolving trade policy between the United States and other countries, including China, may have an
adverse effect on our business and results of operations.
Recent steps taken by the United States government to apply and consider applying tariffs on certain products
and materials, including steel, could potentially disrupt our existing supply chains and impose additional costs on our
business, including costs with respect to raw materials upon which our business depends. The increased costs may
negatively impact our margins as we may not be able to pass on the additional costs by increasing the prices of our
products. While we believe our exposure to the potential increased costs of these tariffs is no greater than the industry as
a whole, our business and results of operations may be adversely affected if our efforts to mitigate their effects are
unsuccessful.
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
11
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.
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, 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.
Increases in labor costs, availability of labor, or 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 as it
impacts our direct labor, overhead, distribution and selling, general and administration costs. Increased costs of wages
and benefits and the lack of qualified labor available has had and could continue to have an adverse effect on our results
of operations.
Additionally, we have approximately 10,000 employees worldwide, including approximately 2,300 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.
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 channels. Our continued success
depends largely on the introduction and acceptance by our customers of new product lines and improvements to existing
12
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, including the impacts of restructuring charges and related impairments and other expenses,
until the expected cost reductions are achieved. We also cannot assure you we will achieve all 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. In addition, we have in the past and may again in the future, restructure portions
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of our global workforce to simplify and streamline our organization, improve our cost structure and strengthen our
overall business. These changes could affect employee morale and productivity and be disruptive to our business and
financial performance. For example, in 2017 we closed our Algoma, Wisconsin, facility in order to improve our cost
structure and enhance operational efficiencies. Further, 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.
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 Bridgewater Wholesalers inc. ("BWI"), Graham
Manufacturing Corporation and The Maiman Company (collectively, "Graham & Maiman ") and DW3 Products
Holdings Limited ("DW3") in 2018; A&F Wood Products, Inc. ("A&F") in 2017; and FyreWerks Inc. ("FyreWerks") in
2016. 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, including their information technology systems;
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.
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
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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 rely on the continuous operation of, and improvements to, 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, cyber security 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, including third party vendors' 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.
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 30, 2018, our accumulated benefit obligations under our United States and United Kingdom
defined benefit pension plans exceeded the fair value of plan assets by $8.2 million and $6.0 million, respectively.
During the years ended December 30, 2018, December 31, 2017 and January 1, 2017, we contributed $5.0 million each
year to the United States pension plan and $0.7 million, $1.0 million and $0.8 million, respectively, to the United
Kingdom pension plan. Additional contributions will be required in future years. We currently anticipate making $5.0
million and $1.0 million of contributions to our United States and United Kingdom pension plans, respectively, in 2019.
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.
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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 30, 2018, approximately 64% of our net sales were in the United States, 15% in Canada and
15% 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, such as those recently adopted by the United States and other jurisdictions, 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. See also "New tariffs and evolving trade policy between the United States and other
countries, including China, may have an adverse effect on our business and results of operations."
Uncertainty relating to the United Kingdom's anticipated exit from the European Union could adversely affect our
financial results.
In June 2016, voters in the United Kingdom (“UK”) voted for a non-binding referendum in favor of the UK
exiting the European Union (“EU”). In March 2017, the UK triggered the process to leave the EU (“Brexit”) and began
negotiations on the terms of the UK’s future relationship with the EU, which are ongoing. The UK is due to exit the EU
on March 29, 2019, regardless of whether there is a deal with the EU or not. Although the British government and the
EU negotiated a withdrawal agreement that was approved by the leaders of EU member states, in January 2019, the
agreement failed to receive UK parliamentary approval. While negotiations are continuing, there remains considerable
uncertainty around the withdrawal. Failure to obtain parliamentary approval of an agreed withdrawal agreement would,
absent a revocation of the UK’s notification to withdraw or some other delay, mean that the UK would leave the EU on
March 29, 2019, likely with no agreement (a so-called “hard Brexit”). Current discussions between the UK and the EU
may result in any number of outcomes including an extension or delay of the UK's withdrawal from the EU The
consequences for the economies of the EU member states as a result of the UK's withdrawal from the EU are unknown
and unpredictable, especially in the case of a hard Brexit. Any impact from Brexit on the Company will depend, in part,
on the outcome of tariff, trade and other negotiations. If the ultimate terms of the UK’s exit from the EU negatively
impact the UK economy or result in disruptions to sales or our supply chain, the adverse impact to our results of
operations, financial condition and ash flows could be material.
Since the UK triggered Brexit, there has been 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 UK, and demand for our products. The effects of Brexit will depend upon any
agreements the UK makes to retain access to EU markets. It is possible that there will be higher tariffs or greater
restrictions on imports and exports between the UK and the other EU member states and increased regulatory
complexities. These could potentially disrupt our supply chain, access to human capital and sales to some of our target
markets and jurisdictions in which we operate. The effects of Brexit could also lead to adverse changes in tax laws in
these or other jurisdictions. Additionally, the movement of goods between the UK and the remaining EU member states
could be subject to additional inspections and documentation checks, which could lead to possible delays at ports of
entry and departure. Brexit could also lead to legal uncertainty and potentially divergent national laws and regulations,
including environmental and other regulations currently under the EU’s jurisdiction, which may or may not be replaced
or replicated by the UK. Any of these effects of Brexit, and others we cannot anticipate, could have a material adverse
impact on our results of operations, financial condition and cash flows.
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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 36% for the year ended December 30, 2018. 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.
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
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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.
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.
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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.
As previously announced, Fred J. Lynch plans to retire as our President and Chief Executive Officer by the end
of the second quarter of 2019. Mr. Lynch also plans to leave our Board of Directors in connection with his retirement.
As part of our succession planning, our Board of Directors has initiated a process to identify a successor to Mr. Lynch
and, in order to ensure an orderly transition, Mr. Lynch is expected to remain in his current positions until the
appointment of his successor. Such leadership transitions can be inherently difficult to manage, and an inadequate
transition may cause disruption to our business, including to our relationships with our customers, suppliers and
employees. It may also make it more difficult to hire and retain key employees.
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 64 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
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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.
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.
20
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 2019 with respect to our consolidated indebtedness is $45.4
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
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 indentures 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 indentures 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 entered into in connection with
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.
21
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 30, 2018, 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
9
—
39
19
7
5
1
32
71
7
—
—
—
7
18
9
8
—
35
42
—
2
—
1
3
2
1
1
4
8
11
30
9
9
1
49
39
17
14
5
75
124
Our properties in the North American Residential and Architectural segments are distributed across 27 states in
the United States and four provinces in Canada, as well as one manufacturing facility and one support facility in Mexico
and three 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 30, 2018, total floor space at our manufacturing facilities was 12.7 million square feet,
including 3.2 million square feet in our five molded door facings facilities. In addition to the properties outlined above,
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.
In addition, we are providing supplemental disclosure relating to the matter below.
United Kingdom Fire Door Testing and Review
In 2018 the United Kingdom Ministry for Housing, Communities and Local Government (“MHCLG”) began
an industry-wide review of fire rated doors manufactured and sold in the UK, including testing to determine whether
such doors are able to withstand fires for the time period stated (e.g., 30 or 60 minutes). Certain of our subsidiaries
produce and sell fire rated doors (made of either wood or composite/fiberglass) in the UK, with all such doors tested by
an accredited UK test facility to the appropriate British standard and approved by an independent third-party certifier. In
the third quarter of 2018, the MHCLG issued a statement indicating that their interpretation of the applicable
regulations requires testing of fire resistance on both sides of fire doors, in contrast with long-standing industry practice
22
to test on the one side of a fire door perceived to be weaker (the MCHCLG subsequently clarified their statement to
only apply to composite/fiberglass fire doors). Consistent with the advice given to the MHCLG by the UK trade
association for composite door manufacturers, at such time we temporarily stopped the production and sale of
composite/fiberglass fire doors in the UK until they could be tested in both directions. We subsequently tested certain of
our composite/fiberglass fire doors that were designed to include a range of configurations in accordance with the
MHCLG’s new interpretation and passed the tests. Following completion of this testing, in November 2018 we resumed
the production and sale of certain composite/fiberglass door configurations that were included within the range of doors
that were successfully tested. In early February 2019 our UK independent third-party certifier advised us that, based on
additional guidance issued by the MHCLG with respect to composite/fiberglass doors and contrary to their longstanding
practice, their product certifications would only apply to the precise specification of composite/fiberglass doors that
were tested as opposed to the range of doors that were included in the configurations that were tested. In light of this
development, we promptly stopped the production and sale of composite/fiberglass fire doors in the U.K. until such
time as we can evaluate the impact of this advice by the third-party certifier.
Separately, as part of the MHCLG’s extension of their industry-wide review to timber fire doors, in 2018 the
MHCLG requested that we provide certain timber fire doors to it for testing, which timber fire doors were tested in the
fourth quarter of 2018 and passed the tests.
We cannot predict with certainty the ultimate outcome of the MHCLG’s actions or future related actions and it
is possible that such actions could have a material, adverse effect on our consolidated financial position or results of
operations.
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.
23
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.
Holders
As of February 26, 2019, we had two 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.
24
Stock Performance Graph
The following graph depicts the total return to shareholders from December 29, 2013, through December 30,
2018, 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 December 29, 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 30, 2018)
Masonite International
Corporation
Standard & Poor's 500
Index
Standard & Poor's 1500
Building Products Index
December 29,
2013
December 28,
2014
January 3,
2016
January 1,
2017
December 31,
2017
December 30,
2018
$
100.00
$
102.68
$
103.34
$
111.05
$
125.15
$
77.49
100.00
100.00
113.69
109.25
115.26
119.19
129.05
145.95
157.22
168.08
150.33
131.38
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
25
Repurchases of Equity Securities by the Issuer and Affiliated Purchasers
During the three months ended December 30, 2018, we repurchased 1,306,984 of our common shares in the
open market.
Total Number
of Shares
Purchased
Average Price
Paid per Share
October 1, 2018, through October 28, 2018
469,150
$
October 29, 2018, through November 25, 2018
November 26, 2018, through December 30, 2018
Total
627,638
210,196
1,306,984
$
59.24
54.94
48.22
55.40
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
469,150
$ 248,610,613
627,638
210,196
1,306,984
214,127,632
203,992,964
We currently have in place a $600 million share repurchase authorization, stemming from three 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, and May 10, 2018, our Board of Directors authorized an additional $200 million and $250 million, respectively
(collectively, the “share repurchase programs”). The share repurchase programs have no specified end date and 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 30, 2018,
$204.0 million was available for repurchase in accordance with the share repurchase programs.
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 30, 2018, and December 31, 2017, and for
the years ended December 30, 2018, December 31, 2017, and January 1, 2017, have been derived from the audited
consolidated financial statements included elsewhere in this Annual Report. The selected historical consolidated
financial data as of January 1, 2017, January 3, 2016, and December 28, 2014, and for the years ended January 3, 2016,
and December 28, 2014, 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.
26
(In thousands of U.S. dollars, except for share
and per share amounts)
December 30,
2018
December 31,
2017
January 1,
2017
January 3,
2016
December 28,
2014
Year Ended
Operating Results:
Net sales
$
2,170,103
$
2,032,925
$
1,973,964
$
1,871,965
$
1,837,700
Gross profit
Net income (loss) (1)
Net income (loss) attributable to Masonite (1)
Basic earnings per common share attributable
to Masonite
Diluted earnings per common share
attributable to Masonite
435,306
96,544
92,710
3.38
3.33
406,983
156,981
151,739
5.18
5.09
409,645
104,142
98,622
3.25
3.17
350,850
(42,649)
(47,111)
(1.56)
(1.56)
265,399
(34,118)
(37,340)
(1.26)
(1.26)
Cash Flow Data:
Capital expenditures
Balance Sheet Data:
Working capital (2)
Total assets (3)
Total debt (4)
Total equity
82,380
73,782
82,287
51,065
50,147
451,287
1,778,465
796,398
622,305
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
____________
(1) Refer to Footnote 12, Restructuring, and Footnote 14, Income Taxes, in Item 8 of this Annual Report for information relating to material drivers of
year over year changes in our earnings that are outside the ordinary course of business.
(2) Working capital is defined as current assets less current liabilities and includes cash restricted by letters of credit.
(3) Primary drivers of year over year fluctuations in total assets include acquisitions, asset impairments and changes in deferred tax assets, amongst
others. Refer to Footnotes 2, 13 and 14 in Item 8 of this Annual Report for additional information on these drivers.
(4) Refer to Footnote 8 in Item 8 of this Annual Report for information regarding year over year changes in our levels of indebtedness.
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 30,
2018, December 31, 2017, and January 1, 2017. 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,
27
MASONITE INTERNATIONAL CORPORATION
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 71 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 30, 2018, we generated net sales of $1,454.8 million
or 67.0%, $369.0 million or 17.0% and $323.5 million or 14.9% 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
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 anticipated exit from the European Union 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
28
MASONITE INTERNATIONAL CORPORATION
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 2018, 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 2018. 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 engaged in a series of restructuring programs related to exiting certain
geographies and non-core businesses, consolidating certain internal support functions and engaging in other actions
designed to reduce our cost structure and improve productivity. These initiatives primarily consist of severance actions
and lease termination costs. Management continues to evaluate our business; therefore, in future years, there may be
additional provisions for new plan initiatives, as well as changes in previously recorded estimates, as payments are made
or actions are completed. Asset impairment charges were also incurred in connection with these restructuring actions for
those assets sold, abandoned or made obsolete as a result of these programs.
In February 2019, we began implementing a plan to improve overall business performance that includes the
reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration
workforce. The reorganization of our manufacturing capacity will involve specific plants in the North American
Residential and Architectural segments and costs associated with the closure of these plants and related headcount
reductions will take place beginning in the first quarter of 2019 (collectively, the “2019 Plan”). Costs associated with the
2019 Plan include severance, retention and closure charges and will continue through 2020. As of February 26, 2019, we
expect to incur approximately $10 million to $15 million of charges related to the 2019 Plan. Once fully implemented,
the actions taken as part of the 2019 Plan are expected to increase our annual earnings and cash flows by approximately
$14 million to $19 million.
During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects
of our United Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more
effective and consistent business processes in the Europe segment. In addition, in the North America segment we
announced a new facility that will optimize and expand capacity through increased automation, which will result in the
closure of one existing facility and related headcount reductions beginning in the second quarter of 2019 (collectively,
the “2018 Plan”). Costs associated with the 2018 Plan include severance, retention and closure charges and will continue
throughout 2019. Additionally, the plan to divest non-core assets was determined to be a triggering event requiring a test
of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 13. As
of December 30, 2018, we expect to incur approximately $2 million of additional charges related to the 2018 Plan. Once
fully implemented, the actions taken as part of the 2018 Plan are expected to increase our annual earnings and cash flows
by approximately $6 million.
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 30, 2018, 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.
Foreign Exchange Rate Fluctuation
Our financial results may be adversely affected by fluctuating exchange rates. In the years ended December 30,
2018, December 31, 2017, and January 1, 2017 approximately 36%, 34% and 35% 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
29
MASONITE INTERNATIONAL CORPORATION
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 losses from currency translation adjustments as a result of translating our foreign assets and liabilities
into U.S. dollars during the year ended December 30, 2018, were $40.9 million, which were primarily driven by the
strengthening 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, tariffs 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.
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
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.
• BWI: On November 1, 2018, we completed the acquisition of the operating assets of Bridgewater
Wholesalers Inc. (“BWI”) for cash consideration of $22.1 million, net of cash acquired, and subject to
certain customary post-closing adjustments. BWI is headquartered in Branchburg, New Jersey, and is a
fabricator and distributor of residential interior and exterior door systems, supporting customers in the Mid-
Atlantic and Northeastern United States. Their product offerings include residential interior and exterior
doors, commercial doors and hardware as well as value added pre-finishing services.
• Graham and Maiman: On June 1, 2018, we completed the acquisition of the operating assets of the wood
door companies of AADG, Inc., including the brands Graham Manufacturing Corporation and The Maiman
Company (collectively, "Graham & Maiman"). We acquired the operating assets of Graham & Maiman for
cash consideration of $39.0 million. Graham & Maiman are based in Mason City, Iowa, and Springfield,
Missouri. Graham & Maiman provide the non-residential construction industry with a full range of
architectural premium and custom grade flush wood doors, architectural stile and rail wood doors, thermal-
fused flush wood doors and wood door frames.
• 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 $96.3 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
30
MASONITE INTERNATIONAL CORPORATION
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.
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
control of the promised goods is transferred to our customers based on the agreed-upon shipping terms, in an amount that
reflects the consideration to which we expect to be entitled in exchange for those goods or services. Volume rebates,
expected returns, discounts and other incentives to customers are considered variable consideration and we estimate
these amounts based on the expected amount to be provided to customers and reduce the revenues we recognize
accordingly. Additionally, shipping and other transportation costs charged to customers are recorded in net sales in the
consolidated statements of comprehensive income.
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% for each of the years ended December 30,
2018, December 31, 2017, and January 1, 2017.
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
31
MASONITE INTERNATIONAL CORPORATION
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.
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 August
27, 2018, interest expense, net relates to our $300.0 million aggregate principal amount of 5.75% senior unsecured notes
due March 15, 2026 (the "2026 Notes") and $500.0 million aggregate principal amount of 5.625% senior unsecured
notes due March 15, 2023 (the "2023 Notes"). Prior to August 27, 2018, interest expense related to our $625.0 million
aggregate principal amount of 5.625% senior unsecured notes due March 15, 2023, which were partially redeemed on
August 27, 2018, concurrent with the issuance of the 2026 Notes. Debt issuance costs incurred in connection with the
2026 Notes and 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 Income, Net of Expense
Other income, net of expense 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.
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 and the Central
Eastern Europe 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
32
MASONITE INTERNATIONAL CORPORATION
segments which were not aggregated into any reportable 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 2026 and 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.
33
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
Asset impairment
Loss (gain) on disposal of subsidiaries
Operating income
Interest expense, net
Loss on extinguishment of debt
Other income, net of expense
Income before income tax expense (benefit)
Income tax expense (benefit)
Net income
Less: net income attributable to non-controlling interest
Net income attributable to Masonite
$
December 30,
2018
2,170,103
1,734,797
435,306
Year Ended
December 31,
2017
2,032,925
1,625,942
406,983
$
$
January 1,
2017
1,973,964
1,564,319
409,645
20.1%
266,193
12.3%
1,624
5,243
—
162,246
39,008
5,414
(2,533)
120,357
23,813
96,544
3,834
92,710
$
20.0%
247,917
12.2%
850
—
212
158,004
30,153
—
(1,570)
129,421
(27,560)
156,981
5,242
151,739
$
20.8%
260,864
13.2%
1,445
1,511
(6,575)
152,400
28,178
—
(1,707)
125,929
21,787
104,142
5,520
98,622
$
Year Ended December 30, 2018, Compared with Year Ended December 31, 2017
Net Sales
Net sales in the year ended December 30, 2018, were $2,170.1 million, an increase of $137.2 million or 6.7%
from $2,032.9 million in the year ended December 31, 2017. Net sales in 2018 were positively impacted by $11.9
million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have
increased by $125.3 million or 6.2% due to changes in volume, average unit price and sales of components and other
products. The incremental impact of acquisitions contributed $119.0 million or 5.9% of net sales in 2018. Average unit
price in 2018 increased net sales by $68.2 million or 3.4% compared to 2017. Lower volumes excluding the incremental
impact of acquisitions ("base volume") decreased net sales by $66.5 million or 3.3% in 2018 compared to 2017. Net
sales of components and other products to external customers were $4.6 million higher in 2018 compared to 2017.
Net Sales and Percentage of Net Sales by Reportable Segment
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Percentage of consolidated
external net sales
Year Ended December 30, 2018
North
American
Residential
$ 1,458,957
(4,198)
$ 1,454,759
Europe
Architectural
Corporate &
Other
Total
$
$
371,069
(2,066)
369,003
$
$
340,609
(17,137)
323,472
$
$
22,869
—
22,869
$ 2,193,504
(23,401)
$ 2,170,103
67.0%
17.0%
14.9%
34
MASONITE INTERNATIONAL CORPORATION
Year Ended December 31, 2017
North
American
Residential
$ 1,433,268
(4,338)
$ 1,428,930
Europe
Architectural
Corporate &
Other
Total
$
$
295,862
(3,936)
291,926
$
$
307,237
(18,773)
288,464
$
$
23,605
—
23,605
$ 2,059,972
(27,047)
$ 2,032,925
70.3%
14.4%
14.2%
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Percentage of consolidated
external net sales
North American Residential
Net sales to external customers from facilities in the North American Residential segment in the year ended
December 30, 2018, were $1,454.8 million, an increase of $25.9 million or 1.8% from $1,428.9 million in the year ended
December 31, 2017. Net sales in 2018 were negatively impacted by $0.3 million as a result of foreign exchange rate
fluctuations. Excluding this exchange rate impact, net sales would have increased by $26.2 million or 1.8% due to
changes in volume, average unit price and sales of components and other products. The incremental impact of
acquisitions contributed $7.7 million or 0.5% of net sales in 2018. Average unit price increased net sales in 2018 by
$38.9 million or 2.7% compared to 2017. Lower base volume decreased net sales by $24.2 million or 1.7% in 2018
compared to 2017. Net sales of components and other products to external customers were $3.8 million higher in 2018
compared to 2017.
Europe
Net sales to external customers from facilities in the Europe segment in the year ended December 30, 2018,
were $369.0 million, an increase of $77.1 million or 26.4% from $291.9 million in the year ended December 31, 2017.
Net sales in 2018 were positively impacted by $11.8 million as a result of foreign exchange fluctuations. Excluding this
exchange rate impact, net sales would have increased by $65.3 million or 22.4% due to changes in volume, average unit
price and sales of components and other products. The incremental impact of acquisitions contributed $68.5 million or
23.5% of net sales in 2018. Average unit price increased net sales in 2018 by $14.0 million or 4.8% compared to 2017.
Lower base volume in 2018 decreased net sales by $15.0 million or 5.1% compared to 2017. Net sales of components
and other products to external customers were $2.2 million lower in 2018 compared to 2017.
Architectural
Net sales to external customers from facilities in the Architectural segment in the year ended December 30,
2018, were $323.5 million, an increase of $35.0 million or 12.1% from $288.5 million in the year ended December 31,
2017. Net sales in 2018 were positively impacted by $0.1 million as a result of foreign exchange fluctuations. Excluding
this exchange rate impact, net sales would have increased by $34.9 million or 12.1% due to changes in volume, average
unit price and sales of components and other products. The incremental impact of acquisitions contributed $42.8 million
or 14.8% of net sales in 2018. Average unit price increased net sales in 2018 by $15.3 million or 5.3% compared to 2017.
Lower base volume decreased net sales in 2018 by $26.2 million or 9.1% compared to 2017. Net sales of components
and other products to external customers were $3.0 million higher in 2018 compared to 2017.
Cost of Goods Sold
Cost of goods sold as a percentage of net sales was 79.9% and 80.0% for the years ended December 30, 2018,
and December 31, 2017, respectively. This 0.1% decrease was driven by a 0.3% decrease in distribution costs as a
percentage of net sales in 2018 compared to 2017, as well as a 0.1% decrease in direct labor as a percentage of net sales.
Partly offsetting these decreases, material cost of sales as a percentage of sales increased by 0.3% over the 2017 period,
which was driven by a combination of inflation and inbound freight increases which were partially offset by favorable
average unit prices. Overhead and depreciation as a percentage of net sales were flat in 2018 compared to 2017.
Selling, General and Administration Expenses
In the year ended December 30, 2018, selling, general and administration expenses, as a percentage of net sales,
were 12.3% compared to 12.2% in the year ended December 31, 2017, an increase of 10 basis points.
35
MASONITE INTERNATIONAL CORPORATION
Selling, general and administration expenses in the year ended December 30, 2018, were $266.2 million, an
increase of $18.3 million from $247.9 million in the year ended December 31, 2017. The overall increase was driven by
incremental SG&A from our 2018 and 2017 acquisitions of $16.3 million, an increase in personnel costs of $6.8 million,
an increase in professional fees of $2.7 million and unfavorable foreign exchange impacts of $1.4 million. These
increases were offset by a $7.4 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, a $1.4 million
reduction in marketing costs and $0.1 million of other decreases. The incremental SG&A from our 2018 and 2017
acquisitions was driven by amortization of intangible assets, the increase in personnel costs was primarily due to
incentive compensation as well as increased SG&A headcount to support expanded operations and the increase in
professional fees was driven by acquisition transaction costs.
Restructuring Costs
Restructuring costs in the year ended December 30, 2018, were $1.6 million, compared to $0.9 million in the
year ended December 31, 2017. Restructuring costs in 2018 related to severance, retention and closure charges
associated with the 2018 Plan. 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.
Asset Impairment
Asset impairment charges in the year ended December 30, 2018, were $5.2 million. There were no asset
impairment charges in the year ended December 31, 2017. Asset impairment charges in 2018 resulted from actions
associated with the 2018 Plan.
Loss on Disposal of Subsidiaries
Loss on disposal of subsidiaries was $0.2 million in the year ended December 31, 2017. There were no charges
associated with the disposal of subsidiaries in the year ended December 30, 2018. The prior year loss is comprised of the
recognition of the cumulative translation adjustment out of accumulated other comprehensive loss following the
liquidation of our legal entity in Hungary.
Interest Expense, Net
Interest expense, net, in the year ended December 30, 2018, was $39.0 million, compared to $30.2 million in the
year ended December 31, 2017. This increase primarily relates to the issuance of $300.0 million aggregate principal
amount of 2026 Senior Notes on September 27, 2018, as well as the issuance of $150.0 million aggregate principal
amount of additional 2023 Senior Notes on September 27, 2017.
Other Income, Net of Expense
Other income, net of expense, in the year ended December 30, 2018, was $2.5 million, compared to $1.6
million in the year ended December 31, 2017. The change in other income, net of expense, 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 expense in the year ended December 30, 2018, was $23.8 million, a change of $51.4 million
from $27.6 million of income tax benefit in the year ended December 31, 2017. The increase in income tax expense is
primarily attributable to (i) the increase in income tax expense in Canada due to the valuation allowance release resulting
in $24.1 million of income tax benefit recorded in the fourth quarter of 2017, (ii) the increase in income tax expense in
the U.S. during 2018 which excludes the one-time $27.2 million of 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 during 2017 and (iii)
mix of income or losses within the tax jurisdictions with various tax rates in which we operate.
36
MASONITE INTERNATIONAL CORPORATION
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 December 30, 2018
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
202,465
$
44,985
$
37,742
$
(17,256)
$
267,936
13.9%
12.2%
11.7%
12.3%
Year Ended December 31, 2017
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
200,179
$
33,820
$
30,050
$
(9,543)
$
254,506
14.0%
11.6%
10.4%
12.5%
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 on disposal of property, plant and
equipment
Restructuring costs
Asset impairment
Interest expense, net
Loss on extinguishment of debt
Other (income), net of expense
Income tax expense (benefit)
Net income attributable to non-
controlling interest
Net income (loss) attributable to
Masonite
Year Ended December 30, 2018
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
202,465
$
44,985
$
37,742
$
(17,256) $
267,936
29,959
1,466
—
1,799
275
—
—
—
(57)
—
3,042
9,922
14,716
—
92
1,349
5,243
—
—
61
—
—
10,431
9,236
—
180
—
—
—
—
—
—
—
8,777
3,165
7,681
1,399
—
—
39,008
5,414
(2,537)
23,813
59,089
28,583
7,681
3,470
1,624
5,243
39,008
5,414
(2,533)
23,813
792
3,834
$
165,981
$
13,602
$
17,895
$
(104,768) $
92,710
37
MASONITE INTERNATIONAL CORPORATION
(In thousands)
Adjusted EBITDA
Less (plus):
Depreciation
Amortization
Share based compensation expense
Loss on disposal of property, plant and
equipment
Restructuring costs
Loss on disposal of subsidiaries
Interest expense, net
Other (income), net of expense
Income tax benefit
Net income 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
$
33,820
$
30,050
$
(9,543) $
254,506
29,798
3,369
—
770
—
—
—
—
—
3,519
9,588
7,867
—
293
(27)
212
—
232
—
—
9,032
8,742
—
328
2,394
—
—
—
—
—
9,110
4,397
11,644
502
(1,517)
—
30,153
(1,802)
(27,560)
57,528
24,375
11,644
1,893
850
212
30,153
(1,570)
(27,560)
1,723
5,242
$
162,723
$
15,655
$
9,554
$
(36,193) $
151,739
Adjusted EBITDA in our North American Residential segment increased $2.3 million, or 1.1%, to $202.5
million in the year ended December 30, 2018, from $200.2 million in the year ended December 31, 2017. Adjusted
EBITDA in the North American Residential segment included corporate allocations of shared costs of $54.7 million in
both 2018 and 2017. 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 $11.2 million, or 33.1%, to $45.0 million in the year ended
December 30, 2018, from $33.8 million in the year ended December 31, 2017.
Adjusted EBITDA in our Architectural segment increased $7.6 million or 25.2% to $37.7 million in the year
ended December 30, 2018, from $30.1 million in the year ended December 31, 2017. Adjusted EBITDA in the
Architectural segment also included corporate allocations of shared costs of $8.9 million in both 2018 and 2017. The
allocations generally consist of certain costs of human resources, legal, finance and information technology.
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
Year Ended December 31, 2017
North
American
Residential
$ 1,433,268
(4,338)
$ 1,428,930
Europe
Architectural
Corporate &
Other
Total
$
$
295,862
(3,936)
291,926
$
$
307,237
(18,773)
288,464
$
$
23,605
—
23,605
$ 2,059,972
(27,047)
$ 2,032,925
70.3%
14.4%
14.2%
Year Ended January 1, 2017
North
American
Residential
Europe
Architectural
Corporate &
Other
Total
$ 1,357,228
(5,926)
$ 1,351,302
$
$
305,710
(4,543)
301,167
$
$
312,241
(14,353)
297,888
$
$
23,607
—
23,607
$ 1,998,786
(24,822)
$ 1,973,964
68.5%
15.3%
15.1%
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Percentage of consolidated
external net sales
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Percentage of consolidated
external net sales
North American Residential
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%
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.
39
MASONITE INTERNATIONAL CORPORATION
Cost of Goods Sold
Cost of goods sold as a percentage of net sales was 80.0% and 79.2% for the year ended December 31, 2017,
and January 1, 2017, respectively. Distribution, overhead and direct labor as a percentage of sales in 2017 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 12.2% compared to 13.2% in the year ended January 1, 2017, a decrease of 100 basis points.
Selling, general and administration expenses in the year ended December 31, 2017, were $247.9 million, a
decrease of $13.0 million from $260.9 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 $2.8 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 were 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 a gain on
disposal of subsidiaries of $6.6 million in the year ended January 1, 2017. The loss in 2017 arose as a result of the
liquidation of our legal entity in Hungary, while the gain in 2016 arose as a result of the sale of our equity interest in our
South African subsidiary and the liquidation of our legal entity in Romania. The 2017 loss and the 2016 gain related to
Hungary and Romania are comprised of the recognition of the cumulative translation adjustment out of accumulated
other comprehensive income (loss). The 2016 gain relating to our South African subsidiary 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.
Other Income, Net of Expense
Other income, net of expense, in the year ended December 31, 2017, was $1.6 million, compared to $1.7
million in the year ended January 1, 2017. The change in other income, net of expense, is primarily due to unrealized
gains and losses on foreign currency remeasurements. Also contributing to the change were our portion of dividends and
40
MASONITE INTERNATIONAL CORPORATION
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 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
(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
$
33,820
$
30,050
$
(9,543)
$
254,506
14.0%
11.6%
10.4%
12.5%
Year Ended January 1, 2017
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
212,619
$
39,028
$
25,160
$
(24,794)
$
252,013
15.7%
13.0%
8.4%
12.8%
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 on disposal of property, plant and
equipment
Restructuring costs
Loss on disposal of subsidiaries
Interest expense, net
Other (income), net of expense
Income tax benefit
Net income 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
$
33,820
$
30,050
$
(9,543) $
254,506
29,798
3,369
—
770
—
—
—
—
—
3,519
9,588
7,867
—
293
(27)
212
—
232
—
—
9,032
8,742
—
328
2,394
—
—
—
—
—
9,110
4,397
11,644
502
(1,517)
—
30,153
(1,802)
(27,560)
57,528
24,375
11,644
1,893
850
212
30,153
(1,570)
(27,560)
1,723
5,242
$
162,723
$
15,655
$
9,554
$
(36,193) $
151,739
41
MASONITE INTERNATIONAL CORPORATION
(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
Gain on disposal of subsidiaries
Interest expense, net
Other (income), net of expense
Income tax expense
Net income attributable to non-
controlling interest
Net income (loss) attributable to
Masonite
Year Ended January 1, 2017
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
212,619
$
39,028
$
25,160
$
(24,794) $
252,013
31,159
4,383
—
1,094
—
—
—
—
—
—
3,389
8,480
9,069
—
564
19
—
(1,431)
—
790
—
—
9,622
7,999
—
484
1,313
1,511
—
—
—
—
—
8,343
3,276
18,790
(31)
113
—
(5,144)
28,178
(2,497)
21,787
57,604
24,727
18,790
2,111
1,445
1,511
(6,575)
28,178
(1,707)
21,787
2,131
5,520
$
172,594
$
21,537
$
4,231
$
(99,740) $
98,622
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 13.3%, to $33.8 million in the year ended
December 31, 2017, from $39.0 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 January 1, 2017, from $25.2 million in the year ended January 3, 2016. 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.
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 program ("AR Sales
Program") 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 30, 2018, we do not have any material commitments for
capital expenditures. We anticipate capital expenditures in fiscal year 2019 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
Program, our ABL Facility, and ability to access the capital markets will provide adequate liquidity for the foreseeable
future. As of December 30, 2018, we had $115.7 million of cash and cash equivalents, availability under our ABL
Facility of $136.5 million and availability under our AR Sales Program of $12.3 million.
42
MASONITE INTERNATIONAL CORPORATION
Cash Flows
Year Ended December 30, 2018, Compared with Year Ended December 31, 2017
Cash provided by operating activities was $203.2 million during the year ended December 30, 2018, compared
to $173.5 million during the year ended December 31, 2017. This $29.7 million increase in cash provided by operating
activities was attributable to changes in net working capital in 2018 compared 2017, partially offset by a $3.4 million
decrease in our net income attributable to Masonite, adjusted for non-cash and non-operating items.
Cash used in investing activities was $254.5 million during the year ended December 30, 2018, compared to
$90.1 million cash used during the year ended December 31, 2017. This $164.4 million increase in cash used in investing
activities was driven by $143.6 million of incremental cash used in acquisitions in 2018 compared to 2017, cash used in
the issuance of a note receivable in the amount of $12.0 million, an $8.6 million increase in cash additions to property,
plant and equipment and an increase in other investing outflows of $0.2 million in 2018 compared to 2017.
Cash used in financing activities was $10.0 million during the year ended December 30, 2018, compared to
$21.2 million of cash provided by financing activities during the year ended December 31, 2017. This $31.2 million
increase in cash used in financing activities was driven by a $47.0 million increase in cash used for repurchases of
common shares offset by net cash provided by debt-related transactions of $10.8 million, a $3.8 million decrease in cash
used for tax withholding on share based awards and a $1.2 million decrease in distributions to non-controlling interests
in 2018 compared to 2017.
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 $90.1 million during the year ended December 31, 2017, compared to
$76.9 million cash used during the year ended January 1, 2017. This $13.2 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 $1.4 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.
Share Repurchases
We currently have in place a $600 million share repurchase authorization, stemming from three 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, and May 10, 2018, our Board of Directors authorized an additional $200 million and $250 million, respectively
(collectively, the “share repurchase programs”). The share repurchase programs have no specified end date and 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 30,
2018, we repurchased and retired 2,771,684 of our common shares in the open market at an aggregate cost of $166.9
million as part of the share repurchase programs. During the year ended December 31, 2017, we repurchased 1,794,101
43
MASONITE INTERNATIONAL CORPORATION
of our common shares in the open market at an aggregate cost of $119.9 million. As of December 30, 2018, $204.0
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 30, 2018, 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.
Accounts Receivable Sales Program
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.
Senior Notes
On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the “2026 Notes”).
The 2026 Notes were issued in a private placement 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 of the United States pursuant
to Regulation S under the Securities Act. The 2026 Notes were issued without registration rights and are not listed on any
securities exchange. The 2026 Notes bear interest at 5.75% per annum, payable in cash semiannually in arrears on March
15 and September 15 of each year and are due September 15, 2026. The 2026 notes were issued at par. We received net
proceeds of $295.7 million after deducting $4.3 million of debt issuance costs. 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 2026 Notes
using the effective interest method. The net proceeds from issuance of the 2026 Notes were used to redeem $125.0
million aggregate principal amount of the 2023 Notes (as described in the footnotes to the consolidated financial
statements), including the payment of related premiums, fees and expenses, with the balance of the proceeds available
for general corporate purposes.
Obligations under the 2026 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 2026 Notes
under certain circumstances specified therein. The indenture governing the 2026 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 2026 Notes. In addition, if in the future the 2026 Notes have an investment grade rating from at least two
nationally recognized statistical rating organizations, certain of these covenants will be terminated. The indenture
governing the 2026 Notes contains customary events of default (subject in certain cases to customary grace and cure
periods). As of December 30, 2018, we were in compliance with all covenants under the indenture governing the 2026
Notes.
44
MASONITE INTERNATIONAL CORPORATION
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 30, 2018, we were in compliance with all covenants under the indenture governing the 2023
Notes.
ABL Facility
On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving
credit facility (the "ABL Facility") maturing on January 31, 2024. The borrowing base is calculated based on a
percentage of the value of selected U.S., Canadian and U.K. accounts receivable and inventory, less certain ineligible
amounts. Obligations under the ABL Facility are secured by a first priority security interest in such accounts receivable,
inventory and other related 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 U.S., Canadian or U.K. Base Rate (each as defined in the credit agreement relating to the ABL Facility, the
"Amended and Restated Credit Agreement") plus a margin ranging from 0.25% to 0.50% per annum, or (ii) the Adjusted
LIBO Rate or BA Rate (each as defined in the Amended and Restated Credit Agreement), plus a margin ranging from
1.25% to 1.50% 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.
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 junior priority 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 existing exceptions). As of
February 26, 2019, there were no amounts outstanding under the ABL Facility.
45
MASONITE INTERNATIONAL CORPORATION
Supplemental Guarantor Financial Information
Our obligations under the 2026 Notes and 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 $1.9 billion, $1.8 billion and $1.6 billion in the
years ended December 30, 2018, December 31, 2017 and January 1, 2017, respectively. Our non-guarantor subsidiaries
generated Adjusted EBITDA of $224.1 million, $209.2 million and $204.5 million for the years ended December 30,
2018, December 31, 2017, and January 1, 2017, respectively. Our non-guarantor subsidiaries had total assets of $1.8
billion and $1.6 billion as of December 30, 2018, and December 31, 2017; and total liabilities of $711.8 million and
$693.8 million as of December 30, 2018, and December 31, 2017, respectively.
Contractual Obligations
The following table presents our contractual obligations over the periods indicated as of December 30, 2018:
(In thousands)
Long-term debt
maturities
Scheduled interest
payments
Operating leases
Pension contributions
Total (1)
2019
2020
2021
2022
2023
Thereafter
Total
Fiscal Year Ended
$
— $
— $
— $
— $ 500,000
$ 300,000
$ 800,000
45,375
24,249
1,016
45,375
23,904
1,002
45,375
18,823
1,051
45,375
14,333
3,704
31,313
12,389
2,959
51,750
49,781
7,289
264,563
143,479
17,021
$
70,640
$
70,281
$
65,249
$
63,412
$ 546,661
$ 408,820
$1,225,063
____________
(1) As of December 30, 2018, we have $5.1 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.
Critical Accounting Policies and Estimates
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
46
MASONITE INTERNATIONAL CORPORATION
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 2018 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 2018 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.
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
47
MASONITE INTERNATIONAL CORPORATION
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 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.
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.
48
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 30, 2018, or
December 31, 2017. If not mitigated by derivative financial instruments, price increases or other methods, a
hypothetical 10% strengthening of the U.S. Dollar against all foreign currencies in the jurisdictions in which we operate
would result in an approximate $74 million translational decrease in our net sales and an approximate $2 million
translational decrease in our net income.
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 30, 2018, or December 31, 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. A
hypothetical 10% inflationary increase in our material cost of goods sold would result in approximately $92 million of
increased consolidated cost of goods sold.
49
Item 8. Financial Statements and Supplementary Data
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Comprehensive Income
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
51
52
53
54
55
56
57
99
50
Report of Independent Registered 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 sheets of Masonite International Corporation and subsidiaries (the
Company) as of December 30, 2018 and December 31, 2017, and the related consolidated statements of comprehensive income,
consolidated statements of changes in equity, and consolidated statements of cash flows for each of the two fiscal years in the
periods ended December 30, 2018, 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 30, 2018 and December 31, 2017, and the results of its operations and its cash flows for each of the two fiscal years in
the period ended December 30, 2018, 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 30, 2018, 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 26, 2019 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 audits. 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 audits 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Tampa, Florida
February 26, 2019
51
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 statements of comprehensive income, changes in equity, and cash flows for the
year 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 audit.
We conducted our audit 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 audit 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 audit provide a reasonable basis for our opinion.
In our opinion, such consolidated statements of comprehensive income, changes in equity, and cash flows present fairly, in all
material respects, the results of their operations and their cash flows of Masonite International Corporation and subsidiaries for
the year 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
52
MASONITE INTERNATIONAL CORPORATION
Consolidated Statements of Comprehensive Income
(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
Asset impairment
Loss (gain) on disposal of subsidiaries
Operating income
Interest expense, net
Loss on extinguishment of debt
Other income, net of expense
Income before income tax expense (benefit)
Income tax expense (benefit)
Net income
Less: net income attributable to non-controlling interest
Net income attributable to Masonite
Basic earnings per common share attributable to Masonite
Diluted earnings per common share attributable to Masonite
Comprehensive income:
Net income
Other comprehensive income (loss):
Foreign currency translation gain (loss)
Pension and other post-retirement adjustment
Amortization of actuarial net losses
Income tax benefit (expense) related to other comprehensive income (loss)
Other comprehensive income (loss), net of tax:
Comprehensive income
Less: comprehensive income attributable to non-controlling interest
December 30,
2018
Year Ended
December 31,
2017
January 1,
2017
$
2,170,103
$
2,032,925
$
1,973,964
1,734,797
1,625,942
1,564,319
435,306
266,193
1,624
5,243
—
162,246
39,008
5,414
(2,533)
120,357
23,813
96,544
3,834
406,983
247,917
850
—
212
158,004
30,153
—
(1,570)
129,421
(27,560)
156,981
5,242
92,710
$
151,739
$
409,645
260,864
1,445
1,511
(6,575)
152,400
28,178
—
(1,707)
125,929
21,787
104,142
5,520
98,622
$
3.38
3.33
$
5.18
5.09
3.25
3.17
96,544
$
156,981
$
104,142
$
$
$
(40,880)
(4,754)
1,291
742
(43,601)
52,943
3,000
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
57,584
Comprehensive income attributable to Masonite
$
49,943
$
190,573
$
See accompanying notes to the consolidated financial statements.
53
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
Deferred income taxes
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Income taxes payable
Total current liabilities
Long-term debt
Deferred income taxes
Other liabilities
Total liabilities
Commitments and Contingencies (Note 9)
Equity:
Share capital: unlimited shares authorized, no par value, 25,835,664 and 28,369,877 shares
issued and outstanding as of December 30, 2018, and December 31, 2017, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total equity attributable to Masonite
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
December 30,
2018
December 31,
2017
$
115,656
$
10,485
283,580
250,407
32,970
3,495
696,593
609,753
13,474
180,297
212,045
28,509
37,794
176,669
11,895
269,235
234,042
27,665
2,364
721,870
575,492
11,310
138,449
182,484
29,899
20,754
$
1,778,465
$
1,680,258
$
96,362
$
147,345
1,599
245,306
796,398
82,122
32,334
1,156,160
575,207
218,988
(30,836)
(152,919)
610,440
11,865
622,305
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
$
1,778,465
$
1,680,258
See accompanying notes to the consolidated financial statements.
54
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
Loss
Total Equity
Attributable
to Masonite
Equity
Attributable
to Non-
controlling
Interests
Total Equity
Balances as of January 3, 2016
30,427,865
$
663,600
$
231,363
$
(114,468) $
(107,948) $
672,547
$
13,179
$
685,726
Net income
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
18,790
366,556
7,901
(7,901)
17,469
1,090
(4,210)
(202)
630,951
13,401
(2,914)
(1,668,057)
(35,985)
Balances as of January 1, 2017
29,774,784
$
650,007
$
234,926
98,622
98,622
5,520
104,142
(41,038)
(41,038)
225
(40,813)
—
(6,032)
(6,032)
18,790
—
(4,210)
888
10,487
18,790
—
(4,210)
888
10,487
$
$
(73,217)
(109,202)
(109,202)
(89,063) $
(148,986) $
646,884
$
12,892
$
659,776
151,739
151,739
5,242
156,981
38,834
38,834
752
39,586
—
(5,613)
(5,613)
Net income
Other comprehensive income, 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
Balances as of December 31,
2017
Net income
Other comprehensive 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
Balances as of December 30,
2018
11,644
372,826
12,290
(12,290)
16,368
1,168
(7,466)
(286)
(1,794,101)
(39,062)
(80,826)
11,644
—
(7,466)
882
(119,888)
11,644
—
(7,466)
882
(119,888)
28,369,877
$
624,403
$
226,528
$
(18,150) $
(110,152) $
722,629
$
13,273
$
735,902
92,710
92,710
3,834
96,544
(42,767)
(42,767)
(834)
(43,601)
—
(4,408)
(4,408)
223,487
11,375
(11,375)
7,681
13,984
949
(3,743)
(103)
(2,771,684)
(61,520)
(105,396)
7,681
—
(3,743)
846
(166,916)
7,681
—
(3,743)
846
(166,916)
25,835,664
$
575,207
$
218,988
$
(30,836) $
(152,919) $
610,440
$
11,865
$
622,305
See accompanying notes to the consolidated financial statements.
55
MASONITE INTERNATIONAL CORPORATION
Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flow provided by operating activities:
Year Ended
December 30,
2018
December 31,
2017
January 1,
2017
$
96,544
$
156,981
$
104,142
Loss (gain) on disposal of subsidiaries
Loss on extinguishment of debt
Depreciation
Amortization
Share based compensation expense
Deferred income taxes
Unrealized foreign exchange loss
Share of income from equity investees, net of tax
Dividend from equity investee
Pension and post-retirement funding, net of expense
Non-cash accruals and interest
Loss 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 operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Cash used in acquisitions, net of cash acquired
Issuance of note receivable
Cash proceeds from sale of subsidiaries, net of cash disposed
Proceeds from sale of property, plant and equipment
Other investing activities
Net cash flow used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Repayments of long-term debt
Payment of debt extinguishment costs
Payment of debt issuance costs
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
—
5,414
59,089
28,583
7,681
10,563
700
(2,164)
—
(7,112)
857
3,470
5,243
(4,543)
(1,192)
(5,316)
11,909
(6,494)
203,232
(82,380)
(157,363)
(12,000)
—
1,353
(4,087)
(254,477)
300,000
(125,363)
(5,274)
(4,344)
(3,743)
(4,408)
—
(166,916)
(10,048)
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)
(5,761)
173,481
(73,782)
(13,813)
—
—
1,114
(3,653)
(90,134)
156,746
(422)
—
(2,141)
(7,466)
(5,613)
—
(119,888)
21,216
Net foreign currency translation adjustment on cash
Increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of period
Cash, cash equivalents and restricted cash, at end of period
(1,130)
(62,423)
188,564
126,141
$
91
104,654
83,910
188,564
$
See accompanying notes to the consolidated financial statements.
(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
165
174,030
(82,287)
(8,551)
—
15,103
1,268
(2,449)
(76,916)
390
(1,071)
—
—
(4,210)
(6,032)
10,487
(109,202)
(109,638)
(5,398)
(17,922)
101,832
83,910
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 71 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 30, 2018, and December 31, 2017, and for the years ended December 30, 2018, December 31, 2017 and
January 1, 2017.
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. Certain prior year amounts have been reclassified to
conform to the current basis of presentation, related to Accounting Standards Updates ("ASU") 2017-07 and 2016-18,
and to discontinued operations, as described below.
Changes in Accounting Standards and Policies
Adoption of Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-07, “Improving the
Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which amended Accounting
Standards Codification ("ASC") 715, “Retirement Benefits”. This ASU required 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 was effective for fiscal years beginning after December 15, 2017, and interim periods within
those fiscal years; early adoption was permitted and retrospective application was required. We have utilized the practical
expedient allowing the use of the prior years' disclosed service cost and other cost as the basis for our retrospective
changes in presentation. The adoption of this standard changed the presentation of the other components of net benefit
cost in our consolidated statements of comprehensive income, requiring the reclassification of a $1.1 million and $0.5
million benefit for the years ended December 31, 2017, and January 1, 2017, respectively, related to other components of
net benefit cost out of previously-presented selling, general and administration expense and into previously-presented
other income, net of expense. The effect of this reclassification reduced previously-presented operating income by these
amounts for the same periods.
In November 2016, the FASB issued ASU 2016-18, "Restricted Cash Flows", which amended ASC 230
"Statement of Cash Flows". This ASU clarified 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 no longer
present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents in the statement of
cash flows. This ASU was effective for annual periods beginning after December 15, 2017, and interim periods within
those annual periods; early adoption was permitted and retrospective application was required. The adoption of this
standard changed the presentation of restricted cash in our consolidated statements of cash flows, which is now being
summed with cash and cash equivalents, and had the effect of a $0.3 million and $0.4 million increase to previously-
presented cash flow used in investing activities for the years ended December 31, 2017, and January 1, 2017,
respectively.
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which created ASC
606, "Revenue from Contracts with Customers," and largely superseded the existing guidance of ASC 605, "Revenue
Recognition." This standard outlined a single comprehensive model for entities to use in accounting for revenue arising
from contracts with customers and superseded most current revenue recognition guidance, including industry-specific
guidance. 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 would now be effective for annual and interim periods
beginning on or after December 15, 2017. We have adopted the guidance of ASC 606 as of January 1, 2018, using the
modified retrospective method and have applied the standard to only those contracts which were not completed as of the
transition date. The adoption of this standard did not have any material impact on revenues in the year ended December
30, 2018. Prior period amounts were not adjusted and have continued to be reported in accordance with our historic
accounting under Topic 605. While we considered an adjustment to opening retained earnings as prescribed by the
modified retrospective method, there was no material adjustment ultimately required. Furthermore, there was no material
difference between the prior period amounts as reported under ASC 605 and such amounts as would have been reported
under ASC 606. Information about the nature, amount and timing of our revenues from contracts with customers is
disclosed in Note 10. Revenues. Our accounting policy for revenue recognition is set forth under Summary of Significant
Accounting Policies below.
Other Recent Accounting Pronouncements not yet Adopted
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Costs Incurred in
a Cloud Computing Arrangement That Is a Service Contract”. This ASU amends the definition of a hosting arrangement
and requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software
guidance in ASC 350-40 “Intangibles-Goodwill and Other-Internal-Use Software” to determine which implementation
costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement
that is a service contract will be amortized over the term of the hosting arrangement, beginning when the module or
component of the hosting arrangement is ready for its intended use. The guidance is effective for annual periods
beginning after December 15, 2019, and interim periods within those annual periods; early adoption is permitted and
either retrospective or prospective application is required for all implementation costs incurred after the date of adoption.
We plan to adopt this guidance prospectively as of December 31, 2018, the beginning of fiscal year 2019, and we do not
expect that the adoption will have any material impact on our results of operations.
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 plan to adopt this guidance prospectively as of December 31, 2018, the
beginning of fiscal year 2019, and we do not expect the adoption to have a material impact on our financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)", which will replace the existing
guidance in ASC 840, "Leases." This standard was supplemented by ASUs 2018-10 and 2018-11 in July 2018. The
updated standards aim to increase transparency and comparability among organizations by requiring lessees to recognize
right of use assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing
arrangements. The transition option in ASU 2018-11 allows entities to not apply the standards to the comparative periods
they present in their financial statements in the year of adoption. These ASUs are effective for annual periods beginning
after December 15, 2018, and interim periods within those annual periods; early adoption is permitted. We will adopt
these standards as of December 31, 2018, the beginning of fiscal year 2019, and will apply the standards prospectively.
We plan to elect the package of practical expedients permitted under the transition guidance of the new standards, which
allows us to not reassess whether any expired or existing contracts contain leases, allows us to carry forward the
historical lease classification and permits us to exclude from our assessment initial direct costs for any existing leases.
We will also make an accounting policy election to exclude leases with an initial term of twelve months or less from our
transition adjustment. Lease payments will be recognized in the consolidated statements of comprehensive income on a
straight-line basis over the lease term.
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
We have completed our procedures relating to the adoption of the standard, which will result in the recognition
of a right of use asset and lease liability for our operating leases of $108.0 million and $113.9 million, respectively, as of
December 31, 2018. The difference between the opening right of use asset and lease liability amounts is due to the
reclassification of the existing deferred rent liability balance against the opening right of use assets to which it related.
Our operating leases include leases for real estate and machinery and equipment and we have no material finance leases.
We do not believe the standard will materially affect our consolidated net income, liquidity or compliance with our debt
covenants under our current agreements.
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 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 income, net of expense, in the consolidated statements of comprehensive income. 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 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. 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.
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
(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, and 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
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
When developing our discounted cash flow analyses, a number of significant assumptions and estimates are
involved to forecast operating cash flows, including future sales growth, margin growth, benefits from restructuring
initiatives, income tax rates, capital spending, business initiatives and working capital changes. These assumptions may
vary significantly among the reporting units. Operating cash flow forecasts are based on approved operating plans for the
early years and historical relationships and long-term economic outlooks for our industry in later years. The weighted
average cost of capital (“WACC”) rate is estimated for each specific reporting unit. Due to the many variables inherent in
the estimation of a reporting unit’s fair value and the relative size of our recorded goodwill, differences in assumptions
may have a material effect on the results of our impairment analyses.
The performance of our 2018 annual impairment test based on the inputs outlined above did not result in any
impairment of our goodwill. The resulting fair values of each reporting unit tested based upon such inputs exceeded their
respective carrying values by greater than 10%. Further, had the WACC rate of each of our reporting units been
hypothetically increased by 100 basis points, the fair values of each reporting unit would still have exceeded their
respective carrying values. To the extent that future operating results of the reporting units do not meet the forecasted
cash flow projections, we can provide no assurance that a future goodwill impairment charge would not be incurred.
There were no impairment charges recorded against goodwill in 2016 or 2017 and we have not materially
changed our methodology for goodwill impairment testing for the years presented.
(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
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
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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. 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. Service cost components are recognized within cost of goods
sold and non-service cost components are recognized within other income, net of expense, in the consolidated statements
of comprehensive income. 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.
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
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.
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(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 11. 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 control of the promised goods is transferred to our
customers based on the agreed-upon shipping terms, in an amount that reflects the consideration to which we expect to
be entitled in exchange for those goods or services. Volume rebates, expected returns, discounts and other incentives to
customers are considered variable consideration and we estimate these amounts based on the expected amount to be
provided to customers and reduce the revenues we recognize accordingly. Sales taxes and value added taxes assessed by
governmental entities are excluded from the measurement of consideration expected to be received. Shipping and
handling costs incurred after a customer has taken possession of our goods are treated as a fulfillment cost and are not
considered a separate performance obligation. Shipping and other transportation costs charged to customers are recorded
in both revenues and cost of goods sold in the consolidated statements of comprehensive income.
(p) Product warranties:
We warrant certain qualitative attributes of our door products. We have recorded provisions for estimated
warranty and related costs within accrued expenses on the consolidated balance sheets, based on historical experience
and we 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
Year Ended
December 30, 2018 December 31, 2017
January 1, 2017
$
$
2,189
$
6,965
(4,884)
4,270
$
2,717
$
5,715
(6,243)
2,189
$
3,318
3,219
(3,820)
2,717
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(q) Vendor rebates:
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 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. Advertising costs were $12.6 million, $12.9 million and $9.3 million in the years ended December 30, 2018,
December 31, 2017, and January 1, 2017, 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. These costs exclude the
significant investments in other areas such as advanced automation and e-commerce. Research and development costs
were $7.3 million, $7.5 million and $6.7 million in the years ended December 30, 2018, December 31, 2017, and
January 1, 2017, 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 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 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.
(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, 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.
During the year ended December 30, 2018, a change in circumstance required us to reassess the classification of
our discontinued operations in the consolidated statements of comprehensive income. All of our previously-presented
discontinued operations resulted from analyses performed prior to the adoption of ASU 2014-08, Reporting Discontinued
Operations, and as such the reassessment was performed under the same prior guidance. The determination was made
that the operations previously comprising our discontinued operations should no longer be classified as discontinued
operations and this change in classification was effected for the year ended December 30, 2018, as well as
retrospectively reclassified in the prior periods presented. This resulted in the reclassification of $0.6 million and $0.8
million of losses from discontinued operations into other income, net of expense, for the years ended December 31,
2017, and January 1, 2017, respectively. Additionally, we reclassified $1.9 million of land value relating to our forestland
in Costa Rica out of long-term assets of discontinued operations (part of other assets) and into property, plant and
equipment on the consolidated balance sheet as of December 31, 2017.
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(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 income, net of expense,
in the consolidated statements of comprehensive income 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 and Central Eastern
Europe 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. 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 2018, 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
2018 Acquisitions
On November 1, 2018, we completed the acquisition of the operating assets of Bridgewater Wholesalers Inc.
(“BWI”) for cash consideration of $22.1 million, net of cash acquired. BWI is headquartered in Branchburg, New Jersey,
and is a fabricator and distributor of residential interior and exterior door systems, supporting customers in the Mid-
Atlantic and Northeastern United States. Their product offerings include residential interior and exterior doors,
commercial doors and hardware as well as value added pre-finishing services. The excess purchase price over the fair
value of net assets acquired of $3.3 million was allocated to goodwill. The goodwill principally represents anticipated
synergies to be gained from the integration into our existing North American Residential business and the goodwill is
deductible for tax purposes.
On June 1, 2018, we completed the acquisition of the operating assets of the wood door companies of AADG,
Inc., including the brands Graham Manufacturing Corporation and The Maiman Company (collectively, "Graham &
Maiman"). We acquired the operating assets of Graham & Maiman for cash consideration of $39.0 million. Graham &
Maiman are based in Mason City, Iowa, and Springfield, Missouri. Graham & Maiman provide the non-residential
construction industry with a full range of architectural premium and custom grade flush wood doors, architectural stile
and rail wood doors, thermal-fused flush wood doors and wood door frames. The excess purchase price over the fair
value of net assets acquired of $11.0 million was allocated to goodwill. The goodwill principally represents anticipated
synergies to be gained from the integration into our existing Architectural business and the goodwill is deductible for tax
purposes.
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 cash consideration
of $96.3 million, net of cash acquired. DW3 is based in Stoke-on-Trent and Gloucester, England, and their online quick
ship capabilities and product portfolio both complement and expand the strategies we are pursuing with our business.
The excess purchase price over the fair value of net assets acquired of $33.6 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 fair value of assets acquired and liabilities assumed in the 2018 Acquisitions are as follows:
(In thousands)
Accounts Receivable
Inventory
Property, plant and equipment
Goodwill
Intangible assets
Accounts payable and accrued expenses
Deferred income taxes
Other assets and liabilities, net
BWI
Graham &
Maiman
DW3
Total 2018
Acquisitions
$
9,215
$
— $
8,590
$
10,736
2,222
3,349
2,970
(6,645)
—
240
6,090
19,557
10,996
2,750
(426)
—
—
5,059
8,196
33,623
62,873
(10,418)
(11,546)
(68)
96,309
17,805
21,885
29,975
47,968
68,593
(17,489)
(11,546)
172
Cash consideration, net of cash acquired
$
22,087
$
38,967
$
$
157,363
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. The intangible assets acquired are not
expected to have any residual value. The fair values of tangible assets acquired and liabilities assumed from the BWI
acquisition were based upon preliminary calculations and valuations and the estimates and assumptions are subject to
change as we obtain additional information during the measurement period (up to one year from the acquisition date).
The primary area of the preliminary estimate which is not yet finalized relates to deferred income taxes, which could also
impact goodwill during the measurement period. We finalized the Graham & Maiman and DW3 purchase price
allocations during the year ended December 30, 2018. The gross contractual value of acquired trade receivables was $9.3
million and $9.1 million for the BWI and DW3 acquisitions, respectively.
Intangible assets acquired from the 2018 Acquisitions consist of the following:
(In thousands)
BWI
Customer relationships
$
1,200
Trademarks and trade names
Patents
Other
Total intangible assets
acquired
Expected
Useful Life
(Years)
Graham &
Maiman
Expected
Useful Life
(Years)
$
10.0
10.0
2.2
2,400
350
—
—
10.0
$
1.5
Expected
Useful Life
(Years)
10.0
10.0
10.0
3.0
DW3
49,554
11,785
1,420
114
900
—
870
$
2,970
$
2,750
$
62,873
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following schedule represents the amounts of net sales and net income (loss) attributable to Masonite from
the 2018 Acquisitions which have been included in the consolidated statements of comprehensive income for the periods
indicated subsequent to the acquisition date.
(In thousands)
Net sales
Net income (loss) attributable to Masonite
2017 Acquisition
Year Ended December 30, 2018
BWI
$
$
13,168
(1,231)
Graham &
Maiman
DW3
Total 2018
Acquisitions
38,901
$
68,474
$
120,543
314
6,712
5,795
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.
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 ten 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 attributable to Masonite from the
A&F acquisition which have been included in the consolidated statements of comprehensive income for the periods
indicated subsequent to the acquisition date.
(In thousands)
Net sales
Net income attributable to Masonite
2016 Acquisition
Year Ended
December 30, 2018
December 31, 2017
$
15,540
$
1,684
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 manufactures 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
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 and net income attributable to Masonite for FyreWerks are not presented as they were not material for any period
presented.
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
BWI
Graham &
Maiman
DW3
Intercompany
Eliminations
Pro Forma
Net sales
$
2,170,103
$
77,110
$
26,887
$
4,918
$
(32,720) $
2,246,298
Net income attributable to
Masonite
92,710
436
89
81
—
93,316
Year Ended December 30, 2018
Basic earnings per common
share
$
Diluted earnings per common
share
3.38
3.33
$
3.40
3.35
(In thousands, except
per share amounts)
Masonite
BWI
Graham &
Maiman
DW3
A&F
Intercompany
Eliminations
Pro Forma
Year Ended December 31, 2017
Net sales
Net income
attributable to
Masonite
$
2,032,925
104,291
65,468
58,086
$
11,104
$
(43,543) $
2,228,331
151,739
(1,811)
145
2,035
1,299
—
153,407
Basic earnings per
common share
$
Diluted earnings per
common share
5.18
5.09
$
5.24
5.15
(In thousands, except per share amounts)
Masonite
A&F
Pro Forma
Year Ended January 1, 2017
Net sales
Net income attributable to Masonite
Basic earnings per common share
Diluted earnings per common share
1,973,964
98,622
$
13,861
999
3.25
3.17
$
$
1,987,825
99,621
3.28
3.20
$
$
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 loss in loss (gain) on disposal of subsidiaries from accumulated other comprehensive
income during the year ended December 31, 2017.
Africa
During 2016, we received $15.1 million as final pre-tax proceeds from the sale of our equity interest in our
South African subsidiary, which had been reflected as a $10.0 million investment in our consolidated balance sheets prior
to receipt of proceeds. Upon receipt of these proceeds, our equity interest in our South African subsidiary was eliminated
and we accordingly reduced the value of our cost investment in the subsidiary to zero and recorded a gain on disposal of
subsidiaries of $5.1 million in the year ended January 1, 2017.
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 gain in loss (gain) on disposal of subsidiaries from accumulated other comprehensive
income during the year ended January 1, 2017.
3. Accounts Receivable
Our customers consist mainly of wholesale distributors, dealers, and retail home centers. Our ten largest
customers accounted for 54.6% and 56.2% of total accounts receivable as of December 30, 2018, and December 31,
2017, respectively. Our largest customer, The Home Depot, Inc. accounted for more than 10% of the consolidated gross
accounts receivable balance as of December 30, 2018, and December 31, 2017. Our second largest customer, Lowe's Co.
Inc., accounted for more than 10% of the consolidated gross accounts receivable balance as of December 31, 2017. No
other individual customer accounted for greater than 10% of the consolidated gross accounts receivable balance at either
December 30, 2018, or December 31, 2017.
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 30, 2018 December 31, 2017
January 1, 2017
$
$
1,785
$
676
(352)
2,109
$
1,010
$
793
(18)
1,785
$
3,125
103
(2,218)
1,010
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.
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 30,
2018
December 31,
2017
$
$
189,145
$
69,026
(7,764)
250,407
$
172,960
68,851
(7,769)
234,042
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
5. Property, Plant and Equipment
Year Ended
December 30, 2018 December 31, 2017
January 1, 2017
$
$
7,769
$
3,146
(3,151)
7,764
$
5,747
$
3,283
(1,261)
7,769
$
6,508
1,724
(2,485)
5,747
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 30,
2018
December 31,
2017
$
30,653
$
179,888
724,431
934,972
(325,219)
609,753
$
$
28,723
176,077
661,026
865,826
(290,334)
575,492
Total depreciation expense was $59.1 million, $57.5 million, and $57.6 million for the years ended
December 30, 2018, December 31, 2017, and January 1, 2017, respectively. Depreciation expense is included primarily
within cost of goods sold in the consolidated statements of comprehensive income.
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill were as follows as of the dates indicated:
(In thousands)
January 1, 2017
Goodwill from 2017 acquisitions
Foreign exchange fluctuations
December 31, 2017
Goodwill from 2018 acquisitions
Foreign exchange fluctuations
December 30, 2018
North American
Residential
Europe
Architectural
Total
$
$
2,843
$
32,410
$
94,033
$
129,286
—
24
2,867
3,349
(27)
6,189
$
—
3,021
35,431
33,623
(5,834)
63,220
$
5,895
223
100,151
10,996
(259)
110,888
$
5,895
3,268
138,449
47,968
(6,120)
180,297
We performed a quantitative impairment test of each of our reporting units during the fourth quarter of 2018 and
determined that goodwill was not impaired.
The cost and accumulated amortization values of our intangible assets were as follows as of the dates indicated:
(In thousands)
Cost
Definite life intangible
assets:
December 30, 2018
Accumulated
Amortization
Net Book
Value
December 31, 2017
Accumulated
Amortization
Net Book
Value
Cost
Customer relationships $
173,637
$
(81,220) $
92,417
$
146,802
$
Patents
Software
Trademarks and trade
names
Other
Total definite life
intangible assets
Indefinite life intangible
assets:
Trademarks and trade
names
31,363
32,660
33,784
971
(21,840)
(29,296)
(3,948)
(97)
9,523
3,364
29,836
874
29,795
30,274
—
6,555
(77,441) $
(20,250)
(28,073)
—
(4,926)
69,361
9,545
2,201
—
1,629
272,415
(136,401)
136,014
213,426
(130,690)
82,736
76,031
—
76,031
99,748
—
99,748
Total intangible assets
$
348,446
$
(136,401) $
212,045
$
313,174
$
(130,690) $
182,484
During the year ended December 30, 2018, we reassessed certain trade names that were previously classified as
indefinite-lived, and as a result of this assessment, we reclassified $20.7 million of trade names into definite-lived and
began to amortize them consistent with their expected useful lives. The remaining increase in definite-lived trademarks
and trade names is due to the trade names acquired during the year ended December 30, 2018, as described in Note 2.
Amortization of intangible assets was $27.7 million, $24.2 million and $24.0 million for the years ended December 30,
2018, December 31, 2017, and January 1, 2017 respectively. Amortization expense is classified within selling, general
and administration expenses in the consolidated statements of comprehensive income.
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The estimated future amortization of intangible assets with definite lives as of December 30, 2018, is as
follows:
(In thousands)
Fiscal year:
2019
2020
2021
2022
2023
7. Accrued Expenses
The details of our accrued expenses were as follows as of the dates indicated:
$
28,329
22,168
18,569
15,123
13,641
(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
5.75% senior unsecured notes due 2026
Unamortized premium on 2023 Notes
Debt issuance costs
Capital lease obligations
Other long-term debt
Total long-term debt
December 30,
2018
December 31,
2017
$
39,823
$
36,711
14,570
56,241
38,296
34,488
10,688
43,287
$
147,345
$
126,759
December 30,
2018
December 31,
2017
$
500,000
$
625,000
300,000
3,684
(8,394)
13
1,095
796,398
$
$
—
5,714
(6,635)
378
1,200
625,657
Interest expense related to our consolidated indebtedness under senior unsecured notes was $38.7 million, $29.7
million and $27.8 million for years ended December 30, 2018, December 31, 2017, and January 1, 2017, respectively.
5.75% Senior Notes due 2026
On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the “2026 Notes”).
The 2026 Notes were issued in a private placement 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 of the United States pursuant
to Regulation S under the Securities Act. The 2026 Notes were issued without registration rights and are not listed on any
securities exchange. The 2026 Notes bear interest at 5.75% per annum, payable in cash semiannually in arrears on March
15 and September 15 of each year and are due September 15, 2026. The 2026 notes were issued at par. We received net
proceeds of $295.7 million after deducting $4.3 million of debt issuance costs. 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 2026 Notes
using the effective interest method. The net proceeds from issuance of the 2026 Notes were used to redeem $125.0
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
million aggregate principal amount of the 2023 Notes (as described below), including the payment of related premiums,
fees and expenses, with the balance of the proceeds available for general corporate purposes.
Subsequent to the closing of the 2026 Notes offering, the 2023 Notes were partially redeemed, with that portion
of the notes considered extinguished as of September 12, 2018. Under the terms of the indenture governing the 2023
Notes, we paid the applicable premium of $5.3 million. Additionally, the proportionate shares of the unamortized
premium of $1.0 million and unamortized debt issuance costs of $1.1 million relating to the 2023 Notes were written off
in conjunction with the partial extinguishment of the 2023 Notes. The resulting loss on extinguishment of debt was $5.4
million and is recorded as part of income (loss) from continuing operations before income tax expense (benefit) in the
consolidated statements of comprehensive income. Additionally, the cash payment of interest accrued to, but not
including, the redemption date was accelerated to the redemption date.
Obligations under the 2026 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 2026 Notes, in
whole or in part, at any time on or after September 15, 2021, at the applicable redemption prices specified under the
indenture governing the 2026 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 2026 Notes at a purchase price of 101.00% of their principal amount, plus accrued and unpaid
interest, if any, to the repurchase date.
The indenture governing the 2026 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 2026 Notes. In addition, if in
the future the 2026 Notes have an investment grade rating from at least two nationally recognized statistical rating
organizations, certain of these covenants will be terminated. The indenture governing the 2026 Notes contains customary
events of default (subject in certain cases to customary grace and cure periods). As of December 30, 2018, we were in
compliance with all covenants under the indenture governing the 2026 Notes.
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
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.
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, 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.
73
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 30, 2018, 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.
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 30, 2018, 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.
74
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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:
2019
2020
2021
2022
2023
Thereafter
$
24,249
23,904
18,823
14,333
12,389
49,781
Total future minimum lease payments
$
143,479
Total rent expense, including non-cancelable operating leases and month-to-month leases, was $32.3 million,
$28.8 million and $26.3 million for years ended December 30, 2018, December 31, 2017, and January 1, 2017,
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 October 19, 2018, a purported class action complaint was filed against us and JELD-WEN, Inc. (“Jeld-
Wen”) in the United States District Court for the Eastern District of Virginia, Richmond Division, alleging, among other
things, that defendants conspired to fix prices on, and to eliminate competition with respect to, interior molded doors.
The complaint asserts violations of Section 1 of the Sherman Act and seeks treble damages and costs of suit, including
reasonable attorneys’ fees, prejudgment and post-judgment interest, and injunctive relief. On December 11, 2018, a
purported class action complaint with substantially similar allegations under various state antitrust or unfair competition
laws and the Sherman Act was filed in the United States District Court for the Eastern District of Virginia, Richmond
Division, by several individuals and companies purporting to represent classes of certain indirect purchasers of interior
molded doors. The complaint seeks damages (including statutory minimum, multiple, or exemplary damages, where
available), reasonable attorneys’ fees, prejudgment and post-judgment interest, and injunctive relief. Several other
complaints with substantially similar allegations were subsequently filed in the same court by additional plaintiffs who
also sought to represent purported classes of direct or indirect purchasers seeking similar damages and relief. These
multiple complaints have been consolidated into two proceedings-one for direct purchasers and another for indirect
purchasers-both before the same judge in the United States District Court for the Eastern District of Virginia, Richmond
Division. On January 17, 2019 we filed a motion to transfer the proceedings from the Eastern District of Virginia to
either the Middle District of Florida or Delaware. We intend to move to dismiss all of the claims in both the direct
purchaser and end-purchaser complaints. While we intend to defend against these claims vigorously, there can be no
assurance that the ultimate resolution of this litigation will not have a material, adverse effect on our consolidated
financial condition or results of operations.
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.
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Revenues
We derive our revenues primarily from the manufacture and delivery of doors and door components as
performance obligations that arise from our contracts with customers are satisfied. Materially all of our revenues are
generated from contracts with customers and the nature, timing and any uncertainty in the recognition of revenues are
not affected by the type of good, customer or geographical region to which the performance obligation relates. Our
contracts with our customers are generally in the form of purchase orders and the performance obligation arises upon
receipt of the purchase order and agreement upon the transaction price. The performance obligations are satisfied at a
point in time when control of the promised goods is transferred to the customer and payment terms vary from customer
to customer. Payment terms are short-term, are customary for our industry and in some cases, early payment incentives
are offered.
The transaction price recognized as revenue and accounts receivable is determined based upon a number of
estimates, including:
•
Incentive-based volume rebates, which are based on individual rebate agreements with our customers, as well as
historical and expected performance of each individual customer,
• Estimated sales returns, which are based on historical returns as a percentage of revenues, and
• Adjustments for early payment discounts offered by us.
Contract assets are represented by our trade accounts receivable balances on the consolidated balance sheets,
and are described in Note 3. Accounts Receivable. There were no other material contract assets or liabilities as of either
December 30, 2018, or December 31, 2017. Our warranties are assurance-type warranties and do not represent separate
performance obligations to our customers. There were no material impairment losses related to contract assets during the
years ended December 30, 2018, December 31, 2017, or January 1, 2017.
11. Share Based Compensation Plans
Share-based compensation expense was $7.7 million, $11.6 million and $18.8 million for the years ended
December 30, 2018, December 31, 2017, and January 1, 2017, respectively. As of December 30, 2018, the total
remaining unrecognized compensation expense related to share based compensation amounted to $10.6 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. All forfeitures are accounted for as they occur. 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.
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
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 30, 2018, there were 947,921 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. 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 30, 2018, the liability and asset relating to deferred
compensation had a fair value of $6.0 million and $6.2 million, respectively. 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. 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.
As of December 30, 2018, 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 $0.7 million, $0.4 million and $2.4 million, in the years ended
December 30, 2018, December 31, 2017, and January 1, 2017, respectively.
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Twelve months ended December 30, 2018
Stock
Appreciation
Rights
Aggregate
Intrinsic Value
(in thousands)
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Life (Years)
Outstanding, beginning of period
537,930
$
23,263
$
Granted
Exercised
Outstanding, end of period
Exercisable, end of period
69,752
(93,369)
514,313
391,428
$
$
4,731
7,254
7,254
$
$
32.00
65.00
18.03
39.01
30.20
4.5
4.6
3.4
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
Stock
Appreciation
Rights
Aggregate
Intrinsic Value
(in thousands)
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Life (Years)
Outstanding, beginning of period
891,147
$
36,681
$
Granted
Exercised
Forfeited
Outstanding, end of period
Exercisable, end of period
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
The value of SARs granted in the year ended December 30, 2018, 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)
$
18.63
$
22.65
$
16.78
2018 Grants
2017 Grants
2016 Grants
Risk-free rate
Expected dividend yield
Expected volatility
Expected term (years)
2.7%
0.0%
22.8%
6.0
2.0%
0.0%
25.8%
6.0
1.6%
0.0%
26.2%
6.0
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Restricted Stock Units
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 30, 2018
Year Ended
December 31, 2017
January 1, 2017
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
Performance adjustment (1)
Delivered
Withheld to cover (2)
Forfeited
66.14
63.55
63.49
417,598
$
227,487
25,046
(169,830)
(45,117)
(26,157)
58.51
78.29
54.73
501,926
$
163,835
78,212
(197,255)
(58,739)
(70,381)
526,930
$
186,924
101,759
(234,791)
(61,894)
(17,002)
49.31
58.29
23.58
Outstanding, end of period
429,027
$
66.03
417,598
$
66.14
501,926
$
58.51
____________
(1) Performance-based RSUs are presented as outstanding, granted and forfeited in the table above assuming targets are met and the
awards pay out at 100%. The performance adjustment represents the difference in shares ultimately awarded due to performance
attainment above or below target.
(2) 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-half of the RSUs granted during the year ended December 30, 2018, 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 30, 2018, was $14.5 million and is being
recognized over the weighted average requisite service period of 2.5 years. During the year ended December 30, 2018,
there were 214,947 RSUs vested at a fair value of $13.8 million.
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Restructuring Costs
Over the past several years, we have engaged in a series of restructuring programs related to exiting certain
geographies and non-core businesses, consolidating certain internal support functions and engaging in other actions
designed to reduce our cost structure and improve productivity. These initiatives primarily consist of severance actions
and lease termination costs. Management continues to evaluate our business; therefore, in future years, there may be
additional provisions for new plan initiatives, as well as changes in previously recorded estimates, as payments are made
or actions are completed. Asset impairment charges were also incurred in connection with these restructuring actions for
certain assets sold, abandoned or made obsolete as a result of these programs. The following table summarizes the
restructuring charges recorded for the periods indicated:
(In thousands)
2018 Plan
Total Restructuring Costs
(In thousands)
2016 Plan
2015 Plan
2014 Plan
Other
Total Restructuring Costs
(In thousands)
2016 Plan
2015 Plan
Total Restructuring Costs
Year Ended December 30, 2018
North American
Residential
Europe
Total
275
275
$
$
1,349
1,349
$
$
1,624
1,624
Year Ended December 31, 2017
Corporate &
Other
Architectural
Europe
—
—
—
(27)
(27) $
2,394
—
—
—
2,394
$
— $
(7)
(1,510)
—
(1,517) $
Total
2,394
(7)
(1,510)
(27)
850
Year Ended January 1, 2017
North
American
Residential
Europe
Corporate &
Other
Total
— $
19
19
$
1,313
—
1,313
$
$
— $
113
113
$
1,313
132
1,445
$
$
$
$
$
$
Cumulative Amount Incurred Through
December 30, 2018
(In thousands)
2018 Plan
2016 Plan
2015 Plan
2014 Plan
North
American
Residential
Europe
Architectural
Corporate &
Other
Total
$
275
$
1,349
$
— $
— $
—
—
—
—
2,335
—
3,707
—
—
—
3,274
7,993
1,624
3,707
5,609
7,993
Total Restructuring Costs $
275
$
3,684
$
3,707
$
11,267
$
18,933
During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects
of our United Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more
effective and consistent business processes in the Europe segment. In addition, in the North America segment we
announced a new facility that will optimize and expand capacity through increased automation, which will result in the
closure of one existing facility and related headcount reductions beginning in the second quarter of 2019 (collectively,
the “2018 Plan”). Costs associated with the 2018 Plan include severance, retention and closure charges and will continue
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
throughout 2019. Additionally, the plan to divest non-core assets was determined to be a triggering event requiring a test
of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 13. As
of December 30, 2018, we expect to incur approximately $2 million of additional charges related to the 2018 Plan.
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 30, 2018, 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 30, 2018, 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 30, 2018, we do not expect to incur any future charges relating to the 2014 Plan.
Other plans initiated in prior years did not have a material impact on the consolidated statements of
comprehensive income or consolidated statements of cash flows for the years ended December 30, 2018, December 21,
2017, or January 1, 2017, or on the consolidated balance sheets as of December 30, 2018, or December 31, 2017.
The changes in the accrual for restructuring by activity were as follows for the periods indicated:
(In thousands)
December 31,
2017
Severance
Closure Costs
Cash Payments
December 30,
2018
2018 Plan
2016 Plan
Other
Total
$
$
— $
859
$
765
$
90
194
284
—
—
—
—
$
859
$
765
$
(1,028) $
(90)
(136)
(1,254) $
596
—
58
654
(In thousands)
January 1, 2017
Severance
Closure Costs
Cash (Payments)
Receipts
December 31,
2017
2016 Plan
2015 Plan
2014 Plan
Other
Total
$
$
1,300
$
116
$
2,278
$
282
426
465
(7)
—
—
2,473
$
109
$
—
(1,510)
(27)
741
$
(3,604) $
(275)
1,084
(244)
(3,039) $
90
—
—
194
284
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands)
2016 Plan
2015 Plan
2014 Plan
Other
Total
$
January 3, 2016
$
— $
774
442
1,174
2,390
$
Severance
Closure Costs
Cash Payments
1,313
107
—
—
1,420
$
$
— $
25
—
—
25
$
January 1, 2017
1,300
282
426
465
2,473
(13) $
(624)
(16)
(709)
(1,362) $
13. Asset Impairment
During the year ended December 30, 2018, we recognized non-cash asset impairment charges of $5.2 million
related to one asset group in the Europe segment, as a result of the 2018 Plan. This amount was determined based upon
the excess of the asset group's carrying value of property, plant and equipment and definite-lived intangible assets 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 market
value for the asset group's property, plant and equipment. The fair value of the asset group was determined to be $3.2
million, solely based upon the market value of the property, plant and equipment, compared to a book value of $8.4
million, with the difference representing the asset impairment charge recorded in the consolidated statements of
comprehensive income.
During the year ended January 1, 2017, we recognized non-cash asset impairment charges of $1.5 million
related to one asset group in the Architectural segment, as a result of the 2016 Plan. This amount 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.
14. Income Taxes
For financial reporting purposes, income before income taxes includes the following components:
(In thousands)
December 30, 2018 December 31, 2017
January 1, 2017
Income before income tax expense (benefit):
Canada
Foreign
$
Total income before income tax expense (benefit) $
19,552
$
100,805
120,357
$
25,617
$
103,804
129,421
$
25,982
99,947
125,929
Year Ended
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Income tax expense (benefit) for income taxes consists of the following:
(In thousands)
December 30, 2018 December 31, 2017
January 1, 2017
Year Ended
Current income tax expense (benefit):
Canada
Foreign
Total current income tax expense:
Deferred income tax expense (benefit):
Canada
Foreign
Total deferred income tax expense (benefit):
$
7,997
$
5,253
13,250
122
10,441
10,563
Income tax expense (benefit)
$
23,813
$
$
7,293
(623)
6,670
(22,287)
(11,943)
(34,230)
(27,560) $
6,740
2,129
8,869
3,045
9,873
12,918
21,787
On December 22, 2017, Congress passed the U.S. Tax Cuts and Jobs Act (“Tax Reform”). Among other items,
Tax Reform reduces the federal corporate tax rate to 21% effective January 1, 2018. Pursuant to ASC 740, we were
required to recognize the effects of changes in tax laws and rates on deferred tax assets and liabilities upon enactment.
Therefore, we recorded a net income tax benefit of $27.2 million as of December 31, 2017, primarily associated with the
revaluation of our U.S. deferred taxes. We applied the guidance in SAB 118 when accounting for the enactment-date
effects of Tax Reform in 2017 and throughout 2018. As of December 31, 2017, we had not completed our accounting for
all of the enactment date income tax effects of Tax Reform under ASC 740. During the fourth quarter of 2018, we filed
our 2017 U.S. federal income tax return and subsequently recorded the changes to the income tax provision that was
estimated as of the December 31, 2017, reporting date. As of December 30, 2018, we have now completed our
accounting for all of the enactment date income tax effects of Tax Reform.
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Canadian statutory rate is 26.5%, 26.5% and 26.6% for the years ended December 30, 2018, December 31,
2017, and January 1, 2017, respectively. A summary of the differences between expected income tax expense calculated
at the Canadian statutory rate and the reported consolidated income tax expense (benefit) follows:
(In thousands)
December 30, 2018 December 31, 2017
January 1, 2017
Year Ended
Income tax expense 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
Change in tax rate
Change in tax rate due to U.S. reform
Limitation on executive compensation
Withholding and other taxes
Other
Income tax expense (benefit)
$
31,895
(4,926)
(1,822)
(21)
1,873
3,878
(5,673)
(737)
(3,252)
(2,683)
646
(284)
—
2,038
3,631
(750)
23,813
$
34,477
$
2,772
1,527
(160)
347
(27,603)
(6,469)
(7,583)
(1,833)
770
(116)
1,209
(27,138)
—
1,943
$
297
(27,560) $
33,710
6,125
1,159
(2,027)
637
(586)
(9,411)
(6,080)
(2,389)
(277)
2,232
(1,130)
—
—
—
(176)
21,787
84
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
Income tax credits
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 gain
Other
Total deferred tax liabilities
Net deferred tax liability
Year Ended
December 30, 2018 December 31, 2017
$
24,536
$
12,674
8,990
3,410
16,683
3,314
5,694
2,114
77,415
(16,373)
61,042
(64,831)
(35,740)
(7,070)
(5,102)
(1,912)
(114,655)
(53,613) $
$
34,605
13,498
8,671
4,493
14,954
6,137
3,713
3,875
89,946
(13,912)
76,034
(60,571)
(30,578)
(6,558)
(6,753)
(2,495)
(106,955)
(30,921)
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 30, 2018 and December 31, 2017, a valuation allowance of $16.4 million and $13.9 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 Costa Rica, Luxembourg 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:
(In thousands)
December 30, 2018 December 31, 2017
January 1, 2017
Year Ended
Balance at beginning of period
Additions charged to expense and other
Deductions
Balance at end of period
13,912
$
12,590
(10,129)
16,373
$
$
$
85
36,800
$
5,566
(28,454)
13,912
$
40,857
2,433
(6,490)
36,800
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The losses carried forward for tax purposes are available to reduce future taxable income by $93.8 million. We
can apply these losses against future taxable income as follows:
(In thousands)
2019-2026
2027-2046
Indefinitely
Total tax losses carried forward
Canada
United
States
Other
Foreign
$
$
— $
— $
5,230
$
32,472
—
16,972
—
—
39,128
32,472
$
16,972
$
44,358
$
Total
5,230
49,444
39,128
93,802
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 $3.7 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 30, 2018, 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.
As of December 30, 2018, and December 31, 2017, our unrecognized tax benefits were $9.1 million and $8.6
million, respectively, excluding interest and penalties. Included in the balance of unrecognized tax benefits as
of December 30, 2018 and December 31, 2017, are $6.7 million and $5.9 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 30, 2018 December 31, 2017
January 1, 2017
Unrecognized tax benefit at beginning of period
$
8,560
$
9,004
$
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
508
(244)
274
(14)
—
Unrecognized tax benefit at end of period
$
9,084
$
1,208
(464)
1,336
(17)
(2,507)
8,560
$
3,382
5,950
(335)
271
(264)
—
9,004
We recognize interest and penalties accrued related to unrecognized tax benefits as income tax expense. During
the years ended December 30, 2018, December 31, 2017, and January 1, 2017, we recorded accrued interest of $0.5
million, $0.4 million and $0.5 million, respectively. Additionally, we have recognized a liability for penalties of $0.4
million, $0.4 million and $0.5 million, and interest of $3.3 million, $3.2 million and $5.5 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.
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
We are subject to taxation in Canada, the United States and other foreign jurisdictions. As of December 30,
2018, 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 2015 (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
2014.
15. 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 and SARs outstanding during the period.
(In thousands, except share and per share information)
December 30,
2018
Year Ended
December 31,
2017
January 1,
2017
Net income attributable to Masonite
$
92,710
$
151,739
$
98,622
Shares used in computing basic earnings per share
27,412,268
29,298,236
30,359,193
Effect of dilutive securities:
Incremental shares issuable under share compensation plans
452,960
516,423
741,883
Shares used in computing diluted earnings per share
27,865,228
29,814,659
31,101,076
Basic earnings per common share attributable to Masonite
$
Diluted earnings per common share attributable to Masonite
$
3.38
3.33
$
5.18
5.09
3.25
3.17
Anti-dilutive instruments excluded from diluted earnings per
common share:
Stock appreciation rights
120,881
51,129
—
The weighted average number of shares outstanding utilized for the diluted EPS calculation contemplates the
exercise of all currently outstanding SARs 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.
16. 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 and the Central
Eastern Europe 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. 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.
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 2026 and 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.
Certain information with respect to reportable segments is as follows for the periods indicated:
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Adjusted EBITDA
Depreciation and amortization
Interest expense, net
Income tax expense
Year Ended December 30, 2018
$
$
$
North
American
Residential
1,458,957
(4,198)
1,454,759
202,465
31,425
—
—
$
$
$
Europe
Architectural
Corporate &
Other
$
$
$
371,069
(2,066)
369,003
44,985
24,638
—
—
$
$
$
340,609
(17,137)
323,472
37,742
19,667
—
—
22,869
—
22,869
$
$
(17,256) $
11,942
39,008
23,813
Total
2,193,504
(23,401)
2,170,103
267,936
87,672
39,008
23,813
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Adjusted EBITDA
Depreciation and amortization
Interest expense, net
Income tax benefit
(In thousands)
Sales
Intersegment sales
Net sales to external customers
Adjusted EBITDA
Depreciation and amortization
Interest expense, net
Income tax expense
$
$
$
North
American
Residential
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
—
—
$
$
$
$
$
$
Year Ended December 31, 2017
Europe
Architectural
Corporate &
Other
$
$
$
295,862
(3,936)
291,926
33,820
17,455
—
—
$
$
$
307,237
(18,773)
288,464
30,050
17,774
—
—
23,605
—
23,605
$
$
(9,543) $
13,507
30,153
(27,560)
Year Ended January 1, 2017
Europe
Architectural
Corporate &
Other
$
$
$
305,710
(4,543)
301,167
39,028
17,549
—
—
$
$
$
312,241
(14,353)
297,888
25,160
17,621
—
—
23,607
—
23,607
$
$
(24,794) $
11,619
28,178
21,787
Total
2,059,972
(27,047)
2,032,925
254,506
81,903
30,153
(27,560)
Total
1,998,786
(24,822)
1,973,964
252,013
82,331
28,178
21,787
As described in Note 1. Business Overview and Significant Accounting Policies, the adoption of ASU 2017-07
required a reclassification of prior periods' other income, net of expense. This resulted in a consolidated decrease of $1.1
million and $0.5 million to Adjusted EBITDA for the years ended December 31, 2017 and January 1, 2017, respectively,
compared to the same figures previously presented. On a segment basis, Adjusted EBITDA for the Europe segment was
increased by $0.3 million and $0.2 million for the years ended December 31, 2017 and January 1, 2017, respectively,
while Adjusted EBITDA for the Corporate & Other category was decreased by $1.3 million and $0.7 million for the
years ended December 31, 2017, and January 1, 2017, respectively, compared to the same figures previously-presented.
Amounts for the segments do not sum to consolidated amounts due to rounding.
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
A reconciliation of our consolidated Adjusted EBITDA to net income 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 on disposal of property, plant and equipment
Restructuring costs
Asset impairment
Loss (gain) on disposal of subsidiaries
Interest expense, net
Loss on extinguishment of debt
Other income, net of expense
Income tax expense (benefit)
Net income attributable to non-controlling interest
December 30,
2018
Year Ended
December 31,
2017
January 1,
2017
$
267,936
$
254,506
$
252,013
59,089
28,583
7,681
3,470
1,624
5,243
—
39,008
5,414
(2,533)
23,813
3,834
57,528
24,375
11,644
1,893
850
—
212
30,153
—
(1,570)
(27,560)
5,242
57,604
24,727
18,790
2,111
1,445
1,511
(6,575)
28,178
—
(1,707)
21,787
5,520
98,622
Net income attributable to Masonite
$
92,710
$
151,739
$
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 30, 2018 December 31, 2017
January 1, 2017
Year Ended
$
$
1,560,949
$
1,407,041
$
1,378,959
508,449
100,705
526,487
99,397
496,617
98,388
2,170,103
$
2,032,925
$
1,973,964
Net sales information with respect to geographic areas exceeding 10% of consolidated net sales is as follows for
the periods indicated:
(In thousands)
December 30, 2018 December 31, 2017
January 1, 2017
Net sales to external customers from facilities in:
Year Ended
United States
Canada
United Kingdom
Other
Total
$
$
1,388,680
$
1,333,223
$
1,284,982
329,292
328,669
123,462
327,644
253,564
118,494
306,130
262,854
119,998
2,170,103
$
2,032,925
$
1,973,964
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
In the years ended December 30, 2018, December 31, 2017, and January 1, 2017, net sales to The Home Depot,
Inc., were $385.3 million, $356.5 million and $316.2 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
17. Employee Future Benefits
United States Defined Benefit Pension Plan
December 30, 2018
December 31, 2017
$
$
412,072
$
62,626
135,055
609,753
$
369,630
67,358
138,504
575,492
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 30, 2018. Information about the U.S. defined benefit
pension plan is as follows for the periods indicated:
(In thousands)
December 30, 2018 December 31, 2017
January 1, 2017
Year Ended
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on assets
Amortization of actuarial net losses
Net pension benefit
$
$
670
$
3,322
(6,253)
1,149
(1,112) $
811
$
3,421
(5,852)
1,113
(507) $
286
3,570
(5,373)
1,070
(447)
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 30, 2018 December 31, 2017
Fair value of plan assets, beginning of year
$
92,716
$
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
(4,453)
(5,730)
(541)
86,992
104,909
670
3,322
(7,459)
(5,730)
(541)
95,171
$
8,179
$
83,550
5,000
10,704
(5,915)
(623)
92,716
100,887
811
3,421
6,328
(5,915)
(623)
104,909
12,193
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 30, 2018
December 31, 2017
Amount
% of Total
Plan
Amount
% of Total
Plan
$
$
51,412
32,361
3,219
86,992
59.1% $
37.2%
3.7%
100.0% $
54,517
33,470
4,729
92,716
58.8%
36.1%
5.1%
100.0%
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 2018 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.
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The weighted average actuarial assumptions adopted in measuring our U.S. accrued benefit obligations and
costs were as follows for the periods indicated:
December 30, 2018 December 31, 2017
January 1, 2017
Year Ended
Discount rate applied for:
Accrued benefit obligation
Net periodic pension cost
Expected long-term rate of return on plan assets
4.3%
3.6%
6.8%
3.6%
4.2%
7.0%
4.2%
4.5%
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 30, 2018. Information about the U.K. defined benefit pension plan is as follows for the periods indicated:
December 30, 2018 December 31, 2017
January 1, 2017
Year Ended
Components of net periodic benefit cost:
Interest cost
Expected return on assets
Amortization of actuarial net losses
Net pension expense (benefit)
$
$
$
648
(990)
142
(200) $
$
685
(429)
—
256
$
873
(640)
—
233
93
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 30, 2018
December 31, 2017
Fair value of plan assets, beginning of year
$
25,141
$
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 gain
Benefits paid
Plan amendment
Translation adjustment
Accrued benefit obligation, end of year
Net accrued benefit obligation, end of year
661
(1,106)
(886)
(1,503)
22,307
30,812
648
(962)
(886)
585
(1,894)
28,303
$
5,996
$
21,011
1,002
1,867
(800)
2,061
25,141
29,095
685
(833)
(800)
—
2,665
30,812
5,671
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 30, 2018
December 31, 2017
Amount
% of Total
Plan
Amount
% of Total
Plan
$
$
10,207
11,909
191
22,307
45.8% $
53.3%
0.9%
100.0% $
11,855
12,949
337
25,141
47.2%
51.5%
1.3%
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 2018 is 50% equity securities
and 50% debt securities.
94
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 30, 2018 December 31, 2017
January 1, 2017
Year Ended
Discount rate applied for:
Accrued benefit obligation
Net periodic pension cost
Expected long-term rate of return on plan assets
2.7%
2.4%
4.2%
2.4%
2.2%
4.0%
2.6%
2.3%
3.9%
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 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 2019 are $1.9 million.
As of December 30, 2018, 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:
2019
2020
2021
2022
2023
2024 through 2028
Total estimated future benefit payments
Expected Future Benefit Payments
$
$
6,924
7,188
7,435
7,526
7,593
38,486
75,152
Expected contributions to the U.S. and U.K. defined benefit pension plans during 2019 are $6.0 million.
95
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. Accumulated Other Comprehensive Income and Other Comprehensive Income
A rollforward of the components of accumulated other comprehensive loss is as follows for the periods
indicated:
(In thousands)
December 30,
2018
Year Ended
December 31,
2017
January 1,
2017
Accumulated foreign exchange losses, beginning of period
$
Foreign exchange gain (loss)
Income tax expense on foreign exchange losses
Cumulative translation adjustment recognized upon
deconsolidation of subsidiaries
(89,824) $
(40,880)
(60)
(127,433) $
38,758
(609)
(90,111)
(35,666)
—
—
212
(1,431)
Less: foreign exchange gain (loss) attributable to non-controlling
interest
Accumulated foreign exchange losses, end of period
(834)
(129,930)
752
(89,824)
225
(127,433)
Accumulated pension and other post-retirement adjustments,
beginning of period
Pension and other post-retirement adjustments
Income tax benefit on pension and other post-retirement
adjustments
Amortization of actuarial net losses
Income tax expense on amortization of actuarial net losses
Accumulated pension and other post-retirement adjustments
(20,328)
(4,754)
1,113
1,291
(311)
(22,989)
(21,553)
529
39
1,113
(456)
(20,328)
(17,837)
(5,941)
1,578
1,070
(423)
(21,553)
Accumulated other comprehensive 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
$
$
$
(152,919) $
(110,152) $
(148,986)
(43,601) $
39,586
$
(40,813)
(834)
(42,767) $
752
38,834
$
225
(41,038)
Cumulative translation adjustments are reclassified out of accumulated other comprehensive loss into loss
(gain) on disposal of subsidiaries in the year ended December 31, 2017, and restructuring costs relating to the 2014 Plan
in the year ended January 1, 2017, in the consolidated statements of comprehensive income. Actuarial net losses are
reclassified out of accumulated other comprehensive loss into cost of goods sold in the consolidated statements of
comprehensive income. Pension settlement charges are reclassified out of accumulated other comprehensive loss into
other income, net of expense, in the consolidated statements of comprehensive income.
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Supplemental Cash Flow Information
Certain cash transactions were as follows for the periods indicated:
(In thousands)
Transactions involving cash:
Interest paid
Interest received
Income taxes paid
Income tax refunds
December 30, 2018 December 31, 2017
January 1, 2017
Year Ended
$
35,877
$
27,396
$
1,304
10,858
124
381
10,169
68
26,862
279
9,475
1,469
The following reconciles total cash, cash equivalents and restricted cash as of the dates indicated:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash
December 30, 2018
December 31, 2017
$
$
115,656
$
10,485
126,141
$
176,669
11,895
188,564
Property, plant and equipment additions in accounts payable were $8.7 million and $8.4 million as
of December 30, 2018, and December 31, 2017, respectively.
During the fourth quarter of 2018, we provided debt financing to a distribution company via an interest-bearing
note that is scheduled to mature in 2028. The interest-bearing note receivable is carried at amortized cost, with the
interest payable in kind at the election of the borrower. This transaction is reflected as issuance of note receivable on the
statements of cash flows and is recorded as a component of other assets on the consolidated balance sheets.
20. Variable Interest Entity
As of December 30, 2018, and December 31, 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
Current liabilities
Other long-term liabilities
Non-controlling interest
December 30,
2018
December 31,
2017
$
9,632
$
9,327
4,306
3,122
(2,653)
(859)
(3,835)
19,040
$
7,213
11,344
5,472
3,386
(2,326)
(1,699)
(4,029)
19,361
Net assets of the VIE consolidated by Masonite
$
Current assets include $5.7 million and $3.2 million of cash and cash equivalents as of December 30, 2018 and
December 31, 2017, respectively. Assets recognized as a result of consolidating this VIE do not represent additional
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
21. 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 2026 Notes as of December 30, 2018, was $282.6
million, compared to a carrying value of $295.8 million. The estimated fair value of the 2023 Notes as of December 30,
2018, was $484.9 million, compared to a carrying value of $499.5 million, and as of December 31, 2017, was $653.6
million, compared to a carrying value of $624.1 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.
22. Subsequent Events
2019 Restructuring Plan
In February 2019, we began implementing a plan to improve overall business performance that includes the
reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration
workforce. The reorganization of our manufacturing capacity will involve specific plants in the North American
Residential and Architectural segments and costs associated with the closure of these plants and related headcount
reductions will take place beginning in the first quarter of 2019 (collectively, the “2019 Plan”). Costs associated with the
2019 Plan include severance, retention and closure charges and will continue through 2020. As of February 26, 2019, we
expect to incur approximately $10 million to $15 million of charges related to the 2019 Plan.
ABL Facility
On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving
credit facility (the "ABL Facility") maturing on January 31, 2024. The borrowing base is calculated based on a
percentage of the value of selected U.S., Canadian and U.K. accounts receivable and inventory, less certain ineligible
amounts. Obligations under the ABL Facility are secured by a first priority security interest in such accounts receivable,
inventory and other related 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 U.S., Canadian or U.K. Base Rate (each as defined in the credit agreement relating to the ABL Facility, the
"Amended and Restated Credit Agreement") plus a margin ranging from 0.25% to 0.50% per annum, or (ii) the Adjusted
LIBO Rate or BA Rate (each as defined in the Amended and Restated Credit Agreement), plus a margin ranging from
1.25% to 1.50% 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.
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 junior priority 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 existing exceptions). As of
February 26, 2019, there were no amounts outstanding under the ABL Facility.
98
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)
December 30,
2018
September 30,
2018
July 1,
2018
April 1,
2018
Quarter Ended
$
528,350
$
557,148
$
566,726
$
Net sales
Cost of goods sold
Gross profit
Selling, general and administration expenses
Restructuring costs
Asset impairment
Operating income
Interest expense, net
Loss on extinguishment of debt
Other income, net of expense
Income before income tax expense
Income tax expense
Net income
Less: net income attributable to non-controlling interest
Net income attributable to Masonite
Basic earnings per common share attributable to Masonite
Diluted earnings per common share attributable to Masonite
$
$
432,989
95,361
61,601
1,624
5,243
26,893
11,027
—
(724)
16,590
3,067
13,523
1,176
12,347
0.47
0.46
$
$
446,306
110,842
64,530
—
—
46,312
10,151
5,414
(948)
31,695
6,151
25,544
748
24,796
0.90
0.89
$
$
443,052
123,674
71,851
—
—
51,823
9,074
—
(839)
43,588
7,894
35,694
953
34,741
1.26
1.24
$
$
517,879
412,450
105,429
68,211
—
—
37,218
8,756
—
(22)
28,484
6,701
21,783
957
20,826
0.74
0.73
Net sales
Cost of goods sold
Gross profit
Selling, general and administration expenses
Restructuring costs
Loss on disposal of subsidiaries
Operating income
Interest expense, net
Other income, net of expense
Income before income tax expense (benefit)
Income tax expense (benefit)
Net income
Less: net income attributable to non-controlling interest
Net income attributable to Masonite
Basic earnings per common share attributable to Masonite
Diluted earnings per common share attributable to Masonite
Quarter Ended
December 31,
2017
October 1,
2017
July 2,
2017
April 2,
2017
$
508,500
$
517,503
$
519,741
$
408,386
100,114
59,874
(136)
—
40,376
8,804
(835)
32,407
(40,802)
73,209
1,397
71,812
2.52
2.48
$
$
413,517
103,986
59,063
1,393
—
43,530
7,213
(312)
36,629
5,989
30,640
1,162
29,478
1.01
1.00
$
$
412,415
107,326
63,870
(700)
212
43,944
7,112
(154)
36,986
8,932
28,054
1,170
26,884
0.90
0.89
$
$
$
$
99
487,181
391,624
95,557
65,110
293
—
30,154
7,024
(269)
23,399
(1,679)
25,078
1,513
23,565
0.79
0.77
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 30, 2018, 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 30, 2018.
The effectiveness of our internal control over financial reporting as of December 30, 2018, has been audited by
Ernst & Young, an independent registered 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 30, 2018. See "Report of Independent Registered Public Accounting Firm" elsewhere in this Annual Report
on Form 10-K.
As disclosed in Note 2 to the consolidated financial statements in Item 8 of this Annual Report, we acquired
three businesses during the year ended December 30, 2018. In accordance with SEC regulations, Management excluded
acquisitions completed during 2018 from our assessment of internal control over financial reporting as of December 30,
2018, which comprised 5.6% and 6.3% of our consolidated net sales and net income attributable to Masonite for the
year ended December 30, 2018, respectively, and 11.2% of our consolidated total assets as of December 30, 2018.
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.
100
Report of Independent Registered 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
30, 2018, 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 30, 2018, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, management’s
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal
controls of three acquired entities, which are included in the 2018 consolidated financial statements of the Company and
constituted 11% of total assets as of December 30, 2018 and 6% and 6% of revenues and net income attributable to Masonite,
respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include
an evaluation of the internal control over financial reporting of the three acquired entities.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of Masonite International Corporation and subsidiaries as of December 30, 2018 and
December 31, 2017, and the related consolidated statements of comprehensive income, consolidated statements of changes in
equity, and consolidated statements of cash flows for each of the two years in the period ended December 30, 2018 and
December 31, 2017, and the related notes and our report dated February 26, 2019 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 26, 2019
101
Item 9B. Other Information
Annual Meeting and Record Date. The Board of Directors has set the date of the 2019 Annual General Meeting
of Shareholders and the related record date. The Annual General Meeting will be held in Tampa, Florida, on May 14,
2019, 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 15, 2019.
Special Equity Retention Awards. On February 25, 2019, the Human Resources and Compensation Committee
(the “Committee”) of the Board of Directors of Masonite International Corporation (the "Company") approved the grant
of a special equity retention award consisting of time-based restricted stock units, as follows:
Name
Title
Amount
Vesting Terms
Randal A. White
Robert A. Paxton
Senior Vice President, Operations and
Global Supply Chain
Senior Vice President, Human
Resources
Russell T. Tiejema
Executive Vice President and CFO
13,038
8,692
4,346
25% vesting on each of the
first and second anniversaries
of the date of grant, and 50%
vesting on the third anniversary
of the date of grant
These awards are designed to strengthen the Company’s ability to retain Messrs. Tiejema, White and Paxton.
With respect to Mr. Tiejema, the Board of Directors and the Committee believe he will continue to play an instrumental
role interacting with shareholders to help ensure the alignment of the Company’s operating strategies with shareholder
interests and value. With respect to Messrs. White and Paxton, the Board of Directors and the Committee believe that
the Company’s MVantage lean enterprise operating system and associated employee development programs led by
operations and human resources will play an important role in the Company’s ability to meet its future business and
strategic objectives in light of recent slower growth in the U.S. housing industry.
102
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 2019 Annual General Meeting of
Shareholders (the "2019 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 26, 2019, 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
54
President and Chief Executive Officer and Director
50
48
52
58
45
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 54) 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. In December 2018, Mr.
Lynch announced his plan to retire as our President and Chief Executive Officer by the end of the second quarter of
2019. Mr. Lynch also plans to leave our Board of Directors in connection with his retirement.
Russell T. Tiejema, (age 50) 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 48) 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.
James A. "Tony" Hair, (age 52) 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
103
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 58) 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 45) 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 2019 Proxy Statement. Such information will be included in the 2019 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 2019 Proxy Statement. Such information will be included in the 2019 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 2019 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 2019 Proxy Statement. Such information will be included under the caption "Appointment of
Independent Registered Public Accounting Firm".
104
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 Public Accounting Firm
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
2. Financial Statement Schedules
51
52
53
54
55
56
57
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)
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
4.4
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)
Indenture, dated as of August 27, 2018, by and among the Company, the guarantors named therein and
Wells Fargo Bank, National Association, as trustee, governing the 5.75% Senior Notes due 2026
(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 August 27, 2018)
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)
105
Exhibit No. Description
10.3(b) #
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 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)
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)
106
Exhibit No. Description
10.3(p) #
10.3(q) #
10.3(r) #
10.3(s) #
10.3(t) #
10.3(u) #
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)
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)
10.3(v)* #
10.3(w)* #
10.3(x)* #
Form of Stock Appreciation Rights Agreement pursuant to the Masonite International Corporation
Amended and Restated 2012 Equity Incentive Plan for United States Employees (February 2019)
Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended
and Restated 2012 Equity Incentive Plan for United States Employees (February 2019)
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
2019)
10.4(a) #
10.4(b) #
10.4(c) #
10.4(d) #
10.4(e) #
10.4(f) #
10.4(g) #
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)
107
Exhibit No. Description
10.4(h) #
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)* #
10.6(f) #
10.5(g)* #
10.6 #
10.7(a)
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)
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, 2018, 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 31, 2018)
Amended and Restated Employment Agreement, dated as of December 31, 2018, 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 31, 2018)
Amended and Restated Employment Agreement, dated as of December 31, 2018, by and between
Masonite International Corporation and Randal A. White
Amended and Restated Employment Agreement, dated as of December 31, 2018, by and between
Masonite International Corporation and James A. Hair (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 December 31, 2018)
Amended and Restated Employment Agreement, dated as of December 31, 2018, by and between
Masonite International Corporation and Robert A. Paxton
Offer Letter, dated as of August 31, 2017, by and between Masonite International Corporation and
Randal A. White (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 September 12, 2017)
Offer Letter, dated as of February 2, 2018, by and between Masonite International Corporation and
Robert A. Paxton
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)
Second Amended and Restated Credit Agreement, dated as of January 31, 2019, among Masonite
International Corporation, as Canadian borrower and parent borrower, Masonite Corporation and the
other U.S. borrowers from time to time party thereto, as U.S. borrowers, Premdor Crosby Limited and
the other U.K. borrowers from time to time party thereto, as U.K. Borrowers, the lenders from time to
time party thereto, Wells Fargo Bank, National Association, as administrative agent and letter of credit
issuer, Bank of America, N.A., as a syndication agent, and Royal Bank of Canada, HSBC Bank USA,
National Association, JPMorgan Chase Bank, N.A., PNC Bank, National Association, Regions Bank
and TD Bank, N.A., as co-documentation agents, Wells Fargo Bank, National Association, Bank of
America, N.A., Royal Bank of Canada, and HSBC Bank USA, National Association, as joint lead
arrangers and joint lead bookrunners (incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K (File No. 011-11796) filed with the Securities and Exchange Commission on
February 6, 2019)
108
Exhibit No. Description
10.7(b)
10.7(c)
10.7(d)
10.7(e)
10.7(f)
21.1*
23.1*
23.2*
31.1*
31.2*
32.1*
32.2*
Amended and Restated U.S. Security Agreement, dated as of January 31, 2019, among Masonite
Corporation, the other U.S. Borrowers from time to time party thereto and Wells, the U.S. Guarantors
from time to time party thereto, and Wells Fargo Bank, National Association, as Collateral Agent
(incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K (File No.
011-11796) filed with the Securities and Exchange Commission on February 6, 2019)
Amended and Restated Canadian Security Agreement, dated as of January 31, 2019, among Masonite
International Corporation, as Canadian Borrower and the Canadian Subsidiary Guarantors from time to
time party thereto and Wells Fargo Bank, National Association, as Collateral Agent (incorporated by
reference to Exhibit 4.3 to the Company's Current Report on Form 8-K (File No. 011-11796) filed with
the Securities and Exchange Commission on February 6, 2019)
Amended and Restated U.S. Guaranty, dated as of January 31, 2019, among Masonite Corporation, the
other U.S. Borrowers from time to time party thereto, the U.S. Subsidiary Guarantors from time to time
party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by
reference to Exhibit 4.4 to the Company's Current Report on Form 8-K (File No. 011-11796) filed with
the Securities and Exchange Commission on February 6, 2019)
Amended and Restated Canadian Guarantee, dated as of January 31, 2019, among Masonite
International Corporation and the Canadian Subsidiary Guarantors from time to time party thereto and
Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit
4.5 to the Company's Current Report on Form 8-K (File No. 011-11796) filed with the Securities and
Exchange Commission on February 6, 2019)
Guarantee and Debenture, dated as of January 31, 2019, among Premdor Crosby Limited (and others as
Chargors) and Wells Fargo Bank, National Association (as Agent) (incorporated by reference to Exhibit
4.6 to the Company's Current Report on Form 8-K (File No. 011-11796) filed with the Securities and
Exchange Commission on February 6, 2019)
Subsidiaries of the Registrant
Consent of Ernst & Young LLP, an Independent Registered 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
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101.CAL*
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*
#
Filed herewith.
Denotes management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
109
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 26, 2019
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/ William S. Oesterle
William S. Oesterle
/s/ Francis M. Scricco
Francis M. Scricco
Title
Date
President and Chief Executive Officer and Director
February 26, 2019
(Principal Executive Officer)
Executive Vice President and Chief Financial Officer
February 26, 2019
(Principal Financial Officer and Principal Accounting Officer)
Director and Chairman of the Board
February 26, 2019
Director
Director
Director
Director
Director
Director
Director
Director
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
February 26, 2019
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
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
Website
www.masonite.com
Legal Counsel
Cassels Brock Lawyers
Simpson Thatcher & Bartlett LLP
Investor Contact
Joanne Freiberger, CPA, CTP, IRC
Vice President and Treasurer
Farand Pawlak, CPA
Director of Investor Relations
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
.5" inside spine
BOARD OF DIRECTORS
OFFICERS
Robert J. Byrne
Chairman of the Board,
Executive Chairman and
CFO of Source2, Inc.
Thomas W. Greene
Chief Information and
Business Services Officer
of Colgate-Palmolive
William S. Oesterle
Founder and Chief
Executive Officer,
tMap, L.L.C.
Frederick J. Lynch
President and Chief
Executive Officer
Steven B. Swartzmiller
Senior Vice President and
Chief Technology Officer
Former Founder and
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
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
Former Executive
Chairman of OurHealth,
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
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 General Manager
– UK Business
Andrew G. “Graham”
Thayer
Senior Vice President
and Business Leader
– Architectural
Randal A. White
Senior Vice President,
Global Operations
and Supply Chain
Chet O. Akiri
Senior Vice President
and Business Leader
– Components
Daniel J. “Dan” Shirk
Senior Vice President and
Chief Information Officer
INTRODUCING
THE LIVINGSTON™
Molded Door
Unique.
Versatile.
Timeless.
Masonite’s exclusive new
design is making homeowners
stop and take notice of their
doors. The Livingston door
instantly transforms any
interior with a unique profile
that is universally appealing.
.5" spine
2
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