MASONITE INTERNATIONAL CORPORATION
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is based upon accounting principles generally
accepted in the United States of America and discusses the financial condition
and results of operations for Masonite International Corporation for the three
and nine months ended September 27, 2020 , and September 29, 2019 . In this MD&A,
"Masonite," "we," "us," "our" and the "Company" refer to Masonite International
Corporation and its subsidiaries.
This discussion should be read in conjunction with (i) the unaudited condensed
consolidated financial statements and related notes included elsewhere in this
Quarterly Report on Form 10-Q and (ii) the annual audited consolidated financial
statements, including the accompanying notes and MD&A, which are included in our
Annual Report on Form 10-K for the year ended December 29, 2019 . The following
discussion should also be read in conjunction with the disclosure under "Special
Note Regarding Forward Looking Statements," "Item 1A. Risk Factors" elsewhere in
this Quarterly Report on Form 10-Q and the Company's Quarterly Report on Form
10-Q for the first quarter of 2020. Our actual results could differ materially
from the forward-looking statements as a result of these risks and
uncertainties.
Overview
We are a leading global designer, manufacturer and distributor of interior and
exterior doors for the new construction and repair, renovation and remodeling
sectors of the residential and the non-residential building construction
markets. Since 1925, we have provided our customers with innovative products and
superior service at compelling values. In order to better serve our customers
and create sustainable competitive advantages, we focus on developing innovative
products, advanced manufacturing capabilities and technology-driven sales and
service solutions.
We market and sell our products to remodeling contractors, builders, homeowners,
retailers, dealers, lumberyards, commercial and general contractors and
architects through well-established wholesale, retail and direct distribution
channels as part of our cross-merchandising strategy. Customers are provided a
broad product offering of interior and exterior doors and entry systems at
various price points. We manufacture a broad line of interior doors, including
residential molded, flush, stile and rail, louver and specially-ordered
commercial and architectural doors; door components for internal use and sale to
other door manufacturers; and exterior residential steel, fiberglass and wood
doors and entry systems.
We operate 62 manufacturing and distribution facilities in eight countries in
North America , South America , Europe and Asia , which are strategically located
to serve our customers through multiple distribution channels. These
distribution channels include: (i) direct distribution to retail home center
customers and homebuilders; (ii) one-step distribution that sells directly to
homebuilders and contractors; and (iii) two-step distribution through wholesale
distributors. For retail home center customers, numerous door fabrication
facilities provide value-added fabrication and logistical services, including
pre-finishing and store delivery of pre-hung interior and exterior doors. We
believe our ability to provide: (i) a broad product range; (ii) frequent, rapid,
on-time and complete delivery; (iii) consistency in products and merchandising;
(iv) national service; and (v) special order programs enables retail customers
to increase comparable store sales and helps to differentiate us from our
competitors. We believe investments in innovative new product manufacturing and
distribution capabilities, coupled with an ongoing commitment to operational
excellence, provide a strong platform for future growth.
Our reportable segments are organized and managed principally by end market:
North American Residential, Europe and Architectural. In the nine months ended
September 27, 2020 , we generated net sales of $1,185.6 million or 72.4%, $174.9
million or 10.7% and $263.6 million or 16.1% in our North American Residential,
Europe and Architectural segments, respectively.
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MASONITE INTERNATIONAL CORPORATION Key Factors Affecting Our Results of Operations COVID-19 A novel strain of coronavirus (COVID-19) was first identified inWuhan, China inDecember 2019 , and inMarch 2020 was declared a pandemic by theWorld Health Organization . To date, COVID-19 has surfaced in nearly all regions around the world and resulted in business slowdowns or shutdowns in affected areas. As a result, COVID-19 has impacted our business globally. Our first priority with regard to the COVID-19 pandemic is to do everything we can to ensure the safety, health and welfare of our employees, customers, suppliers and others with whom we partner in our business activities. Through the use of appropriate risk mitigation and safety practices at our facilities, we are endeavoring to maintain operations to continue supplying the industry during this uncertain time, recognizing the important role our customers and our products play in construction related to providing residential shelter and health care services. During 2020, a number of countries, provinces, states and municipalities issued orders temporarily requiring personswho were not engaged in essential activities and businesses to remain at home. Additionally, some jurisdictions without stay-at-home orders required non-essential businesses to close. As a result, some of our facilities were temporarily shut down due to the impact of these government orders. For example, ourUnited Kingdom facilities closed onMarch 27, 2020 , and did not reopen untilMay 2020 . Additionally, local or regional hotspots of the pandemic resulted in other locations being temporarily idled due to the impacts of COVID-19. We estimate that nearly one-half of our base volume decline in the second quarter of 2020 was due to the closure of our manufacturing facilities as a result of COVID-19 in theUnited Kingdom andIreland . During the third quarter, production levels began to stabilize at many of our manufacturing facilities, but local or regional hotspots of the pandemic continued to result in pockets of absenteeism resulting in reduced production and one location being temporarily idled. While the direct financial impact of COVID-19 was much lower than what we experienced in the second quarter, the pandemic had and continues to have varying impacts on our reportable segments. For example, the impact of COVID-19 on demand in the Architectural door market in the current year and expected impacts to future periods contributed to an impairment of that reporting unit's goodwill. Refer to Note 10. Asset Impairment, in Item 1 of this Quarterly Report for additional information. The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. These impacts include, but are not limited to, the duration, spread, severity and impact of the COVID-19 pandemic, the effects of the COVID-19 pandemic on our employees, operations, customers, suppliers and supply chain, the remedial actions and stimulus measures adopted by federal, state and local governments and the extent to which normal economic and operating conditions can resume. Product Demand There are numerous factors that influence overall market demand for our products. Demand for new homes, home improvement products and other building construction products have a direct impact on our financial condition and results of operations. Demand for our products may be impacted by changes inUnited States , Canadian, European, Asian or other global economic conditions, including inflation, deflation, interest rates, availability of capital, consumer spending rates, energy availability and costs, and the effects of governmental initiatives to manage economic conditions. Additionally, trends in residential new construction, repair, renovation and remodeling and architectural building construction may directly impact our financial performance. Accordingly, the following factors may have a direct impact on our business in the countries and regions in which our products are sold: •the strength of the economy; •employment rates and consumer confidence; •the amount and type of residential and commercial construction; •housing sales and home values; •the age of existing home stock, home vacancy rates and foreclosures; •non-residential building occupancy rates; •increases in the cost of raw materials or wages or any shortage in supplies or labor; •the availability and cost of credit; and •demographic factors such as immigration and migration of the population and trends in household formation. 21 --------------------------------------------------------------------------------
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MASONITE INTERNATIONAL CORPORATION Product Pricing and Mix The building products industry is highly competitive and we therefore face pressure on sales prices of our products. In addition, our competitors may adopt more aggressive sales policies and devote greater resources to the development, promotion and sale of their products than we do, which could result in a loss of customers. Our business in general is subject to changing consumer and industry trends, demands and preferences. Trends within the industry change often and our failure to anticipate, identify or quickly react to changes in these trends could lead to, among other things, rejection of a new product line and reduced demand and price reductions for our products, which could materially adversely affect us. Changes in consumer preferences may also lead to increased demand for our lower margin products relative to our higher margin products, which could reduce our future profitability. Business Wins and Losses Our customers consist mainly of wholesalers and retail home centers. In fiscal year 2019, our top ten customers together accounted for approximately 43% of our net sales and our top customer, The Home Depot, Inc. accounted for approximately 17% of our net sales. Net sales from customers that have accounted for a significant portion of our net sales in past periods, individually or as a group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period. Certain customers perform periodic product line reviews to assess their product offerings, which have, on past occasions, led to business wins and losses. In addition, as a result of competitive bidding processes, we may not be able to increase or maintain the margins at which we sell our products to our customers. Organizational Restructuring Over the past several years, we have engaged in a series of restructuring programs related to exiting certain geographies and non-core businesses, consolidating certain internal support functions and engaging in other actions designed to reduce our cost structure and improve productivity. These initiatives primarily consist of severance actions and lease termination costs. Management continues to evaluate our business; therefore, in future years, there may be additional provisions for new plan initiatives, as well as changes in previously recorded estimates, as payments are made or actions are completed. Asset impairment charges were also incurred in connection with these restructuring actions for those assets sold, abandoned or made obsolete as a result of these programs. InFebruary 2019 , we began implementing a plan to improve overall business performance that includes the reorganization of our manufacturing capacity and a reduction of our overhead and selling, general and administration workforce across all of our reportable segments and in our head offices. The reorganization of our manufacturing capacity involves specific plants in the North American Residential and Architectural segments and costs associated with the closure of these plants and related headcount reductions began taking place in the first quarter of 2019 (collectively, the "2019 Plan"). Costs associated with the 2019 Plan include severance, retention and closure charges and will continue through 2020. Additionally, the plan was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 9. As ofSeptember 27, 2020 , we expect to incur approximately$3 million to$4 million of additional charges related to the 2019 Plan. Once fully implemented, the actions taken as part of the 2019 Plan are expected to increase our annual earnings and cash flows by approximately$17 million to$21 million . During the fourth quarter of 2018, we began implementing a plan to reorganize and consolidate certain aspects of ourUnited Kingdom head office function and optimize our portfolio by divesting non-core assets to enable more effective and consistent business processes in theEurope segment. In addition, in the North American Residential segment we announced a new facility that will optimize and expand capacity through increased automation, which resulted in the closure of one existing facility and related headcount reductions beginning in the second quarter of 2019 (collectively, the "2018 Plan"). Costs associated with the 2018 Plan include severance, retention and closure charges and continued throughout 2019. Additionally, the plan to divest non-core assets was determined to be a triggering event requiring a test of the carrying value of the definite-lived assets relating to the divestitures, as further described in Note 9. The actions taken as part of the 2018 Plan are expected to increase our annual earnings and cash flows by approximately$6 million . 22 --------------------------------------------------------------------------------
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MASONITE INTERNATIONAL CORPORATION
Inflation
An increase in inflation could have a significant impact on the cost of our raw
material inputs. Wage inflation, increased prices for raw materials or finished
goods used in our products, tariffs and/or interruptions in deliveries of raw
materials or finished goods could adversely affect our profitability, margins
and net sales, particularly if we are not able to pass these incurred costs on
to our customers. Additionally, anti-dumping and countervailing duty trade
cases, such as the January 8, 2020 , Coalition of American Millwork Producers
anti-dumping and countervailing duty petitions against Wood Mouldings and
Millwork Products from Brazil and China , is expected to impact our business and
results of operations.
Seasonality
Our business is moderately seasonal and our net sales vary from quarter to
quarter based upon the timing of the building season in our markets. Severe
weather conditions in any quarter, such as unusually prolonged warm or cold
conditions, rain, blizzards or hurricanes, could accelerate, delay or halt
construction and renovation activity.
Acquisitions and Divestitures
We are pursuing a strategic initiative of optimizing our global business
portfolio. As part of this strategy, in the last several years we have pursued
strategic acquisitions targeting companies who produce components for our
existing operations, manufacture niche products and provide value-added
services. Additionally, we target companies with strong brands, complementary
technologies, attractive geographic footprints and opportunities for cost and
distribution synergies. We also continuously analyze our operations to determine
which businesses, market channels and products create the most value for our
customers and acceptable returns for our shareholders.
Acquisitions
•On August 31, 2020 , we acquired intellectual property and other assets related
to an interior door technology for cash consideration of $1.9 million .
•On August 29, 2019 , we completed the acquisition of TOPDOORS, s.r.o. ("Top
Doors") based in the Czech Republic for cash consideration of $1.8 million , net
of cash acquired, following a post-closing adjustment. Top Doors is a specialist
manufacturer of door frames.
Divestitures
•During the second quarter of 2020, we completed the liquidation of our legal
entity in India . As a result, we recognized $2.1 million in loss on disposal of
subsidiaries.
•On December 13, 2019 , we completed the sale of all the capital stock of Window
Widgets Limited ("WW"), a leading United Kingdom provider of high quality window
systems, for consideration of $1.2 million , net of cash disposed.
•On March 21, 2019 , we completed the sale of all of the capital stock of
Performance Doorset Solutions Limited ("PDS"), a leading supplier of custom
doors and millwork in the United Kingdom , for nominal consideration. The
divestiture of this business resulted in a loss on deconsolidation of $4.6
million , which was recognized during the first quarter of 2019 in the Europe
segment.
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MASONITE INTERNATIONAL CORPORATION
Results of Operations
Three Months Ended Nine Months Ended
September 27, September 29,
(In thousands) 2020 2019 September 27, 2020 September 29, 2019
Net sales $ 587,652 $ 552,192 $ 1,638,538 $ 1,645,446
Cost of goods sold 427,331 426,588 1,207,582 1,278,808
Gross profit 160,321 125,604 430,956 366,638
Gross profit as a % of net sales 27.3 % 22.7 % 26.3 % 22.3 %
Selling, general and administration
expenses 118,354 77,573 272,077 233,815
Selling, general and administration
expenses as a % of net sales 20.1 % 14.0 % 16.6 % 14.2 %
Restructuring costs 1,895 1,994 4,984 7,095
Asset impairment 51,515 - 51,515 13,767
Loss on disposal of subsidiaries - - 2,091 4,605
Operating income (loss) (11,443) 46,037 100,289 107,356
Interest expense, net 11,805 11,909 34,911 34,393
Loss on extinguishment of debt - 14,523 - 14,523
Other expense (income), net (1,953) (824) (3,350) (2,410)
Income (loss) before income tax expense (21,295) 20,429 68,728 60,850
Income tax expense (benefit) (804) 4,334 23,522 14,685
Net income (loss) (20,491) 16,095 45,206 46,165
Less: net income attributable to
non-controlling interests 1,275 1,126 3,090 3,165
Net income (loss) attributable to
Masonite $ (21,766) $ 14,969 $ 42,116 $ 43,000
Three Months Ended September 27, 2020 , Compared with Three Months Ended
September 29, 2019
Net Sales
Net sales in the three months ended September 27, 2020 , were $587.7 million , an
increase of $35.5 million or 6.4% from $552.2 million in the three months ended
September 29, 2019 . Net sales in the third quarter of 2020 were positively
impacted by $1.0 million as a result of foreign exchange rate fluctuations.
Excluding this exchange rate impact, net sales would have increased by $34.5
million or 6.2% due to changes in volume, average unit price, acquisitions and
divestitures and sales of components and other products. Average unit price
increased net sales in the third quarter of 2020 by $51.2 million or 9.3%
compared to the 2019 period. Net sales of components and other products to
external customers increased $2.3 million or 0.4% in the third quarter of 2020
compared to the 2019 period. Lower volumes excluding the incremental impact of
acquisitions and divestitures ("base volume") decreased net sales by $14.6
million or 2.6% in the third quarter of 2020 compared to the 2019 period. Our
2019 divestiture, net of acquisition, decreased net sales by $4.4 million or
0.8% in the third quarter of 2020.
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MASONITE INTERNATIONAL CORPORATION
Three Months
Ended
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Sales $ 421,186 $ 75,192 $ 92,021 $ 6,100 $ 594,499
Intersegment sales (654) (910) (5,283) - (6,847)
Net sales to external customers $ 420,532 $ 74,282 $ 86,738 $ 6,100 $ 587,652
Percentage of consolidated
external net sales 71.6 % 12.6 % 14.8 %
Three Months Ended September 29, 2019
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Sales $ 374,612 $ 76,308 $ 100,707 $ 5,814 $ 557,441
Intersegment sales (701) (343) (4,205) - (5,249)
Net sales to external customers $ 373,911 $ 75,965 $ 96,502 $ 5,814 $ 552,192
Percentage of consolidated
external net sales 67.7 % 13.8 % 17.5 %
North American Residential
Net sales to external customers from facilities in the North American
Residential segment in the three months ended September 27, 2020 , were $420.5
million , an increase of $46.6 million or 12.5% from $373.9 million in the three
months ended September 29, 2019 . Net sales in the third quarter of 2020 were
negatively impacted by $2.2 million as a result of foreign exchange rate
fluctuations. Excluding this exchange rate impact, net sales would have
increased by $48.8 million or 13.1% due to changes in volume, average unit price
and sales of components and other products. Average unit price increased net
sales in the third quarter of 2020 by $46.7 million or 12.5% compared to the
2019 period primarily as a result of our previously communicated price increases
that became effective on February 3, 2020 . Higher base volume increased net
sales in the third quarter of 2020 by $0.8 million or 0.2% compared to the 2019
period. Net sales of components and other products to external customers were
$1.3 million higher in the third quarter of 2020 compared to the 2019 period.
Europe
Net sales to external customers from facilities in the Europe segment in the
three months ended September 27, 2020 , were $74.3 million , a decrease of $1.7
million or 2.2% from $76.0 million in the three months ended September 29, 2019 .
Net sales in the third quarter of 2020 were positively impacted by $3.3 million
as a result of foreign exchange fluctuations. Excluding this exchange rate
impact, net sales would have decreased by $5.0 million or 6.6% due to changes in
volume, average unit price, acquisitions and divestitures and sales of
components and other products. Net sales in the third quarter of 2020 were
reduced by $4.4 million or 5.8% due to the net impact of the divestiture of a
non-core business in 2019, partially offset by incremental sales from the Top
Doors acquisition. Lower base volume decreased net sales by $1.9 million or 2.5%
in the third quarter of 2020 compared to the 2019 period. Net sales of
components and other products to external customers were $0.9 million higher in
the third quarter of 2020 compared to the 2019 period. Average unit price
increased net sales in the third quarter of 2020 by $0.4 million or 0.5%
compared to the 2019 period.
Architectural
Net sales to external customers from facilities in the Architectural segment in
the three months ended September 27, 2020 , were $86.7 million , a decrease of
$9.8 million or 10.2% from $96.5 million in the three months ended September 29,
2019 . Net sales in the third quarter of 2020 were negatively impacted by $0.1
million as a result of foreign exchange fluctuations. Excluding this exchange
rate impact, net sales would have decreased by $9.7 million or 10.1% due to
changes in volume, average unit price and sales of components and other
products. Lower base volume
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MASONITE INTERNATIONAL CORPORATION decreased net sales in the third quarter of 2020 by$13.7 million or 14.2% compared to the 2019 period primarily as a result of COVID-19. Net sales of components and other products to external customers were$0.1 million lower in the third quarter of 2020 compared to the 2019 period. Average unit price increased net sales in the third quarter of 2020 by$4.1 million or 4.2% compared to the 2019 period. Cost of Goods Sold Cost of goods sold as a percentage of net sales was 72.7% and 77.3% for the three months endedSeptember 27, 2020 , andSeptember 29, 2019 , respectively. Material cost of sales, direct labor costs, overhead and distribution costs as a percentage of net sales decreased by 3.2%, 1.1%, 0.2% and 0.1% respectively, compared to the 2019 period. Depreciation as a percentage of sales in the third quarter of 2020 was flat as a percentage of sales compared to the third quarter of 2019. The decrease in material cost of sales as a percentage of net sales was driven by higher average unit prices and material cost savings projects that more than offset investments in quality and commodity inflation. Direct labor as a percentage of net sales decreased due to prior year restructuring actions, partially offset by manufacturing wage inflation. The decrease in overhead as a percentage of net sales was driven by higher average unit prices, partially offset by wage inflation and increased plant maintenance. Selling, General and Administration Expenses In the three months endedSeptember 27, 2020 , selling, general and administration ("SG&A") expenses, as a percentage of net sales, were 20.1%, as compared to 14.0% in the three months endedSeptember 29, 2019 , an increase of 610 basis points. SG&A expenses in the three months endedSeptember 27, 2020 , were$118.4 million , an increase of$40.8 million from$77.6 million in the three months endedSeptember 29, 2019 . The overall increase was driven by a$37.8 million legal reserve related to the previously disclosed settlement ofU.S. class action litigation, a$6.4 million increase in personnel costs primarily due to incentive compensation and resource investments to support growth, unfavorable foreign exchange impacts of$0.5 million and a net$0.7 million increase in non-cash items in SG&A expenses, including share based compensation, loss (gain) on disposal of property, plant and equipment, deferred compensation and depreciation and amortization. These increases were partially offset by a$2.4 million decrease in travel expense and a$0.5 million decrease in advertising expense as a result of COVID-19, as well as a$1.3 million decrease in professional and other fees and incremental SG&A savings from our 2019 divestitures (net of acquisition) of$0.4 million . Restructuring Costs Restructuring costs in the three months endedSeptember 27, 2020 , andSeptember 29, 2019 , were$1.9 million and$2.0 million , respectively. Restructuring costs in the current year related primarily to the 2019 Plan. Restructuring costs in the prior year period related to the 2019 and 2018 Plans. Asset Impairment Asset impairment charges in the three months endedSeptember 27, 2020 , were$51.5 million , and represent a goodwill impairment charge recorded in our Architectural reporting unit. Refer to Note 10. Asset Impairment, in Item 1 of this Quarterly Report for additional information. There were no asset impairment charges in the three months endedSeptember 29, 2019 . Loss on Disposal of Subsidiaries There was no loss on disposal of subsidiaries in the three months endedSeptember 27, 2020 , andSeptember 29, 2019 . Interest Expense, Net Interest expense, net, in the three months endedSeptember 27, 2020 , was$11.8 million , compared to$11.9 million in the three months endedSeptember 29, 2019 , remaining relatively flat as compared to the 2019 period. 26 --------------------------------------------------------------------------------
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MASONITE INTERNATIONAL CORPORATION
Loss on Extinguishment of Debt
There was no loss on extinguishment of debt in the three months ended
September 27, 2020 . Loss on extinguishment of debt was $14.5 million in the
three months ended September 29, 2019 . Loss on extinguishment of debt in the
prior year was related to the redemption of our senior unsecured notes due 2023.
Other Expense (Income), Net
Other expense (income), net, in the three months ended September 27, 2020 , was
$2.0 million of income, compared to $0.8 million of income in the three months
ended September 29, 2019 . The change in other expense (income), net is primarily
due to a change in the fair value of plan assets in the deferred compensation
rabbi trust and a decrease in pension expense.
Income Tax Expense
Income tax benefit in the three months ended September 27, 2020 , was $0.8
million , compared to $4.3 million of income tax expense in the three months
ended September 29, 2019 . The decrease in income tax expense is primarily due to
the mix of income or losses within the tax jurisdictions with various tax rates
in which we operate. We recognized discrete items resulting in$1.2 million of
income tax expense in the three months ended September 27, 2020 , compared to
$0.8 million of income tax benefit recorded in the three months ended
September 29, 2019 . The discrete income tax expense for the period is primarily
attributable to a change in tax rate applied to certain deferred tax assets and
liabilities.
Segment Information
Three Months Ended September 27, 2020
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Adjusted EBITDA $ 97,492 $ 15,021 $ 11,126 $ (14,639) $ 109,000
Adjusted EBITDA as a percentage
of segment net sales 23.2 % 20.2 % 12.8 % 18.5 %
Three Months Ended September 29, 2019
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Adjusted EBITDA $ 61,549 $ 10,645 $ 13,920 $ (10,270) $ 75,844
Adjusted EBITDA as a percentage
of segment net sales 16.5 % 14.0 % 14.4 % 13.7 %
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MASONITE INTERNATIONAL CORPORATION
The following reconciles net income (loss) attributable to Masonite to Adjusted EBITDA:
Three
Months Ended
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Net income (loss) attributable to
Masonite $ 85,889 $ 9,655 $ (45,074) $ (72,236) $ (21,766)
Plus:
Depreciation 8,868 2,437 3,088 3,488 17,881
Amortization 508 3,354 1,268 389 5,519
Share based compensation expense - - - 6,299 6,299
Loss (gain) on disposal of
property, plant and equipment (391) (317) 247 45 (416)
Restructuring costs 1,746 - 82 67 1,895
Asset impairment - - 51,515 - 51,515
Interest expense, net - - - 11,805 11,805
Other expense (income), net - (108) - (1,845) (1,953)
Income tax expense - - - (804) (804)
Other items (1) - - - 37,750 37,750
Net income attributable to
non-controlling interest 872 - - 403 1,275
Adjusted EBITDA $ 97,492 $ 15,021 $ 11,126 $ (14,639) $ 109,000
____________
(1) Other items not part of our underlying business performance include $37,750
in legal reserves related to the previously disclosed settlement of U.S. class
action litigation in the three months ended September 27, 2020 , and were
recorded in selling, general and administration expenses within the condensed
consolidated statements of comprehensive income (loss). Refer to Note 7.
Commitments and Contingencies, in Item 1 of this Quarterly Report for additional
information.
Three
Months Ended
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Net income (loss) attributable to
Masonite $ 49,525 $ 3,794 $ 9,263 $ (47,613) $ 14,969
Plus:
Depreciation 8,582 2,916 2,566 2,295 16,359
Amortization 377 3,494 2,059 1,124 7,054
Share based compensation expense - - - 3,695 3,695
Loss on disposal of property,
plant and equipment 646 57 - 2 705
Restructuring costs 1,761 257 32 (56) 1,994
Interest expense, net - - - 11,909 11,909
Loss on extinguishment of debt - - - 14,523 14,523
Other expense (income), net (86) 127 - (865) (824)
Income tax expense - - - 4,334 4,334
Net income attributable to
non-controlling interest 744 - - 382 1,126
Adjusted EBITDA $ 61,549 $ 10,645 $ 13,920 $ (10,270) $ 75,844
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MASONITE INTERNATIONAL CORPORATION Adjusted EBITDA in our North American Residential segment increased$35.9 million , or 58.4%, to$97.5 million in the three months endedSeptember 27, 2020 , from$61.5 million in the three months endedSeptember 29, 2019 . Adjusted EBITDA in the North American Residential segment included corporate allocations of shared costs of$16.3 million and$14.0 million , in the third quarter of 2020 and 2019, respectively. The allocations generally consist of certain costs of human resources, legal, finance, information technology, research and development and share based compensation. Adjusted EBITDA in ourEurope segment increased$4.4 million , or 41.1%, to$15.0 million in the three months endedSeptember 27, 2020 , from$10.6 million in the three months endedSeptember 29, 2019 . Adjusted EBITDA in theEurope segment included corporate allocations of shared costs of$0.3 million in both the third quarter of 2020 and 2019. The allocations generally consist of certain costs of human resources, legal, finance and information technology. Adjusted EBITDA in our Architectural segment decreased$2.8 million , or 20.1%, to$11.1 million in the three months endedSeptember 27, 2020 , from$13.9 million in the three months endedSeptember 29, 2019 . Adjusted EBITDA in the Architectural segment also included corporate allocations of shared costs of$2.7 million in both the third quarter of 2020 and 2019. The allocations generally consist of certain costs of human resources, legal, finance, information technology and research and development. Nine Months EndedSeptember 27, 2020 , Compared with Nine Months EndedSeptember 29, 2019 Net Sales Net sales in the nine months endedSeptember 27, 2020 , were$1,638.5 million , a decrease of$6.9 million or 0.4% from$1,645.4 million in the nine months endedSeptember 29, 2019 . Net sales in the first nine months of 2020 were negatively impacted by$6.1 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have decreased by$0.8 million and were flat due to changes in volume, average unit price, acquisitions and divestitures and sales of components and other products. Lower base volumes decreased net sales by$91.9 million or 5.6% in the first nine months of 2020 compared to the same period in 2019. Our 2019 divestitures, net of acquisition, decreased net sales by$16.0 million or 1.0% in the first nine months of 2020. Net sales of components and other products to external customers were$4.5 million lower in the first nine months of 2020 compared to the same period in 2019. Average unit price increased net sales in the first nine months of 2020 by$111.6 million or 6.8% compared to the same period in 2019.Net Sales and Percentage ofNet Sales by Reportable Segment Nine Months
Ended
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Sales $ 1,187,239 $ 176,778 $ 275,972 $ 14,493 $ 1,654,482
Intersegment sales (1,685) (1,882) (12,377) - (15,944)
Net sales to external customers
263,595 $ 14,493 $ 1,638,538
Percentage of consolidated
external net sales 72.4 % 10.7 % 16.1 %
Nine Months Ended September 29, 2019
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Sales $ 1,109,919 $ 242,408 $ 290,206 $ 17,741 $ 1,660,274
Intersegment sales (2,673) (1,223) (10,932) - (14,828)
Net sales to external customers
279,274 $ 17,741 $ 1,645,446
Percentage of consolidated
external net sales 67.3 % 14.7 % 17.0 %
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MASONITE INTERNATIONAL CORPORATION North American Residential Net sales to external customers from facilities in the North American Residential segment in the nine months endedSeptember 27, 2020 , were$1,185.6 million , an increase of$78.4 million or 7.1% from$1,107.2 million in the nine months endedSeptember 29, 2019 . Net sales in the first nine months of 2020 were negatively impacted by$6.6 million as a result of foreign exchange rate fluctuations. Excluding this exchange rate impact, net sales would have increased by$85.0 million or 7.7% due to changes in volume, average unit price and sales of components and other products. Average unit price increased net sales in the first nine months of 2020 by$94.9 million or 8.6% compared to the 2019 period primarily as a result of our previously communicated price increases that became effective onFebruary 3, 2020 . Net sales of components and other products to external customers were$0.8 million higher in the first nine months of 2020 compared to the same period in 2019. Lower base volume decreased net sales by$10.7 million or 1.0% in the first nine months of 2020 compared to the same period in 2019.Europe Net sales to external customers from facilities in theEurope segment in the nine months endedSeptember 27, 2020 , were$174.9 million , a decrease of$66.3 million or 27.5% from$241.2 million in the nine months endedSeptember 29, 2019 . Net sales in 2020 were positively impacted by$1.1 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by$67.4 million or 27.9% due to changes in volume, average unit price, acquisitions and divestitures and sales of components and other products. Lower base volume, primarily due to our manufacturing facilities being closed approximately half of the second quarter and other impacts as a result of COVID-19, decreased net sales in the first nine months of 2020 by$52.6 million or 21.8% compared to the same period in 2019. Net sales in the first nine months of 2020 were reduced by$16.0 million or 6.6% due to the net impact of divestitures and an acquisition, including the divestitures of three non-core businesses in 2019, partially offset by incremental sales from the Top Doors acquisition. Average unit price increased net sales in the first nine months of 2020 by$1.0 million or 0.4% compared to the same period in 2019. Net sales of components and other products to external customers were$0.2 million higher in the first nine months of 2020 compared to the same period in 2019. Architectural Net sales to external customers from facilities in the Architectural segment in the nine months endedSeptember 27, 2020 , were$263.6 million , a decrease of$15.7 million or 5.6% from$279.3 million in the nine months endedSeptember 29, 2019 . Net sales in 2020 were negatively impacted by$0.5 million as a result of foreign exchange fluctuations. Excluding this exchange rate impact, net sales would have decreased by$15.2 million or 5.4% due to changes in volume, average unit price and sales of components and other products. Lower base volume decreased net sales in the first nine months of 2020 by$29.0 million or 10.4% compared to the 2019 period primarily as a result of COVID-19. Net sales of components and other products to external customers decreased net sales by$1.9 million or 0.7% in the first nine months of 2020 compared to the same period in 2019. Average unit price increased net sales in the first nine months of 2020 by$15.7 million or 5.6% compared to the 2019 period. Cost of Goods Sold Cost of goods sold as a percentage of net sales was 73.7% and 77.7% for the nine months endedSeptember 27, 2020 , andSeptember 29, 2019 , respectively. Material cost of sales, direct labor and distribution costs as a percentage of net sales in the first nine months of 2020 decreased by 3.4%, 0.7% and 0.1%, respectively. Partially offsetting these decreases, overhead as a percentage of net sales increased by 0.2% compared to the 2019 period. Depreciation in the first nine months of 2020 was flat as a percentage of sales compared to the first nine months of 2019. The decrease in material cost of sales as a percentage of net sales was driven by higher average unit prices and material cost savings projects that more than offset commodity inflation, an increase in tariffs and investments in quality. Direct labor as a percentage of net sales decreased due to prior year restructuring actions, partially offset by manufacturing wage inflation. Overhead as a percentage of net sales was negatively impacted by decreased volumes, wage inflation and increased plant maintenance, partially offset by higher average unit prices as compared to the 2019 period. 30 --------------------------------------------------------------------------------
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MASONITE INTERNATIONAL CORPORATION Selling, General and Administration Expenses In the nine months endedSeptember 27, 2020 , selling, general and administration ("SG&A") expenses, as a percentage of net sales, were 16.6% compared to 14.2% the nine months endedSeptember 29, 2019 , an increase of 240 basis points. SG&A expenses in the nine months endedSeptember 27, 2020 , were$272.1 million , an increase of$38.3 million from$233.8 million in the nine months endedSeptember 29, 2019 . The overall increase was driven by$37.8 million legal reserve related to the previously disclosed settlement ofU.S. class action litigation, a$9.0 million increase in personnel costs primarily due to incentive compensation and resource investments to support growth, a$3.3 million increase in professional and other fees including legal costs associated with the previously disclosed litigation and unfavorable foreign exchange impacts of$0.1 million . These increases were partially offset by a$6.2 million reduction in travel expense and a$2.8 million decrease in advertising expense as a result of COVID-19, as well as a$1.6 million decrease in non-cash items including depreciation and amortization, deferred compensation, loss on disposal of property, plant and equipment and share based compensation and$1.3 million of incremental SG&A savings from our 2019 divestitures (net of acquisition). Restructuring Costs Restructuring costs in the nine months endedSeptember 27, 2020 , were$5.0 million , compared to$7.1 million in the nine months endedSeptember 29, 2019 . Asset Impairment Asset impairment charges in the nine months endedSeptember 27, 2020 , were$51.5 million , and represent a goodwill impairment charge recorded in our Architectural reporting unit. Refer to Note 10. Asset Impairment, in Item 1 of this Quarterly Report for additional information. Asset impairment charges in the nine months endedSeptember 29, 2019 , were$13.8 million . Asset impairment charges in 2019 resulted from actions associated with the 2019 Plan. Loss on Disposal of Subsidiaries Loss on disposal of subsidiaries in the nine months endedSeptember 27, 2020 , was$2.1 million , compared to$4.6 million in the nine months endedSeptember 29, 2019 . The current year loss arose as a result of the liquidation of our legal entity inIndia and is comprised of the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss of$2.3 million and$0.2 million relating to the write-off of net assets and other professional fees. The loss in the prior year was related to the sale of PDS for nominal consideration during the first nine months of 2019. The total charge consisted of$3.6 million relating to the write-off of the net assets sold and other professional fees and$1.0 million relating to the recognition of the cumulative translation adjustment out of accumulated other comprehensive loss. Interest Expense, Net Interest expense, net, in the nine months endedSeptember 27, 2020 , was$34.9 million , compared to$34.4 million in the nine months endedSeptember 29, 2019 , remaining relatively flat as compared to the 2019 period. Loss on Extinguishment of Debt There was no loss on extinguishment of debt in the nine months endedSeptember 27, 2020 . Loss on extinguishment of debt was$14.5 million in the nine months endedSeptember 29, 2019 . Loss on extinguishment of debt in the prior year was related to the redemption of our senior unsecured notes due 2023. Other Expense (Income), Net Other expense (income), net, in the nine months endedSeptember 27, 2020 , was$3.4 million of income, compared to$2.4 million of income in the nine months endedSeptember 29, 2019 . The change in other expense (income), net is primarily due to a decrease in pension expense and an increase in other miscellaneous non-operating income net of expenses, partially offset by a change in our portion of the net gains and losses related to our non-majority owned unconsolidated subsidiaries that are recognized under the equity method of accounting and a change in the fair value of plan assets in the deferred compensation rabbi trust. 31 --------------------------------------------------------------------------------
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MASONITE INTERNATIONAL CORPORATION
Income Tax Expense
Our income tax expense in the nine months ended September 27, 2020 , was $23.5
million , compared to $14.7 million of income tax expense in the nine months
ended September 29, 2019 . The increase in income tax expense is primarily due to
the mix of income or losses within the tax jurisdictions with various tax rates
in which we operate, as well as a decrease in discrete income tax benefits. We
recognized discrete items resulting in income tax expense of $1.1 million the
nine months ended September 27, 2020 , compared to $1.3 million of income tax
benefit recorded in the nine months ended September 29, 2019 . The discrete
income tax expense for the period is primarily attributable to a change in tax
rate applied to certain deferred tax assets and liabilities.
Segment Information
Nine Months
Ended
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Adjusted EBITDA $ 260,319 $ 23,782 $ 33,208 $ (34,900) $ 282,409
Adjusted EBITDA as a percentage
of segment net sales 22.0 % 13.6 % 12.6 % 17.2 %
Nine Months Ended September 29, 2019
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Adjusted EBITDA $ 178,571 $ 34,050 $ 34,312 $ (25,877) $ 221,056
Adjusted EBITDA as a
percentage of segment net
sales 16.1 % 14.1 % 12.3 % 13.4 %
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MASONITE INTERNATIONAL CORPORATION
The following reconciles net income (loss) attributable to Masonite to Adjusted EBITDA:
Nine
Months Ended
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Net income (loss) attributable to
Masonite $ 224,541 $ 6,762 $ (35,511) $ (153,676) $ 42,116
Plus:
Depreciation 26,961 7,261 8,687 7,833 50,742
Amortization 1,615 10,186 4,940 1,159 17,900
Share based compensation expense - - - 13,509 13,509
Loss (gain) on disposal of
property, plant and equipment 1,319 (307) 2,547 70 3,629
Restructuring costs 3,509 (37) 1,030 482 4,984
Asset impairment - - 51,515 - 51,515
Loss on disposal of subsidiaries - - - 2,091 2,091
Interest expense, net - - - 34,911 34,911
Other expense (income), net - (83) - (3,267) (3,350)
Income tax expense - - - 23,522 23,522
Other items (1) - - - 37,750 37,750
Net income attributable to
non-controlling interest 2,374 - - 716 3,090
Adjusted EBITDA $ 260,319 $ 23,782 $ 33,208 $ (34,900) $ 282,409
____________
(1) Other items not part of our underlying business performance include $37,750
in legal reserves related to the previously disclosed settlement of U.S. class
action litigation in the nine months ended September 27, 2020 , and were recorded
in selling, general and administration expenses within the condensed
consolidated statements of comprehensive income (loss). Refer to Note 7.
Commitments and Contingencies, in Item 1 of this Quarterly Report for additional
information.
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MASONITE INTERNATIONAL CORPORATION
Nine
Months Ended
North American Corporate &
(In thousands) Residential Europe Architectural Other Total
Net income (loss) attributable to
Masonite $ 126,615 $ 6,831 $ 18,528 $ (108,974) $ 43,000
Plus:
Depreciation 27,461 7,652 8,812 8,920 52,845
Amortization 1,263 11,115 6,306 3,296 21,980
Share based compensation expense - - - 8,468 8,468
Loss on disposal of property,
plant and equipment 2,097 2,674 146 23 4,940
Restructuring costs 4,954 1,220 518 403 7,095
Asset impairment 13,767 - - - 13,767
Loss on disposal of subsidiaries - 4,605 - - 4,605
Interest expense, net - - - 34,393 34,393
Loss on extinguishment of debt - - - 14,523 14,523
Other expense (income), net - (47) 2 (2,365) (2,410)
Income tax expense - - - 14,685 14,685
Net income attributable to
non-controlling interest 2,414 - - 751 3,165
Adjusted EBITDA $ 178,571 $ 34,050 $ 34,312 $ (25,877) $ 221,056
Adjusted EBITDA in our North American Residential segment increased $81.7
million , or 45.8%, to $260.3 million in the nine months ended September 27,
2020 , from $178.6 million in the nine months ended September 29, 2019 . Adjusted
EBITDA in the North American Residential segment included corporate allocations
of shared costs of $48.8 million and $41.9 million in the first nine months of
2020 and 2019, respectively. The allocations generally consist of certain costs
of human resources, legal, finance, information technology, research and
development and share based compensation.
Adjusted EBITDA in our Europe segment decreased $10.3 million , or 30.2%, to
$23.8 million in the nine months ended September 27, 2020 , from $34.1 million in
the nine months ended September 29, 2019 . Adjusted EBITDA in the Europe segment
included corporate allocations of shared costs of $0.8 million in the first nine
months of 2020 and 2019. The allocations generally consist of certain costs of
human resources, legal, finance and information technology.
Adjusted EBITDA in our Architectural segment decreased $1.1 million , or 3.2%, to
$33.2 million in the nine months ended September 27, 2020 , from $34.3 million in
the nine months ended September 29, 2019 . Adjusted EBITDA in the Architectural
segment also included corporate allocations of shared costs of $8.1 million and
$8.0 million in the first nine months of 2020 and 2019, respectively. The
allocations generally consist of certain costs of human resources, legal,
finance, information technology and research and development.
Liquidity and Capital Resources
Our liquidity needs for operations vary throughout the year. Our principal
sources of liquidity are cash flows from operating activities, the borrowings
under our ABL Facility and an accounts receivable sales program with a third
party ("AR Sales Program") and our existing cash balance. Our anticipated uses
of cash in the near term include working capital needs, capital expenditures for
critical maintenance, safety and regulatory projects, and share repurchases. On
a continual basis, we evaluate and consider strategic acquisitions,
divestitures, and joint ventures to create shareholder value and enhance
financial performance.
Due to the highly uncertain nature and duration of the COVID-19 pandemic and its
impact on our customers, suppliers and employees, we are unable to fully
estimate the extent of the impact it may have on our future financial condition
and liquidity. We anticipate capital expenditures in fiscal year 2020 will be
approximately $60 million to $70 million as compared to our original estimate of
$70 million to $75 million as previously disclosed under "Key Factors
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MASONITE INTERNATIONAL CORPORATION Affecting Our Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 29, 2019 . We believe that our cash balance on hand, future cash generated from operations, the use of our AR Sales Program, our ABL Facility, and ability to access the capital markets will provide adequate liquidity for the foreseeable future. As ofSeptember 27, 2020 , we had$300.8 million of cash and cash equivalents, availability under our ABL Facility of$205.6 million and availability under our AR Sales Program of$15.4 million . Cash Flows Cash provided by operating activities was$219.3 million during the nine months endedSeptember 27, 2020 , compared to$138.4 million in the nine months endedSeptember 29, 2019 . This$80.9 million increase in cash provided by operating activities was due to changes in net working capital, a$23.4 million increase in other assets and liabilities and a$17.7 million increase in net income attributable to Masonite, adjusted for non-cash and non-operating items in the first nine months of 2020 compared to the same period in 2019. Cash used in investing activities was$44.5 million during the nine months endedSeptember 27, 2020 , compared to$59.1 million in the nine months endedSeptember 29, 2019 . This$14.6 million decrease in cash used in investing activities was driven by a$9.7 million decrease in cash additions to property, plant and equipment and a net decrease in other investing outflows of$4.9 million driven by proceeds from sale of property, plant and equipment in the first nine months of 2020 compared to the same period in 2019. Cash used in financing activities was$41.5 million during the nine months endedSeptember 27, 2020 , compared to$84.1 million during the nine months endedSeptember 29, 2019 . This$42.5 million decrease in cash used in financing activities was driven by a$23.6 million decrease in cash used for repurchases of common shares and a$20.8 million decrease in cash used for debt-related transactions, partially offset by a$1.3 million increase in cash used for tax withholding on share based awards and a$0.6 million increase in distributions to non-controlling interests in the first nine months of 2020 compared to the same period in 2019. Share Repurchases We currently have in place a$600.0 million share repurchase authorization, stemming from three separate authorizations by our Board of Directors. During the nine months endedSeptember 27, 2020 , we repurchased and retired 567,271 of our common shares in the open market at an aggregate cost of$34.8 million as part of the share repurchase programs, prior to temporarily suspending our repurchase program onMarch 18, 2020 . During the third quarter, the temporary suspension was removed. We did not repurchase any of our common shares in the open market during the three months endedSeptember 27, 2020 . During the nine months endedSeptember 29, 2019 , we repurchased 1,148,815 of our common shares in the open market at an aggregate cost of$58.4 million . As ofSeptember 27, 2020 , there was$109.3 million available for repurchase in accordance with the share repurchase programs. Other Liquidity Matters Our cash and cash equivalents balance includes cash held in foreign countries in which we operate. Cash held outsideCanada , in which we are incorporated, is free from significant restrictions that would prevent the cash from being accessed to meet our liquidity needs including, if necessary, to fund operations and service debt obligations inCanada . However, earnings from certain jurisdictions are indefinitely reinvested in those jurisdictions. Upon the repatriation of any earnings toCanada , in the form of dividends or otherwise, we may be subject to Canadian income taxes and withholding taxes payable to the various foreign countries. As ofSeptember 27, 2020 , we do not believe adverse tax consequences exist that restrict our use of cash or cash equivalents in a material manner. We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations. There has not been a change in the financial condition of any customer that has had a material adverse effect on our results of operations in the first nine months of 2020. However, in light of COVID-19, it is possible there could be an impact on our results of operations in a future period and this impact could be material. Accounts Receivable Sales Program Under the AR Sales Program, we can transfer ownership of eligible trade accounts receivable of certain customers. Receivables are sold outright to a third partywho assumes the full risk of collection, without recourse to us in the event of a loss. Transfers of receivables under this program are accounted for as sales. Proceeds from the transfers 35 --------------------------------------------------------------------------------
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MASONITE INTERNATIONAL CORPORATION reflect the face value of the accounts receivable less a discount. Receivables sold under the AR Sales Program are excluded from trade accounts receivable in the condensed consolidated balance sheets and are included in cash flows from operating activities in the condensed consolidated statements of cash flows. The discounts on the sales of trade accounts receivable sold, if any, under the AR Sales Program were not material for any of the periods presented and were recorded in selling, general and administration expense within the condensed consolidated statements of comprehensive income (loss). 5.375% Senior Notes due 2028 OnJuly 25, 2019 , we issued$500.0 million aggregate principal senior unsecured notes (the "2028 Notes"), all of which was outstanding as ofSeptember 27, 2020 . The 2028 Notes bear interest at 5.375% per annum. The net proceeds from issuance of the 2028 Notes, together with available cash balances, were used to redeem the remaining$500.0 million aggregate principal amount of similar senior unsecured notes, including the payment of related premiums, fees and expenses. The 2028 Notes were issued under an indenture which contains restrictive covenants that are described in detail in our Annual Report on Form 10-K for the year endedDecember 29, 2019 . As ofSeptember 27, 2020 , we were in compliance with all covenants under the indenture governing the 2028 Notes. 5.750% Senior Notes due 2026 OnAugust 27, 2018 , we issued$300.0 million aggregate principal senior unsecured notes (the "2026 Notes"), all of which were outstanding as ofMarch 29, 2020 . The 2026 Notes bear interest at 5.750% per annum. The 2026 Notes were issued under an indenture which contains restrictive covenants that are described in detail in our Annual Report on Form 10-K for the year endedDecember 29, 2019 . As ofSeptember 27, 2020 , we were in compliance with all covenants under the indenture governing the 2026 Notes. ABL Facility OnJanuary 31, 2019 , we and certain of our subsidiaries entered into a$250.0 million asset-based revolving credit facility (the "ABL Facility") maturing onJanuary 31, 2024 , which replaced the previous facility. Borrowings under the ABL Facility bear interest at a rate which is described in more detail in Note 6. The ABL Facility contains various customary representations, warranties by us and covenants that are described in detail in our Annual Report on Form 10-K for the year endedDecember 29, 2019 . As ofSeptember 27, 2020 , we were in compliance with all covenants under the credit agreement governing the ABL Facility. We had availability of$205.6 million under our ABL Facility and there were no amounts outstanding as ofSeptember 27, 2020 . Supplemental Guarantor Financial Information Our obligations under the 2028 Notes and 2026 Notes and the ABL Facility are fully and unconditionally guaranteed, jointly and severally, by certain of our directly or indirectly wholly-owned subsidiaries. The following unaudited supplemental financial information for our non-guarantor subsidiaries is presented: Our non-guarantor subsidiaries generated external net sales of$522.4 million and$491.9 million for the three months endedSeptember 27, 2020 , andSeptember 29, 2019 , respectively, and$1.5 billion for both the nine months endedSeptember 27, 2020 , andSeptember 29, 2019 . Our non-guarantor subsidiaries generated Adjusted EBITDA of$94.0 million and$65.0 million for the three months endedSeptember 27, 2020 , andSeptember 29, 2019 , respectively, and$238.7 million and$189.8 million for the nine months endedSeptember 27, 2020 , andSeptember 29, 2019 , respectively. Our non-guarantor subsidiaries had total assets of$2.1 billion and$2.0 billion as ofSeptember 27, 2020 , andDecember 29, 2019 , respectively, and total liabilities of$925.8 million and$834.5 million as ofSeptember 27, 2020 , andDecember 29, 2019 , respectively. Changes in Accounting Standards and Policies Changes in accounting standards and policies are discussed in Note 1. Business Overview and Significant Accounting Policies in the Notes to the Condensed Consolidated Financial Statements in this Quarterly Report. 36 --------------------------------------------------------------------------------
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