10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 2015
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
____________________________
Masonite International Corporation
(Exact name of registrant as specified in its charter)
____________________________
British Columbia, Canada
(State or other jurisdiction of
incorporation or organization)
 
98-0377314
(I.R.S. Employer
Identification No.)
2771 Rutherford Road
Concord, Ontario L4K 2N6 Canada
(Address of principal executive offices)
(800) 895-2723
(Registrant’s telephone number, including area code)
____________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
o (Do not check if a smaller reporting company)
 
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
The registrant had outstanding 30,383,095 shares of Common Stock, no par value, as of November 2, 2015.


MASONITE INTERNATIONAL CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
September 27, 2015

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


2

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of the federal securities laws, including, without limitation, statements concerning the conditions in our industry, our operations, our economic performance and financial condition, including, in particular, statements relating to our business and growth strategy and product development efforts under "Management’s Discussion and Analysis of Financial Condition and Results of Operations." Forward-looking statements include all statements that do not relate solely to historical or current facts and can be identified by the use of words such as "may," "might," "will," "should," "estimate," "project," "plan," "anticipate," "expect," "intend," "outlook," "believe" and other similar expressions. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. These forward-looking statements are based on estimates and assumptions by our management that, although we believe to be reasonable, are inherently uncertain and subject to a number of risks and uncertainties. These risks and uncertainties include, without limitation, those identified under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 28, 2014, 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:

•
our ability to successfully implement our business strategy;
•
general economic, market and business conditions;
•
levels of residential new construction; residential repair, renovation and remodeling; and non-residential building construction activity;
•
competition;
•
our ability to manage our operations including integrating our recent acquisitions and companies or assets we acquire in the future;
•
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 senior secured asset-based credit facility, or our ABL Facility;
•
labor relations (i.e., disruptions, strikes or work stoppages), labor costs and availability of labor;
•
increases in the costs of raw materials or any shortage in supplies;
•
our ability to keep pace with technological developments;
•
the actions taken by, and the continued success of, certain key customers;
•
our ability to maintain relationships with certain customers;
•
new contractual commitments;
•
the ability to generate the benefits of our restructuring activities;
•
retention of key management personnel;
•
environmental and other government regulations;
•
our levels of indebtedness and debt service obligations, including our obligations under our senior notes and our ABL Facility;
•
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
•
our ability to repurchase our senior notes upon a change of control.

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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Table of Contents

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
 
Nine Months Ended
 
September 27,
2015
 
September 28,
2014
 
September 27,
2015
 
September 28,
2014
Net sales
$
475,650

 
$
476,124

 
$
1,386,543

 
$
1,388,760

Cost of goods sold
388,141

 
409,894

 
1,130,691

 
1,190,937

Gross profit
87,509

 
66,230

 
255,852

 
197,823

Selling, general and administration expenses
59,590

 
53,855

 
176,569

 
170,149

Restructuring costs
1,139

 
9,913

 
4,483

 
11,194

Asset impairment
9,439

 
—

 
9,439

 
—

Loss (gain) on disposal of subsidiaries
29,721

 
—

 
29,721

 
—

Operating income (loss)
(12,380
)
 
2,462

 
35,640

 
16,480

Interest expense (income), net
7,179

 
10,447

 
25,719

 
31,034

Loss on extinguishment of debt
—

 
—

 
28,046

 
—

Other expense (income), net
(1,720
)
 
(404
)
 
(3,539
)
 
1,083

Income (loss) from continuing operations before income tax expense (benefit)
(17,839
)
 
(7,581
)
 
(14,586
)
 
(15,637
)
Income tax expense (benefit)
(2,510
)
 
2,004

 
15,767

 
3,402

Income (loss) from continuing operations
(15,329
)
 
(9,585
)
 
(30,353
)
 
(19,039
)
Income (loss) from discontinued operations, net of tax
(192
)
 
(124
)
 
(661
)
 
(436
)
Net income (loss)
(15,521
)
 
(9,709
)
 
(31,014
)
 
(19,475
)
Less: net income (loss) attributable to non-controlling interest
762

 
258

 
2,879

 
1,498

Net income (loss) attributable to Masonite
$
(16,283
)
 
$
(9,967
)
 
$
(33,893
)
 
$
(20,973
)
 
 
 
 
 
 
 
 
Earnings (loss) per common share attributable to Masonite:
 
 
 
 
 
 
 
Basic
$
(0.54
)
 
$
(0.34
)
 
$
(1.12
)
 
$
(0.70
)
Diluted
$
(0.54
)
 
$
(0.34
)
 
$
(1.12
)
 
$
(0.70
)
 
 
 
 
 
 
 
 
Earnings (loss) per common share from continuing operations attributable to Masonite:
 
 
 
 
 
 
 
Basic
$
(0.53
)
 
$
(0.34
)
 
$
(1.10
)
 
$
(0.69
)
Diluted
$
(0.53
)
 
$
(0.34
)
 
$
(1.10
)
 
$
(0.69
)
 
 
 
 
 
 
 
 
Comprehensive income (loss):
 
 
 
 
 
 
 
Net income (loss)
$
(15,521
)
 
$
(9,709
)
 
$
(31,014
)
 
$
(19,475
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign exchange gain (loss)
(21,676
)
 
(23,780
)
 
(47,612
)
 
(23,911
)
Amortization of actuarial net losses
220

 
—

 
660

 
—

Income tax benefit (expense) related to other comprehensive income (loss)
(88
)
 
(427
)
 
(262
)
 
(1,046
)
Other comprehensive income (loss), net of tax:
(21,544
)
 
(24,207
)
 
(47,214
)
 
(24,957
)
Comprehensive income (loss)
(37,065
)
 
(33,916
)
 
(78,228
)
 
(44,432
)
Less: comprehensive income (loss) attributable to non-controlling interest
64

 
(112
)
 
1,611

 
1,020

Comprehensive income (loss) attributable to Masonite
$
(37,129
)
 
$
(33,804
)
 
$
(79,839
)
 
$
(45,452
)

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
September 27,
2015
 
December 28,
2014
Current assets:
 
 
 
Cash and cash equivalents
$
69,047

 
$
192,037

Restricted cash
12,768

 
13,187

Accounts receivable, net
265,844

 
241,721

Inventories, net
239,583

 
222,732

Prepaid expenses
21,162

 
21,103

Income taxes receivable
1,938

 
1,796

Current deferred income taxes
18,573

 
20,767

Total current assets
628,915

 
713,343

Property, plant and equipment, net
548,803

 
576,234

Investment in equity investees
8,383

 
8,827

Goodwill
118,065

 
99,199

Intangible assets, net
235,273

 
203,372

Long-term deferred income taxes
15,621

 
20,697

Other assets, net
16,839

 
16,744

Total assets
$
1,571,899

 
$
1,638,416

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
129,002

 
$
98,199

Accrued expenses
141,177

 
137,681

Income taxes payable
2,720

 
1,361

Total current liabilities
272,899

 
237,241

Long-term debt
468,576

 
503,785

Long-term deferred income taxes
120,990

 
107,777

Other liabilities
47,814

 
54,114

Total liabilities
910,279

 
902,917

Commitments and Contingencies (Note 9)


 


Equity:
 
 
 
Share capital: unlimited shares authorized, no par value, 30,380,300 and 30,015,321 shares issued and outstanding as of September 27, 2015, and December 28, 2014, respectively.
662,774

 
657,292

Additional paid-in capital
227,055

 
225,918

Accumulated deficit
(131,410
)
 
(97,517
)
Accumulated other comprehensive income (loss)
(122,205
)
 
(76,259
)
Total equity attributable to Masonite
636,214

 
709,434

Equity attributable to non-controlling interests
25,406

 
26,065

Total equity
661,620

 
735,499

Total liabilities and equity
$
1,571,899

 
$
1,638,416


See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Changes in Equity
(In thousands of U.S. dollars, except share amounts)
(Unaudited)
 
Common Shares Outstanding
 
Common Stock Amount
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive Income (Loss)
 
Total Equity Attributable to Masonite
 
Equity Attributable to Non-controlling Interests
 
Total Equity
Balances as of December 29, 2013
29,085,021

 
$
646,196

 
$
230,306

 
$
(60,177
)
 
$
(19,601
)
 
$
796,724

 
$
28,838

 
$
825,562

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
 
 
 
 
(37,340
)
 
 
 
(37,340
)
 
3,222

 
(34,118
)
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
(56,658
)
 
(56,658
)
 
(978
)
 
(57,636
)
Dividends to non-controlling interests
 
 
 
 
 
 
 
 
 
 
—

 
(5,017
)
 
(5,017
)
Share based compensation expense
 
 
 
 
9,605

 
 
 
 
 
9,605

 
 
 
9,605

Common shares issued for delivery of share based awards
650,892

 
6,996

 
(6,996
)
 
 
 
 
 
—

 
 
 
—

Common shares issued for exercise of warrants
279,408

 
4,100

 
(3,837
)
 
 
 
 
 
263

 
 
 
263

Common shares withheld to cover income taxes payable due to delivery of share based awards
 
 
 
 
(3,160
)
 
 
 
 
 
(3,160
)
 
 
 
(3,160
)
Balances as of December 28, 2014
30,015,321

 
$
657,292

 
$
225,918

 
$
(97,517
)
 
$
(76,259
)
 
$
709,434

 
$
26,065

 
$
735,499

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
 
 
 
 
 
(33,893
)
 
 
 
(33,893
)
 
2,879

 
(31,014
)
Other comprehensive income (loss), net of tax
 
 
 
 
 
 
 
 
(45,946
)
 
(45,946
)
 
(1,268
)
 
(47,214
)
Dividends to non-controlling interests
 
 
 
 
 
 
 
 
 
 
—

 
(2,270
)
 
(2,270
)
Share based compensation expense
 
 
 
 
6,975

 
 
 
 
 
6,975

 
 
 
6,975

Common shares issued for delivery of share based awards
352,066

 
4,636

 
(4,636
)
 
 
 
 
 
—

 
 
 
—

Common shares withheld to cover income taxes payable due to delivery of share based awards
 
 
 
 
(988
)
 
 
 
 
 
(988
)
 
 
 
(988
)
Common shares issued under employee stock purchase plan
12,913

 
846

 
(214
)
 
 
 
 
 
632

 
 
 
632

Balances as of September 27, 2015
30,380,300

 
$
662,774

 
$
227,055

 
$
(131,410
)
 
$
(122,205
)
 
$
636,214

 
$
25,406

 
$
661,620


See accompanying notes to the condensed consolidated financial statements.

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Table of Contents

MASONITE INTERNATIONAL CORPORATION
Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars)
(Unaudited)
 
Nine Months Ended
Cash flows from operating activities:
September 27,
2015
 
September 28,
2014
Net income (loss)
$
(31,014
)
 
$
(19,475
)
Adjustments to reconcile net income (loss) to net cash flow provided by (used in) operating activities:
 
 
 
Loss (income) from discontinued operations, net of tax
661

 
436

Loss (gain) on disposal of subsidiaries
29,721

 
—

Non-cash loss on deconsolidation
—

 
6,174

Loss on extinguishment of debt
28,046

 
—

Depreciation
44,270

 
45,824

Amortization
16,244

 
16,173

Share based compensation expense
6,975

 
7,335

Deferred income taxes
10,401

 
642

Unrealized foreign exchange loss (gain)
(2,768
)
 
1,490

Share of loss (income) from equity investees, net of tax
(996
)
 
(839
)
Dividend from equity investee
1,440

 
—

Pension and post-retirement expense (funding), net
(4,565
)
 
(4,853
)
Non-cash accruals and interest
1,087

 
(1,915
)
Loss (gain) on sale of property, plant and equipment
585

 
2,359

Asset impairment
9,439

 
1,403

Changes in assets and liabilities, net of acquisitions:
 
 
 
Accounts receivable
(8,403
)
 
(32,283
)
Inventories
(25,299
)
 
(21,077
)
Prepaid expenses
(3,421
)
 
2,255

Accounts payable and accrued expenses
24,559

 
52,570

Other assets and liabilities
(3,538
)
 
20

Net cash flow provided by (used in) operating activities
93,424

 
56,239

Cash flows from investing activities:
 
 
 
Proceeds from sale of property, plant and equipment
395

 
6,751

Additions to property, plant and equipment
(31,146
)
 
(35,174
)
Cash used in acquisitions, net of cash acquired
(103,700
)
 
(50,355
)
Cash disposed of in sale of subsidiaries, net of proceeds
(7,538
)
 
(1,187
)
Restricted cash
406

 
522

Other investing activities
(918
)
 
(2,607
)
Net cash flow provided by (used in) investing activities
(142,501
)
 
(82,050
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt
475,000

 
138,688

Repayments of long-term debt
(500,000
)
 
—

Payments of long-term debt extinguishment costs
(31,691
)
 
—

Payment of financing costs
(7,198
)
 
(1,925
)
Proceeds from borrowings on revolving credit facilities
15,000

 
—

Repayments of borrowings on revolving credit facilities
(11,000
)
 
—

Minimum tax withholding on share based awards
(988
)
 
(1,471
)
Distributions to non-controlling interests
(2,270
)
 
(1,706
)
Proceeds from exercise of common stock warrants
—

 
263

Net cash flow provided by (used in) financing activities
(63,147
)
 
133,849

Net foreign currency translation adjustment on cash
(10,766
)
 
(6,157
)
Increase (decrease) in cash and cash equivalents
(122,990
)
 
101,881

Cash and cash equivalents, beginning of period
192,037

 
100,873

Cash and cash equivalents, at end of period
$
69,047

 
$
202,754


See accompanying notes to the condensed consolidated financial statements.

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



1. Business Overview and Significant Accounting Policies

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

Description of Business

Masonite International Corporation is one of the largest manufacturers of doors in the world, with significant market share in both interior and exterior door products. Masonite operates 63 manufacturing locations in 9 countries and sells doors to customers throughout the world, including the United States, Canada and the United Kingdom.

Basis of Presentation

We prepare these unaudited condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and applicable rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and notes required by GAAP for annual financial statements. In the opinion of management, all adjustments consisting of normal and recurring entries considered necessary for a fair presentation of the results for the interim periods presented have been included. All significant intercompany balances and transactions have been eliminated. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect reported amounts in the financial statements and accompanying notes. These estimates are based on information available as of the date of the unaudited condensed consolidated financial statements; therefore, actual results could differ from those estimates. Interim results are not necessarily indicative of the results for a full year.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2014, as filed with the SEC. There have been no changes in the significant accounting policies from those that were disclosed in the 2014 audited consolidated financial statements, other than as noted below. Certain prior year amounts have been reclassified to conform to the current basis of presentation.
          
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 2015 fiscal year, which ends on January 3, 2016, will contain 53 weeks of operating results, with the additional week occurring in the fourth quarter.

Changes in Accounting Standards and Policies
Adoption of Recent Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” This ASU requires capitalized debt issuance costs to be presented as a reduction to the carrying value of debt instead of being classified as a deferred charge, as previously required. This ASU is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2015, and interim periods within those annual periods; early adoption is permitted and retroactive application is required. We have adopted this guidance as of June 28, 2015, and as a result have recast the December 28, 2014, condensed consolidated balance sheet to conform to the current period presentation. The adoption of this standard reduced previously-presented other assets, net, and long-term debt by $8.1 million each, based upon the balance of unamortized debt issuance costs relating to our senior unsecured notes recorded as of December 28, 2014.

In April 2014, the FASB issued ASU 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity," which amends the definition of a discontinued operation in ASC 205-20 and requires entities to provide additional disclosures about discontinued operations as well as disposal transactions that do

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


not meet the discontinued operations criteria. The FASB issued the ASU to provide more decision-useful information and to make it more difficult for a disposal transaction to qualify as a discontinued operation. This ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods; early application is permitted. The adoption of this standard did not have a material impact on the presentation of our financial statements.     
Other Recent Accounting Pronouncements not yet Adopted

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments,” which amends ASC 805, “Business Combinations.” This ASU eliminates the requirement to retrospectively account for measurement-period adjustments and instead recognize such adjustments in the reporting period in which the adjustments are determined. This ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years; early adoption is permitted. We are in the process of evaluating this guidance to determine the impact it will have on our financial statements.
    
In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory,” which amends ASC 330, “Inventory.” This ASU requires the measurement of inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years; early adoption is permitted. The adoption of this standard is not expected to have a material impact on the presentation of our financial statements.

In April 2015, the FASB issued ASU 2015-04, “Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.” This ASU provides a practical expedient option to entities that have defined benefit plans and have a fiscal year end that does not coincide with a calendar month end. This ASU allows an entity to elect to measure defined benefit plan assets and obligations using the calendar month-end that is closest to its fiscal year end. This ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years; early adoption is permitted. The adoption of this standard is not expected to have an impact on the presentation of our financial statements.

In February 2015, the FASB issued ASU 2015-02, “Amendments to the Consolidation Analysis,” which amended ASC 810, “Consolidation.” This ASU modifies the evaluation of whether limited partnerships are variable interest entities (“VIEs”) and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. This ASU is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years; early adoption is permitted. The adoption of this standard is not expected to have an impact on the presentation of our financial statements.     

In August 2014, the FASB issued ASU 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern," which amended ASC 205-40, "Presentation of Financial Statements - Going Concern". This ASU requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date of issuance of the entity's financial statements and to provide related footnote disclosures. This ASU is effective for annual reporting periods ending after December 15, 2016, and interim periods thereafter; early adoption is permitted. We are in the process of evaluating this guidance to determine the impact it will have on our financial statements.


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


In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers," which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers - Deferral of the Effective Date,” and the guidance will now be effective for annual and interim periods beginning on or after December 15, 2017; early application is permitted only as of annual and interim reporting periods beginning after December 15, 2016. We are in the process of evaluating this guidance to determine the impact it will have on our financial statements.
2. Acquisitions and Disposition

2015 Acquisitions
    
On August 5, 2015, we completed the acquisition of Hickman Industries Limited (“Hickman”), headquartered in Wolverhampton, England, for total consideration of $88.0 million, net of cash acquired. We acquired 100% of the equity interests in Hickman through the purchase of all of the outstanding shares of common stock at the acquisition date. Hickman is a leading supplier of doorkits (similar to fully finished prehung door units) and other millwork in the United Kingdom and their business of providing doorkit solutions to the homebuilder market in the United Kingdom is a natural extension of our existing business in the United Kingdom. The excess purchase price over the fair value of net assets acquired of $18.2 million was allocated to goodwill. The goodwill principally represents anticipated synergies to be gained from the integration into our existing United Kingdom business. This goodwill is not deductible for tax purposes and relates to the Europe, Asia and Latin America segment. The Hickman acquisition complements strategies we are pursuing with our existing United Kingdom business.

On July 23, 2015, we completed the acquisition of Performance Doorset Solutions Limited (“PDS”), headquartered in Lancashire, England, for total consideration of $15.7 million, net of cash acquired. We acquired 100% of the equity interests in PDS through the purchase of all of the outstanding shares of common stock at the acquisition date. PDS is a leading supplier of custom doors and millwork in the United Kingdom that specializes in non-standard product specifications, manufacturing both wood and composite solutions. The excess purchase price over the fair value of net assets acquired of $3.1 million was allocated to goodwill. The goodwill principally represents the future expected value of the operations of the business. This goodwill is not deductible for tax purposes and relates to the Europe, Asia and Latin America segment. The PDS acquisition complements our existing United Kingdom business.
    
The aggregate consideration paid for acquisitions during 2015 was as follows:
(In thousands)
Hickman Acquisition
 
PDS Acquisition
 
Total 2015 Acquisitions
Accounts Receivable
$
20,870

 
$
3,000

 
$
23,870

Inventory
11,090

 
1,438

 
12,528

Property, plant and equipment
14,057

 
5,684

 
19,741

Goodwill
18,215

 
3,145

 
21,360

Intangible assets
55,634

 
6,437

 
62,071

Accounts payable and accrued expenses
(23,972
)
 
(2,218
)
 
(26,190
)
Other assets and liabilities, net
(7,918
)
 
(1,762
)
 
(9,680
)
Cash consideration, net of cash acquired
$
87,976

 
$
15,724

 
$
103,700


The fair values of tangible assets acquired and liabilities assumed from the 2015 acquisitions were based upon preliminary calculations and valuations and the estimates and assumptions for the acquisition are subject to change as we obtain additional information during the measurement period (up to one year from the acquisition date). The primary areas of the preliminary estimates which are not yet finalized relate to certain tangible assets acquired and liabilities assumed, including goodwill. The fair values of intangible assets acquired are based on management’s estimates and

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(Unaudited)


assumptions including variations of the income approach, the cost approach and the market approach. Intangible assets acquired from the 2015 acquisitions consist of customer relationships and are being amortized over the weighted average amortization period of 9.6 years and 9.7 years for the Hickman and PDS acquisitions, respectively. The intangible assets are not expected to have any residual value. The gross contractual value of acquired trade receivables was $21.0 million and $2.6 million for the Hickman and PDS acquisitions, respectively.

The following schedule represents the amount of net sales and net income (loss) attributable to Masonite from the 2015 acquisitions which have been included in the condensed consolidated statements of comprehensive income (loss) for the periods indicated subsequent to the acquisition date.
 
Three and Nine Months Ended September 27, 2015
(In thousands)
Hickman
 
PDS
 
Total 2015 Acquisitions
Net sales
$
18,662

 
$
2,786

 
$
21,448

Net income (loss) attributable to Masonite
(301
)
 
(17
)
 
(318
)

2014 Acquisitions

On December 1, 2014, we completed the acquisition of Harring Doors Corporation (“Harring”), headquartered in London, Ontario, for total consideration of $3.9 million, net of cash acquired. We acquired 100% of the equity interests in Harring through the purchase of all of the outstanding shares of common stock at the acquisition date. Harring manufactures interior and exterior stile and rail wood doors for architectural door applications at its facility in London, Ontario. The excess purchase price over the fair value of net assets acquired of $2.0 million was allocated to goodwill. The goodwill principally represents anticipated synergies to be gained from the integration into our North American architectural wood door business. This goodwill is not deductible for tax purposes and relates to the North America segment. The acquisition of Harring complements our architectural wood door business.
    
On February 24, 2014, we completed the acquisition of Door-Stop International Limited ("Door-Stop") for total consideration of $50.4 million, net of cash acquired. We acquired 100% of the equity interests in Door-Stop through the purchase of all outstanding shares of common stock on the acquisition date. Door-Stop is based in Nottinghamshire, United Kingdom, utilizes an internet-based ordering process and manufactures exterior door sets for the residential repair and renovation markets. The excess purchase price over the fair value of net tangible and intangible assets acquired of $20.4 million was allocated to goodwill. The goodwill principally represents the future expected value of the operations of the business. This goodwill is not deductible for tax purposes and relates to the Europe, Asia and Latin America segment. The Door-Stop acquisition complements our existing door business in the United Kingdom.
        
The aggregate consideration paid for acquisitions during 2014 was as follows:
(In thousands)
Harring Acquisition
 
Door-Stop Acquisition
 
Total 2014 Acquisitions
Accounts receivable
$
1,180

 
$
2,648

 
$
3,828

Inventory
443

 
2,665

 
3,108

Property, plant and equipment
1,167

 
4,303

 
5,470

Goodwill
1,951

 
20,359

 
22,310

Intangible assets
—

 
28,776

 
28,776

Accounts payable and accrued expenses
(731
)
 
(3,492
)
 
(4,223
)
Other assets and liabilities, net
(109
)
 
(4,904
)
 
(5,013
)
Cash consideration, net of cash acquired
$
3,901

 
$
50,355

 
$
54,256


The fair values of intangible assets acquired are based on management’s estimates and assumptions including variations of the income approach, the cost approach and the market approach. Intangible assets acquired from Door-Stop consist of customer relationships and are being amortized over the weighted average amortization period of 9.9

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(Unaudited)


years. The intangible assets are not expected to have any residual value. The gross contractual value of acquired trade receivables was $1.2 million and $2.8 million for the Harring and Door-Stop acquisitions, respectively.
    
The following schedule represents the amount of net sales and net income (loss) attributable to Masonite from the Door-Stop acquisition which have been included in the condensed consolidated statements of comprehensive income (loss) for the periods indicated subsequent to the acquisition date. Amounts of revenue and earnings included in the condensed consolidated statements of comprehensive income (loss) for Harring were not material for the three and nine months ended September 27, 2015.    
 
Three Months Ended
 
Nine Months Ended
(In thousands)
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
Net sales
$
13,680

 
$
11,883

 
$
38,743

 
$
28,757

Net income (loss) attributable to Masonite
1,413

 
639

 
4,077

 
2,079


Pro Forma Information

The following unaudited pro forma financial information represents the condensed consolidated financial information as if the acquisitions had been included in our condensed consolidated results beginning on the first day of the fiscal year prior to their respective acquisition dates. Pro forma information relating to the Harring acquisition has been excluded as it is not materially different from amounts reported. The pro forma results have been calculated after adjusting the results of the acquired entities to remove intercompany transactions and transaction costs incurred and to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied on the first day of the fiscal year prior to the respective acquisitions, together with the consequential tax effects. The pro forma results do not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the acquisitions; the costs to combine the companies' operations; or the costs necessary to achieve these costs savings, operating synergies and revenue enhancements. The pro forma results do not necessarily reflect the actual results of operations of the combined companies' under our ownership and operation.
 
Three Months Ended September 27, 2015
(In thousands, except per share amounts)
Masonite
 
2015 Acquisitions
 
Historical Sales to Hickman
 
Pro Forma
Net sales
$
475,650

 
$
10,924

 
$
(1,186
)
 
$
485,388

Net income (loss) attributable to Masonite
(16,283
)
 
995

 
(187
)
 
(15,475
)
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
(0.54
)
 
 
 
 
 
$
(0.51
)
Diluted earnings (loss) per common share
$
(0.54
)
 
 
 
 
 
$
(0.51
)
 
Nine Months Ended September 27, 2015
(In thousands, except per share amounts)
Masonite
 
2015 Acquisitions
 
Historical Sales to Hickman
 
Pro Forma
Net sales
$
1,386,543

 
$
75,361

 
$
(8,704
)
 
$
1,453,200

Net income (loss) attributable to Masonite
(33,893
)
 
3,224

 
(1,495
)
 
(32,164
)
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
(1.12
)
 
 
 
 
 
$
(1.06
)
Diluted earnings (loss) per common share
$
(1.12
)
 
 
 
 
 
$
(1.06
)

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(Unaudited)


 
Three Months Ended September 28, 2014
(In thousands, except per share amounts)
Masonite
 
2015 Acquisitions
 
Historical Sales to Hickman
 
Pro Forma
Net sales
$
476,124

 
$
34,294

 
$
(3,620
)
 
$
506,798

Net income (loss) attributable to Masonite
(9,967
)
 
627

 
(537
)
 
(9,877
)
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
(0.34
)
 
 
 
 
 
$
(0.33
)
Diluted earnings (loss) per common share
$
(0.34
)
 
 
 
 
 
$
(0.33
)
 
Nine Months Ended September 28, 2014
(In thousands, except per share amounts)
Masonite
 
2015 Acquisitions
 
Historical Sales to Hickman
 
Door-Stop
 
Pro Forma
Net sales
$
1,388,760

 
$
95,122

 
$
(10,232
)
 
$
6,659

 
$
1,480,309

Net income (loss) attributable to Masonite
(20,973
)
 
852

 
(1,392
)
 
624

 
(20,889
)
 
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per common share
$
(0.70
)
 
 
 
 
 
 
 
$
(0.71
)
Diluted earnings (loss) per common share
$
(0.70
)
 
 
 
 
 
 
 
$
(0.71
)

Disposition

On July 31, 2015, we completed the sale of all of the capital stock of Premdor S.A.S., Masonite’s door business in France, to an investment fund managed by Perceva S.A.S., a Paris-based independent investment firm (the “Buyer”). Pursuant to a stock purchase agreement dated July 16, 2015, the Buyer acquired all of Masonite’s door manufacturing and distribution business in France for nominal consideration. The disposition of this business resulted in a non-cash loss on deconsolidation of $29.7 million, which was recognized during the third quarter of 2015 in the Europe, Asia and Latin America segment. The loss on deconsolidation is comprised of the carrying value of the net assets disposed of $25.3 million and the recognition of $4.4 million of cumulative translation adjustment into net income. Additionally, the sale of Premdor S.A.S. was determined to be a triggering event requiring a test of the indefinite-lived intangible trade name assets of the Europe, Asia and Latin America segment, resulting in an impairment charge of $9.4 million. This charge represents the excess of the carrying value over the fair value as determined using the relief of royalty discounted cash flows method. These charges were partially offset by income tax benefits of $3.2 million.

Premdor S.A.S. generated $0.8 million and $4.0 million of losses from continuing operations before income tax expense (benefit) during the three and nine months ended September 27, 2015, respectively, and $2.4 million and $5.2 million for the three and nine months ended September 28, 2014, respectively. All Premdor S.A.S. figures exclude amounts recognized for loss on deconsolidation or asset impairment.


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(Unaudited)


3. Goodwill and Intangible Assets

Changes in the carrying amount of goodwill were as follows as of the dates indicated:
(In thousands)
North America Segment
 
Europe, Asia and Latin America Segment
 
Total
December 28, 2014
$
79,818

 
$
19,381

 
$
99,199

Goodwill from 2015 acquisitions
—

 
21,360

 
21,360

Foreign exchange fluctuations
(125
)
 
(2,369
)
 
(2,494
)
September 27, 2015
$
79,693

 
$
38,372

 
$
118,065


The cost and accumulated amortization values of our intangible assets were as follows for the periods indicated:
 
September 27, 2015
(In thousands)
 Cost
 
Accumulated Amortization
 
Translation Adjustment
 
 Net Book Value
Definite life intangible assets:
 
 
 
 
 
 
 
Customer relationships
$
155,927

 
$
(42,999
)
 
$
(4,137
)
 
$
108,791

Patents
29,171

 
(16,567
)
 
(752
)
 
11,852

Software
29,541

 
(22,201
)
 
(153
)
 
7,187

Other
12,280

 
(7,461
)
 
(1,515
)
 
3,304

 
226,919

 
(89,228
)
 
(6,557
)
 
131,134

Indefinite life intangible assets:
 
 
 
 
 
 
 
Trademarks and tradenames
111,538

 
—

 
(7,399
)
 
104,139

Total intangible assets
$
338,457

 
$
(89,228
)
 
$
(13,956
)
 
$
235,273

 
December 28, 2014
(In thousands)
 Cost
 
 Accumulated Amortization
 
 Translation Adjustment
 
 Net Book Value
Definite life intangible assets:
 
 
 
 
 
 
 
Customer relationships
$
107,381

 
$
(33,181
)
 
$
(2,360
)
 
$
71,840

Patents
28,630

 
(14,696
)
 
(308
)
 
13,626

Software
28,832

 
(19,322
)
 
63

 
9,573

Other
9,457

 
(6,810
)
 
(1,426
)
 
1,221

 
174,300

 
(74,009
)
 
(4,031
)
 
96,260

Indefinite life intangible assets:
 
 
 
 
 
 
 
Trademarks and tradenames
111,053

 
—

 
(3,941
)
 
107,112

Total intangible assets
$
285,353

 
$
(74,009
)
 
$
(7,972
)
 
$
203,372


Amortization of intangible assets was $5.8 million and $15.2 million for the three and nine months ended September 27, 2015, respectively, and was $5.0 million and $14.7 million for the three and nine months ended September 28, 2014, respectively. Amortization expense is classified within selling, general and administration expenses in the condensed consolidated statements of comprehensive income (loss).
    

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(Unaudited)


The estimated future amortization of intangible assets with definite lives as of September 27, 2015, is as follows:
(In thousands)
 
Fiscal year:
 
2015 (remaining three months)
$
6,916

2016
24,465

2017
21,621

2018
17,336

2019
15,977


4. Accounts Receivable

Our customers consist mainly of wholesale distributors, dealers, and retail home centers. Our ten largest customers accounted for 48.0% and 48.8% of total accounts receivable as of September 27, 2015, and December 28, 2014, respectively. Our largest customer, The Home Depot, Inc., accounted for more than 10% of the consolidated gross accounts receivable balance as of September 27, 2015, and December 28, 2014. No other individual customer accounted for greater than 10% of the consolidated gross accounts receivable balance at either September 27, 2015, or December 28, 2014. The allowance for doubtful accounts balance was $2.4 million and $2.6 million as of September 27, 2015, and December 28, 2014, respectively.

We maintain accounts receivable sales programs with third parties (the "AR Sales Programs"). Under the AR Sales Programs, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to third parties who assume the full risk of collection, without recourse to us in the event of a loss. Transfers of receivables under these programs 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 Programs are excluded from trade accounts receivable in the condensed consolidated balance sheets and are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The discounts on the sales of trade accounts receivable sold under the AR Sales Programs 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 (loss).

5. Inventories

The amounts of inventory on hand were as follows as of the dates indicated:
(In thousands)
September 27,
2015
 
December 28,
2014
Raw materials
$
163,457

 
$
159,763

Finished goods
82,531

 
69,517

Provision for obsolete or aged inventory
(6,405
)
 
(6,548
)
Inventories, net
$
239,583

 
$
222,732



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


6. Property, Plant and Equipment

The carrying amounts of our property, plant and equipment and accumulated depreciation were as follows as of the dates indicated:
(In thousands)
September 27,
2015
 
December 28,
2014
Land
$
41,825

 
$
44,971

Buildings
164,378

 
170,344

Machinery and equipment
550,025

 
530,599

Property, plant and equipment, gross
756,228

 
745,914

Accumulated depreciation
(207,425
)
 
(169,680
)
Property, plant and equipment, net
$
548,803

 
$
576,234


Total depreciation expense was $14.6 million and $44.3 million in the three and nine months ended September 27, 2015, respectively, and $15.8 million and $45.8 million in the three and nine months ended September 28, 2014, respectively. Depreciation expense is included primarily within cost of goods sold in the condensed consolidated statements of comprehensive income (loss).

On June 6, 2014, an explosion occurred in the power plant of our Estcourt mill in South Africa which reduced the site’s ability to generate steam and heat the kilns which, in turn, required the production lines to cease operating for several weeks. We are insured against property loss and business interruption, and we recognized final payments of $1.2 million and $2.4 million in business interruption insurance proceeds during the three and nine months ended September 27, 2015, respectively. These proceeds were recorded as a reduction to selling, general and administration expense in the condensed consolidated statements of comprehensive income (loss).

7. Long-Term Debt
(In thousands)
September 27,
2015
 
December 28,
2014
5.625% senior unsecured notes due 2023
$
475,000

 
$
—

Debt issuance costs for 2023 Notes
(6,424
)
 
—

8.25% senior unsecured notes due 2021
—

 
500,000

Unamortized premium on 2021 Notes
—

 
11,920

Debt issuance costs for 2021 Notes
—

 
(8,135
)
Total long-term debt
$
468,576

 
$
503,785


Interest expense related to our consolidated indebtedness under senior unsecured notes was $6.9 million and $24.7 million for the three and nine months ended September 27, 2015, respectively, and $9.8 million and $29.4 million for the three and nine months ended September 28, 2014, respectively.

5.625% Senior Notes due 2023

On March 23, 2015, we issued $475.0 million aggregate principal senior unsecured notes (the “2023 Notes”). The 2023 Notes were issued in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to buyers outside the United States pursuant to Regulation S under the Securities Act. The 2023 Notes were issued without registration rights and are not listed on any securities exchange. The 2023 Notes were issued at par and bear interest at 5.625% per annum, payable in cash semiannually in arrears on March 15 and September 15 of each year and are due March 15, 2023. We received net proceeds of $467.9 million after deducting $7.1 million of transaction issuance costs. The transaction costs were capitalized as a reduction to the carrying value of debt and are being amortized to interest expense over the term of the

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(Unaudited)


2023 Notes using the effective interest method. The net proceeds from the 2023 Notes, together with available cash balances, were used to redeem the $500.0 million aggregate principal of 2021 Notes (as described below) and to pay related premiums, fees and expenses.

We may redeem the 2023 Notes, in whole or in part, at any time prior to March 15, 2018, at a price equal to 100% of the principal amount plus the applicable premium, plus accrued and unpaid interest, if any, to the date of redemption. The applicable premium means, with respect to a note at any date of redemption, the greater of (i) 1.00% of the then-outstanding principal amount of such note and (ii) the excess of (a) the present value at such date of redemption of (1) the redemption price of such note at March 15, 2018, plus (2) all remaining required interest payments due on such note through such date (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the Treasury Rate, as described in the indenture, plus 50 basis points, over (b) the principal amount of such note on such redemption date. We may also redeem the 2023 Notes, in whole or in part, at any time on or after March 15, 2018, at the applicable redemption prices specified under the indenture governing the 2023 Notes, plus accrued and unpaid interest, if any, to the date of redemption. If we experience certain changes of control or consummate certain asset sales and do not reinvest the net proceeds, we must offer to repurchase all of the 2023 Notes at a purchase price of 101.00% of their principal amount, plus accrued and unpaid interest, if any, to the repurchase date.

Obligations under the 2023 Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries.

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

The indenture governing the 2023 Notes contains customary events of default (subject in certain cases to customary grace and cure periods). As of September 27, 2015, we were in compliance with all covenants under the indenture governing the 2023 Notes.

8.25% Senior Notes due 2021

On January 21, 2014, March 9, 2012, and April 15, 2011, we issued $125.0 million, $100.0 million and $275.0 million aggregate principal senior unsecured notes, respectively (the "2021 Notes"). All issuances of the 2021 Notes had the same terms, rights and obligations, and were issued in the same series. The 2021 Notes were issued in three private placements for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to buyers outside the United States pursuant to Regulation S under the Securities Act. The 2021 Notes were issued without registration rights and were not listed on any securities exchange. The 2021 Notes bore interest at 8.25% per annum, payable in cash semiannually in arrears on April 15 and October 15 of each year and were due April 15, 2021. We received net proceeds of $136.8 million, $101.5 million and $265.5 million in 2014, 2012 and 2011, respectively, after deducting $1.9 million, $2.0 million and $9.5 million of transaction issuance costs. The transaction costs were capitalized as deferred financing costs (included in other assets) and were being amortized to interest expense over the term of the 2021 Notes using the effective interest method. The 2021 Notes were issued at 108.75%, 103.50% and par in 2014, 2012 and 2011, respectively. The resulting premiums of $10.9 million and $3.5 million in 2014 and 2012, respectively, were being amortized to interest expense over the term of the 2021 Notes using the effective interest method. The net proceeds from the 2021 Notes were used to fund a $124.9 million return of capital to shareholders in 2011, in the amount of $4.54 per share; as well as the acquisitions of eight companies since 2011 for aggregate consideration of $297.5 million. The remaining proceeds from the 2021 Notes were used for general corporate purposes.

In conjunction with the closing of the 2023 Notes offering, the 2021 Notes were fully redeemed and considered extinguished as of March 23, 2015. Under the terms of the indenture governing the 2021 Notes, we paid the applicable

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(Unaudited)


premium, as described in the indenture, of $31.7 million. Additionally, the unamortized premium of $11.5 million and unamortized transaction costs of $7.8 million relating to the 2021 Notes were written off in conjunction with the extinguishment of the 2021 Notes. The resulting loss on extinguishment of debt was $28.0 million and is recorded as part of income (loss) from continuing operations before income tax expense (benefit) in the condensed consolidated statements of comprehensive income (loss). Additionally, the cash payment of interest accrued to, but not including, the redemption date was accelerated to the redemption date.

ABL Facility

On April 9, 2015, we and certain of our subsidiaries amended and restated our asset-based revolving credit facility (the "ABL Facility") in order to extend the maturity date of the ABL Facility and amend certain other provisions. The amended and restated ABL Facility increased the revolving commitments to $150.0 million from $125.0 million and extended the final maturity date to April 9, 2020, from May 17, 2016. The borrowing base is calculated based on a percentage of the value of selected U.S. and Canadian accounts receivable and inventory, less certain intangible amounts.

Obligations under the ABL Facility are secured by a first priority security interest in substantially all of the current assets of Masonite and our subsidiaries. In addition, obligations under the ABL Facility are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by certain of our directly or indirectly wholly-owned subsidiaries.    

Borrowings under the ABL Facility bear interest at a rate equal to, at our option, (i) the Base Rate, Canadian Prime Rate or Canadian Base Rate (each as defined in the Amended and Restated Credit Agreement) plus a margin ranging from 0.25% to 0.75% per annum, or (ii) the Eurodollar Base Rate or BA Rate (each as defined in the Amended and Restated Credit Agreement), plus a margin ranging from 1.25% to 1.75% 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 and covenants by us that, among other things, and subject to certain exceptions, restrict Masonite's ability and the ability of our subsidiaries to: (i) pay dividends on our common shares and make other restricted payments, (ii) make investments and acquisitions, (iii) engage in transactions with our affiliates, (iv) sell assets, (v) merge and (vi) create liens.
    
The Amended and Restated Credit Agreement amends the ABL Facility to, among other things, (i) permit us to incur unlimited unsecured debt as long as such debt does not contain covenants or default provisions that are more restrictive than those contained in the ABL Facility, (ii) permit us to incur debt as long as the pro forma secured leverage ratio is less than 4.5 to 1.0, and (iii) add certain additional exceptions and exemptions under the restricted payment, investment and indebtedness covenants (including increasing the amount of certain debt permitted to be incurred under an existing exception). As of September 27, 2015, and December 28, 2014, we were in compliance with all covenants under the credit agreement governing the ABL Facility.

During August 2015, we borrowed $15.0 million under the ABL Facility to partially finance the Hickman acquisition. As of September 27, 2015, the outstanding balance was $4.0 million and there was no amount outstanding as of December 28, 2014. Outstanding borrowings under the ABL Facility are included in accrued expenses on the condensed consolidated balance sheets.

8. Share Based Compensation Plans
    
Share-based compensation expense was $1.5 million and $7.0 million for the three and nine months ended September 27, 2015, respectively, and $2.3 million and $7.3 million for the three and nine months ended September 28, 2014, respectively. As of September 27, 2015, the total remaining unrecognized compensation expense related to share based compensation amounted to $13.2 million, which will be amortized over the weighted average remaining requisite service period of 2.1 years. Share based compensation expense is recognized using a graded-method approach, or to a

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(Unaudited)


lesser extent a cliff-vesting approach, depending on the terms of the individual award and is classified within selling, general and administration expenses in the condensed consolidated statements of comprehensive income (loss). All share based awards are settled through issuance of new shares of our common stock. The share based award agreements contain restrictions on sale or transfer other than in limited circumstances. All other transfers would cause the share based awards to become null and void.

Equity Incentive Plan

Prior to July 9, 2012, we had a management equity incentive plan (the "2009 Plan"). The 2009 Plan required granting by June 9, 2012, equity instruments which upon exercise would result in management (excluding directors) owning 9.55% of our common equity (3,554,811 shares) on a fully diluted basis, after giving consideration to the potential exercise of warrants and the equity instruments granted to directors. Under the 2009 Plan, we were required to issue equity instruments to directors that represented 0.90% (335,004 shares) of the common equity on a fully diluted basis. The requirement for issuance to employees was satisfied in June 2012, and the requirement for issuance to directors was satisfied in July 2009. No awards have been granted under the 2009 Plan since May 30, 2012, and no future awards will be granted under the 2009 Plan; however, all outstanding awards under the 2009 Plan will continue to be governed by their existing terms. Aside from shares issuable for outstanding awards, there are no further shares of common stock available for future issuance under the 2009 Plan.

On July 12, 2012, the Board of Directors adopted the Masonite International Corporation 2012 Equity Incentive Plan (as amended and restated, the "2012 Plan"). The 2012 Plan was adopted because the Board believes awards granted will help to attract, motivate and retain employees and non-employee directors, align employee and stockholder interests and encourage a performance-based culture built on employee stock ownership. The 2012 Plan permits us to offer eligible directors, employees and consultants cash and share-based incentives, including stock options, stock appreciation rights, restricted stock, other share-based awards (including restricted stock units) and cash-based awards. The 2012 Plan is effective for ten years from the date of its adoption. Awards granted under the 2012 Plan are at the discretion of the Human Resources and Compensation Committee of the Board of Directors. The Human Resources and Compensation Committee may grant any award under the 2012 Plan in the form of a performance award. The 2012 Plan may be amended, suspended or terminated by the Board at any time; provided, that any amendment, suspension or termination which impairs the rights of a participant is subject to such participant's consent and; provided further, that certain material amendments are subject to shareholder approval. Prior to June 21, 2013, the aggregate number of common shares that could be issued with respect to equity awards under the 2012 Plan could not exceed 1,500,000 shares plus the number of shares subject to existing grants under the 2009 Plan that may expire or be forfeited or cancelled. On June 21, 2013, the Board of Directors approved an increase of 500,000 common shares issuable under the 2012 Plan, bringing the total number of shares issuable under the 2012 Plan to 2,000,000 plus the number of shares subject to existing grants under the 2009 plan that may expire or be forfeited or cancelled. On May 12, 2015, our shareholders approved the Masonite International Corporation Amended and Restated 2012 Equity Incentive Plan, which amended and restated the 2012 Plan in its entirety in order to further enable the Human Resources and Compensation Committee to grant awards thereunder that are intended to qualify as “qualified performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended. The Amended and Restated 2012 Plan also made certain changes to the performance criteria on which performance goals may be based and the adjustments to such performance criteria for such awards. As of September 27, 2015, there were 1,866,401 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 ("DCP"). The DCP is an unfunded non-qualified deferred compensation plan that permits those certain employees and directors to defer a portion of their compensation to a future time. Eligible employees may elect to defer a portion of their base salary, bonus and/or restricted stock units and eligible directors may defer a portion of their director fees or restricted stock units. All contributions to the DCP on behalf of the participant are fully vested (other than restricted stock unit deferrals which remain subject to the vesting terms of the applicable equity incentive plan) and placed into a grantor trust, commonly referred to as a "rabbi trust." Although we are permitted to make matching contributions under the terms of the DCP, we have not elected to do so. The DCP invests the contributions in diversified securities from a selection of investments and

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(Unaudited)


the participants choose their investments and may periodically reallocate the assets in their respective accounts. Participants are entitled to receive the benefits in their accounts upon separation of service or upon a specified date, with benefits payable as a single lump sum or in annual installments. All plan investments are categorized as having Level 1 valuation inputs as established by the FASB’s Fair Value Framework.

Assets of the rabbi trust, other than Company stock, are recorded at fair value and included in other assets in the condensed consolidated balance sheets. These assets in the rabbi trust are classified as trading securities and changes in their fair values are recorded in other income (loss) in the condensed consolidated statements of comprehensive income (loss). The liability relating to deferred compensation represents our obligation to distribute funds to the participants in the future and is included in other liabilities in the condensed consolidated balance sheets. As of September 27, 2015, the liability and asset relating to deferred compensation each had a fair value of $1.9 million. Any unfunded gain or loss relating to changes in the fair value of the deferred compensation liability is recognized in selling, general and administration expense in the condensed consolidated statements of comprehensive income (loss).

As of September 27, 2015, participation in the deferred compensation plan is limited and no restricted stock awards have been deferred into the deferred compensation plan.

Stock Appreciation Rights

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

The total fair value of SARs vested was $0.5 million in the nine months ended September 27, 2015, and was $0.6 million in the nine months ended September 28, 2014.
Nine months ended September 27, 2015
Stock Appreciation Rights
 
Aggregate Intrinsic Value (in thousands)
 
 Weighted Average Exercise Price
 
 Average Remaining Contractual Life (Years)
Outstanding, beginning of period
1,231,468

 
$
48,516

 
$
19.59

 
5.9
Exercised
(308,770
)
 
15,205

 
16.82

 
 
Cancelled
(11,751
)
 
 
 
18.18

 
 
Outstanding, end of period
910,947

 
$
39,807

 
$
20.08

 
5.2
 
 
 
 
 
 
 
 
Exercisable, end of period
717,614

 
$
33,872

 
$
16.58

 
4.5
Nine months ended September 28, 2014
Stock Appreciation Rights
 
Aggregate Intrinsic Value (in thousands)
 
 Weighted Average Exercise Price
 
 Average Remaining Contractual Life (Years)
Outstanding, beginning of period
1,812,658

 
$
59,525

 
$
18.16

 
6.4
Exercised
(407,668
)
 

 
14.33

 
 
Cancelled
(20,622
)
 
 
 
38.48

 
 
Outstanding, end of period
1,384,368

 
$
47,748

 
$
18.94

 
6.0
 
 
 
 
 
 
 
 
Exercisable, end of period
1,052,644

 
$
39,495

 
$
15.91

 
5.3


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(Unaudited)


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.
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
Total Restricted Stock Units Outstanding
 
Weighted Average Grant Date Fair Value
 
Total Restricted Stock Units Outstanding
 
Weighted Average Grant Date Fair Value
Outstanding, beginning of period
543,373

 
$
34.56

 
618,963

 
$
22.09

Granted
192,928

 
61.39

 
193,940

 
54.65

Delivered
(124,672
)
 
 
 
(137,527
)
 
 
Withheld to cover (1)
(14,738
)
 
 
 
(28,947
)
 
 
Cancelled
(71,803
)
 
 
 
(15,787
)
 
 
Outstanding, end of period
525,088

 
$
45.33

 
630,642

 
$
31.85

____________
(1) A portion of the vested RSUs delivered were net share settled to cover the minimum statutory requirements for income and other employment taxes, at the individual participant’s election. 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 one-half of the RSUs granted during the nine months ended September 27, 2015, vest at specified future dates with only service requirements, while the remaining portion of the RSUs vest based on both performance and service requirements. The value of RSUs granted in the nine months ended September 27, 2015, was $11.8 million and is being recognized over the weighted average requisite service period of 1.7 years. During the nine months ended September 27, 2015, there were 139,410 RSUs vested at a fair value of $3.8 million.

Warrants

On June 9, 2009, we issued 5,833,335 warrants, representing the right to purchase our common shares for $55.31 per share, subsequently adjusted to $50.77 per share for the $4.54 per share return of capital in 2011. Of these, 3,333,334 had an expiration date of June 9, 2014 (the "2014 Warrants"), and 2,500,001 are scheduled to expire on June 9, 2016 (the "2016 Warrants"). During the six months prior to their respective expiration dates, the warrants provide the holders with a cashless exercise option. We have accounted for these warrants as equity instruments. Future exercises will increase the amount of common shares outstanding and reduce additional paid-in capital.
    

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(Unaudited)


There was no activity relating to the 2016 Warrants during the three months ended September 27, 2015, or September 28, 2014. Activity relating to the warrants was as follows for the period presented:
 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
 
2016 Warrants
 
2014 Warrants
 
2016 Warrants
 
Total Warrants
Outstanding, beginning of period
2,500,001

 
3,333,334

 
2,500,001

 
5,833,335

Exercised
—

 
(3,289,146
)
 
—

 
(3,289,146
)
Forfeited
—

 
(44,188
)
 
—

 
(44,188
)
Outstanding, end of period
2,500,001

 
—

 
2,500,001

 
2,500,001

 
 
 
 
 
 
 
 
Cash received for exercise (in thousands)
$
—

 
$
263

 
$
—

 
$
263

Common shares issued
—

 
279,408

 
—

 
279,408


9. Commitments and Contingencies

For lease agreements that provide for escalating rent payments or rent-free occupancy periods, we recognize rent expense on a straight line basis over the non-cancelable lease term and any option renewal period where failure to exercise such option would result in an economic penalty in such amount that renewal appears, at the inception of the lease, to be reasonably assured. The lease term commences on the date when all conditions precedent to our obligation to pay rent are satisfied. The leases contain provisions for renewal ranging from zero to three options of generally five years each. Minimum payments, for the following future periods, under non-cancelable operating leases and service agreements with initial or remaining terms of one year or more consist of the following:
(In thousands)
 
Fiscal year:
 
2015 (remaining three months)
$
4,726

2016
17,152

2017
15,226

2018
14,053

2019
13,038

Thereafter
74,492

Total future minimum lease payments
$
138,687


Total rent expense, including non-cancelable operating leases and month-to-month leases, was $6.1 million and $17.8 million for the three and nine months ended September 27, 2015, respectively, and was $6.1 million and $18.1 million for the three and nine months ended September 28, 2014, respectively.

We have provided customary indemnifications to our landlords under certain property lease agreements for claims by third parties in connection with their use of the premises. We also have provided routine indemnifications against adverse effects related to changes in tax laws and patent infringements by third parties. The maximum amount of these indemnifications cannot be reasonably estimated due to their nature. In some cases, we have recourse against other parties to mitigate the risk of loss from these indemnifications. Historically, we have not made any significant payments relating to such indemnifications.

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 condensed consolidated financial statements, results of operations or liquidity.


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(Unaudited)


10. Restructuring Costs

The following table summarizes the restructuring charges recorded for the periods indicated:
 
Three Months Ended
 
September 27, 2015
 
September 28, 2014
(In thousands)
North America
 
Europe, Asia and Latin America
 
Africa
 
Total
 
North America
 
Europe, Asia and Latin America
 
Africa
 
Total
2015 Plan
$
491

 
$
167

 
428

 
$
1,086

 
$
—

 
$
—

 
$
—

 
$
—

2014 Plan
—

 
—

 
—

 
—

 
—

 
9,664

 
—

 
9,664

2013 Plan
1

 
34

 
—

 
35

 
107

 
7

 
1

 
115

2012 and Prior Plans
—

 
18

 
—

 
18

 
(27
)
 
161

 
—

 
134

Total Restructuring Costs
$
492

 
$
219

 
$
428

 
$
1,139

 
$
80

 
$
9,832

 
$
1

 
$
9,913

 
Nine Months Ended
 
September 27, 2015
 
September 28, 2014
(In thousands)
North America
 
Europe, Asia and Latin America
 
Africa
 
Total
 
North America
 
Europe, Asia and Latin America
 
Africa
 
Total
2015 Plan
$
1,634

 
$
2,269

 
428

 
$
4,331

 
$
—

 
$
—

 
$
—

 
$
—

2014 Plan
—

 
—

 
—

 
—

 
—

 
9,664

 
—

 
9,664

2013 Plan
7

 
127

 
—

 
134

 
470

 
716

 
7

 
1,193

2012 and Prior Plans
—

 
18

 
—

 
18

 
12

 
325

 
—

 
337

Total Restructuring Costs
$
1,641

 
$
2,414

 
$
428

 
$
4,483

 
$
482

 
$
10,705

 
$
7

 
$
11,194

 
Cumulative Amount Incurred Through
 
September 27, 2015
(In thousands)
North America
 
Europe, Asia and Latin America
 
Africa
 
Total
2015 Plan
$
1,634

 
$
2,269

 
$
428

 
$
4,331

2014 Plan
—

 
9,503

 
—

 
9,503

2013 Plan
2,956

 
3,791

 
1,149

 
7,896

2012 and Prior Plans
10,396

 
20,220

 
—

 
30,616

Total Restructuring Costs
$
14,986

 
$
35,783

 
$
1,577

 
$
52,346


During 2015, we began implementing a multi-year plan to reorganize and consolidate certain aspects of our global head office (the "2015 Plan"). The 2015 Plan includes the creation of a new shared services function and the rationalization of certain of our European facilities, including related headcount reductions. The 2015 Plan was implemented in response to the need for more effective business processes enabled by the planned implementation of our new enterprise resource planning system as well as ongoing weak market conditions in Africa and Europe outside of the United Kingdom. Costs associated with the 2015 Plan include severance and closure charges and are expected to be

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(Unaudited)


completed by the first quarter of 2016. As of September 27, 2015, we expect to incur approximately $2 million of future charges relating to the 2015 Plan.

On August 20, 2014, the Board of Directors of Masonite Israel Ltd. (“Israel”), one of our wholly-owned subsidiaries, decided to voluntarily seek a Stay of Proceedings from the Israeli courts in an attempt to restructure the business (the “2014 Plan”). The court filing was made on August 21, 2014, and the court appointed a trustee to oversee the operation of the business and to attempt to restructure it. The action to seek court protection followed a comprehensive evaluation of the alternatives for the business, including an organized sale process that was ultimately unsuccessful. We determined that the subsidiary should be deconsolidated at that time, as it had become subject to the control of a court. We have had and will continue to have no continuing involvement with Israel subsequent to August 21, 2014, and Israel will not be considered a related party. As a result of Israel's court filing, we incurred $9.7 million of charges, of which $1.4 million relate to non-cash asset impairments, $6.8 million relate to non-cash losses on deconsolidation, and $2.1 million relate to cash charges incurred, primarily relating to bank debt and guarantees. Partially offsetting these charges was a gain of $0.6 million relating to the recognition of the cumulative translation adjustment into net income. As of September 27, 2015, pending the ultimate resolution of the Stay of Proceedings, we do not anticipate any material future charges related to the 2014 Plan.

During 2013, we began implementing plans to rationalize certain of our facilities, including related headcount reductions, in Canada due to synergy opportunities related to recent acquisitions in the residential interior wood door markets. We have also rationalized certain of our operations, including related headcount reductions, in Ireland, South Africa and Israel in order to respond to declines in demand in international markets. Additionally, the decision was made to discontinue sales into the Polish market subsequent to the decision to cease manufacturing operations in 2012 (collectively, the "2013 Plan"). Costs associated with the 2013 Plan include severance and closure charges, including impairment of certain property, plant and equipment, and are substantially completed. As of September 27, 2015, we do not expect to incur any material future charges for the 2013 Plan.

Prior years’ restructuring costs relate to the closure of certain of our U.S. manufacturing facilities due to the start-up of our highly automated interior door slab assembly plant in Denmark, South Carolina, synergy opportunities related to acquisitions in the architectural interior wood door market and footprint optimization efforts resulting from declines in demand in specific markets, primarily in Europe. In response to the decline in demand, we reviewed the required levels of production and reduced the workforce and plant capacity accordingly, resulting in severance and closure charges. These actions were taken in order to rationalize capacity with existing and forecasted market demand conditions. The restructuring plans initiated in 2012 and prior years (the "2012 and Prior Plans") are substantially completed, although cash payments are expected to continue through 2019, primarily related to lease payments at closed facilities. As of September 27, 2015, we do not expect to incur any future charges for the 2012 and Prior Plans.

The changes in the accrual for restructuring by activity were as follows for the periods indicated:
(In thousands)
December 28,
2014
 
Severance
 
Closure Costs
 
Cash Payments
 
September 27,
2015
2015 Plan
$
—

 
$
2,228

 
$
2,103

 
$
3,524

 
$
807

2014 Plan
839

 
—

 
—

 
352

 
487

2013 Plan
341

 
—

 
134

 
155

 
320

2012 and Prior Plans
1,153

 
—

 
18

 
393

 
778

Total
$
2,333

 
$
2,228

 
$
2,255

 
$
4,424

 
$
2,392

(In thousands)
December 29,
2013
 
Severance
 
Closure Costs
 
Cash Payments
 
Non-Cash Items
 
September 28,
2014
2014 Plan
$
—

 
$
—

 
$
9,664

 
$
1,187

 
$
7,577

 
$
900

2013 Plan
2,348

 
67

 
1,126

 
3,265

 
—

 
276

2012 and Prior Plans
2,061

 
211

 
126

 
1,059

 
—

 
1,339

Total
$
4,409

 
$
278

 
$
10,916

 
$
5,511

 
$
7,577

 
$
2,515



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(Unaudited)


11. Income Taxes

Income tax expense (benefit) for income taxes consists of the following:
 
Three Months Ended
 
Nine Months Ended
(In thousands)
September 27, 2015
 
September 28, 2014
 
September 27, 2015
 
September 28, 2014
Current
$
1,629

 
$
380

 
$
5,366

 
$
2,760

Deferred
(4,139
)
 
1,624

 
10,401

 
642

Income tax expense (benefit)
$
(2,510
)
 
$
2,004

 
$
15,767

 
$
3,402


The effective tax rate differs from the Canadian federal statutory rate of 26.6% primarily due to changes in our valuation allowances, tax exempt income, and earnings in foreign jurisdictions which are subject to lower tax rates.

We currently have deferred tax assets in certain jurisdictions resulting from net operating losses and other deductible temporary differences, which will reduce taxable income in these jurisdictions in future periods. We have determined that a valuation allowance of $44.7 million and $35.8 million was required for our deferred income tax assets as of September 27, 2015, and December 28, 2014, respectively. A valuation allowance has been established on deferred tax assets resulting from net operating loss carry forwards and other carry forward attributes primarily in Canada, Chile, India, Mexico and Luxembourg. We expect to record valuation allowances on deferred tax assets arising in these jurisdictions until a sustained level of income is reached.

12. Supplemental Cash Flow Information

Certain cash and non-cash transactions were as follows for the periods indicated:
 
Nine Months Ended
(In thousands)
September 27, 2015
 
September 28, 2014
Transactions involving cash:
 
 
 
Interest paid
$
32,979

 
$
20,946

Interest received
464

 
486

Income taxes paid
4,430

 
4,475

Income tax refunds
194

 
406

Non-cash transactions:
 
 
 
Property, plant and equipment additions in accounts payable
3,310

 
3,016



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(Unaudited)


13. Segment Information

Our reportable segments are organized and managed principally by geographic region: North America; Europe, Asia and Latin America; and Africa. 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 geographic 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. Beginning in the first quarter of 2015, we revised our calculation of Adjusted EBITDA to separately exclude loss on extinguishment of debt, which would be a component of other expense (income), net, but is separately stated due to its magnitude. Furthermore, in the third quarter of 2015, we revised our calculation of Adjusted EBITDA to separately exclude loss (gain) on disposal of subsidiaries. The revisions to this definition had no impact on our reported Adjusted EBITDA for the three or nine months ended September 28, 2014. Adjusted EBITDA (as revised) 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.

This definition of Adjusted EBITDA differs from the definitions of EBITDA contained in the indenture governing the 2023 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 transfers are negotiated on an arm’s length basis, using market prices.    Certain information with respect to geographic segments is as follows for the periods indicated:
(In thousands)
Three Months Ended September 27, 2015
(In thousands)
N. America
 
Europe, Asia and Latin America
 
Africa
 
Consolidated
Sales
$
374,759

 
$
94,036

 
$
13,265

 
$
482,060

Intersegment sales
(130
)
 
(6,280
)
 
—

 
(6,410
)
Net sales to external customers
$
374,629

 
$
87,756

 
$
13,265

 
$
475,650

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
42,048

 
$
8,431

 
$
33

 
$
50,512


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(Unaudited)


(In thousands)
Three Months Ended September 28, 2014
(In thousands)
North America
 
Europe, Asia and Latin America
 
Africa
 
Total
Sales
$
370,216

 
$
99,845

 
$
12,134

 
$
482,195

Intersegment sales
(158
)
 
(5,913
)
 
—

 
(6,071
)
Net sales to external customers
$
370,058

 
$
93,932

 
$
12,134

 
$
476,124

 
 
 
 
 
 
 
 
Adjusted EBITDA
$
36,329

 
$
1,902