JELD-WEN HOLDING, INC.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this 10-Q contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act, which are subject to the "safe harbor" created by those
sections. All statements, other than statements of historical facts, included in
this 10-Q are forward-looking statements. You can generally identify
forward-looking statements by our use of forward-looking terminology such as
"anticipate," "believe," "continue," "could," "estimate," "expect," "intend,"
"may," "might," "plan," "potential," "predict," "seek," or "should," or the
negative thereof or other variations thereon or comparable terminology. In
particular, statements about the markets in which we operate, including growth
of our various markets, and our expectations, beliefs, plans, strategies,
objectives, prospects, assumptions, including the impact of COVID-19, the
outcome of legal proceeding, or future events or performance contained under the
heading Item 2- Management's Discussion and Analysis of Financial Condition and
Results of Operations are forward-looking statements.
We have based these forward-looking statements on our current expectations,
assumptions, estimates and projections. While we believe these expectations,
assumptions, estimates, and projections are reasonable, such forward-looking
statements are only predictions and involve known and unknown risks and
uncertainties, many of which are beyond our control. These and other important
factors, including those discussed under the headings Item 1A- Risk Factors in
our annual report on Form 10-K and Item 1A - Risk Factors and Item 2-
Management's Discussion and Analysis of Financial Condition and Results of
Operations in this 10-Q may cause our actual results, performance or
achievements to differ materially from any future results, performance or
achievements expressed or implied by these forward-looking statements. Some of
the factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include:
•negative trends in overall business, financial market and economic conditions,
and/or activity levels in our end markets;
•our highly competitive business environment;
•failure to timely identify or effectively respond to consumer needs,
expectations, or trends;
•failure to maintain the performance, reliability, quality, and service
standards required by our customers;
•failure to successfully implement our strategic initiatives, including JEM;
•acquisitions or investments in other businesses that may not be successful;
•adverse outcome of pending or future litigation;
•declines in our relationships with and/or consolidation of our key customers;
•increases in interest rates and reduced availability of financing for the
purchase of new homes and home construction and improvements;
•fluctuations in the prices of raw materials used to manufacture our products;
•delays or interruptions in the delivery of raw materials or finished goods;
•seasonal business with varying revenue and profit;
•changes in weather patterns;
•political, regulatory, economic, and other risks, including pandemics, such as
COVID-19, that arise from operating a multinational business;
•exchange rate fluctuations;
•disruptions in our operations;
•manufacturing realignments and cost savings programs resulting in a decrease in
short-term earnings;
•our Enterprise Resource Planning system that we are currently implementing
proving ineffective;
•security breaches and other cybersecurity incidents;
•increases in labor costs, potential labor disputes, and work stoppages at our
facilities;
•changes in building codes that could increase the cost of our products or lower
the demand for our windows and doors;
•compliance costs and liabilities under environmental, health, and safety laws
and regulations;
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•compliance costs with respect to legislative and regulatory proposals to
restrict emission of GHGs;
•lack of transparency, threat of fraud, public sector corruption, and other
forms of criminal activity involving government officials;
•product liability claims, product recalls, or warranty claims;
•inability to protect our intellectual property;
•loss of key officers or employees;
•pension plan obligations;
•our current level of indebtedness;
•risks associated with any material weaknesses in our internal controls; and
•other risks and uncertainties, including those listed under Item 1A- Risk
Factors in our 10-K.
Given these risks and uncertainties, you are cautioned not to place undue
reliance on such forward-looking statements. The forward-looking statements
contained in this 10-Q are not guarantees of future performance and our actual
results of operations, financial condition, and liquidity, and the development
of the industry in which we operate, may differ materially from the
forward-looking statements contained herein. In addition, even if our results of
operations, financial condition, and liquidity, and events in the industry in
which we operate, are consistent with the forward-looking statements contained
in this 10-Q, they may not be predictive of results or developments in future
periods.
Any forward-looking statement in this 10-Q speaks only as of the date of this
10-Q or as of the date such statement was made. We do not undertake any
obligation to update or revise, or to publicly announce any update or revision
to, any of the forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law.
Unless the context requires otherwise, references in this 10-Q to "we," "us,"
"our," "the Company," or "JELD-WEN" mean JELD-WEN Holding, Inc. , together with
our consolidated subsidiaries where the context requires, including our wholly
owned subsidiary JWI.
This discussion should be read in conjunction with our historical financial
statements and related notes thereto and the other disclosures contained
elsewhere in this 10-Q. The results of operations for the periods reflected
herein are not necessarily indicative of results that may be expected for future
periods, and our actual results may differ materially from those discussed in
the forward-looking statements as a result of various factors, including but not
limited to those listed under Item 1A- Risk Factors in our annual report on Form
10-K and Item 1A - Risk Factors in this 10-Q and included elsewhere in
this 10-Q.
This MD&A is a supplement to our financial statements and notes thereto included
elsewhere in this 10-Q and is provided to enhance your understanding of our
results of operations and financial condition. Our discussion of results of
operations is presented in millions throughout the MD&A and due to rounding may
not sum or calculate precisely to the totals and percentages provided in the
tables. Our MD&A is organized as follows:
•Overview and Background. This section provides a general description of our
Company and reportable segments, business and industry trends, our key business
strategies and background information on other matters discussed in this MD&A.
•Consolidated Results of Operations and Operating Results by Business Segment.
This section provides our analysis and outlook for the significant line items on
our consolidated statements of operations, as well as other information that we
deem meaningful to an understanding of our results of operations on both a
consolidated basis and a business segment basis.
•Liquidity and Capital Resources. This section contains an overview of our
financing arrangements and provides an analysis of trends and uncertainties
affecting liquidity, cash requirements for our business, and sources and uses of
our cash.
•Critical Accounting Policies and Estimates. This section discusses the
accounting policies that we consider important to the evaluation and reporting
of our financial condition and results of operations, and whose application
requires significant judgments or a complex estimation process.
Overview and Background
We are a leading global provider of windows, doors, wall systems, and building
products. We design, produce, and distribute an extensive range of interior and
exterior doors, wood, vinyl, and aluminum windows, and related products for use
in the new construction, R&R of residential homes, and, to a lesser extent,
non-residential buildings.
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We operate manufacturing and distribution facilities in 19 countries, located
primarily in North America , Europe , and Australia . For many product lines, our
manufacturing processes are vertically integrated, enhancing our range of
capabilities, our ability to innovate, and our quality control as well as
providing supply chain, transportation, and working capital savings.
Business Segments
Our business is organized in geographic regions to ensure integration across
operations serving common end markets and customers. We have three reportable
segments: North America , Europe , and Australasia . Financial information related
to our business segments can be found in Note 11 - Segment Information of our
financial statements included elsewhere in this 10-Q.
Significant Developments
In March 2020 , the World Health Organization declared the outbreak of COVID-19 a
global pandemic. In the following weeks, global restrictions, including stay at
home and similar orders, were implemented in a significant number of countries
in which we operate. We made, and continue to make, changes to our operations to
ensure proper measures are in place for the health and safety of our employees
and to satisfy the needs of our customers. We continue to experience
intermittent closures and reduced operating capacity of certain manufacturing
facilities primarily due to local and governmental mandates, most recently in
our Australasia segment and portions of our North America segment. We continue
to experience increased demand for our products in both residential and remodel
channels due to the low residential housing supply, low interest rates, and
consumers' focus on their homes. In addition, we have and may continue to see
increased inflation in our supply chain, including raw materials, labor, and
freight charges, as well as labor availability issues due to the pandemic.
Results of Operations
The tables in this section summarize key components of our results of operations
for the periods indicated, both in U.S. dollars and as a percentage of our net
revenues. Certain percentages presented in this section have been rounded to the
nearest whole number. Accordingly, totals may not equal the sum of the line
items in the tables below. We define core revenue as revenue excluding the
impact of foreign exchange and acquisitions completed in the last twelve months.
Comparison of the Three Months Ended September 25, 2021 to the Three Months
Ended September 26, 2020
Three Months Ended
September 25, 2021 September 26, 2020
% of Net % of Net
(amounts in thousands) Revenues Revenues
Net revenues $ 1,146,585 100.0 % $ 1,112,866 100.0 %
Cost of sales 918,513 80.1 % 867,972 78.0 %
Gross margin 228,072 19.9 % 244,894 22.0 %
Selling, general and administrative 173,774 15.2 % 181,963 16.4 %
Impairment and restructuring charges 576 0.1 % 1,319 0.1 %
Operating income 53,722 4.7 % 61,612 5.5 %
Interest expense, net 19,377 1.7 % 18,784 1.7 %
Other (income) expense (3,251) (0.3) % 1,379 0.1 %
Income before taxes 37,596 3.3 % 41,449 3.7 %
Income tax (benefit) expense (2,946) (0.3) % 15,969 1.4 %
Net income $ 40,542 3.5 % $ 25,480 2.3 %
Consolidated Results
Net Revenues - Net revenues increased $33.7 million , or 3.0%, to $1,146.6
million in the three months ended September 25, 2021 from $1,112.9 million in
the three months ended September 26, 2020 . The increase was due to an
improvement in core revenues of 2% and a positive impact from foreign exchange
of 1%. Core revenues increased due to a 7% benefit from pricing, partially
offset by unfavorable volume/mix of 5%.
Gross Margin - Gross margin decreased $16.8 million , or 6.9%, to $228.1 million
in the three months ended September 25, 2021 from $244.9 million in the three
months ended September 26, 2020 . Gross margin as a percentage of net revenues
was 19.9% in the three months ended September 25, 2021 and 22.0% in the three
months ended September 26, 2020 . The decrease in gross margin
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percentage was due to the impact of inflation on material costs, freight, and
labor compensation and unfavorable volume/mix, partially offset by improved
pricing.
SG&A Expense - SG&A expense decreased $8.2 million , or 4.5%, to $173.8 million
in the three months ended September 25, 2021 from $182.0 million in the three
months ended September 26, 2020 . SG&A expense as a percentage of net revenues
decreased to 15.2% in the three months ended September 25, 2021 from 16.4% in
the three months ended September 26, 2020 . The decrease in SG&A expense was
primarily due to reduced litigation related expenses, partially offset by
increased salary and benefit charges and the impact of inflation on compensation
in the current period.
Impairment and Restructuring Charges - Impairment and restructuring charges
decreased $0.7 million , or 56.3%, to $0.6 million in the three months ended
September 25, 2021 from $1.3 million in the three months ended September 26,
2020 . The decrease in impairment and restructuring charges of $0.7 million in
the current period was primarily due to reduced restructuring efforts, primarily
in North America .
Interest Expense, Net - Interest expense, net increased $0.6 million , or 3.2%,
to $19.4 million in the three months ended September 25, 2021 from $18.8 million
in the three months ended September 26, 2020 . The increase was primarily due to
an increase to the cost of borrowing deriving from the July 2021 amendment and
extension of the Term Loan Facility as well as letter of credit fees.
Other (Income) Expense - Other (income) expense changed $4.6 million to income
of $3.3 million in the three months ended September 25, 2021 from expense of
$1.4 million in the three months ended September 26, 2020 . Other income in the
three months ended September 25, 2021 consisted primarily of foreign currency
gains of $3.2 million and governmental pandemic assistance reimbursements and
governmental grants of $0.8 million , partially offset by a loss on
extinguishment of debt of $1.3 million and a loss on sale or disposal of
property and equipment of $0.6 million . Other expenses in the three months ended
September 26, 2020 consisted primarily of foreign currency losses of $4.3
million , partially offset by governmental pandemic assistance reimbursements and
government grants of $1.5 million and insurance reimbursements of $1.3 million .
Income Taxes - Income tax expense decreased $18.9 million , or 118.4%, to a
benefit $2.9 million in the three months ended September 25, 2021 from an
expense of $16.0 million in the three months ended September 26, 2020 . The
effective tax rate in the three months ended September 25, 2021 was (7.8)%
compared to 38.5% in the three months ended September 26, 2020 . The decrease in
tax expense of $18.9 million in the current period was primarily driven by an
increase in discrete tax impacts, reduced impacts from GILTI, and an increase in
valuation allowance in the three months ended September 26, 2020 .
Comparison of the Nine Months Ended September 25, 2021 to the Nine Months Ended
September 26, 2020
Nine Months Ended
September 25, 2021 September 26, 2020
% of Net % of Net
(amounts in thousands) Revenues Revenues
Net revenues $ 3,484,783 100.0 % $ 3,084,399 100.0 %
Cost of sales 2,728,855 78.3 % 2,426,465 78.7 %
Gross margin 755,928 21.7 % 657,934 21.3 %
Selling, general and administrative 554,019 15.9 % 520,874 16.9 %
Impairment and restructuring charges 2,648 0.1 % 10,130 0.3 %
Operating income 199,261 5.7 % 126,930 4.1 %
Interest expense, net 56,692 1.6 % 54,464 1.8 %
Other income (13,940) (0.4) % (3,450) (0.1) %
Income before taxes 156,509 4.5 % 75,916 2.5 %
Income tax expense 29,772 0.9 % 27,569 0.9 %
Net income $ 126,737 3.6 % $ 48,347 1.6 %
Consolidated Results
Net Revenues - Net revenues increased $400.4 million , or 13.0%, to $3,484.8
million in the nine months ended September 25, 2021 from $3,084.4 million in the
nine months ended September 26, 2020 . The increase was due to an improvement in
core revenues of 9% and a positive impact from foreign exchange of 4% . Core
revenues increased due to a 6% benefit from pricing and favorable volume/mix of
3%.
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Gross Margin - Gross margin increased $98.0 million , or 14.9%, to $755.9 million
in the nine months ended September 25, 2021 from $657.9 million in the nine
months ended September 26, 2020 . Gross margin as a percentage of net revenues
was 21.7% in the nine months ended September 25, 2021 and 21.3% in the nine
months ended September 26, 2020 . The increase in gross margin percentage was due
to improved pricing, lower material and labor usage and sourcing savings as well
as favorable volume/mix, partially offset by the impact of inflation on material
costs, freight, and labor compensation in the current period.
SG&A Expense - SG&A expense increased $33.1 million , or 6.4%, to $554.0 million
in the nine months ended September 25, 2021 from $520.9 million in the nine
months ended September 26, 2020 . The increase in SG&A expense was primarily due
to the non-recurrence of certain savings from cost reduction measures
implemented in 2020 in response to COVID-19, primarily related to salary and
benefits, and the impact of inflation on compensation in the current period,
partially offset by reduced litigation related expenses.
Impairment and Restructuring Charges - Impairment and restructuring charges
decreased $7.5 million , or 73.9%, to $2.6 million in the nine months ended
September 25, 2021 from $10.1 million in the nine months ended September 26,
2020 . Charges incurred in 2021 primarily relate to ongoing restructuring
projects within our Europe segment and asset impairment charges in North
America . Charges incurred in 2020 primarily related to severance charges for
ongoing restructuring projects across all segments as well as impairment charges
primarily related to capitalized costs of certain ERP modules due to delays in
implementation and uncertainty of their future use. For more information, refer
to Note 15 - Impairment and Restructuring Charges to our consolidated financial
statements included in this 10-Q.
Interest Expense, Net - Interest expense, net, increased $2.2 million , or 4.1%,
to $56.7 million in the nine months ended September 25, 2021 from $54.5 million
in the nine months ended September 26, 2020 . The increase was primarily due to
interest on our Senior Secured Notes issued in May 2020 , partially offset by
lower interest rates throughout 2021.
Other Income - Other income increased $10.5 million , or 304.1%, to $13.9 million
in the nine months ended September 25, 2021 from $3.5 million in the nine months
ended September 26, 2020 . Other income in the nine months ended September 25,
2021 primarily consisted of foreign currency gains of $12.1 million and
governmental pandemic assistance reimbursements and governmental grants relating
to COVID-19 of $1.3 million , partially offset by a loss on extinguishment of
debt of $1.3 million and a loss on sale or disposal of property and equipment of
$0.9 million . Other income in the nine months ended September 26, 2020 primarily
consisted of $7.4 million for cash received as a result of governmental pandemic
assistance reimbursements relating to COVID-19, a gain on sale of property and
equipment of $2.7 million , and insurance reimbursements of $1.3 million ,
partially offset by foreign currency losses of $8.4 million .
Income Taxes - Income tax expense increased $2.2 million , or 8.0%, to $29.8
million in the nine months ended September 25, 2021 from $27.6 million in the
nine months ended September 26, 2020 . The effective tax rate in the nine months
ended September 25, 2021 was 19.0% compared to 36.3% in the nine months ended
September 26, 2020 . The increase in income tax expense in the nine months ended
September 25, 2021 was primarily due to an increase in income before taxes of
$80.6 million , partially offset by an increase in discrete tax impacts of $8.0
million , reduced impacts from GILTI, and an increase in valuation allowance
compared to the nine months ended September 26, 2020 .
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Back to top Segment Results We report our segment information in the same way management internally organizes the business in assessing performance and making decisions regarding allocation of resources in accordance with ASC 280-10 - Segment Reporting. We have determined that we have three reportable segments, organized and managed principally by geographic region. Our reportable segments areNorth America ,Europe , andAustralasia . We report all other business activities in Corporate and unallocated costs. We define Adjusted EBITDA as net income (loss), adjusted for the following items: loss from discontinued operations, net of tax; equity earnings of non-consolidated entities; income tax (benefit) expense; depreciation and amortization; interest expense, net; impairment and restructuring charges; gain on previously held shares of equity investment; (gain) loss on sale of property and equipment; share-based compensation expense; non-cash foreign exchange transaction/translation (income) loss; other non-cash items; other items; and costs related to debt restructuring and debt refinancing. For additional information on segment Adjusted EBITDA, see Note 11 - Segment Information to our consolidated financial statements included in this 10-Q. Comparison of the Three Months EndedSeptember 25, 2021 to the Three Months
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