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 ~~June 30, 2019~~March 29, 2020

☐ 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~~) (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

☐

~~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 ~~25,013,896~~24,449,287 shares of Common Stock, no par value, as of ~~July 31, 2019.~~May 1, 2020.

MASONITE INTERNATIONAL CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

~~June 30, 2019~~March 29, 2020

Table of Contents

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," ~~"plan,~~"targeting," ~~"anticipate," "expect," "intend," "outlook," "believe"~~ and other similar expressions. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those identified under "Risk Factors" in our Annual Report on Form 10-K for the year ended December ~~30, 2018,~~29, 2019, 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;

•scale and scope of the current coronavirus ("COVID-19") pandemic on our operations, customer demand and supply chain;

•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 price increases and customer concentration and consolidation;

~~new~~ •tariffs and evolving trade policy and friction between the United States and other countries, including ~~China;~~China, and the impact of anti-dumping and countervailing trade cases;

•increases in prices of raw materials and fuel;

•increases in labor costs, the availability of labor or labor relations (i.e., disruptions, strikes or work stoppages);

•our ability to manage our operations including anticipating demand for our products, managing disruptions in our operations, managing manufacturing realignments (including related restructuring charges), managing customer credit risk and successful integration of acquisitions;

•the continuous operation of our information technology and enterprise resource planning systems and management of potential cyber security threats and attacks;

•our ability to generate sufficient cash flows to fund our capital expenditure requirements, to meet our pension obligations, and to meet our debt service obligations, including our obligations under our senior notes and our asset-based revolving credit facility ("ABL ~~Facility;~~Facility");

•political, economic and other risks that arise from operating a multinational business;

•uncertainty relating to the United Kingdom's ~~anticipated~~ exit from the European Union;

•fluctuating exchange and interest rates;

•our ability to innovate and keep pace with technological developments;

•product liability claims and product recalls;

•retention of key management personnel;

~~environmental and other government regulations, including the FCPA, and any changes in such regulations; and~~

•limitations on operating our business as a result of covenant restrictions under our existing and future indebtedness, including our senior notes and our ABL ~~Facility.~~Facility; and

•environmental and other government regulations, including the United States Foreign Corrupt Practices Act ("FCPA"), and any changes in such regulations.

We caution you that the foregoing list of important factors is not exclusive. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this 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.

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands of U.S. dollars, except per share amounts)

(Unaudited)


	Three Months Ended
	March 29, 2020		March 31, 2019
Net sales	$	551,228	$	530,311
Cost of goods sold	416,947		418,207
Gross profit	134,281		112,104
Selling, general and administration expenses	80,333		78,100
Restructuring costs	1,941		3,740
Asset impairment	—		10,625
Loss on disposal of subsidiaries	—		4,605
Operating income	52,007		15,034
Interest expense, net	11,282		11,127

Other expense (income), net	49		(1,130)
Income before income tax expense	40,676		5,037
Income tax expense	9,639		58
Net income	31,037		4,979
Less: net income attributable to non-controlling interests	1,152		1,190
Net income attributable to Masonite	$	29,885	$	3,789

Basic earnings per common share attributable to Masonite	$	1.20	$	0.15
Diluted earnings per common share attributable to Masonite	$	1.19	$	0.15

Comprehensive income (loss):
Net income	$	31,037	$	4,979
Other comprehensive income (loss):
Foreign currency translation gain (loss)	(38,687)		13,991


Amortization of actuarial net losses	173		404
Income tax expense related to other comprehensive income	(89)		(93)
Other comprehensive income (loss), net of tax:	(38,603)		14,302
Comprehensive income (loss)	(7,566)		19,281
Less: comprehensive income attributable to non-controlling interests	573		1,406
Comprehensive income (loss) attributable to Masonite	$	(8,139)	$	17,875

Three Months Ended Six Months Ended
June 30,
2019 July 1,
2018 June 30,
2019 July 1,
2018
Net sales $ 562,943
$ 566,726
$ 1,093,254
$ 1,084,605
Cost of goods sold 434,013
443,052
852,220
855,502
Gross profit 128,930
123,674
241,034
229,103
Selling, general and administration expenses 78,142
71,851
156,242
140,062
Restructuring costs 1,361
—
5,101
—
Asset impairment 3,142
—
13,767
—
Loss on disposal of subsidiaries —
—
4,605
—
Operating income 46,285
51,823
61,319
89,041
Interest expense, net 11,357
9,074
22,484
17,830
Other income, net of expense (456 ) (839 ) (1,586 ) (861 )
Income before income tax expense 35,384
43,588
40,421
72,072
Income tax expense 10,293
7,894
10,351
14,595
Net income 25,091
35,694
30,070
57,477
Less: net income attributable to non-controlling interests 849
953
2,039
1,910
Net income attributable to Masonite $ 24,242
$ 34,741
$ 28,031
$ 55,567

Basic earnings per common share attributable to Masonite $ 0.96
$ 1.26
$ 1.11
$ 1.99
Diluted earnings per common share attributable to Masonite $ 0.96
$ 1.24
$ 1.09
$ 1.96

Comprehensive income:
Net income $ 25,091
$ 35,694
$ 30,070
$ 57,477
Other comprehensive income:
Foreign currency translation gain (loss) (5,178 ) (31,445 ) 8,813
(25,671 )
Amortization of actuarial net losses 403
299
807
599
Income tax expense related to other comprehensive income (92 ) (100 ) (185 ) (200 )
Other comprehensive income (loss), net of tax: (4,867 ) (31,246 ) 9,435
(25,272 )
Comprehensive income 20,224
4,448
39,505
32,205
Less: comprehensive income attributable to non-controlling interests 981
584
2,387
1,298
Comprehensive income attributable to Masonite $ 19,243
$ 3,864
$ 37,118
$ 30,907

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Balance Sheets

(In thousands of U.S. dollars, except share amounts)

(Unaudited)


ASSETS	March 29, 2020		December 29, 2019
Current assets:
Cash and cash equivalents	$	114,375	$	166,964
Restricted cash	10,644		10,644
Accounts receivable, net	303,111		276,208
Inventories, net	240,975		242,230
Prepaid expenses	33,137		33,190
Income taxes receivable	3,492		4,819
Total current assets	705,734		734,055
Property, plant and equipment, net	612,304		625,585
Operating lease right-of-use assets	123,925		121,367
Investment in equity investees	17,011		16,100
Goodwill	179,386		184,192
Intangible assets, net	171,684		184,532
Deferred income taxes	24,355		25,945
Other assets	43,650		44,808
Total assets	$	1,878,049	$	1,936,584

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	97,501	$	84,912
Accrued expenses	145,342		180,405
Income taxes payable	1,537		2,350
Total current liabilities	244,380		267,667
Long-term debt	791,190		790,984

Long-term operating lease liabilities	112,691		110,497
Deferred income taxes	88,504		83,465
Other liabilities	45,028		47,109
Total liabilities	1,281,793		1,299,722
Commitments and Contingencies (Note 7)
Equity:
Share capital: unlimited shares authorized, no par value, 24,446,987 and 24,869,921 shares issued and outstanding as of March 29, 2020, and December 29, 2019, respectively	551,983		558,514
Additional paid-in capital	212,826		216,584
Accumulated deficit	(12,203)		(20,047)
Accumulated other comprehensive loss	(168,193)		(130,169)
Total equity attributable to Masonite	584,413		624,882
Equity attributable to non-controlling interests	11,843		11,980
Total equity	596,256		636,862
Total liabilities and equity	$	1,878,049	$	1,936,584

ASSETS June 30,
2019 December 30,
2018
Current assets:
Cash and cash equivalents $ 112,644
$ 115,656
Restricted cash 10,644
10,485
Accounts receivable, net 308,236
283,580
Inventories, net 254,625
250,407
Prepaid expenses 33,233
32,970
Income taxes receivable 3,590
3,495
Total current assets 722,972
696,593
Property, plant and equipment, net 594,538
609,753
Operating lease right-of-use assets 143,613
—
Investment in equity investees 14,991
13,474
Goodwill 180,865
180,297
Intangible assets, net 199,597
212,045
Deferred income taxes 28,558
28,509
Other assets 40,664
37,794
Total assets $ 1,925,798
$ 1,778,465

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 101,920
$ 96,362
Accrued expenses 172,175
147,345
Income taxes payable 1,642
1,599
Total current liabilities 275,737
245,306
Long-term debt 796,711
796,398
Long-term operating lease liabilities 132,949
—
Deferred income taxes 82,924
82,122
Other liabilities 22,906
32,334
Total liabilities 1,311,227
1,156,160
Commitments and Contingencies (Note 10)

Equity:
Share capital: unlimited shares authorized, no par value, 25,019,940 and 25,835,664 shares issued and outstanding as of June 30, 2019, and December 30, 2018, respectively 561,543
575,207
Additional paid-in capital 215,418
218,988
Accumulated deficit (30,225 ) (30,836 )
Accumulated other comprehensive loss (143,832 ) (152,919 )
Total equity attributable to Masonite 602,904
610,440
Equity attributable to non-controlling interests 11,667
11,865
Total equity 614,571
622,305
Total liabilities and equity $ 1,925,798
$ 1,778,465

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Statements of Changes in Equity

(In thousands of U.S. dollars, except share amounts)

(Unaudited)


	Three Months Ended
	March 29, 2020		March 31, 2019
Total equity, beginning of period	$	636,862	$	622,305
Share capital:
Beginning of period	558,514		575,207
Common shares issued for delivery of share based awards	5,490		6,152
Common shares issued under employee stock purchase plan	708		517
Common shares repurchased and retired	(12,729)		(14,386)
End of period	551,983		567,490
Additional paid-in capital:
Beginning of period	216,584		218,988
Share based compensation expense	3,470		2,680
Common shares issued for delivery of share based awards	(5,490)		(6,152)
Common shares withheld to cover income taxes payable due to delivery of share based awards	(1,427)		(1,090)
Common shares issued under employee stock purchase plan	(311)		(132)
End of period	212,826		214,294
Accumulated deficit:
Beginning of period	(20,047)		(30,836)
Net income attributable to Masonite	29,885		3,789
Common shares repurchased and retired	(22,041)		(18,805)
End of period	(12,203)		(45,852)
Accumulated other comprehensive loss:
Beginning of period	(130,169)		(152,919)
Other comprehensive income (loss) attributable to Masonite, net of tax	(38,024)		14,086
End of period	(168,193)		(138,833)
Equity attributable to non-controlling interests:
Beginning of period	11,980		11,865
Net income attributable to non-controlling interests	1,152		1,190
Other comprehensive income (loss) attributable to non-controlling interests, net of tax	(579)		216
Dividends to non-controlling interests	(710)		—
End of period	11,843		13,271
Total equity, end of period	$	596,256	$	610,370

Common shares outstanding:
Beginning of period	24,869,921		25,835,664
Common shares issued for delivery of share based awards	134,911		116,252
Common shares issued under employee stock purchase plan	9,426		9,036
Common shares repurchased and retired	(567,271)		(646,102)
End of period	24,446,987		25,314,850

Three Months Ended Six Months Ended
June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018
Total equity, beginning of period $ 610,370
$ 719,573
$ 622,305
$ 735,902
Share capital:
Beginning of period 567,490
619,554
575,207
624,403
Common shares issued for delivery of share based awards 931
834
7,083
10,698
Common shares issued under employee stock purchase plan —
(17 ) 517
499
Common shares repurchased and retired (6,878 ) (6,000 ) (21,264 ) (21,229 )
End of period 561,543
614,371
561,543
614,371
Additional paid-in capital:
Beginning of period 214,294
217,228
218,988
226,528
Share based compensation expense 2,093
3,538
4,773
6,603
Common shares issued for delivery of share based awards (931 ) (834 ) (7,083 ) (10,698 )
Common shares withheld to cover income taxes payable due to delivery of share based awards (38 ) (1 ) (1,128 ) (2,423 )
Common shares issued under employee stock purchase plan —
—
(132 ) (79 )
End of period 215,418
219,931
215,418
219,931
Accumulated deficit:
Beginning of period (45,852 ) (26,286 ) (30,836 ) (18,150 )
Net income attributable to Masonite 24,242
34,741
28,031
55,567
Common shares repurchased and retired (8,615 ) (10,478 ) (27,420 ) (39,440 )
End of period (30,225 ) (2,023 ) (30,225 ) (2,023 )
Accumulated other comprehensive loss:
Beginning of period (138,833 ) (103,935 ) (152,919 ) (110,152 )
Other comprehensive income attributable to Masonite, net of tax (4,999 ) (30,877 ) 9,087
(24,660 )
End of period (143,832 ) (134,812 ) (143,832 ) (134,812 )
Equity attributable to non-controlling interests:
Beginning of period 13,271
13,012
11,865
13,273
Net income attributable to non-controlling interests 849
953
2,039
1,910
Other comprehensive income (loss) attributable to non-controlling interests, net of tax 132
(369 ) 348
(612 )
Dividends to non-controlling interests (2,585 ) (1,548 ) (2,585 ) (2,523 )
End of period 11,667
12,048
11,667
12,048
Total equity, end of period $ 614,571
$ 709,515
$ 614,571
$ 709,515

Common shares outstanding:
Beginning of period 25,314,850
27,851,728
25,835,664
28,369,877
Common shares issued for delivery of share based awards 12,876
15,149
129,128
181,397
Common shares issued under employee stock purchase plan —
—
9,036
7,386
Common shares repurchased and retired (307,786 ) (269,751 ) (953,888 ) (961,534 )
End of period 25,019,940
27,597,126
25,019,940
27,597,126

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

(Unaudited)


	Six Months Ended							Three Months Ended
Cash flows from operating activities:	June 30, 2019			July 1, 2018			Cash flows from operating activities:	March 29, 2020		March 31, 2019
Net income	$	30,070		$	57,477		Net income	$	31,037	$	4,979
Adjustments to reconcile net income to net cash flow provided by operating activities:							Adjustments to reconcile net income to net cash flow provided by operating activities:
Loss on disposal of subsidiaries	4,605			—			Loss on disposal of subsidiaries	—		4,605

Depreciation	36,486			27,634			Depreciation	16,018		18,285
Amortization	14,926			13,910			Amortization	6,459		7,597
Share based compensation expense	4,773			6,603			Share based compensation expense	3,470		2,680
Deferred income taxes	1,367			7,234			Deferred income taxes	6,160		(3,708)
Unrealized foreign exchange loss (gain)	316			(2,079		)	Unrealized foreign exchange loss (gain)	94		272
Share of income from equity investees, net of tax	(1,517		)	(781		)	Share of income from equity investees, net of tax	(911)		(898)

Pension and post-retirement funding, net of expense	(3,225		)	(3,302		)	Pension and post-retirement funding, net of expense	(1,900)		(1,661)
Non-cash accruals and interest	(664		)	457			Non-cash accruals and interest	427		(562)
Loss on sale of property, plant and equipment	4,235			2,512			Loss on sale of property, plant and equipment	1,622		2,913
Asset impairment	13,767			—			Asset impairment	—		10,625
Changes in assets and liabilities, net of acquisitions:							Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(20,609		)	(39,982		)	Accounts receivable	(37,990)		(6,587)
Inventories	(5,165		)	(2,799		)	Inventories	(5,388)		(5,902)
Prepaid expenses	(316		)	(1,941		)	Prepaid expenses	(491)		1,986
Accounts payable and accrued expenses	10,571			27,623			Accounts payable and accrued expenses	(15,163)		(16,193)
Other assets and liabilities	(1,407		)	(4,589		)	Other assets and liabilities	2,602		80
Net cash flow provided by operating activities	88,213			87,977			Net cash flow provided by operating activities	6,046		18,511
Cash flows from investing activities:							Cash flows from investing activities:
Additions to property, plant and equipment	(37,923		)	(33,835		)	Additions to property, plant and equipment	(17,246)		(20,422)
Cash used in acquisitions, net of cash acquired	(219		)	(135,600		)
Cash disposed in sale of subsidiaries, net of cash proceeds	(230		)	—
Acquisition of businesses, net of cash acquired							Acquisition of businesses, net of cash acquired	—		(219)
Proceeds from sale of subsidiaries, net of cash disposed							Proceeds from sale of subsidiaries, net of cash disposed	—		(230)
Proceeds from sale of property, plant and equipment	90			1,367			Proceeds from sale of property, plant and equipment	15		88
Other investing activities	(955		)	(1,825		)	Other investing activities	(587)		(418)
Net cash flow used in investing activities	(39,237		)	(169,893		)	Net cash flow used in investing activities	(17,818)		(21,201)
Cash flows from financing activities:							Cash flows from financing activities:

Repayments of long-term debt	(61		)	(196		)	Repayments of long-term debt	(57)		(6)

Tax withholding on share based awards	(1,128		)	(2,423		)	Tax withholding on share based awards	(1,427)		(1,090)
Distributions to non-controlling interests	(2,585		)	(2,523		)	Distributions to non-controlling interests	(710)		—
Repurchases of common shares	(48,684		)	(60,669		)	Repurchases of common shares	(34,770)		(33,191)
Net cash flow used in financing activities	(52,458		)	(65,811		)	Net cash flow used in financing activities	(36,964)		(34,287)
Net foreign currency translation adjustment on cash	629			(201		)	Net foreign currency translation adjustment on cash	(3,853)		1,463
Decrease in cash, cash equivalents and restricted cash	(2,853		)	(147,928		)	Decrease in cash, cash equivalents and restricted cash	(52,589)		(35,514)
Cash, cash equivalents and restricted cash, beginning of period	126,141			188,564			Cash, cash equivalents and restricted cash, beginning of period	177,608		126,141
Cash, cash equivalents and restricted cash, at end of period	$	123,288		$	40,636		Cash, cash equivalents and restricted cash, at end of period	$	125,019	$	90,627

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

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 6563 manufacturing ~~locations~~and distribution facilities in 8 countries and sells doors to customers throughout the world ~~including~~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 December ~~30, 2018,~~29, 2019, as filed with the SEC. 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- and 26-week~~13-week periods are referred to as ~~three- and six-month periods, respectively. Certain prior~~three-month periods. Our 2020 fiscal year, ~~amounts have been reclassified to conform to~~which ends on January 3, 2021, will contain 53 weeks of operating results, with the ~~current basis of presentation, related to discontinued operations, as described~~additional week occurring in the ~~2018 Form 10-K.~~fourth quarter.

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 ~~2018~~2019 audited consolidated financial statements, other than as noted below.

Adoption of Recent Accounting Pronouncements

In ~~August 2018,~~June 2016, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ASU ~~2018-15, "Customer's Accounting~~2016-13, “Financial Instruments—Credit Losses (Topic 326)”, which replaced the incurred loss methodology for ~~Implementation Costs Incurred~~recognizing credit losses with a current expected credit losses model. This standard applied to most financial assets, including trade receivables. Our prior accounts receivable policy is described in ~~a Cloud Computing Arrangement That Is a Service Contract." This ASU amended~~detail in our Annual Report on Form 10-K for the definition of a hosting arrangement and required a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC 350-40 "Intangibles—Goodwill and Other—Internal-Use Software" to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs related to a hosting arrangement that is a service contract are amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. The guidance was effective for annual periods beginning afteryear ended December 15, 2019, and interim periods within those annual periods; early adoption was permitted and either retrospective or prospective application was required for all implementation costs incurred after the date of adoption.29, 2019. We have ~~early~~ adopted ~~this~~the new guidance ~~prospectively~~using a modified retrospective approach as of December ~~31, 2018,~~30, 2019, the beginning of fiscal year ~~2019, and the adoption did not have any material impact on our results of operations.~~

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment," which amended ASC 350 "Intangibles—Goodwill and Other." This ASU simplified the accounting for goodwill impairments and allowed a goodwill impairment charge to be based upon the amount of a reporting unit's carrying value in excess of its fair value; thus, eliminating what is currently known as "Step 2" under the current guidance. This ASU was effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods; early adoption

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

~~(Unaudited)~~

~~was permitted and prospective application was required. We have early adopted this guidance prospectively as of December 31, 2018, the beginning of fiscal year 2019,~~2020, and the adoption did not have a material impact on our financial ~~statements.~~

~~In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which replaces the existing guidance in ASC 840, "Leases." This standard~~statements and no adjustment was ~~supplemented by ASUs 2018-01, 2018-10, 2018-11 and 2019-01. The updated standards aim~~necessary to ~~increase transparency and comparability among organizations by requiring lessees to recognize right-of-use ("ROU") assets and lease liabilities~~retained earnings on the balance sheet and requiring disclosure of key information about leasing arrangements. The transition option in ASU 2018-11 allows entities to not apply the standards to the comparative periods they present in their financial statements in the year of adoption. These ASUs were effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods; early adoption was permitted. We have elected to adopt these standards utilizing the modified retrospective method as of December 31, 2018, with the package of practical expedients permitted under the transition guidance of the new standards, which allowed us to not reassess whether any expired or existing contracts contain leases, to carry forward the historical lease classification and permitted us to exclude from our assessment initial direct costs for any existing leases. Additionally, we have elected to utilize the practical expedient which allows us to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. We also made an accounting policy election to exclude leases with an initial term of twelve months or less from our transition adjustment. Lease payments are recognized in the consolidated statements of comprehensive income on a straight-line basis over the lease term.30, 2019.

The adoption of the standard resulted in a change in accounting policy for accounts receivable. Our new accounting policy for accounts receivable is presented below.

Accounts Receivable

We record accounts receivable as our products are received by our customers. Our customers are primarily retailers, distributors and contractors. We record an allowance for credit losses at the ~~recognition~~time that accounts receivable are initially recorded based on our historical write-off experience and the current economic environment as well as our

Table of ~~a ROU asset~~Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

expectations of future economic conditions. We reassess the allowance at each reporting date. When it becomes apparent, based on age or customer circumstances, that such amounts will not be collected, they are charged to the allowance. Payments subsequently received are credited to the credit loss expense account included within selling, general and ~~lease liability~~administration expenses in the consolidated statements of comprehensive income. Generally, we do not require collateral for our operating leases of $108.0 million and $113.9 million, respectively, as of December 31, 2018. Our operating leases include leases for real estate and machinery and equipment and we have no material finance leases. The difference between the opening ROU asset and lease liability amounts was due to the reclassification of the existing deferred rent liability balance against the opening ROU assets to which it related. The standard did not materially affect our results of operations, liquidity or compliance with our debt covenants under our current agreements. Additional transition disclosures, including our updated lease accounting policy, are included in Note 6.accounts receivable.

Other Recent Accounting Pronouncements not yet Adopted

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. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are in the process of evaluating this guidance to determine the impact it may have on our financial statements.

In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans," which amended ASC 715, "Compensation—Retirement Benefits." This standard is applicable for employers that sponsor defined benefit pension or other postretirement plans, and eliminates disclosures no longer considered cost beneficial, clarifies specific disclosure requirements for entities that provide aggregate disclosures for two or more plans and adds requirements for explanations for significant gains and losses related to changes in benefit obligations. The guidance will be effective for annual periods ending after December 15, 2020; early adoption is permitted and retrospective application is required. We are in the process of evaluating this guidance to determine the impact it may have on our financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)”, which replaces the incurred loss methodology for recognizing credit losses with a current expected credit losses model. This standard applies to all financial assets, including trade receivables. Our current accounts receivable policy is described in detail in our Annual Report on Form 10-K for the year ended December 30, 2018, and uses historical and current information to estimate the amount of probable credit losses in our existing account receivable balances. The guidance will be effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years; early adoption is permitted and modified retrospective application is required. We are in the process of evaluating this guidance to determine the impact it may have on our financial statements.

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

~~(Unaudited)~~

2. Acquisitions and ~~Disposition~~Divestitures

~~2018~~ Acquisitions

Top Doors

On ~~November 1, 2018,~~August 29, 2019, we completed the acquisition of TOPDOORS, s.r.o. ("Top Doors") based in the ~~operating assets of Bridgewater Wholesalers Inc. ("BWI")~~Czech Republic for cash ~~considerations~~consideration of ~~$22.3~~$1.8 million, net of cash acquired. ~~BWI is headquartered in Branchburg, New Jersey, and~~Top Doors is a ~~fabricator and distributor~~specialist manufacturer of residential interior and exterior door systems, supporting customers in the Mid-Atlantic and Northeastern United States. Their product offerings include residential interior and exterior doors, commercial doors and hardware as well as value added pre-finishing services. The excess purchase price over the fair value of net assets acquired of $3.7 million was allocated to goodwill. The goodwill principally represents anticipated synergies to be gained from the integration into our existing North American Residential business and the goodwill is deductible for tax purposes.

On June 1, 2018, we completed the acquisition of the operating assets of the wood door companies of AADG, Inc., including the brands Graham Manufacturing Corporation and The Maiman Company (collectively, "Graham & Maiman"). We acquired the operating assets of Graham & Maiman for cash consideration of $39.0 million. Graham & Maiman are based in Mason City, Iowa, and Springfield, Missouri. Graham & Maiman provide the non-residential construction industry with a full range of architectural premium and custom grade flush wood doors, architectural stile and rail wood doors, thermal-fused flush wood doors and wood door frames. The excess purchase price over the fair value of net assets acquired of ~~$11.0~~$1.1 million was allocated to ~~goodwill.~~goodwill in our Europe segment. The ~~goodwill principally represents anticipated synergies to be gained from the integration into our existing Architectural business and the goodwill is deductible for tax purposes.~~

On January 29, 2018, we completed the acquisition of DW3 Products Holdings Limited ("DW3"), a leading UK provider of high quality premium door solutions and window systems, supplying products under brand names such as Solidor, Residor, Nicedor and Residence. We acquired 100% of the equity interests in DW3 for cash consideration of $96.3 million, net of cash acquired. DW3 is based in Stoke-on-Trent and Gloucester, England, and their online quick ship capabilities and product portfolio both complement and expand the strategies we are pursuing with our business. The excess purchase price over the fair value of net assets acquired of $33.6 million was allocated to goodwill. The goodwill principally represents anticipated synergies to be gained from the integration into our existing United Kingdom business and the goodwill is not deductible for tax purposes.

~~The fair value of assets acquired and liabilities assumed in the 2018 acquisitions are as follows:~~

(In thousands) BWI Graham & Maiman DW3 Total 2018 Acquisitions
Accounts receivable $ 9,215
$ —
$ 8,590
$ 17,805
Inventory 10,736
6,090
5,059
21,885
Property, plant and equipment 2,222
19,557
8,196
29,975
Goodwill 3,739
10,996
33,623
48,358
Intangible assets 2,970
2,750
62,873
68,593
Accounts payable and accrued expenses (6,816 ) (426 ) (10,418 ) (17,660 )
Deferred income taxes —
—
(11,546 ) (11,546 )
Other assets and liabilities, net 240
—
(68 ) 172
Cash consideration, net of cash acquired $ 22,306
$ 38,967
$ 96,309
$ 157,582

~~During the six months ended June 30, 2019, we finalized the~~ purchase price allocation, for the BWI acquisition, which resulted in a $0.4 million increase in goodwill due to final working capital adjustments. The fair values of intangible assets acquired are based on management's estimates and assumptions including variations of the income approach, the cost approach and the market approach. The intangible assets acquired are not expected to have any residual value. The gross contractual value of acquired trade receivables was $9.3 million and $9.1 million for the BWI and DW3 acquisitions, respectively.

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

~~(Unaudited)~~

~~Intangible assets acquired from the 2018 acquisitions consist of the following:~~

(In thousands) BWI Expected Useful Life (Years) Graham & Maiman Expected Useful Life (Years) DW3 Expected Useful Life (Years)
Customer relationships $ 1,200
10.0 $ 2,400
10.0 $ 49,554
10.0
Trademarks and trade names 900
10.0 350
1.5 11,785
10.0
Patents —
—
1,420
10.0
Other 870
2.2 —
114
3.0
Total intangible assets acquired $ 2,970
$ 2,750
$ 62,873

~~The following schedule represents the amounts of~~ net sales, ~~and~~ net income (loss) attributable to Masonite ~~from~~and pro forma information for Top Doors are not presented as they were not material for any period presented.

Divestitures

Window Widgets

On December 13, 2019, we completed the ~~2018 Acquisitions which~~sale of all of the capital stock of Window Widgets Limited ("WW") for consideration of $1.2 million, net of cash disposed. We have ~~been included in the consolidated statements of comprehensive income for the periods indicated~~had no continuing involvement with WW subsequent to the ~~acquisition date:~~

Three Months Ended June 30, 2019
(In thousands) BWI Graham & Maiman DW3 Total 2018 Acquisitions
Net sales $ 24,515
$ 19,291
$ 19,567
$ 63,373
Net income attributable to Masonite 649
960
2,609
4,218

Six Months Ended June 30, 2019
(In thousands) BWI Graham & Maiman DW3 Total 2018 Acquisitions
Net sales $ 46,458
$ 35,947
$ 39,229
$ 121,634
Net income attributable to Masonite 727
1,180
5,466
7,373

Three Months Ended July 1, 2018
(in thousands) Graham & Maiman DW3 Total 2018 Acquisitions
Net sales $ 6,266
$ 18,351
$ 24,617
Net income attributable to Masonite 302
1,145
1,447

Six Months Ended July 1, 2018
(in thousands) Graham & Maiman DW3 Total 2018 Acquisitions
Net sales $ 6,266
$ 29,549
$ 35,815
Net income attributable to Masonite 302
2,093
2,395

~~Pro Forma Information~~

sale. The ~~following unaudited pro forma financial information represents~~divestiture of this business resulted in a loss on disposal of subsidiaries of $9.7 million, which was recognized in the ~~consolidated financial information as if~~fourth quarter of 2019 in the ~~acquisitions had been included in our consolidated results beginning on~~Europe segment. The total charge consists of $8.3 million relating to the ~~first day~~write-off of the ~~fiscal year prior~~assets sold and other professional fees and $1.4 million relating to ~~their respective acquisition dates. The pro forma results have been calculated after adjusting~~ the ~~results~~recognition of the acquired entities to remove intercompany transactions and transaction costs incurred and to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on the first daycumulative translation adjustment out of the fiscal year prior to the respective acquisitions, together with the consequential tax effects. The pro forma results do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisitions; the costs to combine the companies' operations; or the costs necessary to achieve these costs savings, operating synergies and revenue
accumulated other comprehensive loss.

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

~~(Unaudited)~~

~~enhancements. The pro forma results do not necessarily reflect the actual results of operations of the combined companies' under our ownership and operation.~~

Three Months Ended July 1, 2018
(In thousands, except per share amounts) Masonite BWI Graham & Maiman Intercompany Eliminations Pro Forma
Net sales $ 566,726
24,513
$ 11,288
$ (11,777 ) $ 590,750
Net income attributable to Masonite 34,741
139
(114 ) —
34,766

Basic earnings per common share $ 1.26
$ 1.26
Diluted earnings per common share 1.24
1.24

Six Months Ended July 1, 2018
(In thousands, except per share amounts) Masonite BWI Graham & Maiman DW3 Intercompany Eliminations Pro Forma
Net sales $ 1,084,605
$ 47,573
$ 26,887
$ 4,918
$ (22,886 ) $ 1,141,097
Net income attributable to Masonite 55,567
269
89
81
56,006

Basic earnings per common share $ 1.99
$ 2.01
Diluted earnings per common share 1.96
1.97

~~Disposition~~Performance Doorset Solutions Limited

On March 21, 2019, we completed the sale of all of the capital stock of Performance Doorset Solutions Limited ("PDS") for nominal consideration. We have had ~~and will continue to have~~ no continuing involvement with PDS subsequent to the sale, and the purchasers are not considered to be a related party. The ~~disposition~~divestiture of this business resulted in a loss on disposal of subsidiaries of $4.6 million, which was recognized ~~during~~in the first ~~six months~~quarter of 2019 in the Europe segment. The total charge consists of $3.6 million relating to the write-off of the net assets sold and other professional fees and $1.0 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive ~~income (loss).~~loss.

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

3. Accounts Receivable

Our customers consist mainly of wholesale distributors, dealers ~~homebuilders~~ and retail home centers. Our ~~ten~~10 largest customers accounted for ~~52.6%~~53.7% and ~~54.6%~~44.9% of total accounts receivable as of ~~June 30, 2019,~~March 29, 2020, and December ~~30, 2018,~~29, 2019, respectively. Our largest customer, The Home Depot, Inc., accounted for more than 10% of the consolidated gross accounts receivable balance as of ~~June 30, 2019~~,March 29, 2020, and December ~~30, 2018.~~29, 2019. The allowance for doubtful accounts balance was ~~$2.5~~$2.2 million and ~~$2.1~~$1.8 million as of ~~June 30, 2019,~~March 29, 2020, and December ~~30, 2018,~~29, 2019, 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 ~~that~~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 expense within the condensed consolidated statements of comprehensive income.

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

~~(Unaudited)~~

4. Inventories

The amounts of inventory on hand were as follows as of the dates indicated:


(In thousands)	June 30, 2019			December 30, 2018			(In thousands)	March 29, 2020		December 29, 2019
Raw materials	$	183,240		$	189,145		Raw materials	$	175,775	$	179,155
Finished goods	80,577			69,026			Finished goods	72,693		70,211
Provision for obsolete or aged inventory	(9,192		)	(7,764		)	Provision for obsolete or aged inventory	(7,493)		(7,136)
Inventories, net	$	254,625		$	250,407		Inventories, net	$	240,975	$	242,230

5. ~~Property, Plant and Equipment~~

~~The carrying amounts of our property, plant and equipment and accumulated depreciation were as follows as of the dates indicated:~~

(In thousands) June 30,
2019 December 30,
2018
Land $ 29,738
$ 30,653
Buildings 179,313
179,888
Machinery and equipment 726,142
724,431
Property, plant and equipment, gross 935,193
934,972
Accumulated depreciation (340,655 ) (325,219 )
Property, plant and equipment, net $ 594,538
$ 609,753

Total depreciation expense was $18.2 million and $36.5 million in the three and six months ended June 30, 2019, respectively, and $13.7 million and $27.6 million for the three and six months ended July 1, 2018, respectively. Depreciation expense is included primarily within cost of goods sold in the condensed consolidated statements of comprehensive income.

~~6. Leases~~

~~Lease Accounting Policy~~

~~Our updated policy for lease accounting, which we adopted prospectively as of December 31, 2018, is as follows:~~

We determine if a contract is a lease at inception or upon acquisition and reevaluate each time a lease contract is amended or otherwise modified. A lease will be classified as an operating lease if it does not meet any of the criteria for a finance lease. Those criteria include the transfer of ownership of the underlying asset by the end of the lease term; an option to purchase the underlying asset that we would be reasonably certain to exercise; the lease term is for the major part of the remaining economic life of the underlying asset; the present value of the sum of the lease payments and any residual value guaranteed by us that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset or if the underlying asset is of such a specialized nature that it is expected to have no alternative use to us at the end of the lease term.

The assets and liabilities relating to operating leases are included in operating lease ROU assets, accrued expenses, and long-term operating lease liabilities in our consolidated balance sheets. The assets and liabilities relating to finance leases are included in property, plant and equipment and other long-term liabilities in our consolidated balance sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the respective lease commencement date based on the present value of lease payments over the expected lease term.

~~Table of Contents~~

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

~~(Unaudited)~~

Since our leases do not specify implicit discount rates, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any initial direct costs and is adjusted for lease incentives and prepaid or accrued rent. The lease term begins on the date when the lessor makes the underlying asset available for use to us, and our expected lease terms include options to extend the lease when it is reasonably certain that we will exercise those options. Lease payments are recognized in the consolidated statements of comprehensive income on a straight-line basis over the expected lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet, with the related lease expense recognized on a straight-line basis over the lease term. Lease and non-lease components of a contract are combined into a single lease component for accounting purposes.

~~Current Period Lease Disclosures~~

Our operating leases include leases for real estate (including manufacturing sites, warehouses and offices) and machinery and equipment and we have no material finance leases or subleases. Certain of our operating leases contain provisions for renewal ranging from one to four options of one to ten years each.

Total operating lease expense, including non-cancelable operating leases and short-term leases, was $10.5 million and $19.7 million for the three and six months ended June 30, 2019, respectively, and $7.8 million and $15.5 million for the three and six months ended July 1, 2018, respectively.

The current portion of operating lease liabilities is included with accrued expenses in the consolidated balance sheets. Supplemental balance sheet information as of the period indicated related to operating leases was as follows:

(In thousands) June 30, 2019
Operating lease right-of-use assets $ 143,613

Current portion of operating lease liabilities 21,271
Long-term operating lease liabilities 132,949
Total operating lease liabilities $ 154,220

Weighted average remaining lease term (years) 14.8
Weighted average discount rate 4.9 %

~~Maturities of operating lease liabilities are as follows:~~

(In thousands) June 30, 2019
Fiscal year:
2019 (remaining six months) $ 13,785
2020 27,180
2021 19,123
2022 15,427
2023 12,595
Thereafter 148,522
Total undiscounted lease payments 236,632
Less imputed interest (82,412 )
Total $ 154,220

As of June 30, 2019, we have additional undiscounted commitments for operating leases, primarily for administrative offices, that have not yet commenced of $15.8 million. These operating leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of 10 years.

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

~~(Unaudited)~~

~~7. Goodwill and Intangible Assets~~

~~Changes in the carrying amount of goodwill were as follows as of the dates indicated:~~

(In thousands) North American Residential Europe Architectural Total
December 30, 2018 $ 6,189
$ 63,220
$ 110,888
$ 180,297
Measurement period adjustment 390
—
—
390
Foreign exchange fluctuations 11
55
112
178
June 30, 2019 $ 6,590
$ 63,275
$ 111,000
$ 180,865

During the six months ended June 30, 2019, we finalized the purchase price allocation for the BWI acquisition, which resulted in a $0.4 million increase in goodwill due to final working capital adjustments. During the fourth quarter of 2018, we performed our annual quantitative impairment test of goodwill for all of our reporting units, including the Architectural reporting unit, determining that goodwill was not impaired based upon the forecasts utilized in that test. While there was no identification of potential impairment at that time, it is possible that the estimate of discounted cash flows for the Architectural reporting unit may change in the near term based upon actual results and updated forward-looking forecasts, resulting in the need to write down goodwill to its fair value. While an interim impairment test of the Architectural reporting unit’s goodwill was not required during the six months ended June 30, 2019, it is possible that such a test could be required during future interim periods.

~~The cost and accumulated amortization values of our intangible assets were as follows as of the dates indicated:~~

June 30, 2019 December 30, 2018
(In thousands) Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value
Definite life intangible assets:
Customer relationships $ 173,782
$ (90,916 ) $ 82,866
$ 173,637
$ (81,220 ) $ 92,417
Patents 31,934
(22,978 ) 8,956
31,363
(21,840 ) 9,523
Software 33,358
(30,954 ) 2,404
32,660
(29,296 ) 3,364
Trademarks and tradenames 33,811
(5,694 ) 28,117
33,784
(3,948 ) 29,836
Other 972
(315 ) 657
971
(97 ) 874
Total definite life intangible assets 273,857
(150,857 ) 123,000
272,415
(136,401 ) 136,014
Indefinite life intangible assets:
Trademarks and tradenames 76,597
—
76,597
76,031
—
76,031
Total intangible assets $ 350,454
$ (150,857 ) $ 199,597
$ 348,446
$ (136,401 ) $ 212,045

Amortization of intangible assets was $7.1 million and $14.3 million three and six months ended June 30, 2019, respectively, and $7.2 million and $13.3 million for the three and six months ended July 1, 2018, respectively. Amortization expense is classified within selling, general and administration expenses in the condensed consolidated statements of comprehensive income.

~~Table of Contents~~

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

~~(Unaudited)~~

~~The estimated future amortization of intangible assets with definite lives is as follows:~~

(In thousands) June 30, 2019
Fiscal year:
2019 (remaining six months) $ 13,974
2020 22,392
2021 18,792
2022 15,345
2023 13,859

8. Accrued Expenses

The details of our accrued expenses were as follows as of the dates indicated:


(In thousands)	June 30, 2019		December 30, 2018		(In thousands)	March 29, 2020		December 29, 2019
Accrued payroll	$	46,886	$	39,823	Accrued payroll	$	43,864	$	60,876
Accrued rebates	35,071		36,711		Accrued rebates	30,971		33,556
Current portion of operating lease liabilities	21,271		—		Current portion of operating lease liabilities	21,559		20,980
Accrued interest	13,667		14,570		Accrued interest	5,420		16,913
Other accruals	55,280		56,241		Other accruals	43,528		48,080
Total accrued expenses	$	172,175	$	147,345	Total accrued expenses	$	145,342	$	180,405

6. Long-Term Debt


(In thousands)	March 29, 2020		December 29, 2019
5.375% senior unsecured notes due 2028	$	500,000	$	500,000
5.750% senior unsecured notes due 2026	300,000		300,000
Debt issuance costs	(9,662)		(9,985)

Other long-term debt	852		969
Total long-term debt	$	791,190	$	790,984

~~9. Long-Term Debt~~Table of Contents

(In thousands) June 30,
2019 December 30,
2018
5.625% senior unsecured notes due 2023 $ 500,000
$ 500,000
5.75% senior unsecured notes due 2026 300,000
300,000
Unamortized premium on 2023 Notes 3,245
3,684
Debt issuance costs (7,623 ) (8,394 )
Other long-term debt 1,089
1,108
Total long-term debt $ 796,711
$ 796,398

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Interest expense related to our consolidated indebtedness under senior unsecured notes was ~~$11.5 million and $22.7~~$11.3 million for both the three ~~and six~~ months ended March 29, 2020, and ~~June 30,~~March 31, 2019.

5.375% Senior Notes due 2028

On July 25, 2019, ~~respectively,~~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 ~~$8.9~~August 1 of each year and are due February 1, 2028. The 2028 Notes were issued at par. The net proceeds from issuance of the 2028 Notes, together with available cash balances, were used to redeem the remaining $500.0 million aggregate principal amount of similar senior unsecured notes, including the payment of related premiums, fees and ~~$17.6 million~~expenses.

Information concerning obligations under the 2028 Notes and the indenture governing them are described in detail in our Annual Report on Form 10-K for the ~~three and six months~~year ended ~~July 1, 2018, respectively.~~December 29, 2019. As of March 29, 2020, we were in compliance with all covenants under the indenture governing the 2028 Notes.

~~5.75%~~

5.750% Senior Notes due 2026

On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the "2026 Notes"). The 2026 Notes were issued in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to buyers outside of the United States pursuant to Regulation S under the Securities Act. The 2026 Notes were issued without registration rights and are not listed on any securities exchange. The 2026 Notes bear interest at ~~5.75%~~5.750% per annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and are due September 15, 2026. The 2026 ~~notes~~Notes were issued at par. We received net proceeds of $295.7 million after deducting $4.3 million of debt issuance costs. The debt issuance costs were capitalized as a reduction to the carrying value of debt and are being accreted to interest expense over the term of the 2026 Notes using the effective interest method. The net proceeds from issuance of the 2026 Notes were used to redeem $125.0 million aggregate principal amount of the 2023 Notes (as described below), including the payment of related premiums, fees and expenses, with the balance of the proceeds available for general corporate purposes.

~~Table of Contents~~

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

~~(Unaudited)~~

Subsequent to the closing of the 2026 Notes offering, the 2023 Notes were partially redeemed, with that portion of the notes considered extinguished as of September 12, 2018. Under the terms of the indenture governing the 2023 Notes, we paid the applicable premium of $5.3 million. Additionally, the proportionate shares of the unamortized premium of $1.0 million and unamortized debt issuance costs of $1.1 million relating to the 2023 Notes were written off in conjunction with the partial extinguishment of the 2023 Notes. The resulting loss on extinguishment of debt was $5.4 million and is recorded as part of income (loss) from continuing operations before income tax expense (benefit) in the consolidated statements of comprehensive income. Additionally, the cash payment of interest accrued to, but not including, the redemption date was accelerated to the redemption date.

~~Obligations~~Information concerning obligations under the 2026 Notes ~~are fully~~ and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries. We may redeem the 2026 Notes, in whole or in part, at any time on or after September 15, 2021, at the applicable redemption prices specified under the indenture governing them are described in detail in our Annual Report on Form 10-K for the 2026 Notes, plus accrued and unpaid interest, if any, to the date of redemption. If we experience certain changes of control or consummate certain asset sales and do not reinvest the net proceeds, we must offer to repurchase all of the 2026 Notes at a purchase price of 101.00% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.

The indenture governing the 2026 Notes contains restrictive covenants that, among other things, limit our ability and the ability of our subsidiaries to: (i) incur additional debt and issue disqualified or preferred stock, (ii) make restricted payments, (iii) sell assets, (iv) create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to the parent company, (v) create or incur certain liens, (vi) enter into sale and leaseback transactions, (vii) merge or consolidate with other entities and (viii) enter into transactions with affiliates. The foregoing limitations are subject to exceptions as set forth in the indenture governing the 2026 Notes. In addition, if in the future the 2026 Notes have an investment grade rating from at least two nationally recognized statistical rating organizations, certain of these covenants will be terminated. The indenture governing the 2026 Notes contains customary events of default (subject in certain cases to customary grace and cure periods).year ended December 29, 2019. As of ~~June 30, 2019, and December 30, 2018,~~March 29, 2020, we were in compliance with all covenants under the indenture governing the 2026 Notes.

~~5.625% Senior Notes due 2023~~

On September 27, 2017, and March 23, 2015, we issued $150.0 million and $475.0 million aggregate principal senior unsecured notes, respectively (the "2023 Notes"). The 2023 Notes were issued in two private placements for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act, and to buyers outside the United States pursuant to Regulation S under the Securities Act. The 2023 Notes were issued without registration rights and are not listed on any securities exchange. The 2023 Notes bear interest at 5.625% per annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and are due March 15, 2023. The 2023 Notes were issued at 104.0% and par in 2017 and 2015, respectively, and the resulting premium of $6.0 million is being amortized to interest expense over the term of the 2023 Notes using the effective interest method. We received net proceeds of $153.9 million and $467.9 million, respectively, after deducting $2.1 million and $7.1 million of debt issuance costs in 2017 and 2015, respectively. The debt issuance costs were capitalized as a reduction to the carrying value of debt and are being accreted to interest expense over the term of the 2023 Notes using the effective interest method. The net proceeds from the 2017 issuance of the 2023 Notes are for general corporate purposes. The net proceeds from the 2015 issuance of the 2023 Notes, together with available cash balances, were used to redeem $500.0 million aggregate principal of prior 8.25% senior unsecured notes due 2021 and to pay related premiums, fees and expenses.

Obligations under the 2023 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries. We may redeem the 2023 Notes, in whole or in part, at any time on or after March 15, 2018, at the applicable redemption prices specified under the indenture governing the 2023 Notes, plus accrued and unpaid interest, if any, to the date of redemption. If we experience certain changes of control or consummate certain asset sales and do not reinvest the net proceeds, we must offer to repurchase all of the 2023 Notes at a purchase price of 101.00% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.

The indenture governing the 2023 Notes contains restrictive covenants that, among other things, limit our ability and the ability of our subsidiaries to: (i) incur additional debt and issue disqualified or preferred stock, (ii) make restricted payments, (iii) sell assets, (iv) create or permit restrictions on the ability of our restricted subsidiaries to pay

~~Table of Contents~~

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

~~(Unaudited)~~

dividends or make other distributions to the parent company, (v) create or incur certain liens, (vi) enter into sale and leaseback transactions, (vii) merge or consolidate with other entities and (viii) enter into transactions with affiliates. The foregoing limitations are subject to exceptions as set forth in the indenture governing the 2023 Notes. In addition, if in the future the 2023 Notes have an investment grade rating from at least two nationally recognized statistical rating organizations, certain of these covenants will be replaced with a less restrictive covenant. The indenture governing the 2023 Notes contains customary events of default (subject in certain cases to customary grace and cure periods). As of June 30, 2019, and December 30, 2018, we were in compliance with all covenants under the indenture governing the 2023 Notes.

~~5.375% Senior Notes due 2028~~

On July 25, 2019, we issued $500.0 million aggregate principal amount of 5.375% senior unsecured notes (the "2028 Notes"), which mature on February 1, 2028. The 2028 Notes were issued in a private placement for resale to qualified institutional buyers pursuant to Rule 144A of the Securities Act, and to buyers outside of the United States pursuant to Regulation S under the Securities Act. The proceeds from the 2028 Notes, together with available cash balances, are intended to be used to redeem all $500.0 million aggregate principal amount of our existing 2023 Notes in August 2019 and to pay related premiums, fees and expenses.

ABL Facility

On January 31, 2019, we and certain of our subsidiaries ~~amended and restated our~~entered into a $250.0 million asset-based revolving credit facility (the "ABL Facility") in order to extend the maturity date of the ABL Facility and amend certain other provisions. The amended and restated ABL Facility increased the revolving commitments to $250.0 million from $150.0 million and extended the final maturity date tomaturing on January 31, 2024, ~~from April 9, 2020. The borrowing base is calculated based on a percentage of~~which replaced the value of selected U.S., Canadian and U.K. accounts receivable and inventory, less certain ineligible amounts. Obligations under the ABL Facility are secured by a first priority security interest in such accounts receivable, inventory and other related assets of Masonite and our subsidiaries. In addition, obligations under the ABL Facility are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis, by certain of our directly or indirectly wholly-owned subsidiaries.previous facility. Borrowings under the ABL Facility bear interest at a rate equal to, at our ~~opinion,~~option, (i) the ~~U.S.,~~United States, Canadian or ~~U.K.~~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 by us that, among other things, and subject to certain exceptions, restrict Masonite's ability and the ability of our subsidiaries to: (i) pay dividends on our common shares and make other restricted payments, (ii) make investments and acquisitions, (iii) engage in transactions with our affiliates, (iv) sell assets, (v) merge and (vi) create liens. The Amended and Restated Credit Agreement amended the ABL Facility to, among other things, (i) permit us to incur unlimited unsecured debt as long as such debt does not contain covenants or default provisions that are ~~more restrictive than those contained~~described in detail in our Annual Report on Form 10-K for the ABL Facility, (ii) permit us to incur debt as long as the pro forma secured leverage ratio is less than 4.5 to 1.0, and (iii) add certain additional exceptions and exemptions under the restricted payment, investment and indebtedness covenants (including increasing the amount of certain debt permitted to be incurred under existing exceptions).year ended December 29, 2019. As of ~~June 30, 2019, and December 30, 2018,~~March 29, 2020, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of $185.3 million under our ABL Facility and there were no0 amounts outstanding ~~under the ABL Facility.~~as of March 29, 2020.

~~10.~~Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

7. Commitments and Contingencies

The following discussion describes material developments in previously disclosed legal proceedings that occurred since December ~~30, 2018.~~29, 2019. Refer to Note 9.10. Commitments and Contingencies in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December ~~30, 2018,~~29, 2019, for a full description of the previously disclosed legal proceedings.

~~Table of Contents~~

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

~~(Unaudited)~~

Class Action Proceedings

With respect to the ~~consolidated purported~~putative antitrust class action ~~direct purchaser and end-purchaser complaints filed against us and JELD-WEN, Inc., the judge denied our motion to transfer the proceedings from~~cases pending in the Eastern District of Virginia, ~~Richmond Division.~~the parties are in the midst of class certification briefing and expert discovery. Due to the ongoing coronavirus pandemic, on March 17, 2020, the Court extended all case deadlines by 60 days at the parties’ request. Expert discovery is now expected to close in June 2020. Briefing on class certification discovery is expected to be completed by June 9, 2020. Briefing on dispositive motions is expected to be completed by September 7, 2020. The Court has reset the presumptive trial date as January 11, 2021. On ~~March 1,~~May 4, 2020, the Court ruled on Defendants’ December 16, 2019, ~~we filed a~~partial motion to dismiss ~~all of~~plaintiffs’ reinstated claims, granting it in part and denying it in part. By granting the motion in part, the Court dismissed the indirect purchasers' claims ~~in both of these complaints. A hearing on our motion to dismiss was held on June 11, 2019,~~under Kansas, Utah and ~~as of August 6, 2019,~~Virginia consumer protection laws and it also limited the ~~court had not ruled on the motion. Discovery in the case is proceeding.~~time period during which indirect purchasers from Hawaii, Kansas, Maine, New Hampshire, North Dakota, Utah, Virginia, West Virginia and Wisconsin could claim damages.

In addition, from time to time, we are involved in various claims and legal actions. In the opinion of management, the ultimate disposition of these matters, individually and in the aggregate, will not have a material effect on our financial condition, results of operations or cash flows.

~~11.~~8. Share Based Compensation Plans

Share based compensation expense was ~~$2.1~~$3.5 million and ~~$4.8~~$2.7 million for the three ~~and six~~ months ended ~~June 30,~~March 29, 2020, and March 31, 2019, ~~respectively, and $3.5 million and $6.6 million for the three and six months ended July 1, 2018,~~ respectively. As of ~~June 30, 2019,~~March 29, 2020, the total remaining unrecognized compensation expense related to share based compensation amounted to ~~$22.4~~$24.5 million, which will be amortized over the weighted average remaining requisite service period of 1.9 years. Share based compensation expense is recognized using a graded-method approach, or to a lesser extent a cliff-vesting approach, depending on the terms of the individual award and is classified within selling, general and administration expenses in the condensed consolidated statements of comprehensive income. All share based awards are settled through issuance of new shares of our common stock. The share based award agreements contain restrictions on sale or transfer other than in limited circumstances. All other transfers would cause the share based awards to become null and void.

Equity Incentive Plans

Our equity incentive plans under the 2009 Plan and the 2012 Plan are described in detail and defined in our Annual Report on Form 10-K for the year ended December ~~30, 2018.~~29, 2019. The aggregate number of common shares that can be issued with respect to equity awards under the 2012 Plan cannot exceed 2,000,000 shares plus the number of shares subject to existing grants under the 2009 Plan that may expire or be forfeited or ~~cancelled.~~canceled. As of ~~June 30, 2019,~~March 29, 2020, there were ~~633,214~~675,354 shares of common stock available for future issuance under the 2012 Plan.

Deferred Compensation Plan

We offer to certain of our employees and directors a Deferred Compensation Plan, which is further described ~~in detail~~ in our Annual Report on Form 10-K for the year ended December ~~30, 2018.~~29, 2019. As of ~~June 30, 2019,~~March 29, 2020, the liability and asset relating to deferred compensation had a fair value of ~~$6.1~~$5.1 million and ~~$6.3~~$4.9 million, respectively. Any unfunded gain or loss relating to changes in the fair value of the deferred compensation liability is recognized in selling, general and administration expense in the condensed consolidated statements of comprehensive income. As of ~~June 30, 2019,~~March 29, 2020, 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 2009 Plan and the 2012 Plan, which entitle the recipient to the appreciation in value of a number of common shares over the exercise price over a period of time, each as specified in the applicable award agreement. The exercise price of any SAR granted may not be less than the fair market value of our common shares on the date of grant. The compensation expense for the SARs is measured based on the fair value of the SARs at the date of grant and is recognized over the requisite service period. The SARs vest over a maximum of 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.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The total fair value of SARs vested was $0.9 million and $1.1 million during the ~~six~~three months ended ~~June 30, 2019.~~

Six Months Ended June 30, 2019 Stock Appreciation Rights Aggregate Intrinsic Value (in thousands) Weighted Average Exercise Price Average Remaining Contractual Life (Years)
Outstanding, beginning of period 514,313
$ 7,254
$ 39.01
4.6
Granted 111,230

57.29

Exercised (32,088 ) 1,150
18.73

Forfeited (8,329 ) 67.24

Outstanding, end of period 585,126
$ 8,386
$ 43.20
4.2

Exercisable, end of period 411,119
$ 8,386
$ 35.59
2.1

March 29, 2020, and March 31, 2019, respectively.


Three Months Ended March 29, 2020	Stock Appreciation Rights	Aggregate Intrinsic Value (in thousands)		Weighted Average Exercise Price		Average Remaining Contractual Life (Years)
Outstanding, beginning of period	404,447	$	7,615	$	53.62	4.7
Granted	29,522			87.18
Exercised	(44,850)	2,155		31.82
Forfeited	(4,613)			57.52
Outstanding, end of period	384,506	$	986	$	58.70	5.2

Exercisable, end of period	241,134	$	986	$	55.14	3.3

The value of SARs granted is determined using the ~~Black-Scholes Merton~~Black-Scholes-Merton valuation model, and the corresponding expense is recognized over the average requisite service period of 2.0 years for all periods presented. Expected volatility is based upon the historical volatility of our ~~public industry peers'~~ common shares amongst other considerations. The expected term is calculated using the simplified method, due to insufficient exercise activity during recent years as a basis from which to estimate future exercise patterns. The weighted average grant date assumptions used for the SARs granted were as follows for the periods indicated:

2019 Grants
SAR value (model conclusion) $ 12.26
Risk-free rate 2.2 %
Expected dividend yield 0.0 %
Expected volatility 21.9 %
Expected term (years) 6.0


	2020 Grants
SAR value (model conclusion)	$	21.51
Risk-free rate	1.3		%
Expected dividend yield	0.0		%
Expected volatility	22.4		%
Expected term (years)	6.0

~~Table of Contents~~

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

~~(Unaudited)~~

Restricted Stock Units

We have granted Restricted Stock Units ("RSUs") to directors and certain employees under both the 2009 Plan and the 2012 Plan. The RSUs confer the right to receive shares of our common stock at a specified future date or when certain conditions are met. The compensation expense for the RSUs awarded is based on the fair value of the RSUs at the date of grant and is recognized over the requisite service period. The RSUs vest over a maximum of three years and call for the underlying shares to be delivered no later than 30 days following the vesting date unless the participant is subject to a blackout period. In such case, the shares are to be delivered once the blackout restriction has been lifted. It is assumed that all time-based RSUs will vest. We recognize forfeitures of RSUs in the period in which they occur.

Six Months Ended
June 30, 2019
Total Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value
Outstanding, beginning of period 429,027
$ 66.03
Granted 289,945
56.16
Performance adjustment⁽¹⁾
(21,953 ) 57.51
Delivered (112,709 )
Withheld to cover⁽²⁾
(19,061 )
Forfeited (15,931 )
Outstanding, end of period 549,318
$ 59.86
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	Three Months Ended
	March 29, 2020
	Total Restricted Stock Units Outstanding	Weighted Average Grant Date Fair Value
Outstanding, beginning of period	523,207	$	59.58
Granted	177,866	81.91
Performance adjustment⁽¹⁾	(59,936)	67.50
Delivered	(79,449)
Withheld to cover⁽²⁾	(8,235)
Forfeited	(17,572)
Outstanding, end of period	535,881	$	65.46

____________

(1) Performance-based RSUs are presented as outstanding, granted and forfeited in the table above assuming targets are met and the awards pay out at 100%. These awards are settled with payouts ranging from zero to 200% of the target award value depending on achievement. The performance adjustment represents the difference in shares ultimately awarded due to performance attainment above or below target.


~~(2)~~	A portion of the vested RSUs delivered were net share settled to cover statutory requirements for income and other employment taxes. We remit the equivalent cash to the appropriate taxing authorities. These net share settlements had the effect of share repurchases by us as we reduced and retired the number of shares that would have otherwise been issued as a result of the vesting.

(2) A portion of the vested RSUs delivered were net share settled to cover statutory requirements for income and other employment taxes. We remit the equivalent cash to the appropriate taxing authorities. These net share settlements had the effect of share repurchases by us as we reduced and retired the number of shares that would have otherwise been issued as a result of the vesting.

Approximately ~~three-fourths~~two-thirds of the RSUs granted during the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, 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 expense for RSUs granted induring the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, is being recognized over the weighted average requisite service period of ~~2.3~~2.5 years. ~~132,266~~87,684 RSUs vested during the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, at a fair value of ~~$8.2~~$5.6 million.

~~12.~~9. Restructuring Costs

~~Restructuring costs were not material in the three or six months ended July 1, 2018. The following table summarizes the restructuring charges recorded for the periods indicated:~~

Three Months Ended June 30, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
2019 Plan $ 945
$ 5
$ (118 ) $ 65
$ 897
2018 Plan 368
96
—
—
464
Total Restructuring Costs $ 1,313
$ 101
$ (118 ) $ 65
$ 1,361

~~Table of Contents~~

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

~~(Unaudited)~~

Six Months Ended June 30, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
2019 Plan $ 2,404
$ 336
$ 486
$ 459
$ 3,685
2018 Plan 789
627
—
—
1,416
Total Restructuring Costs $ 3,193
$ 963
$ 486
$ 459
$ 5,101

Cumulative Amount Incurred Through June 30, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
2019 Plan $ 2,404
$ 336
$ 486
$ 459
$ 3,685
2018 Plan 1,064
1,976
—
—
3,040
2016 Plan —
—
3,707
—
3,707
2014 Plan —
—
—
7,993
7,993
Total Restructuring Costs $ 3,468
$ 2,312
$ 4,193
$ 8,452
$ 18,425

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 ~~have begun~~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 will continue through 2020. Additionally, the plan to divest non-core assets was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note ~~13.~~10. As of ~~June 30, 2019,~~March 29, 2020, we expect to incur approximately $9$5 million to ~~$11~~$6 million of additional charges related to the 2019 Plan.

During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects of our United Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more effective and consistent business processes in the Europe segment. In addition, in the North ~~America~~American Residential segment we announced a new facility that will optimize and expand capacity through increased automation, which resulted in the closure of one existing facility and related headcount reductions ~~which completed~~beginning in the second quarter of 2019 (collectively, the "2018 Plan"). Costs associated with the 2018 Plan include severance, retention and closure charges and ~~will continue~~continued throughout 2019. As of ~~June 30, 2019, we expect to incur approximately $1 million of additional charges related to the 2018 Plan.~~

Our restructuring plans initiated in 2016 and prior years are described in detail in our Annual Report on Form 10-K for the year ended December 30, 2018. Costs and actions associated with these restructuring plans include severance and closure charges and are substantially complete. As of June 30, 2019,March 29, 2020, we do not expect to incur any material future charges ~~relating~~related to ~~our restructuring plans initiated in 2016 and prior years. Other plans initiated in prior years did not have a material impact on~~ the ~~consolidated statements of comprehensive income or consolidated statements of cash flows for the three or six months ended June 30, 2019, or July 1,~~ 2018 ~~or on the consolidated balance sheets as of June 30, 2019, or December 30, 2018.~~Plan.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table summarizes the restructuring charges recorded for the periods indicated:


	Three Months Ended March 29, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
2019 Plan	$	728	$	(37)	$	862	$	267	$	1,820
2018 Plan	121		—		—		—		121





Total Restructuring Costs	$	849	$	(37)	$	862	$	267	$	1,941


	Three Months Ended March 31, 2019
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
2019 Plan	$	1,459	$	331	$	604	$	394	$	2,788
2018 Plan	421		531		—		—		952
Total Restructuring Costs	$	1,880	$	862	$	604	$	394	$	3,740


	Cumulative Amount Incurred Through March 29, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
2019 Plan	$	6,187	$	359	$	1,368	$	1,286	$	9,200
2018 Plan	1,866		2,275		—		—		4,141
Total Restructuring Costs	$	8,053	$	2,634	$	1,368	$	1,286	$	13,341

The changes in the accrual for restructuring by activity were as follows for the periods indicated:

(In thousands) December 30,
2018 Severance Closure Costs Cash Payments June 30,
2019
2019 Plan $ —
$ 3,061
$ 624
$ (2,664 ) $ 1,021
2018 Plan 596
1,317
99
(1,801 ) 211
Other 58
—
—
(39 ) 19
Total $ 654
$ 4,378
$ 723
$ (4,504 ) $ 1,251


(In thousands)								(In thousands)	December 29, 2019		Severance		Closure Costs		Cash Payments		March 29, 2020
2019 Plan								2019 Plan	$	1,535	$	187	$	1,633	$	(2,769)	$	586
2018 Plan								2018 Plan	—		103		18		(121)		—
Total								Total	$	1,535	$	290	$	1,651	$	(2,890)	$	586

(In thousands)	December 31, 2017		Cash Payments			July 1, 2018
2016 Plan	$	90	$	(90	)	$	—
Other	194		(70		)	124
Total	$	284	$	(160	)	$	124


(In thousands)	December 30, 2018		Severance		Closure Costs		Cash Payments		March 31, 2019
2019 Plan	$	—	$	2,770	$	18	$	(1,035)	$	1,753
2018 Plan	596		983		(31)		(546)		1,002
Other	58		—		—		(17)		41
Total	$	654	$	3,753	$	(13)	$	(1,598)	$	2,796

~~13.~~

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

10. Asset Impairment

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2019, we recognized ~~non-cash~~ asset impairment charges of ~~$3.1 million and $13.8~~$10.6 million related to two asset groups in the North American Residential segment, as a result of announced plant closures under the 2019 Plan. This amount was determined based upon the excess of the asset groups' carrying values of property, plant and equipment and operating lease right-of-use assets over the respective fair values of such assets, determined using a discounted cash flows 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 asset groups. The fair value of the asset groups was determined to be ~~$9.4~~$11.3 million, compared to a book value of ~~$23.2~~$21.9 million, with the difference representing the asset impairment ~~charge~~charges recorded in the condensed consolidated statements of comprehensive income.

~~14.~~11. Income Taxes

The effective tax rate differs from the Canadian statutory rate of ~~26.4%~~26.7% primarily due to mix of earnings in foreign jurisdictions that are subject to tax rates which differ from the Canadian statutory rate and changes in our valuation allowances. In addition, we recognized ~~$0.1~~$0.7 million of income tax ~~expense~~benefit due to the exercise and delivery of share-based awards during the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, compared to $0.1 ~~million and $0.3~~ million of income tax benefit during the three ~~and six~~ months ended ~~July 1, 2018.~~March 31, 2019.

We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to the uncertainties stemming from the impact of the COVID-19 pandemic on our operations, we have used a discrete effective tax rate method to calculate taxes for the three months ended March 29, 2020.

~~Table~~On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of ~~Contents~~employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We are analyzing the different aspects of the CARES Act and other governmental programs to determine whether any specific provisions may impact us.

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

~~(Unaudited)~~

~~15.~~12. Earnings Per Share

Basic earnings per share ("EPS") is calculated by dividing earnings attributable to Masonite by the ~~weighted-average~~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~~weighted average number of common shares plus the incremental number of shares issuable from non-vested and vested RSUs and SARs outstanding during the period.

(In thousands, except share and per share information) Three Months Ended Six Months Ended
June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018
Net income attributable to Masonite $ 24,242
$ 34,741
$ 28,031
$ 55,567

Shares used in computing basic earnings per share 25,126,065
27,609,132
25,350,488
27,899,461
Effect of dilutive securities:
Incremental shares issuable under share compensation plans 250,553
420,454
295,035
502,753
Shares used in computing diluted earnings per share 25,376,618
28,029,586
25,645,523
28,402,214

Basic earnings per common share attributable to Masonite $ 0.96
$ 1.26
$ 1.11
$ 1.99
Diluted earnings per common share attributable to Masonite $ 0.96
$ 1.24
$ 1.09
$ 1.96

Anti-dilutive instruments excluded from diluted earnings per common share:
Stock appreciation rights 292,295
51,129
292,295
51,129
Restricted stock units 62,847
—
63,407
—

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


(In thousands, except share and per share information)	Three Months Ended
			March 29, 2020			March 31, 2019
Net income attributable to Masonite	$	29,885		$	3,789

Shares used in computing basic earnings per share	24,861,442			25,574,910
Effect of dilutive securities:
Incremental shares issuable under share compensation plans	353,322			376,574
Shares used in computing diluted earnings per share	25,214,764			25,951,484

Basic earnings per common share attributable to Masonite	$	1.20		$	0.15
Diluted earnings per common share attributable to Masonite	$	1.19		$	0.15

Anti-dilutive instruments excluded from diluted earnings per common share	258,773			235,650

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. For all periods presented, common shares issuable for stock instruments which would have had an anti-dilutive impact under the treasury stock method have been excluded from the computation of diluted earnings per share.

~~16.~~13. Segment Information

Our reportable segments are organized and managed principally by end market: North American Residential, Europe and Architectural. The North American Residential reportable segment is the aggregation of the Wholesale and Retail operating segments. The Europe reportable segment is the aggregation of the ~~United Kingdom~~Europe Interior and ~~Central Eastern~~ Europe Exterior operating segments. The Architectural reportable segment consists solely of the Architectural operating segment. The Corporate & Other category includes unallocated corporate costs and the results of immaterial operating segments which were not aggregated into any reportable segment. Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors.

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

~~(Unaudited)~~

Our management reviews net sales and Adjusted EBITDA (as defined below) to evaluate segment performance and allocate resources. Net assets are not allocated to the reportable segments. Adjusted EBITDA is a non-GAAP financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparable to similar measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or operating cash flows determined in accordance with GAAP. Adjusted EBITDA is defined as net income (loss) attributable to Masonite adjusted to exclude the following items:

• depreciation;

• amortization;

• share based compensation expense;

• loss (gain) on disposal of property, plant and equipment;

• registration and listing fees;

• restructuring costs;

• asset impairment;

• loss (gain) on disposal of subsidiaries;

• interest expense (income), net;

• loss on extinguishment of debt;

• other expense (income), net;

• income tax expense (benefit);

• loss (income) from discontinued operations, net of tax; and

• net income (loss) attributable to non-controlling interest.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

This definition of Adjusted EBITDA differs from the definitions of EBITDA contained in the indentures governing the ~~2026~~2028 Notes and ~~2023~~2026 Notes and the credit agreement governing the ABL Facility. Although Adjusted EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, it is used to evaluate and compare the operating performance of the segments and it is one of the primary measures used to determine employee incentive compensation. Intersegment ~~transfers~~sales are ~~negotiated on an arm's length basis,~~recorded using market prices.

Certain information with respect to segments is as follows for the periods indicated:

Three Months Ended June 30, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net sales $ 380,505
$ 81,361
$ 101,146
$ 5,199
$ 568,211
Intersegment sales (895 ) (408 ) (3,965 ) —
(5,268 )
Net sales to external customers $ 379,610
$ 80,953
$ 97,181
$ 5,199
$ 562,943

Adjusted EBITDA $ 63,401
$ 13,408
$ 12,778
$ (9,854 ) $ 79,733


	Three Months Ended July 1, 2018																Three Months Ended March 29, 2020
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other			Total			(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net sales	$	378,936		$	101,389		$	86,552		$	6,317		$	573,194		Net sales	$	384,445	$	71,156	$	94,555	$	5,427	$	555,583
Intersegment sales	(1,070		)	(643		)	(4,755		)	—			(6,468		)	Intersegment sales	(588)		(430)		(3,337)		—		(4,355)
Net sales to external customers	$	377,866		$	100,746		$	81,797		$	6,317		$	566,726		Net sales to external customers	$	383,857	$	70,726	$	91,218	$	5,427	$	551,228

Adjusted EBITDA	$	58,963		$	13,642		$	11,998		$	(6,317	)	$	78,286		Adjusted EBITDA	$	71,696	$	9,679	$	10,582	$	(10,440)	$	81,517


	Three Months Ended March 31, 2019
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net sales	$	354,802	$	84,739	$	88,353	$	6,728	$	534,622
Intersegment sales	(1,077)		(472)		(2,762)		—		(4,311)
Net sales to external customers	$	353,725	$	84,267	$	85,591	$	6,728	$	530,311

Adjusted EBITDA	$	53,621	$	9,997	$	7,614	$	(5,753)	$	65,479

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Six Months Ended June 30, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net sales $ 735,307
$ 166,100
$ 189,499
$ 11,927
$ 1,102,833
Intersegment sales (1,972 ) (880 ) (6,727 ) —
(9,579 )
Net sales to external customers $ 733,335
$ 165,220
$ 182,772
$ 11,927
$ 1,093,254

Adjusted EBITDA $ 117,022
$ 23,405
$ 20,392
$ (15,607 ) $ 145,212

Six Months Ended July 1, 2018
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net sales $ 739,478
$ 189,141
$ 158,116
$ 10,741
$ 1,097,476
Intersegment sales (1,932 ) (1,291 ) (9,648 ) —
(12,871 )
Net sales to external customers $ 737,546
$ 187,850
$ 148,468
$ 10,741
$ 1,084,605

Adjusted EBITDA $ 109,361
$ 23,572
$ 19,658
$ (12,891 ) $ 139,700

A reconciliation of our ~~consolidated Adjusted EBITDA to~~ net income (loss) attributable to Masonite to consolidated Adjusted EBITDA is set forth as follows for the periods indicated:


	Three Months Ended						Six Months Ended							Three Months Ended
(In thousands)	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018			(In thousands)	March 29, 2020		March 31, 2019
Adjusted EBITDA	$	79,733		$	78,286		$	145,212		$	139,700
Less (plus):
Net income attributable to Masonite													Net income attributable to Masonite	$	29,885	$	3,789
Plus:													Plus:
Depreciation	18,201			13,700			36,486			27,634			Depreciation	16,018		18,285
Amortization	7,329			7,325			14,926			13,910			Amortization	6,459		7,597
Share based compensation expense	2,093			3,538			4,773			6,603			Share based compensation expense	3,470		2,680
Loss on disposal of property, plant and equipment	1,322			1,900			4,235			2,512			Loss on disposal of property, plant and equipment	1,622		2,913
Restructuring costs	1,361			—			5,101			—			Restructuring costs	1,941		3,740
Asset impairment	3,142			—			13,767			—			Asset impairment	—		10,625
Loss on disposal of subsidiaries	—			—			4,605			—			Loss on disposal of subsidiaries	—		4,605
Interest expense, net	11,357			9,074			22,484			17,830			Interest expense, net	11,282		11,127
Other income, net of expense	(456		)	(839		)	(1,586		)	(861		)

Other expense (income), net													Other expense (income), net	49		(1,130)
Income tax expense	10,293			7,894			10,351			14,595			Income tax expense	9,639		58
Net income attributable to non-controlling interest	849			953			2,039			1,910			Net income attributable to non-controlling interest	1,152		1,190
Net income attributable to Masonite	$	24,242		$	34,741		$	28,031		$	55,567
Adjusted EBITDA													Adjusted EBITDA	$	81,517	$	65,479

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~17.~~14. Accumulated Other Comprehensive Loss and Other Comprehensive Income (Loss)

A rollforward of the components of accumulated other comprehensive loss is as follows for the periods indicated:


	Three Months Ended						Six Months Ended							Three Months Ended
(In thousands)	June 30, 2019			July 1, 2018			June 30, 2019			July 1, 2018			(In thousands)	March 29, 2020		March 31, 2019
Accumulated foreign currency translation losses, beginning of period	$	(116,143	)	$	(83,829	)	$	(129,930	)	$	(89,824	)	Accumulated foreign currency translation losses, beginning of period	$	(113,336)	$	(129,930)
Foreign currency translation gain	(5,178		)	(31,445		)	7,812			(25,671		)
Foreign currency translation gain (loss)													Foreign currency translation gain (loss)	(38,687)		12,990
Income tax benefit (expense) on foreign currency translation gain	13			(21		)	25			(43		)	Income tax benefit (expense) on foreign currency translation gain	(44)		12
Cumulative translation adjustment recognized upon deconsolidation of subsidiary	—			—			1,001			—			Cumulative translation adjustment recognized upon deconsolidation of subsidiary	—		1,001
Less: foreign currency translation gain (loss) attributable to non-controlling interest	132			(369		)	348			(612		)	Less: foreign currency translation gain (loss) attributable to non-controlling interest	(579)		216
Accumulated foreign currency translation losses, end of period	(121,440		)	(114,926		)	(121,440		)	(114,926		)	Accumulated foreign currency translation losses, end of period	(151,488)		(116,143)

Accumulated pension and other post-retirement adjustments, beginning of period	(22,690		)	(20,106		)	(22,989		)	(20,328		)	Accumulated pension and other post-retirement adjustments, beginning of period	(16,833)		(22,989)

Amortization of actuarial net losses	403			299			807			599			Amortization of actuarial net losses	173		404
Income tax expense on amortization of actuarial net losses	(105		)	(79		)	(210		)	(157		)	Income tax expense on amortization of actuarial net losses	(45)		(105)

Accumulated pension and other post-retirement adjustments	(22,392		)	(19,886		)	(22,392		)	(19,886		)	Accumulated pension and other post-retirement adjustments	(16,705)		(22,690)

Accumulated other comprehensive loss	$	(143,832	)	$	(134,812	)	$	(143,832	)	$	(134,812	)	Accumulated other comprehensive loss	$	(168,193)	$	(138,833)

Other comprehensive income (loss), net of tax	$	(4,867	)	$	(31,246	)	$	9,435		$	(25,272	)	Other comprehensive income (loss), net of tax	$	(38,603)	$	14,302
Less: other comprehensive income (loss) attributable to non-controlling interest	132			(369		)	348			(612		)	Less: other comprehensive income (loss) attributable to non-controlling interest	(579)		216
Other comprehensive income (loss) attributable to Masonite	$	(4,999	)	$	(30,877	)	$	9,087		$	(24,660	)	Other comprehensive income (loss) attributable to Masonite	$	(38,024)	$	14,086

Cumulative translation adjustments are reclassified out of accumulated other comprehensive loss into loss on disposal of ~~subsidiaries.~~subsidiaries in the condensed consolidated statements of comprehensive income. Actuarial net losses are reclassified out of accumulated other comprehensive loss into cost of goods sold in the condensed consolidated statements of 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 March 29, 2020, were $38.7 million primarily driven by the weakening of the Pound Sterling, the Canadian Dollar and the Mexican Peso in comparison to the U.S. Dollar.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~18.~~15. Supplemental Cash Flow Information

Certain cash and non-cash transactions were as follows for the periods indicated:

Six Months Ended
(In thousands) June 30, 2019 July 1, 2018
Transactions involving cash:
Interest paid $ 24,068
$ 17,775
Interest received 1,158
504
Income taxes paid 8,392
4,380
Income tax refunds —
81
Cash paid for operating lease liabilities 12,724
—
Non-cash transactions:
Right-of-use assets acquired under operating leases 48,970
—


	Three Months Ended
(In thousands)	March 29, 2020		March 31, 2019
Transactions involving cash:
Interest paid	$	22,662	$	23,785
Interest received	641		672
Income taxes paid	3,030		1,308
Income tax refunds	392		—
Cash paid for operating lease liabilities	6,835		6,290
Cash paid for finance lease liabilities	317		—
Non-cash transactions from operating activities:
Right-of-use assets acquired under operating leases	3,863		20,289

The following reconciles total cash, cash equivalents and restricted cash as of the dates indicated:

June 30, 2019 December 30, 2018
Cash and cash equivalents $ 112,644
$ 115,656
Restricted cash 10,644
10,485
Total cash, cash equivalents and restricted cash $ 123,288
$ 126,141


	March 29, 2020		December 29, 2019
Cash and cash equivalents	$	114,375	$	166,964
Restricted cash	10,644		10,644
Total cash, cash equivalents and restricted cash	$	125,019	$	177,608

Property, plant and equipment additions in accounts payable were ~~$3.5~~$4.6 million and ~~$8.7~~$6.3 million as of ~~June 30, 2019,~~March 29, 2020, and December ~~30, 2018,~~29, 2019, respectively.

~~19.~~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 ~~value~~values and carrying values of our long-term debt instruments were as follows for the 2026 Notes as of June 30, 2019, was $310.4 million, compared to a carrying value of $296.1 million, and as of December 30, 2018, was $282.6 million, compared to a carrying value of $295.8 million. The estimated fair value of the 2023 Notes as of June 30, 2019, was $514.2 million, compared to a carrying value of $499.5 million, and as of December 30, 2018, was $484.9 million, compared to a carrying value of $499.5 million. periods indicated:


	March 29, 2020						December 29, 2019
(In thousands)	Fair Value		Carrying Value		Fair Value		Carrying Value
5.375% senior unsecured notes due 2028	$	487,668	$	493,835	$	529,105	$	493,648
5.750% senior unsecured notes due 2026	$	293,249	$	296,503	318,846		296,367

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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MASONITE INTERNATIONAL CORPORATION

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 ~~June 30, 2019,~~March 29, 2020, and ~~July 1, 2018.~~March 31, 2019. 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 December ~~30, 2018.~~29, 2019. The following discussion should also be read in conjunction with the disclosure under "Special Note Regarding Forward Looking Statements" and "Item 1A. Risk Factors" 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. ~~Certain prior year amounts have been reclassified to conform to the current basis of presentation.~~

Overview

We are a leading global designer, manufacturer and distributor of interior and exterior doors for the new construction and repair, renovation and remodeling sectors of the residential and the non-residential building construction markets. Since 1925, we have provided our customers with innovative products and superior service at compelling values. In order to better serve our customers and create sustainable competitive advantages, we focus on developing innovative products, advanced manufacturing capabilities and technology-driven sales and service solutions.

We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers, lumberyards, commercial and general contractors and architects through well-established wholesale, retail and direct distribution channels as part of our cross-merchandising strategy. Customers are provided a broad product offering of interior and exterior doors and entry systems at various price points. We manufacture a broad line of interior doors, including residential molded, flush, stile and rail, louver and specially-ordered commercial and architectural doors; door components for internal use and sale to other door manufacturers; and exterior residential steel, fiberglass and wood doors and entry systems.

We operate 6563 manufacturing and distribution facilities in 8eight 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 and homebuilders; (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~~three months ended ~~June 30, 2019,~~March 29, 2020, we generated net sales of ~~$733.3~~$383.9 million or ~~67.1%~~69.6%, ~~$165.2~~$70.7 million or ~~15.1%~~12.8% and ~~$182.8~~$91.2 million or ~~16.7%~~16.5% in our North American Residential, Europe and Architectural segments, respectively.

Key Factors Affecting Our Results of Operations

COVID-19

A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and in March 2020 was declared a pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted our business globally. Our first priority with regard to the COVID-19 pandemic is to do everything we can to ensure the safety, health and welfare of our employees, customers, suppliers and others with whom we partner in our

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MASONITE INTERNATIONAL CORPORATION

business activities. Through the use of appropriate risk mitigation and safety practices at our facilities, we are endeavoring to maintain operations to continue supplying the industry during this uncertain time, recognizing the important role our customers and our products play in construction related to providing residential shelter and health care services.

A number of countries, provinces, states, and municipalities have issued orders temporarily requiring persons who were not engaged in essential activities and businesses to remain at home. Other jurisdictions without stay-at-home orders have required non-essential businesses to close. In certain jurisdictions, residential and commercial construction have been designated as an essential business activity. Some of our facilities were temporarily shut down and some remain shut down resulting from the impact of these government orders. For example, our United Kingdom facilities have been closed since March 27, 2020 and other locations could be temporarily idled due to the impacts of COVID-19. Where possible, we have instructed employees to work from home and currently, most customer interaction including order entry and receivables are being effectively handled remotely. Where remote work is not possible, we have taken steps to restrict visitor access to facilities, adjust break times and create additional break areas to help reduce employee density, manage shift schedules to reduce employee contact during shift changes to facilitate proper social distancing and eliminated overtime in many locations, all of which have resulted in decreased production levels. Further, we have modified employee policies related to attendance and the availability of paid and unpaid time off and attendance is voluntary at locations where our operations are exempt from applicable stay-at-home orders and continue to operate.

While we believe we have a strong balance sheet and solid capital structure, we are taking steps to manage our cash flow. During the first quarter, we took several actions to reduce our spending and more closely manage cash during this uncertain period, including prioritizing capital spending for critical maintenance, safety and regulatory projects, placing restrictions on travel and temporarily suspending our share repurchase program and discretionary pension contributions. Although we are aggressively managing our response to the recent COVID-19 pandemic, given the fluid nature of the situation, its impact on our full year fiscal 2020 results and beyond is uncertain. We believe that the most significant elements of uncertainty are the intensity and duration of the impact on construction, renovation and consumer spending, tightening of consumer credit requirements, as well as the ability of our sales channels, supply chain, manufacturing and distribution to continue to operate with minimal disruption for the remainder of fiscal 2020. We believe that COVID-19 will have a material adverse impact on our revenue growth, overall profitability and cash flows in the near term and may lead to higher than normal inventory levels, higher sales-related reserves, potential impairment of goodwill and other long-lived assets, a volatile effective tax rate driven by changes in the mix of earnings across our jurisdictions and an impact on the effectiveness our internal controls over financial reporting. While COVID-19 did not begin to affect our financial results until late in the first quarter of 2020, its impact on our results in the first quarter of 2020 is not indicative of its impact on our results for the remainder of 2020, as evidenced by the decline in our net sales and results of operations in the month of April. As a result, we have taken further actions in April such as the deferral of merit and the implementation of temporary reductions in base pay for all salaried personnel in Canada and the United States not directly involved in plant operations and in cash retainers for our Board of Directors to manage cash flow and reduce spending.

On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. We are analyzing the different aspects of the CARES Act and other similar governmental programs to determine whether any specific provisions may impact us. While we may determine to apply for such programs, there is no guarantee that we will meet any eligibility requirements to participate in such programs, or even if we are able to participate, that such programs will provide meaningful benefit to our business.

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

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spending rates, energy availability and costs, and the effects of governmental initiatives to manage economic conditions.

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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;

•employment rates and consumer confidence;

•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; and

~~employment rates and consumer confidence; and~~

•demographic factors such as immigration and migration of the population and trends in household formation.

Additionally, the United Kingdom's ("UK") anticipated exit from the European Union ("EU") ("Brexit") has created uncertainty in European demand, particularly in the UK, which could have a material adverse effect on the demand for our products in the foreseeable future. The anticipated exit has been postponed due to a failure to reach a deal on exit terms, and the new deadline is currently October 31, 2019.

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.

In the fourth quarter of 2019, we communicated price increases that became effective on February 3, 2020, to our North American Residential customers that, for certain products, were significantly greater than our typical annual increases. We also communicated our intent to incrementally invest $100 million over the next five years in the areas of service and quality improvements, product innovation and end user marketing. While we believe that these initiatives are necessary in order to increase the profile of, and demand for, our products and that they will benefit both us and our customers, we cannot predict whether our efforts will ultimately be successful or how our customers will react to these initiatives which could have a material impact on our results of operations for future periods.

Business Wins and Losses

Our customers consist mainly of wholesalers and retail home centers. In fiscal year ~~2018,~~2019, our top ten customers together accounted for approximately ~~44%~~43% of our net sales and our top customer, The Home Depot, Inc. accounted for approximately ~~18%~~17% of our net sales. 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.

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~~(collectively,~~ (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and will continue through 2020. Additionally, the plan to divest non-core assets was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note ~~13.~~9. As of ~~June 30, 2019,~~March 29, 2020, we expect to incur approximately $9$5 million to ~~$11~~$6 million of additional charges related to the 2019 Plan. Once fully implemented, the actions taken as part of the 2019 Plan are expected to increase our annual earnings and cash flows by approximately ~~$14~~$17 million to ~~$19~~$21 million.

During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects of our United Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more effective and consistent business processes in the Europe segment. In addition, in the North ~~America~~American Residential segment we announced a new facility that will optimize and expand capacity through increased automation, which resulted in the closure of one existing facility and related headcount reductions ~~which completed~~beginning in the second quarter of 2019 (collectively, the "2018 Plan"). Costs associated with the 2018 Plan include severance, retention and closure charges and ~~will continue~~continued throughout 2019. AsAdditionally, the plan to divest non-core assets was determined to be a triggering event requiring a test of ~~June 30, 2019, we expect to incur approximately $1 million~~the carrying value of ~~additional charges related~~the definite-lived assets relating to the ~~2018 Plan. Once fully implemented, the~~divestitures, as further described in Note 9. The actions taken as part of the 2018 Plan are expected to increase our annual earnings and cash flows by approximately $6 million.

~~Foreign Exchange Rate Fluctuation~~

Our financial results may be adversely affected by fluctuating exchange rates. In the six months ended June 30, 2019, approximately 32% of our net sales were generated outside of the United States. In addition, a significant percentage of our costs during the same period were not denominated in U.S. dollars. For example, for most of our manufacturing and distribution facilities, the prices for a significant portion of our raw materials are quoted in the domestic currency of the country where the facility is located or other currencies that are not U.S. dollars. We also have substantial assets outside the United States. As a result, the volatility in the price of the U.S. dollar has exposed, and in the future may continue to expose, us to currency exchange risks. Also, since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on many aspects of our financial results. Changes in currency exchange rates for any country in which we operate may require us to raise the prices of our products in that country or allow our competitors to sell their products at lower prices in that country. Unrealized exchange gains and losses arising from the translation of the financial statements of our non-U.S. functional currency operations are accumulated in the cumulative translation adjustments account in accumulated other comprehensive income (loss).

Since the UK triggered Brexit, there has been instability in global financial and foreign exchange markets, including volatility in the relationship of the Pound Sterling to the U.S. Dollar. The average exchange rate of the Pound Sterling to the U.S. Dollar during the six months ended June 30, 2019, was 6% lower than the average for the same period in 2018, which has impacted our net sales and net income in the Europe segment. Future volatility in the Pound Sterling could continue as the UK negotiates its anticipated exit from the EU. Currently, there is no withdrawal agreement in place for the UK to exit the EU. If the UK and the EU are unable to reach an agreement and the UK exits the EU without an agreement in place, it will likely create further uncertainty and currency volatility, which may increase the cost of goods imported into our UK operations or decrease the profitability of the UK operations. Additionally, since our financial statements are denominated in U.S. Dollars, volatility in the Pound Sterling affects our reported results of operations, balance sheet and cash flows. In the longer term, any impact from Brexit on our UK operations will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations.

~~Inflation~~

An increase in inflation could have a significant impact on the cost of our raw material inputs. Wage inflation, increased prices for raw materials or finished goods used in our products, tariffs and/or interruptions in deliveries of raw materials or finished goods could adversely affect our profitability, margins and net sales, particularly if we are not able to pass these incurred costs on to our customers. In addition, interest rates normally increase during periods of rising inflation. Historically, as interest rates increase, demand for new homes and home improvement products decreases.

Seasonality

Our business is moderately seasonal and our net sales vary from quarter to quarter based upon the timing of the building season in our markets. Severe weather conditions in any quarter, such as unusually prolonged warm or cold conditions, rain, blizzards or hurricanes, could accelerate, delay or halt construction and renovation activity.

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Acquisitions and ~~Disposition~~Divestitures

We ~~have pursued~~are pursuing a strategic initiative of optimizing our global business portfolio. As part of this strategy, in the last several years we have pursued strategic acquisitions targeting companies who produce components for our existing operations, manufacture niche products and provide value-added services. Additionally, we target companies with strong brands, complementary technologies, attractive geographic footprints and opportunities for cost and distribution synergies. We also continuously analyze our operations to determine which businesses, market channels and products create the most value for our customers and acceptable returns for our shareholders.

Acquisitions

•

~~BWI:~~ ~~On November 1, 2018, we completed the acquisition of the operating assets of Bridgewater Wholesalers Inc. ("BWI"~~

•Top Doors: On August 29, 2019, we completed the acquisition of TOPDOORS, s.r.o. ("Top Doors") for total consideration of $22.3 million, subject to certain customary post-closing adjustments. BWI is headquartered in Branchburg, New Jersey, and is a fabricator and distributor of residential interior and exterior door systems, supporting customers in the Mid-Atlantic and Northeastern United States. Their product offerings include residential interior and exterior doors, commercial doors and hardware as well as value added pre-finishing services. Due to the timing of the acquisition, the purchase price allocation was not complete as of the date the financial statements were issued.

•

~~Graham and Maiman:~~ On June 1, 2018, we completed the acquisition of the operating assets of the wood door companies of AADG, Inc., including the brands Graham Manufacturing Corporation and The Maiman Company (collectively, "Graham & Maiman"). We acquired the operating assets of Graham & Maiman for cash consideration of $39.0 million. Graham & Maiman are based in Mason City, Iowa, and Springfield, Missouri. Graham & Maiman provide the non-residential construction industry with a full range of architectural premium and custom grade flush wood doors, architectural stile and rail wood doors, thermal-fused flush wood doors and wood door frames.

•

~~DW3:~~ On January 29, 2018, we completed the acquisition of DW3 Products Holdings Limited ("DW3"), a leading UK provider of high quality premium door solutions and window systems, supplying products under brand names such as Solidor, Residor, Nicedor and Residence. We acquired 100% of the equity interests in DW3, funded solely by cash on hand of $96.3 million, net of cash acquired. DW3 is based in Stoke-on-Trent and Gloucester, England, and their online quick ship capabilities and product portfolio both complement and expand the strategies we are pursuing with our business.

~~Disposition~~


•	~~PDS:~~ On March 21, 2019, we completed the sale of all of the capital stock of Performance Doorset Solutions Limited ("PDS") for nominal consideration. The disposition of this business resulted in a loss on deconsolidation of $4.6 million, which was recognized during the first quarter of 2019 in the Europe segment.

~~Components of Results of Operations~~

~~There have been no material changes to the information provided~~ in the ~~section entitled "Components~~Czech Republic for cash consideration of ~~Results~~$1.8 million, net of ~~Operations" in our Annual Report on Form 10-K~~cash acquired, following a post-closing adjustment. Top Doors is a specialist manufacturer of door frames.

Divestitures

•Window Widgets: On December 13, 2019, we completed the sale of all the capital stock of Window Widgets Limited ("WW"), a leading United Kingdom provider of high quality window systems, for consideration of $1.2 million, net of cash disposed.

•PDS: On March 21, 2019, we completed the ~~year ended December 30, 2018. For~~sale of all of the ~~definition~~capital stock of Performance Doorset Solutions Limited ("PDS"), a leading supplier of custom doors and ~~other information regarding Adjusted EBITDA, please see Note 16. Segment Information~~millwork in the ~~Notes to~~United Kingdom, for nominal consideration. The divestiture of this business resulted in a loss on deconsolidation of $4.6 million, which was recognized during the ~~Condensed Consolidated Financial Statements~~first quarter of 2019 in ~~this Quarterly Report.~~the Europe segment.

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Results of Operations

Three Months Ended Six Months Ended
(In thousands) June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018
Net sales $ 562,943
$ 566,726
$ 1,093,254
$ 1,084,605
Cost of goods sold 434,013
443,052
852,220
855,502
Gross profit 128,930
123,674
241,034
229,103
Gross profit as a % of net sales 22.9 % 21.8 % 22.0 % 21.1 %
Selling, general and administration expenses 78,142
71,851
156,242
140,062
Selling, general and administration expenses as a % of net sales 13.9 % 12.7 % 14.3 % 12.9 %
Restructuring costs 1,361
—
5,101
—
Asset impairment 3,142
—
13,767
—
Loss on disposal of subsidiaries —
—
4,605
—
Operating income 46,285
51,823
61,319
89,041
Interest expense, net 11,357
9,074
22,484
17,830
Other income, net of expense (456 ) (839 ) (1,586 ) (861 )
Income before income tax expense 35,384
43,588
40,421
72,072
Income tax expense 10,293
7,894
10,351
14,595
Net income 25,091
35,694
30,070
57,477
Less: net income attributable to non-controlling interests 849
953
2,039
1,910
Net income attributable to Masonite $ 24,242
$ 34,741
$ 28,031
$ 55,567


	Three Months Ended
(In thousands)	March 29, 2020			March 31, 2019
Net sales	$	551,228		$	530,311
Cost of goods sold	416,947			418,207
Gross profit	134,281			112,104
Gross profit as a % of net sales	24.4		%	21.1		%
Selling, general and administration expenses	80,333			78,100
Selling, general and administration expenses as a % of net sales	14.6		%	14.7		%
Restructuring costs	1,941			3,740
Asset impairment	—			10,625
Loss on disposal of subsidiaries	—			4,605
Operating income	52,007			15,034
Interest expense, net	11,282			11,127

Other expense (income), net	49			(1,130)
Income before income tax expense	40,676			5,037
Income tax expense	9,639			58
Net income	31,037			4,979
Less: net income attributable to non-controlling interests	1,152			1,190
Net income attributable to Masonite	$	29,885		$	3,789

Three Months Ended ~~June 30, 2019,~~March 29, 2020, Compared with Three Months Ended ~~July 1, 2018~~March 31, 2019

Net Sales

Net sales in the three months ended ~~June 30, 2019,~~March 29, 2020, were ~~$562.9~~$551.2 million, ~~a decrease~~an increase of ~~$3.8~~$20.9 million or ~~0.7%~~3.9% from ~~$566.7~~$530.3 million in the three months ended ~~July 1, 2018.~~March 31, 2019. Net sales in the ~~second~~first quarter of ~~2019~~2020 were negatively impacted by ~~$7.8~~$2.1 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by ~~$4.0 million or 0.7%.~~$23.0 million. Average unit price increased net sales in the ~~second~~first quarter of ~~2019~~2020 by ~~$36.1~~$20.9 million or ~~6.4%~~3.9% compared to the ~~2018~~2019 period. ~~Our 2018 acquisitions, net of dispositions, contributed $11.4 million or 2.0% of incremental net sales in the second quarter of 2019. Lower~~Higher volumes excluding the incremental impact of acquisitions and ~~dispositions~~divestitures ("base volume") ~~decreased~~increased net sales by ~~$39.8~~$9.4 million or ~~7.0%~~1.8% in the ~~second~~first quarter of ~~2019~~2020 compared to the ~~2018~~2019 period. Our 2019 divestitures, net of acquisition, decreased sales by $7.3 million or 1.4% in the first quarter of 2020. Net sales of components and other products to external customers were ~~$3.7 million lower~~flat in the ~~second~~first quarter of ~~2019~~2020 compared to the ~~2018~~2019 period.

Net Sales and Percentage of Net Sales by Reportable Segment


	Three Months Ended June 30, 2019															Three Months Ended March 29, 2020
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total			(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Sales	$	380,505		$	81,361		$	101,146		$	5,199	$	568,211		Sales	$	384,445		$	71,156		$	94,555		$	5,427	$	555,583
Intersegment sales	(895		)	(408		)	(3,965		)	—		(5,268		)	Intersegment sales	(588)			(430)			(3,337)			—		(4,355)
Net sales to external customers	$	379,610		$	80,953		$	97,181		$	5,199	$	562,943		Net sales to external customers	$	383,857		$	70,726		$	91,218		$	5,427	$	551,228
Percentage of consolidated external net sales	67.4		%	14.4		%	17.3		%						Percentage of consolidated external net sales	69.6		%	12.8		%	16.5		%

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	Three Months Ended July 1, 2018															Three Months Ended March 31, 2019
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total			(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Sales	$	378,936		$	101,389		$	86,552		$	6,317	$	573,194		Sales	$	354,802		$	84,739		$	88,353		$	6,728	$	534,622
Intersegment sales	(1,070		)	(643		)	(4,755		)	—		(6,468		)	Intersegment sales	(1,077)			(472)			(2,762)			—		(4,311)
Net sales to external customers	$	377,866		$	100,746		$	81,797		$	6,317	$	566,726		Net sales to external customers	$	353,725		$	84,267		$	85,591		$	6,728	$	530,311
Percentage of consolidated external net sales	66.7		%	17.8		%	14.4		%						Percentage of consolidated external net sales	66.7		%	15.9		%	16.1		%

North American Residential

Net sales to external customers from facilities in the North American Residential segment in the three months ended ~~June 30, 2019,~~March 29, 2020, were ~~$379.6~~$383.9 million, an increase of ~~$1.7~~$30.2 million or ~~0.4%~~8.5% from ~~$377.9~~$353.7 million in the three months ended ~~July 1, 2018.~~March 31, 2019. Net sales in the ~~second~~first quarter of ~~2019~~2020 were negatively impacted by ~~$2.4~~$0.7 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by ~~$4.1~~$30.9 million or ~~1.1%.~~8.7% due to changes in volume, average unit price and sales of components and other products. Higher base volume increased net sales in the first quarter of 2020 by $18.2 million or 5.1% compared to the 2019 period, primarily due to strong end market demand. Average unit price increased net sales in the ~~second~~first quarter of ~~2019~~2020 by ~~$27.8~~$12.3 million or ~~7.4%~~3.5% compared to the ~~2018 period. Our 2018 acquisition~~2019 period primarily as a result of BWI contributed $12.1 million or 3.2% of incremental net sales in the second quarter of 2019. Lower base volume decreased net sales in the second quarter of 2019 by $33.8 million or 8.9% compared to the 2018 period, due primarily to weak end market conditions.our previously communicated price increases that became effective on February 3, 2020. Net sales of components and other products to external customers were ~~$2.0~~$0.4 million ~~lower~~higher in the ~~second~~first quarter of ~~2019~~2020 compared to the ~~2018~~2019 period.

Europe

Net sales to external customers from facilities in the Europe segment in the three months ended ~~June 30, 2019,~~March 29, 2020, were ~~$81.0~~$70.7 million, a decrease of ~~$19.7~~$13.6 million or ~~19.6%~~16.1% from ~~$100.7~~$84.3 million in the three months ended ~~July 1, 2018.~~March 31, 2019. Net sales in the ~~second~~first quarter of ~~2019~~2020 were negatively impacted by ~~$5.1~~$1.3 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by ~~$14.6~~$12.3 million or ~~14.5%. Our 2019 dispositions~~14.6% due to changes in volume, average unit price and sales of ~~two~~components and other products. Net sales in the first quarter of 2020 were reduced by $7.3 million or 8.7% due to the net impact of divestitures and an acquisition, including lost sales due to the divestitures of three non-core businesses ~~reduced net~~in 2019, partially offset by incremental sales ~~by $11.2 million or 11.1% in~~from the ~~second quarter of 2019 compared to the 2018 period.~~Top Doors acquisition. Lower base volume decreased net sales by ~~$6.9~~$7.0 million or ~~6.9%~~8.3% in the ~~second~~first quarter of ~~2019~~2020 compared to the ~~2018~~2019 period ~~primarily~~partially due to share ~~loss~~declines in the builder ~~channel.~~channel and all of our United Kingdom manufacturing facilities closing the last week of the quarter as a result of COVID-19. Net sales of components and other products to external customers were ~~$1.0~~$0.3 million lower in the ~~second~~first quarter of ~~2019~~2020 compared to the ~~2018~~2019 period. Average unit price increased net sales in the ~~second~~first quarter of ~~2019~~2020 by ~~$4.5~~$2.3 million or ~~4.5%~~2.7% compared to the ~~2018~~2019 period.

Architectural

Net sales to external customers from facilities in the Architectural segment in the three months ended ~~June 30, 2019,~~March 29, 2020, were ~~$97.2~~$91.2 million, an increase of ~~$15.4~~$5.6 million or ~~18.8%~~6.5% from ~~$81.8~~$85.6 million in the three months ended ~~July 1, 2018.~~March 31, 2019. Net sales in the ~~second~~first quarter of ~~2019~~2020 were negatively impacted by ~~$0.3~~$0.1 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have increased by ~~$15.7~~$5.7 million or ~~19.2%~~6.7%. ~~Our 2018 acquisition of Graham & Maiman contributed $10.5 million or 12.8% of incremental net sales in the second quarter of 2019.~~ Average unit price increased net sales in the ~~second~~first quarter of ~~2019~~2020 by ~~$3.8~~$6.3 million or ~~4.6%~~7.4% compared to the ~~2018 period. Higher base volume increased net sales in the second quarter~~2019 period primarily due to delivery of ~~2019 by $1.5 million or 1.8% compared to the 2018 period.~~projects at higher prices along with improved mix. Net sales of components and other products to external customers were ~~$0.1~~$0.7 million ~~lower~~higher in the ~~second~~first quarter of ~~2019~~2020 compared to the ~~2018~~2019 period. Lower base volume decreased net sales in the first quarter of 2020 by $1.3 million or 1.5% compared to the 2019 period primarily due to our focus on more complex projects involving lower volumes but a higher-value mix of products.

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Cost of Goods Sold

Cost of goods sold as a percentage of net sales was ~~77.1%~~75.6% and ~~78.2%~~78.9% for the three months ended ~~June 30,~~March 29, 2020, and March 31, 2019, ~~and July 1, 2018,~~ respectively. Material cost of sales, ~~and~~ direct labor costs and overhead as a percentage of net sales decreased by ~~2.2%~~2.8%, 0.4% and ~~0.5%~~0.2%, ~~respectively.~~respectively, compared to the 2019 period. Partly offsetting these ~~increases, overhead and depreciation as a percentage of net sales in the second quarter of 2019 increased by 1.0% and 0.6%, respectively. Distribution~~decreases, distribution costs in the ~~second~~first quarter of ~~2019 were flat~~2020 increased by 0.1% as a percentage of sales compared to the ~~second~~first quarter of 2018. Within cost of goods sold, we incurred $4.0 million of discrete charges in the second quarter of 2019 related to plant damages and factory start-up costs, which were primarily recorded within overhead. Additionally, overhead2019. Depreciation as a percentage of ~~net~~ sales ~~was negatively impacted by lower volumes, while~~remained flat as compared to the 2019 period. The decrease in material cost of sales as a percentage of net sales was driven by higher average unit prices ~~partly~~and net deflation as a result of material cost savings projects that more than offset bycommodity inflation and an increase in tariffs. Direct labor as a percentage of net sales decreased due to ~~inflation.~~factory productivity initiatives. Overhead as a percentage of net sales decreased due to increased volumes.

Selling, General and Administration Expenses

In the three months ended ~~June 30, 2019,~~March 29, 2020, selling, general and administration ("SG&A") expenses, as a percentage of net sales, were ~~13.9%~~14.6%, as compared to ~~12.7%~~14.7% in the three months ended ~~July 1, 2018, an increase~~March 31, 2019, a decrease of ~~120~~10 basis points.

SG&A expenses in the three months ended ~~June 30, 2019,~~March 29, 2020, were ~~$78.1~~$80.3 million, an increase of ~~$6.2~~$2.2 million from ~~$71.9~~$78.1 million in the three months ended ~~July 1, 2018.~~March 31, 2019. The overall increase was driven by an increase in personnel costs of ~~$4.0~~$3.5 million, ~~incremental SG&A from our 2018 acquisitions (net of dispositions) of $1.9~~primarily due to resource investments to support growth, costs related to employee benefits and incentive compensation, along with a $3.4 million an increase in ~~bad debt expense of $0.7 million and other increases of $1.4 million.~~legal costs related to a previously disclosed lawsuit. These increases were partially offset by a ~~$1.0~~net $3.8 million decrease in non-cash items in SG&A expenses, including ~~share based compensation,~~ depreciation and amortization, ~~deferred compensation and~~ loss on disposal of property, plant and equipment, deferred compensation, and share based compensation, incremental SG&A savings from our 2019 divestitures (net of acquisition) of $0.7 million and favorable foreign exchange impacts of ~~$0.8~~$0.2 million. ~~The increase in personnel costs was primarily due to incentive compensation and the increase from our 2018 acquisitions was driven by amortization of intangible assets.~~

Restructuring Costs ~~Net~~

Restructuring costs in the three months ended ~~June 30,~~March 29, 2020, and March 31, 2019, were ~~$1.4 million. There were no restructuring costs in the three months ended July 1, 2018.~~$1.9 million and $3.7 million, respectively. Restructuring costs in the current year ~~were~~related primarily to the 2019 Plan. Restructuring costs in the prior year period related to the 2019 and 2018 Plans.

Asset Impairment

~~Asset impairment charges in the three months ended June 30, 2019, were $3.1 million.~~ There were no asset impairment charges in the three months ended ~~July 1, 2018.~~March 29, 2020. Asset impairment charges in the ~~current quarter resulted from actions associated with the 2019 Plan.~~

~~Interest Expense, Net~~

~~Interest expense, net, in the~~ three months ended June 30, 2019, was $11.4 million, compared to $9.1 million in the three months ended July 1, 2018. This increase primarily relates to the issuance of $300.0 million aggregate principal amount of additional 2026 Senior Notes on August 27, 2018.

~~Other Income, Net of Expense~~

~~Other income, net of expense, in the three months ended June 30, 2019, was $0.5 million compared to $0.8 million in the three months ended July 1, 2018.~~

~~Income Tax Expense~~

Income tax expense in the three months ended June 30, 2019, was $10.3 million compared to $7.9 million in the three months ended July 1, 2018. This increase was primarily due to the reduction in discrete income tax benefit recognized as well as the mix of income or losses within the tax jurisdictions with various tax rates in which we operate. We recognized discrete items resulting in income tax expense of $0.5 million in the three months ended June 30, 2019, compared to $1.4 million of income tax benefit recorded in the three months ended July 1, 2018.

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~~Segment Information~~

~~The following reconciles Adjusted EBITDA to net income (loss) attributable to Masonite:~~

Three Months Ended June 30, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 63,401
$ 13,408
$ 12,778
$ (9,854 ) $ 79,733
Less (plus):
Depreciation 9,800
2,354
3,505
2,542
18,201
Amortization 437
3,656
2,154
1,082
7,329
Share based compensation expense —
—
—
2,093
2,093
Loss on disposal of property, plant and equipment 1,110
148
49
15
1,322
Restructuring costs 1,313
101
(118 ) 65
1,361
Asset impairment 3,142
—
—
—
3,142
Interest expense, net —
—
—
11,357
11,357
Other (income), net of expense 86
(35 ) 2
(509 ) (456 )
Income tax expense —
—
—
10,293
10,293
Net income attributable to non-controlling interest 684
—
—
165
849
Net income (loss) attributable to Masonite $ 46,829
$ 7,184
$ 7,186
$ (36,957 ) $ 24,242

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Three Months Ended July 1, 2018
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 58,963
$ 13,642
$ 11,998
$ (6,317 ) $ 78,286
Less (plus):
Depreciation 7,090
2,575
2,192
1,843
13,700
Amortization 295
4,058
2,257
715
7,325
Share based compensation expense —
—
—
3,538
3,538
Loss on disposal of property, plant and equipment 472
6
24
1,398
1,900
Interest expense, net —
—
—
9,074
9,074
Other (income), net of expense —
147
—
(986 ) (839 )
Income tax expense —
—
—
7,894
7,894
Net income attributable to non-controlling interest 891
—
—
62
953
Net income (loss) attributable to Masonite $ 50,215
$ 6,856
$ 7,525
$ (29,855 ) $ 34,741

Adjusted EBITDA in our North American Residential segment increased $4.4 million, or 7.5%, to $63.4 million in the three months ended June 30, 2019, from $59.0 million in the three months ended July 1, 2018. Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of $13.9 million and $13.6 million, in the second quarter of 2019 and 2018, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology and research and development.

Adjusted EBITDA in our Europe segment decreased $0.2 million, or 1.5%, to $13.4 million in the three months ended June 30, 2019, from $13.6 million in the three months ended July 1, 2018. Adjusted EBITDA in the Europe segment included corporate allocations of shared costs of $0.2 million in the second quarter of 2019. There were no such allocations in the second quarter of 2018. The allocations generally consist of certain costs of human resources, legal, finance and information technology.

Adjusted EBITDA in our Architectural segment increased $0.8 million, or 6.7%, to $12.8 million in the three months ended June 30, 2019, from $12.0 million in the three months ended July 1, 2018. Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of $2.6 million and $2.2 million, in the second quarter of 2019 and 2018, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology and research and development.

~~Six Months Ended June 30, 2019, Compared with Six Months Ended July 1, 2018~~

~~Net Sales~~

~~Net sales in the six months ended June 30,~~March 31, 2019, were ~~$1,093.3~~$10.6 million an increase of $8.7 million or 0.8% from $1,084.6 million in the six months ended July 1, 2018. Net sales in the first six months of 2019 were negatively impacted by $17.5 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by $26.2 million or 2.4%. Average unit price increased net sales in the first six months of 2019 by $59.6 million or 5.5% compared to the same period in 2018. Our 2018 acquisitions, net of dispositions, contributed $36.2 million or 3.3% of incremental net sales in the first six months of 2019. Lower base volumes decreased net sales by $65.6 million or 6.0% in the first six months of 2019 compared to the same period in 2018. Net sales of components and ~~other products to external customers, were $4.0 million lower in the first six months of 2019 compared to the same period in 2018.~~

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~~Net Sales and Percentage of Net Sales by Reportable Segment~~

Six Months Ended June 30, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 735,307
$ 166,100
$ 189,499
$ 11,927
$ 1,102,833
Intersegment sales (1,972 ) (880 ) (6,727 ) —
(9,579 )
Net sales to external customers $ 733,335
$ 165,220
$ 182,772
$ 11,927
$ 1,093,254
Percentage of consolidated external net sales 67.1 % 15.1 % 16.7 %

Six Months Ended July 1, 2018
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 739,478
$ 189,141
$ 158,116
$ 10,741
$ 1,097,476
Intersegment sales (1,932 ) (1,291 ) (9,648 ) —
(12,871 )
Net sales to external customers $ 737,546
$ 187,850
$ 148,468
$ 10,741
$ 1,084,605
Percentage of consolidated external net sales 68.0 % 17.3 % 13.7 %

~~North American Residential~~

Net sales to external customers from facilities in the North American Residential segment in the six months ended June 30, 2019, were $733.3 million, a decrease of $4.2 million or 0.6% from $737.5 million in the six months ended July 1, 2018. Net sales in the first six months of 2019 were negatively impacted by $5.8 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by $1.6 million or 0.2%. Average unit price increased net sales in the first six months of 2019 by $48.2 million or 6.5% compared to the same period in 2018. Our 2018 acquisition of BWI contributed $23.5 million or 3.2% of incremental net sales in the first six months of 2019. Lower base volume decreased net sales by $66.2 million or 9.0% in the first six months of 2019 compared to the same period in 2018 due primarily to weak end market conditions. Net sales of components and other products to external customers were $3.9 million lower in the first six months of 2019 compared to the same period in 2018.

~~Europe~~

Net sales to external customers from facilities in the Europe segment in the six months ended June 30, 2019, were $165.2 million, a decrease of $22.6 million or 12.0% from $187.8 million in the six months ended July 1, 2018. Net sales in 2019 were negatively impacted by $10.8 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by $11.8 million or 6.3%. Net sales in the first six months of 2019 were reduced by $11.7 million or 6.2% due to the net impact of acquisitions and dispositions, including lost sales due to the dispositions of two non-core businesses, partly offset by incremental sales from the DW3 acquisition. Lower base volume decreased net sales in the first six months of 2019 by $2.3 million or 1.2% compared to the same period in 2018. Net sales of components and other products to external customers were $2.3 million lower in the first six months of 2019 compared to the same period in 2018. Average unit price increased net sales in the first six months of 2019 by $4.5 million or 2.4% compared to the same period in 2018.

~~Architectural~~

Net sales to external customers from facilities in the Architectural segment in the six months ended June 30, 2019, were $182.8 million, an increase of $34.3 million or 23.1% from $148.5 million in the six months ended July 1, 2018. Net sales in 2019 were negatively impacted by $0.8 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have increased by $35.1 million or 23.6%. Our 2018 acquisition of Graham & Maiman contributed $24.3 million or 16.4% of incremental net sales in the first six months of 2019. Average unit price increased net sales in the first six months of 2019 by $6.9 million or 4.6% compared to the 2018 period. Higher base

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volume increased net sales in the first six months of 2019 by $2.9 million or 2.0% compared to the 2018 period. Net sales of components and other products to external customers were $1.0 million higher in the first six months of 2019 compared to the 2018 period.

~~Cost of Goods Sold~~

Cost of goods sold as a percentage of net sales was 78.0% and 78.9% for the six months ended June 30, 2019, and July 1, 2018, respectively. Material cost of sales and direct labor costs as a percentage of net sales in the first six months of 2019 decreased by 1.7% and 0.5%, respectively. Partially offsetting these decreases, overhead and depreciation costs as a percentage of net sales increased by 0.8% and 0.5%, respectively, compared to the 2018 period. Distribution costs in the first six months of 2018 were flat as a percentage of sales compared to the first six months of 2018. Within cost of goods sold, we incurred $4.0 million of discrete charges in the first six months of 2019 related to plant damages and factory start-up costs, which were primarily recorded within overhead. Additionally, overhead as a percentage of net sales was negatively impacted by lower volumes, while the decrease in material cost of sales as a percentage of net sales was driven by higher average unit prices, partly offset by increases due to inflation.

~~Selling, General and Administration Expenses~~

In the six months ended June 30, 2019, selling, general and administration ("SG&A") expenses, as a percentage of net sales, were 14.3% compared to 12.9% the six months ended July 1, 2018, an increase of 140 basis points.

SG&A expenses in the six months ended June 30, 2019, were $156.2 million, an increase of $16.1 million from $140.1 million in the six months ended July 1, 2018. The overall increase was driven by an increase in personnel costs of $6.4 million, incremental SG&A from our 2018 acquisitions of $5.6 million (net of dispositions) and a $3.9 million net increase in non-cash items in SG&A expenses, including share based compensation, depreciation and amortization, deferred compensation and loss on disposal of property, plant and equipment. The increase in non-cash charges includes a $2.5 million charge directly related to the divestiture of a non-core business in the Europe segment. Also contributing to the increase were additional marketing costs and bad debt expense of $0.5 million each and other increases of $1.2 million. These increases were partially offset by favorable foreign exchange impacts of $2.0 million. The increase in personnel costs was primarily due to incentive compensation and investments in resources in our Architectural segment to facilitate acquisition integration and support growth and the increase from our 2018 acquisitions was driven by amortization of intangible assets and the increase.

~~Restructuring Costs~~

Restructuring costs in the six months ended June 30, 2019 were $5.1 million. There were no restructuring costs in the six months ended July 1, 2018. Restructuring costs in the current year were related to the 2019 and 2018 Plans.

~~Asset Impairment~~

~~Asset impairment charges in the six months ended June 30, 2019, were $13.8 million. There were no asset impairment charges in the six months ended July 1, 2018. Asset impairment charges in 2019~~ resulted from actions associated with the 2019 Plan.

Loss on Disposal of Subsidiaries

~~Loss on disposal of subsidiaries in the six months ended June 30, 2019 was $4.6 million.~~ There was no loss on disposal of subsidiaries in the ~~six~~three months ended ~~July 1, 2018.~~March 29, 2020. Loss on disposal of subsidiaries in the three months ended March 31, 2019, was $4.6 million. The loss in the ~~current~~prior year ~~was~~ related to the sale of PDS for nominal consideration during the first ~~six months~~quarter of 2019. The total charge ~~consists~~consisted of $3.6 million relating to the write-off of the net assets sold and other professional fees and $1.0 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.

Interest Expense, Net

Interest expense, net, in the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, was ~~$22.5~~$11.3 million, compared to ~~$17.8~~$11.1 million in the ~~six~~three months ended ~~July 1, 2018. This increase primarily relates~~March 31, 2019, remaining relatively flat as compared to the ~~issuance~~2019 period.

Other Expense (Income), Net

Other expense (income), net, in the three months ended March 29, 2020, was minimal as compared to $1.1 million of ~~$300.0 million aggregate principal amount~~income in the three months ended March 31, 2019, primarily due to a change in the fair value of ~~2026 Senior Notes on August 27, 2018.~~plan assets in the deferred compensation rabbi trust.

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~~Other Income, Net of Expense~~

Other income, net of expense, in the six months ended June 30, 2019, was $1.6 million compared to $0.9 million in the six months ended July 1, 2018. The change in other income, net of expense, is primarily due to unrealized gains and losses on foreign currency remeasurements. Also contributing to the change were our portion of dividends and the net gains and losses related to our non-majority owned unconsolidated subsidiaries that are recognized under the equity method of accounting and other miscellaneous non-operating income net of expenses.

Income Tax Expense

~~Income~~Our income tax expense in the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, was ~~$10.4~~$9.6 million, compared to ~~$14.6~~$0.1 million of income tax expense in the ~~six~~three months ended ~~July 1, 2018. This decrease was~~March 31, 2019. 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.~~operate, as well as a decrease in discrete income tax benefits. We recognized discrete items resulting in income tax benefit of ~~$0.5~~$0.4 million in the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, compared to ~~$1.4~~$1.0 million of income tax benefit recorded in the ~~six~~three months ended ~~July 1, 2018, primarily attributable to the recognition of a deferred tax asset through reversal of a valuation allowance.~~March 31, 2019.

Segment Information


	Three Months Ended March 29, 2020
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Adjusted EBITDA	$	71,696		$	9,679		$	10,582		$	(10,440)	$	81,517
Adjusted EBITDA as a percentage of segment net sales	18.7		%	13.7		%	11.6		%			14.8		%

~~Segment Information~~

Six Months Ended July 1, 2018
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 109,361
$ 23,572
$ 19,658
$ (12,891 ) $ 139,700
Adjusted EBITDA as a percentage of segment net sales 14.8 % 12.5 % 13.2 % 12.9 %

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	Three Months Ended March 31, 2019
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Adjusted EBITDA	$	53,621		$	9,997		$	7,614		$	(5,753)	$	65,479
Adjusted EBITDA as a percentage of segment net sales	15.2		%	11.9		%	8.9		%			12.3		%

The following reconciles ~~Adjusted EBITDA to~~ net income (loss) attributable to ~~Masonite:~~Masonite to Adjusted EBITDA:

Six Months Ended June 30, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 117,022
$ 23,405
$ 20,392
$ (15,607 ) $ 145,212
Less (plus):
Depreciation 18,879
4,736
6,246
6,625
36,486
Amortization 886
7,621
4,247
2,172
14,926
Share based compensation expense —
—
—
4,773
4,773
Loss on disposal of property, plant and equipment 1,451
2,617
146
21
4,235
Restructuring costs 3,193
963
486
459
5,101
Asset impairment 13,767
—
—
—
13,767
Loss on disposal of subsidiaries —
4,605
—
—
4,605
Interest expense, net —
—
—
22,484
22,484
Other (income), net of expense 86
(174 ) 2
(1,500 ) (1,586 )
Income tax expense —
—
—
10,351
10,351
Net income attributable to non-controlling interest 1,670
—
—
369
2,039
Net income (loss) attributable to Masonite $ 77,090
$ 3,037
$ 9,265
$ (61,361 ) $ 28,031


	Six Months Ended July 1, 2018													Three Months Ended March 29, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other			Total			(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Adjusted EBITDA	$	109,361	$	23,572	$	19,658	$	(12,891	)	$	139,700
Less (plus):
Net income (loss) attributable to Masonite													Net income (loss) attributable to Masonite	$	58,811	$	3,483	$	4,580	$	(36,989)	$	29,885
Plus:													Plus:
Depreciation	14,434		4,878		4,222		4,100			27,634			Depreciation	9,364		2,457		2,822		1,375		16,018
Amortization	776		7,297		4,511		1,326			13,910			Amortization	595		3,562		1,922		380		6,459
Share based compensation expense	—		—		—		6,603			6,603			Share based compensation expense	—		—		—		3,470		3,470
Loss on disposal of property, plant and equipment	1,005		6		103		1,398			2,512			Loss on disposal of property, plant and equipment	1,204		3		396		19		1,622
Restructuring costs													Restructuring costs	849		(37)		862		267		1,941

Interest expense, net	—		—		—		17,830			17,830			Interest expense, net	—		—		—		11,282		11,282
Other (income), net of expense	—		182		—		(1,043		)	(861		)

Other expense (income), net													Other expense (income), net	—		211		—		(162)		49
Income tax expense	—		—		—		14,595			14,595			Income tax expense	—		—		—		9,639		9,639
Net income attributable to non-controlling interest	1,861		—		—		49			1,910			Net income attributable to non-controlling interest	873		—		—		279		1,152
Net income (loss) attributable to Masonite	$	91,285	$	11,209	$	10,822	$	(57,749	)	$	55,567
Adjusted EBITDA													Adjusted EBITDA	$	71,696	$	9,679	$	10,582	$	(10,440)	$	81,517

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	Three Months Ended March 31, 2019
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net income (loss) attributable to Masonite	$	30,261	$	(4,147)	$	2,079	$	(24,404)	$	3,789
Plus:
Depreciation	9,079		2,382		2,741		4,083		18,285
Amortization	449		3,965		2,093		1,090		7,597
Share based compensation expense	—		—		—		2,680		2,680
Loss on disposal of property, plant and equipment	341		2,469		97		6		2,913
Restructuring costs	1,880		862		604		394		3,740
Asset impairment	10,625		—		—		—		10,625
Loss on disposal of subsidiaries	—		4,605		—		—		4,605
Interest expense, net	—		—		—		11,127		11,127

Other expense (income), net	—		(139)		—		(991)		(1,130)
Income tax expense	—		—		—		58		58
Net income attributable to non-controlling interest	986		—		—		204		1,190
Adjusted EBITDA	$	53,621	$	9,997	$	7,614	$	(5,753)	$	65,479

Adjusted EBITDA in our North American Residential segment increased ~~$7.6~~$18.1 million, or ~~6.9%~~33.8%, to ~~$117.0~~$71.7 million in the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, from ~~$109.4~~$53.6 million in the ~~six~~three months ended ~~July 1, 2018.~~March 31, 2019. Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of ~~$27.9~~$16.3 million and ~~$27.3~~$14.0 million, in the first ~~six months~~quarter of ~~2019~~2020 and ~~2018,~~2019, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, ~~and~~ research and ~~development.~~

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development and share based compensation.

Adjusted EBITDA in our Europe segment decreased ~~$0.2~~$0.3 million, or ~~0.8%~~3.0%, to ~~$23.4~~$9.7 million in the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, from ~~$23.6~~$10.0 million in the ~~six~~three months ended ~~July 1, 2018.~~March 31, 2019. Adjusted EBITDA in the Europe segment included corporate allocations of shared costs of ~~$0.5~~$0.3 million in both the first ~~six months~~quarter of 2020 and 2019. ~~There were no such allocations in the first six months of 2018.~~ The allocations generally consist of certain costs of human resources, legal, finance and information technology.

Adjusted EBITDA in our Architectural segment increased ~~$0.7~~$3.0 million, or ~~3.6%~~39.5%, to ~~$20.4~~$10.6 million in the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, from ~~$19.7~~$7.6 million in the ~~six~~three months ended ~~July 1, 2018.~~March 31, 2019. Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of ~~$5.3 million and $4.4~~$2.7 million, in both the first ~~six months~~quarter of ~~2019~~2020 and ~~2018, respectively.~~2019. The allocations generally consist of certain costs of human resources, legal, finance, information technology and research and development.

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") and 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.

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Due to the rapidly evolving and highly uncertain nature and duration of the COVID-10 pandemic and its impact on our customers, suppliers and employees, we are unable to fully estimate the extent of the impact it may have on our future financial condition and liquidity. Accordingly, we have taken actions to reduce spending and manage cash flow, such as reducing our capital spend below the anticipated amount of $70 million to $75 million, as previously noted in Key Factors Affecting Our Results of Operations. 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 ~~June 30, 2019,~~March 29, 2020, we had ~~$112.6~~$114.4 million of cash and cash equivalents, availability under our ABL Facility of ~~$193.5~~$185.3 million and availability under our AR Sales Program of ~~$14.9~~$14.8 million.

Cash Flows

Cash provided by operating activities was ~~$88.2~~$6.0 million during the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, compared to ~~$88.0~~$18.5 million in the ~~six~~three months ended ~~July 1, 2018.~~March 31, 2019. This ~~$0.2~~$12.5 million ~~increase~~decrease in cash provided by operating activities was due to changes in net working capital in the first ~~six~~three months of ~~2019~~2020 compared with the same period in ~~2018,~~2019, partially offset by a ~~$4.6~~$17.4 million ~~decrease~~increase in ~~our~~ net income attributable to Masonite, adjusted for non-cash and non-operating items.

Cash used in investing activities was ~~$39.2~~$17.8 million during the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, compared to ~~$169.9~~$21.2 million in the ~~six~~three months ended ~~July 1, 2018.~~March 31, 2019. This ~~$130.7~~$3.4 million decrease in cash used in investing activities was driven by ~~$135.6~~a $3.2 million ~~of cash used in the DW3 and Graham & Maiman acquisitions (net of cash acquired) in 2018 partially offset by a $4.1 million increase~~decrease in cash additions to property, plant and equipment and ~~an increase~~a net decrease in other investing outflows of ~~$0.8~~$0.2 million in the first ~~six~~three months of ~~2019~~2020 compared to the same period in ~~2018.~~2019.

Cash used in financing activities was ~~$52.5~~$37.0 million during the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, compared to ~~$65.8~~$34.3 million during the ~~six~~three months ended ~~July 1, 2018.~~March 31, 2019. This ~~$13.3~~$2.7 million ~~decrease~~increase in cash used in financing activities was driven by a ~~$12.0~~$1.6 million ~~decrease~~increase in cash used for repurchases of common shares, a $0.7 million increase in distributions to non-controlling interests and ~~a $1.3~~an increase in other financing outflows of $0.4 million ~~decrease in cash used for tax withholding on share based awards~~ in the first ~~six~~three months of ~~2019~~2020 compared to the same period in ~~2018.~~2019.

Share Repurchases

We currently have in place a ~~$600~~$600.0 million share repurchase authorization, stemming from three separate authorizations by our Board of Directors. On February 23, 2016, our Board of Directors authorized a share repurchase program whereby we may repurchase up to $150 million worth of our outstanding common shares and on February 22, 2017, and May 10, 2018, our Board of Directors authorized an additional $200 million and $250 million, respectively (collectively, the "share repurchase programs"). The share repurchase programs have no specified end date and the timing and amount of any share repurchases will be determined by management based on our evaluation of market conditions and other factors. Any repurchases under the share repurchase programs may be made in the open market, in privately negotiated transactions or otherwise, subject to market conditions, applicable legal requirements and other relevant factors. The share repurchase programs do not obligate us to acquire any particular amount of common shares, and they may be suspended or terminated at any time at our discretion. Repurchases under the share repurchase programs are permitted to be made under one or more Rule 10b5-1 plans, which would permit shares to be repurchased when we

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~~might otherwise be precluded from doing so under applicable insider trading laws.~~ During the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, we repurchased and retired ~~953,888~~567,271 of our common shares in the open market at an aggregate cost of ~~$48.7~~$34.8 million as part of the share repurchase ~~programs.~~programs, prior to temporarily suspending our repurchase program on March 18, 2020. During the ~~six~~three months ended ~~July 1, 2018,~~March 31, 2019, we repurchased ~~961,534~~646,102 of our common shares in the open market at an aggregate cost of ~~$60.7~~$33.2 million. As of ~~June 30, 2019,~~March 29, 2020, there was ~~$155.3~~$109.3 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 ~~June 30, 2019,~~March 29, 2020, we do not believe adverse tax consequences exist that restrict our use of cash or cash equivalents in a material manner.

We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations. There has not been a change in the financial condition of a customer that has had a material adverse effect on our results of ~~operations.~~operations in the first quarter of 2020. However, ~~if economic conditions were to deteriorate,~~in light of COVID-19, it is possible ~~that~~ there could be an impact on our results of operations in a future period and this impact could be material.

Accounts Receivable Sales Program

~~We maintain an accounts receivable sales program with a third party (the "AR Sales Program").~~ Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to a third party ~~that~~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

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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 expense within the condensed consolidated statements of comprehensive income.

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 March 29, 2020. The 2028 Notes bear interest at 5.375% per annum. The net proceeds from issuance of the 2028 Notes, together with available cash balances, were used to redeem the remaining $500.0 million aggregate principal amount of similar senior unsecured notes, including the payment of related premiums, fees and expenses. The 2028 Notes were issued under an indenture which contains restrictive covenants that are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of March 29, 2020, we were in compliance with all covenants under the indenture governing the 2028 Notes.

5.750% Senior Notes due 2026

On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the "2026 Notes")~~. The 2026 Notes~~, all of which were ~~issued in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act~~outstanding as of 1933, as amended (the "Securities Act"), and to buyers outside of the United States pursuant to Regulation S under the Securities Act. The 2026 Notes were issued without registration rights and are not listed on any securities exchange.March 29, 2020. The 2026 Notes bear interest at ~~5.75%~~5.750% per ~~annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and are due September 15, 2026.~~annum. The 2026 notes were issued at par. We received net proceeds of $295.7 million after deducting $4.3 million of debt issuance costs. The debt issuance costs were capitalized as a reduction to the carrying value of debt and are being accreted to interest expense over the term of the 2026 Notes using the effective interest method. The net proceeds from issuance of the 2026 Notes were used to redeem $125.0 million aggregate principal amount of the 2023 Notes (as described in the footnotes to the condensed consolidated financial statements), including the payment of related premiums, fees and expenses, with the balance of the proceeds available for general corporate purposes.

~~Obligations~~issued under the 2026 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries. We may redeem the 2026 Notes under certain circumstances specified therein. Thean indenture ~~governing the 2026 Notes~~which contains restrictive covenants that ~~among other things, limit~~are described in detail in our ~~ability and~~Annual Report on Form 10-K for the ability of our subsidiaries to: (i) incur additional debt and issue disqualified or preferred stock, (ii) make restricted payments, (iii) sell assets, (iv) create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to the parent company, (v) create or incur certain liens, (vi) enter into sale and leaseback transactions, (vii) merge or consolidate with other entities and (viii) enter into transactions with affiliates. The foregoing limitations are subject to exceptions as set forth in the indenture governing the 2026 Notes. In addition, if in the future the 2026 Notes have an investment grade rating from at least two nationally recognized statistical rating organizations, certain of these covenants will be terminated. The indenture

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~~MASONITE INTERNATIONAL CORPORATION~~

~~governing the 2026 Notes contains customary events of default (subject in certain cases to customary grace and cure periods).~~year ended December 29, 2019. As of ~~June 30, 2019, and December 30, 2018,~~March 29, 2020, we were in compliance with all covenants under the indenture governing the 2026 Notes.

Obligations under the 2023 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries. We may redeem the 2023 Notes under certain circumstances specified therein. The indenture governing the 2023 Notes contains restrictive covenants that, among other things, limit our ability and our subsidiaries' ability to: (i) incur additional debt and issue disqualified or preferred stock, (ii) make restricted payments, (iii) sell assets, (iv) create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to us, (v) create or incur certain liens, (vi) enter into sale and leaseback transactions, (vii) merge or consolidate with other entities and (viii) enter into transactions with affiliates. The foregoing limitations are subject to exceptions as set forth in the indenture governing the 2023 Notes. In addition, if in the future the 2023 Notes have an investment grade rating from at least two nationally recognized statistical rating organizations, certain of these covenants will be replaced with a less restrictive covenant. The indenture governing the 2023 Notes contains customary events of default (subject in certain cases to customary grace and cure periods). As of June 30, 2019, and December 30, 2018, we were in compliance with all covenants under the indenture governing the 2023 Notes.

ABL Facility

On January 31, 2019, we and certain of our subsidiaries ~~amended and restated our~~entered into a $250.0 million asset-based revolving credit facility (the "ABL Facility") in order to extend the maturity date of the ABL Facility and amend certain other provisions. The amended and restated ABL Facility increased the revolving commitments to $250.0 million from $150.0 million and extended the final maturity date tomaturing on January 31, 2024, ~~from April 9, 2020. The borrowing base is calculated based on a percentage of~~which replaced the value of selected U.S., Canadian and U.K. accounts receivable and inventory, less certain ineligible amounts. Obligations under the ABL Facility are secured by a first priority security interest in such accounts receivable, inventory and other related assets of Masonite and our subsidiaries. In addition, obligations under the ABL Facility are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis, by certain of our directly or indirectly wholly-owned subsidiaries.previous facility. Borrowings under the ABL Facility bear interest at a rate ~~equal to, at our opinion, (i) the U.S., Canadian or U.K. Base Rate (each as defined~~which is described 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 definedmore detail 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.

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~~MASONITE INTERNATIONAL CORPORATION~~

Note 6. The ABL Facility contains various customary representations, warranties by us and covenants by us that, among other things, and subject to certain exceptions, restrict Masonite's ability and the ability of our subsidiaries to: (i) pay dividends on our common shares and make other restricted payments, (ii) make investments and acquisitions, (iii) engage in transactions with our affiliates, (iv) sell assets, (v) merge and (vi) create liens. The Amended and Restated Credit Agreement amended the ABL Facility to, among other things, (i) permit us to incur unlimited unsecured debt as long as such debt does not contain covenants or default provisions that are ~~more restrictive than those contained~~described in detail in our Annual Report on Form 10-K for the ABL Facility, (ii) permit us to incur debt as long as the pro forma secured leverage ratio is less than 4.5 to 1.0, and (iii) add certain additional exceptions and exemptions under the restricted payment, investment and indebtedness covenants (including increasing the amount of certain debt permitted to be incurred under an existing exception).year ended December 29, 2019. As of ~~June 30, 2019, and December 30, 2018,~~March 29, 2020, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of $185.3 million under our ABL Facility and there were no amounts outstanding ~~under the ABL Facility.~~as of March 29, 2020.

Supplemental Guarantor Financial Information

~~As described above,~~Our obligations under the ~~ABL Facility are secured by a first priority security interest in substantially all of the current assets of Masonite~~2028 Notes and ~~our subsidiaries. In addition, our obligations under the 2023~~2026 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 ~~$499.5~~$491.9 million and ~~$972.4~~$472.9 million for the three ~~and six~~ months ended ~~June 30,~~March 29, 2020, and March 31, 2019, ~~and $497.9 million and $954.0 million for the three and six months ended July 1, 2018,~~ respectively. Our non-guarantor subsidiaries generated Adjusted EBITDA of ~~$67.7~~$68.4 million and ~~$124.8~~$57.1 million for the three ~~and six~~ months ended ~~June 30,~~March 29, 2020, and March 31, 2019, ~~and $65.4 million and $116.2 million for the three and six months ended July 1, 2018,~~ respectively. Our non-guarantor subsidiaries had total assets of $1.9 billion and ~~$1.8~~$2.0 billion and total liabilities of ~~$833.5~~$816.0 million and ~~$711.8~~$834.5 million as of ~~June 30, 2019,~~March 29, 2020, and December ~~30, 2018,~~29, 2019, respectively.

~~Critical Accounting Policies and Estimates~~

There have been no material changes to the information provided in the section entitled "Critical Accounting Policies and Estimates" in our Annual Report on Form 10-K for the year ended December 30, 2018, other than as noted below:

~~Goodwill~~

We evaluate all business combinations for intangible assets that should be recognized and reported apart from goodwill. Goodwill is not amortized but instead is tested annually for impairment on the last day of fiscal November, or more frequently if events or changes in circumstances indicate the carrying amount may not be recoverable. The test for impairment is performed at the reporting unit level by comparing the reporting unit’s carrying amount to its fair value. Possible impairment in goodwill is first analyzed using qualitative factors such as macroeconomic and market conditions, changing costs and actual and projected performance, amongst others, to determine whether it is more likely than not that the book value of the reporting unit exceeds its fair value. If it is determined more likely than not that the book value exceeds fair value, a quantitative analysis is performed to test for impairment. When quantitative steps are determined necessary, the fair values of the reporting units are estimated through the use of discounted cash flow analyses and market multiples. If the carrying amount exceeds fair value, then goodwill is impaired. Any impairment in goodwill is measured by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and comparing the notional goodwill from the fair value allocation to the carrying value of the goodwill.

During the fourth quarter of 2018, we performed our annual quantitative impairment test of goodwill for all of our reporting units, including the Architectural reporting unit, determining that goodwill was not impaired based upon the forecasts utilized in that test. While there was no identification of potential impairment at that time, it is possible that the estimate of discounted cash flows for the Architectural reporting unit may change in the near term based upon actual results and updated forward-looking forecasts, resulting in the need to write down goodwill to its fair value. While an interim impairment test of the Architectural reporting unit’s goodwill was not required during the six months ended June 30, 2019, it is possible that such a test could be required during future interim periods.

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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.

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 on Form 10-K for the year ended December ~~30, 2018.~~29, 2019. We believe there have been no material changes to the information provided therein.

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MASONITE INTERNATIONAL CORPORATION

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 Quarterly 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 ~~10.~~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 on Form 10-K for the year ended December ~~30, 2018.~~29, 2019.

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 on Form 10-K filed for the year ended December ~~30, 2018. There have been no material changes from~~29, 2019. In light of developments relating to the ~~risk factors disclosed in such~~coronavirus ("COVID-19") pandemic occurring subsequent to the filing of our Annual Report on Form ~~10-K.~~10-K, we are supplementing the risk factors discussed in our Annual Report with the following risk factor, which should be read in conjunction with the risk factors contained in our Annual Report.

The scale and scope of the recent coronavirus ("COVID-19") outbreak and resulting pandemic is unknown and is expected to adversely impact our business at least for the near term. The overall impact on our business, operating results, cash flows and/or financial condition will likely be material.

Demand for our product is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand and availability of financing for home buyers. These factors, in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control. The outbreak of COVID-19 has caused the shutdown of large portions of the international economy. The spread of COVID-19 has also caused significant volatility in U.S. and international debt and equity markets, which can negatively impact consumer confidence. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the global economy and consumer confidence. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. As a result of COVID-19, we have closed certain locations as a result of government orders and furloughed employees, as well as significantly altered our operations, thereby reducing production. If the virus continues to cause significant negative impacts to economic conditions or consumer confidence, our results of operations, financial condition and cash flows may be materially adversely impacted and it may lead to higher than normal inventory levels, higher sales-related reserves, potential impairment of goodwill and other long-lived assets, a volatile effective tax rate driven by changes in the mix and earnings across our jurisdictions and an impact on the effectiveness of our internal controls over financial reporting.

The impact of the COVID-19 pandemic is rapidly evolving, and the continuation or a future resurgence of the pandemic could precipitate or aggravate the other risk factors that we identified in our 2019 Annual Report on Form 10-K, which in turn could further materially adversely affect our business, financial condition, liquidity, results of operations and profitability, including in ways that are not currently known to us or that we do not currently consider to present significant risks.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Unregistered Sale of Equity Securities.

None.

(b) Use of Proceeds.

Not applicable.

During the three months ended ~~June 30, 2019,~~March 29, 2020, we repurchased ~~307,786~~567,271 of our common shares in the open market.

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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 1, 2019, through April 28, 2019 166,167
$ 50.85
166,167
$ 162,351,900
April 29, 2019, through May 26, 2019 19,608
52.60
19,608
161,320,531
May 27, 2019, through June 30, 2019 122,011
49.27
122,011
155,309,247
Total 307,786
$ 50.34
307,786


	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
December 30, 2019, through January 26, 2020	700	$	70.98	700	$	143,995,757
January 27, 2020, through February 23, 2020	—	—		—	143,995,757
February 24, 2020, through March 29, 2020	566,571	61.28		566,571	109,276,756
Total	567,271	$	61.29	567,271

We currently have in place a ~~$600~~$600.0 million share repurchase authorization, stemming from three separate authorizations by our Board of Directors. On February 23, 2016, our Board of Directors authorized a share repurchase program whereby we may repurchase up to $150 million worth of our outstanding common shares, and on February 22, 2017, and May 10, 2018, our Board of Directors authorized an additional $200 million and $250 million, respectively (collectively, the "share repurchase programs"). The share repurchase programs have no specified end date and the timing and amount of any share repurchases will be determined by management based on our evaluation of market conditions and other factors. ~~Any repurchases under~~During Q1 2020, we implemented several actions to reduce our spending and more closely manage cash during this uncertain period relating to the COVID-19 pandemic, including temporarily suspending our share repurchase programs may be made in the open market, in privately negotiated transactions or otherwise, subject to market conditions, applicable legal requirements and other relevant factors. The share repurchase programs do not obligate us to acquire any particular amount of common shares, and they may be suspended or terminated at any time at our discretion. Repurchases under the share repurchase programs are permitted to be made under one or more Rule 10b5-1 plans, which would permit shares to be repurchased when we might otherwise be precluded from doing so under applicable insider trading laws.programs. As of ~~June 30, 2019, $155.3~~March 29, 2020, $109.3 million was available for repurchase in accordance with the share repurchase programs.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

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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
~~4.1~~10.5(a)*#		Indenture, dated as of July 25, 2019, by and among the Company, the guarantors named therein and Wells Fargo Bank, National Association, as trustee, governing the 5.375% Senior Notes due 2028 (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K (File No. 001-11796) filed with the Securities and Exchange Commission on July 25, 2019)
10.1*	~~Employment~~Waiver Agreement, dated as of ~~May 1, 2019,~~April 8, 2020, by and between Masonite International Corporation and Howard C. Heckes
~~10.2~~10.5(b)*#		~~Consulting~~	Waiver Agreement, dated as of ~~May 14, 2019,~~April 8, 2020, by and between Masonite International Corporation and ~~Frederick J. Lynch (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-11796) filed with the Securities and Exchange Commission on May 17, 2019)~~Russell T. Tiejema
~~10.3~~10.5(c)*#		~~Omnibus Amendment to Masonite International Corporation restricted stock unit agreements, performance restricted stock unit agreements and stock appreciation rights agreements,~~	Waiver Agreement, dated as of May 14, 2019, by and between Masonite International Corporation and Frederick J. Lynch (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-11796) filed with the Securities and Exchange Commission on May 17, 2019)
~~10.4~~	~~Restricted Stock Unit Agreement pursuant to the Masonite International Corporation Amended and Restated 2012 Equity Incentive Plan, dated as of May 24, 2019,~~April 8, 2020, by and between Masonite International Corporation and James A. Hair ~~(incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K (File No. 001-11796) filed with the Securities and Exchange Commission on May 24, 2019)~~
31.110.5(d)#			Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Randal A. White
10.5(e)*#			Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Robert A. Paxton
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 Comprehensive Income for the three ~~and six~~ months ended ~~June 30, 2019,~~March 29, 2020, and ~~July 1, 2018;~~March 31, 2019; (ii) the Registrant's Condensed Consolidated Balance Sheets as of ~~June 30, 2019,~~March 29, 2020, and December ~~30, 2018;~~29, 2019; (iii) the Registrant's Condensed Consolidated Statements of Changes in Equity for the three ~~and six~~ months ended ~~June 30, 2019,~~March 29, 2020, and ~~July 1, 2018;~~March 31, 2019; (iv) the Registrant's Condensed Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30, 2019,~~March 29, 2020, and ~~July 1, 2018;~~March 31, 2019; 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.

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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:

May 6, 2020

~~MASONITE INTERNATIONAL CORPORATION~~By

~~(Registrant)~~

~~Date:~~

~~August 6, 2019~~

/s/ Russell T. Tiejema

Russell T. Tiejema

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)



(In thousands)	BWI			Graham & Maiman			DW3			Total 2018 Acquisitions
Accounts receivable	$	9,215		$	—		$	8,590		$	17,805
Inventory	10,736			6,090			5,059			21,885
Property, plant and equipment	2,222			19,557			8,196			29,975
Goodwill	3,739			10,996			33,623			48,358
Intangible assets	2,970			2,750			62,873			68,593
Accounts payable and accrued expenses	(6,816		)	(426		)	(10,418		)	(17,660		)
Deferred income taxes	—			—			(11,546		)	(11,546		)
Other assets and liabilities, net	240			—			(68		)	172
Cash consideration, net of cash acquired	$	22,306		$	38,967		$	96,309		$	157,582



(In thousands)	BWI		Expected Useful Life (Years)	Graham & Maiman		Expected Useful Life (Years)	DW3		Expected Useful Life (Years)
Customer relationships	$	1,200	10.0	$	2,400	10.0	$	49,554	10.0
Trademarks and trade names	900		10.0	350		1.5	11,785		10.0
Patents	—			—			1,420		10.0
Other	870		2.2	—			114		3.0
Total intangible assets acquired	$	2,970		$	2,750		$	62,873



	Six Months Ended June 30, 2019
(In thousands)	BWI		Graham & Maiman		DW3		Total 2018 Acquisitions
Net sales	$	46,458	$	35,947	$	39,229	$	121,634
Net income attributable to Masonite	727		1,180		5,466		7,373



	Three Months Ended July 1, 2018
(In thousands, except per share amounts)	Masonite		BWI	Graham & Maiman			Intercompany Eliminations			Pro Forma
Net sales	$	566,726	24,513	$	11,288		$	(11,777	)	$	590,750
Net income attributable to Masonite	34,741		139	(114		)	—			34,766

Basic earnings per common share	$	1.26								$	1.26
Diluted earnings per common share	1.24									1.24



(In thousands)	June 30, 2019
Fiscal year:
2019 (remaining six months)	$	13,785
2020	27,180
2021	19,123
2022	15,427
2023	12,595
Thereafter	148,522
Total undiscounted lease payments	236,632
Less imputed interest	(82,412		)
Total	$	154,220



	2019 Grants
SAR value (model conclusion)	$	12.26
Risk-free rate	2.2		%
Expected dividend yield	0.0		%
Expected volatility	21.9		%
Expected term (years)	6.0