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 the impact of political conflict on the global economy and the ongoing impact of the COVID-19 pandemic, 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 ERP 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;
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•compliance costs and liabilities under environmental, health, and safety laws and regulations;
•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;
•pension plan obligations;
•our current level of indebtedness; and
•other risks and uncertainties, including those listed under Item 1A- Risk Factors in our 10-K and Item 1A- Risk Factors in this 10-Q.
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" meanJELD-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. This section provides a general description of our Company and reportable segments.
•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.
Company Overview
We are a leading global provider of windows, doors, wall systems, and other 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.
We operate manufacturing and distribution facilities in 19 countries, located primarily inNorth America ,Europe , andAustralia . 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. 35
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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 , andAustralasia . 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.
Results of Operations
The tables in this section summarize key components of our results of operations for the periods indicated, both inU.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. Comparison of the Three Months EndedSeptember 24, 2022 to the Three Months EndedSeptember 25, 2021 Three Months Ended September 24, 2022 September 25, 2021 % of Net % of Net (amounts in thousands) Revenues Revenues Net revenues$ 1,295,810 100.0 %$ 1,146,585 100.0 % Cost of sales 1,045,031 80.6 % 918,513 80.1 % Gross margin 250,779 19.4 % 228,072 19.9 % Selling, general and administrative 192,394 14.8 % 173,774 15.2 % Goodwill impairment 54,885 4.2 % - - % Impairment and restructuring charges 6,579 0.5 % 576 0.1 % Operating (loss) income (3,079) (0.2) % 53,722 4.7 % Interest expense, net 21,138 1.6 % 19,377 1.7 % Other income (7,690) (0.6) % (3,251) (0.3) % (Loss) income before taxes (16,527) (1.3) % 37,596 3.3 % Income tax expense (benefit) 16,665 1.3 % (2,946) (0.3) % Net (loss) income $ (33,192) (2.6) % $ 40,542 3.5 % Consolidated Results Net Revenues - Net revenues increased$149.2 million , or 13.0%, to$1,295.8 million in the three months endedSeptember 24, 2022 from$1,146.6 million in the three months endedSeptember 25, 2021 . The increase was due to an improvement in core revenues of 18%, partially offset by an unfavorable impact from foreign exchange of 5%. Core revenues increased due to a 15% benefit from pricing and favorable volume/mix of 3%. Gross Margin - Gross margin increased$22.7 million , or 10.0%, to$250.8 million in the three months endedSeptember 24, 2022 from$228.1 million in the three months endedSeptember 25, 2021 . Gross margin as a percentage of net revenues was 19.4% in the three months endedSeptember 24, 2022 and 19.9% in the three months endedSeptember 25, 2021 . The decrease in gross margin percentage was due to the impact of inflation on material costs as well as expenses for freight, labor compensation, and utilities, partially offset by improved pricing, favorable volume/mix and improved productivity. SG&A Expense - SG&A expense increased$18.6 million , or 10.7%, to$192.4 million in the three months endedSeptember 24, 2022 from$173.8 million in the three months endedSeptember 25, 2021 . SG&A expense as a percentage of net revenues decreased to 14.8% in the three months endedSeptember 24, 2022 from 15.2% in the three months endedSeptember 25, 2021 . The increase in SG&A expense was primarily due to increased self-insurance costs and variable compensation expenses, partially offset by decreased sales and marketing and research and development expenditures. Goodwill Impairment -Goodwill impairment charges of$54.9 million in the three months endedSeptember 24, 2022 relate to goodwill impairment charges associated with ourEurope reporting unit. For more information, refer to Note 5 -Goodwill in our consolidated financial statements included in this 10-Q. Impairment and Restructuring Charges - Impairment and restructuring charges increased$6.0 million , or 1,042.2%, to$6.6 million in the three months endedSeptember 24, 2022 from$0.6 million in the three months endedSeptember 25, 2021 . The increase in impairment and restructuring charges of$6.0 million in the current period was primarily due to strategic transformation initiatives 36
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and footprint rationalization activities in our
Interest Expense, Net - Interest expense, net increased$1.8 million , or 9.1%, to$21.1 million in the three months endedSeptember 24, 2022 from$19.4 million in the three months endedSeptember 25, 2021 . The increase was primarily due to an increase to the cost of borrowing on our Term Loan Facility and increased borrowings on the ABL Facility in the current period, partially offset by interest income from interest rate derivatives in the current period. Other Income - Other income increased$4.4 million to$7.7 million in the three months endedSeptember 24, 2022 from$3.3 million in the three months endedSeptember 25, 2021 . Other income in the three months endedSeptember 24, 2022 consisted primarily of foreign currency gains of$3.3 million , insurance reimbursements of$1.5 million , pension income of$1.3 million , and the recovery of cost from interest received on impaired notes of$0.5 million . Other income in the three months endedSeptember 25, 2021 consisted primarily of foreign currency gains of$3.2 million and governmental pandemic assistance reimbursements and government 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 . Income Taxes - Income tax expense (benefit) increased$19.6 million to a tax expense of$16.7 million in the three months endedSeptember 24, 2022 compared to a tax benefit of$2.9 million in the three months endedSeptember 25, 2021 . The effective tax rate in the three months endedSeptember 24, 2022 was (100.8)% compared to (7.8)% in the three months endedSeptember 25, 2021 . The increase in the effective tax rate in the three months endedSeptember 24, 2022 was primarily due to the$54.9 million goodwill impairment. The increase in tax expense of$19.6 million in the current period was primarily due discrete tax expenses of$1.9 million in the current period compared to discrete tax benefits of$9.3 million in the prior period and the mix of income between jurisdictions in which the Company does business. For more information, refer to Note 10 - Income Taxes in our consolidated financial statements included in this 10-Q. Comparison of the Nine Months EndedSeptember 24, 2022 to the Nine Months EndedSeptember 25, 2021 Nine Months Ended September 24, 2022 September 25, 2021 % of Net % of Net (amounts in thousands) Revenues Revenues Net revenues$ 3,797,800 100.0 %$ 3,484,783 100.0 % Cost of sales 3,097,558 81.6 % 2,728,855 78.3 % Gross margin 700,242 18.4 % 755,928 21.7 % Selling, general and administrative 565,877 14.9 % 554,019 15.9 % Goodwill impairment 54,885 1.4 % - - % Impairment and restructuring charges 11,876 0.3 % 2,648 0.1 % Operating income 67,604 1.8 % 199,261 5.7 % Interest expense, net 59,714 1.6 % 56,692 1.6 % Other income (35,914) (0.9) % (13,940) (0.4) % Income before taxes 43,804 1.2 % 156,509 4.5 % Income tax expense 31,698 0.8 % 29,772 0.9 % Net income $ 12,106 0.3 % $ 126,737 3.6 % Consolidated Results Net Revenues - Net revenues increased$313.0 million , or 9.0%, to$3,797.8 million in the nine months endedSeptember 24, 2022 from$3,484.8 million in the nine months endedSeptember 25, 2021 . The increase was due to an improvement in core revenues of 13%, partially offset by an unfavorable impact from foreign exchange of 4%. Core revenues increased due to a 13% benefit from pricing. Gross Margin - Gross margin decreased$55.7 million , or 7.4%, to$700.2 million in the nine months endedSeptember 24, 2022 from$755.9 million in the nine months endedSeptember 25, 2021 . Gross margin as a percentage of net revenues was 18.4% in the nine months endedSeptember 24, 2022 and 21.7% in the nine months endedSeptember 25, 2021 . The decrease in gross margin percentage was primarily due to the impact of inflation on material costs as well as expenses for freight, labor compensation, and utilities, partially offset by improved pricing and improved productivity. 37
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SG&A Expense - SG&A expense increased$11.9 million , or 2.1%, to$565.9 million in the nine months endedSeptember 24, 2022 from$554.0 million in the nine months endedSeptember 25, 2021 . SG&A expense as a percentage of net revenues decreased to 14.9% in the nine months endedSeptember 24, 2022 from 15.9% in the nine months endedSeptember 25, 2021 . The increase in SG&A expense was primarily due to increased self-insurance costs and sales and marketing and research and development expenditures, partially offset by decreased legal and professional fees. Goodwill Impairment -Goodwill impairment charges of$54.9 million in the nine months endedSeptember 24, 2022 relate to goodwill impairment charges associated with ourEurope reporting unit. For more information, refer to Note 5 -Goodwill in our consolidated financial statements included in this 10-Q. Impairment and Restructuring Charges - Impairment and restructuring charges increased$9.2 million , or 348.5%, to$11.9 million in the nine months endedSeptember 24, 2022 from$2.6 million in the nine months endedSeptember 25, 2021 . The increase in restructuring charges is primarily due to strategic transformation initiatives and footprint rationalization activities in ourNorth America andEurope segments in the current year compared to the prior year. Interest Expense, Net - Interest expense, net, increased$3.0 million , or 5.3%, to$59.7 million in the nine months endedSeptember 24, 2022 from$56.7 million in the nine months endedSeptember 25, 2021 . The increase was primarily due to an increase to the cost of borrowing on our Term Loan Facility and increased borrowings on the ABL Facility in the current period, partially offset by interest income from interest rate derivatives in the current period and the repayment of the term loan portion of the Australia Facility during the second quarter of 2021. Other Income - Other income increased$22.0 million , or 157.6%, to$35.9 million in the nine months endedSeptember 24, 2022 from$13.9 million in the nine months endedSeptember 25, 2021 . Other income in the nine months endedSeptember 24, 2022 primarily consisted of the recovery of cost from interest received on impaired notes of$14.0 million , foreign currency gains of$8.7 million , insurance reimbursements of$6.3 million , and pension income of$4.2 million . Other income in the nine months endedSeptember 25, 2021 primarily consisted of foreign currency gains of$12.1 million and governmental pandemic assistance reimbursements and government grants 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 . Income Taxes - Income tax expense increased$1.9 million , or 6.5%, to$31.7 million in the nine months endedSeptember 24, 2022 from$29.8 million in the nine months endedSeptember 25, 2021 . The effective tax rate in the nine months endedSeptember 24, 2022 was 72.4% compared to 19.0% in the nine months endedSeptember 25, 2021 . The increase in the effective tax rate in the nine months endedSeptember 24, 2022 was primarily due to the$54.9 million goodwill impairment. The increase in tax expense of$1.9 million in the current period was primarily due to a decrease in discrete tax benefits of$4.5 million in the current period compared$10.9 million in the prior period and the mix of income between jurisdictions in which the Company does business, partially offset by a decrease in income before taxes of$112.7 million . For more information, refer to Note 10 - Income Taxes in our consolidated financial statements included in this 10-Q. 38
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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 Ended
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