Masonite International
Annual Report 2022

Plain-text annual report

2022 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. Doors That Do More™ Every Masonite® exterior fiberglass door with our 4-Point Performance Seal is 64% better at keeping air and water out than the leading competitor. Our 4-Point Performance Seal sets the Masonite® Performance Door System apart from the rest. It’s made with Endura® components for superior energy efficiency, performance and comfort. LETTER TO OUR SHAREHOLDERS Dear Shareholders, I am pleased to report that 2022 was another year of solid performance for Masonite. We delivered strong financial results and made significant progress in executing our Doors That Do More™ strategy to position the company for long-term sustainable growth. We increased Net Sales by 11%, Adjusted EBITDA* by 8%, Adjusted Earnings Per Share (EPS)* by 19% and Return On Invested Capital (ROIC)* by 400 basis points. At the same time, we reinvested over $100 million of capital back into our business, increased our total addressable market with the acquisition of Endura Products and repurchased $149 million in outstanding shares to further enhance shareholder returns. Our management team has established an impressive three-year track record of performance with double-digit compound annual growth rates on our key financial metrics. This has not been easy, and I am grateful to all of our dedicated employees across the company who helped achieve these results despite the considerable macroeconomic headwinds and volatility we faced along the way. THREE-YEAR COMPOUND ANNUAL GROWTH +10% NET SALES +16% ADJ. EBITDA* +39% ADJ. EPS* +29% ROIC* $2.9B $2.6B $2.2B $2.3B $446M $413M $364M $283M $9.73 $8.16 18.2% 14.0% $6.15 $3.66 8.4% 9.0% 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 *Non-GAAP financial measure. See “Non-GAAP Financial Measures” at the end of the report for definitions, other information and reconciliations. LETTER TO SHAREHOLDERS RS THATAA DO MORE™ STRATEAA GIC PILLARS Deliver Reliable Supply Drive Product Leadership Win the Sale DOORS THAT DO MORE™ STRATEGY An important enabler of our growth over the past three years has been tight organizational alignment around our Doors That Do More™ strategy. The strategy has three pillars focused on delivering reliable supply with operational excellence, driving product leadership with innovation and winning the sale with engaging marketing. I believe that expanding our capabilities in these three key areas is building a competitive advantage for Masonite that will be instrumental in our ability to continue to outperform the market regardless of the business cycle. In 2022, we made meaningful progress on each of our three Doors That Do More™ strategic pillars. DELIVERING RELIABLE SUPPLY We endeavor to be the preferred business partner in our markets by consistently delivering high- quality products and outstanding service. We recognize the value that our customers put on reliability, and our work in this area is relentless. In the past year we completed over 3,000 Mvantage continuous improvement Kaizen events throughout our operations, targeting improvements in safety, efficiency and service levels. We also opened two new production facilities to modernize our global network, while taking actions to further diversify our global supply chain and make it more resilient. The new Masonite plant in Fort Mill, SC was designed for optimal safety, efficiency, and quality based on best practices from our global manufacturing network. LETTER TO SHAREHOLDERS Always Connected. Always Protected. DRIVING PRODUCT LEADERSHIP Our mission at Masonite is to make life and living better by designing and producing doors that address human needs for comfort, safety, convenience and style. In 2022 we rolled out several innovative new products including the award-winning Masonite® M-Pwr™ Smart Doors, as well as the new Masonite® Performance Door System, which is 64% better at keeping out air and water than the leading competitor. We also drove awareness of our other value-added offerings such as solid core doors, which offer homeowners increased privacy. These initiatives allowed us to benefit from tangible mix improvements in both our interior and exterior door sales. Make Masonite® Solid Core Doors The Standard * *********tttttttttttthhhhhhhhhhhhhaaaaaaaaaaaaaannnnnnnn ooooooooouuuuuuuuuuuuuuurrrrrrrrr sssssssssttttttttttttttttaaaaaaaaaaannnnnnnnnnnddddddddddddddddaaaaaaaaaaaaarrrrrrddddddddddddd hhhhhhhhhhhhhoooooooooooooooolllllllllllllllllllloooooooooooowwwwwwwwwwwwwwwwwwww cccccccccccoooooooooooooorrrrrrrrrrrreeeeeeeeee dddddddddddddddddooooooooooooooooooooooooooooooorrrrrrrrrrsssssssssss WINNING THE SALE On top of having great products and great service, we are aggressively working to build the Masonite brand and deepen customer relationships. In 2022 our activities in this area included upgrading in-store displays, executing * targeted online marketing campaigns, and creating digital assets to inspire customers embarking on a new home build or remodeling project. We also upgraded production for millions of our pre-hung doors to use Masonite branded hinges so homeowners will instantly know they have high-quality Masonite doors. LETTER TO SHAREHOLDERS ACQUISITION OF ENDURA PRODUCTS In the fourth quarter of 2022 we announced the acquisition of Endura Products, our first major acquisition since we launched the Doors That Do More™ strategy. Endura is a leading innovator and manufacturer of high-performance door frames and door system components, and the combination of the two companies is a natural fit. Key product lines include: ■ Engineered Frames ■ Installation Accessories ■ French Door Astragals ■ Weather Stripping ■ Multi-point Locks ■ Sills & Sealing Systems We have worked together with Endura for more than 25 years and recently collaborated on M-Pwr™ Smart Doors and the Masonite® Performance Door System. We are excited about the future potential for this business, and our combined team is already actively engaged in developing new concepts to further unlock the potential of fully integrated door systems. LOOKING TO THE FUTURE We have entered 2023 with a strong record of performance, a very healthy financial position that allows for continued investment and great new assets to leverage in executing our strategy. The outlook for residential construction and building products this year is uncertain, but we are confident in the long-term market fundamentals. I expect that when demand ultimately rebounds, it will bring opportunities for Masonite to accelerate our growth. In the meantime, we have developed a comprehensive 2023 playbook with initiatives aimed at supporting margins with strong price- cost management, driving commercial and operational efficiencies, reducing working capital and continuing to invest in our Doors That Do More™ strategic priorities. LETTER TO SHAREHOLDERS As a company founded in 1925 by turning waste into worth, we remain committed to achieving our goals in the context of sustainability. I firmly believe that we will continue to do well by doing good for our employees, our communities and for the environment. This underpins both our company’s purpose, “We Help People Walk Through Walls,” and our company’s Environmental, Social and Governance strategy of “Renewed Responsibility.” In our ESG report to be published later this year, I look forward to sharing with you more about our accomplishments in these areas. To all of our stakeholders, we appreciate your support and confidence in Masonite. We remain focused on delivering continued growth and outperformance in our markets. We believe we have the right people, the right strategy and the right assets to achieve these objectives. We are evolving every day into a stronger company with a more valuable brand, and we invite you to continue to invest with us to capture the benefit of the value we are creating. Howard C. Heckes President and Chief Executive Officer Masonite International Corporation March 29, 2023 [THIS PAGE INTENTIONALLY LEFT BLANK] 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 fiff scal year ended January 1, 2023 or ☐ TRARR NSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period frff om _____ to _____ Commission File Number: 001-11796 ____________________________ Masonite International Corporation (Exact name of registrant as specififf ed in its charter) ____________________________ British Columbia, Canada 98-0377314 (State or other jurisdiction of incorpor rr ation or organization) (I.R.S. Employer Identififf cation No.) 2771 Rutherforff d Road Concord, Ontario L4K 2N6 Canada (Address of principal executive offff iff ces, 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 defiff ned in RulRR e 405 of the Securities Act. Yes ☒ No o Indicate by check mark if the registrant is not required to fiff le reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ☒ Indicate by check mark whether the registrant: (1) has fiff led all reports required to be fiff led by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forff such fiff ling requirements forff such shorter period that the registrant was required to fiff le such reports), and (2) has been subject to the past 90 days. Yes ☒ No o Indicate by check mark whether the registrant has submitted electronically everyrr 405 of Regulation S-T (§232.405 of this chapta er) during the preceding 12 months (or forff submit such fiff les). Yes ☒ No ¨ Interactive Data File required to be submitted pursuant to RulRR e such shorter period that the registrant was required to Indicate by check mark whether the registrant is a large accelerated fiff ler, an accelerated fiff ler, a non-accelerated fiff ler, smaller reporting company, or an emerging growth company. See the defiff nitions of “large accelerated fiff ler,” “accelerated fiff ler,” “smaller reporting company,” and “emerging growth company” in RulRR e 12b-2 of the Exchange Act. Large accelerated fiff ler Non-accelerated fiff ler ☒ ☐ Accelerated fiff ler 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 forff any new or revised fiff nancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o complying with Indicate by check mark whether the registrant has fiff led a report on and attestation to management's assessment of the effff eff ctiveness of its internal control fiff nancial reporting under Section 404(b) of the Sarbar nes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting fiff rm that prepared or issued its audit report. ☒ If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the fiff nancial statements of the registrant included in the fiff ling reflff ect the correction of an error to previously issued fiff nancial statements. o Indicate by check mark whether any of those error corrections are restatements that required a recoveryrr analysis of incentive-based compensation received by any of the registrant's executive offff iff cers during the relevant recoveryrr period pursuant to §240.10D-1(b). o Indicate by check mark whether the registrant is a shell company (as defiff ned in RulRR e 12b-2 of the Exchange Act). Yes ☐ No ☒ As of July 3, 2022, the last business day of the registrant’s most recently completed second fiff scal quarter, the aggregate market value of the shares of voting common stock held by non-affff iff liates of the registrant, computed by refeff rence to the closing sales price of such shares on the New York Stock Exchange on July 3, 2022, was $1.7 billion. Indicate by check mark whether the registrant has fiff led all documents and reports required to be fiff led by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of the securities under a plan confiff rmed by a court. Yes ☒ No ☐ The registrant had outstanding 22,179,074 shares of Common Stock, no par value, as of Februar ryrr 24, 2023. DOCUMENTS INCORPORARR TED BY REFERENCE Portions of the registrant’s defiff nitive Proxy Statement forff to be fiff led with the Securities and Exchange Commission not later than 120 days aftff er Januaryrr 1, 2023, are incorpor Items 10-14 of this Annual Report on Form 10-K. r its 2023 Annual General Meeting of Shareholders scheduled to be held on May 11, 2023, ated by refeff rence into Part III, MASONITE INTERNATIONAL CORPORARR TION INDEX TO ANNUAL REPORT ON FORM 10-K January 1, 2023 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 Staffff Comments Properties Legal Proceedings Mine Safeff ty Disclosures Market forff 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 Supplementaryrr Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Inforff mation Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Directors, Executive Offff iff cers and Corpor r ate Governance Executive Compensation Security Ownership of Certain Benefiff cial 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 Summaryrr Page No. g 1 11 24 25 25 25 26 28 29 45 47 96 96 98 98 99 100 100 100 101 102 106 i SPECIAL NOTE REGARDING FORWAR RD-LOOKING STATEMENTS This Annual Report on Form 10-K contains "forff ward-looking statements" within the meaning of the feff deral securities laws, including, without limitation, statements concerning the conditions in our industry,rr our operations, our economic perforff mance and fiff nancial condition, including, in particular, statements relating to our business and growth strategy and product development effff orff 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 faff cts and can be identififf ed by the use of words such as "may," "might," "could," "will," "would," "should," "expect," "believes," "outlook," "predict," "forff ecast," "objective," "remain," "anticipate," "estimate," "potential," "continue," "plan," "project," "targeting," and other similar expressions. You are cautioned not to place undue reliance on these forff ward-looking statements, which speak only as of their dates. These forff ward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonabla e, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those identififf ed under "Risk Factors" and elsewhere in this Annual Report. ts The folff lowing list represents some, but not necessarily all, of the faff ctors that could cause actuat l results to diffff eff r frff om historical results or those anticipated or predicted by these forff ward-looking statements: • • • • • • • • • • • • • • • • • • • • • a l; our products; costs, the availabia lity of labor ly consummate and integrate acquisitions; tion; residential repair, renovation and remodeling; and non-residential building tion activity due to increases in mortgage rates, changes in mortgage interest deductions and related tax changes and downward trends in our end markets and in economic conditions; reduced levels of residential new construcr construcr reduced availabia lity of fiff nancing; competition; the continued success of,ff and our abia lity to maintain relationships with, certain key customers in light of customer concentration and consolidation; our abia lity to accurately anticipate demand forff impacts on our business frff om weather and climate change; our abia lity to successfulff changes in prices of raw materials and fueff tariffff sff and evolving trade policy and frff iction between the United States and other countries, including China, and the impact of anti-dumping and countervailing duties; increases in labor our abia lity to manage our operations including potential disrupt restrucr product liabia lity claims and product recalls; our abia lity to generate suffff iff cient cash flff ows to fund obligations, including our obligations under our senior notes, our term loan credit agreement (the "Term Loan Facility") and our asset-based revolving credit faff cility (the "ABL Facility"); limitations on operating our business as a result of covenant restrictions under our existing and futff urt e indebtedness, including our senior notes, the Term Loan Facility and the ABL Facility; flff uctuat the continuous operation of our inforff mation technology and enterprr potential cyber security threats and attacks and data privacy requirements; political, economic and other risks that arise frff om operating a multinational business; retention of key management personnel; environmental and other government regulations, including the United States Foreign Corrupt any changes in such regulations; the scale and scope of public health issues and their impact on our operations, customer demand and supply chain; and our abia lity to replace our expiring patents and to innovate and keep pace with technological developments. our capia tal expenditurt e requirements and to meet our debt service ise resource planning systems and management of ting forff eign exchange and interest rates; ing charges) and customer credit risk; ing realignments (including related ions, strikes or work stoppages); Practices Act ("FCPA"), and relations (i.e., disrupt ions, manufaff cturt a or labor turt a ff r rr r We caution you that the forff egoing list of important faff ctors is not all-inclusive. In addition, in light of these risks and uncertainties, the matters refeff rred to in the forff ward-looking statements contained in this Annual Report may not in faff ct occur. We undertake no obligation to publicly update or revise any forff ward-looking statement as a result of new inforff mation, futff urt e 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 inforff mation. Financial and other important inforff mation regarding the Company is routinely posted on and accessible through p the Company’s website at http:t mycompany/ p email address by visiting the "Email Alerts" section at http:t p y . In addition, you may automatically receive email alerts and other inforff mation about ://// www.linkedin.com/company/masonitedoors/ the Company when you enroll your p and its LinkedIn page at httpst . //// investor.masonite.com //// investor.masonite.com p y y a iii [THIS PAGE INTENTIONALLY LEFT BLANK] PART I " ," "our " and thett rwisii e or thett m "ComCC pany UnlUU ess we state othett "us" relates to a period ending prior to thett a")" , exee cepte Endur a Productstt ("E" ndur EE EE does not give efe fff eff ct to thett Endur EE a acquisii ition. contexee t othett rwisii e requires, in thitt sii Annual Repor e t,t all refe eff rences to "M" asMM onite," "w"" e," " refe eff r to MasMM onite IntII ernational CorCC por r ation and itstt subsidiaries. Because thitt sii repor e consummation of our acquisii ition of thett as exee prx esslyll noted, thitt sii repor t,t including thett holdil ng company ,yy EPEE IPP HolHH dil ngs, IncII disii cussion of our business below,w m e t ., of Item 1. Business Overview We are a leading global designer, manufaff cturt er, marketer and distributor of interior and exterior doors and the new construr ction and repair, renovation and remodeling sectors of the residential and non- door systems forff residential building construcrr tion markets. Since 1925, we have provided our customers with innovative products and superior service at compelling values. Today, we believe we hold either the number one or two market position in the seven product categories we target in North America: interior molded residential doors; interior stile and rail residential doors; exterior fiff berglass residential doors; exterior steel residential doors; interior architecturt al wood doors; wood veneers; and door core. We operate 59 manufaff cturt Europe, South America and Asia, which are strategically located to serve our customers. ing and distribution faff cilities in seven countries in North America, We are committed to delivering growth forff our customers, partners, shareholders and employees through our Doors That Do MoreTM strategy, which has three pillars: (1) Drive Product Leadership, (2) Win the Sale and (3) Deliver Reliabla e Supply. Drive Product Leadership emphasizes offff eff ring innovative door solutions that address human needs forff t, safeff ty, convenience and style. Win the Sale focff uses on making Masonite the brand that customers never comforff substitutt e by providing a better door-buying experience. Deliver Reliabla e Supply is our commitment to consistently deliver high-quality products and services forff our customers and partners. In addition, we have implemented a disciplined acquisition strategy that solidififf ed our presence in the markets we serve. In 2022, we announced our intent to acquire Endura Products, a leading innovator and manufaff cturt er of high- perforff mance door frff ames and door system components. Endura has a long historyrr of product innovation and holds more than 100 patents on its door system components. This acquisition accelerates ours Doors That Do MoreTM strategy by unlocking the value of fulff ly integrated door solutions. Segment Overview The Company has an integrated business model with three reportabla e segments: North American Residential, Europe and Architecturt al. NorNN thtt American Residential Our North American Residential segment is our largest segment, focff used on providing high-quality interior doors frff om wood and recycled wood fiff bers and energy-effff iff cient, durabla e exterior doors in a wide array of designs, materials and sizes. As of the end of 2022, the residential repair, renovation and remodeling end market accounted forff over half of the net sales forff the segment. Europe Our Europe segment is a leading provider of interior doors frff om recycled wood fiff bers and energy-effff iff cient, durabla e exterior doors to the United Kingdom market. We also sell door skins (faff cings) into Western Europe frff om our manufaff cturt io of consumers across our exterior and interior residential business. ing faff cility in Ireland. Our European segment has a balanced portfolff Architectural Our Architecturt al segment provides highly specififf ed products that are designed, construcr ted and tested in accordance with regulatoryrr compliance and environmental certififf cations such as Forest Stewardship Council and LEED certififf cations. For example, the AspiroTM series offff eff rs high-end aesthetic and perforff mance qualities, and its doors are availabla e in exotic and domestic veneers, with acoustic, fiff re-rated, lead-lined and attack-resistant options and include lifeff time warranties. 1 In the fiscal year ended January 1, 2023, we sold approximately 31 million doors to approximately 6,500 customers globally. Our fiscal year 2022 net sales by segment and estimated global net sales of doors by end market are set forth below: Net(cid:3)Sales by(cid:3)Segment(cid:3)-(cid:3)2022 Europe 10% North American Residential 79% Global(cid:3)Door(cid:3)Sales (cid:3)by (cid:3) End(cid:3)Market(cid:3)-(cid:3)2022 Architectural 10% Corporate & Other 1% Total residential 90% Residential new construction 36% Residential repair, renovation and remodeling 54% Total non-residential construction 10% See Note 17 to our consolidated financial statements in this Annual Report for additional information about ff our segments. Our Products We aim to be the brand that customers request for the innovation and value we create. Our door solutions address the dynamic nature of compliance, technical specifications and developing market needs. 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 focus on cons ff umer driven innovation led us to think broadly about the entire door system and the value it r can bring when integrated. This approach combined with Masonite’s business relationships in the industry led to the development of award winning products such as the M-PwrTM Smart Doors and the Masonite Performance Door System. Masonite’s M-PwrTM Smart Doors are the first residential exterior doors to integrate power, lights, a video doorbell and smart lock into the door system. They employ patent-pending, Underwriters Laboratories ("UL") certified technology to connect residential front doors to a home’s electrical system and wireless internet network. The Masonite Perforff mance Door System features the company’s industry-leading 4-Point Performance Seal, which includes Premium Square Edge Fiberglass Doors, Endura Products’ Z-Articulating Cap SillTM, PE650 Weatherstripping, Simple Solution® Corner Pads and FrameSaver® rot-proof door frame. ff Residential Doors Interior Doors Molded panel doors are interior doors available either with a hollow or solid core and are made by assembling r ff ff ets, bedrooms, bathrooms and hallways. Our molded panel product line is subdivided into several two molded door skin panels around a wood or medium-density fiberboard ("MDF") frame. Molded panel doors are routinely used for clos distinct product groups: our Classic 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 simple aesthetics found in modern linear designs to the molded panel interior door category; the Heritage® Series, which features recessed, flat panels and sharp, Shaker-style profiles which speak to a clean, modern aesthetic while retaining comfortable familiarity found in today’s interiors; and the Livingston door, which featur ff frff iendly EmeraldTM door construction which enables homeowners, builders and architects to meet specific product tyle of home. Our doors can be upgraded to our environmentally es versatile and timeless design for any s ff ff ff 2 requirements and "green" specififf cations to attain Leadership in Energy and Environmental Design ("LEED") certififf cation. Flush interior doors are availabla e 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 frff ame. These doors can either have a wood veneer surfaff ce suitabla e forff residential flff ush doors consisting of unfiff nished composite wood to the ultra high-end exotic wood veneer doors. paint or staining or a composite wood surfaff ce suitabla e forff paint. Our flff ush doors range frff om base Exterior Doors Fiberglass doors are considered premier exterior doors and are made by assembling two fiff berglass door faff cings to a wood frff ame or composite material and injecting the core with polyurethane insulation. Fiberglass is strong, durabla e, lightweight and impervious to many caustics and to extreme temperaturt es. These attributes make fiff berglass an ideal material forff an exterior door that may faff ce extremes in temperaturt e, exposure to the elements and general wear and tear. In the United Kingdom, Door-StopTM branded fiff berglass doors are manufaff cturt ed into pre-hung door sets and shipped to tion and fiff nishes will help leading lead times. We believe our innovative designs, construcr our customers with industry-rr in the futff urt e. Our Solidor® exterior our fiff berglass door collections retain a distinct role in the exterior product categoryrr doors are composite doors that provide the appe 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 manufaff cturt ers and suppliers of composite doors. arance of timber, but with the benefiff ts of modern, low maintenance a Steel doors are exterior doors made by assembling two interlocking steel faff cings (paneled or flff at) or attaching two steel faff cings to a wood or steel frff ame and injecting the core with polyurethane insulation. With our func Utility Steel series, the design centric High Defiff nition faff mily and the pre-fiff nished Sta-Trur ® HD, we offff eff r customers the frff eedom to select the right combination of design, protection and compliance required forff exterior door appl clear or decorative glass designs. ication. In addition, our product offff eff ring is signififf cantly increased through our variety of compatible essentially any paint grade tional a ff Stile and rail doors are made frff om wood or MDF with individual panels, which have been cut, milled, veneered and assembled frff om lumber such as clear pine, knotty pine, oak and cherry.rr Within our stile and rail line, glass panels can be inserted to create what is commonly refeff rred to as a French door and we offff eff r a number of glass designs e. Where horizontal slats are inserted between the stiles and rails, the resulting door is refeff rred to forff rr hallways, room dividers, closets and as a louver door. For interior purpos r es, stile and rail doors are used as entryrr doors oftff en including decorative glass inserts. bathrooms. For exterior purpos es, stile and rail doors are primarily used forff use in this purpos rr Architectural Doorsrr Architecturt al doors are typically highly specififf ed products designed, construcr ted and tested to ensure that regulatoryrr compliance such as fiff re codes and environmental certififf cations such as Forest Stewardship Council are met. ional (schools, healthcare and government) and commercial (hotels, offff iff ces and retail) These doors are sold into institutt end markets. These end markets require doors that provide fiff re safeff ty, security, acoustic comforff t and sustainabia lity. Our io is represented by two series, AspiroTM and CenduraTM which are comprised of stile and rail, flff ush architecturt al portfolff wood veneer, painted and laminate doors. The AspiroTM series offff eff rs premium and custom aesthetic options along with high perforff mance options in acoustic, fiff re-rated, lead-lined, attack- and bullet-resistance and sustainabia lity. The CenduraTM series provides a balance of perforff mance and value and is availabla e with our standard aesthetic options with io allows us to provide a wide range of solutions to cover the varied needs of acoustic and fiff re-rated options. Our portfolff ional end markets. commercial and institutt m ComCC pone ntstt In addition to residential and architecturt al doors, we also sell several door components to the building materials industry.rr Within the residential new construcr tion market, we provide interior door faff cings, agri-fiff ber and particleboard door cores, MDF and wood cut stock components to multiple manufaff cturt ers. Within the architecturt al building construcr tion 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 architecturt al door industry.rr Molded door faff cings are thin sheets of molded hardboard produced by grinding or defiff brating wood chips, adding resin and other ingredients, creating a thick mat of wood fiff bers, which is then pressed between steel die plates to 3 forff m a molded sheet, the surfaff ce of which may be smooth or may contain a wood grain pattern. Following pressing, molded door faff cings are trimmed, primed and shipped to door manufaff cturt to produce molded doors. ing plants where they are mounted on frff ames Door frff aming materials, commonly refeff rred to as cut stock, are wood or MDF components that constitutt e the frff ame on which interior and exterior door faff cings are attached. Door cores are pressed fiff ber mats of refiff ned wood chips or agri-fiff ber used in the construcr minutes or longer, the door core typically consists of an inert mineral core or similar compounds. tion of solid core doors. For doors that must achieve a fiff re rating higher than 45 Research and Development We believe we are a global leader in end user focff used innovation and development of doors, door components ing processes involved in making such products. We believe that and fulff l door solutions as well as the manufaff cturt research and development is a competitive advantage forff us, and we intend to capia talize on our leadership in this area through focff us on end user problems that lead to the development of more new and innovative products. Our end user experience, research and development and engineering capaa bia lities enabla e us to organically create and solicit external innovative ideas; methodically validate commercial and technical viabia lity; use cross func business case hypotheses forff improvements. The result of this rigorous appr solutions, enhance the manufaff cturt Masonite’s Doors That Do MoreTM strategy, we have invested in innovation activities with a signififf cant focff us on the development of new, diffff eff rentiated products such as our M-PwrTM Smart Doors, as well as focff using on process and material improvements to improve quality. In the Architecturt al wood door market, we have directed research and development to address the growing need forff our fiff rst attack resistant door system and expanded offff eff rings of fiff re-resistant products. ing process oach enabla es us to launch new innovative, proprietaryrr end user valued ing effff iff ciency of our products, improve quality and reduce costs. As part of promising concepts; and implement new to world products and manufaff cturt specififf ed door systems in critical areas of safeff ty and security, including tional teams to develop a ff As an integrated manufaff cturt er focff used on the door industry,rr we have technical depth and expertise frff om l door system testing and development that parallels our vertical integration. ental in our abia lity to thoroughly qualifyff alternative materials and components to material science to components and fulff These capaa bia lities have been instrumr address supply challenges over the past feff w years. We leverage our deep knowledge and experience in door construcr use in our faff cilities. We believe this provides us with a unique abia lity to offff eff r a combination of high value door solutions to meet the needs of a variety of end users and customers. This capaa bia lity also enabla es us to develop and implement product and production process improvements which increase average unit price, enhance production effff iff ciency and/or reduce costs. tion and assembly as well as our abia lity to manufaff cturt e dies forff Raw Materials While Masonite is vertically integrated, we require a regular supply of raw materials, such as wood chips, a appr oximately 53% of the total cost of the fiff nished product. In certain instances, we depend 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 frff ames to manufaff cturt e and assemble our products. In 2022, our materials cost accounted forff on a single or limited number of suppliers forff utilized in the manufaff cturt ing of interior molded faff cings, exterior fiff berglass door faff cings and door cores are purchased frff om global, regional and local suppliers taking into consideration the relative frff eight cost of these materials. Internal frff aming components, MDF, cut stock and internal door cores are manufaff cturt ed internally at our faff cilities and supplemented frff om suppliers located throughout the world. We utilize a network of suppliers based in North America, Europe, South America and Asia to purchase other components including steel coils forff faff cings, MDF, plywood and hardboa these supplies. Wood chips, logs, resins, binders and other additives rd faff cings, door jambs and frff ames and glass frff ames and inserts. the stamping of steel door d Manufacff turing Process Our manufaff cturt ing process is designed to deliver reliabla e supply of high-quality products and outstanding ing technologies to increase quality and service. Over the past several years, we have invested in advanced manufaff cturt shorten lead times. Launched in 2015, we leverage the Mvantage operating system within our manufaff cturt ing processes to systemically focff us on the elimination of waste and non-value-added activities throughout the organization. In 2022, we continued to progress our deployment of Mvantage throughout the entire enterprrr manufaff cturt and to reduce the need forff automation to improve production and effff iff ciency, product quality and the work experience forff forff kliftff trucrr ks to enhance safeff ty and reduce emissions and utilizes advanced manufaff cturt our employees. Our ing effff iff ciency. Our newest European plant, Stoke-on-Trent, has been optimized to improve material flff ow ise to drive improvements in ing 4 newest North American interior door faff cility in Fort Mill, South Carolina, was designed to incorpor Mvantage practices as well as incorpor process. ate the latest manufaff cturt ing technology to optimize the door manufaff cturt r rr ate all of our best ing We are one of the feff w vertically integrated door manufaff cturt ers in the world and one of only two in the North American residential molded interior door industryrr as well as the only vertically integrated door manufaff cturt er in the North American architecturt al interior wood door industry.rr Our vertical integration extends to all steps of the production process frff om initial design, development and production of steel press plates to produce interior molded and exterior fiff berglass door faff cings to the manufaff cturt to door assembly. We also offff eff r incremental value by pre-machining doors forff hardware, hanging doors in frff ames with glass and hardware and pre-fiff nishing doors with paint or stain. We believe that our vertical integration and automation enhance our abia lity to develop new and proprietaryrr products, provide greater value and improved customer service and create high barriers to entry.rr We also believe vertical integration enhances our abia lity to be more cost effff iff cient, although our cost strucrr turt e is subject to certain faff ctors beyond our control, such as global commodity shocks. ing of door components, such as door cores, wood veneers and molded faff cings, Our manufaff cturt ing operations consist of three maja or manufaff cturt ing processes: (1) component manufaff cturt ing, (2) door assembly and (3) value-added ready to install door faff bra ication. We have a leading position in the manufaff cturt ing of door components, including internal frff aming components (stile and rails), glass inserts (lites), door core, interior door faff cings (molded and veneer) and exterior door faff cings. The manufaff cturt ing of interior molded door faff cings is the most complex of these processes requiring a signififf cant investment in large scale wood fiff ber processing equipment. Interior molded door faff cings are produced by combining fiff ne wood particles, synthetic resins and other additives under heat and pressure in large multi-opening automated presses utilizing Masonite proprietaryrr steel plates. The faff cings are then primed, cut and inspected in a second highly automated continuous operation prior to being packed forff shipping to our door assembly plants. We operate fiff ve interior molded door faff cing 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 faff cing plants in the world and we believe one of the most technologically advanced in the industry.rr Interior residential hollow and solid core door manufaff cturt ing is an assembly operation that is primarily accomplished through the use of semi-skilled manual labor a interior door is based on assembly of door faff cings and various internal frff aming and support components, folff the doors being trimmed to their fiff nal specififf cations. a standard flff ush or molded lowed by tion process forff . The construcrr The assembly process varies by type of door, frff om a relatively simple process forff flff ush and molded doors, where the door faff cings are glued to a wood frff ame, to more complex processes where many pieces of solid and engineered wood are converted to louver or stile and rail doors. Architecturt al interior doors require another level of customization and sophistication employing the use of solid cores with varyirr ng degrees of sound dampening and fiff re retarding attributes, furff niturt e quality wood veneer faff cings, as well as secondaryrr machining operations to incorpor ate more sophisticated commercial hardware, openers and locks. Additionally, architecturt al doors are typically pre-fiff nished prior to sale. r The manufaff cturt ing of steel and fiff berglass exterior doors is a semi-automated process that entails combining laminated wood or rot frff ee composite frff aming components between two door faff cings and then injecting the resulting hollow core strucr manufaff cturt Laurel, Mississippi, faff cility. In addition, fiff berglass doors are predominantly manufaff cturt ed in our highly automated faff cility in Dickson, Tennessee, which has led to improved reliabia lity and quality of these products. turt e with insulating polyurethane expanding foaff m core materials. We invested in fiff berglass ing technology, including the vertical integration of our own fiff berglass sheet molding compound plant at our Short set-up times, proper production scheduling and coordinated material movement are essential to achieve a flff exible process capaa bla e of producing a wide range of door types, sizes, materials and styles. We make use of our vertically integrated and flff exible manufaff cturt common carriers to fiff ll customers’ orders and to minimize our investment in fiff nished goods inventory.rr ing operations together with scalabla e logistics primarily through the use of Finally, doors manufaff cturt ed at our door assembly plants are either sold directly to our customers or transfeff rred to our door faff bra ication faff cilities where value added services are perforff med. These value added services include machining doors forff glass inserts and side lites, painting and staining, packaging and logistical services to our customers. hinges and locksets, installing the doors into ready to install frff ames, installing hardware, adding 5 a We continued to drive operational perforff mance through our three-prong strategy, at times using a virtuat l appr oach, which includes the Model Plant Transforff mation Process, Process Improvement Teams and the focff us on a global standards and training. Our Model Plant Transforff mation Process is designed to improve the throughput and the effff iff ciency of our faff ctories using multiple appr oaches such as reconfiff guring equipment to enhance safeff ty and material flff ow, optimizing inventoryrr levels and implementing and tracking sustaining perforff mance metrics. To support our Doors That Do MoreTM strategy, we continue to leverage Mvantage as our operational perforff mance driver and have expanded the use of our Mvantage operating system throughout the enterprrr throughout the value stream. Our focff us on training has expanded to not only include our traditional kaizen faff cilitator training but also training that focff uses on making improvements in our business process areas. We have launched Six Sigma training and are now certifyiff ng Masonite trained Green and Black Belts. At Masonite, kaizen is ingrained into oach, we are driving improvements in quality and our continuous improvement culturt e. Through this strucrr productivity while remaining focff used on reliabla e service to our customers. ise and are focff used on driving improvement a turt ed appr Sales and Marketing We focff us on making Masonite the brand that customers never substitutt e. Our curated product portfolff io aligns with our customers' needs and positions us forff futff urt e growth. MulMM ti-Level/ll Se// gme ent Disii trt ibution Strt ategye Our sales and marketing effff orff through creative end-user and channel marketing and a seamless purchasing experience. The targeted appr by our consumer-centric research which uncovered unmet needs around the home forff convenience. style, comforff t, safeff ty, and ts are concentrated on key initiatives designed to build a strong brand prefeff rence oach is driven a We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers, rds, commercial and general contractors and architects through well-establa ished wholesale, retail and direct lumberyarr io of brands includes Masonite®, distribution channels as part of our cross-merchandising strategy. Our portfolff Premdor®, Solidor®, Residor®, Nicedor®, Door-Stop InternationalTM, Harring DoorsTM, National HickmanTM, Masonite Architecturt alTM, Graham-MaimanTM, BaillargeonTM, USA Wood DoorTM, Florida Made Door, Louisiana Millwork, and BWISM Distribution. These are among the most recognized brands in the door industryrr and are respected forff the innovation, quality and value they provide. 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 abia lity to leverage our branding, marketing and selling strategies. We service our big box retail customers directly frff om our own door faff bra ication faff cilities which provide value added services and logistics, including store direct deliveryrr of doors and entryrr systems and a fulff l complement of in- store merchandising, displays and fiff eld service. Our residential wholesale sales profeff ssionals focff us on down channel initiatives designed to ensure our products are "pulled" through our North American wholesale distribution network. Our North American architecturt al customers are serviced by a dedicated sales and marketing team providing ication architects, door and hardware distributors, general contractors and project owners a wide range of product appl advice, technical specififf cations, and appl icabla e compliance and regulatoryrr certififf cations. a a Service Innov II ation 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. Regardless of channel, our marketing appr the people who pass through them everyrr day. our doors and door systems forff the solutions they provide forff oach is to drive demand forff a Our proprietaryrr web-based tools provide our channel customers with direct access to a wide range of them to sell our products. Within our North American Residential inforff mation and materials to make it easier forff business, these tools include Mconnect®, an online service portal providing our customers access to several other e- commerce tools designed to enhance the manufaff cturt er-customer relationship. Once connected to our system, customers have secure access to Masonite products; the Product Corner, a section advising customers of the feff aturt es and benefiff ts of our newest products; the Media Library,rr a comprehensive supply of marketing materials and self-ff service resources; and Order Tracker, which allows customers to folff deliveryrr dates. low their purchase orders through the production process and confiff rm 6 Our Solidor® and Door-Stop International websites are fulff ff ly func tional confiff guration and order platforff ms that support our entryrr door customers in the United Kingdom. The dynamic integration of Solidor's and Door-Stop's enterprrr are availabla e, which ensures that we are abla e to deliver on our promise of dependabla e lead-times. ise resource planning systems and their websites ensure that the products customers view, confiff gure and order In our Architecturt al business, our cloud-based door confiff gurator, DoorBuilderTM Live, enabla es customers to tively. Additionally, our DoorUniversity training program helps architects select and order the right door easily and intuit select solutions to meet their project and client goals while earning American Institutt e of Architect continuing education units. Intellectual Property In North America, our doors are marketed primarily under the Masonite® brand. Other North American brands include: Premdor®, Masonite Architecturt al®, Barrington®, Oakcraftff ®, Sta-Trur ® HD, Vistagrande®, Flagstaffff ®ff , Hollister®, Sierra®, Fast-Frame®, Safeff ’N Sound®, Livingston®, AquaSeal®, Cheyenne®, Riverside®, Fast-Fit®, Megantic®, Lemieux Doors®, Harring Doors®, FyreWerks® and Marshfiff eld-Algoma®. In Europe, doors are marketed under the Masonite®, Premdor®, Premdor Speed Set®, Door-Stop International®, National Hickman®, Defiff ning 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 forff diffff eff rentiating products frff om competitors and between customers. a a We protect the intellectuat l property that we develop through, among other things, fiff ling forff patents in the United States and various forff eign countries. In the United States, we currently have 297 design patents and design patent appl patent appl a appl registered trademarks and tradenames are generally appl trademarks have terms as set by the particular country,rr ications and 126 utility patents and patent appl ications and 187 forff eign utility patents and patent appl icabla e forff although trademarks generally are renewabla e. 15 years and our United States 10 years and are renewabla e. Our forff eign patents and 20 years frff om the earliest fiff ling date, our United States design patents forff ications. We currently have 201 forff eign design patents and ications. Our United States utility patents are generally icabla e forff a a a Distribution Residential doors are primarily sold through wholesale and retail distribution channels. • WholWW esale. In the wholesale channel, door manufaff cturt ers sell their products to homebuilders, rds, dealers and building products retailers in two steps or one step. Two-step contractors, lumberyarr distributors typically purchase doors frff om manufaff cturt ers 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 offff eff r large, warehouse size retail space with large selections, while specialty retailers are niche players that focff us on certain styles and types of doors. Architecturt al doors are primarily sold through specialized one-step wholesale distribution channels where distributors sell to general contractors and end-use clients. Customers During fiff scal year 2022, we sold our products worldwide to appr a oximately 6,500 customers. We have developed strong relationships with these customers through our "All Products" cross merchandising strategy. Our vertical integration faff cilitates our "All Products" strategy with our door faff bra ication faff cilities in particular providing value-added faff bra ication and logistical services to our customers, including store deliveryrr of pre-hung interior and exterior doors to our customers in North America. All of our top 20 customers have purchased doors frff om us forff 10 years. at least Although we have a large number of customers worldwide, our largest customer, The Home Depot, accounted oximately 22% of our total net sales in fiff scal year 2022. Due to the depth and breadth of the relationship with a appr forff this customer, which operates in multiple North American geographi our management believes that this relationship is likely to continue. a c regions and which sells a variety of our products, 7 Competition The North American door industryrr is highly competitive and includes a number of global and local the primaryrr participants are Masonite and JELD- including Steves and Sons Inc. and Lynden Door, Inc., that participants. In the North American residential interior door industry,rr WEN, which are the only vertically integrated manufaff cturt ers of molded door faff cings. There are also a number of smaller competitors in the residential interior door industry,rr the primarily source door faff cings frff om third party suppliers. In the North American residential exterior door industry,rr primaryrr participants are Masonite, JELD-WEN, Plastprt o, Therma-Tru,r Feather River and Steves and Sons Inc. In the North American non-residential building construcr tion door industry,rr Industries with the remainder supplied by multiple regional manufaff cturt ers. Our primaryrr market in Europe is the United Kingdom. The United Kingdom door industryrr participants. The primaryrr participants in the United Kingdom are our subsidiaryrr Premdor, JELD-WEN, Vicaima and Distinction Doors. Competition in these markets is primarily based on product quality, design characteristics, brand awareness, serviceabia lity, distribution capaa bia lities and value. We also faff ce competition in the other countries in which we operate. is similarly competitive, including a number of global and local the primaryrr participants are Masonite and VT A signififf cant portion of our net sales are sold to large home centers and other large retailers. The consolidation of our customers and our reliance on feff wer larger customers has increased the competitive pressures as some of our largest customers, such as The Home Depot, perforff m periodic product line reviews to assess their product offff eff rings and suppliers. We are one of the largest manufaff cturt ers of molded door faff cings in the world. Competition in the molded door faff cing business is based on quality, price, product design, logistics and customer service. We produce molded door faff cings to meet our own requirements, and outside of North America we serve as an important supplier to the door industryrr at large. Human Capital Resources Our Company culturt e is based upon a strong set of values. Our Culturt al Pillars defiff ne how we act and interact, both as individuals and as an organization. They reflff ect the environment we create where people are empowered, collabor a communities in which we work. our customers, teammates, shareholders, suppliers and ative and focff used on doing the right thing forff Our workforff ce includes over 10,000 employees and contract personnel located in nine diffff eff rent countries. This oximately 80% of whom are located in North America with the a includes appr remainder in various forff eign locations. Nine of our North American faff cilities have individual collective bargaining agreements, which are negotiated locally and the terms of which varyrr by location. oximately 2,600 unionized employees, appr a t r Our Company’s Purpos ties to recognize and reward their perforff mance in order to engage and retain our skilled, diverse and motivated e: We Help People Walk Through WallsSM, is reflff ected in our talent strategy that is focff used on attracting and selecting exceptional talent, helping them develop and grow profeff ssionally and providing opportuni workforff ce. We focff us on the employee experience, removing barriers to inclusion, in an effff orff their fulff operate and seek to grow and develop the diffff eff rent capaa bia lities and skills we need forff robust pipeline of availabla e talent throughout the organization. l potential and highest levels of perforff mance. We aspire to be the employer of choice within our markets we the futff urt e, while maintaining a our people to realize t forff We embrace the diversity of our employees and our customers, including their unique backgrounds, r a thered our progress towards a more equitabla e and inclusive workforff ce by ate Diversity Council and fiff ve regional Diversity, Equity and Inclusion ("DEI") councils representing cs and assist in driving forff ward DEI initiatives and programming. In 2022, our diversity strategy was furff experiences and talents. In 2021, we furff forff ming a corpor Canada, the United States, Chile, Mexico and the United Kingdom/Ireland regions. These councils are comprised of tional individuals and leaders frff om across their respective regions that represent various diversity ff cross-func demographi ther enhanced with the establa ishment of employee affff iff nity groups that provide a place of belonging, support and allyship forff employees. At Masonite, everyone their unique contributions to the growth and eciated forff sustainabia lity of our business. We strive to cultivate a culturt e that supports and enhances our abia lity to recruirr engage and retain diverse talent at everyrr our goal is to retain a highly engaged team, thereby reducing voluntaryrr 2022, our voluntaryrr employee turt nover rate forff a appr oximately 300 bps frff om 2021. These locations collectively make up 83% of our employees in the United States, Canada and the United Kingdom was level. We monitor engagement in part through a voluntaryrr turt nover year over year. During fiff scal year t, develop, turt nover metric as oximately 21%, a reduction of appr is valued and appr a a rr 8 global workforff ce. We also track 12-month retention rates, which have improved over time. At the end of 2022, our combined hourly employee retention rate in the United States, Canada and the United Kingdom was over 85% across all locations. We use a variety of methods to listen to our employees and capta urt e their feff edback. These methods include all- employee calls, focff us groups, employee and manager forff umrr employee engagement survey. Our annual employee engagement survey is conducted by an external analytics and advisoryrr fiff rm. In 2022, the employee response rate increased by 5% to our highest-ever rate of 90% with six faff cilities having a 100% response rate. Since we initially administered the survey in 2017, our mean results have increased each year, reaching 3.75 out of 5.00 in 2022. s, town hall meetings and an annual company-wide In support of our Company's purpos ng to assist individuals, organizations and causes in the communities where we live and work. Our We Help People Walk Through Walls Community Grant Program provides fundi most in their local communities. To date, the program has awarded over $180,000 in community grants to 50 diffff eff rent causes. e, in 2021 we launched a quarterly grant program to provide fundi the organizations our employees care about ng forff a rr ff ff We believe that safeff ty is as important to our success as productivity and quality. This is reflff ected in our goal of Target Zero injuries and our continued effff orff prevented through proper management, employee involvement, standardized operations and equipment and attention to detail. Safeff ty programs and training are provided throughout the company to ensure employees and managers have effff eff ctive tools to help identifyff and address both unsafeff conditions and at-risk behaviors. frff ee workplace. We also believe that incidents can be t to create an injury-rr Through a continued commitment to improve our safeff ty perforff mance, we have historically been successfulff reducing the number of injuries sustained by our employees. In 2022 our total incident rate, or the annual number of injuries per 100 fulff the industryrr average, our ambition is to advance workplace safeff ty by striving toward our ultimate goal of zero harm operations or Target Zero. l time equivalent employees, increased nominally. While our total incident rate remains well below in Environmental and Other Regulatory Matters Under our sustainabia lity appr a oach, we plan to set a carbon r reduction target aligned to the latest climate science r by the end of fiff scal year 2024 and responsibly source 100% of our wood by 2030. In 2022 we continued to develop a comprehensive carbon centered on reducing our reliance on fosff operational effff iff ciencies. We released a Global Wood Sourcing Policy that reinforff ces our commitment to sourcing products and materials responsibly, and outlines expectations of our responsibly sourced wood goal. reduction strategy to reduce our Scope 1 and 2 greenhouse gas emissions. This strategy is ls, increasing our renewabla e energy supply and improving overall sil fueff We strive to minimize any adverse environmental impact our operations might have to our employees, the general public and the communities of which we are a part. Reducing waste and conserving resources is core to our business. We continually look forff ties to divert our manufaff cturt back into the process or forff sourcing to shipping, to identifyff ways to conserve naturt al resources and reduce solid waste, wastewater and air emissions. ing waste frff om landfiff lls by recycling material ing process, frff om supply benefiff cial use as a byproduct. We evaluate our entire manufaff cturt opportuni t We are subject to extensive environmental laws and regulations. The geographi a c breadth of our faff cilities subjects us to environmental laws, regulations and guidelines in a number of jurisdictions, including, among others, the United States, Canada, Mexico, the United Kingdom, the Republic of Ireland, 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 manufaff cturt disposal of wastes and the remediation of contaminated sites. Many of our products are also subject to various regulations such as building and construcr and mandates related to energy effff iff ciency. tion codes, product safeff ty regulations, health and safeff ty laws and regulations ing process, waste minimization, the The Mvantage lean operating system is rooted in the lean principle of waste elimination and teaches employees throughout Masonite the skills to help identifyff and eliminate sources of waste including defeff cts, over-processing and transportation. By identifyiff ng and eliminating waste, we are creating a safeff r, more effff iff cient and productive operation. Our effff orff ts to ensure environmental compliance include the review of our operations on an ongoing basis utilizing in-house staffff and on a selective basis by specialized environmental consultants. The Environmental, Health 9 and Safeff ty team participates in industryrr groups to monitor developing regulatoryrr actions and actively develop comments on specififf c issues. Furthermore, forff conducted as part of our due diligence review process. Based on recent experience and current projections, environmental protection requirements and liabia lities are not expected to have a material effff eff ct on our business, capia tal expenditurt es, operations or fiff nancial position. our prospective acquisition targets, environmental assessments are In addition to the various environmental laws and regulations, our operations are subject to numerous forff eign, feff deral, state and local laws and regulations, including those relating to the presence of hazardous materials and protection of worker health and safeff ty, consumer protection, trade, labor we are in compliance in all material respects with existing appl a Environmental laws have changed rapia dly in recent years, and we may be subject to more stringent environmental laws in the futff urt e. It is possible our operations may result in noncompliance with, or liabia lity forff environmental laws. Should such eventuat remediation costs when remediation costs are probabla e and can be reasonabla y estimated. See Item 1A. Risk Factors: "EnvEE ironmental requirementstt and othett ation may imposm e signi liabilities on us." icabla e laws and regulations affff eff cting our operations. and employment, tax and others. We believe lities occur, we would record liabia lities forff fi iff cant environmental and legal remediation pursuant to, complm iance coststt and r government regul e e a i History and Reporting Status Masonite was founde ff d in 1925 in Laurel, Mississippi, by William H. Mason, to utilize vastly availabla e quantities of sawmill waste to manufaff cturt e a usabla e end product. Aftff er a series of transforff mational corpor r and several affff iff liated companies, voluntarily fiff led to reorganize. Additionally, Masonite International Corpor Masonite Inc. (the forff mer parent of the Company) and all of its U.S. subsidiaries fiff led voluntaryrr petitions forff reorganization under Chapta er 11 of the U.S. Bankrupt cy Court in the District of Delaware. On June 9, 2009, we emerged frff om reorganization proceedings under the CCAA in Canada and under Chapta er 11 of the U.S. Bankrupt ate activity, on March 16, 2009, Masonite International Corpora cy Code in the U.S. Bankrupt cy Code in the United States. tion ation and r r rr rr r Effff eff ctive July 4, 2011, pursuant to an amalgamation under the Business Corpor rr ations Act (British Columbia), Masonite Inc. amalgamated with Masonite International Corpor Masonite Inc., which then changed its name to Masonite International Corpor rr r ation. ation to forff m an amalgamated corpor r ation named On September 9, 2013, our shares commenced listing on the New York Stock Exchange under the symbol "DOOR" and we became subject to periodic reporting requirements under the United States feff deral securities laws. We are currently not a reporting issuer, or the equivalent, in any province or territoryrr of Canada and our shares are not listed on any recognized Canadian stock exchange. Our United States executive offff iff ces are located at 1242 E. 5th Avenue, Tampa, Florida 33605 and our Canadian executive offff iff ces are located at 2771 RutRR herforff d Road, Concord, Ontario L4K 2N6. Available Inforff mation 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 fiff led or furff nished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 availabla e through our website, frff ee of charge, as soon as reasonabla y practicabla e aftff er we electronically fiff le such material with, or furff nish it to, the Securities and Exchange Commission. Our website is www.masonite.com. Inforff mation on our website does not constitutt e part of this Annual Report on Form 10-K. 10 Item 1A. Risk Factors Repor e us. IfII any of thett suffff eff r. InII such case, thett folff YouYY t befe orff shouldl carefe ulff e investing in our common shares. TheTT lyll consider thett folff lowing facff torsrr in addition to thett r inforff mation set forff risii kskk and uncertainties described below are not thett othett lowing risii kskk actuallyll occur,r our business, fiff nancial condition or resultstt of operations wouldll trt ading price of our common shares couldl falff l,l and you may lose all or part of yff our investmtt ent. in thitt sii Annual ing thtt onlyll ones facff likekk lyll Economic and Market Risks Downward trt ends in our end markrr ekk tstt or in economic conditions couldl negat perfr orff mance. e ivelyll impacm t our business and fiff nancial Our business may be adversely impacted by changes in global economic conditions, including inflff ation, tion, availabia lity and cost of capia tal, supply chain deflff ation, interest rate flff uctuat constraints, consumer spending rates, energy availabia lity and costs, and the effff eff cts of governmental initiatives to manage economic conditions. Volatility in the fiff nancial 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 futff urt e materially adversely impact our operations, fiff nancial results and liquidity. tions, forff eign exchange rate flff uctuat Trends in our primaryrr end markets (residential new construcr tion; repair, renovation and remodeling and non- tion) directly impact our fiff nancial perforff mance because they are directly correlated to the lowing faff ctors may have a direct impact on our business in residential building construcrr demand forff the countries and regions in which our products are sold: doors and door components. Accordingly, the folff • • • • • • • • • the strength of the economy; the amount and type of residential and non-residential construcr housing sales and home values; the age of existing home stock, home vacancy rates and forff eclosures; non-residential building occupancy rates; increases in the cost of raw materials, energy or wages, or any shortage in supplies or labor the availabia lity and cost of credit; employment rates and consumer confiff dence; and demographi tion; a a ; c faff ctors such as immigration and migration of the population and trends in household forff mation. In the United States, forff example, the housing market has occasionally experienced signififf cant volatility. For example, the current and continued macro-economic conditions of high inflff ation and rising interest rates, especially the steep increases in mortgage rates during 2022, is one of the primaryrr drivers behind the overall decrease in demand forff new single faff mily homes. Market conditions and/or government actions could cause mortgage rates to increase even furff ther in the futff urt e. The current housing market is volatile with rising interest rates resulting in more expensive mortgages, elongated build cycles due to labor new construcrr faff mily homes. and supply chain constraints and an increased number of multi-faff mily tion starts, which generally use feff wer of our products and may generate less net sales than typical single a Many of our non-North American markets were acutely affff eff cted by the 2006 housing downturt n and futff urt e downturt ns could cause excess capaa us to raise prices. Due in part to both market and operating conditions, we exited certain markets make it diffff iff cult forff over the past several years, including the Czech Republic, India, Ukraine, Turkey, Romania, Hungary,rr Poland, Israel, France and South Afrff ica. city in housing and building products, including doors and door products, which may Our relatively narrow focff us within the building products industryrr amplififf es the risks inherent in a prolonged global market downturt n. The impact of this weakness on our net sales, net income and margins will be determined by many faff ctors, including industryrr capaa city, industryrr pricing, and our abia lity to implement our business plan. t IncII reases in mortgage availabilitytt of fff iff nancing forff adversrr e impacm t on our sales and profiff tabilitytt . rates, changes in mortgage thett interest deductions and related tax changes and thett purchase of new homes and home constrt uction and imprm ovementstt couldll have a material reduced t Demand forff new homes and home improvement products may be adversely affff eff cted by increases in mortgage rates and the reduced access to consumer fiff nancing. If mortgage rates continue to increase and, consequently, the abia lity 11 of prospective buyers to fiff nance purchases of new homes or home improvement products is adversely affff eff cted, our business, fiff nancial condition and results of operations may be materially and adversely affff eff cted. 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 futff urt e changes in policies set to encourage home ownership and improvement may adversely impact demand forff and have a material adverse impact on us. our products The abia lity of consumers to fiff nance these purchases is affff eff cted by such faff ctors as new and existing home prices, homeowners’ equity values, interest rates and home forff eclosures. Adverse developments affff eff cting any of these faff ctors could result in a tightening of lending standards by fiff nancial institutt consumers to fiff nance home purchases or repair and remodeling expenditurt es. Interest rates have recently experienced example, in response to increasing inflff ation, the U.S. Federal Reserve began to raise interest signififf cant volatility; forff rates in March 2022 forff the fiff rst time in over three years, ultimately increasing interest rates by over 4%, and has signaled it expects to make additional rate increases. A worsening in credit markets could adversely impact our net sales and net income. ions and reduce the abia lity of some WeWW operate in a compem titive business environment. IfII we are unable to compem te successfs ulff and our sales couldll decline. lyll ,yy we couldl lose customersrr The building products industryrr is highly competitive. Some of our principal competitors may have greater fiff nancial, marketing and distribution resources than we do and may be less leveraged than we are, providing them with more flff exibility to respond to new technology or shiftff ing consumer demand. Accordingly, these competitors may be better abla e to withstand changes in conditions within the industryrr in which we operate and may have signififf cantly greater operating and fiff nancial flff exibility than we do. Also, certain of our competitors may have excess production capaa prices even in markets where economic and market conditions have improved. For these and other reasons, our competitors could take a greater share of sales and cause us to lose business frff om our customers or hurt our margins. city, which may lead to pressure to decrease prices in order to remain competitive and may limit our abia lity to raise As a result of this competitive environment, we faff ce pressure on the sales prices of our products. Because of these pricing pressures, we may in the futff urt e experience limited growth and reductions in our profiff t margins, sales or cash flff ows, and may be unabla e to pass on futff urt e raw material price, labor customers which would also reduce profiff t margins. cost and other input cost increases to our a Because we depee nd on a core group of signi operations and our abilitytt customersrr reduce thett to implm ement price increases forff thett amount of prff oductstt i fi iff cant customersrr , our sales, cash flff owsww frff om operations, resultstt of ivelyll affff eff cted ifi our kekk ye our productstt may be negat e ye purchase frff om us or demand lower prices. Our customers consist mainly of wholesalers, retail home centers and contractors. Our top ten customers the forff eseeabla e futff urt e. However, net a substantial portion of our net sales forff a signififf cant portion of our net sales in past periods, individually or as a oximately 22% of our net sales in fiff scal year 2022. We expect that a small number of oximately 50% of our net sales in fiff scal year 2022, while our largest customer, The Home together accounted forff a appr Depot, accounted forff a appr customers will continue to account forff sales frff om customers that have accounted forff group, may not continue to do so in futff urt e periods, or if continued, may not reach or exceed historical levels in any period. For example, many of our largest customers, including The Home Depot, perforff m periodic line reviews to assess their product offff eff rings, 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 abla e to increase or maintain the margins at which we sell our products to our most signififf cant customers. Moreover, if any of these customers faff ils to remain competitive in the respective markets or encounters fiff nancial or operational problems, our net sales and profiff tabia lity may decline. We generally do not enter into long-term contracts with our customers and they generally do not have an obligation to purchase products frff om us. Thereforff e, we could lose a signififf cant customer with little or no notice. Alternatively, our customers could expect that we lower the prices of our products should the cost of raw materials decrease; our faff ilure to do so could cause such customers to seek similar products frff om our competitors. The loss of,ff or a signififf cant adverse change in, our relationships with The Home Depot or any other maja or customer could cause a material decrease in our net sales. The loss of,ff or a reduction in orders frff om, any signififf cant customers, losses arising frff om customer disputes regarding shipments, feff es, merchandise condition or related matters, or our inabia lity to collect accounts receivabla e frff om any maja or customer, could have a material adverse effff eff ct on us. Also, we have no operational or fiff nancial control over these customers and have limited inflff uence over how they conduct their businesses. 12 ConsCC olidation of our customersrr and thett ir increasing sizii e couldll adversrr elyll affff eff ct our resultstt of operations. In many of the countries in which we operate, an increasingly large number of building products are sold through large retail home centers and other large retailers. In addition, we have experienced consolidation of distributors in our wholesale distribution channel and among businesses operating in diffff eff rent geographi resulting in more customers operating nationally and internationally. If the consolidation of our customers and distributors were to continue, leading to the furff margin growth and profiff tabia lity as larger customers may realize certain operational and other benefiff ts of scale. If we faff il to provide high levels of service, broad product offff eff rings, competitive prices and timely and complete deliveries, we could lose a substantial amount of our customer base and our profiff tabia lity, margins and net sales could decrease. Consolidation of our customers could also result in the loss of a customer or a substantial portion of a customer's business. ther increase of their size and purchasing power, it could impact our c regions a IfII we are unable to accuratelyll predict futff ure demand prefe eff rences forff operations couldl be materiallyll affff eff cted. our productstt , our business and resultstt of A key element to our continued success is the abia lity to maintain accurate forff ecasting of futff urt e demand our products. Our business in general is subject to changing consumer and industryrr prefeff rences forff trends, demands and prefeff rences. Changes to consumer shopping habia ts and potential trends towards online purchases could also impact our abia lity to compete as we currently sell our products mainly through our distribution channels. Our continued success depends largely on the introduction and acceptance by our customers of new product lines and improvements to existing product lines that respond to such trends, demands and prefeff rences. Trends within the industryrr change oftff en and our faff ilure to anticipate, identifyff or quickly react to changes in these trends could lead to, among other things, reje ection of a our products, and new product line, increased substitutt could materially adversely affff eff ct us. In addition, we are subject to the risk that new products or product pricing could be introduced that would replace or reduce demand forff our products. Furthermore, new proprietaryrr designs and/or changes in manufaff cturt designs at prices that would be competitive in the marketplt ace. We may not have suffff iff cient resources to make necessaryrr investments or we may be unabla e to make the investments or acquire the intellectuat develop new products or improve our existing products. ing technologies may render our products obsolete or we may not be abla e to manufaff cturt e products or ion of our products and reduced demand and price reductions forff l property rights necessaryrr to Our business isii subject to climate change and related exee trtt eme weathett frff om operations and resultstt of operations. r eventstt tt that may affff eff ct our net sales, cash flff owsww Severe weather conditions in any quarter, such as unusually prolonged warm or cold conditions, rain, blizzards ate headquarters, our manufaff cturt fiff nished products or our abia lity to runrr tion and renovation activity. Ongoing climate change has ing plants or plants owned by one of our customers or suppliers. An increase in supply of inbound raw our plants and could reduce the quality and volume of wood or hurricanes, could accelerate, delay or halt construcr increased the frff equency and severity of these events and the related risk of an extreme weather event may affff eff ct our corpor rr average global temperaturt es could result in more frff equent and severe weather events that disrupt materials, outbound t availabla e to our manufaff cturt The impact of these types of events on our business may adversely impact our sales, cash flff ows frff om operations and results of operations. Concern over global climate change has led to signififf cant feff deral, state and international regulatoryrr effff orff ts to limit greenhouse gas emissions and increase climate-related reporting and disclosures, which could impose substantial compliance costs. In addition, new laws or futff urt e regulations could directly and indirectly affff eff ct our customers and suppliers and our business. We cannot predict the effff eff cts on our business that may result frff om global climate change. ing locations due to an increase in pest infeff station, disease or prolonged drought or flff ooding. r CC Change s in climate change regul e ation may have a material efe fff eff ct on our resultstt of operations. Laws or regulations aimed at addressing climate change, including local building codes, greenhouse gas our products or our cost of doing business. For example, in December 2022, the European Union reached an emissions, laws or regulations impacting energy supply, and other laws or regulations, may materially impact demand forff Border Adjustment Mechanism and there are agreement to introduce a carbon several United States feff deral carbon r r include a feff e on each unit of carbr on dioxide released into the atmosphere thus making carbon- services more expensive, which then provides a fiff nancial incentive to use less of these products or shiftff to lower-carbon energy is considered carbon alternatives. Currently the use of biomass forff r tax proposals that would introduce an economy-wide carbon tax under the European Union Carbon tax scheme might not tax. These proposals intensive goods and neutral. A carbon r r r r r 13 include this assumption and thus tax our bio-mass emissions at an equal rate as our fosff taxes could adversely affff eff ct our business, fiff nancial condition, results of operations and cash flff ows. sil fueff l emissions. These carbon r Acquisition-related Risks Our recent acquisii itions and any futff ure acquisii itions, ifi available, couldl be difi fff iff cult to integre ate and couldll adversrr elyll affff eff ct our operating resultstt . In the past several years, we completed several strategic acquisitions of door and door component ther enhances our product offff eff rings and capaa bia lities. From manufaff cturt ers in North America and the United Kingdom to vertically integrate and expand our operations. In Januaryrr 2023, we completed our acquisition of Endura, which furff 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 complementaryrr acquisitions and investments and may expand into product lines or businesses with which we have little or no operating experience. For example, acquisitions may involve product categories beyond what we currently sell, such as the acquisition of Endura in Januaryrr 2023. We may also engage in furff integration. However, we may faff ce competition forff acquisition targets at prices acceptabla e to us, or at all. In addition, in order to pursue our acquisition strategy, we will need signififf cant liquidity, which, as a result of the other faff ctors described herein, may not be availabla e on terms faff vorabla e to us, or at all. attractive targets and we may not be abla e to source appr ther vertical opriate a Our recent and any futff urt e acquisitions involve a number of risks, including: • • • • • • • • • • • • • • • • our inabia lity to integrate the acquired business, including their inforff mation technology systems; our inabia lity to manage acquired businesses or control integration and other costs relating to acquisitions; our lack of experience with a particular business should we invest in a new product line; diversion of management attention; our faff ilure to achieve projected synergies or cost savings; impairment of goodwill affff eff cting our reported net income; our inabia lity to retain the management or other key employees of the acquired business; our inabia lity to establa ish uniforff m standards, controls, procedures and policies; our inabia lity to retain customers of our acquired companies; risks associated with the internal controls of acquired companies; exposure to legal claims forff our due diligence procedures could faff il to detect material issues related to the acquired business; unforff eseen management and operational diffff iff culties, particularly if we acquire assets or businesses in new forff eign jurisdictions where we have little or no operational experience; damage to our reputation as a result of perforff mance or customer satisfaff ction problems relating to any acquired business; the perforff mance of any acquired business could be lower than we anticipated; and our inabia lity to enforff ce indemnififf cations and non-compete agreements. activities of the acquired business prior to the acquisition; Rising interest rates could impair or prohibit our abia lity to fiff nance acquisitions. The integration of any futff urt e acquisition into our business will likely require substantial time, effff orff resources and may distract our management in unpredictabla e ways frff om our ordinaryrr operations. The integration may also result in consolidation of certain existing operations. If we cannot successfulff timely basis, we may be unabla e to generate suffff iff cient net sales to offff sff et acquisition, integration or expansion costs, we may incur costs in excess of what we anticipate, and our expectations of futff urt e results of operations, including cost savings and synergies, may not be achieved. If we are not abla e to effff eff ctively manage recent or futff urt e acquisitions or realize their anticipated benefiff ts, it may harm our results of operations. t, attention and dedication of management ly execute on our investments on a 14 Manufacff turing and Operations ng prices forff CC Changi interruptions in deliveries of raw materialsll or fiff nisii hed goods couldl adversrr elyll affff eff ct our profiff tabilitytt ,yy margir ns and net sales. and diminisii hed availabilitytt of raw materialsll or fiff nisii hed goods used in our productstt or Our profiff tabia lity is affff eff cted by the prices and availabia lity of raw materials and fiff nished goods used in the a ted and may continue to flff uctuat ing of our products. These prices have flff uctuat costs, competition, import duties, tariffff sff , currency exchange rates and, in some cases, manufaff cturt beyond our control, including world oil prices, changes in supply and demand, weather, general economic or environmental conditions, labor government regulation. The commodities we use may undergo maja or price flff uctuat tions and there is no certainty that we will be abla e to pass these costs through to our customers. Signififf cant increases in the prices of raw materials or fiff nished goods are more diffff iff cult to pass through to customers in a short period of time and may negatively impact our short- term profiff tabia lity, margins and net sales. We may not be abla e to pass on these cost increases to our customers. Alternatively, should the prices of raw materials or fiff nished goods decrease, our customers may seek corollaryrr reductions in the pricing of our products. te based on a number of faff ctors these raw materials. We typically do not have long- 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 frff ames. In certain instances, we depend on a single or limited number of suppliers forff term contracts with our suppliers. If we are not abla e to accurately forff ecast our supply needs, the limited number of suppliers may make it diffff iff cult to obtain additional raw materials to respond to shiftff ing or increased demand. Our dependency upon regular deliveries frff om particular suppliers means that interrupt could adversely affff eff ct our operations until arrangements with alternate suppliers could be made. Furthermore, because our products and the components of some of our products are subject to regulation, such alternative suppliers, even if availabla e, may not be substitutt ed until regulatoryrr appr ions are received, thereby delaying our ovals forff abia lity to respond to supply changes. Moreover, some of our raw materials, especially those that are petroleum or chemical based, interact with other raw materials used in the manufaff cturt e of our products and thereforff e signififf cant lead time may be required to procure a compatible substitutt e. Substitutt ed materials may also not be of the same quality as our original materials. ions or stoppages in such deliveries such substitutt a r If any of our suppliers were unabla e to deliver raw materials to us forff an extended period of time (including as a the supply of raw result of delays in land or sea shipping), or if we were unabla e to negotiate acceptabla e terms forff materials with these or alternative suppliers, our business could suffff eff r. In the futff urt e, we may not be abla e to fiff nd acceptabla e supply alternatives, and any such alternatives could result in elongated build cycles and our net sales and profiff tabia lity may decline. Even if acceptabla e alternatives are found, alternatives might be disrupt the process of locating and securing such ive to our business. r ff such materials. For example, we are highly dependent upon our supply of wood chips used forff Furthermore, raw material prices could increase, and supply could decrease, if other industries compete with us the production of our our operations and even if forff door faff cings and wood composite materials. Failure to obtain signififf cant supply may disrupt we are abla e to obtain suffff iff cient supply, we may not be abla e to pass increased supply costs on to our customers in the forff m of price increases, thereby resulting in reduced margins and profiff ts. rr A rapid and prolonged increase in fueff resultstt of operations. l prices may signi i fi iff cantlyll increase our coststt and have an adversrr e impacm t on our Fuel prices may be volatile and are signififf cantly inflff uenced by international, political and economic circumstances, such as the ongoing war between RusRR sia and Ukraine. Fuel prices rose signififf cantly during extended any reason, l prices continue to rise forff portions of 2022. Although such price increases appe including fueff l prices could materially increase our shipping costs, adversely affff eff cting our results of operations. In addition, competitive pressures in our industryrr may have the effff eff ct of inhibiting our abia lity to reflff ect these increased costs in the prices of our products. ar to have leveled offff ,ff if fueff l supply shortages or unusual price volatility, the resulting higher fueff a 15 TarTT ifi fff sff and evolving trtt ade policyc betwtt een thett UniUU ted States and othett anti-dumpim ng and countervailing duties on our business and resultstt of operations. r countrt ies, including ChiCC na, and thett impacm t of Steps taken by the United States government to appl a y tariffff sff on certain products and materials could r potentially disrupt our existing supply chains and impose additional costs on our business, including costs with respect to raw materials upon which our business depends. The increased costs may negatively impact our margins as we may not be abla e to pass on the additional costs by increasing the prices of our products. For example, anti-dumping and countervailing duty trade cases, such as the Januaryrr 8, 2020, Coalition of American Millwork Producers anti-dumping and countervailing duty petitions against Wood Mouldings and Millwork Products frff om Brazil and China, has had and could continue to have an adverse effff eff ct on our business and results of operations. In order to reduce the impact on our business and results of operations, we have qualififf ed alternate suppliers and are in the process of attempting to qualifyff additional alternate suppliers in other jurisdictions and continue to evaluate additional alternate suppliers as a result of these duties. IncII facff reases in labor coststt , availabilitytt of labor,r or potential labor disii put ilities of our suppliersrr couldl materiallyll adversrr elyll affff eff ct our fiff nancial perfr orff mance. s es and workrr stoppages at our facff ilities or thett Our fiff nancial perforff mance is affff eff cted by the availabia lity of qualififf ed personnel and the cost of labor a as it impacts our direct labor and benefiff ts and the lack of qualififf ed labor of operations. a a , overhead, distribution and selling, general and administration costs. Increased costs of wages availabla e has had and could continue to have an adverse effff eff ct on our results Additionally, we have appr a oximately 10,000 employees and contract personnel worldwide, including appr oximately 2,600 unionized workers. Employees represented by these unions are subject to collective bargaining a agreements that are subject to periodic negotiation and renewal, including our agreements with employees and their respective work councils in the United States, Canada, Mexico and Chile. If we are unabla e to enter into new, labor satisfaff ctoryrr a signififf cant disrupt rr basis. If our workers were to engage in strikes, a work stoppage or other slowdowns, we could also experience disrupt r expenses, which could reduce our net sales and profiff t margins. agreements with our unionized employees upon expiration of their agreements, we could experience a ion of our operations, which could cause us to be unabla e to deliver products to customers on a timely ions could result in a loss of business and an increase in our operating ions of our operations. Such disrupt r We believe many of our direct and indirect suppliers and customers also have unionized workforff ces. Strikes, work stoppages or slowdowns experienced by our suppliers and customers could result in slowdowns or closures of faff cilities where components of our products are manufaff cturt ed or delivered. Any interrupt deliveryrr of these components could reduce sales, increase costs and have a material adverse effff eff ct on us. ion in the production or rr A disii ruption in our operations couldl materiallyll affff eff ct our operating resultstt . We operate faff cilities worldwide. Some of our faff cilities are located in areas that are vulnerabla e to hurricanes, r our operations forff earthquakes and other naturt al disasters. In the event that a hurricane, earthquake, naturt al disaster, fiff re or other any extended period of time, it could delay shipment of catastrophic event were to interrupt merchandise to our customers, damage our reputation or otherwise have a material adverse effff eff ct on our fiff nancial condition and results of operations. Closure of one of our door faff cing faff cilities, which are our most capia tal intensive and least replaceabla e production faff cilities, could have a substantial negative effff eff ct 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 abla e to maintain adequate insurance coverage in the futff urt e at an acceptabla e cost. Any liabia lity not covered by insurance could materially and adversely impact our fiff nancial condition and results of operations. r In addition, our operations may be interrupt ed by terrorist attacks, other acts of violence or war. These events may directly impact our suppliers’ or customers’ physical faff cilities. Furthermore, these events may make travel and the transportation of our supplies and products more diffff iff cult and more expensive and ultimately affff eff ct our operating results. The United States has entered into, and may enter into, additional armed conflff icts which could have a furff impact on our sales and our abia lity to deliver product to our customers in the United States and elsewhere. Political and economic instabia lity in some regions of the world, including instabia lities in the Middle East and North Korea, may also negatively impact our business. The consequences of any of these armed conflff icts are unpredictabla e, and we may not be abla e to forff esee events that could have an adverse effff eff ct on our business or your investment. More generally, any of these events could cause consumer confiff dence and spending to decrease or result in increased volatility in the United ther 16 States and worldwide fiff nancial markets and economy. They could also result in an economic recession in the United States or abra oad. Any of these occurrences could have a signififf cant impact on our operating results. acff turing realignmi ManufMM achieved, as well as reduce our flff exee ibilitytt entstt maya result in a decrease in our short-term earnings, until thett quicklkk yll to imprm oved markrr ekk t conditions. s to respond exee pex cted cost reductions are We continually review our manufaff cturt ing operations and sourcing capaa bia lities. Effff eff cts of periodic ing realignments and cost savings programs have in the past and could in the futff urt e result in a decrease in manufaff cturt our short-term earnings, including the impacts of restrucr 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 faff cilities, func tions, systems and procedures. The ts will depend in part on market conditions, and such actions may not be accomplished as quickly success of these effff orff as anticipated and the expected cost reductions may not be achieved or sustained. ing charges and related impairments and other expenses, turt ff In connection with our manufaff cturt ing realignment and cost savings programs, we have closed or consolidated turt e portions turt e and enhance operational effff iff ciencies. In December 2022, we appr a substantial portion of our global operations and reduced our personnel, which may reduce our flff exibility to respond quickly to improved market conditions. In addition, we have in the past and may again in the futff urt e, restrucr of our global workforff ce to simplifyff and streamline our organization, improve our cost strucr overall business. These changes could affff eff ct employee morale and productivity and be disrupt ive to our business and rr fiff nancial perforff mance. For example, in 2020 we closed our St. Romuald, Quebec, faff cility and Lac Megantic, Quebec, components faff cility and in 2021 we closed our Springfiff eld, Missouri, stile and rail faff cility in order to improve our cost strucr better align our operational strucr ing fooff an optimized manufaff cturt construcr tion activity could result in operational diffff iff culties, adversely impacting our abia lity to provide our products to our customers. This may result in the loss of business to our competitors in the event they are better abla e to forff ecast or respond to market demand. There can be no assurance that we will be abla e to accurately forff ecast the level of market demand or react in a timely manner to such changes, which may have a material adverse effff eff ct on our business, fiff nancial condition and results of operations. turt e and long-term business strategy and (ii) continue to drive cost effff iff ciencies through tprt tion, residential repair, renovation and remodeling and non-residential building construcrr int. Further, a faff ilure to anticipate a sharprr increase in levels of residential new turt e and strengthen our ing plan intended to (i) oved a restrucr turt a WeWW are subject to thett credit risii k of our customersrr . 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 defaff ult, could have a material adverse effff eff ct on our business, fiff nancial condition, results of operations and cash flff ows. WeWW may be thett such claims or recallsll , and we may not have suffff iff cient insurance coverage availabl oduct liabilitytt clail ms or product recallsll , we may not accuratelyll estimate coststt relatl ed to e to cover potential liabilities. subject of prff l a ications. We Our products are used and have been used in a wide variety of residential and architecturt al appl faff ce an inherent business risk of exposure to product liabia lity or other claims, including class action lawsuits, in the event our products are alleged to be defeff ctive or that the use of our products is alleged to have resulted in harm to others or to property. Because we manufaff cturt e a signififf cant portion of our products based on the specififf c requirements of our customers, faff ilure to provide our customers the products and services they specifyff could result in product-related claims and reduced or cancelled orders and delays in the collection of accounts receivabla e. We may in the futff urt e incur expenses if product liabia lity lawsuits against us are successfulff could result in adverse publicity to us, which could cause our sales to decline materially. In addition, it may be necessaryrr connected to the recall and loss of net sales. We maintain insurance coverage to protect us against product liabia lity claims, but that coverage may not be adequate to cover all claims or costs that may arise or we may not be abla e to maintain adequate insurance coverage in the futff urt e at an acceptabla e cost. Any liabia lity not covered by insurance or that exceeds our establa ished reserves could materially and adversely impact our fiff nancial condition and results of operations. us to recall defeff ctive products, which would also result in adverse publicity, as well as resulting in costs , . Moreover, any such lawsuits, whether or not successfulff forff In addition, consistent with industryrr 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 defeff cts in manufaff cturt e or design or they do not meet contractuat l specififf cations. We estimate our futff urt e warranty costs based on historical trends and product sales, but we may faff il to accurately estimate those costs and thereby faff il to establa ish adequate warranty reserves forff them. 17 Financial Risks ToTT service our consolidated indebtedness, we will require a signi depee nds on many facff business, fiff nancial condition and resultstt of operations. torsrr beye ond our contrt ol,l and any faiff i fi iff cant amount of cash. Our abilitytt to generate cash lure to meet our debt service obligat i ions couldll harm our Our estimated annual payment obligation forff 2023 with respect to our consolidated indebtedness is $60.0 million of interest payments, which gives effff eff ct to our increased indebtedness in 2023 in connection with our acquisition of Endura. To fiff nance such acquisition, we entered into a new fiff ve-year $250.0 million delayed-draw term loan faff cility (the "Term Loan Facility") and an amendment to the ABL Facility increasing the borrowing capaa $350.0 million. The loans under the Term Loan Facility are repayabla e in equal quarterly installments forff aggregate amortization payment equal to 15% of the aggregate principal amount, with the balance of the principal being due on the term loan maturt under the ABL Facility, we incur additional interest expense. Our abia lity to pay interest on and principal of the senior notes, Term Loan Facility and ABL Facility along with our abia lity to satisfyff our other debt obligations will principally depend upon our futff urt e operating perforff mance. As a result, prevailing economic conditions and fiff nancial, business and other faff ctors, many of which are beyond our control, will affff eff ct our abia lity to make these payments. ity date. If we draw funds an annual city to ff If we do not generate suffff iff cient cash flff ows frff om operations to satisfyff our consolidated debt service obligations, we may have to undertake alternative fiff nancing plans, such as refiff nancing or restrucrr assets, reducing or delaying capia tal investments or seeking to raise additional capia tal. Our abia lity to restrucr refiff nance our debt will depend on the capia tal markets and our fiff nancial condition at such time. Any refiff nancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could furff ther ents, including the Term Loan restrict our business operations. In addition, the terms of existing or futff urt e debt instrumrr Facility, the ABL Facility and the indenturt es governing the senior notes, may restrict us frff om adopting some of these alternatives. If we are unabla e to generate suffff iff cient cash flff ows to satisfyff our debt service obligations, or to refiff nance our obligations on commercially reasonabla e terms, it would have an adverse effff eff ct, which could be material, on our business, fiff nancial condition and results of operations. ing our indebtedness, selling turt e or turt Under such circumstances, we may be unabla e to comply with the provisions of our debt instrumrr ents, including ther borrowings. If we are unabla e to obtain any such waiver or amendment, our inabia lity to meet the fiff nancial the fiff nancial covenants in the Term Loan Facility and the ABL Facility. If we are unabla e to satisfyff such covenants or other provisions at any futff urt e time, we would need to seek an amendment or waiver of such fiff nancial covenants or other provisions. The lenders under the Term Loan Facility and the ABL Facility may not consent to any amendment or waiver requests that we may make in the futff urt e, and, if they do consent, they may not do so on terms which are faff vorabla e to us. The lenders will also have the right in these circumstances to terminate any commitments they have to provide furff covenants or other provisions of the Term Loan Facility and the ABL Facility would constitutt e an event of defaff ult thereunder, which would permit the lenders to accelerate repayment of borrowings under the Term Loan Facility and the ABL Facility, which in turt n would constitutt e an event of the defaff ult under the indenturt e governing the senior notes, permitting the holders of the senior notes to accelerate payment thereon. Our assets and/or cash flff ows, and/or that of our ents if accelerated upon subsidiaries, may not be suffff iff cient to fulff an event of defaff ult, and the secured lenders under the Term Loan Facility and the ABL Facility could proceed against the collateral securing that indebtedness. Such events would have a material adverse effff eff ct on our business, fiff nancial condition and results of operations, as well as on our abia lity to satisfyff our obligations in respect of the senior notes. ly repay borrowings under our outstanding debt instrumr terms of thett TheTT current and futff ure operations, particularlyll our abilitytt TeTT rm Loan FacFF ilitytt ,yy thett ABLBB FacFF ilitytt and thett indentures governing thett senior notes may restrtt ict our s to respond to changes in our business or to takekk certain actions. The credit agreements governing the Term Loan Facility and the ABL Facility as well as the indenturt es governing the senior notes contain, and the terms of any futff urt e indebtedness of ours would likely contain, a number of restrictive covenants that impose signififf cant operating and fiff nancial restrictions, including restrictions on our abia lity to engage in acts that may be in our best long-term interests. The indenturt es governing the senior notes and the credit agreements governing the Term Loan Facility and ABL Facility include covenants that, among other things, restrict our and our subsidiaries’ abia lity to: incur additional indebtedness and issue disqualififf ed or prefeff rred stock; • • make restricted payments; • sell assets; 18 create restrictions on the abia lity 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 affff iff liates. The operating and fiff nancial restrictions and covenants in the debt agreements entered into in connection with the Term Loan Facility, the ABL Facility and any futff urt e fiff nancing agreements may adversely affff eff ct our abia lity to fiff nance futff urt e operations or capia tal needs or to engage in other business activities. FlFF uctuating exee change and interest rates couldll adversrr elyll affff eff ct our fiff nancial resultstt . a ing faff cilities, the prices forff Our fiff nancial results may be adversely affff eff cted by flff uctuat oximately 26% forff ting exchange rates. Net sales generated outside of the year ended Januaryrr 1, 2023. In addition, a signififf cant percentage of a signififf cant portion of our raw materials are quoted in the domestic currency of the United States were appr our costs during the same period were not denominated in U.S. dollars. For example, forff most of our non-U.S. manufaff cturt the countryrr where the faff cility 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 futff urt e 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 fiff nancial 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 fiff nancial results. Changes in currency exchange rates forff in which we operate may require us to raise the prices of our products in that countryrr and may result in the loss of business to our competitors that sell their products at lower prices in that country.rr any countryrr Moreover, as our current indebtedness is denominated in a currency that is diffff eff rent frff om 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 fiff nancial obligations. When the outstanding indebtedness is repaid, we may be subject to taxes on any corresponding forff eign currency gain. Borrowings under our current Term Loan Facility and ABL Facility are incurred at variabla e rates of interest, , interest rates rose signififf cantly in 2022 and such a tion risk. As described above which exposes us to interest rate flff uctuat rates may continue to increase in the futff urt e. Data Security and Privacy continuous operation of our inforff mation technology sys syy tems. FaiFF lure to maintain or prevent damage to WeWW relyll on thett such inforff mation technology sys syy tems or implm ement contemporm aryr technology sys syy tems may adversrr elyll affff eff ct our business, resultstt of operations and customer relatl ionshipsi . Our inforff mation technology systems allow us to accurately maintain books and records, record transactions, r provide inforff mation to management and prepare our consolidated fiff nancial statements. We may not have suffff iff cient redundant operations to cover a loss or faff ilure in a timely manner. Our operations depend on our network of inforff mation technology systems, which are vulnerabla e to damage frff om hardware faff ilure, fiff re, power loss, telecommunications faff ilure, impacts of terrorism, cyber security vulnerabia lities (such as threats and attacks), computer virusr es, naturt al disasters (including those related to climate change) or other disasters. Any damage to our inforff mation technology systems could cause interrupt ions to our operations that materially adversely affff eff ct our abia lity to meet customers’ requirements, resulting in an adverse impact to our business, fiff nancial 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 enterprr increasingly using cloud-based technology to enabla e our customers a secure link to our systems in ways that enhance our customer relationships. We may not be abla e to successfulff systems without experiencing diffff iff culties, which could require signififf cant fiff nancial and human resources and impact our abia lity to effff iff ciently service our customers. Moreover, our recent technological initiatives and increasing dependence on technology may exacerbar ise resource planning system in our Europe segment. In addition, we are ly implement changes in our inforff mation technology te this risk. 19 Potential cyc ber thrtt eatstt and attackskk and data privacyc requirementstt couldl disii rupt our inforff mation securitytt sys syy tems and cause damage to our business and our reput ation. e Our internal inforff mation security systems and those of our current and any futff urt e partners, acquisitions, r r opriation or corrupt ion in the availabia lity of fiff nancial data, or ion of our network of systems, including third party vendors' systems. Should damage to our tion of contractors and consultants are vulnerabla e to damage frff om cyber-attacks, computer virusrr es, unauthorized access, naturt al disasters, terrorism, war and telecommunication and electrical faff ilures. Inforff mation security threats, which pose a risk to the security of our network of systems and the confiff dentiality and integrity of our data, are increasing in frff equency and sophistication as evidenced by signififf cant ransomware attacks and forff eign attacks on prominent computer softff ware systems that has had an impact on a wide variety of companies and industries. We have establa ished policies, processes and multiple layers of defeff nses designed to help identifyff and protect against intentional and unintentional a misappr network of systems occur, it could lead to the compromise of confiff dential inforff mation, manipulation and destrucr data and product specififf cations, production downtimes, disrupt misrepresentation of inforff mation via digital media. While we have not experienced any material breaches in inforff mation security, the occurrence of any of these events could adversely affff eff ct our reputation and could result in litigation, regulatoryrr action, fiff nancial loss, project delay claims and increased costs and operational consequences of implementing furff ther data protection systems. Further, regulators continue to expand data privacy and data security requirements, as well as increased fiff nes forff non-compliance of security and data breach obligations, specififf cally in the European Union and United Kingdom under their separate General Data Protection Regulations, in Canada under the Personal Inforff mation Protection and Electronic Documents Act and additional provincial data privacy laws, in the United States under the Califorff nia Consumer Privacy Act and Califorff nia Privacy Rights and Enforff cement Act and other state data privacy laws. Failure to comply with these current and futff urt e data privacy laws, policies, industryrr standards or legal obligations or any security incident resulting in the unauthorized access to, or acquisition, release or transfeff r of personal inforff mation may result in governmental enforff cement actions, litigation (including a private right of action), fiff nes, penalties and statutt oryrr damages, as well as adverse publicity that may cause our customers to lose trusrr t in us, which could have a material adverse effff eff ct on our business and results of operations. In addition, the SEC issued a proposed rulr e intended to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance and cybersecurity incident reporting, which if appr procedures to comply with these new rulrr es. oved, will require us to develop additional policies and a Geopolitical Uncertainties WeWW are exee pos x ed to political,l economic and othett r risii kskk that tt arisii e frff om operating a multinational business. We have operations in the United States, Canada, Europe and, to a lesser extent, other forff eign jurisdictions. In oximately 74% of our net sales were in the United States, 14% in Canada and 9% the year ended Januaryrr 1, 2023, appr in the United Kingdom. Further, certain of our businesses obtain raw materials and fiff nished goods frff om forff eign suppliers. Accordingly, our business is subject to political, economic and other risks that are inherent in operating in numerous countries. a These risks include: • • • • • • • the diffff iff culty of enforff cing agreements and collecting receivabla es through forff eign legal systems; trade protection measures and import or export licensing requirements; tax rates in forff eign countries and the imposition of withholding requirements on forff eign earnings; the imposition of tariffff sff , such as those recently adopted by the United States and other jurisdictions, or other restrictions; diffff iff culty in staffff iff ng and managing widespread operations and the appl required compliance with a variety of forff eign laws and regulations; and changes in general economic and political conditions in countries where we operate. ication of forff eign labor regulations; a a Our business success depends in part on our abia lity to anticipate and effff eff ctively manage these and other risks. We cannot assure you that these and other faff ctors will not have a material adverse effff eff ct on our international operations or on our business as a whole. See also "TarTT ifi fff sff and evolving trt ade policyc betwtt een thett UniUU ted States and othett r countrt ies, including ChiCC na, and thett operations." impacm t of anti-dumpim ng and countervailing duties on our business and resultstt of 20 Human Capital Risks TheTT loss of certain membersrr of our management may have an adversrr e efe fff eff ct on our operating resultstt . Our success will depend, in part, on the effff orff ts to retain our senior management and other key employees. These individuals possess sales, marketing, engineering, manufaff cturt how that are critical to the operation of our business. If we lose or suffff eff r an extended interrupt or more of our senior offff iff cers or other key employees, our fiff nancial condition and results of operations may be negatively affff eff cted. Moreover, the pool of qualififf ed individuals may be highly competitive and we may not be abla e to attract and retain qualififf ed 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 inabia lity to hire new personnel with the requisite skills, could impair our abia lity to develop new products or enhance existing products, sell products to our customers or manage our business effff eff ctively. ing, fiff nancial and administrative skills and know- ion in the services of one r Legal and Regulatory Risks EnvEE ironmental requirementstt and othett complm iance coststt and liabilities on us. r government regul e ation may imposm e signi fi iff cant environmental and legal e i We analyze environmental-related risks in two separate categories: transition risks and physical risks. Transition risks are those risks relating to the transition of the global economy to a focff us on more climate-frff iendly technologies. Physical risks frff om climate change that could affff eff ct our business include acute weather events such as flff oods, tornadoes or other severe weather and ongoing changes such as rising temperaturt es or extreme variabia lity in weather patterns. For a discussion on physical risks, please see the risk faff ctor "—Our business isii subject to climate may affff eff ct our net sales, cash flff owsww frff om operations and resultstt of change and relatl ed exee trt eme weathett operations." r eventstt tt that In respect to transition risks, our operations are subject to numerous Canadian (feff deral, provincial and local), United States (feff deral, state and local), European (European Union, national and local) and other laws and regulations relating to pollution, public reporting and disclosure related to climate change, and the protection of human health and the environment, including, without limitation, those governing emissions to air, discharges to water, storage, treatment and disposal of waste, releases of contaminants or hazardous or toxic substances, remediation of contaminated sites and protection of worker health and safeff ty. From time to time, our faff cilities are subject to investigation by governmental regulators. Despite our effff orff administrative or criminal enforff cement actions, of being held liabla e, of being subject to an order or of incurring costs, fiff nes or penalties forff , among other things, releases of contaminants or hazardous or toxic substances occurring on or emanating frff om currently or forff merly owned or operated properties or any associated offff sff ite disposal location, or forff contamination discovered at any of our properties frff om activities conducted by us or by previous occupants. We have incurred costs relating to compliance with Maximum Achievabla e Control Technology standard and futff urt e expenditurt es may be required to comply with any changes in environmental requirements are anticipated to be undertaken as part of our ongoing capia tal investment program, which is primarily designed to improve the effff iff ciency of our various manufaff cturt ing processes. The amount of any resulting liabia lities, costs, fiff nes or penalties may be material. ts to comply with environmental requirements, we are at risk of being subject to civil, In addition, the requirements of such laws and enforff cement policies have generally become more stringent over time. Changes in environmental laws and regulations or in their enforff cement or the discoveryrr of previously unknown or unanticipated contamination or non-compliance with environmental laws or regulations relating to our properties or operations could result in signififf cant environmental liabia lities or costs which could adversely affff eff ct our business. Accordingly, we might incur increased operating and maintenance costs and capia tal expenditurt es and other costs to comply with such laws as well as increasingly stringent air emission control laws or other futff urt e requirements, which may decrease our cash flff ows. Also, discoveryrr of currently unknown or unanticipated conditions could require responses that would result in signififf cant liabia lities and costs. Accordingly, we are unabla e to predict the ultimate costs of compliance with or liabia lity under environmental laws, which may be larger than current projections. s encyc ,yy thrtt Lack of trtt anspar government offff iff cialsll UniUU ted States ForFF eigni CorCC rupt Practices Act. increases risii k forff eat of fff rff aud, public sector corruption and othett r forff ms of criminal activitytt involving potential liabilitytt under anti-briberyr or anti-f- rff aud legie sii lation, including thett We operate faff cilities in seven countries and sell our products around the world. As a result of these international operations, we may enter frff om time to time into negotiations and contractuat l arrangements with parties 21 affff iff liated with forff eign governments and their offff iff cials. In connection with these activities, we are subject to the FCPA, laws that prohibit improper payments or offff eff rs of payments to the United Kingdom Briberyrr Act and other anti-briberyrr e the purpos forff eign governments and their offff iff cials and political parties by United States and other business entities forff faff vorabla e treatment of any kind and requires the of obtaining or retaining business, or otherwise receiving discretionaryrr maintenance of internal controls to prevent such payments. In particular, we may be held liabla e forff actions taken by our local partners and agents in forff eign 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 establa ished FCPA and other anti-briberyrr policies and procedures and offff eff r several channels forff international laws and regulations. However, there can be no assurance that our policies and procedures will effff eff ctively prevent us frff om violating these laws and regulations in everyrr transaction in which we may engage. Any determination laws (whether directly or through acts of others, intentionally or that we have violated the FCPA or other anti-briberyrr through inadvertence) could result in sanctions that could have a material adverse effff eff ct on our results of operations and fiff nancial condition. raising concerns in an effff orff icabla e United States and t to comply with appl a rr If we expand our business globally, we may have diffff iff culty anticipating and effff eff ctively managing these and other risks that our international operations may faff ce, which may adversely impact our business outside of North America and our fiff nancial condition and results of operations. In addition, any acquisition of businesses with operations outside of North America may exacerbar te this risk. CC Change s in government regul e atl ion may have a material efe fff eff ct on our resultstt of operations. Our manufaff cturt ing faff cilities and components of our products are subject to numerous forff eign, feff deral, state and local laws and regulations, including those relating to the presence of hazardous materials and protection of worker health and safeff ty. Liabia lity under these laws involves inherent uncertainties. Changes in such laws and regulations or in their enforff cement could signififf cantly increase our costs of operations which could adversely affff eff ct our business. Violations of health and safeff ty laws are subject to civil, and, in some cases, criminal sanctions. As a result of these uncertainties, we may incur unexpected interrupt could adversely impact our business, fiff nancial condition and results of operations. ions to operations, fiff nes, penalties or other reductions in income which r Further, in order forff our products to obtain the energy effff iff cient "ENERGYSTAR" labea l, they must meet certain requirements set by the Environmental Protection Agency ("EPA"). Changes in the energy effff iff ciency requirements establa ished by the EPA forff labea results of operations. l our products as such or we are not abla e to comply with the new standards at all, negatively affff eff ct our net sales and l could increase our costs, and, if there is a lapsa the ENERGYSTAR labea e in our abia lity to Moreover, many of our products are regulated by building codes and require specififf c fiff re, penetration or wind resistance characteristics. A change in the building codes could have a material impact on the manufaff cturt these products, which we may not be abla e to pass on to our customers. ing cost forff In addition, changing laws, regulations and standards relating to corpor r ate governance and public disclosure, including the Sarbar nes-Oxley Act, the Dodd-Frank Act and related regulations implemented by the Securities and Exchange Commission ("SEC"), and the stock exchanges are creating uncertainty forff and fiff nancial compliance costs and making some activities more time-consuming. Further, new regulations or interprr etations of existing laws may result in enhanced disclosure obligations, including with respect to climate change or other Environmental, Social and Governance matters, which could negatively affff eff ct us or materially increase our regulatoryrr 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 effff eff ctively. These laws, regulations and standards are subject to varyirr ng interprrr etations, in many cases due to their lack of specififf city, and, as a result, their appl ication in practice may evolve over time as new guidance is provided by regulatoryrr and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. public companies, increasing legal a We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention frff om revenue-generating activities to compliance activities. If our effff orff diffff eff r frff om the activities intended by regulatoryrr or governing bodies due to ambiguities related to practice, regulatoryrr authorities may initiate legal proceedings against us and our business may be harmed. We also expect that being a public company and these new rulr es and regulations will make it more expensive forff ts to comply with new laws, regulations and standards us to obtain director and offff iff cer 22 liabia lity insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These faff ctors could also make it more diffff iff cult forff directors, particularly to serve on our audit committee and compensation committee, and attract and retain qualififf ed executive offff iff cers. us to attract and retain qualififf ed members of our board of General Risks Public health issues such as a major epidemic or pandemic could adversely affect our business or results of operations. 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 confiff dence, can be significantly adversely affected by a variety of factors beyond our control. Since 2019, the ongoing spread of COVID-19 caused significant volatility in U.S. and international debt and equity markets, which negatively impacted consumer confidence, and caused business disruptions. 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 resulted in lost production at our facilities and may continue in future periods. While government restrictions have eased throughout 2022 and people have largely resumed pre-pandemic r activities, the effff eff cts of COVID-19 continue to linger in the global economy and our supply chains. There is continuing uncertainty regarding how long the impacts of COVID-19 will affff eff ct the U.S. economy and our supply chain and operations. Futurt e disrupt ions and governmental actions, due to COVID-19 or a diffff eff rent epidemic or pandemic, combined with any associated economic and/or social instabia lity or distress, may have an adverse impact on our results of operations, fiff nancial condition and cash flff ows, and 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. e claims that WeWW may facff propertytt relating to patent or trt ademarkrr right frff om infrff ingement by othett intellectual propertytt right i by incurring substantial coststt as a result of litigat rsrr exee cepte stt , any of which couldl cause our net sales or profiff tabilitytt we infrff inge thitt rd partytt i tt i ion or othett to decline. stt , or be unable to protect our intellectual r proceedings We rely on a combination of United States, Canadian and, to a lesser extent, European patent, trademark, l property portfolff ications may not be allowed by the appl io. We have registered trademarks, and copyrights and our patent and trademark icabla e governmental authorities to issue as patents or register as trademarks a copyright and trade secret laws as well as licenses, nondisclosure, confiff dentiality and other contractuat protect our intellectuat a appl at all, or in a forff m that will be advantageous to us. In addition, we have selectively pursued patent and trademark protection, and in some instances we may not have registered important patent and trademark rights in these and other countries. Furthermore, the laws of forff eign countries may not protect our intellectuat l property rights to the same extent as the laws of the United States. Additionally, the processes by which we clear our intellectuat "frff eedom to operate" opinions could faff il. The faff ilure 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, our create confusff protected products. ion among consumers and result in a greater supply of similar products that could erode prices forff l property or obtain l restrictions to Our abia lity to protect our intellectuat l property, including our patents, trademarks, copyrights, trade secrets and l property, frff om unauthorized use by others is critical to our success. There is no guarantee that the licensed intellectuat patents we have obtained, or other protections such as confiff dentiality, trade secrets and copyrights, will be adequate to prevent imitation of our products by others. Our abia lity to compete based on our advantageous intellectuat be harmed if we are unabla e to protect our products through enforff cing or prosecuting our intellectuat we faff il to protect our intellectuat competitive advantage. l property frff om unauthorized use, we risk the loss of these rights and any associated l property rights. If l property may Moreover, we may be accused of misappr a opriating or infrff inging on third-party intellectuat l property. Our trademarks and branding practices could also be challenged. In the event of a challenge, we may be required to defeff nd l property rights frff om the Company in litigation, or we may be required to institutt e litigation to enforff ce such intellectuat 23 unauthorized use by others. Regardless of the outcome, the enforff cement or defeff nse of such rights could result in substantial costs and diversion of resources, and could negatively affff eff ct our competitive position, sales, profiff tabia lity and reputation. Further, if we are fouff nd to have infrff inged on a patent in litigation, we may be liabla e forff monetaryrr damages as well as injunctive relief,ff which would prevent us frff om selling the infrff inging product unless we obtain a license or are abla e to redesign our product to avoid infrff ingement. Such a license may not be availabla e at all or on terms acceptabla e to us, and we may not be abla e to redesign our products to avoid infrff ingement, which could adversely affff eff ct our operations. Our intellectuat l property rights may be subject to various attacks claiming such rights are valid or unenforff ceabla e. These attacks might invalidate, render unenforff ceabla e or otherwise limit the scope of the protection that our patents and trademarks affff orff d. In the event we lose the use of a product name, our effff orff be lost and we would have to devote management resources to rebuilding a brand forff varyirr ng degrees of success. Even if we do prevail in a patent infrff ingement litigation, third parties may still be abla e to design around our patents, which could harm our competitive position. ts building such brand would such product, which we may do to IfII we are unable to reple ace our exee pix ring patentstt or faiff and internationallyll will be harmed. InII addition, our productstt have a material adversrr e efe fff eff ct on our business. l to continue to innovate, our abilitytt to compem te bothtt domesticallyll facff e thett risii k of obsolescence, which, ifi realizii ed, couldl Our continued success depends on our abia lity to develop and introduce new or improved products, to improve ing and product service processes and to protect our rights to the technologies used in our products. If our manufaff cturt we faff il to do so, or if existing or futff urt e competitors achieve greater success than we do in these areas, our results of operations and our profiff tabia lity may decline. We depend on our door manufaff cturt ing intellectuat l property and products to generate revenue. Some of our io to l property of our products, we believe it is possible that new competitors will emerge in door patents will begin to expire in the next several years. While we will continue to work to add to our patent portfolff protect the intellectuat ing. We do not know whether we will be abla e to develop additional proprietaryrr designs, processes or manufaff cturt products. If any protection we obtain is reduced or eliminated, others could use our intellectuat l property without compensating us, resulting in harm to our business. Moreover, as our patents expire, competitors may utilize the inforff mation found important expiring patents by securing additional patents on commercially desirabla e improvements, and new products, designs and processes, there can be no assurance that we will be successfulff in securing such additional patents, or that such additional patents will adequately offff sff et the effff eff ct of the expiring patents. in such patents to commercialize their own products. While we seek to offff sff et the losses relating to ff Further, we faff ce the risk that third parties will succeed in developing or marketing products that would render our products or may cause our customers to delay or defeff r purchasing our products. Accordingly, our our products obsolete or noncompetitive. New, less expensive methods could be developed that replace or reduce the demand forff success depends in part upon our abia lity to respond quickly to market changes through the development and introduction of new products. The relative speed with which we can develop products, complete regulatoryrr clearance or appr oval processes and supply commercial quantities of the products to the market are important to remain competitive. a Any delays could result in a loss of market acceptance and market share. We cannot provide assurance that our new product development effff orff ts will result in any commercially successfulff products. Item 1B. Unresolved Staffff Comments None. 24 Item 2. Properties Our United States executive headquarters are located in Tampa, Florida, and consist of appr a oximately 88,000 square feff et of leased offff iff ce space at two sites. Our Canadian executive offff iff ces are located in a single leased site in Concord, Ontario. As of Januaryrr 1, 2023, we owned and leased the folff lowing number of properties, by reportabla e segment: Manufacff turing and Distribution Warehouse Support Total Owned properties: North American Residential Europe Architecturt al rr Corpor ate & Other Total owned properties Leased properties: North American Residential Europe Architecturt al rr Corpor ate & Other Total leased properties Total owned and leased properties 19 4 6 — 29 20 3 6 1 30 59 5 — — — 5 16 5 7 — 28 33 — — — 1 1 2 1 — 4 7 8 24 4 6 1 35 38 9 13 5 65 100 Our properties in the North American Residential and Architecturt al segments are distributed across 28 states in provinces in Canada, as well as two manufaff cturt ing faff cilities in Mexico and three ing faff cilities in Chile. Our properties in the Europe segment are distributed across the United Kingdom, as include one ing faff cility in Ireland. Our material properties in the Corpor ate and Other categoryrr rr ing faff cilities was 12.4 million square feff et, including 3.2 million square feff et in our fiff ve molded t faff cilities in the United States. As of Januaryrr 1, 2023, total flff oor ff the United States and four manufaff cturt well as one manufaff cturt manufaff cturt space at our manufaff cturt door faff cings faff cilities. In addition to the properties outlined above United States and own 17,000 acres of forff estland in Costa Rica. ing faff cility in Malaysia and four u suppor a ff , we lease one idle manufaff cturt ing faff cility in the We believe that our faff cilities are suitabla e to our respective businesses and have production capaa support our current level of production to meet our customers’ demand. Additional investments in manufaff cturt faff cilities are made as appr city with our customers’ demand. opriate to balance our capaa a city adequate to ing Item 3. Legal Proceedings The inforff mation required with respect to this item can be found ff under "Commitments and Contingencies" in Note 10 to the consolidated fiff nancial statements in this Annual Report and is incorpor rr ated by refeff rence into this Item 3. Item 4. Mine Safeff ty Disclosures a Not appl icabla e. Inforff mation about our Executive Offff iff cers Inforff mation about a the Company's executive offff iff cers is incorpor r ated herein by refeff rence frff om Part III, Item 10 hereof.ff 25 PART II Item 5. Market forff Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Inforff mation Our common shares are listed on the New York Stock Exchange ("NYSE") under the symbol "DOOR". Holders As of Februarr r t Corpor Depositoryrr Trusr ation. ryrr 28, 2023, we had one record holder of our common shares, Cede & Co., the nominee of the Dividends We do not intend to pay any cash dividends on our common shares forff the forff eseeabla e futff urt e and instead may futff urt e operations and expansion, share repurchases or debt repayments, among other things. retain earnings, if any, forff Any decision to declare and pay dividends in the futff urt e will be made at the discretion of our Board of Directors and will depend on, among other things, our results of operations, liquidity requirements, fiff nancial condition, contractuat l restrictions and other faff ctors that our Board of Directors may deem relevant. In addition, our abia lity to pay dividends is limited by covenants in our Term Loan Facility, in our ABL Facility and in the indenturt e governing our senior notes. Futurt e agreements may also limit our abia lity to pay dividends. See Note 9 to our audited consolidated fiff nancial statements contained elsewhere in this Annual Report forff restrictions on our abia lity to pay dividends. 26 Stock Perforff mance Graph The folff lowing grapha depicts the total returt n to shareholders frff om Januaryrr 1, 2018, through Januaryrr 1, 2023, relative to the perforff mance 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 Januaryrr 1, 2018, and the reinvestment of dividends paid since that date. The stock perforff mance shown in the grapha of futff urt e price perforff mance. is not necessarily indicative Comparison of Cumulative Total Stockholder Return Masonite International Corporation, Standard & Poor's 500 Index and Standard & Poor's 1500 Building Products Index (Perforff mance Results through January 1, 2023) $225 $200 $175 $150 $125 $100 $75 $50 1/1/2018 12/30/2018 12/29/2019 1/3/2021 1/2/2022 1/1/2023 Masonite International Corpor ation S&P 1500 Building Products Index rr Standard & Poor's 500 Index ation Masonite International Corpor rr Standard & Poor's 500 Index Standard & Poor's 1500 Building Products Index January 1, 2018 December 30, 2018 December 29, 2019 January 3, 2021 January 2, 2022 January 1, 2023 $ 100.00 $ 61.92 $ 96.90 $ 132.62 $ 159.07 $ 108.71 100.00 100.00 95.62 78.05 125.72 110.97 148.85 142.42 191.58 208.97 156.89 160.15 Recent Sales of Unregistered Securities; Use of Proceeds frff om Registered Securities None. 27 Repurchases of Equity Securities by the Issuer and Affff iff liated Purchasers During the three months ended Januaryrr 1, 2023, we repurchased 123,911 of our common shares in the open market. Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs Total Number of Shares Purchased Average Price Paid per Share October 3, 2022 through October 30, 2022 October 31, 2022 through November 27, 2022 November 28, 2022 through Januaryrr 1, 2023 Total — — 123,911 123,911 $ $ — — 76.58 76.58 — $ 256,393,264 — $ 256,393,264 123,911 $ 246,904,280 123,911 The Company's Board of Directors has appr a oved fiff ve share repurchase authorizations, the most recent being an a ryrr 21, 2022. The share repurchase programs oved on Februarr incremental $200.0 million share repurchase program appr have no specififf ed 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 faff ctors. Any repurchases under the share repurchase programs may be made in the open market, in privately negotiated transactions or otherwise, subject to market conditions, a appl any particular amount of common shares, and they may be suspended or terminated at any time at our discretion. Repurchases under the share repurchase programs are permitted to be made under one or more RulRR e 10b5-1 plans, which would permit shares to be repurchased when we might otherwise be precluded frff om doing so under appl insider trading laws. icabla e legal requirements and other relevant faff ctors. The share repurchase programs do not obligate us to acquire icabla e a ion forff During the fiff rst quarter of 2022, the Company entered into an ASR transaction with a third-party fiff nancial the repurchase of $100.0 million of its outstanding common shares. At inception, pursuant to the institutt agreement, the Company paid $100.0 million to the fiff nancial institutt deliveryrr of 848,087 common shares on the same day. The fiff nal deliveryrr of 319,678 common shares were delivered in the second quarter. The $100.0 million ASR transaction was completed in the second quarter with a total deliveryrr of 1,167,765 common shares at a volume-weighted average price ("VWAP") per share minus an agreed upon discount totaling $85.63 per share. The cash paid was reflff ected as a reduction of equity at the initial deliveryrr of shares and the number of shares outstanding were reduced at the dates of physical delivery.rr ion using cash on hand and received an initial As of Januaryrr 1, 2023, since inception of the repurchase programs we have repurchased $763.1 million of our common shares and have $246.9 million availabla e forff repurchase in accordance with our share repurchase programs. Item 6. [Reserved] 28 MASONITE INTERNATIONAL CORPORARR TION Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations TheTT folff MM lowing Manage ment's' Disii cussion and Analyll syy isii of FiFF nancial Condi CC tion and Resultstt of OpeO rations JJ yr 2, 2022. ForFF furff ("M" DMM &A&& ")" isii based upon accounting principli es generallyll accepte ed in thett UniUU ted States of America and disii cusses thett JJ fiff nancial condition and resultstt ofo operations forff MasMM onite IntII ernational CorCC por yr 1, ation forff yr 2, 2022, and yearsrr ended Januar 2023, and Januar thett Januar tion and Resultstt of OpeO rations" in Part yr 3, 2021, see "M" anage JJ IIII ,II ItII em 7 of our Annual Repor FeFF bruaryr 24, 2022, and which isii m "ComCC pany acquisii ition. SEC on thett ," "our " a ation and itstt subsidiaries and does not include thett Endur r disii cussion of our resultstt of operations forff ment’s Disii cussion and Analyll syy isii of FiFF nancial Condi t on ForFF m 10-K forff yr 2, 2022, which was fiff led withtt thitt sii MDMM &A&& , "M" asMM onite," "w"" e," "us" " refe eff r to MasMM onite InII ternational CorCC por ated herein by refe eff rence. InII yearsrr ended Januar year ended Januar " and thett r incorpor thett thett thett MM CC EE e JJ JJ r r ThiTT sii disii cussion shouldl be read in conjunction withtt thett included elsll ewhere in thitt sii Annual Repor " disii closure under "Spe withtt e elsll ewhere in thitt sii Annual Repor se risii kskk and uncertainties. statementstt as a result of thett e e t on ForFF m 10-K.KK TheTT consolidated fiff nancial statementstt and related notes lowing disii cussion shouldll alsll o be read in conjunction ding ForFF ward Looking Statementstt " and Part I,II ItII em 1A, "R" isii k FacFF torsrr " thett folff cial NotNN e Regar t on ForFF m 10-K.KK Our actual resultstt couldll difi fff eff r materiallyll frff om thett forff ward-looking Overview We are a leading global designer, manufaff cturt er, marketer and distributor of interior and exterior doors and door the new construcrr systems forff building construcr service at compelling values. Through innovative door solutions, a better door buying experience forff partners and advanced manufaff cturt ing and service delivery,rr we deliver a commitment of Doors That Do MoreTM. tion markets. Since 1925, we have provided our customers with innovative products and superior tion and repair, renovation and remodeling sectors of the residential and non-residential our customers and We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers, rds, commercial and general contractors and architects through well-establa ished wholesale, retail and direct lumberyarr distribution channels as part of our cross-merchandising strategy. Customers are provided a broad product offff eff ring of interior and exterior doors and entryrr systems at various price points. We manufaff cturt e 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 flff at door faff cings). Our exterior doors are made primarily of steel, fiff berglass or composite materials. Our residential doors are molded panel, flff ush, stile and rail, steel or fiff berglass. We operate 59 manufaff cturt ing and distribution faff cilities 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 faff bra ication faff cilities provide value-added faff bra ication and logistical services, including pre-fiff nishing and store deliveryrr of pre-hung interior and exterior doors. We believe our abia lity to provide: (i) a broad product range; (ii) frff equent, rapia d, on-time and complete delivery;rr (iii) consistency in products and merchandising; (iv) national service; and (v) special order programs enabla es retail customers to increase comparabla e store sales and helps to ing and distribution diffff eff rentiate us frff om our competitors. We believe investments in innovative new product manufaff cturt futff urt e growth. capaa bia lities, coupled with an ongoing commitment to operational excellence, provide a strong platforff m forff Our reportabla e segments are currently organized and managed principally by end market: North American Residential, Europe and Architecturt al. In the year ended Januaryrr 1, 2023, we generated net sales of $2,283.6 million or 79.0%, $280.8 million or 9.7% and $307.0 million or 10.6% in our North American Residential, Europe and Architecturt al segments, respectively. See "Segment Inforff mation" below forff a description of our reportabla e segments. During 2022, we were negatively impacted by rising energy and fueff l costs, partly attributabla e to the war between RusRR sia and Ukraine, as well as rising costs forff faff cilities impacted our abia lity to service customers, particularly in our Architecturt al segment. Consumer sentiment, inflff ationaryrr pressures and strengthening of the U.S. dollar negatively impacted our Europe segment. During the second half of the year, base volumes decreased in our North American Residential segment due to new housing weakness and wholesale inventoryrr destocking with the residential repair, renovation and remodeling channel remaining resilient until ions, rising energy and late in the four raw materials. In addition, production challenges in some of our and logistics constraints, supply chain disrupt th quarter. The extent to which labor a ff r 29 MASONITE INTERNATIONAL CORPORARR TION fueff l costs, material inflff ation, consumer sentiment, interest rates and global economic pressures impact our business, results of operations and fiff nancial condition will depend on futff urt e developments, which are highly uncertain and cannot be predicted. Key Factors Affff eff cting Our Results of Operations Product Demand There are numerous faff ctors that inflff uence overall market demand forff our products. Demand forff new homes, home improvement products and other building construcr results of operations. Demand foff r our products may be impacted by changes in global economic conditions, including inflff ation, deflff ation, interest rates, availabia lity of capia tal, supply chain constraints, consumer spending rates, energy availabia lity and costs, and the effff eff cts of governmental initiatives to manage economic conditions. Additionally, trends in residential new construcr tion, repair, renovation and remodeling and architecturt al building construcrr impact our fiff nancial perforff mance. Accordingly, the folff countries and regions in which our products are sold: lowing faff ctors may have a direct impact on our business in the tion products have a direct impact on our fiff nancial condition and tion may directly • • • • • • • • • tion; the strength of the economy; the amount and type of residential and commercial construcr housing sales and home values; the age of existing home stock, home vacancy rates and forff eclosures; non-residential building occupancy rates; increases in the cost of raw materials or wages or any shortage in supplies or labor the availabia lity and cost of credit; employment rates and consumer confiff dence; and demographi forff mation. a a ; c faff ctors such as immigration and migration of the population and trends in household Product Pricing and MiMM xii The building products industryrr is highly competitive and we thereforff e faff ce 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 industryrr change oftff en and our faff ilure to anticipate, identifyff or quickly react to changes in these trends could lead to, among other our products, which could materially things, reje ection of a new product line and reduced demand and price reductions forff adversely affff eff ct us. Changes in consumer prefeff rences may also lead to increased demand forff relative to our higher margin products, which could reduce our futff urt e profiff tabia lity. trends, demands and prefeff rences. Trends within the industryrr our lower margin products Business WiWW ns and Losses Our customers consist mainly of wholesalers and retail home centers. In fiff scal year 2022, our top ten customers a appr oximately 22% of our net sales in fiff scal year 2022. Net sales frff om customers that have accounted forff oximately 50% of our net sales and our top customer, The Home Depot, Inc. accounted forff together accounted forff a signififf cant a appr portion of our net sales in past periods, individually or as a group, may not continue in futff urt e periods, or if continued, may not reach or exceed historical levels in any period. Certain customers perforff m periodic product line reviews to assess their product offff eff rings, which have, on past occasions, led to business wins and losses. In addition, as a result of competitive bidding processes, we may not be abla e to increase or maintain the margins at which we sell our products to our customers. Organi r zii ational Restrtt ucturing Over the past several years, we have engaged in a series of restrucrr es and non-core businesses, consolidating certain internal support func geographi a designed to reduce our cost strucr and lease termination costs. Management continues to evaluate our business; thereforff e, in futff urt e years, there may be additional provisions forff turt ff turt e and improve productivity. These initiatives primarily consist of severance actions new plan initiatives, as well as changes in previously recorded estimates, as payments are made ing programs related to exiting certain tions and engaging in other actions 30 MASONITE INTERNATIONAL CORPORARR TION or actions are completed. Asset impairment charges were also incurred in connection with these restrucr those assets sold, abaa ndoned or made obsolete as a result of these programs. turt ing actions forff In December 2022, we began implementing a plan to improve overall business perforff mance that includes the ing capaa optimization of our manufaff cturt city and reduction of our overhead and selling, general and administration workforff ce primarily in our North American Residential reportabla e segment as well as actions in the Architecturt al reportabla e segment and in our head offff iff ces (collectively, the "2022 Plan"). The optimization of our manufaff cturt ing capaa city involves specififf c plants in the North American Residential segment and costs associated with the closure of these plants and related headcount reductions. Costs associated with the 2022 Plan include severance and closure charges and will continue through 2023. The actions taken as part of the 2022 Plan are expected to increase our annual earnings and cash flff ows by appr oximately $15 million to $20 million. a In May 2021, we initiated furff ther actions to improve overall business perforff mance including the reorganization ing capaa city in our Architecturt al reportabla e segment. The reorganization of our city involves specififf c faff cilities in the Architecturt al segment and costs associated with the of our specialty door manufaff cturt ing capaa manufaff cturt reorganization of these faff cilities, which resulted in the closure of one existing stile and rail faff cility 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. The actions taken as part of the 2021 Plan are substantially complete and the annual earnings and cash flff ow savings realized were materially in line with expectations. ing capaa In November 2020, we began implementing a plan to improve overall business perforff mance that includes the city and a reduction of our overhead and selling, general and administration reorganization of our manufaff cturt workforff ce primarily in our Architecturt al reportabla e segment as well as limited actions in the North American Residential reportabla e segment. The reorganization of our manufaff cturt segment and costs associated with the closure of these faff cilities and related headcount reductions began taking place in the four ff closure charges and continued through 2021. The actions taken as part of the 2020 Plan are substantially complete and the annual earnings and cash flff ow savings realized were materially in line with expectations. th quarter of 2020 (collectively, the "2020 Plan"). Costs associated with the 2020 Plan include severance and city involves specififf c faff cilities in the Architecturt al ing capaa ing capaa In Februar ryrr 2019, we began implementing a plan to improve overall business perforff mance that includes the city and a reduction of our overhead and selling, general and administration city involves specififf c plants in the North American Residential and Architecturt al segments and costs associated with reorganization of our manufaff cturt workforff ce across all of our reportabla e segments and in our head offff iff ces. The reorganization of our manufaff cturt capaa the closure of these plants and related headcount reductions began taking place in the fiff rst 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 carryirr ng value of the defiff nite-lived assets relating to the divestiturt es, as furff quarter of 2019, we initiated additional restrucrr city and reduction of our overhead and selling, general and administration workforff ce. The actions taken as part of the 2019 Plan are substantially complete and the annual earnings and cash flff ow savings realized were materially in line with expectations. ing actions related to both manufaff cturt ther described in Note 14. In the four ing capaa ing turt th ff InfII lff atl ion In 2021 and 2022, we realized higher costs across the various materials we purchase as a result of macroeconomic faff ctors as well as increased logistics costs, wages, anti-dumping and countervailing duties and energy and fueff l costs. Additionally, rising interest rates may impact the abia lity of end consumers to purchase our products. Our profiff tabia lity, margins and net sales could be adversely affff eff cted if we are not abla e to pass these costs on to our customers or otherwise mitigate the impact of these inflff ationaryrr pressures. 31 MASONITE INTERNATIONAL CORPORARR TION Acquisitions and Divestitures We are pursuing a strategic initiative of optimizing our global business portfolff io. On a continual basis, we evaluate and consider strategic acquisitions, divestiturt es and joint venturt es to create shareholder value and enhance fiff nancial perforff mance. Acquisii itions • • • Divestitures • • On Januaryrr 3, 2023, we completed the acquisition of Endura Products forff oximately $375.0 million in cash using a combination of cash on hand and borrowings under our Term Loan Facility and ABL Facility. In connection with the acquisition, we borrowed $250.0 million under our Term Loan Facility and $100.0 million under our ABL Facility. Endura is a leading innovator and manufaff cturt er of high-perforff mance door frff ames and door system components in the United States. a appr On December 4, 2020, we completed the acquisition of a Lowe's Companies, Inc. door faff bra ication faff cility in the United States forff working capia tal adjustments we paid an additional $0.2 million. cash consideration of $3.9 million. During the fiff rst quarter of 2021, as a result of On August 31, 2020, we acquired intellectuat technology forff cash consideration of $1.9 million. l property and other assets related to an interior door During the four we recognized $0.9 million in loss on disposal of subsidiaries. ff th quarter of 2022, we completed the liquidation of our legal entity in Turkey. As a result, On June 14, 2021, we completed the sale of all of the capia tal stock of our Czech business ("Czech") forff consideration of $7.0 million, net of cash disposed. The divestiturt e of this business resulted in a loss on sale of subsidiaries of $8.6 million, which was recognized during the second quarter of 2021 in the Europe segment. • 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. 32 MASONITE INTERNATIONAL CORPORARR TION Resultll stt of OpeOO ratitt ons ands)s ing costs (I(( nII tt thous Net sales Cost of goods sold Gross profiff t Gross profiff t as a % of net sales Selling, general and administration expenses Selling, general and adminisii trtt ation exee pex nses as a % of net sales Restrucrr turt Asset impairment Loss on disposal of subsidiaries Operating income Interest expense, net Loss on extinguishment of debt Other (income) expense, net Income beforff Income tax expense Net income Less: net income attributabla e to non-controlling interests Net income attributable to Masonite e income tax expense ear Ended January 1, 2023 $ 2,891,687 2,217,792 673,895 January 2, 2022 $ 2,596,920 1,985,141 611,779 23.3 % 344,614 11.9 % 23.6 % 308,430 11.9 % 1,904 — 850 326,527 41,331 — (5,001) 290,197 71,753 218,444 4,211 214,233 $ 5,567 69,900 8,590 219,292 46,123 13,583 15,620 143,966 44,772 99,194 4,693 94,501 $ Year Ended January 1, 2023, Compared with Year Ended January 2, 2022 NeNN t SalSS ell s Net sales in the year ended Januaryrr 1, 2023, were $2,891.7 million, an increase of $294.8 million or 11.4% frff om $2,596.9 million in the year ended Januaryrr 2, 2022. Net sales in 2022 were negatively impacted by $46.8 million as a result of forff eign exchange rate flff uctuat $341.6 million or 13.2% due to changes in volume, average unit price, impact of divestiturt es and sales of components. Average unit price in 2022 increased net sales by $464.7 million or 17.9% compared to 2021. Lower volumes excluding the incremental impact of acquisitions or divestiturt es ("base volume") decreased net sales by $99.5 million or 3.8% in 2022 compared to 2021. Net sales of components to external customers decreased $11.9 million or 0.5% in 2022 compared to 2021. Our 2021 divestiturt e decreased net sales by $11.7 million or 0.5% of net sales in 2022. tions. Excluding this exchange rate impact, net sales would have increased by NeNN t SalSS ell s and PePP rcentage tt of NeNN t SalSS ell s by Repor ee tt tabl ell SeSS gme ent (I(( nII tt thous ands)s Sales Intersegment sales Net sales to external customers Percentage of consolidated exee ternal net sales Year Ended January 1, 2023 North American Residential $ 2,286,098 (2,456) $ 2,283,642 Europe Architectural Corporate & Other $ $ 282,989 (2,220) 280,769 $ $ 323,175 (16,192) 306,983 $ $ 20,293 — 20,293 $ $ Total 2,912,555 (20,868) 2,891,687 79.0 % 9.7 % 10.6 % 33 MASONITE INTERNATIONAL CORPORARR TION 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 % (I(( nII tt thous ands)s Sales Intersegment sales Net sales to external customers Percentage of consolidated exee ternal net sales NorNN thtt American Residential Net sales to external customers frff om faff cilities in the North American Residential segment in the year ended tions. Excluding this exchange rate impact, net sales would have increased by $343.9 million or 17.6% due to Januaryrr 1, 2023, were $2,283.6 million, an increase of $330.7 million or 16.9% frff om $1,952.9 million in the year ended Januaryrr 2, 2022. Net sales in 2022 were negatively impacted by $13.2 million as a result of forff eign exchange rate flff uctuat changes in volume, average unit price and sales of components. Average unit price increased net sales in 2022 by $373.1 million or 19.1% compared to 2021. Lower base volume decreased net sales by $24.4 million or 1.2% in 2022 compared to 2021. Net sales of components to external customers were $4.8 million lower in 2022 compared to 2021. Europe Net sales to external customers frff om faff cilities in the Europe segment in the year ended Januaryrr 1, 2023, were $280.8 million, a decrease of $53.7 million or 16.1% frff om $334.5 million in the year ended Januaryrr 2, 2022. Net sales in 2022 were negatively impacted by $31.9 million as a result of forff eign exchange flff uctuat rate impact, net sales would have decreased by $21.8 million or 6.5% due to changes in volume, average unit price, divestiturt es and sales of components. Lower base volume decreased net sales by $53.8 million or 16.1% compared to 2021 due to weakening consumer confiff dence in the United Kingdom that affff eff cted demand in the repair and remodel market and unexpected material supply constraints late in the year. The 2021 divestiturt e of our Czech business decreased net sales by $11.7 million or 3.5% in 2022. Average unit price increased net sales in 2022 by $43.6 million or 13.0% compared to 2021. Net sales of components to external customers were $0.1 million higher in 2022 compared to 2021. tions. Excluding this exchange Architectural Net sales to external customers frff om faff cilities in the Architecturt al segment in the year ended Januaryrr 1, 2023, were $307.0 million, an increase of $17.5 million or 6.0% frff om $289.5 million in the year ended Januaryrr 2, 2022. Net sales in 2022 were negatively impacted by $1.5 million as a result of forff eign exchange flff uctuat exchange rate impact, net sales would have increased by $19.0 million or 6.6% due to changes in volume, average unit price and sales of components. Average unit price increased net sales in 2022 by $44.9 million or 15.5% compared to 2021. Lower base volume decreased net sales in 2022 by $21.3 million or 7.4% compared to 2021 resulting frff om production challenges. Net sales of components to external customers were $4.6 million lower in 2022 compared to 2021. tions. Excluding this CosCC t of Goods G SolSS dll Our cost of goods sold is comprised of the cost to manufaff cturt e products forff our customers and includes the cost of materials, direct labor Research and development costs are primarily included within cost of goods sold. We incur signififf cant fiff xed and variabla e overhead at our global component locations that manufaff cturt e interior molded door faff cings. , overhead, distribution and depreciation associated with assets used to manufaff cturt e products. a a Cost of goods sold as a percentage of net sales was 76.7% and 76.4% forff the years ended Januaryrr 1, 2023, and Januaryrr 2, 2022, respectively. Material cost of sales as a percentage of net sales increased by 1.8% in 2022 compared to , distribution, overhead and depreciation as a percentage of net sales decreased by 0.7%, 0.4%, 0.2% 2021. Direct labor and 0.2%, respectively, compared to the 2021 period. The increase in material cost of sales as a percentage of net sales was driven by commodity inflff ation and an increase in logistics costs, partially offff sff et by higher average unit prices and material cost savings projects. Direct labor partially offff sff et by manufaff cturt as a percentage of net sales decreased due to higher average unit prices, costs. Distribution as a percentage of net sales ing wage and benefiff t inflff ation and startupt a 34 MASONITE INTERNATIONAL CORPORARR TION decreased due to higher average unit prices, partially offff sff et by increased inbound logistics and personnel costs. Overhead as a percentage of net sales decreased due to higher average unit prices, partially offff sff et by wage inflff ation, increased plant maintenance and increased investment in the business as compared to 2021. The decrease in depreciation as a percentage of net sales was driven by higher average unit prices. SeSS llll ill nii g, GeGG neral and Adminii isii trtt atitt on ExpeEE nses Selling, general and administration ("SG&A") expenses primarily include the costs forff ate offff iff ces. These costs include personnel costs forff and support staffff at various plants and corpor and stock based compensation expense; profeff ssional feff es; depreciation and amortization of our non-manufaff cturt ing equipment and assets; environmental, health and safeff ty costs; advertising expenses and rent and utilities related to administrative offff iff ce faff cilities. In the year ended Januaryrr 1, 2023, selling, general and administration expenses, as a percentage of net sales, were 11.9%, remaining flff at compared to the year ended Januaryrr 2, 2022. our sales organization payroll, related benefiff ts r Selling, general and administration expenses in the year ended Januaryrr 1, 2023, were $344.6 million, an increase of $36.2 million frff om $308.4 million in the year ended Januaryrr 2, 2022. The overall increase was driven by a $16.2 million increase in personnel costs primarily driven by increased incentive compensation, wage and benefiff t inflff ation and resource investments to support growth; a $9.9 million increase in profeff ssional and other feff es to support growth, $6.8 million in acquisition and due diligence related costs; a $5.4 million increase in travel expense as business activities fulff ly returt ned to pre-pandemic levels; a $3.2 million increase in advertising and a $0.2 million increase in non- cash items including share based compensation; defeff rred compensation; gain on disposal of property, plant and equipment; and depreciation and amortization. These increases were partially offff sff et by faff vorabla e forff eign exchange impacts of $4.5 million and $1.0 million of incremental SG&A savings frff om our 2021 divestiturt e. Restrtt ucturinii g CosCC tstt Restrucr turt ing costs in the year ended Januaryrr 1, 2023, were $1.9 million, compared to $5.6 million in the year ended Januaryrr 2, 2022. Restrucrr Restrucr 2019 Plans. turt ing costs in the prior year period related to severance and closure costs associated with the 2021, 2020 and turt ing costs in 2022 primarily related to closure costs associated with the 2022 Plan. Asset ImII paim rii mrr ent There were no asset impairment charges in the year ended Januaryrr 1, 2023, compared to $69.9 million in the year ended Januaryrr 2, 2022. Asset impairment charges in 2021 resulted frff om a goodwill impairment charge recorded in our Architecturt al reporting unit and actions associated with the 2021 and 2020 Plans in our Architecturt al reporting unit. Refeff r to Note 14. Asset Impairment, in Item 8 of this Annual Report forff additional inforff mation. Loss on Disii pos s al of Subsidiaries Loss on disposal of subsidiaries represents the diffff eff rence between proceeds received upon disposition and the book value of a subsidiaryrr which has been divested and was excluded frff om 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 $0.9 million in the year ended Januaryrr 1, 2023, compared to $8.6 million in the year ended Januaryrr 2, 2022. The current year loss arose as a result of the liquidation of our legal entity in Turkey and is comprised of $0.7 million relating to the recognition of cumulative translation adjustment out of accumulated other comprehensive loss and $0.2 million relating to the write-offff of net assets. The prior year loss arose as a result of the sale of our Czech business and is comprised of $5.1 million relating to the write-offff of net assets sold and other profeff ssional feff es and $3.5 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss. InII tett rest ExpeEE nse,e NeNN t Interest expense, net, in the year ended Januaryrr 1, 2023, was $41.3 million, compared to $46.1 million in the year ended Januaryrr 2, 2022. The decrease in interest expense, net is primarily due to the refiff nancing of our senior notes in 2021. 35 MASONITE INTERNATIONAL CORPORARR TION Loss on ExtEE itt nii guisii hment of Debt Loss on extinguishment of debt represents the diffff eff rence between the redemption price of debt and the net carryirr ng amount of the extinguished debt. The net carryirr ng amount includes the principal, unamortized premium and unamortized debt issuance costs. There was no loss on extinguishment of debt in the year ended Januaryrr 1, 2023, compared to $13.6 million in the year ended Januaryrr 2, 2022. The prior year loss related to the redemption of our senior unsecured notes due 2026. This charge represents the diffff eff rence between the redemption price of our senior unsecured notes due 2026 of $310.8 million and the net carryirr ng 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 carryirr ng amount included unamortized debt issuance costs of $2.8 million. Othtt er (I(( nII come)e ExpeEE nse,e NeNN t Other (income) expense, net includes profiff ts and losses related to our non-maja ority owned unconsolidated subsidiaries that we recognize under the equity method of accounting, unrealized gains and losses on forff eign currency remeasurements, pension settlement charges and other miscellaneous non-operating expenses. Other (income) expense, net, in the year ended Januaryrr 1, 2023, was $5.0 million of income, compared to $15.6 million of expense in the year ended Januaryrr 2, 2022. The change in other (income) expense, net is primarily due to a pre-tax pension settlement charge of $23.3 million recognized in the four currency remeasurements, a change in the faff ir value of plan assets in the defeff rred compensation rabbi increase in pension expense. th quarter of 2021, partially offff sff et by unrealized gains and losses on forff eign t and an trusrr a ff InII come TaxTT ExpeEE nse Income tax expense in the year ended Januaryrr 1, 2023, was $71.8 million, compared to $44.8 million in the year ended Januaryrr 2, 2022. 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, primarily the increase in overall pre-tax book earnings, and (ii) an increase in income tax expense attributabla e to recognizing additional valuation allowance. SeSS gme ent InII fn orff mrr atitt on Our reportabla e segments are organized and managed principally by end market: North American Residential, r ate & Other categoryrr Europe and Architecturt al. The Corpor immaterial operating segments that were not aggregated into any reportabla e segment. In addition to similar economic characteristics we also consider the folff activities, the management strucr operating and administrative activities, availabia lity of discrete fiff nancial inforff mation and inforff mation presented to the Board of Directors and investors. lowing faff ctors in determining the reportabla e segments: the naturt e of business turt e directly accountabla e to our chief operating decision maker forff includes unallocated corpor ate costs and the results of r Our management reviews net sales and Adjusted EBITDA (as defiff ned below) to evaluate segment perforff mance and allocate resources. Net assets are not allocated to the reportabla e segments. Adjusted EBITDA is a non-GAAP fiff nancial measure which does not have a standardized meaning under GAAP and is unlikely to be comparabla e to similar measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or operating cash flff ows determined in accordance with GAAP. Adjusted EBITDA is defiff ned as net income (loss) attributabla e to Masonite adjusted to exclude the folff lowing items: • • • • • • • • • • • • depreciation; amortization; share based compensation expense; loss (gain) on disposal of property, plant and equipment; registration and listing feff es; restrucr ing costs (benefiff t); turt asset impairment; loss (gain) on disposal of subsidiaries; interest expense (income), net; loss on extinguishment of debt; other (income) expense, net; income tax expense (benefiff t); 36 MASONITE INTERNATIONAL CORPORARR TION • • • other items; loss (income) frff om discontinued operations, net of tax; and net income (loss) attributabla e to non-controlling interest. This defiff nition of Adjusted EBITDA diffff eff rs frff om the defiff nitions of EBITDA contained in the indenturt e governing the 2030 Notes, the 2028 Notes and the credit agreements governing the Term Loan Facility and the ABL Facility. Adjusted EBITDA is used to evaluate and compare the perforff mance of the segments and it is one of the primaryrr measures used to determine employee incentive compensation. Intersegment sales are recorded using market prices. We believe that Adjusted EBITDA, frff om an operations standpoint, provides an appr a opriate way to measure and assess segment perforff mance. Our management team has establa ished the practice of reviewing the perforff mance of each segment based on the measures of net sales and Adjusted EBITDA. We believe that Adjusted EBITDA is usefulff of the consolidated fiff nancial statements because it provides the same inforff mation that we use internally to evaluate and compare the perforff mance of the segments and it is one of the primaryrr measures used to determine employee incentive compensation. to users (I(( nII tt thous ands)s Adjusted EBITDA Adjusted EBEE IBB TII DTT ADD as a percentage of segme ent net sales (I(( nII tt thous ands)s Adjusted EBITDA Adjusted EBEE IBB TII DTT ADD as a percentage of segme ent net sales Year Ended January 1, 2023 North American Residential Europe Architectural Corporate & Other Total $ 461,750 $ 28,774 $ (3,748) $ (40,978) $ 445,798 20.2 % 10.2 % (( % (1.2) 15.4 % 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 % 37 MASONITE INTERNATIONAL CORPORARR TION The folff lowing reconciles Adjusted EBITDA to net income (loss) attributabla e to Masonite: tt thous ands)s (I(( nII Net income (loss) attributabla e to Masonite Plus: Depreciation Amortization Share based compensation expense Loss (gain) on disposal of property, plant and equipment turt Restrucrr ing costs Loss on disposal of subsidiaries Interest expense, net Other (income) expense, net Income tax expense Other items (1) Net income attributabla e to non- controlling interest Year Ended January 1, 2023 North American Residential Europe Architectural Corporate & Other Total $ 412,917 $ 6,851 $ (13,345) $ (192,190) $ 214,233 41,077 1,881 — 2,457 1,736 — — (791) — — 2,473 8,874 12,187 — (1) — — — 863 — — — 11,530 844 — (2,856) 79 — — — — — — 9,687 2,215 21,771 22 89 850 41,331 (5,073) 71,753 6,829 71,168 17,127 21,771 (378) 1,904 850 41,331 (5,001) 71,753 6,829 1,738 4,211 Adjusted EBITDA $ 461,750 $ 28,774 $ (3,748) $ (40,978) $ 445,798 (1) Other items include $6,829 in acquisition and due diligence related costs in the year ended Januaryrr 1, 2023, and were recorded in selling, general and administration expenses within the consolidated statements of income and comprehensive income. Refeff r to Note 23. Subsequent Events in Item 8 of this Annual Report forff additional inforff mation. tt thous ands)s (I(( nII Net income (loss) attributabla e to Masonite Plus: Depreciation Amortization Share based compensation expense Loss (gain) on disposal of property, plant and equipment Restrucrr turt ing (benefiff t) 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 attributabla e to non- controlling interest 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 Adjusted EBITDA $ 374,452 $ 60,624 $ (2,704) $ (19,766) $ 412,606 38 MASONITE INTERNATIONAL CORPORARR TION Adjusted EBITDA in our North American Residential segment increased $87.3 million, or 23.3%, to $461.8 million in the year ended Januaryrr 1, 2023, frff om $374.5 million in the year ended Januaryrr 2, 2022. Adjusted EBITDA in the North American Residential segment included corpor ate allocations of shared costs of $89.5 million and $76.6 million in 2022 and 2021, respectively. The allocations generally consist of certain costs of human resources, legal, fiff nance, inforff mation technology, research and development, marketing and share based compensation. r Adjusted EBITDA in our Europe segment decreased $31.9 million, or 52.5%, to $28.8 million in the year ended Januaryrr 1, 2023, frff om $60.6 million in the year ended Januaryrr 2, 2022. Adjusted EBITDA in the Europe segment included corpor ate allocations of shared costs of $6.8 million and $4.1 million in 2022 and 2021, respectively. The allocations generally consist of certain costs of human resources, legal, fiff nance, inforff mation technology, marketing and share based compensation. rr Adjusted EBITDA in our Architecturt al segment decreased $1.0 million or 38.6% to a loss of $3.7 million in the year ended Januaryrr 1, 2023, frff om a loss of $2.7 million in the year ended Januaryrr 2, 2022. Adjusted EBITDA in the Architecturt al segment also included corpor 2021, respectively. The allocations generally consist of certain costs of human resources, legal, fiff nance, inforff mation technology, research and development, marketing and share based compensation. ate allocations of shared costs of $11.4 million and $11.1 million in 2022 and rr Liquidity and Capital Resources Our liquidity needs forff operations varyrr throughout the year. Our principal sources of liquidity are cash flff ows frff om operating activities, the borrowings under our ABL Facility and an accounts receivabla e sales program with a third party ("AR Sales Program") and our existing cash balance. Our anticipated uses of cash in the near term include the Endura acquisition, working capia tal needs, capia tal expenditurt es and share repurchases. As of Januaryrr 1, 2023, we do not have any material commitments forff appr a and joint venturt es to create shareholder value and enhance fiff nancial perforff mance. oximately $100 to $115 million. On a continual basis, we evaluate and consider strategic acquisitions, divestiturt es capia tal expenditurt es. We anticipate capia tal expenditurt es in fiff scal year 2023 to be We believe that our cash balance on hand, futff urt e cash generated frff om operations, the use of our AR Sales Program, our ABL Facility and our Term Loan Facility along with our abia lity to access the capia tal markets will provide the forff eseeabla e futff urt e. As of Januaryrr 1, 2023, we had $296.9 million of cash and cash equivalents, adequate liquidity forff the Endura acquisition, availabia lity under our availabia lity under our Term Loan Facility of $250.0 million earmarked forff ABL Facility of $324.9 million and availabia lity under our AR Sales Program of $15.8 million. sw CCasCC hh FllFF owll YeYY ar EndeEE d Januar JJ yr 1, 2023, ComCC parm ed withtt YeYY ar EndeEE d Januar JJ yr 2, 2022 Cash provided by operating activities was $189.2 million during the year ended Januaryrr 1, 2023, compared to $156.5 million during the year ended Januaryrr 2, 2022. This $32.7 million increase in cash provided by operating activities was due to a $21.0 million increase in net income attributabla e to Masonite, adjusted forff items, and an $11.7 million increase in working capia tal and other assets and liabia lities in 2022 compared to 2021. non-cash and other Cash used in investing activities was $111.1 million during the year ended Januaryrr 1, 2023, compared to $76.1 million during the year ended Januaryrr 2, 2022. This $35.0 million increase in cash used in investing activities was primarily driven by a $27.7 million increase in cash additions to property, plant and equipment, the absa million of net proceeds frff om divestiturt es and acquisitions and a $0.4 increase in cash used forff 2022 compared to 2021. ence of $6.9 other investing activities in Cash used in fiff nancing activities was $157.4 million during the year ended Januaryrr 1, 2023, compared to $63.7 million during the year ended Januaryrr 2, 2022. This $93.7 million increase in cash used in fiff nancing activities was driven by a $58.6 million decrease in cash provided by debt-related transactions, a $35.6 million increase in cash used forff repurchases of common shares and a $1.2 million increase in distributions to non-controlling interests, partially offff sff et by a $1.7 million decrease in cash used forff tax withholding on share based awards in 2022 compared to 2021. 39 MASONITE INTERNATIONAL CORPORARR TION ShSS are Repuee rchases The Company's Board of Directors has appr a oved fiff ve share repurchase authorizations, the most recent being an a oved on Februarr incremental $200.0 million share repurchase program appr have no specififf ed 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 faff ctors. Any repurchases under the share repurchase programs may be made in the open market, in privately negotiated transactions or otherwise, subject to market conditions, appl icabla e legal requirements and other relevant faff ctors. The share repurchase programs do not obligate us to acquire any particular amount of common shares, and they may be suspended or terminated at any time at our discretion. Repurchases under the share repurchase programs are permitted to be made under one or more RulRR e 10b5-1 plans, which would permit shares to be repurchased when we might otherwise be precluded frff om doing so under appl ryrr 21, 2022. The share repurchase programs icabla e insider trading laws. a a ion forff During the fiff rst quarter of 2022, the Company entered into an ASR transaction with a third-party fiff nancial the repurchase of $100.0 million of its outstanding common shares. At inception, pursuant to the institutt agreement, the Company paid $100.0 million to the fiff nancial institutt deliveryrr of 848,087 common shares on the same day. The fiff nal deliveryrr of 319,678 common shares were delivered in the second quarter. The $100.0 million ASR transaction was completed in the second quarter with a total deliveryrr of 1,167,765 common shares at a volume-weighted average price ("VWAP") per share minus an agreed upon discount totaling $85.63 per share. The cash paid was reflff ected as a reduction of equity at the initial deliveryrr of shares and the number of shares outstanding were reduced at the dates of physical delivery.rr During the year ended Januaryrr 1, 2023, we repurchased 1,679,919 of our common shares in the open market at an aggregate cost of $149.5 million. During the year ended Januaryrr 2, 2022, we repurchased 1,014,003 of our common shares in the open market at an aggregate cost of $113.9 million. ion using cash on hand and received an initial As of Januaryrr 1, 2023, since inception of the programs we have repurchased $763.1 million of our common shares and have $246.9 million availabla e forff repurchase in accordance with our share repurchase programs. Othtt er Liquii iditii ytt MatMM ttt ett rsrr Our cash and cash equivalents balance includes cash held in forff eign countries in which we operate. Cash held r ated, is frff ee frff om signififf cant restrictions that would prevent the cash frff om being outside Canada, in which we are incorpor operations and service debt obligations in Canada. accessed to meet our liquidity needs including, if necessary,rr However, earnings frff om certain jurisdictions are indefiff nitely reinvested in those jurisdictions. Upon the repatriation of any earnings to Canada, in the foff rm of dividends or otherwise, we may be subject to Canadian income taxes and withholding taxes payabla e to the various forff eign countries. As of Januaryrr 1, 2023, we do not believe adverse tax consequences exist that restrict our use of cash or cash equivalents in a material manner. ff to fund We also routinely monitor the changes in the fiff nancial condition of our customers and the potential impact on our results of operations. There has not been a change in the fiff nancial condition of a customer that has had a material adverse effff eff ct 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 futff urt e period and this impact could be material. Accountstt Receivable Sales Program Under the AR Sales Program, we can transfeff r ownership of eligible trade accounts receivabla e of certain customers. Receivabla es are sold outright to a third party who assumes the fulff the event of a loss. Transfeff rs of receivabla es under this program are accounted forff reflff ect the faff ce value of the accounts receivabla e less a discount. Receivabla es sold under the AR Sales Program are excluded frff om trade accounts receivabla e in the consolidated balance sheets and are included in cash flff ows frff om operating activities in the consolidated statements of cash flff ows. The discounts on the sales of trade accounts receivabla e sold under the AR Sales Program were not material forff administration expense within the consolidated statements of income and comprehensive income. l risk of collection, without recourse to us in as sales. Proceeds frff om the transfeff rs any of the periods presented and were recorded in selling, general and Senior NotNN es 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 forff Securities Act of 1933, as amended (the "Securities Act"), and to buyers outside of the United States pursuant to ional buyers pursuant to RulRR e 144A of the resale to qualififf ed institutt 40 MASONITE INTERNATIONAL CORPORARR TION ryrr 15 and August 15 of each year commencing on Februar Regulation S under the Securities Act. The 2030 Notes bear interest at 3.50% per annum, payabla e in cash semiannually in arrears on Februar Februar ryrr 15, 2030. The 2030 Notes were issued at par. We received net proceeds of $370.3 million aftff er deducting $4.7 million of debt issuance costs. The debt issuance costs were capia talized as a reduction to the carryirr ng value of debt and are being accreted to interest expense over the term of the 2030 Notes using the effff eff ctive interest method. The net proceeds frff om 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, feff es and expenses, with the balance of the proceeds availabla e forff ryrr 15, 2022, and the principal is due general corpor ate purpos es. rr r Obligations under the 2030 Notes are fulff ly 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 specififf ed therein. The indenturt e governing the 2030 Notes contains limited covenants that, among other things, limit our abia lity and the abia lity 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 forff egoing limitations are subject to exceptions as set forff th in the indenturt e governing the 2030 Notes. The indenturt e governing the 2030 Notes contains customaryrr events of defaff ult (subject to certain cases to customaryrr grace and cure periods). As of Januaryrr 1, 2023, we were in compliance with all covenants under the indenturt e governing the 2030 Notes. On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"). The resale to qualififf ed institutt ional buyers pursuant to RulRR e 144A under ryrr 1 and August 1 of each year and the principal is due Februar 2028 Notes were issued in a private placement forff 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, payabla e in cash semiannually in arrears on Februar received net proceeds of $493.3 million aftff er deducting $6.7 million of debt issuance costs. The debt issuance costs were capia talized as a reduction to the carryirr ng value of debt and are being accreted to interest expense over the term of the 2028 Notes using the effff eff ctive interest method. The net proceeds frff om issuance of the 2028 Notes, together with availabla e cash balances, were used to redeem the remaining $500.0 million aggregate principal amount of similar senior unsecured notes. ryrr 1, 2028. The 2028 notes were issued at par. We Obligations under the 2028 Notes are fulff ly 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 under certain circumstances specififf ed therein. The indenturt e governing the 2028 Notes contains restrictive covenants that, among other things, limit our abia lity and the abia lity of our subsidiaries to: (i) incur additional debt and issue disqualififf ed or prefeff rred stock, (ii) make restricted payments, (iii) sell assets, (iv) create or permit restrictions on the abia lity 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 affff iff liates. The forff egoing limitations are subject to exceptions as set forff the futff urt e the 2028 Notes have an investment grade rating frff om at least two nationally recognized statistical rating organizations, certain of these covenants will be terminated. The indenturt e governing the 2028 Notes contains customaryrr events of defaff ult (subject in certain cases to customaryrr grace and cure periods). As of Januaryrr 1, 2023, we were in compliance with all covenants under the indenturt e governing the 2028 Notes. th in the indenturt e governing the 2028 Notes. In addition, if in On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the "2026 Notes"). resale to qualififf ed institutt The 2026 Notes were issued in a private placement forff 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 bear interest at 5.75% per annum, payabla e in cash semiannually in arrears on March 15 and September 15 of each year and were originally due September 15, 2026. The 2026 Notes were issued at par. We received net proceeds of $295.7 million aftff er deducting $4.3 million of debt issuance costs. The debt issuance costs were capia talized as a reduction to the carryirr ng value of debt and were accreted to interest expense over the term of the 2026 Notes using the effff eff ctive interest method. ional buyers pursuant to RulRR e 144A 41 MASONITE INTERNATIONAL CORPORARR TION Subsequent to the closing of the 2030 Notes offff eff ring, the 2026 Notes were redeemed, and the notes were considered extinguished as of July 26, 2021. Under the terms of the indenturt e governing the 2026 Notes, we paid the appl icabla e premium of $10.8 million. Additionally, the unamortized debt issuance costs of $2.8 million relating to the a 2026 Notes were written offff 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 frff om continuing operations beforff e income tax expense in the consolidated statements of income and comprehensive income in the third quarter of 2021. Additionally, the cash payment of interest accruer d to, but not including, the redemption date was accelerated to the redemption date. TeTT rm Loan FacFF ilitytt On December 13, 2022, we and certain of our subsidiaries entered into a new delayed-draw term loan credit ity Date"). The ing on December 12, 2027 (the "Term Loan Maturt agreement (the "Term Loan Credit Agreement") maturt Term Loan Credit Agreement provides forff a senior secured fiff ve-year delayed-draw term loan faff cility of $250.0 million (the "Term Loan Facility"). Loans under the Term Loan Facility (the "Term Loans") will bear interest at a rate equal to, at our option, (1) the Adjusted Term SOFR Rate (as defiff ned in the Term Loan Credit Agreement) plus an appl margin of 2.25% or (2) an alternate base rate equal to the greatest of (i) the "Prime Rate" in the U.S. last quoted by The Wall Street Journal, (ii) 0.50% above ff feff deral funds Rate forff each of cases (1) and (2), an agreed interest rate flff oor. The Term Loans are repayabla e in equal quarterly installments forff an annual aggregate amortization payment equal to 15% of the aggregate principal amount of the Term Loans, with the balance of the principal being due on the Term Loan Maturt the greater of the feff deral funds and overnight eurodollar transactions denominated in Dollars, (iii) 1.00% above a one month interest period and (iv) 1.00%, plus, in each case, an appl rate and the rate comprised of both overnight icabla e margin of 1.25%, subject to, in the Adjusted Term SOFR ity Date. icabla e a a a a ff The Term Loan Credit Agreement also includes a quarterly ticking feff e of 25 basis points per annum payabla e to the lenders under the Term Loan Facility beginning on Januaryrr 3, 2023 (the "Closing Date") in respect of the unutilized commitments thereunder. As a result of the incurrence of the Term Loans on the Closing Date such ticking feff es were not (and shall not be) payabla e to the Lenders. The Borrower also pays customaryrr agency feff es. Obligations under the Term Loan Credit Agreement are fulff ly and unconditionally guaranteed, jointly and severally, by us and by certain of our directly or indirectly wholly-owned subsidiaries organized in the United States and are secured by the equity in, and substantially all the assets of,ff such subsidiaries. The Term Loans were funde amount of $250.0 million and appl ied to fiff nance a portion of the consideration payabla e in connection with the a consummation of the Endura acquisition on Januaryrr 3, 2023. d in an ff The Term Loan Credit Agreement contains restrictive covenants that, among other things, limit our abia lity and the abia lity 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 affff iff liates, (iv) sell assets, (v) merge, (vi) incur additional debt and (vii) create liens. The Term Loan Credit Agreement includes certain exceptions and exemptions under the restricted payment, investment, dispositions, liens and indebtedness covenants. The Term Loan Credit Agreement requires us to maintain at all times a total leverage ratio of no more than 4.50:1.00. The Term Loan Credit Agreement contains change of control provisions and certain customaryrr affff iff rmative covenants and events of defaff ult. As of Januaryrr 1, 2023, we were in compliance with all such covenants and events of defaff ult and there were no amounts outstanding. As of Januaryrr 1, 2023, we were in compliance with all covenants under the credit agreement governing the Term Loan Facility and there were no amounts outstanding. ABLBB FacFF ilitytt On Januaryrr 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving ing on Januaryrr 31, 2024, which replaced the previous faff cility. On October 28, credit faff cility (the "ABL Facility") maturt 2022, we and certain of our subsidiaries entered into an amendment to the "ABL Facility" which, among other things, (i) increased the revolving credit commitments availabla e thereunder by $100.0 million to an aggregate amount of $350.0 million and (ii) replaced the LIBOR-based interest rate appl icabla e to borrowings thereunder in U.S. dollars with an interest rate based on the sum of (x) a "Term SOFR" rate published by the CME Group Benchmark Administration Limited (CBA) plus (y) 10 basis points ("Adjusted Term SOFR"). Additionally, on December 12, 2022, we and certain a 42 MASONITE INTERNATIONAL CORPORARR TION of our subsidiaries entered into an amendment to the ABL Facility, which, among other things, extended the maturt the ABL Facility frff om Januaryrr 31, 2024 to December 12, 2027. The terms of the ABL Facility remained otherwise substantially unchanged. In connection with the acquisition of Endura on Januaryrr 3, 2023, the Company borrowed $100.0 million under the ABL Facility in order to fund subsequently repaid $50.0 million of the outstanding borrowings under our ABL Facility. a portion of the cash consideration paid. On Februar ff ryrr 3, 2023, we ity of Borrowings 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 defiff ned in the credit agreement relating to the ABL Facility, the "Amended and Restated Credit Agreement") plus a margin ranging frff om 0.25% to 0.50% per annum, or (ii) the Term SOFR or BA Rate (each as defiff ned in the Amended and Restated Credit Agreement), plus a margin ranging frff om 1.25% to 1.50% per annum. In addition to paying interest on any outstanding principal under the ABL Facility, a commitment feff e is payabla e 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 customaryrr representations, warranties and covenants by us that, among other things, and subject to certain exceptions, restricts our abia lity and the abia lity 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 affff iff liates, (iv) sell assets, (v) merge and (vi) create liens. The ABL Facility, among other things, (i) permits us to incur unlimited unsecured debt as long as such debt does not contain covenants or defaff ult provisions that are more restrictive than those contained in the ABL Facility, (ii) permits us to incur debt as long as the pro forff ma 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 existing exceptions). As of Januaryrr 1, 2023, 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. Critical Accounting Policies and Estimates Our signififf cant accounting policies are fulff elsewhere in this Annual Report. We consider the folff that are involved in preparing our consolidated fiff nancial statements. ly disclosed in our annual consolidated fiff nancial statements included lowing policies to be most critical in understanding the judgments Business Acquisii ition Accounting We use the acquisition method of accounting forff all business acquisitions. We allocate the purchase price of our business acquisitions based on the faff ir value of identififf abla e tangible and intangible assets. The diffff eff rence between the total cost of the acquisitions and the sum of the faff ir values of the acquired tangible and intangible assets less liabia lities is recorded as goodwill. Goodwill Goodwill is not amortized but instead is tested annually forff impairment on the last day of fiff scal November, or more frff equently if events or changes in circumstances indicate the carryirr ng amount may not be recoverabla e. The test forff impairment is perforff med at the reporting unit level by comparing the reporting unit’s carryirr ng amount to its faff ir value. Possible impairment in goodwill is fiff rst analyzed using qualitative faff ctors such as macroeconomic and market conditions, changing costs and actuat than not that the book value of the reporting unit exceeds its faff ir value. If it is determined more likely than not that the book value exceeds faff ir value, a quantitative analysis is perforff med to test forff impairment. When quantitative steps are determined necessary,rr analyses and market multiples. If the carryirr ng amount exceeds faff ir value, then goodwill is impaired. Any impairment in goodwill is measured as the excess of the carryirr ng value of goodwill over the faff ir value. The inputs utilized to derive projected cash flff ows are subject to signififf cant judgments and uncertainties. As such, the realized cash flff ows could diffff eff r signififf cantly frff om those estimated. We perforff med our annual impairment test during the four determined that goodwill was not impaired. the faff ir values of the reporting units are estimated through the use of discounted cash flff ow l and projected perforff mance, amongst others, to determine whether it is more likely th quarter of 2022 and ff IntII angible Assetstt Intangible assets with defiff nite lives include customer relationships, non-compete agreements, patents, supply agreements, certain acquired trademarks and system softff ware development. Defiff nite-lived intangible assets are amortized 43 MASONITE INTERNATIONAL CORPORARR TION lives. Amortizabla e intangible assets are tested forff on a straight-line basis over their estimated usefulff whenever events or changes in circumstances indicate that the carryirr ng value may be greater than the faff ir value. An impairment loss is recognized when the estimate of undiscounted futff urt e cash flff ows generated by such assets is less than the carryirr ng amount. Measurement of the impairment loss is based on the faff ir value of the asset, determined using discounted cash flff ows when quoted market prices are not readily availabla e. Indefiff nite-lived intangible assets are tested forff the carryirr ng value may exceed the faff ir value. We perforff med a qualitative impairment test during the four 2022 and determined that indefiff nite-lived intangible assets were not impaired. impairment annually on the last day of fiff scal November, or more frff equently if events or circumstances indicated that th quarter of impairment ff Long-lived Assetstt Long-lived assets other than goodwill and indefiff nite-lived intangible assets, which are separately tested forff impairment whenever events or changes in circumstances indicate that the carryirr ng value impairment, are evaluated forff may not be recoverabla e. When evaluating long-lived assets forff lives and undiscounted futff urt e cash flff ows based on market participant of the asset to the estimates of asset’s usefulff assumptions. If the undiscounted expected futff urt e cash flff ows are less than the carryirr ng amount of the asset and the carryirr ng amount of the asset exceeds its faff ir value, an impairment loss is recognized. potential impairment, we fiff rst compare the carryirr ng value IncII ome TaxTT es As a multinational corpor rr liabia lities involves dealing with inherent uncertainties in the appl taxing jurisdictions. We assess the income tax positions and record tax liabia lities forff based upon our evaluation of the faff cts, circumstances and inforff mation availabla e as of the reporting date. a ation, we are subject to taxation in many jurisdictions and the calculation of our tax ication of complex tax laws and regulations in various all years subject to examination We account forff income taxes using the asset and liabia lity method. Under this method, defeff rred tax assets and liabia lities are recognized forff the futff urt e tax consequences of temporaryrr diffff eff rences between the carryirr ng amounts and the tax basis of assets and liabia lities at enacted rates. We base our estimate of defeff rred tax assets and liabia lities on current tax laws and rates and, in certain cases, business plans and other expectations about futff urt e outcomes. We record a valuation allowance to reduce our defeff rred tax assets to the amount that is more likely than not to be realized. While we have considered futff urt e taxabla e income and ongoing prude nt and feff asible tax planning strategies in assessing the need forff valuation allowance, in the event that we were to determine that we would be abla e to realize our defeff rred tax assets in the futff urt e in excess of our net recorded amount, an adjustment to the defeff rred tax assets would be a credit to income in the period such determination was made. The consolidated fiff nancial statements include changes to the valuation allowances as a result of uncertainty regarding our abia lity to realize certain defeff rred tax assets in the futff urt e. the a r Our accounting forff defeff rred tax consequences represents our best estimate of futff urt e events that can be opriately reflff ected in the accounting estimates. Changes in existing tax laws, regulations, rates and futff urt e operating ication appr a results may affff eff ct the amount of defeff rred tax liabia lities or the valuation of defeff rred tax assets over time. The appl of tax laws and regulations is subject to legal and faff ctuat l interprr etation, judgment and uncertainty. Tax laws and regulations themselves are also subject to change as a result in changes in fiff scal policy, changes in legislation, the evolution of regulations and court rulrr ings. a Although we believe the measurement of liabia lities forff uncertain tax positions is reasonabla e, no assurance can be given that the fiff nal outcomes of these matters will not be diffff eff rent than what is reflff ected in the historical income tax provisions and accruar the liabia lity is reversed and a tax benefiff t 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 liabia lity 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 effff eff ct on our income tax provision and net income in the period or periods forff which that determination is made. ls. If we ultimately determine that the payment of these liabia lities will be unnecessary,rr InvII entoryr We value inventories at the lower of cost or net realizabla e value, with expense estimates made forff obsolescence or unsaleabla e inventory.rr In determining net realizabla e value, we consider such faff ctors as yield, turt nover and aging, expected futff urt e demand and market conditions, as well as past experience. A change in the underlying assumptions related to these faff ctors could affff eff ct the valuation of inventoryrr and have a corresponding effff eff ct on cost of goods sold. Historically, actuat l results have not signififf cantly deviated frff om those determined using these estimates. 44 MASONITE INTERNATIONAL CORPORARR TION ChCC anges inii Accountitt nii g StSS antt dards and PolPP ill cies Changes in accounting standards and policies are discussed in Note 1. Business Overview and Signififf cant 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 frff om changes in forff eign currency exchange rates, interest rates and commodity prices, which can affff eff ct our operating results and overall fiff nancial condition. We manage exposure to these risks through our operating and fiff nancing activities and, when deemed appr ents. Derivative fiff nancial instrumr purpos rr counterpar opriate, through the use of derivative fiff nancial instrumr trading ents are generally contracted with a diversififf ed group of investment grade ents are viewed as risk management tools and are not used forff rties to reduce exposure to nonperforff mance on such instrumrr es. Derivative fiff nancial instrumrr speculation or forff ents. a We have in place an enterprr mitigation covering the categories of enterprrr enterprrr decision-making and is fulff ise risk management process receives Board of Directors and Management oversight, drives risk mitigation ly integrated into our internal audit planning and execution cycle. ise risk management process that involves systematic risk identififf cation and ise, strategic, fiff nancial, operation and compliance and reporting risk. The ForFF eigni ExEE change Rate Risii k We have forff eign currency exposures related to buying, selling and fiff nancing in currencies other than the local a currencies in which we operate. In the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, appr 26%, 32% and 29% of our net sales were generated outside of the United States, respectively. 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 futff urt e may continue to expose, us to currency exchange risks. Also, since our fiff nancial 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 in which have, an impact on many aspects of our fiff nancial results. Changes in currency exchange rates forff we operate may require us to raise the prices of our products in that countryrr or allow our competitors to sell their products at lower prices in that country.rr Unrealized exchange gains and losses arising frff om the translation of the fiff nancial statements of our non-U.S. func tional currency operations are accumulated in the cumulative translation adjustments account in accumulated other comprehensive loss. Net losses frff om currency translation adjustments as a result of translating our forff eign assets and liabia lities into U.S. dollars and upon deconsolidation of subsidiaries during the year ended Januaryrr 1, 2023, were $35.6 million, which were primarily driven by weakening of the Pound Sterling, the Canadian dollar and the Euro in comparison to the U.S. dollar during the period. any countryrr oximately ff a When deemed appr ents to preserve the carryirr ng opriate, we enter into various derivative fiff nancial instrumr amount of forff eign currency-denominated assets, liabia lities, commitments and certain anticipated forff eign currency transactions. If not mitigated by derivative fiff nancial instrumrr strengthening of the U.S. dollar against all forff eign currencies in the jurisdictions in which we operate would result in an oximate $7.7 million translational decrease a appr in our net income. oximate $68.5 million translational decrease in our net sales and an appr ents, price increases or other methods, a hypothetical 10% a IntII erest Rate Risii k We are subject to market risk frff om exposure to changes in interest rates with respect to borrowings under our Term Loan Facility and ABL Facility to the extent they are drawn on and due to our other fiff nancing, investing and cash management activities. As of Januaryrr 1, 2023, and Januaryrr 2, 2022, there were no outstanding borrowings under our Term Loan Facility or ABL Facility. On Januaryrr 3, 2023, we borrowed $250.0 million under our Term Loan Facility and $100.0 million under our ABL Facility in connection with the consummation of the Endura acquisition. On Februar 2023, we subsequently repaid $50.0 million of the outstanding borrowings under our ABL Facility. A 100 basis point increase in the variabla e interest rate component of our borrowings as of Februar ryrr 4, 2023, would increase our annual interest expense by appr oximately $3.0 million. ryrr 3, a ImII pacm t of InfII lff ation, Defe lff atl CC ion and Changi ng Prices We have experienced inflff ation and deflff ation related to our purchase of certain commodity products. We believe that volatile prices forff commodities have impacted our net sales and results of operations. We maintain strategies to 45 mitigate the impact of higher raw material, energy and commodity costs, which include cost reduction, sourcing and other actions, which typically offff sff et only a portion of the adverse impact. Inflff ation and deflff ation related to our purchases of certain commodity products could have an adverse impact on our operating results in the futff urt e. A hypothetical 10% inflff ationaryrr consolidated cost of goods sold. Additionally, anti-dumping and countervailing duty trade cases, such as the Januaryrr 8, 2020, Coalition of American Millwork Producers anti-dumping and countervailing duty petitions against Wood Mouldings and Millwork Products frff om Brazil and China, has had, and is expected to continue to have, an impact our business and results of operations. increase in our material cost of goods sold would result in appr oximately $117.5 million of increased a 46 Item 8. Financial Statements and Supplementary Data INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARYRR 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 48 50 51 52 53 54 47 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Masonite International Corpor rr ation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Masonite International Corpor ation (the Company) as of Januaryrr 1, 2023 and Januaryrr 2, 2022, the related consolidated statements of income and comprehensive income, changes in equity, and cash flff ows forff each of the three fiff scal years in the period ended Januaryrr 1, 2023, and the related notes (collectively refeff rred to as the "consolidated fiff nancial statements"). In our opinion, the consolidated fiff nancial statements present faff irly, in all material respects, the fiff nancial position of the Company at Januaryrr 1, 2023 and Januaryrr 2, 2022, and the results of its operations and its cash flff ows forff accepted accounting principles. each of the three fiff scal years in the period ended Januaryrr 1, 2023, in conforff mity with U.S. generally r 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 fiff nancial reporting as of Januaryrr 1, 2023, based on criteria establa ished in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 frff amework) and our report dated Februarr ryrr 28, 2023 expressed an unqualififf ed opinion thereon. Basis forff Opinion These fiff nancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s fiff nancial statements based on our audits. We are a public accounting fiff rm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. feff deral securities laws and the appl rulr es and regulations of the Securities and Exchange Commission and the PCAOB. icabla e a We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perforff m the audit to obtain reasonabla e assurance about or frff aud. Our audits included perforff ming procedures to assess the risks of material misstatement of the fiff nancial statements, whether due to error or frff aud, and perforff ming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the fiff nancial statements. Our audits also included evaluating the accounting principles used and signififf cant estimates made by management, as well as evaluating the overall presentation of the fiff nancial statements. We believe that our audits provide a reasonabla e basis forff whether the fiff nancial statements are frff ee of material misstatement, whether due to error our opinion. a Critical Audit Matter The critical audit matter communicated below is a matter arising frff om the current period audit of the fiff nancial 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 fiff nancial 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 fiff nancial 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. 48 s Accountitt nii g foff r InII come TaxeTT Description of the Matter As discussed in Notes 1 and 15 to the consolidated fiff nancial statements, the Company is subject to income taxes in Canada, the U.S., and other forff eign jurisdictions, which affff eff ct the Company’s provision forff taxes. The provision forff and inforff mation availabla e as of the reporting date. For the year-ended Januaryrr 1, 2023, the Company recognized consolidated income tax expense of $71.8 million. income income taxes is based upon management’s understanding of the faff cts, circumstances Auditing management’s calculation of the provision forff global strucrr turt e required an assessment of the Company’s interprr etation and appl jurisdictions including the income tax impact of the legal entity ownership strucr transactions. The assessment of tax positions involves the evaluation and appl regulations, and case law which are subject to legal and faff ctuat procedures required signififf cant audit effff orff audit evidence obtained frff om these procedures. a a income taxes was complex because the Company’s ication of tax laws in multiple turt e and intercompany ication of complex statutt es, t including the use of our tax profeff ssionals to assist in evaluating the l interprr etation and judgment. Our audit How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effff eff ctiveness of the Company’s controls over management’s calculation of its provision forff management’s controls over the identififf cation and analysis of changes to tax laws in the various jurisdictions in which it operates. income taxes. For example, we tested income taxes, we perforff med audit procedures that To test the Company’s calculation of the provision forff included, among others, evaluating the income tax impact of the Company’s strucrr jurisdictional tax law and considered the impact of any changes in the current year. We involved our tax profeff ssionals to evaluate the appl Company’s correspondence with the relevant tax authorities and its analysis of income tax positions. Additionally, our procedures included testing the related effff eff ctive tax rate reconciliation, evaluating the tax impact of permanent and temporaryrr diffff eff rences, and testing the appl other authoritative guidance. ication of tax law to management’s tax positions, including assessing the ication of new regulations, case law, and turt e, operations and a a /s/ Ernst & Young LLP We have served as the Company’s auditor since 2016. Tampa, Florida Februar ryrr 28, 2023 49 MASONITE INTERNATIONAL CORPORARR TION Consolidated Statements of Income and Comprehensive Income (In thousands of U.S. dollars, except per share amounts) Net sales Cost of goods sold Gross profiff t Selling, general and administration expenses Restrucrr turt ing costs Asset impairment Loss on disposal of subsidiaries Operating income Interest expense, net Loss on extinguishment of debt Other (income) expense, net Income beforff e income tax expense Income tax expense Net income Less: net income attributabla e to non-controlling interests Net income attributable to Masonite Basic earnings per common share attributabla e to Masonite Diluted earnings per common share attributabla e to Masonite Comprehensive income: Net income Other comprehensive (loss) income: Foreign currency translation (loss) gain Pension and other post-retirement adjustment Pension settlement charges Amortization of actuat Income tax (expense) benefiff t related to other comprehensive (loss) income rial net losses Other comprehensive (loss) income, net of tax: Comprehensive income Less: comprehensive income attributabla e to non-controlling interests January 1, 2023 Year Ended January 2, 2022 January 3, 2021 $ 2,891,687 $ 2,596,920 $ 2,257,075 2,217,792 1,985,141 1,684,571 673,895 344,614 1,904 — 850 326,527 41,331 — (5,001) 290,197 71,753 218,444 4,211 214,233 9.51 9.41 $ $ $ 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 2.77 218,444 $ 99,194 $ 73,689 $ $ $ $ (35,637) (4,718) — 22 (846) (41,179) 177,265 3,674 (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 87,143 Comprehensive income attributabla e to Masonite $ 173,591 $ 104,982 $ See accompanying notes to the consolidated fiff nancial statements. 50 MASONITE INTERNATIONAL CORPORARR TION Consolidated Balance Sheets (In thousands of U.S. dollars, except share amounts) SSETS Current assets: Cash and cash equivalents Restricted cash Accounts receivabla e, net Inventories, net Prepaid expenses and other assets Income taxes receivabla e Total current assets Property, plant and equipment, net Operating lease right-of-ff use assets Investment in equity investees Goodwill Intangible assets, net Defeff rred income taxes Other assets Total assets LIABILITIES AND EQUITY Current liabilities: Accounts payabla e Accruer d expenses Income taxes payabla e Total current liabilities Long-term debt Long-term operating lease liabia lities Defeff rred income taxes Other liabia lities Total liabilities Commitments and Contingencies (Note 10) Equity: Share capia tal: unlimited shares authorized, no par value, 22,155,035 and 23,623,887 shares issued and outstanding as of Januaryrr 1, 2023, and Januaryrr 2, 2022, respectively Additional paid-in capia tal Retained earnings Accumulated other comprehensive loss Total equity attributable to Masonite Equity attributabla e to non-controlling interests Total equity Total liabilities and equity January 1, 2023 January 2, 2022 $ 296,922 $ 11,999 375,918 406,828 55,051 16,922 381,395 10,110 343,414 347,476 50,399 1,332 1,163,640 1,134,126 652,329 160,695 16,111 69,868 136,056 16,133 33,346 626,797 176,445 14,994 77,102 150,487 20,764 45,903 $ 2,248,178 $ 2,246,618 $ 111,526 $ 223,046 14,361 348,933 866,116 151,242 79,590 59,515 138,788 237,300 8,551 384,639 865,721 165,670 77,936 52,874 1,505,396 1,546,840 520,003 226,514 127,826 543,400 222,177 24,244 (142,224) (101,582) 732,119 10,663 742,782 688,239 11,539 699,778 $ 2,248,178 $ 2,246,618 See accompanying notes to the consolidated fiff nancial statements. 51 MASONITE INTERNATIONAL CORPORARR TION 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 forff Common shares issued under employee stock purchase plan Common shares repurchased and retired deliveryrr of share based awards End of period Additional paid-in capital: Beginning of period Share based compensation expense Common shares issued forff deliveryrr of share based awards Common shares withheld to cover income taxes payabla e due to deliveryr of share based awards Common shares issued under employee stock purchase plan End of period Retained earnings (accumulated defiff cit): Beginning of period Net income attributabla e to Masonite Common shares repurchased and retired End of period Accumulated other comprehensive loss: Beginning of period Other comprehensive (loss) income attributabla e to Masonite, net of tax End of period Equity attributable to non-controlling interests: Beginning of period Net income attributabla e to non-controlling interests Other comprehensive (loss) income attributabla e 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 forff Common shares issued under employee stock purchase plan Common shares repurchased and retired End of period deliveryrr of share based awards uary 1, 2023 January 2, 2022 January 3, 2021 $ 699,778 $ 695,117 $ 636,862 543,400 13,868 1,573 (38,838) 520,003 222,177 21,771 (13,868) (3,359) (207) 226,514 24,244 214,233 (110,651) 127,826 (101,582) (40,642) (142,224) 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 (112,063) 10,481 (101,582) 11,539 4,211 (537) (4,550) 10,663 742,782 $ 10,160 4,693 66 (3,380) 11,539 699,778 $ $ 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 (130,169) 18,106 (112,063) 11,980 4,652 185 (6,657) 10,160 695,117 23,623,887 194,500 16,567 (1,679,919) 22,155,035 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 See accompanying notes to the consolidated fiff nancial statements. 52 MASONITE INTERNATIONAL CORPORARR TION Consolidated Statements of Cash Flows (In thousands of U.S. dollars) Cash flff ows frff om operating activities: Net income Adjustments to reconcile net income to net cash flff ow provided by operating activities: January 1, 2023 Year Ended January 2, 2022 January 3, 2021 $ 218,444 $ 99,194 $ 73,689 Loss on disposal of subsidiaries Loss on extinguishment of debt Depreciation Amortization Share based compensation expense Defeff rred income taxes Unrealized forff eign exchange loss (gain) Share of income frff om equity investees, net of tax Dividend frff om equity investee ff Pension and post-retirement fundi Non-cash accruar ls and interest (Gain) loss on sale of property, plant and equipment Asset impairment Changes in assets and liabia lities, net of acquisitions: ng, net of expense Accounts receivabla e Inventories Prepaid expenses and other assets Accounts payabla e and accruer d expenses Other assets and liabia lities Net cash flff ow provided by operating activities Cash flff ows frff om investing activities: Additions to property, plant and equipment Acquisition of businesses, net of cash acquired Proceeds frff om sale of subsidiaries, net of cash disposed Proceeds frff om sale of property, plant and equipment Other investing activities Net cash flff ow used in investing activities Cash flff ows frff om fiff nancing activities: Proceeds frff om 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 flff ow used in fiff nancing activities 850 — 71,168 17,127 21,771 6,024 820 (4,768) 4,500 (2,342) (511) (378) — (39,056) (66,372) 7,266 (33,302) (12,044) 189,197 (114,307) — (74) 6,413 (3,130) (111,098) — — — — (3,359) (4,550) (149,489) (157,398) 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) Net forff eign currency translation adjustment on cash (Decrease) 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 (3,285) (82,584) 391,505 308,921 $ (307) 16,271 375,234 391,505 $ $ See accompanying notes to the consolidated fiff nancial statements. 53 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) 4,397 197,626 177,608 375,234 MASONITE INTERNATIONAL CORPORARR TION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Business Overview and Signififf cant Accounting Policies Unless we state otherwise or the context otherwise requires, refeff rences to "Masonite," "we," "our," "us" and the "Company" in these notes to the consolidated fiff nancial statements refeff r to Masonite International Corpor subsidiaries. r ation and its Descripti ion of Business Masonite International Corpor r ation is one of the largest manufaff cturt ers of doors in the world, with signififf cant market share in both interior and exterior door products. Masonite operates 59 manufaff cturt ing locations in seven countries and sells doors to customers throughout the world, including the United States, Canada and the United Kingdom. Basisii of Presentation We prepare these consolidated fiff nancial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These consolidated fiff nancial statements include the accounts of Masonite International Corpor ation, a company incorpor Januaryrr 1, 2023, and Januaryrr 2, 2022, and forff ated under the laws of British Columbia, and its subsidiaries, as of the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021. rr r Our fiff scal year is the 52- or 53-week period ending on the Sunday closest to December 31. In a 52-week year, each fiff scal quarter consists of 13 weeks. For ease of disclosure, the 13-week periods are refeff rred to as three-month periods and the 52- or 53-week periods are refeff rred to as years. Our 2020 fiff scal year, which ended on Januaryrr 3, 2021, contained 53 weeks of operating results, with the additional week occurring in the four th quarter. ff ChCC anges inii Accountitt nii g StSS antt dards and PolPP ill cies Adoption of Recent Accounting Pronouncementstt In December 2021, the Financial Accounting Standards Board ("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 forff transactions on an entity's fiff nancial statements. The guidance was effff eff ctive forff 15, 2021, with early adoption permitted. We have adopted the new guidance as of Januaryrr 3, 2022, the beginning of fiff scal year 2022, and the adoption did not have a material impact on our fiff nancial statements or disclosures. those transactions and (3) the effff eff ct of those annual periods beginning aftff er December In December 2019, the FASB issued ASU 2019-12, "Simplifyiff ng the Accounting forff Income Taxes," as part of its Simplififf cation Initiative to reduce the cost and complexity in accounting forff a certain exceptions related to the appr an interim period and the recognition of defeff rred tax liabia lities forff of the guidance to help simplifyff and promote consistent appl prospectively as of Januaryrr 4, 2021, the beginning of fiff scal year 2021, and the adoption did not have a material impact on our fiff nancial statements. calculating income taxes in outside basis diffff eff rences. It also amends other aspects ication of GAAP. We adopted the new guidance riod tax allocation, the methodology forff income taxes. This standard removes oach forff intrapea a Othett r Recent Accounting Pronouncementstt not yet Adopted In October 2021, the FASB issued ASU 2021-08, "Accounting forff Contract Assets and Contract Liabia lities frff om Contracts with Customers," which clarififf es that an acquirer of a business should recognize and measure contract assets and contract liabia lities in a business combination in accordance with ASU 2014-09," Revenue frff om Contracts with Customers" as if the entity had originated the contracts. The guidance is effff eff ctive forff December 15, 2022, with early appl guidance will not have a material impact on our fiff nancial statements. ication permitted. We did not early adopt and believe the adoption of this new fiff scal years beginning aftff er a 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Summaryr of Signi i fi iff cant Accounting Policies (a)(( Principli es of consolidation: These consolidated fiff nancial statements include the accounts of Masonite and our subsidiaries and the accounts of any variabla e interest entities forff which we are the primaryrr benefiff ciary.rr Intercompany accounts and transactions have been eliminated upon consolidation. The results of subsidiaries acquired during the periods presented are consolidated frff om their respective dates of acquisition using the acquisition method. Subsidiaries are prospectively deconsolidated as of the date we no longer have effff eff ctive control of the entity. (b)(( TrTT anslatl ion of consolidated fiff nancial statementstt into U.S.UU dollarsrr : ff These consolidated fiff nancial statements are expressed in U.S. dollars. The accounts of the maja ority of our self-ff tional currencies other than the U.S. dollar. Assets and liabia lities forff sustaining forff eign operations are maintained in func 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 forff translation of the fiff nancial statements of our non-U.S. func translation adjustments account in accumulated other comprehensive loss. For our forff eign subsidiaries where the U.S. dollar is the func exchange gains and losses arising frff om remeasurements of forff eign currency-denominated assets and liabia lities are included within other (income) expense, net in the consolidated statements of income and comprehensive income. Gains and losses arising frff om international intercompany transactions that are of a long-term investment naturt e are reported in the same manner as translation gains and losses. Realized exchange gains and losses are included in net income forff the periods presented. the period. Unrealized exchange gains and losses arising frff om the tional currency operations are accumulated in the cumulative ff tional currency, all forff eign currency-denominated accounts are remeasured into U.S. dollars. Unrealized ff (c(( )c CasCC h and cash equivalentstt : Cash includes cash equivalents which are short-term highly liquid investments with original maturt ities of three months or less. (d)(( Restrt icted cash: Restricted cash includes cash we have placed as collateral forff 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 Januaryrr 1, 2023, and Januaryrr 2, 2022, we had standby letters of credit totaling $2.1 million and $2.6 million, respectively. There were no amounts drawn upon these letters of credit as of Januaryrr 1, 2023, or Januaryrr 2, 2022. (e(( )e Accountstt receivable: Our customers are primarily retailers, distributors and contractors. We record an allowance forff the time that accounts receivabla e are initially recorded based on the historical write-offff experience and the current economic environment as well as our expectations of futff urt e economic conditions. We reassess the allowance at each reporting date. When it becomes appa 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 forff rent, based on age or customer circumstances, that such amounts will not be our accounts receivabla e. a credit losses at (f(( )ff InvII entories: Raw materials and fiff nished goods are valued at the lower of cost or net realizabla e value. Cost is determined on a fiff rst in, fiff rst out basis. In determining the net realizabla e value, we consider faff ctors such as yield, turt nover, expected futff urt e demand and past experience. The cost of inventories includes all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The costs of conversion of inventories include costs directly related to the units of production, such as direct labor . They also include a systematic allocation of fiff xed and variabla e a 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) production overheads that are incurred in converting raw materials into fiff nished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of faff ctoryrr buildings and equipment, and the cost of faff ctoryrr management and administration. Variabla e production overheads are those indirect costs of production that varyrr directly, or nearly directly, with the volume of production, such as indirect materials and indirect labor a . To determine the cost of inventory,rr we allocate fiff xed expenses to the cost of production based on the normal city, which refeff rs to a range of production levels and is considered the production expected to be achieved over a capaa 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 abnor mally low production. Those excess costs are recognized as a current period expense. When a production faff cility is completely shut down temporarily, it is considered idle, and all related expenses are charged to cost of goods sold. city resulting frff om a (g)(( Propertytt ,yy plant l and equipmi ent: buildings, machineryrr and equipment using the straight-line method over the estimated usefulff Property, plant and equipment are stated at cost. Depreciation is recorded based on the carryirr ng values of th as folff lives set forff lows: Buildings Machineryrr and equipment Tooling Machineryrr and equipment Molds and dies Offff iff ce equipment, fiff xturt es and fiff ttings Inforff mation technology systems Usefuff l Lifeff (Years) 20 - 40 10 - 25 5 - 25 12 - 25 3 - 12 5 - 15 Improvements and maja or maintenance that extend the lifeff of an asset are capia talized; other repairs and maintenance are expensed as incurred. When assets are retired or otherwise disposed, their carryirr ng values and accumulated depreciation are removed frff om the accounts. Property, plant and equipment are tested forff impairment when events or changes in circumstances indicate that the carryirr ng value of an asset or asset group may not be recoverabla e. An impairment loss is recognized when the carryirr ng amount of an asset or asset groupu being tested forff expected frff om its use and disposal. Impairments are measured as the amount by which the carryirr ng amount of the asset or asset group exceeds its faff ir value, as determined using a discounted cash flff ows appr oach when quoted market prices are not availabla e. recoverabia lity exceeds the sum of the undiscounted cash flff ows a (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 modififf ed. A lease will be classififf ed as an operating lease if it does not meet any of the criteria forff a fiff nance lease. Those criteria include the transfeff r of ownership of the underlying asset by the end of the lease term; an option to purchase the underlying asset that we would be reasonabla y certain to exercise; the lease term is forff the maja or part of the remaining economic lifeff of the underlying asset; the present value of the sum of the lease payments and any residual value guaranteed by us that is not already reflff ected in the lease payments equals or exceeds substantially all of the faff ir value of the underlying asset or if the underlying asset is of such a specialized naturt e that it is expected to have no alternative use to the lessor at the end of the lease term. The assets and liabia lities relating to operating leases are included in operating lease right-of-ff use assets, accruer d expenses, and long-term operating lease liabia lities in our consolidated balance sheets. The assets and liabia lities relating to fiff nance leases are included in property, plant and equipment, net and other liabia lities in our consolidated balance sheets. 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) ROU assets represent our right to use an underlying asset forff the lease term and lease liabia lities represent our implicit discount rates, we use our incremental borrowing rate based on the inforff mation obligation to make lease payments arising frff om the lease. Operating lease ROU assets and liabia lities 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 specifyff availabla e 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 forff begins on the date when the lessor makes the underlying asset availabla e forff include options to extend the lease when it is reasonabla y 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. lease incentives and prepaid or accruer d rent. The lease term 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 components of a contract are combined into a single lease component forff accounting purpos es. r Our operating leases include leases forff real estate (including manufaff cturt ing sites, warehouses and offff iff ces) and machineryrr and equipment and our fiff nance leases include leases forff our operating leases contain provisions forff renewal ranging frff om one to four real estate. We have no material subleases. Certain of options of one to ten years each. ff (i(( )i Goodwill: We use the acquisition method of accounting forff all business combinations, and we evaluate all business intangible assets that should be recognized apaa combinations forff the effff eff ct on goodwill of changes to net assets acquired during the measurement period (up to one year frff om the date of acquisition) forff a known, would have affff eff cted the measurement of the amounts recognized as of that date. faff cts and circumstances that existed as of the acquisition date that, if rt frff om goodwill. Goodwill adjustments are recorded forff new inforff mation obtained about Goodwill is not amortized, but instead is tested annually forff impairment on the last day of fiff scal November, or more frff equently if events or changes in circumstances indicate the carryirr ng amount may not be recoverabla e. The test forff impairment is perforff med at the reporting unit level by comparing the reporting unit’s carryirr ng amount to its faff ir value. Possible impairment in goodwill is fiff rst analyzed using qualitative faff ctors such as macroeconomic and market conditions, changing costs and actuat than not that the book value of the reporting unit exceeds its faff ir value. If it is determined more likely than not that the book value exceeds faff ir value, a quantitative analysis is perforff med to test forff impairment. When quantitative steps are determined necessary,rr analysis and market multiples. If the carryirr ng amount exceeds faff ir value, then goodwill is impaired. Any impairment in goodwill is measured as the excess of the carryirr ng value of goodwill over the faff ir value. There were no impairment charges recorded against goodwill in 2022. the faff ir values of the reporting units are estimated through the use of discounted cash flff ow l and projected perforff mance, amongst others, to determine whether it is more likely When developing our discounted cash flff ow analyses, a number of assumptions and estimates are involved to ing forff ecast operating cash flff ows, including futff urt e net sales growth, EBITDA margin growth, benefiff ts frff om restrucr initiatives, income tax rates, capia tal spending, business initiatives and working capia tal changes. These assumptions may varyrr signififf cantly among the reporting units. Operating cash flff ow forff ecasts are based on operating plans forff years and historical relationships and long-term economic outlooks forff estimated forff each specififf c reporting unit. Due to the many variabla es inherent in the estimation of a reporting unit’s faff ir value and the relative size of our recorded goodwill, diffff eff rences in assumptions may have a material effff eff ct on the results of our impairment analyses. In 2021 and 2020, we recorded $59.5 million and $51.5 million, respectively, in impairment charges related to the Architecturt al reporting unit. See Note 14 forff the early in later years. The discount rate is ther inforff mation. our industryrr furff turt 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) (j(( )jj IntII angible assetstt : Intangible assets with defiff nite lives include customer relationships, patents, system softff ware development and acquired trademarks and tradenames. Defiff nite lived intangible assets are amortized over their estimated usefulff Inforff mation pertaining to the estimated usefulff lives of intangible assets is as folff lows: lives. Customer relationships Patents System softff ware development Estimated Usefuff l Lifeff Over expected relationship period Over expected usefulff lifeff Over expected usefulff lifeff Acquired trademarks and tradenames Straight-line over expected usefulff lifeff Amortizabla e intangible assets are tested forff impairment whenever events or changes in circumstances indicate that the carryirr ng value may be greater than faff ir value. An impairment loss is recognized when the estimate of undiscounted futff urt e cash flff ows generated by such assets is less than the carryirr ng amount. Measurement of the impairment loss is based on the faff ir value of the asset. Fair value is measured using discounted cash flff ows. Indefiff nite lived intangible assets are not amortized, but instead are tested forff impairment annually on the last day of fiff scal November, or more frff equently if events or circumstances indicate the carryirr ng value may exceed the faff ir value. (k(( )k IncII ome taxes: rr As a multinational corpor ation, we are subject to taxation in many jurisdictions and the calculation of our tax ication of complex tax laws and regulations in various liabia lities involves dealing with inherent uncertainties in the appl taxing jurisdictions. We assess the income tax positions and record tax liabia lities forff all years subject to examination based upon our evaluation of the faff cts, circumstances and inforff mation availabla e as of the reporting date. Our global strucr including the income tax impact of the legal entity ownership strucrr turt e required an assessment of the Company’s interprrr etation and appl ication of tax laws in multiple jurisdictions turt e and intercompany transactions. a a We use the asset and liabia lity method of accounting forff income taxes. Under the asset and liabia lity method, defeff rred tax assets and liabia lities are recognized forff fiff nancial statement carryirr ng amounts of existing assets and liabia lities and their respective tax bases. Defeff rred tax assets and liabia lities are measured using enacted tax rates expected to appl temporaryrr diffff eff rences are expected to be recovered or settled. The effff eff ct on defeff rred tax assets and liabia lities due to a change in tax rates is recognized in income in the period that includes the date of enactment. A valuation allowance is recorded to reduce defeff rred tax assets to an amount that is anticipated to be realized on a more likely than not basis. the defeff rred tax consequences attributabla e to diffff eff rences between the y to taxabla e income in the years in which those a We account forff lows a two-step appr uncertain taxes in accordance with ASC 740, "Income Taxes." The initial benefiff t recognition a oach. 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 appr opriate amount of benefiff t to recognize. This is calculated as the largest amount of tax benefiff t that has a greater than 50% likelihood of ultimately being realized upon settlement. Subsequently at each reporting date, the largest amount that has a greater than 50% likelihood of ultimately being realized, based on inforff mation availabla e at that date, will be measured and recognized. a We recognize interest and penalties related to unrecognized tax benefiff ts within the income tax expense line in the consolidated statements of income and comprehensive income. Accruerr d interest and penalties are included within the related tax liabia lity line in the consolidated balance sheets. (l(( )l EmEE plm oyee futff ure benefe iff tstt : We maintain defiff ned benefiff t pension plans. Benefiff ts under the plans were frff ozen or curtailed at various times in the past. Earnings are charged with the cost of benefiff ts earned by employees as services are rendered. The cost reflff ects management’s best estimates of the pension plans’ expected investment yields, wage and salaryrr escalation, mortality of members, terminations and the ages at which members will retire. Changes in these assumptions could impact futff urt e 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 actuat beginning of the year is amortized over the average remaining service lives of the members. rial gain (loss) over 10% of the greater of the benefiff t obligation or faff ir value of plan assets at the Assets are valued at faff ir value forff the purpos r e of calculating the expected returt n on plan assets. Past service costs arising frff om 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 restrucrr turt curtailment is accounted forff excess gains and all curtailment losses are recorded in the period in which the curtailment occurs. ing of a benefiff t plan gives rise to both a curtailment and a settlement of obligations, the prior to the settlement. Curtailment gains are offff sff et against unrecognized losses and any )m Restrt ucturing coststt : (m(( turt turt ing costs include all salary-rr Restrucr ing plan has been put into place, the plan has received appr related severance benefiff ts that are accruer d and expensed when a oval frff om the appr restrucr the benefiff t is probabla e and reasonabla y estimabla e. In addition to salary-rr when faff cilities are closed or capaa liabia lities and expenses pursuant to the terms of the relevant agreement. For non-contractuat liabia lities and expenses are measured and recorded at faff ir value in the period in which they are incurred. city is realigned within the organization. Upon termination of a contract we record ing activities, related costs, we incur other restrucr l restrucr opriate level of management and ing costs turt turt a a Restrucr turt ing-related costs are presented separately in the consolidated statements of income and comprehensive income whereas non-restrucr and administration expense depending on the naturt e of the job responsibilities. turt ing severance benefiff ts are charged to cost of goods sold or selling, general (n)(( FiFF nancial instrt umentstt : We have appl a ied a frff amework consistent with ASC 820, "Fair Value Measurement and Disclosure," and have disclosed all fiff nancial assets and liabia lities measured at faff ir value and non-fiff nancial assets and liabia lities measured at faff ir value on a non-recurring basis (at least annually). We classifyff and disclose assets and liabia lities carried at faff ir value in one of the folff lowing three categories: Level 1: Quoted market prices in active markets forff identical assets or liabia lities. Level 2: Observabla e market based inputs or unobservabla e inputs that are corroborated by market data. Level 3: Unobservabla e inputs that are not corroborated by market data. The estimated faff ir value of a fiff nancial instrumr ent is the amount at which the instrumr ent could be exchanged in a current transaction between willing parties, other than a forff ced or liquidation sale. These estimates, although based on the relevant market inforff mation about ent, are subjective in naturt e and involve uncertainties and matters of signififf cant judgment and, thereforff e, cannot be determined with precision. Changes in assumptions could signififf cantly affff eff ct the estimates. the fiff nancial instrumr a (o)(( Share based compem nsation exee pex nse: We have a share based compensation plan, which is described in detail in Note 12. We appl a y the faff ir value method of accounting using comprehensive valuation models, including the Black-Scholes-Merton option pricing model, to determine the compensation expense. (p)(( Revenue recognition: Revenue frff om the sale of products is recognized when control of the promised goods is transfeff rred to our customers based on the agreed-upon shipping terms, in an amount that reflff ects the consideration to which we expect to be entitled in exchange forff those goods or services. Volume rebates, expected returt ns, discounts and other incentives to customers are considered variabla e consideration and we estimate these amounts based on the expected amount to be 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) provided to customers and reduce the revenues we recognize accordingly. Sales taxes and value added taxes assessed by governmental entities are excluded frff om the measurement of consideration expected to be received. Shipping and handling costs incurred aftff er a customer has taken possession of our goods are treated as a fulff considered a separate perforff mance 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. fiff llment cost and are not (q)(( Product warranties: We warrant certain qualitative attributes of our door products. We have recorded provisions forff estimated warranty and related costs within accruer d expenses on the consolidated balance sheets, based on historical experience and we periodically adjust these provisions to reflff ect actuat folff l experience. The rollforff ward of our warranty provision is as the periods indicated: lows forff (I(( nII tt thous ands)s Balance at beginning of period Additions charged to expense Deductions Balance at end of period (r(( )r VeVV ndor rebates: Year Ended January 1, 2023 January 2, 2022 January 3, 2021 $ $ $ 4,015 5,085 (5,219) 3,881 $ $ 4,635 4,646 (5,266) 4,015 $ 4,414 6,807 (6,586) 4,635 We account forff cash consideration received frff om a vendor as a reduction of cost of goods sold and inventory,rr 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(( )s Advertisii ing coststt : 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 $16.9 million, $14.2 million and $10.8 million in the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, respectively. (t(( )t Research and development coststt : 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 manufaff cturt included within cost of goods sold in the consolidated statements of income and comprehensive income. These costs exclude the signififf cant investments in other areas such as advanced automation. Research and development costs were $21.2 million, $18.4 million and $17.0 million in the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, respectively. ing processes, and are primarily (u)(( InsII urance losses and proceeds: All involuntaryrr 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 forff insured losses of property, plant and equipment are also recorded as gains within loss (gain) on disposal of property, plant and equipment, and are classififf ed as cash flff ows frff om investing activities in the consolidated statements of cash flff ows in the period in which the cash is received. Proceeds received forff expense in the consolidated statements of income and comprehensive income and are classififf ed as cash flff ows frff om operating activities in the consolidated statements of cash flff ows in the period in which an acknowledgment frff om the insurance carrier of settlement or partial settlement of a non-refunda ion recoveries are recorded as a reduction to selling, general and administration bla e naturt e has been presented to us. business interrupt r ff 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) (v(( )v Equitytt investmtt entstt : We account forff investments in affff iff liates of between 20% and 50% ownership, over which we have signififf cant inflff uence, using the equity method. We record our share of earnings of the affff iff liate within other income, net of expense, in the consolidated statements of income and comprehensive income and dividends as a reduction of the investment in the affff iff liate in the consolidated balance sheets when declared. )w Segme (w(( e ent repor ting: Our reportabla e segments are organized and managed principally by end market: North American Residential, r ate & Other categoryrr Europe and Architecturt al. The Corpor immaterial operating segments that were not aggregated into any reportabla e segment. In addition to similar economic characteristics we also consider the folff activities, the management strucr operating and administrative activities, availabia lity of discrete fiff nancial inforff mation and inforff mation presented to the Board of Directors and investors. lowing faff ctors in determining the reportabla e segments: the naturt e of business turt e directly accountabla e to our chief operating decision maker forff includes unallocated corpor ate costs and the results of r (x(( )x UsUU e of estimates: The preparation of consolidated fiff nancial statements in conforff mity with GAAP requires management to make estimates and assumptions which affff eff ct the reported amounts of assets and liabia lities and disclosure of contingent assets and liabia lities as of the date of the consolidated fiff nancial statements and the reported amounts of net sales and expenses during the reporting periods. During 2022, there were no material changes in the methods or policies used to establa ish estimates and assumptions. Actuat l results may diffff eff r frff om our estimates. 2. Acquisitions and Divestitures Acquisii itions On Januaryrr 3, 2023, we completed the acquisition of Endura Products forff oximately $375.0 million in cash using a combination of cash on hand and borrowings under our Term Loan Facility and ABL Facility. In connection with the acquisition, we borrowed $250.0 million under our Term Loan Facility and $100.0 million under our ABL Facility. Endura is a leading innovator and manufaff cturt er of high-perforff mance door frff ames and door system components in the United States. Refeff r to Note 23. Subsequent Events forff additional inforff mation. a appr On December 4, 2020, we completed the acquisition of a Lowe's Companies, Inc. door faff bra ication faff cility in the cash consideration of $3.9 million. During the fiff rst quarter of 2021, as a result of the working capia tal United States forff adjustments we paid an additional $0.2 million. The purchase price allocation, net sales, net income (loss) attributabla e to Masonite and pro forff ma inforff mation forff presented. the acquisition are not presented as they were not material forff any period On August 31, 2020, we acquired intellectuat l property and other assets related to an interior door technology forff cash consideration of $1.9 million. The purchase price allocation, net sales, net income (loss) attributabla e to Masonite and pro forff ma inforff mation forff the acquisition are not presented as they were not material forff any period presented. Divestitures During the four ff th quarter of 2022, we completed the liquidation of our legal entity in Turkey. As a result, we recognized $0.9 million in loss on disposal of subsidiaries. The total charge consists of $0.7 million relating to the recognition of cumulative translation adjustment out of accumulated other comprehensive loss and $0.2 million relating to the write-offff of net assets. On June 14, 2021, we completed the sale of all the capia tal stock of our Czech business ("Czech") forff consideration of $7.0 million, net of cash disposed. The divestiturt e of this business resulted in a loss on disposal of subsidiaries of $8.6 million, which was recognized in the second quarter of 2021 in the Europe segment. The total charge 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) consisted of $5.1 million relating to the write-offff of the net assets sold and other profeff ssional feff es and $3.5 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss. 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. The total charge consists of $2.3 million relating to the recognition of cumulative translation adjustment out of accumulated other comprehensive loss and $0.2 million relating to the write-offff of net assets and other profeff ssional feff es. 3. Accounts Receivable Our customers consist mainly of retailers, distributors and contractors. Our ten largest customers accounted forff 62.3% and 56.7% of total accounts receivabla e as of Januaryrr 1, 2023, and Januaryrr 2, 2022, respectively. Our largest customer, The Home Depot, Inc. accounted forff more than 10% of the consolidated gross accounts receivabla e balance as of Januaryrr 1, 2023, and Januaryrr 2, 2022. No other individual customer accounted forff consolidated gross accounts receivabla e balance at either Januaryrr 1, 2023, or Januaryrr 2, 2022. greater than 10% of the The changes in the allowance foff r doubtfulff accounts were as folff lows forff the periods indicated: (I(( nII tt thous ands)s Balance at beginning of period Additions charged to expense Deductions Balance at end of period Year Ended January 1, 2023 January 2, 2022 January 3, 2021 $ $ 2,087 $ 1,062 (669) 2,480 $ 2,809 $ 242 (964) 2,087 $ 1,752 1,443 (386) 2,809 We maintain an accounts receivabla e sales program with a third party (the "AR Sales Program"). Under the AR Sales Program, we can transfeff r ownership of eligible trade accounts receivabla e of certain customers. Receivabla es are sold l risk of collection, without recourse to us in the event of a loss. Transfeff rs of outright to a third party who assumes the fulff as sales. Proceeds frff om the transfeff rs reflff ect the faff ce value of the receivabla es under this program are accounted forff accounts receivabla e less a discount. Receivabla es sold under the AR Sales Program are excluded frff om trade accounts receivabla e in the consolidated balance sheets and are included in cash flff ows frff om operating activities in the consolidated statements of cash flff ows. The discounts on the sales of trade accounts receivabla e sold under the AR Sales Program were any of the periods presented and were recorded in selling, general and administration expense within the not material forff consolidated statements of income and comprehensive income. In most countries we pay and collect Value Added Tax ("VAT") when procuring goods and services within the normal course of business. VAT receivabla es are establa ished in jurisdictions where VAT paid exceeds VAT collected and are recoverabla e through the fiff ling of refund claims. ff Certain wood moldings and millwork products being imported into the United States are subject to import tariffff sff . Tariffff deposits are paid to the government and are recoverabla e through an assessment process. 4. Inventories The amounts of inventoryrr on hand were as folff lows as of the dates indicated: (I(( nII tt thous ands)s Raw materials Finished goods Provision forff obsolete or aged inventoryrr Inventories, net January 1, 2023 January 2, 2022 $ $ 320,553 $ 95,005 (8,730) 406,828 $ 275,269 78,324 (6,117) 347,476 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) We carryrr an inventoryrr provision which is the result of obsolete or aged inventory.rr The rollforff ward of our inventoryrr provision is as folff lows forff the periods indicated: (I(( nII tt thous ands)s Balance at beginning of period Additions charged to expense Deductions Balance at end of period 5. Property, Plant and Equipment Year Ended January 1, 2023 January 2, 2022 January 3, 2021 $ $ 6,117 $ 7,692 (5,079) 8,730 $ 6,305 $ 3,402 (3,590) 6,117 $ 7,136 5,150 (5,981) 6,305 The carryirr ng amounts of our property, plant and equipment and accumulated depreciation were as folff lows as of the dates indicated: (I(( nII tt thous ands)s Land Buildings Machineryrr and equipment Property, plant and equipment, gross Accumulated depreciation Property, plant and equipment, net January 1, 2023 January 2, 2022 $ $ 21,415 $ 222,340 837,407 1,081,162 (428,833) 652,329 $ 22,851 216,510 783,913 1,023,274 (396,477) 626,797 Total depreciation expense was $71.2 million, $70.6 million and $68.4 million forff the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, respectively. Depreciation expense is included primarily within cost of goods sold in the consolidated statements of income and comprehensive income. 6. Leases The folff lowing tabla e summarizes the components of lease expense recorded in the consolidated statements of income and comprehensive income forff the periods indicated: (I(( nII tt thous ands)s Operating lease expense Finance lease expense Amortization of leased assets Interest on lease liabia lities Total lease expense January 1, 2023 Year Ended January 2, 2022 January 3, 2021 49,972 $ 47,263 $ 38,922 1,123 1,356 865 1,443 52,451 $ 49,571 $ 882 1,458 41,262 $ $ 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The folff of the period indicated: lowing tabla e includes a detail of lease assets and liabia lities included in the consolidated balance sheet as (I(( nII tt thous ands)s Operating lease right-of-ff use assets Finance lease right-of-ff use assets (1) Total lease assets, net Current portion of operating lease liabia lities Long-term operating lease liabia lities Long-term fiff nance lease liabia lities Total lease liabia lities January 1, 2023 January 2, 2022 $ $ $ $ $ $ $ 160,695 25,409 186,104 24,372 151,242 29,561 205,175 $ 176,445 23,931 200,376 25,551 165,670 27,043 218,264 ____________ (1) Net of accumulated amortization of $3.5 million and $2.4 million, as of Januaryrr 1, 2023, and Januaryrr 2, 2022, respectively. The folff lowing tabla e is a summaryrr 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 1, 2023 January 2, 2022 11.2 26.6 4.3 % 4.8 % 11.8 27.6 4.1 % 5.4 % ____________ (1) Based on the Company's incremental borrowing rate at lease commencement or modififf cation. As of Januaryrr 1, 2023, the futff urt e minimum lease payments under non-cancelabla e leases are as folff lows: (I(( nII tt thous ands)s Fiscal year: 2023 2024 2025 2026 2027 Thereaftff er Total minimum lease payments Less imputed interest Operating Leases Finance Leases $ $ 31,073 28,862 25,331 18,362 14,622 113,393 231,643 (56,029) 1,311 1,471 1,515 1,693 1,612 49,127 56,729 (27,168) 29,561 Present value of futff urt e lease payments $ 175,614 $ As of Januaryrr 1, 2023, we have one undiscounted commitment forff an operating lease that had not yet commenced of $25.8 million. This operating lease will commence during fiff scal year 2023 with a lease term of 7.2 years. 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 7. Goodwill and Intangible Assets Changes in the carryirr ng amount of goodwill were as folff lows as of the dates indicated: (I(( nII tt thous ands)s Januaryrr 3, 2021 Measurement period adjustment Goodwill related to 2021 divestiturt e Goodwill impairment Foreign exchange flff uctuat tions Januaryrr 2, 2022 Foreign exchange flff uctuat tions North American Residential Europe Architectural Total $ 9,730 $ 69,439 $ 59,523 $ 160 — — 3 9,893 (19) — (1,395) — (835) 67,209 (7,215) — — (59,526) 3 — — Januaryrr 1, 2023 $ 9,874 $ 59,994 $ — $ 138,692 160 (1,395) (59,526) (829) 77,102 (7,234) 69,868 Gross goodwill beforff e cumulative impairment charges in the Architecturt al reporting unit was $111.0 million as of Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021. In the third quarter of 2020, we determined the continued decreased demand in the Architecturt al door market due to the impact of COVID-19 in the year, along with the uncertainty of the duration and intensity of the pandemic on the Architecturt al door market forff indicators that goodwill impairment was present in the Architecturt al 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 carryirr ng value of the Architecturt al reporting unit exceeded its faff ir value and reduced the goodwill balance in the Architecturt al reporting unit frff om $111.0 million to $59.5 million. See Note 14 forff futff urt e periods were ther inforff mation. furff We perforff med an annual qualitative impairment test of each of our reporting units during the four th quarter of 2021. As a result of manufaff cturt enteeism, material availabia lity and production challenges, a goodwill impairment charge of $59.5 million was recorded to selling, general and administration expenses in 2021. The charge represents the amount by which the carryirr ng value of the Architecturt al reporting unit exceeded its faff ir value and reduced the goodwill balance in the Architecturt al reporting unit frff om $59.5 million to zero. See Note 14 forff ing constraints in the Architecturt al reporting unit due to COVID-19 related absa ther inforff mation. furff ff 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The cost and accumulated amortization values of our intangible assets were as folff lows as of the dates indicated: January 1, 2023 Accumulated Amortization Cost Net Book Value Cost January 2, 2022 Accumulated Amortization Net Book Value ands)s tt thous (I(( nII Defiff nite lifeff assets: intangible Customer relationships $ 165,700 $ (135,518) $ 30,182 $ 176,779 $ (132,840) $ 43,939 Patents Softff ware Trademarks and tradenames License rights and other Total defiff nite lifeff intangible assets Indefiff nite lifeff assets: intangible Trademarks and tradenames 34,776 37,187 (29,665) (33,900) 5,111 3,287 34,438 36,354 (28,148) (33,281) 6,290 3,073 30,918 (15,827) 15,091 34,210 (14,063) 20,147 6,584 (84) 6,500 94 (94) — 275,165 (214,994) 60,171 281,875 (208,426) 73,449 75,885 — 75,885 77,038 — 77,038 Total intangible assets $ 351,050 $ (214,994) $ 136,056 $ 358,913 $ (208,426) $ 150,487 Amortization of intangible assets was $15.8 million, $20.2 million and $22.2 million forff the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021 respectively. Amortization expense is classififf ed within selling, general and administration expenses in the consolidated statements of income and comprehensive income. The estimated futff urt e amortization of intangible assets with defiff nite lives as of Januaryrr 1, 2023, is as folff lows: (I(( nII tt thous ands)s Fiscal year: 2023 2024 2025 2026 2027 8. Accrued Expenses $ 15,487 14,054 12,063 8,617 8,305 The details of our accruer d expenses were as folff lows as of the dates indicated: (I(( nII tt thous ands)s Accruer d payroll Accruer d rebates Current portion of operating lease liabia lities Accruer d interest Other accruarr ls Total accruerr d expenses January 1, 2023 January 2, 2022 $ $ 69,224 $ 50,200 24,372 16,480 62,770 66,048 51,200 25,551 17,125 77,376 223,046 $ 237,300 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. Long-Term Debt (I(( nII tt thous ands)s 3.50% senior unsecured notes due 2030 5.375% senior unsecured notes dued 2028 Debt issuance costs Total long-term debt January 1, 2023 January 2, 2022 $ $ 375,000 $ 500,000 (8,884) 866,116 $ 375,000 500,000 (9,279) 865,721 Interest expense on our long-term debt was $41.3 million, $43.9 million and $45.5 million forff Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, respectively, and primarily related to our consolidated indebtedness under senior unsecured notes. Debt issuance costs incurred in connection with the 2030 Notes and the 2028 Notes were capia talized as a reduction to the carryirr ng value of debt and are being accreted to interest expense over their respective terms. Additionally, we pay interest on any outstanding principal under our Term Loan Facility and ABL Facility, each as defiff ned below, and we are required to pay a commitment feff e forff Facility, both of which are recorded in interest expense as incurred. unutilized commitments under the ABL years ended 3.50% Senior NotNN es due 2030 On July 26, 2021, we issued $375.0 million aggregate principal senior unsecured notes (the "2030 Notes"). The resale to qualififf ed institutt ional buyers pursuant to RulRR e 144A of the ryrr 15 and August 15 of each year and the principal is due Februarr 2030 Notes were issued in a private placement forff 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, payabla e in cash semiannually in arrears on Februar ryrr 15, 2030. The 2030 Notes were issued at par. We received net proceeds of $370.3 million aftff er deducting $4.7 million of debt issuance costs. The debt issuance costs were capia talized as a reduction to the carryirr ng value of debt and are being accreted to interest expense over the term of the 2030 Notes using the effff eff ctive interest method. The net proceeds frff om 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, feff es and expenses, with the balance of the proceeds availabla e forff general corpor ate purpos es. r rr Obligations under the 2030 Notes are fulff ly 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 appl plus accruer d and unpaid interest, if any, to the date of redemption. If we experience certain changes of control, we must offff eff r to repurchase all of the 2030 Notes at a purchase price of 101.00% of their principal amount, plus accruer d and unpaid interest, if any, to, but excluding, the repurchase date. icabla e redemption prices specififf ed under the indenturt e governing the 2030 Notes, a The indenturt e governing the 2030 Notes contains limited covenants that, among other things, limit our abia lity and the abia lity 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 forff egoing limitations are subject to exceptions as set forff th in the indenturt e governing the 2030 Notes. The indenturt e governing the 2030 Notes contains customaryrr events of defaff ult (subject to certain cases to customaryrr grace and cure periods). As of Januaryrr 1, 2023, we were in compliance with all covenants under the indenturt e governing the 2030 Notes. 5.375% Senior NotNN es due 2028 On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"). The resale to qualififf ed institutt 2028 Notes were issued in a private placement forff 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, payabla e in cash semiannually in arrears on Februar principal is due Februar deducting $6.7 million of debt issuance costs. The debt issuance costs were capia talized as a reduction to the carryirr ng value of debt and are being accreted to interest expense over the term of the 2028 Notes using the effff eff ctive interest ryrr 1 and August 1 of each year and the ryrr 1, 2028. The 2028 notes were issued at par. We received net proceeds of $493.3 million aftff er ional buyers pursuant to RulRR e 144A under 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) method. The net proceeds frff om issuance of the 2028 Notes, together with availabla e cash balances, were used to redeem the remaining $500.0 million aggregate principal amount of similar senior unsecured notes. Obligations under the 2028 Notes are fulff ly 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 aftff er Februar indenturt e governing the 2028 Notes, plus accruer d 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 offff eff r 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 accruer d and unpaid interest, if any, to, but excluding, the repurchase date. icabla e redemption prices specififf ed under the ryrr 1, 2023, at the appl a The indenturt e governing the 2028 Notes contains restrictive covenants that, among other things, limit our abia lity and the abia lity of our subsidiaries to: (i) incur additional debt and issue disqualififf ed or prefeff rred stock, (ii) make restricted payments, (iii) sell assets, (iv) create or permit restrictions on the abia lity 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 affff iff liates. The forff egoing limitations are subject to exceptions as set forff the futff urt e the 2028 Notes have an investment grade rating frff om at least two nationally recognized statistical rating organizations, certain of these covenants will be terminated. The indenturt e governing the 2028 Notes contains customaryrr events of defaff ult (subject in certain cases to customaryrr grace and cure periods). As of Januaryrr 1, 2023, we were in compliance with all covenants under the indenturt e governing the 2028 Notes. th in the indenturt e governing the 2028 Notes. In addition, if in 5.750% Senior NotNN es due 2026 On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the "2026 Notes"). resale to qualififf ed institutt The 2026 Notes were issued in a private placement forff 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, payabla e in cash semiannually in arrears on March 15 and September 15 of each year and were originally due September 15, 2026. The 2026 notes were issued at par. We received net proceeds of $295.7 million aftff er deducting $4.3 million of debt issuance costs. The debt issuance costs were capia talized as a reduction to the carryirr ng value of debt and were accreted to interest expense over the term of the 2026 Notes using the effff eff ctive interest method. ional buyers pursuant to RulRR e 144A Subsequent to the closing of the 2030 Notes offff eff ring, the 2026 Notes were redeemed, and the notes were considered extinguished as of July 26, 2021. Under the terms of the indenturt e governing the 2026 Notes, we paid the appl icabla e premium of $10.8 million. Additionally, the unamortized debt issuance costs of $2.8 million relating to the a 2026 Notes were written offff 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 frff om continuing operations beforff e income tax expense in the condensed consolidated statements of income and comprehensive income in 2021. Additionally, the cash payment of interest accruer d to, but not including, the redemption date was accelerated to the redemption date. TeTT rm Loan FacFF ilitytt On December 13, 2022, we and certain of our subsidiaries entered into a new delayed-draw term loan credit agreement (the "Term Loan Credit Agreement") maturt ity Date"). The ing on December 12, 2027 (the "Term Loan Maturt a senior secured fiff ve-year delayed-draw term loan faff cility of $250.0 million Term Loan Credit Agreement provides forff (the "Term Loan Facility"). Loans under the Term Loan Facility (the "Term Loans") will bear interest at a rate equal to, at our option, (1) the Adjusted Term SOFR Rate (as defiff ned in the Term Loan Credit Agreement) plus an appl margin of 2.25% or (2) an alternate base rate equal to the greatest of (i) the "Prime Rate" in the U.S. last quoted by The Wall Street Journal, (ii) 0.50% above feff deral funds ff Rate forff each of cases (1) and (2), an agreed interest rate flff oor. The Term Loans are repayabla e in equal quarterly installments forff the greater of the feff deral funds and overnight eurodollar transactions denominated in Dollars, (iii) 1.00% above a one month interest period and (iv) 1.00%, plus, in each case, an appl rate and the rate comprised of both overnight icabla e margin of 1.25%, subject to, in the Adjusted Term SOFR icabla e a a a a ff 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) an annual aggregate amortization payment equal to 15% of the aggregate principal amount of the Term Loans, with the balance of the principal being due on the Term Loan Maturt ity Date. The Term Loan Credit Agreement also includes a quarterly ticking feff e of 25 basis points per annum payabla e to the lenders under the Term Loan Facility beginning on Januaryrr 3, 2023 (the "Closing Date") in respect of the unutilized commitments thereunder. As a result of the incurrence of the Term Loans on the Closing Date such ticking feff es were not (and shall not be) payabla e to the Lenders. The Borrower also pays customaryrr agency feff es. Obligations under the Term Loan Credit Agreement are fulff ly and unconditionally guaranteed, jointly and severally, by us and by certain of our directly or indirectly wholly-owned subsidiaries organized in the United States and are secured by the equity in, and substantially all the assets of,ff such subsidiaries. The Term Loans were funde amount of $250.0 million and appl ied to fiff nance a portion of the consideration payabla e in connection with the a consummation of the Endura acquisition on Januaryrr 3, 2023. d in an ff The Term Loan Credit Agreement contains restrictive covenants that, among other things, limit our abia lity and the abia lity 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 affff iff liates, (iv) sell assets, (v) merge, (vi) incur additional debt and (vii) create liens. The Term Loan Credit Agreement includes certain exceptions and exemptions under the restricted payment, investment, dispositions, liens and indebtedness covenants. The Term Loan Credit Agreement requires us to maintain at all times a total leverage ratio of no more than 4.50:1.00. The Term Loan Credit Agreement contains change of control provisions and certain customaryrr affff iff rmative covenants and events of defaff ult. As of Januaryrr 1, 2023, we were in compliance with all covenants under the credit agreement governing the Term Loan Facility and there were no amounts outstanding. ABLBB FacFF ilitytt On Januaryrr 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving ing on Januaryrr 31, 2024, which replaced the previous faff cility. On October 28, credit faff cility (the "ABL Facility") maturt 2022, we and certain of our subsidiaries entered into an amendment which, among other things, (i) increased the revolving credit commitments availabla e thereunder by $100.0 million to an aggregate amount of $350.0 million and (ii) replaced the LIBOR-based interest rate appl icabla e to borrowings thereunder in U.S. dollars with an interest rate based on the sum of (x) a "Term SOFR" rate published by the CME Group Benchmark Administration Limited (CBA) plus (y) 10 basis points ("Adjusted Term SOFR"). Additionally, on December 12, 2022, we entered into an amendment to the ABL Facility, which, among other things, extended the maturt ity of the ABL Facility frff om Januaryrr 31, 2024 to December 12, 2027. The terms of the ABL Facility remained otherwise substantially unchanged. Obligations under the ABL Facility are secured by a fiff rst priority security interest in such accounts receivabla e, inventoryrr and other related assets of Masonite and our subsidiaries. In addition, obligations under the ABL Facility are fulff ly and unconditionally guaranteed, jointly and severally, on a senior secured basis, by certain of our directly or indirectly wholly-owned subsidiaries. a 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 defiff ned in the credit agreement relating to the ABL Facility, the "Amended and Restated Credit Agreement") plus a margin ranging frff om 0.25% to 0.50% per annum, or (ii) the Adjusted Term SOFR or BA Rate (each as defiff ned in the Amended and Restated Credit Agreement), plus a margin ranging frff om 1.25% to 1.50% per annum. In addition to paying interest on any outstanding principal under the ABL Facility, a commitment feff e is payabla e 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 customaryrr representations, warranties and covenants by us that, among other things, and subject to certain exceptions, restrict Masonite's abia lity and the abia lity 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 affff iff liates, (iv) sell assets, (v) merge and (vi) create liens. The ABL Facility, among other things, (i) permits us to incur unlimited unsecured debt as long as such debt does not contain covenants or defaff ult provisions that are more restrictive than those contained in the ABL Facility, (ii) permits us to incur debt as long as the pro forff ma 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 Januaryrr 1, 2023, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availabia lity of $324.9 million under our ABL Facility and there were no amounts outstanding as of Januaryrr 1, 2023. 10. Commitments and Contingencies We may become involved frff om time-to-time in litigation and regulatoryrr compliance matters incidental to our t, tax, product liabia lity, environmental, health and business, including employment and wage and hour claims, antitrusr safeff ty, commercial disputes, intellectuat l property, contracts and other matters arising out of the normal conduct of our business. Since litigation is inherently unpredictabla e and unfaff vorabla e resolutions can occur, assessing contingencies is contingencies related highly subjective and requires judgments about to litigation and regulatoryrr compliance matters, if it is probabla e that a liabia lity has been incurred and the amount of the loss can be reasonabla y estimated. Based on current inforff mation, in the opinion of management, the ultimate resolution of these matters, individually or in the aggregate, will not have a material adverse effff eff ct on our fiff nancial condition, results of operations or cash flff ows. futff urt e events. We regularly review and accruer forff a Antitrt ust Class Action Proceedings - Canada CC On May 19, 2020, an intended class proceeding was commenced in the Province of Québec, Canada naming as rr ation, Corpor defeff ndants Masonite Corpor and JELD-WEN of Canada, Ltd. The plaintiffff alleges that the Masonite and JELD-WEN defeff ndants engaged in anticompetitive conduct, including price-fiff xing involving interior molded doors. The intended class proceeding seeks damages, punitive damages, and other relief.ff On December 22, 2020, the parties fiff led a motion with the court seeking to stay the proceeding. ation Internationale Masonite, JELD-WEN, Inc., JELD-WEN Holding, Inc. r On October 2, 2020, an intended class proceeding was commenced in the Federal Court of Canada naming as defeff ndants Masonite International Corpor ation, Masonite Corpor JELD-WEN of Canada, Ltd. The plaintiffff alleges that the Masonite and JELD-WEN defeff ndants engaged in anticompetitive conduct, including price-fiff xing involving interior molded doors. The intended class proceeding seeks damages, punitive damages, and other relief.ff The plaintiffff served its certififf cation record on March 31, 2021. The parties are waiting confiff rmation frff om the Federal Court of hearing dates in 2023 forff ation, JELD-WEN, Inc., JELD-WEN Holding, Inc. and a two-day certififf cation hearing. r r As of Januaryrr 1, 2023, we have not accruerr d an expense in connection with this matter because, although an adverse outcome is reasonabla y possible, the amount or range of any potential loss cannot be reasonabla y estimated. This proceeding is at an early stage. While we intend to defeff nd against these claims vigorously, there can be no assurance that the ultimate resolution of this litigation will not have a material, adverse effff eff ct on our consolidated fiff nancial condition, results of operations or cash flff ow. 11. Revenues We derive our revenues primarily frff om the manufaff cturt e and deliveryrr of doors and door components as perforff mance obligations that arise frff om our contracts with customers are satisfiff ed. Materially all of our revenues are generated frff om contracts with customers and the naturt e, timing and any uncertainty in the recognition of revenues are not affff eff cted by the type of good, customer or geographi cal region to which the perforff mance obligation relates. Our contracts with our customers are generally in the forff m of purchase orders and the perforff mance obligation arises upon receipt of the purchase order and agreement upon the transaction price. The perforff mance obligations are satisfiff ed at a point in time when control of the promised goods is transfeff rred to the customer and payment terms varyrr Payment terms are short-term, are customaryrr frff om customer to customer. our industryrr and in some cases, early payment incentives are offff eff red. forff a The transaction price recognized as revenue and accounts receivabla e 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 perforff mance of each individual customer, Estimated sales returt ns, which are based on historical returt ns as a percentage of revenues, and 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) • Adjustments forff early payment discounts offff eff red by us. Contract assets are represented by our trade accounts receivabla e balances on the consolidated balance sheets, and are described in Note 3. Accounts Receivabla e. There were no other material contract assets or liabia lities as of Januaryrr 1, 2023, or Januaryrr 2, 2022. Our warranties are assurance-type warranties and do not represent separate perforff mance obligations to our customers. There were no material impairment losses related to contract assets during the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, or Januaryrr 3, 2021. 12. Share Based Compensation Plans Share based compensation expense was $21.8 million, $16.0 million and $19.4 million forff the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, respectively. As of Januaryrr 1, 2023, the total remaining unrecognized compensation expense related to share based compensation amounted to $27.1 million, which will be amortized over the weighted average remaining requisite service period of 1.7 years. Share based compensation expense is recognized using a graded-method appr the individual award, and is classififf ed within selling, general and administration expenses in the consolidated statements of income and comprehensive income. All forff as they occur. All share based awards are settled feff iturt es are accounted forff through issuance of new shares of our common stock. The share based award agreements contain restrictions on sale or transfeff r other than in limited circumstances. All other transfeff rs would cause the share based awards to become null and void. oach, or to a lesser extent a straight-line appr oach, depending on the terms of a a Equitytt IncII entive Plan On March 10, 2021, the Board of Directors adopted the Masonite International Corpor Incentive Equity Plan (the "2021 Equity Plan"), which was appr of Shareholders on May 13, 2021. The 2021 Equity Plan is effff eff ctive forff 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 forff related to outstanding grants; plus the number of shares subject to existing grants under the 2012 Plan that may expire or be forff the 2012 Plan that is in excess of the number of shares ten years frff om the date of appr feff ited or cancelled. oval. The a a r oved by our shareholders at the Annual General Meeting ation 2021 Omnibus On July 12, 2012, the Board of Directors adopted the Masonite International Corpor r ation 2012 Equity Incentive Plan, which was amended on June 21, 2013, by our Board of Directors, furff Directors on Februar a Plan"). ryrr 23, 2015, and appr oved by our shareholders on May 12, 2015 (as amended and restated, the "2012 ther amended and restated by our Board of The 2021 Equity Plan and the 2012 Plan ("the Plans") were adopted because the Board of Directors believes that long-term incentive awards granted under the Plans will help to attract, motivate and retain employees and non- employee directors, align employee and stockholder interests and encourage a perforff mance-based culturt e built on employee stock ownership. The Plans permit us to offff eff r eligible directors, employees and consultants cash and share- based incentives, including stock options, stock appr restricted stock units) and cash-based awards. The Plans are effff eff ctive forff 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 forff m of a perforff mance 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 furff were 938,667 shares of common stock availabla e forff eciation rights, restricted stock, other share-based awards (including ten years frff om the date of its adoption. Awards ther, that certain material amendments are subject to shareholder appr futff urt e issuance under the 2021 Equity Plan. oval. As of Januaryrr 1, 2023, there a a Defe eff rred ComCC pem nsation Plan We offff eff r to certain of our employees and directors a Defeff rred Compensation Plan ("DCP"). The DCP is an d non-qualififf ed defeff rred compensation plan that permits those certain employees and directors to defeff r a portion bonus and/or unfunde ff of their compensation to a futff urt e time. Eligible employees may elect to defeff r a portion of their base salary,rr restricted stock units and eligible directors may defeff r a portion of their director feff es or restricted stock units. All contributions to the DCP on behalf of the participant are fulff ly vested (other than restricted stock unit defeff rrals which 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) a a icabla e equity incentive plan) and placed into a grantor trusr remain subject to the vesting terms of the appl refeff rred to as a "rabbi t." Although we are permitted to make matching contributions under the terms of the DCP, we trusr have not elected to do so. The DCP invests the contributions in diversififf ed securities frff om 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 benefiff ts in their accounts upon separation of service or upon a specififf ed date, with benefiff ts payabla e as a single lump sum or in annual installments. All plan investments are categorized as having Level 1 valuation inputs as establa ished by the FASB’s Fair Value Framework. t, commonly Assets of the rabbi a trusr t, other than Company stock, are recorded at faff ir value and included in other assets in the a trusr t are classififf ed as trading securities and changes in their faff ir 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 liabia lity relating to defeff rred compensation represents our obligation to distribute funds futff urt e and is included in other liabia lities in the consolidated balance sheets. As of Januaryrr 1, 2023, the liabia lity and asset relating to defeff rred compensation had a faff ir value of $7.2 million and $7.0 million, respectively. As of Januaryrr 2, 2022, the liabia lity and asset relating to defeff rred compensation had a faff ir value of $8.9 million and $9.0 million, respectively. Any gain or loss relating to changes in the faff ir value of the defeff rred compensation liabia lity is recognized in selling, general and administration expense in the consolidated statements of income and comprehensive income. to the participants in the ff As of Januaryrr 1, 2023, participation in the DCP is limited and no restricted stock awards have been defeff rred into the DCP. Stock ApprA stt eciation Right i We have granted Stock Appreciation Rights ("SARs") to certain employees, which entitle the recipient to the appr eciation in value of a number of common shares over the exercise price over a period of time, each as specififf ed in a a the appl common shares on the date of grant. The compensation expense forff 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 lifeff of ten years and settle in common shares. It is assumed that all time-based SARs will vest. icabla e award agreement. The exercise price of any SAR granted may not be less than the faff ir market value of our the SARs is measured based on the faff ir value of the ff The total faff ir value of SARs vested was $0.8 million, $0.8 million and $1.0 million, in the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, respectively. TwTT elve MontMM hstt EndeEE d Januar JJ yr 1, 2023 Stock Appreciation Rights Aggregate Intrinsic Value (in thousands) Weighted Average Exercise Price Average Remaining Contractual (Years) Lifeff Outstanding, beginning of period 158,725 $ 7,324 $ Granted Exercised Forfeff ited Outstanding, end of period Exercisabla e, end of period 33,803 (4,580) (3,743) 184,205 124,842 $ $ 169 2,153 2,118 $ $ 71.81 88.43 56.51 96.15 74.75 66.14 7.5 7.0 6.3 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) TwTT elve MontMM hstt EndeEE d Januar JJ yr 2, 2022 Stock Appreciation Rights Aggregate Intrinsic Value (in thousands) Weighted Average Exercise Price Average Remaining Contractual (Years) Lifeff Outstanding, beginning of period 207,094 $ 7,409 $ Granted Exercised Forfeff ited Outstanding, end of period Exercisabla e, 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 TwTT elve MontMM hstt EndeEE d Januar JJ yr 3, 2021 Stock Appreciation Rights Aggregate Intrinsic Value (in thousands) Weighted Average Exercise Price Average Remaining Contractual (Years) Lifeff Outstanding, beginning of period 404,447 $ 7,615 $ Granted Exercised Forfeff ited Outstanding, end of period Exercisabla e, 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 The value of SARs granted in the year ended Januaryrr 1, 2023, as determined using the Black-Scholes-Merton valuation model, was $0.9 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 based on historical employee behavior and the contractuat considerations. The weighted average grant date assumptions used forff indicated: l term of the options amongst other the periods the SARs granted were as folff lows forff SAR value (model conclusion) $ 26.52 $ 28.08 $ 20.56 2022 Grants 2021 Grants 2020 Grants Risk-frff ee rate Expected dividend yield Expected volatility Expected term (years) 2.0 % 0.0 % 26.5 % 6.0 0.8 % 0.0 % 25.2 % 6.0 1.2 % 0.0 % 22.6 % 6.0 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Restrt icted Stock UniUU tstt We have granted Restricted Stock Units ("RSUs") to directors and certain employees under the 2021 Equity Plan and the 2012 Plan. The RSUs confeff r the right to receive shares of our common stock at a specififf ed futff urt e date or when certain conditions are met. The compensation expense forff 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 forff days folff delivered once the blackout restriction has been liftff ed. It is assumed that all time-based RSUs will vest. lowing the vesting date unless the participant is subject to a blackout period. In such case, the shares are to be the underlying shares to be delivered no later than 30 the RSUs awarded is based on the faff ir value of the RSUs January 1, 2023 Year Ended January 2, 2022 January 3, 2021 Total Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Total Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Total Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Outstanding, beginning of period Granted Delivered Withheld to cover (1) Forfeff ited 291,925 $ 216,774 (138,682) (23,319) (32,945) Outstanding, end of period 313,753 $ 88.66 88.22 78.51 95.83 92.85 319,675 $ 142,540 (116,663) (24,471) (29,156) 291,925 $ 68.33 111.02 66.40 82.85 88.66 318,520 $ 154,332 (115,340) (16,234) (21,603) 319,675 $ 58.89 79.66 60.30 58.15 68.33 ____________ (1) A portion of the vested RSUs delivered were net share settled to cover statutt oryr requirements forff income and other employment taxes. We remit the equivalent cash to the appr repurchases by us as we reduced and retired the number of shares that would have otherwise been issued as a result of the vesting. opriate taxing authorities. These net share settlements had the effff eff ct of share a RSUs granted during the year ended Januaryrr 1, 2023, vest at specififf ed futff urt e dates with only service requirements. The value of RSUs granted in the year ended Januaryrr 1, 2023, was $19.1 million and is being recognized over the weighted average requisite service period of 1.9 years. During the year ended Januaryrr 1, 2023, 162,001 RSUs vested at a faff ir value of $12.7 million. Perfr orff mance-based Restrtt icted Stock UniUU tstt We have granted certain Perforff mance-based Restricted Stock Units ("PRSUs") under the 2021 Equity Plan and the 2012 Plan. These PRSUs are settled with payouts ranging frff om zero to 200% of the target award value depending on perforff mance goal achievement. The compensation expense forff PRSUs 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 PRSUs vest over a maximum of three years and call forff than 30 days folff to be delivered once the blackout restriction has been liftff ed. the underlying shares to be delivered no later lowing the vesting date unless the participant is subject to a blackout period. In such case, the shares are the PRSUs awarded is based on the faff ir value of the 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) January 1, 2023 Year Ended January 2, 2022 January 3, 2021 Total Perforff mance Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Total Perforff mance Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Total Perforff mance Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value Outstanding, beginning of period Granted Perforff mance adjustment (1) Delivered Withheld to cover (2) Forfeff ited 150,181 $ 211,251 25,234 (52,265) (11,809) (11,914) Outstanding, end of period 310,678 $ 84.47 88.37 57.19 57.19 94.50 90.15 168,382 $ 59,728 14,474 (60,252) (9,518) (22,633) 150,181 $ 67.80 109.25 63.05 63.05 78.20 84.47 204,687 $ 64,611 (59,936) — — (40,980) 168,382 $ 60.66 79.83 67.50 — 51.51 67.80 ____________ (1) PRSUs are presented as outstanding, granted and forff feff ited in the taba le above 100%. These awards are settled with payouts ranging frff om zero to 200% of the target award value depending on perforff mance goal achievement. The perforff mance adjustment represents the diffff eff rence in shares ultimately awarded due to perforff mance attainment a above assuming targets are met and the awards pay out at or below target. a (2) A portion of the vested PRSUs delivered were net share settled to cover statutt oryr requirements forff income and other employment taxes. We remit the equivalent cash to the appr repurchases by us as we reduced and retired the number of shares that would have otherwise been issued as a result of the vesting. opriate taxing authorities. These net share settlements had the effff eff ct of share a PRSUs granted during the year ended Januaryrr 1, 2023, vest at specififf ed futff urt e dates based on both perforff mance and service requirements. The value of PRSUs granted in the year ended Januaryrr 1, 2023, was $18.7 million and is being recognized over the weighted average requisite service period of 3.0 years. During the year ended Januaryrr 1, 2023, 64,074 PRSUs vested at a faff ir value of $3.7 million. 13. Restructuring Costs Over the past several years, we have engaged in a series of restrucrr es and non-core businesses, consolidating certain internal support func turt ff turt e and improve productivity. These initiatives primarily consist of severance actions a geographi designed to reduce our cost strucr and plant closure costs. Management continues to evaluate our business; thereforff e, in futff urt e years, there may be additional provisions forff or actions are completed. Asset impairment charges were also incurred in connection with these restrucr certain assets sold, abaa ndoned or made obsolete as a result of these programs. new plan initiatives, as well as changes in previously recorded estimates, as payments are made ing actions forff ing programs related to exiting certain tions and engaging in other actions turt In December 2022, we began implementing a plan to improve overall business perforff mance that includes the ing capaa city and reduction of our overhead and selling, general and administration optimization of our manufaff cturt workforff ce primarily in our North American Residential reportabla e segment as well as actions in the Architecturt al reportabla e segment and in our head offff iff ces (collectively, the "2022 Plan"). The optimization of our manufaff cturt ing capaa city involves specififf c plants in the North American Residential segment and costs associated with the closure of these plants and related headcount reductions. Costs associated with the 2022 Plan include severance and closure charges and will continue through 2023. As of Januaryrr 1, 2023, we expect to incur appr additional charges related to the 2022 Plan. oximately $13 million to $18 million of a In May 2021, we initiated furff ther actions to improve overall business perforff mance including the reorganization of our specialty door manufaff cturt manufaff cturt ing capaa reorganization of these faff cilities, which resulted in the closure of one existing stile and rail faff cility and related headcount reductions beginning in the second quarter of 2021 (collectively, the "2021 Plan"). Costs associated with the 2021 Plan city involves specififf c faff cilities in the Architecturt al segment and costs associated with the city in our Architecturt al reportabla e segment. The reorganization of our ing capaa 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) include severance and closure charges and continued through 2021. ing capaa In November 2020, we began implementing a plan to improve overall business perforff mance that includes the city and a reduction of our overhead and selling, general and administration reorganization of our manufaff cturt workforff ce primarily in our Architecturt al reportabla e segment as well as limited actions in the North American Residential reportabla e segment. The reorganization of our manufaff cturt segment and costs associated with the closure of these faff cilities and related headcount reductions began taking place in the four ff closure charges and continued through 2021. th quarter of 2020 (collectively, the "2020 Plan"). Costs associated with the 2020 Plan include severance and city involves specififf c faff cilities in the Architecturt al ing capaa ing capaa In Februar ryrr 2019, we began implementing a plan to improve overall business perforff mance that includes the city and a reduction of our overhead and selling, general and administration city involves specififf c plants in the North American Residential and Architecturt al segments and costs associated with reorganization of our manufaff cturt workforff ce across all of our reportabla e segments and in our head offff iff ces. The reorganization of our manufaff cturt capaa the closure of these plants and related headcount reductions began taking place in the fiff rst 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 carryirr ng value of the defiff nite-lived assets relating to the divestiturt es, as furff quarter of 2019, we initiated additional restrucrr overhead and selling, general and administration workforff ce. ing actions related to both manufaff cturt ther described in Note 14. In the four city and reduction of our ing capaa ing turt th ff ff During the four th quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects ff of our United Kingdom head offff iff ce func effff eff ctive and consistent business processes in the Europe segment. In addition, in the North American Residential segment we announced a new faff cility that will optimize and expand capaa city through increased automation, which resulted in the closure of one existing faff cility 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. io by divesting non-core assets to enabla e more tion and optimize our portfolff As of Januaryrr 1, 2023, we do not expect to incur any material futff urt e charges related to the 2021 Plan, 2020 Plan, 2019 Plan or 2018 Plan. The folff lowing tabla e summarizes the restrucr turt ing charges recorded forff the periods indicated: Year Ended January 1, 2023 North American Residential Europe Architectural Corporate & Other Total $ 2,131 $ — $ — $ — $ 2,131 (I(( nII tt thous ands)s 2022 Plan 2021 Plan 2020 Plan 2019 Plan Total Restrucrr turt ing Costs $ — — (395) 1,736 $ — — — — $ 17 62 — 79 $ — 16 73 89 $ 17 78 (322) 1,904 76 (I(( nII tt thous ands)s 2021 Plan 2020 Plan 2019 Plan NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Year Ended January 2, 2022 North American Residential Europe Architectural Corporate & Other Total $ — $ — $ 1,666 $ — $ 23 (172) — — 3,499 — Total Restrucrr turt ing Costs $ (149) $ — $ 5,165 $ Year Ended January 3, 2021 ands)s (I(( nII tt thous 2020 Plan 2019 Plan 2018 Plan North American Residential $ 29 $ Europe Architectural 1,733 — $ $ 3,863 435 (37) — 1,165 — 23 528 551 $ — $ 1,048 — Total Restrucrr turt ing Costs $ 4,327 $ (37) $ 2,898 $ 1,048 $ Corporate & Other Total Total Restrucrr turt ing Costs $ 10,938 $ The changes in the accruarr l forff (I(( nII tt thous ands)s January 2, 2022 (I(( nII tt thous ands)s 2022 Plan 2021 Plan 2020 Plan 2019 Plan 2022 Plan 2021 Plan 2020 Plan 2019 Plan Total (I(( nII tt thous ands)s 2021 Plan 2020 Plan 2019 Plan Total $ $ $ $ Cumulative Amount Incurred Through January 1, 2023 North American Residential Europe Architectural Corporate & Other Total $ 2,131 $ — $ — $ — $ — 52 8,755 — — 359 359 1,683 5,294 1,671 $ 8,648 $ — 39 2,668 2,707 $ restrucr turt ing by activity were as folff lows forff the periods indicated: Severance Closure Costs Cash Payments January 1, 2023 $ 143 (26) (35) 31 $ 1,988 43 113 (353) (2,131) $ (42) (100) 320 $ 113 $ 1,791 $ (1,953) $ — $ 25 22 2 49 January 3, 2021 Severance Closure Costs Cash Payments January 2, 2022 — $ 1,492 291 1,783 $ 513 264 175 952 $ $ 1,153 $ (1,641) $ 3,281 181 (5,015) (645) 4,615 $ (7,301) $ 77 1,666 3,545 356 5,567 1,762 6,039 435 8,236 2,131 1,683 5,385 13,453 22,652 — — — — — 25 22 2 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) (I(( nII tt thous ands)s December 29, 2019 Severance Closure Costs Cash Payments January 3, 2021 2020 Plan 2019 Plan 2018 Plan 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 14. Asset Impairment r During the year ended Januaryrr 2, 2022, we recognized asset impairment charges of $69.9 million, of which ing enteeism, material availabia lity and production challenges and $10.4 million ate & Other categoryrr as a result of announced $59.5 million related to a goodwill impairment charge in the Architecturt al reporting unit as a result of manufaff cturt constraints due to COVID-19 related absa related to assets in the Architecturt al segment and an asset in the Corpor plant closures under the 2021 and 2020 Plans. The quantitative impairment test was conducted using multiple valuation oach, which utilizes Level 3 faff ir value inputs, and techniques, including a discounted cash flff ow analysis and market appr resulted in a goodwill impairment charge of $59.5 million. The charge represents the amount by which the carryirr ng value of the Architecturt al reporting unit exceeded its faff ir value and reduced the goodwill balance in the Architecturt al reporting unit frff om $59.5 million to zero. The $10.4 million asset impairment charge was determined based upon the excess of the carryirr ng values of property, plant and equipment over the respective faff ir values of such assets, determined using a each asset group. Each of these valuations was perforff med on a non-recurring basis discounted cash flff ows appr and is categorized as having Level 3 valuation inputs as establa ished by the FASB's Fair Value Framework. The Level 3 unobservabla e inputs include an estimate of futff urt e cash flff ows and the salvage value forff each of the assets. The faff ir value of the assets was determined to be $6.3 million, compared to a book value of $16.7 million, with the diffff eff rence representing the asset impairment charges recorded in the consolidated statements of income and comprehensive income. oach forff a a During the year ended Januaryrr 3, 2021, we recognized asset impairment charges of $51.5 million related to the Architecturt al reporting unit, as a result of continued decreased demand in the Architecturt al door market due to the impact of COVID-19 in the year, along with the uncertainty of the duration and intensity of the pandemic on the Architecturt al door market forff futff urt e periods were indicators that goodwill impairment was present in the Architecturt al unit. The quantitative impairment test was conducted using multiple valuation techniques, including a discounted cash flff ow analysis and market appr charge of $51.5 million. The charge represents the amount by which the carryirr ng value of the Architecturt al reporting unit exceeded its faff ir value. The faff ir value of the reporting unit was determined to be $59.5 million, compared to a book value of $111.0 million, with the diffff eff rence representing the asset impairment charge recorded in the consolidated statements of income and comprehensive income. oach, which utilizes Level 3 faff ir value inputs, and resulted in a goodwill impairment a 15. Income Taxes For fiff nancial reporting purpos r es, income beforff e income taxes includes the folff lowing components: (I(( nII tt thous ands)s Income beforff e income tax expense: Canada Foreign Total income beforff e income tax expense January 1, 2023 January 2, 2022 January 3, 2021 Year Ended $ $ 78,768 211,429 290,197 $ $ 44,935 99,031 143,966 $ $ 54,355 47,945 102,300 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Income tax expense forff income taxes consists of the folff lowing: January 1, 2023 January 2, 2022 January 3, 2021 Year Ended (I(( nII tt thous ands)s Current income tax expense: Canada Foreign Total current income tax expense: Defeff rred income tax expense (benefiff t): Canada Foreign Total defeff rred income tax expense (benefiff t): $ 15,266 $ 9,392 $ 50,463 65,729 7,931 (1,907) 6,024 30,499 39,891 3,626 1,255 4,881 Income tax expense $ 71,753 $ 44,772 $ The Canadian statutt oryrr rate (inclusive of provincial rates) is 26.1%, 26.5% and 26.5% forff the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, respectively. A summaryrr of the diffff eff rences between expected income tax expense calculated at the Canadian statutt oryrr is as folff rate and the reported consolidated income tax expense (benefiff t) lows: January 1, 2023 January 2, 2022 January 3, 2021 Year Ended income $ 75,829 $ tt thous ands)s (I(( nII Income tax expense computed at statutt oryrr tax rate Foreign rate diffff eff rential Permanent diffff eff rences Disposal of subsidiaries Income attributabla e to a permanent establa ishment Change in valuation allowance Income tax credits Change in tax rate Goodwill impairment Limitation on executive compensation Withholding and other taxes Nondeductible interest Other Income tax expense (10,045) (2,012) 287 (6,517) 5,202 2,673 1,120 — 2,273 2,100 1,970 38,137 $ (12,370) 3,843 1,651 2,608 1,569 (5,591) 2,706 11,296 1,904 1,761 — $ (1,127) 71,753 $ (2,742) 44,772 $ 79 8,283 30,413 38,696 (235) (9,850) (10,085) 28,611 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 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The tax effff eff cts of temporaryrr diffff eff rences that give rise to signififf cant portions of the defeff rred tax assets and liabia lities are presented below: (I(( nII tt thous ands)s Defeff rred tax assets: Non-capia tal loss carryfrr orff wards Capia tal loss carryfrr orff wards Defeff rred interest expense Accruar ls and reserves currently not deductible forff tax purpos r es Share based compensation Income tax credits Lease right-of-ff use assets Capia talized research and development Other Total defeff rred tax assets Valuation allowance Total defeff rred tax assets, net of valuation allowance Defeff rred tax liabia lities: Plant and equipment Intangibles Basis diffff eff rence in subsidiaries Unrealized forff eign exchange loss (gain) Lease liabia lities Other Total defeff rred tax liabia lities Net defeff rred tax liabia lity Year Ended January 1, 2023 January 2, 2022 $ 12,525 $ 7,753 9,052 20,268 4,887 872 53,985 5,732 2,031 117,105 (14,102) 103,003 (86,337) (21,043) (7,469) 1,850 (48,889) (4,572) $ (166,460) (63,457) $ 11,142 6,740 12,518 18,208 4,456 5,466 57,735 — 1,319 117,584 (10,286) 107,298 (77,807) (23,147) (7,488) (287) (52,955) (2,786) (164,470) (57,172) Management assesses the availabla e positive and negative evidence to estimate if suffff iff cient futff urt e taxabla e income will be generated to use the existing defeff rred tax assets. As of Januaryrr 1, 2023, and Januaryrr 2, 2022, a valuation allowance of $14.1 million and $10.3 million, respectively, has been establa ished to reduce the defeff rred tax assets to an amount that is more likely than not to be realized. We have establa ished valuation allowances on certain defeff rred tax assets resulting frff om loss carryfrr orff wards and other assets in Canada, Costa Rica and the United Kingdom. The folff lowing is a rollforff ward of the valuation allowance forff defeff rred tax assets: (I(( nII tt thous ands)s January 1, 2023 January 2, 2022 January 3, 2021 Balance at beginning of period Additions charged to expense and other Deductions Balance at end of period $ $ 10,286 $ 10,252 (6,436) 14,102 $ 5,970 $ 4,473 (157) 10,286 $ 15,569 851 (10,450) 5,970 Year Ended 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) The losses carried forff ward forff y these losses against futff urt e taxabla e income based on the period of expiration as folff tax purpos es are availabla e to reduce futff urt e taxabla e income by $47.2 million. We lows: r a can appl (I(( nII tt thous ands)s 2023-2028 2029-2043 Indefiff nitely Total tax losses carried forff ward Canada Other Foreign Total $ $ — $ 3,237 $ 39,482 — — 4,502 39,482 $ 7,739 $ 3,237 39,482 4,502 47,221 We have outside basis diffff eff rences, including undistributed earnings in our forff eign subsidiaries. For those subsidiaries in which we are considered to be indefiff nitely reinvested, no provision forff Canadian income or local countryrr withholding taxes has been recorded. Upon reversal of the outside basis diffff eff rence and/or repatriation of those earnings, in the forff m of dividends or otherwise, we may be subject to both Canadian income taxes and withholding taxes payabla e to the various forff eign countries. For those subsidiaries where the earnings are not considered indefiff nitely reinvested, taxes have been accruerr d. The determination of the unrecorded defeff rred tax liabia lity forff investments in forff eign subsidiaries that are considered to be indefiff nitely reinvested is not considered practicabla e. temporaryrr diffff eff rences related to As of Januaryrr 1, 2023, and Januaryrr 2, 2022, our unrecognized tax benefiff ts were $7.7 million and $7.6 million, respectively, excluding interest and penalties. The unrecognized tax benefiff ts would faff vorabla y impact the effff eff ctive tax rate if the tax benefiff ts were recognized. The unrecognized tax benefiff ts are recorded in other long-term liabia lities and as a reduction to related long-term defeff rred income taxes in the consolidated balance sheets. The changes to our unrecognized tax benefiff ts were as folff lows: Year Ended (I(( nII tt thous ands)s January 1, 2023 January 2, 2022 January 3, 2021 Unrecognized tax benefiff t at beginning of period $ 7,592 $ 8,108 $ Gross increases in tax positions in current period Gross decreases in tax positions in prior period Gross increases in tax positions in prior period Lapsa e of statutt e of limitations 151 (173) 110 — 103 (108) — (511) Unrecognized tax benefiff t at end of period $ 7,680 $ 7,592 $ 8,156 62 (110) 1 (1) 8,108 We recognize interest and penalties accruerr d related to unrecognized tax benefiff ts as income tax expense. During the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, we recorded accruer d interest of $0.6 million, $0.4 million and $0.6 million, respectively. Additionally, we have recognized a liabia lity forff penalties of $0.3 million, $0.3 million and $0.3 million, and accumulated interest of $3.1 million, $2.8 million and $3.1 million, respectively. The interest and penalties accruer d related to unrecognized tax benefiff ts would also faff vorabla y impact the effff eff ctive tax rate if those benefiff ts were recognized. accumulated We estimate that the amount of unrecognized tax benefiff ts will not signififf cantly increase or decrease within the 12 months folff lowing the reporting date. We are subject to taxation in Canada, the United States and other forff eign jurisdictions. As of Januaryrr 1, 2023, we are no longer subject to Canadian income tax examination forff subject to U.S. feff deral tax examinations forff operating losses and tax credits have been carried forff ward frff om years prior to 2019, those attributes can still be audited when utilized on returt ns subject to audit. In state and local jurisdictions, we are no longer subject to income tax examination forff years prior to 2019. To the extent that income tax attributes such as net years prior to 2018. Additionally, we are no longer years prior to 2016. On August 16, 2022, President Biden signed the Inflff ation Reduction Act of 2022 ("IRARR ") into law. The IRARR includes several changes to existing tax law, including a minimum tax on adjusted fiff nancial statement income of r a appl ate stock buybacks. The tax provisions included in the IRARR ations and an excise tax on certain corpor icabla e corpor rr 81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) are generally effff eff ctive beginning Januaryrr 1, 2023, and no signififf cant impact to the consolidated fiff nancial statements is anticipated. Management continues to review the IRARR tax provisions to assess impacts to our futff urt e consolidated fiff nancial statements. 16. Earnings Per Share Basic earnings per share ("EPS") is calculated by dividing earnings attributabla e to Masonite by the weighted average number of our common shares outstanding during the period. Diluted EPS is calculated by dividing earnings attributabla e to Masonite by the weighted average number of common shares plus the incremental number of shares issuabla e frff om non-vested and vested RSUs and SARs outstanding during the period. (I(( nII tt thous ands, exee cepte share and per share inforff mation) January 1, 2023 Year Ended January 2, 2022 January 3, 2021 Net income attributabla e to Masonite $ 214,233 $ 94,501 $ 69,037 Shares used in computing basic earnings per share 22,532,722 24,176,846 24,569,727 Effff eff ct of dilutive securities: Incremental shares issuabla e under share compensation plans 239,743 385,687 373,451 Shares used in computing diluted earnings per share 22,772,465 24,562,533 24,943,178 Basic earnings per common share attributabla e to Masonite $ Diluted earnings per common share attributabla e to Masonite $ 9.51 9.41 $ $ 3.91 3.85 $ $ 2.81 2.77 Anti-dilutive instrumr common share ents excluded frff om diluted earnings per 223,968 28,707 215,563 The weighted average number of shares outstanding utilized forff the diluted EPS calculation contemplates the exercise of all currently outstanding SARs and the conversion of all RSUs. The dilutive effff eff ct of such equity awards is calculated based on the weighted average share price forff each fiff scal period using the treasuryrr stock method. The Company's Board of Directors has appr a oved fiff ve share repurchase authorizations, the most recent being an a oved on Februarr ryrr 21, 2022. In addition, the Company incremental $200.0 million share repurchase program appr announced that its Board of Directors authorized it to enter into an accelerated share repurchase ("ASR") transaction as part of the new share repurchase program. The Company entered into an ASR transaction during the fiff rst quarter of 2022 with a third-party fiff nancial institutt inception, pursuant to the agreement, the Company paid $100.0 million to the fiff nancial institutt and received an initial deliveryrr of 848,087 common shares on the same day. The fiff nal deliveryrr of 319,678 common shares occurred in the second quarter. The $100.0 million ASR transaction was thereforff e completed in the second quarter with a total deliveryrr of 1,167,765 common shares at a volume-weighted average price ("VWAP") per share minus an agreed upon discount totaling 85.63 per share. The cash paid was reflff ected as a reduction of equity at the initial deliveryrr of shares and the number of shares outstanding were reduced at the dates of physical delivery.rr the repurchase of $100.0 million of its outstanding common shares. At ion using cash on hand ion forff 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 17. Segment Inforff mation Our management reviews net sales and Adjusted EBITDA (as defiff ned below) to evaluate segment perforff mance and allocate resources. Net assets are not allocated to the reportabla e segments. Adjusted EBITDA is a non-GAAP fiff nancial measure which does not have a standardized meaning under GAAP and is unlikely to be comparabla e to similar measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or operating cash flff ows determined in accordance with GAAP. Adjusted EBITDA is defiff ned as net income (loss) attributabla e to Masonite adjusted to exclude the folff lowing items: • • • • • • • • • • • • • • • depreciation; amortization; share based compensation expense; loss (gain) on disposal of property, plant and equipment; registration and listing feff es; restrucr ing costs (benefiff t); turt asset impairment; lloss ((ggaii )n) on didisposall of s bubsiididiariies; iinterest expense ((iincome)), net; lloss on extiingui nguishhment of ddebbt; othher expense ((iincome)), net; iincome tax expense ((bbenefiiff t)); othher iitems; lloss ((iincome)) frff om didiscontiinuedd operatiions, net of tax; a dnd net iincome ((lloss)) attriibbutablbla e to non-contr lolllii gng iinterest. Thhe ddefiiff initiion of Adjdjustedd EBITDA didiffff eff rs frff om thhe ddefiiff initiions of EBITDA contaiinedd iin thhe ii dndenturt e ggover ini gng thhe 2030 Notes a dnd thhe 2028 Notes a dnd thhe credidit aggreements ggover ini gng thhe Term Loan Faciilliityy a dnd thhe ABL Faciilliityy. Allthough onditiion or perforff mance ddetermiinedd iin accorddance wiithh GAAP, iit iis usedd to evalluate a dnd compare thhe operatii gng perforff mance of thhe seggments a dnd iit iis one of thhe priimaryyrr measures usedd to ddetermiine em lpl yoyee iincentiive compensatiion. Interseggment salles are recorddedd usii gng markket priices. hough Adjdjustedd EBITDA iis not a measure of fiiff nanciiall c di Certain inforff mation with respect to reportabla e segments is as folff lows forff the periods indicated: (I(( nII tt thous ands)s Sales Intersegment sales Net sales to external customers Adjusted EBITDA Depreciation and amortization Interest expense, net Income tax expense $ $ $ North American Residential 2,286,098 (2,456) 2,283,642 461,750 42,958 — — $ $ $ Year Ended January 1, 2023 Europe Architectural Corporate & Other 323,175 (16,192) 306,983 $ $ 20,293 — 20,293 $ $ Total 2,912,555 (20,868) 2,891,687 (3,748) $ (40,978) $ 445,798 12,374 — — 11,902 41,331 71,753 88,295 41,331 71,753 $ $ $ 282,989 (2,220) 280,769 28,774 21,061 — — 83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) (I(( nII tt thous ands)s Sales Intersegment sales Net sales to external customers Adjusted EBITDA Depreciation and amortization Interest expense, net Income tax expense (I(( nII tt thous ands)s Sales Intersegment sales Net sales to external customers Adjusted EBITDA Depreciation and amortization Interest expense, net Income tax benefiff t $ $ $ North American Residential 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 — — $ $ $ $ $ $ Year Ended January 2, 2022 Europe Architectural Corporate & Other $ $ $ 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 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 $ $ $ 260,834 (2,721) 258,113 40,474 23,732 — — $ $ $ 358,049 (17,153) 340,896 34,201 17,735 — — 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) A reconciliation of our consolidated net income attributabla e to Masonite to Adjusted EBITDA is set forff th as folff lows forff the periods indicated: tt thous ands)s (I(( nII Net income attributabla e to Masonite Plus: Depreciation Amortization Share based compensation expense (Gain) loss on disposal of property, plant and equipment Restrucrr turt ing 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 attributabla e to non-controlling interest Year Ended January 1, 2023 January 2, 2022 January 3, 2021 $ 214,233 $ 94,501 $ 69,037 71,168 17,127 21,771 (378) 1,904 — 850 41,331 — (5,001) 71,753 6,829 4,211 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 Adjusted EBITDA $ 445,798 $ 412,606 $ 363,712 ____________ (1) Other items include $6,829 in acquisition and due diligence related costs in the year ended Januaryrr 1, 2023, and $40,550 in legal reserves related to the settlement of U.S. class action litigation in the year ended Januaryrr 3, 2021, and were recorded in selling, general and administration expenses within the consolidated statements of income and comprehensive income. 85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) We derive revenues frff om two maja or product lines: interior and exterior products. Additionally, we sell door the product components to external customers which are not otherwise consumed in our vertical operations. Sales forff lines are summarized as folff the periods indicated: lows forff (I(( nII tt thous ands)s Net sales to external customers: Interior products Exterior products Components Total January 1, 2023 January 2, 2022 January 3, 2021 Year Ended $ $ 1,871,103 $ 1,654,379 $ 1,479,196 892,945 127,639 813,605 128,936 647,241 130,638 2,891,687 $ 2,596,920 $ 2,257,075 Net sales inforff mation with respect to geographi a c areas exceeding 10% of consolidated net sales is as folff lows forff the periods indicated: (I(( nII tt thous ands)s January 1, 2023 January 2, 2022 January 3, 2021 Net sales to external customers frff om faff cilities in: Year Ended United States Canada United Kingdom Other Total $ $ 2,153,689 $ 1,776,180 $ 1,595,398 395,938 259,944 82,116 364,179 300,008 156,553 319,937 218,382 123,358 2,891,687 $ 2,596,920 $ 2,257,075 In the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021, net sales to The Home Depot, Inc., were $630.7 million, $491.5 million and $411.1 million, respectively, which are included in the North American Residential segment. No other individual customer's net sales exceeded 10% of consolidated net sales forff periods presented. any of the Geographi plant and equipment is as folff a lows as of the dates indicated: c inforff mation regarding property, plant and equipment which exceed 10% of consolidated property, (I(( nII tt thous ands)s United States Other (1) Total January 1, 2023 January 2, 2022 $ $ 443,105 209,224 652,329 $ $ 413,289 213,508 626,797 ____________ (1) Except forff net. the United States, property, plant and equipment in any single countryrr was less than 10% of consolidated property, plant and equipment, 18. Employee Future Benefiff ts UniUU ted States Defe iff ned Benefe iff t Pension Planl We had a defiff ned benefiff t pension plan covering certain active and forff mer employees in the United States ("U.S. a oved a resolution to terminate the U.S. Pension Plan and we initiated the process to terminate and Pension Plan"). Benefiff ts under the plan were frff ozen at various times in the past. On December 9, 2020, the Board of Directors appr annuitize the plan, which continued into 2021. During the four ff mitigation actions related to the U.S. Pension Plan and terminated the plan. In connection with the plan termination, we settled all futff urt e obligations under the U.S. Pension Plan through a combination of lump-sum payments to eligible participants who elected to receive them, and the transfeff r of any remaining benefiff t obligations to a third-party insurance th quarter of 2021, we completed balance sheet risk 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) company under a group annuity contract, which resulted in the settlement of liabia lities to affff eff cted participants. As a result of these actions, we recognized a pre-tax pension settlement charge of $23.3 million in the four primarily comprised of the recognition of past actuat net in the consolidated statements of income and comprehensive income. Inforff mation about folff rial losses. This charge is recorded within other (income) expense, the U.S. Pension Plan is as the periods indicated: th quarter of 2021, lows forff a ff (I(( nII tt thous ands)s January 1, 2023 January 2, 2022 January 3, 2021 Year Ended Components of net periodic benefiff t cost: Service cost Interest cost Expected returt n on assets Amortization of actuat Settlement loss rial net losses Net pension expense (benefiff t) $ $ — $ 331 $ — — — 1,516 (2,953) 1,047 23,343 — $ 23,284 $ 309 2,183 (5,328) 662 — (2,174) Inforff mation with respect to the assets, liabia lities and net plan assets of the U.S. Pension Plan is set forff th as folff lows forff the periods indicated: (I(( nII tt thous ands)s Pension assets: ear Ended January 1, 2023 January 2, 2022 Fair value of plan assets, beginning of year $ — $ Company contributions Actuat l returt n on plan assets Plan settlements Benefiff ts paid Administrative expenses paid Fair value of plan assets, end of year Pension liabia lity: Accruer d benefiff t obligation, beginning of year Current service cost Interest cost Plan settlements Actuat rial loss Benefiff ts paid Administrative expenses paid Accruer d benefiff t obligation, end of year Net plan assets, end of year — — — — — — — — — — — — — — $ — $ 86,464 5,550 (2,347) (84,573) (3,711) (1,383) — 85,330 331 1,516 (84,573) 2,490 (3,711) (1,383) — — 87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) A reconciliation of the change in accumulated other comprehensive loss ("AOCL") is set forff th as folff lows forff the periods indicated: (I(( nII tt thous ands)s Net actuat rial loss Amortization of:ff Curtailment recognition of prior service cost Settlement recognition of net loss Change in AOCL, pre-tax Year Ended January 1, 2023 January 2, 2022 $ $ — $ — — — $ 7,790 (15) (24,375) (16,600) The weighted average actuat costs prior to termination were as folff rial assumptions adopted in measuring our U.S. accruer d benefiff t obligations and lows forff the periods indicated: January 1, 2023 January 2, 2022 January 3, 2021 Year Ended Discount rate appl a : ied forff Accruer d benefiff t obligation Net periodic pension cost Expected long-term rate of returt n on plan assets — % — % — % 2.4 % 2.4 % 3.5 % 2.4 % 3.3 % 3.5 % The rate of compensation increase forff the accruer d benefiff t obligation and net periodic pension costs forff the U.S. Pension Plan is not appl a icabla e, as benefiff ts under the plan are not affff eff cted by compensation increases. The expected long-term rate of returt n on plan assets assumption was derived by taking into consideration the rforff mance of the market by active investment managers. An asset returt n model was used to develop an expected target plan asset allocation, historical rates of returt n on those assets, projected futff urt e asset class returt ns and net outpet range of returt ns on the plan investments over a 30-year period, with the expected rate of returt n selected frff om a best estimate range within the total range of projected results. UniUU ted KiKK ngdom Defe iff ned Benefe iff t Pension Plan We have a defiff ned benefiff t pension plan in the United Kingdom ("U.K. Pension Plan"), which has been curtailed in prior years. The measurement date used forff Inforff mation about the U.K. Pension Plan is as folff a lows forff the accounting valuation of the U.K. Pension Plan was Januaryrr 1, 2023. the periods indicated: Year Ended (I(( nII tt thous ands)s January 1, 2023 January 2, 2022 January 3, 2021 Components of net periodic benefiff t cost: Interest cost Expected returt n on assets Amortization of actuat rial net losses Settlement loss Net pension benefiff t $ $ 504 $ (934) 22 — 366 $ (1,292) 289 — (408) $ (637) $ 536 (1,021) 340 127 (18) 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) Inforff mation with respect to the assets, liabia lities and net plan assets (accruer d benefiff t obligation) of the U.K. Pension Plan is as folff lows forff the periods indicated: (I(( nII tt thous ands)s Pension assets: Year Ended January 1, 2023 January 2, 2022 Fair value of plan assets, beginning of year $ 33,389 $ Company contributions Actuat l returt n on plan assets Benefiff ts paid Translation adjustment Fair value of plan assets, end of year Pension liabia lity Accruer d benefiff t obligation, beginning of year Interest cost Actuat rial gain Benefiff ts paid Translation adjustment Accruer d benefiff t obligation, end of year 2,021 (13,071) (1,006) (3,251) 18,082 33,002 504 (9,153) (1,006) (3,276) 20,071 Net (accruer d benefiff t obligation) plan assets, end of year $ (1,989) $ There were $9.2 million of actuat rial gains during fiff scal year 2022 primarily as a result of a change in the 31,222 1,376 2,159 (919) (449) 33,389 35,394 366 (1,431) (919) (408) 33,002 387 discount rate frff om 1.83% to 4.81% driven by an increase in both government and corpor $1.4 million of actuat 1.83%. There were no material changes to any other key assumptions nor was there a signififf cant demographi loss. rial gains during fiff scal year 2021 primarily as a result of a change in the discount rate frff om 1.27% to ate bond yields. There were c gain or a rr Amounts defeff rred in AOCL is set forff th forff the periods indicated: (I(( nII tt thous ands)s Net actuat rial loss Prior service cost Total amount recognized in AOCL, pre-tax Year Ended January 1, 2023 January 2, 2022 $ $ 7,212 440 7,652 $ $ 2,794 518 3,312 A reconciliation of the change in AOCL is set forff th as folff lows forff the periods indicated: (I(( nII tt thous ands)s Net actuat rial loss (gain) Amortization of:ff Prior service cost Net actuat rial loss frff om prior years Translation adjustment Change in AOCL, pre-tax Year Ended January 1, 2023 January 2, 2022 4,852 $ (2,298) (22) — (490) 4,340 $ (25) (264) (22) (2,609) $ $ 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 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 based on the expected lifeff of the plan and the expected retirement age of the plan participants. Inforff mation with respect to the amounts and types of securities that are held in the U.K. Pension Plan is set forff indicated: the periods lows forff th as folff ff (I(( nII tt thous ands)s Equity securities Debt securities Other Year Ended January 1, 2023 January 2, 2022 Amount % of Total Plan Amount % of Total Plan $ $ 3,740 — 14,342 18,082 20.7 % $ — % 79.3 % 100.0 % $ 8,327 — 25,062 33,389 24.9 % — % 75.1 % 100.0 % based Under the plan's investment policy and strategy, plan assets are invested to achieve a fulff rial calculations, maintain a level of liquidity that is suffff iff cient to pay benefiff t and expense obligations when due, on actuat maintain flff exibility in determining the futff urt e level of contributions and maximize returt ns within the limits of risk. The target asset allocation forff Other securities represent investments that are primarily invested in a mixturt e of debt and equity securities. 2022 is 80% other securities and 20% equity securities. plan assets in the U.K. Pension Plan forff ff ly funde d statust The weighted average actuat rial assumptions adopted in measuring our U.K. accruer d benefiff t obligations and costs were as folff lows forff the periods indicated: January 1, 2023 Year Ended January 2, 2022 January 3, 2021 Discount rate appl a : ied forff Accruer d benefiff t obligation Net periodic pension cost Expected long-term rate of returt n on plan assets 4.8 % 1.7 % 3.0 % 1.8 % 1.0 % 4.1 % 1.3 % 1.0 % 4.1 % The rate of compensation increase forff the accruer d benefiff t obligation and net pension cost forff the U.K. Pension Plan is not appl a compensation increases. icabla e, as the plan was curtailed in prior years and benefiff ts under the plan are not affff eff cted by The expected long-term rate of returt n on plan assets assumption is derived by taking into consideration the target plan asset allocation, historical rates of returt n on those assets, projected futff urt e asset class returt ns and net outpet rforff mance of the market by active investment managers. An asset returt n model is used to develop an expected range of returt ns on the plan investments over a 10-year period, with the expected rate of returt n selected frff om a best estimate range within the total range of projected results. 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) As of Januaryrr 1, 2023, the estimated futff urt e benefiff t payments frff om the U.K. Pension Plan forff the folff lowing futff urt e periods are set forff th as folff lows: (I(( nII tt thous ands)s Fiscal year: 2023 2024 2025 2026 2027 2028 through 2032 Total estimated futff urt e benefiff t payments Expected Future Benefiff t Payments $ $ 977 1,079 1,162 1,120 1,168 6,750 12,256 Expected contributions to the U.K. Pension Plan during 2023 are $2.0 million. Overall Pension Obligat i ion , For all periods presented, the U.S. and U.K. Pension Plans were invested in equity securities, equity funds ff ff bonds, bond funds marketabia lity or liquidity. All plan investments are categorized as having Level 1 valuation inputs as establa ished by the FASB’s Fair Value Framework. and cash and cash equivalents. All investments are publicly traded and possess a high level of The change in the net diffff eff rence between the pension plan assets and projected benefiff t obligation that is not attributed to our recognition of pension expense or fundi income within the consolidated statements of income and comprehensive income and the balance of such changes is included in AOCL in the consolidated balance sheets. ng of the plan is recognized in other comprehensive (loss) ff Defe iff ned ContCC rt ibution Benefe iff t Plans We have defiff ned contribution benefiff t plans covering certain U.S. and forff eign subsidiaryrr employees subject to eligibility requirements set up in accordance with local statutt oryrr were $16.1 million, $15.6 million and $13.7 million forff 2021, respectively. requirements. Contributions made to these plans the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 19. Accumulated Other Comprehensive Loss and Other Comprehensive (Loss) Income A rollforff ward of the components of accumulated other comprehensive loss is as folff lows forff the periods indicated: (I(( nII tt thous ands)s January 1, 2023 Year Ended January 2, 2022 January 3, 2021 Accumulated forff eign exchange losses, beginning of period $ (96,919) $ (93,684) $ (113,336) Foreign currency translation (loss) gain Income tax benefiff t on forff eign currency translation (loss) gain Cumulative translation adjustment recognized upon deconsolidation of subsidiaries Less: forff eign exchange (loss) gain attributabla e to non- controlling interest Accumulated forff eign exchange losses, end of period Accumulated pension and other post-retirement adjustments, beginning of period Pension and other post-retirement adjustments Income tax (expense) benefiff t on pension and other post- retirement adjustments Amortization of actuat rial net losses Income tax expense on amortization of actuat rial 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 (loss) income, net of tax: Less: other comprehensive (loss) income attributabla e to non- controlling interest Other comprehensive (loss) income attributabla e to Masonite (36,369) 18 732 (537) (132,001) (4,663) (4,718) (858) 22 (6) — — (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) — — (10,223) (4,663) (18,379) (142,224) $ (101,582) $ (112,063) (41,179) $ 10,547 $ 18,291 (537) (40,642) $ 66 10,481 $ 185 18,106 $ $ $ Cumulative translation adjustments are reclassififf ed out of accumulated other comprehensive loss into loss on disposal of subsidiaries in the years ended Januaryrr 1, 2023, and Januaryrr 2, 2022, 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 reclassififf ed out of accumulated other comprehensive loss into other (income) expense, net, in the consolidated statements of income and comprehensive income. rial net losses are reclassififf ed out of accumulated other comprehensive loss Foreign currency translation losses as a result of translating our forff eign assets and liabia lities into U.S. dollars during the year ended Januaryrr 1, 2023, were $36.4 million, primarily driven by weakening of the Pound Sterling, the Canadian dollar and the Euro in comparison to the U.S. dollar during the period. 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 20. Supplemental Cash Flow Inforff mation Certain cash and non-cash transactions were as folff lows forff the periods indicated: (I(( nII tt thous ands)s Transactions involving cash: Interest paid Interest received Income taxes paid Income tax refunds ff Cash paid forff operating lease liabia lities Cash paid forff fiff nance lease liabia lities Non-cash transactions frff om operating activities: January 1, 2023 Year Ended January 2, 2022 January 3, 2021 $ 41,846 $ 42,703 $ 2,783 77,500 1,596 33,451 1,359 250 40,506 875 29,886 1,470 45,380 1,110 24,336 805 29,943 1,393 Right-of-ff use assets acquired under operating leases 9,307 49,703 51,381 The folff lowing 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 1, 2023 January 2, 2022 $ $ 296,922 11,999 308,921 $ $ 381,395 10,110 391,505 Property, plant and equipment additions in accounts payabla e were $10.4 million and $10.7 million as of Januaryrr 1, 2023, and Januaryrr 2, 2022, respectively. During the four ff th quarter of 2018, we provided debt fiff nancing to a distribution company via an interest-bearing note that is scheduled to maturt e in 2028. The interest-bearing note receivabla e is carried at amortized cost, with the interest payabla e in kind at the election of the borrower. The note receivabla e balance was $12.6 million as of Januaryrr 1, 2023, and Januaryrr 2, 2022. The note receivabla e was recorded in the consolidated balance sheets as a component of prepaid expenses and other assets, and as a component of other assets as of Januaryrr 1, 2023, and Januaryrr 2, 2022, respectively. On Januaryrr 26, 2023, the note receivabla e was redeemed and fulff ly repaid. 93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 21. Variable Interest Entity As of Januaryrr 1, 2023, and Januaryrr 2, 2022, we held an interest in one variabla e interest entity ("VIE"), Magna Foremost Sdn Bhd, which is located in Bintult u, Malaysia. The VIE is integrated into our supply chain and manufaff cturt es door faff cings. We are the primaryrr benefiff ciaryrr of the VIE based on the terms of the existing supply agreement with the VIE. As primaryrr benefiff ciaryrr 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 maja ority of the VIE’s residual returt ns. Sales to third parties did not have a material impact on our consolidated fiff nancial statements. We also have the power to direct activities of the VIE that most signififf cantly impact the entity’s economic perforff mance. As its primaryrr benefiff ciary,rr we have consolidated the results of the VIE. Our net cumulative investment in the VIE was comprised of the folff the dates indicated: lowing as of (I(( nII tt thous ands)s Current assets Property, plant and equipment, net Long-term defeff rred income taxes Other assets Current liabia lities Other long-term liabia lities Non-controlling interest January 1, 2023 January 2, 2022 $ 5,699 $ 8,056 1,170 4,067 (1,396) (4) (3,229) 9,057 8,573 1,023 4,202 (3,895) (139) (3,803) 15,018 Net assets of the VIE consolidated by Masonite $ 14,363 $ Current assets include $1.0 million and $4.9 million of cash and cash equivalents as of Januaryrr 1, 2023, and Januaryrr 2, 2022, respectively. Assets recognized as a result of consolidating this VIE do not represent additional assets that could be used to satisfyff claims against our general assets. Furthermore, liabia lities recognized as a result of consolidating these entities do not represent additional claims on our general assets; rather, they represent claims against the specififf c assets of the consolidated VIE. 22. Fair Value of Financial Instruments The carryirr ng amounts of our cash and cash equivalents, restricted cash, accounts receivabla e, income taxes receivabla e, accounts payabla e, accruerr d expenses and income taxes payabla e appr term maturt as folff the periods indicated: ity of those instrumr lows forff a ents. The estimated faff ir values and carryirr ng values of our long-term debt instrumr ents were oximate faff ir value because of the short- (I(( nII millions)s Fair Value Carrying Value Fair Value Carrying Value 3.50% senior unsecured notes due 2030 5.375% senior unsecured notes dued 2028 $ $ 303,870 462,495 $ $ 371,136 495,868 $ $ 373,238 526,730 $ $ 370,593 495,128 January 1, 2023 January 2, 2022 These estimates are based on market quotes and calculations based on current market rates availabla e to us and are categorized as having Level 2 valuation inputs as establa ished by the FASB’s Fair Value Framework. Market quotes ents and are obtained frff om and corroborated with used in these calculations are based on bid prices forff multiple independent sources. The market quotes obtained frff om independent sources are within the range of management’s expectations. our debt instrumrr 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued) 23. Subsequent Events Acquisii ition of Endur EE a On Januaryrr 3, 2023, we completed the acquisition of 100% of the outstanding equity of EPI Holdings, Inc. a appr ("Endura"), forff oximately $375.0 million in cash. Endura is a leading innovator and manufaff cturt er of high- perforff mance door frff ames and door system components in the United States. Endura’s product offff eff rings include engineered frff ames, self-ff adjusting sill systems, weather sealing, multi-point locks and installation accessories used by ications. The acquisition builders and contractors in residential new construcr will allow us to accelerate our Doors That Do MoreTM strategy and maximize our growth potential. The acquisition will be accounted forff as a business combination, with the goodwill being non-deductible forff tion as well as repair and remodeling appl tax purpos es. a r Since the closing of the acquisition occurred subsequent to the Company's fiff scal year end, the allocation of the purchase price to the underlying assets acquired and liabia lities assumed is subject to a forff mal valuation process, which has not yet been completed. The maja or classes of assets acquired will include trade receivabla es, inventories, trade payabla es and goodwill and intangibles. Our 2023 operating results will include the results frff om Endura frff om the date of acquisition. Based on the timing of the acquisition and lack of availabla e inforff mation, we determined it to be impracticabla e to disclose a preliminaryrr purchase price allocation or proforff ma fiff nancial inforff mation at this time. During the year ended Januaryrr 1, 2023, we recorded $6.8 million of acquisition and due diligence related costs. These costs were recorded in selling, general and administration expense within the consolidated statements of income and comprehensive income. TeTT rm Loan FacFF ilitytt and ABLBB FacFF ilitytt In connection with the acquisition of Endura on Januaryrr 3, 2023, we borrowed $250.0 million under our Term a portion of the cash consideration paid. On ryrr 3, 2023, we subsequently repaid $50.0 million of the outstanding borrowings under our ABL Facility. In the Loan Facility and $100.0 million under our ABL Facility in order to fund Februar fiff rst quarter of 2023, we incurred $2.7 million of incremental debt issuance costs on our Term Loan Facility. ff 95 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Disii closll ure ConCC trtt olsll and PrPP ocedures We maintain disclosure controls and procedures as defiff ned in RulRR e 13a-15(e) under the Exchange Act that are designed to ensure that inforff mation required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specififf ed in the Securities and Exchange Commission’s rulr es and forff ms and that such inforff mation is accumulated and communicated to management, including our Chief Executive Offff iff cer and Chief Financial Offff iff cer, as appr opriate, to allow timely decisions regarding required disclosure. a Management, with the participation of our Chief Executive Offff iff cer and Chief Financial Offff iff cer, has evaluated the effff eff ctiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report. Based on that evaluation, the Chief Executive Offff iff cer and the Chief Financial Offff iff cer have concluded that, as of the end of the period covered by this Annual Report, our disclosure controls and procedures were effff eff ctive. ManMM agement's' Annual Repor ee t on InII tett rnrr al ConCC trtt ol Over FiFF nii ancial Repor ee titt nii g Management is responsible forff establa ishing and maintaining adequate internal control over fiff nancial reporting (as defiff ned in RulRR e 13a-15(f)ff under the Exchange Act). Because of its inherent limitations, internal control over fiff nancial reporting may not prevent or detect misstatements. Projections of any evaluation of effff eff ctiveness to futff urt e periods are subject to the risk that certain controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of management, including our Chief Executive Offff iff cer and Chief Financial Offff iff cer, we carried out an evaluation of the effff eff ctiveness of our internal control over fiff nancial reporting as of Januaryrr 1, 2023, 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 fiff nancial reporting was effff eff ctive as of Januaryrr 1, 2023. The effff eff ctiveness of our internal control over fiff nancial reporting as of Januaryrr 1, 2023, has been audited by Ernst & Young, an independent registered public accounting fiff rm, as stated in their report which is included below, and which expresses an unqualififf ed opinion on the effff eff ctiveness of our internal control over fiff nancial reporting as of Januaryrr 1, 2023. See "Report of Independent Registered Public Accounting Firm" below. ChCC anges inii InII tett rnal ConCC trtt ol over FiFF nii ancial Repor ee titt nii g There have been no changes in our internal control over fiff nancial reporting during the most recently completed quarter covered by this Annual Report that have materially affff eff cted, or that are reasonabla y likely to materially affff eff ct, our internal control over fiff nancial reporting. 96 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Masonite International Corpor rr ation Opinion on Internal Control Over Financial Reporting We have audited Masonite International Corpor based on criteria establa ished in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 frff amework) (the COSO criteria). In our opinion, Masonite International Corpor reporting as of Januaryrr 1, 2023, based on the COSO criteria. ation (the Company) maintained, in all material respects, effff eff ctive internal control over fiff nancial ation’s internal control over fiff nancial reporting as of Januaryrr 1, 2023, rr r 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 Corpor Januaryrr 2, 2022, the related consolidated statements of income and comprehensive income, changes in equity, and cash flff ows forff Februar each of the three fiff scal years in the period ended Januaryrr 1, 2023, and the related notes and our report dated ryrr 28, 2023 expressed an unqualififf ed opinion thereon. ation as of Januaryrr 1, 2023 and rr Basis forff Opinion its The Company’s management is responsible forff maintaining effff eff ctive internal control over fiff nancial reporting and forff assessment of the effff eff ctiveness of internal control over fiff nancial 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 fiff nancial reporting based on our audit. We are a public accounting fiff rm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. feff deral securities laws and the appl icabla e rulrr es and regulations of the Securities and Exchange Commission and the PCAOB. a We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perforff m the audit to obtain reasonabla e assurance about maintained in all material respects. whether effff eff ctive internal control over fiff nancial reporting was a Our audit included obtaining an understanding of internal control over fiff nancial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effff eff ctiveness of internal control based on the assessed risk, and perforff ming such other procedures as we considered necessaryrr in the circumstances. We believe that our audit provides a reasonabla e basis forff our opinion. Defiff nition and Limitations of Internal Control Over Financial Reporting A company’s internal control over fiff nancial reporting is a process designed to provide reasonabla e assurance regarding the reliabia lity of fiff nancial reporting and the preparation of fiff nancial statements forff es in accordance with generally accepted accounting principles. A company’s internal control over fiff nancial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonabla e detail, accurately and faff irly reflff ect the transactions and dispositions of the assets of the company; (2) provide reasonabla e assurance that transactions are recorded as necessaryrr principles, and that receipts and expenditurt es of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonabla e assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effff eff ct on the fiff nancial statements. to permit preparation of fiff nancial statements in accordance with generally accepted accounting external purpos r Because of its inherent limitations, internal control over fiff nancial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effff eff ctiveness to futff urt e periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Tampa, Florida Februar ryrr 28, 2023 97 Item 9B. Other Inforff mation Annual MeMM eting and Record Date. The Board of Directors has set the date of the 2023 Annual General Meeting of Shareholders and the related record date. The Annual General Meeting will be held on May 11, 2023, 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 20, 2023. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections a Not appl icabla e. 98 Item 10. Directors, Executive Offff iff cers and Corporate Governance PART III Some of the inforff mation required in response to this item with regard to directors is incorpor into this Annual Report on Form 10-K frff om our defiff nitive Proxy Statement forff Shareholders (the "2023 Proxy Statement"). Such inforff mation will be included under the capta ions "Election of Directors," "Corpor rr Matters—Corpor Matters—Board Strucrr Board Committees; Membership—Audit Committee." ate Governance Guidelines and Code of Ethics," "Corpor turt e and Director Independence" and "Corpor ate Governance; Delinquent Section 16(a) Reports," "Corpor ate Governance; Board and Committee ate Governance; Board and Committee Matters— ate Governance; Board and Committee r rr r r r our 2023 Annual General Meeting of ated by refeff rence The folff lowing tabla e sets forff th inforff mation as of Februarr ryrr 28, 2023, regarding each of our executive offff iff cers: Name Howard C. Heckes RusRR sell T. Tieje ema Christopher O. Ball Victoria Philemon Alexander A. Legall Randal A. White James C. Pelletier Robert A. Paxton Patrick D. Brisley Biographies Age Positions 58 President and Chief Executive Offff iff cer and Director 54 45 50 54 52 45 49 Executive Vice President and Chief Financial Offff iff cer President, Global Residential Senior Vice President, General Manager, Europe Senior Vice President, Business Leader, Architecturt al Senior Vice President, Global Operations and Supply Chain Senior Vice President, General Counsel and Corpor rr ate Secretaryrr Senior Vice President, Human Resources 44 Vice President, Chief Accounting Offff iff cer The present principal occupations and recent employment historyrr of each of the executive offff iff cers and directors listed above a are as folff lows: Howard C. Heckes, (age 58) has served as President and Chief Executive Offff iff cer of Masonite and as a Director of Masonite since June 2019. Mr. Heckes joined Masonite frff om Energy Management Collabor ative where he served as Chief Executive Offff iff cer since 2017. From 2008 to 2017, Mr. Heckes served in a variety of operations roles at Valspar Corpor r rmaid, industrial coatings portfolff including President of Sanforff d Brands and President of Graco Children's Products. Mr. Heckes is also a member of the Board of Directors of the AZEK Company Inc. ation, now a subsidiaryrr of The Sherwin-Williams Company, most recently overseeing Valspar's io. Prior to joining Valspar, Mr. Heckes held various leadership roles at Newell Rubbe RR a Russell T. Tieje ema, (age 54) is Executive Vice President and Chief Financial Offff iff cer of Masonite. Mr. Tieje ema joined Masonite in November 2015, frff om Lennox International, a global leader in the heating, ventilation, air conditioning and refrff igeration industry,rr where he served as the Vice President of Finance and Chief Financial Offff iff cer of LII Residential, the largest reporting segment of Lennox International, since 2013. From 2011 to 2013, Mr. Tieje ema served as the Vice President, Business Analysis & Planning, of Lennox International. Prior to joining Lennox in 2011, Mr. Tieje ema spent 20 years with General Motors in a variety of fiff nancial leadership roles across a number of operating units and staffff sff , including Finance Director forff GM Fleet & Commercial and Director of Financial Planning and Analysis. Christopher O. Ball, (age 45) joined Masonite in September 2021 as President of the Global Residential Door Business. Prior to joining Masonite, Mr. Ball was with Cooper Tire & Rubbe r Company, a global manufaff cturt er and marketer of consumer and commercial products, frff om 2018 to 2021, most recently serving as President - Americas, where he led the North American, Latin America and Global Commercial Trucr k business units. Prior to joining Cooper Tire, Mr. Ball held various roles at Whirlpool Corpor operations forff the KitchenAid small appl Whirlpool's largest business. iance business and general management of the North America Laundryrr unit, ation frff om 2003 to 2018, including leadership of sales and RR a rr 99 Victoria Philemon, (age 50) has served as Masonite’s Senior Vice President, General Manager, Europe since August 2021. Prior to joining Masonite, Ms. Philemon was most recently Managing Director forff Morphy supplier of small appl marketing roles at Stanley Black & Decker frff om 2008 to 2016. Earlier in her career, Ms. Philemon held progressive leadership positions in sales. Richards, a iances in the United Kingdom frff om 2017 to 2021. She also previously served in senior sales and a rr Alexander A. Legall, (age 54) has served as Masonite’s Senior Vice President & Business Leader - Architecturt al since September 2020. Mr. Legall joined Masonite frff om Owens Corning, where he served in a variety of leadership roles with the company frff om 2012 to 2020, most recently as Vice President and General Manager of their North American Technical Insulation business frff om 2018 to 2020. Prior to joining Owens Corning, Mr. Legall was with Carrier Corpor 18 years where he held multiple leadership roles both domestically and in Latin America. ation forff r Randal A. White, (age 52) 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 manufaff cturt er of high productivity mining equipment now operating as Komatsu Mining, where he served in various operations and ing roles since 2008, most recently serving as the Vice President Operations, Supply Chain, Quality and manufaff cturt Operational Excellence (Lean) since 2014. Prior to joining Joy Global, Inc., Mr. White held various marketing and operational positions with Magnum Magnetics Inc. and Cooper Crouse-Hinds. James C. Pelletier, (age 45) joined Masonite in April 2022 as the Senior Vice President, General Counsel and forff Barnes Secretary.rr Prior to joining Masonite, Mr. Pelletier was Senior Vice President, General Counsel and Secretaryrr Group Inc. frff om 2015 to 2022. Prior to joining Barnes Group Inc., Mr. Pelletier held corpor Associate Counsel with United Technologies Corpor Aviation frff om 2007 to 2009. Mr. Pelletier began his career as an Associate with the law fiff rm Orrick, Herrington, & Sutcliffff eff , LLP in Washington, D.C. and worked in the Offff iff ce of the General Counsel at the U.S. Department of Commerce as an Attorney-Advisor within the Bureau of Industryrr and Security. ation frff om 2009 to 2015 and as Compliance Counsel forff GE ate counsel positions as r r Robert A. Paxton, (age 49) has served as Masonite’s Senior Vice President, Human Resources since Februar 2018. Prior to joining Masonite, Mr. Paxton was with Owens Corning, a global developer and producer of insulation, roofiff ng and fiff berglass composites, where he served as Vice President, Human Resources and Vice President, Business Integration frff om May 2010 to Februarr Human Resources of Broadwind Energy frff om 2008 to 2010. Prior to joining Broadwind, he served Whirlpool r Corpor Global Human Resources frff om 2007 to 2008. Mr. Paxton began his career with British Petroleum in 1995 to 2002. ation in various human resources leadership roles frff om 2002 to 2008, most recently serving as Vice President, ryrr 2018. Prior to joining Owens Corning, he served as Senior Vice President, ryrr Patrick D. Brisley, (age 44) has served as Masonite's Vice President, Chief Accounting Offff iff cer since June 2019 and joined Masonite as Corpor joining Masonite, Mr. Brisley was a member of the assurance practice of PricewaterhouseCoopers working with clients in various industries and on technical matters such as initial public offff eff rings, mergers and acquisitions as well as other U.S. GAAP and SEC requirements. ate Controller in May 2015. Mr. Brisley is a Certififf ed Public Accountant. Prior to r Item 11. Executive Compensation Inforff mation required in response to this item is incorpor r ated by refeff rence into this Annual Report on Form 10-K frff om the 2023 Proxy Statement. Such inforff mation will be included in the 2023 Proxy Statement under the capta ions "Director Compensation", "Compensation Committee Report," "Executive Compensation" and "Corpor Governance; Board and Committee Matters—Compensation Interlocks and Insider Participation." r ate Item 12. Security Ownership of Certain Benefiff cial Owners and Management and Related Stockholder Matters Inforff mation required in response to this item is incorpor r ated by refeff rence into this Annual Report on Form 10-K frff om the 2023 Proxy Statement. Such inforff mation will be included in the 2023 Proxy Statement under the capta ions "Security Ownership of Certain Benefiff cial Owners and Management" and "Securities Authorized forff Under Equity Compensation Plans". Issuance Item 13. Certain Relationships and Related Transactions, and Director Independence Inforff mation required in response to this item is incorpor r 10-K frff om the 2023 Proxy Statement. Such inforff mation will be included under the capta ions "Corpor r ated by refeff rence into this Annual Report on Form ate Governance; 100 Board and Committee Matters—Board Strucrr Committee Matters—Board Committees; Membership" and "Certain Relationships and Related Party Transactions". turt e and Director Independence", "Corpor ate Governance; Board and rr Item 14. Principal Accountant Fees and Services Inforff mation required in response to this item is incorpor r ated by refeff rence into this Annual Report on Form 10-K frff om the 2023 Proxy Statement. Such inforff mation will be included under the capta ion "Appointment of Independent Registered Public Accounting Firm". 101 Item 15. Exhibit and Financial Statement Schedules PART IV (a) The folff lowing documents are fiff led as part of this Form 10-K: Page No. 1. Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm 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 2. Financial Statement Schedules 48 50 51 52 53 54 All schedules have been omitted because they are not required, not appl amounts suffff iff cient to require submission of the schedule or the required inforff mation is otherwise included. icabla e, not present in a 3. See "Index to Exhibits" below. (b) The exhibits listed on the "Index to Exhibits" below are fiff led or furff nished with this Form 10-K or r incoro por ated by refeff rence as set forff th below. (c) Addid tional Financial Statement Schedules Nonen . The folff lowing is a list of all exhibits fiff led or furff nished as part of this report: INDEX TO EXHIBITS Exhibit No. Descriptionp 2.1 Securities Purchase Agreement, dated as of November 2, 2022, by and among Masonite, Endura, Endura Stockholders, Endura Warrant Holders and Endura’s equityholders’ representative (incorpor rr by refeff rence to Exhibit 2.1 to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on November 3, 2022) Amendment to the Securities Purchase Agreement, dated as of December 30, 2022, by and among Buyer, Masonite, Endura, Endura Stockholders, Endura Warrant Holders and Endura’s equityholders’ representative (incorpor (File No. 011-11796) fiff led with the Securities and Exchange Commission on Januaryrr 3, 2023) Amended and Restated Articles of Masonite International Corpor Exhibit 3.1 to the Company's Annual Report on Form 10-K (File No. 001-11796) fiff led with the Securities and Exchange Commission on Februar ated by refeff rence to Exhibit 10.1 to the Company's Current Report on Form 8-K ated by refeff rence to ation (incorpor ryrr 26, 2015) r r r ated Indenturt e, dated as of July 26, 2021, by and among the Company, the guarantors named therein and Wells Fargo Bank, National Association, as trusr (incorpor r 001-11796) fiff led with the Securities and Exchange Commission on July 27, 2021) tee, governing the 3.50% Senior Notes due 2030 ated by refeff rence to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. Form of 3.50% Senior Notes due 2030 (included in Exhibit 4.1) Indenturt e, dated as of July 25, 2019, by and among the Company, the guarantors named therein and Wells Fargo Bank, National Association, as trusr (incorpor r 001-11796) fiff led with the Securities and Exchange Commission on July 25, 2019) tee, governing the 5.375% Senior Notes due 2028 ated by refeff rence to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. Form of 5.375% Senior Notes due 2028 (included in Exhibit 4.3) Transfeff r Agency and Registrar Services, dated July 1, 2013, between Masonite International Corpor r refeff rence to Exhibit 4.3(e) to the Company's Annual Report on Form 10-K (File No. 001-11796) fiff led with the Securities and Exchange Commission on Februar ation and American Stock Transfeff r & Trusr t Company, LLC of New York (incorpor ryrr 27, 2014) ated by r Form of Second Amended and Restated Shareholders Agreement (incorpor 3.2 to the Company's Current Report on Form 8-K (File No. 001-11796) fiff led with the Securities and Exchange Commission on May 15, 2014) ated by refeff rence to Exhibit r 102 2.2 3.1 4.1 4.2 4.3 4.4 4.5 4.6 Exhibit No. Descriptionp 4.7 10.1 # 10.2 # 10.3(a) # 10.3(b) # 10.3(c) # 10.3(d) # 10.3(e) #* 10.3(f)ff # 10.3(g) # 10.3(h) # 10.3(i) # 10.3(j(( ) # 10.3(k) # 10.3(l) # 10.3(m) # r Description of Securities (incorpor Form 10-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Februar 2020) Masonite International Corpor Exhibit 10.2 to the Company's Current Report on Form 8-K (File No. 001-11796) fiff led with the Securities and Exchange Commission on May 15, 2014) ated by refeff rence to Exhibit 4.5 to the Company's Annual Report on ryrr 20, ation 2014 Employee Stock Purchase Plan (incorpor ated by refeff rence to r r Masonite International Corpor (incorpor r No. 001-11796) fiff led with the Securities and Exchange Commission on August 19, 2013) ated by refeff rence to Exhibit 10.2 to the Company's Registration Statement on Form 10 (File ation Defeff rred Compensation Plan, effff eff ctive as of August 13, 2012 r ated by refeff rence to Exhibit Masonite International Corpor 10.1 to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on May 18, 2021) ation 2021 Omnibus Incentive Plan (incorpor r r r r r ation 2021 ated by refeff rence to Exhibit Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corpor Omnibus Incentive Plan forff United States Employees (May 2021) (incorpor 10.2(a) to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on May 18, 2021) Form of Perforff mance Restricted Stock Unit Agreement pursuant to the Masonite International Corpor ated by ation 2021 Omnibus Incentive Plan forff United States Employees (May 2021) (incorpor r refeff rence to Exhibit 10.2(b) to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on May 18, 2021) Form of Stock Appreciation Rights Agreement pursuant to the Masonite International Corpor Omnibus Incentive Plan forff United States Employees (May 2021) (incorpor 10.2(c) to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on May 18, 2021) Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corpor ation 2021 Omnibus Incentive Plan forff United States Directors (May 2021) (correcting Exhibit 10.2(d) to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on May 18, 2021) Form of Perforff mance Restricted Stock Unit Agreement pursuant to the Masonite International Corpor r the Company's Quarterly Report on Form 10-Q (File No. 011-11796) fiff led with the Securities and Exchange Commission on August 9, 2022) Masonite International Corpor ated by refeff rence to Exhibit 10.2 to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on May 18, 2015) ation Amended and Restated 2012 Equity Incentive Plan (incorpor ation 2021 Omnibus Incentive Plan (August 2022) (incorpor ation 2021 r ated by refeff rence to Exhibit ated by refeff rence to Exhibit 10.1 to r rr r r r Form of Stock Appreciation Rights Agreement pursuant to the Masonite International Corpor Equity Incentive Plan forff United States Employees (incorpor Company's Registration Statement on Form 10 (File No. 001-11796) fiff led with the Securities and Exchange Commission on August 19, 2013) ation Amended Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corpor r ated by refeff rence and Restated 2012 Equity Incentive Plan forff United States Directors (2015) (incorpor to Exhibit 10.3(m) to the Company's Annual Report on Form 10-K (File No. 001-11796) fiff led with the Securities and Exchange Commission on March 2, 2016) ated by refeff rence to Exhibit 10.3(d) to the ation 2012 rr rr r Form of Stock Appreciation Rights Agreement pursuant to the Masonite International Corpor Amended and Restated 2012 Equity Incentive Plan forff United States Employees (Februar r (incorpor 001-11796) fiff led with the Securities and Exchange Commission on March 2, 2016) ated by refeff rence to Exhibit 10.3(q) to the Company's Annual Report on Form 10-K (File No. r ation ryrr 2016) Amendment No. 1 to Masonite International Corpor Plan dated Februar ated by refeff rence to Exhibit 10.3(s) to the Company's Annual Report on Form 10-K (File No. 001-11796) fiff led with the Securities and Exchange Commission on March 1, 2017) ation Amended and Restated 2012 Equity Incentive ryrr 7, 2017 (incorpor r r ation Amended and Restated 2012 Equity Incentive Plan forff United States Employees (Februar Form of Perforff mance Restricted Stock Unit Agreement pursuant to the Masonite International Corpor r 2017) (incorpor No. 001-11796) fiff led with the Securities and Exchange Commission on March 1, 2017) ryrr ated by refeff rence to Exhibit 10.3(t) to the Company's Annual Report on Form 10-K (File r Form of Stock Appreciation Rights Agreement pursuant to the Masonite International Corpor Amended and Restated 2012 Equity Incentive Plan forff United States Employees (Februar (incorpor r 001-11796) fiff led with the Securities and Exchange Commission on March 1, 2017) ated by refeff rence to Exhibit 10.3(u) to the Company's Annual Report on Form 10-K (File No. r ation ryrr 2017) 103 Exhibit No. Descriptionp 10.3(n) # Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corpor ation Amended ated by and Restated 2012 Equity Incentive Plan forff United States Employees (Februarr refeff rence to Exhibit 10.3(v) to the Company's Annual Report on Form 10-K (File No. 001-11796) fiff led with the Securities and Exchange Commission on March 1, 2017) ryrr 2017) (incorpor r r 10.3(o) # 10.3(p) # 10.3(q) # 10.3(r) # 10.4* # 10.5(a) # 10.5(b) # 10.5(c) # 10.5(d) # 10.5(e) # 10.5(f)ff * # 10.6 # 10.7(a) Form of Stock Appreciation Rights Agreement pursuant to the Masonite International Corpor Amended and Restated 2012 Equity Incentive Plan forff United States Employees (Februar (incorpor r 001-11796) fiff led with the Securities and Exchange Commission on Februar ated by refeff rence to Exhibit 10.3(v) to the Company's Annual Report on Form 10-K (File No. r ation ryrr 2019) ryrr 26, 2019) ation Amended Form of Restricted Stock Unit Agreement pursuant to the Masonite International Corpor and Restated 2012 Equity Incentive Plan forff United States Employees (Februarr ated by refeff rence to Exhibit 10.3(w) to the Company's Annual Report on Form 10-K (File No. 001-11796) fiff led with the Securities and Exchange Commission on Februar ryrr 2019) (incorpor ryrr 26, 2019) r r ation Amended and Restated 2012 Equity Incentive Plan forff United States Employees (Februar Form of Perforff mance Restricted Stock Unit Agreement pursuant to the Masonite International Corpor r 2019) (incorpor (File No. 001-11796) fiff led with the Securities and Exchange Commission on Februar ated by refeff rence to Exhibit 10.3(x) to the Company's Annual Report on Form 10-K ryrr 26, 2019) r ryrr rr ation and James A. Hair (incorpor ated by refeff rence to Exhibit 10.1 to the Company’s Current Restricted Stock Unit Agreement pursuant to the Masonite International Corpor Restated 2012 Equity Incentive Plan, dated as of May 24, 2019, by and between Masonite International Corpor r Report on Form 8-K (File No. 001-11796) fiff led with the Securities and Exchange Commission on May 24, 2019) 2023 Masonite Incentive Plan (MIP) Plan Document Amended and Restated Employment Agreement, dated as of December 31, 2021, by and between ation and Howard C. Heckes (incorpor Masonite International Corpor the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Januaryrr 4, 2022) ated by refeff rence to Exhibit 10.1 to ation Amended and r r r Amended and Restated Employment Agreement, dated as of December 31, 2021, by and between ation and RusRR sell T. Tieje ema (incorpor Masonite International Corpor the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Januaryrr 4, 2022) ated by refeff rence to Exhibit 10.2 to r r Amended and Restated Employment Agreement, dated as of December 31, 2021, by and between Masonite International Corpor ation and Robert E. Lewis (incorpor the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Januaryrr 4, 2022) ated by refeff rence to Exhibit 10.3 to r r Amended and Restated Employment Agreement, dated as of December 31, 2021, by and between Masonite International Corpor ation and Randal A. White (incorpor the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Januaryrr 4, 2022) ated by refeff rence to Exhibit 10.4 to r rr r Amended and Restated Employment Agreement, dated as of December 31, 2021, by and between Masonite International Corpor ation and Robert A. Paxton (incorpor to the Company's Annual Report on Form 10-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Februarr Employment Agreement, dated as of December 31, 2021, by and between Masonite International Corpor r Form of Director and Offff iff cer Indemnififf cation Agreement (incorpor the Company's Registration Statement on Form 10 (File No. 001-11796) fiff led with the Securities and Exchange Commission on August 19, 2013) ation and Christopher O. Ball ated by refeff rence to Exhibit 10.6 to ated by refeff rence to Exhibit 10.4(e) ryrr 22, 2022) r rr Credit Agreement, dated as of December 13, 2022, among Masonite International Corpor Masonite Corpor r (incorpor 011-11796) fiff led with the Securities and Exchange Commission on December 13, 2022) ation, the lenders frff om time to time party thereto and JPMorgan Chase Bank, N.A. ated by refeff rence to Exhibit 10.2 to the Company's Current Report on Form 8-K (File No. ation, r r 104 Exhibit No. Descriptionp 10.7(b) rr ation, as Canadian borrower and parent borrower, Masonite Corpor Second Amended and Restated Credit Agreement, dated as of Januaryrr 31, 2019, among Masonite International Corpor other U.S. borrowers frff om time to time party thereto, as U.S. borrowers, Premdor Crosby Limited and the other U.K. borrowers frff om time to time party thereto, as U.K. Borrowers, the lenders frff om 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 bookrunne Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Februar ated by refeff rence to Exhibit 4.1 to the Company's Current ation and the rs (incorpor ryrr 6, 2019) r r r 10.7(c) 10.7(d) 10.7(e) 10.7(f)ff 10.7(g) 10.7(h) 10.7(i) 21.1* 23.1* 31.1* 31.2* 32.1* 32.2* Amendment No. 3 to the Second Amended and Restated Credit Agreement and Facility Increase Amendment, dated as of October 28, 2022, by and among Masonite, Masonite Corpor ation, Premdor Crosby Limited, each other subsidiaryrr of Masonite party thereto, each lender party thereto and Wells Fargo Bank, National Association, as administrative agent (incorpor the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on November 3, 2022) ated by refeff rence to Exhibit 10.1 to r rr r r rr ryrr 6, 2019) ation, Masonite Corpor ation, Premdor Crosby Limited, ated by refeff rence to Exhibit 10.1 to the ation, as Canadian Borrower and the Canadian Subsidiaryrr Guarantors frff om time to ation, the other U.S. Borrowers frff om time to time party thereto and Wells, the U.S. Guarantors Amendment No. 4 to Second Amended and Restated Credit Agreement, dated as of December 12, 2022, by and among Masonite International Corpor each other subsidiaryrr of Masonite party thereto, each lender party thereto and Wells Fargo Bank, National Association, as administrative agent (incorpor r Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on December 13, 2022) Amended and Restated U.S. Security Agreement, dated as of Januaryrr 31, 2019, among Masonite Corpor r frff om time to time party thereto, and Wells Fargo Bank, National Association, as Collateral Agent (incorpor ated by refeff rence to Exhibit 4.2 to the Company's Current Report on Form 8-K (File No. r 011-11796) fiff led with the Securities and Exchange Commission on Februar Amended and Restated Canadian Security Agreement, dated as of Januaryrr 31, 2019, among Masonite International Corpor time party thereto and Wells Fargo Bank, National Association, as Collateral Agent (incorpor refeff rence to Exhibit 4.3 to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Februar Amended and Restated U.S. Guaranty, dated as of Januaryrr 31, 2019, among Masonite Corpor ation, the other U.S. Borrowers frff om time to time party thereto, the U.S. Subsidiaryrr Guarantors frff om time to time party thereto, and Wells Fargo Bank, National Association, as Administrative Agent (incorpor refeff rence to Exhibit 4.4 to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Februar Amended and Restated Canadian Guarantee, dated as of Januaryrr 31, 2019, among Masonite International Corpor Wells Fargo Bank, National Association, as Administrative Agent (incorpor 4.5 to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Februarr Guarantee and Debenturt e, dated as of Januaryrr 31, 2019, among Premdor Crosby Limited (and others as Chargors) and Wells Fargo Bank, National Association (as Agent) (incorpor ated by refeff rence to Exhibit 4.6 to the Company's Current Report on Form 8-K (File No. 011-11796) fiff led with the Securities and Exchange Commission on Februarr ation and the Canadian Subsidiaryrr Guarantors frff om time to time party thereto and ated by refeff rence to Exhibit ryrr 6, 2019) ryrr 6, 2019) ryrr 6, 2019) ryrr 6, 2019) ated by ated by rr r r rr r r Subsidiaries of the Registrant Consent of Ernst & Young LLP, an Independent Registered Public Accounting Firm Certififf cation of Periodic Report by Chief Executive Offff iff cer under Section 302 of the Sarbar nes-Oxley Act of 2002 Certififf cation of Periodic Report by Chief Financial Offff iff cer under Section 302 of the Sarbar nes-Oxley Act of 2002 Certififf cation of Chief Executive Offff iff cer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbar nes-Oxley Act of 2002 Certififf cation of Chief Financial Offff iff cer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbar nes-Oxley Act of 2002 105 Exhibit No. Descriptionp 101* the years ended Januaryrr 1, 2023, Januaryrr 2, 2022, and Januaryrr 3, 2021; (ii) Interactive Data Files pursuant to RulRR e 405 of Regulation S-T forff matted in Inline Extensible Business Reporting Language ("Inline XBRL"): (i) the Registrant's Consolidated Statements of Income and Comprehensive Income forff the Registrant's Consolidated Balance Sheets as of Januaryrr 1, 2023, and Januaryrr 2, 2022; (iii) the Registrant's Consolidated Statements of Changes in Equity forff Januaryrr 2, 2022, and Januaryrr 3, 2021; (iv) the Registrant's Consolidated Statements of Cash Flows forff the years ended Januaryrr 1, 2023, and Januaryrr 2, 2022; and (v) the notes to the Registrant's Consolidated Financial Statements Cover Page Interactive Data File (forff matted as Inline XBRL and contained in Exhibit 101) the years ended Januaryrr 1, 2023, 104* * # Filed herewith. Denotes management contract or compensatoryrr plan. Item 16. Form 10-K Summary None. 106 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES Date: Februarr ryrr 28, 2023 MASONITE INTERNATIONAL CORPORARR TION (Registrant) By /s/ RusRR sell T. Tieje ema RusRR sell T. Tieje ema Executive Vice President and Chief Financial Offff iff cer (Principal Financial Offff iff cer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the folff lowing persons on behalf of the registrant in the capaa cities and on the dates indicated. Signatures g /s/ Howard C. Heckes Howard C. Heckes /s/ RusRR sell T. Tieje ema Russell T. Tieje ema /s/ Patrick D. Brisley Patrick D. Brisley /s/ Robert J. Byrne Robert J. Byrne /s/ Jody L. Bilney Jody L. Bilney /s/ Peter R. Dachowski Peter R. Dachowski /s/ Jonathan F. Foster Jonathan F. Foster E. Jones a /s/ Daphne Daphne E. Jones /s/ William S. Oesterle William S. Osterle /s/ Barryrr A. RufRR fff aff lo Barry A. Ruffff alff o /s/ Francis M. Scricco Francis M. Scricco /s/ Jay I. Steinfeff ld Jay I. Steinfeff ld Title President and Chief Executive Offff iff cer and Director (Principal Executive Offff iff cer) Executive Vice President and Chief Financial Offff iff cer (Principal Financial Offff iff cer) Vice President, Chief Accounting Offff iff cer (Principal Accounting Offff iff cer) Date Februar ryrr 28, 2023 Februar ryrr 28, 2023 Februar ryrr 28, 2023 Director and Chairman of the Board Februar ryrr 28, 2023 Director Director Director Director Director Director Director Director Februar ryrr 28, 2023 Februar ryrr 28, 2023 Februar ryrr 28, 2023 Februar ryrr 28, 2023 Februar ryrr 28, 2023 Februar ryrr 28, 2023 Februar ryrr 28, 2023 Februar ryrr 28, 2023 Non-GAAP Financial Measures Adjusted EBITDA is a non-GAAP measure. Please see Note 17 to our Form 10-K consolidated financial statements in this annual report for the definition of Adjusted EBITDA and a reconciliation of net income attributable to Masonite. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by Net Sales. Management believes this measure provides supplemental information on how successfully we operate our business. Adjusted EPS is diluted earnings (loss) per common share attributable to Masonite (EPS) less restructuring costs, asset impairment 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 (benefit)). Management uses this measure to evaluate the overall performance of the Company and believes this measure provides investors with helpful supplemental information regarding the underlying performance of the Company from period to period. This measure may be inconsistent with similar measures presented by other companies. Return on Invested Capital (ROIC) is defined as net operating profit after tax divided by average invested capital. Management believes ROIC provides investors with an important perspective on how effectively Masonite deploys capital. 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) (1) Other items include $6,829 in acquisition and due diligence related costs in the year ended January 1, 2023, and $40,550 in legal reserves related to the settlement of U.S. class action litigation in the year ended January 3, 2021, which were recorded in selling, general and administration expenses within the condensed consolidated statements of operations. (1) Other items include $6,829 in acquisition and due diligence related costs in the three and twelve months ended January 1, 2023, and $40,550 in legal reserves related to the settlement of U.S. class action litigation in the three and twelve months ended January 3, 2021, which were recorded in selling, general and administration expenses within the condensed consolidated statements of operations. (1) Assumes a normalized cash level equal to 4% of annual net sales to avoid distortions from short-term fluctuations related to items such as debt issuance or liquidity management actions Forward-looking Statements t i e t,t i “might frff om thett to difi fff eff r materiallyll “believes,” “outlook,”kk involve sigi nigg fi iff cant knowkk “would,” “should,” “exee px ect,”t resultstt disii cussed in the forff wrr ardr -looking statementstt iff nancing; compem tition; the continued success offf and our abilitytt ive ofo these termrr s or other similar termrr inology. FoFF rwrr ard-looking statementstt “predict,”t e,” “estimate,” “potential,”l “continue,” “pl“ an,” “project,”t “targer including the letter to shareholdersrr contained herein, includes “f“ orff wrr ardr -dd looking statementstt ” ThiTT sii annual repor within the meaning ofo apa plpp icable CaCC nadian and/dd o// r U.œ.UU securities lawsww , including our disii cussion ofo our 2023 outlook,kk the housing and other markrr ekk tstt and futff ure dedd mand, the efe fff eff ctstt of our strategie c and restructuring initiatives, new productstt , and the consummation ofo and exee px ected benefe iff tstt related to acquisii itions. WheWW n used in thisii annual repor as t and letter to shareholdedd rsrr , such forff wrr ardr -dd looking statementstt may be idedd ntifi iff ed byb the use of such wordsr e “f“ orff ecast,t ” “may,”yy “could,dd ” “will,”l ,”t ting,” or the “objective,” “remain,” “anticipat negat n and e n risii kskk , uncertainties and other faff ctorsrr that may cause the actual resultstt , perfr orff mrr ance or achievementstt ofo unknowkk tstt , objb ectives, resultstt , resultstt , to be materiallyll difi fff eff rent frff om any fuff ture plans, goalsll , targer MasMM onite, or industryrr perfr orff mrr ance or achievementstt exee prx essed or implm ied byb such forff wrr ard-looking statementstt . As a result,t such forff wrr ardr - looking statementstt should not be read as guaranteesee ofo fff utff ure perfr orff mrr ance or resultstt , should not be undulyll relied upon, and will not necessarilyll be accurate indications of whether or not such resultstt will be achieved. FacFF torsrr that could cause actual resultstt include,e trends in our end markrr ekk tstt and in economic conditions; reduced levelsll of but are not limited to, dodd wnwardr renovation and remodedd ling; and nonresidential building residential new construction; residedd ntial repae ir,r rates, changeg s in mortgt age interest deductions and related taxaa construction activitytt dudd e to increases in mortgage to maintain changes and reduced availabilitytt of fff relationshipsi with, certain kekk ye customersrr to our producdd tstt ; impm actstt on our business frff om weather and climate change; our accuratelyll anticipi ate dedd mand forff abilitytt l; tarifi fff sff to successfs uff llyll consummate and integre ate acquisii itions; changes in prices ofo raw materialsll and fueff and evolvll ing tradedd policyc and frff iction betwtt een the UnUU ited œtates and other countries, includid ng ChiCC na, and the impacm t ofo anti-dumpim ng and countervailing dutdd ies; increases in labor coststt , the availabilitytt ofo labor,r or labor to manage our operations including potential relations (i(( .e., disii rupu tions, strikekk s or workrr s)s and customer credit risii k;k disii ruptions, manufu aff cturing realignmi entstt our capital product liabilitytt ions, including our 5 obligi atgg ions under our senior exee pex nditure requirementstt and to meet our debt service obligat notes, our termrr (t(( hett •A• BLBB FacFF ilitytt •)• ; limitations on operating our business as a result of covenant restrictions under our exee isii ting and ABLBB FacFF ilitytt ; flff uctuating forff eigni futff ure indebtedness, including our senior notes, the TeTT rmrr Loan FacFF ilitytt and thett exee change and interest rates; the continuous operarr tion of our inforff mrr ation technology and enterprrr isii e resource kskk and data privacyc requirementstt ; planning sys syy tems and management ofo potential cyc ber securitytt that arisii e frff om operating a multinational business; retention of kekk ye political,l economic and other risii kskk ations, including the UniUU ted œtates ForFF eigi ngg management persrr onnel; environmental and other government regul CorCC rr upt Practices Act (•F• CPCC APP •)• , and anyn changeg s in such regul lic health isii sues to reple ace our exee pix ring and their impam ct on our operations, customer dedd mand and supplyll chain; and our abilitytt patentstt and to innovate and kekk epe pace with technological developmentstt . ForFF additional inforff mrr ation on identifi yff ing frff om those stated in the forff wrr ardr -looking stattt ementstt , see facff œEœœ C frff om time to time. MasMM onite MasMM onite’s repor undertakekk s no obligai update or revisii e any foff rwrr ardr -looking statement as a result of new inforff mrr ation, futff ure eventstt or otherwrr isii e, exee cepe t as othtt erwrr isii e required by law. to generate suffff iff cient cash flff owsww to fund i loan credit agrgg eement (t(( he •TeTT rmrr Loan FaFF cilitytt •)• and our asset-based revolving credid t facff stoppage (i(( ncludid ng related restructuring charger e ations; the scale and scope of pub tstt on FoFF rmrr s 10-K,KK 10-Q and 8-K fiff led with or furff nisii hed to thett t of customer concentration and consolidadd tion; our abilitytt claims and product recallsll ; our abilitytt torsrr that may cause actual resultstt to varyrr materiallyll threatstt and attactt tion to publiclyll s)s ; our abilitytt in lighi ilitytt o e e ff ff [THIS PAGE INTENTIONALLY LEFT BLANK] CORPORATE INFORMATION Corporate Office 2771 Rutherford Road Concord, Ontario L4K 2N6 Canada Website www.masonite.com Legal Counsel Cassels Brock Lawyers Simpson Thatcher & Bartlett LLP Investor Contact Richard Leland Vice President Finance & Treasurer Marcus Devlin Director of Investor Relations 1242 East 5th Avenue Tampa, Florida 33605 Telephone: (813) 877-2726 Email: investorrelations@masonite.com Independent Auditors Ernst & Young Stock Symbol NYSE: DOOR Transfer Agent American Stock Transfer and Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219 Toll Free# (800) 937-5449 Foreign Holders: (718) 921-8124 www.amstock.com Quarterly Earnings, News Summaries, Copies of News Releases and Corporate Publications Investor.masonite.com KEY BRANDS Board of Directors Robert J. Byrne Chairman of the Board 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. Peter R. Dachowski Retired Chairman and Chief Executive Officer of CertainTeed Corporation Jonathan F. Foster 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 William S. Oesterle Founder and Executive Chairman of tMap, LLC Former Executive Chairman of OurHealth, LLC and Co-Founder of Angie’s List Barry A. Ruffalo Former President & CEO of Astec Industries, Inc. Jay I. Steinfeld Founder and Former CEO of Global Custom Commerce (Blinds.com) Francis M. Scricco Retired Senior Vice President, Manufacturing, Logistics and Procurement of Avaya, Inc. Former President and Chief Executive Officer of Arrow Electronics Management Howard C. Heckes President and Chief Executive Officer Russell T. Tiejema Executive Vice President, Chief Financial Officer Christopher O. Ball President – Global Residential James C. Pelletier Senior Vice President, General Counsel and Corporate Secretary 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 M. Renaud Senior Vice President, Chief Marketing Officer Alex A. Legall Senior Vice President, Business Leader – Architectural Victoria L. Philemon Senior Vice President, Managing Director Europe Business Segment masonite.com ©2023 Masonite International Corporation. All rights reserved. MIC-23012 

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