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 April 1, 2018
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other			Total
Net sales	$	360,542		$	87,752		$	71,564		$	4,424		$	524,282
Intersegment sales	(862		)	(648		)	(4,893		)	—			(6,403		)
Net sales to external customers	$	359,680		$	87,104		$	66,671		$	4,424		$	517,879

Adjusted EBITDA	$	50,398		$	9,930		$	7,660		$	(6,574	)	$	61,414



(In thousands)	Three Months Ended April 2, 2017
(In thousands)	North American Residential			Europe			Architectural			Corporate & Other			Total
Net sales	$	339,129		$	70,827		$	75,919		$	7,341		$	493,216
Intersegment sales	(1,087		)	(856		)	(4,092		)	—			(6,035		)
Net sales to external customers	$	338,042		$	69,971		$	71,827		$	7,341		$	487,181

Adjusted EBITDA	$	44,937		$	7,738		$	5,214		$	(5,295	)	$	52,594

As fully described in Note 1. Business Overview and Significant Accounting Policies, the adoption of ASU 2017-07 required a reclassification of prior periods' other expense (income), net. This resulted in a consolidated decrease of $0.3 million to Adjusted EBITDA for the three months ended April 2, 2017, compared to the same figure previously presented. On a segment basis, Adjusted EBITDA for the three months ended April 2, 2017, was increased by $0.1 million in the Europe segment and was decreased in the Corporate & Other category by $0.3 million, compared to the same figures previously-presented.

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
(In thousands)	April 1, 2018			April 2, 2017
Adjusted EBITDA	$	61,414		$	52,594
Less (plus):
Depreciation	13,934			14,024
Amortization	6,585			5,970
Share based compensation expense	3,065			2,427
Loss (gain) on disposal of property, plant and equipment	612			(274		)
Restructuring costs	—			293
Interest expense (income), net	8,756			7,024
Other expense (income), net	(272		)	(514		)
Income tax expense (benefit)	6,701			(1,679		)
Loss (income) from discontinued operations, net of tax	250			245
Net income (loss) attributable to non-controlling interest	957			1,513
Net income (loss) attributable to Masonite	$	20,826		$	23,565