Company Quick10K Filing
Quick10K
Masonite International
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$54.81 26 $1,400
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-30 Annual: 2018-12-30
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-07-01 Quarter: 2018-07-01
10-Q 2018-04-01 Quarter: 2018-04-01
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-10-01 Quarter: 2017-10-01
10-Q 2017-07-02 Quarter: 2017-07-02
10-Q 2017-04-02 Quarter: 2017-04-02
10-K 2017-01-01 Annual: 2017-01-01
10-Q 2016-10-02 Quarter: 2016-10-02
10-Q 2016-07-03 Quarter: 2016-07-03
10-Q 2016-04-03 Quarter: 2016-04-03
10-K 2016-01-03 Annual: 2016-01-03
10-Q 2015-09-27 Quarter: 2015-09-27
10-Q 2015-06-28 Quarter: 2015-06-28
10-Q 2015-03-29 Quarter: 2015-03-29
10-K 2014-12-28 Annual: 2014-12-28
10-Q 2014-09-28 Quarter: 2014-09-28
10-Q 2014-06-29 Quarter: 2014-06-29
10-Q 2014-03-30 Quarter: 2014-03-30
10-K 2013-12-29 Annual: 2013-12-29
8-K 2019-08-05 Earnings, Exhibits
8-K 2019-07-25 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-07-11 Regulation FD, Exhibits
8-K 2019-07-11 Regulation FD, Exhibits
8-K 2019-05-24 Exhibits
8-K 2019-05-13 Shareholder Vote, Exhibits
8-K 2019-05-01 Earnings, Exhibits
8-K 2019-05-01 Officers
8-K 2019-02-18 Earnings, Exhibits
8-K 2019-01-31 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-01-31 Earnings, Exhibits
8-K 2018-12-31 Officers, Exhibits
8-K 2018-12-13 Officers, Exhibits
8-K 2018-11-06 Earnings, Exhibits
8-K 2018-08-27 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-08-13 Regulation FD, Exhibits
8-K 2018-08-13 Regulation FD, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-05-15 Officers, Shareholder Vote, Other Events, Exhibits
8-K 2018-05-02 Earnings, Exhibits
8-K 2018-02-26 Officers, Exhibits
8-K 2018-02-21 Earnings, Exhibits
GRFS Grifols 12,660
REG Regency Centers 10,950
GTES Gates Industrial 3,900
AUO AU Optronics 3,150
GSAH GS Acquisition Holdings 868
RMNI Rimini Street 328
MESA Mesa Air Group 223
CACG Chart Acquisition 97
TATT TAT Technologies 58
RHYTH Rhythmone 0
DOOR 2019-06-30
Part I - Financial Information
Item 1. Unaudited Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 a2019q210-qxex101.htm
EX-31.1 a2019q210-qxex311.htm
EX-31.2 a2019q210-qxex312.htm
EX-32.1 a2019q210-qxex321.htm
EX-32.2 a2019q210-qxex322.htm

Masonite International Earnings 2019-06-30

DOOR 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

2019 Q2 Form 10-Q
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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 June 30, 2019
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
____________________________
masonitelogoa15.jpg
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 25,013,896 shares of Common Stock, no par value, as of July 31, 2019.



masonitelogoa15.jpg

MASONITE INTERNATIONAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
June 30, 2019

 
 
PART I
 
 
Page
Item 1
 
 
 
 
 
 
 
 
 
 
 
 
Item 2
 
Item 3
 
Item 4
 
PART II
 
 
 
Item 1
 
Item 1A
 
Item 2
 
Item 3
 
Item 4
 
Item 5
 
Item 6
 


i


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," "will," "should," "estimate," "project," "plan," "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, 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;
new tariffs and evolving trade policy between the United States and other countries, including China;
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 ABL 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.
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.

ii


Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Comprehensive Income
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
 
Three Months Ended
 
Six Months Ended
 
June 30,
2019
 
July 1,
2018
 
June 30,
2019
 
July 1,
2018
Net sales
$
562,943

 
$
566,726

 
$
1,093,254

 
$
1,084,605

Cost of goods sold
434,013

 
443,052

 
852,220

 
855,502

Gross profit
128,930

 
123,674

 
241,034

 
229,103

Selling, general and administration expenses
78,142

 
71,851

 
156,242

 
140,062

Restructuring costs
1,361

 

 
5,101

 

Asset impairment
3,142

 

 
13,767

 

Loss on disposal of subsidiaries

 

 
4,605

 

Operating income
46,285

 
51,823

 
61,319

 
89,041

Interest expense, net
11,357

 
9,074

 
22,484

 
17,830

Other income, net of expense
(456
)
 
(839
)
 
(1,586
)
 
(861
)
Income before income tax expense
35,384

 
43,588

 
40,421

 
72,072

Income tax expense
10,293

 
7,894

 
10,351

 
14,595

Net income
25,091

 
35,694

 
30,070

 
57,477

Less: net income attributable to non-controlling interests
849

 
953

 
2,039

 
1,910

Net income attributable to Masonite
$
24,242

 
$
34,741

 
$
28,031

 
$
55,567

 
 
 
 
 
 
 
 
Basic earnings per common share attributable to Masonite
$
0.96

 
$
1.26

 
$
1.11

 
$
1.99

Diluted earnings per common share attributable to Masonite
$
0.96

 
$
1.24

 
$
1.09

 
$
1.96

 
 
 
 
 
 
 
 
Comprehensive income:
 
 
 
 
 
 
 
Net income
$
25,091

 
$
35,694

 
$
30,070

 
$
57,477

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation gain (loss)
(5,178
)
 
(31,445
)
 
8,813

 
(25,671
)
Amortization of actuarial net losses
403

 
299

 
807

 
599

Income tax expense related to other comprehensive income
(92
)
 
(100
)
 
(185
)
 
(200
)
Other comprehensive income (loss), net of tax:
(4,867
)
 
(31,246
)
 
9,435

 
(25,272
)
Comprehensive income
20,224

 
4,448

 
39,505

 
32,205

Less: comprehensive income attributable to non-controlling interests
981

 
584

 
2,387

 
1,298

Comprehensive income attributable to Masonite
$
19,243

 
$
3,864

 
$
37,118

 
$
30,907


See accompanying notes to the condensed consolidated financial statements.

1


Table of Contents

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts)
(Unaudited)
ASSETS
June 30,
2019
 
December 30,
2018
Current assets:
 
 
 
Cash and cash equivalents
$
112,644

 
$
115,656

Restricted cash
10,644

 
10,485

Accounts receivable, net
308,236

 
283,580

Inventories, net
254,625

 
250,407

Prepaid expenses
33,233

 
32,970

Income taxes receivable
3,590

 
3,495

Total current assets
722,972

 
696,593

Property, plant and equipment, net
594,538

 
609,753

Operating lease right-of-use assets
143,613

 

Investment in equity investees
14,991

 
13,474

Goodwill
180,865

 
180,297

Intangible assets, net
199,597

 
212,045

Deferred income taxes
28,558

 
28,509

Other assets
40,664

 
37,794

Total assets
$
1,925,798

 
$
1,778,465

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
101,920

 
$
96,362

Accrued expenses
172,175

 
147,345

Income taxes payable
1,642

 
1,599

Total current liabilities
275,737

 
245,306

Long-term debt
796,711

 
796,398

Long-term operating lease liabilities
132,949

 

Deferred income taxes
82,924

 
82,122

Other liabilities
22,906

 
32,334

Total liabilities
1,311,227

 
1,156,160

Commitments and Contingencies (Note 10)


 


Equity:
 
 
 
Share capital: unlimited shares authorized, no par value, 25,019,940 and 25,835,664 shares issued and outstanding as of June 30, 2019, and December 30, 2018, respectively
561,543

 
575,207

Additional paid-in capital
215,418

 
218,988

Accumulated deficit
(30,225
)
 
(30,836
)
Accumulated other comprehensive loss
(143,832
)
 
(152,919
)
Total equity attributable to Masonite
602,904

 
610,440

Equity attributable to non-controlling interests
11,667

 
11,865

Total equity
614,571

 
622,305

Total liabilities and equity
$
1,925,798

 
$
1,778,465


See accompanying notes to the condensed consolidated financial statements.

2


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
 
Six Months Ended
 
June 30, 2019
 
July 1, 2018
 
June 30, 2019
 
July 1, 2018
Total equity, beginning of period
$
610,370

 
$
719,573

 
$
622,305

 
$
735,902

Share capital:
 
 
 
 
 
 
 
Beginning of period
567,490

 
619,554

 
575,207

 
624,403

Common shares issued for delivery of share based awards
931

 
834

 
7,083

 
10,698

Common shares issued under employee stock purchase plan

 
(17
)
 
517

 
499

Common shares repurchased and retired
(6,878
)
 
(6,000
)
 
(21,264
)
 
(21,229
)
End of period
561,543

 
614,371

 
561,543

 
614,371

Additional paid-in capital:
 
 
 
 
 
 
 
Beginning of period
214,294

 
217,228

 
218,988

 
226,528

Share based compensation expense
2,093

 
3,538

 
4,773

 
6,603

Common shares issued for delivery of share based awards
(931
)
 
(834
)
 
(7,083
)
 
(10,698
)
Common shares withheld to cover income taxes payable due to delivery of share based awards
(38
)
 
(1
)
 
(1,128
)
 
(2,423
)
Common shares issued under employee stock purchase plan

 

 
(132
)
 
(79
)
End of period
215,418

 
219,931

 
215,418

 
219,931

Accumulated deficit:
 
 
 
 
 
 
 
Beginning of period
(45,852
)
 
(26,286
)
 
(30,836
)
 
(18,150
)
Net income attributable to Masonite
24,242

 
34,741

 
28,031

 
55,567

Common shares repurchased and retired
(8,615
)
 
(10,478
)
 
(27,420
)
 
(39,440
)
End of period
(30,225
)
 
(2,023
)
 
(30,225
)
 
(2,023
)
Accumulated other comprehensive loss:
 
 
 
 
 
 
 
Beginning of period
(138,833
)
 
(103,935
)
 
(152,919
)
 
(110,152
)
Other comprehensive income attributable to Masonite, net of tax
(4,999
)
 
(30,877
)
 
9,087

 
(24,660
)
End of period
(143,832
)
 
(134,812
)
 
(143,832
)
 
(134,812
)
Equity attributable to non-controlling interests:
 
 
 
 
 
 
 
Beginning of period
13,271

 
13,012

 
11,865

 
13,273

Net income attributable to non-controlling interests
849

 
953

 
2,039

 
1,910

Other comprehensive income (loss) attributable to non-controlling interests, net of tax
132

 
(369
)
 
348

 
(612
)
Dividends to non-controlling interests
(2,585
)
 
(1,548
)
 
(2,585
)
 
(2,523
)
End of period
11,667

 
12,048

 
11,667

 
12,048

Total equity, end of period
$
614,571

 
$
709,515

 
$
614,571

 
$
709,515

 
 
 
 
 
 
 
 
Common shares outstanding:
 
 
 
 
 
 
 
Beginning of period
25,314,850

 
27,851,728

 
25,835,664

 
28,369,877

Common shares issued for delivery of share based awards
12,876

 
15,149

 
129,128

 
181,397

Common shares issued under employee stock purchase plan

 

 
9,036

 
7,386

Common shares repurchased and retired
(307,786
)
 
(269,751
)
 
(953,888
)
 
(961,534
)
End of period
25,019,940

 
27,597,126

 
25,019,940

 
27,597,126



See accompanying notes to the condensed consolidated financial statements.

3


Table of Contents

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
 
Six Months Ended
Cash flows from operating activities:
June 30,
2019
 
July 1,
2018
Net income
$
30,070

 
$
57,477

Adjustments to reconcile net income to net cash flow provided by operating activities:
 
 
 
Loss on disposal of subsidiaries
4,605

 

Depreciation
36,486

 
27,634

Amortization
14,926

 
13,910

Share based compensation expense
4,773

 
6,603

Deferred income taxes
1,367

 
7,234

Unrealized foreign exchange loss (gain)
316

 
(2,079
)
Share of income from equity investees, net of tax
(1,517
)
 
(781
)
Pension and post-retirement funding, net of expense
(3,225
)
 
(3,302
)
Non-cash accruals and interest
(664
)
 
457

Loss on sale of property, plant and equipment
4,235

 
2,512

Asset impairment
13,767

 

Changes in assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
(20,609
)
 
(39,982
)
Inventories
(5,165
)
 
(2,799
)
Prepaid expenses
(316
)
 
(1,941
)
Accounts payable and accrued expenses
10,571

 
27,623

Other assets and liabilities
(1,407
)
 
(4,589
)
Net cash flow provided by operating activities
88,213

 
87,977

Cash flows from investing activities:
 
 
 
Additions to property, plant and equipment
(37,923
)
 
(33,835
)
Cash used in acquisitions, net of cash acquired
(219
)
 
(135,600
)
Cash disposed in sale of subsidiaries, net of cash proceeds
(230
)
 

Proceeds from sale of property, plant and equipment
90

 
1,367

Other investing activities
(955
)
 
(1,825
)
Net cash flow used in investing activities
(39,237
)
 
(169,893
)
Cash flows from financing activities:
 
 
 
Repayments of long-term debt
(61
)
 
(196
)
Tax withholding on share based awards
(1,128
)
 
(2,423
)
Distributions to non-controlling interests
(2,585
)
 
(2,523
)
Repurchases of common shares
(48,684
)
 
(60,669
)
Net cash flow used in financing activities
(52,458
)
 
(65,811
)
Net foreign currency translation adjustment on cash
629

 
(201
)
Decrease in cash, cash equivalents and restricted cash
(2,853
)
 
(147,928
)
Cash, cash equivalents and restricted cash, beginning of period
126,141

 
188,564

Cash, cash equivalents and restricted cash, at end of period
$
123,288

 
$
40,636


See accompanying notes to the condensed consolidated financial statements.

4


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



1. Business Overview and Significant Accounting Policies
Unless we state otherwise or the context otherwise requires, references to "Masonite," "we," "our," "us" and the "Company" in these notes to the condensed consolidated financial statements refer to Masonite International Corporation and its subsidiaries.
Description of Business
Masonite International Corporation is one of the largest manufacturers of doors in the world, with significant market share in both interior and exterior door products. Masonite operates 65 manufacturing locations in 8 countries and sells doors to customers throughout the world, including 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, as filed with the SEC. Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. In a 52-week year, each fiscal quarter consists of 13 weeks. For ease of disclosure, the 13- and 26-week periods are referred to as three- and six-month periods, respectively. Certain prior year amounts have been reclassified to conform to the current basis of presentation, related to discontinued operations, as described in the 2018 Form 10-K.
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 audited consolidated financial statements, other than as noted below.
Adoption of Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, "Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract." This ASU amended 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 after 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. We have early adopted this guidance prospectively as of December 31, 2018, the beginning of fiscal year 2019, and the adoption did not have any material impact on our results of operations.
In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment," which amended ASC 350 "Intangibles—Goodwill and Other." This ASU simplified the accounting for goodwill impairments and allowed a goodwill impairment charge to be based upon the amount of a reporting unit's carrying value in excess of its fair value; thus, eliminating what is currently known as "Step 2" under the current guidance. This ASU was effective for annual periods beginning after December 15, 2019, and interim periods within those annual periods; early adoption

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was permitted and prospective application was required. We have early adopted this guidance prospectively as of December 31, 2018, the beginning of fiscal year 2019, and the adoption did not have a material impact on our financial statements.
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which replaces the existing guidance in ASC 840, "Leases." This standard 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 standards to the comparative periods they present in their financial statements in the year of adoption. These ASUs were effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods; early adoption was permitted. We have elected to adopt these standards utilizing the modified retrospective method as of December 31, 2018, with the package of practical expedients permitted under the transition guidance of the new standards, which allowed us to not reassess whether any expired or existing contracts contain leases, to carry forward the historical lease classification and permitted us to exclude from our assessment initial direct costs for any existing leases. Additionally, we have elected to utilize the practical expedient which allows us to account for each separate lease component and the non-lease components associated with that lease component as a single lease component. We also made an accounting policy election to exclude leases with an initial term of twelve months or less from our transition adjustment. Lease payments are recognized in the consolidated statements of comprehensive income on a straight-line basis over the lease term.
The adoption of the standard resulted in the recognition of a ROU asset and lease liability 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.
Other Recent Accounting Pronouncements not yet Adopted
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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2. Acquisitions and Disposition
2018 Acquisitions
On November 1, 2018, we completed the acquisition of the operating assets of Bridgewater Wholesalers Inc. ("BWI") for cash considerations of $22.3 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. The excess purchase price over the fair value of net assets acquired of $3.7 million was allocated to goodwill. The goodwill principally represents anticipated synergies to be gained from the integration into our existing North American Residential business and the goodwill is deductible for tax purposes.
On June 1, 2018, we completed the acquisition of the operating assets of the wood door companies of AADG, Inc., including the brands Graham Manufacturing Corporation and The Maiman Company (collectively, "Graham & Maiman"). We acquired the operating assets of Graham & Maiman for cash consideration of $39.0 million. Graham & Maiman are based in Mason City, Iowa, and Springfield, Missouri. Graham & Maiman provide the non-residential construction industry with a full range of architectural premium and custom grade flush wood doors, architectural stile and rail wood doors, thermal-fused flush wood doors and wood door frames. The excess purchase price over the fair value of net assets acquired of $11.0 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


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

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Intangible assets acquired from the 2018 acquisitions consist of the following:
(In thousands)
BWI
 
Expected Useful Life (Years)
 
Graham & Maiman
 
Expected Useful Life (Years)
 
DW3
 
Expected Useful Life (Years)
Customer relationships
$
1,200

 
10.0
 
$
2,400

 
10.0
 
$
49,554

 
10.0
Trademarks and trade names
900

 
10.0
 
350

 
1.5
 
11,785

 
10.0
Patents

 
 
 

 
 
 
1,420

 
10.0
Other
870

 
2.2
 

 
 
 
114

 
3.0
Total intangible assets acquired
$
2,970

 
 
 
$
2,750

 
 
 
$
62,873

 
 

The following schedule represents the amounts of net sales and net income (loss) attributable to Masonite from the 2018 Acquisitions which have been included in the consolidated statements of comprehensive income for the periods indicated subsequent to the acquisition date:
 
Three Months Ended June 30, 2019
(In thousands)
BWI
 
Graham & Maiman
 
DW3
 
Total 2018 Acquisitions
Net sales
$
24,515

 
$
19,291

 
$
19,567

 
$
63,373

Net income attributable to Masonite
649

 
960

 
2,609

 
4,218

 
Six Months Ended June 30, 2019
(In thousands)
BWI
 
Graham & Maiman
 
DW3
 
Total 2018 Acquisitions
Net sales
$
46,458

 
$
35,947

 
$
39,229

 
$
121,634

Net income attributable to Masonite
727

 
1,180

 
5,466

 
7,373

 
Three Months Ended July 1, 2018
(in thousands)
Graham & Maiman
 
DW3
 
Total 2018 Acquisitions
Net sales
$
6,266

 
$
18,351

 
$
24,617

Net income attributable to Masonite
302

 
1,145

 
1,447

 
Six Months Ended July 1, 2018
(in thousands)
Graham & Maiman
 
DW3
 
Total 2018 Acquisitions
Net sales
$
6,266

 
$
29,549

 
$
35,815

Net income attributable to Masonite
302

 
2,093

 
2,395


Pro Forma Information
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

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enhancements. The pro forma results do not necessarily reflect the actual results of operations of the combined companies' under our ownership and operation.
 
Three Months Ended July 1, 2018
(In thousands, except per share amounts)
Masonite
 
BWI
 
Graham & Maiman
 
Intercompany Eliminations
 
Pro Forma
Net sales
$
566,726

 
24,513

 
$
11,288

 
$
(11,777
)
 
$
590,750

Net income attributable to Masonite
34,741

 
139

 
(114
)
 

 
34,766

 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
$
1.26

 
 
 
 
 
 
 
$
1.26

Diluted earnings per common share
1.24

 
 
 
 
 
 
 
1.24

 
Six Months Ended July 1, 2018
(In thousands, except per share amounts)
Masonite
 
BWI
 
Graham & Maiman
 
DW3
 
Intercompany Eliminations
 
Pro Forma
Net sales
$
1,084,605

 
$
47,573

 
$
26,887

 
$
4,918

 
$
(22,886
)
 
$
1,141,097

Net income attributable to Masonite
55,567

 
269

 
89

 
81

 
 
 
56,006

 
 
 
 
 
 
 
 
 
 
 
 
Basic earnings per common share
$
1.99

 
 
 
 
 
 
 
 
 
$
2.01

Diluted earnings per common share
1.96

 
 
 
 
 
 
 
 
 
1.97


Disposition
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 of this business resulted in a loss on disposal of subsidiaries of $4.6 million, which was recognized during the first six months 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 ten largest customers accounted for 52.6% and 54.6% of total accounts receivable as of June 30, 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 June 30, 2019, and December 30, 2018. The allowance for doubtful accounts balance was $2.5 million and $2.1 million as of June 30, 2019, and December 30, 2018, 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 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 under the AR Sales Program were not material for any of the periods presented and were recorded in selling, general and administration expense within the condensed consolidated statements of comprehensive income.

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4. Inventories
The amounts of inventory on hand were as follows as of the dates indicated:
(In thousands)
June 30,
2019
 
December 30,
2018
Raw materials
$
183,240

 
$
189,145

Finished goods
80,577

 
69,026

Provision for obsolete or aged inventory
(9,192
)
 
(7,764
)
Inventories, net
$
254,625

 
$
250,407


5. Property, Plant and Equipment
The carrying amounts of our property, plant and equipment and accumulated depreciation were as follows as of the dates indicated:
(In thousands)
June 30,
2019
 
December 30,
2018
Land
$
29,738

 
$
30,653

Buildings
179,313

 
179,888

Machinery and equipment
726,142

 
724,431

Property, plant and equipment, gross
935,193

 
934,972

Accumulated depreciation
(340,655
)
 
(325,219
)
Property, plant and equipment, net
$
594,538

 
$
609,753


Total depreciation expense was $18.2 million and $36.5 million in the three and six months ended June 30, 2019, respectively, and $13.7 million and $27.6 million for the three and six months ended July 1, 2018, respectively. Depreciation expense is included primarily within cost of goods sold in the condensed consolidated statements of comprehensive income.
6. Leases
Lease Accounting Policy
Our updated policy for lease accounting, which we adopted prospectively as of December 31, 2018, is as follows:
We determine if a contract is a lease at inception or upon acquisition and reevaluate each time a lease contract is amended or otherwise modified. A lease will be classified as an operating lease if it does not meet any of the criteria for a finance lease. Those criteria include the transfer of ownership of the underlying asset by the end of the lease term; an option to purchase the underlying asset that we would be reasonably certain to exercise; the lease term is for the major part of the remaining economic life of the underlying asset; the present value of the sum of the lease payments and any residual value guaranteed by us that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the underlying asset or if the underlying asset is of such a specialized nature that it is expected to have no alternative use to us at the end of the lease term.
The assets and liabilities relating to operating leases are included in operating lease ROU assets, accrued expenses, and long-term operating lease liabilities in our consolidated balance sheets. The assets and liabilities relating to finance leases are included in property, plant and equipment and other long-term liabilities in our consolidated balance sheets. 
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the respective lease commencement date based on the present value of lease payments over the expected lease term.

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Since our leases do not specify implicit discount rates, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any initial direct costs and is adjusted for lease incentives and prepaid or accrued rent. The lease term begins on the date when the lessor makes the underlying asset available for use to us, and our expected lease terms include options to extend the lease when it is reasonably certain that we will exercise those options. Lease payments are recognized in the consolidated statements of comprehensive income on a straight-line basis over the expected lease term.
Leases with an initial term of 12 months or less are not recorded on the balance sheet, with the related lease expense recognized on a straight-line basis over the lease term. Lease and non-lease components of a contract are combined into a single lease component for accounting purposes.
Current Period Lease Disclosures
Our operating leases include leases for real estate (including manufacturing sites, warehouses and offices) and machinery and equipment and we have no material finance leases or subleases. Certain of our operating leases contain provisions for renewal ranging from one to four options of one to ten years each.
Total operating lease expense, including non-cancelable operating leases and short-term leases, was $10.5 million and $19.7 million for the three and six months ended June 30, 2019, respectively, and $7.8 million and $15.5 million for the three and six months ended July 1, 2018, respectively.
The current portion of operating lease liabilities is included with accrued expenses in the consolidated balance sheets. Supplemental balance sheet information as of the period indicated related to operating leases was as follows:
(In thousands)
June 30, 2019
Operating lease right-of-use assets
$
143,613

 
 
Current portion of operating lease liabilities
21,271

Long-term operating lease liabilities
132,949

Total operating lease liabilities
$
154,220

 
 
Weighted average remaining lease term (years)
14.8

Weighted average discount rate
4.9
%

Maturities of operating lease liabilities are as follows:
(In thousands)
June 30, 2019
Fiscal year:
 
2019 (remaining six months)
$
13,785

2020
27,180

2021
19,123

2022
15,427

2023
12,595

Thereafter
148,522

Total undiscounted lease payments
236,632

Less imputed interest
(82,412
)
Total
$
154,220


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

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7. Goodwill and Intangible Assets
Changes in the carrying amount of goodwill were as follows as of the dates indicated:
(In thousands)
North American Residential
 
Europe
 
Architectural
 
Total
December 30, 2018
$
6,189

 
$
63,220

 
$
110,888

 
$
180,297

Measurement period adjustment
390

 

 

 
390

Foreign exchange fluctuations
11

 
55

 
112

 
178

June 30, 2019
$
6,590

 
$
63,275

 
$
111,000

 
$
180,865


During the six months ended June 30, 2019, we finalized the purchase price allocation for the BWI acquisition, which resulted in a $0.4 million increase in goodwill due to final working capital adjustments. During the fourth quarter of 2018, we performed our annual quantitative impairment test of goodwill for all of our reporting units, including the Architectural reporting unit, determining that goodwill was not impaired based upon the forecasts utilized in that test. While there was no identification of potential impairment at that time, it is possible that the estimate of discounted cash flows for the Architectural reporting unit may change in the near term based upon actual results and updated forward-looking forecasts, resulting in the need to write down goodwill to its fair value. While an interim impairment test of the Architectural reporting unit’s goodwill was not required during the six months ended June 30, 2019, it is possible that such a test could be required during future interim periods.
The cost and accumulated amortization values of our intangible assets were as follows as of the dates indicated:
 
June 30, 2019
 
December 30, 2018
(In thousands)
 Cost
 
Accumulated Amortization
 
 Net Book Value
 
Cost
 
Accumulated Amortization
 
Net Book Value
Definite life intangible assets:
 
 
 
 
 
 
 
 
 
 
 
Customer relationships
$
173,782

 
$
(90,916
)
 
$
82,866

 
$
173,637

 
$
(81,220
)
 
$
92,417

Patents
31,934

 
(22,978
)
 
8,956

 
31,363

 
(21,840
)
 
9,523

Software
33,358

 
(30,954
)
 
2,404

 
32,660

 
(29,296
)
 
3,364

Trademarks and tradenames
33,811

 
(5,694
)
 
28,117

 
33,784

 
(3,948
)
 
29,836

Other
972

 
(315
)
 
657

 
971

 
(97
)
 
874

Total definite life intangible assets
273,857

 
(150,857