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 ~~September~~March 29, ~~2019~~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, Ontario L4K 2N6 Canada

(Address of principal executive offices)

(800) 895-2723

(Registrant's telephone number, including area code)

____________________________

Securities registered pursuant to Section 12(b) of the Act:

Common Stock (no par value)

DOOR

New York Stock Exchange

(Title of class)

(Trading symbol)

(Name of exchange on which registered)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☑

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

The registrant had outstanding ~~24,882,576~~24,449,287 shares of Common Stock, no par value, as of ~~October 30, 2019.~~

May 1, 2020.

MASONITE INTERNATIONAL CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

~~September~~March 29, ~~2019~~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						Nine Months Ended							Three Months Ended
		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018			March 29, 2020		March 31, 2019
Net sales	Net sales	$	552,192	$	557,148	$	1,645,446	$	1,641,753	Net sales	$	551,228	$	530,311
Cost of goods sold	Cost of goods sold	426,588		446,306		1,278,808		1,301,808		Cost of goods sold	416,947		418,207
Gross profit	Gross profit	125,604		110,842		366,638		339,945		Gross profit	134,281		112,104
Selling, general and administration expenses	Selling, general and administration expenses	77,573		64,530		233,815		204,592		Selling, general and administration expenses	80,333		78,100
Restructuring costs	Restructuring costs	1,994		—		7,095		—		Restructuring costs	1,941		3,740
Asset impairment	Asset impairment	—		—		13,767		—		Asset impairment	—		10,625
Loss on disposal of subsidiaries	Loss on disposal of subsidiaries	—		—		4,605		—		Loss on disposal of subsidiaries	—		4,605
Operating income	Operating income	46,037		46,312		107,356		135,353		Operating income	52,007		15,034
Interest expense, net	Interest expense, net	11,909		10,151		34,393		27,981		Interest expense, net	11,282		11,127
Loss on extinguishment of debt		14,523		5,414		14,523		5,414
Other income, net of expense		(824)		(948)		(2,410)		(1,809)

Other expense (income), net										Other expense (income), net	49		(1,130)
Income before income tax expense	Income before income tax expense	20,429		31,695		60,850		103,767		Income before income tax expense	40,676		5,037
Income tax expense	Income tax expense	4,334		6,151		14,685		20,746		Income tax expense	9,639		58
Net income	Net income	16,095		25,544		46,165		83,021		Net income	31,037		4,979
Less: net income attributable to non-controlling interests	Less: net income attributable to non-controlling interests	1,126		748		3,165		2,658		Less: net income attributable to non-controlling interests	1,152		1,190
Net income attributable to Masonite	Net income attributable to Masonite	$	14,969	$	24,796	$	43,000	$	80,363	Net income attributable to Masonite	$	29,885	$	3,789

Basic earnings per common share attributable to Masonite	Basic earnings per common share attributable to Masonite	$	0.60	$	0.90	$	1.71	$	2.90	Basic earnings per common share attributable to Masonite	$	1.20	$	0.15
Diluted earnings per common share attributable to Masonite	Diluted earnings per common share attributable to Masonite	$	0.59	$	0.89	$	1.68	$	2.85	Diluted earnings per common share attributable to Masonite	$	1.19	$	0.15

Comprehensive income:
Comprehensive income (loss):										Comprehensive income (loss):
Net income	Net income	$	16,095	$	25,544	$	46,165	$	83,021	Net income	$	31,037	$	4,979
Other comprehensive income:
Other comprehensive income (loss):										Other comprehensive income (loss):
Foreign currency translation gain (loss)	Foreign currency translation gain (loss)	(12,733)		2,484		(3,920)		(23,187)		Foreign currency translation gain (loss)	(38,687)		13,991

Amortization of actuarial net losses	Amortization of actuarial net losses	404		300		1,211		899		Amortization of actuarial net losses	173		404
Income tax expense related to other comprehensive income	Income tax expense related to other comprehensive income	(114)		(63)		(299)		(263)		Income tax expense related to other comprehensive income	(89)		(93)
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:	(12,443)		2,721		(3,008)		(22,551)		Other comprehensive income (loss), net of tax:	(38,603)		14,302
Comprehensive income		3,652		28,265		43,157		60,470
Comprehensive income (loss)										Comprehensive income (loss)	(7,566)		19,281
Less: comprehensive income attributable to non-controlling interests	Less: comprehensive income attributable to non-controlling interests	1,004		990		3,391		2,288		Less: comprehensive income attributable to non-controlling interests	573		1,406
Comprehensive income attributable to Masonite		$	2,648	$	27,275	$	39,766	$	58,182
Comprehensive income (loss) attributable to Masonite										Comprehensive income (loss) attributable to Masonite	$	(8,139)	$	17,875

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	ASSETS	September 29, 2019		December 30, 2018		ASSETS	March 29, 2020		December 29, 2019
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	109,955	$	115,656	Cash and cash equivalents	$	114,375	$	166,964
Restricted cash	Restricted cash	10,645		10,485		Restricted cash	10,644		10,644
Accounts receivable, net	Accounts receivable, net	311,074		283,580		Accounts receivable, net	303,111		276,208
Inventories, net	Inventories, net	253,805		250,407		Inventories, net	240,975		242,230
Prepaid expenses	Prepaid expenses	32,044		32,970		Prepaid expenses	33,137		33,190
Income taxes receivable	Income taxes receivable	5,817		3,495		Income taxes receivable	3,492		4,819
Total current assets	Total current assets	723,340		696,593		Total current assets	705,734		734,055
Property, plant and equipment, net	Property, plant and equipment, net	593,225		609,753		Property, plant and equipment, net	612,304		625,585
Operating lease right-of-use assets	Operating lease right-of-use assets	137,918		—		Operating lease right-of-use assets	123,925		121,367
Investment in equity investees	Investment in equity investees	15,953		13,474		Investment in equity investees	17,011		16,100
Goodwill	Goodwill	180,066		180,297		Goodwill	179,386		184,192
Intangible assets, net	Intangible assets, net	189,853		212,045		Intangible assets, net	171,684		184,532
Deferred income taxes	Deferred income taxes	28,737		28,509		Deferred income taxes	24,355		25,945
Other assets	Other assets	40,789		37,794		Other assets	43,650		44,808
Total assets	Total assets	$	1,909,881	$	1,778,465	Total assets	$	1,878,049	$	1,936,584

LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	98,983	$	96,362	Accounts payable	$	97,501	$	84,912
Accrued expenses	Accrued expenses	172,169		147,345		Accrued expenses	145,342		180,405
Income taxes payable	Income taxes payable	1,581		1,599		Income taxes payable	1,537		2,350
Total current liabilities	Total current liabilities	272,733		245,306		Total current liabilities	244,380		267,667
Long-term debt	Long-term debt	790,692		796,398		Long-term debt	791,190		790,984

Long-term operating lease liabilities	Long-term operating lease liabilities	128,491		—		Long-term operating lease liabilities	112,691		110,497
Deferred income taxes	Deferred income taxes	86,412		82,122		Deferred income taxes	88,504		83,465
Other liabilities	Other liabilities	19,929		32,334		Other liabilities	45,028		47,109
Total liabilities	Total liabilities	1,298,257		1,156,160		Total liabilities	1,281,793		1,299,722
Commitments and Contingencies (Note 10)
Commitments and Contingencies (Note 7)						Commitments and Contingencies (Note 7)
Equity:	Equity:					Equity:
Share capital: unlimited shares authorized, no par value, 24,848,264 and 25,835,664 shares issued and outstanding as of September 29, 2019, and December 30, 2018, respectively		558,026		575,207
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						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	Additional paid-in capital	218,411		218,988		Additional paid-in capital	212,826		216,584
Accumulated deficit	Accumulated deficit	(20,581)		(30,836)		Accumulated deficit	(12,203)		(20,047)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(156,153)		(152,919)		Accumulated other comprehensive loss	(168,193)		(130,169)
Total equity attributable to Masonite	Total equity attributable to Masonite	599,703		610,440		Total equity attributable to Masonite	584,413		624,882
Equity attributable to non-controlling interests	Equity attributable to non-controlling interests	11,921		11,865		Equity attributable to non-controlling interests	11,843		11,980
Total equity	Total equity	611,624		622,305		Total equity	596,256		636,862
Total liabilities and equity	Total liabilities and equity	$	1,909,881	$	1,778,465	Total liabilities and equity	$	1,878,049	$	1,936,584

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						Nine Months Ended							Three Months Ended
		September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018			March 29, 2020		March 31, 2019
Total equity, beginning of period	Total equity, beginning of period	$	614,571	$	709,515	$	622,305	$	735,902	Total equity, beginning of period	$	636,862	$	622,305
Share capital:	Share capital:									Share capital:
Beginning of period	Beginning of period	561,543		614,371		575,207		624,403		Beginning of period	558,514		575,207
Common shares issued for delivery of share based awards	Common shares issued for delivery of share based awards	329		345		7,412		11,043		Common shares issued for delivery of share based awards	5,490		6,152
Common shares issued under employee stock purchase plan	Common shares issued under employee stock purchase plan	528		450		1,045		949		Common shares issued under employee stock purchase plan	708		517
Common shares repurchased and retired	Common shares repurchased and retired	(4,374)		(11,201)		(25,638)		(32,430)		Common shares repurchased and retired	(12,729)		(14,386)
End of period	End of period	558,026		603,965		558,026		603,965		End of period	551,983		567,490
Additional paid-in capital:	Additional paid-in capital:									Additional paid-in capital:
Beginning of period	Beginning of period	215,418		219,931		218,988		226,528		Beginning of period	216,584		218,988
Share based compensation expense	Share based compensation expense	3,695		1,640		8,468		8,243		Share based compensation expense	3,470		2,680
Common shares issued for delivery of share based awards	Common shares issued for delivery of share based awards	(329)		(345)		(7,412)		(11,043)		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	Common shares withheld to cover income taxes payable due to delivery of share based awards	(326)		(1,171)		(1,454)		(3,594)		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	Common shares issued under employee stock purchase plan	(47)		(23)		(179)		(102)		Common shares issued under employee stock purchase plan	(311)		(132)
End of period	End of period	218,411		220,032		218,411		220,032		End of period	212,826		214,294
Accumulated deficit:	Accumulated deficit:									Accumulated deficit:
Beginning of period	Beginning of period	(30,225)		(2,023)		(30,836)		(18,150)		Beginning of period	(20,047)		(30,836)
Net income attributable to Masonite	Net income attributable to Masonite	14,969		24,796		43,000		80,363		Net income attributable to Masonite	29,885		3,789
Common shares repurchased and retired	Common shares repurchased and retired	(5,325)		(22,634)		(32,745)		(62,074)		Common shares repurchased and retired	(22,041)		(18,805)
End of period	End of period	(20,581)		139		(20,581)		139		End of period	(12,203)		(45,852)
Accumulated other comprehensive loss:	Accumulated other comprehensive loss:									Accumulated other comprehensive loss:
Beginning of period	Beginning of period	(143,832)		(134,812)		(152,919)		(110,152)		Beginning of period	(130,169)		(152,919)
Other comprehensive income (loss) attributable to Masonite, net of tax	Other comprehensive income (loss) attributable to Masonite, net of tax	(12,321)		2,479		(3,234)		(22,181)		Other comprehensive income (loss) attributable to Masonite, net of tax	(38,024)		14,086
End of period	End of period	(156,153)		(132,333)		(156,153)		(132,333)		End of period	(168,193)		(138,833)
Equity attributable to non-controlling interests:	Equity attributable to non-controlling interests:									Equity attributable to non-controlling interests:
Beginning of period	Beginning of period	11,667		12,048		11,865		13,273		Beginning of period	11,980		11,865
Net income attributable to non-controlling interests	Net income attributable to non-controlling interests	1,126		748		3,165		2,658		Net income attributable to non-controlling interests	1,152		1,190
Other comprehensive income (loss) attributable to non-controlling interests, net of tax	Other comprehensive income (loss) attributable to non-controlling interests, net of tax	(122)		242		226		(370)		Other comprehensive income (loss) attributable to non-controlling interests, net of tax	(579)		216
Dividends to non-controlling interests	Dividends to non-controlling interests	(750)		(1,155)		(3,335)		(3,678)		Dividends to non-controlling interests	(710)		—
End of period	End of period	11,921		11,883		11,921		11,883		End of period	11,843		13,271
Total equity, end of period	Total equity, end of period	$	611,624	$	703,686	$	611,624	$	703,686	Total equity, end of period	$	596,256	$	610,370

Common shares outstanding:	Common shares outstanding:									Common shares outstanding:
Beginning of period	Beginning of period	25,019,940		27,597,126		25,835,664		28,369,877		Beginning of period	24,869,921		25,835,664
Common shares issued for delivery of share based awards	Common shares issued for delivery of share based awards	13,347		34,513		142,475		215,910		Common shares issued for delivery of share based awards	134,911		116,252
Common shares issued under employee stock purchase plan	Common shares issued under employee stock purchase plan	9,904		6,598		18,940		13,984		Common shares issued under employee stock purchase plan	9,426		9,036
Common shares repurchased and retired	Common shares repurchased and retired	(194,927)		(503,166)		(1,148,815)		(1,464,700)		Common shares repurchased and retired	(567,271)		(646,102)
End of period	End of period	24,848,264		27,135,071		24,848,264		27,135,071		End of period	24,446,987		25,314,850

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)


		Nine Months Ended							Three Months Ended
Cash flows from operating activities:	Cash flows from operating activities:	September 29, 2019		September 30, 2018		Cash flows from operating activities:	March 29, 2020		March 31, 2019
Net income	Net income	$	46,165	$	83,021	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:					Adjustments to reconcile net income to net cash flow provided by operating activities:
Loss on disposal of subsidiaries	Loss on disposal of subsidiaries	4,605		—		Loss on disposal of subsidiaries	—		4,605
Loss on extinguishment of debt		14,523		5,414

Depreciation	Depreciation	52,845		43,340		Depreciation	16,018		18,285
Amortization	Amortization	21,980		20,951		Amortization	6,459		7,597
Share based compensation expense	Share based compensation expense	8,468		8,243		Share based compensation expense	3,470		2,680
Deferred income taxes	Deferred income taxes	4,914		9,985		Deferred income taxes	6,160		(3,708)
Unrealized foreign exchange loss (gain)	Unrealized foreign exchange loss (gain)	539		(699)		Unrealized foreign exchange loss (gain)	94		272
Share of income from equity investees, net of tax	Share of income from equity investees, net of tax	(2,479)		(1,472)		Share of income from equity investees, net of tax	(911)		(898)

Pension and post-retirement funding, net of expense	Pension and post-retirement funding, net of expense	(5,789)		(5,976)		Pension and post-retirement funding, net of expense	(1,900)		(1,661)
Non-cash accruals and interest	Non-cash accruals and interest	(309)		605		Non-cash accruals and interest	427		(562)
Loss on sale of property, plant and equipment	Loss on sale of property, plant and equipment	4,940		2,574		Loss on sale of property, plant and equipment	1,622		2,913
Asset impairment	Asset impairment	13,767		—		Asset impairment	—		10,625
Changes in assets and liabilities, net of acquisitions:	Changes in assets and liabilities, net of acquisitions:					Changes in assets and liabilities, net of acquisitions:
Accounts receivable	Accounts receivable	(28,921)		(25,780)		Accounts receivable	(37,990)		(6,587)
Inventories	Inventories	(6,038)		(7,480)		Inventories	(5,388)		(5,902)
Prepaid expenses	Prepaid expenses	677		(2,411)		Prepaid expenses	(491)		1,986
Accounts payable and accrued expenses	Accounts payable and accrued expenses	12,105		12,240		Accounts payable and accrued expenses	(15,163)		(16,193)
Other assets and liabilities	Other assets and liabilities	(3,623)		(2,104)		Other assets and liabilities	2,602		80
Net cash flow provided by operating activities	Net cash flow provided by operating activities	138,369		140,451		Net cash flow provided by operating activities	6,046		18,511
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Additions to property, plant and equipment	Additions to property, plant and equipment	(55,573)		(51,259)		Additions to property, plant and equipment	(17,246)		(20,422)
Cash used in acquisitions, net of cash acquired		(1,858)		(135,276)
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	Proceeds from sale of property, plant and equipment	91		1,404		Proceeds from sale of property, plant and equipment	15		88
Other investing activities	Other investing activities	(1,485)		(2,862)		Other investing activities	(587)		(418)
Net cash flow used in investing activities	Net cash flow used in investing activities	(59,055)		(187,993)		Net cash flow used in investing activities	(17,818)		(21,201)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds from issuance of long-term debt		500,000		300,000
Repayments of long-term debt	Repayments of long-term debt	(500,115)		(125,279)		Repayments of long-term debt	(57)		(6)

Payment of debt extinguishment costs		(14,065)		(5,250)
Payment of debt issuance costs		(6,701)		(4,344)
Tax withholding on share based awards	Tax withholding on share based awards	(1,454)		(3,594)		Tax withholding on share based awards	(1,427)		(1,090)
Distributions to non-controlling interests	Distributions to non-controlling interests	(3,335)		(3,678)		Distributions to non-controlling interests	(710)		—
Repurchases of common shares	Repurchases of common shares	(58,383)		(94,504)		Repurchases of common shares	(34,770)		(33,191)
Net cash flow (used in) provided by financing activities		(84,053)		63,351
Net cash flow used in financing activities						Net cash flow used in financing activities	(36,964)		(34,287)
Net foreign currency translation adjustment on cash	Net foreign currency translation adjustment on cash	(802)		(1,045)		Net foreign currency translation adjustment on cash	(3,853)		1,463
(Decrease) increase in cash, cash equivalents and restricted cash		(5,541)		14,764
Decrease in cash, cash equivalents and restricted cash						Decrease in cash, cash equivalents and restricted cash	(52,589)		(35,514)
Cash, cash equivalents and restricted cash, beginning of period	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	Cash, cash equivalents and restricted cash, at end of period	$	120,600	$	203,328	Cash, cash equivalents and restricted cash, at end of period	$	125,019	$	90,627

See accompanying notes to the condensed consolidated financial statements.

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MASONITE INTERNATIONAL CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business Overview and Significant Accounting Policies

Unless we state otherwise or the context otherwise requires, references to "Masonite," "we," "our," "us" and the "Company" in these notes to the condensed consolidated financial statements refer to Masonite International Corporation and its subsidiaries.

Description of Business

Masonite International Corporation is one of the largest manufacturers of doors in the world, with significant market share in both interior and exterior door products. Masonite operates 6763 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 39-week~~13-week periods are referred to as ~~three- and nine-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,~~2020, and the adoption did not have ~~any~~a material impact on our ~~results~~financial statements and no adjustment was necessary to retained earnings on December 30, 2019.

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

~~In January 2017,~~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 ~~FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment," which amended ASC 350 "Intangibles—Goodwill~~time that accounts receivable are initially recorded based on our historical write-off experience 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~~economic environment as well as our

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~for annual periods beginning after December 15, 2019, and interim periods within those annual periods; early adoption was permitted and prospective application was required.~~expectations of future economic conditions. We ~~have early adopted this guidance prospectively as of December 31, 2018,~~reassess the ~~beginning of fiscal year 2019, and the adoption did~~allowance at each reporting date. When it becomes apparent, based on age or customer circumstances, that such amounts will 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 was supplemented by ASUs 2018-01, 2018-10, 2018-11 and 2019-01. The updated standards aim to increase transparency and comparability among organizations by requiring lessees to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing arrangements. The transition option in ASU 2018-11 allows entities to not apply the standardsbe collected, they are charged to the ~~comparative periods they present in their financial statements in~~allowance. Payments subsequently received are credited to the ~~year of adoption. These ASUs were effective for annual periods beginning after December 15, 2018,~~credit loss expense account included within selling, general 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 recognizedadministration expenses in the consolidated statements of comprehensive ~~income on a straight-line basis over the lease term.~~

~~The adoption of the standard resulted in the recognition of a ROU asset and lease liability~~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

~~2019 Acquisition~~Acquisitions

Top Doors

On August 29, 2019, we completed the acquisition of TOPDOORS, s.r.o. ("Top Doors") based in the Czech Republic for cash consideration of ~~$1.6~~$1.8 million, net of cash acquired. Top Doors is a specialist manufacturer of door frames. The excess purchase price over the fair value of net assets acquired of $1.1 million was allocated to goodwill in our Europe segment. The ~~goodwill principally represents anticipated synergies from Top Doors' integration into our existing Europe door business. The~~ purchase price allocation, net sales, net income (loss) attributable to Masonite and pro forma information for Top Doors are not presented as they were not material for any period presented.

~~2018 Acquisitions~~Divestitures

Window Widgets

On ~~November 1, 2018,~~December 13, 2019, we completed the ~~acquisition~~sale of all of the ~~operating assets~~capital stock of ~~Bridgewater Wholesalers Inc.~~Window Widgets Limited ("~~BWI"~~WW") for ~~cash~~ consideration of ~~$22.3~~$1.2 million, net of cash ~~acquired. BWI is headquartered in Branchburg, New Jersey, and is a fabricator and distributor~~disposed. We have had no continuing involvement with WW subsequent to the sale. The divestiture 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 Residentialthis business ~~and the goodwill is deductible for tax purposes.~~

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

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

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

~~(Unaudited)~~

~~During the nine months ended September 29, 2019, we finalized the purchase price allocation for the BWI acquisition, which~~ resulted in a ~~$0.4~~loss on disposal of subsidiaries of $9.7 million, ~~increase~~which was recognized in ~~goodwill due~~the fourth quarter of 2019 in the Europe segment. The total charge consists of $8.3 million relating to ~~final working capital adjustments. The fair values of intangible assets acquired are based on management's estimates and assumptions including variations~~the write-off of the ~~income approach,~~assets sold and other professional fees and $1.4 million relating to 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.

~~Intangible assets acquired from the 2018 acquisitions consist~~recognition 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~~cumulative translation adjustment out of ~~net sales and net income (loss) attributable to Masonite from the 2018 Acquisitions which have been included in the consolidated statements of~~accumulated other comprehensive ~~income for the periods indicated subsequent to the acquisition date:~~

Three Months Ended September 29, 2019
(In thousands) BWI Graham & Maiman DW3 Total 2018 Acquisitions
Net sales $ 22,074 $ 17,483 $ 19,316 $ 58,873
Net income attributable to Masonite 359 1,324 3,052 4,735

loss.

Nine Months Ended September 29, 2019
(In thousands) BWI Graham & Maiman DW3 Total 2018 Acquisitions
Net sales $ 68,532 $ 53,430 $ 58,545 $ 180,507
Net income attributable to Masonite 1,086 2,504 8,518 12,108

Three Months Ended September 30, 2018
(in thousands) Graham & Maiman DW3 Total 2018 Acquisitions
Net sales $ 18,336 $ 18,470 $ 36,806
Net income attributable to Masonite 845 1,433 2,278

Nine Months Ended September 30, 2018
(in thousands) Graham & Maiman DW3 Total 2018 Acquisitions
Net sales $ 24,602 $ 48,019 $ 72,621
Net income attributable to Masonite 1,147 3,526 4,673

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

~~(Unaudited)~~

~~Pro Forma Information~~

The following unaudited pro forma financial information represents the consolidated financial information as if the acquisitions had been included in our consolidated results beginning on the first day of the fiscal year prior to their respective acquisition dates. The pro forma results have been calculated after adjusting the results of the acquired entities to remove intercompany transactions and transaction costs incurred and to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on the first day of the fiscal year prior to the respective acquisitions, together with the consequential tax effects. The pro forma results do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisitions; the costs to combine the companies' operations; or the costs necessary to achieve these costs savings, operating synergies and revenue enhancements. The pro forma results do not necessarily reflect the actual results of operations of the combined companies' under our ownership and operation.

Three Months Ended September 30, 2018
(In thousands, except per share amounts) Masonite BWI Intercompany Eliminations Pro Forma
Net sales $ 557,148 21,759 $ (10,672) $ 568,235
Net income attributable to Masonite 24,796 123 — 24,919
Basic earnings per common share $ 0.90 $ 0.91
Diluted earnings per common share 0.89 0.89

Nine Months Ended September 30, 2018
(In thousands, except per share amounts) Masonite BWI Graham & Maiman DW3 Intercompany Eliminations Pro Forma
Net sales $ 1,641,753 $ 69,332 $ 26,887 $ 4,918 $ (33,558) $ 1,709,332
Net income attributable to Masonite 80,363 392 89 81 80,925
Basic earnings per common share $ 2.90 $ 2.92
Diluted earnings per common share 2.85 2.87

~~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 ~~nine 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).~~

~~3. Accounts Receivable~~

Our customers consist mainly of wholesale distributors, dealers, homebuilders and retail home centers. Our 10 largest customers accounted for 51.1% and 54.6% of total accounts receivable as of September 29, 2019, and December 30, 2018, respectively. Our largest customer, The Home Depot, Inc., accounted for more than 10% of the consolidated gross accounts receivable balance as of September 29, 2019, and December 30, 2018. The allowance for doubtful accounts balance was $2.2 million and $2.1 million as of September 29, 2019, and December 30, 2018, respectively.

loss.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

3. Accounts Receivable

Our customers consist mainly of wholesale distributors, dealers and retail home centers. Our 10 largest customers accounted for 53.7% and 44.9% of total accounts receivable as of March 29, 2020, and December 29, 2019, respectively. Our largest customer, The Home Depot, Inc., accounted for more than 10% of the consolidated gross accounts receivable balance as of March 29, 2020, and December 29, 2019. The allowance for doubtful accounts balance was $2.2 million and $1.8 million as of March 29, 2020, and December 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.

4. Inventories

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


(In thousands)	(In thousands)	September 29, 2019		December 30, 2018		(In thousands)	March 29, 2020		December 29, 2019
Raw materials	Raw materials	$	184,271	$	189,145	Raw materials	$	175,775	$	179,155
Finished goods	Finished goods	79,148		69,026		Finished goods	72,693		70,211
Provision for obsolete or aged inventory	Provision for obsolete or aged inventory	(9,614)		(7,764)		Provision for obsolete or aged inventory	(7,493)		(7,136)
Inventories, net	Inventories, net	$	253,805	$	250,407	Inventories, net	$	240,975	$	242,230

5. ~~Property, Plant and Equipment~~Accrued Expenses

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

(In thousands) September 29, 2019 December 30,
2018
Land $ 29,578 $ 30,653
Buildings 177,318 179,888
Machinery and equipment 730,789 724,431
Property, plant and equipment, gross 937,685 934,972
Accumulated depreciation (344,460) (325,219)
Property, plant and equipment, net $ 593,225 $ 609,753


(In thousands)	March 29, 2020		December 29, 2019
Accrued payroll	$	43,864	$	60,876
Accrued rebates	30,971		33,556
Current portion of operating lease liabilities	21,559		20,980
Accrued interest	5,420		16,913
Other accruals	43,528		48,080
Total accrued expenses	$	145,342	$	180,405

Total depreciation expense was $16.4 million and $52.8 million in the three and nine months ended September 29, 2019, respectively, and $15.7 million and $43.3 million for the three and nine months ended September 30, 2018, respectively. Depreciation expense is included primarily within cost of goods sold in the condensed consolidated statements of comprehensive income.

6. ~~Leases~~Long-Term Debt

~~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


(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

107

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~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. 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 $10.0 million and $29.7 million for the three and nine months ended September 29, 2019, respectively, and $7.9 million and $23.4 million for the three and nine months ended September 30, 2018, respectively.

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~~(Unaudited)~~

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)~~	~~September 29, 2019~~
~~Operating lease right-of-use assets~~	$	~~137,918~~

~~Current portion of operating lease liabilities~~	~~20,403~~
~~Long-term operating lease liabilities~~	~~128,491~~
~~Total operating lease liabilities~~	$	~~148,894~~

~~Weighted average remaining lease term (years)~~	~~15.0~~
~~Weighted average discount rate~~	~~4.9~~		%

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

(In thousands) September 29, 2019
Fiscal year:
2019 (remaining three months) $ 6,914
2020 27,178
2021 19,165
2022 15,497
2023 12,643
Thereafter 148,010
Total undiscounted lease payments 229,407
Less imputed interest (80,513)
Total $ 148,894

As of September 29, 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 during fiscal year 2019 and fiscal year 2020 with lease terms of 10 years.

~~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
Goodwill from 2019 acquisitions — 1,083 — 1,083
Measurement period adjustment 390 — — 390
Foreign exchange fluctuations 7 (1,786) 75 (1,704)
September 29, 2019 $ 6,586 $ 62,517 $ 110,963 $ 180,066

During the nine months ended September 29, 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

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

~~(Unaudited)~~

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 nine months ended September 29, 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:~~

September 29, 2019 December 30, 2018
(In thousands) Cost Accumulated Amortization Net Book Value Cost Accumulated Amortization Net Book Value
Definite life intangible assets:
Customer relationships $ 170,895 $ (94,623) $ 76,272 $ 173,637 $ (81,220) $ 92,417
Patents 31,926 (23,338) 8,588 31,363 (21,840) 9,523
Software 33,541 (31,626) 1,915 32,660 (29,296) 3,364
Trademarks and tradenames 32,938 (6,464) 26,474 33,784 (3,948) 29,836
Other 969 (421) 548 971 (97) 874
Total definite life intangible assets 270,269 (156,472) 113,797 272,415 (136,401) 136,014
Indefinite life intangible assets:
Trademarks and tradenames 76,056 — 76,056 76,031 — 76,031
Total intangible assets $ 346,325 $ (156,472) $ 189,853 $ 348,446 $ (136,401) $ 212,045

Amortization of intangible assets was $7.0 million and $21.3 million in the three and nine months ended September 29, 2019, respectively, and $7.0 million and $20.3 million for the three and nine months ended September 30, 2018, respectively. Amortization expense is classified within selling, general and administration expenses in the condensed consolidated statements of comprehensive income.

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

(In thousands) September 29, 2019
Fiscal year:
2019 (remaining three months) $ 6,612
2020 22,050
2021 18,465
2022 15,031
2023 13,567

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~~(Unaudited)~~

~~8. Accrued Expenses~~

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

(In thousands) September 29, 2019 December 30,
2018
Accrued payroll $ 56,240 $ 39,823
Accrued rebates 38,645 36,711
Current portion of operating lease liabilities 20,403 —
Accrued interest 5,900 14,570
Other accruals 50,981 56,241
Total accrued expenses $ 172,169 $ 147,345

~~9. Long-Term Debt~~

(In thousands) September 29, 2019 December 30,
2018
5.375% senior unsecured notes due 2028 $ 500,000 $ —
5.750% senior unsecured notes due 2026 300,000 300,000
5.625% senior unsecured notes due 2023 — 500,000
Unamortized premium on 2023 Notes — 3,684
Debt issuance costs (10,327) (8,394)
Other long-term debt 1,019 1,108
Total long-term debt $ 790,692 $ 796,398

Interest expense related to our consolidated indebtedness under senior unsecured notes was ~~$12.0 million and $34.8~~$11.3 million for both the three ~~and nine~~ months ended March 29, 2020, and ~~September 29, 2019, respectively, and $10.0 million and $27.7 million for the three and nine months ended September 30, 2018, respectively.~~March 31, 2019.

5.375% Senior Notes due 2028

On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"). The 2028 Notes were issued in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and to buyers outside of the United States pursuant to Regulation S under the Securities Act. The 2028 Notes were issued without registration rights and are not listed on any securities exchange. The 2028 Notes bear interest at 5.375% ~~per annum,~~, payable in cash semiannually in arrears on February 1 and August 1 of each year and are due February 1, 2028. The 2028 ~~notes~~Notes were issued at par. We received net proceeds of $493.3 million after deducting $6.7 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 2028 Notes using the effective interest method. The net proceeds from issuance of the 2028 Notes, together with available cash balances, were used to redeem the remaining $500.0 million aggregate principal amount of ~~the 2023 Notes (as described below),~~similar senior unsecured notes, including the payment of related premiums, fees and expenses.

Subsequent to the closing of the 2028 Notes offering, the 2023 Notes were redeemed, and the notes were considered extinguished as of August 10, 2019. Under the terms of the indenture governing the 2023 Notes, we paid the applicable premium of $14.1 million. Additionally, the unamortized premium of $3.1 million and unamortized debt issuance costs of $3.5 million relating to the 2023 Notes were written off in conjunction with the extinguishment of the 2023 Notes. The resulting loss on extinguishment of debt was $14.5 million and is recorded as part of income from continuing operations before income tax expense in the condensed 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.

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~~(Unaudited)~~

~~Obligations~~Information concerning obligations under the 2028 Notes ~~are fully~~ and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries. We may redeem the 2028 Notes, in whole or in part, at any time on or after February 1, 2023, 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 2028 Notes, plus accrued and unpaid interest, if any, to the date of redemption. If we experience certain changes of control or consummate certain asset sales and do not reinvest the net proceeds, we must offer to repurchase all of the 2028 Notes at a purchase price of 101.00% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

The indenture governing the 2028 Notes contains restrictive covenants that, among other things, limit our ability and the ability of our subsidiaries to: (i) incur additional debt and issue disqualified or preferred stock, (ii) make restricted payments, (iii) sell assets, (iv) create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to the parent company, (v) create or incur certain liens, (vi) enter into sale and leaseback transactions, (vii) merge or consolidate with other entities and (viii) enter into transactions with affiliates. The foregoing limitations are subject to exceptions as set forth in the indenture governing the 2028 Notes. In addition, if in the future the 2028 Notes have an investment grade rating from at least two nationally recognized statistical rating organizations, certain of these covenants will be terminated. The indenture governing the 2028 Notes contains customary events of default (subject in certain cases to customary grace and cure periods).year ended December 29, 2019. As of ~~September~~March 29, ~~2019,~~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.

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

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~~(Unaudited)~~

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 ~~September~~March 29, ~~2019, and December 30, 2018,~~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 were not listed on any securities exchange. The 2023 Notes bore interest at 5.625% per annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and were 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 was 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 were being accreted to interest expense over the term of the 2023 Notes using the effective interest method. The net proceeds from the 2017 issuance of the 2023 Notes were for general corporate purposes. The net proceeds from the 2015 issuance of the 2023 Notes, together with available cash balances, were used to redeem $500.0 million aggregate principal of prior 8.25% senior unsecured notes due 2021 and to pay related premiums, fees and expenses. As of August 10, 2019, the 2023 Notes were fully redeemed, as described above.

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 ~~September~~March 29, ~~2019, and December 30, 2018,~~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.

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(Unaudited)

~~10.~~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.

Class Action Proceedings

With respect to the putative antitrust class action cases pending in the Eastern District of Virginia, 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 ~~September 18, 2019,~~May 4, 2020, the Court ruled on Defendants’ December 16, 2019, partial motion to dismiss the consolidated purported class action direct purchaser and end-purchaser complaints filed against us and Jeld-Wen, Inc. The Court: (i) denied Defendants’ motion to dismiss the direct purchasers’ Sherman Actplaintiffs’ reinstated claims, (ii) granted Defendants’ motion to dismiss the direct purchasers’ fraudulent concealment claims (limiting the claims they may assert to those within four years of the filing of their complaint), and (iii) grantedgranting it in part and ~~denied~~denying it in part. By granting the motion in part, ~~Defendants’ motion to dismiss the state law claims filed by the end-purchaser plaintiffs, dismissing 66 of 91 state law claims. On October 31, 2019,~~ the Court ~~granted end-purchaser plaintiffs' motion to amend their complaint in order to correct certain deficiencies identified by~~dismissed the ~~Court in its order on~~indirect purchasers' claims under Kansas, Utah and Virginia consumer protection laws and it also limited the motion to dismiss various state law claims. The Court's order is likely to lead to the reinstatement of some of the end-purchaser plaintiffs' dismissed claims where the basis for dismissal was the lack of a representative plaintifftime period during which indirect purchasers from ~~certain states. The Court gave end-purchaser plaintiffs until November 12, 2019, to amend their complaint. Discovery in the case is proceeding. The Court has set a trial date of October 20, 2020.~~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 ~~$3.7~~$3.5 million and ~~$8.5~~$2.7 million for the three ~~and nine~~ months ended ~~September~~March 29, ~~2019, respectively,~~2020, and ~~$1.6 million and $8.2 million for the three and nine months ended September 30, 2018,~~March 31, 2019, respectively. As of ~~September~~March 29, ~~2019,~~2020, the total remaining unrecognized compensation expense related to share based compensation amounted to ~~$18.1~~$24.5 million, which will be amortized over the weighted average remaining requisite service period of ~~1.7~~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 canceled. As of ~~September~~March 29, ~~2019,~~2020, there were ~~669,118~~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 ~~September~~March 29, ~~2019,~~2020, the liability and asset relating to deferred compensation had a fair value of ~~$6.2~~$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 ~~September~~March 29, ~~2019,~~2020, participation in the deferred compensation plan is limited and no restricted stock awards have been deferred into the deferred compensation plan.

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~~(Unaudited)~~

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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(Unaudited)

The total fair value of SARs vested was $0.9 million and $1.1 million during the ~~nine~~three months ended ~~September~~March 29, ~~2019.~~2020, and March 31, 2019, respectively.


Nine Months Ended September 29, 2019		Stock Appreciation Rights	Aggregate Intrinsic Value (in thousands)		Weighted Average Exercise Price		Average Remaining Contractual Life (Years)
Three Months Ended March 29, 2020								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	Outstanding, beginning of period	514,313	$	7,254	$	39.01	4.6	Outstanding, beginning of period	404,447	$	7,615	$	53.62	4.7
Granted	Granted	111,230			57.29			Granted	29,522			87.18
Exercised	Exercised	(56,765)	2,073		18.76			Exercised	(44,850)	2,155		31.82
Forfeited	Forfeited	(8,329)			67.24			Forfeited	(4,613)			57.52
Outstanding, end of period	Outstanding, end of period	560,449	$	8,961	$	44.27	3.8	Outstanding, end of period	384,506	$	986	$	58.70	5.2

Exercisable, end of period	Exercisable, end of period	386,442	$	8,921	$	36.66	2.0	Exercisable, end of period	241,134	$	986	$	55.14	3.3

The value of SARs granted is determined using the 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~~2020 Grants
SAR value (model conclusion)	$	~~12.26~~21.51
Risk-free rate	~~2.2~~1.3		%
Expected dividend yield	0.0		%
Expected volatility	~~21.9~~22.4		%
Expected term (years)	6.0

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~~(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.

Nine Months Ended
September 29, 2019
Total Restricted Stock Units Outstanding Weighted Average Grant Date Fair Value
Outstanding, beginning of period 429,027 $ 66.03
Granted 297,115 56.02
Performance adjustment⁽¹⁾
(21,953) 57.51
Delivered (115,520)
Withheld to cover⁽²⁾
(19,831)
Forfeited (33,897)
Outstanding, end of period 534,941 $ 59.60

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(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.

Approximately ~~four-fifths~~two-thirds of the RSUs granted during the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~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 ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, is being recognized over the weighted average requisite service period of ~~2.3~~2.5 years. ~~135,847~~87,684 RSUs vested during the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, at a fair value of ~~$8.4~~$5.6 million.

~~12.~~9. Restructuring Costs

~~There were no restructuring costs in the three and nine months ended September 30, 2018. The following table summarizes the restructuring charges recorded for the periods indicated:~~

Three Months Ended September 29, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
2019 Plan $ 1,351 $ — $ 32 $ (56) $ 1,327
2018 Plan 410 257 — — 667
Total Restructuring Costs $ 1,761 $ 257 $ 32 $ (56) $ 1,994

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~~(Unaudited)~~

Nine Months Ended September 29, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
2019 Plan $ 3,755 $ 336 $ 518 $ 403 $ 5,012
2018 Plan 1,199 884 — — 2,083
Total Restructuring Costs $ 4,954 $ 1,220 $ 518 $ 403 $ 7,095

Cumulative Amount Incurred Through September 29, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
2019 Plan $ 3,755 $ 336 $ 518 $ 403 $ 5,012
2018 Plan 1,474 2,233 — — 3,707
2016 Plan — — 3,707 — 3,707
2014 Plan — — — 7,993 7,993
Total Restructuring Costs $ 5,229 $ 2,569 $ 4,225 $ 8,396 $ 20,419

In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges 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 ~~September~~March 29, ~~2019,~~2020, we expect to incur approximately $8$5 million to ~~$10~~$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 ~~September~~March 29, ~~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 September 29, 2019,2020, 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 nine months ended September 29, 2019, or September 30,~~ 2018 ~~or on the consolidated balance sheets as of September 29, 2019, or December 30, 2018.~~Plan.

2011

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(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)	(In thousands)	December 30, 2018		Severance		Closure Costs		Cash Payments		September 29, 2019		(In thousands)	December 29, 2019		Severance		Closure Costs		Cash Payments		March 29, 2020
2019 Plan	2019 Plan	$	—	$	3,393	$	1,619	$	(4,185)	$	827	2019 Plan	$	1,535	$	187	$	1,633	$	(2,769)	$	586
2018 Plan	2018 Plan	596		1,798		285		(2,653)		26		2018 Plan	—		103		18		(121)		—
Other		58		—		—		(58)		—
Total	Total	$	654	$	5,191	$	1,904	$	(6,896)	$	853	Total	$	1,535	$	290	$	1,651	$	(2,890)	$	586


(In thousands)	(In thousands)	December 31, 2017		Cash Payments		September 30, 2018		(In thousands)	December 30, 2018		Severance		Closure Costs		Cash Payments		March 31, 2019
2016 Plan		$	90	$	(90)	$	—

2019 Plan								2019 Plan	$	—	$	2,770	$	18	$	(1,035)	$	1,753
2018 Plan								2018 Plan	596		983		(31)		(546)		1,002
Other	Other	194		(113)		81		Other	58		—		—		(17)		41
Total	Total	$	284	$	(203)	$	81	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 ~~nine~~three months ended ~~September 29,~~March 31, 2019, we recognized ~~non-cash~~ asset impairment charges of ~~$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 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 benefit due to the exercise and delivery of share-based awards during the three ~~and nine~~ months ended ~~September~~March 29, ~~2019,~~2020, compared to ~~$0.8 million and $1.1~~$0.1 million of income tax benefit during the three ~~and nine~~ months ended ~~September 30, 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.

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 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.

12. Earnings Per Share

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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~15. Earnings Per Share~~

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


(In thousands, except share and per share information)	(In thousands, except share and per share information)	Three Months Ended									Nine Months Ended							(In thousands, except share and per share information)	Three Months Ended
				September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018		(In thousands, except share and per share information)	March 29, 2020			March 31, 2019
Net income attributable to Masonite	Net income attributable to Masonite	$	14,969		$	24,796		$	43,000		$	80,363	Net income attributable to Masonite	$		$	3,789

Shares used in computing basic earnings per share	Shares used in computing basic earnings per share	24,944,126			27,477,430			25,215,034			27,758,784		Shares used in computing basic earnings per share	24,861,442		25,574,910
Effect of dilutive securities:	Effect of dilutive securities:												Effect of dilutive securities:
Incremental shares issuable under share compensation plans	Incremental shares issuable under share compensation plans	299,554			434,510			306,663			475,279		Incremental shares issuable under share compensation plans	353,322		376,574
Shares used in computing diluted earnings per share	Shares used in computing diluted earnings per share	25,243,680			27,911,940			25,521,697			28,234,063		Shares used in computing diluted earnings per share	25,214,764		25,951,484

Basic earnings per common share attributable to Masonite	Basic earnings per common share attributable to Masonite	$	0.60		$	0.90		$	1.71		$	2.90	Basic earnings per common share attributable to Masonite	$	1.20	$	0.15
Diluted earnings per common share attributable to Masonite	Diluted earnings per common share attributable to Masonite	$	0.59		$	0.89		$	1.68		$	2.85	Diluted earnings per common share attributable to Masonite	$	1.19	$	0.15

Anti-dilutive instruments excluded from diluted earnings per common share:
Stock appreciation rights		283,966			51,129			292,295			51,129
Restricted stock units		—			—			3,584			—
Anti-dilutive instruments excluded from diluted earnings per common share													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 2028 Notes and 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 September 29, 2019																			Three Months Ended March 29, 2020
(In thousands)	(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total		(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net sales	Net sales	$	374,612	$	76,308	$	100,707	$	5,814	$	557,441	Net sales	$	384,445	$	71,156	$	94,555	$	5,427	$	555,583
Intersegment sales	Intersegment sales	(701)		(343)		(4,205)		—		(5,249)		Intersegment sales	(588)		(430)		(3,337)		—		(4,355)
Net sales to external customers	Net sales to external customers	$	373,911	$	75,965	$	96,502	$	5,814	$	552,192	Net sales to external customers	$	383,857	$	70,726	$	91,218	$	5,427	$	551,228

Adjusted EBITDA	Adjusted EBITDA	$	61,549	$	10,645	$	13,920	$	(10,270)	$	75,844	Adjusted EBITDA	$	71,696	$	9,679	$	10,582	$	(10,440)	$	81,517


		Three Months Ended September 30, 2018																			Three Months Ended March 31, 2019
(In thousands)	(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total		(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net sales	Net sales	$	369,491	$	91,588	$	96,116	$	5,609	$	562,804	Net sales	$	354,802	$	84,739	$	88,353	$	6,728	$	534,622
Intersegment sales	Intersegment sales	(1,229)		(362)		(4,065)		—		(5,656)		Intersegment sales	(1,077)		(472)		(2,762)		—		(4,311)
Net sales to external customers	Net sales to external customers	$	368,262	$	91,226	$	92,051	$	5,609	$	557,148	Net sales to external customers	$	353,725	$	84,267	$	85,591	$	6,728	$	530,311

Adjusted EBITDA	Adjusted EBITDA	$	53,414	$	10,678	$	11,228	$	(4,559)	$	70,761	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)

Nine Months Ended September 29, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net sales $ 1,109,919 $ 242,408 $ 290,206 $ 17,741 $ 1,660,274
Intersegment sales (2,673) (1,223) (10,932) — (14,828)
Net sales to external customers $ 1,107,246 $ 241,185 $ 279,274 $ 17,741 $ 1,645,446
Adjusted EBITDA $ 178,571 $ 34,050 $ 34,312 $ (25,877) $ 221,056

Nine Months Ended September 30, 2018
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Net sales $ 1,108,969 $ 280,729 $ 254,232 $ 16,350 $ 1,660,280
Intersegment sales (3,161) (1,653) (13,713) — (18,527)
Net sales to external customers $ 1,105,808 $ 279,076 $ 240,519 $ 16,350 $ 1,641,753
Adjusted EBITDA $ 162,775 $ 34,250 $ 30,886 $ (17,450) $ 210,461

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						Nine Months Ended							Three Months Ended
(In thousands)	(In thousands)	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018		(In thousands)	March 29, 2020		March 31, 2019
Adjusted EBITDA		$	75,844	$	70,761	$	221,056	$	210,461
Less (plus):
Net income attributable to Masonite										Net income attributable to Masonite	$	29,885	$	3,789
Plus:										Plus:
Depreciation	Depreciation	16,359		15,706		52,845		43,340		Depreciation	16,018		18,285
Amortization	Amortization	7,054		7,041		21,980		20,951		Amortization	6,459		7,597
Share based compensation expense	Share based compensation expense	3,695		1,640		8,468		8,243		Share based compensation expense	3,470		2,680
Loss on disposal of property, plant and equipment	Loss on disposal of property, plant and equipment	705		62		4,940		2,574		Loss on disposal of property, plant and equipment	1,622		2,913
Restructuring costs	Restructuring costs	1,994		—		7,095		—		Restructuring costs	1,941		3,740
Asset impairment	Asset impairment	—		—		13,767		—		Asset impairment	—		10,625
Loss on disposal of subsidiaries	Loss on disposal of subsidiaries	—		—		4,605		—		Loss on disposal of subsidiaries	—		4,605
Interest expense, net	Interest expense, net	11,909		10,151		34,393		27,981		Interest expense, net	11,282		11,127
Loss on extinguishment of debt		14,523		5,414		14,523		5,414
Other income, net of expense		(824)		(948)		(2,410)		(1,809)

Other expense (income), net										Other expense (income), net	49		(1,130)
Income tax expense	Income tax expense	4,334		6,151		14,685		20,746		Income tax expense	9,639		58
Net income attributable to non-controlling interest	Net income attributable to non-controlling interest	1,126		748		3,165		2,658		Net income attributable to non-controlling interest	1,152		1,190
Net income attributable to Masonite		$	14,969	$	24,796	$	43,000	$	80,363
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						Nine Months Ended							Three Months Ended
(In thousands)	(In thousands)	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018		(In thousands)	March 29, 2020		March 31, 2019
Accumulated foreign currency translation losses, beginning of period	Accumulated foreign currency translation losses, beginning of period	$	(121,440)	$	(114,926)	$	(129,930)	$	(89,824)	Accumulated foreign currency translation losses, beginning of period	$	(113,336)	$	(129,930)
Foreign currency translation gain (loss)	Foreign currency translation gain (loss)	(12,733)		2,484		(4,921)		(23,187)		Foreign currency translation gain (loss)	(38,687)		12,990
Income tax benefit (expense) on foreign currency translation gain	Income tax benefit (expense) on foreign currency translation gain	(10)		15		15		(28)		Income tax benefit (expense) on foreign currency translation gain	(44)		12
Cumulative translation adjustment recognized upon deconsolidation of subsidiary	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	Less: foreign currency translation gain (loss) attributable to non-controlling interest	(122)		242		226		(370)		Less: foreign currency translation gain (loss) attributable to non-controlling interest	(579)		216
Accumulated foreign currency translation losses, end of period	Accumulated foreign currency translation losses, end of period	(134,061)		(112,669)		(134,061)		(112,669)		Accumulated foreign currency translation losses, end of period	(151,488)		(116,143)

Accumulated pension and other post-retirement adjustments, beginning of period	Accumulated pension and other post-retirement adjustments, beginning of period	(22,392)		(19,886)		(22,989)		(20,328)		Accumulated pension and other post-retirement adjustments, beginning of period	(16,833)		(22,989)

Amortization of actuarial net losses	Amortization of actuarial net losses	404		300		1,211		899		Amortization of actuarial net losses	173		404
Income tax expense on amortization of actuarial net losses	Income tax expense on amortization of actuarial net losses	(104)		(78)		(314)		(235)		Income tax expense on amortization of actuarial net losses	(45)		(105)

Accumulated pension and other post-retirement adjustments	Accumulated pension and other post-retirement adjustments	(22,092)		(19,664)		(22,092)		(19,664)		Accumulated pension and other post-retirement adjustments	(16,705)		(22,690)

Accumulated other comprehensive loss	Accumulated other comprehensive loss	$	(156,153)	$	(132,333)	$	(156,153)	$	(132,333)	Accumulated other comprehensive loss	$	(168,193)	$	(138,833)

Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	$	(12,443)	$	2,721	$	(3,008)	$	(22,551)	Other comprehensive income (loss), net of tax	$	(38,603)	$	14,302
Less: other comprehensive income (loss) attributable to non-controlling interest	Less: other comprehensive income (loss) attributable to non-controlling interest	(122)		242		226		(370)		Less: other comprehensive income (loss) attributable to non-controlling interest	(579)		216
Other comprehensive income (loss) attributable to Masonite	Other comprehensive income (loss) attributable to Masonite	$	(12,321)	$	2,479	$	(3,234)	$	(22,181)	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:


		Nine Months Ended							Three Months Ended
(In thousands)	(In thousands)	September 29, 2019		September 30, 2018		(In thousands)	March 29, 2020		March 31, 2019
Transactions involving cash:	Transactions involving cash:					Transactions involving cash:
Interest paid	Interest paid	$	44,230	$	35,653	Interest paid	$	22,662	$	23,785
Interest received	Interest received	2,058		621		Interest received	641		672
Income taxes paid	Income taxes paid	10,731		5,957		Income taxes paid	3,030		1,308
Income tax refunds	Income tax refunds	69		81		Income tax refunds	392		—
Cash paid for operating lease liabilities	Cash paid for operating lease liabilities	19,636		—		Cash paid for operating lease liabilities	6,835		6,290
Non-cash transactions:
Cash paid for finance lease liabilities						Cash paid for finance lease liabilities	317		—
Non-cash transactions from operating activities:						Non-cash transactions from operating activities:
Right-of-use assets acquired under operating leases	Right-of-use assets acquired under operating leases	49,932		—		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:


		September 29, 2019		December 30, 2018			March 29, 2020		December 29, 2019
Cash and cash equivalents	Cash and cash equivalents	$	109,955	$	115,656	Cash and cash equivalents	$	114,375	$	166,964
Restricted cash	Restricted cash	10,645		10,485		Restricted cash	10,644		10,644
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	120,600	$	126,141	Total cash, cash equivalents and restricted cash	$	125,019	$	177,608

Property, plant and equipment additions in accounts payable were ~~$5.0~~$4.6 million and ~~$8.7~~$6.3 million as of ~~September~~March 29, 2020, and December 29, 2019, ~~and December 30, 2018,~~ 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 values and carrying values of our long-term debt instruments were as follows for the periods indicated:


		September 29, 2019						December 30, 2018							March 29, 2020				December 29, 2019
(In millions)		Fair Value		Carrying Value		Fair Value		Carrying Value
(In thousands)										(In thousands)	Fair Value		Carrying Value		Fair Value		Carrying Value
5.375% senior unsecured notes due 2028	5.375% senior unsecured notes due 2028	$	521.1	$	493.5	$	—	$	—	5.375% senior unsecured notes due 2028	$	487,668	$	493,835	$	529,105	$	493,648
5.750% senior unsecured notes due 2026	5.750% senior unsecured notes due 2026	317.3		296.2		282.6		295.8		5.750% senior unsecured notes due 2026	$	293,249	$	296,503	318,846		296,367
5.625% senior unsecured notes due 2023		—		—		484.9		499.5

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 nine~~ months ended ~~September~~March 29, ~~2019,~~2020, and ~~September 30, 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 6763 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 ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, we generated net sales of ~~$1,107.2~~$383.9 million or ~~67.3%~~69.6%, ~~$241.2~~$70.7 million or ~~14.7%~~12.8% and ~~$279.3~~$91.2 million or ~~17.0%~~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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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 spending rates, energy availability and costs, and the effects of governmental initiatives to manage economic conditions.

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~~spending rates, energy availability and costs, and the effects of governmental initiatives to manage economic conditions.~~ Additionally, trends in residential new construction, repair, renovation and remodeling and architectural building construction may directly impact our financial performance. Accordingly, the following factors may have a direct impact on our business in the countries and regions in which our products are sold:

•the strength of the economy;

•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;

•~~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 and the new deadline is currently January 31, 2020.

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.

~~On October 30,~~In the fourth quarter of 2019, we communicated price increases that ~~become~~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

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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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In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges 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 ~~September~~March 29, ~~2019,~~2020, we expect to incur approximately $8$5 million to ~~$10~~$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 was 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 ~~September 29, 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 nine months ended September 29, 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 nine months ended September 29, 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 terms of the UK's anticipated exit from the EU remain uncertain. Currently, there is no withdrawal agreement in place for the UK to exit the EU that has been ratified by British Parliament. If 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 our 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.

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~~Inflation~~

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

Seasonality

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

Acquisitions 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

•Top Doors: On August 29, 2019, we completed the acquisition of TOPDOORS, s.r.o. ("Top Doors") based in the Czech Republic for cash consideration of ~~$1.6~~$1.8 million, net of cash ~~acquired.~~acquired, following a post-closing adjustment. Top Doors is a specialist manufacturer of door frames.

Divestitures

•~~BWI:~~Window Widgets: On ~~November 1, 2018,~~December 13, 2019, we completed the ~~acquisition~~sale of all the ~~operating assets~~capital stock of ~~Bridgewater Wholesalers Inc.~~Window Widgets Limited ("~~BWI"~~WW"), a leading United Kingdom provider of high quality window systems, for ~~cash~~ consideration of ~~$22.3~~$1.2 million, net of cash acquired. BWI is headquartered in Branchburg, New Jersey, and is a fabricator and distributor of residential interior and exterior door systems, supporting customers in the Mid-Atlantic and Northeastern United States. Their product offerings include residential interior and exterior doors, commercial doors and hardware as well as value added pre-finishing services.disposed.

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

•~~DW3:~~ On January 29, 2018, we completed the acquisition of DW3 Products Holdings Limited ("DW3"), a leading UK provider of high quality premium door solutions and window systems, supplying products under brand names such as Solidor, Residor, Nicedor and Residence. We acquired 100% of the equity interests in DW3 for 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.

~~Disposition~~

•PDS: On March 21, 2019, we completed the sale of all of the capital stock of Performance Doorset Solutions Limited ("PDS"), a leading supplier of custom doors and millwork in the United Kingdom, for nominal consideration. The ~~disposition~~divestiture 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.

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Results of Operations


	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 March 29, 2020, Compared with Three Months Ended March 31, 2019

Net Sales

Net sales in the three months ended March 29, 2020, were $551.2 million, an increase of $20.9 million or 3.9% from $530.3 million in the three months ended March 31, 2019. Net sales in the first quarter of 2020 were negatively impacted by $2.1 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by $23.0 million. Average unit price increased net sales in the first quarter of 2020 by $20.9 million or 3.9% compared to the 2019 period. Higher volumes excluding the incremental impact of acquisitions and divestitures ("base volume") increased net sales by $9.4 million or 1.8% in the first quarter of 2020 compared to the 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 flat in the first quarter of 2020 compared to the 2019 period.

Net Sales and Percentage of Net Sales by Reportable Segment


	Three Months Ended March 29, 2020
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Sales	$	384,445		$	71,156		$	94,555		$	5,427	$	555,583
Intersegment sales	(588)			(430)			(3,337)			—		(4,355)
Net sales to external customers	$	383,857		$	70,726		$	91,218		$	5,427	$	551,228
Percentage of consolidated external net sales	69.6		%	12.8		%	16.5		%

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~~Components of Results of Operations~~

There have been no material changes to the information provided in the section entitled "Components of Results of Operations" in our Annual Report on Form 10-K for the year ended December 30, 2018. For the definition of and other information regarding Adjusted EBITDA, please see Note 16. Segment Information in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report.

~~Results of Operations~~

Three Months Ended Nine Months Ended
(In thousands) September 29, 2019 September 30, 2018 September 29, 2019 September 30, 2018
Net sales $ 552,192 $ 557,148 $ 1,645,446 $ 1,641,753
Cost of goods sold 426,588 446,306 1,278,808 1,301,808
Gross profit 125,604 110,842 366,638 339,945
Gross profit as a % of net sales 22.7 % 19.9 % 22.3 % 20.7 %
Selling, general and administration expenses 77,573 64,530 233,815 204,592
Selling, general and administration expenses as a % of net sales 14.0 % 11.6 % 14.2 % 12.5 %
Restructuring costs 1,994 — 7,095 —
Asset impairment — — 13,767 —
Loss on disposal of subsidiaries — — 4,605 —
Operating income 46,037 46,312 107,356 135,353
Interest expense, net 11,909 10,151 34,393 27,981
Loss on extinguishment of debt 14,523 5,414 14,523 5,414
Other income, net of expense (824) (948) (2,410) (1,809)
Income before income tax expense 20,429 31,695 60,850 103,767
Income tax expense 4,334 6,151 14,685 20,746
Net income 16,095 25,544 46,165 83,021
Less: net income attributable to non-controlling interests 1,126 748 3,165 2,658
Net income attributable to Masonite $ 14,969 $ 24,796 $ 43,000 $ 80,363

~~Three Months Ended September 29, 2019, Compared with Three Months Ended September 30, 2018~~

~~Net Sales~~

Net sales in the three months ended September 29, 2019, were $552.2 million, a decrease of $4.9 million or 0.9% from $557.1 million in the three months ended September 30, 2018. Net sales in the third quarter of 2019 were negatively impacted by $4.9 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have remained flat. Average unit price increased net sales in the third quarter of 2019 by $26.3 million or 4.7% compared to the 2018 period. Our 2018 acquisitions, net of dispositions, contributed $0.7 million or 0.1% of incremental net sales in the third quarter of 2019. Lower volumes excluding the incremental impact of acquisitions and dispositions ("base volume") decreased net sales by $24.2 million or 4.3% in the third quarter of 2019 compared to the 2018 period. Net sales of components and other products to external customers were $2.8 million lower in the third quarter of 2019 compared to the 2018 period.

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

Three Months Ended September 29, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 374,612 $ 76,308 $ 100,707 $ 5,814 $ 557,441
Intersegment sales (701) (343) (4,205) — (5,249)
Net sales to external customers $ 373,911 $ 75,965 $ 96,502 $ 5,814 $ 552,192
Percentage of consolidated external net sales 67.7 % 13.8 % 17.5 %


		Three Months Ended September 30, 2018																									Three Months Ended March 31, 2019
(In thousands)	(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total		(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Sales	Sales	$	369,491		$	91,588		$	96,116		$	5,609	$	562,804	Sales	$	354,802		$	84,739		$	88,353		$	6,728	$	534,622
Intersegment sales	Intersegment sales	(1,229)			(362)			(4,065)			—		(5,656)		Intersegment sales	(1,077)			(472)			(2,762)			—		(4,311)
Net sales to external customers	Net sales to external customers	$	368,262		$	91,226		$	92,051		$	5,609	$	557,148	Net sales to external customers	$	353,725		$	84,267		$	85,591		$	6,728	$	530,311
Percentage of consolidated external net sales	Percentage of consolidated external net sales	66.1		%	16.4		%	16.5		%					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 ~~September~~March 29, ~~2019,~~2020, were ~~$373.9~~$383.9 million, an increase of ~~$5.6~~$30.2 million or ~~1.5%~~8.5% from ~~$368.3~~$353.7 million in the three months ended ~~September 30, 2018.~~March 31, 2019. Net sales in the ~~third~~first quarter of ~~2019~~2020 were negatively impacted by ~~$0.9~~$0.7 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by ~~$6.5~~$30.9 million or ~~1.8%.~~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 ~~third~~first quarter of ~~2019~~2020 by ~~$16.3~~$12.3 million or ~~4.4%~~3.5% compared to the ~~2018 period. Our 2018 acquisition~~2019 period primarily as a result of BWI contributed $11.7 million or 3.2% of incremental net sales in the third quarter of 2019. Lower base volume decreased net sales in the third quarter of 2019 by $19.4 million or 5.3% 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 ~~$2.1~~$0.4 million ~~lower~~higher in the ~~third~~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 ~~September~~March 29, ~~2019,~~2020, were ~~$76.0~~$70.7 million, a decrease of ~~$15.2~~$13.6 million or ~~16.7%~~16.1% from ~~$91.2~~$84.3 million in the three months ended ~~September 30, 2018.~~March 31, 2019. Net sales in the ~~third~~first quarter of ~~2019~~2020 were negatively impacted by ~~$3.9~~$1.3 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by ~~$11.3~~$12.3 million or ~~12.4%. 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 $10.9 million or 12.0% in~~from the ~~third quarter of 2019 compared to the 2018 period.~~Top Doors acquisition. Lower base volume decreased net sales by ~~$3.9~~$7.0 million or ~~4.3%~~8.3% in the ~~third~~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 ~~$0.1~~$0.3 million lower in the ~~third~~first quarter of ~~2019~~2020 compared to the ~~2018~~2019 period. Average unit price increased net sales in the ~~third~~first quarter of ~~2019~~2020 by ~~$3.6~~$2.3 million or ~~3.9%~~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 ~~September~~March 29, ~~2019,~~2020, were ~~$96.5~~$91.2 million, an increase of ~~$4.4~~$5.6 million or ~~4.8%~~6.5% from ~~$92.1~~$85.6 million in the three months ended ~~September 30, 2018.~~March 31, 2019. Net sales in the ~~third~~first quarter of ~~2019~~2020 were negatively impacted by $0.1 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have increased by ~~$4.5~~$5.7 million or ~~4.9%~~6.7%. Average unit price increased net sales in the ~~third~~first quarter of ~~2019~~2020 by ~~$6.4~~$6.3 million or ~~6.9%~~7.4% compared to the ~~2018 period. Lower base volume decreased net sales in the third quarter~~2019 period primarily due to delivery of ~~2019 by $0.7 million or 0.8% compared to the 2018 period.~~projects at higher prices along with improved mix. Net sales of components and other products to external customers were ~~$1.2~~$0.7 million ~~lower~~higher in the ~~third~~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 ~~77.3%~~75.6% and ~~80.1%~~78.9% for the three months ended ~~September~~March 29, ~~2019,~~2020, and ~~September 30, 2018,~~March 31, 2019, respectively. Material cost of sales, ~~and~~ direct labor costs and overhead as a percentage of net sales decreased by ~~2.5%~~2.8%, 0.4% and ~~1.0%~~0.2%, ~~respectively.~~respectively, compared to the 2019 period. Partly offsetting these decreases, ~~overhead and depreciation as a percentage of net sales in the third quarter of 2019 increased by 0.6% and 0.1%, respectively. Distribution~~distribution costs in the ~~third~~first quarter of ~~2019 were flat~~2020 increased by 0.1% as a percentage of sales compared to the ~~third~~first quarter of ~~2018.~~2019. Depreciation as a percentage of sales 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 ~~due to~~in tariffs. Direct labor as a percentage of net sales decreased due to factory productivity initiatives. ~~Conversely, overhead~~Overhead as a percentage of net sales ~~was negatively impacted by lower~~decreased due to increased volumes.

Selling, General and Administration Expenses

In the three months ended ~~September~~March 29, ~~2019,~~2020, selling, general and administration ("SG&A") expenses, as a percentage of net sales, were ~~14.0%~~14.6%, as compared to ~~11.6%~~14.7% in the three months ended ~~September 30, 2018, an increase~~March 31, 2019, a decrease of ~~240~~10 basis points.

SG&A expenses in the three months ended ~~September~~March 29, ~~2019,~~2020, were ~~$77.6~~$80.3 million, an increase of ~~$13.1~~$2.2 million from ~~$64.5~~$78.1 million in the three months ended ~~September 30, 2018.~~March 31, 2019. The overall increase was driven by an increase in personnel costs of ~~$9.0~~$3.5 million, ~~incremental SG&A from our 2018 acquisitions (net of dispositions) of $2.0~~primarily due to resource investments to support growth, costs related to employee benefits and incentive compensation, along with a $3.4 million ~~and~~increase in legal costs related to a ~~$3.1~~previously disclosed lawsuit. These increases were partially offset by a net $3.8 million ~~increase~~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. These increases were partially offset by~~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 ~~$0.6 million and other decreases of $0.4~~$0.2 million. ~~The increase in personnel costs was primarily due to incentive compensation.~~

Restructuring Costs ~~Net~~

Restructuring costs in the three months ended ~~September~~March 29, 2020, and March 31, 2019, were ~~$2.0 million. There were no restructuring costs in the three months ended September 30, 2018. Restructuring costs in the current quarter were related to the 2019 and 2018 Plans.~~

~~Interest Expense, Net~~

Interest expense, net, in the three months ended September 29, 2019, was $11.9 million, compared to $10.2 million in the three months ended September 30, 2018. This increase primarily relates to the issuance of $300.0 million aggregate principal amount of additional 2026 Senior Notes on August 27, 2018.

~~Loss on Extinguishment of Debt~~

Loss on extinguishment of debt was $14.5 million in the three months ended September 29, 2019, compared to $5.4 million in the three months ended September 30, 2018. Loss on extinguishment of debt in the current quarter related to the redemption of our senior unsecured notes due 2023. This charge represents the difference between the redemption price of our senior unsecured notes due 2023 of $514.1$1.9 million and ~~the net carrying amount of such notes of $499.6 million. In addition to the $500.0~~$3.7 million, of principal, the redemption price included a make-whole premium of $14.1 million and the net carrying amount included unamortized debt issuance costs of $3.5 million, partially offset by unamortized premiums of $3.1 million. Loss on extinguishment of debt in the three months ended September 30, 2018 related to the partial redemption of our senior unsecured notes due 2023.

~~Other Income, Net of Expense~~

~~Other income, net of expense, in the three months ended September 29, 2019, was $0.8 million compared to $0.9 million in the three months ended September 30, 2018.~~

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~~Income Tax Expense~~

Our income tax expense in the three months ended September 29, 2019, decreased by $1.8 million compared to the three months ended September 30, 2018, primarily due to the mix of income or losses within the tax jurisdictions with various tax rates in which we operate, as well as an increase in discrete income tax benefits. We recognized discrete items resulting in income tax benefit of $0.8 million in the three months ended September 29, 2019, compared to $0.6 million of income tax benefit recorded in the three months ended September 30, 2018.

~~Segment Information~~

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

Three Months Ended September 29, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 61,549 $ 10,645 $ 13,920 $ (10,270) $ 75,844
Less (plus):
Depreciation 8,582 2,916 2,566 2,295 16,359
Amortization 377 3,494 2,059 1,124 7,054
Share based compensation expense — — — 3,695 3,695
Loss on disposal of property, plant and equipment 646 57 — 2 705
Restructuring costs 1,761 257 32 (56) 1,994
Interest expense, net — — — 11,909 11,909
Loss on extinguishment of debt — — — 14,523 14,523
Other (income), net of expense (86) 127 — (865) (824)
Income tax expense — — — 4,334 4,334
Net income attributable to non-controlling interest 744 — — 382 1,126
Net income (loss) attributable to Masonite $ 49,525 $ 3,794 $ 9,263 $ (47,613) $ 14,969

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Three Months Ended September 30, 2018
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 53,414 $ 10,678 $ 11,228 $ (4,559) $ 70,761
Less (plus):
Depreciation 7,571 2,612 3,060 2,463 15,706
Amortization 269 3,603 2,343 826 7,041
Share based compensation expense — — — 1,640 1,640
Loss on disposal of property, plant and equipment 43 24 (5) — 62
Interest expense, net — — — 10,151 10,151
Loss on extinguishment of debt — — — 5,414 5,414
Other (income), net of expense — 124 — (1,072) (948)
Income tax expense — — — 6,151 6,151
Net income attributable to non-controlling interest 644 — — 104 748
Net income (loss) attributable to Masonite $ 44,887 $ 4,315 $ 5,830 $ (30,236) $ 24,796

Adjusted EBITDA in our North American Residential segment increased $8.1 million, or 15.2%, to $61.5 million in the three months ended September 29, 2019, from $53.4 million in the three months ended September 30, 2018. Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of $14.0 million and $13.7 million, in the third 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 $0.1 million, or 0.9%, to $10.6 million in the three months ended September 29, 2019, from $10.7 million in the three months ended September 30, 2018. Adjusted EBITDA in the Europe segment included corporate allocations of shared costs of $0.3 million in the third quarter of 2019. There were no such allocations in the third 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 $2.7 million, or 24.1%, to $13.9 million in the three months ended September 29, 2019, from $11.2 million in the three months ended September 30, 2018. Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of $2.7 million and $2.3 million, in the third quarter of 2019 and 2018, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology and research and development.

~~Nine Months Ended September 29, 2019, Compared with Nine Months Ended September 30, 2018~~

~~Net Sales~~

Net sales in the nine months ended September 29, 2019, were $1,645.4 million, an increase of $3.6 million or 0.2% from $1,641.8 million in the nine months ended September 30, 2018. Net sales in the first nine months of 2019 were negatively impacted by $22.4 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by $26.0 million or 1.6%. Average unit price increased net sales in the first nine months of 2019 by $85.9 million or 5.2% compared to the same period in 2018. Our 2018 acquisitions, net of dispositions, contributed $36.8 million or 2.2% of incremental net sales in the first nine months of 2019. Lower base volumes decreased net sales by $89.8 million or 5.5% in the first nine months of 2019 compared to the same period in 2018. Net sales of components and other products to external customers, were $6.9 million lower in the first nine months of 2019 compared to the same period in 2018.

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

Nine Months Ended September 29, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 1,109,919 $ 242,408 $ 290,206 $ 17,741 $ 1,660,274
Intersegment sales (2,673) (1,223) (10,932) — (14,828)
Net sales to external customers $ 1,107,246 $ 241,185 $ 279,274 $ 17,741 $ 1,645,446
Percentage of consolidated external net sales 67.3 % 14.7 % 17.0 %

Nine Months Ended September 30, 2018
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Sales $ 1,108,969 $ 280,729 $ 254,232 $ 16,350 $ 1,660,280
Intersegment sales (3,161) (1,653) (13,713) — (18,527)
Net sales to external customers $ 1,105,808 $ 279,076 $ 240,519 $ 16,350 $ 1,641,753
Percentage of consolidated external net sales 67.4 % 17.0 % 14.7 %

~~North American Residential~~

Net sales to external customers from facilities in the North American Residential segment in the nine months ended September 29, 2019, were $1,107.2 million, an increase of $1.4 million or 0.1% from $1,105.8 million in the nine months ended September 30, 2018. Net sales in the first nine months of 2019 were negatively impacted by $6.7 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by $8.1 million or 0.7%. Average unit price increased net sales in the first nine months of 2019 by $64.5 million or 5.8% compared to the same period in 2018. Our 2018 acquisition of BWI contributed $35.2 million or 3.2% of incremental net sales in the first nine months of 2019. Lower base volume decreased net sales by $85.6 million or 7.7% in the first nine 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 $6.0 million lower in the first nine months of 2019 compared to the same period in 2018.

~~Europe~~

Net sales to external customers from facilities in the Europe segment in the nine months ended September 29, 2019, were $241.2 million, a decrease of $37.9 million or 13.6% from $279.1 million in the nine months ended September 30, 2018. Net sales in 2019 were negatively impacted by $14.7 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by $23.2 million or 8.3%. Net sales in the first nine months of 2019 were reduced by $22.6 million or 8.1% 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 nine months of 2019 by $6.3 million or 2.3% compared to the same period in 2018. Net sales of components and other products to external customers were $2.4 million lower in the first nine months of 2019 compared to the same period in 2018. Average unit price increased net sales in the first nine months of 2019 by $8.1 million or 2.9% compared to the same period in 2018.

~~Architectural~~

Net sales to external customers from facilities in the Architectural segment in the nine months ended September 29, 2019, were $279.3 million, an increase of $38.8 million or 16.1% from $240.5 million in the nine months ended September 30, 2018. Net sales in 2019 were negatively impacted by $0.9 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have increased by $39.7 million or 16.5%. Our 2018 acquisition of Graham & Maiman contributed $24.2 million or 10.1% of incremental net sales in the first nine months of 2019. Average unit price increased net sales in the first nine months of 2019 by $13.3 million or 5.5% compared to the

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2018 period. Higher base volume increased net sales in the first nine months of 2019 by $2.2 million or 0.9% compared to the 2018 period. Net sales of components and other products to external customers remained flat in the first nine months of 2019 compared to the same period in 2018.

~~Cost of Goods Sold~~

Cost of goods sold as a percentage of net sales was 77.7% and 79.3% for the nine months ended September 29, 2019, and September 30, 2018, respectively. Material cost of sales and direct labor costs as a percentage of net sales in the first nine months of 2019 decreased by 2.0% and 0.6%, respectively. Partially offsetting these decreases, overhead and depreciation as a percentage of net sales increased by 0.6% and 0.4%, respectively, compared to the 2018 period. Distribution costs in the first nine months of 2018 were flat as a percentage of sales compared to the first nine months of 2018. 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, including tariffs. Conversely, overhead as a percentage of net sales was negatively impacted by charges related to plant damages and factory start-up costs and lower volumes in the first nine months of 2019.

~~Selling, General and Administration Expenses~~

In the nine months ended September 29, 2019, selling, general and administration ("SG&A") expenses, as a percentage of net sales, were 14.2% compared to 12.5% the nine months ended September 30, 2018, an increase of 170 basis points.

SG&A expenses in the nine months ended September 29, 2019, were $233.8 million, an increase of $29.2 million from $204.6 million in the nine months ended September 30, 2018. The overall increase was driven by an increase in personnel costs of $17.2 million, incremental SG&A from our 2018 acquisitions of $8.3 million (net of dispositions) and a $7.0 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 other increases of $2.1 million. These increases were partially offset by favorable foreign exchange impacts of $5.4 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 personnel and amortization of intangible assets.

~~Restructuring Costs~~

~~Restructuring costs in the nine months ended September 29, 2019 were $7.1 million. There were no restructuring costs in the nine months ended September 30, 2018.~~ 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 nine months ended September 29, 2019, were $13.8 million.~~ There were no asset impairment charges in the ~~nine~~three months ended ~~September 30, 2018.~~March 29, 2020. Asset impairment charges in the three months ended March 31, 2019, were $10.6 million and resulted from actions associated with the 2019 Plan.

Loss on Disposal of Subsidiaries

~~Loss on disposal of subsidiaries in the nine months ended September 29, 2019 was $4.6 million.~~ There was no loss on disposal of subsidiaries in the ~~nine~~three months ended ~~September 30, 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 ~~nine 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 ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, was ~~$34.4~~$11.3 million, compared to ~~$28.0~~$11.1 million in the ~~nine~~three months ended ~~September 30, 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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~~Loss on Extinguishment of Debt~~

Loss on extinguishment of debt was $14.5 million in the nine months ended September 29, 2019, compared to $5.4 million in the nine months ended September 30, 2018. Loss on extinguishment of debt in the current year related to the redemption of our senior unsecured notes due 2023. This charge represents the difference between the redemption price of our senior unsecured notes due 2023 of $514.1 million and the net carrying amount of such notes of $499.6 million. In addition to the $500.0 million of principal, the redemption price included a make-whole premium of $14.1 million and the net carrying amount included unamortized debt issuance costs of $3.5 million, partially offset by unamortized premiums of $3.1 million. Loss on extinguishment of debt in the prior year related to the partial redemption of our senior unsecured notes due 2023.

~~Other Income, Net of Expense~~

Other income, net of expense, in the nine months ended September 29, 2019, was $2.4 million compared to $1.8 million in the nine months ended September 30, 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

Our income tax expense in the ~~nine~~three months ended ~~September~~March 29, ~~2019, decreased by $6.1~~2020, was $9.6 million, compared to $0.1 million of income tax expense in the ~~nine~~three months ended ~~September 30, 2018,~~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, ~~partly offset by~~as well as a decrease in discrete income tax benefits. We recognized discrete items resulting in income tax benefit of ~~$1.3~~$0.4 million in the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, compared to ~~$2.0~~$1.0 million of income tax benefit recorded in the ~~nine~~three months ended ~~September 30, 2018, primarily attributable to the recognition of a deferred tax asset through reversal of valuation allowance.~~March 31, 2019.

Segment Information


		Nine Months Ended September 29, 2019																										Three Months Ended March 29, 2020
(In thousands)	(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total			(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Adjusted EBITDA	Adjusted EBITDA	$	178,571		$	34,050		$	34,312		$	(25,877)	$	221,056		Adjusted EBITDA	$	71,696		$	9,679		$	10,582		$	(10,440)	$	81,517
Adjusted EBITDA as a percentage of segment net sales	Adjusted EBITDA as a percentage of segment net sales	16.1		%	14.1		%	12.3		%			13.4		%	Adjusted EBITDA as a percentage of segment net sales	18.7		%	13.7		%	11.6		%			14.8		%


		Nine Months Ended September 30, 2018																										Three Months Ended March 31, 2019
(In thousands)	(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total			(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Adjusted EBITDA	Adjusted EBITDA	$	162,775		$	34,250		$	30,886		$	(17,450)	$	210,461		Adjusted EBITDA	$	53,621		$	9,997		$	7,614		$	(5,753)	$	65,479
Adjusted EBITDA as a percentage of segment net sales	Adjusted EBITDA as a percentage of segment net sales	14.7		%	12.3		%	12.8		%			12.8		%	Adjusted EBITDA as a percentage of segment net sales	15.2		%	11.9		%	8.9		%			12.3		%

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


	Three Months Ended March 29, 2020
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Net income (loss) attributable to Masonite	$	58,811	$	3,483	$	4,580	$	(36,989)	$	29,885
Plus:
Depreciation	9,364		2,457		2,822		1,375		16,018
Amortization	595		3,562		1,922		380		6,459
Share based compensation expense	—		—		—		3,470		3,470
Loss on disposal of property, plant and equipment	1,204		3		396		19		1,622
Restructuring costs	849		(37)		862		267		1,941


Interest expense, net	—		—		—		11,282		11,282

Other expense (income), net	—		211		—		(162)		49
Income tax expense	—		—		—		9,639		9,639
Net income attributable to non-controlling interest	873		—		—		279		1,152
Adjusted EBITDA	$	71,696	$	9,679	$	10,582	$	(10,440)	$	81,517

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

Nine Months Ended September 29, 2019
(In thousands) North American Residential Europe Architectural Corporate & Other Total
Adjusted EBITDA $ 178,571 $ 34,050 $ 34,312 $ (25,877) $ 221,056
Less (plus):
Depreciation 27,461 7,652 8,812 8,920 52,845
Amortization 1,263 11,115 6,306 3,296 21,980
Share based compensation expense — — — 8,468 8,468
Loss on disposal of property, plant and equipment 2,097 2,674 146 23 4,940
Restructuring costs 4,954 1,220 518 403 7,095
Asset impairment 13,767 — — — 13,767
Loss on disposal of subsidiaries — 4,605 — — 4,605
Interest expense, net — — — 34,393 34,393
Loss on extinguishment of debt — — — 14,523 14,523
Other (income), net of expense — (47) 2 (2,365) (2,410)
Income tax expense — — — 14,685 14,685
Net income attributable to non-controlling interest 2,414 — — 751 3,165
Net income (loss) attributable to Masonite $ 126,615 $ 6,831 $ 18,528 $ (108,974) $ 43,000


		Nine Months Ended September 30, 2018																			Three Months Ended March 31, 2019
(In thousands)	(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total		(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
Adjusted EBITDA		$	162,775	$	34,250	$	30,886	$	(17,450)	$	210,461
Less (plus):
Net income (loss) attributable to Masonite												Net income (loss) attributable to Masonite	$	30,261	$	(4,147)	$	2,079	$	(24,404)	$	3,789
Plus:												Plus:
Depreciation	Depreciation	22,005		7,490		7,282		6,563		43,340		Depreciation	9,079		2,382		2,741		4,083		18,285
Amortization	Amortization	1,045		10,900		6,854		2,152		20,951		Amortization	449		3,965		2,093		1,090		7,597
Share based compensation expense	Share based compensation expense	—		—		—		8,243		8,243		Share based compensation expense	—		—		—		2,680		2,680
Loss on disposal of property, plant and equipment	Loss on disposal of property, plant and equipment	1,048		30		98		1,398		2,574		Loss on disposal of property, plant and equipment	341		2,469		97		6		2,913
Restructuring costs												Restructuring costs	1,880		862		604		394		3,740
Asset impairment												Asset impairment	10,625		—		—		—		10,625
Loss on disposal of subsidiaries												Loss on disposal of subsidiaries	—		4,605		—		—		4,605
Interest expense, net												Interest expense, net	—		—		—		11,127		11,127

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

Interest expense, net		—		—		—		27,981		27,981
Loss on extinguishment of debt		—		—		—		5,414		5,414
Other (income), net of expense		—		306		—		(2,115)		(1,809)
Income tax expense		—		—		—		20,746		20,746
Net income attributable to non-controlling interest		2,505		—		—		153		2,658
Net income (loss) attributable to Masonite		$	136,172	$	15,524	$	16,652	$	(87,985)	$	80,363

Adjusted EBITDA in our North American Residential segment increased ~~$15.8~~$18.1 million, or ~~9.7%~~33.8%, to ~~$178.6~~$71.7 million in the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, from ~~$162.8~~$53.6 million in the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of ~~$41.9~~$16.3 million and ~~$41.0~~$14.0 million, in the first ~~nine 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 ~~0.6%~~3.0%, to ~~$34.1~~$9.7 million in the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, from ~~$34.3~~$10.0 million in the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Adjusted EBITDA in the Europe segment included corporate allocations of shared costs of ~~$0.8~~$0.3 million in both the first ~~nine months~~quarter of 2020 and 2019. ~~There were no such allocations in the first nine 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 ~~$3.4~~$3.0 million, or ~~11.0%~~39.5%, to ~~$34.3~~$10.6 million in the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, from ~~$30.9~~$7.6 million in the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of ~~$8.0 million and $6.7~~$2.7 million, in both the first ~~nine 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 ~~September~~March 29, ~~2019,~~2020, we had ~~$110.0~~$114.4 million of cash and cash equivalents, availability under our ABL Facility of ~~$187.0~~$185.3 million and availability under our AR Sales Program of ~~$14.6~~$14.8 million.

Cash Flows

Cash provided by operating activities was ~~$138.4~~$6.0 million during the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, compared to ~~$140.5~~$18.5 million in the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. This ~~$2.1~~$12.5 million decrease in cash provided by operating activities was due to changes in net working capital in the first three months of 2020 compared with the same period in 2019, partially offset by a ~~$1.8~~$17.4 million ~~decrease~~increase in ~~our~~ net income attributable to Masonite, adjusted for non-cash and non-operating ~~items and changes in net working capital in the first nine months of 2019 compared with the same period in 2018.~~items.

Cash used in investing activities was ~~$59.1~~$17.8 million during the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, compared to ~~$188.0~~$21.2 million in the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. This ~~$128.9~~$3.4 million decrease in cash used in investing activities was driven by a ~~decrease in cash paid for acquisitions of $133.4~~$3.2 million ~~partially offset by a $4.3 million increase~~decrease in cash additions to property, plant and equipment and a net ~~increase~~decrease in other investing outflows of $0.2 million in the first ~~nine~~three months of ~~2019~~2020 compared to the same period in ~~2018.~~2019.

Cash used in financing activities was ~~$84.1~~$37.0 million during the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, compared to ~~cash provided of $63.4~~$34.3 million during the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. This ~~$147.5~~$2.7 million increase in cash used in financing activities was driven by a ~~net~~$1.6 million increase ~~in cash used for debt-related transactions of $186.0 million partially offset by a $36.1 million decrease~~ in cash used for repurchases of common shares, a ~~$2.1~~$0.7 million ~~decrease~~increase in ~~cash used for tax withholding on share based awards~~distributions to non-controlling interests and ~~a decrease~~an increase in other financing outflows of ~~$0.3~~$0.4 million in the first ~~nine~~three months of ~~2019~~2020 compared to the same period in ~~2018.~~2019.

Share Repurchases

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~~are permitted to be made under one or more Rule 10b5-1 plans, which would permit shares to be repurchased when we might otherwise be precluded from doing so under applicable insider trading laws.~~ During the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, we repurchased and retired ~~1,148,815~~567,271 of our common shares in the open market at an aggregate cost of ~~$58.4~~$34.8 million as part of the share repurchase ~~programs.~~programs, prior to temporarily suspending our repurchase program on March 18, 2020. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, we repurchased ~~1,464,700~~646,102 of our common shares in the open market at an aggregate cost of ~~$94.5~~$33.2 million. As of ~~September~~March 29, ~~2019,~~2020, there was ~~$145.6~~$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 ~~September~~March 29, ~~2019,~~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")~~. The 2028 Notes were issued in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act~~, all of ~~1933,~~which was outstanding as ~~amended (the "Securities Act"), and to buyers outside~~ of ~~the United States pursuant to Regulation S under the Securities Act. The 2028 Notes were issued without registration rights and are not listed on any securities exchange.~~March 29, 2020. The 2028 Notes bear interest at 5.375% per annum, payable in cash semiannually in arrears on February 1 and August 1 of each year and are due February 1, 2028. The 2028 notes were issued at par. We received net proceeds of $493.3 million after deducting $6.7 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 2028 Notes using the effective interest method.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 ~~the 2023 Notes (as described below),~~similar senior unsecured notes, including the payment of related premiums, fees and expenses.

~~Subsequent to the closing of the~~ The 2028 Notes ~~offering, the 2023 Notes~~ were ~~redeemed, and the notes were considered extinguished as of August 10, 2019. Under the terms of the~~issued under an indenture governing the 2023 Notes, we paid the applicable premium of $14.1 million. Additionally, the unamortized premium of $3.1 million and unamortized debt issuance costs of $3.5 million relating to the 2023 Notes were written off in conjunction with the extinguishment of the 2023 Notes. The resulting loss on extinguishment of debt was $14.5 million and is recorded as part of income from continuing operations before income tax expense in the condensed 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.

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Obligations under the 2028 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries. We may redeem the 2028 Notes, in whole or in part, at any time on or after February 1, 2023, at the applicable redemption prices specified under the indenture governing the 2028 Notes, plus accrued and unpaid interest, if any, to the date of redemption. If we experience certain changes of control or consummate certain asset sales and do not reinvest the net proceeds, we must offer to repurchase all of the 2028 Notes at a purchase price of 101.00% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

~~The indenture governing the 2028 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 2028 Notes. In addition, if in the future the 2028 Notes have an investment grade rating from at least two nationally recognized statistical rating organizations, certain of these covenants will be terminated. The indenture governing the 2028 Notes contains customary events of default (subject in certain cases to customary grace and cure periods).year ended December 29, 2019. As of ~~September~~March 29, ~~2019,~~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 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 ~~September~~March 29, ~~2019, and December 30, 2018,~~2020, we were in compliance with all covenants under the indenture governing the 2026 Notes.

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 bore interest at 5.625% per annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and were 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 was 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 were being accreted to interest expense over the term of the 2023 Notes using the effective interest method. The net proceeds from

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the 2017 issuance of the 2023 Notes were for general corporate purposes. The net proceeds from the 2015 issuance of the 2023 Notes, together with available cash balances, were used to redeem $500.0 million aggregate principal of prior 8.25% senior unsecured notes due 2021 and to pay related premiums, fees and expenses. As of August 10, 2019, the 2023 Notes were fully redeemed, as described above.

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.

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 existing exceptions).year ended December 29, 2019. As of ~~September~~March 29, ~~2019, and December 30, 2018,~~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 $491.9 million and ~~$1.5 billion~~$472.9 million for the three ~~and nine~~ months ended ~~September~~March 29, ~~2019,~~2020, and ~~$490.4 million and $1.4 billion for the three and nine months ended September 30, 2018,~~March 31, 2019, respectively. Our non-guarantor subsidiaries generated Adjusted EBITDA of ~~$65.0~~$68.4 million and ~~$189.8~~$57.1 million for the three ~~and nine~~ months ended ~~September~~March 29, ~~2019,~~2020, and ~~$59.5 million and $175.7 million for the three and nine months ended September 30, 2018,~~March 31, 2019, respectively. Our non-guarantor subsidiaries had total assets of ~~$2.0~~$1.9 billion and ~~$1.8~~$2.0 billion and total liabilities of ~~$853.5~~$816.0 million and ~~$711.8~~$834.5 million as of ~~September~~March 29, 2020, and December 29, 2019, ~~and December 30, 2018,~~ 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:

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~~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 nine months ended September 29, 2019, it is possible that such a test could be required during future interim periods.

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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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 ~~September~~March 29, ~~2019,~~2020, we repurchased ~~194,927~~567,271 of our common shares in the open market.

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
July 1, 2019, through July 28, 2019 12,207 $ 50.97 12,207 $ 154,687,083
July 29, 2019, through August 25, 2019 107,046 49.50 107,046 149,388,478
August 26, 2019, through September 29, 2019 75,674 49.93 75,674 145,610,088
Total 194,927 $ 49.76 194,927

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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
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 ~~September~~March 29, ~~2019, $145.6~~2020, $109.3 million was available for repurchase in accordance with the share repurchase programs.

~~Table of Contents~~

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Table of Contents

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,~~Waiver Agreement, dated as of ~~July 25, 2019,~~April 8, 2020, by and ~~among the Company, the guarantors named therein~~between Masonite International Corporation and ~~Wells Fargo Bank, National Association,~~Howard C. Heckes
10.5(b)*#		Waiver Agreement, dated as ~~trustee, governing the 5.375% Senior Notes due 2028 (incorporated~~of April 8, 2020, 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)~~between Masonite International Corporation and Russell T. Tiejema
10.5(c)*#		Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and James A. Hair
10.5(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 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 nine~~ months ended ~~September~~March 29, ~~2019,~~2020, and ~~September 30, 2018;~~March 31, 2019; (ii) the Registrant's Condensed Consolidated Balance Sheets as of ~~September~~March 29, ~~2019,~~2020, and December ~~30, 2018;~~29, 2019; (iii) the Registrant's Condensed Consolidated Statements of Changes in Equity for the three ~~and nine~~ months ended ~~September~~March 29, ~~2019,~~2020, and ~~September 30, 2018;~~March 31, 2019; (iv) the Registrant's Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September~~March 29, ~~2019,~~2020, and ~~September 30, 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.

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:

~~November 5, 2019~~May 6, 2020

/s/ Russell T. Tiejema

Russell T. Tiejema

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

4633


(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


	Three Months Ended September 30, 2018
(In thousands, except per share amounts)	Masonite		BWI	Intercompany Eliminations		Pro Forma
Net sales	$	557,148	21,759	$	(10,672)	$	568,235
Net income attributable to Masonite	24,796		123	—		24,919

Basic earnings per common share	$	0.90				$	0.91
Diluted earnings per common share	0.89					0.89


(In thousands)	September 29, 2019
Fiscal year:
2019 (remaining three months)	$	6,914
2020	27,178
2021	19,165
2022	15,497
2023	12,643
Thereafter	148,010
Total undiscounted lease payments	229,407
Less imputed interest	(80,513)
Total	$	148,894