Masonite International Corp.

08/09/2022 | Press release | Distributed by Public on 08/09/2022 13:57

Quarterly Report for Quarter Ending July 3, 2022 (Form 10-Q)

door-20220703


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________

☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 2022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-11796
____________________________
Masonite International Corporation
(Exact name of registrant as specified in its charter)
____________________________
British Columbia, Canada 98-0377314
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

2771 Rutherford Road
Concord, OntarioL4K 2N6Canada
(Address of principal executive offices)
(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) DOOR New York Stock Exchange
(Title of class) (Trading symbol) (Name of exchange on which registered)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☑No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☑No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☑ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☑
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
The registrant had outstanding 22,268,293 shares of Common Stock, no par value, as of August 5, 2022.



MASONITE INTERNATIONAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
July 3, 2022
PART I Page
Item 1
Unaudited Financial Statements
Condensed Consolidated Statements of Income and Comprehensive Income
1
Condensed Consolidated Balance Sheets
2
Condensed Consolidated Statements of Changes in Equity
3
Condensed Consolidated Statements of Cash Flows
4
Notes to the Condensed Consolidated Financial Statements
5
Item 2
Management's Discussion and Analysis of Financial Condition and Results of Operations
18
Item 3
Quantitative and Qualitative Disclosures About Market Risk
32
Item 4
Controls and Procedures
32
PART II
Item 1
Legal Proceedings
33
Item 1A
Risk Factors
33
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
33
Item 3
Defaults Upon Senior Securities
33
Item 4
Mine Safety Disclosures
34
Item 5
Other Information
34
Item 6
Exhibits
35

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the federal securities laws, including, without limitation, statements concerning the conditions in our industry, our operations, our economic performance and financial condition, including, in particular, statements relating to our business and growth strategy and product development efforts under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as "may," "might," "could," "will," "would," "should," "expect," "believes," "outlook," "predict," "forecast," "objective," "remain," "anticipate," "estimate," "potential," "continue," "plan," "project," "targeting," and other similar expressions. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those identified under "Risk Factors" in our Annual Report on Form 10-K for the year ended January 2, 2022, subsequent reports on Form 10-Q, and elsewhere in this Quarterly Report.
The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:
•downward trends in our end markets and in economic conditions;
•reduced levels of residential new construction; residential repair, renovation and remodeling; and non-residential building construction activity due to increases in mortgage rates, changes in mortgage interest deductions and related tax changes and reduced availability of financing;
•competition;
•the continued success of, and our ability to maintain relationships with, certain key customers in light of customer concentration and consolidation;
•our ability to accurately anticipate demand for our products;
•impacts on our business including seasonality, weather and climate change;
•the scale and scope of the ongoing coronavirus ("COVID-19") pandemic and its impact on our operations, customer demand and supply chain;
•increases in prices of raw materials and fuel;
•tariffs and evolving trade policy and friction between the United States and other countries, including China, and the impact of anti-dumping and countervailing duties;
•increases in labor costs, the availability of labor or labor relations (i.e., disruptions, strikes or work stoppages);
•our ability to manage our operations including potential disruptions, manufacturing realignments (including related restructuring charges) and customer credit risk;
•product liability claims and product recalls;
•our ability to generate sufficient cash flows to fund our capital expenditure requirements, to meet our pension obligations and to meet our debt service obligations, including our obligations under our senior notes and our asset-based revolving credit facility ("ABL Facility");
•limitations on operating our business as a result of covenant restrictions under our existing and future indebtedness, including our senior notes and ABL Facility;
•fluctuating foreign exchange and interest rates;
•our ability to replace our expiring patents and to innovate, keep pace with technological developments and successfully integrate acquisitions;
•the continuous operation of our information technology and enterprise resource planning systems and management of potential cyber security threats and attacks;
•political, economic and other risks that arise from operating a multinational business;
•uncertainty relating to the United Kingdom's exit from the European Union;
•retention of key management personnel; and
•environmental and other government regulations, including the United States Foreign Corrupt Practices Act ("FCPA"), and any changes in such regulations.

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We caution you that the foregoing list of important factors is not all-inclusive. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
The Company may use its website and/or social media outlets, such as LinkedIn, as distribution channels of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company's website at http://investor.masonite.comand its LinkedIn page at https://www.linkedin.com/company/masonitedoors/mycompany/. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the "Email Alerts" section at http://investor.masonite.com.
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PART I - FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
Net sales $ 761,874 $ 662,410 $ 1,488,091 $ 1,308,747
Cost of goods sold 582,389 498,068 1,124,357 985,767
Gross profit 179,485 164,342 363,734 322,980
Selling, general and administration expenses 90,330 82,511 173,576 166,142
Restructuring (benefit) costs (61) 2,192 (80) 3,835
Asset impairment - 10,374 - 10,374
Loss on disposal of subsidiaries - 8,590 - 8,590
Operating income 89,216 60,675 190,238 134,039
Interest expense, net 10,593 11,918 20,832 23,864
Other (income) expense, net (400) (1,586) (1,815) (2,929)
Income before income tax expense 79,023 50,343 171,221 113,104
Income tax expense 19,649 14,246 43,126 28,859
Net income 59,374 36,097 128,095 84,245
Less: net income attributable to non-controlling interests 859 1,051 1,998 2,218
Net income attributable to Masonite $ 58,515 $ 35,046 $ 126,097 $ 82,027
Basic earnings per common share attributable to Masonite $ 2.60 $ 1.43 $ 5.53 $ 3.35
Diluted earnings per common share attributable to Masonite $ 2.58 $ 1.41 $ 5.47 $ 3.30
Comprehensive income:
Net income $ 59,374 $ 36,097 $ 128,095 $ 84,245
Other comprehensive (loss) income:
Foreign currency translation (loss) gain (28,392) 6,039 (30,497) 8,267
Amortization of actuarial net losses 6 332 12 666
Income tax benefit (expense) related to other comprehensive (loss) income (23) (59) (13) (113)
Other comprehensive (loss) income, net of tax: (28,409) 6,312 (30,498) 8,820
Comprehensive income 30,965 42,409 97,597 93,065
Less: comprehensive income attributable to non-controlling interests 1,358 1,149 2,639 2,487
Comprehensive income attributable to Masonite $ 29,607 $ 41,260 $ 94,958 $ 90,578

See accompanying notes to the condensed consolidated financial statements.
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MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts)
(Unaudited)
ASSETS July 3, 2022 January 2, 2022
Current assets:
Cash and cash equivalents $ 231,541 $ 381,395
Restricted cash 11,099 10,110
Accounts receivable, net 405,762 343,414
Inventories, net 431,266 347,476
Prepaid expenses and other assets 54,670 50,399
Income taxes receivable 3,340 1,332
Total current assets 1,137,678 1,134,126
Property, plant and equipment, net 616,015 626,797
Operating lease right-of-use assets 168,700 176,445
Investment in equity investees 17,604 14,994
Goodwill 69,921 77,102
Intangible assets, net 136,962 150,487
Deferred income taxes 24,238 20,764
Other assets 48,119 45,903
Total assets $ 2,219,237 $ 2,246,618
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 145,628 $ 138,788
Accrued expenses 245,505 237,300
Income taxes payable 8,004 8,551
Total current liabilities 399,137 384,639
Long-term debt 866,362 865,721
Long-term operating lease liabilities 157,987 165,670
Deferred income taxes 81,092 77,936
Other liabilities 51,594 52,874
Total liabilities 1,556,172 1,546,840
Commitments and Contingencies (Note 7)
Equity:
Share capital: unlimited shares authorized, no par value, 22,259,356 and 23,623,887 shares issued and outstanding as of July 3, 2022, and January 2, 2022, respectively
521,243 543,400
Additional paid-in capital 216,653 222,177
Retained earnings 46,271 24,244
Accumulated other comprehensive loss (132,721) (101,582)
Total equity attributable to Masonite 651,446 688,239
Equity attributable to non-controlling interests 11,619 11,539
Total equity 663,065 699,778
Total liabilities and equity $ 2,219,237 $ 2,246,618

See accompanying notes to the condensed consolidated financial statements.
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MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Changes in Equity
(In thousands of U.S. dollars, except share amounts)
(Unaudited)
Three Months Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
Total equity, beginning of period $ 626,447 $ 737,153 $ 699,778 $ 695,117
Share capital:
Beginning of period 527,386 561,776 543,400 552,969
Common shares issued for delivery of share based awards 1,346 1,133 12,976 11,064
Common shares issued under employee stock purchase plan - - 797 824
Common shares repurchased (7,489) (6,511) (35,930) (8,459)
End of period 521,243 556,398 521,243 556,398
Additional paid-in capital:
Beginning of period 194,459 214,689 222,177 223,666
Share based compensation expense 5,976 4,706 10,695 9,124
Common shares issued for delivery of share based awards (1,346) (1,133) (12,976) (11,064)
Common shares withheld to cover income taxes payable due to delivery of share based awards (146) (663) (3,109) (3,944)
Common shares issued under employee stock purchase plan - - (134) (183)
Common shares repurchased 17,710 - - -
End of period 216,653 217,599 216,653 217,599
Retained earnings:
Beginning of period (2,023) 59,712 24,244 20,385
Net income attributable to Masonite 58,515 35,046 126,097 82,027
Common shares repurchased (10,221) (25,913) (104,070) (33,567)
End of period 46,271 68,845 46,271 68,845
Accumulated other comprehensive loss:
Beginning of period (104,810) (109,726) (101,582) (112,063)
Other comprehensive (loss) income attributable to Masonite, net of tax (27,911) 6,214 (31,139) 8,551
End of period (132,721) (103,512) (132,721) (103,512)
Equity attributable to non-controlling interests:
Beginning of period 11,435 10,702 11,539 10,160
Net income attributable to non-controlling interests 859 1,051 1,998 2,218
Other comprehensive income attributable to non-controlling interests, net of tax 499 98 641 269
Dividends to non-controlling interests (1,174) (1,008) (2,559) (1,804)
End of period 11,619 10,843 11,619 10,843
Total equity, end of period $ 663,065 $ 750,173 $ 663,065 $ 750,173
Common shares outstanding:
Beginning of period 22,564,956 24,500,706 23,623,887 24,422,934
Common shares issued for delivery of share based awards 14,078 21,030 183,448 175,488
Common shares issued under employee stock purchase plan - - 8,029 8,297
Common shares repurchased (319,678) (283,712) (1,556,008) (368,695)
End of period 22,259,356 24,238,024 22,259,356 24,238,024
See accompanying notes to the condensed consolidated financial statements.
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MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
Six Months Ended
Cash flows from operating activities: July 3, 2022 July 4, 2021
Net income $ 128,095 $ 84,245
Adjustments to reconcile net income to net cash flow provided by operating activities:
Loss on disposal of subsidiaries - 8,590
Depreciation 34,516 35,511
Amortization 8,908 11,326
Share based compensation expense 10,695 9,124
Deferred income taxes 1,042 12,164
Unrealized foreign exchange loss (gain) 356 (372)
Share of income from equity investees, net of tax (2,610) (1,339)
Dividend from equity investee - 4,500
Pension and post-retirement funding, net of expense - (1,873)
Non-cash accruals and interest (114) 839
Gain on sale of property, plant and equipment (1,400) (210)
Asset impairment - 10,374
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (67,611) (72,437)
Inventories (89,508) (24,182)
Prepaid expenses and other assets (4,821) (536)
Accounts payable and accrued expenses 23,302 (28,651)
Other assets and liabilities (6,736) (13,863)
Net cash flow provided by operating activities 34,114 33,210
Cash flows from investing activities:
Additions to property, plant and equipment (39,955) (29,659)
Acquisition of businesses, net of cash acquired - (160)
Proceeds from sale of subsidiaries, net of cash disposed - 7,001
Proceeds from sale of property, plant and equipment 6,394 3,392
Other investing activities (1,152) (1,247)
Net cash flow used in investing activities (34,713) (20,673)
Cash flows from financing activities:
Repayments of long-term debt - (945)
Tax withholding on share based awards (3,109) (3,944)
Distributions to non-controlling interests (2,559) (1,804)
Repurchases of common shares (140,000) (42,026)
Net cash flow used in financing activities (145,668) (48,719)
Net foreign currency translation adjustment on cash (2,598) 106
Decrease in cash, cash equivalents and restricted cash (148,865) (36,076)
Cash, cash equivalents and restricted cash, beginning of period 391,505 375,234
Cash, cash equivalents and restricted cash, at end of period $ 242,640 $ 339,158
See accompanying notes to the condensed consolidated financial statements.
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MASONITE INTERNATIONAL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. Business Overview and Significant Accounting Policies
Unless we state otherwise or the context otherwise requires, references to "Masonite," "we," "our," "us" and the "Company" in these notes to the condensed consolidated financial statements refer to Masonite International Corporation and its subsidiaries.
Description of Business
Masonite International Corporation is one of the largest manufacturers of doors in the world, with significant market share in both interior and exterior door products. Masonite operates 59 manufacturing and distribution facilities in seven countries and sells doors to customers throughout the world with our largest markets being the United States, Canada and the United Kingdom.
Basis of Presentation
We prepare these unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair presentation of the results for the interim periods presented have been included. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. These estimates are based on information available as of the date of the unaudited condensed consolidated financial statements; therefore, actual results could differ from those estimates. Interim results are not necessarily indicative of the results for a full year.
These unaudited condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2022, as filed with the SEC (the "Annual Report"). Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. In a 52-week year, each fiscal quarter consists of 13 weeks. For ease of disclosure, the 13-week periods are referred to as three-month periods and the 52- or 53-week periods are referred to as year.
Changes in Accounting Standards and Policies
There have been no changes in the significant accounting policies from those that were disclosed in the fiscal year 2021 audited consolidated financial statements, other than as noted below.
Adoption of Recent Accounting Pronouncements
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 for those transactions and (3) the effect of those transactions on an entity's financial statements. The guidance is effective for annual periods beginning after December 15, 2021, with early adoption permitted. We have adopted the new guidance as of January 3, 2022, the beginning of fiscal year 2022, and the adoption did not have a material impact on our financial statements. We do not anticipate the adoption will have a material impact on our annual disclosures.
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes," as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. We have adopted the new guidance prospectively as of January 4, 2021, the beginning of fiscal year 2021, and the adoption did not have a material impact on our financial statements.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

2. Acquisitions and Divestitures
On June 14, 2021, we completed the sale of all of the capital stock of our Czech business ("Czech") for consideration of $7.0 million, net of cash disposed. The divestiture 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 consists of $5.1 million relating to the write-off of the net assets sold and other professional fees and $3.5 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.
3. Accounts Receivable
Our customers consist mainly of retailers, distributors and contractors. Our ten largest customers accounted for 62.5% and 56.7% of total accounts receivable as of July 3, 2022, and January 2, 2022, respectively. Our largest customer, The Home Depot, Inc., accounted for more than 10% of the consolidated gross accounts receivable balance as of July 3, 2022, and January 2, 2022. The allowance for doubtful accounts balance was $2.5 million and $2.1 million as of July 3, 2022, and January 2, 2022, respectively.
We maintain an accounts receivable sales program with a third party (the "AR Sales Program"). Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to a third party who assumes the full risk of collection, without recourse to us in the event of a loss. Transfers of receivables under this program are accounted for as sales. Proceeds from the transfers reflect the face value of the accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts receivable in the condensed consolidated balance sheets and are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The discounts on the sales of trade accounts receivable sold, if any, under the AR Sales Program were not material for any of the periods presented and were recorded in selling, general and administration expenses within the condensed 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 receivables are established in jurisdictions where VAT paid exceeds VAT collected and are recoverable through the filing of refund claims.
4. Inventories
The amounts of inventory on hand were as follows as of the dates indicated:
(In thousands) July 3, 2022 January 2, 2022
Raw materials $ 331,369 $ 275,269
Finished goods 108,579 78,324
Provision for obsolete or aged inventory (8,682) (6,117)
Inventories, net $ 431,266 $ 347,476
5. Accrued Expenses
The details of our accrued expenses were as follows as of the dates indicated:
(In thousands) July 3, 2022 January 2, 2022
Accrued payroll $ 75,793 $ 66,048
Accrued rebates 49,911 51,200
Current portion of operating lease liabilities 25,798 25,551
Accrued interest 16,442 17,125
Other accruals 77,561 77,376
Total accrued expenses $ 245,505 $ 237,300

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

6. Long-Term Debt
(In thousands) July 3, 2022 January 2, 2022
3.50%senior unsecured notes due 2030
$ 375,000 $ 375,000
5.375%senior unsecured notes due 2028
500,000 500,000
Debt issuance costs (8,638) (9,279)
Total long-term debt $ 866,362 $ 865,721
Interest expense related to our consolidated indebtedness under our senior unsecured notes was $10.4 million and $20.7 million for the three and six months ended July 3, 2022, respectively, and $11.4 million and $22.9 million for the three and six months ended July 4, 2021, respectively.
3.50% Senior Notes due 2030
On July 26, 2021, we issued $375.0 million aggregate principal senior unsecured notes (the "2030 Notes"). The 2030 Notes bear interest at 3.50% per annum, payable in cash semiannually in arrears on February 15 and August 15 of each year and are due February 15, 2030. The 2030 Notes were issued at par.
Information concerning obligations under the 2030 Notes and the indenture governing them are described in detail in our Annual Report. As of July 3, 2022, we were in compliance with all covenants under the indenture governing the 2030 Notes.
5.375% Senior Notes due 2028
On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"). The 2028 Notes bear interest at 5.375%, payable in cash semiannually in arrears on February 1 and August 1 of each year and are due February 1, 2028. The 2028 Notes were issued at par.
Information concerning obligations under the 2028 Notes and the indenture governing them are described in detail in our Annual Report. As of July 3, 2022, we were in compliance with all covenants under the indenture governing the 2028 Notes.
ABL Facility
On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving credit facility (the "ABL Facility") maturing on January 31, 2024, which replaced the previous facility. Borrowings under the ABL Facility bear interest at a rate equal to, at our option, (i) the United States, Canadian or United Kingdom Base Rate (each as defined in the credit agreement relating to the ABL Facility, the "Amended and Restated Credit Agreement") plus a margin ranging from 0.25% to 0.50% per annum, or (ii) the Adjusted LIBO Rate or BA Rate (each as defined in the Amended and Restated Credit Agreement), plus a margin ranging from 1.25% to 1.50% per annum. In addition to paying interest on any outstanding principal under the ABL Facility, a commitment fee is payable on the undrawn portion of the ABL Facility in an amount equal to 0.25% per annum of the average daily balance of unused commitments during each calendar quarter.
The ABL Facility contains various customary representations, warranties by us and covenants that are described in detail in our Annual Report. As of July 3, 2022, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of $249.0 million under our ABL Facility and there were no amounts outstanding as of July 3, 2022.
7. Commitments and Contingencies
The following discussion describes material developments in our legal proceedings since January 2, 2022. Refer to Note 10. Commitments and Contingencies in the consolidated financial statements in our Annual Report for a full description of previously disclosed legal proceedings.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

Indemnifications

We have provided customary indemnifications to our landlords under certain property lease agreements for claims by third parties in connection with their use of the premises. We also have provided routine indemnifications against adverse effects related to changes in tax laws and patent infringements by third parties. The maximum amount of these indemnifications cannot be reasonably estimated due to their nature. In some cases, we have recourse against other parties to mitigate the risk of loss from these indemnifications. Historically, we have not made any significant payments relating to such indemnifications.
Antitrust Class Action Proceedings - Canada
On May 19, 2020, an intended class proceeding was commenced in the Province of Québec, Canada naming as defendants Masonite Corporation, Masonite International Corporation, JELD-WEN, Inc., JELD-WEN Holding, Inc. and JELD-WEN of Canada, Ltd. The plaintiff alleges that the Masonite and JELD-WEN defendants engaged in anticompetitive conduct, including price-fixing involving interior molded doors. The intended class proceeding seeks damages, punitive damages and other relief. On December 22, 2020, the parties filed a motion with the court seeking to stay the proceeding.
Also, on October 2, 2020, an intended class proceeding was commenced in the Federal Court of Canada naming as defendants Masonite International Corporation, Masonite Corporation, JELD-WEN, Inc., JELD-WEN Holding, Inc. and JELD-WEN of Canada, Ltd. The plaintiff alleges that the Masonite and JELD-WEN defendants engaged in anticompetitive conduct, including price-fixing involving interior molded doors. The intended class proceeding seeks damages, punitive damages and other relief. This proceeding is at an early stage. The plaintiff served its certification record on March 31, 2021. The parties have written to the Federal Court asking for available dates in late June 2023 to schedule a two-day certification hearing. We have not recognized an expense related to damages in connection with this matter because, although an adverse outcome is reasonably possible, the amount or range of any potential loss cannot be reasonably estimated.
While we intend to defend against these claims vigorously, there can be no assurance that the ultimate resolution of this litigation will not have a material, adverse effect on our consolidated financial condition or results of operations.
General
In addition to the above, from time to time, we are involved in various claims and legal actions, including but not limited to wage and hour and labor lawsuits. In the opinion of management, the ultimate disposition of these matters, individually and in the aggregate, will not have a material adverse effect on our financial condition, results of operations or cash flows.
8. Share Based Compensation Plans
Share based compensation expense was $6.0 million and $10.7 million for the three and six months ended July 3, 2022, respectively, and $4.7 million and $9.1 million for the three and six months ended July 4, 2021, respectively. As of July 3, 2022, the total remaining unrecognized compensation expense related to share based compensation amounted to $28.0 million, which will be amortized over the weighted average remaining requisite service period of 1.9 years.
Equity Incentive Plans
Our equity incentive plans under the 2021 Equity Plan and 2012 Plan are described in detail and defined in our Annual Report. The aggregate number of common shares that can be issued with respect to equity awards under the 2021 Equity Plan cannot exceed 880,000 shares; plus the number of shares reserved for the 2012 Plan that is in excess of the number of shares related to outstanding grants; plus the number of shares subject to existing grants under the 2012 Plan that may expire or be forfeited or cancelled. As of July 3, 2022, there were 1,240,237 shares of common stock available for future issuance under the 2021 Equity Plan.

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Deferred Compensation Plan
We offer to certain of our employees and directors a Deferred Compensation Plan, which is further described in our Annual Report. As of July 3, 2022, the liability and asset relating to deferred compensation had a fair value of $7.5 million and $8.2 million, respectively. As of July 3, 2022, participation in the deferred compensation plan is limited and no restricted stock awards have been deferred into the deferred compensation plan. All plan investments are categorized as having Level 1 valuation inputs as established by the FASB's Fair Value Framework.
Stock Appreciation Rights
We have granted Stock Appreciation Rights ("SARs") to certain employees under both the 2021 Equity Plan and the 2012 Plan, which entitle the recipient to the appreciation in value of a number of common shares over the exercise price over a period of time, each as specified in the applicable award agreement. The exercise price of any SAR granted may not be less than the fair market value of our common shares on the date of grant. The compensation expense for the SARs is measured based on the fair value of the SARs at the date of grant and is recognized over the requisite service period. The SARs vest over a maximum of three years, have a life of ten years and settle in common shares. It is assumed that all time-based SARs will vest. We recognize forfeitures of SARs in the period in which they occur.
The total fair value of SARs vested was $0.8 million during the six months ended July 3, 2022.
Six Months Ended July 3, 2022 Stock Appreciation Rights Aggregate Intrinsic Value (in thousands) Weighted Average Exercise Price Average Remaining Contractual Life (Years)
Outstanding, beginning of period 158,725 $ 7,324 $ 71.81 7.5
Granted 33,803 88.43
Exercised (3,780) 122 61.55
Forfeited (1,814) 99.58
Outstanding, end of period 186,934 $ 2,002 $ 74.75 7.4
Exercisable, end of period 127,571 $ 1,968 $ 66.33 6.6
The value of SARs granted is determined using the Black-Scholes-Merton valuation model, and the corresponding expense 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 upon historical employee exercise behavior and the contractual term of the options amongst other considerations. The weighted average grant date assumptions used for the SARs granted were as follows for the periods indicated:
2022 Grants
SAR value (model conclusion) $ 26.52
Risk-free rate 2.0 %
Expected dividend yield 0.0 %
Expected volatility 26.5 %
Expected term (years) 6.0
Restricted Stock Units
We have granted Restricted Stock Units ("RSUs") to directors and certain employees under the 2012 and 2021 Plans. The RSUs confer the right to receive shares of our common stock at a specified future date or when certain conditions are met. The compensation expense for the RSUs awarded is based on the fair value of the RSUs at the date of grant, which is equal to the stock price on the date of grant, and is recognized over the requisite service period. The RSUs vest over a maximum of three years and call for the underlying shares to be delivered no later than 30 days following the vesting date unless the participant is subject to a blackout period. In such case, the shares are to be
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delivered once the blackout restriction has been lifted. It is assumed that all time-based RSUs will vest. We recognize forfeitures of RSUs in the period in which they occur.
Six Months Ended July 3, 2022 Total Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value
Outstanding, beginning of period 442,106 $ 87.24
Granted 244,664 88.45
Performance adjustment(1)
25,234 57.19
Delivered (181,149) 77.67
Withheld to cover(2)
(32,148)
Forfeited (29,540) 95.31
Outstanding, end of period 469,167 $ 92.89
___________
(1) Performance-based RSUs are presented as outstanding, granted and forfeited in the table above assuming targets are met, and the awards pay out at 100%. These awards are settled with payouts ranging from zero to 200% of the target award value depending on achievement. The performance adjustment represents the difference in shares ultimately awarded due to performance attainment above or below target.
(2) A portion of the vested RSUs delivered were net shares settled to cover statutory requirements for income and other employment taxes. We remit the equivalent cash to the appropriate taxing authorities. These net share settlements had the effect of share repurchases by us as we reduced and retired the number of shares that would have otherwise been issued as a result of the vesting.
Approximately two-thirds of the RSUs granted during the six months ended July 3, 2022, vest at specified future dates with only service requirements, while the remaining portion of the RSUs vest based on both performance and service requirements. The value of RSUs granted in the six months ended July 3, 2022, is being recognized over the weighted average requisite service period of 2.3 years. During the six months ended July 3, 2022, 213,297 RSUs vested at a fair value of $15.3 million.
9. Restructuring Costs
In May 2021, we initiated further actions to improve overall business performance that includes the reorganization of our specialty door manufacturing capacity in our Architectural reportable segment. The reorganization of our manufacturing capacity resulted in the closure of one existing stile and rail facility and related headcount reductions beginning in the second quarter of 2021 (collectively, the "2021 Plan"). Costs associated with the 2021 Plan include severance and closure charges. As of July 3, 2022, we do not expect to incur any material future charges related to the 2021 Plan.
In November 2020, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce primarily in our Architectural reportable segment as well as limited actions in the North American Residential reportable segment. The reorganization of our manufacturing capacity involves specific facilities in the Architectural segment and costs associated with the closure of these facilities and related headcount reductions began taking place in the fourth quarter of 2020 (collectively, the "2020 Plan"). Costs associated with the 2020 Plan include severance and closure charges. As of July 3, 2022, we do not expect to incur any material future charges related to the 2020 Plan.
In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges. As of July 3, 2022, we do not expect to incur any material future charges related to the 2019 Plan.
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The following tables summarize the restructuring (benefit) costs recorded for the periods indicated:
Three Months Ended July 3, 2022
(In thousands) North American Residential Architectural Corporate & Other Total
2021 Plan $ - $ 4 $ - $ 4
2020 Plan - (3) 16 13
2019 Plan (90) - 12 (78)
Total Restructuring (Benefit) Costs $ (90) $ 1 $ 28 $ (61)
Three Months Ended July 4, 2021
(In thousands) North American Residential Architectural Corporate & Other Total
2021 Plan $ - $ 539 $ - $ 539
2020 Plan 19 1,501 - 1,520
2019 Plan 333 (339) 139 133
Total Restructuring Costs $ 352 $ 1,701 $ 139 $ 2,192
Six Months Ended July 3, 2022
(In thousands) North American Residential Architectural Corporate & Other Total
2021 Plan $ - $ 18 $ - $ 18
2020 Plan - 30 16 46
2019 Plan (181) - 37 (144)
Total Restructuring (Benefit) Costs $ (181) $ 48 $ 53 $ (80)
Six Months Ended July 4, 2021
(In thousands) North American Residential Architectural Corporate & Other Total
2021 Plan $ - $ 539 $ - $ 539
2020 Plan 19 3,015 - 3,034
2019 Plan (28) - 290 262
Total Restructuring Costs $ (9) $ 3,554 $ 290 $ 3,835
Cumulative Amount Incurred Through July 3, 2022
(In thousands) North American Residential Europe Architectural Corporate & Other Total
2021 Plan $ - $ - $ 1,684 $ - $ 1,684
2020 Plan 52 - 5,262 39 5,353
2019 Plan 8,969 359 1,671 2,632 13,631
Total Restructuring Costs $ 9,021 $ 359 $ 8,617 $ 2,671 $ 20,668
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The changes in the accrual for restructuring by activity were as follows for the periods indicated:
(In thousands) January 2,
2022 		Severance Closure Costs Cash Payments July 3,
2022
2021 Plan $ 25 $ (26) $ 44 $ (43) $ -
2020 Plan 22 (35) 81 (69) (1)
2019 Plan 2 15 (159) 143 1
Total $ 49 $ (46) $ (34) $ 31 $ -
(In thousands) January 3,
2021 		Severance Closure Costs Cash Payments July 4,
2021
2021 Plan $ - $ 539 $ - $ (3) $ 536
2020 Plan 1,492 260 2,774 (4,472) 54
2019 Plan 291 174 88 (388) 165
Total $ 1,783 $ 973 $ 2,862 $ (4,863) $ 755
10. Asset Impairment
During the three and six months ended July 4, 2021, we recognized asset impairment charges of $10.4 million related to assets in the Architectural segment and an asset in the Corporate & Other category, as a result of announced plant closures under the 2021 and 2020 Plans. This amount was determined based upon the excess of the carrying values of property, plant and equipment over the respective fair values of such assets, determined using a discounted cash flows approach for each asset group. Each of these valuations was performed on a non-recurring basis and is categorized as having Level 3 valuation inputs as established by the FASB's Fair Value Framework. The Level 3 unobservable inputs include an estimate of future cash flows and the salvage value for each of the assets. The fair value of the assets was determined to be $6.3 million, compared to a book value of $16.7 million, with the difference representing the asset impairment charges recorded in the condensed consolidated statements of income and comprehensive income.
11. Income Taxes
The effective tax rate differs from the Canadian statutory rate of 26.5% primarily due to mix of earnings in foreign jurisdictions that are subject to tax rates which differ from the Canadian statutory rate. In addition, we recognized $0.0 million and $1.1 million of income tax benefit due to the exercise and delivery of share based awards during the three and six months ended July 3, 2022, respectively, compared to $0.3 million and $2.3 million of income tax benefit during the three and six months ended July 4, 2021.
12. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing earnings attributable to Masonite by the weighted average number of our common shares outstanding during the period. Diluted EPS is calculated by dividing earnings attributable to Masonite by the weighted average number of common shares plus the incremental number of shares issuable from non-vested and vested RSUs and SARs outstanding during the period.
The weighted average number of shares outstanding utilized for the diluted EPS calculation contemplates the exercise of all currently outstanding SARs and the conversion of all RSUs. The dilutive effect of such equity awards is calculated based on the weighted average share price for each fiscal period using the treasury stock method.
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(In thousands, except share and per share information) Three Months Ended Six Months Ended
July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
Net income attributable to Masonite $ 58,515 $ 35,046 $ 126,097 $ 82,027
Shares used in computing basic earnings per share 22,525,333 24,450,542 22,803,403 24,460,098
Effect of dilutive securities:
Incremental shares issuable under share compensation plans 179,620 391,477 254,628 423,716
Shares used in computing diluted earnings per share 22,704,953 24,842,019 23,058,031 24,883,814
Basic earnings per common share attributable to Masonite $ 2.60 $ 1.43 $ 5.53 $ 3.35
Diluted earnings per common share attributable to Masonite $ 2.58 $ 1.41 $ 5.47 $ 3.30
Anti-dilutive instruments excluded from diluted earnings per common share 104,332 31,432 79,764 31,432

The Company's Board of Directors has approved five share repurchase authorizations, the most recent being an incremental $200.0 million share repurchase program approved on February 21, 2022. In addition, the Company 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 first quarter of 2022 with a third-party financial institution for the repurchase of $100.0 million of its outstanding common shares. At inception, pursuant to the agreement, the Company paid $100.0 million to the financial institution using cash on hand and received an initial delivery of 848,087 common shares on the same day. As of July 3, 2022, the $100.0 million ASR transaction was completed with a total delivery 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 final delivery of 319,678 common shares were delivered in the second quarter. The cash paid was reflected as a reduction of equity at the initial delivery of shares and the number of shares outstanding were reduced at the dates of physical delivery.
13. Segment Information
Our reportable segments are organized and managed principally by end market: North American Residential, Europe and Architectural. The Corporate & Other category includes unallocated corporate costs and the results of immaterial operating segments which were not aggregated into any reportable segment. In addition to similar economic characteristics, we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors.
Our management reviews net sales and Adjusted EBITDA (as defined below) to evaluate segment performance and allocate resources. Net assets are not allocated to the reportable segments. Adjusted EBITDA is a non-GAAP financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparable to similar measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or operating cash flows determined in accordance with GAAP. Adjusted EBITDA is defined as net income (loss) attributable to Masonite adjusted to exclude the following items:
• depreciation;
• amortization;
• share based compensation expense;
• loss (gain) on disposal of property, plant and equipment;
• registration and listing fees;
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• restructuring costs (benefit);
• asset impairment;
• loss (gain) on disposal of subsidiaries;
• interest expense (income), net;
• loss on extinguishment of debt;
• other expense (income), net;
• income tax expense (benefit);
• other items;
• loss (income) from discontinued operations, net of tax; and
• net income (loss) attributable to non-controlling interest.
This definition of Adjusted EBITDA differs from the definitions of EBITDA contained in the indentures governing the 2030 Notes and 2028 Notes and the credit agreement governing the ABL Facility. Although Adjusted EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, it is used to evaluate and compare the operating performance of the segments and it is one of the primary measures used to determine employee incentive compensation. Intersegment sales are recorded using market prices.
Certain information with respect to reportable segments is as follows for the periods indicated:
Three Months Ended July 3, 2022
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net sales $ 608,483 $ 74,172 $ 79,894 $ 4,820 $ 767,369
Intersegment sales (707) (319) (4,469) - (5,495)
Net sales to external customers $ 607,776 $ 73,853 $ 75,425 $ 4,820 $ 761,874
Adjusted EBITDA $ 124,974 $ 8,566 $ 78 $ (15,493) $ 118,125
Three Months Ended July 4, 2021
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net sales $ 493,973 $ 90,179 $ 78,234 $ 5,388 $ 667,774
Intersegment sales (584) (2,369) (2,411) - (5,364)
Net sales to external customers $ 493,389 $ 87,810 $ 75,823 $ 5,388 $ 662,410
Adjusted EBITDA $ 100,045 $ 16,584 $ 480 $ (6,545) $ 110,564
Six Months Ended July 3, 2022
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net Sales $ 1,177,912 $ 156,011 $ 154,553 $ 11,016 $ 1,499,492
Intersegment sales (1,572) (1,690) (8,139) - (11,401)
Net sales to external customers $ 1,176,340 $ 154,321 $ 146,414 $ 11,016 $ 1,488,091
Adjusted EBITDA $ 252,641 $ 20,409 $ (2,820) $ (27,353) $ 242,877
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Six Months Ended July 4, 2021
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net Sales $ 971,202 $ 180,385 $ 156,308 $ 11,731 $ 1,319,626
Intersegment sales (1,349) (4,036) (5,494) - (10,879)
Net sales to external customers $ 969,853 $ 176,349 $ 150,814 $ 11,731 $ 1,308,747
Adjusted EBITDA $ 194,527 $ 33,339 $ 2,474 $ (17,751) $ 212,589
A reconciliation of our net income attributable to Masonite to consolidated Adjusted EBITDA is set forth as follows for the periods indicated:
Three Months Ended Six Months Ended
(In thousands) July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
Net income attributable to Masonite $ 58,515 $ 35,046 $ 126,097 $ 82,027
Plus:
Depreciation 17,244 17,232 34,516 35,511
Amortization 4,296 6,408 8,908 11,326
Share based compensation expense 5,976 4,706 10,695 9,124
Loss (gain) on disposal of property, plant and equipment 1,454 387 (1,400) (210)
Restructuring (benefit) costs (61) 2,192 (80) 3,835
Asset impairment - 10,374 - 10,374
Loss on disposal of subsidiaries - 8,590 - 8,590
Interest expense, net 10,593 11,918 20,832 23,864
Other (income) expense, net (400) (1,586) (1,815) (2,929)
Income tax expense 19,649 14,246 43,126 28,859
Net income attributable to non-controlling interest 859 1,051 1,998 2,218
Adjusted EBITDA $ 118,125 $ 110,564 $ 242,877 $ 212,589

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14. Accumulated Other Comprehensive Loss and Other Comprehensive (Loss) Income
A rollforward of the components of accumulated other comprehensive loss is as follows for the periods indicated:
Three Months Ended Six Months Ended
(In thousands) July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
Accumulated foreign currency translation losses, beginning of period $ (100,152) $ (91,613) $ (96,919) $ (93,684)
Foreign currency translation (loss) gain (28,392) 2,495 (30,497) 4,723
Income tax benefit on foreign currency translation (loss) gain (24) 8 (13) 22
Cumulative translation adjustment recognized upon deconsolidation of subsidiary - 3,544 - 3,544
Less: foreign currency translation gain attributable to non-controlling interest (498) 98 641 269
Accumulated foreign currency translation losses, end of period (128,070) (85,664) (128,070) (85,664)
Accumulated pension and other post-retirement adjustments, beginning of period (4,658) (18,113) (4,663) (18,379)
Amortization of actuarial net losses 6 332 12 666
Income tax expense on amortization of actuarial net losses 1 (67) - (135)
Accumulated pension and other post-retirement adjustments (4,651) (17,848) (4,651) (17,848)
Accumulated other comprehensive loss $ (132,721) $ (103,512) $ (132,721) $ (103,512)
Other comprehensive (loss) income, net of tax $ (28,409) $ 6,312 $ (30,498) $ 8,820
Less: other comprehensive income attributable to non-controlling interest (498) 98 641 269
Other comprehensive (loss) income attributable to Masonite $ (27,911) $ 6,214 $ (31,139) $ 8,551
Cumulative translation adjustments are reclassified out of accumulated other comprehensive loss into loss on disposal of subsidiaries in the condensed consolidated statements of income and comprehensive income. Actuarial net losses are reclassified out of accumulated other comprehensive loss into cost of goods sold in the condensed consolidated statements of income and comprehensive income.
Foreign currency translation losses as a result of translating our foreign assets and liabilities into U.S. dollars during the three months ended July 3, 2022, were $28.4 million, primarily driven by weakening of the Pound Sterling, the Euro, and the Canadian Dollar in comparison to the U.S. Dollar during the period. During the six months ended July 3, 2022, foreign currency translation losses were $30.5 million primarily driven by weakening of the Pound Sterling, the Euro, and the Canadian Dollar in comparison to the U.S. Dollar during the period.
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15. Supplemental Cash Flow Information
Certain cash and non-cash transactions were as follows for the periods indicated:
Six Months Ended
(In thousands) July 3, 2022 July 4, 2021
Transactions involving cash:
Interest paid $ 20,500 $ 22,462
Interest received 404 106
Income taxes paid 47,453 26,658
Income tax refunds 919 442
Cash paid for operating lease liabilities 16,430 15,598
Cash paid for finance lease liabilities 654 653
Non-cash transactions from operating activities:
Right-of-use assets acquired under operating leases 2,931 6,883
The following reconciles total cash, cash equivalents and restricted cash as of the dates indicated:
July 3, 2022 January 2, 2022
Cash and cash equivalents $ 231,541 $ 381,395
Restricted cash 11,099 10,110
Total cash, cash equivalents and restricted cash $ 242,640 $ 391,505
Property, plant and equipment additions in accounts payable were $7.7 million and $10.7 million as of July 3, 2022, and January 2, 2022, respectively.
16. Fair Value of Financial Instruments
The carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, income taxes receivable, accounts payable, accrued expenses and income taxes payable approximate fair value because of the short-term maturity of those instruments. The estimated fair values and carrying values of our long-term debt instruments were as follows for the periods indicated:
July 3, 2022 January 2, 2022
(In thousands) Fair Value Carrying Value Fair Value Carrying Value
3.50%senior unsecured notes due 2030
$ 302,273 $ 370,864 $ 373,238 $ 370,593
5.375%senior unsecured notes due 2028
$ 457,075 $ 495,498 $ 526,730 $ 495,128
These estimates are based on market quotes and calculations based on current market rates available to us and are categorized as having Level 2 valuation inputs as established by the FASB's Fair Value Framework. Market quotes used in these calculations are based on bid prices for our debt instruments and are obtained from and corroborated with multiple independent sources. The market quotes obtained from independent sources are within the range of management's expectations.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is based upon accounting principles generally accepted in the United States of America and discusses the financial condition and results of operations for Masonite International Corporation for the three and six months ended July 3, 2022, and July 4, 2021. In this MD&A, "Masonite," "we," "us," "our" and the "Company" refer to Masonite International Corporation and its subsidiaries.
This discussion should be read in conjunction with (i) the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and (ii) the annual audited consolidated financial statements, including the accompanying notes and MD&A, which are included in our Annual Report on Form 10-K for the year ended January 2, 2022 (the "Annual Report"). The following discussion should also be read in conjunction with the disclosure under "Special Note Regarding Forward Looking Statements" elsewhere in this Quarterly Report on Form 10-Q. Our actual results could differ materially from the forward-looking statements as a result of these risks and uncertainties.
Overview
We are a leading global designer, manufacturer, marketer and distributor of interior and exterior doors for the new construction and repair, renovation and remodeling sectors of the residential and the non-residential building construction markets. Since 1925, we have provided our customers with innovative products and superior service at compelling values. Through innovative door solutions, a better door buying experience for our customers and partners
and advanced manufacturing and service delivery, we deliver a commitment of Doors That Do MoreTM.
We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers, lumberyards, commercial and general contractors and architects through well-established wholesale, retail and direct distribution channels as part of our cross-merchandising strategy. Customers are provided a broad product offering of interior and exterior doors and entry systems at various price points. We manufacture a broad line of interior doors, including residential molded, flush, stile and rail, louver and specially-ordered commercial and architectural doors; door components for internal use and sale to other door manufacturers; and exterior residential steel, fiberglass and wood doors and entry systems.
We operate 59 manufacturing and distribution facilities in seven countries in North America, South America, Europe and Asia, which are strategically located to serve our customers through multiple distribution channels. These distribution channels include: (i) direct distribution to retail home center customers; (ii) one-step distribution that sells directly to homebuilders and contractors; and (iii) two-step distribution through wholesale distributors. For retail home center customers, numerous door fabrication facilities provide value-added fabrication and logistical services, including pre-finishing and store delivery of pre-hung interior and exterior doors. We believe our ability to provide: (i) a broad product range; (ii) frequent, rapid, on-time and complete delivery; (iii) consistency in products and merchandising; (iv) national service; and (v) special order programs enables retail customers to increase comparable store sales and helps to differentiate us from our competitors. We believe investments in innovative new product manufacturing and distribution capabilities, coupled with an ongoing commitment to operational excellence, provide a strong platform for future growth.
Our reportable segments are organized and managed principally by end market: North American Residential, Europe and Architectural. In the six months ended July 3, 2022, we generated net sales of $1,176.3 million or 79.1%, $154.3 million or 10.4% and $146.4 million or 9.8% in our North American Residential, Europe and Architectural segments, respectively.
During the second quarter, we were negatively impacted by rising energy and fuel costs, partly attributable to the war between Russia and Ukraine. In addition, continued logistics constraints and supply chain disruptions reduced production in some of our facilities and impacted our ability to service customers, particularly in our Architectural segment. Base volumes increased in our North American Residential segment as a result of operational execution and steady demand, while consumer sentiment, inflationary pressures, and strengthening of the US Dollar impacted our Europe segment. The extent to which labor and logistics constraints, supply chain disruptions, rising energy and fuel costs, consumer sentiment, interest rates and global inflation impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
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MASONITE INTERNATIONAL CORPORATION


Key Factors Affecting Our Results of Operations
Product Demand
There are numerous factors that influence overall market demand for our products. Demand for new homes, home improvement products and other building construction products have a direct impact on our financial condition and results of operations. Demand for our products may be impacted by changes in United States, Canadian, European, Asian or other global economic conditions, including inflation, deflation, interest rates, availability of capital, consumer spending rates, energy availability and costs, and the effects of governmental initiatives to manage economic conditions. Additionally, trends in residential new construction, repair, renovation and remodeling and architectural building construction may directly impact our financial performance. Accordingly, the following factors may have a direct impact on our business in the countries and regions in which our products are sold:
•the strength of the economy;
•the amount and type of residential and commercial construction;
•housing sales and home values;
•the age of existing home stock, home vacancy rates and foreclosures;
•non-residential building occupancy rates;
•increases in the cost of raw materials or wages or any shortage in supplies or labor;
•the availability and cost of credit;
•employment rates and consumer confidence; and
•demographic factors such as immigration and migration of the population and trends in household formation.
Product Pricing and Mix
The building products industry is highly competitive, and we therefore face pressure on sales prices of our products. In addition, our competitors may adopt more aggressive sales policies and devote greater resources to the development, promotion and sale of their products than we do, which could result in a loss of customers. Our business in general is subject to changing consumer and industry trends, demands and preferences. Trends within the industry change often and our failure to anticipate, identify or quickly react to changes in these trends could lead to, among other things, rejection of a new product line and reduced demand and price reductions for our products, which could materially adversely affect us. Changes in consumer preferences may also lead to increased demand for our lower margin products relative to our higher margin products, which could reduce our future profitability.
Business Wins and Losses
Our customers consist mainly of wholesalers and retail home centers. Net sales from customers that have accounted for a significant portion of our net sales in past periods, individually or as a group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period. Certain customers perform periodic product line reviews to assess their product offerings, which have, on past occasions, led to business wins and losses. In addition, as a result of competitive bidding processes, we may not be able to increase or maintain the margins at which we sell our products to our customers.
Organizational Restructuring
Over the past several years, we have engaged in a series of restructuring programs related to exiting certain geographies and non-core businesses, consolidating certain internal support functions and engaging in other actions designed to reduce our cost structure and improve productivity. These initiatives primarily consist of severance actions and lease termination costs. Management continues to evaluate our business; therefore, in future years, there may be additional provisions for new plan initiatives, as well as changes in previously recorded estimates, as payments are made, or actions are completed. Asset impairment charges were also incurred in connection with these restructuring actions for those assets sold, abandoned or made obsolete as a result of these programs.
In May 2021, we initiated further actions to improve overall business performance that includes the reorganization of our specialty door manufacturing capacity in our Architectural reportable segment. The reorganization of our manufacturing capacity involves specific facilities in the Architectural segment and costs associated with the reorganization of these facilities, which resulted in the closure of an existing specialty door assembly facility and related
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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 expected to increase our annual earnings and cash flows by approximately $2 million.
In November 2020, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce primarily in our Architectural reportable segment as well as limited actions in the North American Residential reportable segment. The reorganization of our manufacturing capacity involves specific facilities in the Architectural segment and costs associated with the closure of these facilities and related headcount reductions began taking place in the fourth quarter of 2020 (collectively, the "2020 Plan"). Costs associated with the 2020 Plan include severance and closure charges and continued through 2021. The actions taken as part of the 2020 Plan are expected to increase our annual earnings and cash flows by approximately $3 million.
In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involved specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and continued through 2020. The actions taken as part of the 2019 Plan are substantially complete and the annual earnings and cash flow savings realized were materially in line with expectations.
Inflation
In 2021 and the first half of 2022, we realized higher costs across the various materials we purchase as a result of macroeconomic factors as well as increased logistics costs, wages, anti-dumping and countervailing duties and energy and fuel costs. Additionally, rising interest rates may impact the ability of end consumers to purchase our products. We expect the macroeconomic pressures on wood, resins and other certain key product categories and supply chain costs will continue at least through the remainder of fiscal year 2022. Our profitability, margins and net sales could be adversely affected if we are not able to pass these costs on to our customers or otherwise mitigate the impact of these inflationary pressures.
Seasonality
Our business is moderately seasonal, and our net sales vary from quarter to quarter based upon the timing of the building season in our markets. Severe weather conditions in any quarter, such as unusually prolonged warm or cold conditions, rain, blizzards or hurricanes, could accelerate, delay or halt construction and renovation activity.
Acquisitions and Divestitures
We are pursuing a strategic initiative of optimizing our global business portfolio. On a continual basis, we evaluate and consider strategic acquisitions, divestitures and joint ventures to create shareholder value and enhance financial performance.
On June 14, 2021, we completed the sale of all of the capital stock of our Czech business ("Czech") for consideration of $7.0 million, net of cash disposed. The divestiture 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.
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Results of Operations
Three Months Ended Six Months Ended
(In thousands) July 3, 2022 July 4, 2021 July 3, 2022 July 4, 2021
Net sales $ 761,874 $ 662,410 $ 1,488,091 $ 1,308,747
Cost of goods sold 582,389 498,068 1,124,357 985,767
Gross profit 179,485 164,342 363,734 322,980
Gross profit as a % of net sales 23.6 % 24.8 % 24.4 % 24.7 %
Selling, general and administration expenses 90,330 82,511 173,576 166,142
Selling, general and administration expenses as a % of net sales 11.9 % 12.5 % 11.7 % 12.7 %
Restructuring (benefit) costs (61) 2,192 (80) 3,835
Asset impairment - 10,374 - 10,374
Loss on disposal of subsidiaries - 8,590 - 8,590
Operating income 89,216 60,675 190,238 134,039
Interest expense, net 10,593 11,918 20,832 23,864
Other (income) expense, net (400) (1,586) (1,815) (2,929)
Income before income tax expense 79,023 50,343 171,221 113,104
Income tax expense 19,649 14,246 43,126 28,859
Net income 59,374 36,097 128,095 84,245
Less: net income attributable to non-controlling interests 859 1,051 1,998 2,218
Net income attributable to Masonite $ 58,515 $ 35,046 $ 126,097 $ 82,027

Three Months Ended July 3, 2022, Compared with Three Months Ended July 4, 2021
Net Sales
Net sales in the three months ended July 3, 2022, were $761.9 million, an increase of $99.5 million or 15.0% from $662.4 million in the three months ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net sales in the second quarter of 2022 by $12.8 million. Excluding this exchange rate impact, net sales would have increased by $112.3 million or 17.0% due to changes in volume, average unit price, impact of divestitures, and sales of components. Average unit price increased net sales in the second quarter of 2022 by $127.4 million or 19.2% compared to the 2021 period. Lower volumes excluding the incremental impact of divestitures ("base volume") decreased net sales by $7.6 million or 1.1% in the second quarter of 2022 compared to the 2021 period. Our 2021 divestiture of our Czech business decreased net sales by $5.4 million or 0.8% in the three months ended July 3, 2022. Net sales of components to external customers decreased $2.1 million or 0.3% in the second quarter of 2022 compared to the 2021 period.
Net Sales and Percentage of Net Sales by Reportable Segment
Three Months Ended July 3, 2022
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 608,483 $ 74,172 $ 79,894 $ 4,820 $ 767,369
Intersegment sales (707) (319) (4,469) - (5,495)
Net sales to external customers $ 607,776 $ 73,853 $ 75,425 $ 4,820 $ 761,874
Percentage of consolidated external net sales 79.8 % 9.7 % 9.9 %
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Three Months Ended July 4, 2021
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 493,973 $ 90,179 $ 78,234 $ 5,388 $ 667,774
Intersegment sales (584) (2,369) (2,411) - (5,364)
Net sales to external customers $ 493,389 $ 87,810 $ 75,823 $ 5,388 $ 662,410
Percentage of consolidated external net sales 74.5 % 13.3 % 11.4 %
North American Residential
Net sales to external customers from facilities in the North American Residential segment in the three months ended July 3, 2022, were $607.8 million, an increase of $114.4 million or 23.2% from $493.4 million in the three months ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net sales in the second quarter of 2022 by $3.8 million. Excluding this exchange rate impact, net sales would have increased by $118.2 million or 24.0% due to changes in volume, average unit price and sales of components. Average unit price increased net sales in the second quarter of 2022 by $102.2 million or 20.7% compared to the 2021 period. Higher base volume increased net sales in the second quarter of 2022 by $16.1 million or 3.3% compared to the 2021 period. Net sales of components to external customers were $0.1 million lower in the second quarter of 2022 compared to the 2021 period.
Europe
Net sales to external customers from facilities in the Europe segment in the three months ended July 3, 2022, were $73.9 million, a decrease of $13.9 million or 15.8% from $87.8 million in the three months ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net sales in the second quarter of 2022 by $8.6 million. Excluding this exchange rate impact, net sales would have decreased by $5.3 million or 6.0% due to changes in volume, average unit price, divestitures and sales of components. Lower base volume decreased net sales by $14.0 million or 15.9% in the second quarter of 2022 compared to the 2021 period due to demand softness driven by weakening consumer confidence in the United Kingdom, which we believe is affecting major purchase decisions. Our 2021 divestiture of our Czech business decreased net sales by $5.4 million or 6.2% in the second quarter of 2022. Average unit price increased net sales in the second quarter of 2022 by $14.0 million or 15.9% compared to the 2021 period. Net sales of components to external customers were $0.1 million higher in the second quarter of 2022 compared to the 2021 period.
Architectural
Net sales to external customers from facilities in the Architectural segment in the three months ended July 3, 2022, were $75.4 million, a decrease of $0.4 million or 0.5% from $75.8 million in the three months ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net sales in the second quarter of 2022 by $0.3 million. Excluding this exchange rate impact, net sales would have decreased by $0.1 million or 0.1% due to changes in volume, average unit price and sales of components. Lower base volume decreased net sales in the second quarter of 2022 by $9.8 million or 12.9% compared to the 2021 period due to material availability challenges. Net sales of components to external customers were $0.2 million lower in the second quarter of 2022 compared to the 2021 period. Average unit price increased net sales in the second quarter of 2022 by $9.9 million or 13.1% compared to the 2021 period.
Cost of Goods Sold
Cost of goods sold as a percentage of net sales was 76.4% and 75.2% for the three months ended July 3, 2022, and July 4, 2021, respectively. Material cost of sales as a percentage of net sales increased by 2.6% compared to the 2021 period. Overhead, direct labor, depreciation, and distribution as a percentage of sales decreased by 0.5%, 0.4%, 0.4%, and 0.1%, respectively, compared to the second quarter of 2021. The increase in material cost of sales as a percentage of net sales was driven by commodity inflation and an increase in inbound logistics costs, partially offset by higher average unit prices and material cost savings projects. Overhead as a percentage of net sales decreased due to higher average unit prices, partially offset by wage inflation, higher factory costs and increased plant maintenance as compared to the 2021 period. Direct labor as a percentage of net sales decreased due to higher average unit prices, partially offset by
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manufacturing wage and benefit inflation and startup costs. The decrease in depreciation as a percentage of net sales was driven by higher average unit prices as compared to the 2021 period. Distribution as a percentage of net sales decreased due to higher average unit prices, partially offset by increased outbound logistics and personnel costs.
Selling, General and Administration Expenses
In the three months ended July 3, 2022, selling, general and administration ("SG&A") expenses, as a percentage of net sales, were 11.9%, as compared to 12.5% in the three months ended July 4, 2021, a decrease of 60 basis points.
SG&A expenses in the three months ended July 3, 2022, were $90.3 million, an increase of $7.8 million from $82.5 million in the three months ended July 4, 2021. The overall increase was driven by a $5.7 million increase in personnel costs primarily driven by increased incentive compensation, wage and benefit inflation and resource investments to support growth; a $1.8 million increase in travel expense as business activities fully returned to pre-pandemic levels; a $1.2 million increase in non-cash items in SG&A expenses, including loss (gain) on disposal of property, plant and equipment, deferred compensation, depreciation and amortization and share based compensation; and a $0.7 million increase in professional and other fees; These increases were partially offset by favorable foreign exchange impacts of $1.1 million, and incremental SG&A savings from our 2021 divestiture of our Czech business of $0.5 million.
Restructuring (Benefit) Costs
Restructuring (benefit) costs in the three months ended July 3, 2022, were minimal, compared to $2.2 million in the three months ended July 4, 2021. Restructuring costs in the prior year period related primarily to the 2021 and 2020 Plans.
Asset Impairment
There were no asset impairment charges in the three months ended July 3, 2022. Asset impairment charges in the three months ended July 4, 2021, were $10.4 million, and resulted from actions associated with the 2021 and 2020 Plans in our Architectural reporting unit. Refer to Note 10. Asset Impairment, in Item 1 of this Quarterly Report for additional information.
Loss on Disposal of Subsidiaries
There was no loss on disposal of subsidiaries in the three months ended July 3, 2022, compared to $8.6 million in the three months ended July 4, 2021. 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-off of net assets sold and other professional fees and $3.5 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.
Interest Expense, Net
Interest expense, net, in the three months ended July 3, 2022, was $10.6 million, compared to $11.9 million in the three months ended July 4, 2021. The decrease in interest expense, net is primarily due to the refinancing of our senior notes in 2021.
Other (Income) Expense, Net
Other (income) expense, net includes profits and losses related to our non-majority owned unconsolidated subsidiaries that we recognize under the equity method of accounting, unrealized gains and losses on foreign currency remeasurements, pension settlement charges and other miscellaneous non-operating expenses. Other (income) expense, net, in the three months ended July 3, 2022, was $0.4 million of income, compared to $1.6 million of income in the three months ended July 4, 2021, remaining relatively flat as compared to the 2021 period.
Income Tax Expense
Income tax expense in the three months ended July 3, 2022, was $19.6 million, compared to $14.2 million in the three months ended July 4, 2021. The increase in income tax expense is primarily due to the mix of income or losses within the tax jurisdictions with various tax rates in which we operate.
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Segment Information
Three Months Ended July 3, 2022
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 124,974 $ 8,566 $ 78 $ (15,493) $ 118,125
Adjusted EBITDA as a percentage of segment net sales 20.6 % 11.6 % 0.1 % 15.5 %
Three Months Ended July 4, 2021
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 100,045 $ 16,584 $ 480 $ (6,545) $ 110,564
Adjusted EBITDA as a percentage of segment net sales 20.3 % 18.9 % 0.6 % 16.7 %
The following reconciles net income (loss) attributable to Masonite to Adjusted EBITDA:
Three Months Ended July 3, 2022
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net income (loss) attributable to Masonite $ 112,611 $ 3,446 $ (3,042) $ (54,500) $ 58,515
Plus:
Depreciation 9,987 2,172 2,764 2,321 17,244
Amortization 467 3,059 219 551 4,296
Share based compensation expense - - - 5,976 5,976
Loss (gain) on disposal of property, plant and equipment 1,399 (1) 136 (80) 1,454
Restructuring (benefit) costs (90) (6) 1 34 (61)
Interest expense, net - - - 10,593 10,593
Other (income) expense, net (2) (104) - (294) (400)
Income tax expense - - - 19,649 19,649
Net income attributable to non-controlling interest 602 - - 257 859
Adjusted EBITDA $ 124,974 $ 8,566 $ 78 $ (15,493) $ 118,125
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Three Months Ended July 4, 2021
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net income (loss) attributable to Masonite $ 89,236 $ 1,454 $ (14,626) $ (41,018) $ 35,046
Plus:
Depreciation 9,160 2,506 2,608 2,958 17,232
Amortization 497 4,258 1,147 506 6,408
Share based compensation expense - - - 4,706 4,706
Loss on disposal of property, plant and equipment 36 16 - 335 387
Restructuring (benefit) costs 352 - 1,701 139 2,192
Asset impairment - - 9,645 729 10,374
Loss on disposal of subsidiaries - 8,590 - - 8,590
Interest expense, net - - - 11,918 11,918
Other (income) expense, net - (240) 5 (1,351) (1,586)
Income tax expense - - - 14,246 14,246
Net income attributable to non-controlling interest 764 - - 287 1,051
Adjusted EBITDA $ 100,045 $ 16,584 $ 480 $ (6,545) $ 110,564
Adjusted EBITDA in our North American Residential segment was $125.0 million in the three months ended July 3, 2022, an increase of $24.9 million, or 24.9%, from $100.0 million in the three months ended July 4, 2021. Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of $21.7 million and $19.3 million, in the second quarter of 2022 and 2021, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, research and development, marketing and share based compensation.
Adjusted EBITDA in our Europe segment was $8.6 million in the three months ended July 3, 2022, a decrease of $8.0 million, or 48.3%, from $16.6 million in the three months ended July 4, 2021. Adjusted EBITDA in the Europe segment included corporate allocations of shared costs of $1.7 million and $1.0 million, in the second quarter of 2022 and 2021, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, marketing and share based compensation.
Adjusted EBITDA in our Architectural segment was $0.1 million in the three months ended July 3, 2022, a decrease of $0.4 million, or 83.8%, from $0.5 million in the three months ended July 4, 2021. Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of $2.9 million and $2.8 million, in the second quarter of 2022 and 2021, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, research and development, marketing and share based compensation.
Six Months Ended July 3, 2022, Compared with Six Months Ended July 4, 2021
Net Sales
Net sales in the six months ended July 3, 2022, were $1,488.1 million, an increase of $179.4 million or 13.7% from $1,308.7 million in the six months ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net sales in the first six months of 2022 by $15.8 million. Excluding this exchange rate impact, net sales would have increased by $195.2 million or 14.9% due to changes in volume, average unit price, impact of divestitures and sales of components. Average unit price increased net sales in the first six months of 2022 by $227.3 million or 17.4% compared to the same period in 2021. Lower volumes excluding the incremental impact of divestitures ("base volume") decreased net sales by $16.5 million or 1.3% in the first six months of 2022 compared to the same period in 2021. Net sales of components to external customers decreased $3.9 million or 0.3% in the first six months of 2022 compared to the same
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period in 2021. Our 2021 divestiture of our Czech business decreased net sales by $11.7 million or 0.9% in the first six months of 2022.
Net Sales and Percentage of Net Sales by Reportable Segment
Six Months Ended July 3, 2022
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 1,177,912 $ 156,011 $ 154,553 $ 11,016 $ 1,499,492
Intersegment sales (1,572) (1,690) (8,139) - (11,401)
Net sales to external customers $ 1,176,340 $ 154,321 $ 146,414 $ 11,016 $ 1,488,091
Percentage of consolidated external net sales 79.1 % 10.4 % 9.8 %
Six Months Ended July 4, 2021
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 971,202 $ 180,385 $ 156,308 $ 11,731 $ 1,319,626
Intersegment sales (1,349) (4,036) (5,494) - (10,879)
Net sales to external customers $ 969,853 $ 176,349 $ 150,814 $ 11,731 $ 1,308,747
Percentage of consolidated external net sales 74.1 % 13.5 % 11.5 %
North American Residential
Net sales to external customers from facilities in the North American Residential segment in the six months ended July 3, 2022, were $1,176.3 million, an increase of $206.4 million or 21.3% from $969.9 million in the six months ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net sales in the first six months of 2022 by $4.1 million. Excluding this exchange rate impact, net sales would have increased by $210.5 million or 21.7% due to changes in volume, average unit price and sales of components. Average unit price increased net sales in the first six months of 2022 by $181.7 million or 18.7% compared to the 2021 period. Higher base volume increased net sales by $28.5 million or 2.9% in the first six months of 2022 compared to the same period in 2021. Net sales of components to external customers were $0.3 million higher in the first six months of 2022 compared to the same period in 2021.
Europe
Net sales to external customers from facilities in the Europe segment in the six months ended July 3, 2022, were $154.3 million, a decrease of $22.0 million or 12.5% from $176.3 million in the six months ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net sales in the first six months of 2022 by $11.3 million. Excluding this exchange rate impact, net sales would have decreased by $10.7 million or 6.1% due to changes in volume, average unit price, divestitures and sales of components. Lower base volume decreased net sales in the first six months of 2022 by $27.8 million or 15.8% compared to the same period in 2021, due to demand softness driven by weakening consumer confidence in the United Kingdom, which we believe is affecting major purchase decisions. Our 2021 divestiture of our Czech business decreased net sales by $11.7 million or 6.6% in the first six months of 2022. Average unit price increased net sales in the first six months of 2022 by $28.0 million or 15.9% compared to the 2021 period. Net sales of components to external customers were $0.8 million higher in the first six months of 2022 compared to the same period in 2021.
Architectural
Net sales to external customers from facilities in the Architectural segment in the six months ended July 3, 2022, were $146.4 million, a decrease of $4.4 million or 2.9% from $150.8 million in the six months ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net sales in the first six months of 2022 by $0.3 million. Excluding this exchange rate impact, net sales would have decreased by $4.1 million or 2.7% due to changes in volume, average unit price and sales of components. Lower base volume decreased net sales in the first six months of 2022 by $17.3 million or 11.5% compared to the 2021 period resulting from production challenges due to material availability
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and the impacts of labor constraints as a result of COVID-19. Net sales of components to external customers were $3.1 million lower in the first six months of 2022 compared to the same period in 2021. Average unit price increased net sales in the first six months of 2022 by $16.3 million or 10.8% compared to the 2021 period.
Cost of Goods Sold
Cost of goods sold as a percentage of net sales was 75.6% and 75.3% for the six months ended July 3, 2022, and July 4, 2021, respectively. Material cost of sales as a percentage of net sales increased by 2.1%, compared to the 2021 period. Direct labor, overhead, depreciation, and distribution as a percentage of net sales decreased by 0.7%, 0.7%, 0.2%, 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 inflation and an increase in logistics costs and tariffs, partially offset by higher average unit prices and material cost savings projects. Direct labor as a percentage of net sales decreased due to higher average unit prices, partially offset by manufacturing wage inflation. Overhead as a percentage of net sales decreased due to higher average unit prices, partially offset by wage inflation, increased plant maintenance and increased investment in the business as compared to the 2021 period. The decrease in depreciation in the first six months of 2022 was driven by higher average unit prices as compared to the first six months of 2021. Distribution as a percentage of net sales decreased due to higher logistics costs and personnel costs including wage inflation.
Selling, General and Administration Expenses
In the six months ended July 3, 2022, selling, general and administration ("SG&A") expenses, as a percentage of net sales, were 11.7% compared to 12.7% the six months ended July 4, 2021, a decrease of 100 basis points.
SG&A expenses in the six months ended July 3, 2022, were $173.6 million, an increase of $7.5 million from $166.1 million in the six months ended July 4, 2021. The overall increase was driven by an $8.0 million increase in personnel costs primarily driven by increased incentive compensation, wage and benefit inflation and resource investments to support growth; a $3.2 million increase in travel expense as business activities fully returned to pre-pandemic levels; and a $1.4 million increase in professional and other fees. These increases were partially offset by a $2.6 million decrease in non-cash items including depreciation and amortization, deferred compensation, loss on disposal of property, plant and equipment and share based compensation; foreign exchange impacts of $1.5 million; and incremental SG&A savings from our 2021 divestiture of $1.0 million.
Restructuring Costs
Restructuring costs in the six months ended July 3, 2022, were minimal, compared to $3.8 million in the six months ended July 4, 2021. Restructuring costs in the prior year period related primarily to the 2021 and 2020 Plans.
Asset Impairment
There were no asset impairment charges in the six months ended July 3, 2022. Asset impairment charges in the six months ended July 4, 2021, were $10.4 million, and resulted from actions associated with the 2021 and 2020 Plans in our Architectural reporting unit. Refer to Note 10. Asset Impairment, in Item 1 of this Quarterly Report for additional information.
Loss on Disposal of Subsidiaries
There was no loss on disposal of subsidiaries in the six months ended July 3, 2022, compared to $8.6 million in the six months ended July 4, 2021. 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-off of net assets sold and other professional fees and $3.5 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.
Interest Expense, Net
Interest expense, net, in the six months ended July 3, 2022, was $20.8 million, compared to $23.9 million in the six months ended July 4, 2021, remaining relatively flat as compared to the 2021 period.
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Other (Income) Expense, Net
Other (income) expense, net, in the six months ended July 3, 2022, was $1.8 million, compared to $2.9 million in the six months ended July 4, 2021. The change in other (income) expense, net is primarily due to a change in the fair value of plan assets in the deferred compensation rabbi trust and a change in our portion of the net gains and losses related to our non-majority owned unconsolidated subsidiaries that are recognized under the equity method of accounting, partially offset by an increase in pension expense.
Income Tax Expense
Income tax expense in the six months ended July 3, 2022, was $43.1 million, compared to $28.9 million in the six months ended July 4, 2021. The increase in income tax expense is primarily due to the mix of income or losses within the tax jurisdictions with various tax rates in which we operate.
Segment Information
Six Months Ended July 3, 2022
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 252,641 $ 20,409 $ (2,820) $ (27,353) $ 242,877
Adjusted EBITDA as a percentage of segment net sales 21.5 % 13.2 % (1.9) % 16.3 %
Six Months Ended July 4, 2021
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 194,527 $ 33,339 $ 2,474 $ (17,751) $ 212,589
Adjusted EBITDA as a percentage of segment net sales 20.1 % 18.9 % 1.6 % 16.2 %
The following reconciles net income (loss) attributable to Masonite to Adjusted EBITDA:
Six Months Ended July 3, 2022
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net income attributable to Masonite $ 229,644 $ 9,178 $ (5,868) $ (106,857) $ 126,097
Plus:
Depreciation 19,951 4,513 5,643 4,409 34,516
Amortization 1,086 6,329 401 1,092 8,908
Share based compensation expense - - - 10,695 10,695
Loss (gain) on disposal of property, plant and equipment 1,737 (13) (3,044) (80) (1,400)
Restructuring (benefit) costs (181) - 48 53 (80)
Interest expense, net - - - 20,832 20,832
Other (income) expense, net (792) 402 - (1,425) (1,815)
Income tax expense - - - 43,126 43,126
Net income attributable to non-controlling interest 1,196 - - 802 1,998
Adjusted EBITDA $ 252,641 $ 20,409 $ (2,820) $ (27,353) $ 242,877
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Six Months Ended July 4, 2021
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net income (loss) attributable to Masonite $ 173,209 $ 12,862 $ (18,439) $ (85,605) $ 82,027
Plus:
Depreciation 18,671 5,091 5,271 6,478 35,511
Amortization 912 7,143 2,289 982 11,326
Share based compensation expense - - - 9,124 9,124
Loss (gain) on disposal of property, plant and equipment 124 12 149 (495) (210)
Restructuring (benefit) costs (9) - 3,554 290 3,835
Asset impairment - - 9,645 729 10,374
Loss on disposal of subsidiaries - 8,590 - - 8,590
Interest expense, net - - - 23,864 23,864
Other (income) expense, net - (359) 5 (2,575) (2,929)
Income tax expense - - - 28,859 28,859
Net income attributable to non-controlling interest 1,620 - - 598 2,218
Adjusted EBITDA $ 194,527 $ 33,339 $ 2,474 $ (17,751) $ 212,589
Adjusted EBITDA in our North American Residential segment was $252.6 million in the six months ended July 3, 2022, an increase of $58.1 million, or 29.9%, from $194.5 million in the six months ended July 4, 2021. Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of $44.2 million and $38.5 million in the first six months of 2022 and 2021, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, research and development, marketing and share based compensation.
Adjusted EBITDA in our Europe segment was $20.4 million in the six months ended July 3, 2022, a decrease of $12.9 million, or 38.8%, from $33.3 million in the six months ended July 4, 2021. Adjusted EBITDA in the Europe segment included corporate allocations of shared costs of $3.4 million and $2.0 million in the first six months of 2022 and 2021, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, marketing and share based compensation.
Adjusted EBITDA in our Architectural segment was a loss of $2.8 million in the six months ended July 3, 2022, a decrease of $5.3 million, or 214.0%, from $2.5 million of earnings in the six months ended July 4, 2021. Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of $5.7 million and $5.6 million in the first six months of 2022 and 2021, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, research and development, marketing and share based compensation.
Liquidity and Capital Resources
Our liquidity needs for operations vary throughout the year. Our principal sources of liquidity are cash flows from operating activities, the borrowings under our ABL Facility and an accounts receivable sales program with a third party ("AR Sales Program"), as well as our existing cash balance. Our anticipated uses of cash in the near term include working capital needs, capital expenditures for critical maintenance, safety and regulatory projects, and share repurchases. On a continual basis, we evaluate and consider strategic acquisitions, divestitures, and joint ventures to create shareholder value and enhance financial performance.
We believe that our cash balance on hand, future cash generated from operations, the use of our AR Sales Program, our ABL Facility, and ability to access the capital markets will provide adequate liquidity for the foreseeable future. As of July 3, 2022, we had $231.5 million of cash and cash equivalents, availability under our ABL Facility of $249.0 million and availability under our AR Sales Program of $1.8 million.
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Cash Flows
Cash provided by operating activities was $34.1 million during the six months ended July 3, 2022, compared to $33.2 million of cash provided by operating activities in the six months ended July 4, 2021. This $0.9 million increase in cash provided by operating activities was due to a $6.6 million increase in net income attributable to Masonite, adjusted for non-cash and non-operating items, offset by a $5.7 million increase in working capital and other assets and liabilities in the first six months of 2022 compared to the same period in 2021.
Cash used in investing activities was $34.7 million during the six months ended July 3, 2022, compared to $20.7 million in the six months ended July 4, 2021. This $14.0 million increase in cash used in investing activities was driven by a $10.3 million increase in cash additions to property, plant and equipment, the absence of $6.8 million of proceeds from sale of subsidiaries, net of cash disposed, partially offset by a $3.0 million increase in proceeds from the sale of property, plant and equipment and a $0.1 million decrease in other investing activities in the first six months of 2022 compared to the same period in 2021.
Cash used in financing activities was $145.7 million during the six months ended July 3, 2022, compared to $48.7 million during the six months ended July 4, 2021. This $97.0 million increase in cash used in financing activities was driven by a $98.0 million increase in cash used for repurchases of common shares and a $0.8 million increase in distributions to non-controlling interests, partially offset by a $0.9 million decrease in cash used for repayments of long-term debt and a $0.8 million decrease in cash used for tax withholding on share based awards in the first six months of 2022 compared to the same period in 2021.
Share Repurchases
The Company's Board of Directors has approved five share repurchase authorizations, the most recent being an incremental $200.0 million share repurchase program approved on February 21, 2022. In addition, the Company 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 first quarter of 2022 with a third-party financial institution for the repurchase of $100.0 million of its outstanding common shares. At inception, pursuant to the agreement, the Company paid $100.0 million to the financial institution using cash on hand and received an initial delivery of 848,087 common shares on the same day. As of July 3, 2022, the initial $100.0 million ASR transaction was completed with a total delivery 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 final delivery of 319,678 common shares were delivered in the second quarter. The cash paid was reflected as a reduction of equity at the initial delivery of shares and the number of shares outstanding were reduced at the dates of physical delivery. During the six months ended July 3, 2022, we repurchased 1,556,008 of our common shares at an aggregate cost of $140.0 million as part of the share repurchase programs and ASR. During the six months ended July 4, 2021, we repurchased 368,695 of our common shares in the open market at an aggregate cost of $42.0 million. As of July 3, 2022, there was $256.4 million available for repurchase in accordance with the share repurchase programs.
Other Liquidity Matters
Our cash and cash equivalents balance includes cash held in foreign countries in which we operate. Cash held outside Canada, in which we are incorporated, is free from significant restrictions that would prevent the cash from being accessed to meet our liquidity needs including, if necessary, to fund operations and service debt obligations in Canada. However, earnings from certain jurisdictions are indefinitely reinvested in those jurisdictions. Upon the repatriation of any earnings to Canada, in the form of dividends or otherwise, we may be subject to Canadian income taxes and withholding taxes payable to the various foreign countries. As of July 3, 2022, we do not believe adverse tax consequences exist that restrict our use of cash or cash equivalents in a material manner.
We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations. There has not been a change in the financial condition of any customer that has had a material adverse effect on our results of operations. However, if economic conditions were to deteriorate, it is possible there could be an impact on our results of operations in a future period and this impact could be material.
Accounts Receivable Sales Program
Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to a third party who assumes the full risk of collection, without recourse to us in
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the event of a loss. Transfers of receivables under this program are accounted for as sales. Proceeds from the transfers reflect the face value of the accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts receivable in the condensed consolidated balance sheets and are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The discounts on the sales of trade accounts receivable sold, if any, under the AR Sales Program were not material for any of the periods presented and were recorded in selling, general and administration expenses within the condensed consolidated statements of income and comprehensive income.
3.50% Senior Notes due 2030
On July 26, 2021, we issued $375.0 million aggregate principal senior unsecured notes (the "2030 Notes"), all of which was outstanding as of July 3, 2022. The 2030 Notes bear interest at 3.50% per annum. The 2030 Notes were issued under an indenture which contains limited covenants that are described in detail in our Annual Report. As of July 3, 2022, we were in compliance with all covenants under the indenture governing the 2030 Notes.
5.375% Senior Notes due 2028
On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"), all of which was outstanding as of July 3, 2022. The 2028 Notes bear interest at 5.375% per annum. The 2028 Notes were issued under an indenture which contains restrictive covenants that are described in detail in our Annual Report. As of July 3, 2022, we were in compliance with all covenants under the indenture governing the 2028 Notes.
ABL Facility
On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving credit facility (the "ABL Facility") maturing on January 31, 2024, which replaced the previous facility. Borrowings under the ABL Facility bear interest at a rate which is described in more detail in Note 6. The ABL Facility contains various customary representations, warranties by us and covenants that are described in detail in our Annual Report. As of July 3, 2022, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of $249.0 million under our ABL Facility and there were no amounts outstanding as of July 3, 2022.
Supplemental Guarantor Financial Information
Our obligations under the 2030 Notes, 2028 Notes and the ABL Facility are fully and unconditionally guaranteed, jointly and severally, by certain of our directly or indirectly wholly-owned subsidiaries. The following unaudited supplemental financial information for our non-guarantor subsidiaries is presented:
Our non-guarantor subsidiaries generated external net sales of $680.8 million and $1,321.4 million for the three and six months ended July 3, 2022, respectively, and $590.7 million and $1,159.9 million for the three and six months ended July 4, 2021, respectively. Our non-guarantor subsidiaries generated Adjusted EBITDA of $99.3 million and $201.0 million for the three and six months ended July 3, 2022, respectively, and $93.4 million and $170.4 million for the three and six months ended July 4, 2021, respectively. Our non-guarantor subsidiaries had total assets of $2.4 billion and $2.3 billion as of July 3, 2022, and January 2, 2022, respectively, and total liabilities of $997.5 million and $980.6 million as of July 3, 2022, and January 2, 2022, respectively.
Changes in Accounting Standards and Policies
Changes in accounting standards and policies are discussed in Note 1. Business Overview and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reported period.
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Please refer to "Critical Accounting Policies and Estimates" described in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report, from which there have been no material changes.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For our disclosures about market risk, please see Part II, Item 7A. "Quantitative and Qualitative Disclosures about Market Risk," in our Annual Report. We believe there have been no material changes to the information provided therein.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the fiscal quarter covered by this report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information required with respect to this item can be found in Note 7. Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report and is incorporated by reference into this Part II, Item 1. Such information should be read in conjunction with the information contained under Part I, Item 3 "Legal Proceedings" included in our Annual Report.
Item 1A. Risk Factors
You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results as set forth under Item 1A "Risk Factors" in our Annual Report. There have been no material changes from the risk factors disclosed in such Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sale of Equity Securities.
None.
(b) Use of Proceeds.
Not applicable.
(c) Repurchases of Our Equity Securities.
The following table provides information about our share repurchase activity for the three months ended July 3, 2022.
Total Number of Shares Purchased Average Price Paid per Share 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
April 4, 2022 through May 1, 2022 - $ - - $ 256,393,264
May 2, 2022 through May 29, 2022 - - - 256,393,264
May 30, 2022 through July 3, 2022 319,678 85.63 319,678 256,393,264
Total 319,678 $ 85.63 319,678
The Company's Board of Directors has approved five share repurchase authorizations, the most recent being an incremental $200.0 million share repurchase program approved on February 21, 2022. In addition, the Company 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 first quarter of 2022 with a third-party financial institution for the repurchase of $100.0 million of its outstanding common shares. At inception, pursuant to the agreement, the Company paid $100.0 million to the financial institution using cash on hand and received an initial delivery of 848,087 common shares on the same day. As of July 3, 2022, the $100.0 million ASR transaction was completed with a total delivery 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 final delivery of 319,678 common shares were delivered in the second quarter. The cash paid was reflected as a reduction of equity at the initial delivery of shares and the number of shares outstanding were reduced at the dates of physical delivery. The share repurchase programs have no specified end date, and the timing and amount of any share repurchases will be determined by management based on our evaluation of market conditions and other factors. As of July 3, 2022, $256.4 million was available for repurchase in accordance with the share repurchase programs.
Item 3. Defaults Upon Senior Securities
None.
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Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On August 3, 2022, the Human Resources and Compensation Committee (the "Committee") of the Company's Board of Directors made a special one-time grant of performance-vesting restricted stock units ("PRSUs") under the Company's 2021 Omnibus Incentive Plan to each of Howard C. Heckes, our President and Chief Executive Officer, Russell T. Tiejema, our Executive Vice President and Chief Financial Officer, Randal A. White, our Senior Vice President, Global Operations and Supply Chain, and Robert A. Paxton, our Senior Vice President, Human Resources (collectively, the "NEOs"). This special PRSU grant is designed to enhance our ability to retain each NEO by motivating our senior leaders to achieve and maintain record levels of EBITDA performance.
The total number of PRSUs granted is as follows:
•Mr. Heckes: An amount of PRSUs equivalent to $2.5 million divided by the closing price of the Company's Common Stock on August 3, 2022;
•Mr. Tiejema: An amount of PRSUs equivalent to $1.5 million divided by the closing price of the Company's Common Stock on August 3, 2022;
•Mr. Paxton: An amount of PRSUs equivalent to $1.0 million divided by the closing price of the Company's Common Stock on August 3, 2022; and
•Mr. White: An amount of PRSUs equivalent to $1.0 million divided by the closing price of the Company's Common Stock on August 3, 2022.
This special PRSU grant will vest upon the satisfaction of a "Performance Vesting Condition" (as set forth herein), subject to the NEO's continued employment with the Company on August 3, 2025. Thirty-four percent (34%) of the PRSUs will satisfy the Performance Vesting Condition if, and only if, MIP Adjusted EBITDA (as that term is defined in the "MIP and LTIP Definitions and Reconciliation" section of the Company's proxy statement filed with the SEC on March 25, 2022) for the Company's 2022 fiscal year equals or exceeds $500 million (excluding payments under a cash retention program adopted by the Committee on the same date on which the special PRSU grants were made and in which the NEOs are not eligible to participate) and the remaining sixty-six percent (66%) of the PRSUs will satisfy the Performance Vesting Condition if, and only if, MIP Adjusted EBITDA for either the Company's 2023 or 2024 fiscal years equals or exceeds $500 million. Any PRSUs for which the Performance Vesting Condition is not satisfied are automatically forfeited on the date on which the Committee confirms that the applicable level of MIP Adjusted EBITDA was not achieved (and is no longer capable of being achieved within the applicable time period). Except as is described in the following sentence, even if a PRSU has satisfied the Performance Vesting Condition, PRSUs will be automatically forfeited upon the NEO's termination of employment with the Company for any reason if such termination occurs prior to August 3, 2025. The agreements governing the PRSUs include the same accelerated vesting provisions related to death and disability and in connection with a change in control that apply to the Company's annual equity award agreements.
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Item 6. Exhibits
The following is a list of all exhibits filed or furnished as part of this report:
Exhibit No. Description
3.1
Amended and Restated Articles of Masonite International Corporation (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K (File No. 001-11796) filed with the Securities and Exchange Commission on February 26, 2015)
10.1*#
Form of Performance Restricted Stock Unit Agreement pursuant to the Masonite International Corporation 2021 Omnibus Incentive Plan (August 2022)
31.1*
Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101*
Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language ("Inline XBRL"): (i) the Registrant's Condensed Consolidated Statements of Income and Comprehensive Income for the three and six months ended July 3, 2022, and July 4, 2021; (ii) the Registrant's Condensed Consolidated Balance Sheets as of July 3, 2022, and January 2, 2022; (iii) the Registrant's Condensed Consolidated Statements of Changes in Equity for the three and six months ended July 3, 2022, and July 4, 2021; (iv) the Registrant's Condensed Consolidated Statements of Cash Flows for the six months ended July 3, 2022, and July 4, 2021; and (v) the notes to the Registrant's Condensed Consolidated Financial Statements
104* Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed or furnished herewith.
# Denotes management contract or compensatory plan.

SIGNATURES
Pursuant to the requirements 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.
MASONITE INTERNATIONAL CORPORATION
(Registrant)
Date: August 9, 2022 By /s/ Russell T. Tiejema
Russell T. Tiejema
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

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