2017
ANNUAL REPORT
DE AR FELL OW SHAREHOLDERS,
2017 will be remembered as a milestone year in the history of our company. We began trading on the NYSE as a public
company on January 27th and continued to make progress toward our long-term targets for core revenue growth and
profit margins. We delivered margin expansion through the JELD-WEN Excellence Model (JEM), introduced innovative new
products, enhanced our portfolio through key acquisitions, increased adjusted EBITDA by 11.2%*, and delivered cash flow
conversion in excess of net income.
OP E RATIONAL
EXCELLENCE
P RO F ITAB LE
OR G A NIC GR OWTH
STRATEGIC
M&A
WORLD-CLASS
PERFORMANCE
AND RETURNS
• Safety and Compliance
• New Products and Innovation
• Target Identification
• Quality System
• Brand Strategy
• Target Cultivation
• Customer Experience
• Channel Management
• Stage Gate Process
• Productivity
• Sourcing
• Sales Force Effectiveness
• Integration Playbook
• Pricing Optimization
• Performance Tracking
TALENT MANAGEMENT, JELD-WEN EXCELLENCE MODEL (JEM), AND ENABLING TECHNOLOGY
OU R S TRATEGIC FR AMEW OR K
Our strategic framework is based on executing a
deployment through strategic M& A. We are pleased
proven operating model with three primary elements.
with the performance of the eleven acquisitions we have
The first pillar of our operating model focuses on
completed in the past three years. Our M& A process
driving margin improvement and productivity through
is highly rigorous and selective. We remain focused on
operational excellence. Using tools from the JELD-WEN
maintaining our pipeline of bolt-on targets that are close
Excellence Model (JEM) as well as our Global Sourcing
to the core of our current businesses.
program, we are seeking to continuously reduce costs
in our manufacturing operations. We are also making
significant capital investments to drive efficiencies
through modernization and automation of our factories.
The second pillar of profitable organic growth includes
strategic price management, innovation, investments
in our brands, and sales force effectiveness. We have
been investing in these areas for several years now, and
we expect to see an increase in our core growth rate in
2018. Finally, our third pillar involves disciplined capital
We will further strengthen the foundation of our
operating model by continuously investing in talent, while
also enhancing the tools we provide associates to do their
work. Our global ERP initiative is one example of our
investment in world-class capabilities that will improve
efficiency, service, and quality. As we execute on this
strategic framework, we will continue advancing toward
our long-term goal of delivering EBITDA margins in the
range of 15-20%.
*Adjusted EBITDA is a non-GA AP financial measure. For a reconciliation of net income, the most comparable GA AP financial measure, to adjusted EBITDA,
see page 40 of the Annual Report on Form 10 -K contained herein.
SEGM ENT HIGHLIGHTS
Markets in North America were generally constructive, with the U.S. generating
steady R&R growth and continued new construction recovery, partially offset
by areas of weakness in our Canadian market. We improved segment adjusted
EBITDA margins by 100 bps by focusing on pricing discipline and driving
operational efficiencies. We deployed JEM to improve the customer experience
and enhance our systems and processes.
We introduced several new products across the region,
of Mattiovi Oy, which strengthens our market position
including the launch of our Premium™ Vinyl family, our
in the Nordic region and enhances our pan-European
beautifully crafted Architectural™ Collection of fiberglass
strategy. Additionally, our highly strategic acquisition of
doors and the soft-close DesignGlide™ barn door. The
Domoferm was announced in October 2017 and closed in
acquisition of Milliken Millwork enhances our ability to
February 2018. Domoferm will add significant capability
provide customers with value-added services and
in manufacturing steel frames and doors. Market and
complete door systems. Offering value-added services,
regulatory forces are at work to drive an increase in
such as a prehung, prestained, or prepainted door, meets
demand for complete door systems, many of which require
a rapidly growing need among builders to reduce labor at
steel frames.
the job site.
Our team in Australasia executed well despite market
In Europe, the Central and Northern markets grew at
headwinds. Adjusted EBITDA margins grew 160 bps in
low single-digit rates. The French market stabilized and
2017. The introduction of high performing and beautifully
UK market growth slowed as consumers grapple with
designed product lines, such as our Blonde Oak door and
the uncertainties of Brexit. Overall our Europe segment
Alumiere window collections, enabled us to win customers
delivered margin expansion of 50 bps. New products
in a difficult market. Our new Queensland glass processing
further demonstrated our product and brand leadership
plant enables us to gain share through increased
across the 16 countries we serve in this region. Our
capacity to meet customer demand. We now serve 18
innovative Polyurethane (PU) Edge Door provides a shock
of the top 20 builders in Australia. In August 2017, we
resistant, pore-free surface that is particularly suitable for
significantly enhanced our existing capabilities in glass
hygienic areas such as hospitals, laboratories or medical
shower enclosures and built-in closet systems through our
practices. In June 2017, we completed the acquisition
acquisition of the Kolder Group.
CONCLUSION
As we move into 2018, our entire executive management team has redoubled our focus on delivering our financial
commitments and consistent execution. We will seek to deliver top quartile financial returns by focusing on profitable
organic revenue growth, improving the productivity of our core business, generating strong free cash flow, and redeploying
capital in strategic M& A with attractive returns.
We thank you for your interest and confidence in us. We also appreciate our customers for their trust and partnership.
Finally, we are grateful to our nearly 22,000 associates. We are confident that the best years for JELD-WEN are still ahead.
Sincerely,
Kirk Hachigian
Chairman of the Board and Acting CEO
“
We bring beauty and
security to the spaces that
touch our lives.
“
WE DO MORE T HAN MANUFAC TU RE WINDOWS AND DOORS
Our products and ser vices afford us the opportunity to enter peoples’
workplaces, homes and daily lives. With this privilege comes great
responsibility to ensure that the products we deliver are reliable and
enrich the places and lives that they touch.
20K
R
E
V
O
EMPLOYEES
WORLDWIDE
#1
OR
#2
POSITION BY NET
REVENUES IN THE MAJORITY
OF THE COUNTRIES AND
MARKETS WE SERVE
120
R
E
V
O
MANUFACTURING
FACILITIES IN
19 COUNTRIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-K
__________________________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 001-38000
__________________________________
JELD-WEN Holding, Inc.
(Exact name of registrant as specified in its charter)
__________________________________
Delaware
(State or other jurisdiction of
incorporation or organization)
93-1273278
(I.R.S. Employer
Identification No.)
2645 Silver Crescent Drive
Charlotte, North Carolina 28273
(Address of principal executive offices, zip code)
(704) 378-5700
(Registrant’s telephone number, including area code)
__________________________________
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class
Common Stock (par value $0.01 per share)
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
(Do not check if a smaller reporting company)
Smaller reporting company
Accelerated filer
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
The aggregate market value of the common stock held by non-affiliates of the registrant was $1.6 billion as of the end of the registrant's second fiscal quarter (based on the closing sale price for
the common stock on the New York Stock Exchange on June 30, 2017). Shares of the registrant's voting stock held by each executive officer and director and by each entity or person that, to
the registrant's knowledge, owned 10% or more of the registrant's outstanding common stock as of June 30, 2017 have been excluded from this number in that these persons may be deemed
affiliates of the registrant. This determination of possible affiliate status is not necessarily a conclusive determination for other purposes
The registrant had 106,342,039 shares of common stock, par value $0.01 per share, issued and outstanding as of February 27, 2018.
Items 10, 11, 12, 13 and 14 of Part III incorporate information by reference from the registrant's definitive proxy statement relating to its 2018 annual meeting of stockholders to be filed with
the Securities and Exchange Commission within 120 days after the close of the registrant's fiscal year.
DOCUMENTS INCORPORATED BY REFERENCE
JELD-WEN HOLDING, Inc.
- Table of Contents –
Part I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II.
Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III.
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV.
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Consolidated Financial Statements
Page No.
(cid:26)
14
33
34
35
35
36
38
4(cid:20)
60
61
61
61
63
64
64
64
64
64
65
67
67
F-1
2
When the following terms and abbreviations appear in the text of this report, they have the meaning indicated below:
Glossary of Terms
2016 Dividend
ABL Facility
Adjusted EBITDA
ASC
ASU
AUD
Australia Senior Secured Credit
Facility
BBSY
Breezway
Bylaws
CAP
Charter
Class B-1 Common Stock
CMI
COA
CODM
Common Stock
Corporate Credit Facilities
Credit Facilities
DKK
Domoferm
Dooria
EPA
ERP
ESOP
Euro Revolving Facility
Exchange Act
FASB
Form 10-K
GAAP
Means (i) the borrowing of an additional $375 million under our Term Loan Facility and (ii)
the application of approximately $35 million in cash and borrowings under our ABL Facility
for the purpose of making payments of approximately $400 million to holders of our
outstanding common stock, Series A Convertible Preferred Stock, Class B-1 Common Stock,
options, and Restricted Stock Units, or “RSUs”
Our $300 million asset-based loan revolving credit facility, dated as of October 15, 2014 and
as amended from time to time, with JWI (as hereinafter defined) and JELD-WEN of Canada,
Ltd., as borrowers, the guarantors party thereto, a syndicate of lenders, and Wells Fargo Bank,
N.A., as administrative agent
A supplemental non-GAAP financial measure of operating performance not based on any
standardized methodology prescribed by GAAP that we define as net income (loss), as
adjusted for the following items: income (loss) from discontinued operations, net of tax; gain
(loss) on sale of discontinued operations, net of tax; equity earnings (loss) of non-consolidated
entities; income tax benefit (expense); depreciation and amortization; interest expense, net;
impairment and restructuring charges; 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, debt refinancing, and
the Onex Investment
Accounting Standards Codification
Accounting Standards Update
Australian Dollar
Our senior secured credit facility, dated as of October 6, 2015 and as amended from time to
time, with certain of our Australian subsidiaries, as borrowers, and Australia and New Zealand
Banking Group Limited, as lender
Bank Bill Swap Bid Rate
Breezway Australia Pty. Ltd.
Amended and Restated Bylaws of JELD-WEN Holding, Inc.
Cleanup Action Plan
Restated Certificate of Incorporation of JELD-WEN Holding, Inc.
Shares of our Class B-1 common stock, par value $0.01 per share, all of which were converted
into shares of our Common Stock on February 1, 2017
CraftMaster Manufacturing Inc.
Consent Order and Agreement
Chief Operating Decision Maker
The 900,000,000 shares of common stock, par value $0.01 per share, authorized under our
Charter
Collectively, our ABL Facility and our Term Loan Facility
Collectively, our Corporate Credit Facilities, our Australia Senior Secured Credit Facility, and
our Euro Revolving Facility
Danish Krone
The Domoferm Group of companies
Dooria AS
The U.S. Environmental Protection Agency
Enterprise Resource Planning
JELD-WEN, Inc. Employee Stock Ownership and Retirement Plan
Our €39 million revolving credit facility, dated as of January 30, 2015 and as amended from
time to time, with JELD-WEN A/S, as borrower, Danske Bank A/S and Nordea Bank
Danmark A/S as lenders
Securities Exchange Act of 1934, as amended
Financial Accounting Standards Board
This Annual Report on Form 10-K for the fiscal year ended December 31, 2017
Generally Accepted Accounting Principles in the United States
3
IBOR
IPO
JELD-WEN
JEM
JWA
JWH
JWI
Kolder
LIBOR
Mattiovi
MMI Door
MD&A
NRD
NYSE
Onex
PaDEP
Preferred Stock
R&R
RSU
Sarbanes-Oxley
SEC
Securities Act
Senior Notes
Interbank Offered Rate
The initial public offering of our shares, as further described in this Form 10-K
JELD-WEN Holding, Inc., together with its consolidated subsidiaries where the context
requires
JELD-WEN Excellence Model
JELD-WEN of Australia Pty. Ltd.
JELD-WEN Holding, Inc., a Delaware corporation
JELD-WEN, Inc., a Delaware corporation
Kolder Group
London Interbank Offered Rate
Mattiovi Oy
Milliken Millwork, Inc.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Natural Resource Damage Trustee Council
New York Stock Exchange
Onex Partners III LP and certain affiliates
Pennsylvania Department of Environmental Protection
90,000,000 shares of Preferred Stock, par value $0.01 per share, authorized under our Charter
Repair and remodel
Restricted stock units
Sarbanes-Oxley Act of 2002, as amended
Securities and Exchange Commission
Securities Act of 1933, as amended
$800.0 million of unsecured notes issued in December 2017 in a private placement in two
tranches: $400.0 million bearing interest at 4.625% and maturing in December 2025 and
$400.0 million bearing interest at 4.875% and maturing in December 2027
Series A Convertible Preferred Stock Our Series A-1 Convertible Preferred Stock, par value $0.01 per share, Series A-2 Convertible
Preferred Stock, par value $0.01 per share, Series A-3 Convertible Preferred Stock, par value
$0.01 per share, and Series A-4 Convertible Preferred Stock, par value $0.01 per share, all of
which were converted into shares of our common stock on February 1, 2017
SG&A
Tax Act
Term Loan Facility
Trend
U.S.
WADOE
Selling, general, and administrative expenses
Tax Cuts and Jobs Creation Act
Our term loan facility, dated as of October 15, 2014, as amended from time to time with JWI,
as borrower, the guarantors party thereto, a syndicate of lenders, and Bank of America, N.A.,
as administrative agent
Trend Windows & Doors Pty. Ltd.
United States of America
Washington State Department of Ecology
CERTAIN TRADEMARKS, TRADE NAMES AND SERVICE MARKS
This Form 10-K includes trademarks, trade names, and service marks owned by us. Our U.S. window and door trademarks
include JELD-WEN®, AuraLast®, MiraTEC®, Extira®, LaCANTINATM, MMI DoorTM, KaronaTM, ImpactGard®, JW®, Aurora®, IWP®,
and True BLUTM. Our trademarks are either registered or have been used as common law trademarks by us. The trademarks we use
outside the U.S. include the Stegbar®, Regency®, William Russell Doors®, Airlite®, Trend®, The Perfect FitTM, Aneeta®, Breezway®,
KolderTM and Corinthian® marks in Australia, and Swedoor®, Dooria®, DANA®, MattioviTM, Alupan® and Domoferm® in Europe.
ENERGY STAR® is a registered trademark of the U.S. Environmental Protection Agency. This Form 10-K contains additional
trademarks, trade names, and service marks of others, which are, to our knowledge, the property of their respective owners. Solely for
convenience, trademarks, trade names, and service marks referred to in this Form 10-K appear without the ®, ™ or SM symbols, but
such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or
the right of the applicable licensor to these trademarks, trade names, and service marks. We do not intend our use of other parties’
trademarks, trade names, or service marks to imply, and such use or display should not be construed to imply, a relationship with, or
endorsement or sponsorship of us by, these other parties.
4
PART I - FINANCIAL INFORMATION
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Form 10-K 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 Form 10-K 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, or future events or
performance contained under the headings Item 1A- Risk Factors, Item 7- Management’s Discussion and Analysis of Financial
Condition and Results of Operations, and Item 1- Business are forward-looking statements. In addition, statements regarding the
potential outcome of pending litigation 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, Item 7- Management’s Discussion and
Analysis of Financial Condition and Results of Operations, and Item 1- Business, 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;
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 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 anticipate implementing in the future 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;
compliance costs with respect to legislative and regulatory proposals to restrict emission of GHGs;
5
•
•
•
•
•
•
•
•
•
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 the material weaknesses that have been identified;
the extent of Onex’ control of us; and
other risks and uncertainties, including those listed under Item 1A- Risk Factors.
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 Form 10-K 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 in 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 Form 10-K, they may not be
predictive of results or developments in future periods.
Any forward-looking statement in this Form 10-K speaks only as of the date of this Form 10-K 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 Form 10-K 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.
6
Item 1 - Business.
Our Company
We are one of the world’s largest door and window manufacturers. 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 and R&R of
residential homes and, to a lesser extent, non-residential buildings.
We market our products globally under the JELD-WEN brand, along with several market-leading regional brands such as
Swedoor and DANA in Europe and Corinthian, Stegbar, and Trend in Australia. Our customers include wholesale distributors and
retailers as well as individual contractors and consumers. As a result, our business is highly diversified by distribution channel,
geography, and construction application, as illustrated in the charts below:
(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:49)(cid:72)(cid:87)(cid:3)(cid:53)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:3)(cid:7)(cid:22)(cid:15)(cid:26)(cid:25)(cid:23)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)
Distribution Channel
Geography
Construction Application(1)
(1) Percentage of net revenues by construction application is a management estimate based on the end markets into which our customers sell.
As one of the largest door and window companies in the world, we have invested significant capital to build a business
platform that we believe is unique among our competitors. We operate 123 manufacturing facilities in 19 countries, located primarily
in North America, Europe, and Australia. Our global manufacturing footprint is strategically sized and located to meet the delivery
requirements of our customers. 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 us with supply chain, transportation, and working
capital savings. We believe that our manufacturing network allows us to deliver our broad portfolio of products to a wide range of
customers across the globe, improves our customer service, and strengthens our market positions.
Our History
We were founded in 1960 by Richard L. Wendt, when he, together with four business partners, bought a millwork plant in
Oregon. The subsequent decades were a time of successful expansion and growth as we added different businesses and product
categories such as interior doors, exterior steel doors, and vinyl windows. Our first overseas acquisition was Norma Doors in Spain in
1992 and since then we acquired or established numerous businesses in Europe, Australia, Asia, Canada, Mexico, and Chile, making
us a truly global company.
In October 2011, certain funds managed by affiliates of Onex, acquired a majority of JELD-WEN’s voting interests. After the
Onex investment, we began the transformation of our business from a family-run operation to a global organization with independent,
professional management. The transformation accelerated after 2013 with the hiring of a new senior management team strategically
recruited from a number of world-class industrial companies. Our new management team has decades of experience driving
operational improvement, innovation, and growth, both organically and through acquisitions.
On February 1, 2017, we closed an IPO of 28,750,000 shares of our common stock at a public offering price of $23.00 per
share. We sold 22,272,727 shares and Onex sold 6,477,273 shares from which we did not receive any proceeds. We received $472.4
million in proceeds, net of underwriting discounts, fees and commissions, from the shares sold by us. We used a portion of the net
proceeds to us from the offering to repay $375 million of indebtedness outstanding under our Term Loan Facility. We will use
remaining net proceeds to us for working capital and other general corporate purposes, including sales and marketing activities,
7
general and administrative matters, and capital expenditures. We may also use a portion of the net proceeds to invest in or acquire
complementary businesses, products, services, technologies, or other assets.
On May 31, 2017, we closed a secondary public offering of 16,100,000 shares of our common stock, substantially all of
which were owned by Onex, including the exercise by the underwriters of their over-allotment option that closed on June 5, 2017, at a
public offering price of $30.75 per share. We did not receive any of the proceeds from the sale of the shares of common stock sold in
this offering.
On November 20, 2017, we closed a secondary public offering of 14,375,000 shares of our common stock, substantially all of
which were owned by Onex, including the exercise by the underwriters of their over-allotment option, at a public offering price of
$33.75 per share. We did not receive any of the proceeds from the sale of the shares of common stock sold in this offering.
After completion of the IPO and the May 2017 and November 2017 secondary offerings described above, Onex owned approximately
31.2% of our outstanding common stock.
Our Business Strategy and Operating Model
We seek to achieve best-in-industry financial performance through the disciplined execution of:
•
•
•
operational excellence programs, such as the JEM, to improve our profit margins and free cash flow;
initiatives to drive profitable organic sales growth, including new product development, investments in
our brands and marketing, channel management, and pricing optimization; and
acquisitions to expand our business.
The execution of our strategy is supported and enabled by a relentless focus on talent management. Over the long
term, we believe that the implementation of our strategy is largely within our control and is less dependent on external
factors. The key elements of our strategy are described further below.
Expand Our Margins and Free Cash Flow Through Operational Excellence
With 123 manufacturing facilities around the world and over 21,000 dedicated employees, we have a global
manufacturing footprint that is unique in the door and window industry. We believe we have identified a substantial
opportunity to improve our profitability by building a culture of operational excellence and continuous improvement across
all aspects of our business through our JEM initiative. Historically, we were not centrally managed and had a limited focus
on continued cost reduction, operational improvement, and strategic material sourcing. This resulted in profit margins that
were lower than our building products peers and far lower than what would typically be expected of a world-class industrial
company.
Our senior management team has a proven track record of implementing operational excellence programs at some
of the world’s leading industrial manufacturing businesses, and we believe the same successes can be realized at JELD-
WEN. Key areas of focus of our operational excellence program include:
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reducing labor costs, overtime, and waste by optimizing planning and manufacturing processes;
reducing or minimizing increases in material costs through strategic global sourcing and value-added re-
engineering of components, in part by leveraging our significant spend and the global nature of our
purchases; and
reducing warranty costs by improving quality.
Drive Profitable Organic Sales Growth
We seek to deliver profitable organic revenue growth through several strategic initiatives, including new product
development, brand and marketing investment, channel management, and continued pricing optimization. These strategic
initiatives will drive our sales mix to include more value-added, higher margin products.
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New Product Development: Our management team has renewed our focus on innovation and new
product development. We believe that leading the market in innovation will enhance demand for our
products, increase the rate at which our products are specified into home and non-residential designs, and
allow us to sell a higher margin product mix.
Brand and Marketing Investment: We recently began to make meaningful investments in new marketing
initiatives designed to enhance the positioning of the JELD-WEN family of brands. Our new initiatives
include marketing campaigns focused on the distributor, builder, architect, and consumer communities.
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Channel Management: We are implementing initiatives and investing in tools and technology to enhance
our relationships with key customers, make it easier for them to source from JELD-WEN, and support their
ability to sell our products in the marketplace. These incentives help our customers grow their businesses
in a profitable manner while also improving our sales volumes and the margin of our product mix.
Pricing Optimization: We are focused on profitable growth and will continue to employ a strategic
approach to pricing our products. Pricing discipline is an important element of our effort to improve our
profit margins and earn an appropriate return on our invested capital.
Complement Core Earnings Growth With Strategic Acquisitions
Collectively, our senior management team, has acquired and integrated more than 100 companies during their
careers. Leveraging this collective experience, we have developed a disciplined governance process for identifying,
evaluating, and integrating acquisitions. Since 2015, we have completed ten acquisitions across North America, Europe, and
Australasia. Our strategy focuses on three types of opportunities:
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Market Consolidation Opportunities: The competitive landscape in several of our key markets remains
highly fragmented, which creates an opportunity for us to consolidate smaller companies, enhance our
market-leading positions, and realize synergies through the elimination of duplicate costs. Our recent
acquisitions of Mattiovi (Finland), Dooria (Norway), Kolder (Australia), and Trend (Australia) are
examples of this strategy.
Enhancing Our Portfolio of Products and Service Offerings: We strive to provide the broadest range of
doors and windows to our customers so that we can enhance our share of their overall spend. Along with
our organic new product development pipeline, we seek to expand our door and window product and
service portfolio by acquiring companies that have developed unique products, technologies, or value-
added services. Our recent acquisitions of Karona (stile and rail doors), LaCantina (folding and sliding
wall systems), Aneeta (sashless windows), Breezway (louver windows), MMI Door (value-added supplier
of customized door systems), and Domoferm (steel frames and doors) are examples of this strategy.
Product Adjacencies and New Geographies: Opportunities also exist to expand our company through the
acquisition of complementary door and window manufacturers in new geographies as well as providers of
product adjacencies. While this has not been a major focus in recent years, we expect it to be a key element
in our long-term growth.
Our Products
We provide a broad portfolio of interior and exterior doors, windows, and related products, manufactured from a variety of
wood, metal, and composite materials and offered across a full spectrum of price points. In the year ended December 31, 2017, our
door sales accounted for 67% of net revenues, our window sales accounted for 24% of net revenues, and our other ancillary products
and services accounted for 9% of net revenues.
Doors
We are a leading global manufacturer of residential doors. We offer a full line of residential interior and exterior door
products, including patio doors and folding or sliding wall systems. Our non-residential door product offering is concentrated in
Europe, where we are a leading non-residential door provider by net revenues in Germany, Austria, Switzerland, and Scandinavia. In
order to meet the style, design, and durability needs of our customers across a broad range of price points, our product portfolio
encompasses many types of materials, including wood veneer, composite wood, steel, glass, and fiberglass. Our interior and exterior
residential door models generally retail at prices ranging from $30 to $40 for our most basic products to several thousand dollars for
our high-end exterior doors. Our highest volume products include molded interior doors, which are made from two composite molded
door skins joined by a wooden frame and filled with a hollow honey-cell core or other solid core materials. These low-cost doors are
the most popular choice for interior residential applications in North America and also are prevalent in France and the U.K. In Europe,
we also sell highly engineered non-residential doors, with features such as soundproofing, fire resistance, radiation resistance, and
added security. We also manufacture stile and rail doors in our Southeast Asia manufacturing facilities, as well as in the U.S. through
our 2015 acquisition of Karona. In the U.S., our 2015 acquisition of LaCantina added a line of folding and sliding wall systems to our
product offerings. Additionally, we offer profitable value-added services in all of our markets, including customizable configuration
services, specialized component options, and multiple finishing options. These services are valued by labor constrained customers and
allow us to capture more profit from the sale of our door products. In the U.S., our recent acquisition of MMI Door is an example of
our increased focus on value-added services. Our newest door product offering includes steel doors, steel door frames, and fire doors
for commercial and residential markets through our recent acquisition of Domoferm, which closed in February 2018.
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We manufacture our own composite molded skins for our interior door business. In the last several years, we have added
significant door skin capacity into the North America market, primarily as a result of the opening of our facility in Dodson, Louisiana.
Windows
We are a leading global manufacturer of residential windows. We manufacture wood, vinyl, and aluminum windows in North
America, wood and aluminum windows in Australia, and wood windows in the U.K. Our window product lines comprise a full range
of styles, features, and energy-saving options in order to meet the varied needs of our customers in each of our regional end markets.
For example, our high performance wood and vinyl windows with multi-pane glazing and superior energy efficiency properties are in
greater demand in Canada and the northern U.S. By contrast, our lower-cost aluminum framed windows are popular in some regions
of the southern U.S., while in coastal Florida certain local building codes require windows that can withstand the impact of debris
propelled by hurricane-force winds. Wood windows are prevalent as a high-end option in all of our markets because they possess both
insulating qualities and the beauty of natural wood. In North America our wood windows and patio doors include our proprietary
AuraLast treatment, which is a unique water-based wood protection process that provides protection against wood rot and decay. We
believe AuraLast is unique in its ability to penetrate and protect the wood through to the core, as opposed to being a shallow or
surface-only treatment. Our newest window product offerings include sashless window systems through our 2015 acquisition of
Aneeta and louver window systems through our 2016 acquisition of Breezway. Our windows typically retail at prices ranging from
$100 to $200 for a basic vinyl window to over $1,000 for a custom energy-efficient wood window. We believe that our innovative
energy-efficient windows position us to benefit from increasing environmental awareness among consumers and from changes in local
building codes. In recognition of our expansive energy-efficient product line, we have been an ENERGY STAR partner since 1998.
Other Ancillary Products and Services
In certain regions, we sell a variety of other products that are ancillary to our door and window offerings, which we do not
classify as door or window sales. These products include shower enclosures and wardrobes, moldings, trim board, lumber, cutstock,
glass, staircases, hardware and locks, cabinets, and screens. Molded door skins sold to certain third-party manufacturers, as well as
miscellaneous installation and other services, are also included in this category.
We sell molded door skins to certain customers pursuant to long-term contracts, and these customers in turn use the molded
door skins to manufacture interior doors and compete directly against us in the marketplace.
Our Segments
We operate within the global market for residential and non-residential doors and windows with sales spanning 81 countries.
While we operate globally, the markets for doors and windows are regionally distinct with suppliers manufacturing finished goods in
proximity to their customers. Finished doors and windows are generally bulky, expensive to ship, and, in the case of windows, fragile.
Designs and specifications of doors and windows also vary from country to country due to differing construction methods, building
codes, certification requirements, and consumer preferences. Customers also demand short delivery times and can require special
order customizations. We believe that we are well-positioned to meet the global demands of our customers due to our market
leadership, strong brands, broad product line, and strategically located manufacturing and distribution facilities.
Our operations are managed and reported in three reportable segments, organized and managed principally by geographic
region. Our reportable segments are North America, Europe and Australasia. We report all other business activities in Corporate and
unallocated costs. Factors considered in determining the three reportable segments include the nature of business activities, the
management structure accountable directly to the CODM for operating and administrative activities, the discrete financial information
available and the information regularly presented to the CODM.
North America
In our North America segment, we compete primarily in the market for residential doors and windows in the U.S. and
Canada. We are the only manufacturer that offers a full line of interior and exterior door and window products, allowing us to offer a
more complete solution to our customer base. We believe that our leading position in the North American market will enable us to
benefit from continued recovery in residential construction activity over the next several years. We believe that our total market
opportunity in North America also includes non-residential applications, other related building products, and value-added services.
Europe
The European market for doors is highly fragmented, and we have the only platform in the industry capable of serving nearly
all European countries. In our Europe segment, we compete primarily in the market for residential and non-residential doors in
Germany, the U.K., France, Austria, Switzerland, and Scandinavia. We believe that our total market opportunity in Europe also
includes other European countries, other door product lines, related building products, and value-added services. Although
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construction activity in Europe has been slower to recover compared to construction activity in North America, new construction and
R&R activity is expected to increase across Europe over the next several years.
Australasia
In our Australasia segment, we compete primarily in the market for residential doors and windows in Australia, where we
hold a leading position by net revenues. We believe that our total market opportunity in the Australasia region also includes non-
residential applications and other countries in the region, as well as other related building products, and value-added services. For
example, we also sell a full line of shower enclosures and closet systems throughout Australia.
Financial information regarding our segments is included in Note 19 - Segment Information to our financial statements
included in this Form 10-K.
Materials
Historically our sourcing function operated primarily in a regional, decentralized model. With our recent leadership
transformation, we have increased our focus on making global sourcing a competitive advantage, as evidenced by our hiring in early
2016 of an experienced procurement executive to lead our global sourcing function. Under his leadership, our focus has been and will
continue be on minimizing material costs through strategic global sourcing and value-added re-engineering of components. We believe
leveraging our significant spending and the global nature of our purchases will allow us to achieve these goals.
We generally maintain a diversified supply base for the materials used in our manufacturing operations. Materials represented
approximately 50% of our cost of sales in the year ended December 31, 2017. The primary materials used for our door business
include wood, wood veneers, wood composites, steel, glass, internally produced door skins, fiberglass compound, and hardware, as
well as petroleum-based products such as resin and binders. The primary materials for our window business include wood, wood
components, glass, hardware, aluminum extrusions, and vinyl extrusions. Wood components for our window operations are sourced
primarily from our own manufacturing plants, which allow us to improve margins and take advantage of our proprietary technologies
such as our AuraLast wood treatment process.
We track commodities in order to understand our vendors’ costs, realizing that our costs are determined by the broader
competitive market as well as by increases in the inputs to our vendors. In order to manage the risk in material costs, we develop
strategic relationships with suppliers, routinely evaluate substitute components, develop new products, vertically integrate where
applicable and seek alternative sources of supply from multiple vendors and often from multiple geographies.
Seasonality
In a typical year, our operating results are impacted by seasonality. Historically, peak season for home construction and
remodeling in our North America and Europe segments, which represent the substantial majority of our revenues, generally
corresponds with the second and third calendar quarters, and therefore our sales volume is usually higher during those quarters.
Seasonal variations in operating results may be impacted by inclement weather conditions, such as cold or wet weather, which can
delay construction projects.
Sales and Marketing
We actively market and sell our products directly to our customers around the world through our global sales force and
indirectly through our marketing and branding initiatives. Our global sales force, which is organized and managed regionally, focuses
on building and maintaining relationships with key customers as well as managing customer supply needs and arranging in-store
promotional initiatives. In North America, we also have a dedicated team that focuses on our large home center customers. We have
recently made significant investments in tools and technologies to enhance the effectiveness of our sales force and improve ease of
doing business. For example, we are in the process of deploying Salesforce.com on a global basis, which will provide us with a
common global customer relationship management platform. In addition, we are in the process of simplifying our order entry process
by implementing online configuration tools. We have introduced an electronic ordering system for easy order placement, and we
intend to expand our online retail sales. Our new strategy also includes initiatives focused on expanding our market through the use of
social media. To date, these initiatives have included hosting videos and increasing our presence on Facebook.
Consistent with our new pricing strategies, we have restructured the commission and incentive plans of our sales team to
drive focus on achieving profitable growth. We have also invested significantly in our architectural sales force by adding staff and
tools to increase the frequency with which our products are specified by architects. We believe these investments will increase sales
force effectiveness, create pull-through demand, and optimize sales force productivity.
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We believe that our broad product portfolio of both doors and windows in North America and Australasia is a competitive
advantage as it allows us to cross-sell our door and window products to our end customers, many of whom find it more efficient to
choose one supplier for their door and window needs on a given project. None of our primary competitors in these regions offers a
similarly complete range of windows as well as interior and exterior doors.
Research and Development
Following a number of years during and after the global financial crisis of limited investment in new product development, a
core element of our strategy is a renewed focus on innovation and the development of new products and technologies. We believe that
leading the market in innovation will enhance demand for our products and allow us to sell a higher margin product mix. Our research
and development efforts encompass new product development, derivative product development, as well as value added re-engineering
of components in our existing products leading to reduced costs and manufacturing efficiencies. We have also designed a new
governance process that prioritizes the most impactful projects and is expected to improve the efficiency and quality of our research
and development efforts. The governance process is currently being deployed globally, such that we can leverage best practices from
region to region. Additionally, a substantial driver of our acquisition activity has been increasing access to new and innovative
products.
Although product specifications and certifications vary from country to country, the global nature of our operations allows us
to leverage our global innovation capabilities and share new product designs across our markets. We believe that the global nature of
our research and development capabilities is unique among our door and window competition. An example of global sharing of
innovation is the “soft close” door system, which is based on hardware originally designed and manufactured by our European
operations that is now being offered in North America and Australia. Additionally, we have successfully launched new door designs
into our North American and Australian markets that were originally developed in our European operations.
Customers
We sell our products worldwide and have well-established relationships with numerous customers throughout the door and
window distribution chain in each of our end markets, including retail home centers, wholesale distributors, and building product
dealers that supply homebuilders, contractors, and consumers. Our wholesale customers include such industry leaders as BMC/Stock
Building Supply, ProBuild/Builders First Source, American Building Supply, Saint-Gobain, and the Holzring group. Our home center
customers include, among others, The Home Depot, Lowes, and Menards in North America; B&Q, Howdens, and Bauhaus in Europe;
and Bunnings Warehouse in Australia. We have maintained relationships with the majority of our top ten customers for over 19 years
and believe that the strength and tenure of our customer relationships is based on our ability to produce and deliver high-quality
products quickly and in the desired volumes for a reasonable cost. Our top ten customers together accounted for approximately 36% of
our net revenues in the year ended December 31, 2017, and our largest customer, The Home Depot, accounted for approximately 17%
of our net revenues in the year ended December 31, 2017.
Competition
The door and window industry is highly competitive and includes a number of regional and international competitors.
Competition is largely based on the functional and aesthetic quality of products, service quality, distribution capability and price. We
believe that we are well-positioned in our industry due to our leading brands, our broad product lines, our consistently high product
quality and service, our global manufacturing and distribution capabilities, and our extensive multi-channel distribution. For North
American interior doors, our major competitors include Masonite and several smaller independent door manufacturers. For North
American exterior doors, competitors include Masonite, Therma-Tru (a division of Fortune Brands), and Plastpro. The North
American window market is highly fragmented, with sizable competitors including Anderson, Pella, Marvin, Ply-Gem, and Milgard (a
division of Masco). The door manufacturers that we primarily compete with in our European markets include Huga, Prüm/Garant,
Viljandi, Masonite, Keyor, and Herholz. The competitive landscape in Australia is varied across the door and window markets. In the
Australian door market, Hume Doors is our primary competitor, while in the window, shower screen, and wardrobe markets we
largely compete against a fragmented set of smaller companies.
Intellectual Property
We rely primarily on patent, trademark, copyright, and trade secret laws and contractual commitments to protect our
intellectual property and other proprietary rights. Generally, registered trademarks have a perpetual life, provided that they are
renewed on a timely basis and continue to be used properly as trademarks. We intend to maintain the trademark registrations listed
below so long as they remain valuable to our business.
Our U.S. window and door trademarks include JELD-WEN, AuraLast, MiraTEC, Extira, LaCANTINA, Karona, ImpactGard,
JW, Aurora, MMI Door and IWP. Our trademarks are either registered or have long been used as a common law trademark by the
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Company. The trademarks we use outside the U.S. include the Stegbar, Regency, William Russell Doors, Airlite, Trend, The Perfect
Fit, Aneeta, Breezway, Kolder, and Corinthian marks in Australia, and Swedoor, Dooria, DANA, Mattiovi and Alupan in Europe.
Employees
As of December 31, 2017, we employed approximately 21,000 people. Of our total number of employees, approximately
10,900 are employed in operations included in our North America segment, approximately 6,000 are employed in operations included
in our Europe segment, and approximately 4,100 are employed in operations included in our Australasia segment.
In total, approximately 1,020, or 10%, of our employees in the U.S. and Canada are unionized. Two facilities in the U.S.,
representing approximately 420 employees, are covered by collective bargaining agreements. In Canada, approximately 47% of our
employees work at facilities covered by collective bargaining agreements. As is common in Europe and Australia, the majority of our
facilities are covered by work councils and/or labor agreements. We believe we have satisfactory relationships with our employees and
our organized labor unions.
Environmental Matters
The geographic breadth of our facilities and the nature of our operations subject us to extensive environmental, health, and
safety laws and regulations in jurisdictions throughout the world. Such laws and regulations relate to, among other things, air
emissions, the treatment and discharge of wastewater, the discharge of hazardous materials into the environment, the handling,
storage, use and disposal of solid, hazardous and other wastes, worker health and safety, or otherwise relate to health, safety, and
protection of the environment. Many of our products are also subject to various laws and regulations such as building and construction
codes, product safety regulations, and regulations and mandates related to energy efficiency.
The nature of our operations, which involve the handling, storage, use, and disposal of hazardous wastes, exposes us to the
risk of liability and claims associated with contamination at our current and former facilities or sites where we have disposed of or
arranged for the disposal of waste, or with the impact of our products on human health and safety and the environment. Laws and
regulations with respect to the investigation and remediation of contaminated sites can impose joint and several liability for releases or
threatened releases of hazardous materials upon statutorily defined parties, including us, regardless of fault or the lawfulness of the
original activity or disposal. We have been subject to claims, including having been named as a potentially responsible party, in certain
proceedings initiated pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, and
similar state and foreign laws, regulations, and statutes, and may be named a potentially responsible party in other similar proceedings
in the future. Unforeseen expenditures or liabilities may arise in connection with such matters.
We have also been the subject of certain environmental regulatory actions by the EPA and state regulatory agencies in the U.S. and
foreign governmental authorities in jurisdictions in which we operate, and are obligated to make certain expenditures in settlement of
those actions. We do not expect expenditures for compliance with environmental laws and regulations to have a material adverse effect
on our results of operations or competitive position. However, the discovery of a presently unknown environmental condition, changes
in environmental requirements or their enforcement, or other unanticipated events, may give rise to unforeseen expenditures and
liabilities which could be material.
For more information, see Item 1A - Risk Factors - We may be subject to significant compliance costs as well as liabilities
under environmental, health, and safety laws and regulations, Item 1A - Risk Factors - Risks Relating to Our Business and Industry,
Item 1A - Risk Factors -We may be subject to significant compliance costs with respect to legislative and regulatory proposals to
restrict emissions of GHGs, and Item 3 - Legal Proceedings - Environmental Regulatory Actions.
Environmental Sustainability
We strive to conduct our business in a manner that is environmentally sustainable and demonstrates environmental
stewardship. Toward that end, we pursue processes that are designed to minimize waste, maximize efficient utilization of materials,
and conserve resources, including using recycled and reused materials to produce portions of our products. We continue to evaluate
and modify our manufacturing and other processes on an ongoing basis to further reduce our impact on the environment. We believe it
is important for our employees to share our commitment and we strive to recruit, educate, and train our employees in these values on
an ongoing basis throughout their careers with us.
Environmental Regulatory Actions
In 2008, we entered into an Agreed Order with the WADOE, to assess historic environmental contamination and remediation
feasibility at our former manufacturing site in Everett, Washington. As part of this agreement, we also agreed to develop a CAP,
arising from the feasibility assessment. We are currently working with WADOE to finalize our RI/FS, and, once final, we will develop
the CAP. We estimate the remaining cost to complete our RI/FS and develop the CAP at $0.5 million, which we have fully accrued.
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However, because we cannot at this time reasonably estimate the cost associated with any remedial action we would be required to
undertake, we have not provided accruals for any remedial actions in our consolidated financial statements. Non-Core Everett LLC,
our subsidiary, also received notice of a natural resource damage claim from the Port Gardner and Snohomish River Trustee Council
in connection with this site. In September 2015, we entered into a settlement agreement, which has now been memorialized in a
formal Consent Decree, pursuant to which we will pay $1.3 million to settle the claim. Of the $1.3 million, the prior insurance carrier
for the site has agreed to fund $1.1 million of the settlement. All amounts related to the settlement are fully accrued and we do not
expect to incur any significant further loss related to the settlement of this matter. However, should extensive remedial action be
required in the future (and if insurance coverage is unavailable or inadequate), the costs associated with this site could have a material
adverse effect on our results of operations and cash flows.
In 2015, we entered into a COA with the PaDEP to remove a pile of wood fiber waste from our site in Towanda,
Pennsylvania, which we acquired in connection with our acquisition of CMI in 2013, by using it as fuel for a boiler at that site. The
COA replaced a 1995 Consent Decree between CMI’s predecessor Masonite, Inc. and PaDEP. Under the COA, we are required to
achieve certain periodic removal objectives and ultimately remove the entire pile by August 31, 2022. There are currently $11.0
million in bonds posted in connection with these obligations. If we are unable to remove this pile by August 31, 2022, then the bonds
will be forfeited and we may be subject to penalties by PaDEP. We currently anticipate meeting all applicable removal deadlines;
however, if our operations at this site decrease and we burn less fuel than currently anticipated, we may not be able to meet such
deadlines.
Available Information
Our Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant
to Sections 13(a) and 15(d) of the Exchange Act, are filed with the SEC. We are subject to the informational requirements of the
Exchange Act and file or furnish reports, proxy statements and other information with the SEC. Such reports and other information
filed by us with the SEC are available free of charge on our website at investors.jeld-wen.com when such reports are made available
on the SEC’s website. The public may read and copy any materials filed by us with the SEC at the SEC’s Public Reference Room at
100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these
websites are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual
references only.
Item 1A - Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the following factors, as well
as other information contained or incorporated by reference in this Form 10-K, before deciding to invest in shares of our common
stock. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your
investment in our common stock.
Risks Relating to Our Business and Industry
Negative trends in overall business, financial market and economic conditions, and/or activity levels in our end markets may
reduce demand for our products, which could have a material adverse effect on our business, financial condition, and results of
operations.
Negative trends in overall business, financial market, and economic conditions globally or in the regions where we
operate may reduce demand for our doors and windows, which is tied to activity levels in the R&R and new residential and non-
residential construction end markets. In particular, the following factors may have a direct impact on our business in the regions
where our products are marketed and sold:
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the strength of the economy;
employment rates and consumer confidence and spending rates;
the availability and cost of credit;
the amount and type of residential and non-residential construction;
housing sales and home values;
the age of existing home stock, home vacancy rates, and foreclosures;
interest rate fluctuations for our customers and consumers;
volatility in both debt and equity capital markets;
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•
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increases in the cost of raw materials or any shortage in supplies or labor;
the effects of governmental regulation and initiatives to manage economic conditions;
geographical shifts in population and other changes in demographics; and
changes in weather patterns.
Toward the end of the last decade, the global economy endured a significant recession followed by a prolonged period of
moderate recovery that had a substantial negative effect on sales across our end markets. In particular, beginning in mid-2006 and
continuing through late 2011, the U.S. residential and non-residential construction industry experienced one of the most severe
downturns of the last 40 years. While cyclicality in our new residential and non-residential construction end markets is moderated
to a certain extent by R&R activity, much R&R spending is discretionary and can be deferred or postponed entirely when
economic conditions are poor. We experienced sales declines in all of our end markets during this recent economic downturn.
Although conditions in the U.S. have improved in recent years, there can be no assurance that this improvement will be
sustained in the near or long-term. Moreover, uncertain economic conditions continue in our Australasia segment and certain
countries in our Europe segment. Negative business, financial market, and economic conditions globally or in the regions where
we operate may materially and adversely affect demand for our products, and our business, financial condition, and results of
operations could be materially negatively impacted as a result.
We operate in a highly competitive business environment. Failure to compete effectively could cause us to lose market share
and/or force us to reduce the prices we charge for our products. This competition could have a material adverse effect on our
business, financial condition, and results of operations.
We operate in a highly competitive business environment. Some of our competitors may have greater financial, marketing,
and distribution resources and may develop stronger relationships with customers in the markets where we sell our products. Some
of our competitors may be less leveraged than we are, providing them with more flexibility to invest in new facilities and processes
and also making them better able to withstand adverse economic or industry conditions.
In addition, some of our competitors, regardless of their size or resources, may choose to compete in the marketplace by
adopting more aggressive sales policies, including price cuts, or by devoting greater resources to the development, promotion, and
sale of their products. This could result in our loss of customers and/or market share to these competitors or being forced to reduce
the prices at which we sell our products to remain competitive.
As a result of competitive bidding processes, we may have to provide pricing concessions to our significant customers in
order for us to keep their business. Reduced pricing would result in lower product margins on sales to those customers. There is no
guarantee that a reduction in prices would be offset by sufficient gains in market share and sales volume to those customers.
The loss of, or a reduction in orders from, any significant customers, or decreases in the prices of our products, could have
a material adverse effect on our business, financial condition, and results of operations.
We may not identify or effectively respond to consumer needs, expectations, or trends in a timely fashion, which could adversely
affect our relationship with customers, our reputation, the demand for our brands, products, and services, and our market
share.
The quantity, type, and prices of products demanded by consumers and our customers have shifted over time. For
example, demand has increased for multi-family housing units such as apartments and condominiums, which typically require
fewer of our products, and we are experiencing growth in certain channels for products with lower price points. In certain cases,
these shifts have negatively impacted our sales and/or our profitability. Also, we must continually anticipate and adapt to the
increasing use of technology by our customers. Recent years have seen shifts in consumer preferences and purchasing practices
and changes in the business models and strategies of our customers. Consumers are increasingly using the internet and mobile
technology to research home improvement products and to inform and provide feedback on their purchasing and ownership
experience for these products. Trends towards online purchases could impact our ability to compete as we currently sell a
significant portion of our products through retail home centers, wholesale distributors, and building products dealers.
Accordingly, the success of our business depends in part on our ability to maintain strong brands, and identify and
respond promptly to evolving trends in demographics, consumer preferences, and expectations and needs, while also managing
inventory levels. It is difficult to successfully predict the products and services our customers will demand. Even if we are
successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend
upon our continued ability to develop and introduce innovative, high-quality products and acquire or develop the intellectual
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property necessary to develop new products or improve our existing products. There can be no assurance that the products we
develop, even those to which we devote substantial resources, will be successful. While we continue to invest in innovation, brand
building, and brand awareness, and intend to increase our investments in these areas in the future, these initiatives may not be
successful. Failure to anticipate and successfully react to changing consumer preferences could have a material adverse effect on
our business, financial condition, and results of operations.
In addition, our competitors could introduce new or improved products that would replace or reduce demand for our
products, or create new proprietary designs and/or changes in manufacturing technologies that may render our products obsolete or
too expensive for efficient competition in the marketplace. Our failure to competitively respond to changing consumer and
customer trends, demands, and preferences could cause us to lose market share, which could have a material adverse effect on our
business, financial condition, and results of operations.
Failure to maintain the performance, reliability, quality, and service standards required by our customers, or to timely deliver
our products, could have a material adverse effect on our business, financial condition, and results of operations.
If our products have performance, reliability, or quality problems, our reputation and brand equity, which we believe is a
substantial competitive advantage, could be materially adversely affected. We may also experience increased and unanticipated
warranty and service expenses. Furthermore, we manufacture a significant portion of our products based on the specific
requirements of our customers, and delays in providing our customers the products and services they specify on a timely basis
could result in reduced or canceled orders and delays in the collection of accounts receivable. Additionally, claims from our
customers, with or without merit, could result in costly and time-consuming litigation that could require significant time and
attention of management and involve significant monetary damages that could have a material adverse effect on our business,
financial condition, and results of operations.
We are in the early stages of implementing strategic initiatives, including JEM. If we fail to implement these initiatives as
expected, our business, financial condition, and results of operations could be adversely affected.
Our future financial performance depends in part on our management’s ability to successfully implement our strategic
initiatives, including JEM. We cannot assure you that we will be able to continue to successfully implement these initiatives and
related strategies throughout the geographic regions in which we operate or be able to continue improving our operating results.
Similarly, these initiatives, even if implemented in all of our geographic regions, may not produce similar results. Any failure to
successfully implement these initiatives and related strategies could adversely affect our business, financial condition, and results
of operations. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.
We may make acquisitions or investments in other businesses which may involve risks or may not be successful.
Generally, we seek to acquire businesses that broaden our existing product lines and service offerings or expand our
geographic reach. There can be no assurance that we will be able to identify suitable acquisition candidates or that our acquisitions
or investments in other businesses will be successful. These acquisitions or investments in other businesses may also involve risks,
many of which may be unpredictable and beyond our control, and which may have a material adverse effect on our business,
financial condition, and results of operations, including risks related to:
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the nature of the acquired company’s business;
any acquired business not performing as well as anticipated;
the potential loss of key employees of the acquired company;
any damage to our reputation as a result of performance or customer satisfaction problems relating to an acquired
business;
the failure of our due diligence procedures to detect material issues related to the acquired business, including
exposure to legal claims for activities of the acquired business prior to the acquisition;
unexpected liabilities resulting from the acquisition for which we may not be adequately indemnified;
our inability to enforce indemnification and non-compete agreements;
the integration of the personnel, operations, technologies, and products of the acquired business, and
establishment of internal controls, including the implementation of our enterprise resource planning system, into
the acquired company’s operations;
our failure to achieve projected synergies or cost savings;
our inability to establish uniform standards, controls, procedures, and policies;
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the diversion of management attention and financial resources; and
any unforeseen management and operational difficulties, particularly if we acquire assets or businesses in new
foreign jurisdictions where we have little or no operational experience.
In furtherance of our strategy of growth through acquisitions, we routinely review and conduct investigations of potential
acquisitions, some of which may be material. When we believe a favorable opportunity exists, we seek to enter into discussions
with targets or sellers regarding the possibility of such acquisitions. At any given time, we may be in discussions with one or more
counterparties. There can be no assurances that any such negotiations will lead to definitive agreements, or if such agreements are
reached, that any transactions would be consummated.
Our inability to achieve the anticipated benefits of acquisitions and other investments could materially and adversely
affect our business, financial condition, and results of operations.
In addition, the means by which we finance an acquisition may have a material adverse effect on our business, financial
condition, and results of operations, including changes to our equity, debt, and liquidity position. If we issue convertible preferred
or common stock to pay for an acquisition, the ownership percentage of our existing shareholders may be diluted. Using our
existing cash may reduce our liquidity. Incurring additional debt to fund an acquisition may result in higher debt service and a
requirement to comply with additional financial and other covenants, including potential restrictions on future acquisitions and
distributions.
A decline in our relationships with our key customers or the amount of products they purchase from us, or a decline in our key
customers’ financial condition, could have a material adverse effect on our business, financial condition, and results of
operations.
Our business depends on our relationships with our key customers, which consist mainly of wholesale distributors and
retail home centers. Our top ten customers together accounted for approximately 36% of our net revenues in the year ended
December 31, 2017, and our largest customer, The Home Depot, accounted for approximately 17% of our net revenues in the year
ended December 31, 2017. Although we have established and maintain significant long-term relationships with our key customers,
we cannot assure you that all of these relationships will continue or will not diminish. We generally do not enter into long-term
contracts with our customers and they generally do not have an obligation to purchase products from us. Accordingly, sales from
customers that have accounted for a significant portion of our sales in past periods, individually or as a group, may not continue in
future periods, or if continued, may not reach or exceed historical levels in any period. For example, certain of our large customers
perform periodic line reviews to assess their product offering, which have in the past and may in the future lead to loss of business
and pricing pressures. Some of our large customers may also experience economic difficulties or otherwise default on their
obligations to us. Furthermore, our pricing optimization strategy, which requires maintaining pricing discipline in order to improve
profit margins, has in the past and may in the future lead to the loss of certain customers, including key customers, who do not
agree to our pricing terms. The loss of, or a diminution in our relationship with, any of our largest customers could lower our sales
volumes, which could increase our costs and lower our profitability. This could have a material adverse effect on our business,
financial condition, and results of operations.
Certain of our customers may expand through consolidation and internal growth, which may increase their buying power. The
increased size of our customers could have a material adverse effect our business, financial condition, and results of
operations.
Certain of our significant customers are large companies with strong buying power, and our customers may expand
through consolidation or internal growth. Consolidation could decrease the number of potential significant customers for our
products and increase our reliance on key customers. Further, the increased size of our customers could result in our customers
seeking more favorable terms, including pricing, for the products that they purchase from us. Accordingly, the increased size of our
customers may further limit our ability to maintain or raise prices in the future. This could have a material adverse effect our
business, financial condition, and results of operations.
We are subject to the credit risk of our customers.
We are subject to the credit risk of our customers because we provide credit to our customers in the normal course of
business. All of our customers are sensitive to economic changes and to the cyclical nature of the building industry. Especially
during protracted or severe economic declines and cyclical downturns in the building industry, our customers may be unable to
perform on their payment obligations, including their debts to us. Any failure by our customers to meet their obligations to us may
have a material adverse effect on our business, financial condition, and results of operations. In addition, we may incur increased
expenses related to collections in the future if we find it necessary to take legal action to enforce the contractual obligations of a
significant number of our customers.
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Increases in interest rates used to finance home construction and improvements, such as mortgage and credit card interest
rates, and the reduced availability of financing for the purchase of new homes and home construction and improvements, could
have a material adverse impact on our business, financial condition, and results of operations.
Our performance depends in part upon consumers having the ability to access third-party financing for the purchase of
new homes and buildings and R&R of existing homes and other buildings. The ability of consumers to finance these purchases is
affected by the interest rates available for home mortgages, credit card debt, home equity or other lines of credit, and other sources
of third-party financing. Interest rates in the majority of the regions where we market and sell our products have begun to increase
and are likely to continue to increase in the future. The U.S. Federal Reserve raised the federal funds rate for the first time in 10
years in December 2015 and again in each of December 2016, March 2017, June 2017 and December 2017, and is currently
forecasting multiple rate increases in 2018 and 2019. Each increase in the federal funds rate or applicable central bank’s prime
rates could cause an increase in future interest rates applicable to mortgages, credit card debt, and other sources of third-party
financing. If interest rates continue to increase and, consequently, the ability of prospective buyers to finance purchases of new
homes or home improvement products is adversely affected, our business, financial condition, and results of operations may be
materially and adversely affected.
In addition to increased interest rates, the ability of consumers to procure third-party financing is impacted by such factors
as new and existing home prices, unemployment levels, high mortgage delinquency and foreclosure rates, and lower housing
turnover. Adverse developments affecting any of these factors could result in the imposition of more restrictive lending standards
by financial institutions and reduce the ability of some consumers to finance home purchases or R&R expenditures.
Prices of the raw materials we use to manufacture our products are subject to fluctuations, and we may be unable to pass along
to our customers the effects of any price increases.
We use wood, glass, vinyl and other plastics, fiberglass and other composites, aluminum, steel and other metals, as well as
hardware and other components to manufacture our products. Materials represented approximately 50% of our cost of sales in the
year ended December 31, 2017. Prices for our materials fluctuate for a variety of reasons beyond our control, many of which
cannot be anticipated with any degree of reliability. Our most significant raw materials include vinyl extrusions, glass, and
aluminum, each of which has been subject to periods of rapid and significant fluctuations in price. The reasons for these
fluctuations include, among other things, variable worldwide supply and demand across different industries, speculation in
commodities futures, general economic or environmental conditions, labor costs, competition, import duties, tariffs, worldwide
currency fluctuations, freight, regulatory costs, and product and process evolutions that impact demand for the same materials.
For example, an increase in oil prices may affect the direct cost of materials derived from petroleum, most particularly
vinyl. As another example, many consumers demand certified sustainably harvested wood products as concerns about deforestation
have become more prevalent. Certified sustainably harvested wood historically has not been as widely available as non-certified
wood, which results in higher prices for sustainably harvested wood. As more consumers demand certified sustainably harvested
wood, the price of such wood may increase due to limited supply.
We have short-term supply contracts with certain of our largest suppliers that limit our exposure to short term fluctuations
in prices of our materials, but we are susceptible to longer-term fluctuations in prices. We generally do not hedge against
commodity price fluctuations. Significant increases in the prices of raw materials for finished goods, including as a result of
significant or protracted material shortages, may be difficult to pass through to customers and may negatively impact our
profitability and net revenues. We may attempt to modify products that use certain raw materials, but these changes may not be
successful.
Our business may be affected by delays or interruptions in the delivery of raw materials, finished goods, and certain component
parts. A supply shortage or delivery chain interruption could have a material adverse effect on our business, financial
condition, and results of operations.
We rely upon regular deliveries of raw materials, finished goods, and certain component parts. For certain raw materials
that are used in our products, we depend on a single or limited number of suppliers for our materials, and we typically do not have
long-term contracts with our suppliers. If we are not able to accurately forecast our supply needs, our limited number of suppliers
may make it difficult to quickly obtain additional raw materials to respond to shifting or increased demand. In addition, a supply
shortage could occur as a result of unanticipated increases in market demand, difficulties in production or delivery, financial
difficulties, or catastrophic events in the supply chain. Furthermore, because our products and the components of some of our
products are subject to regulation, changes to these regulations could cause delays in delivery of raw materials, finished goods, and
certain component parts.
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Until we can make acceptable arrangements with alternate suppliers, any interruption or disruption could impact our
ability to ship orders on time and could idle some of our manufacturing capability for those products. This could result in a loss of
revenues, reduced margins, and damage to our relationships with customers, which could have a material adverse effect on our
business, financial condition, and results of operations.
Our business is seasonal and revenue and profit can vary significantly throughout the year, which may adversely impact the
timing of our cash flows and limit our liquidity at certain times of the year.
Our business is seasonal, and our net revenues and operating results vary significantly from quarter to quarter based upon
the timing of the building season in our markets. Our sales typically follow seasonal new construction and R&R industry patterns.
The peak season for home construction and R&R activity in the majority of the geographies where we market and sell our products
generally corresponds with the second and third calendar quarters, and therefore our sales volume is typically higher during those
quarters. Our first and fourth quarter sales volumes are generally lower due to reduced R&R and new construction activity as a
result of less favorable climate conditions in the majority of our geographic end markets. Failure to effectively manage our
inventory in anticipation of or in response to seasonal fluctuations could negatively impact our liquidity profile during certain
seasonal periods.
Changes in weather patterns, including as a result of global climate change, could significantly affect our financial results or
financial condition.
Weather patterns may affect our operating results and our ability to maintain our sales volume throughout the year.
Because our customers depend on suitable weather to engage in construction projects, increased frequency or duration of extreme
weather conditions could have a material adverse effect on our financial results or financial condition. For example, unseasonably
cool weather or extraordinary amounts of rainfall may decrease construction activity, thereby decreasing our sales. Also, we cannot
predict the effects that global climate change may have on our business. In addition to changes in weather patterns, it might, for
example, reduce the demand for construction, destroy forests (increasing the cost and reducing the availability of wood products
used in construction), and increase the cost and reduce the availability of raw materials and energy. New laws and regulations
related to global climate change may also increase our expenses or reduce our sales.
We are exposed to political, economic, and other risks that arise from operating a multinational business.
We have operations in North America, South America, Europe, Australia, and Asia. In the year ended December 31, 2017,
our North America segment accounted for approximately 57% of net revenues, our Europe segment accounted for approximately
28% of net revenues, and our Australasia segment accounted for approximately 15% of our net revenues. Further, certain of our
businesses obtain raw materials and finished goods from foreign suppliers. Accordingly, our business is subject to political,
economic, and other risks that are inherent in operating in numerous countries.
These risks include:
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the difficulty of enforcing agreements and collecting receivables through foreign legal systems;
trade protection measures and import or export licensing requirements;
the imposition of tariffs or other restrictions;
required compliance with a variety of foreign laws and regulations, including the application of foreign labor
regulations;
tax rates in foreign countries and the imposition of withholding requirements on foreign earnings;
difficulty in staffing and managing widespread operations;
the imposition of, or increases in, currency exchange controls;
potential inflation in applicable non-U.S. economies; and
changes in general economic and political conditions in countries where we operate, including as a result of the
impact of the planned withdrawal of the U.K. from the E.U.
The success of our business depends in part on our ability to anticipate and effectively manage these and other risks. We
cannot assure you that these and other factors will not have a material adverse effect on our international operations or ultimately
on our global business, financial condition, and results of operations.
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The notice given by the U.K. of its intent to withdraw from the E.U. could have a material adverse effect on our business,
financial condition, and results of operations.
The recent notification by the U.K. of its intent to exit the E.U., or “Brexit”, has created volatility in the global financial
markets. The terms of the withdrawal are subject to a negotiation period that could last up to two years following the formal
initiation by the U.K. government of the withdrawal process in March 2017. The effects of the U.K.’s withdrawal from the E.U. on
the global economy, and on our business in particular, will depend on agreements the U.K. makes to retain access to E.U. markets
both during a transitional period and more permanently. Brexit could impair the ability of our operations in the E.U. to transact
business in the future in the U.K., as well as the ability of our U.K. operations to transact business in the future in the E.U. If the
U.K. and the E.U. are unable to negotiate acceptable withdrawal terms or if other E.U. member states pursue withdrawal, barrier-
free access between the U.K. and other E.U. member states or among the European Economic Area overall could be diminished or
eliminated.
Volatility associated with Brexit could continue to adversely affect European and worldwide economic conditions, and
may contribute to greater instability in the global financial markets. Among other things, Brexit could reduce consumer spending in
the U.K. and the E.U., which could result in decreased demand for our products. Similarly, housing sales and home values in the
U.K. and in the E.U. could be negatively impacted and Brexit could also influence foreign currency exchange rates. For the year
ended December 31, 2017, we derived 4% of our net revenues from our operations in the U.K., and we have moved our Europe
headquarters to the U.K. As a result, the effects of Brexit could inhibit the growth of our business and have a material adverse
effect on our business, financial condition, and results of operations.
Exchange rate fluctuations may impact our business, financial condition, and results of operations.
Our operations expose us to both transaction and translation exchange rate risks. In the year ended December 31, 2017,
49% of our net revenues came from sales outside of the U.S., and we anticipate that our operations outside of the U.S. will
continue to represent a significant portion of our net revenues for the foreseeable future. In addition, the nature of our operations
often requires that we incur expenses in currencies other than those in which we earn revenue. Because of the mismatch between
revenues and expenses, we are exposed to significant currency exchange rate risk and we may not be successful in achieving
balances in currencies throughout our operations. In addition, if the effective price of our products were to increase as a result of
fluctuations in foreign currency exchange rates, demand for our products could decline, which could adversely affect our business,
financial condition, and results of operations. Also, because our financial statements are presented in U.S. dollars, we must
translate the financial statements of our foreign subsidiaries and affiliates into U.S. dollars at exchange rates in effect during or at
the end of each reporting period, and increases or decreases in the value of the U.S. dollar against other major currencies will affect
our reported financial results, including the amount of our outstanding indebtedness. Exchange rates had a positive impact of 1%
on our consolidated net revenues in the year ended December 31, 2017 as compared to a 1% negative impact in the year ended
December 31, 2016. We cannot assure you that fluctuations in foreign currency exchange rates, particularly the strengthening of
the U.S. dollar against major currencies, such as the Euro, the Australian dollar, the Canadian dollar, the British pound, or the
currencies of large developing countries, would not materially adversely affect our business, financial condition, and results of
operations.
A disruption in our operations due to natural disasters or acts of war could have a material adverse effect on our business,
financial condition, and results of operations.
We operate facilities worldwide. Many of our facilities are located in areas that are vulnerable to hurricanes, earthquakes,
and other natural disasters. In the event that a hurricane, earthquake, natural disaster, fire, or other catastrophic event were to
interrupt our operations for any extended period of time, it could delay shipment of merchandise to our customers, damage our
reputation, or otherwise have a material adverse effect on our business, financial condition, and results of operations.
In addition, our operations may be interrupted by terrorist attacks or other acts of violence or war. These attacks may
directly impact our suppliers’ or customers’ physical facilities. Furthermore, these attacks may make travel and the transportation
of our supplies and products more difficult and more expensive and ultimately have a material adverse effect on our business,
financial condition, and results of operations. The U.S. has entered into armed conflicts, which could have an impact on our sales
and our ability to deliver product to our customers. Political and economic instability in some regions of the world may also
negatively impact the global economy and, therefore, our business. The consequences of any of these armed conflicts are
unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment.
More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in
the worldwide financial markets. They could also result in economic recessions. Any of these occurrences could have a material
adverse effect on our business, financial condition, and results of operations.
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Manufacturing realignments and cost savings programs may result in a decrease in our short-term earnings.
We continually review our manufacturing operations. Effects of periodic manufacturing realignments and cost savings
programs have in the past and could in the future result in a decrease in our short-term earnings until the expected results are
achieved. Such programs may include the consolidation, integration, and upgrading of facilities, functions, systems, and
procedures. Such programs involve substantial planning, often require capital investments, and may result in charges for fixed asset
impairments or obsolescence and substantial severance costs. We also cannot assure you that we will achieve all of our cost
savings. Our ability to achieve cost savings and other benefits within expected time frames is subject to many estimates and
assumptions. These estimates and assumptions are subject to significant economic, competitive, and other uncertainties, some of
which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen
events occur, our business, financial condition, and results of operations could be materially and adversely affected.
We are highly dependent on information technology, the disruption of which could significantly impede our ability to do
business.
Our operations depend on our network of information technology systems, which are vulnerable to damage from
hardware failure, fire, power loss, telecommunications failure, and impacts of terrorism, natural disasters, or other disasters. We
rely on our information technology systems to accurately maintain books and records, record transactions, provide information to
management and prepare our financial statements. We may not have sufficient redundant operations to cover a loss or failure in a
timely manner. Any damage to our information technology systems could cause interruptions to our operations that materially
adversely affect our ability to meet customers’ requirements, resulting in an adverse impact to our business, financial condition,
and results of operations. Periodically, these systems need to be expanded, updated, or upgraded as our business needs change. We
may not be able to successfully implement changes in our information technology systems without experiencing difficulties, which
could require significant financial and human resources. Moreover, our increasing dependence on technology may exacerbate this
risk.
We are implementing a new Enterprise Resource Planning system as part of our ongoing technology and process
improvements. If this new system proves ineffective, we may be unable to timely or accurately prepare financial reports, make
payments to our suppliers and employees, or invoice and collect from our customers.
We are implementing a new ERP system as part of our ongoing technology and process improvements. This ERP system
will provide a standardized method of accounting for, among other things, order entry and inventory and should enhance our ability
to implement our strategic initiatives. Any delay in the implementation, or disruption in the upgrade, of this system could adversely
affect our ability to timely and accurately report financial information, including the filing of our quarterly or annual reports with
the SEC. Such delay or disruption could also impact our ability to timely or accurately make payments to our suppliers and
employees, and could also inhibit our ability to invoice and collect from our customers. Data integrity problems or other issues
may be discovered which could impact our business or financial results. In addition, we may experience periodic or prolonged
disruption of our financial functions arising out of this conversion, general use of such systems, other periodic upgrades or updates,
or other external factors that are outside of our control. If we encounter unforeseen problems with our financial system or related
systems and infrastructure, our business, operations, and financial systems could be adversely affected. We may also need to
implement additional systems or transition to other new systems that require further expenditures in order to function effectively as
a public company. There can be no assurance that our implementation of additional systems or transition to new systems will be
successful, or that such implementation or transition will not present unforeseen costs or demands on our management.
Our systems and IT infrastructure may be subject to security breaches and other cybersecurity incidents.
We rely on the accuracy, capacity, and security of our IT systems, some of which are managed or hosted by third parties,
and the sale of our products may involve the transmission and/or storage of data, including in certain instances customers’ business
and personally identifiable information. Maintaining the security of computers, computer networks, and data storage resources is a
critical issue for us and our customers, as security breaches could result in vulnerabilities and loss of and/or unauthorized access to
confidential information. We may face attempts by experienced hackers, cybercriminals, or others with authorized access to our
systems to misappropriate our proprietary information and technology, interrupt our business, and/or gain unauthorized access to
confidential information. The reliability and security of our information technology infrastructure and software, and our ability to
expand and continually update technologies in response to our changing needs is critical to our business. To the extent that any
disruptions or security breaches result in a loss or damage to our data, it could cause harm to our reputation or brand. This could
lead some customers to stop purchasing our products and reduce or delay future purchases of our products or use competing
products. In addition, we could face enforcement actions by U.S. states, the U.S. federal government, or foreign governments,
which could result in fines, penalties, and/or other liabilities and which may cause us to incur legal fees and costs, and/or additional
costs associated with responding to the cyberattack. Increased regulation regarding cybersecurity may increase our costs of
compliance, including fines and penalties, as well as costs of cybersecurity audits. Any of these actions could materially adversely
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impact our business and results of operations. We do not currently have a specific insurance policy insuring us against losses
caused by a cyberattack.
We have invested in industry-appropriate protections and monitoring practices for our data and information technology to
reduce these risks and continue to monitor our systems on an ongoing basis for any current or potential threats. While we have not
experienced any material breaches in security in our recent history, there can be no assurance that our efforts will prevent
breakdowns or breaches to databases or systems that could have a material adverse effect on our business, financial condition, and
results of operations.
Increases in labor costs, potential labor disputes, and work stoppages at our facilities or the facilities of our suppliers could
have a material adverse effect on our business, financial condition, and results of operations.
Our financial performance is affected by the availability of qualified personnel and the cost of labor. As of December 31,
2017, we had approximately 21,000 employees worldwide, including approximately 10,300 employees in the U.S. and Canada.
Approximately 1,020, or 10%, of our employees in the U.S. and Canada are unionized workers, and the majority of our workforce
in other countries belong to work councils or are otherwise subject to labor agreements. U.S. and Canada employees represented
by these unions are subject to collective bargaining agreements that are subject to periodic negotiation and renewal. If we are
unable to enter into new, satisfactory labor agreements with our unionized employees upon expiration of their agreements, we
could experience a significant disruption of our operations, which could cause us to be unable to deliver products to customers on a
timely basis. Such disruptions could result in a loss of business and an increase in our operating expenses, which could reduce our
net revenues and profit margins. In addition, our non-unionized labor force may become subject to labor union organizing efforts,
which could cause us to incur additional labor costs and increase the related risks that we now face.
We believe many of our direct and indirect suppliers also have unionized workforces. Strikes, work stoppages, or
slowdowns experienced by suppliers could result in slowdowns or closures of facilities where components of our products are
manufactured or delivered. Any interruption in the production or delivery of these components could reduce sales, increase costs,
and have a material adverse effect on us.
Changes in building codes and standards (including ENERGY STAR standards) could increase the cost of our products, lower
the demand for our windows and doors, or otherwise adversely affect our business.
Our products and markets are subject to extensive and complex local, state, federal, and foreign statutes, ordinances, rules,
and regulations. These mandates, including building design and safety and construction standards and zoning requirements, affect
the cost, selection, and quality requirements of building components like windows and doors.
These regulations often provide broad discretion to governmental authorities as to the types and quality specifications of
products used in new residential and non-residential construction and home renovations and improvement projects, and different
governmental authorities can impose different standards. Compliance with these standards and changes in such regulations may
increase the costs of manufacturing our products or may reduce the demand for certain of our products in the affected geographical
areas or product markets. Conversely, a decrease in product safety standards could reduce demand for our more modern products if
less expensive alternatives that did not meet higher standards became available for use in that market. All or any of these changes
could have a material adverse effect on our business, financial condition, and results of operations.
In addition, in order for our products to obtain the “ENERGY STAR” certification, they must meet certain requirements
set by the EPA. Changes in the energy efficiency requirements established by the EPA for the ENERGY STAR label could increase
our costs, and a lapse in our ability to label our products as such or to comply with the new standards, may have a material adverse
effect on our business, financial condition, and results of operations.
The elimination of the ENERGY STAR program could lower the demand for our products or otherwise adversely affect our
business.
Many of our products comply with the federal government’s ENERGY STAR program. We believe that marketing our
products with the ENERGY STAR label gives us a competitive advantage as compared to competing products that are not labeled
as ENERGY STAR products. The current U.S. presidential administration has recently proposed discontinuing the use of the
ENERGY STAR program. Eliminating the ENERGY STAR program could eliminate any competitive advantage for ENERGY
STAR compliant products and result in a material adverse effect on our business, financial condition and results of operations.
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Domestic and foreign governmental regulations applicable to general business operations could increase the costs of operating
our business and adversely affect our business.
We are subject to a variety of regulations from U.S. federal, state, and local governments, as well as foreign governmental
authorities, relating to wage requirements, employee benefits, and other workplace matters. Changes in local minimum or living
wage requirements, rights of employees to unionize, healthcare regulations, and other requirements relating to employee benefits
could increase our labor costs, which would in turn increase our cost of doing business. In addition, our international operations are
subject to laws applicable to foreign operations, trade protection measures, foreign labor relations, differing intellectual property
rights, other legal and regulatory constraints, and currency regulations of the countries or regions in which we currently operate or
where we may operate in the future. These factors may restrict the sales of, or increase costs of, manufacturing and selling our
products.
We may be subject to significant compliance costs as well as liabilities under environmental, health, and safety laws and
regulations.
Our past and present operations, assets, and products are subject to extensive environmental laws and regulations at the
federal, state, and local level worldwide. These laws regulate, among other things, air emissions, the discharge or release of
materials into the environment, the handling and disposal of wastes, remediation of contaminated sites, worker health and safety,
and the impact of products on human health and safety and the environment. Under certain of these laws, liability for contaminated
property may be imposed on current or former owners or operators of the property or on parties that generated or arranged for
waste sent to the property for disposal. Liability under these laws may be joint and several and may be imposed without regard to
fault or the legality of the activity giving rise to the contamination. Notwithstanding our compliance efforts we may still face
material liability, limitations on our operations, fines, or penalties for violations of environmental, health, and safety laws and
regulations, including releases of regulated materials and contamination by us or previous occupants at our current or former
properties or at offsite disposal locations we use.
The applicable environmental, health, and safety laws and regulations, and any changes to them or in their enforcement,
may require us to make material expenditures with respect to ongoing compliance with or remediation under these laws and
regulations or require that we modify our products or processes in a manner that increases our costs and/or reduces our
profitability. For example, additional pollution control equipment, process changes, or other environmental control measures may
be needed at some of our facilities to meet future requirements. In addition, discovery of currently unknown or unanticipated soil
or groundwater conditions at our properties could result in significant liabilities and costs. Accordingly, we are unable to predict
the exact future costs of compliance with or liability under environmental, health, and safety laws and regulations.
We may be subject to significant compliance costs with respect to legislative and regulatory proposals to restrict emissions of
greenhouse gasses, or “GHGs”.
Various legislative, regulatory, and inter-governmental proposals to restrict emissions of GHGs, such as carbon dioxide
(“CO 2”), are under consideration by governmental legislative bodies and regulators in the jurisdictions where we operate. In
particular, the EPA promulgated regulations to reduce GHG emissions from new and existing power plants. The regulations
applicable to existing power plants, commonly referred to as the Clean Power Plan, would require states to develop strategies to
reduce GHG emissions within the states that may include reductions at other sources in addition to electric utilities. However, on
October 16, 2017, the EPA published a proposed rule to repeal the Clean Power Plan. Many nations, including jurisdictions in
which we operate, have also committed to limiting emissions of GHGs worldwide, most prominently through an agreement
reached in Paris in December 2015 at the 21st Conference of the Parties to the United Nations Framework Convention on Climate
Change. The Paris agreement sets out a new process for achieving global GHG reductions. On June 1, 2017, President Trump
announced that the U.S. plans to withdraw from the Paris agreement and to seek negotiations either to reenter the Paris Agreement
on different terms or to establish a new framework agreement. The earliest permitted exit date under the Paris agreement is four
years from when it took effect in November 2016, or November 2020. Since some of our manufacturing facilities operate boilers or
other process equipment that emit GHGs, such regulatory and global initiatives may require us to modify our operating procedures
or production levels, incur capital expenditures, change fuel sources, or take other actions that may adversely affect our financial
results. However, given the high degree of uncertainty about the ultimate parameters of any such regulatory or global initiative,
whether the U.S. will adhere to the Paris agreement’s exit process, and the terms on which the U.S. may reenter the Paris
agreement or a separately negotiated agreement, and because proposals like the Clean Power Plan are currently subject to legal
challenges and reconsideration, we cannot predict at this time the ultimate impact of such initiatives on our operations or financial
results.
A significant portion of our GHG emissions are from biomass-fired boilers, which emit biogenic CO 2 . Biogenic CO 2 is
generally considered carbon neutral. In November 2014, the EPA released its Framework for Assessing Biogenic CO 2 Emissions
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From Stationary Sources along with an accompanying memo that generally supports carbon neutrality for biomass combustion, but
left open the possibility that it may not always be characterized as carbon neutral.
Increasing regulations to reduce GHG emissions are expected to increase energy costs, increase price volatility for
petroleum, and reduce petroleum production levels, which in turn could impact the prices of those raw materials. In addition, laws
and regulations relating to forestry practices limit the volume and manner of harvesting timber to mitigate environmental impacts
such as deforestation, soil erosion, damage to riparian areas, and GHG levels. The extent of these regulations and related
compliance costs has grown in recent years and will increase our materials costs and may increase other aspects of our production
costs.
Changes to legislative and regulatory policies that currently promote home ownership may have a material adverse effect on
our business, financial condition, and results of operations.
Our markets are also affected by legislative and regulatory policies, such as U.S. tax rules allowing for deductions of
mortgage interest and the mandate of government-sponsored entities like Freddie Mac and Fannie Mae to promote home
ownership through mortgage guarantees on certain types of home loans. The Tax Act passed in the U.S. on December 22, 2017
made significant changes to some of these historical benefits of home ownership. The specific changes which could affect our
markets are, among others, (i) a reduction of the maximum amount of home mortgage indebtedness for which a tax deduction for
interest paid may be claimed from $1 million to $750,000, (ii) an elimination of the deduction for interest paid on home equity
indebtedness, and (iii) a limitation on the amount of state and local taxes which may be deducted annually as itemized deductions
which may limit certain individuals’ deduction for local property taxes. These changes to the tax code and any future policy
changes may adversely impact demand for our products and have a material adverse effect on our business, financial condition,
and results of operations.
Changes in legislation, regulation and government policy, including as a result of U.S. presidential and congressional elections,
may have a material adverse effect on our business in the future.
The upcoming congressional elections in the U.S. could result in significant changes in, and uncertainty with respect to,
legislation, regulation and government policy. While it is not possible to predict whether and when any such changes will occur,
changes at the local, state or federal level could significantly impact our business. Specific legislative and regulatory proposals
discussed during and after the election that could have a material impact on us include, but are not limited to, infrastructure
renewal programs; changes to immigration policy; modifications to international trade policy, including withdrawing from trade
agreements; and changes to financial legislation and public company reporting requirements.
In addition, U.S. lawmakers have recently made substantial changes to U.S. fiscal and tax policies, including the adoption
of the Tax Act. A variety of tax reforms that significantly impact U.S. taxation of multi-national corporations have recently taken
effect through the passage of the Tax Act. These include, among others, reductions in the U.S. corporate tax rate, repeal of the
corporate alternative minimum tax, introduction of immediate cost recovery for capital investments, the limitation of the interest
deduction, the limitation of certain deductions for executive compensation and changes to the international tax system, including
the adoption of a territorial tax system and taxation of the accumulated foreign earnings of U.S. multinational corporations. The
specific provisions of the Tax Act, while generally favorable to our U.S. operations, may have certain negative implications which
could materially impact our financial performance. In accordance with SEC guidance, we have made provisional estimates of the
effects of these tax law changes on our financial statements; however, specific guidance regarding certain aspects of the legislation
have yet to be issued. This guidance, once issued, will likely require amendments to these estimates in future and could result in
additional charges.
Finally, there are certain aspects of the Tax Act which do not take effect until our fiscal year 2018. These include, among
others, the limitation on the deduction of net interest expense, the Global Intangible Low Tax Income and Base Erosion Anti Abuse
Tax, and the limitation on executive compensation. We are still studying the effects of these new provisions on our future financial
results, but these provisions may have material effects on our future performance.
Lack of transparency, threat of fraud, public sector corruption, and other forms of criminal activity involving government
officials increases the risk of potential liability under anti-bribery or anti-fraud legislation, including the U.S. Foreign Corrupt
Practices Act, the U.K. Bribery Act, and similar laws and regulations.
We operate manufacturing facilities in 19 countries and sell our products in approximately 81 countries around the world.
As a result of the international nature of our operations, we may enter from time to time into negotiations and contractual
arrangements with parties affiliated with foreign governments and their officials in the ordinary course of business. In connection
with these activities, we may be subject to anti-corruption laws in various jurisdictions, including the U.S. Foreign Corrupt
Practices Act, or the “FCPA”, the U.K. Bribery Act and other anti-bribery laws applicable to jurisdictions where we do business
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that prohibit improper payments or offers of payments to foreign governments and their officials and political parties for the
purpose of obtaining or retaining business, or otherwise receiving discretionary favorable treatment of any kind, and require the
maintenance of internal controls to prevent such payments. In particular, we may be held liable for actions taken by agents in
foreign countries where we operate, even though such parties are not always subject to our control. We have established anti-
bribery policies and procedures and offer several channels for raising concerns in an effort to comply with the laws and regulations
applicable to us. However, there can be no assurance that our policies and procedures will effectively prevent us from violating
these laws and regulations in every transaction in which we may engage. Any determination that we have violated the FCPA or
other anti-bribery laws (whether directly or through acts of others, intentionally or through inadvertence) could result in sanctions
that could have a material adverse effect on our business, financial condition, and results of operations.
As we continue to expand our business globally, including through foreign acquisitions, we may have difficulty
anticipating and effectively managing these and other risks that our international operations may face, which may adversely impact
our business outside of the U.S. and our financial condition and results of operations. In addition, any acquisition of businesses
with operations outside of the U.S. may exacerbate this risk.
We may be the subject of product liability claims or product recalls and we may not accurately estimate costs related to warranty
claims. Expenses associated with product liability claims and lawsuits and related negative publicity or warranty claims in
excess of our reserves could have a material adverse effect on our business, financial condition, and results of operations.
Our products are used in a wide variety of residential, non-residential, and architectural applications. We face the risk of
exposure to product liability or other claims, including class action lawsuits, in the event our products are alleged to be defective or
have resulted in harm to others or to property. We may in the future incur liability if product liability lawsuits against us are
successful. Moreover, any such lawsuits, whether or not successful, could result in adverse publicity to us, which could cause our
sales to decline materially. In addition, it may be necessary for us to recall defective products, which would also result in adverse
publicity, as well as resulting in costs connected to the recall and loss of sales. We maintain insurance coverage to protect us
against product liability claims, but that coverage may not be adequate to cover all claims that may arise or we may not be able to
maintain adequate insurance coverage in the future at an acceptable cost. Any liability not covered by insurance could have a
material adverse effect on our business, financial condition, and results of operations.
In addition, consistent with industry practice, we provide warranties on many of our products and we may experience
costs associated with warranty claims if our products have defects in manufacture or design or they do not meet contractual
specifications. We estimate our future warranty costs based on historical trends and product sales, but we may fail to accurately
estimate those costs and thereby fail to establish adequate warranty reserves for them. If warranty claims exceed our estimates, it
may have a material adverse effect on our business, financial condition, and results of operations.
We may be unable to protect our intellectual property, and we may face claims of intellectual property infringement.
We rely on a combination of patent, copyright, trademark, and trade secret laws, as well as confidentiality agreements,
nondisclosure agreements, and other contractual commitments, to protect our intellectual property rights. However, these measures
may not be adequate or sufficient, and third parties may not always respect these legal protections even if they are aware of them.
In addition, our competitors may develop similar technologies and know-how without violating our intellectual property rights.
Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S.
The failure to obtain worldwide patent and trademark protection may result in other companies copying and marketing products
based on our technologies or under brand or trade names similar to ours outside the jurisdictions in which we are protected. This
could impede our growth in existing regions, create confusion among consumers, and result in a greater supply of similar products
that could erode prices for our protected products.
Litigation may be necessary to protect our intellectual property rights. Intellectual property litigation can result in
substantial costs, could distract our management, and could impinge upon other resources. Our failure to enforce and protect our
intellectual property rights may cause us to lose brand recognition and result in a decrease in sales of our products.
Moreover, while we are not aware that any of our products or brands infringes upon the proprietary rights of others, third
parties may make such claims in the future. From time to time, third parties may claim that we have infringed upon their
intellectual property rights and we may receive notices from such third parties asserting such claims. Any such infringement claims
are thoroughly investigated and, regardless of merit, could be time-consuming and result in costly litigation or damages, undermine
the exclusivity and value of our brands, decrease sales, or require us to enter into royalty or licensing agreements that may not be
on acceptable terms and that could have a material adverse effect on our business, financial condition, and results of operations.
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Our business will suffer if certain key officers or employees discontinue employment with us or if we are unable to recruit and
retain highly skilled staff at a competitive cost.
The success of our business depends upon the skills, experience, and efforts of our key officers and employees. In recent
years, we have hired a large number of key executives who have and will continue to be integral in the continuing transformation
of our business. The loss of key personnel could have a material adverse effect on our business, financial condition, and results of
operations. We do not maintain key-man life insurance policies on any members of management. Our business also depends on our
ability to continue to recruit, train, and retain skilled employees, particularly skilled sales personnel. The loss of the services of any
key personnel, or our inability to hire new personnel with the requisite skills, could impair our ability to develop new products or
enhance existing products, sell products to our customers or manage our business effectively. Should we lose the services of any
member of our senior management team, our board of directors would have to conduct a search for a qualified replacement. This
search may be prolonged, and we may not be able to locate and hire a qualified replacement. A significant increase in the wages
paid by competing employers could result in a reduction of our qualified labor force, increases in the wage rates that we must pay,
or both.
Our pension plan obligations are currently not fully funded, and we may have to make significant cash payments to these plans,
which would reduce the cash available for our businesses.
Although we have closed our U.S. pension plan to new participants and have frozen future benefit accruals for current
participants, we continue to have unfunded obligations under that plan. The funded levels of our pension plan depend upon many
factors, including returns on invested assets, certain market interest rates, and the discount rate used to determine pension
obligations. The projected benefit obligation and unfunded liability included in our consolidated financial statements as of
December 31, 2017 for our U.S. pension plan were approximately $435.7 million and $95.9 million, respectively. Unfavorable
returns on the plan assets or unfavorable changes in applicable laws or regulations could materially change the timing and amount
of required plan funding, which would reduce the cash available for our operations. In addition, a decrease in the discount rate used
to determine pension obligations could increase the estimated value of our pension obligations, which would affect the reported
funding status of our pension plans and would require us to increase the amounts of future contributions. Additionally, we have
foreign defined benefit plans, some of which continue to be open to new participants. As of December 31, 2017, our foreign
defined benefit plans had unfunded pension liabilities of approximately $22.2 million and overfunded pension assets of
approximately $1.9 million.
Under the Employee Retirement Income Security Act of 1974, as amended, or “ERISA”, the U.S. Pension Benefit
Guaranty Corporation, or the “PBGC”, also has the authority to terminate an underfunded tax-qualified U.S. pension plan under
certain circumstances. In the event our tax-qualified U.S. pension plans were terminated by the PBGC, we could be liable to the
PBGC for an amount that exceeds the underfunding disclosed in our consolidated financial statements. In addition, because our
U.S. pension plan has unfunded obligations, if we have a substantial cessation of operations at a U.S. facility and, as a result of
such cessation of operations an event under ERISA Section 4062(e) is triggered, additional liabilities that exceed the amounts
disclosed in our consolidated financial statements could arise, including an obligation for us to provide additional contributions or
alternative security for a period of time after such an event occurs. Any such action could have a material adverse effect on our
business, financial condition, and results of operations.
Changes in accounting standards, new interpretations of existing standards and subjective assumptions, estimates, and
judgments by management related to complex accounting matters could significantly affect our financial results or financial
condition.
Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and
interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, asset
impairment, impairment of goodwill and other intangible assets, inventories, lease obligations, self-insurance, tax matters, and
litigation, are highly complex and involve many subjective assumptions, estimates, and judgments. Changes in these rules or their
interpretation or changes in underlying assumptions, estimates, or judgments could significantly change our reported results.
Risks Relating to our Indebtedness
Our indebtedness could adversely affect our financial flexibility and our competitive position.
Financial information regarding our indebtedness is included in Note 16 - Notes Payable and Long-Term Debt to our
financial statements included in this Form 10-K.
Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in
respect of our indebtedness and could have other material consequences, including:
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limiting our ability to obtain financing in the future for working capital, capital expenditures, acquisitions, debt
service, or other general corporate purposes;
requiring us to use a substantial portion of our available cash flow to service our debt, which will reduce the
amount of cash flow available for working capital, capital expenditures, acquisitions, and other general corporate
purposes;
increasing our vulnerability to general economic downturns and adverse industry conditions;
limiting our flexibility in planning for, or reacting to, changes in our business and in our industry in general;
limiting our ability to invest in and develop new products;
placing us at a competitive disadvantage compared to our competitors that are not as highly leveraged, as we
may be less capable of responding to adverse economic conditions, general economic downturns, and adverse
industry conditions;
restricting the way we conduct our business because of financial and operating covenants in the agreements
governing our existing and future indebtedness;
increasing the risk of our failing to satisfy our obligations with respect to borrowings outstanding under our
Credit Facilities and Senior Notes and/or being able to comply with the financial and operating covenants
contained in our debt instruments, which could result in an event of default under the credit agreements
governing our Credit Facilities and the agreements governing our other debt, including the indenture governing
the Senior Notes, that, if not cured or waived, could have a material adverse effect on our business, financial
condition, and results of operations; and
increasing our cost of borrowing.
The credit agreements governing our Credit Facilities and the indenture governing the Senior Notes impose significant
operating and financial restrictions on us that may prevent us from capitalizing on business opportunities.
The credit agreements governing our Credit Facilities and the indenture governing the Senior Notes impose significant
operating and financial restrictions on us. These restrictions limit our ability, among other things, to:
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incur or guarantee additional indebtedness;
make certain loans or investments or restricted payments, including dividends to our shareholders;
repurchase or redeem capital stock;
engage in certain transactions with affiliates;
sell certain assets (including stock of subsidiaries) or merge with or into other companies; and
create or incur liens.
Under the terms of the ABL Facility, we will at times be required to comply with a specified fixed charge coverage ratio
when the amount of certain unrestricted cash balances of the U.S. and Canadian loan parties plus the amount available for
borrowing by the U.S. borrowers and Canadian borrowers is less than a specified amount. The Australia Senior Secured Credit
Facility and Euro Revolving Facility also contain financial maintenance covenants. Our ability to meet the specified covenants
could be affected by events beyond our control, and our failure to meet these covenants will result in an event of default as defined
in the applicable facility.
In addition, our ability to borrow under the ABL Facility is limited by the amount of the borrowing base applicable to U.S.
dollar and Canadian dollar borrowings. Any negative impact on the elements of our borrowing base, such as eligible accounts
receivable and inventory, will reduce our borrowing capacity under the ABL Facility. Moreover, the ABL Facility provides
discretion to the agent bank acting on behalf of the lenders to impose additional requirements on what accounts receivable and
inventory may be counted toward the borrowing base availability and to impose other reserves, which could materially impair the
amount of borrowings that would otherwise be available to us. There can be no assurance that the agent bank will not impose such
reserves or, were it to do so, that the resulting impact of this action would not materially and adversely impair our liquidity.
As a result of these covenants and restrictions, we are limited in how we conduct our business, and we may be unable to
raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities or engage in
other activities that may be in our long-term best interests. The terms of any future indebtedness we may incur could include more
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restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if
we fail to do so, we may be unable to obtain waivers from the lenders or amend the covenants.
Our failure to comply with the credit agreements governing our Credit Facilities and indenture governing the Senior Notes,
including as a result of events beyond our control, could trigger events of default and acceleration of our indebtedness. Defaults
under our debt agreements could have a material adverse effect on our business, financial condition, and results of operations.
If there were an event of default under the credit agreements governing our Credit Facilities, the indenture governing the
Senior Notes, or other indebtedness that we may incur, the holders of the defaulted indebtedness could cause all amounts
outstanding with respect to that indebtedness to be immediately due and payable. It is likely that our cash flows would not be
sufficient to fully repay borrowings under our Credit Facilities and principal amount of the Senior Notes, if accelerated upon an
event of default. If we are unable to repay, refinance, or restructure our secured debt, the holders of such indebtedness may proceed
against the collateral securing that indebtedness.
Furthermore, any event of default or declaration of acceleration under one debt instrument may also result in an event of
default under one or more of our other debt instruments. In exacerbated or prolonged circumstances, one or more of these events
could result in our bankruptcy or liquidation. Accordingly, any default by us on our debt could have a material adverse effect on
our business, financial condition, and results of operations.
We require a significant amount of liquidity to fund our operations, and borrowing has increased our vulnerability to negative
unforeseen events.
Our liquidity needs vary throughout the year. If our business experiences materially negative unforeseen events, we may
be unable to generate sufficient cash flow from operations to fund our needs or maintain sufficient liquidity to operate and remain
in compliance with our debt covenants, which could result in reduced or delayed purchases of raw materials, planned capital
expenditures and other investments and adversely affect our financial condition or results of operations. Our ability to borrow
under the ABL Facility may be limited due to decreases in the borrowing base as described above.
Despite our current debt levels, we may incur substantially more indebtedness. This could further exacerbate the risks
associated with our substantial leverage.
We may incur substantial additional indebtedness in the future. Although the covenants under the credit agreements
governing our Credit Facilities and indenture governing the Senior Notes provide certain restrictions on our ability to incur
additional debt, the terms of such agreements permit us to incur significant additional indebtedness. To the extent that we incur
additional indebtedness, the risk associated with our substantial indebtedness described above, including our possible inability to
service our indebtedness, will increase.
Risks Relating to Ownership of Our Common Stock
The market price of our common stock may be highly volatile.
Our common stock has only been listed for public trading since January 27, 2017. Since that date, the price of our
common stock, as reported by the NYSE, has ranged from a low of $24.95 on January 27, 2017 to a high of $42.27 on January 5,
2018. The trading price of our common stock may be volatile. Securities markets worldwide experience significant price and
volume fluctuations. This market volatility, as well as other general economic, market or political conditions, could reduce the
market price of our shares in spite of our operating performance. The following factors may have a significant impact on the
market price of our common stock:
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negative trends in global economic conditions and/or activity levels in our end markets;
increases in interest rates used to finance home construction and improvements;
our ability to compete effectively against our competitors;
changes in consumer needs, expectations, or trends;
our ability to maintain our relationships with key customers;
our ability to implement our business strategy;
our ability to complete and integrate new acquisitions;
variations in the prices of raw materials used to manufacture our products;
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adverse changes in building codes and standards or governmental regulations applicable to general business
operations;
product liability claims or product recalls;
any legal actions in which we may become involved, including disputes relating to our intellectual property;
our ability to recruit and retain highly skilled staff;
actual or anticipated fluctuations in our quarterly or annual operating results;
trading volume of our common stock;
sales of our common stock by us, our executive officers and directors, or our shareholders (including certain
affiliates of Onex) in the future; and
general economic and market conditions and overall fluctuations in the U.S. equity markets.
In addition, broad market and industry factors, including the trading prices of the securities of our publicly-traded
competitors, may negatively affect the market price of our common stock, regardless of our actual operating performance, and
factors beyond our control may cause our stock price to decline rapidly and unexpectedly. Furthermore, the stock market has
experienced extreme volatility that, in some cases, has been unrelated or disproportionate to the operating performance of
particular companies.
Publishing earnings guidance subjects us to risks, including increased stock volatility, that could lead to potential lawsuits by
investors.
Because we publish earnings guidance, we are subject to a number of risks. Actual results may vary from the guidance we
provide investors from time to time, such that our stock price may decline following, among other things, any earnings release or
guidance that does not meet market expectations. It has become increasingly commonplace for investors to file lawsuits against
companies following a rapid decrease in market capitalization. We have been in the past, and may be in the future, named in these
types of lawsuits. These types of lawsuits can be costly and divert management attention and other resources away from our
business, regardless of their merits, and could result in adverse settlements or judgments.
We may be subject to securities litigation, which is expensive and could divert management attention.
Our share price may be volatile and, in the past, companies that have experienced volatility in the market price of their
stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of
this type could result in substantial costs and diversion of management’s attention and resources, which could have a material
adverse effect on our business, financial condition, and results of operations. Any adverse determination in litigation could also
subject us to significant liabilities.
Because Onex owns a substantial portion of our common stock, it may influence major corporate decisions and its interests
may conflict with the interests of other holders of our common stock.
Onex beneficially owns approximately 32.9 million shares of our common stock representing approximately 31.0% of our
outstanding shares. Although we are no longer a controlled company, Onex will continue to be able to influence matters requiring
approval by our shareholders and/or our board of directors, including the election of directors and the approval of business
combinations or dispositions and other extraordinary transactions. They may also have interests that differ from other shareholders
and may vote in a way with which other shareholders disagree and which may be adverse to their interests. The concentration of
ownership may have the effect of delaying, preventing, or deterring a change of control of our company, could deprive our
shareholders of an opportunity to receive a premium for their common stock as part of a sale of our company and may materially
and adversely affect the market price of our common stock. In addition, Onex may in the future own businesses that directly
compete with ours. Further, for so long as Onex owns at least 5% of our outstanding shares, Onex has the right to purchase its pro
rata portion of the primary shares offered in any future public offering. This right could result in Onex continuing to maintain a
substantial ownership of our common stock.
Our directors who have relationships with Onex may have conflicts of interest with respect to matters involving our Company.
Two of our twelve directors are affiliated with Onex. These persons have fiduciary duties to both us and Onex. As a result,
they may have real or apparent conflicts of interest on matters affecting both us and Onex, which in some circumstances may have
interests adverse to ours. Onex is in the business of making or advising on investments in companies and may hold, and may from
time to time in the future acquire, interests in, or provide advice to, businesses that directly or indirectly compete with certain
portions of our business or that are suppliers or customers of ours. In addition, as a result of Onex’ ownership interest, conflicts of
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interest could arise with respect to transactions involving business dealings between us and Onex including potential acquisitions
of businesses or properties, the issuance of additional securities, the payment of dividends by us, and other matters.
In addition, our restated certificate of incorporation provides that the doctrine of “corporate opportunity” will not apply
with respect to us, to Onex or certain related parties or any of our directors who are employees of Onex or its affiliates in a manner
that would prohibit them from investing in competing businesses or doing business with our customers. To the extent they invest in
such other businesses, Onex may have differing interests than our other shareholders.
As a result of the completion of the secondary offering of our common stock on May 31, 2017, we are no longer a “controlled
company” within the meaning of the corporate governance standards of the NYSE. However, we continue to qualify for, and
may rely on, exemptions from certain corporate governance requirements that would otherwise provide protection to our
shareholders during a one-year transition period.
Because Onex no longer owns a majority of our common stock, we are no longer a “controlled company” within the
meaning of the corporate governance standards of the NYSE. However, we continue to qualify for, and may rely on, exemptions
from certain corporate governance standards that would otherwise provide protection to our shareholders during a one-year
transition period that ends May 31, 2018. The NYSE rules require that we (i) have at least one independent director on each of our
governance and nominating committee and compensation committee by the date we ceased to qualify as a “controlled company”,
(ii) have a majority of independent directors on each of our governance and nominating committee and compensation committee
within 90 days of the date we ceased to qualify as a “controlled company”, and (iii) have a fully independent governance and
nominating committee and compensation committee within one year of the date we ceased to qualify as a “controlled company”.
We are also required to have a majority independent board of directors within one year of the date we ceased to qualify as a
“controlled company” and to perform an annual performance evaluation of our governance and nominating and compensation
committees. Our board of directors has determined that two of the three members of our governance and nominating committee,
three of the four members of our compensation committee, all of the members of our audit committee and six of the twelve
members of our board of directors are independent for purposes of the NYSE corporate governance standards.
The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and
the requirements of the Sarbanes-Oxley Act of 2002, and the NYSE, may strain our resources, increase our costs and distract
management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
As a public company, we are subject to the reporting requirements of the Exchange Act and the corporate governance
standards of the Sarbanes-Oxley Act of 2002 and the NYSE and SEC rules and requirements. As a result, we have incurred and
will continue to incur significant legal, regulatory, accounting, investor relations, and other costs that we did not incur as a private
company. These requirements may also place a strain on our management, systems, and resources. The Exchange Act requires us to
file annual, quarterly, and current reports with respect to our business and financial condition within specified time periods and to
prepare proxy statements with respect to our annual meeting of shareholders. The Sarbanes-Oxley Act requires that we maintain
effective disclosure controls and procedures and internal controls over financial reporting. The NYSE requires that we comply with
various corporate governance requirements. To maintain and improve the effectiveness of our disclosure controls and procedures
and internal controls over financial reporting and comply with the Exchange Act and NYSE requirements, significant resources
and management oversight will be required. As a public company, we are required to:
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•
expand the roles and duties of our board of directors and committees of the board;
institute more formal comprehensive financial reporting and disclosure compliance functions;
supplement our internal accounting and auditing function;
enhance and formalize closing procedures for our accounting periods;
enhance our investor relations function;
establish new or enhanced internal policies, including those relating to disclosure controls and procedures; and
involve and retain to a greater degree outside counsel and accountants in the activities listed above.
These activities may divert management’s attention from revenue producing activities to management and administrative
oversight. Any of the foregoing could have a material adverse effect on us and the price of our common stock. In addition, failure
to comply with any laws or regulations applicable to us may result in legal proceedings and/or regulatory investigations.
30
Material weaknesses in our internal control over financial reporting or our failure to remediate such material weaknesses
could result in a violation of Section 404 of the Sarbanes-Oxley Act, or in a material misstatement in our financial statements
not being prevented or detected, and could affect investor confidence in the accuracy and completeness of our financial
statements, as well as our common stock price.
As a public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act. We are required to make
our first annual assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act with
our Form 10-K for the fiscal year ended December 31, 2017 and will be required to include an auditor attestation on management’s
internal controls report with our Form 10-K for the fiscal year ended December 31, 2018. If we fail to abide by the applicable
requirements of Section 404, regulatory authorities, such as the SEC, might subject us to sanctions or investigation, and our
independent registered public accounting firm may not be able to certify as to the effectiveness of our internal control over
financial reporting pursuant to an audit of our controls. Even effective internal controls can provide only reasonable assurance with
respect to the preparation and fair presentation of financial statements. Accordingly, our internal control over financial reporting
may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the
circumvention or overriding of controls, or fraud.
During the preparation of our December 31, 2015 financial statements, we identified material weaknesses in our internal
control over financial reporting, and while we have implemented additional controls since that time, these controls have not been in
operation for a sufficient amount of time for us to conclude that these material weaknesses have been remediated as of December
31, 2017. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented
or detected on a timely basis. During 2015, we restructured how we manage our Europe business, which led to turnover in the
accounting staff of our Europe operations. In addition, our tax department had significant turnover during 2015, leaving the
department with recently hired personnel who were unfamiliar with our year-end closing process, which resulted in our tax
department being unable to complete its standard fiscal year close work in a timely manner. As a result, our staff did not have
adequate time to properly review the information provided to our registered public accounting firm as part of the audit. Our
registered public accounting firm identified numerous errors in the schedules and disclosures provided to them during the audit
process. While such errors were rectified prior to the completion of the 2015 audit, and there were no material misstatements
identified in our disclosures or financial statements subsequent to year-end, management and our registered public accounting firm
determined that (i) we did not operate controls to monitor the accuracy of income tax expense and related balance sheet accounts,
including deferred income taxes, and (ii) we failed to operate controls to monitor the presentation and disclosure of income taxes.
As a result of these material weaknesses, management determined that the ineffective controls over income tax accounting
constituted material weaknesses.
While we continue to address these material weaknesses and to strengthen our overall internal control over financial
reporting, we may discover other material weaknesses going forward that could result in inaccurate reporting of our financial
condition or results of operations. In addition, neither our management nor any independent registered public accounting firm has
ever performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-
Oxley Act because no such evaluation has been required. Had we or our independent registered public accounting firm performed
an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act,
additional material weaknesses may have been identified. Inadequate internal control over financial reporting may cause investors
to lose confidence in our reported financial information. Any loss of confidence in the reliability of our financial statements or
other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could
result in a decline in the price of our common stock and may restrict access to the capital markets and may adversely affect the
price of our common stock.
Future sales, or the perception of future sales, of shares of our common stock in the public market by us or our existing
shareholders could cause our stock price to fall.
The sales of a substantial number of shares of our common stock in the public market, or the perception that such sales
could occur, including sales by Onex, could materially adversely affect the prevailing market price of our common stock. As of
December 31, 2017, we had 105,990,483 shares of common stock outstanding.
Shares held by Onex and certain of our directors, officers and existing shareholders are eligible for resale, subject to
volume, manner of sale and other limitations under Rule 144. In addition, pursuant to the Registration Rights Agreement (as
defined below), each have the right, subject to certain conditions, to require us to register the sale of shares owned by such persons
under the federal securities laws. By exercising their registration rights, and selling a large number of shares, these holders could
cause the prevailing market price of our common stock to decline. In addition, shares issued or issuable upon exercise of options
and vested RSUs will be eligible for sale from time to time.
31
In addition, as of December 31, 2017 we had 4,649,747 shares reserved for issuance pursuant to equity awards
outstanding under our 2011 Stock Incentive Plan and 817,041 shares reserved for issuance pursuant to equity awards under our
2017 Omnibus Equity Plan. These shares have been registered by us on Form S-8 and, upon exercise of options and vesting of
RSUs, will be eligible for sale from time to time or, will be eligible for sale immediately following exercise of such options.
Our employees, officers, and directors may elect to sell shares of our common stock in the public market. Sales of a
substantial number of shares of our common stock in the public market could depress the market price of our common stock and
impair our ability to raise capital through the sale of additional equity securities.
The ESOP and the JELD-WEN, Inc. KSOP (“KSOP”), are designed as a tax-qualified retirement plans and employee
stock ownership plans under the Code. Participants whose employment with us or our subsidiaries is terminated are entitled to
receive distributions of accounts held under the ESOP and KSOP at specified times and in specified forms. In addition, each plan
permits diversification of our common stock held in participants’ accounts. The ESOP and KSOP may sell shares in the open
market to fund hardship distributions and diversifications or participants may sell shares received as part of their distributions. In
the year ended December 31, 2017, 709,670 shares were either sold by the plans to cover cash distributions and diversifications or
distributed to participants.
In the future, we may issue securities to raise cash for acquisitions or otherwise. We may also acquire interests in other
companies by using a combination of cash and our common stock or just our common stock.
We may also issue securities convertible into our common stock. Any of these events may dilute your ownership interest
in our company and have an adverse impact on the price of our common stock.
If securities or industry analysts cease publishing research or reports about us, our business, or our market, or if they adversely
change their recommendations or publish negative reports regarding our business or our stock, our stock price and trading
volume could decline.
The trading market for our common stock can be influenced by the research and reports that industry or securities analysts
may publish about us, our business, our market, or our competitors. We do not have any control over these analysts and we cannot
provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely
change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our
stock price could decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish
reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to
decline.
Because we have no current plans to pay cash dividends on our shares of common stock, shareholders must rely on
appreciation of the value of our common stock for any return on their investment.
We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business
and have no current plans to declare or pay any cash dividends in the foreseeable future. In addition, the terms of our Credit
Facilities, Senior Notes and any future debt agreements may preclude us from paying dividends. As a result, we expect that only
appreciation of the price of our common stock, if any, will provide a return to shareholders for the foreseeable future.
Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an
acquisition of us by others, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by our
shareholders to replace or remove our current management.
Provisions in our restated certificate of incorporation and our amended and restated bylaws, as well as provisions of the
Delaware General Corporation Law, or the “DGCL”, could make it more difficult for a third party to acquire us or increase the cost
of acquiring us, even if doing so would benefit our shareholders, including transactions in which shareholders might otherwise
receive a premium for their shares. Among other things, our restated certificate of incorporation and amended and restated bylaws:
•
•
•
•
•
divide our board of directors into three classes with staggered three-year terms;
limit the ability of shareholders to remove directors only “for cause”;
provide that our board of directors is expressly authorized to adopt, alter, or repeal our bylaws;
authorize the issuance of blank check preferred stock that our board of directors could issue to increase the
number of outstanding shares and to discourage a takeover attempt;
prohibit shareholder action by written consent, which requires all shareholder actions to be taken at a meeting of
our shareholders;
32
•
•
•
prohibit our shareholders from calling a special meeting of shareholders ;
establish advance notice requirements for nominations for election to our board of directors or for proposing
matters that can be acted upon by shareholders at shareholder meetings; and
require the approval of holders of at least two-thirds of the outstanding shares of common stock to amend our
bylaws and certain provisions of our certificate of incorporation.
We have also opted out of Section 203 of the DGCL, which, subject to some exceptions, prohibits business combinations
between a Delaware corporation and an interested shareholder, which is generally defined as a shareholder who becomes a
beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that the
shareholder became an interested shareholder. At some time in the future, we may again be governed by Section 203. Section 203
could have the effect of delaying, deferring or preventing a change in control that our shareholders might consider to be in their
best interests.
These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our
company. These provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect
directors of your choosing and cause us to take corporate actions other than those you desire.
Our restated certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of
Delaware will be the exclusive forum for substantially all disputes between us and our shareholders, which could limit our
shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our restated certificate of incorporation provides, unless we consent to an alternative forum, that the Court of Chancery of
the State of Delaware (or, if such court does not have jurisdiction, the Superior Court of the State of Delaware, or, if such other
court does not have jurisdiction, the U.S. District Court for the District of Delaware) shall be the exclusive forum for any claims,
including claims on behalf of JWH, brought by a shareholder (i) that are based upon a violation of a duty by a current or former
director or officer or shareholder in such capacity or (ii) as to which the DGCL confers jurisdiction upon the Court of Chancery of
the State of Delaware. This provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors,
officers, and other employees. Alternatively, if a court were to find the provision contained in our restated certificate of
incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action
in other jurisdictions, which could adversely affect our business and financial condition.
Because we are a holding company with no operations of our own, we rely on dividends, distributions, and transfers of funds
from our subsidiaries and we could be harmed if such distributions were not made in the future.
We are a holding company that conducts all of our operations through subsidiaries and the majority of our operating
income is derived from JWI, our main operating subsidiary. Consequently, we rely on dividends or advances from our subsidiaries.
We have no current plans to declare or pay dividends on our common stock for the foreseeable future; however, to the extent that
we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds
available to us for the payment of dividends. The ability of such subsidiaries to pay dividends to us is subject to applicable local
law and may be limited due to terms of other contractual arrangements, including our indebtedness. Such laws and restrictions
would restrict our ability to continue operations. In addition, Delaware law may impose requirements that may restrict our ability
to pay dividends to holders of our common stock.
Item 1B - Unresolved Staff Comments.
None.
33
Item 2 - Properties
Our principal executive offices are located in Charlotte, North Carolina. We operate 123 manufacturing facilities, 22
distribution facilities, and 55 showrooms (which are often co-located with a manufacturing or distribution facility) located in 22
countries. In addition, we also own and lease other properties, including sales offices, closed facilities, and administrative office space
in Klamath Falls, Oregon, which we own, as well as Charlotte, North Carolina; Birmingham, U.K.; and Sydney, Australia, each of
which we lease. Our facilities in the U.S., Canada, St. Kitts, St. Maarten, Chile, Peru, and Mexico are used primarily for operations
involving our North America segment; our facilities in the U.K., France, Austria, Switzerland, Hungary, Germany, Sweden, Denmark,
Latvia, Estonia, Finland, and Russia are used primarily for operations involving our Europe segment; and our facilities in Australia,
New Zealand, Malaysia, and Indonesia are used primarily for operations involving our Australasia segment.
Manufacturing
Distribution
Showrooms
North America
United States
Canada
St. Kitts
Chile
Peru
Mexico
Europe
United Kingdom
France
Austria
Croatia
Switzerland
Hungary
Germany
Sweden
Denmark
Latvia
Estonia
Finland
Australasia
Australia
New Zealand
Indonesia
Malaysia
Total JELD-WEN
39
4
—
1
1
2
47
5
2
2
—
1
1
2
3
3
3
3
5
30
43
—
2
1
46
123
7
6
1
—
—
—
14
1
—
—
—
—
—
1
—
—
—
—
—
2
5
1
—
6
22
—
—
—
—
—
—
—
—
—
3
1
3
—
—
—
—
—
—
—
7
48
—
—
48
55
34
Item 3 - Legal Proceedings
We are involved in various legal proceedings, claims, and government audits arising in the ordinary course of business. We
record our best estimate of a loss, including estimated defense costs, when the loss is considered probable and the amount of such loss
can be reasonably estimated. When a loss is probable and there is a range of estimated loss with no best estimate within the range, we
record the minimum estimated liability related to the lawsuit or claim. As additional information becomes available, we assess the
potential liability related to pending litigation and claims and revise our accruals if necessary. Because of uncertainties related to the
resolution of lawsuits and claims, the ultimate outcome may differ materially from our estimates. In the opinion of management and
based on the liability accruals provided, our ultimate exposure with respect to these lawsuits and claims is not expected to have a
material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our
operating results for a particular reporting period.
Steves & Sons Litigation
We sell molded door skins to certain customers pursuant to long-term contracts, and these customers in turn use the molded
door skins to manufacture interior doors and compete directly against us in the marketplace. We have given notice of termination of
one of these contracts and, on June 29, 2016, the counterparty to the agreement, Steves and Sons, Inc. (“Steves”) filed a claim against
JWI in the U.S. District Court for the Eastern District of Virginia, Richmond Division (“Eastern District of Virginia”). The complaint
alleges that our acquisition of CMI, together with subsequent price increases and other alleged acts and omissions, violated antitrust
laws and constituted a breach of contract, and breach of warranty. The complaint seeks declaratory relief, ordinary and treble damages,
and injunctive relief, including divestiture of certain assets acquired in the CMI acquisition.
On February 15, 2018, a jury in the Eastern District of Virginia returned a verdict that was unfavorable to JWI with respect to
Steves’ claims that our acquisition of CMI violated Section 7 of the Clayton Act and that JWI breached the supply agreement between
the parties. The verdict awards Steves $12,151,873 for past damages under both the Clayton Act and breach of contract claims and
$46,480,581 in future lost profits under the Clayton Act claim. We expect that Steves will be required to elect to recover its past
damages either under the Clayton Act claims or the contract claims, but not both. If a judgment is entered under the Clayton Act, any
damages awarded will be trebled. In addition, if a judgment is entered under either theory in accordance with the verdict, Steves will
be entitled to an award of attorney’s fees, which amounts have not yet been quantified. We have asserted a position that, because
future lost profits were awarded, Steves is not permitted to pursue its claim for divestiture of certain assets acquired in the CMI
acquisition. The court has not yet ruled on this issue.
We intend to vigorously oppose entry of an adverse judgment, and to appeal any adverse judgment that may be entered. We
continue to believe that Steves’ claims lack merit, Steves’ damages calculations are speculative and excessive, and Steves is not
entitled in any event to the extraordinary remedy of divestiture. We believe that multiple pretrial and trial rulings were erroneous and
improperly limited the Company’s defenses, and that judgment in accordance with the verdict would be improper for several reasons
under applicable law. Accordingly, we do not believe that a loss in this matter is probable and estimable, and therefore, we have not
accrued a reserve for this loss contingency. However, if a judgment is entered in accordance with the verdict and is ultimately upheld
after exhaustion of our appellate remedies, it could have a material adverse effect on our financial position, operating results, or cash
flows, particularly for the reporting period in which a loss is recorded. Because the operations acquired from CMI have been fully
integrated into the Company’s other operations, divestiture of those operations would be difficult if not impossible and therefore it is
not possible to estimate the cost of any final divestiture order or the extent to which such an order would have a material adverse effect
on our financial position, operating results or cash flows.
During the course of the proceedings in the Eastern District of Virginia, we discovered certain facts that led us to conclude
that Steves, its principals, and certain former employees of the Company had misappropriated Company trade secrets, violated the
terms of various agreements between the Company and those parties, and violated other laws. We have asserted claims against certain
of those parties in the Eastern District of Virginia and in the District Court of Bexar County, Texas, and are pursuing those claims
vigorously. Our claims against Steves and others in the Eastern District of Virginia related to misappropriation of trade secrets remain
pending and are set for trial in April 2018. Our other claims remain pending in Bexar County, Texas, and are set for trial in October
2018.
Item 4 - Mine Safety Disclosures.
Not applicable.
35
PART II - OTHER INFORMATION
Item 5 - Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities.
MARKET INFORMATION
Our common stock has been listed and traded on the NYSE under the symbol “JELD” since January 27, 2017. Prior to that
time, there was no public trading market for our stock.
The following table sets forth the high and low sale prices per share of our common stock on the NYSE for the periods
indicated:
Fiscal Year 2017
First Quarter (from January 27, 2017)
Second Quarter
Third Quarter
Fourth Quarter
HOLDERS
Market Price
High
33.42
34.95
35.93
40.25
$
$
$
$
Low
$24.95
$29.65
$27.61
$34.05
As of February 27, 2018, there were 703 shareholders of record of our common stock. The number of record holders does not
include a substantially greater number of holders whose shares are held of record in nominee or “street name” accounts through banks,
brokers and other financial institutions.
36
STOCK PERFORMANCE GRAPH
The following graph depicts the total return to shareholders from January 27, 2017, the date our common shares became
listed on the NYSE, through December 31, 2017, relative to the performance of the Standard & Poor's 500 Index and the Standard &
Poor's 1500 Building Products Index. The graph assumes an investment of $100 in our common stock and each index on January 27,
2017, and the reinvestment of dividends paid since that date. The stock performance shown in the graph is not necessarily indicative of
future price performance.
*$100 invested on 1/27/17 in stock or 12/31/16 in index, including reinvestment of dividends.
Fiscal year ended December 31.
Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved.
JELD-WEN Holding, Inc.
S&P 500
S & P 1500 Building Products Index
1/27/2017
3/31/2017
6/30/2017
9/30/2017
12/31/2017
$100.00
$100.00
$100.00
$125.77
$106.07
$101.36
$124.27
$109.34
$106.76
$135.99
$114.24
$106.55
$150.73
$121.83
$110.00
EQUITY COMPENSATION PLANS
See “Item 12- Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” for the
information required by Item 201(d) of Regulation S-K regarding equity compensation plans.
DIVIDENDS
In November 2016, we paid an aggregate cash dividend of approximately $73.8 million to holders of our then-outstanding
common stock, approximately $0.9 million to holders of our then-outstanding Class B-1 Common Stock, and approximately $307
million to holders of our then-outstanding Series A Convertible Preferred Stock. The payment to holders of our outstanding Series A
Convertible Preferred Stock represented payment for (i) preferred dividends accrued from May 31, 2016 through November 3, 2016
and (ii) a dividend on an as-if-converted-to common basis based on the original principal amount of the Series A Convertible Preferred
Stock investment plus preferred dividends accrued through May 30, 2016. In conjunction with our IPO, these securities converted into
37
shares of our Common Stock as described below in “Part II-Item 8. Financial Statements and Supplementary Data, Note 1 - Summary
of Significant Accounting Policies, Stock Conversion and Initial Public Offering.”
We do not currently expect to pay any further cash dividends on our common stock for the foreseeable future. Instead, we
intend to retain future earnings, if any, for the future operation and expansion of our business and the repayment of debt. Any
determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our results of
operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by applicable laws and other factors
that our board of directors may deem relevant.
The terms of our Corporate Credit Facilities were amended in July 2015 and November 2016 to permit the cash dividends
described above, but the covenants of our existing or future indebtedness limit our ability to further pay dividends and make
distributions to our shareholders. Our business is conducted through our subsidiaries and dividends from, and cash generated by, our
subsidiaries will be our principal sources of cash to repay indebtedness, fund operations, and pay any dividends. Accordingly, our
ability to pay dividends to our shareholders is dependent on the earnings and distributions of funds from our subsidiaries (which
distributions may be restricted by the terms of our Corporate Credit Facilities and Senior Notes).
USE OF PROCEEDS FROM OUR PUBLIC OFFERING
On January 27, 2017, we sold an aggregate of 22,272,727 shares of our common stock at a price of $23.00 per share in our
IPO. The offering closed on February 1, 2017, resulting in net proceeds of $472.4 million to us after deducting underwriters’ discounts
and commissions of $32.0 million and other offering expenses of $7.9 million.
We used the proceeds to us from the IPO as follows: (i) to pay fees and expenses of approximately $7.9 million in connection
with the IPO, (ii) to repay $375.0 million of indebtedness outstanding under our Term Loan Facility; and (iii) working capital and
other general corporate purposes, including sales and marketing activities, general and administrative matters, capital expenditures,
and to invest in or acquire complementary businesses, products, services, technologies, or other assets.
We did not receive any of the proceeds from the sale of the shares of common stock sold in conjunction with our secondary
offerings.
RECENT SALES OF UNREGISTERED SECURITIES
None.
Item 6 - Selected Financial Data
Our historical results are not necessarily indicative of the results expected for any future period. Since the year ended
December 31, 2013, we have completed several acquisitions. See Acquisitions, included in our Management’s Discussion and
Analysis of Financial Condition and Results of Operations below. The results of these acquired entities are included in our
consolidated statements of operations for the periods subsequent to the respective acquisition date. During the fourth quarter of 2016,
we released a valuation allowance in the U.S. totaling $278.4 million resulting in an increase in tax benefit and net income for the
period. During the fourth quarter of 2017, the Tax Act lowered our U.S. federal tax rate which reduced the valuation of our net
deferred tax assets, resulting in an additional tax expense of approximately $21.1 million. In addition, the Tax Act resulted in an
additional estimated foreign repatriation tax charge of $11.3 million. See Note 18 - Income Taxes for further detail. Additionally, the
results for the years ended December 31, 2016, December 31, 2015 and December 31, 2014 were revised to reflect the correction of
certain errors, misclassifications and other accumulated misstatements as described in Note 36 - Revision of Prior Period Financial
Statements.
38
The selected historical consolidated financial data set forth below should be read in conjunction with, and are qualified by
reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and our consolidated
financial statements and related notes thereto included elsewhere in this Form 10-K.
Net revenues
$
3,763,934
$
3,666,799
$
3,381,060
$
3,507,206
$
3,456,539
Income (loss) from continuing operations, net of tax
7,152
376,714
91,390
(78,275)
(74,197)
Income (loss) per common share from continuing operations
Year Ended December 31,
2017
2016
2015
2014
2013
(dollars in thousands, except per share data)
Basic and Diluted
Cash dividends per common share
Other financial data:
Capital expenditures
Depreciation and amortization
Adjusted EBITDA(1)
Consolidated balance sheet data:
Total assets
Total debt
Redeemable convertible preferred stock
$0.00
$0.00
$(0.90)
$(15.72)
$(8.75)
$4.09
$4.73
$0.00
$(7.68)
$0.00
$
63,049
$
79,497
$
77,687
$
70,846
$
85,689
111,273
437,613
107,995
393,682
95,196
310,986
100,026
229,849
104,650
153,210
$
2,862,940
$
2,536,046
$
2,182,373
$
2,184,059
$
2,290,897
1,273,703
1,620,035
1,260,320
—
150,957
481,937
806,228
817,121
667,152
817,121
___________________________
(1)
In addition to our consolidated financial statements presented in accordance with GAAP, we use Adjusted EBITDA to measure our financial
performance. Adjusted EBITDA is a supplemental non-GAAP financial measure of operating performance and is not based on any
standardized methodology prescribed by GAAP. Adjusted EBITDA should not be considered in isolation or as an alternative to net income
(loss), cash flows from operating activities, or other measures determined in accordance with GAAP. Also, Adjusted EBITDA is not necessarily
comparable to similarly titled measures presented by other companies. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by
net revenues.
We define Adjusted EBITDA as net income (loss), eliminating the impact of the following items: loss from discontinued operations, net of tax;
gain on sale of discontinued operations, net of tax; equity earnings (loss) of non-consolidated entities; income tax; depreciation and
amortization; interest expense, net; impairment and restructuring charges; 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, debt refinancing, and the Onex Investment.
We use this non-GAAP measure in assessing our performance in addition to net income (loss) determined in accordance with GAAP. We
believe Adjusted EBITDA is an important measure to be used in evaluating operating performance because it allows management and investors
to better evaluate and compare our core operating results from period to period by removing the impact of our capital structure (net interest
income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, other non-operating items, and
share-based compensation. Furthermore, the instruments governing our indebtedness use Adjusted EBITDA to measure our compliance with
certain limitations and covenants. We reference this non-GAAP financial measure frequently in our decision-making because it provides
supplemental information that facilitates internal comparisons to the historical operating performance of prior periods. In addition, executive
incentive compensation is based in part on Adjusted EBITDA, and we base certain of our forward-looking estimates and budgets on Adjusted
EBITDA.
We also believe Adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our
company and other companies. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a
substitute for analysis of our results as reported under GAAP. Adjusted EBITDA eliminates the effect of certain items on net income and thus
has certain limitations. Some of these limitations are: Adjusted EBITDA does not reflect the interest expense, or the cash requirements
necessary to service interest or principal payments, on our debt; Adjusted EBITDA does not reflect any income tax payments we are required
to make and although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be
replaced in the future; and Adjusted EBITDA does not reflect any cash requirements for such replacement. Other companies may calculate
Adjusted EBITDA differently, and, therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.
39
The following is a reconciliation of our net income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA:
Net income (loss)
Adjustments:
Loss from discontinued operations, net of tax
Gain on sale of discontinued operations, net of tax
Equity (earnings) loss of non-consolidated entities
Income tax (benefit) expense
Depreciation and amortization
Interest expense, net(a)
Impairment and restructuring charges(b)
Gain on sale of property and equipment
Share-based compensation expense
Non-cash foreign exchange transaction/translation (income) loss
Other non-cash items(c)
Other items(d)
Costs relating to debt restructuring, debt refinancing, and the
Onex investment(e)
Year Ended December 31,
2017
2016
2015
2014
2013
(dollars in thousands)
$
10,791
$
377,181
$
90,918
$
(84,109) $
(68,406)
—
—
(3,639)
138,603
111,273
79,034
13,057
(299)
19,785
(2,181)
526
47,000
3,324
—
(3,791)
(246,394)
107,995
77,590
18,353
(3,275)
22,464
5,734
2,843
30,585
2,856
—
(2,384)
(5,435)
95,196
60,632
31,031
(416)
15,620
2,697
1,141
18,893
23,663
1,073
237
5,387
—
447
18,942
100,026
69,289
38,645
(23)
7,968
(528)
2,334
20,278
51,193
5,863
(10,711)
(943)
1,142
104,650
71,362
44,413
(3,039)
5,665
(4,114)
(68)
7,284
112
Adjusted EBITDA
$
437,613
$
393,682
$
310,986
$
229,849
$
153,210
____________________________
(a)
Interest expense for the year ended December 31, 2017 includes $6,097 related to the write-off of a portion of the unamortized debt issuance
costs and original issue discount associated with the Term Loan Facility.
(b)
Impairment and restructuring charges consist of (i) impairment and restructuring charges that are included in our consolidated statements of
operations plus (ii) additional charges of $1, $4,506, $9,687, $257, and $2,409, for the years ended December 31, 2017, 2016, 2015, 2014, and
2013, respectively. These additional charges are primarily comprised of non-cash changes in inventory valuation reserves, such as excess and
obsolete reserves. For further explanation of impairment and restructuring charges that are included in our consolidated statements of
operations, see Note 24 - Impairment and Restructuring Charges of Continuing Operations in our audited financial statements for the years
ended December 31, 2017, 2016 and 2015.
(c) Other non-cash items include, among other things, (i) charges of $439, $357, $893, $2,496, and $0, for the years ended December 31, 2017,
2016, 2015, 2014, and 2013, respectively, relating to (1) the fair value adjustment for inventory acquired as part of the acquisitions referred to
in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Acquisitions” and (2) the impact of a change in
how we capitalize overhead expenses in our valuation of inventory. In addition, other non-cash items include charges of $2,153 for the out-of-
period European warranty liability adjustment for the year ended December 31, 2016.
(d) Other items include: (i) in the year ended December 31, 2017, (1) $34,178 in legal costs, (2) $4,176 in realized loss on hedges, (3) $3,484 in
acquisition costs not core to business activity, (4) $2,202 in secondary offering costs, (5) $754 in tax consulting fee, (6) $678 in legal entity
consolidation costs, (7) $649 in taxes related to equity-based compensation (8) $578 in facility ramp down costs and (9) $(2,247) gain on
settlement of contract escrow; (ii) in the year ended December 31, 2016, (1) $20,695 payment to holders of vested options and restricted shares
in connection with the November 2016 dividend, (2) $3,721 of professional fees related to the IPO of our common stock, (3) $1,626 of
acquisition costs, (4) $584 in legal costs associated with disposition of non-core properties, (5) $507 of dividend related costs, (6) $500 of costs
related to the recruitment of executive management employees, (7) $450 in legal costs, and (8) $346 in Dooria plant closure costs; (iii) in the
year ended December 31, 2015, (1) $11,446 payment to holders of vested options and restricted shares in connection with the July 2015
dividend described in Part II - Item 5. Dividends, (2) $5,510 related to a U.K. legal settlement, (3) $1,825 in acquisition costs, (4) $1,833 of
recruitment costs related to the recruitment of executive management employees, and (5) $1,082 of legal costs related to non-core property
disposal, partially offset by (6) ($5,678) of realized gain on foreign exchange hedges related to an intercompany loan; (iv) in the year ended
December 31, 2014, (1) $5,000 legal settlement related to our ESOP plan, (2) $3,657 of legal costs associated with noncore property disposal,
(3) $3,443 production ramp-down costs, (4) $2,769 of consulting fees in Europe, and (5) $1,250 of costs related to a prior acquisition; and
(v) in the year ended December 31, 2013, (1) $2,869 of cash costs related to the delayed opening of our new Louisiana facility, (2) $774 of
legal costs associated with non-core property disposal, (3) $582 related to the closure of our Marion, North Carolina facility, and (4) $458 of
acquisition-related costs.
(e)
Included in the year ended December 31, 2017 is a loss on debt extinguishment of $23,262 associated with the refinancing of our term loan.
Included in the year ended December 31, 2014 is a loss on debt extinguishment of $51,036 associated with the refinancing of our 12.25%
secured notes.
40
Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations
This MD&A contains forward-looking statements that involve risks and uncertainties. Please see “Forward-Looking
Statements” in Item 1- Business and Item 1A- Risk Factors in this Form 10-K for a discussion of the uncertainties, risks and
assumptions associated with these statements. This discussion should be read in conjunction with our historical financial
statements and related notes thereto and the other disclosures contained elsewhere in this Form 10-K. 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 and included elsewhere in this Form 10-K.
This MD&A is a supplement to our financial statements and notes thereto included elsewhere in this Form 10-K 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 operating 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 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 123 manufacturing 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.
In October 2011, Onex acquired a majority of the combined voting power in the Company through the acquisition of
convertible debt and convertible preferred equity.
In February 2017, we closed on the offering of 28.75 million shares of our common stock at a public offering price of
$23.00, resulting in net proceeds of $472.4 million after deducting underwriters’ discounts and commissions and other offering
expenses. We used a portion of the net proceeds from the offering to repay $375.0 million of indebtedness outstanding under our
Term Loan Facility, and used the remaining net proceeds for working capital and other general corporate purposes, including sales
and marketing activities, general and administrative matters, capital expenditures, and to invest in or acquire complementary
businesses, products, services, technologies, or other assets.
In May 2017, we completed a secondary public offering of 16.1 million shares of our common stock, substantially all of
which were owned by Onex, including the exercise of the over-allotment option. Following the completion of the secondary
offering, Onex owned approximately 45% of our common stock.
In November 2017, we completed a secondary public offering of 14.4 million shares of our common stock, substantially
all of which were owned by Onex, including the exercise of the over-allotment option. Following the completion of the secondary
offering, Onex owned approximately 31.2% of our common stock.
41
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 (which includes limited activity in Chile and Peru), Europe, and
Australasia. Financial information related to our business segments can be found in Note 19 - Segment Information of our financial
statements included elsewhere in this Form 10-K.
Acquisitions
In August 2015, we acquired Dooria, headquartered in Oslo, Norway. Dooria offers a complete range of doors, including
interior, exterior, and specialty rated doors, in a wide variety of styles and is known for its high quality and innovative door designs
and options. Dooria is now part of our Europe segment. The acquisition of Dooria expanded our production capabilities and
product offering in the Scandinavia region.
In August 2015, we acquired Aneeta, headquartered in Melbourne, Australia. Aneeta is an industry leading manufacturer
and supplier of sashless windows in Australia and is now part of our Australasia segment. The acquisition of Aneeta expanded our
product portfolio to include innovative window system offerings to customers in Australia as well as North America.
In September 2015, we acquired Karona, headquartered in Caledonia, Michigan. Karona offers a complete range of
specialty stile and rail doors, including interior, exterior, and fire rated doors for both the residential and non-residential markets,
and is known for its high quality and technical capabilities. Karona is now part of our North America segment. The acquisition of
Karona fit our strategy to expand our capabilities and product offering in the North American specialty stile and rail market.
In October 2015, we acquired certain assets and liabilities of LaCantina, headquartered in Oceanside, California.
LaCantina is a manufacturer of folding and multislide door systems and is now part of our North America segment. The acquisition
of LaCantina improved our position in the popular and growing market for wall systems by giving us additional resources,
capacity, and a leading brand in this growing segment of the market.
In February 2016, we acquired Trend, headquartered in Sydney, Australia. Trend is a leading manufacturer of doors and
windows in Australia and is now part of our Australasia segment. The acquisition of Trend strengthened our market position in the
Australian window market and expanded our product portfolio with new and innovative window designs.
In August 2016, we acquired the shares of Arcpac Building Products Limited, which includes its primary operating
subsidiary Breezway, headquartered in Brisbane, Australia. Breezway is a manufacturer of louver window systems for the
residential and commercial window markets. Breezway’s primary sales market is Australia and it also maintains a presence in
Malaysia and Hawaii. The acquisition of Breezway is expected to strengthen our position in the Australian window market and
expand our product portfolio with new and innovative window designs as well as other complementary products.
In June 2017, we acquired Mattiovi, headquartered in Finland. Mattiovi is a leading manufacturer of interior doors and
door frames in Finland and is part of our Europe segment. The acquisition enhances our market position in the Nordic region,
increases our product offering, and also provides us with additional door frame capacity to support growth in the region.
In August 2017, we acquired MMI Door, headquartered in Sterling Heights, Michigan. MMI Door is a leading provider of
doors and related value-added services in the Midwest region of the U.S. and is part of our North America segment. The
acquisition complements our North America door business and allows us to improve service offerings and lead times to our
channel partners.
In August 2017, we acquired the Kolder Group, headquartered in Smithfield, Australia. Kolder is a leading Australian
provider of shower enclosures, closet systems, and related building products, with leading positions in both the commercial and
residential markets. Kolder is part of our Australasia segment. The acquisition significantly enhances our existing Australian
capabilities in glass shower enclosures and built-in closet systems, and supports our strategy to build leadership positions in
attractive markets.
We paid an aggregate of approximately $304.0 million in cash (net of cash acquired) for the 2015, 2016 and 2017
acquisitions.
In October 2017, we signed a definitive agreement to acquire Domoferm from holding company Domoferm International
GmbH. Domoferm is a leading European provider of steel doors, steel door frames, and fire doors for commercial and residential
42
markets. Domoferm is based in Gänserndorf, Austria, with four manufacturing sites in Austria, Germany, and the Czech Republic.
On February 19, 2018, we closed the transaction. Domoferm is now part of our Europe segment. We expect the acquisition to add
approximately €110 million in annualized revenue in 2018.
In February 2018, we acquired A&L Windows Pty Ltd (“A&L”), a leading Australian manufacturer of residential
aluminum windows and patio doors. A&L has a network of manufacturing facilities and showrooms across the eastern seaboard of
Australia which we expect will deliver synergies through operational savings from the implementation of JEM and by leveraging
the benefits of our combined supply chain. A&L is now part of our Australasia segment.
In February 2018, we signed a purchase agreement to acquire American Building Supply, Inc. (“ABS”), a premier
supplier of value-added services for the millwork industry located in Sacramento, California. We expect the transaction to close in
the first quarter of 2018, subject to customary closing conditions. ABS will be part of our North America segment.
For additional information on acquisition activity, see Note 2 - Acquisitions.
Factors and Trends Affecting Our Business
Drivers of Net Revenues
The key components of our net revenues include core net revenues (which we define to include the impact of pricing and
volume/mix, as discussed further under the heading, “Product Pricing and Volume/Mix” below), contribution from acquisitions
made within the prior twelve months, and the impact of foreign exchange. Our core net revenues are impacted by the relative and
fluctuating currency values in the geographies in which we operate, which we refer to as the impact of foreign exchange.
Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, percentage changes
in pricing are based on management schedules and are not derived directly from our accounting records.
Product Demand
General business, financial market, and economic conditions globally and in the regions where we operate influence
overall demand in our end markets and for our products. In particular, the following factors may have a direct impact on demand
for our products in the countries and regions where our products are marketed and sold:
•
•
•
•
•
•
•
•
•
•
•
the strength of the economy;
employment rates and consumer confidence and spending rates;
the availability and cost of credit;
the amount and type of residential and non-residential construction;
housing sales and home values;
the age of existing home stock, home vacancy rates, and foreclosures;
interest rate fluctuations for our customers and consumers;
increases in the cost of raw materials or any shortage in supplies or labor;
the effects of governmental regulation and initiatives to manage economic conditions;
geographical shifts in population and other changes in demographics; and
changes in weather patterns.
In addition, we seek to drive demand for our products through the implementation of various strategies and initiatives. We
believe we can enhance demand for our new and existing products by:
•
•
•
innovating and developing new products and technologies;
investing in branding and marketing strategies, including marketing campaigns in both print and social media, as
well as our investments in new training centers and mobile training facilities; and
implementing channel initiatives to enhance our relationships with key customers, including implementing the
True BLU dealer management program in North America.
43
Product Pricing and Volume/Mix
The price and mix of products that we sell are important drivers of our net revenues and net income. Under the heading “-
Results of Operations” references to (i) “pricing” refer to the impact of price increases or decreases, as applicable, for particular
products between periods and (ii) “volume/mix” refer to the combined impact of both the number of products we sell in a
particular period and the types of products sold, in each case, on net revenues and net income. While we operate in competitive
markets, pricing discipline is an important element of our strategy to achieve profitable growth through improved margins. Our
strategies also include incentivizing our channel partners to sell our higher margin products, and we believe a renewed focus on
innovation and the development of new technologies will increase our sales volumes and the overall profitability of our product
mix.
Changes in pricing trends for our products can have a material impact on our operations. During and immediately after the
global financial crisis, our net revenues were negatively impacted by decreased demand and an increasingly competitive
environment, resulting in unfavorable pricing trends, particularly in the North American door market. Furthermore, prior to our
current senior executive team joining the Company, we often pursued a strategy in North America of pricing our products on an
incremental contribution margin basis in an effort to grow volumes and generate operating leverage, which often led to competing
on price and an inadequate return on our invested capital. In early 2014, our management team began to strategically change our
pricing strategy in several key areas. First, we focused on making strategic pricing decisions based on analysis of customer and
product level profitability to restore profitability to underperforming lines of business. Second, we increased our emphasis on
pricing optimization. As a result, our operations during 2014 and 2015 benefited from improved pricing, particularly in North
America, where pricing returned to close to pre-crisis levels in some product lines across some market channels. Going forward, if
the housing market continues to grow and economic factors remain positive, we believe that we will continue to benefit from a
positive pricing environment. However, we do not believe the future benefits will be as significant as the pricing improvements we
experienced during the 2013 to 2015 period.
Cost Reduction Initiatives
Prior to the ongoing operational transformation being executed by our senior executive team, our operations were
managed in a decentralized manner with varying degrees of emphasis on cost efficiency and limited focus on continuous
improvement or strategic sourcing. Our management team has a proven track record of implementing operational excellence
programs at some of the world’s leading industrial manufacturing businesses, and we believe the same successes can be realized at
JELD-WEN. Key areas of focus of our operational excellence program include:
•
•
•
reducing labor, overtime, and waste costs by optimizing manufacturing processes;
reducing or minimizing increases in material costs through strategic global sourcing and value-added re-
engineering of components, in part by leveraging our significant spend and the global nature of our purchases;
and
reducing warranty costs by improving quality.
We are in the early stages of implementing our strategic initiatives, including JEM, to develop the culture and processes of
operational excellence and continuous improvement. These cost reduction initiatives, as well as plant closures and consolidations,
headcount reductions, and various initiatives aimed at lowering production and overhead costs, may not produce the intended
results within the intended timeframe.
Raw Material Costs
Commodities such as vinyl extrusions, glass, aluminum, wood, steel, plastics, fiberglass, and other composites are major
components in the production of our products. Changes in the underlying prices of these commodities have a direct impact on the
cost of products sold. While we attempt to pass on a substantial portion of such cost increases to our customers, we may not be
successful in doing so. In addition, our results of operations for individual quarters may be negatively impacted by a delay between
the time of raw material cost increases and a corresponding price increase. Conversely, our results of operations for individual
quarters may be positively impacted by a delay between the time of a raw material price decrease and a corresponding competitive
pricing decrease.
Working Capital and Seasonality
Working capital, which is defined as accounts receivable plus inventory less accounts payable, fluctuates throughout the
year and is affected by seasonality of sales of our products and of customer payment patterns. The peak season for home
construction and remodeling in our North America and Europe segments, which represent the substantial majority of our revenues,
generally corresponds with the second and third calendar quarters, and therefore our sales volume is usually higher during those
44
quarters. Typically, working capital increases at the end of the first quarter and beginning of the second quarter in conjunction with,
and in preparation for, our peak season, and working capital decreases starting in the third quarter as inventory levels and accounts
receivable decline. Inventories fluctuate for some raw materials with long delivery lead times, such as steel, as we work through
prior shipments and take delivery of new orders.
Foreign Currency Exchange Rates
We report our consolidated financial results in U.S. dollars. Due to our international operations, the weakening or
strengthening of foreign currencies against the U.S. dollar can affect our reported operating results and our cash flows as we
translate our foreign subsidiaries’ financial statements from their reporting currencies into U.S. dollars. In the year ended
December 31, 2017 compared to the year ended December 31, 2016, the depreciation of the U.S. dollar relative to the reporting
currencies of our foreign subsidiaries resulted in higher reported results in such foreign reporting entities. In particular, the
exchange rates used to translate our foreign subsidiaries’ financial results for the year ended December 31, 2017 compared to the
year ended December 31, 2016 reflected, on average, the U.S. dollar weakening against the Euro, Australian dollar, and Canadian
dollar by 2%, 3%, and 2%, respectively. See Item 1A- Risk Factors- Risks Relating to Our Business and Industry, Item 1A- Risk
Factors- Exchange rate fluctuations may impact our business, financial condition, and results of operations, and Item 7A-
Quantitative and Qualitative Disclosures About Market Risk- Exchange Rate Risk.
Public Company Costs
Following our IPO, we have incurred, and will continue to incur, additional legal, accounting, board compensation, and
other expenses that we did not previously incur, including costs associated with SEC, reporting and corporate governance
requirements, and other requirements associated with operating as a public company. These requirements include compliance with
the Sarbanes-Oxley Act of 2002, as amended, as well as other rules implemented by the SEC and the national securities exchanges.
Our financial statements following our IPO reflect the impact of these expenses.
Components of our Operating Results
Net Revenues
Our net revenues are a function of sales volumes and selling prices, each of which is a function of product mix, and
consist primarily of:
•
•
•
sales of a wide variety of interior and exterior doors, including patio doors, for use in residential and non-
residential applications, with and without frames, to a broad group of wholesale and retail customers in all of our
geographic markets;
sales of a wide variety of windows for both residential and certain non-residential uses, to a broad group of
wholesale and retail customers primarily in North America, Australia, and the U.K.; and
other sales, including sales of moldings, trim board, cut-stock, glass, stairs, hardware and locks, door skins,
shower enclosures, wardrobes, window screens, and miscellaneous installation and other services revenue.
Net revenues do not include internal transfers of products between our component manufacturing, product manufacturing
and assembly, and distribution facilities.
Cost of Sales
Cost of sales consists primarily of material costs, direct labor and benefit costs, including payroll taxes, repair and
maintenance, depreciation, utility, rent and warranty expenses, outbound freight, and insurance and benefits, supervision and tax
expenses. Detail for each of these items is provided below.
•
Material Costs. The single largest component of cost of sales is material costs, which include raw materials,
components and finished goods purchased for use in manufacturing our products or for resale. Our most
significant material costs include glass, wood, wood components, doors, door facings, door parts, hardware,
vinyl extrusions, steel, fiberglass, packaging materials, adhesives, resins and other chemicals, core material, and
aluminum extrusions. The cost of each of these items is impacted by global supply and demand trends, both
within and outside our industry, as well as commodity price fluctuations, conversion costs, energy costs, and
transportation costs. See Item 7A- Quantitative and Qualitative Disclosures About Market Risk- Raw Materials
Risk.
45
•
•
•
•
Direct Labor and Benefit Costs. Direct labor and benefit costs reflect a combination of production hours, average
headcount, general wage levels, payroll taxes, and benefits provided to employees. Direct labor and benefit costs
include wages, overtime, payroll taxes, and benefits paid to hourly employees at our facilities that are involved in
the production and/or distribution of our products. These costs are generally managed by each facility and
headcount is adjusted according to overall and seasonal production demand. We run multi-shift operations in
many of our facilities to maximize return on assets and utilization. Direct labor and benefit costs fluctuate with
headcount, but generally tend to increase with inflation due to increases in wages and health benefit costs.
Repair and Maintenance, Depreciation, Utility, Rent, and Warranty Expenses.
Repairs and maintenance costs consist of equipment and facility maintenance expenses, purchases of
maintenance supplies, and the labor costs involved in performing maintenance on our equipment and
facilities.
Depreciation includes depreciation expense associated with our production assets and plants.
Rent is predominantly comprised of lease costs for facilities we do not own as well as vehicle fleet and
equipment lease costs. Facility leases are typically multi-year and may include increases tied to certain
measures of inflation.
Warranty expenses represent all costs related to servicing warranty claims and product issues and are
mostly related to our window products sold in the U.S. and Canada.
Outbound Freight. Outbound freight includes payments to third-party carriers for shipments of orders to our
customers, as well as driver, vehicle, and fuel expenses when we deliver orders to customers. The majority of our
products are shipped by third-party carriers.
Insurance and Benefits, Supervision, and Tax Expenses.
Insurance and benefit costs are the expenses relating to our insurance programs, health benefits, retirement
benefit programs (including the pension plan), and other benefits that are not included in direct labor and
benefits costs.
Supervision costs are the wages and bonus expenses related to plant managers. Both insurance and benefits
and supervision expenses tend to be influenced by headcount and wage levels.
Tax costs are mostly payroll taxes for employees not included in direct labor and benefit costs, and property
taxes. Tax expenses are impacted by changes in tax rates, headcount and wage levels, and the number and
value of properties owned.
In addition, an appropriate portion of each of the insurance and benefits, supervision and tax expenses are allocated to
SG&A expenses.
Selling, general, and administrative expenses
SG&A consist primarily of research and development, sales and marketing, and general and administrative expenses.
Research and Development. Research and development expenses consist primarily of personnel expenses related to
research and development, consulting and contractor expenses, tooling and prototype materials, and overhead costs allocated to
such expenses. Substantially all of our research and development expenses are related to developing new products and services and
improving our existing products and services. To date, research and development expenses have been expensed as incurred,
because the period between achieving technological feasibility and the release of products and services for sale has been short and
development costs qualifying for capitalization have been insignificant.
We expect our research and development expenses to increase in absolute dollars as we continue to make significant
investments in developing new products and enhancing existing products.
Sales and Marketing. Sales and marketing expenses consist primarily of advertising and marketing promotions of our
products and services and related personnel expenses, as well as sales incentives, trade show and event costs, sponsorship costs,
46
consulting and contractor expenses, travel, display expenses, and related amortization. Sales and marketing expenses are generally
variable expenses and not fixed expenses. We expect our sales and marketing expenses to increase in absolute dollars as we
continue to actively promote our products and services.
General and Administrative. General and administrative expenses consist of personnel expenses for our finance, legal,
human resources, and administrative personnel, as well as the costs of professional services, any allocated overhead, information
technology, amortization of intangible assets acquired, and other administrative expenses. We expect our general and
administrative expenses to increase in absolute dollars due to the anticipated growth of our business and related infrastructure as
well as legal, accounting, insurance, investor relations, and other costs associated with becoming a public company.
Impairment and Restructuring Costs
Impairment and restructuring costs consist primarily of all salary-related severance benefits that are accrued and expensed
when a restructuring plan has been put into place, the plan has received approval from the appropriate level of management and the
benefit is probable and reasonably estimable. In addition to salary-related costs, we incur other restructuring costs when facilities
are closed or capacity is realigned within the organization. Upon termination of an employment or commercial contract we record
liabilities and expenses pursuant to the terms of the relevant agreement. For non-contractual restructuring activities, liabilities and
expenses are measured and recorded at fair value in the period in which they are incurred.
Interest Expense, Net
Interest expense, net relates primarily to interest payments on our then-outstanding credit facilities (and debt securities) as
well as amortization of any original issue discount or debt issuance costs. Debt issuance costs are included as an offset to long-term
debt in the accompanying consolidated balance sheets and are amortized to interest expense over the life of the applicable facility
using the effective interest method. For additional details, see Note 16 - Notes Payable and Long-Term Debt in our financial
statements for the year ended December 31, 2017 included elsewhere in this Form 10-K.
Other Income (Expense), Net
Other income (expense), net includes profit and losses related to various miscellaneous non-operating expenses including
loss on extinguishment of debt and certain foreign currency related gains and losses.
Income Taxes
Income taxes are recorded using the asset and liability method of accounting for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in
income in the period that includes the date of enactment. We recognize the effect of income tax positions only if those positions are
more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than
50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment
occurs. We record interest related to unrecognized tax benefits in income tax expense. As of December 31, 2017, our federal, state,
and foreign net operating loss (“NOL”) carryforwards were $1,450.1 million in the aggregate and $106.5 million of such NOL
carryforwards do not expire.
The Tax Act passed in December 2017 had significant effects on our financial statements, some of which we are still
quantifying. In accordance with Staff Accounting Bulletin #118 issued by the SEC in December 2017 immediately following the
passage of the Tax Act, we have made provisional estimates for certain direct and indirect effects of the Tax Act based on
information available to us. We will finalize our accounting for the effects of the Tax Act over the twelve-month period ending
December 22, 2018. Any adjustments to our provisional estimates will be recorded as a component of continuing operations. For
additional details, see Note 18 - Income Taxes in our financial statements for the year ended December 31, 2017 included
elsewhere in this Form 10-K.
47
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. The results for the years ended
December 31, 2016 and December 31, 2015 have been revised to reflect the correction of certain errors and other accumulated
misstatements as described in Note 36 - Revision of Prior Period Financial Statements.
Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016
December 31, 2017
December 31, 2016
(dollars in thousands)
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,763,934
2,915,736
Gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . .
Impairment and restructuring charges . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes, equity earnings and discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit) . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax. . . . . . . . . . . . . .
Equity earnings of non-consolidated entities. . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
848,198
585,074
13,056
250,068
79,034
25,279
145,755
138,603
7,152
3,639
—
10,791
% of Net
Revenues
% of Net
Revenues
100.0% $
3,666,799
100.0 %
77.5%
22.5%
15.5%
0.3%
6.6%
2.1%
0.7%
3.9%
3.7%
0.2%
0.1%
—%
0.3% $
2,892,248
774,551
565,619
13,847
195,085
77,590
(12,825)
130,320
(246,394)
376,714
3,791
(3,324)
377,181
78.9 %
21.1 %
15.4 %
0.4 %
5.3 %
2.1 %
(0.3)%
3.6 %
(6.7)%
10.3 %
0.1 %
(0.1)%
10.3 %
Consolidated Results
Net Revenues – Net revenues increased $97.1 million, or 2.6%, to $3,763.9 million in the year ended December 31, 2017
from $3,666.8 million in the year ended December 31, 2016. The increase in net revenues was primarily due to our recent
acquisitions which provided a 2% increase as well as a favorable foreign exchange impact of 1%. Our core net revenues were
unchanged with a 1% benefit from pricing offset by a 1% decrease in volume/mix.
Gross Margin – Gross margin increased $73.6 million, or 9.5%, to $848.2 million in the year ended December 31, 2017
from $774.6 million in the year ended December 31, 2016. Gross margin as a percentage of net revenues was 22.5% in the year
ended December 31, 2017 and 21.1% in the year ended December 31, 2016. The increase in gross margin and gross margin
percentage was due to favorable pricing, cost savings initiatives and contribution from recent acquisitions, partially offset by
operational inefficiencies in our North American windows business.
SG&A Expense – SG&A expense increased $19.5 million, or 3.4%, to $585.1 million in the year ended December 31,
2017 from $565.6 million in the year ended December 31, 2016. SG&A expense as a percentage of net revenues was 15.5% for the
year ended December 31, 2017 and 15.4% for the year ended December 31, 2016. The increase in SG&A expense was primarily
due to increased professional fees, costs associated with our IPO and secondary offerings, SG&A expense associated with our
recent acquisitions, and increased wages, partially offset by a decrease in share-based compensation associated with the 2016
Dividend.
Impairment and Restructuring Charges – Impairment and restructuring charges decreased $0.8 million, or 5.7%, to $13.1
million in the year ended December 31, 2017 from $13.8 million in the year ended December 31, 2016. The charges in the year
ended December 31, 2017 consisted primarily of a reduction in workforce in our North American segment as well as ongoing
restructuring costs in our Europe segment. The charges for the year ended December 31, 2016 consisted primarily of ongoing
personnel restructuring in our Europe and North America segment.
48
Interest Expense, Net – Interest expense, net increased $1.4 million, or 1.9%, to $79.0 million in the year ended
December 31, 2017 from $77.6 million in the year ended December 31, 2016. The increase was primarily due to interest expense
resulting from the write-off of a portion of the unamortized debt issuance costs and original issue discount totaling approximately
$6.1 million in connection with the repayment of $375.0 million of outstanding term loans with proceeds from our IPO. In
addition, interest expense increased due to higher long-term debt levels for the first month of the period as a result of borrowings of
$375.0 million under our Term Loan Facility, partially offset by reductions in the applicable margin which became effective in
March 2017 and December 2017.
Other Expense (Income) – Other expense increased $38.1 million, to a $25.3 million expense in the year ended
December 31, 2017 from income of $12.8 million in the year ended December 31, 2016. The expense in the year ended
December 31, 2017 was primarily of loss on the extinguishment of debt of $23.3 million associated with our Term Loan, foreign
currency losses of $10.4 million, partially offset by a contract settlement of $2.2 million and legal settlement income of $2.5
million. Income in the year ended December 31, 2016 primarily consisted of $8.4 million received in a confidential settlement
agreement on a commercial matter in our North America segment.
Income Taxes – On December 22, 2017, the Tax Act was enacted in the U.S. The specific provisions of the Tax Act had
both direct and indirect impacts on our 2017 results and will continue to materially affect our financial results in the future. The
direct impacts were due primarily to the change in the U.S. corporate income tax rate from 35% to 21% for tax years beginning
after December 31, 2017 and the one-time deemed repatriation tax. As a result of the lowering of the U.S. federal tax rate, we
revalued our net deferred tax assets in the U.S. reflecting the lower expected benefit in the U.S. in the future. This revaluation
resulted in additional non-cash tax expense totaling approximately $21.1 million. The one-time deemed repatriation tax, which
effectively subjected the Company’s net aggregate historic foreign earnings to taxation in the U.S., resulted in a further tax charge
of $11.3 million. While this repatriation tax is measured as of December 31, 2017, taxpayers can pay the tax over an 8-year period
resulting in an increase to our non-current liabilities.
During the fourth quarter, the Company undertook certain transactions which involved the repatriation of certain earnings
from foreign subsidiaries. While these transactions were not undertaken as a direct result of tax reform, the U.S. tax implications
were heavily impacted due to the timing of the transactions and the measurement dates as outlined in the Tax Act. We have
recorded a net increase to tax expense of $65.8 million related to these transactions and their impacts under the Tax Act.
While we have recorded provisional estimates of the tax impact of the above transactions as of December 31, 2017 based
on information available to us, we have not yet completed our full analysis of the net effects of the Tax Act. The final net effects of
the Tax Act may differ, possibly materially, due to many factors including, among other things, i) adjustments to historic foreign
earnings and profits or the associated tax credit pools which are significant factors in the calculation of the repatriation tax, ii)
changes in interpretations and assumptions that we have made, and iii) related accounting policy decisions we may take. Most
significantly, definitive guidance and regulations surrounding the implementation of the provisions in the Tax Act and, specifically,
the interactions of these provisions with the other transactions outlined above have not been issued to date. This guidance, once
issued, may materially affect our conclusions regarding the net related effects of the Tax Act on our financial statements. We will
complete our analysis over a one-year measurement period as outlined in Staff Accounting Bulletin #118 issued by the SEC in
December 2017, and any adjustments during this measurement period will be recorded in earnings from continuing operations.
Income tax expense in the year ended December 31, 2017 was $138.6 million, compared to a $246.4 million benefit in the
year ended December 31, 2016. The effective tax rate in the year ended December 31, 2017 was 95.1% compared to an effective
tax rate of (189.1)% in the year ended December 31, 2016. The prior year tax benefit of $246.4 million was due primarily to the net
release of our valuation allowance of $236.5 million
49
Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015
(dollars in thousands)
Net revenues
Cost of sales
Gross margin
Selling, general and administrative
Impairment and restructuring charges
Operating income
Interest expense, net
Other expense (income)
Income before taxes, equity earnings and discontinued
operations
Income tax benefit
Income from continuing operations, net of tax
Equity earnings of non-consolidated entities
Loss from discontinued operations, net of tax
Net income
Consolidated Results
December 31, 2016
December 31, 2015
% of Net
Revenues
% of Net
Revenues
$
3,666,799
100.0 % $
3,381,060
100.0 %
2,892,248
774,551
565,619
13,847
195,085
77,590
(12,825)
130,320
(246,394)
376,714
3,791
(3,324)
377,181
$
78.9 %
21.1 %
15.4 %
0.4 %
5.3 %
2.1 %
(0.3)%
3.6 %
(6.7)%
10.3 %
0.1 %
(0.1)%
10.3 % $
2,721,341
659,719
505,910
21,342
132,467
60,632
(14,120)
85,955
(5,435)
91,390
2,384
(2,856)
90,918
80.5 %
19.5 %
15.0 %
0.6 %
3.9 %
1.8 %
(0.4)%
2.5 %
(0.2)%
2.7 %
0.1 %
(0.1)%
2.7 %
Net Revenues—Net revenues increased $285.7 million, or 8.5%, to $3,666.8 million in the year ended December 31, 2016
from $3,381.1 million in the year ended December 31, 2015. The increase in net revenues was primarily attributable to a 7%
increase associated with our recent acquisitions described under the heading “Acquisitions” above. Our core net revenues increased
3%, comprised of an increase in pricing as a result of implementing our pricing optimization strategy and volume/mix. These
increases were partially offset by an unfavorable foreign exchange impact of 1%.
Gross Margin—Gross margin increased $114.8 million, or 17.4%, to $774.6 million in the year ended December 31, 2016
from $659.7 million in the year ended December 31, 2015. Gross margin as a percentage of net revenues was 21.1% in the year
ended December 31, 2016 and 19.5% in the year ended December 31, 2015. The increases in gross margin and gross margin
percentage were due to acquisitions, price increases, and cost out initiatives, partially offset by the weakening of the British pound,
Canadian dollar and the Australian dollar in the current period which resulted in an unfavorable translation impact of $3.7 million.
SG&A Expense—SG&A expense increased $59.7 million, or 11.8%, to $565.6 million in the year ended December 31,
2016 from $505.9 million in the year ended December 31, 2015. SG&A expense as a percentage of net revenues was 15.4% for the
year ended December 31, 2016 and 15.0% for the year ended December 31, 2015. The increases in SG&A expense and SG&A
expense percentage were primarily due to SG&A expense associated with our recent acquisitions, share based compensation
expense and other payments related to our November 2016 dividend recapitalization transactions, and professional fees related to
the IPO process. Partially offsetting these increases was a favorable translation impact of $5.8 million due to the weakening of the
British pound, Canadian dollar and the Australian dollar in the current period.
Impairment and Restructuring Charges—Impairment and restructuring charges decreased $7.5 million, or 35.1%, to $13.8
million in the year ended December 31, 2016 from $21.3 million in the year ended December 31, 2015. The charges in the year
ended December 31, 2016 consisted primarily of $6.2 million for restructuring and plant closures of recent acquisitions, $5.5
million for various personnel restructuring and severance costs and $2.1 million of other impairment and restructuring charges. The
charges for the year ended December 31, 2015 consisted primarily of $13.4 million of impairment and restructuring charges in
Europe primarily due to the closure of one of our three French manufacturing facilities, $2.0 million of charges related to the
consolidation of our fiber door skin designs, and $1.5 million of impairment charges related to a non-core equity investment and
related notes receivable. The remaining charges of $4.4 million are primarily related to personnel restructuring.
Interest Expense, Net—Interest expense, net increased $17.0 million, or 28.0%, to an expense of $77.6 million in the year
ended December 31, 2016 from an expense of $60.6 million in the year ended December 31, 2015. The increase was primarily due
50
to the full period impact of the incremental interest expense associated with the $480.0 million and $375.0 million of incremental
term loans borrowed in July 2015 and November 2016, respectively.
Income Taxes—Income tax benefit in the year ended December 31, 2016 was $246.4 million, compared to a benefit of
$5.4 million in the year ended December 31, 2015. The effective tax rate in the year ended December 31, 2016 was (189.1)%
compared to an effective tax rate of (6.3)% in the year ended December 31, 2015. The increased tax benefit of $241.0 million was
due primarily to a release of a valuation allowance in the U.S. and U.K. totaling $272.3 million in the year ended December 31,
2016 compared to a $19.6 million release of certain foreign subsidiaries' valuation allowance in the year ended December 31,
2015. This increase in benefit was offset by an increase in current tax expense of $4.5 million attributable to the earnings mix.
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
determined that we have three reportable segments, organized and managed principally by geographic region. Our reportable
segments are North America, Europe and Australasia. We report all other business activities in Corporate and unallocated costs. We
define Adjusted EBITDA as net income (loss), eliminating the impact of the following items: loss from discontinued operations,
net of tax; gain on sale of discontinued operations, net of tax; equity earnings (loss) of non-consolidated entities; income tax;
depreciation and amortization; interest expense, net; impairment and restructuring charges; (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, debt refinancing, and the Onex Investment. For additional information on
segment Adjusted EBITDA, see Note 19 - Segment Information to our financial statements included in this Form 10-K.
Comparison of the Year Ended December 31, 2017 to the Year Ended December 31, 2016
(dollars in thousands)
Net revenues from external customers
December 31,
2017
December 31,
2016
% Variance
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australasia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Percentage of total consolidated net revenues
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australasia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA(1)
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australasia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Unallocated costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted EBITDA as a percentage of segment net revenues
North America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australasia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
$
$
$
$
$
2,158,083
1,042,767
563,084
3,763,934
57.3%
27.7%
15.0%
100.0%
273,594
132,929
74,706
(43,616)
437,613
12.7%
12.7%
13.3%
11.6%
2,149,168
1,008,729
508,902
3,666,799
58.6%
27.5%
13.9%
100.0%
251,831
122,574
59,519
(40,242)
393,682
11.7%
12.2%
11.7%
10.7%
0.4%
3.4%
10.6%
2.6%
8.6%
8.4%
25.5%
8.4%
11.2%
____________________________
(1)
Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see
Note 19 - Segment Information.
51
North America
Net revenues in North America increased $8.9 million, or 0.4%, to $2,158.1 million in the year ended December 31, 2017
from $2,149.2 million in the year ended December 31, 2016. The increase in net revenues was primarily due to the acquisition of
MMI Door which provided a 2% increase. This was partially offset by a decrease in core net revenues of 1% comprised of
favorable pricing of 2%, offset by a decrease in volume/mix of 3%. The decrease in volume/mix was primarily driven by activity in
our retail channel, including the impact of the previously announced business line rationalization in Florida and reduced volume in
our windows business.
Adjusted EBITDA in North America increased $21.8 million, or 8.6%, to $273.6 million in the year ended December 31,
2017 from $251.8 million in the year ended December 31, 2016. The increase in Adjusted EBITDA was due to the acquisition of
MMI Door, as well as favorable pricing and cost saving initiatives, partially offset by operational inefficiencies in our windows
business.
Europe
Net revenues in Europe increased $34.0 million, or 3.4%, to $1,042.8 million in the year ended December 31, 2017 from
$1,008.7 million in the year ended December 31, 2016. The increase in net revenues was primarily due to an increase in core net
revenues of 2% which was comprised of an increase in volume/mix of approximately 1%, and favorable pricing of approximately
1%. The acquisition of Mattiovi provided an additional 1% increase.
Adjusted EBITDA in Europe increased $10.4 million, or 8.4%, to $132.9 million in the year ended December 31, 2017
from $122.6 million in the year ended December 31, 2016. The increase in Adjusted EBITDA was primarily due to the additional
shipping days in the first quarter of 2017, favorable pricing, our Mattiovi acquisition and our cost saving initiatives.
Australasia
Net revenues in Australasia increased $54.2 million, or 10.6%, to $563.1 million in the year ended December 31, 2017
from $508.9 million in the year ended December 31, 2016. The increase in net revenues was primarily due to the acquisitions of
Trend, Breezway and Kolder which provided a 7% increase in net revenues. Core net revenues increased 1%, primarily due to
favorable pricing of 1%. Favorable foreign exchange rates added an additional 3% increase in net revenues.
Adjusted EBITDA in Australasia increased $15.2 million, or 25.5%, to $74.7 million in the year ended December 31,
2017 from $59.5 million in the year ended December 31, 2016. The increase in Adjusted EBITDA was primarily due to the
acquisitions of Trend, Breezway and Kolder as well as our pricing initiatives, and favorable foreign exchange impact.
52
Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015
(dollars in thousands)
Net revenues from external customers
North America
Europe
Australasia
Total Consolidated
Percentage of total consolidated net revenues
North America
Europe
Australasia
Total Consolidated
Adjusted EBITDA(1)
North America
Europe
Australasia
Corporate and Unallocated costs
Total Consolidated
Adjusted EBITDA as a percentage of segment net revenues
North America
Europe
Australasia
Total Consolidated
December 31,
2016
December 31,
2015
$
$
$
$
$
$
$
$
2,149,168
1,008,729
508,902
3,666,799
58.6%
27.5%
13.9%
100.0%
251,831
122,574
59,519
(40,242)
393,682
11.7%
12.2%
11.7%
10.7%
2,015,715
996,014
369,331
3,381,060
59.6%
29.5%
10.9%
100.0%
201,660
99,540
40,453
(30,667)
310,986
10.0%
10.0%
11.0%
9.2%
% Variance
6.6%
1.3%
37.8%
8.5%
24.9%
23.1%
47.1%
31.2%
26.6%
____________________________
(1)
Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see
Note 19 - Segment Information.
North America
Net revenues in North America increased $133.5 million, or 6.6%, to $2,149.2 million in the year ended December 31,
2016 from $2,015.7 million in the year ended December 31, 2015. The increase in net revenues was primarily due to an increase in
core net revenues of 5%, comprised of increases in volume/mix of 3% and pricing of 2%. The increase in volume/mix was the
result of increased demand for our products driven by our profitable growth initiatives. The increase in pricing was the result of
implementing our pricing optimization strategy. Additionally, the acquisitions of Karona and LaCantina provided a 2% increase in
net revenues.
Adjusted EBITDA in North America increased $50.2 million, or 24.9%, to $251.8 million in the year ended December 31,
2016 from $201.7 million in the year ended December 31, 2015. The increase in Adjusted EBITDA was primarily due to increased
pricing and productivity initiatives partially offset by labor costs associated with key productivity initiatives and increased
marketing and advertising expenses.
Europe
Net revenues in Europe increased $12.7 million, or 1.3%, to $1,008.7 million in the year ended December 31, 2016 from
$996.0 million in the year ended December 31, 2015. The increase in net revenues was primarily due to an increase in core net
revenues of 1%, comprised of an increase in pricing of approximately 2%, partially offset by a decrease in volume/mix of
approximately 1%. The increase in pricing was the result of implementing our pricing optimization strategy. The decrease in
volume/mix was primarily a result of the realignment of our customer and product portfolio aimed at driving profitable growth.
Additionally, the acquisition of Dooria provided a 3% increase in net revenues. These increases were partially offset by an
unfavorable foreign exchange impact of 3%.
Adjusted EBITDA in Europe increased $23.0 million, or 23.1%, to $122.6 million in the year ended December 31, 2016
from $99.5 million in the year ended December 31, 2015. The increase in Adjusted EBITDA was primarily due to the increase in
pricing, the closure of a facility in France in 2015, and productivity initiatives.
53
Australasia
Net revenues in Australasia increased $139.6 million, or 37.8%, to $508.9 million in the year ended December 31, 2016
from $369.3 million in the year ended December 31, 2015. The increase in net revenues was primarily due to an increase in core
net revenues of 2%, comprised primarily of an increase in pricing. The increase in pricing was the result of implementing our
pricing optimization strategy. Volume/mix was flat in the twelve months ended December 31, 2016 as organic growth in certain
regions was offset by economic weakness in Western Australia. Additionally, the acquisitions of Trend, Aneeta, and Breezway
provided a 37% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 1%.
Adjusted EBITDA in Australasia increased $19.1 million, or 47.1%, to $59.5 million in the year ended December 31,
2016 from $40.5 million in the year ended December 31, 2015. The increase in Adjusted EBITDA was primarily due to the
acquisitions of Trend, Aneeta, and Breezway and pricing initiatives, partially offset by the decrease in volume/mix and an
unfavorable foreign exchange impact.
Liquidity and Capital Resources
Overview
We have historically funded our operations through a combination of cash from operations, draws on our revolving credit
facilities, and the issuance of non-revolving debt such as our Term Loan Facility and Senior Notes. As of December 31, 2017, we
had total liquidity (a non-GAAP measure) of $512.2 million, which included $220.2 million in cash, $232.4 million available for
borrowing under the ABL Facility, AUD $17.0 million ($13.3 million) available for borrowing under the Australia Senior Secured
Credit Facility, and €38.7 million ($46.3 million) available for borrowing under the Euro Revolving Facility. This compares to total
liquidity of $381.9 million as of December 31, 2016. The increase in total liquidity at December 31, 2017 compared to
December 31, 2016 was primarily due to the retained portion of net proceeds of $472.4 million from the IPO, as well as cash
provided by operations.
As of December 31, 2017, our cash balances, including $36.1 million of restricted cash, consisted of $69.4 million in the
U.S. and $186.8 million in non-U.S. subsidiaries. Based on our current level of operations, the seasonality of our business and
anticipated growth, we believe that cash provided by operations and other sources of liquidity, including cash, cash equivalents and
borrowings under our revolving credit facilities, will provide adequate liquidity for ongoing operations, planned capital
expenditures and other investments, and debt service requirements for at least the next twelve months.
We may, from time to time, refinance, reprice, extend, retire or otherwise modify our outstanding debt to lower our
interest payments, reduce our debt or otherwise improve our financial position. These actions may include repricing amendments,
extensions, and/or opportunistic refinancing of debt. The amount of debt that may be refinanced, re-priced, extended, retired or
otherwise modified, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt
covenants and other considerations. Our affiliates may also purchase our debt from time to time, through open market purchases or
other transactions. In such cases, our debt may not be retired, in which case we would continue to pay interest in accordance with
the terms of the debt, and we would continue to reflect the debt as outstanding in our consolidated balance sheets.
A hypothetical increase or decrease in interest rates of 1.0% (based on variable rate debt if revolving credit facilities were
fully drawn) would have increased or decreased our interest expense by $8.5 million for the twelve months ended December 31,
2017.
Borrowings and Refinancings
In July 2015 and November 2016, we borrowed an additional $480 million and $375 million, respectively, under the
Corporate Credit Facilities primarily to fund distributions to our shareholders. On February 6, 2017, we repaid $375 million under
our Corporate Credit Facilities. On March 7, 2017, we amended the Term Loan Facility to reduce the interest rate applicable to all
outstanding terms loans. In December 2017, we re-priced and amended the Term Loan Facility, issued $800.0 million of unsecured
Senior Notes and repaid $787.4 million of outstanding borrowings with the net proceeds from the Senior Notes. The December
2017 refinancing transactions reduced our overall interest rates and modified other terms and provisions, including providing for
additional covenant flexibility and additional capacity under the Term Loan Facility. Accordingly, our results have been and will be
impacted by substantial changes in our net interest expense throughout the periods presented and in the future. See Note 16 - Notes
Payable and Long-Term Debt for further details.
54
Cash Flows
The following table summarizes the changes to our cash flows for the years ended December 31:
(amounts in thousands)
Cash provided by (used in):
Operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of changes in exchange rates on cash and cash equivalents . . . . . . . . . . . . . . . .
Net change in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Cash Flow from Operations
2017
2016
265,793
(189,793)
64,090
12,692
152,782
$
$
201,655
(156,782)
(52,001)
(3,697)
(10,825)
Net cash provided by operating activities increased $64.1 million to $265.8 million in the twelve months ended
December 31, 2017 from $201.7 million in the twelve months ended December 31, 2016. This increase was primarily due to
improved profitability and the impact of acquisitions, partially offset by increased inventory levels.
Cash Flow from Investing Activities
Net cash used in investing activities increased $33.0 million to $189.8 million in the twelve months ended December 31,
2017 from $156.8 million in the twelve months ended December 31, 2016. The increase was primarily due to acquisitions during
the year, partly offset by reduction in capital expenditures compared to the prior period due to the completion of the glass plant in
Australia in January 2017.
Cash Flow from Financing Activities
Net cash provided by financing activities was $64.1 million in the twelve months ended December 31, 2017 and was
comprised primarily of proceeds from the IPO of $480.3 million of which $375.0 million of proceeds were used to partially repay
outstanding debt.
Net cash used in financing activities in the twelve months ended December 31, 2016 was $52.0 million and was
comprised primarily of payments related to the settlement of indemnification claims under the 2011 and 2012 Stock Purchase
Agreements with Onex, offset by $16.1 million of short-term and long-term debt borrowings as well as $2.3 million in employee
note repayment.
Holding Company Status
We are a holding company that conducts all of our operations through subsidiaries. The majority of our operating income
is derived from JWI, our main operating subsidiary. Consequently, we rely on dividends or advances from our subsidiaries. The
ability of our subsidiaries to pay dividends to us is subject to applicable local law and may be limited due to the terms of other
contractual arrangements, including our Credit Facilities and the Senior Notes.
The Euro Revolving Facility and Australia Senior Secured Credit Facility contain restrictions on dividends that limit the
amount of cash that the obligors under these facilities can distribute to us. Obligors under the Euro Revolving Facility may pay
dividends only out of available cash flow and only while no default is continuing under such agreement. Obligors under the
Australia Senior Secured Credit Facility may pay dividends only to the extent they do not exceed 80% of after tax net profits (with
a one-year carryforward of unused amounts) and only while no default is continuing under such agreement. The amount of our
consolidated net assets that were available to be distributed under these financing arrangements as of December 31, 2017 was
$349.8 million. For further information regarding the Euro Revolving Facility and the Australia Senior Secured Credit Facility, see
Note 16 - Notes Payable and Long-Term Debt.
55
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material
effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures, or capital resources.
Contractual Obligations
The following table summarizes our significant contractual obligations at December 31, 2017:
Contractual Obligations(1)
Long-term debt obligations
Capital lease obligations(2)
Operating lease obligations
Purchase obligations(3)
Interest on long-term debt obligations(4)
Totals:
Total
Less Than
1 Year
Payments Due By Period
1-3 Years
3-5 Years
(dollars in thousands)
More Than
5 Years
$ 1,263,413
30,017
122,284
1,196
488,264
$ 1,905,174
$
$
6,009
2,761
33,549
683
56,866
99,868
$
$
9,012
4,286
42,758
513
112,998
169,567
$
$
8,746
2,879
21,263
—
112,159
145,047
$
$
1,239,646
20,091
24,714
—
206,241
1,490,692
____________________________
(1)
(2)
(3)
(4)
Not included in the table above are our unfunded pension liabilities totaling $118.1 million and uncertain tax position liabilities of $14.5
million as of December 31, 2017, for which the timing of payment is unknown.
Capital lease obligations include a build-to-suit arrangement for a corporate headquarters facility in Charlotte. See Note 7 - Property and
Equipment, Net, in our annual consolidated financial statements included elsewhere in this Form 10-K.
Purchase obligations are defined as purchase agreements that are enforceable and legally binding and that specify all significant terms,
including quantity, price, and the approximate timing of the transaction. The obligation reflected in the table relates primarily to a raw
materials purchase agreement.
Interest on long-term debt obligations is calculated based on debt outstanding and interest rates in effect on December 31, 2017, taking into
account scheduled maturities and amortization payments and includes interest on the build-to-suit arrangement noted above.
Critical Accounting Policies and Estimates
Our MD&A is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The
preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate
our estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which may differ from these estimates. Our significant accounting policies are fully disclosed
in our annual consolidated financial statements included elsewhere in this Form 10-K. The following discussion highlights the
estimates we believe are critical and should be read in conjunction with the consolidated financial statements included in Part II, Item
8 of this Form 10-K.
Revenue Recognition
We recognize revenue when four basic criteria have been met: (i) persuasive evidence of a customer arrangement exists; (ii)
the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have
been rendered. We recognize revenue based on the invoice price less allowances for sales returns, cash discounts, and other deductions
as required under GAAP. Amounts billed for shipping and handling are included in net revenues, while costs incurred for shipping and
handling are included in cost of sales. Incentive payments to customers that directly relate to future business are recorded as a
reduction of net revenues over the periods during which such future benefits are realized.
56
Acquisitions
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets
acquired based on their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration
transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. If the fair value of the
acquired assets exceeds the purchase price the difference is recorded as a bargain purchase in other income (expense). Such valuations
require us to make significant estimates and assumptions, especially with respect to intangible assets. As a result, during the
measurement period, which may be up to one year from the acquisition date, material adjustments must be reflected in the
comparative consolidated financial statements in the period in which the adjustment amount will be determined. Upon the conclusion
of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any
subsequent adjustments are recorded to our consolidated statements of operations. Newly acquired entities are included in our results
from the date of their respective acquisitions.
Allowance for Doubtful Accounts
Substantially all accounts receivable arise from sales to customers in our manufacturing and distribution businesses and are
recognized net of offered cash discounts. Credit is extended in the normal course of business under standard industry terms that
normally reflect 60 day or less payment terms and do not require collateral. An allowance is recorded based on a variety of factors,
including the length of time receivables are past due, the financial health of our customers, unusual macroeconomic conditions and
historical experience. If the customer’s financial conditions were to deteriorate resulting in the inability to make payments, additional
allowances may need to be recorded which would result in additional expenses being recorded for the period in which such
determination was made.
Inventories
Inventories are valued at the lower of cost or market or net realizable value and are determined by the FIFO or average cost
methods. We record provisions to write-down obsolete and excess inventory to estimated net realizable value. The process for
evaluating obsolete and excess inventory requires us to make subjective judgments and estimates concerning future sales levels,
quantities and prices at which such inventory will be able to be sold in the normal course of business. Accelerating the disposal
process or incorrect estimates of future sales potential may cause actual results to differ from the estimates at the time such inventory
is disposed or sold.
Intangible Assets
Definite lived intangible assets are amortized on a straight-line basis over their estimated useful lives that typically range
from 5 to 40 years. The lives of definite lived intangible assets are reviewed and reduced if necessary whenever changes in their
planned use occur. Legal and registration costs related to internally developed patents and trademarks are capitalized and amortized
over the lesser of their expected useful life or the legal patent life. We review the carrying value of intangible assets to assess their
recoverability when facts and circumstances indicate that the carrying value may not be recoverable.
Long-Lived Assets
Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate
the carrying amount of such assets may not be recoverable. Such events or circumstances include, but are not limited to, a significant
decrease in the fair value of the underlying business or a change in utilization of property and equipment.
We group assets to test for impairment at the lowest level for which identifiable cash flows are largely independent of the
cash flows of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the assets.
When evaluating long-lived assets and definite lived intangible assets for potential impairment, the first step to review for
impairment is to forecast the expected undiscounted cash flows generated from the anticipated use and eventual disposition of the
asset. If the expected undiscounted cash flows are less than the carrying value of the asset, then an impairment charge is required to
reduce the carrying value of the asset to fair value. If we recognize an impairment loss, the carrying amount of the asset is adjusted to
fair value based on the discounted estimated future net cash flows and will be its new cost basis. For a depreciable long-lived asset, the
new cost basis will be depreciated over the remaining useful life of that asset. For an amortizable intangible asset, the new cost basis
will be amortized over the remaining useful life of the asset. Our impairment loss calculations require management to apply judgments
in estimating future cash flows to determine asset fair values, including forecasting useful lives of the assets and selecting the discount
rate that represents the risk inherent in future cash flows.
57
Goodwill
Goodwill is tested for impairment on an annual basis during the fourth quarter and between annual tests if indicators of
potential impairment exist, using a fair-value-based approach. Current accounting guidance provides an entity the option to perform a
qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying
amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is
required. If it is more likely than not that the fair value of a reporting is greater than its carrying amount, the two-step goodwill
impairment test is not required.
If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying
amount (including attributable goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of
goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under
step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair
value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner
similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit
goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit
exceeds its carrying amount, step two does not need to be performed.
We estimated the fair value of our reporting units using a discounted cash flow model (implied fair value measured on a non-
recurring basis using level 3 inputs). Inherent in the development of the discounted cash flow projections are assumptions and
estimates of our future revenue growth rates, profit margins, business plans, cost of capital and tax rates. Our judgments with respect
to these metrics are based on historical experience, current trends, consultations with external specialists, and other information.
Changes in assumptions or estimates used in our goodwill impairment testing could materially affect the determination of the fair
value of a reporting unit, and therefore, could eliminate the excess of fair value over carrying value of a reporting unit and, in some
cases, could result in impairment. Such changes in assumptions could be caused by items such as a loss of one or more significant
customers, decline in the demand for our products due to changing economic conditions or failure to control cost increases above what
can be recouped in sale price increases. These types of changes would negatively affect our profits, revenues and growth over the long
term and such a decline could significantly affect the fair value assessment of our reporting units and cause our goodwill to become
impaired.
As of December 31, 2017, the fair value of our North America, Europe and Australasia reporting units would have to decline by
approximately 74%, 58% and 44%, respectively, to be considered for potential impairment.
Warranty Accrual
Warranty terms range primarily from one year to lifetime on certain window and door components. Warranties are normally
limited to replacement or service of defective components for the original customer. Some warranties are transferable to subsequent
owners and are generally limited to ten years from the date of manufacture or require pro-rata payments from the customer. A
provision for estimated warranty costs is recorded at the time of sale based on historical experience and we periodically adjust these
provisions to reflect actual experience.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. We evaluate both the positive and negative evidence that is relevant in assessing whether we will realize
the deferred tax assets. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not
be realized. This projected realization is directly related to our future projections of the performance of our business and
management’s planning initiatives at any point in time. As a result, valuation allowances are subject to change as proven business
trends and planning initiatives develop.
The Tax Act passed in December 2017 had significant effects on our financial statements, some of which we are still
quantifying. In accordance with Staff Accounting Bulletin No.118 issued by the SEC in December 2017 immediately following the
passage of the Tax Act, we have made provisional estimates for certain direct and indirect effects of the Tax Act based on information
available to us. We will finalize our accounting for the effects of the Tax Act over the twelve-month period ending December 22, 2018.
Any adjustments to our provisional estimates will be recorded as a component of continuing operations.
58
The tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if the position
is more likely than not to be sustained, based on the technical merits of the position and the jurisdiction. We recognize the financial
statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position
following an audit and the tax related to the position would be due to the entity and not the owners. For tax positions meeting the more
likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50
percent likelihood of being realized, upon ultimate settlement with the relevant tax authority. We apply this accounting standard to all
tax positions for which the statute of limitations remains open. Changes in recognition or measurement are reflected in the period in
which the change in judgment occurs.
We file a consolidated federal income tax return in the U.S. and various states. For financial statement purposes, we calculate
the provision for federal income taxes using the separate return method. Certain subsidiaries file separate tax returns in certain
countries and states. Any state and foreign income taxes refundable and payable are reported in other current assets and accrued
income taxes payable in the consolidated balance sheets. We record interest and penalties on amounts due to tax authorities as a
component of income tax expense in the consolidated statements of operations.
Derivative Financial Instruments
We utilize derivative financial instruments to manage foreign currency exposures related to subsidiaries that operate outside
the U.S. and use their local currency as the functional currency. We record all derivative instruments in the consolidated balance sheets
at fair value. Changes in a derivative’s fair value are recognized in earnings unless specific hedge criteria are met and we elect hedge
accounting prior to entering into the derivative. If a derivative is designated as a fair value hedge, the changes in fair value of both the
derivative and the hedged item attributable to the hedged risk are recognized in the results of operations. If the derivative is designated
as a cash flow hedge, changes in the fair value of the derivative are recorded in consolidated other comprehensive income (loss) and
subsequently classified to the consolidated statements of operations when the hedged item impacts earnings. At the inception of a fair
value or cash flow hedge transaction, we formally document the hedge relationship and the risk management objective for undertaking
the hedge. In addition, we assess both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging
transaction has been highly effective in offsetting changes in fair value or cash flows of the hedged item and whether the derivative is
expected to continue to be highly effective. The impact of any ineffectiveness is recognized in our consolidated statements of
operations.
Contingent Liabilities
Contingent liabilities require significant judgment in estimating potential losses for legal claims. Each quarter, we review
significant new claims and litigation for the probability of an adverse outcome. Estimates are recorded as liabilities when it is probable
that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable
possibility that the ultimate loss will materially exceed the recorded provision. Contingent liabilities are often resolved over long time
periods. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about potential actions by
third parties such as regulators, and the estimated loss can change materially as individual claims develop.
Share-based Compensation Plan
We have share-based compensation plans that provide for compensation to employees through various grants of share-based
instruments. We apply the fair value method of accounting using the Black-Scholes option pricing model to determine the
compensation expense for stock appreciation rights. The compensation expense for RSU awarded is based on the fair value of the
RSU at the date of grant. Compensation expense is recorded in the consolidated statements of operations and is recognized over the
requisite service period. The determination of obligations and compensation expense requires the use of several mathematical and
judgmental factors, including stock price, expected volatility, the anticipated life of the option, and estimated risk-free rate and the
number of shares or share options expected to vest. Any difference in the number of shares or share options that actually vest can
affect future compensation expense. Other assumptions are not revised after the original estimate. For stock options granted, we
prepare the valuations with the assistance of a third-party valuation firm, utilizing approaches and methodologies consistent with the
AICPA Practice Aid.
The Black-Scholes option-pricing model requires the use of weighted average assumptions for estimated expected volatility,
estimated expected term of stock options, risk-free rate, estimated expected dividend yield, and the fair value of the underlying
common stock at the date of grant. We estimate the expected term of all stock options based on previous history of exercises. The risk-
free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected
dividend yield rate is 0.00% which is consistent with the expected dividends to be paid on common stock. We estimate forfeitures
based on our historical analysis of actual stock option forfeitures. Actual forfeitures are recorded when incurred and estimated
forfeitures are reviewed and adjusted at least annually.
59
Employee Retirement and Pension Benefits
The obligations under our defined benefit pension plans are calculated using actuarial models and methods. The most critical
assumption and estimate used in the actuarial calculations is the discount rate for determining the current value of benefit obligations.
Other assumptions and estimates used in determining benefit obligations and plan expenses include expected return on plan assets,
inflation rates, and demographic factors such as retirement age, mortality, and turnover. These assumptions and estimates are evaluated
periodically and are updated accordingly to reflect our actual experience and expectations.
The discount rate used to determine the benefit obligations was computed through a projected benefit cash flow model. This
approach determines the discount rate as the rate that equates the present value of the cash flows (determined using that single rate) to
the present value of the cash flows where each cash flows' present value is determined using the spot rates from the December 31,
2017 Citigroup Pension Discount Curve.
The discount rate utilized to calculate the projected benefit obligation at the measurement date for our U.S. pension plan
decreased to 3.47% at December 31, 2017 from 4.00% at December 31, 2016. As the discount rate is reduced or increased, the pension
and post retirement obligation would increase or decrease, respectively, and future pension and post-retirement expense would
increase or decrease, respectively. Lowering the discount rate by 0.25% would increase the U.S. pension and post-retirement
obligation at December 31, 2017 by approximately $15.1 million and would increase estimated fiscal year 2018 expense by
approximately $1.3 million. Increasing the discount rate by 0.25% would decrease the U.S. pension and post-retirement obligation at
December 31, 2017 by approximately $14.3 million and would decrease estimated fiscal year 2018 expense by approximately $1.4
million.
We determine the expected long-term rate of return on plan assets based on the plan assets’ historical long term investment
performance, current asset allocation, and estimates of future long-term returns by asset class. Holding all other assumptions constant,
a 1% increase or decrease in the assumed rate of return on plan assets would have decreased or increased, respectively, 2018 net
periodic pension expense by approximately $3.3 million.
The actuarial assumptions we use in determining our pension benefits may differ materially from actual results because of
changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. While we
believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions might materially affect
our financial position or results of operations.
Capital Expenditures
We expect that the majority of our capital expenditures will be focused on supporting our cost reduction and efficiency
improvement projects, certain growth initiatives, and to a lesser extent, on sustaining our current manufacturing operations. We are
subject to health, safety, and environmental regulations that may require us to make capital expenditures to ensure our facilities are
compliant with those various regulations.
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various types of market risks, including the effects of adverse fluctuations in foreign currency exchange
rates, adverse changes in interest rates, and adverse movements in commodity prices for products we use in our manufacturing. To
reduce our exposure to these risks, we maintain risk management controls and policies to monitor these risks and take appropriate
actions to attempt to mitigate such forms of market risk.
Exchange Rate Risk
We have global operations and therefore enter into transactions denominated in various foreign currencies. To mitigate cross-
currency transaction risk, we analyze significant forecast exposures where we expect receipts or payments in a currency other than the
functional currency of our operations, and from time to time we may strategically enter into short-term foreign currency forward
contracts to lock in some or all of the cash flows associated with these transactions. We also are subject to currency translation risk
associated with converting our foreign operations’ financial statements into U.S. dollars. We use short-term foreign currency forward
contracts and swaps to mitigate the impact of foreign exchange fluctuations on consolidated earnings. We use foreign currency
derivative contracts, with a total notional amount of $124.5 million, in order to manage the effect of exchange fluctuations on
forecasted sales, purchases, acquisitions, inventory and capital expenditures and certain intercompany transactions that are
denominated in foreign currencies. We use foreign currency derivative contracts, with a total notional amount of $76.3 million, to
hedge the effects of translation gains and losses on intercompany loans and interest. We also use foreign currency derivative contracts,
with a total notional amount of $121 million, to mitigate the impact to the consolidated earnings of the Company from the effect of the
60
translation of certain subsidiaries’ local currency results into U.S. dollars. We do not use derivative financial instruments for trading or
speculative purposes.
By using derivative financial instruments to hedge exposures to foreign currency fluctuations, we are exposed to credit risk
and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value
of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative
contract is negative, we owe the counterparty and, therefore, we are not exposed to the counterparty’s credit risk in those
circumstances. We attempt to minimize counterparty credit risk in derivative instruments by entering into transactions with high-
quality counterparties whose credit rating is at least upper-medium investment grade. Our derivative instruments do not contain credit
risk related contingent features.
Interest Rate Risk
We are subject to interest rate market risk in connection with our long-term debt, some of which is based upon floating
interest rates. To manage our interest rate risk, we may enter into interest rate swaps when we deem it to be appropriate. We do not use
financial instruments for trading or other speculative purposes and are not a party to any leveraged derivative instruments. Our net
exposure to interest rate risk would be based on the difference between outstanding variable rate debt and the notional amount of any
interest rate swaps. We assess interest rate risk by continually identifying and monitoring changes in interest rate exposures that may
adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems
to monitor interest rate risk attributable to both our outstanding or forecasted debt obligations as well as any offsetting hedge positions.
The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the
expected impact of changes in interest rates on our future cash flows.
Raw Materials Risk
Our major raw materials include glass, vinyl extrusions, aluminum, steel, wood, hardware, adhesives, and packaging. Prices
of these commodities can fluctuate significantly in response to, among other things, variable worldwide supply and demand across
different industries, speculation in commodities futures, general economic or environmental conditions, labor costs, competition,
import duties, tariffs, worldwide currency fluctuations, freight, regulatory costs, and product and process evolutions that impact
demand for the same materials. Increasing raw material prices directly impact our cost of sales, and our ability to maintain margins
depends on implementing price increases in response to increasing raw material costs. The market for our products may or may not
accept price increases, and as such there is no assurance that we can maintain margins in an environment of rising commodity prices.
See Item 1A- Risk Factors- Risks Relating to Our Business and Industry- Prices of the raw materials we use to manufacture our
products are subject to fluctuations, and we may be unable to pass along to our customers the effects of any price increases.
We have not historically used derivatives or similar instruments to hedge commodity price fluctuations. We purchase from
multiple, geographically diverse companies in order to mitigate the adverse impact of higher prices for our raw materials. We also
maintain other strategies to mitigate the impact of higher raw material, energy, and commodity costs, which typically offset only a
portion of the adverse impact.
Item 8 - Financial Statements
See Index to Consolidated Financial Statement beginning on page F-1 of the Form 10-K.
Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A - Controls and Procedures.
Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the Company’s disclosure controls and procedures, as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e). Based
upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure
controls and procedures were ineffective as of December 31, 2017 due to the material weaknesses described below.
61
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Securities Exchange Act Rule 13a-15(f) and 15d-15(f). The Company carried out an evaluation
under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the Company’s internal control over financial reporting. The Company’s management
used the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations (COSO)
to perform this evaluation.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be
prevented or detected on a timely basis. As reported in our Form 10-K for the year ended December 31, 2016, management
determined that (i) it failed to resource the tax department with the appropriate complement of people, skills, and training to
adequately perform the controls in place as intended by their design; (ii) as a result, it did not operate controls to monitor the accuracy
of income tax expense and related balance sheet accounts, including deferred income taxes; and (iii) it failed to operate controls to
monitor the presentation and disclosure of income taxes. These material weaknesses resulted in the revision of the December 31, 2016
financial statements as disclosed in Note 36 - Revision of Prior Period Financial Statements to our consolidated financial statements
included in this 2017 Annual Report on Form 10-K. Additionally, these material weaknesses could result in a misstatement of the
aforementioned account balances or disclosures that would result in a material misstatement to the annual or interim consolidated
financial statements that would not be prevented or detected.
The Company’s management concluded that the Company’s internal control over financial reporting was ineffective as of
December 31, 2017.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public
accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Remediation Plan for Material Weaknesses
In order to address the material weaknesses related to income taxes described in the Company’s 2016 Annual Report on Form
10-K, the Company’s management implemented a remediation plan to address the control deficiencies that led to the material
weaknesses mentioned above. The remediation plan included the following:
•
•
•
•
•
•
•
Engaged a third party to review our tax provision processes and recommend process enhancements;
Implemented the enhancements to the quarterly and annual provision processes as recommended by the third party;
Redesigned controls related to the accounting for income tax process;
Undertook extensive training for key personnel in each reporting jurisdiction on ASC 740 reporting requirements
and our redesigned processes;
Engaged a third party to review our quarterly and annual tax calculations;
Hired experienced resources with backgrounds in accounting for income taxes as well as public company
experience; and
Implemented a tax reporting software solution enhancing our internal reporting requirements.
While operating the improved processes and controls to prepare the 2017 tax provision, management identified certain errors
during 2017 related to prior periods as described in Note 36- Revision of Prior Period Financial Statements to the consolidated
financial statements included in the 2017 Annual Report on Form 10-K.
While management believes that it now has the requisite personnel to operate the controls in the tax function as designed and
maintain internal control over financial reporting related to accounting for income taxes, management has determined that a sustained
period of operating effectiveness is required to conclude that the controls are operating effectively.
Based on its evaluation, the controls described above have not had sufficient time for management to conclude that they are
operating effectively. Therefore, the material weaknesses described above will continue to exist until the controls described above
have had sufficient time for management to conclude that they are operating effectively.
62
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) that occurred during the Company’s most recently completed quarter that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial reporting.
Item 9B - Other Information.
None.
63
Item 10 - Directors, Executive Officers and Corporate Governance
Executive Officers and Directors
The information required by this item is incorporated herein by reference to the definitive proxy statement relating to the
Annual Meeting of Shareholders of the Company to be held on April 26, 2018. We intend to file such definitive proxy statement with
the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
Item 11 - Executive Compensation.
The information required by this item is incorporated herein by reference to the definitive proxy statement relating to the
Annual Meeting of Shareholders of the Company to be held on April 26, 2018. We intend to file such definitive proxy statement with
the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.
Equity Compensation Plan Information
The following table sets forth information with respect to shares of our common stock that may be issued under our existing
equity compensation plans, as of December 31, 2017:
(a)
(b)
(c)
Number of Securities
to be Issued Upon
Exercise of Outstanding
Options, Warrants, and
Rights(1)
Weighted Average
Exercise Price of
Outstanding Options,
Warrants, and Rights(3)
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in Column (a))
5,489,036(2)
—
5,489,036
$14.56
—
$14.56
6,669,624(4)
—
6,669,624
Plan Category
Equity compensation plans approved by
security holders(1)
Equity compensation plans not approved by
security holders
Total
(1) Consists of shares underlying 4,926,668 stock options, and 562,368 RSUs outstanding under the 2011 Stock Incentive Plan and 2017 Omnibus Equity Plan.
(2)
Includes stock options and RSUs that are outstanding.
(3) Excludes RSUs, which have no exercise price.
(4) Number of securities remaining for future issuances includes only shares available under the 2017 Omnibus Equity Plan.
Additional information required by this item is incorporated herein by reference to the definitive proxy statement relating to
the Annual Meeting of Shareholders of the Company to be held on April 26, 2018. We intend to file such definitive proxy statement
with the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
Item 13 - Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated herein by reference to the definitive proxy statement relating to the
Annual Meeting of Shareholders of the Company to be held on April 26, 2018. We intend to file such definitive proxy statement with
the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
Item 14 - Principal Accounting Fees and Services.
The information required by this item is incorporated herein by reference to the definitive proxy statement relating to the
Annual Meeting of Shareholders of the Company to be held on April 26, 2018. We intend to file such definitive proxy statement with
the SEC pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K.
64
Item 15 - Exhibits and Financial Statement Schedules.
1. Financial Statements
The financial statements are set forth under Item 8- Financial Statements and Supplementary Data of this Form 10-K.
2. Financial Statement Schedules
All financial statement schedules are omitted since they are not required or are not applicable, or the required information is
included in the consolidated financial statements or notes thereto.
3. Exhibits
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report and such
Exhibit Index is incorporated herein by reference.
Exhibit No. Exhibit Description
Form File No. Exhibit
Filing Date
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
Restated Certificate of Incorporation of JELD-WEN Holding, Inc.,
filed February 1, 2017.
Amended and Restated Bylaws of JELD-WEN Holding, Inc.
8-K
001-38000
S-1/A 333-211761
Specimen Common Stock Certificate of JELD-WEN Holding Inc.
S-1/A 333-211761
3.1
3.4
4.1
February 3, 2017
January 5, 2017
January 5, 2017
Amended and Restated Registration Rights Agreement, among JELD-
WEN Holding, Inc., Onex Partners III LP, Onex Advisor III LLC,
Onex Partners III GP LP, Onex Partners III PV LP, Onex Partners III
Select LP, Onex US Principals LP, Onex Corporation, Onex American
Holdings II LLC, BP EI LLC, 1597257 Ontario Inc. and the other
parties thereto, dated January 24, 2017.
Amendment No. 1 to Amended and Restated Registration Rights
Agreement, among JELD-WEN Holding, Inc., Onex Partners III LP,
Onex Advisor III LLC, Onex Partners III GP LP, Onex Partners III PV
LP, Onex Partners III Select LP, Onex US Principals LP, Onex
Corporation, Onex American Holdings II LLC, BP EI LLC, 1597257
Ontario Inc. and the other parties thereto, dated May 12, 2017.
Amendment No. 2 to Amended and Restated Registration Rights
Agreement, among JELD-WEN Holding, Inc., Onex Partners III LP,
Onex Advisor III LLC, Onex Partners III GP LP, Onex Partners III PV
LP, Onex Partners III Select LP, Onex US Principals LP, Onex
Corporation, Onex American Holdings II LLC, BP EI LLC, 1597257
Ontario Inc. and the other parties thereto, dated November 12, 2017.
Credit Agreement, among JELD-WEN Holding, Inc., JELD-WEN,
Inc., JELD-WEN of Canada, Ltd., the other guarantors party thereto,
Wells Fargo Bank, National Association, and the lenders party thereto,
dated October 15, 2014.
Amendment No. 1 to Credit Agreement, among JELD-WEN Holding,
Inc., JELD-WEN, Inc., JELD-WEN of Canada, Ltd., the subsidiary
guarantors party thereto, Wells Fargo Bank, National Association, and
the lenders party thereto, dated July 1, 2015.
Amendment No. 2 to Credit Agreement, among JELD-WEN Holding,
Inc., JELD-WEN, Inc., JELD-WEN of Canada, Ltd., Karona, Inc., the
subsidiary guarantors party thereto, Wells Fargo Bank, National
Association, and the lenders party thereto, dated November 1, 2016.
Amendment No. 3 to Credit Agreement, among JELD-WEN, Inc.,
JELD-WEN Holding, Inc., JELD-WEN of Canada, Ltd., the other
borrowers party thereto, the subsidiary guarantors party thereto, the
lenders party thereto, Wells Fargo Bank, National Association, as
administrative agent, issuing bank and swingline lender and the other
parties thereto, dated as of December 14, 2017.
Term Loan Credit Agreement, among JELD-WEN Holding, Inc.,
JELD-WEN, Inc., Onex BP Finance LP, the other guarantors party
thereto, Bank of America, N.A. and the lenders party thereto, dated
October 15, 2014.
Amendment No. 1 to Term Loan Credit Agreement, among JELD-
WEN Holding, Inc., JELD-WEN, Inc., Onex BP Finance LP, the
subsidiary guarantors party thereto, Bank of America, N.A., and the
lenders party thereto, dated July 1, 2015.
10-K
001-38000
4.2
March 3, 2017
S-1
333-221538
4.3
May 15, 2017
S-1
333-221538
4.4
November 13, 2017
S-1
333-211761
10.1
June 1, 2016
S-1
333-211761
10.1.1
June 1, 2016
S-1/A 333-211761
10.1.2
November 17, 2016
8-K
001-38000
10.1
December 15, 2017
S-1
333-211761
10.2
June 1, 2016
S-1
333-211761
10.2.1
June 1, 2016
65
Exhibit No.(cid:3) Exhibit Description
Form File No. Exhibit
Filing Date
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17+
10.18+
10.19+
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
10.27+
10.28+
10.29+
Amendment No. 2 to Term Loan Credit Agreement, among JELD-
WEN Holding, Inc., JELD-WEN, Inc. the subsidiary guarantors party
thereto, Onex BP Finance LP, Bank of America, N.A., and the lenders
party thereto, dated November 1, 2016.
Amendment No. 3 to Term Loan Credit Agreement, among JELD-
WEN Holding, Inc., JELD-WEN, Inc. the subsidiary guarantors party
thereto, Onex BP Finance LP, Bank of America, N.A., and the lenders
party thereto, dated March 7, 2017.
Amendment No. 4, by and among JELD-WEN, Inc., JELD-WEN
Holding, Inc., the subsidiary guarantors party thereto, the lenders party
thereto, Bank of America, N.A., as administrative agent and the other
parties thereto, dated as of December 14, 2017.
Stock Purchase Agreement, among JELD-WEN Holding, Inc., Onex
Partners III LP and the other investors party thereto, dated August 30,
2012.
Amendment to Stock Purchase Agreements, among JELD-WEN
Holding, Inc. and Onex Partners III LP, dated April 3, 2013.
Amendment to Stock Purchase Agreement, among JELD-WEN
Holding, Inc. and Onex Partners III LP, dated May 31, 2016.
Form of Joinder to Stock Purchase Agreement, among JELD-WEN
Holding, Inc., Onex Partners III LP and the other investors party
thereto.
Amended and Restated Stock Purchase Agreement, among JELD-
WEN Holding, Inc., Onex Partners III LP, Onex Advisor III LLC,
Onex Partners III GP LP, Onex Partners III PV LP, Onex Partners III
Select LP, Onex US Principals LP, Onex Corporation, Onex American
Holdings II LLC, BP EI LLC and 1597257 Ontario Inc., dated July 29,
2011.
Amendment No. 1 to Amended and Restated Stock Purchase
Agreement, among JELD-WEN Holding, Inc. and Onex Partners III
LP, dated September 1, 2011.
Amendment to Amended and Restated Stock Purchase Agreement,
among JELD-WEN Holding, Inc. and Onex Partners III LP, dated May
31, 2016.
JELD-WEN Holding, Inc. Amended and Restated Stock Incentive
Plan, dated May 31, 2016.
JELD-WEN Holding, Inc. Amended and Restated Stock Incentive
Plan, dated January 30, 2017.
Form of Nonstatutory Common Stock Option Agreement under JELD-
WEN Holding, Inc. Amended and Restated Stock Incentive Plan.
Form of Nonstatutory Class B-1 Common Stock Option Agreement
under JELD-WEN Holding, Inc. Amended and Restated Stock
Incentive Plan.
Form of Restricted Stock Unit Award Agreement under JELD-WEN
Holding, Inc. Amended and Restated Stock Incentive Plan.
Employment Agreement, by and between JELD-WEN Holding, Inc.,
JELD-WEN, Inc. and Mark A. Beck, dated November 10, 2015.
Management Employment Agreement, by and between JELD-WEN,
Inc. and Kirk S. Hachigian, dated March 31, 2014.
Termination of Management Employment Agreement, by and between
JELD-WEN, Inc. and Kirk S. Hachigian, dated December 30, 2016.
Management Employment Agreement, by and between JELD-WEN,
Inc. and L. Brooks Mallard, dated October 30, 2014.
Management Employment Agreement, by and between JELD-WEN,
Inc. and John Dinger, dated November 30, 2015.
Management Employment Agreement, by and between JELD-WEN
Holding, Inc., JELD-WEN, Inc. and Laura Doerre, dated September 6,
2016.
Form of Executive Employment Agreement between JELD-WEN
Holding, Inc. and each of Mark A. Beck, L. Brooks Mallard, and
Laura W. Doerre, effective August 7, 2017.
S-1/A 333-211761
10.2.2
November 17, 2016
8-K
001-38000
10.1
March 8, 2017
8-K
001-38000
10.2
December 15, 2017
S-1/A 333-211761
10.3
December 16, 2016
S-1/A 333-211761
10.3.1
December 16, 2016
S-1/A 333-211761
10.3.2
December 16, 2016
S-1/A 333-211761
10.3.3
December 16, 2016
S-1/A 333-211761
10.4
December 16, 2016
S-1/A 333-211761
10.4.1
December 16, 2016
S-1/A 333-211761
10.4.2
December 16, 2016
S-1/A 333-211761
10.6
December 16, 2016
10-Q
001-38000
10.14 May 12, 2017
S-1/A 333-211761
10.7
December 16, 2016
S-1/A 333-211761
10.8
December 16, 2016
S-1/A 333-211761
10.9
December 16, 2016
S-1/A 333-211761
10.11
January 5, 2017
S-1/A 333-211761
10.12
January 5, 2017
S-1/A 333-211761
10.12.1
January 5, 2017
S-1/A 333-211761
10.13
January 5, 2017
S-1/A 333-211761
10.14
January 5, 2017
S-1/A 333-211761
10.15
January 5, 2017
10-Q
001-38000
10.1
August 8, 2017
Executive Employment Agreement between JELD-WEN Holding, Inc.
and John A. Dinger, effective August 7, 2017.
10-Q
001-38000
10.2
August 8, 2017
66
Exhibit No. Exhibit Description
Letter Agreement, by and between JELD-WEN, Inc. and Laura
Doerre, dated July 25, 2016.
Form File No. Exhibit
Filing Date
S-1/A 333-211761
10.15.1
January 5, 2017
Form of Management Transition Agreement.
JELD-WEN Holding, Inc. 2017 Omnibus Equity Plan.
S-1/A 333-211761
S-1/A 333-211761
10.16
10.17
January 5, 2017
January 5, 2017
Form of Nonqualified Stock Option Agreement under JELD-WEN
Holding, Inc. 2017 Omnibus Equity Plan.
Form of Restricted Stock Unit Award Agreement under JELD-WEN
Holding, Inc. 2017 Omnibus Plan.
S-1/A 333-211761
10.18
January 5, 2017
S-1/A 333-211761
10.19
January 5, 2017
10.30+
10.31+
10.32+
10.33+
10.34+
10.35+
JELD-WEN Holding, Inc. 2017 Management Incentive Plan.
S-1/A 333-211761
10.20
January 5, 2017
10.36*+
10.37*+
10.38*+
10.39*+
10.40
21.1
23.1*
24.1*
31.1*
31.2*
32.1*
Letter Agreement, by and between JELD-WEN Holding, Inc. and the
shareholders party thereto, dated January 24, 2017.
Amendment to Form of Nonqualified Stock Option Agreement under
JELD-WEN Holding, Inc. 2017 Omnibus Equity Plan.
Amendment to Form of Restricted Stock Unit Award Agreement under
JELD-WEN Holding, Inc. 2017 Omnibus Plan.
Form of Performance Share Unit Award Agreement under JELD-WEN
Holding, Inc. 2017 Omnibus Plan.
Form of Indemnification Agreement.
S-1
333-211761
10.25
June 1, 2016
List of subsidiaries of JELD-WEN Holding, Inc.
S-1/A 333-211761
21.1
January 17, 2017
Consent of PricewaterhouseCoopers LLP, independent registered
public accounting firm.
Power of Attorney (included on the Signatures page of this Annual
Report on Form 10-K).
Certification of Periodic Report by Chief Executive Officer under
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Periodic Report by Chief Financial Officer under
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
*
+
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.
Filed herewith.
Indicates management contract or compensatory plan.
Item 16 - Form 10-K Summary.
None.
67
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
JELD-WEN HOLDING, INC.
(Registrant)
By:
/s/ L. Brooks Mallard
L. Brooks Mallard
Chief Financial Officer
Date: March 6, 2018
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints
L. Brooks Mallard and Laura W. Doerre, jointly and severally, his attorney-in-fact, with the power of substitution, for him in any and
all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of
said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Kirk Hachigian
Kirk Hachigian
/s/ L. Brooks Mallard
L. Brooks Mallard
/s/ Roderick C. Wendt
Roderick C. Wendt
/s/ William Banholzer
William Banholzer
/s/ Martha Byorum
Martha (Stormy) Byorum
/s/ Greg G. Maxwell
Greg G. Maxwell
/s/ Anthony Munk
Anthony Munk
/s/ Matthew Ross
Matthew Ross
/s/ Suzanne Stefany
Suzanne Stefany
Chairman and Acting Chief Executive Officer
(Principal Executive Officer)
March 6, 2018
Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
March 6, 2018
Vice Chairman
March 6, 2018
Director
Director
Director
Director
Director
Director
68
March 6, 2018
March 6, 2018
March 6, 2018
March 6, 2018
March 6, 2018
March 6, 2018
Signature
/s/ Bruce Taten
Bruce Taten
/s/ Patrick Tolbert
Patrick Tolbert
/s/ Steven E. Wynne
Steven E. Wynne
Title
Director
Director
Director
Date
March 6, 2018
March 6, 2018
March 6, 2018
69
[THIS PAGE INTENTIONALLY LEFT BLANK]
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income (Loss) for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets as of December 31, 2017 and 2016
Consolidated Statements of Equity for the Years Ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Index to Financial Statement Schedules
Schedule I - Parent Company Information as of December 31, 2017 and 2016 and for the Years Ended December 31,
2017, 2016 and 2015
F-2
F-3
F-4
F-5
F-6
F-8
F-9
F-63
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of JELD-WEN Holding, Inc.:
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of JELD-WEN Holding, Inc. and its subsidiaries as of December 31,
2017 and 2016, and the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of
the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the
accompanying index (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in conformity with
accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the
Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Charlotte, North Carolina
March 6, 2018
We have served as the Company’s auditor since 2000.
F-2
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share data)
For the Years Ended December 31,
2016
2015
2017
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,763,934
$
3,666,799
$
3,381,060
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,915,736
2,892,248
2,721,341
Gross margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment and restructuring charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before taxes, equity earnings and discontinued operations . . . . . . . . . .
Income tax expense (benefit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations, net of tax. . . . . . . . . . . . . . . . . . . . . . . . . .
Equity earnings of non-consolidated entities . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax. . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Convertible preferred stock dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to common shareholders . . . . . . . . . . . . . . . . . . $
848,198
585,074
13,056
250,068
79,034
23,262
2,017
145,755
138,603
7,152
3,639
—
10,791
10,462
329
Weighted average common shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97,460,676
101,462,135
Basic and diluted income (loss) per share from continuing operations. . . . $
Basic and diluted income (loss) per share from discontinued operations . . $
Basic and diluted net income (loss) per share . . . . . . . . . . . . . . . . . . . . . . . . . $
0.00
0.00
0.00
774,551
565,619
13,847
195,085
77,590
—
(12,825)
130,320
(246,394)
376,714
3,791
(3,324)
377,181
$
659,719
505,910
21,342
132,467
60,632
—
(14,120)
85,955
(5,435)
91,390
2,384
(2,856)
90,918
396,647
(19,466) $
381,418
(290,500)
17,992,879
17,992,879
18,296,003
18,296,003
(0.90) $
(0.18) $
(1.08) $
(15.72)
(0.16)
(15.88)
$
$
$
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-3
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss), net of tax:
For the Years Ended December 31,
2016
2015
2017
10,791
$
377,181
$
90,918
Foreign currency translation adjustments, net of tax of $0 . . . . . . . . . . . . .
87,934
(32,383)
(78,636)
Interest rate hedge adjustments, net of tax expense of $5,001, $0, and $0,
respectively
Defined benefit pension plans, net of tax expense (benefit) of $5,357,
($419), and $189, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other comprehensive income, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
4,486
(2,679)
(11,200)
9,415
101,835
112,626
$
868
(34,194)
342,987
$
30,700
(59,136)
31,782
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-4
JELD-WEN HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per share data)
ASSETS
Current assets
December 31,
2017
December 31,
2016
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
220,175
$
102,701
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36,059
453,251
405,353
30,403
1,145,241
756,711
183,726
549,063
166,313
61,886
751
407,170
334,634
32,248
877,504
704,651
287,699
486,920
115,725
63,547
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2,862,940
$
2,536,046
LIABILITIES AND EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued payroll and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable and current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded pension liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred credits and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
259,934
$
122,212
186,605
8,770
577,521
1,264,933
116,586
102,614
9,249
188,906
130,668
173,601
20,031
513,206
1,600,004
126,646
74,455
9,186
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,070,903
2,323,497
Commitments and contingencies (Note 30)
Convertible preferred stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity
Preferred Stock, par value $0.01 per share, 90,000,000 shares authorized; no shares
issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock: 900,000,000 shares authorized, par value $0.01 per share,
105,990,483 shares outstanding as of December 31, 2017; 904,732,200 shares
authorized, par value $0.01 per share, 17,894,393 shares outstanding as of
December 31, 2016; 177,221 shares of Class B-1 Common Stock outstanding as of
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities, convertible preferred shares, and shareholders’ equity . . . . . . . . . . . . . . . . . . $
—
—
150,957
—
1,060
652,666
233,658
(95,347)
792,037
180
36,362
222,232
(197,182)
61,592
2,862,940
$
2,536,046
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-5
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(amounts in thousands, except share and per share amounts)
Preferred stock, $0.01 par value per share. . . . . . . . . . . . .
Common stock, $0.01 par value per share
Common stock
December 31, 2017
December 31, 2016
December 31, 2015
Shares
Amount
Shares
Amount
Shares
Amount
— $
—
— $
—
— $
—
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued for exercise/vesting of share-
based compensation awards. . . . . . . . . . . . . .
Shares repurchased . . . . . . . . . . . . . . . . . . . . . . .
Shares issued upon conversion of Class B-1
Common Stock . . . . . . . . . . . . . . . . . . . . . . .
Shares issued upon conversion of convertible
preferred stock to common stock. . . . . . . . . .
Shares surrendered for tax obligations for
employee share-based transactions . . . . . . . .
Shares issued in initial public offering . . . . . . . .
17,894,393
—
$
178
—
17,829,240
—
$
178
—
19,757,309
118,976
$
2,047,668
(2,266)
309,404
64,211,172
(742,615)
22,272,727
21
—
3
642
(7)
223
65,153
—
—
—
— $
— $
—
—
—
—
—
—
25,355
(2,073,885)
1,485
—
— $
— $
Balance at period end . . . . . . . . . . . . . . . . . . . . . . . 105,990,483
1,060
17,894,393
178
17,829,240
Class B-1 Common Stock
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . .
Shares issued for exercise of stock options . . . . .
Class B-1 Common stock converted to common
Balance at period end . . . . . . . . . . . . . . . . . . . . . . .
Balance at period end . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . .
Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares issued for exercise/vesting of share-
based compensation awards. . . . . . . . . . . . . .
Shares repurchased . . . . . . . . . . . . . . . . . . . . . . .
Shares surrendered for tax obligations for
employee share-based transactions . . . . . . . .
Conversion of convertible preferred stock . . . . .
Initial public offering proceeds, net of
underwriting fees and commissions. . . . . . . .
Costs associated with initial public offering . . . .
Distributions on common stock and Class B-1
common stock . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of share-based compensation. . . . .
Balance at period end . . . . . . . . . . . . . . . . . . . . . . .
Director notes
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . .
Net issuances, payments and accrued interest on
notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at period end . . . . . . . . . . . . . . . . . . . . . . .
Employee stock notes
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . .
Net issuances, payments and accrued interest on
notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at period end . . . . . . . . . . . . . . . . . . . . . . .
Balance at period end . . . . . . . . . . . . . . . . . . . . . . . . . . .
177,221
—
(177,221)
—
2
—
(2)
—
1,060
37,205
$
$
68,046
109,175
—
177,221
1
1
—
2
180
89,101
$
$
1,008
(183)
(25,897)
150,901
480,306
(7,923)
—
17,910
653,327
—
—
—
(843)
182
(661)
$ 652,666
$
1,187
—
(982)
—
—
—
(73,957)
21,856
37,205
(2,068)
2,068
—
(1,011)
168
(843)
36,362
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-6
2,310
66,781
(1,045)
68,046
$
198
1
—
(21)
—
—
—
—
178
—
1
—
1
179
$ 198,184
2,769
1,235
(44,675)
—
—
—
—
(84,032)
15,620
89,101
(16,127)
14,059
(2,068)
(1,353)
342
(1,011)
86,022
$
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(continued)
Retained earnings (accumulated deficit)
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . .
Adoption of new accounting standard ASU
2016-09
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at period end . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive (loss) income
Foreign currency adjustments
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . .
Change during period . . . . . . . . . . . . . . . . . . .
Balance at end of period. . . . . . . . . . . . . . . . . . . . .
Unrealized (loss) gain on interest rate hedges
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . .
Change during period . . . . . . . . . . . . . . . . . . .
Balance at end of period. . . . . . . . . . . . . . . . . . . . .
Net actuarial pension (loss) gain
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . .
Change during period . . . . . . . . . . . . . . . . . . .
Balance at end of period. . . . . . . . . . . . . . . . . . . . .
Balance at period end . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity (deficit) at end of period . . . . . . .
December 31, 2017
December 31, 2016
December 31, 2015
Shares
Amount
Shares
Amount
Shares
Amount
$ 222,232
635
10,791
$ 233,658
$ (65,949)
87,934
21,985
(13,296)
4,486
(8,810)
(117,937)
9,415
(108,522)
$ (95,347)
$ 792,037
$ (154,949)
—
377,181
$ 222,232
$ (33,575)
(32,374)
(65,949)
(10,617)
(2,679)
(13,296)
(118,805)
868
(117,937)
$ (197,182)
$
61,592
$ (245,867)
—
90,918
$ (154,949)
$
45,061
(78,636)
(33,575)
583
(11,200)
(10,617)
(149,505)
30,700
(118,805)
$ (162,997)
$ (231,745)
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-7
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
OPERATING ACTIVITIES
For the Years Ended December 31,
2017
2016
2015
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
10,791
$
377,181
$
90,918
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale of business units, property and equipment . . . . . . . . . . . .
Adjustment to carrying value of assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity earnings in non-consolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of U.S. pension expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contributions to U.S. pension plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in long term tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES
Purchases of property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of business units, property and equipment . . . . . . . . . . . . . . . .
Purchase of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of businesses, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities
FINANCING ACTIVITIES
Distributions paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee note repayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued for exercise of options . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock repurchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments to tax authority for employee share-based compensation . . . . . . . . . . . .
Proceeds from the sale of common stock, net of underwriting fees and
commissions
Payments associated with initial public offering . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange rates on cash. . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, beginning . . . . . . . . . . . . . . . . . . . . . . .
111,273
96,776
206
1,479
(3,639)
9,422
23,262
19,785
12,680
(8,170)
660
(32,028)
(5,657)
(10,000)
26,714
12,239
265,793
(59,599)
2,713
(3,450)
(131,448)
1,991
(189,793)
—
(389,665)
(205)
26
1,029
—
(25,335)
480,306
(2,066)
64,090
12,692
152,782
103,452
107,995
(265,756)
(3,275)
5,221
(3,791)
3,980
—
22,464
12,264
(5,283)
(79,860)
14,749
(10,799)
—
27,569
(1,004)
201,655
(74,033)
7,614
(5,464)
(85,866)
967
95,196
(18,862)
(414)
4,268
(2,384)
4,261
—
15,620
12,803
1,820
(3,904)
10,951
(6,983)
(14,320)
(28,225)
11,634
172,379
(74,978)
4,680
(2,709)
(86,695)
1,250
(156,782)
(158,452)
(404,198)
349,836
(180)
2,336
1,187
—
(982)
—
—
(52,001)
(3,697)
(10,825)
114,277
(419,216)
449,132
(3,420)
15,073
2,006
(44,647)
—
—
—
(1,072)
(4,786)
8,069
106,208
114,277
Cash, cash equivalents and restricted cash, ending . . . . . . . . . . . . . . . . . . . . . . . . .
$
256,234
$
103,452
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
F-8
JELD-WEN HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Nature of Business – JELD-WEN Holding, Inc. (“JWH”), along with its subsidiaries, is a vertically integrated global
manufacturer and distributor of windows and doors that derives substantially all of its revenues from the sale of its door
and window products. Unless otherwise specified or the context otherwise requires, all references in these notes to “JWH”,
“JELD-WEN”, “we”, “us”, “our”, or the “Company” are to JELD-WEN Holding, Inc. and its subsidiaries.
We have facilities located in the U.S., Canada, Europe, Australia, Asia, Mexico, and South America, and our products are
marketed primarily under the JELD-WEN brand name in the U.S. and Canada and under JELD-WEN and a variety of
acquired brand names in Europe, Australia and Asia.
Our revenues are affected by the level of new housing starts and remodeling activity in each of our markets. Our sales
typically follow seasonal new construction and repair and remodeling industry patterns. The peak season for home
construction and remodeling in many of our markets generally correspond with the second and third calendar quarters, and
therefore, sales volume is typically higher during those quarters. Our first and fourth quarter sales volumes are generally
lower due to reduced repair and remodeling activity and reduced activity in the building and construction industry as a
result of colder and more inclement weather in certain of our geographic end markets.
Basis of Presentation – The consolidated balance sheets and statements of operations has been revised to reflect the
correction of certain errors and other accumulated misstatements as described in Note 36 - Revision of Prior Period
Financial Statements. The errors did not impact the subtotals for cash flows from operating activities, investing activities or
financing activities for any of the periods affected. We do not believe the errors corrected were material to our previously
issued financial statements.
All U.S. dollar and other currency amounts, except per share amounts, are presented in thousands unless otherwise noted.
Reclassification of Prior Year Presentation – Restricted cash balances previously presented in other assets are now
presented in beginning and ending cash and cash equivalents in the accompanying consolidated statements of cash flows.
See Recently Adopted Accounting Standards section below for further detail. In addition, certain balances within the notes
to accompanying consolidated financial statements and balances in the accompanying consolidated statements of cash
flows have been reclassified to conform with current period presentation.
Ownership – On October 3, 2011, Onex invested $700.0 million in return for Series A Convertible Preferred Stock.
Concurrent with the investment, Onex provided $171.0 million in the form of a convertible bridge loan due in April 2013.
In October 2012, Onex invested an additional $49.8 million in return for Series A Convertible Preferred Stock of the
Company to fund an acquisition. In April 2013, the $71.6 million outstanding balance of the convertible bridge loan was
converted into additional shares of our Series A Convertible Preferred Stock. In March 2014, Onex purchased $65.8 million
in common stock from another investor. As part of the IPO, Onex sold a total of 6,477,273 shares of our common stock. In
May 2017, Onex sold a total of 15,693,139 shares of our common stock. In November 2017, Onex sold a total of
14,211,736 shares of our common stock. We did not receive any proceeds from the shares of common stock sold by Onex,
in any offering. As of December 31, 2017, Onex owned approximately 31.0% of our outstanding shares.
Stock Split – On January 3, 2017, our shareholders approved amendments to our then-existing certificate of incorporation
increasing the authorized number of shares and effecting an 11-for-1 stock split of our then-outstanding common stock and
Class B-1 Common Stock. Accordingly, all share and per share amounts for all periods presented in these consolidated
financial statements and notes thereto have been adjusted retrospectively, where applicable, to reflect this stock split.
Stock Conversion and Initial Public Offering – On February 1, 2017, all of the outstanding shares of our Series A
Convertible Preferred Stock and all accumulated and unpaid dividends converted into 64,211,172 shares of our common
stock, and all of the outstanding shares of our Class B-1 Common Stock converted into 309,404 shares of our common
stock. In addition, the one outstanding share of our Series B Preferred Stock was canceled. On February 1, 2017,
immediately prior to the closing of the IPO, we filed our Charter with the Secretary of State of the State of Delaware, and
our Bylaws became effective, each as contemplated by the registration statement we filed as part of our IPO. The Charter,
among other things, provided that our authorized capital stock consists of 900,000,000 shares of common stock, par value
$0.01 per share and 90,000,000 shares of preferred stock, par value $0.01 per share.
F-9
On February 1, 2017, we closed our IPO and received $472.4 million in proceeds, net of underwriting discounts, fees and
commissions and $7.9 million of offering expenses from the issuance of 22,272,727 shares of our common stock.
Fiscal Year – We operate on a fiscal calendar year, and each interim period is comprised of two 4-week periods and one 5-
week period, with each week ending on a Saturday. Our fiscal year always begins on January 1 and ends on December 31.
As a result, our first and fourth quarters may have more or fewer days included than a traditional 91-day fiscal quarter.
Consolidated Statements of Cash Flows – Cash flows from continuing and discontinued operations are not separated in
the consolidated statements of cash flows. Cash balances associated with our discontinued operations are reflected in our
consolidated balance sheet as cash and cash equivalents. See Note 3 - Discontinued Operations and Divestitures.
Use of Estimates – The preparation of consolidated financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect amounts reported in the consolidated financial statements and related notes.
Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets
including goodwill and other intangible assets, employee benefit obligations, income tax uncertainties, contingent assets
and liabilities, provisions for bad debt, inventory, warranty liabilities, legal claims, valuation of derivatives, environmental
remediation and claims relating to self-insurance. Actual results could differ due to the uncertainty inherent in the nature of
these estimates.
Segment Reporting – Our reportable operating segments are organized and managed principally by geographic region:
North America, Europe and Australasia. We report all other business activities in Corporate and unallocated costs. In
addition to similar economic characteristics we also consider the following factors in determining the reportable segments:
the nature of business activities, the management structure directly accountable to our chief operating decision maker for
operating and administrative activities, the discrete financial information regularly reviewed by the chief operating decision
maker, and information presented to the Board of Directors and investors. No segments have been aggregated for our
presentation.
Acquisitions – We apply the provisions of FASB ASC Topic 805, Business Combinations, in the accounting for our
acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed, at their
acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and
the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates
and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent
consideration, where applicable, our estimates are inherently uncertain and subject to refinement. As a result, during the
measurement period, which may be up to one year from the acquisition date, material adjustments must be reflected in the
reporting period in which the adjustment amount is determined. Upon the conclusion of the measurement period or final
determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are
recorded in the current period in our consolidated statements of operations.
For a given acquisition, we may identify certain pre-acquisition contingencies as of the acquisition date and may extend
our review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain
sufficient information to assess whether we include these contingencies as a part of the fair value estimates of assets
acquired and liabilities assumed and, if so, to determine their estimated amounts.
If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of
the measurement period, we will recognize an asset or a liability for such pre-acquisition contingency if: (a) it is probable
that an asset existed or a liability had been incurred at the acquisition date and (b) the amount of the asset or liability can be
reasonably estimated. Subsequent to the measurement period, changes in our estimates of such contingencies will affect
earnings and could have a material effect on our results of operations and financial position.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business
combination are initially estimated as of the acquisition date. We re-evaluate these items quarterly based upon facts and
circumstances that existed as of the acquisition date. Subsequent to the measurement period or our final determination of
the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and
tax related valuation allowances will affect our provision for income taxes in our consolidated statements of operations and
could have a material impact on our results of operations and financial position.
Cash and Cash Equivalents – We consider all highly-liquid investments purchased with an original or remaining maturity
at the date of purchase of three months or less to be cash equivalents. Our cash management system is designed to maintain
zero bank balances at certain banks. Checks written and not presented to these banks for payment are reflected as book
overdrafts and are a component of accounts payable.
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Restricted Cash – Restricted cash consists primarily of cash deposits required to meet certain bank guarantees and
projected self-insurance obligations. New funding is generated from employees’ portion of contributions and is added to
the deposit account weekly as claims are paid.
Accounts Receivable – Accounts receivable are recorded at their net realizable value. Our customers are primarily
retailers, distributors and contractors. As of December 31, 2017, one customer accounted for 16.9% of the consolidated
accounts receivable balance. As of December 31, 2016, one customer accounted for 21.2% of the consolidated accounts
receivable balance. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our
customers to make required payments. We estimate the allowance for doubtful accounts based on a variety of factors
including the length of time receivables are past due, the financial health of our customers, unusual macroeconomic
conditions and historical experience. If the financial condition of a customer deteriorates or other circumstances occur that
result in an impairment of a customer’s ability to make payments, we record additional allowances as needed. We write off
uncollectible trade accounts receivable against the allowance for doubtful accounts when collection efforts have been
exhausted and/or any legal action taken by us has concluded.
Inventories – Inventories in the accompanying consolidated balance sheets are valued at the lower of cost or net realizable
value and are determined by the first-in, first-out (“FIFO”) or average cost methods. We record provisions to write-down
obsolete and excess inventory to estimated net realizable value. The process for evaluating obsolete and excess inventory
requires us to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such
inventory will be able to be sold in the normal course of business. Accelerating the disposal process or incorrect estimates
of future sales potential may cause actual results to differ from the estimates at the time such inventory is disposed or sold.
Notes Receivable – Notes receivable are recorded at their net realizable value. The balance consists primarily of
installment notes and affiliate notes. The allowance for doubtful notes is based upon historical loss trends and specific
reviews of delinquent notes. We write off uncollectible note receivables against the allowance for doubtful accounts when
collection efforts have been exhausted and/or any legal action taken by us has been concluded. Current maturities and
interest, net of short-term allowance are reported as other current assets.
Customer Displays – Customer displays include all costs to manufacture, ship and install the displays of our products in
retail store locations. Capitalized display costs are included in other assets and are amortized over the life of the product
lines, typically 3 to 4 years. Related amortization is included in SG&A expense in the accompanying consolidated
statements of operations and was $8.6 million in 2017, $8.8 million in 2016, and $5.2 million in 2015.
Property and Equipment – Property and equipment are recorded at cost. The cost of major additions and betterments are
capitalized and depreciated using the straight-line method over their estimated useful lives while replacements,
maintenance and repairs that do not improve or extend the useful lives of the related assets or adapt the property to a new
or different use are expensed as incurred. Interest over the construction period is capitalized as a component of cost of
constructed assets. Upon sale or retirement of property or equipment, cost and related accumulated depreciation are
removed from the accounts and any gain or loss is charged to income.
Leasehold improvements are amortized over the shorter of the useful life of the improvement, the lease term, or the life of
the building. Depreciation is generally provided over the following estimated useful service lives:
Land improvements
Buildings
Machinery and equipment
10 - 20 years
15 - 45 years
3 - 20 years
Intangible Assets –Intangible assets are accounted for in accordance with ASC 350, Intangibles – Goodwill and Other.
Definite lived intangible assets are amortized based on the pattern of economic benefit over the following estimated useful
lives:
Trademarks and trade names
Software
Licenses and rights
Customer relationships
Patents
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2 - 40 years
1 - 20 years
1 - 14 years
2 - 20 years
5 - 20 years
The lives of definite lived intangible assets are reviewed and reduced if necessary whenever changes in their planned use
occur. Legal and registration costs related to internally-developed patents and trademarks are capitalized and amortized
over the lesser of their expected useful life or the legal patent life. Cost and accumulated amortization are removed from
the accounts in the period that an intangible asset becomes fully amortized. The carrying value of intangible assets is
reviewed by management to assess the recoverability of the assets when facts and circumstances indicate that the carrying
value may not be recoverable. The recoverability test requires us to first compare undiscounted cash flows expected to be
generated by that definite lived intangible asset or asset group to its carrying amount. If the carrying amounts of the
definite lived intangible assets are not recoverable on an undiscounted cash flow basis, an impairment charge is recognized
to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques.
Our valuation of identifiable intangible assets acquired is based on information and assumptions available to us at the time
of acquisition, using income and market approaches to determine fair value. We do not amortize our indefinite-lived
intangible assets, but test for impairment annually, or when indications of potential impairment exist. For intangible assets
other than goodwill, if the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the
excess. No material impairments were identified during fiscal years 2017, 2016 and 2015.
Long-Lived Assets – Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of such assets may not be recoverable. The first step in an impairment review is
to forecast the expected undiscounted cash flows generated from the anticipated use and eventual disposition of the asset. If
the expected undiscounted cash flows are less than the carrying value of the asset, then an impairment charge is required to
reduce the carrying value of the asset to fair value. Long-lived assets currently available for sale and expected to be sold
within one year are classified as held for sale in other current assets.
Goodwill – Goodwill is tested for impairment on an annual basis and between annual tests if indicators of potential
impairment exist, using a fair-value-based approach. Current accounting guidance provides an entity the option to perform
a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its
carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill
impairment test is required. If it is more-likely-than-not that the fair value of a reporting is greater than its carrying amount,
the two-step goodwill impairment test is not required.
If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying
amount (including attributable goodwill). If the fair value of the reporting unit is less than its carrying amount, an
indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test
(measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting
unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating
the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this
allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a
discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to
be performed.
We estimated the fair value of our reporting units using a discounted cash flow model (implied fair value measured on a
non-recurring basis using level 3 inputs). Inherent in the development of the discounted cash flow projections are
assumptions and estimates derived from a review of our expected revenue growth rates, profit margins, business plans, cost
of capital and tax rates. Changes in assumptions or estimates used in our goodwill impairment testing could materially
affect the determination of the fair value of a reporting unit, and therefore, could eliminate the excess of fair value over
carrying value of a reporting unit and, in some cases, could result in impairment. Such changes in assumptions could be
caused by items such as a loss of one or more significant customers, decline in the demand for our products due to
changing economic conditions or failure to control cost increases above what can be recouped in sale price increases. These
types of changes would negatively affect our profits, revenues and growth over the long term and such a decline could
significantly affect the fair value assessment of our reporting units and cause our goodwill to become impaired.
We have completed the required annual testing of goodwill for impairment for all reporting units and have determined that
goodwill was not impaired in any years presented.
Warranty Accrual – Warranty terms range primarily from one year to lifetime on certain window and door components.
Warranties are normally limited to replacement or service of defective components for the original customer. Some
warranties are transferable to subsequent owners, and are generally limited to ten years from the date of manufacture or
require pro-rata payments from the customer. A provision for estimated warranty costs is recorded at the time of sale based
on historical experience and we periodically adjust these provisions to reflect actual experience.
F-12
Restructuring – Costs to exit or restructure certain activities of an acquired company or our internal operations are
accounted for as one-time termination and exit costs as required by the provisions of FASB ASC 420, Exit or Disposal
Cost Obligations, and are accounted for separately from any business combination. A liability for costs associated with an
exit or disposal activity is recognized and measured at its fair value in our consolidated statements of operations in the
period in which the liability is incurred. When estimating the fair value of facility restructuring activities, assumptions are
applied regarding estimated sub-lease payments to be received, which can differ materially from actual results. This may
require us to revise our initial estimates which may materially affect our results of operations and financial position in the
period the revision is made.
Derivative Financial Instruments – Derivative financial instruments have been used to manage interest rate risk
associated with our borrowings and foreign currency exposures related to transactions denominated in currencies other than
the U.S. dollar, or in the case of our non-U.S. companies, transactions denominated in a currency other than their functional
currency. We record all derivative instruments in the consolidated balance sheets at fair value. Changes in a derivative’s fair
value are recognized in earnings unless specific hedge criteria are met and we elect hedge accounting prior to entering into
the derivative. If a derivative is designated as a fair value hedge, the changes in fair value of both the derivative and the
hedged item attributable to the hedged risk are recognized in the results of operations. If the derivative is designated as a
cash flow hedge, changes in the fair value of the derivative are recorded in consolidated other comprehensive income (loss)
and subsequently classified to the consolidated statements of operations when the hedged item impacts earnings. At the
inception of a fair value or cash flow hedge transaction, we formally document the hedge relationship and the risk
management objective for undertaking the hedge. In addition, we assess both at inception of the fair value or cash flow
hedge and on an ongoing basis, whether the derivative in the hedging transaction has been highly effective in offsetting
changes in fair value or cash flows of the hedged item and whether the derivative is expected to continue to be highly
effective. The impact of any ineffectiveness is recognized in our consolidated statements of operations.
Revenue Recognition – We recognize revenue when four basic criteria have been met: (i) persuasive evidence of a
customer arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv)
product delivery has occurred or services have been rendered. We recognize revenue based on the invoice price less
allowances for sales returns, cash discounts, and other deductions as required under GAAP. Incentive payments to
customers that directly relate to future business are recorded as a reduction of net revenues over the periods benefited.
Shipping Costs – Shipping costs charged to customers are included in net revenues. The cost of shipping is included in
cost of sales.
Advertising Costs – All costs of advertising our products and services are charged to expense as incurred. Advertising and
promotion expenses included in SG&A expenses were $48.4 million in 2017, $49.1 million in 2016 and $46.0 million in
2015.
Interest Expense and Extinguishment of Debt Costs – We record the debt extinguishment cost separately in the
consolidated statements of operations. During 2016 and 2015, interest expense was allocated to discontinued operations
based on debt that was specifically attributable to those operations.
Foreign Currency Translation and Adjustments – Typically, our foreign subsidiaries maintain their accounting records
in their local currency. All of the assets and liabilities of these subsidiaries (including long-term assets, such as goodwill)
are converted to U.S. dollars at the exchange rate in effect at the balance sheet date, income and expense accounts are
translated at average rates for the period, and shareholder’s equity accounts are translated at historical rates. The effects of
translating financial statements of foreign operations into our reporting currency are recognized as a cumulative translation
adjustment in consolidated other comprehensive income (loss). This balance is net of tax, where applicable.
The effects of translating financial statements of foreign operations in which the U.S. dollar is their functional currency are
included in the consolidated statements of operations. The effects of translating intercompany debt are recorded in the
consolidated statements of operations unless the debt is of a long-term investment nature in which case gains and losses are
recorded in consolidated other comprehensive income (loss).
Foreign currency transaction gains or losses are credited or charged to income as incurred.
Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a
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change in tax rates is recognized in income in the period that includes the enactment date. We evaluate both the positive
and negative evidence that is relevant in assessing whether we will realize the deferred tax assets. A valuation allowance is
recorded when it is more likely than not that some of the deferred tax assets will not be realized. The tax effects from an
uncertain tax position can be recognized in the consolidated financial statements, only if the position is more likely than not
to be sustained, based on the technical merits of the position and the jurisdiction taxes of the Company. We recognize the
financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than
not sustain the position following an audit and the tax related to the position would be due to the entity and not the owners.
For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial
statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement
with the relevant tax authority. We apply this accounting standard to all tax positions for which the statute of limitations
remains open. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Tax Act passed in December 2017 had significant effects on our financial statements, some of which we are still
quantifying. In accordance with Staff Accounting Bulletin No. 118 issued by the SEC in December 2017 immediately
following the passage of the Tax Act, we have made provisional estimates for certain direct and indirect effects of the Tax
Act based on information available to us. We will finalize our accounting for the effects of the Tax Act over the twelve
month period ending December 22, 2018. Any adjustments to our provisional estimates will be recorded as a component of
continuing operations.
We file a consolidated federal income tax return in the U.S. and various states. For financial statement purposes, we
calculate the provision for federal income taxes using the separate return method. Certain subsidiaries file separate tax
returns in certain countries and states. Any state and foreign income taxes refundable and payable are reported in other
current assets and accrued income taxes payable in the consolidated balance sheets. We record interest and penalties on
amounts due to tax authorities as a component of income tax expense (benefit) in the consolidated statements of operations.
Contingent Liabilities – Contingent liabilities require significant judgment in estimating potential losses for legal claims.
Each quarter, we review significant new claims and litigation for the probability of an adverse outcome. Estimates are
recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably
estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will materially exceed the
recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires
analysis of multiple forecasts that often depend on judgments about potential actions by third parties such as regulators,
and the estimated loss can change materially as individual claims develop.
Employee Retirement and Pension Benefits – We have a defined benefit plan available to certain U.S. hourly employees
and several other defined benefit plans located outside of the U.S. that are country specific. The most significant of these
plans is in the U.S. which is no longer open to new employees. Amounts relating to these plans are recorded based on
actuarial calculations, which use various assumptions, such as discount rates and expected return on assets. See Note 31 -
Employee Retirement and Pension Benefits.
Recently Adopted Accounting Standards – ASU No. 2016-09, Stock Compensation is intended to simplify several
aspects of the accounting for share-based payment awards to employees. The new guidance requires companies to
recognize the income tax effects of awards that vest or are settled as income tax expense or benefit in the income statement
as opposed to additional paid-in capital, and gross excess tax benefits are classified as operating cash flows rather than
financing cash flows. Additionally, the guidance allows companies to make a policy election to account for forfeitures
either upon occurrence or by estimating forfeitures. We have elected to continue estimating forfeitures expected to occur in
order to determine the amount of compensation cost to be recognized each period. We adopted this ASU on a modified
retrospective basis in the quarter ended April 1, 2017 and adoption of this standard did not materially impact results of
operations, retained earnings, or cash flows.
ASU No. 2015-11, Simplifying the Measurement of Inventory requires that inventory within the scope of this guidance be
measured at the lower of cost and net realizable value. We adopted this ASU in the quarter ended April 1, 2017 and
adoption of this standard did not materially impact results of operations, retained earnings, or cash flows.
ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
eliminates the diversity in practice related to the classification of certain cash receipts and payments for debt prepayment or
extinguishment costs, the maturing of a zero-coupon bond, the settlement of contingent liabilities arising from a business
combination, proceeds from insurance settlements, distributions from certain equity method investees and beneficial
interest obtained in a financial asset securitization. ASU No. 2016-18, Topic 230: Restricted Cash, requires that the
statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally
described as restricted cash or restricted cash equivalents. We elected to early adopt these ASUs using the retrospective
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transition method in the quarter ended December 31, 2017 and adjusted the consolidated statements of cash flows in all
comparative periods presented. The adjustments to the prior period statements of cash flows as of December 31, are as
follows:
(amounts in thousands)
Cash, and cash equivalents beginning . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash, and cash equivalents, ending . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange rates on cash . . . . . . . . . . . . . . . . .
Net change in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(amounts in thousands)
Cash, and cash equivalents beginning . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash, and cash equivalents, ending . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
Retrospective
Application
As Reported
113,571
$
706
$
102,701
(3,670)
(10,871)
751
(27)
72
As Revised
114,277
103,452
(3,697)
(10,799)
2015
Retrospective
Application
As Revised
As Reported
105,542
$
113,571
(7,023)
$
666
706
40
106,208
114,277
(6,983)
Recent Accounting Standards Not Yet Adopted – In August 2017, the FASB issued ASU No. 2017-12, Derivatives and
Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The targeted amendments help
simplify certain aspects of hedge accounting and result in a more accurate portrayal of the economics of an entity’s risk
management activities in its financial statements. For cash flow and net investment hedges as of the adoption date, the
guidance requires a modified retrospective approach. The guidance is effective for annual periods beginning after
December 15, 2018 and interim periods within those years, with early adoption permitted. The adoption of this guidance is
not expected to have a material impact on our consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification
Accounting. The ASU provides guidance about which changes to the terms or conditions of a share-based payment award
require an entity to apply modification accounting in Topic 718. The guidance is effective for annual periods beginning
after December 15, 2017 and interim periods within those years and is to be applied prospectively to an award modified on
or after the adoption date. Early adoption is permitted. The adoption of this guidance is not expected to have a material
impact on our consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net
Periodic Postretirement Benefit Cost, which changes how employers that sponsor defined benefit pension or other
postretirement benefit plans present the net periodic benefit cost in the income statement. This new guidance requires
entities to report the service cost component in the same line item or items as other compensation costs. The other
components of net benefit cost are required to be presented in the income statement separately from the service cost
component outside of income from operations. The guidance will be effective for annual reporting periods beginning after
December 15, 2017, and interim periods within those annual reporting periods and will be applied retrospectively. Early
adoption is permitted in certain circumstances. The adoption of this guidance will impact our operating income but is not
expected to have a material impact on our net income, earnings per share, consolidated balance sheets or statements of cash
flows.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test
for Goodwill Impairment. To simplify the measurement of goodwill impairments, this ASU eliminates Step 2 from the
goodwill impairment test, which required the calculation of the implied fair value of goodwill. Instead, under the
amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair
value of a reporting unit with its carrying amount. The guidance will be effective for annual or any interim goodwill
impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected
to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a
Business. The amendments in this ASU provide new guidance to determine when a set of transferred assets and activities is
a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is
concentrated in an identifiable asset or group of similar identifiable assets. If this threshold is met, the set of transferred
F-15
assets is not a business. If the threshold is not met, the entity then must evaluate whether the set includes, at a minimum, an
input and a substantive process that together significantly contribute to the ability to create outputs. This ASU removes the
evaluation of whether a market participant could replace missing elements. The amendments also narrow the definition of
the term output so that the term is consistent with how outputs are described in Topic 606. The guidance will be effective
for annual reporting periods beginning after December 15, 2017, and interim periods within those annual reporting periods.
Early adoption is permitted in certain circumstances. The amendments should be applied prospectively on or after the
effective date. We have reviewed the revised requirements, and do not anticipate that the changes will impact our policies
or recent conclusions related to our acquisition activities.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other
Than Inventory. The standard requires an entity to recognize the income tax consequences of an intra-entity transfer of an
asset other than inventory when the transfer occurs. The amendments in this update eliminate the exception for an intra-
entity transfer of an asset other than inventory. The amendments do not include new disclosure requirements; however,
existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an
intra-entity transfer of an asset other than inventory. The guidance will be effective for annual reporting periods beginning
after December 15, 2017, including interim reporting periods within those annual reporting periods. Early adoption is
permitted as of the beginning of an annual reporting period for which interim or annual financial statements have not been
issued or made available for issuance. The amendments should be applied on a modified retrospective basis through a
cumulative effect adjustment directly to retained earnings as of the beginning of the period of adoption. We are currently
evaluating the potential impact on our consolidated financial statements and disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize the
assets and liabilities arising from leases on the balance sheet and retains a distinction between finance leases and operating
leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to
the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. The
accounting standard is effective for annual periods beginning after December 15, 2018, including interim periods within
those fiscal years, with early adoption permitted. We are currently assessing the impact the adoption of this standard will
have on our financial reporting and we are still evaluating the application of available practical expedients, but recognizing
the lease liability and related right-of-use asset will materially impact our balance sheet.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities. This ASU enhances the reporting model for financial
instruments to provide users of financial statements with more decision-useful information by requiring equity investments
to be measured at fair value with changes in fair value recognized in net income. It simplifies the impairment assessment of
equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment
and eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities
that are not public business entities. It also requires an entity to present separately in other comprehensive income the
portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when
the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments
and requires separate presentation of financial assets and financial liabilities by measurement category and form of
financial asset on the balance sheet or the accompanying notes to the consolidated financial statements. The accounting
standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal
years, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our
consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU requires entities to
recognize revenue in the way they expect to be entitled for the transfer of promised goods or services to customers. This
ASU will replace most of the existing revenue recognition requirements in GAAP when it becomes effective. In March
2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net).
The amendments in this ASU clarify the implementation guidance on principal versus agent considerations. In December
2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts
with Customers. The amendments in this ASU narrow certain aspects of the guidance issued in Update 2014-09. These
standards are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal
years, which requires us to adopt the standard in fiscal year 2018. Early application in fiscal year 2017 is permitted. The
updates permit the use of either the retrospective or cumulative effect transition method. This ASU is effective for us
January 1, 2018, and we plan to adopt using the modified retrospective approach. We have completed the initial assessment
of the impact of this ASU on our financial statements and disclosures with respect to our material revenue streams, and we
have extended the impact assessment to our other revenue streams. Currently, we do not expect the adoption to have a
material impact on the timing of the recognition of revenue; however, the adoption of the ASU may impact the amount of
F-16
revenue recognized with an offsetting increase or decrease in cost of sales. Further, we expect the adoption to materially
impact the disclosures in our financial statements with respect to revenue recognition.
With the exception of the new standards discussed above, there have been no other recent accounting pronouncements or
changes in accounting pronouncements during the year ended December 31, 2017 that are of significance or potential
significance to us.
Note 2. Acquisitions
On August 31, 2017, we acquired all of the issued and outstanding shares of Kolder, a leading provider of shower
enclosures, closet systems, and related building products in Australia. Kolder is now part of our Australasia segment.
On August 25, 2017, we acquired all of the issued and outstanding shares and membership interests of MMI Door, a
leading provider of doors and related value-added services in the Midwest region of the U.S. MMI Door is now part of
our North America segment. On June 30, 2017, we acquired all of the issued and outstanding shares of Mattiovi, a
leading manufacturer of interior doors and door frames in Finland. Mattiovi is now part of our Europe segment.
The fair values of the assets and liabilities acquired are summarized below:
(amounts in thousands)
Fair value of identifiable assets and liabilities:
Accounts receivable
Inventories
Other assets
Property and equipment
Identifiable intangible assets
Goodwill
Total assets
Accounts payable and other current liabilities
Other liabilities
Total liabilities
Purchase Price:
Cash consideration, net of cash acquired
Non-cash consideration related to acquired intercompany balances
Total consideration, net of cash acquired
Preliminary
Allocation
Measurement
Period
Adjustment
Revised
Preliminary
Allocation
$
$
$
$
$
23,900
20,169
1,270
15,450
30,430
47,754
138,973
14,147
1,092
15,239
123,734
—
123,734
$
$
$
$
$
(309) $
777
1,362
16,694
16,282
(23,614)
11,192
52
3,224
3,276
$
$
7,714
202
7,916
$
$
23,591
20,946
2,632
32,144
46,712
24,140
150,165
14,199
4,316
18,515
131,448
202
131,650
Goodwill of $24.1 million, calculated as the excess of the purchase price over the fair value of net assets, represents
operational efficiencies and sales synergies, and $13.7 million is expected to be tax-deductible. The intangible assets
include tradenames, software, and customer relationships and will be amortized over an estimated weighted average
amortization period of 18 years. Acquisition-related costs of $1.8 million, were expensed as incurred and are included
in SG&A expense in our consolidated statements of operations. We evaluated these acquisitions quantitatively and
qualitatively and determined them to be insignificant both individually and in the aggregate and therefore, have omitted
the pro forma disclosures and sales and profits attributable to acquisitions under ASC 805-10-50.
During 2016, we completed two acquisitions for total consideration of approximately $85.9 million, net of cash
acquired. The excess purchase price over the fair value of net assets acquired of $16.8 million and $48.0 million was
allocated to goodwill and intangible assets, respectively. Goodwill is the excess of the purchase price over the fair value
of net assets acquired in business combinations and represents cost savings from reduced overhead and operational
expenses by leveraging our manufacturing footprint, supply chain savings and sales synergies and is not expected to be
fully tax-deductible. The intangible assets include technology, tradenames, trademarks, software, permits and customer
relationships and are being amortized over a weighted average amortization period of 20 years. Acquisition-related
costs of $1.3 million were expensed as incurred and are included in SG&A expense in our consolidated statements of
operations. In 2016, the measurement period adjustment reduced the preliminary allocation of goodwill and deferred tax
liabilities by $5.9 million and $2.2 million, respectively, and increased the preliminary allocation of intangible assets
and property and equipment by $3.1 million and $1.5 million, respectively, with the remaining preliminary allocation
changes related to other working capital accounts. As of September 30, 2017, the purchase price allocation was
considered complete for both acquisitions.
F-17
During 2015, we completed four acquisitions using $88.6 million of cash and $2.0 million of JWH stock as
consideration. The excess purchase price over the fair value of net assets acquired was allocated to goodwill and
intangibles in the amounts of $38.0 million and $36.3 million, respectively. Goodwill of $28.1 million is expected to be
fully tax-deductible. The intangible assets include technology, tradenames, trademarks, software, permits and customer
relationships and are being amortized over a weighted average amortization period of 14 years. Acquisition-related
costs of $1.8 million are included in SG&A expense in our consolidated statements of operations for 2015.
Measurement period adjustments recorded in 2016 reduced the preliminary allocation of goodwill and deferred tax
liabilities by $3.7 million and $0.6 million, respectively, and increased the preliminary allocation of deferred tax assets
by $4.0 million.
The results of the acquisitions are included in our consolidated financial statements from the date of their acquisition.
Note 3. Discontinued Operations and Divestitures
Our discontinued operations consisted primarily of our Silver Mountain resort and real estate located in Idaho which was
sold in November 2016 and was included in our Corporate and unallocated cost segment’s assets presented in the
accompanying consolidated financial statements. The results of these operations have been removed from the results of
continuing operations for all periods presented. As of December 31, 2016, there are no remaining assets or liabilities of
discontinued operations separately presented in the consolidated balance sheets.
The results of discontinued operations including the gains on sale of discontinued operations are summarized as follows for
the years ended December 31:
(amounts in thousands)
Net revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss before tax and non-controlling interest . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
$
— $
—
—
$
7,593
(3,513)
(3,324)
7,919
(2,853)
(2,856)
Note 4. Accounts Receivable
We sell our manufactured products to a large number of customers, primarily in the residential housing construction and
remodel sectors, broadly dispersed across many domestic and foreign geographic regions. We perform ongoing credit
evaluations of our customers to minimize credit risk. We do not usually require collateral for accounts receivable but will
require advance payment, guarantees, a security interest in the products sold to a customer, and/or letters of credit in certain
situations. Customer accounts receivable converted to notes receivable are primarily collateralized by inventory or other
collateral. One window and door customer from our North America segment represents 16.8% of net revenues in 2017,
16.3% of net revenues in 2016 and 15.2% of net revenues in 2015.
The following is a roll forward of our allowance for doubtful accounts as of December 31:
(amounts in thousands)
Balance as of January 1,
Acquisitions (Note 2)
Additions charged to expense
Deductions
Currency translation
Balance as of end of period
2017
2016
2015
$
$
(3,839) $
(268)
(1,227)
1,260
(372)
(4,446) $
(3,664) $
(755)
(410)
1,057
(67)
(3,839) $
(4,166)
—
(530)
1,180
(148)
(3,664)
F-18
Note 5. Inventories
Inventories are stated at lower of cost or net realizable value. Finished goods and work-in-process inventories include
material, labor and manufacturing overhead costs.
(amounts in thousands)
Raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
283,772
$
233,730
35,734
85,847
30,202
70,702
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
405,353
$
334,634
Note 6. Other Current Assets
(amounts in thousands)
Prepaid assets
Refundable income taxes
Fair value of derivative instruments (Note 27)
Other
2017
2016
22,782
$
18,943
4,234
2,235
1,152
6,438
6,309
558
30,403
$
32,248
$
$
Prior year balances have been revised with the activity being adjusted through the “Refundable income taxes” line above.
See detail in Note 36 - Revision of Prior Period Financial Statements.
Note 7. Property and Equipment, Net
(amounts in thousands)
Land improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total depreciable assets
Accumulated depreciation
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
33,026
$
468,355
1,237,915
1,739,296
(1,106,913)
632,383
68,312
56,016
2016
32,458
435,577
1,158,232
1,626,267
(1,008,031)
618,236
60,500
25,915
$
756,711
$
704,651
We monitor all property, plant and equipment for any indicators of potential impairment. We recorded impairment charges
of $1.5 million, $3.0 million, and $2.7 million during years ended December 31, 2017, 2016, and 2015, respectively.
The effect on our carrying value of property and equipment due to currency translations for foreign assets was an increase
of $27.9 million and a decrease of $9.9 million for the years ended December 31, 2017 and 2016, respectively.
Build-to-Suit Lease – Build-to-Suit Lease - In November of 2016, we entered into a 17-year, non-cancelable build-to-suit
arrangement for a corporate headquarters facility in Charlotte, North Carolina that is accounted for under the build-to-suit
guidance contained in ASC 840, Leases. The lease commences upon completion of construction which is anticipated to
occur in early 2018. Since we are involved in the construction of structural improvements prior to the commencement of
the lease or have taken some level of construction risk, we are considered the accounting owner of the assets and land
during the construction period. Further, certain terms of the lease do not meet normal sale-leaseback criteria, and as a
result, we are considered the accounting owner after the construction period. Once the construction is completed, the build-
to-suit asset will be depreciated over its estimated useful life and lease payments will be applied as debt service against the
liability. As of December 31, 2017, we have recorded $19.5 million of build-to-suit assets to construction in progress,
included in Property and equipment, net, and a corresponding financial obligation of $19.9 million, including accrued
interest, included in deferred credits and other liabilities in the accompanying consolidated balance sheet.
F-19
Depreciation expense was recorded as follows for the years ended December 31:
(amounts in thousands)
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
$
$
78,975
7,835
86,810
$
$
78,608
7,839
86,447
$
$
73,913
8,264
82,177
Note 8. Goodwill
The following table summarizes the changes in goodwill by reportable segment:
(amounts in thousands)
Balance as of December 31, 2015
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition remeasurements . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2016
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition remeasurements . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017
North
America
Europe
Australasia
Total
Reportable
Segments
187,102
$
240,187
$
55,217
$
482,506
—
—
$
274
187,376
30,251
(16,504)
437
—
(3,140)
(7,070)
229,977
8,569
(2,734)
32,350
$
15,935
(643)
(942)
69,567
8,934
(4,376)
5,216
$
201,560
$
268,162
$
79,341
$
15,935
(3,783)
(7,738)
486,920
47,754
(23,614)
38,003
549,063
$
$
$
Prior year balances have been revised with the activity being adjusted through the “Acquisition remeasurements” line
above. See detail in Note 36 - Revision of Prior Period Financial Statements.
We have recorded impairments in prior periods related to the divestiture of certain operations. Cumulative impairments of
goodwill totaled $1.6 million at both December 31, 2017 and December 31, 2016.
Measurement period adjustments related to current year acquisitions are included in the “Acquisitions” line above. See
Note 2 - Acquisitions.
In accordance with current accounting guidance, we identified three reporting units for the purpose of conducting our
goodwill impairment review. In determining our reporting units, we considered (i) whether an operating segment or a
component of an operating segment was a business, (ii) whether discrete financial information was available, and (iii)
whether the financial information is regularly reviewed by management of the operating segment. We performed our
annual impairment assessment during the beginning of the December fiscal month of 2017. The excess of the fair value of
our reporting units over their respective carrying values for the three reporting units exceeded 44%. No impairment loss
was recorded in 2017, 2016 or 2015.
F-20
Note 9. Intangible Assets, Net
Changes in the carrying amount of intangible assets were as follows for the periods indicated:
(amounts in thousands)
Balance as of December 31, 2015
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition remeasurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions, (net of $314 write-offs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2016
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition remeasurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions, (net of $137 write-offs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017
$
$
$
78,318
44,975
2,194
5,357
(12,733)
(2,386)
115,725
30,430
16,282
12,719
(15,896)
7,053
166,313
Prior year balances have been revised with the activity being adjusted through the “Acquisition remeasurements” line
above. See detail in Note 36 - Revision of Prior Period Financial Statements.
The cost and accumulated amortization values of our intangible assets were as follows as of December 31:
(amounts in thousands)
Trademarks and trade names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Software. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents, licenses and rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships and agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total amortizable intangibles
Accumulated amortization
Indefinite-lived intangibles
$
$
$
2017
2016
38,600
$
35,191
47,385
105,485
226,661
(60,348)
166,313
—
166,313
$
$
$
28,709
24,397
37,470
69,621
160,197
(46,972)
113,225
2,500
115,725
Intangible assets that become fully amortized are removed from the accounts in the period that they become fully
amortized. Amortization expense was recorded as follows for the years ended December 31:
(amounts in thousands)
Amortization expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2017
2016
2015
15,896
$
12,733
$
7,861
Certain customer supply agreement intangibles are amortized as a deduction from net revenues; however, there were none
in 2017 or 2016 and these amounts were immaterial in 2015.
F-21
Estimated future amortization expense (amounts in thousands):
2018
2019
2020
2021
2022
Thereafter
Note 10. Other Assets
(amounts in thousands)
Investments (Note 11)
Customer displays
Long-term notes receivable (Note 12)
Other
Deposits
Debt issuance costs
Other long-term accounts receivable
$
17,831
17,246
16,512
15,541
14,558
84,625
$
166,313
2017
2016
$
33,187
$
12,702
4,984
3,772
3,640
2,045
1,556
29,476
11,886
6,346
9,060
3,784
1,910
1,085
$
61,886
$
63,547
Domestic debt issuance costs associated with revolving credit facilities are capitalized and amortized according to the
effective interest rate method over the life of the new debt agreements. Non-cash additions are disclosed in Note 34 -
Supplemental Cash Flow Information. Customer displays are amortized over the life of the product line and $8.6 million,
$8.8 million and $5.2 million of amortization is included in total depreciation and amortization in SG&A expense for the
years ended December 31, 2017, 2016 and 2015, respectively. As of December 2016, costs associated with our IPO of $5.6
million are included in the “Other” line above and were subsequently charged to equity upon completion of the IPO.
Prior year balances have been revised with the activity being adjusted through the “Investments” line above. See detail in
Note 36 - Revision of Prior Period Financial Statements.
Note 11. Investments
As of December 31, 2017, our investments consist of one 50% owned investment accounted for under the equity method
and eight investments accounted for under the cost method. During fiscal year 2015, our investment in West One Auto
Group (“WOAG”) was fully impaired.
F-22
A summary of our equity and cost method investments, which are included in other assets in the accompanying
consolidated balance sheets, is as follows:
Equity
Cost
Total
(amounts in thousands)
Ending balance, December 31, 2015
Equity earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance, December 31, 2016
Equity earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending balance, December 31, 2017
Net loans and advances to affiliates at
$
$
$
25,834
3,791
(519)
29,106
3,639
—
—
32,745
December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
745
720
$
$
$
$
$
370
—
—
370
—
6
66
442
$
$
$
26,204
3,791
(519)
29,476
3,639
6
66
33,187
3,768
$
— $
4,513
720
Prior year balances have been revised with the activity being adjusted through the “Equity earnings” line above. See detail
in Note 36 - Revision of Prior Period Financial Statements.
The combined financial position and results of operations for the equity method investment owned as of December 31, is
summarized below:
(amounts in thousands)
Assets
2017
2016
Current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
96,127
23,539
Total assets
Liabilities
$
119,666
$
$
92,337
21,079
113,416
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities
Net worth
(amounts in thousands)
Net sales
Gross profit
Net income
Adjustment for profit (loss) in inventory
Net income attributable to Company
$
$
$
2017
354,964
74,399
6,870
204
3,639
18,151
$
35,632
53,783
65,883
$
18,722
37,499
56,221
57,195
2016
2015
$
314,036
66,417
7,750
(84)
3,791
361,013
82,914
4,628
70
2,384
Goodwill of $0.2 million is included in equity investments and is reviewed for impairment if evidence of loss in value
occurs in accordance with FASB guidance regarding The Equity Method of Accounting for Investments in Common Stock.
Sales to affiliates totaled $59.3 million in 2017, $61.7 million in 2016 and $54.8 million in 2015 and purchases from
affiliates totaled $4.0 million, $3.5 million and $2.4 million for 2017, 2016 and 2015, respectively.
No impairments were recorded during fiscal year 2017 and 2016. We recorded impairments of $0.3 million in the year
ended December 31, 2015, relating to our investment in WOAG due to the slow economic recovery in the Pacific
Northwest and WOAG’s financing limitations.
F-23
Note 12. Notes Receivable
(amounts in thousands)
Employee demand notes secured by Company stock(cid:3)
Installment notes
Affiliate notes
Accrued interest
Allowance for doubtful notes
2017 Year-End
Interest Rate
2017
2016
6.00% - 6.25% $
233
$
0.00% - 14.00%
N/A
5,082
—
19
(112)
5,222
(238)
4,984
$
238
2,865
3,768
24
(353)
6,542
(196)
6,346
Current maturities and interest, net of short-term allowance(cid:3)
Long-term notes receivable, net of allowance
$
Current maturities and interest, net of short-term allowance and long term notes receivable and interest, net of allowance,
are reported as other current assets and other assets, respectively, in the accompanying consolidated balance sheets.
Affiliate Notes – Due to a change in ownership Chileno Bay is no longer an affiliate, as such, $3.8 million of senior
secured notes from Chileno Bay were transferred from Affiliate notes to Installment notes. We did not accrue interest on
affiliate notes in 2017, 2016 or 2015.
Allowance for Doubtful Notes – The allowance for doubtful notes is based upon historical loss trends and specific
reviews of delinquent notes.
Note 13. Accrued Payroll and Benefits
(amounts in thousands)
Accrued vacation
Accrued management bonus
Accrued payroll and commissions
Accrued payroll taxes
Other accrued benefits
Non US defined contributions and other accrued benefits
Note 14. Accrued Expenses and Other Current Liabilities
(amounts in thousands)
Accrued sales and advertising rebates
Accrued expenses
Other accrued taxes
Current portion of warranty liability (Note 15)
Current portion of accrued claim costs relating to self-insurance programs
Current portion of deferred income
Current portion of accrued income taxes payable (Note 18)
Current portion of restructuring accrual (Note 24)
Current portion of derivative liability (Note 27)
Accrued interest payable
2017
2016
$
49,398
$
16,487
16,421
15,974
13,623
10,309
51,867
31,243
14,091
15,338
11,343
6,786
$
122,212
$
130,668
2017
2016
$
73,585
$
26,126
19,996
19,547
12,866
11,511
10,962
7,162
2,905
1,945
70,862
25,243
19,474
18,240
11,965
11,644
4,693
1,467
9,741
272
$
186,605
$
173,601
Prior year balances have been revised with the activity being adjusted through the “Accrued expenses” and “Current
portion of accrued income taxes payable”: lines above. See detail in Note 36 - Revision of Prior Period Financial
Statements.
F-24
Note 15. Warranty Liability
Warranty terms range primarily from one year to lifetime on certain window and door components. Warranties are
normally limited to replacement or service of defective components for the original customer. Some warranties are
transferable to subsequent owners, and are either limited to 10 years from the date of manufacture, or require pro-rata
payments from the customer. A provision for estimated warranty costs is recorded at the time of sale based on historical
experience, and we periodically adjust these provisions to reflect actual experience.
An analysis of our warranty liability is as follows:
(amounts in thousands)
Balance as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current period expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities assumed due to acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Experience adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2017
2016
2015
45,398
17,674
95
(614)
(17,255)
958
46,256
(19,547)
26,709
$
$
44,891
17,992
—
(3,846)
(13,527)
(112)
45,398
(18,240)
27,158
$
$
45,843
16,838
718
(2,668)
(14,172)
(1,668)
44,891
(16,802)
28,089
The most significant component of our warranty liability is in the North America segment which totaled $41.2 million at
December 31, 2017 after discounting future estimated cash flows at rates between 0.76% and 4.75%. Without discounting,
the liability would have been higher by approximately $2.7 million. During the second quarter of 2016, we recorded an
out-of-period adjustment which increased our warranty expense and reserve by approximately $2.5 million. The current
and long-term portions of the warranty liability are included in accrued expenses and other current liabilities, and deferred
credits and other liabilities, respectively, in the accompanying consolidated balance sheets. This correction was not material
to our accompanying consolidated financial statements or to our previously issued financial statements. The current and
long-term portions of the warranty liability are included in accrued expenses and other current liabilities, and deferred
credits and other liabilities, respectively, in the accompanying consolidated balance sheets.
F-25
Note 16. Notes Payable and Long-Term Debt
Notes payable consisted of the following amounts which are included in notes payable and current maturities of long-
term debt in the accompanying consolidated balance sheets as of December 31:
(amounts in thousands)
Variable rate industrial revenue bonds . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 Year-end
Interest Rate
2017
2016
N/A
$
— $
205
Variable rate industrial revenue bonds were payable in quarterly installments that included both principal and interest.
These bonds were collateralized by letters of credit and the related manufacturing and distribution properties, and were
paid in full as of December 31, 2017.
Our long-term debt, net of original issue discount and unamortized debt issuance costs, consisted of the following as of
December 31:
(amounts in thousands)
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loans, net of original discount of $0 and $8,086, respectively. . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mortgage notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Installment notes for stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unamortized debt issuance costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 Year-end
Effective Interest
Rate
4.63% - 4.88%
3.69% - 5.64%
N/A
1.15%
2.15% - 6.38%
3.00% - 4.25%
2017
2016
$
800,000
440,568
—
1,603,551
—
33,517
10,290
1,944
(12,616)
1,273,703
(8,770)
1,264,933
742
29,505
5,880
3,260
(23,108)
1,619,830
(19,826)
$
1,600,004
$
$
Maturities by year:
2018
2019
2020
2021
2022
Thereafter
$
8,770
6,697
6,551
5,883
5,495
1,240,307
$
1,273,703
Summaries of our outstanding debt agreements as of December 31, 2017 are as follows:
Senior Notes - In December 2017, we issued $800.0 million of unsecured Senior Notes in two tranches: $400.0 million
bearing interest at 4.625% and maturing in December 2025 and $400.0 million bearing interest at 4.875% and maturing
in December 2027 in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act. Each tranche was issued at par. Interest is payable semiannually in arrears each June and December
through maturity, beginning in 2018. Debt issuance costs of $11.7 million will be amortized to interest expense over the
life of the notes using the effective interest method. The Senior Notes contain certain restrictive covenants for which we
were in compliance as of December 31, 2017.
Term Loan - In July 2015, we amended our Term Loan Facility and borrowed an additional $480.0 million. The
proceeds were primarily used to make payments of approximately $431.0 million to holders of our then outstanding
common stock, Series A Convertible Preferred Stock, Class B-1 Common Stock, options, and RSUs. We incurred $7.9
million of debt issuance costs related to the $480.0 million of incremental borrowings.
F-26
In November 2016, we borrowed an additional $375.0 million, and refinanced and amended certain terms and
provisions of the facility. The proceeds, along with cash on hand and borrowing on our ABL Facility, were used to fund
a distribution to shareholders and holders of equity awards (See Note 20 - Convertible Preferred Shares). We incurred
$8.1 million of debt issuance costs related to this amendment.
In February 2017, we prepaid $375.0 million of outstanding principal with the proceeds from our IPO. As a result, we
recorded a proportional write-off of $5.2 million of unamortized debt issuance costs and $0.9 million of original issue
discount to interest expense.
In March 2017, we amended the facility to reduce the interest rate and remove the cap on the amount of cash used in the
calculation of net debt. The offering price of the amended term loans was par. Pursuant to this amendment, certain
lenders converted their commitments in an aggregate amount, along with an additional commitment advanced by a
replacement lender. We incurred $1.1 million of debt issuance costs related to this term loan amendment, which is
included as an offset to long-term debt in the accompanying consolidated balance sheets.
In December 2017, along with the issuance of the Senior Notes, we re-priced and amended the facility and repaid
$787.4 million of outstanding borrowings with the net proceeds from the Senior Notes resulting in an outstanding
principal balance of $440.0 million as of December 31, 2017. In connection with the debt extinguishment, we expensed
unamortized original discount fees of $5.9 million, unamortized debt issuance costs of $15.4 million, and bank fees of
$1.7 million, as a loss on extinguishment of debt in the accompanying consolidated statements of operations.
The re-priced term loans were offered at par, will mature in December 2024 (extended from July 2022), and bear
interest at LIBOR (subject to a floor of 0.00%) plus a margin of 1.75% to 2.00%, determined by our corporate credit
rating. This compares favorably to the previous rate of LIBOR (subject to a floor of 1.00%) plus a margin of 2.75% to
3.00%, determined by our net leverage ratio, under the prior amendment. This amendment also modifies other terms
and provisions, including providing for additional covenant flexibility and additional capacity under the facility, and
conforming to certain terms and provisions of the Senior Notes. Beginning in March 2018, this amendment requires
that 0.25% (or $1.1 million) of the aggregate principal amount be repaid quarterly prior to the final maturity date. The
facility is secured by the same collateral and guaranteed by the same guarantors as it was under each of the prior
amendments. We incurred $0.7 million of debt issuance costs related to this amendment which are being amortized to
interest expense over the life of the facility using the effective interest method. The facility contains certain restrictive
covenants for which we were in compliance as of December 31, 2017.
Revolving Credit Facilities
ABL Facility - In December 2017, along with the offering of the Senior Notes and repricing of the Term Loan Facility,
we amended our $300.0 million ABL Facility. The facility will now mature in December 2022 (extended from October
2019) and bears interest primarily at LIBOR (subject to a floor of 0.00%) plus a margin of 1.25% to 1.75%, determined
by availability. This compares favorably to the rate of LIBOR (subject to a floor of 0.00%) plus a margin of 1.50% to
2.00% under the previous amendment. This amendment also makes certain adjustments to the borrowing base and
modifies other terms and provisions, including providing for additional covenant flexibility and additional flexibility
under the facility, and conforming to certain terms and provisions of the Senior Notes and Term Loan Facility.
In connection with the amendment to the ABL Facility, we expensed $0.2 million of unamortized loan fees as a loss on
extinguishment of debt in the accompanying consolidated statements of operations.
Extensions of credit under the ABL Facility are limited by a borrowing base calculated periodically based on specified
percentages of the value of eligible accounts receivable, eligible inventory and certain other assets, subject to certain
reserves and other adjustments. We pay a fee between 0.25% to 0.375% on the unused portion of the commitments
under the facility. As of December 31, 2017, we had no borrowings, $32.4 million in letters of credit and $232.4 million
available under the ABL Facility.
The ABL Facility has a minimum fixed charge coverage ratio that we are obligated to comply with under certain
circumstances. The ABL Facility has various non-financial covenants, including restrictions on liens, indebtedness, and
dividends, customary representations and warranties, and customary events of defaults and remedies. We were in
compliance with the non-financial covenants as of December 31, 2017. The ABL Facility permits us to request
commitment increases up to the greater of $100 million, or the greatest amount by which the borrowing base has
exceeded the maximum global credit amount at the end of any of the twelve fiscal months prior to the effective date of
the commitment increase, subject to certain conditions.
F-27
Australia Senior Secured Credit Facility - In October 2017, we amended the Australia Senior Secured Credit Facility to
provide for an AUD $17.0 million floating rate revolving loan facility, an AUD $10.0 million interchangeable facility
for guarantees and letters of credit, an AUD $7.0 million electronic payaway facility, an AUD $1.5 million asset finance
facility, an AUD $1.0 million commercial card facility and an AUD $5.0 million overdraft line of credit. The AUD
$17.0 million floating rate revolving loan facility matures in June 2019. Loans under the revolving loan facility bear
interest at the BBSY plus a margin of 0.75%, and a line fee of 1.15% is also paid on the revolving facility limit.
Overdraft balances bear interest at the bank’s reference rate minus a margin of 1.00%, and a line fee of 1.15% is paid on
the overdraft facility limit. At December 31, 2017, we had AUD $17.0 million (or $13.3 million) available under the
revolving loan facility, AUD $2.0 million (or $1.6 million) under the interchangeable facility, AUD $7.0 million (or
$5.5 million) under the electronic payaway facility, AUD $1.5 million (or $1.2 million) under the asset finance facility,
AUD $0.8 million (or $0.6 million) under the commercial card facility and AUD $5.0 million (or $3.9 million)
available under the overdraft line of credit. The credit facility is secured by guarantees of the subsidiaries of JWA, fixed
and floating charges on the assets of the JWA group, and mortgages on certain real properties owned by the JWA group.
The agreement requires that JWA maintain certain financial ratios, including a minimum consolidated interest coverage
ratio and a maximum consolidated debt to EBITDA ratio for which we were in compliance as of December 31, 2017.
The agreement limits dividends and repayments of intercompany loans where the JWA group is the borrower and limits
acquisitions without the bank’s consent.
Euro Revolving Facility - In January 2015, we entered into the Euro Revolving Facility, a €39 million revolving credit
facility, which includes an option to increase the commitment by an amount of up to €10 million, with a syndicate of
lenders and Danske Bank A/S, as agent. The Euro Revolving Facility matures on January 30, 2019. Loans under the
Euro Revolving Facility bear interest at an IBOR, specific to the borrowing currency, (subject to a floor of 0.00%), plus
a margin of 2.50%. A commitment fee of 1.00% is paid on the unutilized amount of the facility. As of December 31,
2017, we had no outstanding borrowings, €0.3 million (or $0.4 million) of bank guarantees outstanding, and €38.7
million (or $46.3 million) available under this facility. The facility requires JELD-WEN A/S to maintain certain
financial ratios, including a maximum ratio of senior leverage to Adjusted EBITDA (as calculated therein), and a
minimum ratio of Adjusted EBITDA (as calculated therein) to net finance charges with which we were in compliance as
of December 31, 2017. In addition, the facility has various non-financial covenants including restrictions on liens,
indebtedness, and dividends, customary representations and warranties, and customary events of default and remedies.
At December 31, 2017, we had combined borrowing availability of $292.0 million under our revolving facilities.
Mortgage Note - In December 2007, we entered into thirty-year mortgage notes secured by land and buildings with
principal payments beginning in 2018. As of December 31, 2017, we had DKK 208.2 million (or $33.5 million)
outstanding under these notes.
Installment Notes - Installment notes represent insurance premium financing, capitalized lease obligations, and a term
loan secured by equipment. As of December 31, 2017, we had $10.3 million outstanding under these notes.
Installment Notes for Stock - We entered into installment notes for stock representing amounts due to former or retired
employees for repurchases of our stock that are payable over 5 or 10 years depending on the amount with payments
through 2020. As of December 31, 2017, we had $1.9 million outstanding under these notes.
F-28
Note 17. Deferred Credits and Other Liabilities
Included in deferred credits and other liabilities is the long-term portion of the following liabilities as of December 31:
(amounts in thousands)
Warranty liability (Note 15)
Headquarter lease liability (Note 7)
Uncertain tax positions (Note 18)
Workers' compensation claims accrual
Long term accrued income taxes payable (Note 18)
Other liabilities
Restructuring accrual
Over-market lease liabilities
Deferred income
Long term derivative liability (Note 27)
2017
2016
$
26,709
$
27,158
19,860
14,519
14,179
11,275
9,444
3,877
2,142
609
—
—
12,054
13,966
—
10,508
3,552
2,830
509
3,878
$
102,614
$
74,455
The over-market lease liabilities relate to our Melton operations in the U.K. and the related market value lease payments
are included in the minimum annual lease payments schedule. The non-cash impact to expense of the change in the lease
liability for the discount factor is reported in other income (expense) in the consolidated statements of operations and
totaled $0.5 million in 2017, 2016 and 2015.
Note 18. Income Taxes
Income (loss) before taxes, equity earnings (loss) and discontinued operations was comprised of the following for the years
ended December 31:
(amounts in thousands)
Domestic income (loss)
Foreign income
2017
2016
2015
$
$
(7,346) $
153,101
145,755
$
25,042
105,278
130,320
$
$
24,146
61,809
85,955
Our foreign income is primarily driven by our subsidiaries in Australia, Canada and the U.K. The statutory tax rates are
30%, 27% and 19% respectively.
Significant components of the provision for income taxes are as follows for the years ended December 31:
(amounts in thousands)
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current taxes
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred taxes
Income tax provision (benefit) for continuing operations
Income tax provision for discontinued operations
2017
2016
2015
11,699
$
1,015
$
(14,124)
667
29,461
41,827
60,618
27,241
8,917
96,776
138,603
—
72
18,274
19,361
(164,765)
(74,882)
(26,108)
(265,755)
(246,394)
—
731
28,289
14,896
(3,508)
(290)
(16,533)
(20,331)
(5,435)
—
Total provision (benefit) for income taxes
$
138,603
$
(246,394) $
(5,435)
On December 22, 2017, the Tax Act was enacted in the U.S. The specific provisions of the Tax Act had both direct and
indirect impacts on our 2017 results and will continue to materially affect our financial results in the future. The direct
F-29
impacts were due primarily to the change in the U.S. corporate income tax rate from 35% to 21% for tax years beginning
after December 31, 2017 and the one-time deemed repatriation tax. As a result of the lowering of the U.S. federal tax rate,
we revalued our net deferred tax assets in the U.S. reflecting the lower expected benefit in the U.S. in the future. This
revaluation resulted in additional tax expense totaling approximately $21.1 million. The one-time deemed repatriation tax,
which effectively subjected the Company’s net aggregate historic foreign earnings to taxation in the U.S., resulted in a
further tax charge of $11.3 million. While this repatriation tax is measured as of December 31, 2017, taxpayers can pay the
tax over an 8-year period resulting in an increase to our non-current liabilities.
During the fourth quarter, the Company undertook certain transactions which involved the repatriation of certain earnings
from foreign subsidiaries. While these transactions were not undertaken as a direct result of tax reform, the U.S. tax
implications were heavily impacted due to the timing of the transactions and the measurement dates as outlined in the Tax
Act. We have recorded a net increase to tax expense of $65.8 million related to these transactions and their impacts under
the Tax Act.
While we have recorded provisional estimates of the tax impact of the above transactions as of December 31, 2017 based
on information available to us, we have not yet completed our full analysis of the net effects of the Tax Act. The final net
effects of the Tax Act may differ, possibly materially, due to many factors including, among other things, i) adjustments to
historic foreign earnings and profits or the associated tax credit pools which are significant factors in the calculation of the
repatriation tax, ii) changes in interpretations and assumptions that we have made, and iii) related accounting policy
decisions we may take. Most significantly, definitive guidance and regulations surrounding the implementation of the
various provisions in the Tax Act and, specifically, the interactions of those provisions with the other transactions outlined
above have not been issued to date. This guidance, once issued, may materially affect our conclusions regarding the net
related effects of the Tax Act on our financial statements. We will complete our analysis over a one-year measurement
period as outlined in Staff Accounting Bulletin #118 issued by the SEC in December 2017, and any adjustments during this
measurement period will be recorded in earnings from continuing operations.
The significant components of the deferred income tax expense attributed to income from continuing operations for the
year ended December 31, 2017, were the revaluation of our U.S. deferred tax assets under the Tax Act and the increases in
valuation allowances for deferred tax assets, primarily in the U.S. The significant component of the deferred income tax
benefit attributed to income from continuing operations for the year ended December 31, 2016, was the decrease in the
valuation allowances for deferred tax assets, primarily in the U.S. and U.K.
Reconciliation of the U.S. federal statutory income tax rate to our effective tax rate is as follows for the years ended
December 31:
2016
2015
Amount
$
30,085
(amounts in thousands)
2017
Amount
Statutory rate . . . . . . . . . . . . . . . . . . . . . $
State income tax, net of federal benefit.
Nondeductible expenses . . . . . . . . . . . .
Equity based compensation . . . . . . . . . .
Deferred benefit on acquisitions . . . . . .
Foreign tax rate differential. . . . . . . . . .
Tax rate differences and credits. . . . . . .
Uncertain tax positions . . . . . . . . . . . . .
Foreign source dividends . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . .
IRS audit adjustments . . . . . . . . . . . . . .
Prior year correction . . . . . . . . . . . . . . .
U.S. Tax Reform . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effective rate for continuing operations
Effective rate including discontinued
operations
$
$
51,015
(4,784)
1,950
(12,718)
(6,201)
(17,959)
(91,109)
736
86,119
98,156
(699)
—
32,414
1,683
138,603
%
35.0
(3.3)
1.3
(8.7)
(4.2)
(12.3)
(62.5)
0.5
59.1
67.3
(0.5)
—
22.2
1.2
95.1
Amount
$
45,612
221
1,797
826
—
(12,237)
382
406
1,992
(282,616)
113
(1,392)
—
(1,498)
$ (246,394)
%
35.0
0.2
1.4
0.6
—
(9.4)
0.3
0.3
1.5
(216.9)
0.1
(1.1)
—
(1.1)
(189.1)
%
35.0
4.0
7.1
—
(3.4)
(8.4)
0.7
13.5
6.0
(47.9)
(15.2)
(2.4)
—
4.7
(6.3)
3,397
6,064
—
(2,919)
(7,225)
698
11,634
5,193
(41,196)
(13,079)
(2,094)
—
4,007
(5,435)
$
$
(5,435)
(6.4)
138,603
95.1
$ (246,394)
(189.1)
F-30
Certain items in the table above have been reclassified to conform to the current year's presentation. Prior year balances
have been revised, see detail in Note 36 - Revision of Prior Period Financial Statements.
We recorded provisional estimates of the items directly impacted by the Tax Act within the “U.S. Tax Reform” line in the
reconciliation of tax expense above. The tax charge of $32.4 million is comprised of (i) the repricing our U.S. deferred tax
balances of $21.1 million from 35% to 21%, and (ii) one-time deemed repatriation tax of $11.3 million. As previously,
discussed, certain other transactions undertaken by the Company in the fourth quarter of 2017 were indirectly impacted by
the Tax Act and the measurement periods as outlined therein. The provisional estimates of the following amounts are
included in the Company’s tax expense for the year: additional tax expense of $85.5 million included as “Foreign Source
Dividends”, a tax benefit of $90.8 million included as “Tax rate differences and credits”, and additional tax expense of
$71.1 million included as “Valuation allowance” above. Once we complete our final analysis of the Tax Act and its
provisions, each of these amounts may be altered, perhaps materially.
We recorded a tax benefit of $0.7 million, a charge of $0.1 million and a benefit of $13.1 million in 2017, 2016 and 2015,
respectively, as a result of favorable audit settlements in the U.S., which allowed the use of tax attributes that previously
had a valuation allowance reserve. We recorded a tax benefit of $6.2 million primarily relating to the change in disposition
for certain intellectual property in the “Deferred benefit on acquisitions” line and a corresponding tax charge in the same
amount in the “Valuation allowance” line, resulting in nil impact to the effective rate for continuing operations in 2017.
During the fourth quarter of 2016, we recorded an out-of-period correction to previously overstated international deferred
tax asset balances which resulted in a benefit of $5.4 million, $1.4 million of which is shown above on the line "Prior year
correction", and the remaining amount of which is within the "Valuation allowance" and “Other” line items in the
reconciliation of tax expense above. This correction was not material to 2016 or prior periods. During 2015, we recorded
an out of period correction to an income tax payable account which resulted in a benefit of $2.1 million. This correction
was not material to 2015 or prior periods.
Deferred income taxes are provided for the temporary differences between the financial reporting basis and tax basis of our
assets, liabilities and operating loss carryforwards. Significant deferred tax assets and liabilities are as follows as of
December 31:
(amounts in thousands)
2017
2016
Allowance for doubtful accounts and notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Employee benefits and compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss and tax credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax assets
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments and marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities
Net deferred tax assets
Balance sheet presentation:
Long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets
$
183,726
(9,249)
174,477
1,102
$
54,961
292,957
4,125
889
17,478
371,512
(144,701)
226,811
(42,632)
(9,702)
(52,334)
$
$
$
$
174,477
4,807
88,383
287,907
2,034
865
17,731
401,727
(40,118)
361,609
(73,665)
(9,431)
(83,096)
278,513
287,699
(9,186)
278,513
Impact of Divestitures and Acquisitions – As discussed in Note 2 - Acquisitions, we completed three acquisitions in
fiscal year 2017 and two acquisitions in fiscal 2016 that had an immaterial impact on our income tax assets and liabilities.
As discussed in Note 3 - Discontinued Operations and Divestitures, we sold the assets of our Silver Mountain resort and
real estate development in Idaho, which closed on October 20, 2016. The sale and resulting reversal of the Silver Mountain
deferred tax assets and liabilities generated a $24.3 million tax loss in 2016. The tax loss was mainly a result of assets that
had been previously impaired for book purposes and fixed assets with remaining tax basis in excess of book basis.
F-31
Valuation Allowance – The realization of deferred tax assets is based on historical tax positions and estimates of future
taxable income. We evaluate both the positive and negative evidence that we believe is relevant in assessing whether we
will realize the deferred tax assets. A valuation allowance is recorded when it is more likely than not that some portion of
the deferred tax assets will not be realized.
Our valuation allowance was $144.7 million as of December 31, 2017, which represents an increase of $104.6 million from
December 31, 2016 and was allocated to continuing operations. The increase in the valuation allowance primarily relates to
the following: (i) an increase of $71.1 million relating to U.S. foreign tax credits generated in 2017, (ii) an increase of
$28.3 million for state net operating losses ("NOL") and credits due to the impact of reductions in forecasted taxable
income in the carry-forward period, (iii) a release of $2.0 million for our Canadian subsidiary due to its continued
profitability in recent years, (iv) an increase of $6.7 million for our Australian subsidiary relating to certain deferred tax
assets recognized on capital assets, and (v) other changes to existing valuations totaling approximately $0.5 million for
changes in current year earnings for certain other subsidiaries and foreign exchange.
The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in
which those temporary differences are deductible. We consider the scheduled reversal of deferred tax liabilities (including
the effect of available carryback and carryforward periods), and projected taxable income in making this assessment. In
order to fully utilize the NOL and tax credits carryforwards we will need to generate sufficient future taxable income
before the expiration of the deferred tax assets governed by the applicable tax code.
Our valuation allowance was $40.1 million as of December 31, 2016, which represents a decrease of $278.4 million from
December 31, 2015 and was allocated to continuing operations. The decrease was primarily the result of (i) the release of
$236.5 million of valuation allowances associated with NOL carryforwards primarily for our U.S. subsidiaries as we
concluded at December 31, 2016 that it was more likely than not that the deferred tax assets will be realized based on our
forecasted earnings , (ii) the release of $40.2 of valuation allowance (inclusive of $8.4 million reduction to deferred tax
assets related to prior years) associated primarily with the NOL's of our U.K. subsidiary based on anticipated earnings
arising from the changes in the manner in which we manage our capacity and distribution in Europe, (iii) the establishment
of a valuation allowance for our St. Maarten subsidiary of $0.8 million, (iv) the release through goodwill of a valuation
allowance for two of our Dooria foreign subsidiaries in Norway of $4.2 million, (v) the release of a valuation allowance
attributed to certain tax credit for our Mexican subsidiaries of $0.2 million, (vi) the partial release of a valuation allowance
attributed to capital loss carry-forwards of our Australian subsidiary, and (vi) changes to existing valuations for changes in
current year earnings for our subsidiaries in Peru, Canada, New Zealand and the U.K.
The following is the activity in our valuation allowance:
(amounts in thousands)
Balance as of January 1,
Valuation allowances established. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes to existing valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . .
Release of valuation allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31,
2017
2016
2015
$
$
(40,118) $
—
(105,453)
2,006
(1,136)
(144,701) $
(318,480) $
(1,489)
5,006
272,291
2,554
(40,118) $
(361,470)
(4,381)
24,302
19,612
3,457
(318,480)
There were no valuation allowances included in discontinued operations for the years ended December 31, 2017,
December 31, 2016 and 7.8 million for the years ended December 31, 2015 , respectively and are excluded from the table
above.
F-32
Loss Carryforwards – We reduced our income tax payments by utilizing NOL carryforwards of $249.4 million in 2017,
$256.2 million in 2016 and $123.8 million in 2015. At December 31, 2017, our federal, state and foreign NOL
carryforwards totaled $1,450.1 million, of which $106.5 million does not expire and the remainder expires as follows
(amounts in thousands):
2018
2019
2020
2021
Thereafter
$
$
10,445
10,373
8,671
19,238
1,294,842
1,343,569
We utilized $1.2 million capital loss carryforwards in 2016. We did not utilize capital loss carryforwards in 2017 and 2015.
At December 31, 2017, our capital loss carryforwards totaled $21.3 million. All of the capital losses are foreign and do not
expire.
Section 382 Net Operating Loss Limitation – On November 20, 2017 and October 3, 2011, we had a change in
ownership pursuant to Section 382 of the Internal Revenue Code of 1986 as amended (“Code”). Under this provision of the
Code, the utilization of any of our NOL or tax credit carryforwards, incurred prior to the date of ownership change, may be
limited. Analyses of the respective limits for each ownership change indicated no reason to believe the annual limitation
would impair our ability to utilize our NOL carryforward or net tax credit carryforwards as provided. As part of the
acquisitions we completed in 2015, we acquired the historical NOL's of the entities of $24.7 million. We have concluded
the limitation under Section 382 will not prevent us from fully utilizing these historical NOL's.
Tax Credit Carryforwards – Our tax credit carryforwards expire as follows:
(amounts in
thousands)
EZ Credit
R & E credit
Foreign Tax
Credit
$
— $
— $
8,690
—
12,975
14,990
1,061
—
—
—
—
Work
Opportunity
& Welfare to
Work Credit
$
— $
State
Investment
Tax Credits
266
—
—
—
—
253
174
225
216
632
Tip Credit
Other
TOTAL
$
— $
— $
8,956
253
13,149
15,215
1,277
119,912
—
—
—
—
12
—
—
—
—
102
102
5,799
108,031
5,268
$
5,799
$
145,747
$
5,268
$
1,766
$
$
12
$
158,762
2018
2019
2020
2021
2022
Thereafter
$
—
—
—
—
68
68
Earnings of Foreign Subsidiaries – As a result of the passage of the Tax Act, U.S. income taxes have been provided on
deemed repatriated earnings of $133.7 million related to our foreign subsidiaries. Our provisional estimate of the deemed
repatriation tax of $11.3 million was recorded in the fourth quarter of 2017. Before the Tax Act, U.S. income taxes had not
been recorded on certain unremitted earnings of foreign subsidiaries of approximately $265.2 million as the Company
intended to permanently reinvest those earnings. The amount of foreign earnings subject to tax decreased dramatically as a
result of the operations of the Tax Act and its inclusion of entities with deficits in earnings within the calculation, which
could have been disallowed upon any distribution prior to the Tax Act. We have not completed our accounting for the
deemed repatriation and expect to finalize this amount within the twelve-month period proscribed by Staff Accounting
Bulletin No. 118. The Company’s intention to indefinitely reinvest these earnings outside the U.S. remains unchanged,
despite the effect of the Tax Act. The determination of the amount of the unrecognized deferred U.S. income tax liability on
the unremitted earnings or any other associated outside basis difference is not practicable because of the complexities
associated with the calculation.
Dual-Rate Jurisdiction – Estonia taxes the corporate profits of resident corporations at different rates depending upon
whether the profits are distributed. The undistributed profits of resident corporations are exempt from taxation while any
distributed profits are subject to a 20% corporate income tax rate. The liability for the tax on distributed profits is recorded
as an income tax expense in the period in which we declare the dividend. This tax must be remitted to the local tax
authorities by the tenth day of the month following the month of the dividend distribution. The amount of undistributed
earnings at December 31, 2017 and 2016 which, if distributed, would be subject to this tax was $66.3 million and $65.2
F-33
million, respectively. During 2017, Latvia enacted a similar system in which a company’s local earnings are not subject to
tax until distributed. No earnings are currently deferred in Latvia as the legislation does not take effect until 2018.
Tax Payments and Balances – We made tax payments of $29.0 million in 2017, $34.7 million in 2016 and $9.1 million in
2015 primarily for foreign liabilities. We received tax refunds of $6.5 million in 2017, $7.9 million in 2016 and $15.5
million in 2015 primarily related to U.S. federal tax. We recorded receivables for U.S. federal, foreign and state refunds of
$4.2 million at December 31, 2017 and $6.4 million at December 31, 2016 which is included in other current assets on the
accompanying consolidated balance sheets. We recorded payables for U.S. federal, foreign and state taxes of $11.0 million
at December 31, 2017 and 4.7 million at December 31, 2016 which is included in accrued income taxes payable in the
accompanying consolidated balance sheets. We recorded non-current U.S. payables of $11.3 million at December 31, 2017,
which is included in deferred credits and other liabilities in the accompanying consolidated balance sheets. The refunds
received in 2017 were in excess of the receivables recorded at December 31, 2016 due primarily to a refund of $1.1 million
received relating to the conclusion of the audit in the U.S.
Accounting for Uncertain Tax Positions – A reconciliation of the beginning and ending amounts of unrecognized tax
benefits excluding interest and penalties is as follows:
(amounts in thousands)
Balance as of January 1,
2017
2016
2015
$
12,054
$
11,634
$
Increase for tax positions taken during the prior period . . . . . . . . . . . . . .
Decrease for settlements with taxing authorities . . . . . . . . . . . . . . . . . . . .
Increase for tax positions taken during the current period. . . . . . . . . . . . .
Currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of end of period - unrecognized tax benefit
Accrued interest and penalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
252
(788)
107
1,626
13,251
1,268
359
—
—
(345)
11,648
406
—
786
—
10,848
—
11,634
—
$
14,519
$
12,054
$
11,634
Unrecognized tax benefits were $13.3 million and $11.6 million at December 31, 2017 and December 31, 2016. The
changes during the current period relate to the establishment of an uncertain tax position for certain intercompany expenses
offset by a currency translation during the period. As of December 31, 2014, we had no unrecognized tax benefits. Interest
and penalties related to uncertain tax positions are reported as a component of tax expense and included in the total
uncertain tax position balance within deferred credits and other liabilities in the accompanying consolidated balance sheets.
Uncertain tax positions recorded in 2015 are due to changes in the manner in which we manage our manufacturing capacity
and the distribution and sale of our products in Europe. The reorganization of our Europe segment was part of our review
of our operations structure and management that began in 2014 and resulted in changes in taxable income for certain of our
subsidiaries within that reportable segment. Effective January 1, 2015, our subsidiary JELD-WEN U.K. Limited (the
“Managing Subsidiary”) entered into an agreement (the “Managing Agreement”) with several of our other subsidiaries in
Europe (collectively, the “Operating Subsidiaries”). The Managing Agreement provides that the Managing Subsidiary will
receive a fee from the Operating Subsidiaries in exchange for performing various management and decision-making
services for the Operating Subsidiaries. As a result, the Managing Agreement shifts certain risks (and correlated benefits)
from the Operating Subsidiaries to the Managing Subsidiary. In exchange, the Managing Subsidiary guarantees a specific
return to each Operating Subsidiary on a before interest and taxes basis, commensurate with such Operating Subsidiary’s
functions and risk profile. While there is no impact on the consolidated reporting of the Europe segment due to the
Managing Agreement, there may be changes in taxable income of the Operating Subsidiaries. Therefore, we have reserved
for a potential loss resulting from such uncertainty.
Included in the balance of unrecognized tax benefits as of December 31, 2017, December 31, 2016, and December 31,
2015, are $13.3 million, $11.6 million, and $11.6 million respectively, of tax benefits that, if recognized, would affect the
effective tax rate. We cannot reasonably estimate the conclusion of certain non-US income tax examinations and its
outcome at this time.
We operate in multiple foreign tax jurisdictions and are generally open to examination for tax years 2012 and forward. In
the U.S., we are open to examination at a federal level for tax years 2013 forward. We are under examination by certain
federal, state and local jurisdictions for tax years 2005 through 2008, but generally we are open to examination for state
and local jurisdictions for tax years 2012 forward. We are under examination in Australia, Austria, Denmark, Estonia,
France, Germany, and Indonesia for tax years 2010 through 2016, and generally remain open to examination for other non-
US jurisdictions for tax years 2012 forward.
F-34
Note 19. Segment Information
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 determined that we have three reportable segments, organized and managed principally by geographic region. Our
reportable segments are North America, Europe and Australasia. We report all other business activities in Corporate and
unallocated costs. Factors considered in determining the three reportable segments include the nature of business activities,
the management structure accountable directly to the CODM for operating and administrative activities, the discrete
financial information available and the information presented to the CODM. Management reviews net revenues and
Adjusted EBITDA (as defined below) to evaluate segment performance and allocate resources. We define Adjusted
EBITDA as net income (loss), eliminating the impact of the following items: loss from discontinued operations, net of tax;
equity earnings of non-consolidated entities; income tax; depreciation and amortization; interest expense, net; impairment
and restructuring charges; (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.
The following tables set forth certain information relating to our segments’ operations. We revised total net revenues and
elimination of intersegment net revenues for our North America and Australasia segments to eliminate an inconsistency in
the presentation of intersegment net revenues to properly reflect only sales between segments for all of our segments. There
are no changes to net revenues from external customers by segment or in total. These corrections were not material to the
prior periods presented.
(amounts in thousands)
Twelve Months Ended December 31, 2017
North
America
Europe
Australasia
Total
Operating
Segments
Corporate
and
Unallocated
Costs
Total
Consolidated
Total net revenues . . . . . . . . . . . . . . . $ 2,160,104
(2,021)
Intersegment net revenues. . . . . . . . .
Net revenues from external customers. . $ 2,158,083
Depreciation and amortization. . . . . . . . $
66,990
Impairment and restructuring charges . .
Adjusted EBITDA . . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . .
34,769
Segment assets . . . . . . . . . . . . . . . . . . . . $ 1,207,539
273,594
8,471
Twelve Months Ended December 31, 2016
Total net revenues . . . . . . . . . . . . . . . $ 2,153,011
(3,843)
Intersegment net revenues. . . . . . . . .
Net revenues from external customers. . $ 2,149,168
68,207
Depreciation and amortization. . . . . . . . $
Impairment and restructuring charges . .
Adjusted EBITDA . . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . .
39,775
Segment assets . . . . . . . . . . . . . . . . . . . . $ 1,099,845
251,831
3,584
Twelve Months Ended December 31, 2015
Total net revenues . . . . . . . . . . . . . . . $ 2,019,622
(3,907)
Intersegment net revenues. . . . . . . . .
Net revenues from external customers. . $ 2,015,715
Depreciation and amortization. . . . . . . . $
61,165
Impairment and restructuring charges . .
Adjusted EBITDA . . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . .
35,721
Segment assets . . . . . . . . . . . . . . . . . . . . $ 1,057,056
201,660
7,113
$
$
$
$
$
$
$
$
$
$
$
$ 1,045,036
(2,269)
$ 1,042,767
$
27,979
3,592
132,929
14,889
$
920,222
$ 1,009,545
(816)
$ 1,008,729
$
26,657
$
$
$
$
6,777
122,574
14,991
751,749
996,753
(739)
996,014
25,296
13,089
99,540
25,572
$
$
$
$
$
$
$
$
$
$
$
572,518
(9,434)
563,084
$ 3,777,658
(13,724)
$ 3,763,934
13,248
(49)
74,706
6,019
$
108,217
12,014
481,229
55,677
447,734
$ 2,575,495
517,990
(9,088)
508,902
$ 3,680,546
(13,747)
$ 3,666,799
8,944
$
103,808
2,448
59,519
21,610
12,809
433,924
76,376
377,410
$ 2,229,004
378,679
(9,348)
369,331
$ 3,395,054
(13,994)
$ 3,381,060
5,697
$
317
40,453
14,049
92,158
20,519
341,653
75,342
— $
3,777,658
—
(13,724)
— $
3,763,934
3,056
$
111,273
1,042
(43,616)
7,372
13,056
437,613
63,049
287,445
$
2,862,940
— $
3,680,546
—
(13,747)
— $
3,666,799
4,187
$
107,995
1,038
(40,242)
3,121
13,847
393,682
79,497
307,042
$
2,536,046
— $
3,395,054
—
(13,994)
— $
3,381,060
3,038
$
823
(30,667)
2,345
95,196
21,342
310,986
77,687
$
725,604
$
257,496
$ 2,040,156
$
142,217
$
2,182,373
F-35
Reconciliations of net income to Adjusted EBITDA are as follows:
(amounts in thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Loss from discontinued operations, net of tax. . . . . . . . . . . . . . . . . . . . . . . . .
Equity earnings of non-consolidated entities . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (benefit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense, net (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment and restructuring charges (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-cash foreign exchange transaction/translation (income) loss . . . . . . . . .
Other non-cash items (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items (d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs relating to debt restructuring and debt refinancing (e) . . . . . . . . . . . . . .
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Years Ended December 31,
2016
2015
2017
10,791
$
377,181
$
—
(3,639)
138,603
111,273
79,034
13,057
(299)
19,785
(2,181)
526
47,000
23,663
3,324
(3,791)
(246,394)
107,995
77,590
18,353
(3,275)
22,464
5,734
2,843
30,585
1,073
90,918
2,856
(2,384)
(5,435)
95,196
60,632
31,031
(416)
15,620
2,697
1,141
18,893
237
437,613
$
393,682
$
310,986
(a)
(b)
(c)
(d)
Interest expense for the year ended December 31, 2017 includes $6,097 related to the write-off of a portion of the unamortized
debt issuance costs and original issue discount associated with the Term Loan Facility.
Impairment and restructuring charges consist of (i) impairment and restructuring charges that are included in our consolidated
statements of operations plus (ii) additional charges of $1, $4,506, and $9,687 for the years ended December 31, 2017, 2016, and
2015 respectively. These additional charges are primarily comprised of non-cash changes in inventory valuation reserves, such as
excess and obsolete reserves. For further explanation of impairment and restructuring charges that are included in our
consolidated statements of operations, see Note 24 - Impairment and Restructuring Charges of Continuing Operations in our
audited financial statements for the years ended December 31, 2017, 2016 and 2015.
Other non-cash items include, among other things, (i) charges of $439, $357, and $893 for the years ended December 31, 2017,
2016, and 2015, respectively, relating to (1) the fair value adjustment for inventory acquired as part of the acquisitions referred to
in “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Acquisitions” and (2) the impact of
a change in how we capitalize overhead expenses in our valuation of inventory. In addition, other non-cash items include charges
of $2,153 for the out-of-period European warranty liability adjustment for the year ended December 31, 2016.
Other items not core to business activity include: (i) in the year ended December 31, 2017, (1) $34,178 in legal costs, (2) $4,176
in realized loss on hedges, (3) $3,484 in acquisition costs not core to business activity, (4) $2,202 in secondary offering costs, (5)
$754 in tax consulting fee, (6) $678 in legal entity consolidation costs, (7) $649 in taxes related to equity-based compensation,
(8) $578 in facility ramp down costs and (9) $(2,247) gain on settlement of contract escrow; (ii) in the year ended December 31,
2016, (1) $20,695 payment to holders of vested options and restricted shares in connection with the November 2016 dividend, (2)
$3,721 of professional fees related to the IPO of our common stock, (3) $1,626 of acquisition costs, (4) $584 in legal costs
associated with disposition of non-core properties, (5) $507 of dividend related costs, (6) $500 of costs related to the recruitment
of executive management employees, (7) $450 in legal costs, and (8) $346 in Dooria plant closure costs; and (iii) in the year
ended December 31, 2015, (1) $11,446 payment to holders of vested options and restricted shares in connection with the July
2015 dividend described in Part II - Item 5. Dividends, (2) $5,510 related to a U.K. legal settlement, (3) $1,825 in acquisition
costs, (4) $1,833 of costs related to the recruitment of executive management employees, and (5) $1,082 of legal costs related to
non-core property disposal, and (6) ($5,678) of realized gain on foreign exchange hedges related to an intercompany loan.
(e)
Included in the year ended December 31, 2017 is a loss on debt extinguishment of $23,262 associated with the refinancing of our
term loan.
F-36
Net revenues by locality are as follows for the years ended December 31,:
(amounts in thousands)
Net revenues by location of external customer
2017
2016
2015
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
U.S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
South America (including Mexico) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Africa and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
219,877
$
218,947
$
234,017
1,904,939
35,280
1,063,344
530,521
9,973
1,893,585
34,518
1,035,398
476,251
8,100
1,740,303
38,422
1,020,073
345,523
2,722
Total
$
3,763,934
$
3,666,799
$
3,381,060
Geographic information regarding property, plant, and equipment which exceed 10% of consolidated property, plant, and
equipment used in continuing operations is as follows for the years ended December 31,:
(amounts in thousands)
North America:
U.S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Europe
Australasia:
2017
2016
2015
402,338
$
400,023
$
25,876
428,214
25,371
425,394
418,795
24,500
443,295
153,492
145,470
164,419
Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
118,568
7,818
126,386
104,063
8,259
112,322
Corporate:
U.S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48,619
21,465
Total property and equipment, net
$
756,711
$
704,651
$
81,992
8,543
90,535
22,594
720,843
Note 20. Series A Convertible Preferred Shares
Prior to the IPO, we had the authority to issue up to 8,750,000 shares of preferred stock, par value of $0.01, of which
8,749,999 shares were designated as Series A Convertible Preferred Stock and one share was designated as Series B
Preferred Stock. Series A Convertible Preferred Stock consisted of 2,922,634 shares of Series A-1 Stock, 208,760 shares of
Series A-2 Stock, 843,132 shares of Series A-3 Stock, and 4,775,473 shares of Series A-4 Stock. At December 31, 2016, all
of the authorized shares of Series A-1, Series A-2, and Series A-3 Stock and one Series B Stock were issued and
outstanding.
Immediately prior to the closing of our IPO, the outstanding shares and accumulated and unpaid dividends of the Series A
Convertible Preferred Stock converted into 64,211,172 common shares by applying the applicable conversion rates as
prescribed in our then-existing certificate of incorporation.
Dividend - Prior to converting to common stock, the Series A Stock had a preferred annual dividend of 10% per annum on
the Equity Constant, with the Equity Constant being $21.77 for dividends accruing prior to April 30, 2013. The cumulative
dividends accrued continually and compounded annually at the rate of 10% whether or not they had been declared and
whether or not there were funds available for the payment.
In July of 2015, the holders of the 3,974,525 shares of Series A Stock (57,700,434 as-converted common shares) received
$272.8 million through participation in the $4.73 per share of Common Stock distribution (see Note 21- Capital Stock).
The Board of Directors authorized an additional distribution of $62.4 million to holders of Series A Stock representing
dividends accruing between January 1, 2015 and July 31, 2015. Total distributions for holders of our Series A Stock were
F-37
$335.2 million, were paid on or about July 31, 2015, and were recorded as reductions to the carrying value of the Series A
Stock.
In October of 2016, the Board of Directors authorized $256.3 million in distributions to the holders of the 3,974,525 shares
of Series A Stock (62,645,538 as-converted common shares) through participation in the $4.09 per share of Common Stock
distribution (see Note 21 - Capital Stock). The Board of Directors authorized an additional distribution of $51.0 million to
holders of Series A Stock representing dividends accruing between May 31, 2016 and November 3, 2016. Total
distributions paid to holders of our Series A Stock were $306.7 million, and were paid on or about November 3, 2016.
Cumulative unpaid dividends were approximately $390.6 million and $325.0 million at December 31, 2016 and 2015,
respectively. The Series A Stock and cumulative unpaid dividends converted into 64,211,172 shares of our common stock
on February 1, 2017.
Other - In June 2016, the Company, represented by directors not appointed by Onex, settled indemnification claims under
the 2011 and 2012 Stock Purchase Agreements with Onex. As a result of this settlement, we refunded $23.7 million of the
issuance price agreed to in the 2011 and 2012 Stock Purchase Agreements in August 2016. The refund was recorded as a
reduction in the carrying value of the Convertible Preferred shares in the accompanying consolidated balance sheets.
Note 21. Capital Stock
On February 1, 2017, immediately prior to the closing of the IPO, the Company filed its Charter with the Secretary of State
of the State of Delaware, and the Company’s Bylaws became effective, each as contemplated by the registration statement
we filed in connection with our IPO. The Charter, among other things, provides that the Company’s authorized capital
stock consists of 900,000,000 shares of common stock, par value $0.01 per share and 90,000,000 shares of preferred stock,
par value $0.01 per share.
Preferred Stock - Our Board of Directors is authorized to issue Preferred Stock from time to time in one or more series and
with such rights, privileges, and preferences as the Board of Directors shall from time to time determine. We have not
issued any shares of preferred stock.
Common Stock - As of December 31, 2016, we were governed by our pre-IPO charter, which provided the authority to
issue 22,810,000 shares of common stock, with a par value of $0.01 per share, of which 22,379,800 shares were designated
common stock and 430,200 shares were designated as Class B-1 Common Stock. On January 3, 2017, our pre-IPO charter
was amended authorizing us to issue 904,732,200 shares of common stock, with a par value of $0.01 per share, of which
900,000,000 shares were designated common stock and 4,732,200 shares were designated as Class B-1 Common Stock.
Each share of common stock (whether common stock or Class B-1 Common Stock) had the same rights, privileges, interest
and attributes and was subject to the same limitations as every other share treating the Class B-1 Common Stock on an as-
converted basis. Each share of Class B-1 Common Stock was convertible at the option of the holder into shares of common
stock at the same ratio on the date of conversion as a share of Series A-1 Stock would have been convertible on such date
of conversion, assuming that no cash dividends had been paid on the Series A-1 Stock (or its predecessor security) since
the date of initial issuance. Immediately prior to the closing of our IPO, all of the outstanding shares of Class B-1 Common
Stock were converted into 309,404 shares of common stock.
Common stock includes the basis of shares outstanding plus amounts recorded as additional paid-in capital. Shares
outstanding exclude the shares issued to the Employee Benefit Trust that are considered similar to treasury shares and total
193,941 shares at both December 31, 2017 and December 31, 2016 with a total original issuance value of $12.4 million.
On January 30, 2015, our Board of Directors approved a self-tender offer to purchase up to $40.0 million worth of common
stock at a price of $20.00 per share. The tender offer was initiated on January 30, 2015, and on March 6, 2015, we
repurchased 1,613,909 shares of our common stock for $32.3 million.
On July 28, 2015, our Board of Directors authorized a distribution of $4.73 per share of common stock in which the Series
A Convertible Preferred Stock and Class B-1 Common Stock would participate on an as-converted basis. The record date
for the distribution was June 30, 2015 and totaled $84.9 million for holders of our common stock and Class B-1 Common
Stock. We applied distributions totaling $14.4 million against principal and accrued interest on outstanding employee and
director notes. Participating in the distribution were 17,697,823 common shares and 52,679 shares of Class B-1 Common
Stock (78,232 as-converted common shares). The distributions were paid on or about July 31, 2015.
On October 2, 2015, we issued 84,480 shares of common stock valued at $2.0 million as part of the consideration paid for
the purchase of certain assets and liabilities related to an acquisition.
F-38
On October 31, 2016, our Board of Directors authorized a distribution of $4.09 per share of common stock in which the
Series A Convertible Preferred Stock and Class B-1 Common Stock would participate on an as-converted basis. The record
date for the distribution was November 1, 2016 and totaled $74.0 million for holders of our common stock and Class B-1
Common Stock. We applied distributions totaling $0.2 million against principal and accrued interest on outstanding
employees. Participating in the distribution were 17,845,927 common shares and 136,565 B-1 Common shares (232,373
as-converted common shares). The distributions were paid on or about November 3, 2016.
On February 1, 2017, we closed our IPO and received $480.3 million in proceeds, net of underwriting discounts and
commissions. Costs associated with our initial public offering of $7.9 million, including $5.9 million of capitalized costs
included in “other assets” as of December 31, 2016 in the accompanying consolidated balance sheets, were charged to
equity upon completion of the IPO.
Note 22. Earnings (Loss) Per Share
Basic earnings per share is calculated by dividing net earnings attributable to common shareholders by the weighted
average shares outstanding during the period, without consideration for common stock equivalents. Diluted net earnings
per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common share
equivalents outstanding for the period, determined using the treasury-stock method. Series A Stock, common stock options,
Class B-1 Common Stock options, and unvested Common Restricted Stock Units are considered to be common stock
equivalents included in the calculation of diluted net income (loss) per share.
The basic and diluted income (loss) per share calculations for the years ended December 31, are presented below (in
thousands, except share and per share amounts).
Earnings (loss) per share basic:
2017
2016
2015
Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity earnings of non-consolidated entities . . . . . . . . . . . . . . . . . . . . . .
Income from continuing operations and equity earnings of non- consolidated
$
7,152
$
376,714
$
3,639
3,791
91,390
2,384
93,774
(46,234)
(335,184)
10,791
(10,462)
—
380,505
(65,667)
(307,279)
—
329
—
329
$
(23,701)
—
(16,142)
(3,324)
(19,466) $
(287,644)
(2,856)
(290,500)
97,460,676
17,992,879
18,296,003
0.00
0.00
0.00
$
$
(0.90) $
(0.18)
(1.08) $
(15.72)
(0.16)
(15.88)
entities
Undeclared Series A Convertible Preferred Stock dividends. . . . . . . . . .
Series A Convertible Preferred Stock distributions and dividends paid. .
Deemed Dividend on Series A Convertible Preferred Stock from
Settlement Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) attributable to common shareholders from continuing
operations
Loss from discontinued operations, net of tax . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to common shareholders
Weighted average outstanding shares of common stock basic
Basic income (loss) per share
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share
$
$
$
F-39
Earnings (loss) per share diluted:
2017
2016
2015
Net income (loss) attributable to common shareholders - basic
Series A Convertible Preferred Stock distributions and dividends paid. .
Net income (loss) attributable to common shareholders - diluted
Weighted average outstanding shares of common stock basic
Restricted stock units and options to purchase common stock . . . . . . . .
Weighted average outstanding shares of common stock diluted
Dilutive income (loss) per share
Income (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) per share
$
$
$
$
329
—
329
$
$
(19,466) $
—
(19,466) $
(290,500)
—
(290,500)
97,460,676
4,001,459
17,992,879
18,296,003
—
—
101,462,135
17,992,879
18,296,003
0.00
0.00
0.00
$
$
(0.90) $
(0.18)
(1.08) $
(15.72)
(0.16)
(15.88)
Prior to its conversion, our Class B-1 Common Stock was considered a participating security as defined by ASC 260.
However, because the effect of utilizing the two-class method to allocate earnings to Class B-1 Common Stock outstanding
on an as-converted basis had an immaterial effect on the income (loss) per share, we have elected to forgo the two-class
method and separate presentation of income (loss) per share for each participating class of common stock.
The following table provides the securities that could potentially dilute basic earnings per share in the future, but were not
included in the computation of diluted earnings per share because to do so would have been anti-dilutive:
Series A Convertible Preferred Stock
Common Stock Options
Class B-1 Common Stock Options
Restricted stock units
Note 23. Stock Compensation
2017
—
545,693
—
537
2016
3,974,525
1,812,404
3,344,572
385,220
2015
3,974,525
1,891,978
3,396,118
378,433
Prior to the IPO, our Amended and Restated Stock Incentive Plan, the “Stock Incentive Plan”, allowed us to offer common
options, B-1 common options and common RSUs for the benefit of our employees, affiliate employees and key non-
employees. Under the Stock Incentive Plan, we could award up to an aggregate of 2,761,000 common shares and 4,732,200
B-1 common shares. The Stock Incentive Plan provided for accelerated vesting of awards upon the occurrence of certain
events. Through December 31, 2016, we issued 5,156,976 options and 385,220 RSUs under the Stock Incentive Plan.
In connection with our IPO, the Board adopted and our shareholders approved the JELD-WEN Holding, Inc. 2017
Omnibus Equity Plan, the “Omnibus Equity Plan”. Under the Omnibus Equity Plan, equity awards may be made in respect
of 7,500,000 shares of our common stock and may be granted in the form of options, restricted stock, RSUs, stock
appreciation rights, dividend equivalent rights, share awards and performance-based awards (including performance share
units and performance-based restricted stock).
Share-based compensation expense included in SG&A expenses totaled $19.8 million in 2017, $43.2 million in 2016 and
27.4 million in 2015. We recognized a windfall tax benefit of $12.7 million in 2017, which includes a benefit of $14.1
million in the U.S. offset by disallowances in our foreign subsidiaries of $1.4 million. There were no material related tax
benefits for the years 2016 and 2015. As of December 31, 2017, there were $22.2 million of total unrecognized
compensation expense related to non-vested share-based compensation arrangements. This cost is expected to be
recognized over the remaining weighted-average vesting period of 1.6 years.
F-40
During the fourth quarter of 2016, we recorded $21.3 million of share-based compensation associated with cash payments
to participants of our stock incentive plan. These payments consisted of $4.09 per vested common option and $6.96 per
vested B-1 common option and $4.09 per restricted stock unit. In addition, we modified the terms of most unvested
options, reducing the exercise prices by $4.09 and $6.96 for common and B-1 common options, respectively, resulting in
additional share-based compensation expense of $0.9 million in 2016. Key assumptions used in valuing the option
modification were as follows:
Expected volatility range
Expected dividend yield rate
Weighted average term (in years)
Risk free rate
34.56% - 48.09%
0.00%
2.57 - 7.06
0.94% - 1.63%
During the third quarter of 2015, we recorded $11.4 million of share-based compensation associated with cash payments to
participants of our stock incentive plan. These payments consisted of $4.73 per vested common option, $7.02 per vested
B-1 common option and $4.73 per restricted stock unit. In addition, we modified the terms of most unvested options,
reducing the exercise prices by $4.73 and $7.02 for common and B-1 common options, respectively, resulting in additional
share-based compensation expense of $3.6 million in 2015. Key assumptions used in valuing the option modification were
as follows:
Expected volatility range
Expected dividend yield rate
Weighted average term (in years)
Risk free rate
36.02% - 51.19%
0.00%
1.60 - 5.72
0.54% - 1.75%
Stock Options – Generally, stock option awards vest ratably each year on the anniversary date over a 3 to 5-year period,
have an exercise term of 10 years and any vested options must be exercised within 90 days of the employee leaving the
Company. The compensation cost of option awards is charged to expense based upon the graded-vesting method over the
vesting periods applicable to the option awards. The graded-vesting method provides for vesting of portions of the overall
awards at interim dates and results in greater expense in earlier years than the straight-line method.
When options are granted, we calculate the fair value of common and Class B-1 Common Stock options using multiple
Black-Scholes option valuation models. Expected volatilities are based upon a selection of public guideline companies. The
risk-free rate was based upon U.S. Treasury rates.
Key assumptions used in the valuation models were as follows for the years ended December 31:
Expected volatility
Expected dividend yield rate
Weighted average term (in years)
Weighted average grant date fair value
Risk free rate
2017
2016
2015
37.36% - 42.83% 43.57% - 52.72% 36.00% - 58.30%
0.00%
0.00%
0.00%
5.50 - 6.50
5.50 - 7.50
1.60 - 6.20
$11.51
$17.84
$23.94
1.83% - 2.19%
1.47% - 1.77%
0.54% - 1.84%
F-41
The following table represents stock option activity:
Outstanding as of January 1, 2015
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2015
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2016
Issued upon conversion of class B-1 common stock . . . . . . . . . . . . . . . . .
Granted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017
Exercisable as of December 31, 2017
Shares
5,036,856
1,088,450
(95,667)
(741,543)
5,288,096
367,400
(245,014)
(253,506)
5,156,976
2,494,553
505,122
(2,781,055)
(448,928)
4,926,668
2,739,877
Weighted
Average
Exercise Price
Per Share
Weighted
Average
Remaining
Contract Term
in Years
$20.60
29.60
21.41
20.37
$19.06
37.12
19.91
16.82
$20.40
11.13
27.78
11.67
15.01
$14.56
$13.09
8.4
7.9
7.1
6.6
5.7
RSUs – RSUs are subject to the continued employment of the recipient through the vesting date, which is generally 12 to
60 months from issuance. Once vested, the recipient will receive one share of common stock for each restricted stock unit.
Prior to the IPO, the grant-date fair value per share used for RSUs was determined using the aggregate value of our
common equity, as determined by a third-party valuation firm, as of the most recent calendar quarter-end and applying a
10% discount based upon reflecting the differential economic rights and preferences of the Preferred or the ESOP common
shares relative to the common shares, with that amount rounded down to the nearest whole percent. After the IPO, the
grant-date fair value per share used for RSUs was determined using the closing price of our common stock on the NYSE
on the date of the grant. We apply this grant-date fair value per share to the total number of shares that we anticipate will
fully vest and amortize the fair value to compensation expense over the vesting period using the straight-line method.
Outstanding January 1, 2016
Granted - employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2016
Granted - non-employee directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted - employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance as of December 31, 2017
Weighted
Average
Grant-Date
Fair Value Per
Share
$20.28
28.62
20.35
15.31
$22.00
31.22
28.73
18.40
26.02
$27.51
Shares
378,433
76,912
(64,625)
(5,500)
385,220
23,245
342,727
(175,110)
(13,714)
562,368
F-42
Note 24. Impairment and Restructuring Charges
Closure costs and impairment charges for operations not qualifying as discontinued operations are classified as impairment
and restructuring charges in our consolidated statements of operations.
In 2017, we recorded $6.8 million of restructuring charges in the U.S. mostly related to a reduction in work force in the
fourth quarter. In Europe we recorded charges of $3.6 million related to two building impairments and various personnel
restructuring. In Canada we recorded charges of $2.7 million mostly related to consolidation of operations.
In 2016, we recorded $6.8 million of impairment and restructuring charges in Europe, including $3.8 million related to
restructuring and plant closures of a recent acquisition and $3.0 million related to various personnel restructuring across
Europe. In Australasia, we recorded charges of $2.4 million mostly related to a site closure and restructuring of a recent
acquisition. In North America, we recorded $4.6 million of charges including $2.5 million of various termination benefits
and $2.1 million of other impairment and restructuring charges.
In 2015, we recorded $13.4 million of impairment and restructuring charges in Europe, including $11.4 million related to
the restructuring of our French operations. In North America, we recorded charges of $2.0 million related to consolidation
of our fiber door skin designs. We also fully impaired an equity investment and related notes receivable totaling $1.5
million. The remaining costs of $4.4 million are mainly related to personnel restructuring.
The table below summarizes the amounts included in impairment and restructuring charges in the accompanying
consolidated statements of operations for the years ended December 31:
(amounts in thousands)
Closed operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Impairments
Restructuring charges, net of fair value adjustment gains . . . . . . . . . . . .
Total impairment and restructuring charges
2017
2016
2015
1,479
—
1,479
11,577
13,056
$
$
$
1,778
1,203
2,981
10,866
13,847
$
$
$
677
3,591
4,268
17,074
21,342
$
$
$
Short-term restructuring accruals are recorded in accrued expenses and totaled $7.2 million and $1.5 million as of
December 31, 2017 and 2016, respectively. Long-term restructuring accruals are recorded in deferred credits and other
liabilities and totaled $3.9 million and $3.6 million as of December 31, 2017 and 2016, respectively.
The following is a summary of the restructuring accruals recorded and charges incurred:
(amounts in thousands)
December 31, 2017
Severance and sales restructuring costs . . . . . . . . . . . . $
Disposal of property and equipment. . . . . . . . . . . . . . .
Lease obligations and other . . . . . . . . . . . . . . . . . . . . .
$
December 31, 2016
Severance and sales restructuring costs . . . . . . . . . . . . $
Disposal of property and equipment. . . . . . . . . . . . . . .
Lease obligations and other . . . . . . . . . . . . . . . . . . . . .
$
December 31, 2015
Severance and sales restructuring costs . . . . . . . . . . . . $
Disposal of property and equipment. . . . . . . . . . . . . . .
Lease obligations and other . . . . . . . . . . . . . . . . . . . . .
Beginning
Accrual
Balance
Additions
Charged to
Expense
Payments
or
Utilization
Ending
Accrual
Balance
836
$
9,492
$
—
4,183
5,019
5,424
—
3,083
8,507
7,307
—
373
$
$
$
$
190
1,895
11,577
7,448
(71)
3,489
10,866
10,493
64
6,517
$
$
$
$
(3,096) $
(190)
(2,271)
(5,557) $
(12,036) $
71
(2,389)
(14,354) $
(12,376) $
(64)
(3,807)
(16,247) $
7,232
—
3,807
11,039
836
—
4,183
5,019
5,424
—
3,083
8,507
$
7,680
$
17,074
$
F-43
Note 25. Interest Expense
Interest expense is net of capitalized interest. Capitalized interest incurred during the construction phase of significant
property and equipment additions totaled $0.9 million in 2017, $1.7 million in 2016 and $0.8 million in 2015. We made
interest payments of $66.1 million in 2017, $73.9 million in 2016 and $57.0 million in 2015. Interest expense also includes
debt issuance costs that are amortized using the effective interest method. We allocated interest expense to discontinued
operations of zero in 2017, $0.6 million in 2016 and $0.8 million in 2015.
Note 26. Other (Income) Expense
Other (income) expense for the years ended December 31:
(amounts in thousands)
Foreign currency losses (gains). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Legal settlement income
Settlement of contract escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent and finance income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss (gain) on sale of property and equipment. . . . . . . . . . . . . . . . . . . . . . . . . .
$
2017
2016
2015
10,426
(2,456)
(2,247)
(2,098)
(1,624)
16
2,017
$
$
$
3,580
(9,671)
—
(2,630)
(1,133)
(2,971)
(12,825) $
(9,254)
(2,421)
—
(2,174)
216
(487)
(14,120)
In July 2016, we entered into a confidential settlement agreement on a commercial matter in our North America segment that
originated in 2011, pursuant to which we received $8.4 million. We recorded the gain associated with this settlement in other
income in the accompanying consolidated statements of operations.
Note 27. Derivative Financial Instruments
All derivatives are recorded as assets or liabilities in the consolidated balance sheets at their respective fair values. For
derivatives that qualify for hedge accounting, changes in the fair value related to the effective portion of the hedge are
recognized in earnings at the same time as either the change in fair value of the underlying hedged item or the effect of the
hedged item’s exposure to the variability of cash flows. Changes in fair value related to the ineffective portion of the hedge
are recognized immediately in earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting,
or fail to meet the criteria thereafter, are also recognized in the consolidated statements of operations.
Foreign currency derivatives – We are exposed to the impact of foreign currency fluctuations in certain countries in
which we operate. In most of these countries, the exposure to foreign currency movements is limited because the operating
revenues and expenses of our business units are substantially denominated in the local currency. To the extent borrowings,
sales, purchases or other transactions are not executed in the local currency of the operating unit, we are exposed to foreign
currency risk. In order to mitigate the exposure, we enter into a variety of foreign currency derivative contracts, such as
forward contracts, option collars and cross-currency swaps. We use foreign currency derivative contracts, with a total
notional amount of $124.5 million, in order to manage the effect of exchange fluctuations on forecasted sales, purchases,
acquisitions, inventory and capital expenditures and certain intercompany transactions that are denominated in foreign
currencies. We use foreign currency derivative contracts, with a total notional amount of $76.3 million, to hedge the effects
of translation gains and losses on intercompany loans and interest. We also use foreign currency derivative contracts, with a
total notional amount of $121.0 million, to mitigate the impact to the consolidated earnings of the Company from the effect
of the translation of certain subsidiaries’ local currency results into U.S. dollars. We do not use derivative financial
instruments for trading or speculative purposes. Hedge accounting has not been elected for any foreign currency derivative
contracts. We record mark-to-market changes in the values of these derivatives in other (expense) income. We recorded
mark-to-market losses of $6.3 million and $0.9 million, and a gain of $0.9 million in the years ended December 31, 2017,
2016 and 2015, respectively.
Interest rate swap derivatives – We are exposed to interest rate risk in connection with our variable rate long-term debt.
During the fourth quarter of 2014, we entered into interest rate swap agreements to manage this risk. These interest rate
swaps were set to mature in September 2019 with half of the $488.3 million amortized aggregate notional amount having
become effective in September 2015, and the other half having become effective in September 2016. On July 1, 2015, we
amended our Term Loan Facility, and we received an additional $480.0 million in long-term borrowings. In conjunction
with the issuance of the incremental term loan debt, we entered into additional interest rate swap agreements to manage our
F-44
increased exposure to the interest rate risk associated with variable rate long-term debt. The additional interest rate swaps
were set to mature in September 2019 with half of the $426.0 million aggregate notional amount having become effective
in June 2016 and the other half having become effective in December 2016. In conjunction with the December 2017
refinancing of the Term Loan Facility (see Note 16 - Notes Payable and Long-Term Debt), we terminated all of the interest
rate swaps and recorded a loss on termination of $3.6 million in consolidated other comprehensive income (loss). This loss
will be amortized as interest expense over the life of the original interest rate swaps.
The interest rate swap agreements were designated as cash flow hedges and, prior to their termination in December 2017,
effectively changed the LIBOR-based portion of the interest rate (or “base rate”) on a portion of the debt outstanding under
our Term Loan Facility to the weighted average fixed rates per the time frames below:
Period
Notional (1)
Weighted
Average Rate
(amounts in thousands)
December 2015 - June 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 2016 - September 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 2016 - December 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 2016 - December 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$273,000
$486,000
$759,000
$914,250
1.997%
2.054%
2.161%
2.188%
(1) Aggregate notional amounts in effect during the period shown.
The cumulative pre-tax mark-to-market loss of $3.4 million relating to these interest rate contracts was recorded in
consolidated other comprehensive income (loss) at December 31, 2017 as no portion was deemed ineffective. We recorded
$8.9 million, $5.0 million and $0.7 million of interest expense deriving from the interest rate swaps that were in effect in
the years ended December 31, 2017, 2016 and 2015, respectively.
The agreements with our counterparties contain a provision where we could be declared in default on our derivative
obligations if we either default or, in certain cases, are capable of being declared in default on any of our indebtedness
greater than specified thresholds. These agreements also contain a provision where we could be declared in default
subsequent to a merger or restructuring type event if the creditworthiness of the resulting entity is materially weaker.
The fair values of derivative instruments held are as follows as of December 31:
(amounts in thousands)
Derivatives not designated as hedging instruments:
Balance Sheet Location
2017
2016
Derivative assets
Foreign currency forward contracts
Other current assets
$
2,235
$
6,309
Derivatives liabilities
Balance Sheet Location
2017
2016
Derivatives designated as hedging instruments:
Interest rate contracts
Accrued expenses and other current liabilities
Deferred credits and other liabilities
Derivatives not designated as hedging instruments:
Foreign currency forward contracts
Accrued expenses and other current liabilities
$
$
$
— $
— $
9,050
3,878
2,905
$
691
Note 28. Fair Value Measurements
We record financial assets and liabilities at fair value based on FASB guidance related to Fair Value Measurements. The
guidance requires fair value to be determined based on the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants at the measurement date.
F-45
A valuation hierarchy consisting of three levels was established based on observable and non-observable inputs. The three
levels of inputs are:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has
the ability to access at the measurement date.
Level 2 – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets
or liabilities in markets that are not active; and model-driven valuations whose significant inputs are observable or
whose significant value drivers are observable.
Level 3 – Significant inputs to the valuation model that are unobservable.
The recorded fair values of these instruments were as follows as of December 31:
2017
(amounts in thousands)
Level 1
Level 2
Level 3
Assets
measured
at NAV
(a)
Total
Fair Value
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Derivative assets, recorded in other current assets . . . . . . . . . .
Derivative liabilities, recorded in accrued expenses and
deferred credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan assets: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . .
U.S. Government and agency obligations . . . . . . . . . . . . . . .
Corporate and foreign bonds . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common and collective funds . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
44,091
$
— $
— $
44,091
—
—
—
25,122
—
—
32,444
—
—
2,235
(2,905)
17,859
—
98,432
839
—
80,352
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,235
(2,905)
17,859
25,122
98,432
839
32,444
80,352
100,697
100,697
57,566
$ 240,903
$
— $ 100,697
$
399,166
2016
(amounts in thousands)
Level 1
Level 2
Level 3
Assets
measured
at NAV
(a)
Total Fair
Value
Cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Derivative assets, recorded in other current assets . . . . . . . . . .
Derivative liabilities, recorded in accrued expenses and
deferred credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension plan assets: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . . .
U.S. Government and agency obligations . . . . . . . . . . . . . . .
Corporate and foreign bonds . . . . . . . . . . . . . . . . . . . . . . . . .
Asset-backed securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common and collective funds . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
6,059
$
— $
— $
—
—
—
30,953
—
—
48,320
6,309
(13,619)
—
5,873
—
77,934
580
—
—
—
129,791
—
—
—
—
—
—
—
—
658
—
—
—
—
—
—
—
—
—
—
—
15,482
6,059
6,309
(13,619)
—
5,873
30,953
77,934
580
48,978
129,791
15,482
79,273
$ 212,927
$
658
$
15,482
$
308,340
Derivative assets and liabilities reported in level 2 include foreign currency contracts and interest rate swaps. The fair
values of the foreign currency contracts were determined using counterparty quotes based on prevailing market data and
derived from their internal, proprietary model-driven valuation techniques. The fair values of the interest rate swaps are
F-46
based on models using observable inputs such as relevant published interest rates. The pension plan assets consist of cash
and short-term investments, corporate and foreign bonds, asset backed securities and mutual funds which are valued by
third parties who make comparison to similar assets or use quotes for the same assets in inactive markets and are included
in level 2. The valuation methodologies for pension plan government bonds and equity securities are quoted prices and are
included in level 1.
The non-financial assets that are measured at fair value on a non-recurring basis are presented below as of December 31:
(amounts in thousands)
Level 1
Level 2
2017
Level 3
Fair Value
Total Losses
Closed operations . . . . . . . . . . . . . . . . . . . . . . $
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
— $
— $
914
914
$
$
914
914
$
$
1,473
1,473
(amounts in thousands)
Level 1
Level 2
2016
Level 3
Fair Value
Total Losses
Closed operations . . . . . . . . . . . . . . . . . . . . . . $
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
— $
— $
1,445
1,445
$
$
1,445
1,445
$
$
1,602
1,602
The valuation methodologies for the level 3 items are based primarily on internal cash flow projections.
Note 29. Fair Value of Financial Instruments
As part of our normal business activities we invest in financial assets and incur financial liabilities. Our recorded financial
instruments consist primarily of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, notes
receivable, notes payable and fair value of derivative instruments. The fair values of these financial instruments
approximate their recorded values as of December 31, 2017 and December 31, 2016 due to their short-term nature, variable
interest rates and mark to market accounting for derivative contracts. The fair values of long-term receivables were
evaluated using a discounted cash flow analysis and long-term debt is valued using market price quotes. The fair value of
long-term receivables approximated carrying values at both December 31, 2017 and December 31, 2016. The fair value of
our debt is estimated using quoted market prices when available. When quoted marked prices are not available, fair value is
estimated based on current market interest rates for debt with similar maturities and credit quality. Long-term debt
indicated a fair value of $8.7 million and $22.0 million higher than the gross recorded value as of December 31, 2017 and
December 31, 2016, respectively.
Note 30. Commitments and Contingencies
Litigation – We are involved in various legal proceedings encountered in the normal course of business and accrue for
loss amounts on legal matters when it is probable a liability has been incurred and the amount of liability can be
reasonably estimated. Legal judgments and estimated settlements have been included in accrued expenses in the
accompanying consolidated balance sheets.
Other than as described below, as of December 31, 2017, there are no current proceedings or litigation matters
involving the Company or its property that we believe could have a material adverse impact on our business, financial
condition, results of operations or cash flows.
Steves and Sons, Inc. vs JELD-WEN – We sell molded door skins to certain customers pursuant to long-term contracts,
and these customers in turn use the molded door skins to manufacture interior doors and compete directly against us in
the marketplace. We have given notice of termination of one of these contracts and, on June 29, 2016, the counterparty
to the agreement, Steves and Sons, Inc. (“Steves”) filed a claim against JWI in the U.S. District Court for the Eastern
District of Virginia, Richmond Division (“Eastern District of Virginia”). The complaint alleges that our acquisition of
CMI, together with subsequent price increases and other alleged acts and omissions, violated antitrust laws and
constituted a breach of contract and breach of warranty. The complaint seeks declaratory relief, ordinary and treble
damages, and injunctive relief, including divestiture of certain assets acquired in the CMI acquisition.
On February 15, 2018, a jury in the Eastern District of Virginia returned a verdict that was unfavorable to JWI with
respect to Steves’ claims that our acquisition of CMI violated Section 7 of the Clayton Act and that JWI breached the
F-47
supply agreement between the parties. The verdict awards Steves $12,151,873 for past damages under both the Clayton
Act and breach of contract claims and $46,480,581 in future lost profits under the Clayton Act claim. We expect that
Steves will be required to elect to recover its past damages either under the Clayton Act claims or the contract claims,
but not both. If a judgment is entered under the Clayton Act, any damages awarded will be trebled. In addition, if a
judgment is entered under either theory in accordance with the verdict, Steves will be entitled to an award of attorney’s
fees, which amounts have not yet been quantified. We have asserted a position that, because future lost profits were
awarded, Steves is not permitted to pursue its claim for divestiture of certain assets acquired in the CMI acquisition.
The court has not yet ruled on this issue.
We intend to vigorously oppose entry of an adverse judgment, and to appeal any adverse judgment that may be entered.
We continue to believe that Steves’ claims lack merit, Steves’ damages calculations are speculative and excessive, and
Steves is not entitled in any event to the extraordinary remedy of divestiture. We believe that multiple pretrial and trial
rulings were erroneous and improperly limited the Company’s defenses, and that judgment in accordance with the
verdict would be improper for several reasons under applicable law. Accordingly, we do not believe that a loss in this
matter is probable and estimable, and therefore, we have not accrued a reserve for this loss contingency. However, if a
judgment is entered in accordance with the verdict and is ultimately upheld after exhaustion of our appellate remedies,
it could have a material adverse effect on our financial position, operating results, or cash flows, particularly for the
reporting period in which a loss is recorded. Because the operations acquired from CMI have been fully integrated into
the Company’s other operations, divestiture of those operations would be difficult if not impossible and therefore it is
not possible to estimate the cost of any final divestiture order or the extent to which such an order would have a
material adverse effect on our financial position, operating results or cash flows.
During the course of the proceedings in the Eastern District of Virginia, we discovered certain facts that led us to
conclude that Steves, its principals, and certain former employees of the Company had misappropriated Company trade
secrets, violated the terms of various agreements between the Company and those parties, and violated other laws. We
have asserted claims against certain of those parties in the Eastern District of Virginia and in the District Court of Bexar
County, Texas, and are pursuing those claims vigorously. Our claims against Steves and others in the Eastern District of
Virginia related to misappropriation of trade secrets remain pending and are set for trial in April 2018. Our other claims
remain pending in Bexar County, Texas, and are set for trial in October 2018.
ESOP - The JELD-WEN ESOP Plan, Administrative Committee, and individual trustees were sued by three separate
groups of former employees and members of the ESOP for alleged violations relating to the management and
distribution of the ESOP funds. These matters were pled as class actions and none of the cases were certified. In
January 2015, we executed settlement agreements with applicable parties resulting in our recording $5.0 million in
settlement expense in December 2015. Pursuant to the agreements, we accrued a $15.7 million liability to the plaintiffs
in other accrued expenses and a $10.7 million insurance receivable in accounts receivable. In June 2015, we paid all
settlement funds into an escrow account. On October 19, 2015, the court provided final approval of the settlement in all
respects. We received $10.7 million from insurance carriers on December 1, 2016. All settlement funds have now been
credited to claimant’s respective accounts.
Self-Insured Risk – We self-insure substantially all of our domestic business liability risks including general liability,
product liability, warranty, personal injury, auto liability, workers’ compensation and employee medical benefits. Excess
insurance policies from independent insurance companies generally cover exposures between $3.0 million and $250.0
million for domestic product liability risk and exposures between $0.5 million and $250.0 million for auto, general
liability, personal injury and workers’ compensation. We have no stop gap coverage on claims covered by our self-
insured domestic employee medical plan and are responsible for all claims thereunder. We estimate our provision for
self-insured losses based upon an evaluation of current claim exposure and historical loss experience. Actual self-
insurance losses may vary significantly from these estimates. At December 31, 2017 and December 31, 2016, our
accrued liability for self-insured risks was $73.3 million and $71.3 million, respectively.
Indemnifications – At December 31, 2017, we had commitments related to certain representations made on contracts
for the purchase or sale of businesses or property. These representations primarily relate to past actions such as
responsibility for transfer taxes if they should be claimed, and the adequacy of recorded liabilities, warranty matters,
employment benefit plans, income tax matters or environmental exposures. These guarantees or indemnification
responsibilities typically expire within one to three years. We are not aware of any material amounts claimed or
expected to be claimed under these indemnities. From time to time and in limited geographic areas we have entered into
agreements for the sale of our products to certain customers that provide additional indemnifications for liabilities
arising from construction or product defects. We cannot estimate the potential magnitude of such exposures, but to the
F-48
extent specific liabilities have been identified related to product sales, liabilities have been provided in the warranty
accrual in the accompanying consolidated balance sheets.
Performance Bonds and Letters of Credit – At times, we are required to provide letters of credit, surety bonds or
guarantees to customers, vendors and others. Stand-by letters of credit are provided to certain customers and
counterparties in the ordinary course of business as credit support for contractual performance guarantees, advanced
payments received from customers and future funding commitments. The outstanding performance bonds and stand-by
letters of credit were as follows as of December 31:
(amounts in thousands)
Self-insurance workers’ compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Liability and other insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
21,072
$
12,900
14,452
6,650
$
55,074
$
18,514
15,884
14,086
14,070
62,554
Environmental Contingencies – We periodically incur environmental liabilities associated with remediating our
current and former manufacturing sites as well as penalties for not complying with environmental rules and regulations.
We record a liability for remediation costs when it is probable that we will be responsible for such costs and the costs
can be reasonably estimated. These environmental liabilities are estimated based on current available facts and present
laws and regulations. Accordingly, it is likely that adjustments to the estimated liabilities will be necessary as additional
information becomes available. Short-term environmental liabilities and settlements are recorded in accrued expenses in
the accompanying consolidated balance sheets and totaled $0.5 million at both December 31, 2017 and December 31,
2016. Long-term environmental liabilities are recorded in deferred credits and other liabilities in the accompanying
consolidated balance sheets and totaled $0.1 million and $0.0 million at December 31, 2017 and December 31, 2016,
respectively.
Everett, Washington WADOE Action - In 2008, we entered into an Agreed Order with the WADOE to assess historic
environmental contamination at our former manufacturing site in Everett, Washington. As part of this order, we also
agreed to develop a CAP identifying remediation options and the feasibility thereof. We are currently working with
WADOE to finalize our assessment and draft CAP. We estimate the remaining cost to complete our assessment and
develop the CAP at $0.5 million which we have fully accrued. We are working with insurance carriers who provided
coverage to a previous owner and operator of the site, and at this time we cannot reasonably estimate the cost associated
with any remedial action we would be required to undertake and have not provided for any remedial action in our
accompanying consolidated financial statements. Should extensive remedial action ultimately be required, and if those
costs are not found to be covered by insurance, the cost of remediation could have a material adverse effect on our
results of operations and cash flows.
Everett, Washington NRD Action - In November 2014, we received a letter from the NRD, a federal agency, regarding a
potential multi-party settlement of an impending damage claim related to historic environmental contamination on a site
we sold in December 2013. In September 2015, we entered into a settlement agreement under which we will pay $1.3
million to settle the claim. Of the $1.3 million, the prior insurance carrier for the site has agreed to fund $1.1 million of
the settlement. All amounts related to the settlement are fully accrued, and we do not expect to incur any further
significant loss related to the settlement of this matter.
Towanda, Pennsylvania Consent Order - In 2015, we entered into a COA with the Pennsylvania Department of
Environmental Protection to remove a pile of wood fiber waste from our site in Towanda, Pennsylvania, which we
acquired in connection with our acquisition of CMI in 2013, by using it as fuel for a boiler at that site. The COA
replaced a 1995 Consent Decree between CMI’s predecessor Masonite, Inc. and PaDEP. Under the COA, we are
required to achieve certain periodic removal objectives and ultimately remove the entire pile by August 31, 2022. There
are currently $11.0 million in bonds posted in connection with these obligations. If we are unable to remove this pile by
August 31, 2022, then the bonds will be forfeited and we may be subject to penalties by PaDEP. We currently anticipate
meeting all applicable removal deadlines; however, if our operations at this site decrease and we burn less fuel than
currently anticipated, we may not be able to meet such deadlines.
Service Agreements – In February 2015, we entered into a strategic servicing agreement with a third party vendor to
identify and execute cost reduction opportunities. The agreement provided for a tiered fee structure directly tied to cost
F-49
savings realized. This contract terminated pursuant to its own terms on December 31, 2015, and we made a final
payment of $6.3 million on January 2, 2018. We expect no further costs related to this issue.
Employee Stock Ownership Plan – We have historically provided cash to our U.S. ESOP plan in order to fund
required distributions to participants through the repurchase of shares of our common stock. Following our February
2017 IPO, the value of a share of common stock held through the ESOP is now based on JELD-WEN’s public share
price. We do not anticipate that JWH will fund future distributions.
Lease Commitments – We have various operating lease agreements primarily for facilities, manufacturing equipment,
airplanes and vehicles. These obligations generally have remaining non-cancelable terms. Minimum annual lease
payments are as follows (amounts in thousands):
2018
2019
2020
2021
2022
Thereafter
$
Continuing
Operations
33,549
25,460
17,298
12,029
9,234
24,714
$
122,284
Rent expense from continuing operations was $50.0 million in 2017, $45.8 million in 2016 and $35.8 million in 2015.
Rent expense from discontinued operations was $0.0 million in 2017 and $0.1 million in both 2016 and 2015.
Other Commitments and Contingencies – In October 2017, in conjunction with a pending contract, we entered into
bank guarantees of approximately €28.9 million and collateralized those guarantees with cash.
In October 2017, we signed a definitive agreement to acquire Domoferm from holding company Domoferm
International GmbH. On February 19, 2018, we completed the acquisition. See Note 37 - Subsequent Events for further
detail.
F-50
Note 31. Employee Retirement and Pension Benefits
U.S. Defined Benefit Pension Plan
Certain U.S. hourly employees participate in our defined benefit pension plan. The plan is not open to new employees.
Beginning in 2017, we moved from utilizing a weighted average discount rate, which was derived from the yield curve
used to measure the pension benefit obligation at the beginning of the period, to a spot rate yield curve to estimate the
pension benefit obligation and net periodic benefits costs. The change in estimate provides a more accurate measurement of
service and interest cost by applying the spot rate that could be used to settle each projected cash flow individually. This
change in estimate did not have a material effect on net periodic benefit costs from the twelve months ended December 31,
2017.
The components of net periodic benefit cost are summarized as follows for the years ended December 31:
(amounts in thousands)
Components of pension benefit expense - U.S. benefit plan
2017
2016
2015
Service cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial pension loss . . . . . . . . . . . . . . . . . . . . . . . .
Pension benefit expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
3,870
$
3,320
$
13,371
(17,940)
12,680
16,387
(19,990)
12,264
11,981
$
11,981
$
2,590
16,055
(21,213)
12,803
10,235
Discount rate
Expected long-term rate of return on assets
Compensation increase rate
3.94%
6.25%
N/A
4.25%
7.00%
N/A
3.75%
7.00%
N/A
The new mortality tables published by the Society of Actuaries in 2014 were adopted in 2014 and represent our best
estimate of future experience for the base mortality table. The Society of Actuaries has released annual updates to the
mortality improvement projection scale that was first released in 2014, with the most recent annual update being Scale
MP-2017. We adopted the use of Scale MP-2017 as of December 31, 2017 as it represents our best estimate of future
mortality improvement projection experience as of the measurement date.
We developed the discount rate based on the plan’s expected benefit payments using the December 31, 2017 Citigroup
Pension Discount Curve. Based on this analysis, we selected a 3.47% discount rate for our projected benefit obligation. As
the discount rate is reduced or increased, the pension obligation would increase or decrease, respectively, and future
pension expense would increase or decrease, respectively.
In the fourth quarter of 2016, we corrected through other comprehensive income a $3.7 million increase to our pension
liability for a change in the retirement age assumption for vested terminated participants based upon a 2015 experience
study. The change in retirement age should have been reflected in our 2015 actuarial estimate and was immaterial to the
current and prior periods.
Pension benefit expense from amortization of net actuarial pension loss is estimated to be $9.8 million in 2018.
We maintain policies for investment of pension plan assets. The policies set forth stated objectives and a structure for
managing assets, which includes various asset classes and investment management styles that, in the aggregate, are
expected to produce a sufficient level of diversification and investment return over time and provide for the availability of
funds for benefits as they become due. The policies also provide guidelines for each investment portfolio that control the
level of risk assumed in the portfolio and ensure that assets are managed in accordance with stated objectives. The plan
invests primarily in publicly-traded equity and debt securities as directed by the plan’s investment committee. The pension
plan’s expected return assumption is based on the weighted average aggregate long-term expected returns of various
actively managed asset classes corresponding to the plan’s asset allocation. We have selected an expected return on plan
assets based on a historical analysis of rates of return, our investment mix, market conditions and other factors. The fair
value of plan assets increased in 2017 due primarily to investment returns in excess of benefit payments and our
discretionary contribution and increased in 2016 due primarily to investment returns in excess of benefit payments.
F-51
(amounts in thousands)
Change in fair value of plan assets - U.S. benefit plan
Balance at beginning of period
Actual return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period
2017
2016
$
295,995
$
52,559
10,000
(14,948)
(3,855)
339,751
$
$
293,055
20,658
—
(14,415)
(3,303)
295,995
The plan’s investments as of December 31 are summarized below:
Summary of plan investments - U.S. benefit plan
Equity securities
Debt securities
Other
% of Plan Assets
2017
7.3
35.3
57.4
100.0
2016
57.7
35.9
6.4
100.0
The plan’s projected benefit obligation is determined by using weighted-average assumptions made on December 31, of
each year as summarized below:
(amounts in thousands)
Change in projected benefit obligation - U.S. benefit plan
Balance at beginning of period
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period
Discount rate
Compensation increase rate
2017
2016
$
405,310
$
392,459
3,870
13,371
31,948
(14,948)
(3,855)
435,696
$
3,320
16,387
10,862
(14,415)
(3,303)
405,310
3.47%
N/A
4.00%
N/A
$
As of December 31, 2017, the plan’s estimated benefit payments for the next ten years are as follows (amounts in
thousands):
2018
2019
2020
2021
2022
2023-2027
$
18,023
18,850
19,635
20,365
21,052
112,401
The company made cash contributions to the plan of $10.0 million for the year ended December 31, 2017. No
contributions were made for the year ended December 31, 2016. During fiscal year 2018, we expect to make cash
contributions to the plan of approximately $4.1 million.
F-52
The plan’s accumulated benefit obligation of $435.7 million is determined by taking the projected benefit obligation and
removing the impact of the assumed compensation increases. The plan’s funded status as of December 31 is as follows:
(amounts in thousands)
Unfunded pension liability - U.S. benefit plan
Projected benefit obligation at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fair value of plan assets at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unfunded pension liability
Current portion
Long-term unfunded pension liability
2017
2016
435,696
(339,751)
95,945
—
$
405,310
(295,995)
109,315
—
$
95,945
$
109,315
The current portion of the unfunded pension liability is recorded in accrued payroll and benefits and is equal to the
expected employer contributions in the following year.
Net actuarial pension losses are recorded in consolidated other comprehensive income (loss) for the years ended December
31 are as follows:
(amounts in thousands)
Accumulated other comprehensive income (loss) - U.S. benefit plan
Net actuarial pension loss beginning of period
Amortization of net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss (gain) occurring during year . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial pension loss at end of period
Tax benefit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial pension loss at end of period, net of tax
2017
2016
2015
127,982
(12,680)
(2,670)
112,632
(9,583)
103,049
$
$
130,052
(12,264)
10,194
127,982
(15,041)
112,941
$
$
160,170
(12,803)
(17,315)
130,052
(15,041)
115,011
$
$
Non-U.S. Defined Benefit Plans – We have several other defined benefit plans located outside the U.S. that are country
specific. Some of these plans remain open to participants and others are closed. The expenses related to these plans are
recorded in the consolidated statements of operations and are determined by using weighted-average assumptions made on
January 1 of each year as summarized below for the years ended December 31.
(amounts in thousands)
Components of pension benefit expense - Non-U.S. benefit plans
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of net actuarial pension loss. . . . . . . . . . . . . . . . . . . . . . . . .
Pension benefit expense
$
2017
2016
2015
1,436
$
1,142
$
1,184
(700)
145
2,065
$
1,118
(714)
351
1,897
$
4,821
970
(871)
334
5,254
Discount rate
Expected long-term rate of return on assets
Compensation increase rate
0.8% - 7.2%
0.7% - 8.3%
0.0% - 5.7%
0.0% - 5.3%
0.5% - 7.0%
0.5% - 7.0%
0.7 - 9.0%
0.0 - 5.3%
0.5 - 7.0%
F-53
Non-U.S. pension benefit expenses from amortization of net actuarial pension losses are estimated to be $0.1 million in
2018.
(amounts in thousands)
Change in fair value of plan assets - Non-U.S. benefit plans
Balance at beginning of period
2017
2016
$
13,596
$
13,180
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
1,232
277
(198)
(49)
1,136
424
508
970
(1,286)
(25)
(175)
Balance at end of period
$
15,994
$
13,596
The investments of the non-U.S. plans as of December 31 are summarized below:
Summary of plan investments - Non-U.S. benefit plans
Equity securities
Debt securities
Other
% of Plan Assets
2017
48.3
22.0
29.7
100.0
2016
47.3
20.0
32.7
100.0
The projected benefit obligation for the non-U.S. plans is determined by using weighted-average assumptions made on
December 31, of each year as summarized below:
(amounts in thousands)
Change in projected benefit obligation - Non-U.S. benefit plans
Balance at beginning of period
Pension obligation acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of period
Discount rate
Compensation increase rate
2017
2016
$
30,307
$
29,226
—
1,451
1,163
1,582
(847)
(49)
2,643
36,250
$
375
1,229
1,118
618
(1,401)
(25)
(833)
30,307
$
0.8% - 5.1%
0.7% - 5.1%
0.5% - 2.8%
0.5% - 2.9%
As of December 31, 2017, the estimated benefit payments for the non-U.S. plans over the next ten years are as follows
(amounts in thousands):
2018
2019
2020
2021
2022
2023-2027
$
2,810
2,560
3,035
3,351
2,435
13,768
F-54
The accumulated benefit obligations of $30.0 million for the non-U.S. plans are determined by taking the projected benefit
obligation and removing the impact of the assumed compensation increases. We expect to contribute $0.4 million to the
non-U.S. plans in 2018.
The funded status of these plans as of December 31 are as follows:
(amounts in thousands)
Unfunded pension liability - Non-U.S. benefit plans
Projected benefit obligation at end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fair value of plan assets at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net pension liability
$
Long-term unfunded pension liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total unfunded pension liability
Total overfunded pension liability
$
$
2017
2016
36,250
(15,994)
20,256
20,641
1,518
22,159
1,903
$
$
$
$
$
30,307
(13,596)
16,711
17,331
714
18,045
1,334
The current portion of the unfunded pension liability is recorded in accrued payroll and benefits in the accompanying
consolidated balance sheets and is equal to the expected employer contributions in the following year. The overfunded
pension liability is recorded in long-term other assets in the accompanying consolidated balance sheets.
Net actuarial pension losses are recorded in consolidated other comprehensive income (loss) for the years ended December
31 are as follows:
(amounts in thousands)
Accumulated other comprehensive income (loss) - Non-U.S. benefit plans
Net actuarial pension loss beginning of period
Amortization of net actuarial (loss) gain . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss (gain) occurring during year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial pension loss at end of period
Tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net actuarial pension loss at end of period, net of tax
$
$
2017
2016
2015
6,781
(149)
742
(15)
7,359
(1,886)
5,473
$
$
5,160
(10)
1,621
10
6,781
(1,785)
4,996
$
$
5,931
367
(1,073)
(65)
5,160
(1,366)
3,794
Other Defined Contribution Plans – U.S. elective contributions to the 401(k) plan are discussed in Note 32 - Employee
Stock Ownership Plan. We have several other defined contribution plans located outside the U.S. that are country specific.
Other plans that are characteristically defined contribution plans have accrued liabilities of $2.1 million and $0.3 million,
respectively, at December 31, 2017 and December 31, 2016. The total compensation expense for non-U.S. defined
contribution plans was $23.8 million in 2017, $23.3 million in 2016 and $13.3 million in 2015.
Note 32. Employee Stock Ownership Plan
We have an ESOP that covers eligible U.S. employees. The assets of the ESOP are held in a separate trust (the ESOP Trust)
established for that purpose. According to the terms of the ESOP, our obligation to the participants is limited to the value of
the cash, common stock, or other assets held in the ESOP Trust.
The ESOP contains both company funded sub-accounts and employee funded sub-accounts. Company funded sub-accounts
have a delayed payment feature, while employee funded sub-accounts are payable the year following the event. Company
funded sub-accounts are eligible for payment on or after January 1 of the year following the earliest of (1) the year in
which an employee attains Normal Retirement Age, (2) the year in which an employee attains Early Retirement, or (3) the
fifth year following the year in which the employee leaves employment. Payment of company funded sub-account for
disability and death are payable the year following the event.
Currently, all ESOP participant accounts are valued according to the ongoing value of our stock which is the primary asset
of the ESOP Trust. Annual expense related to the ESOP was $0 in 2017, 2016 and 2015.
F-55
Repurchases of common stock from ESOP Trust – Based on periodic assessment of planned distributions to participants,
we have historically been obligated to repurchase common stock from the ESOP Trust based on the fair value of such
shares for ESOP purposes. We did not repurchase shares from the ESOP in 2017 or 2016. We repurchased shares from the
ESOP that totaled $12.1 million in 2015.
Note 33. Related Party Transactions
Notes Receivable from Directors – Notes receivable and interest due from our current and former directors or family
members were paid in full in June 2016 and related to cash advances which were partially secured by our stock. Such
amounts totaled $2.2 million at December 31, 2015 and were recorded as a reduction to equity as the borrowers had
significant influence over the Company and there was uncertainty as to whether the amounts would be repaid in cash or by
a return of our stock.
Receivables from the Estate of Richard L. Wendt – The estate of Richard L. Wendt (“RLW Estate”) is considered a
significant shareholder of JWH and a Company director is a trustee of the estate. We held short and long-term receivables
that originated directly from transactions with RLW Estate, or from transactions with entities that were owned by RLW
Estate, who was a Company director until his death in 2010. In December 2014, we signed an agreement that restructured
the terms of these receivables. The outstanding principal of the note was reduced by a $7.1 million non-cash exchange for
355,487 shares of JWH stock. The remaining principal of $12.6 million continued to bear interest at prime plus 3.25%,
with a minimum interest rate of 5.50% and a maximum interest rate of 9.50% per annum. The note was paid in full in
August 2015. These notes were secured by JWH stock and recorded as deductions to equity. We received interest payments
of $0.5 million in 2015.
(amounts in thousands)
Notes receivable and accrued interest balance, January 1
Cash payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reserve for bad debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable and accrued interest balance, December 31
Interest rates, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts due from other directors and family
$
$
$
2017
2016
2015
56
$
—
(56)
—
— $
N/A
5.75%
—
— $
2,159
(2,152)
—
49
56
56
56
$
$
$
16,380
(14,850)
—
629
2,159
5.50%
2,159
2,159
Payments to Onex – As part of the original Onex investment transaction and prior to our IPO, we agreed to pay Onex for
management services they provided. Total fees paid were zero in 2017, $0.4 million in 2016 and $0.6 million in 2015.
F-56
Note 34. Supplemental Cash Flow Information
Supplemental cash flow information for the years ended December 31:
(amounts in thousands)
Cash Investing Activities:
Change in notes receivable
2017
2016
2015
Issuances of notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Cash received on notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Non-cash Investing Activities:
Property, equipment and intangibles purchased in accounts payable . . . . $
Property and equipment purchased for debt . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable and accrued interest from employees and directors
settled with return of JWH stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer accounts receivable converted to notes receivable . . . . . . . . . .
(61) $
(68) $
2,052
1,991
15,099
$
$
791
183
393
$
$
1,035
967
1,340
1,438
—
1,276
(73)
1,323
1,250
4,128
—
49
174
Cash Financing Activities:
Common stock repurchased
Stock repurchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Repurchase of ESOP shares to fund distribution . . . . . . . . . . . . . . . . . . . .
$
— $
—
— $
— $
—
— $
(32,569)
(12,127)
(44,696)
Change in long-term debt
Proceeds from issuance of new debt, net of discount . . . . . . . . . . . . . . . . $
Borrowings on long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of debt issuance and extinguishment costs, including
underwriting fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Change in notes payable
Borrowings on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Payments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Non-cash Financing Activities:
Common stock issued as consideration for acquisition . . . . . . . . . . . . . . . $
Prepaid insurance funded through short-term debt borrowings. . . . . . . . .
Costs associated with initial public offering formerly capitalized in
prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares surrendered for tax obligations for employee share-based
transactions in accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,240,000
$
374,063
$
477,600
5,334
(1,618,641)
763
(16,844)
(16,358)
(389,665) $
(8,146)
349,836
$
— $
(205)
(205) $
— $
2,662
5,857
569
— $
(180)
(180) $
— $
2,954
—
—
—
(19,402)
(9,066)
449,132
8,017
(11,437)
(3,420)
2,000
3,107
—
—
F-57
Note 35. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for the years ended December 31, 2017 and 2016 are as follows:
Statements of Operations Data:
Net revenues
Gross margin(a)
Operating income
Income before taxes, equity earnings and discontinued
operations
Net income (loss)
Net (loss) income attributable to common shareholders
Net (loss) income per share basic
Net (loss) income per share diluted
Statements of Operations Data:
Net revenues
Gross margin(a)
Operating income
Income before taxes, equity earnings and discontinued
operations
Net income(b)
Net (loss) income attributable to common shareholders
(Loss) earnings per share - basic:
(Loss) income from continuing operations
Income (loss) from discontinued operations
Net (loss) income per share
(Loss) earnings per share - diluted:
(Loss) income from continuing operations
Income (loss) from discontinued operations
Net (loss) income per share
April 1,
2017
Three Months Ended
July 1,
2017
(dollars in thousands)
September 30,
2017
December 31,
2017
$
847,787
181,365
37,690
$
948,736
231,001
83,720
$
991,408
227,591
83,335
8,199
6,428
(4,034)
63,408
46,778
46,778
63,242
51,275
51,275
976,003
208,241
45,323
10,906
(93,690)
(93,690)
(0.05) $
(0.05) $
0.45
0.43
$
$
0.49
0.47
$
$
(0.89)
(0.89)
March 26,
2016
Three Months Ended
June 25,
2016
(dollars in thousands)
September 24,
2016
December 31,
2016
$
796,547
155,237
23,150
$
964,608
205,789
68,970
$
932,475
204,563
71,920
6,863
6,045
(20,361)
51,308
66,890
15,188
61,104
46,084
15,977
(1.16) $
0.03
(1.13) $
(1.16) $
0.03
(1.13) $
0.88
(0.03)
0.85
0.82
(0.01)
0.81
$
$
$
$
1.04
(0.15)
0.89
0.57
(0.03)
0.54
$
$
$
$
973,169
208,962
31,045
11,045
258,162
(68,079)
(3.73)
(0.03)
(3.76)
(3.73)
(0.03)
(3.76)
$
$
$
$
$
$
$
$
(a)
(b)
During the year, we identified and corrected errors related to the allocation of certain expenses between cost of sales and SG&A
that were previously reported in our quarterly periods. These corrections of immaterial misclassifications were ($4,601) for April
1, 2017, ($4,741) for July 1, 2017, ($621) for September 30, 2017, ($2,886) for March 26, 2016, ($6,362) for June 25, 2016,
($6,211) for September 24, 2016, and $(9,579) for December 31, 2016.
In the three-month period ended December 31, 2016, we revised the financial statements for errors related to the tax treatment of
our share-based compensation expense, the inter-quarter allocation of a tax benefit associated with the release of a valuation
allowance in a foreign jurisdiction and certain other income tax corrections of $26,292 and other immaterial pretax adjustments
of ($1,128).
F-58
During the fourth quarter of 2016, we released a valuation allowance in the U.S. totaling $278.4 million resulting in an
increase in tax benefit and net income for the period. During the fourth quarter of 2017, the Tax Act lowered our U.S.
federal tax rate which reduced the valuation of our net deferred tax assets, resulting in an additional tax expense of
approximately $21.1 million. In addition, the Tax Act resulted in an additional estimated foreign repatriation tax charge of
$11.3 million. See Note 18 - Income Taxes for further detail.
Due to the impact of accrued and paid dividends on the calculation, the sum of the quarterly net (loss) income attributable
to common shareholders may not agree to consolidated year-to-date amounts presented in the accompanying consolidated
statements of operations.
Note 36. Revision of Prior Period Financial Statements
Correction of Immaterial Misclassification – During the current period, we identified and corrected errors related to the
allocation of certain expenses between cost of sales and SG&A that were previously reported in our annual periods for
the years ended December 31, 2014, December 31, 2015, December 31, 2016.
Correction of Immaterial Errors – We corrected errors related to the tax treatment of our share-based compensation
expense, the inter-quarter allocation of a tax benefit associated with the release of a valuation allowance in a foreign
jurisdiction that were reported for the year ended December 31, 2016, certain other income tax corrections, and the
timing of other previously recorded immaterial out-of-period adjustments.
In evaluating whether our previously issued consolidated financial statements were materially misstated, we considered
the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 270, Interim Financial
Reporting, ASC Topic 250-S99-1, Assessing Materiality, and ASC Topic 250-S99-2, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. Based upon our evaluation
of both quantitative and qualitative factors, we concluded that the effects of these errors and the other accumulated
misstatements were not material individually or in the aggregate to our previously reported annual periods for the years
ended December 31, 2014, December 31, 2015, and December 31, 2016.
The following tables reflect the effects of correcting the immaterial misclassification errors identified above for the
twelve month periods ended December 31:
(amounts in thousands, except per share data)
Consolidated Statement of Operations:
Cost of sales
Gross margin
Selling, general and administrative
Operating income
(amounts in thousands, except per share data)
Consolidated Statement of Operations:
Cost of sales
Gross margin
Selling, general and administrative
Operating income
December 31, 2014
Correction of
Misclassification
As Revised
As Reported
$
2,919,864
$
587,342
488,477
60,477
6,113
(6,113)
(6,113)
—
$
2,925,977
581,229
482,364
60,477
December 31, 2015
Correction of
Misclassification
As Revised
As Reported
$
2,715,125
$
665,935
512,126
132,467
6,216
(6,216)
(6,216)
—
$
2,721,341
659,719
505,910
132,467
F-59
The tables below reflect the effects of correcting immaterial errors including other accumulated misstatements and
immaterial misclassification errors described above for the twelve month period ended December 31, 2016:
(amounts in thousands, except per share data)
Consolidated Balance Sheet:
Accounts receivable
Other current assets
Total current assets
Deferred tax assets
Goodwill
Intangible assets, net
Other assets
Total assets
Accrued expenses and other current liabilities
Total current liabilities
Total liabilities
Retained earnings
Total shareholders’ equity
Total liabilities, convertible preferred shares, and shareholders’ equity
December 31, 2016
As Reported
Correction of
Errors
As Revised
$
407,620
$
30,104
875,810
268,965
486,055
117,795
63,020
2,516,296
173,521
513,126
2,323,417
202,562
41,922
2,516,296
(450) $
2,144
1,694
18,734
865
(2,070)
527
19,750
80
80
80
19,670
19,670
19,750
407,170
32,248
877,504
287,699
486,920
115,725
63,547
2,536,046
173,601
513,206
2,323,497
222,232
61,592
2,536,046
(amounts in thousands, except per share data)
Consolidated Statement of Operations:
Cost of sales
Gross margin
Selling, general and administrative
Operating income
Income before taxes, equity earnings and
discontinued operations
Income tax benefit
Income from continuing operations, net of tax
Equity earnings on non-consolidated entities
Net income
Net loss attributable to common shareholders
Weighted Average Common Shares
Basic and diluted
Loss per share from continuing operations:
Basic
Diluted
Net loss per share:
Basic
Diluted
Twelve months ended
December 31, 2016
As Reported
Correction of
Errors
Correction of
Misclassification
As Revised
$
2,892,248
$
405
(405)
1,250
(1,655)
25,038
(25,038)
(25,038)
—
(1,655)
(20,798)
19,143
527
19,670
19,670
—
1.09
1.09
1.09
1.09
$
$
$
$
—
—
—
—
—
—
—
— $
— $
— $
— $
774,551
565,619
195,085
130,320
(246,394)
376,714
3,791
377,181
(19,466)
17,992,879
(0.90)
(0.90)
(1.08)
(1.08)
$
2,866,805
$
799,994
589,407
196,740
131,975
(225,596)
357,571
3,264
357,511
(39,136)
17,992,879
$
$
$
$
(1.99) $
(1.99) $
(2.17) $
(2.17) $
F-60
Consolidated Statement of Cash Flow
The errors did not impact the subtotals for cash flows from operating activities, investing activities or financing
activities for any of the periods affected.
Reconciliation of pre-tax net income (loss) to Note 19 - Segment Information, Adjusted EBITDA
(dollars in thousands)
Net income
Equity earnings on non-consolidated entities
Income tax benefit
Depreciation and amortization
Adjusted EBITDA
Segment Information: Adjusted EBITDA
Twelve months ended
December 31, 2016
As Reported
Correction of
Errors
$
$
357,511
(3,264)
(225,596)
106,790
394,132
19,670
(527)
(20,798)
1,205
(450)
As Revised
$
377,181
(3,791)
(246,394)
107,995
393,682
Twelve months ended
December 31, 2016
(dollars in thousands)
As Reported
Adjustment
As Revised
$
$
North
America
Europe
Australasia
Total
Operating
Segments
Corporate
and
Unallocated
Costs
Total
Consolidated
251,831
—
251,831
$
$
122,574
—
122,574
$
$
59,519
—
59,519
$
$
433,924
—
433,924
$
$
(39,792) $
(450)
(40,242) $
394,132
(450)
393,682
Note 37. Subsequent Events
In February 2018, we announced information with respect to three acquisitions, one of which was an equity method
investment at December 31, 2017.
• We completed the previously announced acquisition of Domoferm from holding company Domoferm
International GmbH. Domoferm is a leading European provider of steel doors, steel door frames, and fire doors
for commercial and residential markets. The purchase price will be allocated among physical assets, intangible
assets including product certifications, tradenames and customer relationships as well as goodwill. Domoferm
will be included in our Europe segment.
• We signed a purchase agreement acquiring A&L Windows Pty Ltd (“A&L”), a leading Australian manufacturer
of residential aluminum windows and patio doors. A&L has a network of manufacturing facilities and
showrooms across the eastern seaboard of Australia which we expect will deliver synergies through operational
savings from the implementation of JEM and by leveraging the benefits of our combined supply chain. The
purchase price will be allocated among physical assets, intangible assets including customer relationships,
tradenames, and software, as well as goodwill. A&L is expected to be part of our Australasia segment.
• We signed a purchase agreement to acquire American Building Supply, Inc. (“ABS”), a premier supplier of
value-added services for the millwork industry located in Sacramento, California. We expect the transaction to
close in the first quarter of 2018, subject to customary closing conditions. The purchase price will be allocated
among physical assets, intangible assets including process know-how, tradenames, and patents, as well as
goodwill. ABS is expected to be included in our North America segment.
Effective February 27, 2018, Mark Beck, President and Chief Executive Officer, departed the Company by mutual
agreement with our Board of Directors. His service as a director also ended on that date. The Board appointed Kirk
Hachigian, Chairman of the Board and former CEO of the Company, to act as CEO on an interim basis while the Board
F-61
conducts a search to identify a successor. The Company expects to record a liability in the first quarter of 2018 to reflect its
severance obligations to Mr. Beck.
On February 28, 2018, JWA amended their existing letter of offer facility with Australia and New Zealand Banking Group
Limited, to include a new 5-year floating rate term loan sub-facility.in the amount of AUD $55.0 million. The amendment
included a reduction of the floating rate revolving loan facility by AUD $2 million to AUD $15 million, an increase of the
interchangeable facility for guarantees and letters of credit by AUD $2 million to AUD $12 million, and an increase in the
asset finance facility by AUD $1 million to $2.5 million.
F-62
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF JELD-WEN HOLDING, INC.
Parent Company Information
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended December 31,
(amounts in thousands, except share and per share data)
Selling, general and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Equity in earnings of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017
2016
2015
23,457
$
48,195
$
33,860
424,946
28,522
119,371
Other (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (benefit) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Comprehensive income (loss): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Other comprehensive income (loss), net of tax . . . . . . . . . . . . . . . . . .
Equity in comprehensive income (loss) of subsidiary . . . . . . . . .
Total other comprehensive income (loss), net of tax . . . . . . . . . . . . . .
Total comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
(35)
73
(426)
10,791
—
10,791
10,791
$
$
101,835
101,835
112,626
$
(57)
65
(438)
377,181
—
377,181
377,181
(34,194)
(34,194)
342,987
$
$
$
(206)
110
27
90,918
—
90,918
90,918
(59,136)
(59,136)
31,782
See Notes to Condensed Financial Information
F-63
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF JELD-WEN HOLDING, INC.
Parent Company Information
CONDENSED BALANCE SHEETS
(amounts in thousands, except share and per share data)
ASSETS
Current assets
December 31,
2017
December 31,
2016
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,830
$
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
3,845
3,363
885,070
—
147
2,375
—
2,375
3,502
403,321
5,857
6
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
892,425
$
415,061
LIABILITIES AND EQUITY
Current liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Current payable to subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable and current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 5)
Convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shareholders’ equity
Preferred Stock, par value $0.01 per share, 90,000,000 shares authorized; no
shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock: 900,000,000 shares authorized, par value $0.01 per share,
105,990,483 shares outstanding as of December 31, 2017; 904,732,200 shares
authorized, par value $0.01 per share, 17,894,393 shares outstanding as of
December 31, 2016; 177,221 shares of Class B-1 Common Stock outstanding
as of December 31, 2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities, convertible preferred shares, and shareholders’ equity . . . . . . . . . . . . . $
744
$
1,654
2,126
227
981
4,078
963
5,041
—
—
1,060
652,666
233,658
887,384
892,425
$
964
788
686
4,092
1,238
5,330
150,957
—
180
36,362
222,232
258,774
415,061
See Notes to Condensed Financial Information
F-64
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF JELD-WEN HOLDING, INC.
Parent Company Information
CONDENSED STATEMENTS OF CASH FLOWS
(amounts in thousands)
OPERATING ACTIVITIES
For the Years Ended December 31,
2017
2016
2015
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
10,791
$
377,181
$
90,918
Adjustments to reconcile net income to cash used in operating activities:
Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation settlement funded by subsidiaries . . . . . . . . . . . . . . . . . . . . .
Income from subsidiary investment. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payment to option holders funded by subsidiaries . . . . . . . . . . . . . . . .
Stock-based compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net change in operating assets and liabilities, net of effect of acquisitions:
Receivables and payables from subsidiaries . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES
Additional Investment in subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received on notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sales of subsidiaries' shares . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution received from subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash (used in) provided by investing activities
FINANCING ACTIVITIES
Distributions paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee note repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common stock issued for exercise of options
Common stock repurchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the sale of common stock, net of underwriting fees and
commissions
Payments associated with initial public offering . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency exchange rates on cash . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . .
Cash, cash equivalents and restricted cash, beginning . . . . . . . . . . . . . . . . .
139
—
(33,860)
191
—
19,785
(24,020)
(15)
(882)
(27,871)
(480,306)
—
17
30,181
1,000
(449,108)
—
(861)
26
1,029
—
480,306
(2,066)
478,434
—
1,455
2,375
139
—
—
325
(424,946)
(119,371)
(205)
20,739
22,464
(1,296)
(5,253)
1,092
(10,085)
—
—
16
32,605
382,400
415,021
(404,198)
(728)
223
1,187
—
—
—
(180)
11,780
15,620
(75)
(595)
670
(908)
—
(3,641)
219
461,927
—
458,505
(419,216)
(1,187)
4,144
2,006
(44,647)
—
—
(403,516)
(458,900)
—
1,420
955
—
(1,303)
2,258
955
Cash, cash equivalents and restricted cash, ending . . . . . . . . . . . . . . . . . . . .
$
3,830
$
2,375
$
See Notes to Condensed Financial Information
F-65
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF JELD-WEN HOLDING, INC.
Parent Company Information
NOTES TO CONDENSED FINANCIAL INFORMATION
Note 1. Summary of Significant Accounting Policies
Accounting policies adopted in the preparation of this condensed parent company only financial information are the
same as those adopted in the consolidated financial statements and described in Note 1 - Summary of Significant
Accounting Policies, of the consolidated financial statements included in this Form 10-K.
Nature of Business – JELD-WEN Holding, Inc., (the “Parent Company”) (a Delaware corporation) was formed by
Onex Partners III LP to effect the acquisition of JELD-WEN, Inc. and had no activities prior to the acquisition of JELD-
WEN, Inc. on October 3, 2011. The Parent Company is a holding company with no material operations of its own that
conducts substantially all of its activities through its direct subsidiary, JELD-WEN Inc. and its subsidiaries.
The accompanying condensed parent-only financial information includes the accounts of the Parent Company and, on
an equity basis, its direct and indirect subsidiaries and affiliates. Accordingly, these condensed financial statements have
been presented on a “parent-only” basis. Under a parent-only presentation, the Parent Company’s investments in
subsidiaries are presented under the equity method of accounting. These parent-only financial statements should be read
in conjunction with the JELD-WEN Holding, Inc. and subsidiaries audited consolidated financial statements included
elsewhere herein.
The condensed parent-only financial statements have been prepared in accordance with Rule 12-04, Schedule I of
Regulation S-X as the restricted net assets of the subsidiaries of the Company exceed 25% of the consolidated net assets
of the Company. The ability of the Company’s operating subsidiaries to pay dividends may be restricted due to the
terms of the subsidiaries’ financing arrangements (see Note 16 - Notes Payable and Long-Term Debt to the consolidated
financial statements).
Notes Receivable – Notes receivable are recorded at their net realizable value. The balance consists of affiliate notes
with $0 allowance for doubtful notes as of December 31, 2017 and 2016. The allowance for doubtful notes, if any, is
based upon historical loss trends and specific reviews of delinquent notes.
Property and Equipment – Property and equipment is recorded at cost. The cost of major additions and betterments
are capitalized and depreciated using the straight-line method over their estimated useful lives while replacements,
maintenance and repairs that do not improve or extend the useful lives of the related assets or adapt the property to a
new or different use are expensed as incurred.
Depreciation is generally provided over the following estimated useful service lives:
Buildings
Note 2. Property and Equipment, Net
15 - 45 years
(amounts in thousands)
2017
2016
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Total depreciable assets
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
3,636
$
3,636
(273)
3,363
$
3,641
3,641
(139)
3,502
Depreciation expense was $0.1 million in the years ended December 31, 2017, 2016, respectively. There was no depreciation expense
for the year ended December 31, 2015.
F-66
Note 3. Long-Term Debt
(amounts in thousands)
2017 Year-end
Effective Interest Rate
2017
2016
Installment notes for stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.00% - 4.25%
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . . .
$
$
1,944
(981)
963
Maturities by year:
2018
2019
2020
2021
2022
Thereafter
$
$
$
$
1,924
(686)
1,238
981
757
206
—
—
—
1,944
Installment Notes for Stock - We entered into installment notes for stock representing amounts due to former or retired employees
for repurchases of our stock that are payable over 5 or 10 years depending on the amount with payments through 2020. As of
December 31, 2017, we had $1.9 million outstanding under these notes.
Note 4. Stock Compensation
For discussion of stock compensation expense of the Parent Company and its subsidiaries, see Note 23 - Stock
Compensation, to the consolidated financial statements.
Note 5. Commitments and Contingencies
For discussion of the commitments and contingencies of the subsidiaries of the Parent Company see Note 30 -
Commitments and Contingencies, to the consolidated financial statements.
Note 6. Related Party Transactions
Payments to Onex – As part of the original Onex investment transaction, we agreed to pay Onex for management services
they provide. Total fees paid were zero in 2017, $0.4 million in 2016 and $0.6 million in 2015 and are included in SG&A
expense in the accompanying condensed financial statements.
F-67
Note 7. Supplemental Cash Flow
(amounts in thousands)
2017
2016
2015
Notes receivable and accrued interest from employees and directors
settled with return of JWH stock. . . . . . . . . . . . . . . . . . . . . . . . . . $
183
$
— $
49
Common stock repurchased
Stock repurchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Repurchase of ESOP shares to fund distribution . . . . . . . . . . . . . . . .
$
— $
—
— $
— $
—
— $
(32,569)
(12,127)
(44,696)
Common stock issued as consideration for acquisition . . . . . . . . . . . $
Costs associated with initial public offering formerly capitalized in
prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
— $
— $
2,000
5,857
$
— $
—
Subsidiary non-cash director notes and accrued interest activity. . . . $
— $
2,068
$
10,438
F-68
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BOARD OF DIRECTORS
KIRK HACHIGIAN
Chairman of the Board and Acting CEO
WILLIAM BANHOLZER
Director
GREG G. MAXWELL
Director
SUZANNE STEFANY
Director
RODERICK WENDT
Director and Vice Chairman
ANTHONY MUNK
Director
BRUCE TATEN
Director
STEVEN WYNNE
Director
LEADERSHIP TEAM
MARTHA BYORUM
Director
MATTHEW ROSS
Director
PATRICK TOLBERT
Director
BROOKS MALLARD
Executive Vice President and
Chief Financial Officer
TIMOTHY CRAVEN
Executive Vice President,
Human Resources
LAURA DOERRE
Executive Vice President, General
Counsel and Chief Compliance Officer
PETER FARMAKIS
Executive Vice President
and President, Australia
JOHN LINKER
Senior Vice President, Corporate
Development and Investor Relations
PETER MAXWELL
Executive Vice President and
President, Europe
JIM GARCIA
Senior Vice President, Global JEM
(JELD-WEN Excellence Model) Leader
MARK DIXON
Senior Vice President,
Global Procurement
EXECUTIVE OFFICE
2645 Silver Crescent Drive
Charlotte, NC 28273
WEBSITE
jeld-wen.com
EMAIL
investors@jeldwen.com