Acquisitions and Dispositions

2016 Acquisition

On November 3, 2016 we completed the acquisition of FyreWerks, Inc. (“FyreWerks”), based in Westminster, Colorado. We acquired 100% of the equity interests in FyreWerks for consideration of $8.0 million, net of cash acquired. FyreWerks manufacturers certified fire door and frame cores for use with architectural stile and rail wood panel doors and door frames. The excess purchase price over the fair value of net assets acquired of $7.3 million was allocated to goodwill. The goodwill principally represents anticipated synergies from FyreWerks' integration into our existing Architectural door business. Under Section 338 of the Internal Revenue Code, the acquisition was treated as if it was an asset purchase. Generally, the tax basis of the assets will equal the fair market value at the time of the acquisition and the goodwill is deductible for tax purposes. The purchase price allocation, net sales, net income (loss) attributable to Masonite and pro forma information for FyreWerks are not presented as they were not material for any period presented.

2015 Acquisitions

On October 1, 2015, we completed the acquisition of USA Wood Door, Inc. (“USA Wood Door”), based in Thorofare, New Jersey. We acquired 100% of the equity interests in USA Wood Door for consideration of $13.7 million, net of cash acquired. USA Wood Door is a supplier of architectural and commercial wood doors in the Eastern United States providing door and hardware distributors with machining, resizing and value-added additions to both unfinished and prefinished doors in short lead times. The excess purchase price over the fair value of net assets acquired of $8.9 million was allocated to goodwill in our Architectural segment. The goodwill principally represents the anticipated synergies to be gained from the integration into our existing North America door business. Under Section 338 of the Internal Revenue Code, the acquisition was treated as if it was an asset purchase. Generally, the tax basis of the assets will equal the fair market value at the time of the acquisition and the goodwill is deductible for tax purposes. The USA Wood Door acquisition acts as an extension of our distribution network in North America.

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 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 segment. The PDS acquisition complements our existing United Kingdom business.

The aggregate consideration paid for acquisitions during 2015 was as follows:



(In thousands)	USA Wood Door			Hickman			PDS			Total 2015 Acquisitions
Accounts Receivable	$	2,235		$	20,870		$	3,000		$	26,105
Inventory	1,677			11,090			1,438			14,205
Property, plant and equipment	2,600			14,057			5,684			22,341
Goodwill	8,921			18,215			3,145			30,281
Intangible assets	—			55,634			6,437			62,071
Accounts payable and accrued expenses	(1,654		)	(23,972		)	(2,218		)	(27,844		)
Other assets and liabilities, net	(81		)	(7,918		)	(1,762		)	(9,761		)
Cash consideration, net of cash acquired	$	13,698		$	87,976		$	15,724		$	117,398

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 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 $1.7 million, $21.0 million and $2.6 million for the USA Wood Door, Hickman and PDS acquisitions, respectively.

The following schedule represents the amounts of net sales and net income (loss) attributable to Masonite from the 2015 acquisitions which have been included in the consolidated statements of comprehensive income (loss) for the periods indicated subsequent to the acquisition date.



	Year Ended January 1, 2017
(In thousands)	USA Wood Door		Hickman		PDS			Total 2015 Acquisitions
Net sales	$	19,536	$	99,372	$	16,152		$	135,060
Net income (loss) attributable to Masonite	3,682		4,544		(572		)	7,654



	Year Ended January 3, 2016
(In thousands)	USA Wood Door		Hickman		PDS			Total 2015 Acquisitions
Net sales	$	4,790	$	46,657	$	7,059		$	58,506
Net income (loss) attributable to Masonite	367		813		(251		)	929

2014 Acquisitions

On December 1, 2014, we completed the acquisition of Harring Doors Corporation (“Harring”), located 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 Architectural 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 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			Door-Stop			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 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 amounts of net sales and net income (loss) attributable to Masonite from the Door-Stop acquisition which have been included in the consolidated statements of comprehensive income (loss) for the periods indicated subsequent to the acquisition date. Amounts of revenue and earnings included in the consolidated statements of comprehensive income (loss) for Harring were not material for the year ended January 1, 2017.



	Year Ended
(In thousands)	January 1, 2017		January 3, 2016		December 28, 2014
Net sales	$	58,029	$	54,335	$	42,498
Net income (loss) attributable to Masonite	11,726		9,119		4,819

Pro Forma Information

The following unaudited pro forma financial information represents the consolidated financial information as if the acquisitions had been included in our consolidated results beginning on the first day of the fiscal year prior to their respective acquisition dates. Pro forma information relating to the FyreWerks and Harring acquisitions 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.



	Year Ended January 3, 2016
(In thousands, except per share amounts)	Masonite			2015 Acquisitions		Historical Sales to 2015 Acquisitions			Pro Forma
Net sales	$	1,871,965		$	89,013	$	(11,625	)	$	1,949,353
Net income (loss) attributable to Masonite	(47,111		)	5,109		(1,951		)	(43,953		)

Basic earnings (loss) per common share	$	(1.56	)						$	(1.45	)
Diluted earnings (loss) per common share	(1.56		)						(1.45		)



	Year Ended December 28, 2014
(In thousands, except per share amounts)	Masonite			2015 Acquisitions		Historical Sales to 2015 Acquisitions			Door-Stop		Pro Forma
Net sales	$	1,837,700		$	145,240	$	(17,081	)	$	6,659	$	1,972,518
Net income (loss) attributable to Masonite	(37,340		)	3,863		(2,269		)	624		(35,122		)

Basic earnings (loss) per common share	$	(1.26	)								$	(1.19	)
Diluted earnings (loss) per common share	(1.26		)								(1.19		)

Dispositions

Africa

On December 22, 2015, following a comprehensive assessment of Masonite (Africa) Limited (“MAL”), our South African subsidiary, the MAL Board of Directors approved a plan to enter into Business Rescue proceedings, the South African equivalent of bankruptcy proceedings in the United States, similar to a Chapter 11 reorganization. As a result of this plan, a Business Rescue Practitioner was appointed to manage the affairs of the business and we no longer maintained operational control over MAL. For this reason, we deconsolidated MAL effective December 22, 2015.

Subsequent to deconsolidation, we used the cost method to account for our equity investment in MAL, which was reflected as $10.0 million in our consolidated balance sheets as of January 3, 2016, based on the estimated fair value of our portion of MAL’s net assets on the date of deconsolidation. The fair value of the investment in MAL was determined using a discounted future cash flows analysis based upon management's view of the most likely outcomes of the Business Rescue proceedings. The resulting valuation was net of future disposal costs and third party fees. This

valuation was performed on a non-recurring basis and categorized as having Level 3 valuation inputs as established by the FASB's Fair Value Framework. The Level 3 unobservable inputs included an estimate of future cash flows for the business.

On May 5, 2016, the Business Rescue Practitioner proposed a business rescue plan that would result in the sale of the business. On August 10, 2016, MAL announced the closing of the transaction proposed as part of the business rescue plan by the Business Rescue Practitioner. During September 2016, we received $15.1 million as final pre-tax proceeds from the closing of the transaction. Upon receipt of these proceeds, our equity interest in MAL was eliminated and we accordingly reduced the value of our cost investment in MAL to zero and recorded a gain on disposal of subsidiaries of $5.1 million. This transaction was subject to South African tax of $0.7 million, which is included in income tax expense (benefit) on the consolidated statements of comprehensive income (loss).

Romania

On April 22, 2016, we completed the liquidation of our legal entity in Romania. As a result, we recognized a $1.4 million cumulative translation adjustment in loss (gain) on disposal of subsidiaries from accumulated other comprehensive income during the year ended January 1, 2017.

France

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 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 loss on disposal of $29.7 million, which was recognized during the third quarter of 2015 in the Europe segment and is included in loss (gain) on disposal of subsidiaries in the consolidated statements of comprehensive income (loss). The loss on disposal 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 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. This valuation was performed on a non-recurring basis and is categorized as having Level 3 valuation inputs as established by the FASB's Fair Value Framework. The Level 3 unobservable inputs include an estimate of future revenues for the asset group. This impairment charge was partially offset by income tax benefits of $3.2 million.

Premdor S.A.S. generated $13.4 million and $22.0 million of losses from continuing operations before income tax expense (benefit) during years ended January 3, 2016 and December 28, 2014, respectively. All Premdor S.A.S. figures exclude amounts recognized for loss on deconsolidation.

Israel

Effective August 20, 2014, Masonite Israel Ltd., one of our wholly-owned subsidiaries, was deconsolidated due to our loss of operational control over the entity, as further described in Note 11. Restructuring Costs.