MASONITE INTERNATIONAL CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is based upon accounting principles generally
accepted in the United States of America and discusses the financial condition
and results of operations for Masonite International Corporation for the three
and six months ended July 3, 2022, and July 4, 2021. 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 January 2, 2022 (the "Annual
Report"). The following discussion should also be read in conjunction with the
disclosure under "Special Note Regarding Forward Looking Statements" 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, marketer 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. Through innovative door
solutions, a better door buying experience for our customers and partners
and advanced manufacturing and service delivery, we deliver a commitment of
Doors That Do MoreTM.

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 59 manufacturing and distribution facilities in seven 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; (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 six months ended
July 3, 2022, we generated net sales of $1,176.3 million or 79.1%, $154.3
million or 10.4% and $146.4 million or 9.8% in our North American Residential,
Europe and Architectural segments, respectively.

During the second quarter, we were negatively impacted by rising energy and fuel
costs, partly attributable to the war between Russia and Ukraine. In addition,
continued logistics constraints and supply chain disruptions reduced production
in some of our facilities and impacted our ability to service customers,
particularly in our Architectural segment. Base volumes increased in our North
American Residential segment as a result of operational execution and steady
demand, while consumer sentiment, inflationary pressures, and strengthening of
the US Dollar impacted our Europe segment. The extent to which labor and
logistics constraints, supply chain disruptions, rising energy and fuel costs,
consumer sentiment, interest rates and global inflation impact our business,
results of operations and financial condition will depend on future
developments, which are highly uncertain and cannot be predicted.

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Key Factors Affecting Our Results of Operations

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. 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;
•the amount and type of residential and commercial construction;
•housing sales and home values;
•the age of existing home stock, home vacancy rates and foreclosures;
•non-residential building occupancy rates;
•increases in the cost of raw materials or wages or any shortage in supplies or
labor;
•the availability and cost of credit;
•employment rates and consumer confidence; and
•demographic factors such as immigration and migration of the population and
trends in household formation.

Product price 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.

The company’s gains and losses

Our customers consist mainly of wholesalers and retail home centers. 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.

In May 2021, we initiated further actions to improve overall business
performance that includes the reorganization of our specialty door manufacturing
capacity in our Architectural reportable segment. The reorganization of our
manufacturing capacity involves specific facilities in the Architectural segment
and costs associated with the reorganization of these facilities, which resulted
in the closure of an existing specialty door assembly facility and related
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headcount reductions beginning in the second quarter of 2021 (collectively, the
"2021 Plan"). Costs associated with the 2021 Plan include severance and closure
charges and continued through 2021. The actions taken as part of the 2021 Plan
are expected to increase our annual earnings and cash flows by approximately $2
million.

In November 2020, we began implementing a plan to improve overall business
performance that includes the reorganization of our manufacturing capacity and a
reduction of our overhead and selling, general and administration workforce
primarily in our Architectural reportable segment as well as limited actions in
the North American Residential reportable segment. The reorganization of our
manufacturing capacity involves specific facilities in the Architectural segment
and costs associated with the closure of these facilities and related headcount
reductions began taking place in the fourth quarter of 2020 (collectively, the
"2020 Plan"). Costs associated with the 2020 Plan include severance and closure
charges and continued through 2021. The actions taken as part of the 2020 Plan
are expected to increase our annual earnings and cash flows by approximately $3
million.

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 involved 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
continued through 2020. The actions taken as part of the 2019 Plan are
substantially complete and the annual earnings and cash flow savings realized
were materially in line with expectations.

Inflation

In 2021 and the first half of 2022, we realized higher costs across the various
materials we purchase as a result of macroeconomic factors as well as increased
logistics costs, wages, anti-dumping and countervailing duties and energy and
fuel costs. Additionally, rising interest rates may impact the ability of end
consumers to purchase our products. We expect the macroeconomic pressures on
wood, resins and other certain key product categories and supply chain costs
will continue at least through the remainder of fiscal year 2022. Our
profitability, margins and net sales could be adversely affected if we are not
able to pass these costs on to our customers or otherwise mitigate the impact of
these inflationary pressures.

Seasonality

Our business is moderately seasonal and our net sales vary from quarter to quarter based on the timing of the construction season in our markets. Severe weather conditions in any quarter, such as unusually prolonged hot or cold conditions, rain, snowstorms or hurricanes, may accelerate, delay or halt construction and renovation activities.

Acquisition and divestment

We are pursuing a strategic initiative to optimize our global business portfolio. On an ongoing basis, we evaluate and consider strategic acquisitions, divestitures and joint ventures to create shareholder value and improve financial performance.

On June 14, 2021, we completed the sale of all of the capital stock of our Czech
business ("Czech") for consideration of $7.0 million, net of cash disposed. The
divestiture of this business resulted in a loss on sale of subsidiaries of
$8.6 million, which was recognized during the second quarter of 2021 in the
Europe segment.

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Results of Operations
                                                     Three Months Ended                          Six Months Ended
(In thousands)                               July 3, 2022          July 4, 2021          July 3, 2022         July 4, 2021
Net sales                                   $    761,874$    662,410$ 1,488,091$ 1,308,747
Cost of goods sold                               582,389               498,068            1,124,357              985,767
Gross profit                                     179,485               164,342              363,734              322,980
Gross profit as a % of net sales                    23.6  %               24.8  %              24.4  %              24.7  %
Selling, general and administration
expenses                                          90,330                82,511              173,576              166,142
Selling, general and administration
expenses as a % of net sales                        11.9  %               12.5  %              11.7  %              12.7  %
Restructuring (benefit) costs                        (61)                2,192                  (80)               3,835
Asset impairment                                       -                10,374                    -               10,374
Loss on disposal of subsidiaries                       -                 8,590                    -                8,590
Operating income                                  89,216                60,675              190,238              134,039
Interest expense, net                             10,593                11,918               20,832               23,864

Other (income) expense, net                         (400)               (1,586)              (1,815)              (2,929)
Income before income tax expense                  79,023                50,343              171,221              113,104
Income tax expense                                19,649                14,246               43,126               28,859
Net income                                        59,374                36,097              128,095               84,245
Less: net income attributable to
non-controlling interests                            859                 1,051                1,998                2,218

Net income attributable to Masonite $58,515$35,046$126,097$82,027

Three months are over 3 July 2022compared to three months ended 4 July 2021

Net sales

Net sales in the three months ended July 3, 2022, were $761.9 million, an
increase of $99.5 million or 15.0% from $662.4 million in the three months ended
July 4, 2021. Foreign exchange rate fluctuations negatively impacted net sales
in the second quarter of 2022 by $12.8 million. Excluding this exchange rate
impact, net sales would have increased by $112.3 million or 17.0% due to changes
in volume, average unit price, impact of divestitures, and sales of components.
Average unit price increased net sales in the second quarter of 2022 by $127.4
million or 19.2% compared to the 2021 period. Lower volumes excluding the
incremental impact of divestitures ("base volume") decreased net sales by $7.6
million or 1.1% in the second quarter of 2022 compared to the 2021 period. Our
2021 divestiture of our Czech business decreased net sales by $5.4 million or
0.8% in the three months ended July 3, 2022. Net sales of components to external
customers decreased $2.1 million or 0.3% in the second quarter of 2022 compared
to the 2021 period.

Net sales and percentage of Net sales by reportable segment

                                                                 Three 

Months ended 3 July 2022

                                 North American                                                   Corporate &
(In thousands)                    Residential             Europe           Architectural             Other               Total
Sales                           $   608,483$  74,172$      79,894$     4,820$ 767,369
Intersegment sales                     (707)                (319)                (4,469)                   -             (5,495)
Net sales to external customers $   607,776$  73,853$      75,425$     4,820$ 761,874
Percentage of consolidated
external net sales                     79.8    %             9.7  %                 9.9  %


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                                                                 Three

Months ended 4 July 2021

                                 North American                                                   Corporate &
(In thousands)                    Residential             Europe           Architectural             Other               Total
Sales                           $   493,973$  90,179$      78,234$     5,388$ 667,774
Intersegment sales                     (584)              (2,369)                (2,411)                   -             (5,364)
Net sales to external customers $   493,389$  87,810$      75,823$     5,388$ 662,410
Percentage of consolidated
external net sales                     74.5    %            13.3  %                11.4  %


North American Residential

Net sales to external customers from facilities in the North American
Residential segment in the three months ended July 3, 2022, were $607.8 million,
an increase of $114.4 million or 23.2% from $493.4 million in the three months
ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net
sales in the second quarter of 2022 by $3.8 million. Excluding this exchange
rate impact, net sales would have increased by $118.2 million or 24.0% due to
changes in volume, average unit price and sales of components. Average unit
price increased net sales in the second quarter of 2022 by $102.2 million or
20.7% compared to the 2021 period. Higher base volume increased net sales in the
second quarter of 2022 by $16.1 million or 3.3% compared to the 2021 period. Net
sales of components to external customers were $0.1 million lower in the second
quarter of 2022 compared to the 2021 period.

Europe

Net sales to external customers from facilities in the Europe segment in the
three months ended July 3, 2022, were $73.9 million, a decrease of $13.9 million
or 15.8% from $87.8 million in the three months ended July 4, 2021. Foreign
exchange rate fluctuations negatively impacted net sales in the second quarter
of 2022 by $8.6 million. Excluding this exchange rate impact, net sales would
have decreased by $5.3 million or 6.0% due to changes in volume, average unit
price, divestitures and sales of components. Lower base volume decreased net
sales by $14.0 million or 15.9% in the second quarter of 2022 compared to the
2021 period due to demand softness driven by weakening consumer confidence in
the United Kingdom, which we believe is affecting major purchase decisions. Our
2021 divestiture of our Czech business decreased net sales by $5.4 million or
6.2% in the second quarter of 2022. Average unit price increased net sales in
the second quarter of 2022 by $14.0 million or 15.9% compared to the 2021
period. Net sales of components to external customers were $0.1 million higher
in the second quarter of 2022 compared to the 2021 period.

Architectural

Net sales to external customers from facilities in the Architectural segment in
the three months ended July 3, 2022, were $75.4 million, a decrease of $0.4
million or 0.5% from $75.8 million in the three months ended July 4, 2021.
Foreign exchange rate fluctuations negatively impacted net sales in the second
quarter of 2022 by $0.3 million. Excluding this exchange rate impact, net sales
would have decreased by $0.1 million or 0.1% due to changes in volume, average
unit price and sales of components. Lower base volume decreased net sales in the
second quarter of 2022 by $9.8 million or 12.9% compared to the 2021 period due
to material availability challenges. Net sales of components to external
customers were $0.2 million lower in the second quarter of 2022 compared to the
2021 period. Average unit price increased net sales in the second quarter of
2022 by $9.9 million or 13.1% compared to the 2021 period.

Price for goods sold

Cost of goods sold as a percentage of net sales was 76.4% and 75.2% for the
three months ended July 3, 2022, and July 4, 2021, respectively. Material cost
of sales as a percentage of net sales increased by 2.6% compared to the 2021
period. Overhead, direct labor, depreciation, and distribution as a percentage
of sales decreased by 0.5%, 0.4%, 0.4%, and 0.1%, respectively, compared to the
second quarter of 2021. The increase in material cost of sales as a percentage
of net sales was driven by commodity inflation and an increase in inbound
logistics costs, partially offset by higher average unit prices and material
cost savings projects. Overhead as a percentage of net sales decreased due to
higher average unit prices, partially offset by wage inflation, higher factory
costs and increased plant maintenance as compared to the 2021 period. Direct
labor as a percentage of net sales decreased due to higher average unit prices,
partially offset by
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production wages and benefits inflation and start-up costs. The decrease in depreciation as a percentage of net sales was driven by higher average unit prices compared to the 2021 period. The breakdown as a percentage of net sales decreased as a result of higher average unit prices, partially offset by increased outbound logistics and personnel costs.

Selling, general and administrative expenses

In the three months ended 3 July 2022selling, general and administrative (“SG&A”) expenses as a percentage of net sales was 11.9% compared to 12.5% ​​in the three months ended 4 July 2021a decrease of 60 basis points.

SG&A expenses in the three months ended July 3, 2022, were $90.3 million, an
increase of $7.8 million from $82.5 million in the three months ended July 4,
2021. The overall increase was driven by a $5.7 million increase in personnel
costs primarily driven by increased incentive compensation, wage and benefit
inflation and resource investments to support growth; a $1.8 million increase in
travel expense as business activities fully returned to pre-pandemic levels; a
$1.2 million increase in non-cash items in SG&A expenses, including loss (gain)
on disposal of property, plant and equipment, deferred compensation,
depreciation and amortization and share based compensation; and a $0.7 million
increase in professional and other fees; These increases were partially offset
by favorable foreign exchange impacts of $1.1 million, and incremental SG&A
savings from our 2021 divestiture of our Czech business of $0.5 million.

Restructuring costs (benefits).

Restructuring costs (benefits) in the completed three months 3 July 2022were minimal compared to 2.2 million dollars in the completed three months 4 July 2021. Restructuring costs in the prior year period primarily relate to the 2021 and 2020 plans.

Asset Impairment

There were no asset impairment charges in the three months ended July 3, 2022.
Asset impairment charges in the three months ended July 4, 2021, were $10.4
million, and resulted from actions associated with the 2021 and 2020 Plans in
our Architectural reporting unit. Refer to Note 10. Asset Impairment, in Item 1
of this Quarterly Report for additional information.

Loss on disposal of subsidiaries

There was no loss on disposal of subsidiaries in the three months ended July 3,
2022, compared to $8.6 million in the three months ended July 4, 2021. The prior
year loss arose as a result of the sale of our Czech business and is comprised
of $5.1 million relating to the write-off of net assets sold and other
professional fees and $3.5 million relating to the recognition of the cumulative
translation adjustment out of accumulated other comprehensive loss.

Interest expense, net

Interest expense, net, in the three months ended July 3, 2022, was $10.6
million, compared to $11.9 million in the three months ended July 4, 2021. The
decrease in interest expense, net is primarily due to the refinancing of our
senior notes in 2021.

Other (revenue) expenses, net

Other (income) expense, net includes profits and losses related to our
non-majority owned unconsolidated subsidiaries that we recognize under the
equity method of accounting, unrealized gains and losses on foreign currency
remeasurements, pension settlement charges and other miscellaneous non-operating
expenses. Other (income) expense, net, in the three months ended July 3, 2022,
was $0.4 million of income, compared to $1.6 million of income in the three
months ended July 4, 2021, remaining relatively flat as compared to the 2021
period.

Income Tax Expense

Income tax expense in the three months ended July 3, 2022, was $19.6 million,
compared to $14.2 million in the three months ended July 4, 2021. 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.

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Segment Information
                                                                 Three Months Ended July 3, 2022
                                 North American                                                   Corporate &
(In thousands)                    Residential             Europe           Architectural             Other              Total
Adjusted EBITDA                 $   124,974$   8,566$        78$  (15,493)$ 118,125
Adjusted EBITDA as a percentage
of segment net sales                   20.6    %            11.6  %               0.1    %                                15.5  %


                                                                 Three Months Ended July 4, 2021
                                 North American                                                  Corporate &
(In thousands)                    Residential             Europe           Architectural            Other               Total
Adjusted EBITDA                 $   100,045$  16,584          $ 

480 $(6,545)$110,564
Adjusted EBITDA as a percentage of the segment’s net revenue

                   20.3    %            18.9  %                0.6  %                                 16.7  %


The following reconciles net income (loss) attributable to Masonite to Adjusted
EBITDA:
                                                                   Three Months Ended July 3, 2022
                                   North American                                                    Corporate &
(In thousands)                      Residential             Europe            Architectural             Other              Total
Net income (loss) attributable to
Masonite                          $     112,611$   3,446$       (3,042)$  (54,500)$  58,515
Plus:
Depreciation                              9,987              2,172                   2,764               2,321             17,244
Amortization                                467              3,059                     219                 551              4,296
Share based compensation expense              -                  -                       -               5,976              5,976
Loss (gain) on disposal of
property, plant and equipment             1,399                 (1)                    136                 (80)             1,454
Restructuring (benefit) costs               (90)                (6)                      1                  34                (61)

Interest expense, net                         -                  -                       -              10,593             10,593

Other (income) expense, net                  (2)              (104)                      -                (294)              (400)
Income tax expense                            -                  -                       -              19,649             19,649

Net income attributable to
non-controlling interest                    602                  -                       -                 257                859
Adjusted EBITDA                   $     124,974$   8,566          $           78          $  (15,493)$ 118,125


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                                                                   Three

Months ended 4 July 2021

                                   North American                                                    Corporate &
(In thousands)                      Residential             Europe            Architectural             Other              Total
Net income (loss) attributable to
Masonite                          $      89,236$   1,454$      (14,626)$  (41,018)$  35,046
Plus:
Depreciation                              9,160              2,506                   2,608               2,958             17,232
Amortization                                497              4,258                   1,147                 506              6,408
Share based compensation expense              -                  -                       -               4,706              4,706
Loss on disposal of property,
plant and equipment                          36                 16                       -                 335                387
Restructuring (benefit) costs               352                  -                   1,701                 139              2,192
Asset impairment                              -                  -                   9,645                 729             10,374
Loss on disposal of subsidiaries              -              8,590                       -                   -              8,590
Interest expense, net                         -                  -                       -              11,918             11,918

Other (income) expense, net                   -               (240)                      5              (1,351)            (1,586)
Income tax expense                            -                  -                       -              14,246             14,246

Net income attributable to
non-controlling interest                    764                  -                       -                 287              1,051
Adjusted EBITDA                   $     100,045$  16,584          $          480          $   (6,545)$ 110,564


Adjusted EBITDA in our North American Residential segment was $125.0 million in
the three months ended July 3, 2022, an increase of $24.9 million, or 24.9%,
from $100.0 million in the three months ended July 4, 2021. Adjusted EBITDA in
the North American Residential segment included corporate allocations of shared
costs of $21.7 million and $19.3 million, in the second quarter of 2022 and
2021, respectively. The allocations generally consist of certain costs of human
resources, legal, finance, information technology, research and development,
marketing and share based compensation.

Adjusted EBITDA in our Europe segment was $8.6 million in the three months ended
July 3, 2022, a decrease of $8.0 million, or 48.3%, from $16.6 million in the
three months ended July 4, 2021. Adjusted EBITDA in the Europe segment included
corporate allocations of shared costs of $1.7 million and $1.0 million, in the
second quarter of 2022 and 2021, respectively. The allocations generally consist
of certain costs of human resources, legal, finance, information technology,
marketing and share based compensation.

Adjusted EBITDA in our Architectural segment was $0.1 million in the three
months ended July 3, 2022, a decrease of $0.4 million, or 83.8%, from $0.5
million in the three months ended July 4, 2021. Adjusted EBITDA in the
Architectural segment also included corporate allocations of shared costs of
$2.9 million and $2.8 million, in the second quarter of 2022 and 2021,
respectively. The allocations generally consist of certain costs of human
resources, legal, finance, information technology, research and development,
marketing and share based compensation.

Six months ended 3 July 2022compared to six months completed 4 July 2021

Net sales

Net sales in the six months ended July 3, 2022, were $1,488.1 million, an
increase of $179.4 million or 13.7% from $1,308.7 million in the six months
ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net
sales in the first six months of 2022 by $15.8 million. Excluding this exchange
rate impact, net sales would have increased by $195.2 million or 14.9% due to
changes in volume, average unit price, impact of divestitures and sales of
components. Average unit price increased net sales in the first six months of
2022 by $227.3 million or 17.4% compared to the same period in 2021. Lower
volumes excluding the incremental impact of divestitures ("base volume")
decreased net sales by $16.5 million or 1.3% in the first six months of 2022
compared to the same period in 2021. Net sales of components to external
customers decreased $3.9 million or 0.3% in the first six months of 2022
compared to the same
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period in 2021. Our divestment in 2021 of our Czech business reduced net revenue by 11.7 million dollars or 0.9% in the first six months of 2022.

Net sales and percentage of Net sales by reportable segment

                                                                   Six 

Months ended 3 July 2022

                                 North American                                                   Corporate &
(In thousands)                    Residential             Europe           Architectural             Other                Total
Sales                           $   1,177,912$ 156,011$     154,553$    11,016$ 1,499,492
Intersegment sales                     (1,572)            (1,690)                (8,139)                   -              (11,401)

Net revenue to external customers $1,176,340$154,321 $

     146,414          $    11,016$ 1,488,091
Percentage of consolidated
external net sales                       79.1  %            10.4  %                 9.8  %


                                                                   Six Months Ended July 4, 2021
                                 North American                                                   Corporate &
(In thousands)                    Residential             Europe           Architectural             Other                Total
Sales                           $   971,202$ 180,385$     156,308$    11,731$ 1,319,626
Intersegment sales                   (1,349)              (4,036)                (5,494)                   -              (10,879)
Net sales to external customers $   969,853$ 176,349$     150,814$    11,731$ 1,308,747
Percentage of consolidated
external net sales                     74.1    %            13.5  %                11.5  %


North American Residential

Net sales to external customers from facilities in the North American
Residential segment in the six months ended July 3, 2022, were $1,176.3 million,
an increase of $206.4 million or 21.3% from $969.9 million in the six months
ended July 4, 2021. Foreign exchange rate fluctuations negatively impacted net
sales in the first six months of 2022 by $4.1 million. Excluding this exchange
rate impact, net sales would have increased by $210.5 million or 21.7% due to
changes in volume, average unit price and sales of components. Average unit
price increased net sales in the first six months of 2022 by $181.7 million or
18.7% compared to the 2021 period. Higher base volume increased net sales by
$28.5 million or 2.9% in the first six months of 2022 compared to the same
period in 2021. Net sales of components to external customers were $0.3 million
higher in the first six months of 2022 compared to the same period in 2021.

Europe

Net sales to external customers from facilities in the Europe segment in the six
months ended July 3, 2022, were $154.3 million, a decrease of $22.0 million or
12.5% from $176.3 million in the six months ended July 4, 2021. Foreign exchange
rate fluctuations negatively impacted net sales in the first six months of 2022
by $11.3 million. Excluding this exchange rate impact, net sales would have
decreased by $10.7 million or 6.1% due to changes in volume, average unit price,
divestitures and sales of components. Lower base volume decreased net sales in
the first six months of 2022 by $27.8 million or 15.8% compared to the same
period in 2021, due to demand softness driven by weakening consumer confidence
in the United Kingdom, which we believe is affecting major purchase decisions.
Our 2021 divestiture of our Czech business decreased net sales by $11.7 million
or 6.6% in the first six months of 2022. Average unit price increased net sales
in the first six months of 2022 by $28.0 million or 15.9% compared to the 2021
period. Net sales of components to external customers were $0.8 million higher
in the first six months of 2022 compared to the same period in 2021.

Architectural

Net sales to external customers from facilities in the Architectural segment in
the six months ended July 3, 2022, were $146.4 million, a decrease of $4.4
million or 2.9% from $150.8 million in the six months ended July 4, 2021.
Foreign exchange rate fluctuations negatively impacted net sales in the first
six months of 2022 by $0.3 million. Excluding this exchange rate impact, net
sales would have decreased by $4.1 million or 2.7% due to changes in volume,
average unit price and sales of components. Lower base volume decreased net
sales in the first six months of 2022 by $17.3 million or 11.5% compared to the
2021 period resulting from production challenges due to material availability
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and the impacts of labor constraints as a result of COVID-19. Net sales of
components to external customers were $3.1 million lower in the first six months
of 2022 compared to the same period in 2021. Average unit price increased net
sales in the first six months of 2022 by $16.3 million or 10.8% compared to the
2021 period.

Cost of Goods Sold

Cost of goods sold as a percentage of net sales was 75.6% and 75.3% for the six
months ended July 3, 2022, and July 4, 2021, respectively. Material cost of
sales as a percentage of net sales increased by 2.1%, compared to the 2021
period. Direct labor, overhead, depreciation, and distribution as a percentage
of net sales decreased by 0.7%, 0.7%, 0.2%, and 0.2%, respectively, compared to
the 2021 period. The increase in material cost of sales as a percentage of net
sales was driven by commodity inflation and an increase in logistics costs and
tariffs, partially offset by higher average unit prices and material cost
savings projects. Direct labor as a percentage of net sales decreased due to
higher average unit prices, partially offset by manufacturing wage inflation.
Overhead as a percentage of net sales decreased due to higher average unit
prices, partially offset by wage inflation, increased plant maintenance and
increased investment in the business as compared to the 2021 period. The
decrease in depreciation in the first six months of 2022 was driven by higher
average unit prices as compared to the first six months of 2021. Distribution as
a percentage of net sales decreased due to higher logistics costs and personnel
costs including wage inflation.

Selling, general and administrative expenses

In the six months ended 3 July 2022selling, general and administrative (“SG&A”) expenses as a percentage of net sales was 11.7% compared to 12.7% in the six months ended 4 July 2021a decrease of 100 basis points.

SG&A expenses in the six months ended July 3, 2022, were $173.6 million, an
increase of $7.5 million from $166.1 million in the six months ended July 4,
2021. The overall increase was driven by an $8.0 million increase in personnel
costs primarily driven by increased incentive compensation, wage and benefit
inflation and resource investments to support growth; a $3.2 million increase in
travel expense as business activities fully returned to pre-pandemic levels; and
a $1.4 million increase in professional and other fees. These increases were
partially offset by a $2.6 million decrease in non-cash items including
depreciation and amortization, deferred compensation, loss on disposal of
property, plant and equipment and share based compensation; foreign exchange
impacts of $1.5 million; and incremental SG&A savings from our 2021 divestiture
of $1.0 million.

Restructuring Costs

Restructuring costs in the six months ended July 3, 2022, were minimal, compared
to $3.8 million in the six months ended July 4, 2021. Restructuring costs in the
prior year period related primarily to the 2021 and 2020 Plans.

Impairment of assets

There were no asset impairment charges in the six months ended July 3, 2022.
Asset impairment charges in the six months ended July 4, 2021, were $10.4
million, and resulted from actions associated with the 2021 and 2020 Plans in
our Architectural reporting unit. Refer to Note 10. Asset Impairment, in Item 1
of this Quarterly Report for additional information.

Loss on disposal of subsidiaries

There was no loss on disposal of subsidiaries in the six months ended July 3,
2022, compared to $8.6 million in the six months ended July 4, 2021. The prior
year loss arose as a result of the sale of our Czech business and is comprised
of $5.1 million relating to the write-off of net assets sold and other
professional fees and $3.5 million relating to the recognition of the cumulative
translation adjustment out of accumulated other comprehensive loss.

Interest expense, net

Interest expenses, net, in the six months ended 3 July 2022was 20.8 million dollarscompared with 23.9 million dollars in the completed six months 4 July 2021remains relatively flat compared to the 2021 period.

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Other (revenue) expenses, net

Other (income) expense, net, in the six months ended July 3, 2022, was $1.8
million, compared to $2.9 million in the six months ended July 4, 2021. The
change in other (income) expense, net is primarily due to a change in the fair
value of plan assets in the deferred compensation rabbi trust and a change in
our portion of the net gains and losses related to our non-majority owned
unconsolidated subsidiaries that are recognized under the equity method of
accounting, partially offset by an increase in pension expense.

Income tax Expense

Income tax expense in the six months ended July 3, 2022, was $43.1 million,
compared to $28.9 million in the six months ended July 4, 2021. 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.

Segment information

                                                                  Six 

Months ended 3 July 2022

                                 North American                                                   Corporate &
(In thousands)                    Residential             Europe           Architectural             Other              Total
Adjusted EBITDA                 $   252,641$  20,409$      (2,820)$  (27,353)$ 242,877
Adjusted EBITDA as a percentage
of segment net sales                   21.5    %            13.2  %                (1.9) %                                16.3  %


                                                                 Six Months Ended July 4, 2021
                                North American                                                  Corporate &
(In thousands)                    Residential            Europe           Architectural            Other               Total
Adjusted EBITDA                $    194,527$ 33,339$      2,474$   (17,751)$ 212,589
Adjusted EBITDA as a
percentage of segment net
sales                                  20.1    %           18.9  %                1.6  %                                 16.2  %


The following reconciles net income (loss) attributable to Masonite to Adjusted
EBITDA:
                                                                     Six Months Ended July 3, 2022
                                   North American                                                    Corporate &
(In thousands)                      Residential             Europe            Architectural             Other               Total
Net income attributable to
Masonite                          $     229,644$   9,178$       (5,868)$  (106,857)$ 126,097
Plus:
Depreciation                             19,951              4,513                   5,643                4,409             34,516
Amortization                              1,086              6,329                     401                1,092              8,908
Share based compensation expense              -                  -                       -               10,695             10,695
Loss (gain) on disposal of
property, plant and equipment             1,737                (13)                 (3,044)                 (80)            (1,400)
Restructuring (benefit) costs              (181)                 -                      48                   53                (80)

Interest expense, net                         -                  -                       -               20,832             20,832

Other (income) expense, net                (792)               402                       -               (1,425)            (1,815)
Income tax expense                            -                  -                       -               43,126             43,126

Net income attributable to
non-controlling interest                  1,196                  -                       -                  802              1,998
Adjusted EBITDA                   $     252,641$  20,409$       (2,820)$   (27,353)$ 242,877


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                                                                    Six

Months ended 4 July 2021

                                   North American                                                    Corporate &
(In thousands)                      Residential             Europe            Architectural             Other              Total
Net income (loss) attributable to
Masonite                          $     173,209$  12,862$      (18,439)$  (85,605)$  82,027
Plus:
Depreciation                             18,671              5,091                   5,271               6,478             35,511
Amortization                                912              7,143                   2,289                 982             11,326
Share based compensation expense              -                  -                       -               9,124              9,124
Loss (gain) on disposal of
property, plant and equipment               124                 12                     149                (495)              (210)
Restructuring (benefit) costs                (9)                 -                   3,554                 290              3,835
Asset impairment                              -                  -                   9,645                 729             10,374
Loss on disposal of subsidiaries              -              8,590                       -                   -              8,590
Interest expense, net                         -                  -                       -              23,864             23,864

Other (income) expense, net                   -               (359)                      5              (2,575)            (2,929)
Income tax expense                            -                  -                       -              28,859             28,859

Net income attributable to
non-controlling interest                  1,620                  -                       -                 598              2,218
Adjusted EBITDA                   $     194,527$  33,339$        2,474$  (17,751)$ 212,589


Adjusted EBITDA in our North American Residential segment was $252.6 million in
the six months ended July 3, 2022, an increase of $58.1 million, or 29.9%, from
$194.5 million in the six months ended July 4, 2021. Adjusted EBITDA in the
North American Residential segment included corporate allocations of shared
costs of $44.2 million and $38.5 million in the first six months of 2022 and
2021, respectively. The allocations generally consist of certain costs of human
resources, legal, finance, information technology, research and development,
marketing and share based compensation.

Adjusted EBITDA in our Europe segment was $20.4 million in the six months ended
July 3, 2022, a decrease of $12.9 million, or 38.8%, from $33.3 million in the
six months ended July 4, 2021. Adjusted EBITDA in the Europe segment included
corporate allocations of shared costs of $3.4 million and $2.0 million in the
first six months of 2022 and 2021, respectively. The allocations generally
consist of certain costs of human resources, legal, finance, information
technology, marketing and share based compensation.

Adjusted EBITDA in our Architectural segment was a loss of $2.8 million in the
six months ended July 3, 2022, a decrease of $5.3 million, or 214.0%, from $2.5
million of earnings in the six months ended July 4, 2021. Adjusted EBITDA in the
Architectural segment also included corporate allocations of shared costs of
$5.7 million and $5.6 million in the first six months of 2022 and 2021,
respectively. The allocations generally consist of certain costs of human
resources, legal, finance, information technology, research and development,
marketing and share based compensation.

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"), as well as 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.

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 July 3, 2022, we had $231.5 million of cash and cash equivalents,
availability under our ABL Facility of $249.0 million and availability under our
AR Sales Program of $1.8 million.
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Cash Flows

Cash provided by operating activities was $34.1 million during the six months
ended July 3, 2022, compared to $33.2 million of cash provided by operating
activities in the six months ended July 4, 2021. This $0.9 million increase in
cash provided by operating activities was due to a $6.6 million increase in net
income attributable to Masonite, adjusted for non-cash and non-operating items,
offset by a $5.7 million increase in working capital and other assets and
liabilities in the first six months of 2022 compared to the same period in 2021.

Cash used in investing activities was $34.7 million during the six months ended
July 3, 2022, compared to $20.7 million in the six months ended July 4, 2021.
This $14.0 million increase in cash used in investing activities was driven by a
$10.3 million increase in cash additions to property, plant and equipment, the
absence of $6.8 million of proceeds from sale of subsidiaries, net of cash
disposed, partially offset by a $3.0 million increase in proceeds from the sale
of property, plant and equipment and a $0.1 million decrease in other investing
activities in the first six months of 2022 compared to the same period in 2021.

Cash used in financing activities was $145.7 million during the six months ended
July 3, 2022, compared to $48.7 million during the six months ended July 4,
2021. This $97.0 million increase in cash used in financing activities was
driven by a $98.0 million increase in cash used for repurchases of common shares
and a $0.8 million increase in distributions to non-controlling interests,
partially offset by a $0.9 million decrease in cash used for repayments of
long-term debt and a $0.8 million decrease in cash used for tax withholding on
share based awards in the first six months of 2022 compared to the same period
in 2021.

Share Repurchases

The Company's Board of Directors has approved five share repurchase
authorizations, the most recent being an incremental $200.0 million share
repurchase program approved on February 21, 2022. In addition, the Company
announced that its Board of Directors authorized it to enter into an accelerated
share repurchase ("ASR") transaction
as part of the new share repurchase program. The Company entered into an ASR
transaction during the first quarter of 2022 with a third-party financial
institution for the repurchase of $100.0 million of its outstanding common
shares. At inception, pursuant to the agreement, the Company paid $100.0 million
to the financial institution using cash on hand and received an initial delivery
of 848,087 common shares on the same day. As of July 3, 2022, the initial $100.0
million ASR transaction was completed with a total delivery of 1,167,765 common
shares at a volume-weighted average price ("VWAP") per share minus an agreed
upon discount totaling $85.63 per share. The final delivery of 319,678 common
shares were delivered in the second quarter. The cash paid was reflected as a
reduction of equity at the initial delivery of shares and the number of shares
outstanding were reduced at the dates of physical delivery. During the six
months ended July 3, 2022, we repurchased 1,556,008 of our common shares at an
aggregate cost of $140.0 million as part of the share repurchase programs and
ASR. During the six months ended July 4, 2021, we repurchased 368,695 of our
common shares in the open market at an aggregate cost of $42.0 million. As of
July 3, 2022, there was $256.4 million available for repurchase in accordance
with the share repurchase programs.

Other liquidity conditions

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 July 3, 2022, 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 any customer that has had a material
adverse effect on our results of operations. However, if economic conditions
were to deteriorate, 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
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the event of a loss. Transfers of receivables under this program are accounted
for as sales. Proceeds from the transfers reflect the face value of the accounts
receivable less a discount. Receivables sold under the AR Sales Program are
excluded from trade accounts receivable in the condensed consolidated balance
sheets and are included in cash flows from operating activities in the condensed
consolidated statements of cash flows. The discounts on the sales of trade
accounts receivable sold, if any, under the AR Sales Program were not material
for any of the periods presented and were recorded in selling, general and
administration expenses within the condensed consolidated statements of income
and comprehensive income.

3.50% Senior Notes due 2030

On July 26, 2021, we issued $375.0 million aggregate principal senior unsecured
notes (the "2030 Notes"), all of which was outstanding as of July 3, 2022. The
2030 Notes bear interest at 3.50% per annum. The 2030 Notes were issued under an
indenture which contains limited covenants that are described in detail in our
Annual Report. As of July 3, 2022, we were in compliance with all covenants
under the indenture governing the 2030 Notes.

5.375% Senior Notes due 2028

On July 25, 2019, we issued $500.0 million aggregate principal senior unsecured
notes (the "2028 Notes"), all of which was outstanding as of July 3, 2022. The
2028 Notes bear interest at 5.375% per annum. The 2028 Notes were issued under
an indenture which contains restrictive covenants that are described in detail
in our Annual Report. As of July 3, 2022, we were in compliance with all
covenants under the indenture governing the 2028 Notes.

ABL plant

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. As of July 3,
2022, we were in compliance with all covenants under the credit agreement
governing the ABL Facility. We had availability of $249.0 million under our ABL
Facility and there were no amounts outstanding as of July 3, 2022.

Additional financial guarantee information

Our obligations under the 2030 Notes, 2028 Notes and the ABL Facility are fully and unconditionally guaranteed, jointly and severally, by certain of our direct or indirect wholly-owned subsidiaries. The following unaudited supplementary financial information for our non-guarantor subsidiaries is presented:

Our non-guarantor subsidiaries generated external net sales of $680.8 million
and $1,321.4 million for the three and six months ended July 3, 2022,
respectively, and $590.7 million and $1,159.9 million for the three and six
months ended July 4, 2021, respectively. Our non-guarantor subsidiaries
generated Adjusted EBITDA of $99.3 million and $201.0 million for the three and
six months ended July 3, 2022, respectively, and $93.4 million and $170.4
million for the three and six months ended July 4, 2021, respectively. Our
non-guarantor subsidiaries had total assets of $2.4 billion and $2.3 billion as
of July 3, 2022, and January 2, 2022, respectively, and total liabilities of
$997.5 million and $980.6 million as of July 3, 2022, and January 2, 2022,
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.

Critical accounting policies and estimates

Our management's discussion and analysis of financial condition and results of
operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with U.S. GAAP. The preparation of these
condensed consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements and the reported amounts of revenue
and expenses during the reported period.
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Please refer to "Critical Accounting Policies and Estimates" described in Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report, from which there have been no
material changes.

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