2021
ANNUAL REPORT
OUR MISSION
We make life and living better by designing and producing doors that
address human needs for comfort, safety, security and convenience.
Always Connected. Always Protected.
Masonite® M-Pwr™ Smart Doors are the first residential exterior door solution
offering integrated motion-sensing LED welcome lighting, a Ring® Video Doorbell,
a Yale® Home Smart Lock, a door state sensor, and an emergency battery backup,
so you can always stay connected wherever you are.
LETTER TO
OUR SHAREHOLDERS
TO OUR SHAREHOLDERS, CUSTOMERS,
SUPPLIER PARTNERS AND COLLEAGUES:
2021 was a year of challenge, resilience and continued growth for Masonite.
Throughout the year, our teams were faced with a variety of macro-economic
headwinds, including inflation, widespread labor shortages and supply
chain disruptions for key raw materials. At the same time, demand for our
products remained strong, driven in part by an increased focus on the home
and the continued blurring of lines between work life and home life. This
had a positive impact on new home construction as well as the repair and
renovation market, and our customers were counting on us to deliver.
The resilience of the Masonite team was never more evident than in 2021.
Every time we ran into a new challenge, we stayed true to our cultural pillar
of Flexibility in Every Fiber and found a way to move forward. This included
exceptional efforts by our global sourcing team, which kept raw materials
flowing to the plants, by our human resources team, which developed
strategies for attracting and retaining talent, by our operational teams,
which worked tirelessly to satisfy demand and by many others who played
an important role in our success. Through this hard work and dedication, we
were able to maintain our strong position in the market and realize excellent
financial results while making progress on our long-term strategic initiatives.
OUR CULTURAL PILLARS
The six pillars that define Masonite’s culture both unite us and help drive our success.
INTEGRITY
UNDER PRESSURE
HOLD THE
DOOR OPEN
RESULTS HINGE ON
ACCOUNTABILITY
PEOPLE
ARE KEY
FLEXIBILITY
IN EVERY FIBER
CROSSING THE
THRESHOLD
LETTER TO SHAREHOLDERS
Masonite’s new production facility in Fort Mill, South Carolina
I’m very proud Masonite was able to deliver double
digit growth in sales and profitability this year.
The team’s execution of our Doors That Do More™
Strategy, with a focus on delivering reliable supply,
driving specified demand and winning at the point
of sale, resulted in both volume and average unit
price growth, a $340 million year-on-year increase in
net sales and a $49 million year-on-year increase in
Adjusted EBITDA1. Through the continued strategic
deployment of capital and disciplined management
of our assets, we grew Return on Invested Capital
(ROIC)2 by 500 basis points this year and Adjusted
EPS2 by 33%. In addition, we were able to improve
our safety metrics and employee engagement scores
and add great new talent to our management team.
We are also very excited about the momentum we
gained this year on the longer-term initiatives that
we believe will help us continue to deliver consistent
revenue and earnings growth into the future. Our
commitment to invest in the Masonite Innovation
Center located outside of Chicago, Illinois, resulted
in the game-changing product launch of M-Pwr™
Smart Doors, the first residential exterior doors
to integrate power, lights, a video doorbell and a
smart lock into a complete door system that can
be controlled by our proprietary mobile app. We
have also made investments in new door plants in
North America and the United Kingdom, as well as
targeted enhancements to our solid core, fiberglass
and steel door capacity.
Masonite’s new production facility in Stoke-on-Trent, England
1 See Note 17 to our consolidated financial statements beginning on page 80 of this annual report on Form 10-K for the definition of Adjusted EBITDA, a
non-GAAP measure, and a reconciliation of net income attributable to Masonite.
2 Non-GAAP financial measure. See “Non-GAAP Financial Measures” at the end of this annual report for definitions, other information and reconciliations.
LETTER TO SHAREHOLDERS
We believe these investments in production capacity and new products will enable us to capitalize on
opportunities that are developing in the market now. Since the onset of the pandemic, people are spending more
time in their homes and realizing that doors can help improve their quality of life and the value of their homes.
Technology, privacy, light, safety, performance and style have all become increasingly desirable characteristics.
As our customers’ needs have evolved, Masonite has responded with a broad portfolio of doors that do more.
MORE TECHNOLOGY
MORE PRIVACY
MORE LIGHT
M-PWR™
SMART DOORS
INTERIOR
SOLID CORE DOORS
VISTAGRANDE®
FIBERGLASS DOORS
The first-ever* powered and fully
integrated smart door.
70% more sound
dampening material than
our hollow core doors.
A modern look with
up to 18% more light
than standard glass frames.
MORE SAFETY
MORE PERFORMANCE
MORE STYLE
DOOR-STOP®
FIRE DOORSETS
DURASTYLE™ WOOD DOORS
WITH AQUASEAL™ TECHNOLOGY
HERITAGE SERIES®
FIBERGLASS DOORS
Tested and certified for both fire
and security performance for our
United Kingdom customers.
22x more resistant to water
penetration than wood doors
without AquaSeal™ Technology.
Feature historic-inspired
details to complement
a variety of homes.
*M-Pwr is the first residential exterior door to integrate power, lights
and a video doorbell into the door system. Patent pending.
LETTER TO SHAREHOLDERS
Since I joined Masonite in mid-2019, we have been on a mission to transform our company from a manufacturer of
commoditized building products where innovation was primarily focused on door style, into a consumer durables
manufacturer and marketer of doors and door systems focused on innovations that improve life and living in the
home and workplace. We want architects, builders, building owners, and homeowners to request our products by
name across the relevant sales channels. We aspire to expand our addressable markets and position ourselves to
grow in every macro environment. Our strategy is aimed at doing just that – creating a foundation of reliable supply
while developing differentiated products with digital-first marketing that enable Masonite to win at the point of sale.
$2.2B
$2.3B
$2.6B
$413M
$364M
$283M
$8.16
13.0%
$6.15
16.1%
15.9%
14.0%
8.4%
9.0%
$3.66
KEY
2019
2020
2021
NET SALES
+19%
vs. 2019
ADJ. EBITDA1
+46%
vs. 2019
ADJ. EPS2
+123%
vs. 2019
ADJ. EBITDA
MARGIN2
+290BPS
vs. 2019
ROIC2
+560BPS
vs. 2019
At our April 2021 Investor Day, we shared both our Doors That Do More™ Strategy and our 2025 Centennial Plan3
financial goals. These goals are ambitious and include roughly doubling our net revenues to $4 billion in 2025, while
achieving Adjusted EBITDA Margin2 in excess of 20% and generating sector leading ROIC2. By maintaining focus
on our strategic initiatives regardless of the inevitable challenges, by taking advantage of continued strength in the
housing market and by realizing upon the value customers perceive in their doors, we believe we can continue to
make strong progress towards our Centennial Plan3 goals in 2022.
2025
Centennial Plan3
Financial Goals
$4B
Grow Net
Sales to $4B
+20%
Achieve Adjusted
EBITDA Margin2 in
Excess of 20%
Realize Sector
Leading Return on
Invested Capital2
1 See Note 17 to our consolidated financial statements beginning on page 80 of this annual report on Form 10-K for the definition of Adjusted
EBITDA, a non-GAAP measure, and a reconciliation of net income attributable to Masonite.
2 Non-GAAP financial measure. See “Non-GAAP Financial Measures” at the end of this annual report for definitions, other information and
reconciliations.
3 The Company’s 2025 Centennial Plan is a forward-looking statement and subject to risks and uncertainties. See “Forward-looking Statements” at
the end of this annual report.
LETTER TO SHAREHOLDERS
In addition to our focus on financial performance, we continue to expand our Environmental, Social and
Governance (ESG) efforts across the company. In 2021, we published an updated ESG report, added the
role of Chief Sustainability Officer, completed our first carbon footprint analysis and introduced diversity
training for our employees. Safety, environmental awareness and management accountability have always
been at the heart of Masonite’s culture, and I am pleased to see the company continuing to adopt many of
the most relevant ESG best practices.
With a 95 year history of leadership, we understand our responsibilities to pursue innovation and operational
excellence, to keep our employees safe, to listen to the evolving needs of our customers and to invest wisely
for the future to maximize returns for our shareholders. We have learned a great deal from our journey so
far, and in the last two years in particular. We now look forward with excitement and enthusiasm to the
opportunities that lie ahead of us and to sharing our success with you, our colleagues, customers, investors
and all who continue to support us.
Howard C. Heckes
President and Chief Executive Officer
Masonite International Corporation
March 25, 2022
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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 January 2, 2022
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)
DOOR
(Trading symbol)
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 o
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 o 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 o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ¨
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. o
Indicate by check mark whether the registrant has filed a report on and attestation to management's assessment of the effectiveness of its internal
control financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. ☒
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 4, 2021, 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 4, 2021, was $2.7 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 23,246,727 shares of Common Stock, no par value, as of February 22, 2022.
Portions of the registrant’s definitive Proxy Statement for its 2022 Annual General Meeting of Shareholders scheduled to be held on May 12, 2022,
to be filed with the Securities and Exchange Commission not later than 120 days after January 2, 2022, 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
January 2, 2022
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 Safetff y Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities
[Reserved]
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
Item 9A
Item 9B
Item 9C
PART III
Item 10
Item 11
Item 12
Item 13
Item 14
PART IV
Item 15
Item 16
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
Exhibit and Financial Statement Schedules
Form 10-K Summary
Page No.
g
1
10
23
24
24
24
25
27
28
44
46
94
94
96
96
97
98
98
98
98
99
102
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," "could," "will," "would," "should," "expect," "believes," "outlook," "predict," "forecast," "objective," "remain," "anticipate,"
"estimate," "potential," "continue," "plan," "project," "targeting," 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
a
ity of labor,
ity of financing;
costs, the availabila
d levels of residential new construction; residential repair, renovation and remodeling; and non-residential building
and evolving trade policy and friction between the United States and other countries, including China, and the impact
downward trends in our end markets and in economic conditions;
reduced
construction activity due to increases in mortgage rates, changes in mortgage interest deductions and related tax changes and
reduced availabila
competition;
the continued success of, and our ability to maintain relationships with, certain key customers in light of customer
concentration and consolidation;
our ability to accurately anticipate demand for our products;
impacts on our business including seasonality, weather and climate change;
scale and scope of the ongoing coronavirus ("COVID-19") pandemic and its impacm t on our operations, customer demand and
supply chain;
increases in prices of raw materials and fuel;
tariffsff
of anti-dumping and countervailing duties;
increases in labor
our ability to manage our operations including potential disruptions, manufacturing realignments (including related
restructuring charges) and customer credit risk;
product liability claims and product recalls;
our ability to generate sufficient cash flows to fund our capita
to meet our debt service obligations, including our obligations under our senior notes and our asset-based revolving credit
facility ("ABL Facility");
limitations on operating our business as a result of covenant restrictions under our existing and futuret
our senior notes and ABL Facility;
fluff ctuating foreign exchange and interest rates;
our ability to replace our expiring patents and to innovate, keep pace with technological developments and successfully
integrate acquisitions;
the continuous operation of our information technology and enterprise resource planning systems and management of
potential cyber security threats and attacks;
political, economic and other risks that arise from operating a multinational business;
uncertainty relating to the United Kingdom's exit from the European Union;
retention of key management personnel; and
environmental and other government regulations, including the United States Foreign Corrupt Practices Act ("FCPA"), and
any changes in such regulations.
relations (i.e., disruptions, strikes or work stoppages);
al expendituret
a
or labor
requirements, to meet our pension obligations, and
indebtedness, including
a
We caution you that the foregoing list of important factors is not all-inclusive. 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
The Company may use its website and/or social media outlets, such as LinkedIn, as distribution channels of material
company information. Financial and other important information regarding the Company is routinely posted on and accessible through
the Company’s website at http:/
mycompany/
.
email address by visiting the "Email Alerts" section at http://investor.masonite.com
//
and its LinkedIn page at https:/
/www.l
p y . In addition, you may automatically receive email alerts and other information about the Company when you enroll your
p y
inkedin.com/company/masonitedoors/
/i// nvestor.masonite.com
p
t
p
t
y
p
iii
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Unless we state otherwise or the context other
"us," "our" and the "Company
CC
tt wiseii
" refer to Masonite International Corporation and itstt subsidiaries.
PART I
requires, in this Annual Repor
e
t, all refee rences to "Masonite
MM
," "we,"
Item 1. Business
Overview
We are a leading global designer, manufacturer, marketer 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. Through innovative door solutions, a better door buying experience for our customers and partners
and advanced manufacturing
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
core.
and service delivery, we deliver a commitment of Doors That Do MoreTM. Today, we
wood doors; wood veneers and molded door facings; and door
t
t
We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers,
lumberyards, commercial and general contractors and architects through well-establia
shed wholesale, retail and direct
distribution channels as part of our cross-merchandising strategy. Our broad portfolio of brands, including Masonite®,
Premdor®, Masonite ArchitecturalTM, Marshfield-AlgomaTM, USA Wood DoorTM, Solidor®, Residor®, Nicedor®, Door-
Stop InternationalTM, Harring DoorsTM, National HickmanTM, Graham-MaimanTM, Louisiana Millwork, BaillargeonTM
and BWISM, are among the most recognized in the door industry and are associated with innovation, quality and value.
In the fiscal year ended January 2, 2022, we sold approximately 32 million doors to over 7,000 customers globally. Our
fiscal year 2021 net sales by segment and estimated global net sales of doors by end market are set forth below:
Net Sales by Segment
Fiscal 2021
Global Net Sales of Doors by End Market
Fiscal 2021
See Note 17 to our consolidated financial statements for additional information about our segments.
Over the past several years, we have invested in advanced manufacturing
t
technologies to increase quality and
shorten lead times and introduced targeted e-commerce and other consumer and channel 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 North
American commercial and architectural
interior wood door, door core and wood veneer industry.
t
We operate 58 manufacturing and distribution facilities in seven 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
industry. Our vertical integration extends to all steps of the production process from initial design, development and
production 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 assembly. We also offer incremental
value by pre-machining doors for hardware, hanging doors in frames with glass and hardware and pre-finishing doors
interior wood door
t
1
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 be more cost efficient, although our cost structuret
factors beyond our control, such as global commodity shocks.
is subject to certain
Product Lines
Residential Doors
We sell an extensive range of interior and exterior doors in a wide array of designs, materials and sizes. Our
interior doors are made with wood and related materials such as hardboard (including wood composite molded and flat
door facings). Our exterior doors are made primarily of steel, fiberglass or composite materials. Our residential doors
are molded panel, flush, stile and rail, 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 medium-density fiberboard ("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 a 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 simplem aesthetics found in modern linear designs to the molded panel interior door
category; the Heritage® Series, which features
clean, modern aesthetic while retaining comfortable familiarity found in today’s interiors; and the Livingston door,
versatile and timeless design for any style of home and was introduced in 2019. Our doors can be
which features
upgraded to our environmentally friendly EmeraldTM door construction which enables homeowners, builders and
architects to meet specific product requirements and "green" specifications to attain Leadership in Energy and
Environmental Design ("LEED") certification for a building or dwelling.
recessed, flat panels and sharp, Shaker-style profiles which speak to a
t
t
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 suitablea
residential flush doors consisting of unfinished composite wood to the ultra high-end exotic wood veneer doors.
for paint or staining or a composite wood surface suitablea
for paint. Our flush doors range from base
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 them.
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 injen cting the core with polyurethane insulation. With our functional
Utility Steel series, the design centric High Definition family and the prefinished Sta-Tru® HD, we offer customers the
freedom to select the right combination of design, protection and compliance required for essentially any paint grade
exterior door application. In addition, our product offering is significantly increased through our variety of compatible
clear or decorative glass designs.
Fiberglass doors are considered premier exterior doors and are made by assembling two fiberglass door facings
to a wood frame or composite material and injecting the core with polyurethane insulation. Fiberglass is strong, durable,
lightweight and impervious to many caustics and to extreme temperatures.
material for an exterior door that may face extremes in temperature, exposure to the elements and general wear and tear.
In the United Kingdom, Door-StopTM branded fiberglass doors are manufactured
into prehung door sets and shipped to
our customers with industry-leading lead times. We believe our innovative designs, construction and finishes will help
our fiberglass door collections retain a distinct role in the exterior product category in the future.
These attributes make fiberglass an ideal
t
t
2
Our Solidor® exterior doors are composite doors that provide the appearance of timber, but with the benefits of
modern, low maintenance materials. A solid timber core is complemented by a variety of innovative design and color
choices that has led Solidor to become one of the United Kingdom's most recognized manufacturers
and suppliers of
composite doors.
t
Architectural Doors
Architectural doors are typically highly specified products designed, constructed and tested to ensure that
regulatory compliance and environmental certifications such as Forest Stewardship Council and LEED certifications are
met. These doors are sold into institutional (schools, healthcare and government facilities) and commercial projects
(hotels, offices and retail facilities). We believe 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
business, AspiroTM and CenduraTM, are comprised of
technology. Our two primary product series for the architectural
t
four product categories: stile and rail, flush wood veneer, painted and laminate doors. The AspiroTM series offers high-
in exotic and domestic veneers, with acoustic, fire-
end aesthetic and performance qualities, and its doors are availablea
rated, lead-lined, attack- and bullet-resistant options and include lifetime warranties. The CenduraTM series provides a
balance of performance and value and its doors are availablea
and include limited warranties. These product offerings provide a wide range of solutions to cover the needs of
commercial and instituti
with domestic veneers, with acoustic and fire-rated options
onal projects.
t
Compm onents
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. Additionally,
we are one of the leading providers of mineral and particleboard door cores to the North American architectural
door
industry.
t
t
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 constitutet
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 intume
scent compounds.
t
Sales and Marketing
Our sales and marketing efforts
ff
are focused around key initiatives designed to drive organic growth, influence
the mix sold and strengthen our customer relationships.
e
Multi-Level/Sell
gment
Distrii
ibution Strategy
tt
We market our products to and through distributors, dealers, retail stores, online marketplaces, builders,
remodelers, architects and general contractors.
In the residential market, we utilize an "All Products" merchandising strategy which provides our retail and
wholesale customers access to our entire product range and the ability to leverage our branding, marketing and selling
strategies. 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 residential wholesale sales professionals focus on down channel
initiatives designed to ensure our products are "pulled" through our North American wholesale distribution network.
Our North American architectural customers are serviced by a dedicated sales and marketing team providing
architects, door and hardware distributors, general contractors and project owners a wide range of product application
advice, technical specifications, and applicable compliance and regulatory certifications.
3
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. 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 easy 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 portal allowing our customers access to several other e-commerce tools designed to
enhance the manufacturer-customer relationship. Once connected to our system, customers have secure access to
various product configurators to quote and order Masonite products; the Product Corner, a section advising customers
of the features and benefits of our newest products; the Media Library, a comprehensive supply
of marketing materials
and self-service resources; and Order Tracker, which allows customers to follow their purchase orders through the
production process and confirm delivery dates.
u
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 enterprise resource planning systems and their websites ensure that the products customers view, configure and
order are availablea
, which ensures that we are able to deliver on our promise of dependable lead-times.
In our Architectural business, we continue to roll out our new door configurator, DoorBuilderTM Live, for mill
direct customers that makes selecting and ordering the right door easier and more intuit
cloud-based software that streamlines the door ordering process for fast, accurate results. Additionally, we enhanced our
DoorUniversity training program and developed a suite of American Institutet
designed to educad
te architects to help them select the right solutions to meet their project and client goals.
of Architects continuing education units
ive. DoorBuilderTM Live is a
t
Customers
During fiscal year 2021, we sold our products worldwide to over 7,000 customers. We have developed strong
relationships with these customers through our "All Products" cross merchandising strategy. Our vertical integration
a
facilitates our "All Products" strategy with our door fabrication facilities in particular providing value-added fabric
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.
ation
Although we have a large number of customers worldwide, our largest customer, The Home Depot, accounted
for approximately 19% of our total net sales in fiscal year 2021. Due to the depth and breadth of the relationship with
this customer, which operates in multiple North American geographic regions and which sells a variety of our products,
our management believes that this relationship is likely to continue.
Distribution
Residential doors are primarily sold through wholesale and retail distribution channels.
• Wholesale. In the wholesale channel, door manufacturers sell their products to homebuilders,
contractors, lumberyards, 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, both in store and online, 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 general contractors and end-use clients.
4
Research and Development
We believe we are a global leader in end user focused innovation and development of doors, door components
lities enablea
us to organically create and solicit external innovative ideas; methodically validate commercial and
and full door solutions as well as 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 focus on end user problems that lead to the development of more new and innovative products. As part of
Masonite’s Doors That Do MoreTM strategy, our end user experience, research and development and engineering
capabi
a
technical viability; use cross functional teams to develop business case hypotheses for promising concepts; and
implement new to world products and manufacturing process improvements. The result of this rigorous approach
enablea
iency of our
products, improve quality and reduce costs. As part of our North American Investment Plan announced in late 2019, we
have invested in innovation activities with a significant focus on the development of new, differentiated products as
well as focusing on process and material improvements to improve quality. In the Architectural wood door market, we
have directed research and development to address the growing need for specified door systems in critical areas of
safety and security, including our first attack resistant door system and expanded offerings of sound-dampening and
fire-resistant products.
s us to launch new innovative, proprietary end user valued solutions, enhance the manufacturing
efficff
t
As an integrated manufacturer focused on the door industry, we believe we are well positioned to take
advantage of the growing demand for new, innovative door designs, components and solutions. We leverage our deep
knowledge and experience in door construction and assembly as well as our ability to manufacture our own molds for
use in our own facilities. We believe this provides us with a unique ability to offer a combination of sought after high
value door solutions as well as the breadth of line to meet the needs of a variety of end users and customers. This
capabi
a
of door solutions and component
s us to develop and implement product and process improvements with respect to the production
s which increase average unit price, enhance production efficff
lity also enablea
iency and/or reduce costs.
m
Manufacturing Process
Our manufacturing
t
(2) door assembly and (3) value-added ready to install door fabric
a
t
ation.
operations consist of three majora manufacturing
processes: (1) component
m
manufacturing,
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 complem x 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
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 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.
a
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 doors. 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
prior to sale.
doors are typically pre-finished
t
The manufacturing of steel and fiberglass exterior doors is a semi-automated process that entails combining
laminated wood or rot free composite framing components between two door facings and then injen cting 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
5
Laurel, Mississippi, facility in 2006. In 2008, we consolidated fiberglass door manufacturing
to predominantly being made in our highly automated facility in Dickson, Tennessee, significantly improving the
reliabila
ity and quality of these products while simultaneously lowering cost and reducing lead times.
throughout North America
t
Short set-up times, proper production scheduling and coordinated material movement are essential to achieve a
flexible process capaa blea
vertically integrated and flexible manufacturing
common carriers to fill customers’ orders and to minimize our investment in finished goods inventory.
of producing a wide range of door types, sizes, materials and styles. We make use of our
operations together with scalable logistics primarily through the use of
t
Finally, doors manufactured at our door assembly plants are either sold directly to our customers or transferred
ation facilities where value added services are performed. These value added services include
to our door fabric
machining doors for hinges and locksets, installing the doors into ready to install frames, installing hardware, adding
glass inserts and side lites, painting and staining, packaging and logistical services to our customers.
a
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 2021, we continued to progress our
deployment of Mvantage throughout our enterprise. Despite the challenges of COVID-19, we continued to drive
operational performance through our three-prong strategy, at times using a virtual approach, which includes the Model
Plant Transformation Process, Process Improvement Teams and the focus on global standards and training. Our Model
Plant Transformation Process is designed to improve the throughput and the efficiency of our factories using multiple
approaches such as reconfiguring equipment to enhance safety and material flow, optimizing inventory levels and
implementing and tracking sustaining performance metrics. Our Process Improvements Teams work closely with
manufacturing sites to utilize Mvantage to diagnose operational inefficiencies and apply corrective actions in specificff
areas of the factory. Our focus on training, through our Internal Training and Certification programs, and implem menting
global standards has allowed us to drive continuous improvem
are being led by our trained facilitators. Through this structured approach, we realized improveme
performance indicators in 2021.
ent through an increased number of Kaizen events that
nts in certain key
m
m
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. In 2021, our
materials cost accounted for approximately 51% 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
ers taking into consideration the relative freight cost of these materials. Internal
from global, regional and local suppli
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 component
facings, MDF, plywood and hardboard facings, door jambs and frames and glass frames and inserts.
s including steel coils for the stamping of steel door
m
u
Environmental and Other Regulatory Matters
We strive to minimize any adverse environmental impact our operations might have to our employees, the
a
breadth of our facilities subjects us to environmental laws, regulations and guidelines in a
general public and the communities of which we are a part. We are subject to extensive environmental laws and
regulations. The geographic
number of jurisdictions, including, among others, the United States, Canada, Mexico, the United Kingdom, the
Republic of Ireland, 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 efficff
iency.
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,
6
environmental protection requirements and liabilities are not expected to have a material effect on our business, capia tal
expenditures
, operations or financial position.
t
In addition to the various environmental laws and regulations, our operations are subjecb
t 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
we are in compliance in all material respects with existing applicable laws and regulations affecting our operations.
and employment, tax and others. We believe
a
Intellectual Property
In North America, our doors are marketed primarily under the Masonite® brand. Other North American brands
include: Premdor®, Masonite Architectural®, Barrington®, Oakcraft®, Sta-Tru® HD, Vistagrande®, Flagstaff®ff ,
Hollister®, Sierra®, Fast-Frame®, Safe ’N Sound®, Heritage Series®, Livingston®, AquaSealTM, Cheyenne®, Glenview®,
Riverside®, Saddlebrook®, Fast-Fit®, Megantic®, Vignette®, Lemieux Doors®, Harring Doors®, FyreWerks® and
Marshfield-Algoma®. In Europe, doors are marketed under the Masonite®, Premdor®, Premdor Speed Set®, Door-Stop
International®, National Hickman®, Defining Spaces®, Solidor®, Residor® and Nicedor® 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.
t
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 294 design patents and design
patent applications and 174 utility patents and patent applications. We currently have 199 foreign design patents and
patent applications and 183 foreign utility patents and patent applications. Our United States utility patents are generally
applicable for 20 years from the earliest filing date, our United States design patents for 15 years and our United States
registered trademarks and tradenames are generally applicablea
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
t
of molded door facings. There are also a number of
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
smaller competitors in the residential interior door industry, including Steves and Sons Inc. and Lynden Door, Inc., 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 Steves and Sons Inc. In the
North American non-residential building construction door industry, the primary participants are Masonite and VT
Industries with the remainder supplied by multiple regional manufacturers. 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, serviceabila
we operate.
lities and value. We also face competition in the other countries in which
ity, distribution capabi
a
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.
Human Capital Resources
As of January 2, 2022, we employed approximately 10,300 employees and contract personnel. This includes
approximately 2,700 unionized employees, approximately 80% of whom are located in North America with the
7
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.
Our Company’s Purpose: We Help People Walk Through Walls, is reflected in our talent strategy that is
focused on attracting and selecting exceptional talent, helping them develop and grow professionally, and providing
opportunities to recognize and reward their performance, in order to engage and retain our skilled, diverse and
motivated workforce. We focus on the employee experience, removing barriers to inclusion, in an effort
to realize their full potential and highest levels of performance. We aspire to be the employer of choice within our
markets we serve and seek to grow and develop the different capaa bila
maintaining a robust pipeline of availablea
ities and skills we need for the future, while
talent throughout the organization.
ff
for our people
We embrace the diversity of our employees and our customers, including their unique backgrounds,
and inclusive workforce by
experiences and talents. In 2021, we furthered our progress towards a more equitablea
forming a corporate Diversity Council and five regional Diversity, Equity and Inclusion ("DEI") councils representing
Canada, the United States, Chile, Mexico and the United Kingdom/Ireland regions. These councils are comprised of
cross-functional individuals and leaders from across their respective regions that represent various diversity
demographics and assist in driving forward DEI initiatives and programming. Everyone is valued and appreciated for
their unique contributions to the growth and sustainability of our business. We strive to cultivate a culture that supports
and enhances our ability to recruit, develop, engage and retain diverse talent at every level. We monitor engagement in
part through a voluntary turnover metric as our goal is to retain a highly engaged team, thereby reducing voluntary
turnover year over year. The COVID-19 pandemic has continued to impact our employee population, including
increased worker attrition throughout the last year, which has affected many companies across various industries.
During fiscal year 2021, our voluntary employee turnover rate for employees in the United States, Canada and the
United Kingdom was approximately 24%. These locations collectively make up 82% of our global workforce. We also
track 12-month retention rates, which have improved over time. At the end of 2021, our retention rate in the United
States and Canada was nearly 84% across all locations. 2021 yielded an extremely challenging labor
significant turnover and employee migration, driving increases in competitive wages and salaries. In addition to
voluntary turnover, we monitor engagement through an annual voluntary Employee Engagement Survey, for which we
had an exceptional 85% response rate in 2021.
market with
a
We believe that safety is as important to our success as productivity and quality. This is reflected in our goal of
Target Zero injuries 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.
Through a continued commitment to improve our safety performance, we have historically been successful in
reducing the number of injuries sustained by our employees. In 2021, the total incident rate, the annual number of
injuries per 100 full time equivalent employees, was 1.78 representing a 6% improvement on a comparable basis. Our
exit rate safety performance in 2021 was positive and suggests a continuation of our improvements in 2022.
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 usablea
Paper Company in August 2001.
end product. Masonite was acquired by Premdor from International
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 affilff
Roberts & Co. L.P.
iate of Kohlberg Kravis
On March 16, 2009, Masonite International Corporation and several affili
ated 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
r 11 of the U.S. Bankruptcy Code in the
of its U.S. subsidiaries filed voluntary petitions for reorganization under Chaptea
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 Chaptea
r 11 of the U.S. Bankruptcy Code in the United States.
ff
8
Effeff ctive 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
t to periodic reporting requirements under the United States federal securities laws. We
"DOOR" and we became subjecb
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 1242 E. 5th Avenue, Tampa, Florida 33605 and our
Canadian executive offices are located at 2771 Rutherford Road, Concord, Ontario L4K 2N6.
Available Information
ff
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 availablea
through our website, free of charge, as soon as reasonably practicablea
such material with, or furnish it to, the Securities and Exchange Commission. Our website is www.masonite.com.
Information on our website does not constitutet
part of this Annual Report on Form 10-K.
after we electronically file
9
Item 1A. Risk Factors
ff
e
You should carefull
e
before
ion set forth in thisii Annual
investing in our common shares. The risks and uncertainties described below are not the onlyll ones facing
yll consider the following factors in addition to the other informat
Report
us. If any of the following riskii
suffer. In such case, the trading price of our common shares could fall,l and you may lose all or part of yoff
skk actually occur, our business, financial condition or results of operations would likely
ur investment.
ff
Uncertain Economic Conditions
Downward trends in our end marketkk stt or in economic conditions couldll negativelyll
r
performance.
m
impact
our business and financial
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,
ts of governmental
availability and cost of capia tal, consumer spending rates, energy availability and costs, and the effecff
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:
•
•
•
•
•
•
•
•
•
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 availabila
employment rates and consumer confidence; and
demographic factors such as immigration and migration of the population and trends in household formation.
ity and cost of credit;
In the United States, the housing market crisis and financial downturn that began in 2006 had a negative
impact on residential housing construction and related product suppliers. Although the United States housing market
has recovered from the lows experienced as a result of the financial downturn, single family housing starts have not yet
to the levels seen prior to the downturn. The current housing market is volatile with elongated build cycles due
returned
to labor
and supply chain constraints and an increased number of multi-family new construction starts, which generally
a
use fewer of our products and may generate less net sales at a lower margin than typical single family homes.
t
Many of our non-North American markets were acutely affected by the 2006 housing downturn and future
downturns could cause excess capaa
make it difficult for us to raise prices. Due in part to both market and operating conditions, we exited certain markets
over the past several years, including the Czech Republic, India, Ukraine, Turkey, Romania, Hungary, Poland, Israel,
France and South Africa.
city in housing and building products, including doors and door products, which may
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 capac
ity, industry pricing, and our ability to implement our business plan.
a
Market Conditions
t
Increases in mortgage
availabilitytt of fiff nancing for the purchase of new homes and home constructi
adverse impact on our sales and profitff ability.tt
rates, changes in mortgage
tt
t
interest deductions and related tax changes and the reduced
on and improvements could have a material
In general, demand for new homes and home improvement products may be adversely affecff
ted by increases in
mortgage rates and the reduced availability of consumer financing. Mortgage rates remain near historic lows and will
likely increase in the future. If mortgage rates increase and, consequently, the ability of prospective buyers to finance
10
purchases of new homes or home improvement products is adversely affecff
results of operations may be materially and adversely affected.
ted, our business, financial condition and
In addition, the Tax Cuts and Jobs Act in the United States placed a capa 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 futuret
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 affecff
ted 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 instituti
consumers to finance home purchases or repair and remodeling expenditures.
in the United States in 2006, included declining home and other building values, increased home foreclosures and
tightening of credit standards by lending instituti
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.
ons, negatively impacted the home and other building new construction
The global financial downturn that began
ons and reduce the ability of some
t
t
t
We operate in a competitive business environment. If we are unable to compete successfull
and our sales couldll decline.
ff
y,ll we could lose customersrr
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
capac
a
to raise prices even in markets where economic and market conditions have improved. For these and other reasons,
these competm itors could take a greater share of sales and cause us to lose business from our customers or hurt our
margins.
ity, which may lead to pressure to decrease prices in order for us to remain competitive and may limit our ability
As a result of this competitive environment, we face pressure on the sales prices of our products. Because of
experience limited growth and reductions in our profit margins, sales or
to pass on future raw material price, labor
a
cost and other input cost increases to our
these pricing pressures, we may in the futuret
cash flows, and may be unablea
customers which would also reduce profit margins.
e
Because we depend
operations and our ability to implemm
customers reduce the amount of prff
on a core group of significff ant customers, our sales, cash flows from operations, results of
ted if our key
ent price increases for our products may be negati
vely affecff
e
oductstt
they purchase from us.
Our customers consist mainly of wholesalers, retail home centers and contractors. Our top ten customers
t
However, net
together accounted for approximately 48% of our net sales in fiscal year 2021, while our largest customer, The Home
Depot, accounted for approximately 19% of our net sales in fiscal year 2021. We expect that a small number of
customers will continue to account for a substantial portion of our net sales for the foreseeable future.
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 to do so in future periods, or if continued, may not reach or exceed historical levels in any
period. For examplem , 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
ity may decline. We
respective markets or encounters financial or operational problems, our net sales and profitabila
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,
significant adverse change in, our relationships with The Home Depot or any other majora
material decrease in our net sales. 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 receivablea
or financial control over these customers and have limited influence over how they conduct their businesses.
we could lose a significant customer with little or no notice. The loss of, or a
customer, could have a material adverse effect on us. Also, we have no operational
customer could cause a
from any majora
ff
11
Consolidation of our customersrr and their increasing sizeii
couldll adversely affecff
t our results ofo 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
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, competm itive prices and timely and complete deliveries, we could lose a substantial amount of
our customer base and our profitabila
also result in the loss of a customer or a substantial portion of a customer's business.
ity, margins and net sales could decrease. Consolidation of our customers could
regions
a
If we are unable to accuratelyll predict future demand preferences for our products, our business and results of
operations could be materially affecff
ted.
A key element to our continued success is the ability to maintain accurate forecasting of futuret
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 improvem
ents to existing
product lines that respond to such trends, demands and preferences. Trends within the industry change often and our
failure to anticipate, identify or quickly react to changes in these trends could lead to, among other things, rejection of a
on of our products and reduced demand and price reductions for our products, and
t
new product line, increased substit
uti
could materially adversely affecff
t us. In addition, we are subject to the risk that new products or product pricing 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 manufacturet
designs at prices that would be competitive in the marketplace. We may not have sufficient resources to make necessary
investments or we may be unablea
to make the investments or acquire the intellectual
develop new products or improve our existing products.
property rights necessary to
products or
m
u
t
t
Our business is seasonal and subject to climate change and related extreme weather
sales, cash flows from operations and results of operations.
tt
eventstt which may affecff
t our net
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. Ongoing
climate change has increased the frequency and severity of these events and the related risk of an extreme weather event
affecting one of our manufacturing plants, or a plant owned by one of our customers or suppliers. The impact of these
types of events on our business may adversely impact our sales, cash flows from operations and results of operations.
Concern over global climate change has led to significant federal, state and international regulatory efforts to limit
greenhouse gas emissions and could impose substantial costs on us. In addition, new laws or future regulations could
directly and indirectly affect our customers and suppliers and our business. We cannot predict the effects on our
business that may result from global climate change.
Risks Related to COVID-19
The ultimate scale and scope of the ongoing coronavirus ("COVID-19") outbreak and resulting pandemic is unknown
and is expected to impact our business at least for the near term. The overall impact on our business, operating results,
cash flows and/or financial condition could be material.
Demand for our product is dependent on a variety of macroeconomic factors, such as employment levels,
interest rates, changes in stock market valuations, consumer confidence, housing demand and availability of financing
for home buyers. These factors, in particular consumer confidence, can be significantly adversely affected by a variety
of factors beyond our control. The spread of COVID-19 has caused significant volatility in U.S. and international debt
and equity markets, which can negatively impact consumer confidence. There is significant uncertainty around the
breadth and duration of business disruptions related to the pandemic, as well as its impact on the global economy and
consumer confidence. The extent to which the ongoing pandemic impacts our results will depend on future
developments, which are highly uncertain and cannot be predicted, including developments with respect to the
12
continued evolution and severity of COVID-19 (including its existing and future variants) and the resulting actions
taken to contain it or treat its impact. For example, at various times in 2020, we temporarily closed certain locations as a
result of government orders and furloughed employees, as well as significantly altered our operations, thereby reducing
production. The impact of these actions resulted in a decrease in net sales of approximately $100 million in the second
quarter of fiscal year 2020. The impacts of COVID-19 related absenteeism, labor constraints and supply chain
disruptions have continued to result in lost production at our facilities and are expected to continue in future periods. If
the pandemic continues to cause significant negative impacts to our operations, economic conditions or consumer
confidence, our results of operations, financial condition and cash flows may be materially adversely impacted and it
may lead to higher than normal inventory levels, higher sales-related reserves, impairment of goodwill and other long-
lived assets, a volatile effective tax rate driven by changes in the mix and earnings across our jurisdictions and an
impact on the effectiveness of our internal controls over financial reporting.
Manufacturing and Operations
Increased prices for raw materialsll or finished
materialsll or finished
goods could adversely affecff
ii
ii
goods used in our products or interruptions in deliveries of raw
t our profitff ability,tt margins and net sales.
Our profitabila
ity is affected by the prices of raw materials and finished goods used in the manufacturet
of our
e based on a number of factors beyond our control,
t
t
u
ed and may continue to fluctuat
and demand, weather, general economic or environmental conditions,
costs, competition, import duties, tariffs, currency exchange rates and, in some cases, government regulation. The
products. These prices have fluctuat
including world oil prices, changes in supply
labor
a
commodities we use may undergo majoa r price fluctuat
costs through to our customers. For example, in addition to extraordinary inflationary pressure across markets in 2021,
we experienced rapidly increasing inflation in resin due to the impact of severe weather events in the Gulf of Mexico
and Texas in February 2021. 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. We may not be able to pass on these cost increases to our customers.
ions and there is no certainty that we will be able to pass these
t
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
needs, the limited number of suppliers
contracts with our suppliers. If we are not able to accurately forecast our supply
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 affecff
products and the components of some of our products are subject to regulation, such alternative suppliers, even if
available, may not be substitutet
ability to respond to supply
chemical based, interact with other raw materials used in the manufacturet
time may be required to procure a compatible substitutet
original materials.
significant lead
of our products and thereforeff
. Substitutet materials may also not be of the same quality as our
t our operations until arrangements with alternate suppliers could be made. Furthermore, because our
changes. Moreover, some of our raw materials, especially those that are petroleum or
d until regulatory approvals for such substituti
on are received, thereby delaying our
u
u
t
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 acceptablea
terms for the supply of materials
with these or alternative suppliers, our business could suffer. For example, throughout 2021 supply chain disruptions
caused delays at majora
be able to find acceptablea
net sales and profitabila
such alternatives might be disruptive to our business.
supply alternatives, and any such alternatives could result in elongated build cycles and our
ity may decline. Even if acceptable alternatives are found, the process of locating and securing
shortages and increased shipping costs. In the future, we may not
ports, led to distribution labor
a
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.
u
13
and prolonged increase in fuel prices may signifii cantly increase our coststt and have an adverse impact on our
A rapida
resultstt of operations.
Fuel prices may be volatile and are significantly influenced by international, political and economic
circumstances, such as the current situation involving Russia and Ukraine. While fuel prices have fallen from historical
highs over the last several years, lower fuel prices may not be permanent as evidenced by recent price increases. 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 effecff
prices of our products.
t of inhibiting our ability to reflect these increased costs in the
Tariffi sff and evolvill ng trade policyc between the United States and other countries, including China, and the impact
anti-dumping and countervailing duties on our business and results of operations.
m
of
Steps taken by the United States government to apply tariffs on certain products and materials could
u
chains and imposem
potentially disrupt our existing supply
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. For examplem , anti-dumping and
countervailing duty trade cases, such as the January 8, 2020, Coalition of American Millwork Producers anti-dumping
and countervailing duty petitions against Wood Mouldings and Millwork Products from Brazil and China, has had and
could continue to have an adverse effect on our business and results of operations. In order to reduce the impact on our
business and results of operations, we have qualified alternate suppliers and are in the process of attempting to qualify
additional alternate suppliers in other jurisdictions as a result of these duties.
Increases in labor costs,tt availabil
l
facilities of our suppliers could materiallyll adversely affecff
itytt of labor, or potential labor dispute
s
t our financial performance.
s and workrr stoppages at our facilities or the
Our financial performance is affected by the availabila
ity of qualified personnel and the cost of labor
a
as it
impacts our direct labor,
and benefits and the lack of qualified labor
of operations.
a
a
overhead, distribution and selling, general and administration costs. Increased costs of wages
availablea
has had and could continue to have an adverse effect on our results
Additionally, we have approximately 10,300 employees and contract personnel worldwide, including
approximately 2,700 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, 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.
agreements with our unionized employees upon expiration of their
a
We believe many of our direct and indirect suppliers and customers also have unionized workforces. Strikes,
ers and customers could result in slowdowns or closures of
work stoppages or slowdowns experienced by these suppli
facilities where components of our products are manufactured or delivered. Any interruption in the production or
delivery of these component
s could reduce sales, increase costs and have a material adverse effect on us.
m
u
ii
A disrupt
ion in our operations couldll materially affecff
t 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, 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 capia tal intensive and
least replaceable production facilities, could have a substantial negative effect on our earnings. We maintain insurance
coverage to protect us against losses under our property, casualty and umbrella insurance policies, 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 acceptablea
cost. Any liabila
financial condition and results of operations.
ity not covered by insurance could materially and adversely impact our
14
In addition, our operations may be interrupted by terrorist attacks, other acts of violence or war. These events
may directly impact our suppliers’ or customers’ physical facilities. Furthermore, these events may make travel and the
transportation of our supplies and products more difficult and more expensive and ultimately affecff
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
ities in the Middle East and North Korea, may also
economic instability in some regions of the world, including instabila
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.
t our operating
Manufacturing realignmentstt may result in a decrease in our short-term earnings, until the expec
achieved, as well as reduce our flexiee bilitytt
x
conditions.
to respond quicklykk
ed marketkk
to improvm
ted cost reductions are
We continually review our manufacturing operations and sourcing capaa bila
manufacturing realignments and cost savings programs have in the past and could in the futuret
our short-term earnings, including the impacts of restructuring
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.
charges and related impairments and other expenses,
ities. Effects of periodic
result in a decrease in
ff
t
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,
of our global workforce to simplim fy and streamline our organization, improve our cost structure and strengthen our
t employee morale and productivity and be disruptive to our business and
overall business. These changes could affecff
financial performance. For example, in 2020 we closed our St. Romauld, Quebec, facility and Lac Megantic, Quebec,
components facility and in 2021 we closed our Springfield, Missouri, stile and rail facility in order to improve our cost
structuret
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.
and enhance operational efficiencies. Further, a failure to anticipate a sharp increase in levels of residential
restructuret
t
portions
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.
We may be the subject of product
l
such claims
ff
or recalls, and we may not have sufficient insurance coverage available to cover potential liabilities.
liability claims or product recalls,ll we may not accuratelyll estimate coststt related to
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 receivablea
expenses 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
. We may in the futuret
incur
15
adequate insurance coverage in the futuret
our establia
shed reserves could materially and adversely impact our financial condition and results of operations.
at an acceptablea
cost. Any liability not covered by insurance or that exceeds
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 manufacturet
do not meet contractual
sales, but we may fail to accurately estimate those costs and thereby fail to establia
them.
specifications. We estimate our future warranty costs based on historical trends and product
sh adequate warranty reserves for
or design or they
t
Financial Risks
To service our consolidated indebtedness, we will require a signif
depends on many factors beyond
e
business, financial condition and results of operations.
our control,
i
tt
and any failure to meet our debt service obligations couldll harm our
icff ant amount of cash. Our ability to generate cash
Our estimated annual payment obligation for 2022 with respect to our consolidated indebtedness is $40.0
million of interest payments. If 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 affecff
t 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
assets, reducing or delaying capia tal investments or seeking to raise additional capia tal. Our ability to restructure or
refinance our debt will depend on the capia tal 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
debt instruments, including the ABL Facility
restrict our business operations. In addition, the terms of existing or futuret
governing the senior notes, may restrict us from adopting some of these alternatives. If we are unable
and the indenturet
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 effecff
results of operations.
t, which could be material, on our business, financial condition and
our indebtedness, selling
t
Under such circumstances, we may be unablea
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,
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 inabila
ity 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
governing the senior notes,
the ABL Facility, which in turn would constitutet
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.
an event of the default under the indenturet
and, if
t
The terms of the ABLBB 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.
s
The credit agreement governing the ABL Facility and the indentures
t
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;
•
sell assets;
16
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;
•
•
•
• merge or consolidate with other entities; and
•
enter into transactions with affiliates.
The operating and financial restrictions and covenants in the debt agreements entered into in connection with
financing agreements may adversely affect our ability to finance future operations or
the ABL Facility and any futuret
capita
al needs or to engage in other business activities.
Fluctuating exchange and interest rates couldll adversely affecff
t our financial results.tt
t
Our financial results may be adversely affected by fluctuat
ing exchange rates. Net sales generated outside of
the United States were approximately 32% for the year ended January 2, 2022. 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.
t
Moreover, as our current indebtedness is denominated in a currency that is different from the currencies in
which we derive a 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 variablea
rates of interest, which exposes us to
interest rate fluctuat
indebtedness will increase.
t
ion risk. If interest rates increase, the payments we are required to make on any variable rate
We may have to make signi
business.
i
fii cant cash paymentstt
to our pension plans, which would reduce the cash available
l
for our
As of January 2, 2022, the fair value of plan assets under our United Kingdom defined benefit pension plan
exceeded our accumulated benefit obligations by $0.4 million. Our United States defined benefit pension plan was
liquidated during the fourth quarter of 2021, resulting in no accumulated benefit obligations as of January 2, 2022.
During the years ended January 2, 2022, January 3, 2021 and December 29, 2019, we contributed $5.6 million, $1.3
million and $5.0 million, respectively, to the United States pension plan and $1.4 million, $0.8 million and $1.3 million,
respectively, to the United Kingdom pension plan. We currently anticipate making $2.2 million of contributions to our
United Kingdom pension plan in 2022. Additional contributions will be required in futuret
pension plan. If the performance of the assets in our pension plan does not meet our expectations or other actuarial
assumptim ons are modified, our contributions to our pension plan could be materially higher than we expect, which
would reduce the cash available for our businesses.
years for the United Kingdom
Strategic Performance
ff
Risks
We may face claims that we infringe
propertytt
relating to patent or trademark rights, any of which couldll cause our net sales or profitff abilitytt
from infrn ingement by others except by incurring substantial costs as a result of litigati
third partytt
n
i
intellectual propertytt rights,tt or be unable to protect our intellectual
to decline.
on or other proceedings
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
protect certain aspects of our business. We have registered trademarks, copyrights and our patent and trademark
applications may not be allowed by the applicablea
at all, or in a form that will be advantageous to us. In addition, we have selectively pursued patent and trademark
governmental authorities to issue as patents or register as trademarks
restrictions to
t
17
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 tradenames 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
t
property from unauthorized use by others. We cannot be sure that the patents we have obtained, or
licensed intellectual
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
property rights and whatever competitive advantage they embody.
our trade secrets, we risk the loss of those intellectual
t
t
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
or defend litigation to defend ourselves from such accusations or to enforce
the future. We may be required to institutet
our patent, trademark and copyright rights from unauthorized use by others, which, regardless of the outcome, could
result in substantial costs and diversion of resources and could negatively affect our competitive position, sales,
profitability and reputation. If we lose a patent infringement suit, we may be liable for money damages and be enjoin
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 availablea
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 unenforceablea
. These attacks
might invalidate, render unenforceablea
afford. If we lose the use of a product name, our efforts
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.
or otherwise limit the scope of the protection that our patents and trademarks
spent building that brand may be lost and we will have to
ned
ff
If we are unable to replace our expiring
and internationally will be harmed. In addition, our products face the risk of obsolescence, which, if realized, couldll
have a material adverse effecff
patentstt or fail to continue to innovate, our ability to compete both domesticallyll
t on our business.
x
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 profitabila
ity may decline.
t
t
We depend on our door manufacturing
property of our products, we believe it is possible that new competitors will emerge in door
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
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
processes and supply commercial quantities of the products to the market are expected to be important
a
approval
18
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.
ff
Our recent acquisitions and any future acquisit
affecff
t our operating results.
ii
ions, if available
l
, couldll be diffi icff ult to integrate
e
and could adverserr
ly
In the past several years we completed several strategic acquisitions of door and door component
t
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 a Lowe's Companies, Inc. door fabrication facility and
intellectual
property and other assets related to an interior door technology in 2020, the operating assets of Bridgewater
Wholesalers Inc. ("BWI"), the operating assets of Graham Manufacturing Corporation and The Maiman Company
(collectively, "Graham & Maiman") and DW3 Products Holdings Limited ("DW3") in 2018. 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 immediately 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 complem mentary acquisitions and investments and may expand into product lines or businesses with which we
have little or no operating experience. For examplem , future acquisitions may involve product categories beyond what we
currently sell. 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 acceptablea
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.
to us, or at all. In addition,
Our recent and any futuret
acquisitions involve a number of risks, including:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ity to integrate the acquired business, including their information technology systems;
ity to manage acquired businesses or control integration and other costs relating to acquisitions;
ity to retain the management or other key employees of the acquired business;
ity to establish uniform standards, controls, procedures and policies;
ity to retain customers of our acquired companies;
our inabila
our inabila
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 inabila
our inabila
our inabila
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 any acquired
business;
the performance of any acquired business could be lower than we anticipated; and
ity to enforce indemnifications and non-compete agreements.
our inabila
The integration of any futuret
acquisition into our business will likely require substantial time, effort,
ff
attention
and dedication of management resources and may distract our management in unpredictable ways from our ordinary
operations. The integration may also result in consolidation of certain existing operations. If we cannot successfully
execute on our investments on a timely basis, we may be unablea
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 effect
ively
manage recent or future acquisitions or realize their anticipated benefits, it may harm our results of operations.
ff
Data Security and Privacy
We rely on the continuous operation of our informat
ff
such informat
results of operations and customer relationships.
ion technology systems or implemm
ff
ion technology systems. Failure to maintain or prevent damage to
ent contemporary technology systems may adversely affecff
t our business,
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
19
redundant operations to cover a loss or failure in a timely manner. Our operations depend on our network of information
to damage from hardware failure, fire, power loss, telecommunications
technology systems, which are vulnerablea
failure, impacts of terrorism, cyber security vulnerabilities (such as threats and attacks), computem
r viruses, natural
disasters (including those related to climate change) or other disasters. Any damage to our information technology
systems could cause interruptions to our operations that materially adversely affecff
t our ability to meet customers’
requirements, resulting in an adverse impacm t 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 Europe business. In addition, we are
increasingly using cloud-based technology to enable our customers a secure link to our systems in ways that enhance
our customer relationships. 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 impacm t our
ability to efficiently service our customers. Moreover, our recent technological initiatives and increasing dependence on
technology may exacerbate this risk.
t
Potential cyber threatstt and attacks couldll disrupt our information
and our reputat
ion.
e
r
security systems and cause damage to our business
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 as evidenced by significant ransomware attacks
and foreign attacks on prominent computer software systems that has had an impact on a wide variety of companies and
industries. We have establia
shed 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. Further, regulators are imposing new data privacy and
security requirements, including new and greater monetary fines for privacy violations. For example, the European
Union's General Data Protection Regulation established regulations regarding the handling of personal data and
provides an enforcement authority and imposes large penalties for noncomplim ance. New United States data privacy and
security laws, such as the California Consumer Privacy Act ("CCPA"), the California Privacy Rights and Enforcement
Act of 2020 ("CPRA")RR
and others that may be passed by the federal government or other states, similarly introduce
requirements with respect to personal information. Non-compliance with the CCPA may result in liability through
private actions (subject to statutori
comply with these current and future laws, policies, industry standards or legal obligations or any security incident
resulting in the unauthorized access to, or acquisition, release or transfer of personal information may result in
governmental enforcement actions, litigation, fines and penalties or adverse publicity and could cause our customers to
r
lose trust
ly defined damages in the event of certain data breaches) and enforcement. Failure to
in us, which could have a material adverse effecff
t on our business and results of operations.
t
Geopolitical Uncertainties
We are exposed
x
to political,l economic and other
tt
ii
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 January 2, 2022, approximately 68% of our net sales were in the United States, 14% in Canada and 12%
in the United Kingdom. Further, certain of our businesses obtain raw materials and finished goods from foreign
suppliers. Accordingly, our business is subject to political, economic and other risks that are inherent in operating in
numerous countries.
These risks include:
•
•
•
•
•
the difficulty of enforcing agreements and collecting receivablea
trade protection measures and importm
tax rates in foreign countries and the imposition of withholding requirements on foreign earnings;
the impositi
m
restrictions;
difficuff
lty in staffing and managing widespread operations and the application of foreign labor
or export licensing requirements;
s through foreign legal systems;
on of tariffs, such as those recently adopted by the United States and other jurisdictions, or other
regulations;
a
20
•
•
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.
t on our international operations
We cannot assure you that these and other factors will not have a material adverse effecff
or on our business as a whole. See also "Tariffsi
countries
tt
operations."
, including China, and the impact
and evolvill ng trade policyc between the United States and other
of anti-dumping and countervailing duties on our business and results of
m
Uncertainty relating to the United Kingdom's exit from the European Union couldll adversely affecff
t our financial results.tt
We have operations in the United Kingdom that may be negatively impacted by the United Kingdom's exit
from the European Union ("Brexit"). In December 2020, the European Union and the United Kingdom reached an
agreement on a new trade and cooperation agreement that became effective on January 31, 2021. The trade and
cooperation agreement covers the general objectives and framework of the relationship between the United Kingdom
and the European Union, including as it relates to trade, transport and visas. We have experienced nominal disruption to
supply from additional administration born by our freight carriers. The emerging risk relates to labor
shortages driven
by future uncertainty around access to foreign workers. This may continue to impact our ability to employ short-term
chains or the European markets in which we operate as a result
foreign labor.
of this agreement, the adverse impact to our results of operations, financial condition, and cash flows could be material.
If there are significant impacts to supply
u
a
a
Human Capital Risks
The loss of certain membersrr of our management maya have an adverse effeff ct on our operating results.tt
ff
of our senior management and other key employees. These
Our success will depend, in part, on the efforts
individuals possess sales, marketing, engineering, manufacturing,
t
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.
financial and administrative skills and know-how that
Legal and Regulatory Risks
Environmental requirementstt and other government regulati
compliance costs and liabilities on us.
l
on may imposem
i
signif
icff ant environmental and legal
e
r
emissions to air,
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
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 subjeu
ct 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 currentl
y 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 Achievablea
Control Technology requirements (as described below), we have not incurred significant costs for environmental
matters in recent years, futuret
anticipated to be undertaken as part of our ongoing capita
the efficiency of our various manufacturing processes. The amount of any resulting liabilities, costs, fines or penalties
may be material.
expenditures required to comply with any changes in environmental requirements are
al investment program, which is primarily designed to improve
r
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
21
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 capita
costs to comply with increasingly stringent air emission control laws or other futuret
States, those relating to compliance with Maximum Achievable Control Technology requirements under the Clean Air
Act, for which we made capia tal 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 unablea
to predict the ultimate costs of compliance
with or liability under environmental laws, which may be larger than current projections.
requirements (such as, in the United
al expenditures
and other
t
Lack of transparency,yy threat of frff aud, public sector corruption and other
government offiff cials increases riskii
United States Foreigni Corrupt Practices Act.
tt
for potential liability under anti-briberyrr or anti-fraud legislat
e
ion, including the
formsr
of criminal activitytt
involving
We operate facilities in seven countries and sell our products around the world. As a result of these
t
arrangements with parties
international operations, we may enter from time to time into negotiations and contractual
affiliated with foreign governments and their officials. In connection with these activities, we are subject to the 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 establia
procedures and offer several channels for raising concerns in an effort to comply with applicablea
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.
shed FCPA and other anti-bribery policies and
United States and
If we expand our business globally, we may have difficulty anticipating and effecff
tively 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.
Changes in government regulati
l
on may have a material effeff ct on our results of operations.
Our manufacturing
t
facilities and components of our products are subjeu
ct 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 ("EPA"). Changes in the energy efficiency requirements
establia
label
a
results of operations.
shed by the EPA for the ENERGYSTAR label
could increase our costs, and, if there is a lapsea
our products as such or we are not able to comply with the new standards at all, negatively affecff
in our ability to
t our net sales and
a
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
these products, which we may not be able to pass on to our customers.
t
cost for
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 ("SEC"), and the stock exchanges are creating uncertainty for public companies, increasing legal
and financial compliance costs and making some activities more time-consuming. Further, new regulations or
22
ations of existing laws may result in enhanced disclosure obligations, including with respect to climate change
rr
interpret
or other Environmental, Social and Governance matters, which could negatively affecff
regulatory burden. Increased regulations generally increase our costs, and we could continue to experience higher costs
if new laws require us to spend more time, hire additional personnel or purchase new technology to comply effectively.
These laws, regulations and standards are subjeu
ct 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.
t us or materially increase our
We intend to invest resources to complym 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 complim ance activities. If our efforts to complym 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.
Item 1B. Unresolved Staff Comments
None.
23
Item 2. Properties
Our United States executive headquarters are located in Tampa, Florida, and consist of approxim
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 January 2, 2022, we owned and leased the following number of properties, by reportable
segment:
a
ately 88,000
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
Manufacturing
and Distribution
Warehouse
Support
Total
19
4
6
—
29
19
3
6
1
29
58
5
—
—
—
5
14
7
7
—
28
33
—
—
—
1
1
1
1
2
4
8
9
24
4
6
1
35
34
11
15
5
65
100
Our properties in the North American Residential and Architectural
t
segments are distributed across 28 states in
the United States and four provinces in Canada, as well as two manufacturing facilities in Mexico and three
manufacturing facilities in Chile. Our properties in the Europe segment are distributed across the United Kingdom, as
facility in Ireland. Our material properties in the Corporate and Other category include one
well as one manufacturing
manufacturing facility in Malaysia and four support facilities in the United States. As of January 2, 2022, total floff or
space at our manufacturing facilities was 11.9 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 States and own 17,000 acres of forestland in Costa Rica.
t
We believe that our facilities are suitable to our respective businesses and have production capaa
support our current level of production to meet our customers’ demand. Additional investments in manufacturing
facilities are made as appropriate to balance our capaa
city with our customers’ demand.
t
city adequate to
Item 3. Legal Proceedings
The information required with respect to this item can be found
ff
under "Commitments and Contingencies" in
Note 10 to the consolidated financial statements in this Annual Report and is incorporated by reference into this Item 3.
Item 4. Mine Safety Disclosures
Not applicable.
Information about our Executive Officff
ers
Information about the Company's executive officers is incorporated herein by reference from Part III, Item 10
hereof.
24
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common shares are listed on the New York Stock Exchange ("NYSE") under the symbol "DOOR".
Holders
As of February 24, 2022, we had one record holder of our common shares, 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 futuret
and instead may
retain earnings, if any, for future operations and expansion, share repurchases or debt repayments, among other things.
Any decision to declare and pay dividends in the futuret
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 9 to our audited consolidated financial statements contained elsewhere in
this Annual Report for restrictions on our ability to pay dividends.
will be made at the discretion of our Board of Directors and will
t
25
Stock Performance Graph
The following graph depicts the total returnt
to shareholders from January 1, 2017, through January 2, 2022,
relative to the performance of the Standard & Poor's 500 Index and the Standard & Poor's 1500 Building Products
Index. The grapha
assumes an investment of $100 in our common stock and each index on January 1, 2017, 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 January 2, 2022)
$300
$250
$200
$150
$100
$50
1/1/2017
12/31/2017
12/30/2018
12/29/2019
1/3/2021
1/2/2022
Masonite International Corporation
S&P 1500 Building Products Index
Standard & Poor's 500 Index
Masonite International
Corporation
Standard & Poor's 500
Index
Standard & Poor's 1500
Building Products Index
January 1,
2017
December 31,
2017
December 30,
2018
December 29,
2019
January 3,
2021
January 2,
2022
$
100.00
$
112.69
$
69.77
$
109.19
$
149.45
$
179.26
100.00
100.00
121.83
119.36
116.49
95.17
153.17
139.34
181.35
171.17
233.41
248.59
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
26
Repurchases of Equity Securities by the Issuer and Affiff liated Purchasers
During the three months ended January 2, 2022, we repurchased 276,160 of our common shares in the open
market.
Total Number
of Shares
Purchased
Average Price
Paid per Share
117,803
95,673
62,684
276,160
$
$
$
$
108.65
116.58
109.13
111.51
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
117,803
95,673
62,684
276,160
Approximate
Dollar Value of
Shares that
May Yet be
Purchased
Under the Plans
or Programs
$
$
$
214,387,458
203,233,906
196,393,255
October 4, 2021, through October 31, 2021
November 1, 2021, through November 28, 2021
November 29, 2021, through January 2, 2022
Total
The Company's Board of Directors has approved four share repurchase authorizations, the most recent being
an incremental $210.0 million share repurchase program approved on August 9, 2021. 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 facff
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.
During the first quarter of 2020, we implemented several actions to reduce our spending and more closely manage cash
during the uncertain period relating to the COVID-19 pandemic, including temporarily suspending our share repurchase
programs. The temporary suspension was lifted during the third quarter of 2020. 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 applicablea
January 2, 2022, $196.4 million was availablea
for repurchase in accordance with the share repurchase programs.
tors. Any repurchases under the share repurchase programs
insider trading laws. As of
On February 21, 2022, the Company's Board of Directors approved
a
an incremental $200.0 million share
repurchase program. The new $200.0 million authorization is in addition to the previously authorized share repurchase
programs, which as of February 21, 2022, had approxi
programs, we have repurchased $653.6 million of our common shares. In addition, the Company announced that its
Board of Directors has authorized it to enter into an accelerated share repurchase ("ASR") transaction as part of the new
share repurchase program. The Company intends to enter into an ASR transaction during the first quarter of 2022 for
the repurchase of $100.0 million of its outstanding common shares.
mately $156.4 million remaining. Since inception of the
a
Item 6. [Reserved]
27
MASONITE INTERNATIONAL CORPORATION
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's' Discussion and Analysis
ll
of Financial Condition and Resultstt of Operations
("MD&A") is based upon accounting principles generallyll acceptee
d in the United States of America and discusses the
financial condition and resultstt of operations for Masonite International Corporation for the years ended January 2,
2022, and January 3, 2021. For further discussion of our resultstt of operations for the years ended January 3, 2021, and
ent’s Discussion and Analysisyy
December 29, 2019, see "Managem
of Financial Condition and Resultstt of Operations" in
on Form 10-K for the year ended January 3, 2021, which was filed with the SEC on
Part II, Item 7 of our Annual Report
te," "we," "us," "our" and the
February 25, 2021, and which is incorporated herein by refee rence. In thisii MD&A,&& "Masoni
CC
"Company
" refer to Masonite International Corporation and itstt subsidiaries.
MM
MM
e
This discussion should be read in conjunction with the consolidated financial statements and related notes
included elsell where in this Annual Repor
losure under "SpecSS
with the discii
elsell where in this Annual Repor
e
statementstt as a result of these risks and uncertainties.
e
e
t on Form 10-K.KK The following discussion should alsoll
be read in conjunction
ding Forward Looking Statements" and Part I, Item 1A, "Risk Factors"
ial Note Regar
t on Form 10-K.KK Our actual resultstt could diffi erff materially from the forward-looking
Overview
We are a leading global designer, manufacturer, marketer 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
a
developing innovative products, advanced manufacturing capabi
lities and technology-driven sales and service solutions.
We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers,
shed wholesale, retail and direct
lumberyards, commercial and general contractors and architects through well-establia
distribution channels as part of our cross-merchandising strategy. Customers are provided a broad product offering of
interior and exterior doors and entry systems at various price points. We manufacture a broad line of interior doors,
including residential molded, flush, stile and rail, louver and specially-ordered commercial and architectural doors; door
components for internal use and sale to other door manufacturers; and exterior residential steel, fiberglass and wood
doors and entry systems.
We operate 58 manufacturing and distribution facilities in seven 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 fabric
ation 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 enablea
s retail customers to increase comparable store sales and helps to
differentiate us from our competm itors. We believe investments in innovative new product manufacturing and distribution
lities, coupled with an ongoing commitment to operational excellence, provide a strong platform for future growth.
a
capabi
a
Our reportablea
segments are currently organized and managed principally by end market: North American
Residential, Europe and Architectural
75.2%, $334.5 million or 12.9% and $289.5 million or 11.1% in our North American Residential, Europe and
Architectural segments, respectively. See "Segment Information" below for a description of our reportablea
. In the year ended January 2, 2022, we generated net sales of $1,952.9 million or
segments.
t
a
During the second half of 2021, labor
and logistics constraints as well as supply chain disruptions impacted our
ability to service customers and reduced production in our facilities, which we expect will continue in future periods. The
COVID-19 pandemic impacted our business operations and financial results beginning in the second quarter of fiscal
year 2020 leading to an estimated $100 million of lost revenue in the second quarter of 2020, and continued to impact us
in fiscal year 2021. Our United Kingdom facilities closed on March 27, 2020, for approximately half the quarter and
subsequently operated at a reduced capac
ity for the remainder of the second quarter of 2020. The extent to which the
developments, which
pandemic impacm ts our business, results of operations and financial condition will depend on futuret
are highly uncertain and cannot be predicted. These impactm
s include, but are not limited to, the duration, spread, severity
and impact of the pandemic, the effects of the pandemic on our employees, operations, customers, suppliers and supply
a
28
MASONITE INTERNATIONAL CORPORATION
chain, the remedial actions and stimulus measures adopted by federal, state and local governments and the extent to
which normal economic and operating conditions can resume.
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 capia tal, consumer
spending rates, energy availabila
Additionally, trends in residential new construction, repair, renovation and remodeling and architectural
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:
ity and costs, and the effects of governmental initiatives to manage economic conditions.
building
t
•
•
•
•
•
•
•
•
•
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.
Product Pricing and Mixii
The building products industry is highly competitive and we therefore face pressure on sales prices of our
products. In addition, our competitors may adopt more aggressive sales policies and devote greater resources to the
development, promotion and sale of their products than we do, which could result in a loss of customers. Our business in
general is subject to changing consumer and industry trends, demands and preferences. Trends within the industry
change often and our failure to anticipate, identify or quickly react to changes in these trends could lead to, among other
things, rejection of a new product line and reduced demand and price reductions for our products, which could materially
adversely affecff
relative to our higher margin products, which could reduce our future profitability.
t us. Changes in consumer preferences may also lead to increased demand for our lower margin products
Business Wins and Losses
Our customers consist mainly of wholesalers and retail home centers. In fiscal year 2021, our top ten customers
together accounted for approximately 48% of our net sales and our top customer, The Home Depot, Inc. accounted for
approximately 19% of our net sales in fiscal year 2021. Net sales from customers that have accounted for a significant
periods, or if continued,
portion of our net sales in past periods, individually or as a group, may not continue in futuret
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.
ii
Organizational
Restructuring
Over the past several years, we have engaged in a series of restructuring programs related to exiting certain
s and non-core businesses, consolidating certain internal support functions and engaging in other actions
a
geographie
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 futuret
additional provisions for new plan initiatives, as well as changes in previously recorded estimates, as payments are made
years, there may be
29
MASONITE INTERNATIONAL CORPORATION
or actions are completed. Asset impairment charges were also incurred in connection with these restructuring
those assets sold, abandoned or made obsolete as a result of these programs.
t
actions for
In May 2021, we initiated further actions to improve overall business performance including the reorganization
city in our Architectural
city involves specific facilities in the Architectural segment and costs associated with the reorganization of
of our specialty door manufacturing capaa
turing capaa
these facilities, which resulted in the closure of one existing stile and rail facility and related headcount reductions begin-
ning in the second quarter of 2021 (collectively, the "2021 Plan"). Costs associated with the 2021 Plan include severance
and closure charges and continued through 2021. The actions taken as part of the 2021 Plan are expected to increase our
annual earnings
reportabla e segment. The reorganization of our manufac-
and cash flows by approximately $2 million.
r
t
turing capaa
In November 2020, we began implem menting a plan to improve overall business performance that includes the
city and a reduction of our overhead and selling, general and administration
reorganization of our manufacff
workforce primarily in our Architectural reportablea
reportablea
segment and costs associated with the closure of these facilities and related headcount reductions began taking place in
the fourth quarter of 2020 (collectively, the "2020 Plan"). Costs associated with the 2020 Plan include severance and
closure charges and continued through 2021. The actions taken as part of the 2020 Plan are expected to increase our
annual earnings
segment. The reorganization of our manufacturing capaci
segment as well as limited actions in the North American Residential
ty involves specific facilities in the Architectural
and cash flows by approximately $3 million.
a
r
turing capaa
In Februaryrr 2019, we began implementing a plan to improve overall business performance that includes the
city and a reduction of our overhead and selling, general and administration
ity involves specific plants in the North American Residential and Architectural segments and costs associated with
reorganization of our manufacff
workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing
capac
a
the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively,
the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and continued
through 2021. 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 14. In the fourth
quarter of 2019, we initiated additional restructuring
ity and reduction of our
overhead and selling, general and administration workforce. The actions taken as part of the 2019 Plan are substantially
complete and the annual earnings and cash flow savings realized were materially in line with expectations.
t
actions related to both manufact
uring
a
capac
ff
t
During the fourth quarter of 2018, we began implemm
enting 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 enablea more
tive and consistent business processes in the Europe segment. In addition, in the North American Residential
effecff
segment we announced a new facility that will optimize and expand capacity through increased automation, which
resulted 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 included severance, retention and closure charges
and continued throughout 2019. The actions taken as part of the 2018 Plan are substantially complete and the annual
earnings and cash flow savings realized were materially in line with expectations.
ff
Inflat
ion
In 2021, we realized higher costs in the wood, resins, metals and packaging product categories as a result of
macroeconomic factors as well as increased logistics costs and wages. Additionally, we continued to incur higher costs
as a result of tight supply chains as well as from previously disclosed anti-dumping and countervailing duties. We expect
the macroeconomic pressures on wood, resins and other certain key product categories and supply chain disruptions will
continue into 2022. Our profitabili
costs on to our customers or mitigate the impacm t of these inflationary pressures.
ty, margins and net sales could be adversely affected if we are not able to pass these
a
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.
30
MASONITE INTERNATIONAL CORPORATION
Acquisitions and Divestitures
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 footprint
synergies. We also continuously analyze our operations to determine which businesses, market channels and products
t
returns
create the most value for our customers and acceptablea
s and opportunities for cost and distribution
for our shareholders.
t
Acquisitions
•
•
•
Divestitures
On December 4, 2020, we completed the acquisition of a Lowe's Companies, Inc. door fabrication facility
in the United States for cash consideration of $3.9 million. During the first quarter of 2021, as a result of
working capita
al adjustments we paid an additional $0.2 million.
On August 31, 2020, we acquired intellectual
technology for cash consideration of $1.9 million.
t
property and other assets related to an interior door
On August 29, 2019, we complem ted the acquisition of TOPDOORS, s.r.o. ("Top Doors") based in the Czech
Republic for cash consideration of $1.8 million, net of cash acquired, following a post-closing adjustmd
ent.
•
•
•
•
On June 14, 2021, we complem ted the sale of all of the capia tal stock of our Czech business ("Czech") for
consideration of $7.0 million, net of cash disposed. The divestituret
of subsidiaries of $8.6 million, which was recognized during the second quarter of 2021 in the Europe
segment.
of this business resulted in a loss on sale
During the second quarter of 2020, we completed the liquidation of our legal entity in India. As a result, we
recognized $2.1 million in loss on disposal of subsidiaries.
On December 13, 2019, we complem ted the sale of all of the capia tal stock of Window Widgets Limited
("WW"), a United Kingdom provider of high quality window systems, for consideration of $1.2 million, net
of cash disposed.
On March 21, 2019, we completed the sale of all of the capita
Limited ("PDS"), a supplier of custom doors and millwork in the United Kingdom, for nominal
consideration.
al stock of Performance Doorset Solutions
31
MASONITE INTERNATIONAL CORPORATRR ION
Resultsll of Operations
es as a % of no
costs
et sales
x
ation expens
(In thousands)s
Net sales
Cost of goods sold
Gross profit
Gross profitff as a % of no
Selling, general and administration expenses
Selling, general and administrii
t
Restructuring
Asset impairment
Loss on disposal of subsidiaries
Operating income
Interest expense, net
Loss on extinguishment of debt
Other (income) expense, net
Income before income tax expense
Income tax expense
Net income
Less: net income attributablea
Net income attributable to Masonite
to non-controlling interests
et sales
ar Ended
January 2,
2022
$ 2,596,920
1,985,141
611,779
January 3,
2021
$ 2,257,075
1,684,571
572,504
23.6 %
308,430
11.9 %
25.4 %
366,772
16.2 %
5,567
69,900
8,590
219,292
46,123
13,583
15,620
143,966
44,772
99,194
4,693
94,501
8,236
51,515
2,091
143,890
46,807
—
(5,217)
102,300
28,611
73,689
4,652
69,037
$
$
Year Ended January 2, 2022, Compared with Year Ended January 3, 2021
Net SalSS esll
Net sales in the year ended January 2, 2022, were $2,596.9 million, an increase of $339.8 million or 15.1% from
t
$2,257.1 million in the year ended January 3, 2021. Net sales in 2021 were positively impacted by $50.1 million as a
ions. Excluding this exchange rate impact, net sales would have increased by
result of foreign exchange rate fluff ctuat
$289.7 million or 12.8% due to changes in volume, average unit price, impact of acquisitions and divestitures,
of components. Average unit price in 2021 increased net sales by $242.6 million or 10.7% compared to 2020. Higher
volumes excluding the incremental impact of acquisitions ("base volume") increased net sales by $48.4 million or 2.1%
s to external customers were $10.8 million higher in 2021 compared
in 2021 compared to 2020. Net sales of component
to 2020. Our 2021 divestituret
decreased net sales by $12.1 million or 0.5% of net sales in 2021.
and sales
m
t
Net Sales and Percentage of Net Sales
SS
by Reportabl
ee
e Sll
egmSS
ent
(In thousands)s
Sales
Intersegment sales
Net sales to external customers
Percentage of consolidated extee ernal
net sales
Year Ended January 2, 2022
North
American
Residential
$ 1,955,424
(2,526)
$ 1,952,898
Europe
Architectural
Corporate &
Other
$
$
342,172
(7,640)
334,532
$
$
303,078
(13,602)
289,476
$
$
20,014
—
20,014
$
$
Total
2,620,688
(23,768)
2,596,920
75.2 %
12.9 %
11.1 %
32
MASONITE INTERNATIONAL CORPORATION
Year Ended January 3, 2021
North
American
Residential
$ 1,640,323
(2,204)
$ 1,638,119
Europe
Architectural
Corporate &
Other
$
$
260,834
(2,721)
258,113
$
$
358,049
(17,153)
340,896
$
$
19,947
—
19,947
$
$
Total
2,279,153
(22,078)
2,257,075
72.677 %
11.4 %
15.1 %
(In thousands)s
Sales
Intersegment sales
Net sales to external customers
Percentage of consolidated extee ernal
net sales
North American Residential
Net sales to external customers from facilities in the North American Residential segment in the year ended
January 2, 2022, were $1,952.9 million, an increase of $314.8 million or 19.2% from $1,638.1 million in the year ended
January 3, 2021. Net sales in 2021 were positively impacted by $25.0 million as a result of foreign exchange rate
fluctuations. Excluding this exchange rate impact, net sales would have increased by $289.8 million or 17.7% due to
changes in volume, average unit price and sales of components. Average unit price increased net sales in 2021 by $200.1
million or 12.2% compared to 2020. Higher base volume increased net sales by $78.2 million or 4.8% in 2021 compared
to 2020. Net sales of components to external customers were $11.5 million higher in 2021 compared to 2020.
Europe
Net sales to external customers from facilities in the Europe segment in the year ended January 2, 2022, were
$334.5 million, an increase of $76.4 million or 29.6% from $258.1 million in the year ended January 3, 2021. Net sales
in 2021 were positively impacted by $22.8 million as a result of foreign exchange fluctuations. Excluding this exchange
rate impact, net sales would have increased by $53.6 million or 20.8% due to changes in volume, average unit price,
divestitures
to 2020. Higher base volume increased net sales by $29.9 million or 11.6% compared to 2020, primarily dued
manufacturing facilities being closed approximately half of the prior year second quarter and other impacts as a result of
COVID-19. Net sales of component
2021 divestituret
s to external customers were $4.6 million higher in 2021 compared to 2020. Our
s. Average unit price increased net sales in 2021 by $31.2 million or 12.1% compared
decreased net sales by $12.1 million or 4.7% in 2021.
and sales of component
to our
m
m
t
Architectural
t
Net sales to external customers from facilities in the Architectural
segment in the year ended January 2, 2022,
were $289.5 million, a decrease of $51.4 million or 15.1% from $340.9 million in the year ended January 3, 2021. Net
sales in 2021 were positively impacted by $2.2 million as a result of foreign exchange fluctuat
exchange rate impact, net sales would have decreased by $53.6 million or 15.7% due to changes in volume, average unit
price and sales of components. Lower base volume decreased net sales in 2021 by $59.7 million or 17.5% compared to
2020 primarily due to the impacts of labor constraints as a result of COVID-19, material availability and production
challenges as well as lingering weakness in commercial end markets during the firff st six months of 2021. Net sales of
components to external customers were $9.0 million lower in 2021 compared to 2020. Average unit price increased net
sales in 2021 by $15.1 million or 4.4% compared to 2020.
ions. Excluding this
t
G
Cost of Go
oods
Sold
Our cost of goods sold is comprised
m
of the cost to manufacturet
products for our customers and includes the cost
a
overhead, distribution and depreciation associated with assets used to manufacturet
of materials, direct labor,
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 manufacturet
production capaa
January 3, 2021.
city utilization at these locations was approximately 81% for the years ended January 2, 2022, and
interior molded door facings. Our overall average
products.
Cost of goods sold as a percentage of net sales was 76.4% and 74.6% for the years ended January 2, 2022, and
January 3, 2021, respectively. Material cost of sales and distribution as a percentage of net sales increased by 1.5% and
1.0%, respectively, in 2021 compared to 2020. Partially offsetting these increases, overhead, direct labor
depreciation as a percentage of sales decreased by 0.3%, 0.2% and 0.2%, respectively, over the 2020 period. The
and
a
33
MASONITE INTERNATIONAL CORPORATION
increase in material cost of sales as a percentage of net sales was driven by commodity inflation and an increase in
logistics costs and tariffs, partially offset by higher average unit prices and material cost savings projects. Distribution as
a percentage of net sales increased due to higher logistics costs and personnel costs including wage inflation. Overhead
as a percentage of net sales decreased due to higher average unit prices, partially offset by wage inflation, increased plant
maintenance and increased investment in the business in 2021 compared to 2020. Direct labor
sales decreased due to higher average unit prices, partially offset by manufacturing wage inflation. The decrease in
depreciation as a percentage of net sales was driven by higher average unit prices in 2021 as compared to 2020.
as a percentage of net
a
ll
Selling,
General and Administra
ii
tiott n Expenxx
ses
Selling, general and administration ("SG&A") expenses primarily include the costs for our sales organization
and support staffff at various plants and corporate offices. These costs include personnel costs for payroll, related benefits
and stock based compensation expense; professional fees; depreciation and amortization of our non-manufacturing
equipment and assets; environmental, health and safety costs; advertising expenses and rent and utilities related to
administrative office facilities. In the year ended January 2, 2022, selling, general and administration expenses, as a
percentage of net sales, were 11.9% compared to 16.2% in the year ended January 3, 2021, a decrease of 430 basis
points.
Selling, general and administration expenses in the year ended January 2, 2022, were $308.4 million, a decrease
of $58.4 million from $366.8 million in the year ended January 3, 2021. The overall decrease was driven by the absence
of a $40.6 million legal reserve related to the settlement of U.S. class action litigation in the prior year period; a $10.3
million decrease in non-cash items including depreciation and amortization, deferred compensation, loss on disposal of
property, plant and equipment and share based compensat
a $29.8 million decrease in incentive compensation, partially offset by a $19.9 million increase in personnel costs
primarily due to $14.0 million of resource investments to support
u
savings in the prior year due to COVID-19, and $1.9 million of payroll taxes due to the timing of prior year incentive
compensation; $1.1 million of incremental SG&A savings from our 2021 divestiture; and a $0.6 million decrease in
professional and other fees. These decreases were partially offset by unfavorablea
foreign exchange impacts of $4.1
million.
ion; a $9.9 million decrease in personnel costs primarily due to
growth, the absence of $4.0 million of personnel cost
m
Restructuring Coststt
Restrucr
turing costs in the year ended January 2, 2022, were $5.6 million, compared to $8.2 million in the year
ended January 3, 2021. Restructuring costs in 2021 related to severance and closure charges associated with the 2021,
2020 and 2019 Plans. Restrucr
2020, 2019 and 2018 Plans.
turing costs in 2020 related to severance, retention and closure charges associated with the
t
Asset Impairmen
ii
Asset impairment charges in the year ended January 2, 2022, were $69.9 million compared to $51.5 million in
the year ended January 3, 2021. Asset impairment charges in 2021 resulted from a goodwill impairment charge recorded
in our Architectural
unit. Asset impairment charges in 2020 resulted from a goodwill impairment charge recorded in our Architectural
reporting unit. Refer to Note 14. Asset Impairment, in Item 8 of this Annual Report for additional information.
reporting unit and actions associated with the 2021 and 2020 Plans in our Architectural
reporting
t
t
Loss on Disposal
ii
of Subsidiaries
Loss 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 on disposal of subsidiaries is recognition of the cumulative translation adjustment out of accumulated
other comprehensive loss. Loss on disposal of subsidiaries was $8.6 million in the year ended January 2, 2022 compared
to $2.1 million in the year ended January 3, 2021. The current year loss arose as a result of the sale of our Czech business
and is comprised of $5.1 million relating to the write-off of net assets sold and other professional fees and $3.5 million
nsive loss. The
relating to the recognition of the cumulative translation adjustmd
loss in the prior year arose as a result of the liquidation of our legal entity in India and is comprised of the recognition of
the cumulative translation adjustment out of accumulated other comprehensive loss of $2.3 million and $0.2 million
relating to the write-off of net assets and other professional fees.
ent out of accumulated other comprehe
m
34
MASONITE INTERNATIONAL CORPORATION
Intertt est Expenxx
se,e Net
Interest expense, net, in the year ended January 2, 2022, was $46.1 million, compared to $46.8 million in the
year ended January 3, 2021, remaining relatively flat as compared to the 2020 period.
Loss on Extingui
ii
shmii
ent 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. Loss on extinguishment of debt was $13.6 million in the year ended January 2, 2022
and related to the redemption of our senior unsecured notes due 2026. This charge represents the difference between the
redemption price of our senior unsecured notes due 2026 of $310.8 million and the net carrying amount of such notes of
$297.2 million. In addition to the $300.0 million of principal, the redemption price included a make-whole premium of
$10.8 million and the net carrying amount included unamortized debt issuance costs of $2.8 million. There was no loss
on extinguishment of debt in the year ended January 3, 2021.
Other (Income)e Expense, Net
Other (income) expense, net includes profits and losses related to our non-majority owned unconsolidated
subsidiaries that we recognize under the equity method of accounting, unrealized gains and losses on foreign currency
remeasurements, pension settlement charges and other miscellaneous non-operating expenses. Other (income) expense,
net, in the year ended January 2, 2022, was $15.6 million of expense, comparem
ended January 3, 2021. The change in other (income) expense, net is primarily due to a pre-tax pension settlement charge
of $23.3 million recognized in the fourth quarter of 2021, partially offset by a change in our portion of the net gains and
losses related to our non-majority owned unconsolidated subsidiaries that are recognized under the equity method of
accounting, a change in the fair value of plan assets in the deferred compensation rabbi
and unrealized gains and
losses on foreign currency remeasurements.
d to $5.2 million of income in the year
rr
trust
a
Income Tax Expense
xx
Income tax expense in the year ended January 2, 2022, was $44.8 million, compared to $28.6 million in the year
ended January 3, 2021. The increase in income tax expense is primarily due to (i) the mix of income or losses within the
tax jurisdictions with various tax rates in which we operate, (ii) nondeductible goodwill impairment charges related to
prior stock acquisition of the Architectural
reporting unit and (iii) an increase in tax rate applied to certain deferred tax
assets and liabilities in the United Kingdom.
t
Segment Information
Our reportablea
t
segments are organized and managed principally by end market: North American Residential,
. The Corporate & Other category includes unallocated corporate costs and the results of
Europe and Architectural
immaterial operating segments that were not aggregated into any reportable segment. In addition to similar economic
characteristics we also consider the following factors in determining the reportable segments: the naturet
activities, the management structuret
administrative activities, availabila
Directors and investors.
directly accountable to our chief operating decision maker for operating and
ity of discrete financial information and information presented to the Board of
of business
Our management reviews net sales and Adjuste
and allocate resources. Net assets are not allocated to the reportablea
financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparablea
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:
d EBITDA (as defined below) to evaluate segment performance
segments. Adjusted EBITDA is a non-GAAP
d
•
•
•
•
•
depreciation;
amortization;
share based compensation expense;
loss (gain) on disposal of property, plant and equipment;
registration and listing fees;
35
MASONITE INTERNATIONAL CORPORATRR ION
•
•
•
•
•
•
•
•
•
•
restructuring costs;
asset impairment;
loss (gain) on disposal of subsidiaries;
interest expense (income), net;
loss on extinguishment of debt;
other (income) expense, net;
income tax expense (benefit);
other items;
loss (income) fromff
net income (loss) attributablea
discontinued operations, net of tax; and
to non-controlling interest.
This definition of Adjusted EBITDA differs fromff
the defini
ff
tions of EBITDA contained in the indenturet
governing the 2030 Notes, 2028 Notes and 2026 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 sales are recorded using market prices.
We believe that Adjusted EBITDA, fromff
an operations standpoint
d
, provides an appropria
a
te way to measure and
assess segment performance. Our management team has establia
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.
shed the practice of reviewing the performance of each
(In thousands)s
Adjusted EBITD
A
Adjusted EBIEE TDA
II
nt net sales
e
segme
as a percentage of
(In thousands)s
Adjusted EBITDA
Adjusted EBIEE TDA
II
nt net sales
e
segme
as a percentage of
Year Ended January 2, 2022
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
374,452
$
60,624
$
(2,704)
$
(19,766) $ 412,606
19.2 %
18.1 %
(0.9)%((
15.9 %
Year Ended January 3, 2021
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$ 347,822
$
40,474
$
34,201
$
(58,785) $ 363,712
21.2 %
15.7 %
10.0 %
16.1 %
36
MASONITE INTERNATIONAL CORPORATRR ION
The folff
lowing reconciles Adjusted EBITDA to net income (loss) attributable to Masonite:
(In thousands)s
Net income (loss) attributable to
Masonite
Plus:
Depreciation
Amortization
Share based compensation expense
Loss (gain) on disposal of property,
plant and equipment
Restructuring costs
Asset impairment
Loss on disposal of subsidiaries
Interest expense, net
Loss on extinguishment of debt
Other (income) expense, net
Income tax expense
Net income attributablea
controlling interest
Adjusted EBITDA
to non-
Year Ended January 2, 2022
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
329,925
$
29,519
$
(91,255) $
(173,688) $
94,501
37,864
1,640
—
2,209
(149)
—
—
—
—
—
—
2,963
9,752
14,073
—
(1)
—
—
8,590
—
—
(1,309)
—
—
10,986
3,634
—
(410)
5,165
69,171
—
—
—
5
—
—
12,039
1,994
15,959
(482)
551
729
—
46,123
13,583
16,924
44,772
70,641
21,341
15,959
1,316
5,567
69,900
8,590
46,123
13,583
15,620
44,772
1,730
4,693
$
374,452
$
60,624
$
(2,704) $
(19,766) $
412,606
37
MASONITE INTERNATIONAL CORPORATION
(In thousands)s
Net income (loss) attributable to
Masonite
Plus:
Depreciation
Amortization
Share based compensation expense
Loss (gain) on disposal of property,
plant and equipment
Restructuring costs
Asset impairment
Loss on disposal of subsidiaries
Interest expense, net
Other (income) expense, net
Income tax expense
Other items (1)
Net income attributable to non-
controlling interest
Year Ended January 3, 2021
North
American
Residential
Europe
Architectural
Corporate
& Other
Total
$
298,446
$
16,964
$
(40,869) $
(205,504) $
69,037
35,868
1,837
—
4,188
4,327
—
—
—
(31)
—
—
3,187
9,838
13,894
(93)
(37)
—
—
—
(92)
—
—
—
11,651
6,084
—
2,922
2,898
51,515
—
—
—
—
—
—
10,993
1,608
19,423
(783)
1,048
—
2,091
46,807
(5,094)
28,611
40,550
68,350
23,423
19,423
6,234
8,236
51,515
2,091
46,807
(5,217)
28,611
40,550
1,465
4,652
Adjusted EBITDA
$
347,822
$
40,474
$
34,201
$
(58,785) $
363,712
____________
(1) Other items not part of our underlying business performance include $40,550 in legal reserves related to the settlement of U.S. class action litigation
in the year ended January 3, 2021, and were recorded in selling, general and administration expenses within the consolidated statements of income and
comprehensive income. Refer to Note 10. Commitments and Contingencies for additional information.
Adjusted EBITDA in our North American Residential segment increased $26.7 million, or 7.7%, to $374.5
million in the year ended January 2, 2022, from $347.8 million in the year ended January 3, 2021. Adjuste
the North American Residential segment included corporate allocations of shared costs of $76.6 million and $64.7
million in 2021 and 2020, respectively. The allocations generally consist of certain costs of human resources, legal,
finance, information technology, research and development, marketing and share based compensation.
d
d EBITDA in
Adjusted EBITDA in our Europe segment increased $20.1 million, or 49.6%, to $60.6 million in the year ended
d EBITDA in the Europe segment
January 2, 2022, from $40.5 million in the year ended January 3, 2021. Adjuste
included corporate allocations of shared costs of $4.1 million and $1.0 million in 2021 and 2020, respectively. The
allocations generally consist of certain costs of human resources, legal, finaff
share based compensat
nce, information technology, marketing and
ion.
m
d
Adjusted EBITDA in our Architectural segment decreased $36.9 million or 107.9% to a loss of $2.7 million in
the year ended January 2, 2022, from $34.2 million of earnings in the year ended January 3, 2021. Adjuste
d EBITDA in
the Architectural segment also included corporate allocations of shared costs of $11.1 million and $10.8 million in 2021
and 2020, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information
technology, research and development, marketing and share based compensat
ion.
m
d
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 an accounts receivablea
party ("AR Sales Program") and our existing cash balance. Our anticipated uses of cash in the near term include working
capita
commitments forff
al needs, capital expenditures and share repurchases. As of January 2, 2022, we do not have any material
capital expenditures. We anticipate capital expenditures in fisff cal year 2022 to be approximately $100 to
sales program with a third
38
MASONITE INTERNATIONAL CORPORATION
$120 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, futuret
Program, our ABL Facility, and ability to access the capita
future. As of January 2, 2022, we had $381.4 million of cash and cash equivalents, availabila
$219.5 million and availability under our AR Sales Program of $0.3 million.
cash generated from operations, the use of our AR Sales
al markets will provide adequate liquidity for the foreseeable
ity under our ABL Facility of
sw
CCashh lFlowll
Year Ended January 2, 2022, Comparem
d with Year Ended January 3, 2021
Cash provided by operating activities was $156.5 million during the year ended January 2, 2022, compared to
$321.2 million during the year ended January 3, 2021. This $164.7 million decrease in cash provided by operating
activities was due to changes in net working capita
offset by an $88.2 million increase in net income attributablea
in 2021 compared to 2020.
al and a $27.5 million decrease in other assets and liabilities, partially
d for non-cash and non-operating items
to Masonite, adjuste
d
Cash used in investing activities was $76.1 million during the year ended January 2, 2022, compared to $73.9
million cash used during the year ended January 3, 2021. This $2.2 million increase in cash used in investing activities
was primarily driven by a $13.7 million increase in cash additions to property, plant and equipment and a $1.3 million
decrease in proceeds from the sale of property, plant and equipment, partially offset by a $7.0 million increase in cash
obtained from the sale of subsidiaries and a $5.8 million decrease in cash used in acquisitions, net of cash acquired and
other investing activities in 2021 compared to 2020.
Cash used in financing activities was $63.7 million during the year ended January 2, 2022, compared to $54.1
million of cash used during the year ended January 3, 2021. This $9.6 million increase in cash used in financing activities
was driven by a $70.2 million increase in cash used for repurchases of common shares and a $1.4 million increase in
cash used for tax withholding on share based awards, partially offset by a net increase in cash provided by debt-related
transactions of $58.6 million and a $3.3 million decrease in distributions to non-controlling interests in 2021 compared to
2020.
Share Repurchases
The Company's Board of Directors has approved four share repurchase authorizations, the most recent being an
incremental $210.0 million share repurchase program approved on August 9, 2021. 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, subjeu
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. During the first
quarter of 2020, we implemented several actions to reduce our spending and more closely manage cash during the
uncertain period relating to the COVID-19 pandemic, including temporarily suspending our share repurchase programs.
The temporary suspension was lifted during the third quarter of 2020. 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 January 2,
2022, we repurchased 1,014,003 of our common shares in the open market at an aggregate cost of $113.9 million. During
the year ended January 3, 2021, we repurchased 672,899 of our common shares in the open market at an aggregate cost
of $43.7 million. As of January 2, 2022, $196.4 million was availablea
repurchase programs.
for repurchase in accordance with the share
ct to market conditions, applicable legal
On February 21, 2022, the Company's Board of Directors approved an incremental $200.0 million share
repurchase program. The new $200.0 million authorization is in addition to the previously authorized share repurchase
programs, which as of February 21, 2022, had approximately $156.4 million remaining. In addition, the Company
announced that its Board of Directors has authorized it to enter into an accelerated share repurchase ("ASR") transaction
as part of the new share repurchase program. The Company intends to enter into an ASR transaction during the first
quarter of 2022 for the repurchase of $100.0 million of its outstanding common shares.
39
MASONITE INTERNATIONAL CORPORATION
Othett
ii
r Liquidi
srr
tyii Mattertt
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 January 2, 2022, 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 there could
be an impact on our results of operations in a futuret
period and this impact could be material.
Accountstt Receivable Sales Program
Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivablea
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 receivablea
activities in the consolidated statements of cash flows. The discounts on the sales of trade accounts receivablea
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 income and comprehensive income.
in the consolidated balance sheets and are included in cash flows from operating
sold under
Senior Notes
On July 26, 2021, we issued $375.0 million aggregate principal senior unsecured notes (the "2030 Notes"). The
2030 Notes were issued in a private placement for resale to qualified institutional buyers pursuant to Rule 144A of 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 2030 Notes bear interest at 3.50% per annum, payablea
in arrears on February 15 and August 15 of each year commencing on February 15, 2022, and are due February 15, 2030.
The 2030 Notes were issued at par. We received net proceeds of $370.3 million afteff
issuance costs. The debt issuance costs were capia talized as a reduction to the carrying value of debt and are being
accreted to interest expense over the term of the 2030 Notes using the effective interest method. The net proceeds from
the issuance of the 2030 Notes were used to redeem the remaining $300.0 million aggregate principal amount of the
2026 Notes (as described below), including the payment of related premiums, fees and expenses, with the balance of the
proceeds available for general corporate purposes.
r deducting $4.7 million of debt
in cash semiannually
Obligations under the 2030 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 2030 Notes
under certain circumstances specifieff d therein.
The indenture governing the 2030 Notes contains limited covenants that, among other things, limit our ability
and the ability of our subsidiaries to (i) incur certain secured debt, (ii) engage in certain sale and leaseback transactions
and (iii) merge or consolidate with other entities. The foregoing limitations are subject to exceptions as set forth in the
indenture governing the 2030 Notes. The indenture governing the 2030 Notes contains customary events of default
(subject to certain cases to customary grace and cure periods). As of January 2, 2022, we were in compliance with all
covenants under the indenture governing the 2030 Notes.
On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"). The
2028 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 2028 Notes were issued without registration rights and are not listed on any
securities exchange. The 2028 Notes bear interest at 5.375% per annum, payable in cash semiannually in arrears on
February 1 and August 1 of each year and are due February 1, 2028. The 2028 notes were issued at par. We received net
alized
proceeds of $493.3 million after deducting $6.7 million of debt issuance costs. The debt issuance costs were capita
40
MASONITE INTERNATIONAL CORPORATION
as a reduction to the carrying value of debt and are being accreted to interest expense over the term of the 2028 Notes
using the effective interest method. The net proceeds from issuance of the 2028 Notes, together with available cash
balances, were used to redeem the remaining $500.0 million aggregate principal amount of similar senior unsecured
notes, resulting in loss on extinguishment of debt of $14.5 million after paying the applicablea
and writing off the unamortized premium of $3.1 million and unamortized debt issuance costs of $3.5 million
premium of $14.1 million
We may redeem the 2028 Notes under certain circumstances specified therein. The indenture governing the
2028 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 affilff
exceptions as set forth in the indenturet
investment grade rating from at least two nationally recognized statistical rating organizations, certain of these covenants
will be terminated. The indenture governing the 2028 Notes contains customary events of default (subject in certain
cases to customary grace and cure periods). As of January 2, 2022, we were in compliance with all covenants under the
indenture governing the 2028 Notes.
iates. The foregoing limitations are subject to
the 2028 Notes have an
governing the 2028 Notes. In addition, if in the futuret
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, 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
bore interest at 5.75% per annum, payablea
and were originally due September 15, 2026. The 2026 Notes were issued at par. We received net proceeds of $295.7
million afteff
r deducting $4.3 million of debt issuance costs. The debt issuance costs were capia talized as a reduction to the
carrying value of debt and were accreted to interest expense over the term of the 2026 Notes using the effective interest
method.
in cash semiannually in arrears on March 15 and September 15 of each year
Subsequent to the closing of the 2030 Notes offering, the 2026 Notes were redeemed, and the notes were
considered extinguished as of July 26, 2021. Under the terms of the indenture governing the 2026 Notes, we paid the
applicable premium of $10.8 million. Additionally, the unamortized debt issuance costs of $2.8 million relating to the
2026 Notes were written off in conjunction with the extinguishment of the 2026 Notes. The resulting loss on
extinguishment of debt was $13.6 million and was recorded as part of income from continuing operations before income
tax expense in the consolidated statements of income and comprehensive income in the third quarter of 2021.
Additionally, the cash payment of interest accrued to, but not including, the redemption date was accelerated to the
redemption date.
ABLBB Facility
t
On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving
on January 31, 2024, which replaced the previous facility. Borrowings
credit facility (the "ABL Facility") maturing
under the ABL Facility bear interest at a rate equal to, at our option, (i) the United States, Canadian and United Kingdom
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 payablea
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, restricts our 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 affili
permits 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) permits us to incur debt as long as the pro forma
secured leverage ratio is less than 4.5 to 1.0, and (iii) adds certain additional exceptions and exemptions under the
restricted payment, investment and indebtedness covenants (including increasing the amount of certain debt permitted to
ates, (iv) sell assets, (v) merge and (vi) create liens. The ABL Facility, among other things, (i)
ff
41
MASONITE INTERNATIONAL CORPORATION
be incurred under existing exceptions). As of January 2, 2022, we were in compliance with all covenants under the credit
agreement governing the ABL Facility and there were no amounts outstanding under the ABL Facility.
Supplemental Guarantor Financial Information
Our obligations under the 2030 Notes, 2028 Notes, 2026 Notes and the ABL Facility are fulff
ly 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 $2.3 billion, $2.0 billion and $1.9 billion in the
years ended January 2, 2022, January 3, 2021, and December 29, 2019, respectively. Our non-guarantor subsidiaries
generated Adjusted EBITDA of $352.1 million, $305.5 million and $241.6 million for the years ended January 2, 2022,
January 3, 2021, and December 29, 2019, respectively. Our non-guarantor subsidiaries had total assets of $2.3 billion and
$2.2 billion as of January 2, 2022, and January 3, 2021; and total liabila
January 2, 2022, and January 3, 2021, respectively.
ities of $980.6 million and $935.3 million as of
Contractual Obligations
The following tablea
presents our contractual
t
obligations over the periods indicated as of January 2, 2022:
2022
2023
2024
2025
2026
Thereafter
Total
Fiscal Year Ended
$
— $
— $
— $
— $
— $ 875,000
$ 875,000
(In((
thousands)
Long-term debt
maturities
Scheduled interest
payments
Operating leases
40,000
32,546
40,000
28,344
1,365
Finance leases
Pension contributions (1)
Total (2)
____________
(1) Pension contributions relate to our United Kingdom pension plan.
71,893
76,112
2,201
1,287
2,262
$
$
$
40,000
25,829
1,445
2,324
40,000
22,622
1,488
2,387
40,000
16,105
1,663
601
86,251
125,751
49,831
—
286,251
251,197
57,079
9
,775
69,598
$
66,497
$
58,369
$1,136,833
$1,479,302
(2) As of January 2, 2022, we have $11.3 million recorded as a long-term liability for uncertain tax positions. We are not able to reasonably estimate
the timing of payments, or the amount by which our liability for these uncertain tax positions will increase or decrease over time, and accordingly, this
liability has been excluded from the above table.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements.
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 Acquisiti
ii
on 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 liabila
recorded as goodwill.
ities is
Goodwill
Goodwill is not amortized but instead is tested annually forff
more frequently if events or changes in circumstances indicate the carrying amount may not be recoverablea
impairment on the last day of fisca
ff
l November, or
. The test for
42
MASONITE INTERNATIONAL CORPORATION
impairment is performed at the reporting unit level by comparing the reporting unit’s carrying amount to its fair value.
Possible impairment in goodwill is first analyzed using qualitative factors such as macroeconomic and market
conditions, changing costs and actual and projected performance, amongst others, to determine whether it is more likely
than not that the book value of the reporting unit exceeds its fair value. If it is determined more likely than not that the
book value exceeds fair value, a quantitative analysis is performed to test for impairment. When quantitative steps are
determined necessary, the fair values of the reporting units are estimated through the use of discounted cash flow
analyses and market multiples. If the carrying amount exceeds fair value, then goodwill is impaim red. Any impaim rment in
goodwill is measured as the excess of the carrying value of goodwill over the fair value. The inputs utilized to derive
projected cash flows are subjeu
significantly from those estimated. We performed our annual quantitative impairment test during the fourth quarter of
2021. We utilize a combination of methods that are subject to significant judgments and uncertainties including market
valuation and discounted cash flows to measure the fair value of our reporting units and to determine if there is any
impairment of goodwill. The quantitative impairment test was conducted using multiple valuation techniques, including
a discounted cash flow analysis and market approach, which utilizes Level 3 fair value inputs, and resulted in a goodwill
impairment charge of $59.5 million due to manufacturing
reporting unit in the current
year due to COVID-19 related absenteeism, material availability and production challenges. The charge represents the
amount by which the carrying value of the Architectural reporting unit exceeded its fair value and reduced the goodwill
balance in the Architectural reporting unit from $59.5 million to zero.
ct to significant judgments and uncertainties. As such, the realized cash flows could differ
constraints in the Architectural
t
t
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. Amortizablea
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 futuret
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 availablea
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. We performed a qualitative impairment test during the fourth quarter of
2021 and determined that indefinite-lived intangible assets were not impaired.
cash flows generated by such assets is less than
. Indefinite-lived intangible assets are tested
intangible assets are tested for impairment
Long-lived Assets
Long-lived assets other than goodwill and indefinite-lived intangible assets, which are separately tested for
impairment, are evaluated for impaim rment whenever events or changes in circumstances indicate that the carrying value
may not be recoverablea
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.
. When evaluating long-lived assets for potential impairment, we first compare the carrying value
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
m
differences between the carrying amounts and the
liabilities are recognized for the future tax consequences of temporary
tax basis of assets and liabilities at enacted rates. We base our estimate of deferre
d 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 adjustmd
ent to the deferred tax assets would be a credit to income in the
ff
43
MASONITE INTERNATIONAL CORPORATION
period such determination was made. The consolidated financial statements include changes to 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 affecff
t 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
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.
interpretation, judgment and uncertainty. Tax laws and
t
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 accrual
s. If we ultimately determine that the payment of these liabilities will be unnecessary, the liability
is reversed and a tax benefit is recognized in the period in which such determination is made. Conversely, additional tax
charges are recorded in a period in which it is determined that a recorded tax liability is less than the ultimate assessment
is expected to be. If additional taxes are assessed as a result of an audit or litigation, there could be a material effect on
our income tax provision and net income in the period or periods for which that determination is made.
r
Inventory
We value inventories at the lower of cost or net realizable value, with expense estimates made for obsolescence
value, we consider such factors as yield, turnover and aging,
demand and market conditions, as well as past experience. A change in the underlying assumptions
or unsaleable inventory. In determining net realizablea
expected futuret
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.
Changes in Accountingtt
Standards
tt
and Policies
ll
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 affecff
t our operating results and overall financial condition. We manage exposure to these risks through
our operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments.
Derivative financial instruments are viewed as risk management tools and are not used for speculation or for trading
purposes. Derivative financial instruments are generally contracted with a diversified group of investment grade
counterparties to reduce exposure to nonperformance on such instruments.
We 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 Riskii
We have foreign currency exposures related to buying, selling and financing in currencies other than the local
currencies in which we operate. In the years ended January 2, 2022, January 3, 2021, and December 29, 2019,
ately 32%, 29% and 32% of our net sales were generated outside of the United States, respectively. In addition,
a
approxim
a significant percentage of our costs during the same period were not denominated in U.S. dollars. For example, for most
of our manufacturing and distribution facilities, the prices for a significant portion of our raw materials are quoted in the
domestic currency of the country where the facility is located or other currencies that are not U.S. dollars. We also have
substantial assets outside the United States. As a result, the volatility in the price of the U.S. dollar has exposed, and in
the future may continue to expose, us to currency exchange risks. Also, since our financial statements are denominated in
U.S. dollars, changes in currency
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
exchange rates between the U.S. dollar and other currenc
ies have had, and will
r
r
44
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 loss. Net losses from currency translation adjustments as a
result of translating our foreign assets and liabilities into U.S. dollars and upon deconsolidation of subsidiaries during the
year ended January 2, 2022, were $3.2 million, which were primarily driven by weakening of the Euro, the Pound
Sterling, the Malaysian Ringgit and the Mexican Peso, partially offset by strengthening of the Canadian Dollar in
comparison to the U.S. Dollar during the period, along with the sale of our Czech business.
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 derivative financial instruments as of January 2, 2022, or January 3, 2021. 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 $75.8 million
translational decrease in our net sales and an approximate $6.9 million translational decrease in our net income.
Interest Rate Riskii
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
January 2, 2022, and January 3, 2021, there were no outstanding borrowings under our ABL Facility.
Impact of Inflati
l
on, Deflati
l
on 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 impacm t. Inflation and deflation related to our purchases
of certain commodity products could have an adverse impacm t on our operating results in the future.
inflationary increase in our material cost of goods sold would result in approximately $101.2 million of increased
consolidated cost of goods sold. Additionally, anti-dumping and countervailing duty trade cases, such as the January 8,
2020, Coalition of American Millwork Producers anti-dumping and countervailing duty petitions against Wood
Mouldings and Millwork Products from Brazil and China, is expected to impact our business and results of operations.
A hypothetical 10%
t
45
Item 8. Financial Statements and Supplementary Data
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm (PCAOB ID 42)
Consolidated Statements of Income and Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
47
49
50
51
52
53
46
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 (the Company) as of
January 2, 2022 and January 3, 2021, the related consolidated statements of income and comprehensive income, changes in
equity, and cash flows for each of the three fiscal years in the period ended January 2, 2022, 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 January 2, 2022 and January 3, 2021, and the results of its operations
and its cash flows for each of the three fiscal years in the period ended January 2, 2022, 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 January 2, 2022, based on criteria establia
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework) and our report dated February 24, 2022 expressed an unqualified opinion thereon.
shed in Internal
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are
material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosures to which it relates.
47
Valuationtt
of Goodwillii
relatedtt
to the Architeii ctural Reporti
ee
ngii Unitii
Description of
the Matter
As discussed in Notes 1, 7, and 14 of the consolidated financial statements, the Company’s goodwill is
assigned to its reporting units as of the acquisition date and is tested for impairment at the reporting unit level
at least annually or whenever changes in circumstances may indicate the carrying amounts may not be
recoverablea
concluded that the Architectural
of $59.5 million.
. During the fourth quarter of fiscal 2021, the Company performed its annual impairment test,
reporting unit was fully impaired, and recorded a goodwill impairment charge
t
Auditing management’s annual goodwill impairment test for the Architectural reporting unit was complex and
judgmental due to the significant estimation required to determine the fair value of the reporting unit. In
particular, the fair value estimate was sensitive to significant assumptions such as net sales growth rates,
EBITDA margins, and the discount rate, which are affected by expectations about futuret market or economic
conditions, including industry and company-specific factors.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated the design and tested the operating effecff
Company’s goodwill impairment review process, including management’s review of the significant
assumptim ons described above and data underlying the estimate.
tiveness of controls over the
To test the estimated fair value of the Company’s Architectural reporting unit, we performed audit procedures
that included, among others, assessing the valuation methodologies and testing the significant assumptions
discussed above and the underlying data used by the Company in its analysis. We involved our valuation
specialists to assist in our evaluation of the Company’s valuation methodology and significant assumptim ons.
We compared the significant assumptions used by management to current industry and economic trends, the
Company’s historical results and other guideline companies within the same industry and evaluated whether
changes in the Company’s business would affect the significant assumptions. We assessed the historical
accuracy of management’s estimates and performed sensitivity analyses of the significant assumptions to
evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptim ons.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2016.
Tampa, Florida
February 24, 2022
48
MASONITE INTERNATIONAL CORPORATION
Consolidated Statements of Income and 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 on disposal of subsidiaries
Operating income
Interest expense, net
Loss on extinguishment of debt
Other (income) expense, net
Income before income tax expense
Income tax expense
Net income
Less: net income attributablea
to non-controlling interests
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 (loss) gain
Pension and other post-retirement adjustment
Pension settlement charges
Amortization of actuarial net losses
Income tax (expense) benefit related to other comprehensive income (loss)
Other comprehensive income (loss), net of tax:
Comprehensive income
Less: comprehensive income attributablea
to non-controlling interests
January 2,
2022
Year Ended
January 3,
2021
December 29,
2019
$
2,596,920
$
2,257,075
$
2,176,683
1,985,141
1,684,571
1,699,000
611,779
308,430
5,567
69,900
8,590
219,292
46,123
13,583
15,620
143,966
44,772
99,194
4,693
94,501
3.91
3.85
$
$
$
572,504
366,772
8,236
51,515
2,091
143,890
46,807
—
(5,217)
102,300
28,611
73,689
4,652
69,037
2.81
2.77
$
$
$
477,683
310,567
9,776
13,767
14,260
129,313
46,489
14,523
1,953
66,348
17,309
49,039
4,437
44,602
1.77
1.75
99,194
$
73,689
$
49,039
$
$
$
$
(3,175)
2,250
15,654
1,336
(5,518)
10,547
109,741
4,759
19,820
(3,163)
—
1,002
632
18,291
91,980
4,837
16,912
962
5,651
1,798
(2,230)
23,093
72,132
4,780
67,352
Comprehensive income attributablea
to Masonite
$
104,982
$
87,143
$
See accompanying notes to the consolidated financial statements.
49
MASONITE INTERNATIONAL CORPORATION
Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts)
TS
Current assets:
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories, net
Prepaid expenses and other assets
Income taxes receivable
Total current assets
Property, plant and equipment, net
Operating lease right-of-use assets
Investment in equity investees
Goodwill
Intangible assets, net
ff
Deferre
d income taxes
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable
Accrued expenses
Income taxes payablea
Total current liabilities
Long-term debt
Long-term operating lease liabilities
Deferred income taxes
Other liabia lities
Total liabilities
Commitments and Contingencies (Note 10)
Equity:
Share capita
issued and outstanding as of January 2, 2022, and January 3, 2021, respectively
al: unlimited shares authorized, no par value, 23,623,887 and 24,422,934 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total equity attributable to Masonite
Equity attributable to non-controlling interests
Total equity
Total liabilities and equity
January 2,
2022
January 3,
2021
$
381,395
$
10,110
343,414
347,476
50,399
1,332
1,134,126
626,797
176,445
14,994
77,102
150,487
20,764
45,903
364,674
10,560
290,508
260,962
42,538
1,124
970,366
625,126
146,806
14,636
138,692
169,392
25,331
47,411
$
2,246,618
$
2,137,760
$
138,788
$
237,300
8,551
384,639
865,721
165,670
77,936
52,874
97,211
277,716
11,086
386,013
792,242
136,235
73,073
55,080
1,546,840
1,442,643
543,400
222,177
24,244
552,969
223,666
20,385
(101,582)
(112,063)
688,239
11,539
699,778
684,957
10,160
695,117
$
2,246,618
$
2,137,760
See accompanying notes to the consolidated financial statements.
50
MASONITE INTERNATIONAL CORPORATION
Consolidated Statements of Changes in Equity
(In thousands of U.S. dollars, except share amounts)
Total equity, beginning of period
Share capital:
Beginning of period
Common shares issued for delivery of share based awards
Common shares issued under employee stock purchase plan
Common shares repurchased and retired
End of period
Additional paid-in capital:
Beginning of period
Share based compensation expense
Common shares issued for delivery of share based awards
Common shares withheld to cover income taxes payable dued
awards
Common shares issued under employee stock purchase plan
to delivery of share based
End of period
Retained earnings (accumulated deficit):
Beginning of period
Net income attributable to Masonite
Common shares repurchased and retired
End of period
Accumulated other comprehensive loss:
Beginning of period
Other comprehensive income attributable to Masonite, net of tax
End of period
Equity attributable to non-controlling interests:
Beginning of period
Net income attributable to non-controlling interests
Other comprehensive income (loss) attributable to non-controlling interests, net tax
Dividends to non-controlling interests
End of period
Total equity, end of period
Common shares outstanding:
Beginning of period
Common shares issued for delivery of share based awards
Common shares issued under employee stock purchase plan
Common shares repurchased and retired
End of period
2,
2022
January 3,
2021
December 29,
2019
$
695,117
$
636,862
$
622,305
552,969
12,125
1,593
(23,287)
543,400
223,666
15,959
(12,125)
(5,001)
(322)
222,177
20,385
94,501
(90,642)
24,244
558,514
8,269
1,305
(15,119)
552,969
216,584
19,423
(8,269)
(3,623)
(449)
223,666
(20,047)
69,037
(28,605)
20,385
(112,063)
10,481
(101,582)
(130,169)
18,106
(112,063)
10,160
4,693
66
(3,380)
11,539
699,778
$
11,980
4,652
185
(6,657)
10,160
695,117
$
$
575,207
8,396
1,045
(26,134)
558,514
218,988
10,023
(8,396)
(3,852)
(179)
216,584
(30,836)
44,602
(33,813)
(20,047)
(152,919)
22,750
(130,169)
11,865
4,437
343
(4,665)
11,980
636,862
24,422,934
199,865
15,091
(1,014,003)
23,623,887
24,869,921
209,407
16,505
(672,899)
24,422,934
25,835,664
186,242
18,940
(1,170,925)
24,869,921
See accompanying notes to the consolidated financial statements.
51
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:
January 2,
2022
Year Ended
January 3,
2021
December 29,
2019
$
99,194
$
73,689
$
49,039
Loss on disposal of subsidiaries
Loss on extinguishment of debt
Depreciation
Amortization
Share based compensation expense
Deferred income taxes
Unrealized foreign exchange (gain) 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 and other assets
Accounts payable and accruedrr
Other assets and liabilities
expenses
Net cash flow provided by operating activities
Cash flows from investing activities:
Additions to property, plant and equipment
Acquisition of businesses, net of cash acquired
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
Repurchases of common shares
Net cash flow used in financing activities
8,590
13,583
70,641
21,341
15,959
4,881
(1,244)
(4,858)
4,500
15,448
1,678
1,316
69,900
(56,831)
(92,641)
(8,021)
1,473
(8,452)
156,457
(86,670)
(160)
7,001
6,027
(2,340)
(76,142)
375,000
(300,945)
(10,810)
(4,672)
(5,001)
(3,380)
(113,929)
(63,737)
2,091
—
68,350
23,423
19,423
(10,085)
(324)
(2,811)
4,275
(4,654)
1,601
6,234
51,515
(13,006)
(15,568)
(9,179)
107,129
19,077
321,180
(72,908)
(5,814)
—
7,362
(2,530)
(73,890)
—
(57)
—
—
(3,623)
(6,657)
(43,724)
(54,061)
Net foreign currency translation adjustment on cash
Increase 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
(307)
16,271
375,234
391,505
$
4,397
197,626
177,608
375,234
$
$
See accompanying notes to the consolidated financial statements.
52
14,260
14,523
70,736
29,113
10,023
3,292
320
(2,626)
—
(827)
57
6,396
13,767
6,723
5,735
(332)
4,742
(3,285)
221,656
(82,720)
(2,029)
1,001
3,640
(2,018)
(82,126)
500,000
(500,177)
(14,065)
(6,701)
(3,852)
(4,665)
(59,947)
(89,407)
1,344
51,467
126,141
177,608
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
t
of doors in the world, with significant
market share in both interior and exterior door products. Masonite operates 58 manufacturing
locations in seven
countries and sells doors to customers throughout the world, including the United States, Canada and the United
Kingdom.
t
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
January 2, 2022, and January 3, 2021, and for the years ended January 2, 2022, January 3, 2021, and December 29, 2019.
Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. In a 52-week year,
each fiscal quarter consists of 13 weeks. For ease of disclosure, the 13-week periods are referred to as three-month
periods and the 52- or 53-week periods are referred to as years. Our 2020 fiscal year, which ended on January 3, 2021,
contained 53 weeks of operating results, with the additional week occurring in the fourth quarter.
Changes in Accountingtt
Standards
tt
and Policies
ll
Adoption of Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes," as part of
its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes
certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in
an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects
of the guidance to help simplim fy and promote consistent application of GAAP. We have adopted the new guidance
prospectively as of January 4, 2021, the beginning of fiscal year 2021, and the adoption did not have a material impact
on our financial statements.
In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework—Changes to the Disclosure
Requirements for Defined Benefit Plans," which amended ASC 715, "Compensation—Retirement Benefits." This
standard is applicable for employers that sponsor defined benefit pension or other postretirement plans, and eliminates
disclosures no longer considered cost beneficial, clarifies specific disclosure requirements for entities that provide
aggregate disclosures for two or more plans and adds requirements for explanations for significant gains and losses
related to changes in benefit obligations. The guidance is effective for annual periods ending afteff
early adoption is permitted and retrospective application is required. We adopted the new guidance using a retrospective
approach as of January 3, 2021, the end of fiscal year 2020, and the adoption did not have a material impact on our
financial statements or disclosures.
r December 15, 2020;
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments—Credit Losses (Topic 326)," which
replaces the incurred loss methodology for recognizing credit losses with a current expected credit losses model. This
standard applies to all financial assets, including trade receivablea
detail in Note 1 and uses historical, current and forecasted information to estimate all expected credit losses in our
existing account receivablea
including interim periods within those fiscal years; early adoption is permitted and modified retrospective application is
required. We adopted the new guidance using a modified retrospective approach as of December 31, 2019, the beginning
of fiscal year 2020, and the adoption did not have a material impact on our financial statements and no adjustment was
necessary to retained earnings on December 31, 2019.
balances. The guidance is effective for annual periods beginning after December 15, 2019,
s. Our current accounts receivablea
policy is described in
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
tt
Other
d
Recent Accounting Pronouncements not yet Adopte
dd
In December 2021, the FASB issued ASU 2021-10, "Government Assistance," which requires annual
disclosures that increase the transparency of transactions involving government grants, including (1) the types of
transactions, (2) the accounting for those transactions and (3) the effect of those transactions on an entity's financial
statements. The guidance is effective for annual periods beginning after December 15, 2021, with early adoption
permitted. We are in the process of evaluating this guidance to determine the impact it may have on our financial
statements.
Summary of Signif
icff ant Accounting Policies
i
(a) Principles of consolidation:
These consolidated financial statements include the accounts of Masonite and our subsidiaries and the accounts
of any variablea
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 effecff
tive control of the entity.
(b) Translati
l
on of consolidated financial statements into U.S. dollars:rr
These consolidated financial statements are expressed in U.S. dollars. The accounts of the majori
ty 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 adjustmd
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) expense, net in the consolidated statements of income and 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.
ents account in accumulated other comprehensive loss. For our foreign subsidiaries where the U.S.
a
(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 standby letters of credit. The letters of credit
guarantee payment to third parties in the event the company is in breach of contract terms as detailed in each letter of
credit. As of January 2, 2022, and January 3, 2021, we had standby letters of credit totaling $2.6 million and $2.5
million, respectively. There were no amounts drawn upon these letters of credit as of January 2, 2022, or January 3,
2021.
(e) Accountstt receivable:
Our customers are primarily retailers, distributors and contractors. We record an allowance for credit losses at
the time that accounts receivable are initially recorded based on the historical write-off experience and the current
economic environment as well as our expectations of future economic conditions. We reassess the allowance at each
reporting date. When it becomes apparent, based on age or customer circumstances, that such amounts will not be
collected, they are charged to the allowance. Payments subsequently received are credited to the credit loss expense
account included within selling, general and administration expenses in the consolidated statements of income and
comprehensive income. Generally, we do not require collateral for our accounts receivable.
54
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(f) Inventories:
Raw materials and fini
ff
shed goods are valued at the lower of cost or net realizable value. Cost is determined on a
ff
first in, first
future demand and past experience.
out basis. In determining the net realizablea
value, we consider facff
tors such as yield, turnover, expected
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.
production overheads that are incurred in converting raw materials into fini
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.
They also include a systematic allocation of fixed and variable
shed goods. Fixed production overheads are
a
a
ff
To determine the cost of inventory, we allocate fixed expenses to the cost of production based on the normal
ity, which refers to a range of production levels and is considered the production expected to be achieved over a
a
capac
number of periods or seasons under normal circumstances, taking into account the loss of capaa
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 complem tely shut
m
down temporari
ly, it is considered idle, and all related expenses are charged to cost of goods sold.
city resulting from
(g) Property, pyy
lant and equipment:
i
Property, plant and equipment are stated at cost. Depreciation is recorded based on the carrying values of
ff
h as foll
buildings, machinery and equipment using the straight-line method over the estimated useful lives set fort
ff
ows:
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 capia talized; other repairs and
maintenance are expensed as incurred. When assets are retired or otherwise disposed, their carrying values and
accumulated depreciation are removed fromff
the accounts.
Property, plant and equipment are tested forff
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 recoverabila
expected from its use and disposal. Impairments are measured as the amount by which the carrying amount of the asset
approach when quoted market prices
or asset group exceeds its faiff
.
are not availablea
r value, as determined using a discounted cash flows
ity exceeds the sum of the undiscounted cash flows
ff
ff
(h) Leases:
We determine if a contract is a lease at inception or upon acquisition and reevaluate each time a lease contract is
amended or otherwise modified. A lease will be classified as an operating lease if it does not meet any of the criteria forff
a finff ance lease. Those criteria include the transfer of ownership of the underlying asset by the end of the lease term; an
option to purchase the underlying asset that we would be reasonably certain to exercise; the lease term is for the maja or
part of the remaining economic life of the underlying asset; the present value of the sum of the lease payments and any
55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
residual value guaranteed by us that is not already reflected in the lease payments equals or exceeds substantially all of
the fair value of the underlying asset or if the underlying asset is of such a specialized naturet
that it is expected to have
no alternative use to the lessor at the end of the lease term.
The assets and liabilities relating to operating leases are included in operating lease right-of-use assets, accrued
expenses, and long-term operating lease liabilities in our consolidated balance sheets. The assets and liabilities relating to
finance leases are included in property, plant and equipment, net and other liabilities in our consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our
obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the
respective lease commencement date based on the present value of lease payments over the expected lease term. Since
our leases do not specify implicit discount rates, we use our incremental borrowing rate based on the information
available at the commencement date in determining the present value of lease payments. The operating lease ROU asset
also includes any initial direct costs and is adjusted for lease incentives and prepaid or accruedr
begins on the date when the lessor makes the underlying asset availablea
include options to extend the lease when it is reasonably certain that we will exercise those options. Lease payments are
recognized in the consolidated statements of income and comprehensive income on a straight-line basis over the
expected lease term.
rent. The lease term
for use to us, and our expected lease terms
Leases with an initial term of 12 months or less are not recorded on the balance sheet, with the related lease
expense recognized on a straight-line basis over the lease term. Lease and non-lease component
combined into a single lease component
for accounting purposes.
m
m
s of a contract are
Our operating leases include leases for real estate (including manufacturing sites, warehouses and offices) and
machinery and equipment and our finance leases include leases for real estate. We have no material subleases. Certain of
our operating leases contain provisions for renewal ranging from one to four options of one to ten years each.
(i) 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
. The test for
more frequently if events or changes in circumstances indicate the carrying amount may not be recoverablea
impairment is performed at the reporting unit level by comparing the reporting unit’s carrying amount to its fair value.
Possible impairment in goodwill is first analyzed using qualitative factors such as macroeconomic and market
conditions, changing costs and actual and projected performance, amongst others, to determine whether it is more likely
than not that the book value of the reporting unit exceeds its fair value. If it is determined more likely than not that the
book value exceeds fair value, a quantitative analysis is performed to test for impairment. When quantitative steps are
determined necessary, the fair values of the reporting units are estimated through the use of discounted cash flow
analysis and market multiples. If the carrying amount exceeds fair value, then goodwill is impaim red. Any impairment in
goodwill is measured as the excess of the carrying value of goodwill over the fair value. In 2021 and 2020, we recorded
$59.5 million and $51.5 million, respectively, in impairment charges related to the Architectural reporting unit. See Note
14 for further information. There were no impairm ment charges recorded against goodwill in 2019.
When developing our discounted cash flow analyses, a number of assumptim ons and estimates are involved to
net sales growth, EBITDA margin growth, benefits from restructuring
forecast operating cash flows, including futuret
initiatives, income tax rates, capita
vary significantly among the reporting units. Operating cash flow forecasts are based on operating plans for the early
years and historical relationships and long-term economic outlooks for our industry in later years. The discount rate is
estimated for each specific reporting unit. Due to the many variablea
value and the relative size of our recorded goodwill, differences in assumptions may have a material effecff
of our impairment analyses.
s inherent in the estimation of a reporting unit’s fair
t on the results
al spending, business initiatives and working capia tal changes. These assumptions may
56
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(j) Intangible assets:tt
Intangible assets with definite lives include customer relationships, patents, system software development 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
Patents
System software development
Estimated Useful Life
Over expected relationship period
Over expected useful life
Over expected useful life
Acquired trademarks and tradenames
Straight-line over expected useful life
Amortizablea
intangible assets are tested forff
impairment whenever events or changes in circumstances indicate
that the carrying value may be greater than faiff
undiscounted future
impairment loss is based on the fair value of the asset. Fair value is measured using discounted cash flows.
r value. An impairment loss is recognized when the estimate of
cash flows generated by such assets is less than the carrying amount. Measurement of the
ff
ff
Indefinite lived intangible assets are not amortized, but instead are tested forff
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.
(k) 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 forff
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
temporary differences are expected to be recovered or settled. The effect on deferre
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 deferre
d tax assets to an amount that is anticipated to be realized on a more likely than not basis.
to taxable income in the years in which those
the deferred tax consequences attributablea
d tax assets and liabilities dued
to differences between the
a
ff
ff
We account for uncertain taxes in accordance with ASC 740, "Income Taxes." The initial benefit recognition
lows a two-step approach. First, we evaluate if the tax position is more likely than not of being sustained if
model folff
audited based solely on the technical merits of the position. Second, we measure the appropria
te 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 uponu
settlement. Subsequently at each reporting date, the largest amount that has a greater than 50%
likelihood of ultimately being realized, based on information availablea
at that date, will be measured and recognized.
a
We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in
the consolidated statements of income and comprehensive income. Accrued interest and penalties are included within the
related tax liabila
ity line in the consolidated balance sheets.
m
(l) Employe
e future
ff
benefitff s:tt
We maintain defined benefit pension plans. Benefits under the plans were frozen or curtailed at various times in
the past. 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) expense, net in the consolidated statements of income and 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.
57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets are valued at fair value for the purpose of calculating the expected returnt
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
t
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.
(m) Restructuring costs:
Restrucr
turing 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 capaa
liabilities and expenses pursuant to the terms of the relevant agreement. For non-contractual restructuring
liabilities and expenses are measured and recorded at fair value in the period in which they are incurred.
city is realigned within the organization. Upon termination of a contract we record
activities,
t
Restrucr
turing-related costs are presented separately in the consolidated statements of income and
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.
(n) 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 naturet
and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
(o) Share based compensation expense:
x
We have a share based compensation plan, which is described in detail in Note 12. We apply the fair value
method of accounting using comprehens
to determine the compensation expense.
m
ive valuation models, including the Black-Scholes-Merton option pricing model,
(p) 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 afteff
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 income and comprehensive income.
r a customer has taken possession of our goods are treated as a fulfillment cost and are not
r
58
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(q) 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)s
Balance at beginning of period
Additions charged to expense
Deductions
Balance at end of period
(r) Vendor rebates:
Year Ended
January 2, 2022
January 3, 2021
December 29, 2019
$
$
4,635
$
4,646
(5,266)
4,015
$
4,414
$
6,807
(6,586)
4,635
$
4,270
7,142
(6,998)
4,414
We account for cash consideration received fromff
a vendor as a reduction of cost of goods sold and inventory, in
the consolidated statements of income and 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.
(s) 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 income and
comprehensive income. Advertising costs were $14.2 million, $10.8 million and $14.2 million in the years
ended January 2, 2022, January 3, 2021, and December 29, 2019, respectively.
(t) 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
included within cost of goods sold in the consolidated statements of income and comprehensive income. These costs
exclude the significant investments in other areas such as advanced automation. Research and development costs
were $18.4 million, $17.0 million and $7.2 million in the years ended January 2, 2022, January 3, 2021, and
December 29, 2019, respectively.
processes, and are primarily
t
(u) 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 income and 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) on 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 forff
expense in the consolidated statements of income and comprehensive income and are classified as cash flows
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 naturet
business interruption recoveries are recorded as a reduction to selling, general and administration
has been presented to us.
from
ff
ff
(v) Equity i
tt nvestments:
We account for investments in affilff
iates 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 income and comprehensive income and dividends as a reductd
the affiliate in the consolidated balance sheets when declared.
ion of the investment in
59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(w)w Segment reporti
e
ng:
t
Our reportablea
segments are organized and managed principally by end market: North American Residential,
. The Corporate & Other category includes unallocated corporate costs and the results of
Europe and Architectural
immaterial operating segments that were not aggregated into any reportable segment. In addition to similar economic
characteristics we also consider the following factors in determining the reportable segments: the naturet
activities, the management structuret
administrative activities, availabila
Directors and investors.
directly accountable to our chief operating decision maker for operating and
ity of discrete financial information and information presented to the Board of
of business
(x) Use of estimates:
The preparation of consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions which affecff
t 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 2021, there were no material changes in the methods or policies used to establish
estimates and assumptions. Actual results may differ from our estimates.
2. Acquisitions and Divestitures
Acquisitions
On December 4, 2020, we complem ted the acquisition of a Lowe's Companies, Inc. door fabrication facility in the
United States for cash consideration of $3.9 million. During the first quarter of 2021, as a result of the working capita
adjustments we paid an additional $0.2 million. The purchase price allocation, net sales, net income (loss) attributable to
Masonite and pro forma information for the acquisition are not presented as they were not material for any period
presented.
al
On August 31, 2020, we acquired intellectual
t
property and other assets related to an interior door technology for
cash consideration of $1.9 million. The purchase price allocation, net sales, net income (loss) attributable to Masonite
and pro forma information for the acquisition are not presented as they were not material for any period presented.
On August 29, 2019, we complem ted the acquisition of TOPDOORS, s.r.o. ("Top Doors") based in the Czech
Republic for cash consideration of $1.6 million, net of cash acquired. The purchase price allocation, net sales, net income
(loss) attributable to Masonite and pro forma information for Top Doors are not presented as they were not material for
any period presented.
Divestitures
On June 14, 2021, we complem ted the sale of all the capia tal stock of our Czech business ("Czech") for
consideration of $7.0 million, net of cash disposed. The divestituret
subsidiaries of $8.6 million, which was recognized in the second quarter of 2021 in the Europe segment. The total charge
consisted of $5.1 million relating to the write-off of the net assets sold and other professional fees and $3.5 million
relating to the recognition of the cumulative translation adjustmd
ent out of accumulated other comprehensive loss.
of this business resulted in a loss on disposal of
During the second quarter of 2020, we complem ted the liquidation of our legal entity in India. As a result, we
recognized $2.1 million in loss on disposal of subsidiaries. The total charge consists of $2.3 million relating to the
recognition of cumulative translation adjustmd
to the write-off of net assets and other professional fees.
ent out of accumulated other comprehe
nsive loss and $0.2 million relating
m
On December 13, 2019, we completed the sale of all of the capia tal stock of Window Widgets Limited ("WW")
for consideration of $1.2 million, net of cash disposed. We have had and will continue to have no continuing
involvement with WW subsequent to the sale. The disposition of this business resulted in a loss on disposal of
subsidiaries of $9.7 million, which was recognized in 2019 in the Europe segment. The total charge consists of $8.3
million relating to the write-off of the assets sold and other professional fees and $1.4 million relating to the recognition
of the cumulative translation adjustment out of accumulated other comprehensive loss.
60
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
On March 21, 2019, we completed the sale of all the capita
al stock of Performance Doorset Solutions Limited
("PDS") for nominal consideration. We have had and will continue to have no continuing involvement with PDS
subsequent to the sale, and the purchasers are not considered to be a related party. The disposition of this business
resulted in a loss on disposal of subsidiaries of $4.6 million, which was recognized in 2019 in the Europe segment. The
total charge consists of $3.6 million relating to the write-off of the assets sold and other professional fees and $1.0
million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.
3. Accounts Receivable
Our customers consist mainly of retailers, distributors and contractors. Our ten largest customers accounted for
56.7% and 53.1% of total accounts receivable as of January 2, 2022, and January 3, 2021, respectively. Our largest
customer, The Home Depot, Inc. accounted for more than 10% of the consolidated gross accounts receivable balance as
of January 2, 2022, and January 3, 2021. No other individual customer accounted for greater than 10% of the
consolidated gross accounts receivable balance at either January 2, 2022, or January 3, 2021.
The changes in the allowance for doubtful accounts were as follow
ff
s forff
the periods indicated:
Year Ended
(In thousands)s
Balance at beginning of period
Additions charged to expense
Deductions
Balance at end of period
January 2, 2022
January 3, 2021
December 29, 2019
$
$
2,809
$
242
(964)
2,087
$
1,752
$
1,443
(386)
2,809
$
2,109
78
(435)
1,752
We maintain an accounts receivablea
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 receivablea
operating activities in the consolidated
receivable in the consolidated balance sheets and are included in cash flows fromff
statements of cash flows.
sold under the AR Sales Program were
The discounts on the sales of trade accounts receivablea
not material for any of the periods presented and were recorded in selling, general and administration expense within the
consolidated statements of income and comprehensive income.
less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts
ff
In most countries we pay and collect Value Added Tax ("VAT") when procuring goods and services within the
shed in jurisdictions where VAT paid exceeds VAT collected and
normal course of business. VAT receivables are establia
are recoverablea
through the filff ing of refund claims.
4. Inventories
The amounts of inventory on hand were as follows as of the dates indicated:
(In thousands)s
Raw materials
Finished goods
Provision for obsolete or aged inventory
Inventories, net
January 2, 2022
January 3, 2021
$
$
275,269
$
78,324
(6,117)
347,476
$
191,784
75,483
(6,305)
260,962
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
We carry an inventory provision which is the result of obsolete or aged inventory. The rollforward of our
inventory provision is as follows forff
the periods indicated:
(In thousands)s
Balance at beginning of period
Additions charged to expense
Deductions
Balance at end of period
5. Property, Plant and Equipment
Year Ended
January 2, 2022
January 3, 2021
December 29, 2019
$
$
6,305
$
3,402
(3,590)
6,117
$
7,136
$
5,150
(5,981)
6,305
$
7,764
4,159
(4,787)
7,136
The carrying amounts of our property, plant and equipment and accumulated depreciation were as follows as of
the dates indicated:
(In thousands)s
Land
Buildings
Machinery and equipment
Property, plant and equipment, gross
Accumulated depreciation
Property, plant and equipment, net
January 2, 2022
January 3, 2021
$
$
22,851
$
216,510
783,913
1,023,274
(396,477)
626,797
$
25,572
215,600
757,289
998,461
(373,335)
625,126
Total depreciation expense was $70.6 million, $68.4 million, and $70.7 million forff
the years ended January 2,
2022, January 3, 2021, and December 29, 2019, respectively. Depreciation expense is included primarily within cost of
goods sold in the consolidated statements of income and comprehensive income.
6. Leases
The following tablea
summarizes the components of lease expense recorded in the consolidated statements of
income and comprehensive income for the periods indicated:
(In thousands)s
Operating lease expense
Finance lease expense
Amortization of leased assets
Interest on lease liabilities
Total lease expense
January 2, 2022
Year Ended
January 3, 2021
December 29, 2019
47,263
$
38,922
$
39,025
865
1,443
882
1,458
49,571
$
41,262
$
649
1,063
40,737
$
$
62
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The folff
of the period indicated:
lowing table includes a detail of lease assets and liabia lities included in the consolidated balance sheet as
(In thousands)s
Operating lease right-of-use assets
Finance lease right-of-use assets (1)
Total lease assets, net
Current portion of operating lease liabila
ities
Long-term operating lease liabilities
Long-term finance lease liabilities
Total lease liabilities
January 2, 2022
January 3, 2021
$
$
$
$
$
$
$
176,445
23,931
200,376
25,551
165,670
27,043
218,264
$
146,806
24,796
171,602
22,667
136,235
26,926
185,828
____________
(1) Net of accumulated amortization of $2.4 million and $1.5 million, as of January 2, 2022, and January 3, 2021, respectively.
The following tabla e is a summary of the weighted-average remaining lease terms and weighted-average
discount rates of the Company's leases as of the period indicated:
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate (1)
Operating leases
Finance leases
January 2, 2022
January 3, 2021
11.8
27.6
4.1 %
5.4 %
10.4
28.6
4.4 %
5.4 %
____________
(1) Based on the Company's incremental borrowing rate at lease commencement or modification.
As of January 2, 2022, the futff uret minimum lease payments under non-cancelablea
leases are as follows:
(In thousands)s
Fiscal year:
2022
2023
2024
2025
2026
Thereafter
Total minimum lease payments
Less imputed interest
Operating Leases
Finance Leases
$
$
32,546
28,344
25,829
22,622
16,105
125,751
251,197
(59,976)
1,365
1,287
1,445
1,488
1,663
49,831
57,079
(30,036)
27,043
Present value of future lease payments
$
191,221
$
As of January 2, 2022, we had no additional undiscounted commitments forff
operating leases that had not yet
commenced.
63
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill were as follows as of the dates indicated:
Europe
Architectural
Total
66,602
$
111,000
$
(In thousands)s
December 29, 2019
Goodwill from 2020 acquisitions
Goodwill impairment
Foreign exchange fluctuations
January 3, 2021
Measurement period adjust
d ment
Goodwill related to 2021 divestiture
Goodwill impairment
Foreign exchange fluctuations
North American
Residential
$
6,590
$
3,132
—
8
9,730
160
—
—
3
—
—
2,837
69,439
—
(1,395)
—
(835)
January 2, 2022
$
9,893
$
67,209
$
—
(51,515)
38
59,523
—
—
(59,526)
3
— $
184,192
3,132
(51,515)
2,883
138,692
160
(1,395)
(59,526)
(829)
77,102
Gross goodwill before cumulative impairment charges in the Architectural
reporting unit was $111.0 million as
of January 2, 2022, January 3, 2021, and December 29, 2019. In the third quarter of 2020, we determined the continued
decreased demand in the Architectural door market dued
uncertainty of the duration and intensity of the pandemic on the Architectural
indicators that goodwill impairment was present in the Architectural reporting unit. A goodwill impairment charge of
$51.5 million was recorded to selling, general and administration expenses. The charge represents the amount by which
the carrying value of the Architectural reporting unit exceeded its faiff
Architectural reporting unit from $111.0 million to $59.5 million. See Note 14 for further information.
to the impact of COVID-19 in the current year, along with the
r value and reduced the goodwill balance in the
door market for future periods were
t
t
We performed an annual qualitative impairment test of each of our reporting units during
d
2021. As a result of manufacturing constraints in the Architectural reporting unit in the current year dued
related absenteeism, material availabila
ity and production challenges, a goodwill impairment charge of $59.5 million was
recorded to selling, general and administration expenses. The charge represents the amount by which the carrying value
of the Architectural reporting unit exceeded its faiff
unit from $59.5 million to zero. See Note 14 for further information.
r value and reduced the goodwill balance in the Architectural
reporting
t
the fourth quarter of
to COVID-19
64
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The cost and accumulated amortization values of our intangible assets were as foll
ff
ows as of the dates indicated:
January 2, 2022
Accumulated
Amortization
Cost
Net Book
Value
Cost
January 3, 2021
Accumulated
Amortization
Net Book
Value
(In thousands)s
Definite life intangible
assets:
Customer relationships $ 176,779
$
(132,840) $
43,939
$ 178,078
$
(119,689) $
58,389
Patents
Software
Trademarks and
tradenames
Other
Total definite life
intangible assets
Indefinite life intangible
assets:
Trademarks and
tradenames
34,438
36,354
34,210
94
(28,148)
(33,281)
(14,063)
(94)
6,290
3,073
20,147
—
33,573
35,620
34,604
966
(26,211)
(33,041)
(10,862)
(964)
7,362
2,579
23,742
2
281,875
(208,426)
73,449
282,841
(190,767)
92,074
77,038
—
77,038
77,318
—
77,318
Total intangible assets
$ 358,913
$
(208,426) $
150,487
$ 360,159
$
(190,767) $
169,392
Amortization of intangible assets was $20.2 million, $22.2 million and $28.2 million forff
the years ended
January 2, 2022, January 3, 2021, and December 29, 2019 respectively. Amortization expense is classified within selling,
general and administration expenses in the consolidated statements of income and comprehensive income.
The estimated future
ff
amortization of intangible assets with definite lives as of January 2, 2022, is as follows:
(In thousands)s
Fiscal year:
2022
2023
2024
2025
2026
8. Accrued Expenses
$
16,594
15,099
13,521
11,318
7,957
The details of our accrued expenses were as foll
ff
ows as of the dates indicated:
(In thousands)s
Accrued payroll
Accrued rebates
Current portion of operating lease liabila
ities
Accrued interest
Accrued legal settlement
Other accruals
Total accrued expenses
January 2, 2022
January 3, 2021
$
$
66,048
$
51,200
25,551
17,125
—
77,376
86,517
49,531
22,667
16,435
40,000
62,566
237,300
$
277,716
65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Long-Term Debt
(In thousands)
3.50% senior unsecured notes dued
2030
5.375% senior unsecured notes dued
2028
5.750% senior unsecured notes dued
2026
Debt issuance costs
Other long-term debt
Total long-term debt
January 2, 2022
January 3, 2021
$
$
375,000
$
500,000
—
(9,279)
—
865,721
$
—
500,000
300,000
(8,694)
936
792,242
Interest expense on our long-term debt was $43.9 million, $45.5 million and $46.1 million forff
January 2, 2022, January 3, 2021, and December 29, 2019, respectively, and primarily related to our consolidated
indebtedness under senior unsecured notes. Debt issuance costs incurred in connection with the 2028 Notes and the 2026
Notes were capia talized as a reductd
respective terms. Additionally, we pay interest on any outstanding principal under our ABL Facility and we are required
to pay a commitment fee forff
expense as incurred.
unutilized commitments under the ABL Facility, both of which are recorded in interest
ion to the carrying value of debt and are being accreted to interest expense over their
years ended
3.50% Senior Notes duedd
2030
On July 26, 2021, we issued $375.0 million aggregate principal senior unsecured notes (the "2030 Notes"). The
2030 Notes were issued in a private placement for resale to qualified institutional buyers pursuant to Rule 144A of 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 2030 Notes bear interest at 3.50% per annum, payablea
in arrears on February 15 and August 15 of each year commencing on February 15, 2022, and are dued
The 2030 Notes were issued at par. We received net proceeds of $370.3 million afteff
issuance costs. The debt issuance costs were capia talized as a reductd
accreted to interest expense over the term of the 2030 Notes using the effective interest method. The net proceeds from
the issuance of the 2030 Notes were used to redeem the remaining $300.0 million aggregate principal amount of the
2026 Notes (as described below), including the payment of related premiums, fees and expenses, with the balance of the
proceeds available forff
ion to the carrying value of debt and are being
r deducting $4.7 million of debt
general corporate purposes.
in cash semiannually
February 15, 2030.
Obligations under the 2030 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 2030 Notes, in
whole or in part, at any time, at the applicablea
plus accrued and unpaid interest, if any, to the date of redemption. If we experience certain changes of control, we must
offer to repurchase all of the 2030 Notes at a purchase price of 101.00% of their principal amount, plus accrued and
unpaid interest, if any, to, but excluding, the repurchase date.
redemption prices specified under the indenturet
governing the 2030 Notes,
The indenture governing the 2030 Notes contains limited covenants that, among other things, limit our ability
ity of our subsidiaries to (i) incur certain secured debt, (ii) engage in certain sale and leaseback transactions
h in the
and the abila
and (iii) merge or consolidate with other entities. The foregoing limitations are subjeu
indenture governing the 2030 Notes. The indenture governing the 2030 Notes contains customary events of default
(subject to certain cases to customary grace and cure periods). As of January 2, 2022, we were in compliance with all
covenants under the indenture governing the 2030 Notes.
ct to exceptions as set fort
ff
5.375% Senior Notes duedd
2028
On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"). The
2028 Notes were issued in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under
the Securities Act, and to buyers outside of the United States pursuant to Regulation S under the Securities Act. The
2028 Notes were issued without registration rights and are not listed on any securities exchange. The 2028 Notes bear
interest at 5.375% per annum, payable in cash semiannually in arrears on February 1 and August 1 of each year and are
due February 1, 2028. The 2028 notes were issued at par. We received net proceeds of $493.3 million after deducting
66
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
$6.7 million of debt issuance costs. The debt issuance costs were capita
and are being accreted to interest expense over the term of the 2028 Notes using the effective interest method. The net
proceeds from issuance of the 2028 Notes, together with availablea
$500.0 million aggregate principal amount of similar senior unsecured notes, resulting in loss on extinguishment of debt
of $14.5 million afteff
r paying the applicable premium of $14.1 million and writing off the unamortized premium of $3.1
million and unamortized debt issuance costs of $3.5 million.
cash balances, were used to redeem the remaining
alized as a reducd tion to the carrying value of debt
Obligations under the 2028 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 2028 Notes, in
whole or in part, at any time on or afteff
indenture governing the 2028 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 2028 Notes at a purchase price of 101.00% (in the case of changes in control) or 100.00% (in the
case of asset sales) of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase
date.
redemption prices specified under the
r February 1, 2023, at the applicablea
The indenture governing the 2028 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 affilff
foregoing limitations are subjeu
the future the 2028 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 2028 Notes contains customary
events of default (subject in certain cases to customary grace and cure periods). As of January 2, 2022, we were in
compliance with all covenants under the indenturet
ct to exceptions as set forth in the indenturet
governing the 2028 Notes. In addition, if in
governing the 2028 Notes.
iates. The
5.750% Senior Notes duedd
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, 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
bore interest at 5.75% per annum, payablea
and were originally due September 15, 2026. The 2026 notes were issued at par. We received net proceeds of $295.7
million afteff
r deducting $4.3 million of debt issuance costs. The debt issuance costs were capia talized as a reduction to the
carrying value of debt and were accreted to interest expense over the term of the 2026 Notes using the effective interest
method.
in cash semiannually in arrears on March 15 and September 15 of each year
Subsequent to the closing of the 2030 Notes offering, the 2026 Notes were redeemed, and the notes were
considered extinguished as of July 26, 2021. Under the terms of the indenture governing the 2026 Notes, we paid the
applicable premium of $10.8 million. Additionally, the unamortized debt issuance costs of $2.8 million relating to the
2026 Notes were written off in conjunction with the extinguishment of the 2026 Notes. The resulting loss on
extinguishment of debt was $13.6 million and was recorded as part of income from continuing operations before income
tax expense in the condensed consolidated statements of income and comprehensive income in 2021. Additionally, the
cash payment of interest accrued to, but not including, the redemption date was accelerated to the redemption date.
ABLBB Facilitytt
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, which replaced the previous facility. Obligations under
the ABL Facility are secured by a first priority security interest in such accounts receivablea
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 United States,
Canadian or United Kingdom Base Rate (each as defined in the credit agreement relating to the ABL Facility, the
, inventory and other related
67
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
"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.
iates, (iv) sell assets, (v) merge and (vi) create liens. The ABL Facility, among other things, (i)
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 affilff
permits 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) permits us to incur debt as long as the pro forma
secured leverage ratio is less than 4.5 to 1.0, and (iii) adds 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 January 2, 2022, we were in compliance with all covenants under the
ity of $219.5 million under our ABL Facility and there
credit agreement governing the ABL Facility. We had availabila
were no amounts outstanding as of January 2, 2022.
10. Commitments and Contingencies
Indemnificff ations
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 effecff
ts related to changes in tax laws and patent infringements by third parties. The maximum amount of
In some cases, we have recourse against other
these indemnifications cannot be reasonably estimated due to their nature.
t
parties to mitigate the risk of loss from these indemnifications. Historically, we have not made any significant payments
relating to such indemnifications.
tt
Antitrust
Class Action Proceedings - United States
During the year ended January 3, 2021, we recorded a legal reserve of $40.55 million in selling, general and
administration expenses within the consolidated statements of income and comprehensive income related to the
settlement of two putative class action antitrust cases pending in the Eastern District of Virginia. The settlements were
paid and the cases were dismissed in 2021.
tt
Antitrust
Class Action Proceedings - Canada
On May 19, 2020, an intended class proceeding was commenced in the Province of Québec, Canada naming as
defendants Masonite Corporation, Corporation Internationale Masonite, JELD-WEN, Inc., JELD-WEN Holding, Inc.
and JELD-WEN of Canada, Ltd. The intended class proceeding seeks damages, punitive damages, and other relief. The
plaintiff alleges that the Masonite and JELD-WEN defendants engaged in anticompetitive conduct, including price-
fixing involving interior molded doors. On December 22, 2020, the parties filed a motion with the court seeking to stay
the proceeding.
Also, on October 2, 2020, an intended class proceeding was commenced in the Federal Court of Canada naming
as defendants Masonite International Corporation, Masonite Corporation, JELD-WEN, Inc., JELD-WEN Holding, Inc.
and JELD-WEN of Canada, Ltd. The intended class proceeding seeks damages, punitive damages, and other relief. The
plaintiff alleges that the Masonite and JELD-WEN defendants engaged in anticompetitive conduct, including price-
fixing involving interior molded doors. On January 15, 2021, the plaintiff advised that they would be filing a motion to
amend the complaint seeking to replace the named representative plaintiff and to amend the alleged conspiracy period,
which was subsequently granted by the Federal Court on February 12, 2021. This proceeding is at an early stage. The
plaintiff served its certification record on March 31, 2021. The parties are conferring regarding a narrowing of issues and
with respect to a mutuall
written to the Federal Court advising that the parties do not yet propose to set a timetablea
certification motion and requesting that the parties be permitted to provide a further update to the Federal Court by May
timeline of steps leading up to the plaintiff's certification motion. The parties have
of steps leading to the
y agreeablea
t
68
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
30, 2022. We have not recognized an expense related to damages in connection with this matter because, although an
adverse outcome is reasonablya
possible, the amount or range of any potential loss cannot be reasonably estimated.
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.
General
In addition to the above, from time to time, we are involved in various claims and legal actions, including but
not limited to wage and hour and labor
lawsuits. 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.
a
11. Revenues
We derive our revenues primarily from the manufacturet
and delivery of doors and door component
m
s as
performance obligations that arise from our contracts with customers are satisfied. Materially all of our revenues are
timing and any uncertainty in the recognition of revenues are not
generated from contracts with customers and the nature,
t
affected by the type of good, customer or geographic
al 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.
a
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,
Adjustments for early payment discounts offered by us.
which are based on historical returns as a percentage of revenues, and
t
Contract assets are represented by our trade accounts receivable balances on the consolidated balance sheets,
and are described in Note 3. Accounts Receivabla e. There were no other material contract assets or liabilities as of
January 2, 2022, or January 3, 2021. 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 January 2, 2022, January 3, 2021, or December 29, 2019.
12. Share Based Compensation Plans
m
Share-based compensat
ion expense was $16.0 million, $19.4 million and $10.0 million for the years ended
January 2, 2022, January 3, 2021, and December 29, 2019, respectively. As of January 2, 2022, the total remaining
ion amounted to $16.8 million, which will be
unrecognized compensation expense related to share based compensat
amortized over the weighted average remaining requisite service period of 1.3 years. Share based compensat
is recognized using a graded-method approach, or to a lesser extent a straight-line approach, depending on the terms of
the individual award, and is classified within selling, general and administration expenses in the consolidated statements
tures are accounted for as they occur. All share based awards are settled
of income and comprehensive income. All forfeiff
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.
ion expense
m
m
Equity Incentive Plan
On March 10, 2021, the Board of Directors adopted the Masonite International Corporation 2021 Omnibus
Incentive Equity Plan (the "2021 Equity Plan"), which was approved by our shareholders at the Annual General Meeting
of Shareholders on May 13, 2021. The 2021 Equity Plan is effecff
tive for ten years from the date of approval. The
69
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
aggregate number of common shares that can be issued with respect to equity awards under the 2021 Equity Plan cannot
exceed 880,000 shares; plus the number of shares reserved for the 2012 Plan that is in excess of the number of shares
related to outstanding grants; plus the number of shares subject to existing grants under the 2012 Plan that may expire or
be forfeited or cancelled.
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 2021 Equity Plan and 2012 Plan ("the Plans") were adopted because the Board of Directors believes awards
m
e directors, align employee and stockholder
built on employee stock ownership. The Plans permits us to offer
granted will help to attract, motivate and retain employees and non-employe
interests and encourage a performance-based culturet
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 Plans are
effective for ten years from the date of its adoption. Awards granted under the Plans 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 Plans in the form of a performance award. The Plans 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 subjeu
available for futuret
ct to shareholder approval. As of January 2, 2022, there were 1,543,781 shares of common stock
issuance under the 2021 Equity 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 establia
shed 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
a
r
trust
are classified as trading securities and changes in their fair
consolidated balance sheets. These assets in the rabbi
values are recorded in other (income) expense, net in the consolidated statements of income and 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 January 2, 2022, the liability and asset
relating to deferred compensation had a fair value of $8.9 million and $9.0 million, respectively. As of January 3, 2021,
the liability and asset relating to deferred compensation had a fair value of $6.9 million and $6.7 million, respectively.
Any gain or loss relating to changes in the fair value of the deferredr
general and administration expense in the consolidated statements of income and comprehensive income.
compensation liability is recognized in selling,
As of January 2, 2022, participation in the deferred compensation plan is limited and no restricted stock awards
have been deferred into the deferred compensation plan.
Stock Apprec
pp
stt
iation Right
i
apprec
a
the applicablea
We have granted Stock Appreciation Rights ("SARs") to certain employees, which entitle the recipient to the
iation in value of a number of common shares over the exercise price over a period of time, each as specified in
award agreement. The exercise price of any SAR granted may not be less than the fair market value of our
70
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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 off
f 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 $0.8 million, $1.0 million and $1.1 million, in the years ended
January 2, 2022, January 3, 2021, and December 29, 2019, respectively.
Twelvel Months Ended Januar
JJ
y 2rr
, 2022
Stock
Appreciation
Rights
Aggregate
Intrinsic Value
(in thousands)
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Life (Years)
Outstanding, beginning of period
207,094
$
7,409
$
Granted
Exercised
Forfeited
Outstanding, end of period
Exercisable, end of period
28,707
(69,223)
(7,853)
158,725
81,474
$
$
4,305
7,324
4,451
$
$
62.56
107.68
57.79
82.76
71.81
63.32
7.5
7.5
6.9
Twelvel Months Ended Januar
JJ
y 3rr
, 2021
Stock
Appreciation
Rights
Aggregate
Intrinsic Value
(in thousands)
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Life (Years)
Outstanding, beginning of period
404,447
$
7,615
$
Granted
Exercised
Forfeited
Outstanding, end of period
Exercisable, end of period
32,435
(209,793)
(19,995)
207,094
94,883
$
$
7,033
7,409
3,736
$
$
53.62
83.39
48.59
62.10
62.56
58.97
4.7
7.5
6.4
Twelvel Months Ended December 29, 2019
Stock
Appreciation
Rights
Aggregate
Intrinsic Value
(in thousands)
Weighted
Average
Exercise Price
Average
Remaining
Contractual
Life (Years)
Outstanding, beginning of period
514,313
$
7,254
$
Granted
Exercised
Forfeited
Outstanding, end of period
Exercisable, end of period
111,230
(212,767)
(8,329)
404,447
230,440
$
$
9,379
7,615
5,675
$
$
39.01
57.29
19.68
67.24
53.62
47.92
4.6
4.7
2.5
The value of SARs granted in the year ended January 2, 2022, as determined using the Black-Scholes-Merton
valuation model, was $0.8 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 common shares amongst other considerations. The
expected term is calculated using the simplified method, due to insufficient exercise activity during
basis from which to estimate futff uret
granted were as follows for the periods indicated:
exercise patterns. The weighted average grant date assumptim ons used for the SARs
recent years as a
d
71
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
SAR value (model conclusion)
$
28.08
$
20.56
$
12.26
2021 Grants
2020 Grants
2019 Grants
Risk-free rate
Expected dividend yield
Expected volatility
Expected term (years)
Restricted StocS
k UnitUU stt
0.8 %
0.0 %
25.2 %
6.0
1.2 %
0.0 %
22.6 %
6.0
2.2 %
0.0 %
21.9 %
6.0
We have granted Restricted Stock Units ("RSUs") to directors and certain employees under the 2012 and 2021
Plans. The RSUs confer the right to receive shares of our common stock at a specifiedff
conditions are met. The compensation expense for the RSUs awarded is based on the fair value of the RSUs at the date of
grant, which is equal to the stock price on 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 subjecb
t to a blackout period. In such case, the shares are to be
delivered once the blackout restriction has been lifteff d. It is assumed that all time-based RSUs will vest.
future date or when certain
January 2, 2022
Year Ended
January 3, 2021
December 29, 2019
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
488,057
$
202,268
14,474
(176,915)
(33,989)
(51,789)
Outstanding, end of period
442,106
$
68.15
110.50
63.05
66.40
80.81
87.24
523,207
$
218,943
(59,936)
(115,340)
(16,234)
(62,583)
488,057
$
59.58
79.71
67.50
60.30
53.8
0
68.15
429,027
$
303,740
(21,953)
(120,982)
(20,024)
(
46,601)
523,207
$
66.03
56.31
57.51
62.03
63.62
59.58
____________
(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%. These awards are settled with payouts ranging from zero to 200% of the target award value depending on
achievement. 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 two-thirds of the RSUs granted during
d
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 January 2, 2022, was $22.4 million and is being
recognized over the weighted average requisite service period of 2.2 years. During the year ended January 2, 2022, there
were 210,904 RSUs vested at a faiff
the year ended January 2, 2022, vest at specified future
r value of $13.8 million.
ff
13. Restructuring Costs
Over the past several years, we have engaged in a series of restructuring programs related to exiting certain
s and non-core businesses, consolidating certain internal support functions and engaging in other actions
geographie
a
designed to reduced
and lease termination costs. Management continues to evaluate our business; therefore, in futff uret
our cost structure and improve productivity. These initiatives primarily consist of severance actions
years, there may be
72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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.
t
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 reasonablya
when facilities are closed or capac
liabilities and expenses pursuant to the terms of the relevant agreement. For non-contractual restructuring
liabilities and expenses are measured and recorded at fair value in the period in which they are incurred.
ity is realigned within the organization. Upon termination of a contract we record
activities,
. In addition to salary-related costs, we incur other restructuring costs
estimablea
a
t
In May 2021, we initiated further actions to improve overall business performance including the reorganization
t
capaa
city in our Architectural reportablea
ity involves specific facilities in the Architectural segment and costs associated with the
of our specialty door manufacturing
manufacturing capac
a
reorganization of these facilities, which resulted in the closure of one existing stile and rail facility and related headcount
reductions beginning in the second quarter of 2021 (collectively, the "2021 Plan"). Costs associated with the 2021 Plan
include severance and closure charges and continued through 2021. As of January 2, 2022, we do not expect to incur any
material futuret
segment. The reorganization of our
charges related to the 2021 Plan.
t
In November 2020, we began implementing a plan to improve overall business performance that includes the
city and a reduction of our overhead and selling, general and administration
reportable segment as well as limited actions in the North American Residential
capaa
reorganization of our manufacturing
workforce primarily in our Architectural
t
reportable segment. The reorganization of our manufacturing
segment and costs associated with the closure of these facilities and related headcount reductions began taking place in
the fourth quarter of 2020 (collectively, the "2020 Plan"). Costs associated with the 2020 Plan include severance and
closure charges and continued through 2021. As of January 2, 2022, we do not expect to incur any material futuret
charges related to the 2020 Plan.
city involves specific facilities in the Architectural
capaa
t
t
capaa
ity involves specific plants in the North American Residential and Architectural
In February 2019, we began implementing a plan to improve overall business performance that includes the
city and a reduction of our overhead and selling, general and administration
reorganization of our manufacturing
workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing
capac
a
the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively,
the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and continued
through 2021. 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,
quarter of 2019, we initiated additional restructuring actions related to both manufacturing capac
overhead and selling, general and administration workforce. As of January 2, 2022, we do not expect to incur any
material futuret
as further described in Note 14. In the fourth
charges related to the 2019 Plan.
ity and reduction of our
segments and costs associated with
a
t
t
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 American Residential
segment we announced a new facility that will optimize and expand capaa
city through increased automation, which
resulted 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 included severance, retention and closure charges
and continued throughout 2019. As of January 2, 2022, we do not expect to incur any material future charges related to
the 2018 Plan.
73
(In thousands)s
2021 Plan
2020 Plan
2019 Plan
(In thousands)s
2020 Plan
2019 Plan
2018 Plan
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The folff
lowing table summarizes the restructuring charges recorded for the periods indicated:
Year Ended January 2, 2022
North
American
Residential
Europe
Architectural
Corporate &
Other
Total
$
— $
— $
1,666
$
— $
Total Restructuring Costs $
(149) $
— $
5,165
$
23
(172)
—
—
3,499
—
23
528
551
$
Year Ended January 3, 2021
North
American
Residential
Europe
Architectural
Corporate &
Other
Total
$
29
$
— $
1,733
$
— $
3,863
435
(37)
—
1,165
—
1,048
—
Total Restructuring Costs $
4,327
$
(37) $
2,898
$
1,048
$
(In thousands)s
2019 Plan
2018 Plan
$
Total Restructuring Costs $
Year Ended December 29, 2019
North
American
Residential
Europe
Architectural
Corporate &
Other
Total
5,459
1,470
6,929
$
$
396
926
1,322
$
$
506
—
506
$
$
1,019
—
1,019
$
$
7,380
2,396
9,776
Cumulative Amount Incurred Through
January 2, 2022
North
American
Residential
Europe
Architectural
Corporate &
Other
Total
$
— $
— $
1,666
$
— $
52
9,150
2,180
—
359
2,275
5,232
1,671
—
23
2,595
—
(In thousands)s
2021 Plan
2020 Plan
2019 Plan
2018 Plan
Total Restructuring Costs $
11,382
$
2,634
$
8,569
$
2,618
$
The changes in the accrual for restructuring by activity were as foll
ff
ows for the periods indicated:
(In thousands)s
January 3,
2021
2021 Plan
2020 Plan
2019 Plan
Total
$
$
— $
1,492
291
1,783
$
Severance
Closure Costs
Cash Payments
January 2,
2022
1,153
$
(1,641) $
3,281
181
(5,015)
(645)
4,615
$
(7,301) $
25
22
2
49
513
264
175
952
$
$
74
1,666
3,545
356
5,567
1,762
6,039
435
8,236
1,666
5,307
13,775
4,455
25,203
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands)s
December 29,
2019
Severance
Closure Costs
Cash Payments
January 3,
2021
2020 Plan
2019 Plan
2018 Plan
Total
(In thousands)s
2019 Plan
2018 Plan
Other
Total
$
$
$
$
— $
1,506
$
256
$
(270) $
1,535
—
1,752
163
4,287
272
(7,283)
(435)
1,535
$
3,421
$
4,815
$
(7,988) $
1,492
291
—
1,783
December 30,
2018
Severance
Closure Costs
Cash Payments
December 29,
2019
— $
5,100
$
2,280
$
(5,845) $
596
58
1,995
—
401
—
(2,992)
(58)
654
$
7,095
$
2,681
$
(8,895) $
1,535
—
—
1,535
14. Asset Impairment
t
t
a
eeism, material availabila
During the year ended January 2, 2022, we recognized asset impairment charges of $69.9 million, of which
reporting unit as a result of manufacturing
$59.5 million related to a goodwill impairment charge in the Architectural
ity and production challenges and
constraints in the current year due to COVID-19 related absent
$10.4 million related to assets in the Architectural
segment and an asset in the Corporate & Other category as a result of
announced plant closures under the 2021 and 2020 Plans. The quantitative impairment test was conducted using multiple
r value
valuation techniques, including a discounted cash flow analysis and market approac
inputs, and resulted in a goodwill impairment charge of $59.5 million. The charge represents the amount by which the
carrying value of the Architectural reporting unit exceeded its faiff
Architectural reporting unit from $59.5 million to zero. The $10.4 million asset impairment charge was determined based
upon the excess of the carrying values of property, plant and equipment over the respective fair values of such assets,
determined using a discounted cash flows
each asset group. Each of these valuations 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 unobservablea
the assets. The fair value of the assets was determined to be $6.3 million, compared to a book value of $16.7 million,
with the differe
nce representing the asset impairment charges recorded in the consolidated statements of income and
ff
comprehensive income.
inputs include an estimate of future cash flows and the salvage value for each of
r value and reduced the goodwill balance in the
h, which utilizes Level 3 faiff
approach forff
a
ff
During the year ended January 3, 2021, we recognized asset impairment charges of $51.5 million related to the
futuret
Architectural reporting unit, as a result of continued decreased demand in the Architectural
impact of COVID-19 in the current year, along with the uncertainty of the duration and intensity of the pandemic on the
Architectural door market forff
periods were indicators that goodwill impairment was present in the Architectural
unit. The quantitative impairment test was conducted using multiple valuation techniques, including a discounted cash
flow analysis and market approac
charge of $51.5 million. The charge represents the amount by which the carrying value of the Architectural
exceeded its faiff
of $111.0 million, with the difference representing the asset impairment charge recorded in the consolidated statements
of income and comprehensive income.
reporting unit
r value of the reporting unit was determined to be $59.5 million, compared to a book value
r value inputs, and resulted in a goodwill impairment
h, which utilizes Level 3 faiff
door market due to the
r value. The faiff
a
t
t
t
During the year ended December 29, 2019, we recognized asset impairment charges of $13.8 million related to
two asset groups in the North American Residential segment, as a result of announced plant closures under the 2019
Plan. This amount was determined based upon the excess of the asset groups' carrying values of property, plant and
equipment and operating lease right-of-use assets over the respective fair values of such assets, determined using a
discounted cash flows
each asset group. Each of these valuations 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
unobservablea
r
and the salvage value for each of the asset groups. The faiff
value of the asset group was determined to be $9.4 million, solely based upon the market value of the property, plant and
inputs include an estimate of future cash flows
approach forff
ff
ff
75
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
equipment, compared to a book value of $23.2 million, with the differe
recorded in the consolidated statements of income and comprehensive income.
ff
nce representing the asset impairment charge
15. Income Taxes
For financial reporting purposes, income beforeff
income taxes includes the following component
m
s:
(In thousands)s
Income beforeff
income tax expense:
Canada
Foreign
Total income before income tax expense
January 2, 2022
January 3, 2021
December 29, 2019
Year Ended
$
$
44,935
99,031
143,966
$
$
54,355
47,945
102,300
$
$
21,345
45,003
66,348
Income tax expense forff
income taxes consists of the folff
lowing:
(In thousands)s
Current income tax expense:
Canada
Foreign
Total current income tax expense:
Deferred income tax (benefit) expense:
Canada
Foreign
Total deferred income tax (benefit) expense:
January 2, 2022
January 3, 2021
December 29, 2019
Year Ended
$
9,392
$
8,283
$
30,499
39,891
3,626
1,255
4,881
30,413
38,696
(235)
(9,850)
(10,085)
7,600
6,417
14,017
1,497
1,795
3,292
17,309
Income tax expense
$
44,772
$
28,611
$
76
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Canadian statutory rate is 26.5%, 26.5% and 26.7% for the years ended January 2, 2022, January 3, 2021,
nces between expected income tax expense calculated at
ff
and December 29, 2019, respectively. A summary of the differe
the Canadian statutory r
r
ate and the reported consolidated income tax expense (benefit) is as follows:
January 2, 2022
January 3, 2021
December 29, 2019
Year Ended
(In thousands)s
Income tax expense computed at statutory
tax rate
t
income
$
Foreign rate differential
Permanent differences
Disposal of subsidiaries
Income attributable to a permanent establia
shment
Change in valuation allowance
Tax exempt income
Income tax credits
Change in tax rate (1)
Goodwill impairment
Limitation on executive compensation
Withholding and other taxes
Nondeductible interest
Other (1)
Income tax expense
38,137
$
(12,370)
3,843
1,651
2,608
1,569
—
(5,591)
2,706
11,296
1,904
1,761
—
$
(2,742)
44,772
$
27,130
$
(4,900)
(1,286)
493
2,253
(9,271)
—
(1,831)
883
7,965
2,209
2,435
1,714
817
28,611
$
17,702
(4,503)
1,195
2,751
148
(1,463)
(2,451)
(1,869)
267
—
773
2,006
4,814
(2,061)
17,309
____________
(1) Prior year amounts have been reclassified to conform to the current year presentation. There were no impacts at the consolidated level.
77
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The tax effecff
liabilities are presented below:
ts of temporary differences that give rise to significant portions of the deferre
ff
d tax assets and
(In thousands)s
Deferred tax assets:
Non-capital loss carryforwards
Capita
al 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
Lease right-of-use assets
Other
Total deferred tax assets
Valuation allowance
Total deferred tax assets, net of valuation allowance
Deferred tax liabila
ities:
Plant and equipment
Intangibles
Basis difference in subsidiaries
Unrealized forei
ff
gn exchange gain
Lease liabilities
Other
Total deferred tax liabila
ities
Net deferred tax liabila
ity
Year Ended
January 2, 2022
January 3, 2021
$
11,142
$
6,740
12,518
177
18,208
4,456
5,466
57,735
1,142
117,584
(10,286)
107,298
(77,807)
(23,147)
(7,488)
(287)
(52,955)
(2,786)
$
(164,470)
(57,172) $
13,860
9,375
6,845
679
31,378
4,630
5,083
48,467
668
120,985
(5,970)
115,015
(79,208)
(26,866)
(7,354)
(1,534)
(44,673)
(3,122)
(162,757)
(47,742)
Management assesses the available positive and negative evidence to estimate if suffiff cient future taxablea
income will be generated to use the existing deferred tax assets.
As of January 2, 2022, and January 3, 2021, a valuation allowance of $10.3 million and $6.0 million,
respectively, has been establia
realized. We have establia
carryforwards and other assets in Costa Rica and the United Kingdom.
shed to reduce the deferred tax assets to an amount that is more likely than not to be
shed valuation allowances on certain deferred tax assets resulting from net operating loss
The following is a rollforward of the valuation allowance forff
deferred tax assets:
(In thousands)s
January 2, 2022
January 3, 2021
December 29, 2019
Balance at beginning of period
r
Additions charged to expense and othe
Deductions
Balance at end of period
$
$
5,970
$
4
,473
(157)
10,286
$
15,569
$
851
(10,450)
5,970
$
16,373
2,863
(3,667)
15,569
Year Ended
The losses carried forwa
y these losses against future taxable income based on the period of expiration as follows:
rd for tax purposes are availablea
to reduce future taxable income by $33.7 million. We
ff
a
can appl
78
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands)s
2022-2027
2028-2042
Indefinitely
Total tax losses carried forwa
ff
rd
Canada
Other Foreign
Total
$
$
— $
3,213
$
21,520
—
—
8,988
21,520
$
12,201
$
3,213
21,520
8,988
33,721
We believe that it is more likely than not that the benefit fromff
certain net operating loss carryforwards will not
be realized. In recognition of this risk, we have provided valuation allowances of $1.3 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 January 2, 2022, 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,
of dividends or otherwise, we may be subject to both Canadian income taxes and withholding taxes payablea
in the formff
to the various foreign countries. For those subsidiaries where the earnings are not considered indefinitely reinvested,
taxes have been accrued. 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 practicablea
As of January 2, 2022, and January 3, 2021, our unrecognized tax benefits were $7.6 million and $8.1 million,
respectively, excluding interest and penalties. The unrecognized tax benefits would favora
rate if the tax benefits were recognized. 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 follow
impact the effective tax
blya
s:
ff
ff
Year Ended
(In thousands)s
January 2, 2022
January 3, 2021
December 29, 2019
Unrecognized tax benefit at beginning of period
$
8,108
$
8,156
$
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
103
(108)
—
(511)
62
(110)
1
(1)
Unrecognized tax benefit at end of period
$
7,592
$
8,108
$
9,084
46
(973)
—
(1)
8,156
We recognize interest and penalties accrued related to unrecognized tax benefits as income tax expense. During
the years ended January 2, 2022, January 3, 2021, and December 29, 2019, we recorded accruedrr
million, $0.6 million and $0.3 million, respectively. Additionally, we have recognized a liabila
penalties of $0.3 million, $0.3 million and $0.4 million, and accumulated interest of $2.8 million, $3.1 million and $2.9
million, respectively. The interest and penalties accrued related to unrecognized tax benefits would also favorably impact
the effective tax rate if those benefits were recognized.
interest of $0.4
accumulated
ity forff
We estimate that the amount of unrecognized tax benefits will not significantly increase or decrease within the
12 months following the reporting date.
We are subject to taxation in Canada, the United States and other forei
gn jurisdictions. As of January 2, 2022,
the 2016 and 2017 tax years are subject to Canadian income tax examination. We are no longer subject to U.S. federal
tax examinations for years prior to 2018. To the extent that income tax attributes such as net operating losses and tax
credits have been carried forward from years prior to 2018, those attributes can still be audited when utilized on returns
subject to audit. In state and local jurisdictions, we are no longer subject to income tax examination for years prior to
2015.
ff
79
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. 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
attributablea
issuablea
to Masonite by the weighted average number of common shares plus the incremental number of shares
from non-vested and vested RSUs and SARs outstanding during the period.
(In thousands, excee ept share and per share informat
ff
ion)
January 2,
2022
Year Ended
January 3,
2021
December 29,
2019
Net income attributable to Masonite
$
94,501
$
69,037
$
44,602
Shares used in computing basic earnings per share
24,176,846
24,569,727
25,130,027
Effect of dilutive securities:
Incremental shares issuable under share compensation plans
385,687
373,451
322,695
Shares used in computing diluted earnings per share
24,562,533
24,943,178
25,452,722
Basic earnings per common share attributable to Masonite
$
Diluted earnings per common share attributable to Masonite $
3.91
3.85
$
$
2.81
2.77
$
$
1.77
1.75
Anti-dilutive instruments excluded fromff
common share
diluted earnings per
28,707
215,563
295,879
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.
17. Segment Information
Our management reviews net sales and Adjuste
and allocate resources. Net assets are not allocated to the reportablea
financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparablea
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 defineff
attributablea
d EBITDA (as defined below) to evaluate segment performance
segments. Adjusted EBITDA is a non-GAAP
to Masonite adjusted to exclude the folff
d as net income (loss)
lowing items:
d
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
m
depreciation;
amortization;
share based compensat
ion expense;
loss (gain) on disposal of property, plant and equipment;
registration and listing fees;
restructuring costs;
asset impairment;
lloss (gain)
iinterest expens (e (iincom )e), net;
nguishment of d bdebt;
lloss on
)me) expense, net;
hothe (r (iinco
iincome tax expens (e (bbe
finefi )t);
o hthe ir items;
lloss (i(incom )e) from didisc
net iincome (l
ionti
(loss) att ibribut blable to non-cont
(gain) on didisposall of s bubsidiidi
dnued operatiions, net of tax;
rollinging iinterest.
iextinguishm
iaries;
ll
)
dand
80
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
hTh de d fiefi initiion of dAdjjdd ust ded EBITDA diffdiffers from hth de defi iini
itions of EBITDA contaiined id in thhe iinddenturet
ff
dand 2026 Notes andd thhe credidit gagreement governi
governi
governi gng hthe 2030 Notes, 2028 Notes
AdjAdjustedd EBITD iA is not a measure of fifinanciiall c dionditiion or performance ddetermiined id in acc dordance wiithh GAAP, iit iis
usedd to e
iprim yary measures usedd to
ddetermiine employe
ploye ie ince intive compensa ition. Interseggment salles are rec dordedd usingsing ma krket p irices.
lvaluate a dnd compare hthe opera iti gng performance of thhe seggments and id i it is one of hthe
Although
governi gng hthe ABL Facililiityy. Although
Certain information with respect to reportable segments is as follows for the periods indicated:
(In thousands)s
Sales
Intersegment sales
Net sales to external customers
Adjusted EBITDA
Depreciation and amortization
Interest expense, net
Income tax expense
(In thousands)s
Sales
Intersegment sales
Net sales to external customers
Adjusted EBITDA
Depreciation and amortization
Interest expense, net
Income tax expense
(In thousands)s
Sales
Intersegment sales
Net sales to external customers
Adjusted EBITDA
Depreciation and amortization
Interest expense, net
Income tax benefit
Year Ended January 2, 2022
North
American
Residential
Europe
Architectural
Corporate &
Other
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,955,424
(2,526)
1,952,898
374,452
39,504
—
—
North
American
Residential
1,640,323
(2,204)
1,638,119
347,822
37,705
—
—
$
$
$
North
American
Residential
1,469,194
(3,386)
1,465,808
232,512
37,689
—
—
$
$
$
342,172
(7,640)
334,532
60,624
23,825
—
—
303,078
(13,602)
289,476
$
$
20,014
—
20,014
$
$
Total
2,620,688
(23,768)
2,596,920
(2,704) $
(19,766) $
412,606
14,620
—
—
14,033
46,123
44,772
91,982
46,123
44,772
Year Ended January 3, 2021
Europe
Architectural
Corporate &
Other
$
$
$
260,834
(2,721)
258,113
40,474
23,732
—
—
$
$
$
358,049
(17,153)
340,896
34,201
17,735
—
—
19,947
—
19,947
$
$
Total
2,279,153
(22,078)
2,257,075
(58,785) $
363,712
12,601
46,807
28,611
91,773
46,807
28,611
Year Ended December 29, 2019
Europe
Architectural
Corporate &
Other
$
$
$
323,137
(1,506)
321,631
46,219
26,257
—
—
$
$
$
380,300
(14,997)
365,303
40,470
19,705
—
—
23,941
—
23,941
$
$
Total
2,196,572
(19,889)
2,176,683
(35,817) $
283,384
16,198
46,489
17,309
99,849
46,489
17,309
A reconciliation of our consolidated Adjusted EBITDA to net income attributablea
to Masonite is set forth as
follows for the periods indicated:
81
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands)s
January 2, 2022
Year Ended
January 3, 2021
December 29, 2019
Net income attributable to Masonite
$
94,501
$
69,037
$
44,602
Plus:
Depreciation
Amortization
Share based compensation expense
Loss on disposal of property, plant and equipment
Restructuring costs
Asset impairment
Loss on disposal of subsidiaries
Interest expense, net
Loss on extinguishment of debt
Other (income) expense, net
Income tax expense
Other items (1)
Net income attributable to non-controlling interest
70,641
21,341
15,959
1,316
5,567
69,900
8,590
46,123
13,583
15,620
44,772
—
4,693
68,350
23,423
19,423
6,234
8,236
51,515
2,091
46,807
—
(5,217)
28,611
40,550
4,652
70,736
29,113
10,023
6,396
9,776
13,767
14,260
46,489
14,523
1,953
17,309
—
4,437
Adjusted EBITDA
$
412,606
$
363,712
$
283,384
____________
(1) Other items not part of our underlying business performance include $40,550 in legal reserves related to the settlement of U.S. class action litigation
in the year ended January 3, 2021, and were recorded in selling, general and administration expenses within the consolidated statements of income and
comprehensive income. Refer to Note 10. Commitments and Contingencies for additional information.
We derive revenues fromff
product lines: interior and exterior products. We do not review or analyze
product lines below net sales. Additionally, we sell door components to external customers which are not
two majora
the product lines are summarized as foll
ff
ows for the periods
our two majora
otherwise consumed in our vertical operations. Sales forff
indicated:
(In thousands)s
Net sales to external customers:
Interior products
Exterior products
Components
Total
January 2, 2022
January 3, 2021
December 29, 2019
Year Ended
$
$
1,654,379
$
1,479,196
$
1,427,459
813,605
128,936
647,241
130,638
628,301
120,923
2,596,920
$
2,257,075
$
2,176,683
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net sales information with respect to geographic areas exceeding 10% of consolidated net sales is as follows for
the periods indicated:
(In thousands)s
January 2, 2022
January 3, 2021
December 29, 2019
Net sales to external customers from facilities in:
Year Ended
United States
Canada
United Kingdom
Other
Total
$
$
1,776,180
$
1,595,398
$
1,483,697
364,179
300,008
156,553
319,937
218,382
123,358
304,497
281,888
106,601
2,596,920
$
2,257,075
$
2,176,683
In the years ended January 2, 2022, January 3, 2021, and December 29, 2019, net sales to The Home Depot,
Inc., were $491.5 million, $411.1 million and $372.4 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 is as follows as of the dates indicated:
(In thousands)s
United States
Canada
Other
Total
18. Employee Future Benefits
United StatS
es Defie ned Benefie t Pension Plan
January 2, 2022
January 3, 2021
$
$
413,289
$
50,187
163,321
626,797
$
403,126
61,201
160,799
625,126
We have a defineff
d benefit pension plan covering certain active and former employees in the United States
en at various times in the past. On December 9, 2020, the Board of Directors
obligations under the U.S. defined benefit pension plan through a combination of lump-sum payments to
("U.S."). Benefits under the plan were frozff
approved a resolution to terminate the defined benefit pension plan and we initiated the process to terminate and
annuitize the plan, which continued into 2021. During the fourt
ff
mitigation actions related to the U.S. pension plan and terminated the plan. In connection with the plan termination, we
settled all futuret
eligible participants who elected to receive them, and the transfer of any remaining benefit obligations to a third-party
insurance company under a group annuity contract, which resulted in the settlement of liabilities to affecff
As a result of these actions, we recognized a pre-tax pension settlement charge of $23.3 million in the fourth quarter of
2021, primarily comprised of the recognition of past actuarial losses. This charge is recorded within other (income)
expense, net in the consolidated statements of income and comprehensive income. The measurement date used for the
accounting valuation of the defined benefit pension plan was January 2, 2022. Information about the U.S. defined benefit
pension plan is as follows for the periods indicated:
h quarter of 2021, we completed balance sheet risk
ted participants.
83
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands)s
January 2, 2022
January 3, 2021
December 29, 2019
Year Ended
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on assets
Amortization of actuarial net losses
Settlement loss
Net pension expense (benefit)
$
$
331
$
309
$
1,516
(2,953)
1,047
23,343
2,183
(5,328)
662
—
23,284
$
(2,174) $
548
3,423
(5,723)
1,521
5,651
5,420
During the fourth quarter of 2019, the plan purchased annuity contracts to settle liabila
y
certain full
vested participants associated with benefits arising under the plan. Payments related to this offer were made from
existing plan assets to settle the liabila
costs in 2019, and we recognized a pre-tax pension settlement charge of $5.7 million in the fourth quarter of 2019. This
charge is recorded within other (income) expense, net in the consolidated statements of income and comprehensive
income.
ities. As a result, total lump sum payments exceeded annual service and interest
ities forff
ff
Information with respect to the assets, liabilities and net plan assets of the U.S. defined benefit pension plan is
set forth as foll
ff
ows for the periods indicated:
(In thousands)s
Pension assets:
ar Ended
January 2, 2022
January 3, 2021
Fair value of plan assets, beginning of year
$
86,464
$
Company contributions
Actual returnt
on plan assets
Plan settlements
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
Plan settlements
Actuarial loss
Benefits paid
Administrative expenses paid
Accrued benefit obligation, end of year
Net plan assets, end of year
5,550
(2,347)
(84,573)
(3,711)
(1,383)
—
85,330
331
1,516
(84,573)
2,490
(3,711)
(1,383)
$
—
— $
79,422
1,250
10,113
—
(3,965)
(356)
86,464
78,557
309
2,183
—
8,602
(3,965)
(356)
85,330
1,134
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Amounts deferred in accumulated other comprehensive loss ("AOCL") is set forth for the periods indicated:
(In thousands)s
Net actuari
t
al loss
Prior service cost
Total amount recognized in AOCL, pre-tax
Year Ended
January 2, 2022
January 3, 2021
$
$
— $
—
— $
16,585
15
16,600
A reconciliation of the change in AOCL is set forth as follows for the periods indicated:
(In thousands)s
Net actuari
t
al loss (gain)
Amortization of:
Curtailment recognition of prior service cost
Settlement recognition of net loss
Change in AOCL, pre-tax
Year Ended
January 2, 2022
January 3, 2021
$
$
7,790
$
(15)
(24,375)
(16,600) $
3,817
(9)
(653)
3,155
The net plan assets were recorded within other assets in the consolidated balance sheets. Pension fund assets
were invested primarily in equity and debt securities. Asset allocation between equity and debt securities and cash was
adjusted based on the expected life off
respect to the amounts and types of securities that are held in the U.S. defined benefit pension plan is set forth as foll
for the periods indicated:
f the plan and the expected retirement age of the plan participants. Information with
ows
ff
(In thousands)s
Equity securities
Debt securities
Other
Year Ended
January 2, 2022
January 3, 2021
Amount
% of Total
Plan
Amount
% of Total
Plan
$
$
—
—
—
—
— % $
— %
— %
—
86,464
—
— % $
86,464
— %
100.0 %
— %
100.0 %
Under the Plan's investment policy statement, plan assets are invested to achieve a fulff
ly-funded statust
based on
actuarial calculations, maintain a level of liquidity that is suffiff cient to pay benefit and expense obligations when due,d
maintain fleff xibility in determining the future level of contributions and maximize returns
result of recent market gains and the U.S. defined benefit pension plan's funded status,
the investment strategy was
changed in 2020 to match expected outflows. Our pension funds were 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.
within the limits of risk. As a
t
t
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
The weighted average actuarial assumptions adopted in measuring our U.S. accrued benefit obligations and
costs prior to termination were as follows for the periods indicated:
January 2, 2022
January 3, 2021
December 29, 2019
Year Ended
Discount rate appli
a
ed for:
Accrued benefit obligation
Net periodic pension cost
Expected long-term rate of returnt
on plan assets
2.4 %
2.4 %
3.5 %
2.4 %
3.3 %
3.5 %
3.3 %
4.3 %
6.8 %
The rate of compensation increase for the accrued benefit obligation and net periodic pension costs for the U.S.
, as benefits under the plan are not affecff
ted by compensation increases.
defined benefit pension plan is not applicablea
The expected long-term rate of returnt
on plan assets assumption is derived by taking into consideration the
target plan asset allocation, historical rates of return on those assets, projected futuret
outperformance of the market by active investment managers. An asset return model is used to develop an expected
range of returns
selected from a best
estimate range within the total range of projected results.
on the plan investments over a 30-year period, with the expected rate of returnt
asset class returns
and net
t
t
KK
United Kingdom
Defined Benefie t 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 January 2,
2022. Information about the U.K. defined benefit pension plan is as follows for the periods indicated:
(In thousands)s
January 2, 2022
January 3, 2021
December 29, 2019
Year Ended
Components of net periodic benefit cost:
Interest cost
Expected return on assets
Amortization of actuarial net losses
Settlement loss
Net pension benefit
$
$
366
$
(1,292)
289
—
(637) $
536
$
(1,021)
340
127
(18) $
685
(948)
246
—
(17)
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information with respect to the assets, liabilities and net plan assets (accruedrr
benefit obligation) of the U.K.
defined benefit pension plan is as foll
ff
ows for the periods indicated:
(In thousands)s
Pension assets:
Year Ended
January 2, 2022
January 3, 2021
Fair value of plan assets, beginning of year
$
31,222
$
Company contributions
Actual returnt
on plan assets
Benefits paid
Plan settlements
Translation adjustment
Fair value of plan assets, end of year
Pension liability
Accrued benefit obligation, beginning of year
Interest cost
Actuarial (gain) loss
Benefits paid
Plan settlements
Translation adjustment
Accrued benefit obligation, end of year
1,376
2,159
(919)
—
(449)
33,389
35,394
366
(1,431)
(919)
—
(408)
33,002
Net plan assets (accrued benefit obligation), end of year
$
387
$
26,748
769
4,132
(915)
(838)
1,326
31,222
32,601
536
2,553
(915)
(838)
1,457
35,394
(4,172)
There were $1.4 million of actuarial gains during fiscff
al year 2021 primarily as a result of a change in the
discount rate from 1.27% to 1.83%. There were no material changes to any other key assumptions nor was there a
significant demographic gain or loss.
Amounts deferred in AOCL is set forth forff
the periods indicated:
(In thousands)s
Net actuari
t
al loss
Prior service cost
Total amount recognized in AOCL, pre-tax
Year Ended
January 2, 2022
January 3, 2021
$
$
2,794
518
3,312
$
$
5,372
549
5,921
A reconciliation of the change in AOCL is set forth as follows for the periods indicated:
(In thousands)s
Net actuari
t
al (gain) loss
Amortization of:
Prior service cost
Net actuari
t
al loss from prior years
Translation adjustment
Change in AOCL, pre-tax
Year Ended
January 2, 2022
January 3, 2021
$
$
(2,298) $
(25)
(264)
(22)
(2,609) $
(557)
(23)
(444)
218
(806)
The net plan assets are recorded within other assets 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
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
based on the expected life off
to the amounts and types of securities that are held in the U.K. defined benefit pension plan is set fort
periods indicated:
f the plan and the expected retirement age of the plan participants. Information with respect
ff
h as foll
ows for the
ff
(In thousands)s
Equity securities
Debt securities
Other
Year Ended
January 2, 2022
January 3, 2021
Amount
% of Total
Plan
Amount
% of Total
Plan
$
$
8,327
—
25,062
33,389
24.9 % $
11,905
— %
75.1 %
100.0 % $
—
19,317
31,222
38.1 %
— %
61.9 %
100.0 %
Under the Plan's investment policy and strategy, plan assets are invested to achieve a fulff
based
on actuarial calculations, maintain a level of liquidity that is sufficient to pay benefit and expense obligations when due,d
maintain fleff xibility 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 2021 is 75% other securities and 25%
equity securities. Other securities represent investments that are primarily invested in a mixturet
securities.
of debt and equity
ly funded statust
t
The weighted average actuarial assumptim ons adopted in measuring our U.K. accruedr
benefit obligations and
costs were as follows forff
the periods indicated:
January 2, 2022
Year Ended
January 3, 2021
December 29, 2019
Discount rate appli
a
ed for:
Accrued benefit obligation
Net periodic pension cost
Expected long-term rate of returnt
on plan assets
1.8 %
1.0 %
4.1 %
1.3 %
1.0 %
4.1 %
1.9 %
1.7 %
3.9 %
The rate of compensation increase for the accrued benefit obligation and net pension cost forff
the U.K. defined
, as the plan was curtailed in prior years and benefits under the plan are not affecff
ted
benefit pension plan is not applicablea
by compensation increases.
The expected long-term rate of returnt
on plan assets assumption is derived by taking into consideration the
target plan asset allocation, historical rates of return on those assets, projected futuret
outperformance of the market by active investment managers. An asset return model is used to develop an expected
range of returns
selected from a best
estimate range within the total range of projected results.
on the plan investments over a 10-year period, with the expected rate of returnt
asset class returns
and net
t
t
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
ff
the following future periods are set forth as foll
As of January 2, 2022, the estimated future
ows:
ff
(In thousands)s
Fiscal year:
2022
2023
2024
2025
2026
2027 through 2031
Total estimated future
ff
benefit payments
benefit payments fromff
the U.K. defined benefit pension plans for
Expected Future Benefitff Payments
$
$
1,111
1,076
1,178
1,264
1,219
7,025
12,873
Expected contributions to the U.K. defined benefit pension plan during 2022 are $2.2 million.
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 establia
by the FASB’s Fair Value Framework.
shed
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 income and comprehensive income and the balance of such changes is
included in AOCL in the consolidated balance sheets.
Defined Contribution Benefie t Plans
We have defined contribution benefit plans covering certain U.S. and forei
ff
gn subsidiary employees subject to
eligibility requirements set up in accordance with local statutory requirements. Contributions made to these plans
were $15.6 million, $13.7 million and $12.4 million for the years ended January 2, 2022, January 3, 2021, and
December 29, 2019, respectively.
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Accumulated Other Comprehensive Loss and Other Comprehensive Income
A rollforward of the components of accumulated other comprehensive loss is as follows for the periods
indicated:
(In thousands)s
Accumulated forei
ff
gn exchange losses, beginning of period
Foreign currency translation (loss) gain
Income tax benefit on foreff
Cumulative translation adjustment recognized upon
deconsolidation of subsidiaries
Less: foreign exchange gain attributablea
interest
to non-controlling
ign currency translation (loss) gain
Accumulated forei
ff
gn exchange losses, end of period
Accumulated pension and other post-retirement adjust
beginning of period
Pension and other post-retirement adjust
Income tax (expense) benefit on pension and other post-
retirement adjust
d ments
d ments
d ments,
Amortization of actuarial net losses
Income tax expense on amortization of actuarial net losses
Pension settlement charges
Income tax expense on pension settlement charges
Accumulated pension and other post-retirement adjustments,
end of period
Accumulated other comprehensive loss
Other comprehensive income, net of tax:
Less: other comprehensive income attributablea
controlling interest
Other comprehensive income attributablea
to Masonite
to non-
January 2,
2022
Year Ended
January 3,
2021
December 29,
2019
$
(93,684) $
(113,336) $
(129,930)
(6,719)
6
3,544
66
(96,919)
(18,379)
2,250
(437)
1,336
(258)
15,654
(4,829)
17,566
17
2,254
185
(93,684)
(16,833)
(3,163)
851
1,002
(236)
—
—
14,544
25
2,368
343
(113,336)
(22,989)
962
(347)
1,798
(442)
5,651
(1,466)
(4,663)
(18,379)
(16,833)
(101,582) $
(112,063) $
(130,169)
10,547
$
18,291
$
23,093
66
10,481
$
185
18,106
$
343
22,750
$
$
$
Cumulative translation adjustments are reclassified out of accumulated other comprehensive loss into loss on
disposal of subsidiaries in the years ended January 2, 2022, and January 3, 2021, in the consolidated statements of
income and comprehensive income. Actuat
into cost of goods sold in the consolidated statements of income and comprehensive income. Pension settlement charges
are reclassified out of accumulated other comprehensive loss into other (income) expense, net, in the consolidated
statements of income and comprehensive income.
rial net losses are reclassifieff d out of accumulated other comprehensive loss
Foreign currency translation losses as a result of translating our foreign assets and liabilities into U.S. dollars
during the year ended January 2, 2022, were $6.7 million, primarily driven by weakening of the Euro, the Pound
Sterling, the Malaysian Ringgit and the Mexican Peso, partially offset by strengthening of the Canadian Dollar in
comparison to the U.S. Dollar during
the period.
d
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
20. Supplemental Cash Flow Information
Certain cash and non-cash transactions were as follows for the periods indicated:
(In thousands)s
Transactions involving cash:
Interest paid
Interest received
Income taxes paid
Income tax refunds
Cash paid for operating lease liabia lities
Cash paid forff
finance lease liabilities
Non-cash transactions from operating activities:
Right-of-use assets acquired under operating leases
cing
Non-cash transactions from investing and finan
activities:
ff
January 2,
2022
Year Ended
January 3,
2021
December 29,
2019
$
42,703
$
45,380
$
250
40,506
875
29,886
1,470
1,110
24,336
805
29,943
1,393
44,388
2,064
14,809
1,713
24,522
528
49,703
51,381
36,774
Right-of-use assets acquired under finaff
nce leases
—
—
26,326
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
January 2,
2022
January 3,
2021
$
$
381,395
10,110
391,505
$
$
364,674
10,560
375,234
Property, plant and equipment additions in accounts payable were $10.7 million and $5.6 million as
of January 2, 2022, and January 3, 2021, 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 payablea
in kind at the election of the borrower. This transaction is recorded as a component
consolidated balance sheets.
m
of other assets on the
21. Variable Interest Entity
As of January 2, 2022, and January 3, 2021, we held an interest in one variable interest entity ("VIE"), Magna
t Malaysia. The VIE is integrated into our supply chain and manufactures
Foremost Sdn Bhd, which is located in Bintulu,
door facings. We are the primary beneficiary of the VIE based on the terms of the existing supply
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.
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:
agreement with the
Sales to third
u
t
91
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
(In thousands)s
Current assets
Property, plant and equipment, net
Long-term deferred income taxes
Other assets
Current liabilities
Other long-term liabilities
Non-controlling interest
January 2,
2022
January 3,
2021
$
$
9,057
8,573
1,023
4,202
(3,895)
(139)
(3,803)
6,411
8,295
2,431
3,973
(3,139)
(393)
(2,073)
15,505
Net assets of the VIE consolidated by Masonite
$
15,018
$
Current assets include $4.9 million and $2.4 million of cash and cash equivalents as of January 2, 2022, and
January 3, 2021, respectively. Assets recognized as a result of consolidating this VIE do not represent additional assets
that could be used to satisfy claims against our general assets. Furthermore, liabilities recognized as a result of
consolidating these entities do not represent additional claims on our general assets; rather, they represent claims against
the specific assets of the consolidated VIE.
22. Fair Value of Financial Instruments
The carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, income taxes
receivable, accounts payablea
term maturity of those instruments. The estimated faiff
as follows for the periods indicated:
, accrued expenses and income taxes payablea
approximate fair value because of the short-
r values and carrying values of our long-term debt instruments were
January 2, 2022
January 3, 2021
(In millions)
Fair Value
Carrying Value
Fair Value
Carrying Value
3.50% senior unsecured notes dued
2030
$
373,238
$
370,593
$
— $
5.375% senior unsecured notes dued
2028
5.750% senior unsecured notes dued
2026
526,730
—
495,128
—
536
316
—
494
297
These estimates are based on market quotes and calculations based on current market rates availablea
to us and
are categorized as having Level 2 valuation inputs as establia
shed 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 fromff
management’s expectations.
independent sources are within the range of
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
23. Subsequent Events
On February 21, 2022, the Company's Board of Directors approved a new share repurchase program allowing
the Company to repurchase up to an additional $200.0 million of its outstanding common shares. The new $200.0 million
authorization is in addition to the four previously authorized share repurchase authorizations. In addition, the Company
announced that its Board of Directors has authorized it to enter into an accelerated share repurchase ("ASR") transaction
as part of the new share repurchase program. The Company intends to enter into an ASR transaction during the first
quarter of 2022 for the repurchase of $100.0 million of its outstanding common shares.
93
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
ll
Disclosure
Controlsll 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 Securities and Exchange Commission’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 effecff
tive.
Management's Annual Report on Internal
tt
Control
tt Over Financ
ii
ial Reportingii
Management is responsible for establia
shing 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 subjeu
of compliance with the policies or procedures may deteriorate.
ct to the risk that controls may become inadequate because of changes in conditions or that the degree
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 January 2, 2022, 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 effecff
tive as of January 2, 2022.
The effectiveness of our internal control over financial reporting as of January 2, 2022, has been audited by
Ernst & Young, an independent registered public accounting firm, as stated in their report which is included below, and
which expresses an unqualified opinion on the effecff
January 2, 2022. See "Report of Independent Registered Public Accounting Firm" below.
tiveness of our internal control over financial reporting as of
Changes in Internal
tt
tt
Control
over Financial Reportingii
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 affecff
our internal control over financial reporting.
,
ted, or that are reasonably likely to materially affect
ff
94
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’s internal control over financial reporting as of January 2, 2022,
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 (the Company) maintained, in all material respects, effective internal control over financial
reporting as of January 2, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of Masonite International Corporation as of January 2, 2022 and
January 3, 2021, the related consolidated statements of income and comprehensive income, changes in equity, and cash
flows for each of the three fiscal years in the period ended January 2, 2022, and the related notes and our report dated
February 24, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
tive internal control over financial reporting and for its
The Company’s management is responsible for maintaining effecff
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 respects.
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 reliabila
ity 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 subjeu
ct 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 24, 2022
95
Item 9B. Other Information
ff
Annual Meeting and Record Date. The Board of Directors has set the date of the 2022 Annual General
Meeting of Shareholders and the related record date. The Annual General Meeting will be held on May 12, 2022, 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 14, 2022.
Departur
e
e of Officer. On February 23, 2022, it was decided that Robert E. Lewis, Senior Vice President,
General Counsel and Corporate Secretary of the Company, would leave the Company’s employment effecff
7, 2022.
tive on April
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
96
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 2022 Annual General Meeting of
Shareholders (the "2022 Proxy Statement"). Such information will be included under the captia
Directors," "Corporate Governance; Delinquent Section 16(a) Reports," "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."
ons "Election of
The following tablea
sets forth information as of February 24, 2022, regarding each of our executive officers:
Name
Howard C. Heckes
Russell T. Tiejema
Randal A. White
Christopher O. Ball
Robert E. Lewis
Robert A. Paxton
Biographies
Age Positions
57
President and Chief Executive Officer and Director
53
51
44
61
48
Executive Vice President and Chief Financial Officer
Senior Vice President, Global Operations and Supply Chain
President, Global Residential
Senior Vice President, General Counsel and Corporate Secretary
Senior Vice President, Human Resources
The present principal occupations and recent employment history of each of the executive officers and
directors listed above
a
are as follows:
Howard C. Heckes, (age 57) has served as President and Chief Executive Officer of Masonite and as a
Director of Masonite since June 2019. Mr. Heckes joined Masonite from Energy Management Collaborative where he
served as Chief Executive Officer since 2017. From 2008 to 2017, Mr. Heckes served in a variety of operations roles at
Valspar Corporation, now a subsidiary of The Sherwin-Williams Company, most recently overseeing Valspar's
industrial coatings portfolio. Prior to joining Valspar, Mr. Heckes held various leadership roles at Newell Rubberm
aid,
including President of Sanford Brands and President of Graco Children's Products. Mr. Heckes is also a member of the
Board of Directors of the AZEK Company Inc.
RR
Russell T. Tiejema, (age 53) 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. Tiejee ma
served as the Vice President, Business Analysis & Planning, of Lennox International. Prior to joining Lennox in 2011,
Mr. Tiejee ma 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 51) 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.
Christopher O. Ball, (age 44) joined Masonite in September 2021 as President of the Global Residential Door
Company, a global manufacturer and
Business. Prior to joining Masonite, Mr. Ball was with Cooper Tire & Rubber
marketer of consumer and commercial products, from 2018 to 2021, most recently serving as President - Americas,
where he led the North American, Latin America and Global Commercial Truck business units. Prior to joining Cooper
Tire, Mr. Ball held various roles at Whirlpool Corporation from 2003 to 2018, including leadership of sales and
RR
97
operations for the KitchenAid small appliance business and general management of the North America Laundry unit,
Whirlpool's largest business.
Robert E. Lewis, (age 61) 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 48) 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 2022 Proxy Statement. Such information will be included in the 2022 Proxy Statement under the
captia
Governance; Board and Committee Matters—Compensation Interlocks and Insider Participation."
ons "Director Compensation", "Compensation Committee Report," "Executive Compensation" and "Corporate
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 2022 Proxy Statement. Such information will be included in the 2022 Proxy Statement under the
captia
Under Equity Compensation Plans".
ons "Security Ownership of Certain Beneficial Owners and Management" and "Securities Authorized for Issuance
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 2022 Proxy Statement. Such information will be included under the capta ions "Corporate Governance;
Board and Committee Matters—Board Strucr
Committee Matters—Board Committees; Membership" and "Certain Relationships and Related Party Transactions".
ture and Director Independence", "Corporate Governance; Board and
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 2022 Proxy Statement. Such information will be included under the capta ion "Appointment of
Independent Registered Public Accounting Firm".
98
Item 15. Exhibit and Financial Statement Schedules
PART IV
(a) The following documents are filff ed as part of this Form 10-K:
Page No.
1. Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm
e
Consolidated Statements of Income and Comprehensive Incom
s
Consolidated Balance Sheet
y
Consolidated Statements of Changes in Equit
s
Consolidated Statements of Cash Flow
Notes to the Consolidated Financial Statements
2. Financial Statement Schedules
All schedules have been omitted because they are not required, not applicablea
amounts sufficient to require submission of the schedule or the required information is otherwise
included.
, not present in
3. See "Index to Exhibits" below.
47
4
9
0
5
5
1
2
5
53
(b) The exhibits listed on the "Index to Exhibits" below are filed or furnis
ff
h below.
incorporated by reference as set fort
(c) Additional Financial Statement Schedules
ff
hed with this Form 10‑K or
None.
The following is a list of all exhibits filff ed or furnished as part of this report:
INDEX TO EXHIBITS
Exhibit No. Descriptionp
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)
rr
4.1
4.2
4.3
4.4
4.5
4.6
4.7
10.1
#
dated as of July 26, 2021, by and among the Company, the guarantors named therein and
Indenture,
t
Wells Fargo Bank, National Association, as trustee, governing the 3.50% Senior Notes due 2030
(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 July 27, 2021)
dated as of July 25, 2019, by and among the Company, the guarantors named therein and
Form of 3.50% Senior Notes dued
Indenture,
t
Wells Fargo Bank, National Association, as trustee, governing the 5.375% Senior Notes due 2028
(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 July 25, 2019)
2030 (included in Exhibit 4.1)
Form of 5.375% Senior Notes dued
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)
2028 (included in Exhibit 4.3)
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)
Description of Securities (incorporated by reference to Exhibit 4.5 to the Company's Annual Report on
Form 10-K (File No. 011-11796) filed with the Securities and Exchange Commission on February 20,
2020)
M
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)
asonite International Corporation 2014 Employee Stock Purchase Plan (incorporated by reference to
99
Exhibit No. Descriptionp
10.2
#
asonite International Corporation Deferredr
M
(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)
Compensation Plan, effective as of August 13, 2012
10.3(a)
#
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)
#
M
asonite International Corporation 2021 Omnibus Incentive Plan (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 May 18, 2021)
m
es (May 2021) (incorporated by reference to Exhibit
orm of Performance Restricted Stock Unit Agreement pursuant to the Masonite International
orm of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation 2021
orm of Stock Appreciation Rights Agreement pursuant to the Masonite International Corporation 2021
es (May 2021) (incorporated by reference to Exhibit
F
Omnibus Incentive Plan forff United States Employe
10.2(a) to the Company's Current Report on Form 8-K (File No. 011-11796) filed with the Securities
and Exchange Commission on May 18, 2021)
F
Corporation 2021 Omnibus Incentive Plan for United States Employees (May 2021) (incorporated by
reference to Exhibit 10.2(b) to the Company's Current Report on Form 8-K (File No. 011-11796) filed
with the Securities and Exchange Commission on May 18, 2021)
F
Omnibus Incentive Plan forff United States Employe
10.2(c) to the Company's Current Report on Form 8-K (File No. 011-11796) filed with the Securities
and Exchange Commission on May 18, 2021)
F
orm of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation 2021
Omnibus Incentive Plan forff United States Directors (May 2021) (incorporated by reference to Exhibit
10.2(d) to the Company's Current Report on Form 8-K (File No. 011-11796) filed with the Securities
and Exchange Commission on May 18, 2021)
asonite International Corporation Amended and Restated 2012 Equity Incentive Plan (incorporated by
M
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)
m
orm of Stock Appreciation Rights Agreement pursuant to the Masonite International Corporation 2012
F
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)
F
orm 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)
F
orm 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)
mendment No. 1 to Masonite International Corporation Amended and Restated 2012 Equity Incentive
A
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)
F
Corporation Amended and Restated 2012 Equity Incentive Plan for United States Employees (February
2017) (incorporate
d 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)
orm of Performance Restricted Stock Unit Agreement pursuant to the Masonite International
rr
F
orm 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)
orm of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended
F
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)
F
orm of Stock Appreciation Rights Agreement pursuant to the Masonite International Corporation
Amended and Restated 2012 Equity Incentive Plan for United States Employees (February 2019)
(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 February 26, 2019)
100
Exhibit No. Descriptionp
10.3(o)
#
orm of Restricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended
F
and Restated 2012 Equity Incentive Plan forff United States Employees (February
2019) (incorporated by
reference to Exhibit 10.3(w) to the Company's Annual Report on Form 10-K (File No. 001-11796) filed
with the Securities and Exchange Commission on February 26, 2019)
rr
10.3(p)
#
10.3(q)
#
10.4(a)
#
10.4(b)
#
10.4(c)
#
10.4(d)
#
10.4(e)*
#
10.5
#
10.6(a)
10.6(b)
10.6(c)
orm of Performance Restricted Stock Unit Agreement pursuant to the Masonite International
F
Corporation Amended and Restated 2012 Equity Incentive Plan for United States Employees (February
2019) (incorporated by reference to Exhibit 10.3(x) to the Company's Annual Report on Form 10-K
(File No. 001-11796) filed with the Securities and Exchange Commission on February 26, 2019)
estricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended and
R
Restated 2012 Equity Incentive Plan, dated as of May 24, 2019, by and between Masonite International
Corporation and James A. Hair (incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K (File No. 001-11796) filed with the Securities and Exchange Commission on May
24, 2019)
A
Masonite International Corporation and Howard C. Heckes (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 January 4, 2022)
mended and Restated Employment Agreement, dated as of December 31, 2021, by and between
mended and Restated Employment Agreement, dated as of December 31, 2021, by and between
A
Masonite International Corporation and RusseRR
the Company's Current Report on Form 8-K (File No. 011-11796) filed with the Securities and
Exchange Commission on January 4, 2022)
ll T. Tiejema (incorporated by reference to Exhibit 10.2 to
A
mended and Restated Employment Agreement, dated as of December 31, 2021, by and between
Masonite International Corporation and Robert E. Lewis (incorporated by reference to Exhibit 10.3 to
the Company's Current Report on Form 8-K (File No. 011-11796) filed with the Securities and
Exchange Commission on January 4, 2022)
mended and Restated Employment Agreement, dated as of December 31, 2021, by and between
A
Masonite International Corporation and Randal A. White (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 January 4, 2022)
mended and Restated Employment Agreement, dated as of December 31, 2021, by and between
A
Masonite International Corporation and Robert A. Paxton
F
the Company's Registration Statement on Form 10 (File No. 001-11796) filed with the Securities and
Exchange Commission on August 19, 2013)
orm of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.6 to
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 6rr
, 2019)
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 6rr
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)
, 2019)
101
Exhibit No. Descriptionp
10.6(d)
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
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
Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business
Reporting Language ("Inline XBRL"): (i) the Registrant's Consolidated Statements of Income and
Comprehensive Income forff
(ii) the Registrant's Consolidated Balance Sheets as of January 2, 2022, and January 3, 2021; (iii) the
Registrant's Consolidated Statements of Changes in Equity for the years ended January 2, 2022,
January 3, 2021, and December 29, 2019; (iv) the Registrant's Consolidated Statements of Cash Flows
for the years ended January 2, 2022, and January 3, 2021; and (v) the notes to the Registrant's
Consolidated Financial Statements
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
the years ended January 2, 2022, January 3, 2021, and December 29, 2019;
Filed herewith.
Denotes management contract or compensatory plan.
10.6(e)
10.6(f)
21.1*
23.1*
31.1*
31.2*
32.1*
32.2*
101*
104*
*
#
Item 16. Form 10-K Summary
None.
102
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 dulyd
authorized.
SIGNATURES
Date: February 2rr
4, 2022
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 capac
a
ities and on the dates indicated.
Signatures
g
/s/ Howard C. Heckes
Howard C. Heckes
Title
Date
President and Chief Executive Officer and Director
r
February
24, 2022
(Principal Executive Officer)
/s/ Russell T. Tiejema
Executive Vice President and Chief Financial Officer
February 2rr
4, 2022
Russell T. Tiejema
(Principal Financial Officer and Principal Accounting Officer)
/s/ Robert J. Byrner
Robert J. Byrne
/s/ Jody L. Bilney
Jody L. Bilney
/s/ John H. Chuang
John H. Chuang
/s/ Peter R. Dachowski
Peter R. Dachowski
/s/ Jonathan F. Foster
Jonathan F. Foster
a
/s/ Daphne
E. Jones
Daphne E. Jones
/s/ William S. Oesterle
William S. Osterle
/s/ Barry A. Ruffalo
Barry A. Ruffalo
ff
/s/ Francis M. Scricco
Francis M. Scricco
/s/ Jay I. Steinfeld
Jay I. Steinfeld
Director and Chairman of the Board
February 24, 2022
Director
Director
Director
Director
Director
Director
Director
Director
Director
February 2rr
4, 2022
February 24, 2022
r
February
24, 2022
r
February
24, 2022
February 2rr
4, 2022
r
February
24, 2022
February 24, 2022
February 24, 2022
February 24, 2022
Non-GAAP Financial Measures
Adjud sted EBITDA is a non-GAAP measure. Please see Note 17 to ouruu consolidated financial statements
beginning on page 80 of Form 10-K in this annual report for the definition of Adjud sted EBITDA and a
reconciliation of net income attributable to Masonite. A quantitative reconciliation of Adjud sted EBITDA to
the corresponding GAAP information is not provided for the 2025 outlook because it is difficff ult to predict
the GAAP measures that are excluded from Adjud sted EBITDA such as restructuring costs, asset
impairments, share based compensation expense and gains/losses on sales of subsidiaries and plant,
property and equipment.
Adjud sted EBITDA margin is definff ed as Adjud sted EBITDA divided by Net Sales. Management believes this
measure provides suppl
emental information on how successfulff
ly we operate ouru business.
u
Adjud sted EPS is diluteuu d earnings (loss) per common share attributable to Masonite (EPS) less restructutt ring
costs, asset impairmerr
nt charges, loss (gain) on disposal of subsidiaries, loss on extinguishment of debt and
other items, if any, that do not relate to Masonite’s underlying business performance (each net of related
tax expense (benefitff )). Management uses this measure to evaluate the overall perforff mance
of the Company
information regarding the
and believes this measure provides investors with helpfulff
underlying performance of the Company from period to period. This measure may be inconsistent with
similar measures presented by other companies.
suppu lemental
a
r tax divided by average invested
Return on Invested Capia tal (ROIC) is defined as net operating profitff afteff
capital. Management believes ROIC provides investors with an importarr nt perspective on how effeff ctively
Masonite deploys capiaa tal.
Masonite International Corporation
Reconciliation of Non-GAAP Financial Measures
To GAAP Financial Measures
(In thousands of U.S. dollars, except share and per share amounts)
(In thousands)s
l
Net income (loss
ii
) attribut
ablell
Januaryrr 2, 2022
Year Ended
Januaryrr 3, 2021
to Masoniteii
$
94,501
$
69,037
December 29, 2019
44,602
$
ii
) attribut
able to
and equipmii
ent
l
costs
Add: Adjud stments to net income (loss
Masonite:
ii
Restructuringii
Asset impairment
Loss on disposal of subsidiaries
l
Loss on disposal of property, plant
related
s
ituret
l
Loss on extixx ngii uigg shment of debt
Pension settlement chargesgg
xx
Income tax expens
Other items (1)
Income tax impact of adjustments
Adjud sted net income attribut
ii
to divest
ii
able to Masoniteii
gg
e as a result of UK tax rate change
ted earningii
s per common share attributable to
Diluii
Masoniteii
Dilutell
ii
attribut
("EPS")
d adjusted earnings per common share
able to Masoniteii
("Adjud sted EPS")
5,567
69,900
8,590
—
13,583
23,343
,430
2
—
(17,391)
200,523
3.85
8.16
$
$
$
8,236
51,515
2,091
—
—
—
—
40,550
(18,029)
153,400
2.77
6.15
$
$
$
9,776
13,767
14,260
2,450
14,523
5,651
—
—
(11,772)
93,257
1.75
3.66
$
$
$
Shares used in computing EPS and Adjud sted EPS
24,562,533
24,943,178
25,452,722
to the settlement of U.S.
ll
action litigation in the twelvell months ended January 3, 2021, and were recorded in sellinll g, general and administration expens
$40,550 in legal reserves related
business performance include
xx
l
es
(1) Other items not part of our underlyill ngii
classll
ii nii
withi
the consolidll ated statements of income and comprem hensiveii
income.
Januaryrr 2, 2022
$
Year Ended
Januaryrr 3, 2021
$
$
143,890
8,236
2,091
154,217
38,554
115,663
December 29, 2019
129,313
$
9,776
14,260
153,349
38,337
115,012
$
Januaryrr 2, 2022
$
Januaryrr 3, 2021
$
income
(In thousands)s
Operatingii
Restructuringii
costs
Loss on disposal of subsidiii aries
Adjud sted operatingii
Less: Income tax at 25% tax rate
Net operatingii
profitff after
income
tax
ff
Total assets
Less: Cash and cash equival
ll
ents
Add: Normalizll ed cash(1)
Normalizll ed total assets
ii
ies
Total liabia litii
Less: Long-term debt
Total non-debt liabia litii
ies
Averagegg normalizll ed total assets
Less: Averagegg total non-debt liabia litii
Averagegg invested capital
ii
ies
$
$
$
$
$
$
219,292
5,567
8,590
233,449
58,362
175,087
2,246,618
381,395
103,877
1,969,100
1,546,840
865,721
681,119
1,916,235
665,760
1,250,475
2,137,760
364,674
90,283
1,863,369
December 29, 2019
1,936,584
$
166,964
87,067
1,856,687
$
December 30, 2018
1,778,465
$
115,656
86,804
1,749,613
$
1,442,643
792,242
650,401
1,860,028
579,570
1,280,458
$
$
$
$
1,299,722
790,984
508,738
1,803,150
434,250
1,368,900
$
$
1,156,160
796,398
359,762
$
$
$
$
$
Net operatingii
profitff after
Averagegg invested capital
ii
Returntt
on invested capital
ff
ii
tax
Januaryrr 2, 2022
$
$
175,087
1,250,475
14.0%
Januaryrr 3, 2021
$
$
115,663
1,280,458
9.0%
December 29, 2019
115,012
$
1,368,900
$
8.4%
(1) Assumes a normalizll ed cash level equal to 4% of annual net salesll
issuance or liquidiii
tyii manageme
nt actions
gg
to avoidi distortions from short-term fluctu
ll
ations related
ll
to items such as debt
Forward-looking Statements
i
t
II
e
e
targets,tt
“could,”ll
“mightgg ,”t
these forwarr
ture perforff marr
ive of these termsrr
to maintain relationshipsi
t,” “targer
ificaff
objectives, results, perforff marr
looking statements involve signi
of customer concentration and consolidatdd ion; our abilitytt
ting,” or the negat
nt known and unknokk wn riskii
t, including the letter to shareholders contained herein, includes “forff warr
rd-ldd ooking statements”
This annual repor
skk and uncertainties.ee One can
within the meaning of the federal securities laws, all of which are subject to riskii
oking statements by their use of words such as “may,”yy
idendd tifyi
“will,”
rd-lodd
ect,”t “believes,” “outlook,”kk “predict,”t “forff ecast,” “objective,” “remain,” “anticipate,”
“would,” “should,” “expee
“estimate,” “potential,” “continue,” “plan,” “projeco
or other
similar terminology.gg Forward-rr
s,kk uncertainties and
nce or achievements of Masonite, or industryrr results, to be
other factorsrr that maya cause the actual results, perforff marr
materially diffeff rent from any future plans, goals,
nce or achievements
expressed or implm ied by such forward-rr
looking statements. As a result,t such forward-looking statements should not
nce or results, should not be unduly relied upon, and will not necessarily
be read as guarantees of fuff
be accurate indications of whether or not such resultstt will be achieved.dd Factors that could cause actual results to
diffi erff materiallyll
from the results discii ussed in the forward-looking statements include, but are not limited to,
trends in our end marketkk stt and in economic conditions; reduced levels of residential new construction;
downwardrr
r, renovation and remodeling; and non-residendd tial building construction activitytt due to increases
e
residential repai
interest deductions and related taxaa changes and reduced availability of
in mortgag
e rates, changes in mortgage
t
with, certain keye
financing; competition; the continued success offf and our abilitytt
customersrr in light
to accurately anticipate demand for
our products; impam ctstt on our business including seasonality,tt weather and climate change; scale and scope of the
yll
19”)” pandemic and its impam ct on our operatrr ions, customer demand and suppl
ongoing coronavirus (“COVID-
chain; increases in prices and raw materialsll and fuel; tariffsi
and evolving trade policyc and friction between the
United States and other countries, including China, and the impacm t of anti-dumping and duties; increases in labor
to
costs,tt
(including related
manage our operations
restructuring charger
our ability to
generate suffu icff
to meet our pension obligations, and to
our senior notes and our asset-based revolving
meet our debt service obligations, including our obligat
credit facility (“AB“
);” limitations on operating our business as a result of covenant restrictions under
our existing and future indebtednedd ss, including our senior notes and our ABL Facility; fluctuating foreigngg
e our expiring patentstt and to innovate, keep pace with
to reple acll
exchange and interest rates; our abilitytt
technological developmo
ly integragg te acquisitions; the continuous operation of our infon rmation
ents and successfulff
resource planning systyy ems and management of potential cyber security threatstt and
technology and enterpriseii
skk that arise from operating a multinational business; uncertainty relating
attacks;kk political, economic and other riskii
from the Europeo an Union; retention of key management personnel; and
to the United Kingdom's'
environmental and other governmrr
Practices Act
losed by the Companyn from time to
(“FC“
time (including those discii ussed in our Annual Repor
ts on Form 10-Q
(available through the Investors section of our website at www.masonite.com)m under the sections entitled “Risk
of
Factors.rr ” We caution you that the foregoi
skk and uncertainties, the mattersrr refee rred to in the forward-looking statements contaitt ned in this Annual
these riskii
Report maya not in fact occur. We undertakekk no obligation to publicly update or revise any forward-rr
looking
statement as a result of new inforff marr
e
ent regul
lations; and other factorsrr publicly discii
PACC ”), and anyn changes in such regue
ng list of impm ortant factorsrr is not all-inclusive. In addition, in light
tion, future events or otherwise, except as otherwise required by law.
ient cash flows to fund our capia tal expex nditure requirements,tt
the availability of labor,r or labor relations (i.e., disruii
ations, includind g the United Stattt es ForFF eigni
t on Form 10-K and Quarterlyll Repor
claims and producdd t recalls;ll
s) and customer credit riskii
including potential disruii
ptu ions, strikes or workrr
stoppages); our abilitytt
turing realignments
;k producdd t liabilitytt
ptu ions, manufacff
LBB Facility”tt
ions underdd
Corruptu
exit
u
e
e
e
i
i
CORPORATRR E INFORMATION
Corporate Officff e
2771 Rutherford Road
Concord, Ontario L4K 2N6 Canada
Website
www.masonite.com
Legal Counsel
Cassels Brock Lawyers
Simpson Thatcher & Bartlett LLP
Investor Contact
Richard Leland
Vice PrePP sident FinFF ance & Treasurer
Marcus Devlin
Director of Investee or Relations
1242 East 5th Avenue
Tampa, Florida 33605
Telephone: (813) 877-2726
Email: investorrelations@masonite.com
Independent Auditors
Ernst & Young
Stock Symbol
NYSE: DOOR
Trust Company, LLC
Transferff Agent
American Stock Transfer anda
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 BRANRR DS
[THIS PAGE INTENTIONALLY LEFT BLANK]
BOARD OF DIRECTORS
Robert J. Byrne
Chairman of the Board,
Executive Chairman of Source2, Inc.
Former Founder and President of
Power Pro Tech Services, Inc.
Jody L. Bilney
Retired Chief Consumer
Officer of Humana, Inc.
John H. Chuang
Co-Founder, Chairman and
CEO of Aquent, LLC
OFFICERS
Howard C. Heckes
President and Chief Executive Officer
Russell T. Tiejema
Executive Vice President,
Chief Financial Officer
Christopher O. Ball
President – Global Residential
Robert E. Lewis
Senior Vice President, General
Counsel and Corporate Secretary
Peter R. Dachowski*
William S. Oesterle
Retired Chairman and Chief Executive
Officer of CertainTeed Corporation
Founder and Executive
Chairman of tMap, L.L.C.
Jonathan F. Foster
Barry A. Ruffalo*
Founder and Managing Director of
Current Capital Partners LLC
Howard C. Heckes
President and Chief Executive Officer
of Masonite International Corporation
Daphne E. Jones
Retired Senior Vice President – Digital/
Future of Work of GE Healthcare
President & CEO of Astec Industries, Inc.
Francis M. Scricco
Retired Senior Vice President,
Manufacturing, Logistics and
Procurement of Avaya, Inc.
Former President and Chief Executive
Officer of Arrow Electronics
Jay I. Steinfeld
Founder and Former CEO of Global
Custom Commerce (Blinds.com)
*Not pictured
Robert A. Paxton
Senior Vice President,
Human Resources
Clare R. Doyle
Senior Vice President,
Chief Sustainability Officer
Cory J. Sorice
Senior Vice President,
Chief Innovation Officer
Randal A. White
Senior Vice President, Global
Operations and Supply Chain
Daniel J. Shirk
Senior Vice President,
Chief Information Officer
Jennifer Renaud
Senior Vice President,
Chief Marketing Officer
Alex A. Legall
Victoria L. Philemon
Senior Vice President,
Business Leader – Architectural
Senior Vice President, Managing
Director Europe Business Segment
masonite.com
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