MASONITE INTERNATIONAL CORP - Quarter Report: 2020 March (Form 10-Q)
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 March 29, 2020
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
____________________________
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Masonite International Corporation
(Exact name of registrant as specified in its charter)
____________________________
| British Columbia, Canada | 98-0377314 | |||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
2771 Rutherford Road
Concord, Ontario L4K 2N6 Canada
(Address of principal executive offices)
(800) 895-2723
(Registrant's telephone number, including area code)
____________________________
| Securities registered pursuant to Section 12(b) of the Act: | ||||||||
| Common Stock (no par value) | DOOR | New York Stock Exchange | ||||||
| (Title of class) | (Trading symbol) | (Name of exchange on which registered) | ||||||
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☑ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
The registrant had outstanding 24,449,287 shares of Common Stock, no par value, as of May 1, 2020.
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MASONITE INTERNATIONAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
March 29, 2020
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| PART II | |||||||||||
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| Item 1A | |||||||||||
| Item 2 | |||||||||||
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| Item 6 | |||||||||||
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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," "could," "will," "would," "should," "expect," "believes," "outlook," "predict," "forecast," "objective," "remain," "anticipate," "estimate," "potential," "continue," "plan," "project," "targeting," and other similar expressions. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those identified under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 29, 2019, subsequent reports on Form 10-Q, and elsewhere in this Quarterly Report.
The following list represents some, but not necessarily all, of the factors that could cause actual results to differ from historical results or those anticipated or predicted by these forward-looking statements:
•downward trends in our end markets and in economic conditions;
•scale and scope of the current coronavirus ("COVID-19") pandemic on our operations, customer demand and supply chain;
•reduced levels of residential new construction; residential repair, renovation and remodeling; and non-residential building construction activity due to increases in mortgage rates, changes in mortgage interest deductions and related tax changes and reduced availability of financing;
•competition;
•the continued success of, and our ability to maintain relationships with, certain key customers in light of price increases and customer concentration and consolidation;
•tariffs and evolving trade policy and friction between the United States and other countries, including China, and the impact of anti-dumping and countervailing trade cases;
•increases in prices of raw materials and fuel;
•increases in labor costs, the availability of labor or labor relations (i.e., disruptions, strikes or work stoppages);
•our ability to manage our operations including anticipating demand for our products, managing disruptions in our operations, managing manufacturing realignments (including related restructuring charges), managing customer credit risk and successful integration of acquisitions;
•the continuous operation of our information technology and enterprise resource planning systems and management of potential cyber security threats and attacks;
•our ability to generate sufficient cash flows to fund our capital expenditure requirements, to meet our pension obligations, and to meet our debt service obligations, including our obligations under our senior notes and our asset-based revolving credit facility ("ABL Facility");
•political, economic and other risks that arise from operating a multinational business;
•uncertainty relating to the United Kingdom's 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;
•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; and
•environmental and other government regulations, including the United States Foreign Corrupt Practices Act ("FCPA"), and any changes in such regulations.
We caution you that the foregoing list of important factors is not exclusive. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this Quarterly Report may not in fact occur. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
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PART I – FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands of U.S. dollars, except per share amounts)
(Unaudited)
| Three Months Ended | |||||||||||
| March 29, 2020 | March 31, 2019 | ||||||||||
| Net sales | $ | 551,228 | $ | 530,311 | |||||||
| Cost of goods sold | 416,947 | 418,207 | |||||||||
| Gross profit | 134,281 | 112,104 | |||||||||
| Selling, general and administration expenses | 80,333 | 78,100 | |||||||||
| Restructuring costs | 1,941 | 3,740 | |||||||||
| Asset impairment | — | 10,625 | |||||||||
| Loss on disposal of subsidiaries | — | 4,605 | |||||||||
| Operating income | 52,007 | 15,034 | |||||||||
| Interest expense, net | 11,282 | 11,127 | |||||||||
| Other expense (income), net | 49 | (1,130) | |||||||||
| Income before income tax expense | 40,676 | 5,037 | |||||||||
| Income tax expense | 9,639 | 58 | |||||||||
| Net income | 31,037 | 4,979 | |||||||||
| Less: net income attributable to non-controlling interests | 1,152 | 1,190 | |||||||||
| Net income attributable to Masonite | $ | 29,885 | $ | 3,789 | |||||||
| Basic earnings per common share attributable to Masonite | $ | 1.20 | $ | 0.15 | |||||||
| Diluted earnings per common share attributable to Masonite | $ | 1.19 | $ | 0.15 | |||||||
| Comprehensive income (loss): | |||||||||||
| Net income | $ | 31,037 | $ | 4,979 | |||||||
| Other comprehensive income (loss): | |||||||||||
| Foreign currency translation gain (loss) | (38,687) | 13,991 | |||||||||
| Amortization of actuarial net losses | 173 | 404 | |||||||||
| Income tax expense related to other comprehensive income | (89) | (93) | |||||||||
| Other comprehensive income (loss), net of tax: | (38,603) | 14,302 | |||||||||
| Comprehensive income (loss) | (7,566) | 19,281 | |||||||||
| Less: comprehensive income attributable to non-controlling interests | 573 | 1,406 | |||||||||
| Comprehensive income (loss) attributable to Masonite | $ | (8,139) | $ | 17,875 | |||||||
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 29, 2020 | December 29, 2019 | |||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 114,375 | $ | 166,964 | |||||||
| Restricted cash | 10,644 | 10,644 | |||||||||
| Accounts receivable, net | 303,111 | 276,208 | |||||||||
| Inventories, net | 240,975 | 242,230 | |||||||||
| Prepaid expenses | 33,137 | 33,190 | |||||||||
| Income taxes receivable | 3,492 | 4,819 | |||||||||
| Total current assets | 705,734 | 734,055 | |||||||||
| Property, plant and equipment, net | 612,304 | 625,585 | |||||||||
| Operating lease right-of-use assets | 123,925 | 121,367 | |||||||||
| Investment in equity investees | 17,011 | 16,100 | |||||||||
| Goodwill | 179,386 | 184,192 | |||||||||
| Intangible assets, net | 171,684 | 184,532 | |||||||||
| Deferred income taxes | 24,355 | 25,945 | |||||||||
| Other assets | 43,650 | 44,808 | |||||||||
| Total assets | $ | 1,878,049 | $ | 1,936,584 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 97,501 | $ | 84,912 | |||||||
| Accrued expenses | 145,342 | 180,405 | |||||||||
| Income taxes payable | 1,537 | 2,350 | |||||||||
| Total current liabilities | 244,380 | 267,667 | |||||||||
| Long-term debt | 791,190 | 790,984 | |||||||||
| Long-term operating lease liabilities | 112,691 | 110,497 | |||||||||
| Deferred income taxes | 88,504 | 83,465 | |||||||||
| Other liabilities | 45,028 | 47,109 | |||||||||
| Total liabilities | 1,281,793 | 1,299,722 | |||||||||
| Commitments and Contingencies (Note 7) | |||||||||||
| Equity: | |||||||||||
Share capital: unlimited shares authorized, no par value, 24,446,987 and 24,869,921 shares issued and outstanding as of March 29, 2020, and December 29, 2019, respectively | 551,983 | 558,514 | |||||||||
| Additional paid-in capital | 212,826 | 216,584 | |||||||||
| Accumulated deficit | (12,203) | (20,047) | |||||||||
| Accumulated other comprehensive loss | (168,193) | (130,169) | |||||||||
| Total equity attributable to Masonite | 584,413 | 624,882 | |||||||||
| Equity attributable to non-controlling interests | 11,843 | 11,980 | |||||||||
| Total equity | 596,256 | 636,862 | |||||||||
| Total liabilities and equity | $ | 1,878,049 | $ | 1,936,584 | |||||||
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 29, 2020 | March 31, 2019 | ||||||||||
| Total equity, beginning of period | $ | 636,862 | $ | 622,305 | |||||||
| Share capital: | |||||||||||
| Beginning of period | 558,514 | 575,207 | |||||||||
| Common shares issued for delivery of share based awards | 5,490 | 6,152 | |||||||||
| Common shares issued under employee stock purchase plan | 708 | 517 | |||||||||
| Common shares repurchased and retired | (12,729) | (14,386) | |||||||||
| End of period | 551,983 | 567,490 | |||||||||
| Additional paid-in capital: | |||||||||||
| Beginning of period | 216,584 | 218,988 | |||||||||
| Share based compensation expense | 3,470 | 2,680 | |||||||||
| Common shares issued for delivery of share based awards | (5,490) | (6,152) | |||||||||
| Common shares withheld to cover income taxes payable due to delivery of share based awards | (1,427) | (1,090) | |||||||||
| Common shares issued under employee stock purchase plan | (311) | (132) | |||||||||
| End of period | 212,826 | 214,294 | |||||||||
| Accumulated deficit: | |||||||||||
| Beginning of period | (20,047) | (30,836) | |||||||||
| Net income attributable to Masonite | 29,885 | 3,789 | |||||||||
| Common shares repurchased and retired | (22,041) | (18,805) | |||||||||
| End of period | (12,203) | (45,852) | |||||||||
| Accumulated other comprehensive loss: | |||||||||||
| Beginning of period | (130,169) | (152,919) | |||||||||
| Other comprehensive income (loss) attributable to Masonite, net of tax | (38,024) | 14,086 | |||||||||
| End of period | (168,193) | (138,833) | |||||||||
| Equity attributable to non-controlling interests: | |||||||||||
| Beginning of period | 11,980 | 11,865 | |||||||||
| Net income attributable to non-controlling interests | 1,152 | 1,190 | |||||||||
| Other comprehensive income (loss) attributable to non-controlling interests, net of tax | (579) | 216 | |||||||||
| Dividends to non-controlling interests | (710) | — | |||||||||
| End of period | 11,843 | 13,271 | |||||||||
| Total equity, end of period | $ | 596,256 | $ | 610,370 | |||||||
| Common shares outstanding: | |||||||||||
| Beginning of period | 24,869,921 | 25,835,664 | |||||||||
| Common shares issued for delivery of share based awards | 134,911 | 116,252 | |||||||||
| Common shares issued under employee stock purchase plan | 9,426 | 9,036 | |||||||||
| Common shares repurchased and retired | (567,271) | (646,102) | |||||||||
| End of period | 24,446,987 | 25,314,850 | |||||||||
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 29, 2020 | March 31, 2019 | |||||||||
| Net income | $ | 31,037 | $ | 4,979 | |||||||
| Adjustments to reconcile net income to net cash flow provided by operating activities: | |||||||||||
| Loss on disposal of subsidiaries | — | 4,605 | |||||||||
| Depreciation | 16,018 | 18,285 | |||||||||
| Amortization | 6,459 | 7,597 | |||||||||
| Share based compensation expense | 3,470 | 2,680 | |||||||||
| Deferred income taxes | 6,160 | (3,708) | |||||||||
| Unrealized foreign exchange loss (gain) | 94 | 272 | |||||||||
| Share of income from equity investees, net of tax | (911) | (898) | |||||||||
| Pension and post-retirement funding, net of expense | (1,900) | (1,661) | |||||||||
| Non-cash accruals and interest | 427 | (562) | |||||||||
| Loss on sale of property, plant and equipment | 1,622 | 2,913 | |||||||||
| Asset impairment | — | 10,625 | |||||||||
| Changes in assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable | (37,990) | (6,587) | |||||||||
| Inventories | (5,388) | (5,902) | |||||||||
| Prepaid expenses | (491) | 1,986 | |||||||||
| Accounts payable and accrued expenses | (15,163) | (16,193) | |||||||||
| Other assets and liabilities | 2,602 | 80 | |||||||||
| Net cash flow provided by operating activities | 6,046 | 18,511 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to property, plant and equipment | (17,246) | (20,422) | |||||||||
| Acquisition of businesses, net of cash acquired | — | (219) | |||||||||
| Proceeds from sale of subsidiaries, net of cash disposed | — | (230) | |||||||||
| Proceeds from sale of property, plant and equipment | 15 | 88 | |||||||||
| Other investing activities | (587) | (418) | |||||||||
| Net cash flow used in investing activities | (17,818) | (21,201) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Repayments of long-term debt | (57) | (6) | |||||||||
| Tax withholding on share based awards | (1,427) | (1,090) | |||||||||
| Distributions to non-controlling interests | (710) | — | |||||||||
| Repurchases of common shares | (34,770) | (33,191) | |||||||||
| Net cash flow used in financing activities | (36,964) | (34,287) | |||||||||
| Net foreign currency translation adjustment on cash | (3,853) | 1,463 | |||||||||
| Decrease in cash, cash equivalents and restricted cash | (52,589) | (35,514) | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 177,608 | 126,141 | |||||||||
| Cash, cash equivalents and restricted cash, at end of period | $ | 125,019 | $ | 90,627 | |||||||
See accompanying notes to the condensed consolidated financial statements.
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MASONITE INTERNATIONAL CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Business Overview and Significant Accounting Policies
Unless we state otherwise or the context otherwise requires, references to "Masonite," "we," "our," "us" and the "Company" in these notes to the condensed consolidated financial statements refer to Masonite International Corporation and its subsidiaries.
Description of Business
Masonite International Corporation is one of the largest manufacturers of doors in the world, with significant market share in both interior and exterior door products. Masonite operates 63 manufacturing and distribution facilities in eight countries and sells doors to customers throughout the world with our largest markets being the United States, Canada and the United Kingdom.
Basis of Presentation
We prepare these unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission ("SEC") regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair presentation of the results for the interim periods presented have been included. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. These estimates are based on information available as of the date of the unaudited condensed consolidated financial statements; therefore, actual results could differ from those estimates. Interim results are not necessarily indicative of the results for a full year.
These unaudited condensed consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2019, as filed with the SEC. Our fiscal year is the 52- or 53-week period ending on the Sunday closest to December 31. In a 52-week year, each fiscal quarter consists of 13 weeks. For ease of disclosure, the 13-week periods are referred to as three-month periods. Our 2020 fiscal year, which ends on January 3, 2021, will contain 53 weeks of operating results, with the additional week occurring in the fourth quarter.
Changes in Accounting Standards and Policies
There have been no changes in the significant accounting policies from those that were disclosed in the fiscal year 2019 audited consolidated financial statements, other than as noted below.
Adoption of Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326)”, which replaced the incurred loss methodology for recognizing credit losses with a current expected credit losses model. This standard applied to most financial assets, including trade receivables. Our prior accounts receivable policy is described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. We have adopted the new guidance using a modified retrospective approach as of December 30, 2019, the beginning of fiscal year 2020, and the adoption did not have a material impact on our financial statements and no adjustment was necessary to retained earnings on December 30, 2019.
The adoption of the standard resulted in a change in accounting policy for accounts receivable. Our new accounting policy for accounts receivable is presented below.
Accounts Receivable
We record accounts receivable as our products are received by our customers. Our customers are primarily retailers, distributors and contractors. We record an allowance for credit losses at the time that accounts receivable are initially recorded based on our historical write-off experience and the current economic environment as well as our
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expectations of future economic conditions. We reassess the allowance at each reporting date. When it becomes apparent, based on age or customer circumstances, that such amounts will not be collected, they are charged to the allowance. Payments subsequently received are credited to the credit loss expense account included within selling, general and administration expenses in the consolidated statements of comprehensive income. Generally, we do not require collateral for our accounts receivable.
Other Recent Accounting Pronouncements not yet Adopted
In December 2019, the FASB issued ASU 2019-12, "Simplifying the Accounting for Income Taxes," as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. This standard removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. We are in the process of evaluating this guidance to determine the impact it may have on our financial statements.
In August 2018, the FASB issued ASU 2018-14, "Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans," which amended ASC 715, "Compensation—Retirement Benefits." This standard is applicable for employers that sponsor defined benefit pension or other postretirement plans, and eliminates disclosures no longer considered cost beneficial, clarifies specific disclosure requirements for entities that provide aggregate disclosures for two or more plans and adds requirements for explanations for significant gains and losses related to changes in benefit obligations. The guidance will be effective for annual periods ending after December 15, 2020; early adoption is permitted and retrospective application is required. We are in the process of evaluating this guidance to determine the impact it may have on our financial statements.
2. Acquisitions and Divestitures
Acquisitions
Top Doors
On August 29, 2019, we completed the acquisition of TOPDOORS, s.r.o. ("Top Doors") based in the Czech Republic for cash consideration of $1.8 million, net of cash acquired. Top Doors is a specialist manufacturer of door frames. The excess purchase price over the fair value of net assets acquired of $1.1 million was allocated to goodwill in our Europe segment. The purchase price allocation, net sales, net income (loss) attributable to Masonite and pro forma information for Top Doors are not presented as they were not material for any period presented.
Divestitures
Window Widgets
On December 13, 2019, we completed the sale of all of the capital stock of Window Widgets Limited ("WW") for consideration of $1.2 million, net of cash disposed. We have had no continuing involvement with WW subsequent to the sale. The divestiture of this business resulted in a loss on disposal of subsidiaries of $9.7 million, which was recognized in the fourth quarter of 2019 in the Europe segment. The total charge consists of $8.3 million relating to the write-off of the assets sold and other professional fees and $1.4 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.
Performance Doorset Solutions Limited
On March 21, 2019, we completed the sale of all of the capital stock of Performance Doorset Solutions Limited ("PDS") for nominal consideration. We have had no continuing involvement with PDS subsequent to the sale, and the purchasers are not considered to be a related party. The divestiture of this business resulted in a loss on disposal of subsidiaries of $4.6 million, which was recognized in 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 loss.
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3. Accounts Receivable
Our customers consist mainly of wholesale distributors, dealers and retail home centers. Our ten largest customers accounted for 53.7% and 44.9% of total accounts receivable as of March 29, 2020, and December 29, 2019, respectively. Our largest customer, The Home Depot, Inc., accounted for more than 10% of the consolidated gross accounts receivable balance as of March 29, 2020, and December 29, 2019. The allowance for doubtful accounts balance was $2.2 million and $1.8 million as of March 29, 2020, and December 29, 2019, respectively.
We maintain an accounts receivable sales program with a third party (the "AR Sales Program"). Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to a third party who assumes the full risk of collection, without recourse to us in the event of a loss. Transfers of receivables under this program are accounted for as sales. Proceeds from the transfers reflect the face value of the accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts receivable in the condensed consolidated balance sheets and are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The discounts on the sales of trade accounts receivable sold, if any, under the AR Sales Program were not material for any of the periods presented and were recorded in selling, general and administration expense within the condensed consolidated statements of comprehensive income.
4. Inventories
The amounts of inventory on hand were as follows as of the dates indicated:
| (In thousands) | March 29, 2020 | December 29, 2019 | |||||||||
| Raw materials | $ | 175,775 | $ | 179,155 | |||||||
| Finished goods | 72,693 | 70,211 | |||||||||
| Provision for obsolete or aged inventory | (7,493) | (7,136) | |||||||||
| Inventories, net | $ | 240,975 | $ | 242,230 | |||||||
5. Accrued Expenses
The details of our accrued expenses were as follows as of the dates indicated:
| (In thousands) | March 29, 2020 | December 29, 2019 | |||||||||
| Accrued payroll | $ | 43,864 | $ | 60,876 | |||||||
| Accrued rebates | 30,971 | 33,556 | |||||||||
| Current portion of operating lease liabilities | 21,559 | 20,980 | |||||||||
| Accrued interest | 5,420 | 16,913 | |||||||||
| Other accruals | 43,528 | 48,080 | |||||||||
| Total accrued expenses | $ | 145,342 | $ | 180,405 | |||||||
6. Long-Term Debt
| (In thousands) | March 29, 2020 | December 29, 2019 | |||||||||
| 5.375% senior unsecured notes due 2028 | $ | 500,000 | $ | 500,000 | |||||||
| 5.750% senior unsecured notes due 2026 | 300,000 | 300,000 | |||||||||
| Debt issuance costs | (9,662) | (9,985) | |||||||||
| Other long-term debt | 852 | 969 | |||||||||
| Total long-term debt | $ | 791,190 | $ | 790,984 | |||||||
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Interest expense related to our consolidated indebtedness under senior unsecured notes was $11.3 million for both the three months ended March 29, 2020, and March 31, 2019.
5.375% Senior Notes due 2028
On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"). The 2028 Notes bear interest at 5.375%, payable in cash semiannually in arrears on February 1 and August 1 of each year and are due February 1, 2028. The 2028 Notes were issued at par. The net proceeds from issuance of the 2028 Notes, together with available cash balances, were used to redeem the remaining $500.0 million aggregate principal amount of similar senior unsecured notes, including the payment of related premiums, fees and expenses.
Information concerning obligations under the 2028 Notes and the indenture governing them are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of March 29, 2020, we were in compliance with all covenants under the indenture governing the 2028 Notes.
5.750% Senior Notes due 2026
On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the "2026 Notes"). The 2026 Notes bear interest at 5.750% per annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and are due September 15, 2026. The 2026 Notes were issued at par.
Information concerning obligations under the 2026 Notes and the indenture governing them are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of March 29, 2020, we were in compliance with all covenants under the indenture governing the 2026 Notes.
ABL Facility
On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving credit facility (the "ABL Facility") maturing on January 31, 2024, which replaced the previous facility. Borrowings under the ABL Facility bear interest at a rate equal to, at our option, (i) the United States, Canadian or United Kingdom Base Rate (each as defined in the credit agreement relating to the ABL Facility, the "Amended and Restated Credit Agreement") plus a margin ranging from 0.25% to 0.50% per annum, or (ii) the Adjusted LIBO Rate or BA Rate (each as defined in the Amended and Restated Credit Agreement), plus a margin ranging from 1.25% to 1.50% per annum. In addition to paying interest on any outstanding principal under the ABL Facility, a commitment fee is payable on the undrawn portion of the ABL Facility in an amount equal to 0.25% per annum of the average daily balance of unused commitments during each calendar quarter.
The ABL Facility contains various customary representations, warranties by us and covenants that are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of March 29, 2020, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of $185.3 million under our ABL Facility and there were no amounts outstanding as of March 29, 2020.
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7. Commitments and Contingencies
The following discussion describes material developments in previously disclosed legal proceedings that occurred since December 29, 2019. Refer to Note 10. Commitments and Contingencies in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 29, 2019, for a full description of the previously disclosed legal proceedings.
Class Action Proceedings
With respect to the putative antitrust class action cases pending in the Eastern District of Virginia, the parties are in the midst of class certification briefing and expert discovery. Due to the ongoing coronavirus pandemic, on March 17, 2020, the Court extended all case deadlines by 60 days at the parties’ request. Expert discovery is now expected to close in June 2020. Briefing on class certification discovery is expected to be completed by June 9, 2020. Briefing on dispositive motions is expected to be completed by September 7, 2020. The Court has reset the presumptive trial date as January 11, 2021. On May 4, 2020, the Court ruled on Defendants’ December 16, 2019, partial motion to dismiss plaintiffs’ reinstated claims, granting it in part and denying it in part. By granting the motion in part, the Court dismissed the indirect purchasers' claims under Kansas, Utah and Virginia consumer protection laws and it also limited the time period during which indirect purchasers from Hawaii, Kansas, Maine, New Hampshire, North Dakota, Utah, Virginia, West Virginia and Wisconsin could claim damages.
In addition, from time to time, we are involved in various claims and legal actions. In the opinion of management, the ultimate disposition of these matters, individually and in the aggregate, will not have a material effect on our financial condition, results of operations or cash flows.
8. Share Based Compensation Plans
Share based compensation expense was $3.5 million and $2.7 million for the three months ended March 29, 2020, and March 31, 2019, respectively. As of March 29, 2020, the total remaining unrecognized compensation expense related to share based compensation amounted to $24.5 million, which will be amortized over the weighted average remaining requisite service period of 1.9 years.
Equity Incentive Plans
Our equity incentive plans under the 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 29, 2019. The aggregate number of common shares that can be issued with respect to equity awards under the 2012 Plan cannot exceed 2,000,000 shares plus the number of shares subject to existing grants under the 2009 Plan that may expire or be forfeited or canceled. As of March 29, 2020, there were 675,354 shares of common stock available for future issuance under the 2012 Plan.
Deferred Compensation Plan
We offer to certain of our employees and directors a Deferred Compensation Plan, which is further described in our Annual Report on Form 10-K for the year ended December 29, 2019. As of March 29, 2020, the liability and asset relating to deferred compensation had a fair value of $5.1 million and $4.9 million, respectively. As of March 29, 2020, participation in the deferred compensation plan is limited and no restricted stock awards have been deferred into the deferred compensation plan. All plan investments are categorized as having Level 1 valuation inputs as established by the FASB’s Fair Value Framework.
Stock Appreciation Rights
We have granted Stock Appreciation Rights ("SARs") to certain employees under both the 2009 Plan and the 2012 Plan, which entitle the recipient to the appreciation in value of a number of common shares over the exercise price over a period of time, each as specified in the applicable award agreement. The exercise price of any SAR granted may not be less than the fair market value of our common shares on the date of grant. The compensation expense for the SARs is measured based on the fair value of the SARs at the date of grant and is recognized over the requisite service period. The SARs vest over a maximum of three years, have a life of ten years and settle in common shares. It is assumed that all time-based SARs will vest. We recognize forfeitures of SARs in the period in which they occur.
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The total fair value of SARs vested was $0.9 million and $1.1 million during the three months ended March 29, 2020, and March 31, 2019, respectively.
| Three Months Ended March 29, 2020 | Stock Appreciation Rights | Aggregate Intrinsic Value (in thousands) | Weighted Average Exercise Price | Average Remaining Contractual Life (Years) | |||||||||||||||||||
| Outstanding, beginning of period | 404,447 | $ | 7,615 | $ | 53.62 | 4.7 | |||||||||||||||||
| Granted | 29,522 | 87.18 | |||||||||||||||||||||
| Exercised | (44,850) | 2,155 | 31.82 | ||||||||||||||||||||
| Forfeited | (4,613) | 57.52 | |||||||||||||||||||||
| Outstanding, end of period | 384,506 | $ | 986 | $ | 58.70 | 5.2 | |||||||||||||||||
| Exercisable, end of period | 241,134 | $ | 986 | $ | 55.14 | 3.3 | |||||||||||||||||
The value of SARs granted is determined using the Black-Scholes-Merton 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 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:
2020 Grants | |||||
| SAR value (model conclusion) | $ | 21.51 | |||
| Risk-free rate | 1.3 | % | |||
| Expected dividend yield | 0.0 | % | |||
| Expected volatility | 22.4 | % | |||
| Expected term (years) | 6.0 | ||||
Restricted Stock Units
We have granted Restricted Stock Units ("RSUs") to directors and certain employees under both the 2009 Plan and the 2012 Plan. The RSUs confer the right to receive shares of our common stock at a specified future date or when certain conditions are met. The compensation expense for the RSUs awarded is based on the fair value of the RSUs at the date of grant and is recognized over the requisite service period. The RSUs vest over a maximum of three years and call for the underlying shares to be delivered no later than 30 days following the vesting date unless the participant is subject to a blackout period. In such case, the shares are to be delivered once the blackout restriction has been lifted. It is assumed that all time-based RSUs will vest. We recognize forfeitures of RSUs in the period in which they occur.
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| Three Months Ended | |||||||||||
| March 29, 2020 | |||||||||||
| Total Restricted Stock Units Outstanding | Weighted Average Grant Date Fair Value | ||||||||||
| Outstanding, beginning of period | 523,207 | $ | 59.58 | ||||||||
| Granted | 177,866 | 81.91 | |||||||||
Performance adjustment (1) | (59,936) | 67.50 | |||||||||
| Delivered | (79,449) | ||||||||||
Withheld to cover (2) | (8,235) | ||||||||||
| Forfeited | (17,572) | ||||||||||
| Outstanding, end of period | 535,881 | $ | 65.46 | ||||||||
____________
(1) Performance-based RSUs are presented as outstanding, granted and forfeited in the table above assuming targets are met and the awards pay out at 100%. These awards are settled with payouts ranging from zero to 200% of the target award value depending on achievement. The performance adjustment represents the difference in shares ultimately awarded due to performance attainment above or below target.
(2) A portion of the vested RSUs delivered were net share settled to cover statutory requirements for income and other employment taxes. We remit the equivalent cash to the appropriate taxing authorities. These net share settlements had the effect of share repurchases by us as we reduced and retired the number of shares that would have otherwise been issued as a result of the vesting.
Approximately two-thirds of the RSUs granted during the three months ended March 29, 2020, vest at specified future dates with only service requirements, while the remaining portion of the RSUs vest based on both performance and service requirements. The expense for RSUs granted during the three months ended March 29, 2020, is being recognized over the weighted average requisite service period of 2.5 years. 87,684 RSUs vested during the three months ended March 29, 2020, at a fair value of $5.6 million.
9. Restructuring Costs
In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and will continue through 2020. Additionally, the plan to divest non-core assets was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 10. As of March 29, 2020, we expect to incur approximately $5 million to $6 million of additional charges related to the 2019 Plan.
During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects of our United Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more effective and consistent business processes in the Europe segment. In addition, in the North American Residential segment we announced a new facility that will optimize and expand capacity through increased automation, which resulted in the closure of one existing facility and related headcount reductions beginning in the second quarter of 2019 (collectively, the "2018 Plan"). Costs associated with the 2018 Plan include severance, retention and closure charges and continued throughout 2019. As of March 29, 2020, we do not expect to incur any material future charges related to the 2018 Plan.
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The following table summarizes the restructuring charges recorded for the periods indicated:
| Three Months Ended March 29, 2020 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| 2019 Plan | $ | 728 | $ | (37) | $ | 862 | $ | 267 | $ | 1,820 | |||||||||||||||||||
| 2018 Plan | 121 | — | — | — | 121 | ||||||||||||||||||||||||
| Total Restructuring Costs | $ | 849 | $ | (37) | $ | 862 | $ | 267 | $ | 1,941 | |||||||||||||||||||
| Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| 2019 Plan | $ | 1,459 | $ | 331 | $ | 604 | $ | 394 | $ | 2,788 | |||||||||||||||||||
| 2018 Plan | 421 | 531 | — | — | 952 | ||||||||||||||||||||||||
| Total Restructuring Costs | $ | 1,880 | $ | 862 | $ | 604 | $ | 394 | $ | 3,740 | |||||||||||||||||||
| Cumulative Amount Incurred Through March 29, 2020 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| 2019 Plan | $ | 6,187 | $ | 359 | $ | 1,368 | $ | 1,286 | $ | 9,200 | |||||||||||||||||||
| 2018 Plan | 1,866 | 2,275 | — | — | 4,141 | ||||||||||||||||||||||||
| Total Restructuring Costs | $ | 8,053 | $ | 2,634 | $ | 1,368 | $ | 1,286 | $ | 13,341 | |||||||||||||||||||
The changes in the accrual for restructuring by activity were as follows for the periods indicated:
| (In thousands) | December 29, 2019 | Severance | Closure Costs | Cash Payments | March 29, 2020 | ||||||||||||||||||||||||
| 2019 Plan | $ | 1,535 | $ | 187 | $ | 1,633 | $ | (2,769) | $ | 586 | |||||||||||||||||||
| 2018 Plan | — | 103 | 18 | (121) | — | ||||||||||||||||||||||||
| Total | $ | 1,535 | $ | 290 | $ | 1,651 | $ | (2,890) | $ | 586 | |||||||||||||||||||
| (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 | |||||||||||||||||||
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10. Asset Impairment
During the three months ended March 31, 2019, we recognized asset impairment charges of $10.6 million related to two asset groups in the North American Residential segment, as a result of announced plant closures under the 2019 Plan. This amount was determined based upon the excess of the asset groups' carrying values of property, plant and equipment and operating lease right-of-use assets over the respective fair values of such assets, determined using a discounted cash flows approach for each asset group. Each of these valuations was performed on a non-recurring basis and is categorized as having Level 3 valuation inputs as established by the FASB's Fair Value Framework. The Level 3 unobservable inputs include an estimate of future cash flows and the salvage value for each of the asset groups. The fair value of the asset groups was determined to be $11.3 million, compared to a book value of $21.9 million, with the difference representing the asset impairment charges recorded in the condensed consolidated statements of comprehensive income.
11. Income Taxes
The effective tax rate differs from the Canadian statutory rate of 26.7% primarily due to mix of earnings in foreign jurisdictions that are subject to tax rates which differ from the Canadian statutory rate and changes in our valuation allowances. In addition, we recognized $0.7 million of income tax benefit due to the exercise and delivery of share-based awards during the three months ended March 29, 2020, compared to $0.1 million of income tax benefit during the three months ended March 31, 2019.
We have historically calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pre-tax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. Due to the uncertainties stemming from the impact of the COVID-19 pandemic on our operations, we have used a discrete effective tax rate method to calculate taxes for the three months ended March 29, 2020.
On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. We are analyzing the different aspects of the CARES Act and other governmental programs to determine whether any specific provisions may impact us.
12. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing earnings attributable to Masonite by the weighted average number of our common shares outstanding during the period. Diluted EPS is calculated by dividing earnings attributable to Masonite by the weighted average number of common shares plus the incremental number of shares issuable from non-vested and vested RSUs and SARs outstanding during the period.
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| (In thousands, except share and per share information) | Three Months Ended | ||||||||||
| March 29, 2020 | March 31, 2019 | ||||||||||
| Net income attributable to Masonite | $ | 29,885 | $ | 3,789 | |||||||
| Shares used in computing basic earnings per share | 24,861,442 | 25,574,910 | |||||||||
| Effect of dilutive securities: | |||||||||||
| Incremental shares issuable under share compensation plans | 353,322 | 376,574 | |||||||||
| Shares used in computing diluted earnings per share | 25,214,764 | 25,951,484 | |||||||||
| Basic earnings per common share attributable to Masonite | $ | 1.20 | $ | 0.15 | |||||||
| Diluted earnings per common share attributable to Masonite | $ | 1.19 | $ | 0.15 | |||||||
| Anti-dilutive instruments excluded from diluted earnings per common share | 258,773 | 235,650 | |||||||||
The weighted average number of shares outstanding utilized for the diluted EPS calculation contemplates the exercise of all currently outstanding SARs and the conversion of all RSUs. The dilutive effect of such equity awards is calculated based on the weighted average share price for each fiscal period using the treasury stock method.
13. Segment Information
Our reportable segments are organized and managed principally by end market: North American Residential, Europe and Architectural. The North American Residential reportable segment is the aggregation of the Wholesale and Retail operating segments. The Europe reportable segment is the aggregation of the Europe Interior and Europe Exterior operating segments. The Architectural reportable segment consists solely of the Architectural operating segment. The Corporate & Other category includes unallocated corporate costs and the results of immaterial operating segments which were not aggregated into any reportable segment. Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors.
Our management reviews net sales and Adjusted EBITDA (as defined below) to evaluate segment performance and allocate resources. Net assets are not allocated to the reportable segments. Adjusted EBITDA is a non-GAAP financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparable to similar measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or operating cash flows determined in accordance with GAAP. Adjusted EBITDA is defined as net income (loss) attributable to Masonite adjusted to exclude the following items:
• depreciation;
• amortization;
• share based compensation expense;
• loss (gain) on disposal of property, plant and equipment;
• registration and listing fees;
• restructuring costs;
• asset impairment;
• loss (gain) on disposal of subsidiaries;
• interest expense (income), net;
• loss on extinguishment of debt;
• other expense (income), net;
• income tax expense (benefit);
• loss (income) from discontinued operations, net of tax; and
• net income (loss) attributable to non-controlling interest.
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This definition of Adjusted EBITDA differs from the definitions of EBITDA contained in the indentures governing the 2028 Notes and 2026 Notes and the credit agreement governing the ABL Facility. Although Adjusted EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, it is used to evaluate and compare the operating performance of the segments and it is one of the primary measures used to determine employee incentive compensation. Intersegment sales are recorded using market prices.
Certain information with respect to segments is as follows for the periods indicated:
| Three Months Ended March 29, 2020 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| Net sales | $ | 384,445 | $ | 71,156 | $ | 94,555 | $ | 5,427 | $ | 555,583 | |||||||||||||||||||
| Intersegment sales | (588) | (430) | (3,337) | — | (4,355) | ||||||||||||||||||||||||
| Net sales to external customers | $ | 383,857 | $ | 70,726 | $ | 91,218 | $ | 5,427 | $ | 551,228 | |||||||||||||||||||
| Adjusted EBITDA | $ | 71,696 | $ | 9,679 | $ | 10,582 | $ | (10,440) | $ | 81,517 | |||||||||||||||||||
| Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| Net sales | $ | 354,802 | $ | 84,739 | $ | 88,353 | $ | 6,728 | $ | 534,622 | |||||||||||||||||||
| Intersegment sales | (1,077) | (472) | (2,762) | — | (4,311) | ||||||||||||||||||||||||
| Net sales to external customers | $ | 353,725 | $ | 84,267 | $ | 85,591 | $ | 6,728 | $ | 530,311 | |||||||||||||||||||
| Adjusted EBITDA | $ | 53,621 | $ | 9,997 | $ | 7,614 | $ | (5,753) | $ | 65,479 | |||||||||||||||||||
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A reconciliation of our net income (loss) attributable to Masonite to consolidated Adjusted EBITDA is set forth as follows for the periods indicated:
| Three Months Ended | |||||||||||
| (In thousands) | March 29, 2020 | March 31, 2019 | |||||||||
| Net income attributable to Masonite | $ | 29,885 | $ | 3,789 | |||||||
| Plus: | |||||||||||
| Depreciation | 16,018 | 18,285 | |||||||||
| Amortization | 6,459 | 7,597 | |||||||||
| Share based compensation expense | 3,470 | 2,680 | |||||||||
| Loss on disposal of property, plant and equipment | 1,622 | 2,913 | |||||||||
| Restructuring costs | 1,941 | 3,740 | |||||||||
| Asset impairment | — | 10,625 | |||||||||
| Loss on disposal of subsidiaries | — | 4,605 | |||||||||
| Interest expense, net | 11,282 | 11,127 | |||||||||
| Other expense (income), net | 49 | (1,130) | |||||||||
| Income tax expense | 9,639 | 58 | |||||||||
| Net income attributable to non-controlling interest | 1,152 | 1,190 | |||||||||
| Adjusted EBITDA | $ | 81,517 | $ | 65,479 | |||||||
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14. Accumulated Other Comprehensive Loss and Other Comprehensive Income (Loss)
A rollforward of the components of accumulated other comprehensive loss is as follows for the periods indicated:
| Three Months Ended | |||||||||||
| (In thousands) | March 29, 2020 | March 31, 2019 | |||||||||
| Accumulated foreign currency translation losses, beginning of period | $ | (113,336) | $ | (129,930) | |||||||
| Foreign currency translation gain (loss) | (38,687) | 12,990 | |||||||||
| Income tax benefit (expense) on foreign currency translation gain | (44) | 12 | |||||||||
| Cumulative translation adjustment recognized upon deconsolidation of subsidiary | — | 1,001 | |||||||||
| Less: foreign currency translation gain (loss) attributable to non-controlling interest | (579) | 216 | |||||||||
| Accumulated foreign currency translation losses, end of period | (151,488) | (116,143) | |||||||||
| Accumulated pension and other post-retirement adjustments, beginning of period | (16,833) | (22,989) | |||||||||
| Amortization of actuarial net losses | 173 | 404 | |||||||||
| Income tax expense on amortization of actuarial net losses | (45) | (105) | |||||||||
| Accumulated pension and other post-retirement adjustments | (16,705) | (22,690) | |||||||||
| Accumulated other comprehensive loss | $ | (168,193) | $ | (138,833) | |||||||
| Other comprehensive income (loss), net of tax | $ | (38,603) | $ | 14,302 | |||||||
| Less: other comprehensive income (loss) attributable to non-controlling interest | (579) | 216 | |||||||||
| Other comprehensive income (loss) attributable to Masonite | $ | (38,024) | $ | 14,086 | |||||||
Cumulative translation adjustments are reclassified out of accumulated other comprehensive loss into loss on disposal of subsidiaries in the condensed consolidated statements of comprehensive income. Actuarial net losses are reclassified out of accumulated other comprehensive loss into cost of goods sold in the condensed consolidated statements of comprehensive income.
Foreign currency translation losses as a result of translating our foreign assets and liabilities into U.S. dollars during the three months ended March 29, 2020, were $38.7 million primarily driven by the weakening of the Pound Sterling, the Canadian Dollar and the Mexican Peso in comparison to the U.S. Dollar.
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15. Supplemental Cash Flow Information
Certain cash and non-cash transactions were as follows for the periods indicated:
| Three Months Ended | |||||||||||
| (In thousands) | March 29, 2020 | March 31, 2019 | |||||||||
| Transactions involving cash: | |||||||||||
| Interest paid | $ | 22,662 | $ | 23,785 | |||||||
| Interest received | 641 | 672 | |||||||||
| Income taxes paid | 3,030 | 1,308 | |||||||||
| Income tax refunds | 392 | — | |||||||||
| Cash paid for operating lease liabilities | 6,835 | 6,290 | |||||||||
| Cash paid for finance lease liabilities | 317 | — | |||||||||
| Non-cash transactions from operating activities: | |||||||||||
| Right-of-use assets acquired under operating leases | 3,863 | 20,289 | |||||||||
The following reconciles total cash, cash equivalents and restricted cash as of the dates indicated:
| March 29, 2020 | December 29, 2019 | ||||||||||
| Cash and cash equivalents | $ | 114,375 | $ | 166,964 | |||||||
| Restricted cash | 10,644 | 10,644 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 125,019 | $ | 177,608 | |||||||
Property, plant and equipment additions in accounts payable were $4.6 million and $6.3 million as of March 29, 2020, and December 29, 2019, respectively.
16. Fair Value of Financial Instruments
The carrying amounts of our cash and cash equivalents, restricted cash, accounts receivable, income taxes receivable, accounts payable, accrued expenses and income taxes payable approximate fair value because of the short-term maturity of those instruments. The estimated fair values and carrying values of our long-term debt instruments were as follows for the periods indicated:
| March 29, 2020 | December 29, 2019 | ||||||||||||||||||||||
| (In thousands) | Fair Value | Carrying Value | Fair Value | Carrying Value | |||||||||||||||||||
| 5.375% senior unsecured notes due 2028 | $ | 487,668 | $ | 493,835 | $ | 529,105 | $ | 493,648 | |||||||||||||||
| 5.750% senior unsecured notes due 2026 | $ | 293,249 | $ | 296,503 | 318,846 | 296,367 | |||||||||||||||||
These estimates are based on market quotes and calculations based on current market rates available to us and are categorized as having Level 2 valuation inputs as established by the FASB's Fair Value Framework. Market quotes used in these calculations are based on bid prices for our debt instruments and are obtained from and corroborated with multiple independent sources. The market quotes obtained from independent sources are within the range of management's expectations.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is based upon accounting principles generally accepted in the United States of America and discusses the financial condition and results of operations for Masonite International Corporation for the three months ended March 29, 2020, and March 31, 2019. In this MD&A, "Masonite," "we," "us," "our" and the "Company" refer to Masonite International Corporation and its subsidiaries.
This discussion should be read in conjunction with (i) the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and (ii) the annual audited consolidated financial statements, including the accompanying notes and MD&A, which are included in our Annual Report on Form 10-K for the year ended December 29, 2019. The following discussion should also be read in conjunction with the disclosure under "Special Note Regarding Forward Looking Statements" and "Item 1A. Risk Factors" elsewhere in this Quarterly Report on Form 10-Q. Our actual results could differ materially from the forward-looking statements as a result of these risks and uncertainties.
Overview
We are a leading global designer, manufacturer and distributor of interior and exterior doors for the new construction and repair, renovation and remodeling sectors of the residential and the non-residential building construction markets. Since 1925, we have provided our customers with innovative products and superior service at compelling values. In order to better serve our customers and create sustainable competitive advantages, we focus on developing innovative products, advanced manufacturing capabilities and technology-driven sales and service solutions.
We market and sell our products to remodeling contractors, builders, homeowners, retailers, dealers, lumberyards, commercial and general contractors and architects through well-established wholesale, retail and direct distribution channels as part of our cross-merchandising strategy. Customers are provided a broad product offering of interior and exterior doors and entry systems at various price points. We manufacture a broad line of interior doors, including residential molded, flush, stile and rail, louver and specially-ordered commercial and architectural doors; door components for internal use and sale to other door manufacturers; and exterior residential steel, fiberglass and wood doors and entry systems.
We operate 63 manufacturing and distribution facilities in eight countries in North America, South America, Europe and Asia, which are strategically located to serve our customers through multiple distribution channels. These distribution channels include: (i) direct distribution to retail home center customers and homebuilders; (ii) one-step distribution that sells directly to homebuilders and contractors; and (iii) two-step distribution through wholesale distributors. For retail home center customers, numerous door fabrication facilities provide value-added fabrication and logistical services, including pre-finishing and store delivery of pre-hung interior and exterior doors. We believe our ability to provide: (i) a broad product range; (ii) frequent, rapid, on-time and complete delivery; (iii) consistency in products and merchandising; (iv) national service; and (v) special order programs enables retail customers to increase comparable store sales and helps to differentiate us from our competitors. We believe investments in innovative new product manufacturing and distribution capabilities, coupled with an ongoing commitment to operational excellence, provide a strong platform for future growth.
Our reportable segments are organized and managed principally by end market: North American Residential, Europe and Architectural. In the three months ended March 29, 2020, we generated net sales of $383.9 million or 69.6%, $70.7 million or 12.8% and $91.2 million or 16.5% in our North American Residential, Europe and Architectural segments, respectively.
Key Factors Affecting Our Results of Operations
COVID-19
A novel strain of coronavirus (COVID-19) was first identified in Wuhan, China in December 2019, and in March 2020 was declared a pandemic by the World Health Organization. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted our business globally. Our first priority with regard to the COVID-19 pandemic is to do everything we can to ensure the safety, health and welfare of our employees, customers, suppliers and others with whom we partner in our
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business activities. Through the use of appropriate risk mitigation and safety practices at our facilities, we are endeavoring to maintain operations to continue supplying the industry during this uncertain time, recognizing the important role our customers and our products play in construction related to providing residential shelter and health care services.
A number of countries, provinces, states, and municipalities have issued orders temporarily requiring persons who were not engaged in essential activities and businesses to remain at home. Other jurisdictions without stay-at-home orders have required non-essential businesses to close. In certain jurisdictions, residential and commercial construction have been designated as an essential business activity. Some of our facilities were temporarily shut down and some remain shut down resulting from the impact of these government orders. For example, our United Kingdom facilities have been closed since March 27, 2020 and other locations could be temporarily idled due to the impacts of COVID-19. Where possible, we have instructed employees to work from home and currently, most customer interaction including order entry and receivables are being effectively handled remotely. Where remote work is not possible, we have taken steps to restrict visitor access to facilities, adjust break times and create additional break areas to help reduce employee density, manage shift schedules to reduce employee contact during shift changes to facilitate proper social distancing and eliminated overtime in many locations, all of which have resulted in decreased production levels. Further, we have modified employee policies related to attendance and the availability of paid and unpaid time off and attendance is voluntary at locations where our operations are exempt from applicable stay-at-home orders and continue to operate.
While we believe we have a strong balance sheet and solid capital structure, we are taking steps to manage our cash flow. During the first quarter, we took several actions to reduce our spending and more closely manage cash during this uncertain period, including prioritizing capital spending for critical maintenance, safety and regulatory projects, placing restrictions on travel and temporarily suspending our share repurchase program and discretionary pension contributions. Although we are aggressively managing our response to the recent COVID-19 pandemic, given the fluid nature of the situation, its impact on our full year fiscal 2020 results and beyond is uncertain. We believe that the most significant elements of uncertainty are the intensity and duration of the impact on construction, renovation and consumer spending, tightening of consumer credit requirements, as well as the ability of our sales channels, supply chain, manufacturing and distribution to continue to operate with minimal disruption for the remainder of fiscal 2020. We believe that COVID-19 will have a material adverse impact on our revenue growth, overall profitability and cash flows in the near term and may lead to higher than normal inventory levels, higher sales-related reserves, potential impairment of goodwill and other long-lived assets, a volatile effective tax rate driven by changes in the mix of earnings across our jurisdictions and an impact on the effectiveness our internal controls over financial reporting. While COVID-19 did not begin to affect our financial results until late in the first quarter of 2020, its impact on our results in the first quarter of 2020 is not indicative of its impact on our results for the remainder of 2020, as evidenced by the decline in our net sales and results of operations in the month of April. As a result, we have taken further actions in April such as the deferral of merit and the implementation of temporary reductions in base pay for all salaried personnel in Canada and the United States not directly involved in plant operations and in cash retainers for our Board of Directors to manage cash flow and reduce spending.
On March 27, 2020, President Trump signed into U.S. federal law the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to the tax depreciation methods for qualified improvement property. We are analyzing the different aspects of the CARES Act and other similar governmental programs to determine whether any specific provisions may impact us. While we may determine to apply for such programs, there is no guarantee that we will meet any eligibility requirements to participate in such programs, or even if we are able to participate, that such programs will provide meaningful benefit to our business.
Product Demand
There are numerous factors that influence overall market demand for our products. Demand for new homes, home improvement products and other building construction products have a direct impact on our financial condition and results of operations. Demand for our products may be impacted by changes in United States, Canadian, European, Asian or other global economic conditions, including inflation, deflation, interest rates, availability of capital, consumer spending rates, energy availability and costs, and the effects of governmental initiatives to manage economic conditions.
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Additionally, trends in residential new construction, repair, renovation and remodeling and architectural building construction may directly impact our financial performance. Accordingly, the following factors may have a direct impact on our business in the countries and regions in which our products are sold:
•the strength of the economy;
•employment rates and consumer confidence;
•the amount and type of residential and commercial construction;
•housing sales and home values;
•the age of existing home stock, home vacancy rates and foreclosures;
•non-residential building occupancy rates;
•increases in the cost of raw materials or wages or any shortage in supplies or labor;
•the availability and cost of credit; and
•demographic factors such as immigration and migration of the population and trends in household formation.
Product Pricing and Mix
The building products industry is highly competitive and we therefore face pressure on sales prices of our products. In addition, our competitors may adopt more aggressive sales policies and devote greater resources to the development, promotion and sale of their products than we do, which could result in a loss of customers. Our business in general is subject to changing consumer and industry trends, demands and preferences. Trends within the industry change often and our failure to anticipate, identify or quickly react to changes in these trends could lead to, among other things, rejection of a new product line and reduced demand and price reductions for our products, which could materially adversely affect us. Changes in consumer preferences may also lead to increased demand for our lower margin products relative to our higher margin products, which could reduce our future profitability.
In the fourth quarter of 2019, we communicated price increases that became effective on February 3, 2020, to our North American Residential customers that, for certain products, were significantly greater than our typical annual increases. We also communicated our intent to incrementally invest $100 million over the next five years in the areas of service and quality improvements, product innovation and end user marketing. While we believe that these initiatives are necessary in order to increase the profile of, and demand for, our products and that they will benefit both us and our customers, we cannot predict whether our efforts will ultimately be successful or how our customers will react to these initiatives which could have a material impact on our results of operations for future periods.
Business Wins and Losses
Our customers consist mainly of wholesalers and retail home centers. In fiscal year 2019, our top ten customers together accounted for approximately 43% of our net sales and our top customer, The Home Depot, Inc. accounted for approximately 17% of our net sales. Net sales from customers that have accounted for a significant portion of our net sales in past periods, individually or as a group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period. Certain customers perform periodic product line reviews to assess their product offerings, which have, on past occasions, led to business wins and losses. In addition, as a result of competitive bidding processes, we may not be able to increase or maintain the margins at which we sell our products to our customers.
Organizational Restructuring
Over the past several years, we have engaged in a series of restructuring programs related to exiting certain geographies and non-core businesses, consolidating certain internal support functions and engaging in other actions designed to reduce our cost structure and improve productivity. These initiatives primarily consist of severance actions and lease termination costs. Management continues to evaluate our business; therefore, in future years, there may be additional provisions for new plan initiatives, as well as changes in previously recorded estimates, as payments are made or actions are completed. Asset impairment charges were also incurred in connection with these restructuring actions for those assets sold, abandoned or made obsolete as a result of these programs.
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In February 2019, we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and will continue through 2020. Additionally, the plan to divest non-core assets was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 9. As of March 29, 2020, we expect to incur approximately $5 million to $6 million of additional charges related to the 2019 Plan. Once fully implemented, the actions taken as part of the 2019 Plan are expected to increase our annual earnings and cash flows by approximately $17 million to $21 million.
During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects of our United Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more effective and consistent business processes in the Europe segment. In addition, in the North American Residential segment we announced a new facility that will optimize and expand capacity through increased automation, which resulted in the closure of one existing facility and related headcount reductions beginning in the second quarter of 2019 (collectively, the "2018 Plan"). Costs associated with the 2018 Plan include severance, retention and closure charges and continued 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 9. The actions taken as part of the 2018 Plan are expected to increase our annual earnings and cash flows by approximately $6 million.
Seasonality
Our business is moderately seasonal and our net sales vary from quarter to quarter based upon the timing of the building season in our markets. Severe weather conditions in any quarter, such as unusually prolonged warm or cold conditions, rain, blizzards or hurricanes, could accelerate, delay or halt construction and renovation activity.
Acquisitions and Divestitures
We are pursuing a strategic initiative of optimizing our global business portfolio. As part of this strategy, in the last several years we have pursued strategic acquisitions targeting companies who produce components for our existing operations, manufacture niche products and provide value-added services. Additionally, we target companies with strong brands, complementary technologies, attractive geographic footprints and opportunities for cost and distribution synergies. We also continuously analyze our operations to determine which businesses, market channels and products create the most value for our customers and acceptable returns for our shareholders.
Acquisitions
•Top Doors: On August 29, 2019, we completed the acquisition of TOPDOORS, s.r.o. ("Top Doors") based in the Czech Republic for cash consideration of $1.8 million, net of cash acquired, following a post-closing adjustment. Top Doors is a specialist manufacturer of door frames.
Divestitures
•Window Widgets: On December 13, 2019, we completed the sale of all the capital stock of Window Widgets Limited ("WW"), a leading United Kingdom provider of high quality window systems, for consideration of $1.2 million, net of cash disposed.
•PDS: On March 21, 2019, we completed the sale of all of the capital stock of Performance Doorset Solutions Limited ("PDS"), a leading supplier of custom doors and millwork in the United Kingdom, for nominal consideration. The divestiture of this business resulted in a loss on deconsolidation of $4.6 million, which was recognized during the first quarter of 2019 in the Europe segment.
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Results of Operations
| Three Months Ended | |||||||||||
| (In thousands) | March 29, 2020 | March 31, 2019 | |||||||||
| Net sales | $ | 551,228 | $ | 530,311 | |||||||
| Cost of goods sold | 416,947 | 418,207 | |||||||||
| Gross profit | 134,281 | 112,104 | |||||||||
| Gross profit as a % of net sales | 24.4 | % | 21.1 | % | |||||||
| Selling, general and administration expenses | 80,333 | 78,100 | |||||||||
| Selling, general and administration expenses as a % of net sales | 14.6 | % | 14.7 | % | |||||||
| Restructuring costs | 1,941 | 3,740 | |||||||||
| Asset impairment | — | 10,625 | |||||||||
| Loss on disposal of subsidiaries | — | 4,605 | |||||||||
| Operating income | 52,007 | 15,034 | |||||||||
| Interest expense, net | 11,282 | 11,127 | |||||||||
| Other expense (income), net | 49 | (1,130) | |||||||||
| Income before income tax expense | 40,676 | 5,037 | |||||||||
| Income tax expense | 9,639 | 58 | |||||||||
| Net income | 31,037 | 4,979 | |||||||||
| Less: net income attributable to non-controlling interests | 1,152 | 1,190 | |||||||||
| Net income attributable to Masonite | $ | 29,885 | $ | 3,789 | |||||||
Three Months Ended March 29, 2020, Compared with Three Months Ended March 31, 2019
Net Sales
Net sales in the three months ended March 29, 2020, were $551.2 million, an increase of $20.9 million or 3.9% from $530.3 million in the three months ended March 31, 2019. Net sales in the first quarter of 2020 were negatively impacted by $2.1 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by $23.0 million. Average unit price increased net sales in the first quarter of 2020 by $20.9 million or 3.9% compared to the 2019 period. Higher volumes excluding the incremental impact of acquisitions and divestitures ("base volume") increased net sales by $9.4 million or 1.8% in the first quarter of 2020 compared to the 2019 period. Our 2019 divestitures, net of acquisition, decreased sales by $7.3 million or 1.4% in the first quarter of 2020. Net sales of components and other products to external customers were flat in the first quarter of 2020 compared to the 2019 period.
Net Sales and Percentage of Net Sales by Reportable Segment
| Three Months Ended March 29, 2020 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| Sales | $ | 384,445 | $ | 71,156 | $ | 94,555 | $ | 5,427 | $ | 555,583 | |||||||||||||||||||
| Intersegment sales | (588) | (430) | (3,337) | — | (4,355) | ||||||||||||||||||||||||
| Net sales to external customers | $ | 383,857 | $ | 70,726 | $ | 91,218 | $ | 5,427 | $ | 551,228 | |||||||||||||||||||
| Percentage of consolidated external net sales | 69.6 | % | 12.8 | % | 16.5 | % | |||||||||||||||||||||||
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| Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| Sales | $ | 354,802 | $ | 84,739 | $ | 88,353 | $ | 6,728 | $ | 534,622 | |||||||||||||||||||
| Intersegment sales | (1,077) | (472) | (2,762) | — | (4,311) | ||||||||||||||||||||||||
| Net sales to external customers | $ | 353,725 | $ | 84,267 | $ | 85,591 | $ | 6,728 | $ | 530,311 | |||||||||||||||||||
| Percentage of consolidated external net sales | 66.7 | % | 15.9 | % | 16.1 | % | |||||||||||||||||||||||
North American Residential
Net sales to external customers from facilities in the North American Residential segment in the three months ended March 29, 2020, were $383.9 million, an increase of $30.2 million or 8.5% from $353.7 million in the three months ended March 31, 2019. Net sales in the first quarter of 2020 were negatively impacted by $0.7 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by $30.9 million or 8.7% due to changes in volume, average unit price and sales of components and other products. Higher base volume increased net sales in the first quarter of 2020 by $18.2 million or 5.1% compared to the 2019 period, primarily due to strong end market demand. Average unit price increased net sales in the first quarter of 2020 by $12.3 million or 3.5% compared to the 2019 period primarily as a result of our previously communicated price increases that became effective on February 3, 2020. Net sales of components and other products to external customers were $0.4 million higher in the first quarter of 2020 compared to the 2019 period.
Europe
Net sales to external customers from facilities in the Europe segment in the three months ended March 29, 2020, were $70.7 million, a decrease of $13.6 million or 16.1% from $84.3 million in the three months ended March 31, 2019. Net sales in the first quarter of 2020 were negatively impacted by $1.3 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by $12.3 million or 14.6% due to changes in volume, average unit price and sales of components and other products. Net sales in the first quarter of 2020 were reduced by $7.3 million or 8.7% due to the net impact of divestitures and an acquisition, including lost sales due to the divestitures of three non-core businesses in 2019, partially offset by incremental sales from the Top Doors acquisition. Lower base volume decreased net sales by $7.0 million or 8.3% in the first quarter of 2020 compared to the 2019 period partially due to share declines in the builder channel and all of our United Kingdom manufacturing facilities closing the last week of the quarter as a result of COVID-19. Net sales of components and other products to external customers were $0.3 million lower in the first quarter of 2020 compared to the 2019 period. Average unit price increased net sales in the first quarter of 2020 by $2.3 million or 2.7% compared to the 2019 period.
Architectural
Net sales to external customers from facilities in the Architectural segment in the three months ended March 29, 2020, were $91.2 million, an increase of $5.6 million or 6.5% from $85.6 million in the three months ended March 31, 2019. Net sales in the first quarter of 2020 were negatively impacted by $0.1 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have increased by $5.7 million or 6.7%. Average unit price increased net sales in the first quarter of 2020 by $6.3 million or 7.4% compared to the 2019 period primarily due to delivery of projects at higher prices along with improved mix. Net sales of components and other products to external customers were $0.7 million higher in the first quarter of 2020 compared to the 2019 period. Lower base volume decreased net sales in the first quarter of 2020 by $1.3 million or 1.5% compared to the 2019 period primarily due to our focus on more complex projects involving lower volumes but a higher-value mix of products.
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Cost of Goods Sold
Cost of goods sold as a percentage of net sales was 75.6% and 78.9% for the three months ended March 29, 2020, and March 31, 2019, respectively. Material cost of sales, direct labor costs and overhead as a percentage of net sales decreased by 2.8%, 0.4% and 0.2%, respectively, compared to the 2019 period. Partly offsetting these decreases, distribution costs in the first quarter of 2020 increased by 0.1% as a percentage of sales compared to the first quarter of 2019. Depreciation as a percentage of sales remained flat as compared to the 2019 period. The decrease in material cost of sales as a percentage of net sales was driven by higher average unit prices and net deflation as a result of material cost savings projects that more than offset commodity inflation and an increase in tariffs. Direct labor as a percentage of net sales decreased due to factory productivity initiatives. Overhead as a percentage of net sales decreased due to increased volumes.
Selling, General and Administration Expenses
In the three months ended March 29, 2020, selling, general and administration ("SG&A") expenses, as a percentage of net sales, were 14.6%, as compared to 14.7% in the three months ended March 31, 2019, a decrease of 10 basis points.
SG&A expenses in the three months ended March 29, 2020, were $80.3 million, an increase of $2.2 million from $78.1 million in the three months ended March 31, 2019. The overall increase was driven by an increase in personnel costs of $3.5 million, primarily due to resource investments to support growth, costs related to employee benefits and incentive compensation, along with a $3.4 million increase in legal costs related to a previously disclosed lawsuit. These increases were partially offset by a net $3.8 million decrease in non-cash items in SG&A expenses, including depreciation and amortization, loss on disposal of property, plant and equipment, deferred compensation, and share based compensation, incremental SG&A savings from our 2019 divestitures (net of acquisition) of $0.7 million and favorable foreign exchange impacts of $0.2 million.
Restructuring Costs
Restructuring costs in the three months ended March 29, 2020, and March 31, 2019, were $1.9 million and $3.7 million, respectively. Restructuring costs in the current year related primarily to the 2019 Plan. Restructuring costs in the prior year period related to the 2019 and 2018 Plans.
Asset Impairment
There were no asset impairment charges in the three months ended March 29, 2020. Asset impairment charges in the three months ended March 31, 2019, were $10.6 million and resulted from actions associated with the 2019 Plan.
Loss on Disposal of Subsidiaries
There was no loss on disposal of subsidiaries in the three months ended March 29, 2020. Loss on disposal of subsidiaries in the three months ended March 31, 2019, was $4.6 million. The loss in the prior year related to the sale of PDS for nominal consideration during the first quarter of 2019. The total charge consisted of $3.6 million relating to the write-off of the net assets sold and other professional fees and $1.0 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss.
Interest Expense, Net
Interest expense, net, in the three months ended March 29, 2020, was $11.3 million, compared to $11.1 million in the three months ended March 31, 2019, remaining relatively flat as compared to the 2019 period.
Other Expense (Income), Net
Other expense (income), net, in the three months ended March 29, 2020, was minimal as compared to $1.1 million of income in the three months ended March 31, 2019, primarily due to a change in the fair value of plan assets in the deferred compensation rabbi trust.
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Income Tax Expense
Our income tax expense in the three months ended March 29, 2020, was $9.6 million, compared to $0.1 million of income tax expense in the three months ended March 31, 2019. The increase in income tax expense is primarily due to the mix of income or losses within the tax jurisdictions with various tax rates in which we operate, as well as a decrease in discrete income tax benefits. We recognized discrete items resulting in income tax benefit of $0.4 million in the three months ended March 29, 2020, compared to $1.0 million of income tax benefit recorded in the three months ended March 31, 2019.
Segment Information
| Three Months Ended March 29, 2020 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 71,696 | $ | 9,679 | $ | 10,582 | $ | (10,440) | $ | 81,517 | |||||||||||||||||||
| Adjusted EBITDA as a percentage of segment net sales | 18.7 | % | 13.7 | % | 11.6 | % | 14.8 | % | |||||||||||||||||||||
| Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 53,621 | $ | 9,997 | $ | 7,614 | $ | (5,753) | $ | 65,479 | |||||||||||||||||||
| Adjusted EBITDA as a percentage of segment net sales | 15.2 | % | 11.9 | % | 8.9 | % | 12.3 | % | |||||||||||||||||||||
The following reconciles net income (loss) attributable to Masonite to Adjusted EBITDA:
| Three Months Ended March 29, 2020 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| Net income (loss) attributable to Masonite | $ | 58,811 | $ | 3,483 | $ | 4,580 | $ | (36,989) | $ | 29,885 | |||||||||||||||||||
| Plus: | |||||||||||||||||||||||||||||
| Depreciation | 9,364 | 2,457 | 2,822 | 1,375 | 16,018 | ||||||||||||||||||||||||
| Amortization | 595 | 3,562 | 1,922 | 380 | 6,459 | ||||||||||||||||||||||||
| Share based compensation expense | — | — | — | 3,470 | 3,470 | ||||||||||||||||||||||||
| Loss on disposal of property, plant and equipment | 1,204 | 3 | 396 | 19 | 1,622 | ||||||||||||||||||||||||
| Restructuring costs | 849 | (37) | 862 | 267 | 1,941 | ||||||||||||||||||||||||
| Interest expense, net | — | — | — | 11,282 | 11,282 | ||||||||||||||||||||||||
| Other expense (income), net | — | 211 | — | (162) | 49 | ||||||||||||||||||||||||
| Income tax expense | — | — | — | 9,639 | 9,639 | ||||||||||||||||||||||||
| Net income attributable to non-controlling interest | 873 | — | — | 279 | 1,152 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 71,696 | $ | 9,679 | $ | 10,582 | $ | (10,440) | $ | 81,517 | |||||||||||||||||||
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| Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||||
| (In thousands) | North American Residential | Europe | Architectural | Corporate & Other | Total | ||||||||||||||||||||||||
| Net income (loss) attributable to Masonite | $ | 30,261 | $ | (4,147) | $ | 2,079 | $ | (24,404) | $ | 3,789 | |||||||||||||||||||
| Plus: | |||||||||||||||||||||||||||||
| Depreciation | 9,079 | 2,382 | 2,741 | 4,083 | 18,285 | ||||||||||||||||||||||||
| Amortization | 449 | 3,965 | 2,093 | 1,090 | 7,597 | ||||||||||||||||||||||||
| Share based compensation expense | — | — | — | 2,680 | 2,680 | ||||||||||||||||||||||||
| Loss on disposal of property, plant and equipment | 341 | 2,469 | 97 | 6 | 2,913 | ||||||||||||||||||||||||
| Restructuring costs | 1,880 | 862 | 604 | 394 | 3,740 | ||||||||||||||||||||||||
| Asset impairment | 10,625 | — | — | — | 10,625 | ||||||||||||||||||||||||
| Loss on disposal of subsidiaries | — | 4,605 | — | — | 4,605 | ||||||||||||||||||||||||
| Interest expense, net | — | — | — | 11,127 | 11,127 | ||||||||||||||||||||||||
| Other expense (income), net | — | (139) | — | (991) | (1,130) | ||||||||||||||||||||||||
| Income tax expense | — | — | — | 58 | 58 | ||||||||||||||||||||||||
| Net income attributable to non-controlling interest | 986 | — | — | 204 | 1,190 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 53,621 | $ | 9,997 | $ | 7,614 | $ | (5,753) | $ | 65,479 | |||||||||||||||||||
Adjusted EBITDA in our North American Residential segment increased $18.1 million, or 33.8%, to $71.7 million in the three months ended March 29, 2020, from $53.6 million in the three months ended March 31, 2019. Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of $16.3 million and $14.0 million, in the first quarter of 2020 and 2019, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, research and development and share based compensation.
Adjusted EBITDA in our Europe segment decreased $0.3 million, or 3.0%, to $9.7 million in the three months ended March 29, 2020, from $10.0 million in the three months ended March 31, 2019. Adjusted EBITDA in the Europe segment included corporate allocations of shared costs of $0.3 million in both the first quarter of 2020 and 2019. The allocations generally consist of certain costs of human resources, legal, finance and information technology.
Adjusted EBITDA in our Architectural segment increased $3.0 million, or 39.5%, to $10.6 million in the three months ended March 29, 2020, from $7.6 million in the three months ended March 31, 2019. Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of $2.7 million, in both the first quarter of 2020 and 2019. The allocations generally consist of certain costs of human resources, legal, finance, information technology and research and development.
Liquidity and Capital Resources
Our liquidity needs for operations vary throughout the year. Our principal sources of liquidity are cash flows from operating activities, the borrowings under our ABL Facility and an accounts receivable sales program with a third party ("AR Sales Program") and our existing cash balance. Our anticipated uses of cash in the near term include working capital needs, capital expenditures for critical maintenance, safety and regulatory projects, and share repurchases. On a continual basis, we evaluate and consider strategic acquisitions, divestitures, and joint ventures to create shareholder value and enhance financial performance.
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Due to the rapidly evolving and highly uncertain nature and duration of the COVID-10 pandemic and its impact on our customers, suppliers and employees, we are unable to fully estimate the extent of the impact it may have on our future financial condition and liquidity. Accordingly, we have taken actions to reduce spending and manage cash flow, such as reducing our capital spend below the anticipated amount of $70 million to $75 million, as previously noted in Key Factors Affecting Our Results of Operations. We believe that our cash balance on hand, future cash generated from operations, the use of our AR Sales Program, our ABL Facility, and ability to access the capital markets will provide adequate liquidity for the foreseeable future. As of March 29, 2020, we had $114.4 million of cash and cash equivalents, availability under our ABL Facility of $185.3 million and availability under our AR Sales Program of $14.8 million.
Cash Flows
Cash provided by operating activities was $6.0 million during the three months ended March 29, 2020, compared to $18.5 million in the three months ended March 31, 2019. This $12.5 million decrease in cash provided by operating activities was due to changes in net working capital in the first three months of 2020 compared with the same period in 2019, partially offset by a $17.4 million increase in net income attributable to Masonite, adjusted for non-cash and non-operating items.
Cash used in investing activities was $17.8 million during the three months ended March 29, 2020, compared to $21.2 million in the three months ended March 31, 2019. This $3.4 million decrease in cash used in investing activities was driven by a $3.2 million decrease in cash additions to property, plant and equipment and a net decrease in other investing outflows of $0.2 million in the first three months of 2020 compared to the same period in 2019.
Cash used in financing activities was $37.0 million during the three months ended March 29, 2020, compared to $34.3 million during the three months ended March 31, 2019. This $2.7 million increase in cash used in financing activities was driven by a $1.6 million increase in cash used for repurchases of common shares, a $0.7 million increase in distributions to non-controlling interests and an increase in other financing outflows of $0.4 million in the first three months of 2020 compared to the same period in 2019.
Share Repurchases
We currently have in place a $600.0 million share repurchase authorization, stemming from three separate authorizations by our Board of Directors. During the three months ended March 29, 2020, we repurchased and retired 567,271 of our common shares in the open market at an aggregate cost of $34.8 million as part of the share repurchase programs, prior to temporarily suspending our repurchase program on March 18, 2020. During the three months ended March 31, 2019, we repurchased 646,102 of our common shares in the open market at an aggregate cost of $33.2 million. As of March 29, 2020, there was $109.3 million available for repurchase in accordance with the share repurchase programs.
Other Liquidity Matters
Our cash and cash equivalents balance includes cash held in foreign countries in which we operate. Cash held outside Canada, in which we are incorporated, is free from significant restrictions that would prevent the cash from being accessed to meet our liquidity needs including, if necessary, to fund operations and service debt obligations in Canada. However, earnings from certain jurisdictions are indefinitely reinvested in those jurisdictions. Upon the repatriation of any earnings to Canada, in the form of dividends or otherwise, we may be subject to Canadian income taxes and withholding taxes payable to the various foreign countries. As of March 29, 2020, we do not believe adverse tax consequences exist that restrict our use of cash or cash equivalents in a material manner.
We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations. There has not been a change in the financial condition of a customer that has had a material adverse effect on our results of operations in the first quarter of 2020. However, in light of COVID-19, it is possible there could be an impact on our results of operations in a future period and this impact could be material.
Accounts Receivable Sales Program
Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to a third party who assumes the full risk of collection, without recourse to us in the event of a loss. Transfers of receivables under this program are accounted for as sales. Proceeds from the transfers
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reflect the face value of the accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts receivable in the condensed consolidated balance sheets and are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The discounts on the sales of trade accounts receivable sold, if any, under the AR Sales Program were not material for any of the periods presented and were recorded in selling, general and administration expense within the condensed consolidated statements of comprehensive income.
5.375% Senior Notes due 2028
On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured notes (the "2028 Notes"), all of which was outstanding as of March 29, 2020. The 2028 Notes bear interest at 5.375% per annum. The net proceeds from issuance of the 2028 Notes, together with available cash balances, were used to redeem the remaining $500.0 million aggregate principal amount of similar senior unsecured notes, including the payment of related premiums, fees and expenses. The 2028 Notes were issued under an indenture which contains restrictive covenants that are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of March 29, 2020, we were in compliance with all covenants under the indenture governing the 2028 Notes.
5.750% Senior Notes due 2026
On August 27, 2018, we issued $300.0 million aggregate principal senior unsecured notes (the "2026 Notes"), all of which were outstanding as of March 29, 2020. The 2026 Notes bear interest at 5.750% per annum. The 2026 Notes were issued under an indenture which contains restrictive covenants that are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of March 29, 2020, we were in compliance with all covenants under the indenture governing the 2026 Notes.
ABL Facility
On January 31, 2019, we and certain of our subsidiaries entered into a $250.0 million asset-based revolving credit facility (the "ABL Facility") maturing on January 31, 2024, which replaced the previous facility. Borrowings under the ABL Facility bear interest at a rate which is described in more detail in Note 6. The ABL Facility contains various customary representations, warranties by us and covenants that are described in detail in our Annual Report on Form 10-K for the year ended December 29, 2019. As of March 29, 2020, we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of $185.3 million under our ABL Facility and there were no amounts outstanding as of March 29, 2020.
Supplemental Guarantor Financial Information
Our obligations under the 2028 Notes and 2026 Notes and the ABL Facility are fully and unconditionally guaranteed, jointly and severally, by certain of our directly or indirectly wholly-owned subsidiaries. The following unaudited supplemental financial information for our non-guarantor subsidiaries is presented:
Our non-guarantor subsidiaries generated external net sales of $491.9 million and $472.9 million for the three months ended March 29, 2020, and March 31, 2019, respectively. Our non-guarantor subsidiaries generated Adjusted EBITDA of $68.4 million and $57.1 million for the three months ended March 29, 2020, and March 31, 2019, respectively. Our non-guarantor subsidiaries had total assets of $1.9 billion and $2.0 billion and total liabilities of $816.0 million and $834.5 million as of March 29, 2020, and December 29, 2019, respectively.
Changes in Accounting Standards and Policies
Changes in accounting standards and policies are discussed in Note 1. Business Overview and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For our disclosures about market risk, please see Part II, Item 7A., "Quantitative and Qualitative Disclosures about Market Risk," in our Annual Report on Form 10-K for the year ended December 29, 2019. We believe there have been no material changes to the information provided therein.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the fiscal quarter covered by this Quarterly Report that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The information required with respect to this item can be found in Note 7. Commitments and Contingencies in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report and is incorporated by reference into this Part II, Item 1. Such information should be read in conjunction with the information contained under Part I, Item 3 "Legal Proceedings" included in our Annual Report on Form 10-K for the year ended December 29, 2019.
Item 1A. Risk Factors
You should carefully review and consider the information regarding certain factors which could materially affect our business, financial condition or future results as set forth under Item 1A "Risk Factors" in our Annual Report on Form 10-K filed for the year ended December 29, 2019. In light of developments relating to the coronavirus ("COVID-19") pandemic occurring subsequent to the filing of our Annual Report on Form 10-K, we are supplementing the risk factors discussed in our Annual Report with the following risk factor, which should be read in conjunction with the risk factors contained in our Annual Report.
The scale and scope of the recent coronavirus ("COVID-19") outbreak and resulting pandemic is unknown and is expected to adversely impact our business at least for the near term. The overall impact on our business, operating results, cash flows and/or financial condition will likely be material.
Demand for our product is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand and availability of financing for home buyers. These factors, in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control. The outbreak of COVID-19 has caused the shutdown of large portions of the international economy. The spread of COVID-19 has also caused significant volatility in U.S. and international debt and equity markets, which can negatively impact consumer confidence. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the global economy and consumer confidence. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions taken to contain it or treat its impact. As a result of COVID-19, we have closed certain locations as a result of government orders and furloughed employees, as well as significantly altered our operations, thereby reducing production. If the virus continues to cause significant negative impacts to economic conditions or consumer confidence, our results of operations, financial condition and cash flows may be materially adversely impacted and it may lead to higher than normal inventory levels, higher sales-related reserves, potential impairment of goodwill and other long-lived assets, a volatile effective tax rate driven by changes in the mix and earnings across our jurisdictions and an impact on the effectiveness of our internal controls over financial reporting.
The impact of the COVID-19 pandemic is rapidly evolving, and the continuation or a future resurgence of the pandemic could precipitate or aggravate the other risk factors that we identified in our 2019 Annual Report on Form 10-K, which in turn could further materially adversely affect our business, financial condition, liquidity, results of operations and profitability, including in ways that are not currently known to us or that we do not currently consider to present significant risks.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sale of Equity Securities.
None.
(b) Use of Proceeds.
Not applicable.
(c) Repurchases of Our Equity Securities.
During the three months ended March 29, 2020, we repurchased 567,271 of our common shares in the open market.
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| Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | ||||||||||||||||||||
| December 30, 2019, through January 26, 2020 | 700 | $ | 70.98 | 700 | $ | 143,995,757 | |||||||||||||||||
| January 27, 2020, through February 23, 2020 | — | — | — | 143,995,757 | |||||||||||||||||||
| February 24, 2020, through March 29, 2020 | 566,571 | 61.28 | 566,571 | 109,276,756 | |||||||||||||||||||
| Total | 567,271 | $ | 61.29 | 567,271 | |||||||||||||||||||
We currently have in place a $600.0 million share repurchase authorization, stemming from three separate authorizations by our Board of Directors. The share repurchase programs have no specified end date and the timing and amount of any share repurchases will be determined by management based on our evaluation of market conditions and other factors. During Q1 2020, we implemented several actions to reduce our spending and more closely manage cash during this uncertain period relating to the COVID-19 pandemic, including temporarily suspending our share repurchase programs. As of March 29, 2020, $109.3 million was available for repurchase in accordance with the share repurchase programs.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The following is a list of all exhibits filed or furnished as part of this report:
| Exhibit No. | Description | |||||||
| Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Howard C. Heckes | ||||||||
| Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Russell T. Tiejema | ||||||||
| Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and James A. Hair | ||||||||
| Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Randal A. White | ||||||||
| Waiver Agreement, dated as of April 8, 2020, by and between Masonite International Corporation and Robert A. Paxton | ||||||||
| Certification of Periodic Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Periodic Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
| Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | ||||||||
| 101* | Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language ("Inline XBRL"): (i) the Registrant's Condensed Consolidated Statements of Comprehensive Income for the three months ended March 29, 2020, and March 31, 2019; (ii) the Registrant's Condensed Consolidated Balance Sheets as of March 29, 2020, and December 29, 2019; (iii) the Registrant's Condensed Consolidated Statements of Changes in Equity for the three months ended March 29, 2020, and March 31, 2019; (iv) the Registrant's Condensed Consolidated Statements of Cash Flows for the three months ended March 29, 2020, and March 31, 2019; and (v) the notes to the Registrant's Condensed Consolidated Financial Statements | |||||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
| * | Filed or furnished herewith. | |||||||
| # | Denotes management contract or compensatory plan. | |||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MASONITE INTERNATIONAL CORPORATION | ||||||||||||||
| (Registrant) | ||||||||||||||
| Date: | May 6, 2020 | By | /s/ Russell T. Tiejema | |||||||||||
| Russell T. Tiejema | ||||||||||||||
| Executive Vice President and Chief Financial Officer | ||||||||||||||
| (Principal Financial Officer and Principal Accounting Officer) | ||||||||||||||
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