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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 October 2, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-11796
____________________________
door-20221002_g1.jpg
Masonite International Corporation
(Exact name of registrant as specified in its charter)
____________________________
British Columbia, Canada98-0377314
(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)DOORNew 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 filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
The registrant had outstanding 22,276,041 shares of Common Stock, no par value, as of November 4, 2022.



door-20221002_g1.jpg

MASONITE INTERNATIONAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
October 2, 2022

i

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

ii

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

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Income and Comprehensive Income
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
Three Months EndedNine Months Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Net sales$727,626 $652,208 $2,215,717 $1,960,955 
Cost of goods sold560,442 498,103 1,684,799 1,483,870 
Gross profit167,184 154,105 530,918 477,085 
Selling, general and administration expenses82,690 76,632 256,266 242,774 
Restructuring (benefit) costs(141)1,311 (221)5,146 
Asset impairment   10,374 
Loss on disposal of subsidiaries   8,590 
Operating income84,635 76,162 274,873 210,201 
Interest expense, net10,266 11,349 31,098 35,213 
Loss on extinguishment of debt 13,583  13,583 
Other (income) expense, net211 (1,471)(1,604)(4,400)
Income before income tax expense74,158 52,701 245,379 165,805 
Income tax expense16,376 13,854 59,502 42,713 
Net income 57,782 38,847 185,877 123,092 
Less: net income attributable to non-controlling interests745 1,156 2,743 3,374 
Net income attributable to Masonite$57,037 $37,691 $183,134 $119,718 
Basic earnings per common share attributable to Masonite$2.56 $1.57 $8.09 $4.92 
Diluted earnings per common share attributable to Masonite$2.54 $1.54 $8.01 $4.84 
Comprehensive income:
Net income $57,782 $38,847 $185,877 $123,092 
Other comprehensive loss:
Foreign currency translation loss(29,021)(9,164)(59,518)(897)
Amortization of actuarial net losses6 334 18 1,000 
Income tax benefit (expense) related to other comprehensive loss (45)(83)(58)(196)
Other comprehensive loss, net of tax:(29,060)(8,913)(59,558)(93)
Comprehensive income28,722 29,934 126,319 122,999 
Less: comprehensive (loss) income attributable to non-controlling interests700 990 3,339 3,477 
Comprehensive income attributable to Masonite$28,022 $28,944 $122,980 $119,522 

See accompanying notes to the condensed consolidated financial statements.
1

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts)
(Unaudited)
ASSETSOctober 2, 2022January 2, 2022
Current assets:
Cash and cash equivalents$250,705 $381,395 
Restricted cash11,999 10,110 
Accounts receivable, net401,664 343,414 
Inventories, net437,202 347,476 
Prepaid expenses and other assets49,214 50,399 
Income taxes receivable5,260 1,332 
Total current assets1,156,044 1,134,126 
Property, plant and equipment, net618,240 626,797 
Operating lease right-of-use assets161,589 176,445 
Investment in equity investees14,789 14,994 
Goodwill64,987 77,102 
Intangible assets, net128,678 150,487 
Deferred income taxes30,461 20,764 
Other assets45,652 45,903 
Total assets$2,220,440 $2,246,618 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$135,461 $138,788 
Accrued expenses228,257 237,300 
Income taxes payable11,156 8,551 
Total current liabilities374,874 384,639 
Long-term debt866,699 865,721 
Long-term operating lease liabilities150,467 165,670 
Deferred income taxes81,934 77,936 
Other liabilities49,827 52,874 
Total liabilities1,523,801 1,546,840 
Commitments and Contingencies (Note 7)
Equity:
Share capital: unlimited shares authorized, no par value, 22,275,612 and 23,623,887 shares issued and outstanding as of October 2, 2022, and January 2, 2022, respectively
522,575 543,400 
Additional paid-in capital221,358 222,177 
Retained earnings103,308 24,244 
Accumulated other comprehensive loss(161,736)(101,582)
Total equity attributable to Masonite685,505 688,239 
Equity attributable to non-controlling interests11,134 11,539 
Total equity696,639 699,778 
Total liabilities and equity$2,220,440 $2,246,618 

See accompanying notes to the condensed consolidated financial statements.
2

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Changes in Equity
(In thousands of U.S. dollars, except share amounts)
(Unaudited)
Three Months EndedNine Months Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Total equity, beginning of period$663,065 $750,173 $699,778 $695,117 
Share capital:
Beginning of period521,243 556,398 543,400 552,969 
Common shares issued for delivery of share based awards555 779 13,531 11,843 
Common shares issued under employee stock purchase plan777 769 1,574 1,593 
Common shares repurchased (8,478)(35,930)(16,937)
End of period522,575 549,468 522,575 549,468 
Additional paid-in capital:
Beginning of period216,653 217,599 222,177 223,666 
Share based compensation expense5,556 2,336 16,251 11,460 
Common shares issued for delivery of share based awards(555)(779)(13,531)(11,843)
Common shares withheld to cover income taxes payable due to delivery of share based awards(223)(890)(3,332)(4,834)
Common shares issued under employee stock purchase plan(73)(139)(207)(322)
Common shares repurchased    
End of period221,358 218,127 221,358 218,127 
Retained earnings:
Beginning of period46,271 68,845 24,244 20,385 
Net income attributable to Masonite57,037 37,691 183,134 119,718 
Common shares repurchased (32,631)(104,070)(66,198)
End of period103,308 73,905 103,308 73,905 
Accumulated other comprehensive loss:
Beginning of period(132,721)(103,512)(101,582)(112,063)
Other comprehensive loss attributable to Masonite, net of tax(29,015)(8,747)(60,154)(196)
End of period(161,736)(112,259)(161,736)(112,259)
Equity attributable to non-controlling interests:
Beginning of period11,619 10,843 11,539 10,160 
Net income attributable to non-controlling interests745 1,156 2,743 3,374 
Other comprehensive (loss) income attributable to non-controlling interests, net of tax(45)(166)596 103 
Dividends to non-controlling interests(1,185)(593)(3,744)(2,397)
End of period11,134 11,240 11,134 11,240 
Total equity, end of period$696,639 $740,481 $696,639 $740,481 
Common shares outstanding:
Beginning of period22,259,356 24,238,024 23,623,887 24,422,934 
Common shares issued for delivery of share based awards7,718 20,370 191,166 195,858 
Common shares issued under employee stock purchase plan8,538 6,794 16,567 15,091 
Common shares repurchased (369,148)(1,556,008)(737,843)
End of period22,275,612 23,896,040 22,275,612 23,896,040 
See accompanying notes to the condensed consolidated financial statements.
3

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
Nine Months Ended
Cash flows from operating activities:October 2, 2022October 3, 2021
Net income$185,877 $123,092 
Adjustments to reconcile net income to net cash flow provided by operating activities:
Loss on disposal of subsidiaries 8,590 
Loss on extinguishment of debt 13,583 
Depreciation51,977 52,876 
Amortization13,164 16,749 
Share based compensation expense16,251 11,460 
Deferred income taxes(4,675)11,989 
Unrealized foreign exchange loss (gain)859 (490)
Share of income from equity investees, net of tax(3,944)(2,404)
Dividend from equity investee4,500 4,500 
Pension and post-retirement funding, net of expense140 (3,708)
Non-cash accruals and interest199 1,268 
Gain on sale of property, plant and equipment(1,245)1,954 
Asset impairment 10,374 
Changes in assets and liabilities, net of acquisitions:
Accounts receivable(70,530)(65,448)
Inventories(101,305)(54,425)
Prepaid expenses and other assets85 1,261 
Accounts payable and accrued expenses(3,307)(28,587)
Other assets and liabilities(5,127)(2,615)
Net cash flow provided by operating activities82,919 100,019 
Cash flows from investing activities:
Additions to property, plant and equipment(65,792)(46,626)
Acquisition of businesses, net of cash acquired (160)
Proceeds from sale of subsidiaries, net of cash disposed 7,001 
Proceeds from sale of property, plant and equipment6,393 3,377 
Other investing activities(2,068)(1,782)
Net cash flow used in investing activities(61,467)(38,190)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 375,000 
Repayments of long-term debt (300,945)
Payment of debt extinguishment costs (10,810)
Payment of debt issuance costs (4,672)
Tax withholding on share based awards(3,332)(4,834)
Distributions to non-controlling interests(2,500)(2,397)
Repurchases of common shares(140,000)(83,135)
Net cash flow used in financing activities(145,832)(31,793)
Net foreign currency translation adjustment on cash(4,421)(1,294)
(Decrease) Increase in cash, cash equivalents and restricted cash(128,801)28,742 
Cash, cash equivalents and restricted cash, beginning of period391,505 375,234 
Cash, cash equivalents and restricted cash, at end of period$262,704 $403,976 
See accompanying notes to the condensed consolidated financial statements.
4


MASONITE INTERNATIONAL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1. Business Overview and Significant Accounting Policies
Unless we state otherwise or the context otherwise requires, references to "Masonite," "we," "our," "us" and the "Company" in these notes to the condensed consolidated financial statements refer to Masonite International Corporation and its subsidiaries.
Description of Business
Masonite International Corporation is one of the largest manufacturers of doors in the world, with significant market share in both interior and exterior door products. Masonite operates 59 manufacturing and distribution facilities in seven countries and sells doors to customers throughout the world with our largest markets being the United States, Canada and the United Kingdom.
Basis of Presentation
We prepare these unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair presentation of the results for the interim periods presented have been included. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. These estimates are based on information available as of the date of the unaudited condensed consolidated financial statements; therefore, actual results could differ from those estimates. Interim results are not necessarily indicative of the results for a full year.
These unaudited condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 2022, as filed with the SEC (the "Annual Report"). Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. In a 52-week year, each fiscal quarter consists of 13 weeks. For ease of disclosure, the 13-week periods are referred to as three-month periods and the 52- or 53-week periods are referred to as a year.
Changes in Accounting Standards and Policies
There have been no changes in the significant accounting policies from those that were disclosed in the fiscal year 2021 audited consolidated financial statements, other than as noted below.
Adoption of Recent Accounting Pronouncements
In December 2021, the Financial Accounting Standards Board ("FASB") issued ASU 2021-10, "Government Assistance," which requires annual disclosures that increase the transparency of transactions involving government grants, including (1) the types of transactions, (2) the accounting for those transactions and (3) the effect of those transactions on an entity's financial statements. The guidance is effective for annual periods beginning after December 15, 2021, with early adoption permitted. We adopted the new guidance as of January 3, 2022, the beginning of fiscal year 2022, and the adoption did not have a material impact on our financial statements. We do not anticipate the adoption will have a material impact on our annual disclosures.
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes," as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. We have adopted the new guidance prospectively as of January 4, 2021, the beginning of fiscal year 2021, and the adoption did not have a material impact on our financial statements.
5



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

2. Acquisitions and Divestitures
On June 14, 2021, we completed the sale of all of the capital stock of our Czech business ("Czech") for consideration of $7.0 million, net of cash disposed. The divestiture of this business resulted in a loss on disposal of subsidiaries of $8.6 million, which was recognized in the second quarter of 2021 in the Europe segment. The total charge consists of $5.1 million relating to the write-off of the net assets sold and other professional fees and $3.5 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.
3. Accounts Receivable
Our customers consist mainly of retailers, distributors and contractors. Our ten largest customers accounted for 61.1% and 56.7% of total accounts receivable as of October 2, 2022, and January 2, 2022, respectively. Our largest customer, The Home Depot, Inc., accounted for more than 10% of the consolidated gross accounts receivable balance as of October 2, 2022, and January 2, 2022. The allowance for doubtful accounts balance was $2.1 million as of October 2, 2022, and January 2, 2022.
We maintain an accounts receivable sales program with a third party (the "AR Sales Program"). Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to a third party who assumes the full risk of collection, without recourse to us in the event of a loss. Transfers of receivables under this program are accounted for as sales. Proceeds from the transfers reflect the face value of the accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts receivable in the condensed consolidated balance sheets and are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The discounts on the sales of trade accounts receivable sold, if any, under the AR Sales Program were not material for any of the periods presented and were recorded in selling, general and administration expenses within the condensed consolidated statements of income and comprehensive income.
In most countries we pay and collect value-added tax ("VAT") when procuring goods and services within the normal course of business. VAT receivables are established in jurisdictions where VAT paid exceeds VAT collected and are recoverable through the filing of refund claims.
Certain wood moldings and millwork products being imported into the U.S. are subject to import tariffs. Tariff deposits are paid to the government and are recoverable through an assessment process.
4. Inventories
The amounts of inventory on hand were as follows as of the dates indicated:
(In thousands)October 2, 2022January 2, 2022
Raw materials$343,056 $275,269 
Finished goods103,269 78,324 
Provision for obsolete or aged inventory(9,123)(6,117)
Inventories, net$437,202 $347,476 
5. Accrued Expenses
The details of our accrued expenses were as follows as of the dates indicated:
(In thousands)October 2, 2022January 2, 2022
Accrued payroll$69,245 $66,048 
Accrued rebates53,876 51,200 
Current portion of operating lease liabilities25,977 25,551 
Accrued interest6,448 17,125 
Other accruals72,711 77,376 
Total accrued expenses$228,257 $237,300 

6



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

6. Long-Term Debt
(In thousands)October 2, 2022January 2, 2022
3.50% senior unsecured notes due 2030
$375,000 $375,000 
5.375% senior unsecured notes due 2028
500,000 500,000 
Debt issuance costs(8,301)(9,279)
Total long-term debt$866,699 $865,721 
Interest expense related to our consolidated indebtedness under our senior unsecured notes was $10.4 million and $31.1 million for the three and nine months ended October 2, 2022, respectively, and $10.7 million and $33.5 million for the three and nine months ended October 3, 2021, respectively.
3.50% Senior Notes due 2030
On July 26, 2021, we issued $375.0 million aggregate principal senior unsecured notes (the "2030 Notes"). The 2030 Notes bear interest at 3.50% per annum, payable in cash semiannually in arrears on February 15 and August 15 of each year and are due February 15, 2030. The 2030 Notes were issued at par.
Information concerning obligations under the 2030 Notes and the indenture governing them are described in detail in our Annual Report. As of October 2, 2022, we were in compliance with all covenants under the indenture governing the 2030 Notes.
5.375% Senior Notes due 2028
On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"). The 2028 Notes bear interest at 5.375%, payable in cash semiannually in arrears on February 1 and August 1 of each year and are due February 1, 2028. The 2028 Notes were issued at par.
Information concerning obligations under the 2028 Notes and the indenture governing them are described in detail in our Annual Report. As of October 2, 2022, we were in compliance with all covenants under the indenture governing the 2028 Notes.
ABL Facility
On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving credit facility (the "ABL Facility") maturing on January 31, 2024, which replaced the previous facility. Borrowings under the ABL Facility bear interest at a rate equal to, at our option, (i) the United States, Canadian or United Kingdom Base Rate (each as defined in the credit agreement relating to the ABL Facility, the "Amended and Restated Credit Agreement") plus a margin ranging from 0.25% to 0.50% per annum, or (ii) the Adjusted LIBO Rate or BA Rate (each as defined in the Amended and Restated Credit Agreement), plus a margin ranging from 1.25% to 1.50% per annum. In addition to paying interest on any outstanding principal under the ABL Facility, a commitment fee is payable on the undrawn portion of the ABL Facility in an amount equal to 0.25% per annum of the average daily balance of unused commitments during each calendar quarter.
The ABL Facility contains various customary representations, warranties by us and covenants that are described in detail in our Annual Report. As of October 2, 2022, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of $250.0 million under our ABL Facility and there were no amounts outstanding as of October 2, 2022.
7. Commitments and Contingencies
The following discussion describes material developments in our legal proceedings since January 2, 2022. Refer to Note 10. Commitments and Contingencies in the consolidated financial statements in our Annual Report for a full description of previously disclosed legal proceedings.

7



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

Indemnifications

We have provided customary indemnifications to our landlords under certain property lease agreements for claims by third parties in connection with their use of the premises. We also have provided routine indemnifications against adverse effects related to changes in tax laws and patent infringements by third parties. The maximum amount of these indemnifications cannot be reasonably estimated due to their nature. In some cases, we have recourse against other parties to mitigate the risk of loss from these indemnifications. Historically, we have not made any significant payments relating to such indemnifications.
Antitrust Class Action Proceedings - Canada
On May 19, 2020, an intended class proceeding was commenced in the Province of Québec, Canada naming as defendants Masonite Corporation, Masonite International Corporation, JELD-WEN, Inc., JELD-WEN Holding, Inc. and JELD-WEN of Canada, Ltd. The plaintiff alleges that the Masonite and JELD-WEN defendants engaged in anticompetitive conduct, including price-fixing involving interior molded doors. The intended class proceeding seeks damages, punitive damages and other relief. On December 22, 2020, the parties filed a motion with the court seeking to stay the proceeding.
Also, on October 2, 2020, an intended class proceeding was commenced in the Federal Court of Canada naming as defendants Masonite International Corporation, Masonite Corporation, JELD-WEN, Inc., JELD-WEN Holding, Inc. and JELD-WEN of Canada, Ltd. The plaintiff alleges that the Masonite and JELD-WEN defendants engaged in anticompetitive conduct, including price-fixing involving interior molded doors. The intended class proceeding seeks damages, punitive damages and other relief. This proceeding is at an early stage. The plaintiff served its certification record on March 31, 2021. The parties have written to the Federal Court asking for available dates in late June 2023 to schedule a two-day certification hearing. We have not recognized an expense related to damages in connection with this matter because, although an adverse outcome is reasonably possible, the amount or range of any potential loss cannot be reasonably estimated.
While we intend to defend against these claims vigorously, there can be no assurance that the ultimate resolution of this litigation will not have a material, adverse effect on our consolidated financial condition or results of operations.
General
In addition to the above, from time to time, we are involved in various claims and legal actions, including but not limited to wage and hour and labor lawsuits. In the opinion of management, the ultimate disposition of these matters, individually and in the aggregate, will not have a material adverse effect on our financial condition, results of operations or cash flows.
8. Share Based Compensation Plans
Share based compensation expense was $5.6 million and $16.3 million for the three and nine months ended October 2, 2022, respectively, and $2.3 million and $11.5 million for the three and nine months ended October 3, 2021, respectively. As of October 2, 2022, the total remaining unrecognized compensation expense related to share based compensation amounted to $33.0 million, which will be amortized over the weighted average remaining requisite service period of 1.9 years.
Equity Incentive Plans
Our equity incentive plans under the 2021 Equity Plan and 2012 Plan are described in detail and defined in our Annual Report. The aggregate number of common shares that can be issued with respect to equity awards under the 2021 Equity Plan cannot exceed 880,000 shares; plus the number of shares reserved for the 2012 Plan that is in excess of the number of shares related to outstanding grants; plus the number of shares subject to existing grants under the 2012 Plan that may expire or be forfeited or cancelled. As of October 2, 2022, there were 941,633 shares of common stock available for future issuance under the 2021 Equity Plan.

8



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

Deferred Compensation Plan
We offer to certain of our employees and directors a Deferred Compensation Plan, which is further described in our Annual Report. As of October 2, 2022, the liability and asset relating to deferred compensation had a fair value of $6.7 million and $6.3 million, respectively. As of October 2, 2022, participation in the deferred compensation plan is limited and no restricted stock awards have been deferred into the deferred compensation plan. All plan investments are categorized as having Level 1 valuation inputs as established by the FASB’s Fair Value Framework.
Stock Appreciation Rights
We have granted Stock Appreciation Rights ("SARs") to certain employees under both the 2021 Equity Plan and the 2012 Plan, which entitle the recipient to the appreciation in value of a number of common shares over the exercise price over a period of time, each as specified in the applicable award agreement. The exercise price of any SAR granted may not be less than the fair market value of our common shares on the date of grant. The compensation expense for the SARs is measured based on the fair value of the SARs at the date of grant and is recognized over the requisite service period. The SARs vest over a maximum of three years, have a life of ten years and settle in common shares. It is assumed that all time-based SARs will vest. We recognize forfeitures of SARs in the period in which they occur.
The total fair value of SARs vested was $0.8 million during the nine months ended October 2, 2022.
Nine Months Ended October 2, 2022Stock Appreciation RightsAggregate Intrinsic Value (in thousands) Weighted Average Exercise Price Average Remaining Contractual Life (Years)
Outstanding, beginning of period158,725 $7,324 $71.81 7.5
Granted33,803 88.43 
Exercised(4,580)169 56.51 
Cancelled and forfeited(3,743)96.15 
Outstanding, end of period184,205 $1,246 $74.75 7.3
Exercisable, end of period124,842 $1,220 $66.14 6.5
The value of SARs granted is determined using the Black-Scholes-Merton valuation model, and the corresponding expense is expected to be recognized over the average requisite service period of 2.0 years. Expected volatility is based upon the historical volatility of our common shares amongst other considerations. The expected term is calculated based upon historical employee exercise behavior and the contractual term of the options amongst other considerations. The weighted average grant date assumptions used for the SARs granted were as follows for the periods indicated:
2022 Grants
SAR value (model conclusion)$26.52
Risk-free rate2.0 %
Expected dividend yield0.0 %
Expected volatility26.5 %
Expected term (years)6.0
Restricted Stock Units
We have granted Restricted Stock Units ("RSUs") to directors and certain employees under the 2012 and 2021 Plans. The RSUs confer the right to receive shares of our common stock at a specified future date or when certain conditions are met. The compensation expense for the RSUs awarded is based on the fair value of the RSUs at the date of grant, which is equal to the stock price on the date of grant, and is recognized over the requisite service period. The RSUs vest over a maximum of three years and call for the underlying shares to be delivered no later than 30 days following the vesting date unless the participant is subject to a blackout period. In such case, the shares are to be
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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delivered once the blackout restriction has been lifted. It is assumed that all time-based RSUs will vest. We recognize forfeitures of RSUs in the period in which they occur.
Nine Months Ended October 2, 2022Total Restricted Stock Units OutstandingWeighted Average Grant Date Fair Value
Outstanding, beginning of period442,106 $87.24 
Granted420,781 88.57 
Performance adjustment (1)
25,234 57.19 
Delivered(187,613)77.98 
Withheld to cover (2)
(34,755)
Forfeited(41,095)95.12 
Outstanding, end of period624,658 $91.83 
___________
(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%. Certain awards are settled with payouts ranging from zero to 200% of the target award value depending on achievement. The performance adjustment represents the difference in shares ultimately awarded due to performance attainment above or below target.
(2) A portion of the vested RSUs delivered were net shares settled to cover statutory requirements for income and other employment taxes. We remit the equivalent cash to the appropriate taxing authorities. These net share settlements had the effect of share repurchases by us as we reduced and retired the number of shares that would have otherwise been issued as a result of the vesting.
Approximately half of the RSUs granted during the nine months ended October 2, 2022, vest at specified future dates with only service requirements, while the remaining portion of the RSUs vest based on both performance and service requirements. The value of RSUs granted in the nine months ended October 2, 2022, is being recognized over the weighted average requisite service period of 2.5 years. During the nine months ended October 2, 2022, 222,368 RSUs vested at a fair value of $16.0 million.
9. Restructuring Costs
In May 2021, we initiated further actions to improve overall business performance that includes the reorganization of our specialty door manufacturing capacity in our Architectural reportable segment. The reorganization of our manufacturing capacity resulted in the closure of one existing stile and rail facility and related headcount reductions beginning in the second quarter of 2021 (collectively, the "2021 Plan"). Costs associated with the 2021 Plan include severance and closure charges.
In November 2020, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce primarily in our Architectural reportable segment as well as limited actions in the North American Residential reportable segment. The reorganization of our manufacturing capacity involves specific facilities in the Architectural segment and costs associated with the closure of these facilities and related headcount reductions began taking place in the fourth quarter of 2020 (collectively, the "2020 Plan"). Costs associated with the 2020 Plan include severance and closure charges.
In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges.
As of October 2, 2022, we do not expect to incur any material future charges related to the 2021 Plan, 2020 Plan or the 2019 Plan.
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The following tables summarize the restructuring (benefit) costs recorded for the periods indicated:
Three Months Ended October 2, 2022
(In thousands)North American ResidentialArchitecturalCorporate & OtherTotal
2021 Plan$ $ $ $ 
2020 Plan 23  23 
2019 Plan(178) 14 (164)
Total Restructuring (Benefit) Costs$(178)$23 $14 $(141)
Three Months Ended October 3, 2021
(In thousands)North American ResidentialArchitecturalCorporate & OtherTotal
2021 Plan$ $875 $ $875 
2020 Plan4 439  443 
2019 Plan(40) 33 (7)
Total Restructuring (Benefit) Costs$(36)$1,314 $33 $1,311 
Nine Months Ended October 2, 2022
(In thousands)North American ResidentialArchitecturalCorporate & OtherTotal
2021 Plan$ $18 $ $18 
2020 Plan 53 16 69 
2019 Plan(359) 51 (308)
Total Restructuring (Benefit) Costs$(359)$71 $67 $(221)
Nine Months Ended October 3, 2021
(In thousands)North American ResidentialArchitecturalCorporate & OtherTotal
2021 Plan$ $1,414 $ $1,414 
2020 Plan23 3,454  3,477 
2019 Plan(68) 323 255 
Total Restructuring (Benefit) Costs$(45)$4,868 $323 $5,146 
Cumulative Amount Incurred Through October 2, 2022
(In thousands)North American ResidentialEuropeArchitecturalCorporate & OtherTotal
2021 Plan$ $ $1,684 $ $1,684 
2020 Plan52  5,285 39 5,376 
2019 Plan8,791 359 1,671 2,646 13,467 
Total Restructuring Costs$8,843 $359 $8,640 $2,685 $20,527 
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The changes in the accrual for restructuring by activity were as follows for the periods indicated:
(In thousands)January 2,
2022
SeveranceClosure CostsCash PaymentsOctober 2,
2022
2021 Plan$25 $(26)$44 $(43)$ 
2020 Plan22 (35)104 (92)(1)
2019 Plan2 15 (323)307 1 
Total$49 $(46)$(175)$172 $ 
(In thousands)January 3,
2021
SeveranceClosure CostsCash PaymentsOctober 3,
2021
2021 Plan$ $546 $868 $(1,321)$93 
2020 Plan1,492 264 3,213 (4,945)24 
2019 Plan291 175 80 (456)90 
Total$1,783 $985 $4,161 $(6,722)$207 
10. Asset Impairment
During the nine months ended October 3, 2021, we recognized asset impairment charges of $10.4 million related to assets in the Architectural segment and an asset in the Corporate & Other category, as a result of announced plant closures under the 2021 and 2020 Plans. This amount was determined based upon the excess of the carrying values of property, plant and equipment over the respective fair values of such assets, determined using a discounted cash flows approach for each asset group. Each of these valuations was performed on a non-recurring basis and is categorized as having Level 3 valuation inputs as established by the FASB's Fair Value Framework. The Level 3 unobservable inputs include an estimate of future cash flows and the salvage value for each of the assets. The fair value of the assets was determined to be $6.3 million, compared to a book value of $16.7 million, with the difference representing the asset impairment charges recorded in the condensed consolidated statements of income and comprehensive income.
11. Income Taxes
The effective tax rate differs from the Canadian statutory rate of 26.5% primarily due to mix of earnings in foreign jurisdictions that are subject to tax rates which differ from the Canadian statutory rate. In addition, we recognized $1.1 million of income tax benefit due to the exercise and delivery of share based awards during the nine months ended October 2, 2022, compared to $0.4 million and $2.7 million of income tax benefit during the three and nine months ended October 3, 2021.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 ("IRA") into law. The IRA includes several changes to existing tax law, including a minimum tax on adjusted financial statement income of applicable corporations and an excise tax on certain corporate stock buybacks. The tax provisions included in the IRA are generally effective beginning January 1, 2023, and no significant impact to the consolidated financial statements is anticipated. Management continues to review the IRA tax provisions to assess impacts to our future consolidated financial statements.
12. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing earnings attributable to Masonite by the weighted average number of our common shares outstanding during the period. Diluted EPS is calculated by dividing earnings attributable to Masonite by the weighted average number of common shares plus the incremental number of shares issuable from non-vested and vested RSUs and SARs outstanding during the period.
The weighted average number of shares outstanding utilized for the diluted EPS calculation contemplates the exercise of all currently outstanding SARs and the conversion of all RSUs. The dilutive effect of such equity awards is calculated based on the weighted average share price for each fiscal period using the treasury stock method.
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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(In thousands, except share and per share information)Three Months EndedNine Months Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Net income attributable to Masonite$57,037 $37,691 $183,134 $119,718 
Shares used in computing basic earnings per share22,267,684 24,068,744 22,624,830 24,329,647