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;
•the extent of Onex's control of us; 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.
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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.
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 of certain manufacturing facilities 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. As a
result of the increased demand for our products, we have and may continue to see
increased inflation in our supply chain, including raw materials and freight
charges, as well as the availability of labor 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 June 26, 2021 to the Three Months Ended
June 27, 2020
Three Months Ended
June 26, 2021 June 27, 2020
% of Net % of Net
(amounts in thousands) Revenues Revenues
Net revenues $ 1,245,815 100.0 % $ 992,346 100.0 %
Cost of sales 953,898 76.6 % 773,675 78.0 %
Gross margin 291,917 23.4 % 218,671 22.0 %
Selling, general and administrative 188,691 15.1 % 166,327 16.8 %
Impairment and restructuring charges 1,145 0.1 % 2,266 0.2 %
Operating income 102,081 8.2 % 50,078 5.0 %
Interest expense, net 18,860 1.5 % 19,076 1.9 %
Other expense (income) 152 - % (2,498) (0.3) %
Income before taxes 83,069 6.7 % 33,500 3.4 %
Income tax expense 22,359 1.8 % 10,403 1.0 %
Net income $ 60,710 4.9 % $ 23,097 2.3 %
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-------------------------------------------------------------------------------- Back to top Consolidated Results Net Revenues - Net revenues increased$253.5 million , or 25.5%, to$1,245.8 million in the three months endedJune 26, 2021 from$992.3 million in the three months endedJune 27, 2020 . The increase was due to an improvement in core revenues of 19%, consisting of favorable volume/mix of 13% and a 6% benefit from pricing, as well as a 6% positive impact from foreign exchange. Gross Margin - Gross margin increased$73.2 million , or 33.5%, to$291.9 million in the three months endedJune 26, 2021 from$218.7 million in the three months endedJune 27, 2020 . Gross margin as a percentage of net revenues was 23.4% in the three months endedJune 26, 2021 and 22.0% in the three months endedJune 27, 2020 . The increase in gross margin percentage was due to favorable volume/mix, improved pricing, lower material usage and sourcing savings, 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$22.4 million , or 13.4%, to$188.7 million in the three months endedJune 26, 2021 from$166.3 million in the three months endedJune 27, 2020 . SG&A expense as a percentage of net revenues decreased to 15.1% in the three months endedJune 26, 2021 from 16.8% in the three months endedJune 27, 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 legal and professional fees. Impairment and Restructuring Charges - Impairment and restructuring charges decreased$1.1 million , or 49.5%, to$1.1 million in the three months endedJune 26, 2021 from$2.3 million in the three months endedJune 27, 2020 . The decrease in impairment and restructuring charges was primarily due to reduced restructuring efforts, primarily inNorth America , during the second quarter of 2021 as compared to the second quarter of 2020. Interest Expense, Net - Interest expense, net decreased$0.2 million , or 1.1%, to$18.9 million in the three months endedJune 26, 2021 from$19.1 million in the three months endedJune 27, 2020 . The decrease was primarily due to lower interest rates applicable to variable rate debt. Other Expense (Income) - Other expense (income) changed$2.7 million to expense of$0.2 million in the three months endedJune 26, 2021 from income of$2.5 million in the three months endedJune 27, 2020 . Other expense in the three months endedJune 26, 2021 consisted primarily of a loss on sale or disposal of property and equipment of$1.3 million and foreign currency losses of$0.3 million , partially offset by governmental pandemic assistance reimbursements and government grants. Other income in the three months endedJune 27, 2020 primarily consisted of$5.9 million for cash received as a result of governmental pandemic assistance reimbursements relating to COVID-19 and a reduction in pension expenses of$2.2 million , partially offset by foreign currency losses of$6.3 million . Income Taxes - Income tax expense increased$12.0 million , or 114.9%, to$22.4 million in the three months endedJune 26, 2021 from$10.4 million in the three months endedJune 27, 2020 . The effective tax rate in the three months endedJune 26, 2021 was 26.9% compared to 31.1% in the three months endedJune 27, 2020 . The increase in tax expense of$12.0 million in the current period was primarily driven by an increase in income before taxes of$49.6 million and a decrease in discrete tax impacts in the current period, compared to the three months endedJune 27, 2020 . 37
-------------------------------------------------------------------------------- Back to top Comparison of the Six Months EndedJune 26, 2021 to the Six Months EndedJune 27, 2020 Six Months Ended June 26, 2021 June 27, 2020 % of Net % of Net (amounts in thousands) Revenues Revenues Net revenues$ 2,338,198 100.0 %$ 1,971,533 100.0 % Cost of sales 1,810,342 77.4 % 1,558,493 79.0 % Gross margin 527,856 22.6 % 413,040 21.0 % Selling, general and administrative 380,245 16.3 % 338,911 17.2 % Impairment and restructuring charges 2,072 0.1 % 8,811 0.4 % Operating income 145,539 6.2 % 65,318 3.3 % Interest expense, net 37,315 1.6 % 35,680 1.8 % Other income (10,689) (0.5) % (4,829) (0.2) % Income before taxes 118,913 5.1 % 34,467 1.7 % Income tax expense 32,718 1.4 % 11,600 0.6 % Net income$ 86,195 3.7 %$ 22,867 1.2 % Consolidated Results Net Revenues - Net revenues increased$366.7 million , or 18.6%, to$2,338.2 million in the six months endedJune 26, 2021 from$1,971.5 million in the six months endedJune 27, 2020 . The increase was due to an improvement in core revenues of 13%, consisting of favorable volume/mix of 8% and a 5% benefit from pricing, as well as a 6% positive impact from foreign exchange. Gross Margin - Gross margin increased$114.8 million , or 27.8%, to$527.9 million in the six months endedJune 26, 2021 from$413.0 million in the six months endedJune 27, 2020 . Gross margin as a percentage of net revenues was 22.6% in the six months endedJune 26, 2021 and 21.0% in the six months endedJune 27, 2020 . The increase in gross margin percentage was due to favorable volume/mix, improved pricing, lower material and labor usage and sourcing savings, 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$41.3 million , or 12.2%, to$380.2 million in the six months endedJune 26, 2021 from$338.9 million in the six months endedJune 27, 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, the impact of inflation on compensation in the current period, and estimated variable compensation, partially offset by reduced legal and professional fees. Impairment and Restructuring Charges - Impairment and restructuring charges decreased$6.7 million , or 76.5%, to$2.1 million in the six months endedJune 26, 2021 from$8.8 million in the six months endedJune 27, 2020 . Charges incurred in 2021 primarily relate to ongoing restructuring projects within ourEurope segment. 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$1.6 million , or 4.6%, to$37.3 million in the six months endedJune 26, 2021 from$35.7 million in the six months endedJune 27, 2020 . The increase was primarily due to interest on our Senior Secured Notes issued inMay 2020 , partially offset by not having any amount outstanding under on our ABL Facility and a lower cost of borrowing on our Term Loan Facility during 2021. Other Income - Other income increased$5.9 million , or 121.4%, to$10.7 million in the six months endedJune 26, 2021 from$4.8 million in the six months endedJune 27, 2020 . The other income in the six months endedJune 26, 2021 primarily consisted of foreign currency gains of$8.9 million and governmental pandemic assistance reimbursements and government grants. Other income in the six months endedJune 27, 2020 primarily consisted of$5.9 million for cash received as a result of governmental pandemic assistance reimbursements relating to COVID-19, and a gain on sale of property and equipment of$2.4 million , partially offset by foreign currency losses of$4.1 million . Income Taxes - Income tax expense increased$21.1 million , or 182.1%, to$32.7 million in the six months endedJune 26, 2021 from$11.6 million in the six months endedJune 27, 2020 . The effective tax rate in the six months endedJune 26, 2021 was 27.5% compared to 33.7% in the six months endedJune 27, 2020 . The increase in income tax expense in the six months ended June 38
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Back to top 26, 2021 was primarily due to an increase in income before taxes of$84.4 million and a decrease in discrete tax impacts in the current period, compared to the six months endedJune 27, 2020 . 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 EndedJune 26, 2021 to the Three Months Ended
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