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 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 and varying revenue and profit;
•changes in weather patterns;
•political, 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 new 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 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" 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 one of the world's largest door and window manufacturers, and we hold a
leading position by net revenues in the majority of the countries and markets we
serve. 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 approximately 20
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 13 - Segment Information of our
financial statements included elsewhere in this 10-Q.
Acquisitions
In March 2019 , we acquired VPI Quality Windows, Inc. , a leading manufacturer of
vinyl windows, specializing in customized solutions for mid-rise multi-family,
industrial, hospitality and commercial projects, primarily in the western U.S.
VPI is located in Spokane, Washington . VPI is part of our North America segment.
We paid $57.8 million in cash, net of cash acquired, for the acquisition of VPI.
For additional information on our acquisition activity, see Note 2 -
Acquisitions 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 regions in
which we operate. During the second and third quarters of 2020, we experienced
intermittent closures of certain manufacturing facilities due to local and
governmental mandates, with disruptions occurring primarily in April and May.
Customer demand and revenue were consistent with our expectations during April
and May with high-teens percentage declines from the prior year, however, they
improved through the last half of the second quarter and continued to improve
during the third quarter. We have modified our manufacturing facilities and
procedures, based on recommended public health guidelines, to ensure the health
and well-being of our employees. During 2020, we recognized approximately $7.4
million , including $1.5 million during the third quarter, relating to
governmental pandemic assistance programs, which are primarily related to
reimbursements for additional costs incurred as a result of the outbreak of
COVID-19.
We have continued to monitor our liquidity resulting in increased liquidity each
quarter during 2020, primarily as a result of issuing $250.0 million of Senior
Secured Notes during the second quarter and the seasonality of our business. We
have also taken measures to reduce discretionary spending. We have, for example,
restricted travel, implemented hiring freezes for non-essential positions,
delayed merit increases, and suspended all non-critical spending, such as
marketing and discretionary projects. In addition, during the second quarter, we
implemented actions to reduce salary costs globally, including by our executive
leadership team and Board of Directors elected to reduce their second quarter
compensation by 25%, and implemented short-term employee furloughs throughout
our Company. During the third quarter, we have reversed certain salary cost
cutting initiatives based on our financial results. Further, to maintain
sufficient levels of cash and liquidity, we are deferring tax payments where
permitted through COVID-19 related government subsidy programs and are actively
monitoring our accounts receivable for customers with elevated credit risk. We
are monitoring the situation closely and, if necessary, will relax cost saving
measures or implement additional measures as appropriate.
The scope and nature of impacts from COVID-19, most of which are beyond our
control, continue to evolve, and the outcome is uncertain. The ultimate effects
of the COVID-19 pandemic on us and the end markets we service, is highly
uncertain and will depend on future developments. Such effects could exist for
an extended period even after the pandemic ends.
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.
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Back to top Comparison of the Three Months EndedSeptember 26, 2020 to the Three Months EndedSeptember 28, 2019 Three Months Ended September 26, 2020 September 28, 2019 % of Net % of Net (amounts in thousands) Revenues Revenues Net revenues$ 1,112,866 100.0 %$ 1,091,953 100.0 % Cost of sales 867,972 78.0 % 868,168 79.5 % Gross margin 244,894 22.0 % 223,785 20.5 % Selling, general and administrative 181,963 16.4 % 161,424 14.8 % Impairment and restructuring charges 1,319 0.1 % 7,935 0.7 % Operating income 61,612 5.5 % 54,426 5.0 % Interest expense, net 18,784 1.7 % 17,571 1.6 % Other expense (income) 1,379 0.1 % (2,687) (0.2) % Income before taxes 41,449 3.7 % 39,542 3.6 % Income tax expense 15,969 1.4 % 22,500 2.1 % Net income $ 25,480 2.3 % $ 17,042 1.6 % Consolidated Results Net Revenues - Net revenues increased$20.9 million , or 1.9%, to$1,112.9 million in the three months endedSeptember 26, 2020 from$1,092.0 million in the three months endedSeptember 28, 2019 . The increase in net revenues was driven by a 2% positive impact from foreign exchange. Core revenues, which exclude the impact of foreign exchange and acquisitions completed in the last twelve months remained stable. Gross Margin - Gross margin increased$21.1 million , or 9.4%, to$244.9 million in the three months endedSeptember 26, 2020 from$223.8 million in the three months endedSeptember 28, 2019 . Gross margin as a percentage of net revenues was 22.0% in the three months endedSeptember 26, 2020 and 20.5% in the three months endedSeptember 28, 2019 . The increase in gross margin percentage was due to improved pricing and lower material costs, partially offset by unfavorable volume/mix in ourNorth America andAustralasia regions and the effect of inflation on labor compensation. SG&A Expense - SG&A expense increased$20.5 million , or 12.7%, to$182.0 million for the three months endedSeptember 26, 2020 from$161.4 million in the three months endedSeptember 28, 2019 . SG&A expense as a percentage of net revenues increased to 16.4% for the three months endedSeptember 26, 2020 from 14.8% for the three months endedSeptember 28, 2019 . The increase in SG&A expense was primarily due to increased legal expenses, primarily relating to litigation, and changes in estimated variable compensation, partially offset by reductions in spending relating to sales, marketing, travel, and salaries as a result of cost saving measures implemented in response to COVID-19. Impairment and Restructuring Charges - Impairment and restructuring charges decreased$6.6 million , or 83.4%, to$1.3 million in the three months endedSeptember 26, 2020 from$7.9 million in the three months endedSeptember 28, 2019 . The decrease in impairment and restructuring charges was primarily due to reduced restructuring efforts across all segments during the third quarter of 2020 as compared to the third quarter of 2019. Interest Expense, Net - Interest expense, net increased$1.2 million , or 6.9%, to$18.8 million in the three months endedSeptember 26, 2020 from$17.6 million in the three months endedSeptember 28, 2019 . The increase was primarily due to interest on our Senior Secured Notes issued inMay 2020 , partially offset by reduced borrowings and interest rates under our revolving credit facilities. Other Expense (Income) - Other expense (income) changed$4.1 million to expense of$1.4 million in the three months endedSeptember 26, 2020 from income of$2.7 million in the three months endedSeptember 28, 2019 . Other expense in the three months endedSeptember 26, 2020 consisted primarily of foreign currency losses of$4.3 million , partially offset by$1.5 million for income recognized as a result of governmental pandemic assistance reimbursements relating to COVID-19 and an insurance reimbursement of$1.3 million . Other expense in the three months endedSeptember 28, 2019 primarily consisted of foreign currency gains of$5.4 million , partially offset by pension expense of$2.7 million . Income Taxes - Income tax expense decreased$6.5 million , or 29.0%, to$16.0 million in the three months endedSeptember 26, 2020 from$22.5 million in the three months endedSeptember 28, 2019 . The effective tax rate in the three months endedSeptember 26, 2020 was 38.5% compared to 56.9% in the three months endedSeptember 28, 2019 . The effective tax rate for the three 37 -------------------------------------------------------------------------------- Back to top months endedSeptember 26, 2020 andSeptember 28, 2019 was heavily impacted by the GILTI provisions of the Tax Act. The decrease in tax expense of$6.5 million in the current period was primarily driven by a decrease in discrete tax impacts for the reclassification of the tax effect of interest rate swaps within OCI to income tax expense recorded in 2019, tax benefits attributed to changes in return-to-provision adjustments, and the deferred tax impact of tax rate increases. Our 2020 estimated annual effective tax rate increased due to certain projected changes in valuation allowances recorded against certain tax attribute carryforwards due to anticipated operational impacts of the COVID-19 pandemic. Comparison of the Nine Months EndedSeptember 26, 2020 to the Nine Months EndedSeptember 28, 2019 Nine Months Ended September 26, 2020 September 28, 2019 % of Net % of Net (amounts in thousands) Revenues Revenues Net revenues$ 3,084,399 100.0 %$ 3,221,200 100.0 % Cost of sales 2,426,465 78.7 % 2,549,067 79.1 % Gross margin 657,934 21.3 % 672,133 20.9 % Selling, general and administrative 520,874 16.9 % 502,109 15.6 % Impairment and restructuring charges 10,130 0.3 % 17,388 0.5 % Operating income 126,930 4.1 % 152,636 4.7 % Interest expense, net 54,464 1.8 % 53,719 1.7 % Other income (3,450) (0.1) % (1,288) - % Income before taxes 75,916 2.5 % 100,205 3.1 % Income tax expense 27,569 0.9 % 45,030 1.4 % Net income $ 48,347 1.6 % $ 55,175 1.7 % Consolidated Results Net Revenues - Net revenues decreased$136.8 million , or 4.2%, to$3,084.4 million in the nine months endedSeptember 26, 2020 from$3,221.2 million in the nine months endedSeptember 28, 2019 . The decrease was driven by a decline in core revenue of 4% and an adverse foreign exchange impact of 1%, partially offset by a 1% contribution from the VPI acquisition. The decrease in core revenue consisted of a 7% decline in volume/mix, partially offset by a 3% pricing benefit. Gross Margin - Gross margin decreased$14.2 million , or 2.1%, to$657.9 million in the nine months endedSeptember 26, 2020 from$672.1 million in the nine months endedSeptember 28, 2019 . Gross margin as a percentage of net revenues was 21.3% in the nine months endedSeptember 26, 2020 and 20.9% in the nine months endedSeptember 28, 2019 . Gross margins remained stable due to a reduction in wages as a result of plant closures and cost saving measures implemented in response to COVID-19 and favorable pricing withinNorth America , partially offset by unfavorable volume/mix across all regions and the effect of inflation on labor compensation. SG&A Expense - SG&A expense increased$18.8 million , or 3.7%, to$520.9 million in the nine months endedSeptember 26, 2020 from$502.1 million in the nine months endedSeptember 28, 2019 . The increase in SG&A expense was primarily due to increased legal expenses, primarily relating to litigation and estimated variable compensation, partially offset by reductions in spending relating to sales, marketing, travel, salaries as a result of cost saving measures implemented in response to COVID-19 and one-time acquisition costs recorded in 2019. Impairment and Restructuring Charges - Impairment and restructuring charges decreased$7.3 million , or 41.7%, to$10.1 million in the nine months endedSeptember 26, 2020 from$17.4 million in the nine months endedSeptember 28, 2019 . 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. Charges incurred in 2019 primarily related to plant consolidations in ourNorth America andAustralasia segments as well as severance costs across all segments and corporate. For more information, refer to Note 17 - Impairment and Restructuring Charges to our unaudited consolidated financial statements included in this 10-Q. Interest Expense, Net - Interest expense, net, increased$0.7 million , or 1.4%, to$54.5 million in the nine months endedSeptember 26, 2020 from$53.7 million in the nine months endedSeptember 28, 2019 . The increase was primarily due to interest on our Senior Secured Notes issued inMay 2020 , partially offset by reduced borrowings and interest rates under our revolving credit facilities. 38 -------------------------------------------------------------------------------- Back to top Other Income - Other income increased$2.2 million , or 167.9%, to$3.5 million in the nine months endedSeptember 26, 2020 from$1.3 million in the nine months endedSeptember 28, 2019 . The other income in the nine months endedSeptember 26, 2020 primarily consisted of foreign currency losses of$8.4 million , offset by$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 an insurance reimbursement of$1.3 million . Other income in the nine months endedSeptember 28, 2019 was primarily due to pension expense of$8.1 million , offset by foreign currency gains of$5.2 million , a gain on the sale of business units, property and equipment of$1.6 million , and legal settlement income of$1.2 million . Income Taxes - Income tax expense decreased$17.5 million , or 38.8%, to$27.6 million in the nine months endedSeptember 26, 2020 from$45.0 million in the nine months endedSeptember 28, 2019 . The effective tax rate in the nine months endedSeptember 26, 2020 was 36.3% compared to 44.9% in the nine months endedSeptember 28, 2019 . The decrease inSeptember 26, 2020 tax expense of$17.5 million was primarily driven by the tax benefit attributed to the expiration of the statute of limitations on certain tax years inEstonia and the decline and mix of income between jurisdictions in which we do business, offset by the increase of the estimated annual effective estimated tax rate. Our 2020 estimated annual effective tax rate increased due to certain projected changes in valuation allowances recorded against certain tax attribute carryforwards due to anticipated operational impacts of the COVID-19 pandemic. 39
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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 13 - Segment Information to our unaudited interim consolidated financial statements included in this 10-Q. Comparison of the Three Months EndedSeptember 26, 2020 to the Three Months
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