Segment Information

Our reportable segments are organized and managed principally by end market: North American Residential, Europe and Architectural. The North American Residential reportable segment is the aggregation of the Wholesale and Retail operating segments. The Europe reportable segment is the aggregation of the United Kingdom and Central Eastern Europe operating segments. The Architectural reportable segment consists solely of the Architectural operating segment. The Corporate & Other category includes unallocated corporate costs and the results of immaterial operating segments which were not aggregated into any reportable segment. Operating segments are aggregated into reportable segments only if they exhibit similar economic characteristics. In addition to similar economic characteristics we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, availability of discrete financial information and information presented to the Board of Directors and investors.

Our management reviews net sales and Adjusted EBITDA (as defined below) to evaluate segment performance and allocate resources. Net assets are not allocated to the reportable segments. Adjusted EBITDA is a non-GAAP financial measure which does not have a standardized meaning under GAAP and is unlikely to be comparable to similar measures used by other companies. Adjusted EBITDA should not be considered as an alternative to either net income or operating cash flows determined in accordance with GAAP. Adjusted EBITDA is defined as net income (loss) attributable to Masonite adjusted to exclude the following items:

• depreciation;

• amortization;

• share based compensation expense;

• loss (gain) on disposal of property, plant and equipment;

• registration and listing fees;

• restructuring costs;

• asset impairment;

• loss (gain) on disposal of subsidiaries;

• interest expense (income), net;

• loss on extinguishment of debt;

• other expense (income), net;

• income tax expense (benefit);

• loss (income) from discontinued operations, net of tax; and

• net income (loss) attributable to non-controlling interest.

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. Adjusted EBITDA is used to evaluate and compare the 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 segments is as follows for the periods indicated:



(In thousands)	Three Months Ended October 1, 2017
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other		Total
Net sales	$	365,406		$	75,463		$	78,468		$	4,947	$	524,284
Intersegment sales	(1,222		)	(644		)	(4,915		)	—		(6,781		)
Net sales to external customers	$	364,184		$	74,819		$	73,553		$	4,947	$	517,503

Adjusted EBITDA	$	50,126		$	8,219		$	8,692		$	2,669	$	69,706



(In thousands)	Three Months Ended October 2, 2016
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other			Total
Net sales	$	338,807		$	71,528		$	80,424		$	5,316		$	496,075
Intersegment sales	(1,094		)	(1,488		)	(3,846		)	—			(6,428		)
Net sales to external customers	$	337,713		$	70,040		$	76,578		$	5,316		$	489,647

Adjusted EBITDA	$	55,648		$	7,933		$	7,229		$	(5,703	)	$	65,107



(In thousands)	Nine Months Ended October 1, 2017
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other			Total
Net sales	$	1,073,404		$	221,916		$	232,224		$	16,801		$	1,544,345
Intersegment sales	(3,299		)	(3,291		)	(13,330		)	—			(19,920		)
Net sales to external customers	$	1,070,105		$	218,625		$	218,894		$	16,801		$	1,524,425

Adjusted EBITDA	$	149,669		$	24,830		$	21,401		$	(4,798	)	$	191,102



(In thousands)	Nine Months Ended October 2, 2016
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other			Total
Net sales	$	1,019,352		$	235,694		$	238,325		$	17,740		$	1,511,111
Intersegment sales	(4,737		)	(2,848		)	(10,589		)	—			(18,174		)
Net sales to external customers	$	1,014,615		$	232,846		$	227,736		$	17,740		$	1,492,937

Adjusted EBITDA	$	162,689		$	30,890		$	19,332		$	(21,047	)	$	191,864

A reconciliation of our consolidated Adjusted EBITDA to net income (loss) attributable to Masonite is set forth as follows for the periods indicated:



	Three Months Ended						Nine Months Ended
(In thousands)	October 1, 2017			October 2, 2016			October 1, 2017			October 2, 2016
Adjusted EBITDA	$	69,706		$	65,107		$	191,102		$	191,864
Less (plus):
Depreciation	14,174			13,995			43,475			43,378
Amortization	6,216			6,217			17,782			19,199
Share based compensation expense	2,740			3,412			8,694			11,922
Loss (gain) on disposal of property, plant and equipment	1,388			698			1,529			1,090
Restructuring costs	1,393			215			986			131
Loss (gain) on disposal of subsidiaries	—			(5,144		)	212			(6,575		)
Interest expense (income), net	7,213			6,985			21,349			21,150
Other expense (income), net	(186		)	(1,199		)	(457		)	(1,214		)
Income tax expense (benefit)	5,989			6,526			13,242			15,591
Loss (income) from discontinued operations, net of tax	139			236			518			608
Net income (loss) attributable to non-controlling interest	1,162			1,157			3,845			3,392
Net income (loss) attributable to Masonite	$	29,478		$	32,009		$	79,927		$	83,192