Edgar Filing: MASONITE INTERNATIONAL CORP

2019 Q1 Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

FORM 10-Q

____________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-11796

____________________________

Masonite International Corporation

(Exact name of registrant as specified in its charter)

____________________________



British Columbia, Canada (State or other jurisdiction of incorporation or organization)		98-0377314 (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 x No o

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 x 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	x	Accelerated filer	o

Non-accelerated filer	o	Smaller reporting company	o

Emerging growth company	o

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 x

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 25,146,479 shares of Common Stock, no par value, as of April 29, 2019.

MASONITE INTERNATIONAL CORPORATION

INDEX TO QUARTERLY REPORT ON FORM 10-Q

March 31, 2019




PART I		Page
Item 1	Unaudited Financial Statements
	Condensed Consolidated Statements of Comprehensive Income	1
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Changes in Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to the Condensed Consolidated Financial Statements	5
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4	Controls and Procedures	36
PART II
Item 1	Legal Proceedings	37
Item 1A	Risk Factors	37
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3	Defaults Upon Senior Securities	38
Item 4	Mine Safety Disclosures	38
Item 5	Other Information	38
Item 6	Exhibits	38

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the federal securities laws, including, without limitation, statements concerning the conditions in our industry, our operations, our economic performance and financial condition, including, in particular, statements relating to our business and growth strategy and product development efforts under "Management's Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as "may," "might," "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.

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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
	March 31, 2019			April 1, 2018
Net sales	$	530,311		$	517,879
Cost of goods sold	418,207			412,450
Gross profit	112,104			105,429
Selling, general and administration expenses	78,100			68,211
Restructuring costs	3,740			—
Asset impairment	10,625			—
Loss on disposal of subsidiaries	4,605			—
Operating income	15,034			37,218
Interest expense, net	11,127			8,756
Other income, net of expense	(1,130		)	(22		)
Income before income tax expense	5,037			28,484
Income tax expense	58			6,701
Net income	4,979			21,783
Less: net income attributable to non-controlling interests	1,190			957
Net income attributable to Masonite	$	3,789		$	20,826

Basic earnings per common share attributable to Masonite	$	0.15		$	0.74
Diluted earnings per common share attributable to Masonite	$	0.15		$	0.73

Comprehensive income:
Net income	$	4,979		$	21,783
Other comprehensive income:
Foreign currency translation gain	13,991			5,774
Amortization of actuarial net losses	404			300
Income tax expense related to other comprehensive income	(93		)	(100		)
Other comprehensive income, net of tax:	14,302			5,974
Comprehensive income	19,281			27,757
Less: comprehensive income attributable to non-controlling interests	1,406			714
Comprehensive income attributable to Masonite	$	17,875		$	27,043

See accompanying notes to the condensed consolidated financial statements.

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MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Balance Sheets

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

(Unaudited)



ASSETS	March 31, 2019			December 30, 2018
Current assets:
Cash and cash equivalents	$	79,642		$	115,656
Restricted cash	10,985			10,485
Accounts receivable, net	291,298			283,580
Inventories, net	255,499			250,407
Prepaid expenses	31,432			32,970
Income taxes receivable	3,181			3,495
Total current assets	672,037			696,593
Property, plant and equipment, net	598,064			609,753
Operating lease right-of-use assets	126,600			—
Investment in equity investees	14,372			13,474
Goodwill	182,898			180,297
Intangible assets, net	208,947			212,045
Deferred income taxes	29,451			28,509
Other assets	39,347			37,794
Total assets	$	1,871,716		$	1,778,465

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	95,523		$	96,362
Accrued expenses	147,922			147,345
Income taxes payable	2,643			1,599
Total current liabilities	246,088			245,306
Long-term debt	796,586			796,398
Deferred income taxes	79,302			82,122
Long-term operating lease liabilities	114,426			—
Other liabilities	24,944			32,334
Total liabilities	1,261,346			1,156,160
Commitments and Contingencies (Note 10)
Equity:
Share capital: unlimited shares authorized, no par value, 25,314,850 and 25,835,664 shares issued and outstanding as of March 31, 2019, and December 30, 2018, respectively	567,490			575,207
Additional paid-in capital	214,294			218,988
Accumulated deficit	(45,852		)	(30,836		)
Accumulated other comprehensive loss	(138,833		)	(152,919		)
Total equity attributable to Masonite	597,099			610,440
Equity attributable to non-controlling interests	13,271			11,865
Total equity	610,370			622,305
Total liabilities and equity	$	1,871,716		$	1,778,465

See accompanying notes to the condensed consolidated financial statements.

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MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Statements of Changes in Equity

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

(Unaudited)



	Three Months Ended
	March 31, 2019			April 1, 2018
Total equity, beginning of period	$	622,305		$	735,902
Share capital:
Beginning of period	575,207			624,403
Common shares issued for delivery of share based awards	6,152			9,864
Common shares issued under employee stock purchase plan	517			516
Common shares repurchased and retired	(14,386		)	(15,229		)
End of period	567,490			619,554
Additional paid-in capital:
Beginning of period	218,988			226,528
Share based compensation expense	2,680			3,065
Common shares issued for delivery of share based awards	(6,152		)	(9,864		)
Common shares withheld to cover income taxes payable due to delivery of share based awards	(1,090		)	(2,422		)
Common shares issued under employee stock purchase plan	(132		)	(79		)
End of period	214,294			217,228
Accumulated deficit:
Beginning of period	(30,836		)	(18,150		)
Net income attributable to Masonite	3,789			20,826
Common shares repurchased and retired	(18,805		)	(28,962		)
End of period	(45,852		)	(26,286		)
Accumulated other comprehensive loss:
Beginning of period	(152,919		)	(110,152		)
Other comprehensive income attributable to Masonite, net of tax	14,086			6,217
End of period	(138,833		)	(103,935		)
Equity attributable to non-controlling interests:
Beginning of period	11,865			13,273
Net income attributable to non-controlling interests	1,190			957
Other comprehensive income (loss) attributable to non-controlling interests, net of tax	216			(243		)
Dividends to non-controlling interests	—			(975		)
End of period	13,271			13,012
Total equity, end of period	$	610,370		$	719,573

Common shares outstanding:
Beginning of period	25,835,664			28,369,877
Common shares issued for delivery of share based awards	116,252			166,248
Common shares issued under employee stock purchase plan	9,036			7,386
Common shares repurchased and retired	(646,102		)	(691,783		)
End of period	25,314,850			27,851,728

See accompanying notes to the condensed consolidated financial statements.

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MASONITE INTERNATIONAL CORPORATION

Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars)

(Unaudited)



	Three Months Ended
Cash flows from operating activities:	March 31, 2019			April 1, 2018
Net income	$	4,979		$	21,783
Adjustments to reconcile net income to net cash flow provided by operating activities:
Loss on disposal of subsidiaries	4,605			—
Depreciation	18,285			13,934
Amortization	7,597			6,585
Share based compensation expense	2,680			3,065
Deferred income taxes	(3,708		)	3,619
Unrealized foreign exchange loss	272			692
Share of income from equity investees, net of tax	(898		)	(311		)
Pension and post-retirement funding, net of expense	(1,661		)	(1,424		)
Non-cash accruals and interest	(562		)	382
Loss on sale of property, plant and equipment	2,913			612
Asset impairment	10,625			—
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(6,587		)	(16,629		)
Inventories	(5,902		)	(1,644		)
Prepaid expenses	1,986			(176		)
Accounts payable and accrued expenses	(16,193		)	(1,969		)
Other assets and liabilities	80			(1,326		)
Net cash flow provided by operating activities	18,511			27,193
Cash flows from investing activities:
Additions to property, plant and equipment	(20,422		)	(21,801		)
Cash used in acquisitions, net of cash acquired	(219		)	(96,309		)
Cash disposed in sale of subsidiaries, net of cash proceeds	(230		)	—
Proceeds from sale of property, plant and equipment	88			—
Other investing activities	(418		)	(862		)
Net cash flow used in investing activities	(21,201		)	(118,972		)
Cash flows from financing activities:
Repayments of long-term debt	(6		)	(102		)
Tax withholding on share based awards	(1,090		)	(2,422		)
Distributions to non-controlling interests	—			(975		)
Repurchases of common shares	(33,191		)	(44,191		)
Net cash flow used in financing activities	(34,287		)	(47,690		)
Net foreign currency translation adjustment on cash	1,463			(224		)
Decrease in cash, cash equivalents and restricted cash	(35,514		)	(139,693		)
Cash, cash equivalents and restricted cash, beginning of period	126,141			188,564
Cash, cash equivalents and restricted cash, at end of period	$	90,627		$	48,871

See accompanying notes to the condensed consolidated financial statements.

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MASONITE INTERNATIONAL CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Business Overview and Significant Accounting Policies

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

Description of Business

Masonite International Corporation is one of the largest manufacturers of doors in the world, with significant market share in both interior and exterior door products. Masonite operates 67 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-week periods are referred to as three-month periods. 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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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

was permitted and prospective application was required. We have early adopted this guidance prospectively as of December 31, 2018, the beginning of fiscal year 2019, 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.

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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 three months ended March 31, 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.

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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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 March 31, 2019
(In thousands)	BWI		Graham & Maiman		DW3		Total 2018 Acquisitions
Net sales	$	21,943	$	16,656	$	19,662	$	58,261
Net income attributable to Masonite	78		220		2,857		3,155



	Three Months Ended April 1, 2018
(in thousands)	DW3
Net sales	$	11,198
Net income attributable to Masonite	948

Pro Forma Information

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



	Three Months Ended April 1, 2018
(In thousands, except per share amounts)	Masonite		BWI	Graham & Maiman		DW3		Intercompany Eliminations			Pro Forma
Net sales	$	517,879	23,060	$	15,599	$	4,918	$	(11,109	)	$	550,347
Net income attributable to Masonite	20,826		130	202		81					21,239

Basic earnings per common share	$	0.74									$	0.75
Diluted earnings per common share	0.73										0.74

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 quarter of 2019 in the Europe segment. The total charge consists of $3.6 million relating to the write-off of the net assets sold and other professional fees and $1.0 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive income (loss).

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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 March 31, 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 March 31, 2019, and December 30, 2018. The allowance for doubtful accounts balance was $1.9 million and $2.1 million as of March 31, 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.

4. Inventories

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



(In thousands)	March 31, 2019			December 30, 2018
Raw materials	$	187,587		$	189,145
Finished goods	76,326			69,026
Provision for obsolete or aged inventory	(8,414		)	(7,764		)
Inventories, net	$	255,499		$	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)	March 31, 2019			December 30, 2018
Land	$	29,747		$	30,653
Buildings	181,124			179,888
Machinery and equipment	716,789			724,431
Property, plant and equipment, gross	927,660			934,972
Accumulated depreciation	(329,596		)	(325,219		)
Property, plant and equipment, net	$	598,064		$	609,753

Total depreciation expense was $18.3 million and $13.9 million in the three months ended March 31, 2019, and April 1, 2018, respectively. Depreciation expense is included primarily within cost of goods sold in the condensed consolidated statements of comprehensive income.

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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. 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 $9.2 million and $7.7 million for the three months ended March 31, 2019, and April 1, 2018, respectively.

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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)	March 31, 2019
Operating lease right-of-use assets	$	126,600

Current portion of operating lease liabilities	19,819
Long-term operating lease liabilities	114,426
Total operating lease liabilities	$	134,245

Weighted average remaining lease term (years)	12.4
Weighted average discount rate	4.8		%

Maturities of operating lease liabilities are as follows:



(In thousands)	March 31, 2019
Fiscal year:
2019 (remaining nine months)	$	19,239
2020	24,103
2021	17,273
2022	13,603
2023	11,030
Thereafter	104,357
Total undiscounted lease payments	189,605
Less imputed interest	(55,360		)
Total	$	134,245

As of March 31, 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.

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	7		2,129		75		2,211
March 31, 2019	$	6,586	$	65,349	$	110,963	$	182,898

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



	March 31, 2019							December 30, 2018
(In thousands)	Cost		Accumulated Amortization			Net Book Value		Cost		Accumulated Amortization			Net Book Value
Definite life intangible assets:
Customer relationships	$	177,020	$	(87,129	)	$	89,891	$	173,637	$	(81,220	)	$	92,417
Patents	31,668		(22,429		)	9,239		31,363		(21,840		)	9,523
Software	33,042		(30,162		)	2,880		32,660		(29,296		)	3,364
Trademarks and tradenames	34,803		(4,906		)	29,897		33,784		(3,948		)	29,836
Other	975		(209		)	766		971		(97		)	874
Total definite life intangible assets	277,508		(144,835		)	132,673		272,415		(136,401		)	136,014
Indefinite life intangible assets:
Trademarks and tradenames	76,274		—			76,274		76,031		—			76,031
Total intangible assets	$	353,782	$	(144,835	)	$	208,947	$	348,446	$	(136,401	)	$	212,045

Amortization of intangible assets was $7.2 million and $6.1 million for the three months ended March 31, 2019, and April 1, 2018, respectively. Amortization expense is classified within selling, general and administration expenses in the condensed consolidated statements of comprehensive income.

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



(In thousands)	March 31, 2019
Fiscal year:
2019 (remaining nine months)	$	21,465
2020	22,735
2021	19,118
2022	15,656
2023	14,158

8. Accrued Expenses

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



(In thousands)	March 31, 2019		December 30, 2018
Accrued payroll	$	42,493	$	39,823
Accrued rebates	31,703		36,711
Current portion of operating lease liabilities	19,819		—
Accrued interest	2,365		14,570
Other accruals	51,542		56,241
Total accrued expenses	$	147,922	$	147,345

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9. Long-Term Debt



(In thousands)	March 31, 2019			December 30, 2018
5.625% senior unsecured notes due 2023	$	500,000		$	500,000
5.75% senior unsecured notes due 2026	300,000			300,000
Unamortized premium on 2023 Notes	3,463			3,684
Debt issuance costs	(8,009		)	(8,394		)
Other long-term debt	1,132			1,108
Total long-term debt	$	796,586		$	796,398

Interest expense related to our consolidated indebtedness under senior unsecured notes was $11.3 million and $8.7 million for the three months ended March 31, 2019, and April 1, 2018, respectively.

5.75% Senior Notes due 2026

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

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

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

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

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events of default (subject in certain cases to customary grace and cure periods). As of March 31, 2019, and December 30, 2018, we were in compliance with all covenants under the indenture governing the 2026 Notes.

5.625% Senior Notes due 2023

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

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

The indenture governing the 2023 Notes contains restrictive covenants that, among other things, limit our ability and the ability of our subsidiaries to: (i) incur additional debt and issue disqualified or preferred stock, (ii) make restricted payments, (iii) sell assets, (iv) create or permit restrictions on the ability of our restricted subsidiaries to pay dividends or make other distributions to the parent company, (v) create or incur certain liens, (vi) enter into sale and leaseback transactions, (vii) merge or consolidate with other entities and (viii) enter into transactions with affiliates. The foregoing limitations are subject to exceptions as set forth in the indenture governing the 2023 Notes. In addition, if in the future the 2023 Notes have an investment grade rating from at least two nationally recognized statistical rating organizations, certain of these covenants will be replaced with a less restrictive covenant. The indenture governing the 2023 Notes contains customary events of default (subject in certain cases to customary grace and cure periods). As of March 31, 2019, and December 30, 2018, we were in compliance with all covenants under the indenture governing the 2023 Notes.

ABL Facility

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

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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 and covenants by us that, among other things, and subject to certain exceptions, restrict Masonite's ability and the ability of our subsidiaries to: (i) pay dividends on our common shares and make other restricted payments, (ii) make investments and acquisitions, (iii) engage in transactions with our affiliates, (iv) sell assets, (v) merge and (vi) create liens. The Amended and Restated Credit Agreement amended the ABL Facility to, among other things, (i) permit us to incur unlimited unsecured debt as long as such debt does not contain covenants or default provisions that are more restrictive than those contained in the ABL Facility, (ii) permit us to incur debt as long as the pro forma secured leverage ratio is less than 4.5 to 1.0, and (iii) add certain additional exceptions and exemptions under the restricted payment, investment and indebtedness covenants (including increasing the amount of certain debt permitted to be incurred under existing exceptions). As of March 31, 2019, and December 30, 2018, we were in compliance with all covenants under the credit agreement governing the ABL Facility and there were no amounts outstanding under the ABL Facility.

10. Commitments and Contingencies

The following discussion describes material developments in previously disclosed legal proceedings that occurred since December 30, 2018. Refer to Note 9. Commitments and Contingencies in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 30, 2018, for a full description of the previously disclosed legal proceedings.

Class Action Proceedings

With respect to the consolidated purported class action direct purchaser and end-purchaser complaints filed against us and JELD-WEN, Inc., the judge denied our motion to transfer the proceedings from the Eastern District of Virginia, Richmond Division. On March 1, 2019, we filed a motion to dismiss all of the claims in both of these complaints.

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

11. Share Based Compensation Plans

Share based compensation expense was $2.7 million and $3.1 million for the three months ended March 31, 2019, and April 1, 2018, respectively. As of March 31, 2019, the total remaining unrecognized compensation expense related to share based compensation amounted to $22.1 million, which will be amortized over the weighted average remaining requisite service period of 2.2 years. Share based compensation expense is recognized using a graded-method approach, or to a lesser extent a cliff-vesting approach, depending on the terms of the individual award and is classified within selling, general and administration expenses in the condensed consolidated statements of comprehensive income. All share based awards are settled through issuance of new shares of our common stock. The share based award agreements contain restrictions on sale or transfer other than in limited circumstances. All other transfers would cause the share based awards to become null and void.

Equity Incentive Plans

Our equity incentive plans under the 2009 Plan and the 2012 Plan are described in detail and defined in our Annual Report on Form 10-K for the year ended December 30, 2018. The aggregate number of common shares that can be issued with respect to equity awards under the 2012 Plan cannot exceed 2,000,000 shares plus the number of shares subject to existing grants under the 2009 Plan that may expire or be forfeited or cancelled. As of March 31, 2019, there were 742,651 shares of common stock available for future issuance under the 2012 Plan.

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Deferred Compensation Plan

We offer to certain of our employees and directors a Deferred Compensation Plan, which is described in detail in our Annual Report on Form 10-K for the year ended December 30, 2018. As of March 31, 2019, the liability and asset relating to deferred compensation had a fair value of $6.1 million and $6.2 million, respectively. Any unfunded gain or loss relating to changes in the fair value of the deferred compensation liability is recognized in selling, general and administration expense in the condensed consolidated statements of comprehensive income. As of March 31, 2019, participation in the deferred compensation plan is limited and no restricted stock awards have been deferred into the deferred compensation plan.

Stock Appreciation Rights

We have granted Stock Appreciation Rights ("SARs") to certain employees under both the 2009 Plan and the 2012 Plan, which entitle the recipient to the appreciation in value of a number of common shares over the exercise price over a period of time, each as specified in the applicable award agreement. The exercise price of any SAR granted may not be less than the fair market value of our common shares on the date of grant. The compensation expense for the SARs is measured based on the fair value of the SARs at the date of grant and is recognized over the requisite service period. The SARs vest over a maximum of three years, have a life of ten years and settle in common shares. We recognize forfeitures of SARs in the period in which they occur.

The total fair value of SARs vested was $1.1 million and $0.7 million during the three months ended March 31, 2019, and April 1, 2018, respectively.



Three Months Ended March 31, 2019	Stock Appreciation Rights		Aggregate Intrinsic Value (in thousands)		Weighted Average Exercise Price		Average Remaining Contractual Life (Years)
Outstanding, beginning of period	514,313		$	7,254	$	39.01	4.6
Granted	54,585				57.52
Exercised	(29,288	)	1,060		18.69
Outstanding, end of period	539,610		$	7,632	$	41.99	5.2

Exercisable, end of period	422,248		$	7,632	$	36.10	4.0

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



	2019 Grants
SAR value (model conclusion)	$	15.82
Risk-free rate	2.5		%
Expected dividend yield	0.0		%
Expected volatility	22.0		%
Expected term (years)	6.0

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Restricted Stock Units

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



	Three Months Ended
	March 31, 2019
	Total Restricted Stock Units Outstanding		Weighted Average Grant Date Fair Value
Outstanding, beginning of period	429,027		$	66.03
Granted	245,468		56.95
Performance adjustment⁽¹⁾	(21,953	)	57.51
Delivered	(97,858	)
Withheld to cover⁽²⁾	(19,061	)
Forfeited	(9,691	)
Outstanding, end of period	525,932		$	63.13

____________

(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%. The performance adjustment represents the difference in shares ultimately awarded due to performance attainment above or below target.


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

Approximately three-fourths of the RSUs granted during the three months ended March 31, 2019, vest at specified future dates with only service requirements, while the remaining portion of the RSUs vest based on both performance and service requirements. The expense for RSUs granted in the three months ended March 31, 2019, is being recognized over the weighted average requisite service period of 2.4 years. 116,919 RSUs vested during the three months ended March 31, 2019, at a fair value of $7.2 million.

12. Restructuring Costs

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



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

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	Cumulative Amount Incurred Through March 31, 2019
(In thousands)	North American Residential		Europe		Architectural		Corporate & Other		Total
2019 Plan	$	1,459	$	331	$	604	$	394	$	2,788
2018 Plan	696		1,880		—		—		2,576
2016 Plan	—		—		3,707		—		3,707
2014 Plan	—		—		—		7,993		7,993
Total Restructuring Costs	$	2,155	$	2,211	$	4,311	$	8,387	$	17,064

In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions have begun taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and will continue through 2020. As of March 31, 2019, we expect to incur approximately $10 million to $12 million of additional charges related to the 2019 Plan.

During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects of our United Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more effective and consistent business processes in the Europe segment. In addition, in the North America segment we announced a new facility that will optimize and expand capacity through increased automation, which will result in the closure of one existing facility and related headcount reductions beginning in the second quarter of 2019 (collectively, the "2018 Plan"). Costs associated with the 2018 Plan include severance, retention and closure charges and will continue throughout 2019. Additionally, the plan to divest non-core assets was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 13. As of March 31, 2019, we expect to incur approximately $2 million of additional charges related to the 2018 Plan.

Our restructuring plans initiated in 2016 and prior years are described in detail in our Annual Report on Form 10-K for the year ended December 30, 2018. Costs and actions associated with these restructuring plans include severance and closure charges and are substantially completed. As of March 31, 2019, we do not expect to incur any material future charges relating to our restructuring plans initiated in 2016 and prior years. Other plans initiated in prior years did not have a material impact on the consolidated statements of comprehensive income or consolidated statements of cash flows for the three months ended March 31, 2019, or April 1, 2018, or on the consolidated balance sheets as of March 31, 2019, or December 30, 2018.

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



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



(In thousands)	December 31, 2017		Cash Payments			April 1, 2018
2016 Plan	$	90	$	(90	)	$	—
Other	194		(43		)	151
Total	$	284	$	(133	)	$	151

Table of Contents

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

13. Asset Impairment