Press Releases

03.11.08Masonite International Inc. Announces Fourth Quarter and Year End 2007 Results

 

MASONITE INTERNATIONAL INC.
ANNOUNCES FOURTH QUARTER AND YEAR END 2007 RESULTS

Fourth Quarter Highlights

• Sales declined 16.8% to $486.8 million from $585.0 million in the fourth quarter of 2006
• Operating EBITDA decreased 42.9% to $39.4 million from $69.0 million
• Adjusted EBITDA decreased 24.0% to $57.6 million from $75.8 million
• Adjusted EBITDA margin decreased to 11.8% from 13.0%
• Net debt increased $14.9 million to $1,910.3 million on December 31, 2007 from $1,895.4 million on September 30, 2007

Full Year Highlights

• Sales declined 11.8% to $2,174.4 million from $2,464.5 million in 2006
• Operating EBITDA decreased 9.9% to $272.4 million from $302.4 million
• Adjusted EBITDA decreased 4.0% to $319.4 million from $332.6 million
• Adjusted EBITDA margin increased to 14.7% from 13.5%
• Net debt decreased $58.5 million to $1,910.3 million on December 31, 2007 from $1,968.8 million on December 31, 2006

MISSISSAUGA, ON, March 11, 2008 - Masonite International Inc. today announced fourth quarter 2007 sales of $486.8 million, a decline of 16.8% compared to sales of $585.0 million in the fourth quarter of 2006. Operating EBITDA decreased 42.9% to $39.4 million from $69.0 million in the fourth quarter of 2006. Adjusted EBITDA, calculated pursuant to the Company's credit agreement, declined 24.0% to $57.6 million in the fourth quarter of 2007, compared to $75.8 million in the prior year period. As described in the attached reconciliation, fourth quarter 2007 Adjusted EBITDA includes $18.2 million of net adjustments, while Adjusted EBITDA in the fourth quarter of 2006 includes $6.8 million of such adjustments.

"It is clear that we are in, have been in, and will continue to be in an extremely challenging market environment in the United States, which is our largest market" said Frederick Lynch, President and Chief Executive Officer of Masonite. "At Masonite, we continue to actively address the reality of the difficult markets head on through aggressive cost actions, plant consolidations and closures, and tighter working capital and cash controls, while at the same time pursuing growth opportunities through new products and innovation."

In the fourth quarter, the Company completed the consolidation of its interior door manufacturing operations in Florida, resulting in the closure of its Tampa, Florida facility. Subsequent to year end, the Company announced the closure of four additional sites; one located in the UK and three additional sites in North America. The Company recorded a restructuring charge of $8.6 million in the fourth quarter of 2007 in connection with these closures as well as a further reduction in salaried workforce, and non-cash asset impairment and disposal losses of $6.6 million associated with redundant assets scheduled for disposal upon closure of the facilities mentioned previously.

As a result of the Home Depot business loss in mid-2007, and the continuing weakness in the North American segment, the Company recorded a fourth quarter impairment charge of $303.8 million, and a related tax benefit of $34.0 million. Accounting standards require the comparison of estimated fair values of intangibles to carrying values on an annual basis or when events or conditions indicate that the intangible may be impaired. The total impairment was comprised of goodwill impairment of $208.4 million, impairment in tradename intangibles of $30.0 million and impairment in customer relationship intangibles of $65.4 million.

In the fourth quarter of 2007, net debt (consolidated debt net of cash and cash equivalents) increased by $14.9 million to $1,910.3 million on December 31, 2007 from $1,895.4 million on September 30, 2007. Excluded from the net debt balances is $52.1 million outstanding on the Company's accounts receivable sales facility.

Sales in the North American segment decreased 25.8 % to $322.8 million in the fourth quarter of 2007 from $435.6 million in the fourth quarter of 2006. Sales to customers from facilities outside of North America, primarily in Western Europe, increased approximately 9.9 % to $164.1 million in the fourth quarter of 2007 from $149.3 million in the prior year period. Favorable foreign currency movements provided a $24.4 million positive impact on comparative consolidated sales ($9.3 million in North America and $15.1 million in rest of world) and also had a favorable impact on margins in the period.

Other expense of $8.3 million in the fourth quarter of 2007 included the restructuring charges noted above, offset by favorable non-cash foreign currency adjustments of $0.7 million, $2.7 million received on the settlement of an insurance claim from prior years and a $3.4 million gain on the favorable resolution of an environmental liability. This compares to $22.4 million of Other expense in the fourth quarter of 2006, which reflected principally a $3.1 million charge for a reduction in salaried workforce and $19.0 million of asset impairment and disposal charges.

For the full year ended December 31, 2007 sales were $2,174.4 million, a decline of 11.8 % compared to sales of $2,464.5 million in 2006. Operating EBITDA decreased 9.9 % to $272.4 million from $302.4 million (net of a $11.5 million non-cash inventory write down). Adjusted EBITDA, calculated pursuant to the Company's credit agreement, decreased 4.0% to $319.4 million in 2007, compared to $332.6 million in the prior year period. 2007 Adjusted EBITDA includes $47.0 million of net adjustments, while Adjusted EBITDA for 2006 includes $30.2 million of such adjustments, as described in the attached reconciliation.

In 2007, Masonite reduced net debt (consolidated debt net of cash and cash equivalents) by $58.5 million to $1,910.3 million on December 31, 2007 from $1,968.8 million on December 31, 2006. This compares to a decrease of net debt of $89.0 million in 2006. The amount outstanding under the Company's accounts receivable sales program declined by $60.8 million to $52.1 million from $112.9 million in the prior year.

Sales in the North American segment decreased 19.6 % to $1,526.3 million in 2007 from $1,899.4 million in 2006. Sales to customers from facilities outside of North America, primarily in Western Europe, increased approximately 14.7 % to $648.2 million in 2007 from $565.0 million in the prior year period. Favorable foreign currency movements provided a $59.3 million positive impact on comparative consolidated sales ($13.4 million in North America and $45.9 million in rest of world) and also had a favorable impact on margins for the year.

Other expense in 2007 was $29.9 million, including restructuring charges of approximately $27.9 million and non-cash asset impairment and disposal losses of $14.4 million, offset by favorable non-cash foreign currency adjustments of $6.3 million, the insurance settlement of $2.7 million and the environmental gain of $3.4 million. This compares to $39.0 million of Other expense in 2006, composed primarily of charges for the closure of four manufacturing sites, changes in senior management, and impairment and disposal losses on fixed assets during the year.

For the latest twelve months ended December 31, 2007, Adjusted EBITDA declined by 5.7% to $319.4 million from $337.6 million for the twelve months ended September 30, 2007. The Company's net debt to Adjusted EBITDA ratio was 6.03x for the twelve months ending December 31, 2007 compared to 5.66x for the twelve months ending September 30, 2007, versus a covenant maximum of 7.00x. (As of December 31, 2007, $12.3 million of outstanding letters of credit and other notes payable not reflected in net debt presented above, and a $3.2 million liability on the Company's interest rate swap were included as net debt for covenant calculation purposes only.) Trailing twelve month cash interest for the twelve months ending December 31, 2007 was $167.3 million, and the Company's cash interest coverage ratio (Adjusted EBITDA divided by cash interest expense) was 1.91x at December 31, 2007 compared to 1.97x at September 30, 2007 versus a covenant minimum of 1.65x.

Adjusted EBITDA for all periods including the first nine months of 2007 reflect $12.4 million of additional adjustments eligible under the Company's credit agreement that had not been previously reported.

In the first quarter of 2007, the Company adopted the new accounting standards issued by the Canadian Institute of Chartered Accountants with respect to Comprehensive Income, Hedges and Financial Instruments. The impact of this was to record the fair value of the Company's interest rate swaps on the balance sheet in Other assets, and to reclassify the unamortized deferred financing costs from Other assets to a reduction of debt incurred giving rise to such financing costs. As a result, debt balances as of December 31, 2007 are presented in the following unaudited financial statements net of unamortized deferred financing costs of $61.0 million at December 31, 2007, whereas debt is presented at face value as at December 31, 2006. Net debt for the covenant calculations described above also present the debt at face value.

This press release is also available within the "News & Events" section of the Company's website at www.masonite.com.

A Conference Call with Masonite management will take place at 10:00 a.m. Eastern Daylight Time today. Dial in information is as follows:
USA Toll Free Number: 888-810-5901
USA Toll Number: +1-210-839-8505
Passcode: MASONITE

A replay of the call will be available through April 11, 2008 by calling:
USA Toll Free Number: 866-407-9260
USA Toll Number: +1-203-369-0614
Passcode: 9245

Masonite International is a leading global manufacturer of residential and commercial doors, committed to providing the highest value door products to our customers in more than 70 countries around the world.

This press release and other written reports and oral statements made by the Company may include forward-looking statements, all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as "may", "might", "expects", "plans", "would", "estimates", "intends", "forecasts", "projects" and other words of similar meaning, or by the fact that they do not relate strictly to historical or current facts. These statements are likely to address, but may not be limited to, the Company's growth strategy and financial results, the Company's operations and the conditions in its industry. Readers must carefully consider any such statements and should understand that many factors could cause actual results and developments to differ materially from the Company's forward-looking statements. These factors may include inaccurate assumptions and a broad variety of other known and unknown risks and uncertainties, including: general economic, market and business conditions; levels of construction and renovation activity; competition; financing risks; ability to manage expanding operations; commitments; new services; retention of key management personnel; environmental and other government regulation; and other factors disclosed by the Company in its filings from time to time with the United States Securities and Exchange Commission. No forward-looking statement can be guaranteed and actual future results may vary materially. Therefore, we caution you not to place undue reliance on our forward-looking statements. The Company disclaims any responsibility to update these forward-looking statements, whether as a result of new information, future events or otherwise.

This press release contains non-GAAP measures. In this press release Operating EBITDA is defined as earnings before depreciation and amortization; other expense; interest; income taxes; and non-controlling interest. Adjusted EBITDA is defined as Operating EBITDA further adjusted pursuant to the terms of the Company's credit agreement. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by sales. Net debt is defined as the sum of long-term debt, current portion of long-term debt and bank indebtedness, less cash and cash equivalents. These terms are not presentations made under GAAP and are not measures of financial condition or profitability, should not be considered as an alternative to GAAP financial measures, and are unlikely to be comparable to similar measures used by other companies.

Certain figures have been reclassified to conform to the current period basis of presentation.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS For the Period Ended December 31 (In millions of U.S. dollars)
	Three Month Period		Twelve Month Period
	2007	2006	2007	2006
Sales	$486.8	$585.0	$2174.4	$2464.5
Cost of sales	397.8	463.4	1695.4	1950.2
	88.9	121.6	479	514.2
Selling, general and administration expenses	49.6	52.6	206.6	211.8
	39.4	69.0	272.4	302.4
Depreciation and amortization	32.6	32.6	127.4	124.6
Income before other expense, interest and income taxes	6.7	36.4	144.9	177.8
Other expense, net	8.3	22.4	29.9	39.0
Impairment of goodwill and intangibles	303.8	-	303.8	-
Interest	44.1	45.4	178.2	182.6
	(349.5)	(31.3)	(367.0)	(43.8)
Income taxes (recovery)	(59.8)	(10.9)	(72.2)	(15.7)
	(289.7)	(20.5)	(294.7)	(28.2)
Non-controlling interest	2.8	0.6	8.1	6.2
Net Income (loss)	$(292.5)	$(21.1)	$(302.9)	$(34.3)

Adjusted EBITDA Reconciliation:
Net Income (loss)	$(292.5)	$(21.1)	$(302.9)	$(34.3)
Interest	44.1	45.4	178.2	182.6
Income taxes (recovery)	(59.8)	(10.9)	(72.2)	(15.7)
Depreciation and amortization	32.6	32.6	127.4	124.6
Other expense, net	8.3	22.4	29.9	39.0
Impairment of goodwill and intangibles	303.8	-	303.8	-
Non-controlling interest	2.8	0.6	8.1	6.2
Operating EBITDA	39.4	69.0	272.4	302.4
Inventory write-down	5.0	2.5	7.0	11.5
Receivables transaction charges	0.9	2.0	5.3	7.9
Facility closures / realignments	2.1	-	2.4	1.9
Stock based compensation	-	0.8	1.8	2.0
Franchise and capital taxes	0.7	0.3	4.2	2.2
Foreign exchange (gains)	(0.1)	(0.5)	(2.6)	(1.1)
Employee future benefits	0.3	0.1	1.1	0.6
Severance	1.4	-	3.0	-
Relocation \ recruiting	1.3	-	5.6	-
Lean Sigma, Supply Chain & HR Consulting	1.6	-	7.2	-
(Earnings) loss of unrestricted subsidiaries	3.7	-	3.7	-
Other (1)	1.3	1.5	8.3	5.0
Adjusted EBITDA	$57.6	$75.8	$319.4	$332.6
Adjusted EBITDA Margin (2)	11.8%	13.0%	14.7%	13.5%
LTM Adjusted EBITDA			$319.4	$332.6
(1) Includes KKR monitoring \ consulting, legal settlements and other (2) Calculated by dividing Adjusted EBITDA by Sales

UNAUDITED CONSOLIDATED BALANCE SHEETS (In millions of U.S. dollars)
	December 31, 2007	December 31, 2006
ASSETS
Cash and cash equivalents	$41.8	$47.4
Accounts receivable	264.9	247.7
Inventories	295.8	351.5
Prepaid expenses	15.2	19.1
Asset held for sale	1.8	-
Income tax recoverable	1.8	-
Current future income taxes	39.4	38.9
	660.7	704.6
Property, plant and equipment	812.5	873.6
Goodwill and other intangible assets	1,146.4	1,478.4
Other assets	20.5	89.3
Long-term future income taxes	20.0	18.5
	1,999.4	2,459.9
	$2,660.1	$3,164.5
LIABILITIES AND SHAREHOLDER'S EQUITY
Bank indebtedness	$17.6	$60.4
Accounts payable and accrued liabilities	325.1	343.7
Income taxes payable	15.1	26.9
Current future income taxes	2.1	1.6
Current portion of long-term debt	20.8	32.2
	380.7	464.8
Long-term debt (1)	1,852.6	1,923.6
Long-term future income taxes	147.5	214.2
Other long-term liabilities	38.9	41.1
	2,419.8	2,643.7
Non-controlling interest	42.7	36.8
Share capital	567.2	567.2
Contributed surplus	6.8	5.0
Deficit	(407.0)	(104.1)
Accumulated other comprehensive income	30.7	16.0
	197.6	484.0
	$2,660.1	$3,164.5
(1) Long-term debt is net of unamortized deferred financing fees of $61.0 million as at December 31, 2007

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW For the Period Ended December 31 (In millions of U.S. dollars)
	Three Month Period		Twelve Month Period
	2007	2006	2007	2006
Cash provided by (used in) operating activities
Net income (loss) for the period	$(292.5)	$(21.1)	$(302.9)	$(34.3)
Non-cash items	313.3	37.1	407.2	138.4
Accounts receivable	28.1	23.0	(2.3)	(1.2)
Inventories	35.3	41.7	61.3	48.6
Income taxes payable	(12.9)	12.7	(16.6)	9.5
Prepaid expenses	4.6	2.4	4.3	0.6
Accounts payable and accrued liabilities	(59.4)	(58.6)	(32.6)	(15.4)
	16.5	37.3	118.5	146.2
Cash provided by (used in) financing activities
Increase (decrease) in bank and other indebtedness	0.1	(21.8)	(43.7)	(65.4)
Net repayment of long-term debt	(3.4)	7.0	(22.0)	(24.9)
Other	-	(22.4)	-	(22.2)
	(3.2)	(37.1)	(65.6)	(112.5)
Cash provided by (used in) investing activities
Proceeds from sale of assets	7.8	0.3	8.6	20.5
Additions to property, plant and equipment	(20.1)	(14.3)	(42.8)	(49.6)
Other investing activities	(4.5)	(1.1)	(15.2)	(10.5)
	(16.8)	(15.0)	(49.4)	(39.5)
Net foreign currency translation adjustment	(13.6)	1.0	(9.1)	5.7
Increase in cash	(17.3)	(13.8)	(5.7)	-
Cash, beginning of period	59.0	61.3	47.4	47.5
Cash, end of period	$41.8	$47.4	$41.8	$47.4