JELD-WEN Holding, Inc 10-Q for FY2023 Q3
JELD-WEN Holding, Inc. (JELD)
10-Q
2023-11-07
For: 2023-09-30
View Original
Added on
April 10, 2026
About this 10-Q
JELD-WEN Holding, Inc filed this 10-Q on November 7, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.08B
- down 5.5% from $1.14B a year earlier
- Net income
- $43.79M
- compared with a net loss of $33.19M a year earlier
- Diluted EPS
- $0.51
- compared with -$0.39 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________
FORM 10-Q
____________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2023
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
____________________________
(Exact name of registrant as specified in its charter)
____________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(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 | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
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 every Interactive Data File required to be submitted 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 such files). Yes x No ☐
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.
| ☒ | Accelerated filer | ☐ | ||||||||||||||||||
| Non-accelerated filer | o | Smaller reporting company | ||||||||||||||||||
| Emerging growth company | ||||||||||||||||||||
If an emerging growth company, indicate by check mark 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 85,215,086 shares of Common Stock, par value $0.01 per share, outstanding as of November 3, 2023.
JELD-WEN HOLDING, Inc.
- Table of Contents –
| Page No. | ||||||||
| Part I - Financial Information | ||||||||
| Item 1. | Unaudited Financial Statements | |||||||
| Consolidated Statements of Operations | ||||||||
| Consolidated Statements of Comprehensive Income (Loss) | ||||||||
| Consolidated Balance Sheets | ||||||||
| Consolidated Statements of Equity | ||||||||
| Consolidated Statements of Cash Flows | ||||||||
| Notes to Unaudited Consolidated Financial Statements | ||||||||
Note 1. Description of Company and Summary of Significant Accounting Policies | ||||||||
| Note 2. Discontinued Operations | ||||||||
Note 3. Accounts Receivable | ||||||||
| Note 4. Inventories | ||||||||
| Note 5. Property and Equipment, Net | ||||||||
Note 6. Goodwill | ||||||||
Note 7. Intangible Assets, Net | ||||||||
Note 8. Accrued Expenses and Other Current Liabilities | ||||||||
Note 9. Warranty Liability | ||||||||
Note 10. Long-Term Debt | ||||||||
Note 11. Income Taxes | ||||||||
Note 12. Segment Information | ||||||||
Note 13. Capital Stock | ||||||||
| Note 14. Earnings Per Share | ||||||||
Note 15. Stock Compensation | ||||||||
| Note 16. Restructuring and Asset Related Charges | ||||||||
Note 17. Held for Sale | ||||||||
Note 18. Other (Income), Net | ||||||||
Note 19. Derivative Financial Instruments | ||||||||
Note 20. Fair Value of Financial Instruments | ||||||||
Note 21. Commitments and Contingencies | ||||||||
Note 22. Supplemental Cash Flow Information | ||||||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |||||||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | |||||||
| Item 4. | Controls and Procedures | |||||||
| Part II - Other Information | ||||||||
| Item 1. | Legal Proceedings | |||||||
| Item 1A. | Risk Factors | |||||||
| Item 5. | Other Information | |||||||
| Item 6. | Exhibits | |||||||
| Signature | ||||||||
2
Glossary of Terms
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
| Form 10-K | Annual Report on Form 10-K for the fiscal year ended December 31, 2022 | ||||
| ABL Facility | Our $500 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 | ||||
| Adjusted EBITDA from continuing operations | A supplemental non-GAAP financial measure of operating performance not based on any standardized methodology prescribed by GAAP that we define as income (loss) from continuing operations, net of tax adjusted for the following items: income tax expense (benefit); depreciation and amortization; interest expense, net; and certain special items consisting of non-recurring legal and professional expenses and settlements; goodwill impairment, restructuring and asset related charges; other facility closure, consolidation, and other related costs and adjustments; M&A related costs; loss on extinguishment of debt; share-based compensation expense; non-cash foreign exchange transaction/translation (income) loss; and other special items. | ||||
| ASC | Accounting Standards Codification | ||||
| ASU | Accounting Standards Update | ||||
| AUD | Australian Dollar | ||||
| BBSY | Bank Bill Swap Bid Rate | ||||
| CAP | Cleanup Action Plan | ||||
| CARES Act | Coronavirus Aid, Relief, and Economic Security Act enacted on March 27, 2020 | ||||
| CEO | Chief Executive Officer | ||||
| CFO | Chief Financial Officer | ||||
| Charter | Amended and Restated Certificate of Incorporation of JELD-WEN Holding, Inc. | ||||
| CME | Chicago Mercantile Exchange | ||||
| CMI | JWI d/b/a CraftMaster Manufacturing, Inc. | ||||
| COA | Consent Order and Agreement | ||||
| CODM | Chief Operating Decision Maker, which is our Chief Executive Officer | ||||
| Common Stock | The 900,000,000 shares of common stock, par value $0.01 per share, authorized under our Charter | ||||
| Core Revenues | Revenue excluding the impact of foreign exchange, divestitures, and acquisitions completed in the last twelve months | ||||
| Corporate Credit Facilities | Collectively, our ABL Facility and our Term Loan Facility | ||||
| COVID-19 | A novel strain of the 2019-nCov coronavirus | ||||
| Credit Facilities | Collectively, our Corporate Credit Facilities and other acquired term loans and revolving credit facilities | ||||
| DKK | Danish Krone | ||||
| ERP | Enterprise Resource Planning | ||||
| Exchange Act | Securities Exchange Act of 1934, as amended | ||||
| FASB | Financial Accounting Standards Board | ||||
| GAAP | Generally Accepted Accounting Principles in the United States | ||||
| GHGs | Greenhouse Gases | ||||
| GILTI | Global Intangible Low-Taxed Income | ||||
| JELD-WEN | JELD-WEN Holding, Inc., together with its consolidated subsidiaries where the context requires | ||||
| JWI | JELD-WEN, Inc., a Delaware corporation | ||||
| LIBOR | London Interbank Offered Rate | ||||
| M&A | Mergers and acquisitions | ||||
| MD&A | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
| Onex | Onex Partners III LP and certain affiliates | ||||
3
| PaDEP | Pennsylvania Department of Environmental Protection | ||||
| PLP | Potential Liability Party | ||||
| Preferred Stock | 90,000,000 shares of Preferred Stock, par value $0.01 per share, authorized under our Charter | ||||
| PSU | Performance Stock Unit | ||||
| R&R | Repair and Remodel | ||||
| RSU | Restricted Stock Unit | ||||
| SEC | U.S. Securities and Exchange Commission | ||||
| Securities Act | Securities Act of 1933, as amended | ||||
| Senior Notes | $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 ($200.0 of which were redeemed on August 3, 2023) and $400.0 million bearing interest at 4.875% and maturing in December 2027. | ||||
| Senior Secured Notes | $250.0 million of senior secured notes issued in May 2020 in a private placement bearing interest at 6.25% and redeemed in August 2023. | ||||
| SOFR | Secured Overnight Financing Rate | ||||
| SG&A | Selling, general, and administrative expenses | ||||
| Tax Act | Tax Cuts and Jobs Act | ||||
| Term Loan Facility | Our term loan facility, dated as of October 15, 2014, and 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 | ||||
| U.S. | United States of America | ||||
| VPI | JWI d/b/a VPI Quality Windows, Inc. | ||||
| Working Capital | Accounts receivable plus inventory less accounts payable | ||||
4
CERTAIN TRADEMARKS, TRADE NAMES, AND SERVICE MARKS
This report includes trademarks, trade names, and service marks owned by us. Our U.S. window and door trademarks include JELD-WEN®, AuraLast®, MiraTEC®, Extira®, LaCANTINA®, MMI Door®, KaronaTM, ImpactGard®, JW®, Aurora®, IWP®, True BLU®, ABSTM, Siteline®, National Door®, Low-Friction Glider®, Hydrolock®, VPITM, AURALINE®, FINISHIELD®, MILLENNIUM®, TRUFIT®, EPICVUE®, and EVELIN®. 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 Swedoor®, Dooria®, DANA®, MattioviTM, Zargag® , Alupan®, and Domoferm® marks in Europe. ENERGY STAR® is a registered trademark of the U.S. Environmental Protection Agency. This report 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 report appear without the ®, ™ 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.
5
PART I - FINANCIAL INFORMATION
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the federal 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-Q are forward-looking statements. Forward-looking statements are generally identified by our use of forward-looking terminology, including the terms “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” or “should,” and, in each case, their negative or other various 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 under 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 and impact 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 in our Form 10-K and Item 1A – Risk Factors and Item 2- Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-Q may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:
•negative trends in overall business, financial market and economic conditions, and/or activity levels in our end markets;
•our highly competitive business environment;
•failure to timely identify or effectively respond to consumer needs, expectations, or trends;
•failure to maintain the performance, reliability, quality, and service standards required by our customers;
•failure to successfully implement our strategic initiatives, including our transformation, productivity and global footprint rationalization initiatives;
•the ongoing conflict between Russia and Ukraine;
•acquisitions, divestitures, or investments in other businesses that may not be successful;
•adverse outcome of pending or future litigation;
•declines in our relationships with and/or consolidation of our key customers;
•increases in interest rates and reduced availability of financing for the purchase of new homes and home construction and improvements;
•fluctuations in the prices of raw materials used to manufacture our products;
•delays or interruptions in the delivery of raw materials or finished goods;
•failure to retain and recruit executives, managers, and employees;
•seasonal business with varying revenue and profit;
•changes in weather patterns and related extreme weather conditions;
•political, regulatory, economic, and other risks, including the impact of political conflict on the global economy and the impact pandemics, including the COVID-19 pandemic, that arise from operating a multinational business;
•exchange rate fluctuations;
•disruptions in our operations due to natural disasters or acts of war;
•manufacturing realignments and cost savings programs;
•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;
6
•compliance costs and liabilities under environmental, health, and safety laws and regulations;
•compliance costs with respect to legislative and regulatory proposals to restrict emission of GHGs;
•lack of transparency, threat of fraud, public sector corruption, and other forms of criminal activity involving government officials;
•product liability claims, product recalls, or warranty claims;
•inability to protect our intellectual property;
•pension plan obligations;
•availability and cost of credit;
•our current level of indebtedness and the effect of restrictive covenants under our existing or future indebtedness including our Credit Facilities and Senior Notes; and
•other risks and uncertainties, including those listed under Item 1A- Risk Factors in our Form 10-K and Item 1A- Risk Factors in this Form 10-Q.
Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. Any forward-looking statement in this Form 10-Q speaks only as of the date of this Form 10-Q. We do not undertake any obligation to update any of the forward-looking statements, except as required by law. 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.
The forward-looking statements contained in this Form 10-Q are not guarantees of future performance and our actual results of operations, financial condition, and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained herein. In addition, even if our results of operations, financial condition, and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this Form 10-Q, they may not be predictive of results or developments in future periods.
Unless the context requires otherwise, references in this Form 10-Q to “we,” “us,” “our,” “the Company,” or “JELD-WEN” mean JELD-WEN Holding, Inc., together with our consolidated subsidiaries where the context requires, including our wholly owned subsidiary JWI.
7
Item 1 - Unaudited Financial Statements
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (amounts in thousands, except share and per share data) | September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||||||||
| Goodwill impairment | |||||||||||||||||||||||||||||
| Operating income (loss) | ( | ||||||||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||||||||
Loss on extinguishment of debt | |||||||||||||||||||||||||||||
| ( | ( | ( | ( | ||||||||||||||||||||||||||
| Income (loss) from continuing operations before taxes | ( | ||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | ( | ( | |||||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Basic | |||||||||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||||||||
| Net income (loss) per share from continuing operations | |||||||||||||||||||||||||||||
| Basic | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
| Diluted | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
| Net income per share from discontinued operations | |||||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||||||||
| Net income (loss) per share | |||||||||||||||||||||||||||||
| Basic | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Diluted | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
Net income per share may not sum due to rounding.
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
8
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||||||
| Net income (loss) | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax expense of $ | ( | ( | |||||||||||||||||||||||||||
Net investment hedge adjustments, net of tax (benefit) of $( | ( | ||||||||||||||||||||||||||||
Interest rate hedge adjustments, net of tax (benefit) expense of $( | ( | ( | |||||||||||||||||||||||||||
Defined benefit pension plans, net of tax expense of $ | |||||||||||||||||||||||||||||
| Total other comprehensive income (loss), net of tax | ( | ( | |||||||||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | ( | $ | $ | ( | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
9
JELD-WEN HOLDING, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
| (amounts in thousands, except share and per share data) | September 30, 2023 | December 31, 2022 | |||||||||
| ASSETS | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
| Other current assets | |||||||||||
| Total current assets | |||||||||||
| Deferred tax assets | |||||||||||
| Operating lease assets, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued payroll and benefits | |||||||||||
| Total current liabilities | |||||||||||
| Unfunded pension liability | |||||||||||
| Operating lease liability | |||||||||||
| Deferred credits and other liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Total liabilities | |||||||||||
| Shareholders’ equity | |||||||||||
Preferred Stock, par value $ | |||||||||||
Common Stock: | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
10
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | ||||||||||||||||||||||||||||||||||
| (amounts in thousands, except share and per share amounts) | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
Preferred stock, $ | $ | $ | |||||||||||||||||||||||||||||||||
Common stock, $ | |||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | |||||||||||||||||||||||||||||||||
| Shares issued for exercise/vesting of share-based compensation awards | |||||||||||||||||||||||||||||||||||
| Shares repurchased | ( | ( | |||||||||||||||||||||||||||||||||
| Shares surrendered for tax obligations for employee share-based transactions | ( | — | ( | — | |||||||||||||||||||||||||||||||
| Balance at period end | $ | $ | |||||||||||||||||||||||||||||||||
| Additional paid-in capital | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | $ | |||||||||||||||||||||||||||||||||
Shares issued for exercise/vesting of share-based compensation awards | |||||||||||||||||||||||||||||||||||
Shares surrendered for tax obligations for employee share-based transactions | ( | ( | |||||||||||||||||||||||||||||||||
Amortization of share-based compensation | ( | ||||||||||||||||||||||||||||||||||
Balance at period end | |||||||||||||||||||||||||||||||||||
Employee stock notes | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | ( | ( | |||||||||||||||||||||||||||||||||
Net issuances, payments and accrued interest on notes | — | — | |||||||||||||||||||||||||||||||||
Balance at period end | ( | ( | |||||||||||||||||||||||||||||||||
Balance at period end | $ | $ | |||||||||||||||||||||||||||||||||
| Retained earnings | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | $ | |||||||||||||||||||||||||||||||||
| Shares repurchased | — | ( | |||||||||||||||||||||||||||||||||
| Net income | ( | ||||||||||||||||||||||||||||||||||
Balance at period end | $ | $ | |||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
Foreign currency adjustments | ( | ||||||||||||||||||||||||||||||||||
| Realized gain net investment hedges | ( | ||||||||||||||||||||||||||||||||||
| Unrealized (loss) gain on interest rate hedges | ( | ||||||||||||||||||||||||||||||||||
| Net actuarial pension gain | |||||||||||||||||||||||||||||||||||
Balance at period end | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Total shareholders’ equity at period end | $ | $ | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
11
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(unaudited)
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | ||||||||||||||||||||||||||||||||||
| (amounts in thousands, except share and per share amounts) | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||
Preferred stock, $ | $ | $ | |||||||||||||||||||||||||||||||||
Common stock, $ | |||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | |||||||||||||||||||||||||||||||||
Shares issued for exercise/vesting of share-based compensation awards | |||||||||||||||||||||||||||||||||||
Shares repurchased | — | — | ( | ( | |||||||||||||||||||||||||||||||
Shares surrendered for tax obligations for employee share-based transactions | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Balance at period end | $ | $ | |||||||||||||||||||||||||||||||||
| Additional paid-in capital | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | $ | |||||||||||||||||||||||||||||||||
Shares issued for exercise/vesting of share-based compensation awards | |||||||||||||||||||||||||||||||||||
Shares surrendered for tax obligations for employee share-based transactions | ( | ( | |||||||||||||||||||||||||||||||||
Amortization of share-based compensation | |||||||||||||||||||||||||||||||||||
Balance at period end | |||||||||||||||||||||||||||||||||||
Employee stock notes | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | ( | ( | |||||||||||||||||||||||||||||||||
Net issuances, payments and accrued interest on notes | — | — | |||||||||||||||||||||||||||||||||
Balance at period end | ( | ( | |||||||||||||||||||||||||||||||||
Balance at period end | $ | $ | |||||||||||||||||||||||||||||||||
| Retained earnings | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | $ | |||||||||||||||||||||||||||||||||
| Shares repurchased | — | ( | |||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||||
Balance at period end | $ | $ | |||||||||||||||||||||||||||||||||
| Accumulated other comprehensive income (loss) | |||||||||||||||||||||||||||||||||||
Balance at beginning of period | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Foreign currency adjustments | ( | ||||||||||||||||||||||||||||||||||
| Unrealized (loss) gain on interest rate hedges | ( | ||||||||||||||||||||||||||||||||||
| Net actuarial pension gain | |||||||||||||||||||||||||||||||||||
Balance at period end | $ | ( | $ | ( | |||||||||||||||||||||||||||||||
| Total shareholders’ equity at period end | $ | $ | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements
12
JELD-WEN HOLDING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| Nine Months Ended | ||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | ||||||||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||||||||
| Net income | $ | $ | ||||||||||||||||||
| Adjustments to reconcile net income to cash provided by (used in) operating activities: | ||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||
| Deferred income taxes | ||||||||||||||||||||
| Net (gain) loss on disposition of assets | ( | |||||||||||||||||||
| Goodwill impairment | ||||||||||||||||||||
| Adjustment to carrying value of assets | ||||||||||||||||||||
| Amortization of deferred financing costs | ||||||||||||||||||||
| Loss on extinguishment of debt | ||||||||||||||||||||
| Gain on sale of discontinued operations, net of tax | ( | |||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Amortization of U.S. pension expense | ||||||||||||||||||||
| Recovery of cost from interest received on impaired notes | ( | ( | ||||||||||||||||||
| Other items, net | ( | |||||||||||||||||||
| Net change in operating assets and liabilities: | ||||||||||||||||||||
| Accounts receivable | ( | ( | ||||||||||||||||||
| Inventories | ( | |||||||||||||||||||
| Other assets | ( | |||||||||||||||||||
| Accounts payable and accrued expenses | ||||||||||||||||||||
| Change in short-term and long-term tax liabilities | ( | ( | ||||||||||||||||||
| Net cash provided by (used in) operating activities | ( | |||||||||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||||||||
| Purchases of property and equipment | ( | ( | ||||||||||||||||||
| Proceeds from sale of property and equipment | ||||||||||||||||||||
| Purchase of intangible assets | ( | ( | ||||||||||||||||||
Proceeds (payments) related to the sale of JW Australia(1) | ||||||||||||||||||||
Recovery of cost from interest received on impaired notes | ||||||||||||||||||||
| Cash received for notes receivable | ||||||||||||||||||||
| Cash received from insurance proceeds | ||||||||||||||||||||
| Change in securities for deferred compensation plan | ( | ( | ||||||||||||||||||
| Net cash provided by (used in) investing activities | ( | |||||||||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||||||||
| Change in long-term debt and payments of debt extinguishment costs | ( | |||||||||||||||||||
| Common stock issued for exercise of options | ||||||||||||||||||||
| Common stock repurchased | ( | |||||||||||||||||||
| Payments to tax authorities for employee share-based compensation | ( | ( | ||||||||||||||||||
| Net cash 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 | ||||||||||||||||||||
| Cash, cash equivalents and restricted cash, ending | $ | $ | ||||||||||||||||||
| Balances included in the Consolidated Balance Sheets: | ||||||||||||||||||||
| Cash, cash equivalents, and restricted cash | $ | $ | ||||||||||||||||||
| Cash and cash equivalents included in current assets of discontinued operations | ||||||||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||||||||||||||
For further information see Note 22 - Supplemental Cash Flow. | ||||||||||||||||||||
Cash flows from discontinued operations through the divestiture date of July 2, 2023 are included in the above amounts and explained in Note 1 — Basis of Presentation and Note 2 — Discontinued Operations. | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited Consolidated Financial Statements.
13
JELD-WEN HOLDING, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Company and Summary of Significant Accounting Policies
Nature of Business – JELD-WEN Holding, Inc., along with its subsidiaries, is a vertically integrated global manufacturer and distributor of windows, doors, and other building products that derives substantially all 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 “JELD-WEN,” “we,” “us,” “our,” or the “Company” are to JELD-WEN Holding, Inc. and its subsidiaries.
Our continuing operations include facilities located in the U.S., Canada, Europe, and Mexico. 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.
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 corresponds 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 areas of our geographic end markets.
Basis of Presentation – The accompanying unaudited consolidated financial statements as of September 30, 2023 and for the three and nine months ended September 30, 2023 and September 24, 2022, respectively, have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the SEC. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company’s financial position for the periods presented. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023, or any other period. The accompanying consolidated balance sheet as of December 31, 2022 was derived from audited financial statements included in our Annual Report on Form 10-K. The accompanying consolidated financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. Accordingly, they should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.
On April 17, 2023, we entered into a Share Sale Agreement with Aristotle Holding III Pty Limited, a subsidiary of Platinum Equity Advisors, LLC, to sell our Australasia business (“JW Australia”). On July 2, 2023, we completed the sale. The net assets and operations of the disposal group met the criteria to be classified as “discontinued operations” and are reported as such in all periods presented unless otherwise noted. The consolidated statements of cash flows include cash flows from discontinued operations through the divestiture date of July 2, 2023. See Note 2 - Discontinued Operations for further information.
All U.S. dollar and other currency amounts, except per share amounts, are presented in thousands unless otherwise noted.
COVID-19 – The CARES Act in the U.S. and similar legislation in other jurisdictions includes measures that assisted companies in responding to the COVID-19 pandemic. These measures consisted primarily of cash assistance to support employment levels and deferment of remittance of certain non-income tax expense payments. The most significant impact was from the CARES Act in the U.S., which included a provision that allowed employers to defer the remittance of the employer portion of the social security tax relating to 2020. The deferred employment payment must be paid over two years. Original payment due dates were in 2021 and 2022, however updated guidance provided by the Internal Revenue Service in December 2021 allowed for these payments to be made during 2022 and 2023. The Company deferred $20.9
14
million of the employer portion of social security tax in 2020, of which $9.9 million was paid in the first quarter of 2022 and the remaining $11.0 million was paid in the fourth quarter of 2022.
Recent Accounting Standards – In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of LIBOR or by another reference rate expected to be discontinued. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope, to clarify the scope of ASU No. 2020-04. In December 2022, the FASB issued ASU No. 2022-06, Deferral of the Sunset Date of Topic 848, which extended the relief provisions under Topic 848 through December 31, 2024. In May 2020, we elected the expedient within ASC 848 which allows us to assume that our hedged interest payments are probable of occurring regardless of any expected modifications in their terms related to reference rate reform. In addition, ASC 848 allows for the option to change the method of assessing effectiveness upon a change in critical terms of the derivative or the hedged transactions and upon the end of relief under ASC 848. At this time, we have elected to continue the method of assessing effectiveness as documented in the original hedge documentation and apply the practical expedients related to probability to assume that the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument. In June 2023, we executed amendments to our Term Loan Facility, ABL Facility and interest rate derivative agreements to replace LIBOR with a Term SOFR based rate. These contract amendments did not have a material impact on the Company’s consolidated financial statements. Refer to Note 10. - Long-Term Debt and Note 19 - Derivative Financial Instruments for further information.
We have considered the applicability and impact of all ASUs. We have assessed ASUs not listed above and have determined that they were either not applicable or were not expected to have a material impact on our financial statements.
Note 2. Discontinued Operations
On April 17, 2023, we entered into a Share Sale Agreement with Aristotle Holding III Pty Limited, a subsidiary of Platinum Equity Advisors, LLC, to sell our Australasia business (“JW Australia”), for a purchase price of approximately AUD $688 million. On July 2, 2023, we completed the sale, receiving net cash proceeds of approximately $446 million, including $3.3 million of cash received from the settlement of certain forward contracts (refer to Note 19. Derivative Financial Instruments for further information). We recorded a net gain on the sale of JW Australia of $26.1 million, net of taxes. The net gain on sale includes $30.3 million of cumulative translation adjustments losses and $1.0 million of accumulated net actuarial pension losses reclassified from other comprehensive income.
This divestiture qualified as a discontinued operation as of April 17, 2023 since it represents a strategic shift for us and has a major effect on our consolidated results of operations. Accordingly, the results of operations for the JW Australia reportable segment, together with certain costs related to the sale, have been classified as discontinued operations within the consolidated statements of operations for all periods presented.
Subsequent to the completion of the sale, we entered into an agreement to provide certain transition services to JW Australia, including providing information technology post-closing services, purchases under a supply agreement, and reimbursement for certain costs to upgrade specific IT systems up to a capped amount. The Company had reserved approximately $8.6 million relating to these matters as of September 30, 2023. The Company has determined the impact of the continuing involvement is insignificant to our consolidated financial statements.
15
The following is a summary of the major categories of assets and liabilities of JW Australia that had been reflected as held for sale in the periods preceding the divestiture at:
| (amounts in thousands) | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Cash and cash equivalents | $ | ||||||||||
| Accounts receivable, net | |||||||||||
| Inventories | |||||||||||
| Other current assets | |||||||||||
| Current assets of discontinued operations | $ | ||||||||||
| Property and equipment, net | $ | ||||||||||
| Deferred tax assets | |||||||||||
| Goodwill | |||||||||||
| Intangible assets, net | |||||||||||
| Operating lease assets, net | |||||||||||
| Other assets | |||||||||||
| Non-current assets of discontinued operations | $ | ||||||||||
| LIABILITIES | |||||||||||
| Accounts payable | $ | ||||||||||
| Accrued payroll and benefits | |||||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current maturities of long-term debt | |||||||||||
| Current liabilities of discontinued operations | $ | ||||||||||
| Long-term debt | $ | ||||||||||
| Unfunded pension liability | |||||||||||
| Operating lease liability | |||||||||||
| Deferred credits and other liabilities | |||||||||||
| Deferred tax liabilities | |||||||||||
| Non-current liabilities of discontinued operations | $ | ||||||||||
The balances of the assets and liabilities of JW Australia as of the divestiture date of July 2, 2023 did not materially change from the balances as of July 1, 2023 disclosed in our Form 10-Q for the second quarter of 2023.
Components of amounts reflected in the consolidated statements of operations related to discontinued operations are presented in the table, as follows:
16
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||||||
| Net revenues | $ | $ | $ | $ | |||||||||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||||||||
| Restructuring and asset related charges | |||||||||||||||||||||||||||||
| Operating income (loss) | ( | ||||||||||||||||||||||||||||
| Interest income, net | ( | ( | ( | ||||||||||||||||||||||||||
| Other income, net | ( | ( | ( | ( | |||||||||||||||||||||||||
| Income (loss) from discontinued operations before taxes | ( | ||||||||||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||||||||
| Income from discontinued operations, net of tax | $ | $ | $ | $ | |||||||||||||||||||||||||
The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows through the divestiture date of July 2, 2023. The following table presents cash flow and non-cash information related to discontinued operations:
| Nine Months Ended | |||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | |||||||||||||||
| Depreciation and amortization | $ | $ | |||||||||||||||
| Capital expenditures | |||||||||||||||||
| Share-based incentive compensation | |||||||||||||||||
| Provision for bad debt | |||||||||||||||||
Unless otherwise noted, discussion within the notes to the consolidated financial statements relates to continuing operations only and excludes the historical JW Australia reportable operating segment.
Note 3. Accounts Receivable
Note 4. Inventories
Inventories are stated at the lower of cost or net realizable value. Finished goods and work-in-process inventories include material, labor, and manufacturing overhead costs.
| (amounts in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
Raw materials | $ | $ | |||||||||
Work in process | |||||||||||
Finished goods | |||||||||||
| Total inventories | $ | $ | |||||||||
17
Note 5. Property and Equipment, Net
| (amounts in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Property and equipment | $ | $ | |||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
We recorded accelerated depreciation of our plant and equipment of $1.1 million and $4.3 million during the three and nine months ended September 30, 2023 within restructuring and asset related charges in the accompanying consolidated statements of operations. We recorded accelerated depreciation of $0.5 million in the nine months ended September 24, 2022, all of which was incurred in the second quarter. For more information, refer to Note 16 - Restructuring and Asset Related Charges.
During the nine months ended September 30, 2023, we recorded $9.1 million of accelerated depreciation resulting from reviews of our North America equipment capacity optimization, all of which were incurred in the second quarter. These charges were recorded within cost of sales in the accompanying consolidated statements of operations.
The effect on our carrying value of property and equipment due to currency translations for foreign property and equipment, net, was a decrease of $1.0 million as of September 30, 2023 compared to December 31, 2022.
Depreciation expense was recorded as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||||||
Cost of sales | $ | $ | $ | $ | |||||||||||||||||||||||||
Selling, general and administrative | |||||||||||||||||||||||||||||
| Total depreciation expense | $ | $ | $ | $ | |||||||||||||||||||||||||
Note 6. Goodwill
The following table summarizes the changes in goodwill by reportable segment:
| (amounts in thousands) | North America | Europe | Total Reportable Segments | ||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ||||||||||||||||||||
Currency translation | ( | ( | |||||||||||||||||||||
Balance as of September 30, 2023 | $ | $ | $ | ||||||||||||||||||||
Note 7. Intangible Assets, Net
The cost and accumulated amortization values of our intangible assets were as follows:
| September 30, 2023 | |||||||||||||||||
| (amounts in thousands) | Cost | Accumulated Amortization | Net Book Value | ||||||||||||||
Customer relationships and agreements | $ | $ | ( | $ | |||||||||||||
Software | ( | ||||||||||||||||
Trademarks and trade names | ( | ||||||||||||||||
Patents, licenses and rights | ( | ||||||||||||||||
| Total amortizable intangibles | $ | $ | ( | $ | |||||||||||||
18
| December 31, 2022 | |||||||||||||||||
| (amounts in thousands) | Cost | Accumulated Amortization | Net Book Value | ||||||||||||||
| Customer relationships and agreements | $ | $ | ( | $ | |||||||||||||
| Software | ( | ||||||||||||||||
| Trademarks and trade names | ( | ||||||||||||||||
| Patents, licenses and rights | ( | ||||||||||||||||
| Total amortizable intangibles | $ | $ | ( | $ | |||||||||||||
The effect on our carrying value of intangible assets due to currency translations for foreign intangible assets as of September 30, 2023 compared to December 31, 2022 was a decrease of $0.5 million.
Amortization expense was recorded as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||||||
| Amortization expense | $ | $ | $ | $ | |||||||||||||||||||||||||
We recorded accelerated amortization of $3.5 24.8 million of accelerated amortization related to this ERP through the second quarter of 2024.
Note 8. Accrued Expenses and Other Current Liabilities
| (amounts in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
Accrued sales and advertising rebates | $ | $ | |||||||||
| Current portion of operating lease liability | |||||||||||
Non-income related taxes | |||||||||||
| Accrued freight | |||||||||||
Current portion of warranty liability (Note 9) | |||||||||||
| Accrued expenses | |||||||||||
| Current portion of accrued claim costs relating to self-insurance programs | |||||||||||
| Accrued income taxes payable | |||||||||||
| Accrued interest payable | |||||||||||
| Deferred revenue and customer deposits | |||||||||||
Current portion of restructuring accrual (Note 16) | |||||||||||
| Legal claims provision | |||||||||||
Current portion of derivative liability (Note 19) | |||||||||||
| Total accrued expenses and other current liabilities | $ | $ | |||||||||
The legal claims provision relates primarily to contingencies associated with the ongoing legal matters disclosed in Note 21 - Commitments and Contingencies.
The accrued sales and advertising rebates, accrued interest payable, accrued freight, and non-income related taxes can fluctuate significantly period-over-period due to timing of payments.
Note 9. Warranty Liability
19
payments from the customer. A provision for estimated warranty costs is recorded at the time of sale based on historical experience and is periodically adjusted to reflect actual experience.
An analysis of our warranty liability is as follows:
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||
| Balance as of January 1 | $ | $ | |||||||||||||||||||||
| Current period charges | |||||||||||||||||||||||
Experience adjustments | ( | ||||||||||||||||||||||
Payments | ( | ( | |||||||||||||||||||||
Currency translation | ( | ( | |||||||||||||||||||||
| Balance at period end | |||||||||||||||||||||||
Current portion | ( | ( | |||||||||||||||||||||
Long-term portion | $ | $ | |||||||||||||||||||||
The most significant component of our warranty liability as of September 30, 2023 and September 24, 2022 was in the North America segment. As of September 30, 2023, the warranty liability in the North America segment totaled $45.4 million after discounting future estimated cash flows at rates between 0.53 % and 3.80 %. Without discounting, the liability would have increased by approximately $3.8 million.
Note 10. Long-Term Debt
Our long-term debt, net of original issue discount and unamortized debt issuance costs, consisted of the following:
| September 30, 2023 | September 30, 2023 | December 31, 2022 | |||||||||||||||
| (amounts in thousands) | Interest Rate | ||||||||||||||||
| Senior Notes | $ | $ | |||||||||||||||
| Senior Secured Notes | |||||||||||||||||
| Term loans | |||||||||||||||||
| Revolving credit facilities | |||||||||||||||||
| Finance leases and other financing arrangements | |||||||||||||||||
| Mortgage notes | |||||||||||||||||
Total Debt | |||||||||||||||||
| Unamortized debt issuance costs and original issue discounts | ( | ( | |||||||||||||||
| Current maturities of long-term debt | ( | ( | |||||||||||||||
| Long-term debt | $ | $ | |||||||||||||||
Summaries of our significant changes to outstanding debt agreements as of September 30, 2023 are as follows:
Senior Secured Notes and Senior Notes
In December 2017, we issued $800.0 million of unsecured Senior Notes in two tranches: $400.0 million bearing interest at 4.63 % and maturing in December 2025 (“4.63 % Senior Notes”), and $400.0 million bearing interest at 4.88 % and maturing in December 2027 in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act.
In May 2020, we issued $250.0 million of Senior Secured Notes bearing interest at 6.25 % and maturing in May 2025 (“6.25 % Senior Secured Notes”) in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The proceeds were net of fees and expenses associated with debt issuance, including an underwriting fee of 1.25 %. Interest is payable semiannually, in arrears, each May and November.
On August 3, 2023, we redeemed all $250.0 million of our 6.25 % Senior Secured Notes and $200.0 million of our 4.63 % Senior Notes. The Company recognized a pre-tax loss of $6.5 3.9 2.6
Term Loans
20
U.S. Facility - Initially executed in October 2014, we amended the Term Loan Facility in July 2021 to, among other things, extend the maturity date from December 2024 to July 2028 and provide additional covenant flexibility. Pursuant to the amendment, certain existing and new lenders advanced $550.0 million of replacement term loans, the proceeds of which were used to prepay in full the amount outstanding under the previously existing term loans. The replacement term loans originally bore interest at LIBOR (subject to a floor of 0.00 %) plus a margin of 2.00 % to 2.25 % depending on JWI’s corporate credit ratings. In addition, the amendment also modifies certain other terms and provisions of the Term Loan Facility, and adds language to address the replacement of LIBOR with a SOFR basis upon the June 30, 2023 cessation of the publication of LIBOR. Voluntary prepayments of the replacement term loans are permitted at any time, in certain minimum principal amounts, but were subject to a 1.00 % premium during the first six months. The amendment requires 0.25 % of the initial principal to be repaid quarterly until maturity. As a result of this amendment, we recognized debt extinguishment costs of $1.3 million, which included $1.0 million of unamortized debt issuance costs and original discount fees. As of the date of the amendment, the outstanding principal balance, net of original issue discount, was $548.6 million.
In June 2023, we amended the Term Loan Facility to replace LIBOR with a Term SOFR based rate as the successor benchmark rate and made certain other technical amendments and related conforming changes. All other material terms and conditions were unchanged.
As of September 30, 2023, the outstanding principal balance, net of original issue discount, was $536.7 million.
In May 2020, we entered into interest rate swap agreements with a weighted average fixed rate of 0.395 % paid against one-month LIBOR floored at 0.00 % with outstanding notional amounts aggregating to $370.0 million corresponding to that amount of the debt outstanding under our Term Loan Facility. In June 2023, the interest rate swap agreements were amended to convert to a SOFR basis on June 30, 2023, resulting in a weighted average fixed rate of 0.317 % paid against one-month USD-SOFR CME Term floored at (0.10 )%. The interest rate swap agreements are designated as cash flow hedges of a portion of the interest obligations on our Term Loan Facility borrowings and mature in December 2023. See Note 19 - Derivative Financial Instruments for additional information on our derivative assets and liabilities.
Revolving Credit Facility
ABL Facility - In July 2021, we amended the ABL Facility to, among other things, extend the maturity date from December 2022 to July 2026, increase the aggregate commitment to $500.0 million, provide additional covenant flexibility, conform certain terms and provisions to the Term Loan Facility, and amend the interest rate grid applicable to the loans thereunder by adding language to address the replacement of LIBOR with a SOFR basis upon the June 30, 2023 cessation of the publication of LIBOR. Pursuant to the amendment, the amount allocated to U.S. borrowers was increased to $465.0 million. The amount allocated to Canadian borrowers was maintained at $35.0 million. Borrowings under the ABL Facility bore, at the borrower’s option, interest at either a base rate plus a margin of 0.25 % to 0.50 % depending on excess availability or LIBOR (subject to a floor of 0.00 %) plus a margin of 1.25 % to 1.50 % depending on excess availability. All other material terms and conditions were unchanged.
In June 2023, we amended the ABL Facility to replace LIBOR with a Term SOFR based rate as the successor benchmark rate and made certain other technical amendments and related conforming changes. All other material terms and conditions were unchanged.
As of September 30, 2023, we had no outstanding borrowings, $39.0 million in letters of credit and $453.4 million available under the ABL Facility.
Mortgage Notes – In December 2007, we entered into thirty-year mortgage notes secured by land and buildings in Denmark with principal payments which began in 2018. As of September 30, 2023, we had DKK 150.6 million ($21.4 million) outstanding under these notes.
Finance leases and other financing arrangements – In addition to finance leases, we include insurance premium financing arrangements and loans secured by equipment in this category. As of September 30, 2023, we had $81.5 million outstanding in this category, with maturities ranging from 2023 to 2031.
As of September 30, 2023, we were in compliance with the terms of all of our Credit Facilities and the indentures governing the Senior Notes.
21
Note 11. Income Taxes
The effective income tax rate for continuing operations was 50.7 % and 39.8 % for the three and nine months ended September 30, 2023, respectively, and (35.1 )% and 288.0 % for the three and nine months ended September 24, 2022, respectively. In accordance with ASC 740-270, we recorded an income tax expense of $17.4 million and $31.6 million from continuing operations in the three and nine months ended September 30, 2023, respectively, and $11.7 million and $21.0 million from continuing operations in the three and nine months ended September 24, 2022, respectively. We applied our estimated annual effective tax rate to year-to-date income for includable entities during the respective periods. Our estimated annual effective tax rate for both years includes the impact of the tax on GILTI. Entities that are currently generating losses and for which there is a full valuation allowance are excluded from the worldwide effective tax rate calculation and are calculated separately.
The impact of significant discrete items is separately recognized in the quarter in which they occur. The tax expense for discrete items included in the tax provision for continuing operations for the three months ended September 30, 2023 was $7.0 million, compared to a tax expense of $1.9 million for the three months ended September 24, 2022. The discrete tax expense amounts for the three months ended September 30, 2023 comprised primarily of $5.7 million of tax expense attributable to an increase in the valuation allowance on U.S. foreign tax credit carryforwards and a net $2.3 million of tax expense due to changes in uncertain tax positions (“UTPs”), partially offset by a $0.9 million net tax benefit attributable to the decrease in the valuation allowance on U.S. state net operating losses. The discrete tax expense amounts for the three months ended September 24, 2022 comprised primarily of $2.8 million of tax expense attributable to share-based compensation, partially offset by $1.1 million of tax benefit attributed to return-to-provision adjustments.
The tax expense related to discrete items included in the tax provision for continuing operations for the nine months ended September 30, 2023 was $9.6 million, compared to a tax benefit of $4.5 million for the nine months ended September 24, 2022. The discrete tax expense for the nine months ended September 30, 2023 were comprised primarily of $5.7 million of tax expense attributable to an increase in the valuation allowance on U.S. foreign tax credit carryforwards, a net $2.0 million of tax expense due to changes in UTPs, $1.6 million of tax expense attributable to share-based compensation and a $0.6 million increase in the valuation allowance in U.S. state net operating losses. The discrete tax benefits for the nine months ended September 24, 2022 were comprised primarily of $9.5 million of tax benefit related to movement in the valuation allowance due to changes in estimated forecasted earnings and $1.2 million of tax benefit attributable to return-to-provision adjustments, partially offset by $3.4 million of tax expense attributable to share-based compensation, $2.6 million of tax expense attributable to interest expense on UTPs.
Under ASC 740-10, we provide for uncertain tax positions and the related interest expense by adjusting unrecognized tax benefits and accrued interest accordingly. We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. During the nine months ended September 30, 2023, we settled our income tax audit in the amount of $8.4 million principal excluding interest with the Denmark tax authority. We previously provided a reserve for the Denmark income tax audit and have reduced our uncertain tax position reserve as a result of the settlement. We increased our reserve by $11.6 million during the three months ended September 30, 2023 due to ongoing audits in Europe, partially offset by a $9.3 million recognition of a deferred tax asset under our capacity management agreement structure. We had unrecognized tax benefits without regard to accrued interest of $35.2 million and $29.3 million as of September 30, 2023 and December 31, 2022, respectively.
The Company continually evaluates its global cash needs. As of September 30, 2023, the Company continues to make an indefinite reinvestment assertion on the future earnings of its foreign subsidiaries.
Note 12. Segment Information
22
We have two reportable segments in our continuing operations, organized and managed principally in geographic regions: North America and Europe. We report all other business activities in Corporate and unallocated costs. Factors considered in determining the two reportable segments include the nature of business activities, the management structure accountable directly to the CODM, the discrete financial information available and the information regularly reviewed by the CODM. .
The following tables set forth certain information relating to our segments’ operations:
| (amounts in thousands) | North America | Europe | Total Operating Segments | Corporate and Unallocated Costs | Total Consolidated | ||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
Total net revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Intersegment net revenues | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net revenues from external customers | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Three Months Ended September 24, 2022 | |||||||||||||||||||||||||||||||||||
Total net revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Intersegment net revenues | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net revenues from external customers | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| (amounts in thousands) | North America | Europe | Total Operating Segments | Corporate and Unallocated Costs | Total Consolidated | ||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
Total net revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Intersegment net revenues | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net revenues from external customers | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Nine Months Ended September 24, 2022 | |||||||||||||||||||||||||||||||||||
Total net revenues | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Intersegment net revenues | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Net revenues from external customers | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
23
| (amounts in thousands) | North America | Europe | Total Operating Segments | Corporate and Unallocated Costs | Total Consolidated | ||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||||||||||||||
Depreciation and amortization(1) | |||||||||||||||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||||||||||||||
| Restructuring and asset related charges | ( | ||||||||||||||||||||||||||||||||||
| Net other special items | ( | ||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Three Months Ended September 24, 2022 | |||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | $ | ( | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||
Income tax expense (benefit)(2) | ( | ( | |||||||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||||||||||||||
| Goodwill impairment | |||||||||||||||||||||||||||||||||||
| Restructuring and asset related charges | |||||||||||||||||||||||||||||||||||
| Net other special items | |||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
(1)Corporate and Unallocated Costs depreciation and amortization expense in the three months ended September 30, 2023 includes accelerated amortization of $3.5
(2)Income tax expense (benefit) in Corporate and unallocated costs in the three months ended September 30, 2022 includes the tax impact of U.S. Operations.
| (amounts in thousands) | North America | Europe | Total Operating Segments | Corporate and Unallocated Costs | Total Consolidated | ||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | ( | ||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | ( | ||||||||||||||||||||||||||||||||||
Depreciation and amortization(1) | |||||||||||||||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||||||||||||||
| Restructuring and asset related charges | |||||||||||||||||||||||||||||||||||
| Net other special items | |||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
| Nine Months Ended September 24, 2022 | |||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | ( | ( | ( | ||||||||||||||||||||||||||||||||
Income tax expense (benefit)(2) | ( | ||||||||||||||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||||||||||||||
| Goodwill impairment | |||||||||||||||||||||||||||||||||||
| Restructuring and asset related charges | |||||||||||||||||||||||||||||||||||
| Net other special items | |||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||
(1) Corporate and Unallocated Costs depreciation and amortization expense in the nine months ended September 30, 2023 includes accelerated amortization of $3.5 9.1 million from reviews of equipment capacity optimization.
24
25
Reconciliations of income (loss) from continuing operations to Adjusted EBITDA from continuing operations are as follows:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization(1) | |||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | |||||||||||||||||||||||||||||||||||||||||
| Special items: | |||||||||||||||||||||||||||||||||||||||||
Legal and professional expenses and settlements(2) | |||||||||||||||||||||||||||||||||||||||||
Goodwill impairment(3) | |||||||||||||||||||||||||||||||||||||||||
Restructuring and asset related charges(4) | |||||||||||||||||||||||||||||||||||||||||
Other facility closure, consolidation, and related costs and adjustments(5) | |||||||||||||||||||||||||||||||||||||||||
M&A related costs(6) | |||||||||||||||||||||||||||||||||||||||||
Net (gain) loss on sale of property and equipment(7) | ( | ( | |||||||||||||||||||||||||||||||||||||||
Loss on extinguishment of debt(8) | |||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense (income)(9) | ( | ||||||||||||||||||||||||||||||||||||||||
Non-cash foreign exchange transaction/translation loss (income)(10) | ( | ||||||||||||||||||||||||||||||||||||||||
Other special items (11) | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
(1)Depreciation and amortization expense in the three and nine months ended September 30, 2023 includes accelerated amortization of $3.5 9.1 million in North America from reviews of equipment capacity optimization.
(2)Legal and professional expenses and settlements include strategic transformation expenses of $7.1 million and $12.0 million in the three and nine months ended September 30, 2023, respectively, and $1.4
(3)Goodwill impairment consists of goodwill impairment charges associated with our Europe reporting unit.
(4)Represents severance, accelerated depreciation, equipment relocation and other expenses directly incurred as a result of restructuring events. The restructuring charges primarily relate to charges incurred to close certain manufacturing facilities in our North America segment.
(5)Other facility closure, consolidation, and other related costs and adjustments primarily related to winding down certain facilities scheduled to close in 2023 as well as certain facilities closed in 2022 that do not meet the U.S. GAAP definition of restructuring.
(6)M&A related costs consists primarily of legal and professional expenses related to the planned disposition of Towanda.
(7)Gain on sale of property and equipment in the three and nine months ended September 30, 2023 primarily relates to the sale of a building in Melton, UK.
(8)Loss on extinguishment of debt of $6.5 250.0 million of our 6.25 % Senior Secured Notes and $200.0 million of our 4.63 % Senior Notes.
(9)Represents non-cash equity-based compensation expense related to the issuance of share-based awards.
(10)Non-cash foreign exchange transaction/translation loss (income) primarily consists of losses (gains) associated with fair value adjustments of foreign currency derivatives and revaluation of intercompany balances.
(11)Other special items not core to ongoing business activity include: (i) in the three months ended September 30, 2023 ($3.1 ) million in income from short-term investments and forward contracts related to the JW Australia divestiture; (ii) in the three months ended September 24, 2022, $3.2 million relating primarily to exit costs for executives and ($2.9 ) million in adjustments related to fire damage and downtime at one of our facilities in North America; (iii) in the nine months ended September 30, 2023, ($3.1 ) million in income from short-term investments and forward contracts related to the JW Australia divestiture and ($2.8 ) million in adjustments to compensation and non-income taxes associated with exercises of legacy equity awards; and (iv) in the nine months ended September 24, 2022, $3.2 million relating primarily to exit costs for executives and $1.9 million in compensation and non-income taxes associated with exercises of legacy equity awards.
26
Note 13. Capital Stock
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 - 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 12.4
We record share repurchases on their trade date and reduce shareholders’ equity and increase accounts payable. Repurchased shares are retired, and the excess of the repurchase price over the par value of the shares is charged to retained earnings.
On July 27, 2021, our Board of Directors increased our previous repurchase authorization to a total of $400.0 million with no expiration date.
On July 28, 2022, our Board of Directors authorized a new share repurchase program, replacing our previous share repurchase authorization, with an aggregate value of $200.0 million and no expiration date. As of September 30, 2023, there have been no share repurchases under this program.
Note 14. Earnings Per Share
The basic and diluted income per share calculations were determined based on the following share data:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||||||||
| Weighted average outstanding shares of Common Stock basic | |||||||||||||||||||||||||||||
| Restricted stock units, performance share units and options to purchase Common Stock | |||||||||||||||||||||||||||||
Weighted average outstanding shares of Common Stock diluted | |||||||||||||||||||||||||||||
For the three months ended September 24, 2022, we had net losses from operations. As a result, no potentially dilutive securities were included in the denominator for computing diluted loss per share as their inclusion would have been antidilutive.
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 income per share as their inclusion would be anti-dilutive:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||||||||
| Common Stock options | |||||||||||||||||||||||||||||
| Restricted stock units | |||||||||||||||||||||||||||||
| Performance share units | |||||||||||||||||||||||||||||
27
Note 15. Stock Compensation
The activity under our incentive plans for the periods presented are reflected in the following tables:
| Three Months Ended | |||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | ||||||||||||||||||||||
| Shares | Weighted Average Exercise Price Per Share | Shares | Weighted Average Exercise Price Per Share | ||||||||||||||||||||
| Options granted | $ | $ | |||||||||||||||||||||
| Options canceled | $ | $ | |||||||||||||||||||||
| Options exercised | $ | $ | |||||||||||||||||||||
| Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | ||||||||||||||||||||
| RSUs granted | $ | $ | |||||||||||||||||||||
| PSUs granted | $ | $ | |||||||||||||||||||||
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | ||||||||||||||||||||||
| Shares | Weighted Average Exercise Price Per Share | Shares | Weighted Average Exercise Price Per Share | ||||||||||||||||||||
| Options granted | $ | ||||||||||||||||||||||
| Options canceled | $ | ||||||||||||||||||||||
| Options exercised | $ | ||||||||||||||||||||||
| Shares | Weighted Average Grant Date Fair Value | Shares | Weighted Average Grant Date Fair Value | ||||||||||||||||||||
| RSUs granted | $ | $ | |||||||||||||||||||||
| PSUs granted | $ | $ | |||||||||||||||||||||
Stock-based compensation expense was $3.4 million and $12.3 million for the three and nine months ended September 30, 2023, respectively, and $(0.8 ) million and $9.7 million for the three and nine months ended September 24, 2022, respectively. The increase in the stock-based compensation expense during the three and nine months ended September 30, 2023 as compared to the respective prior year periods was primarily due to increased forfeitures from the departure of the CEO and corporate restructuring during the third quarter of 2022. As of September 30, 2023, we had $18.8 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 1.55 years.
Note 16. Restructuring and Asset Related Charges
We engage in restructuring activities focused on improving productivity and operating margins. Restructuring costs primarily relate to costs associated with workforce reductions, plant consolidations and closures, and changes to the management structure to align with our operations. Other restructuring associated costs, primarily consist of equipment relocation costs. Asset related charges consist of accelerated depreciation of assets due to changes in asset useful lives.
28
| (amounts in thousands) | North America | Europe | Corporate and Unallocated Costs | Total Consolidated | |||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||
| Restructuring severance and termination charges | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Other restructuring associated costs | |||||||||||||||||||||||||||||
| Asset related charges | |||||||||||||||||||||||||||||
| Other restructuring associated costs and asset related charges | |||||||||||||||||||||||||||||
| Total restructuring and asset related charges | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Three Months Ended September 24, 2022 | |||||||||||||||||||||||||||||
| Restructuring severance and termination charges | $ | $ | $ | $ | |||||||||||||||||||||||||
| Other restructuring associated income | |||||||||||||||||||||||||||||
| Asset related charges | |||||||||||||||||||||||||||||
| Other restructuring associated cost and asset related charges | |||||||||||||||||||||||||||||
| Total restructuring and asset related charges | $ | $ | $ | $ | |||||||||||||||||||||||||
| (amounts in thousands) | North America | Europe | Corporate and Unallocated Costs | Total Consolidated | |||||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||
| Restructuring severance and termination charges | $ | $ | $ | $ | |||||||||||||||||||||||||
| Other restructuring associated costs (income) | ( | ||||||||||||||||||||||||||||
| Asset related charges | |||||||||||||||||||||||||||||
| Other restructuring associated costs and asset related charges (income) | ( | ||||||||||||||||||||||||||||
| Total restructuring and asset related charges | $ | $ | $ | $ | |||||||||||||||||||||||||
| Nine Months Ended September 24, 2022 | |||||||||||||||||||||||||||||
| Restructuring severance and termination charges | $ | $ | $ | $ | |||||||||||||||||||||||||
| Other restructuring associated costs | |||||||||||||||||||||||||||||
| Asset related charges | |||||||||||||||||||||||||||||
| Other restructuring associated costs and asset related charges | |||||||||||||||||||||||||||||
| Total restructuring and asset related charges | $ | $ | $ | $ | |||||||||||||||||||||||||
The following is a summary of the restructuring accruals recorded and charges incurred:
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | ||||||||||||||||||||||||
| Balance as of January 1 | $ | $ | ||||||||||||||||||||||||
| Current period charges | ||||||||||||||||||||||||||
Payments | ( | ( | ||||||||||||||||||||||||
Currency translation | ( | |||||||||||||||||||||||||
| Balance at period end | $ | $ | ||||||||||||||||||||||||
Restructuring accruals are expected to be paid within the next 12 months and are included within accrued expenses and other current liabilities in the consolidated balance sheet.
29
During the three months ended September 30, 2023, we announced plans to close two manufacturing facilities, located in Tijuana, Mexico and Vista, California as part of our footprint rationalization activities. We expect to incur pre-tax restructuring expenses and other closure costs within a range of approximately $15.9 million to $19.7 million, primarily consisting of $8.0 million restructuring severance and termination charges and $5.8 million of equipment relocation and facility restoration costs. Through September 30, 2023, approximately $9.7 million has been expensed in connection with the announced closures, consisting of $7.6 million in restructuring severance and termination charges and $1.5 million of asset related charges. Additionally, $0.6 million of other non-cash inventory charges were recorded against Cost of Sales and were detrimental to Adjusted EBITDA. We expect to incur a total pre-tax cash outlay of approximately $13.7 million by the end of the fourth quarter of 2023 in connection with the announced closures, of which $1.6 million of cash outlay has been incurred as of September 30, 2023.
On January 26, 2023, we announced to employees a restructuring plan to close a manufacturing facility in Atlanta, Georgia. We completed the plant closure during the three months ended September 30, 2023 with total cash outlays of $12.7 million. We incurred pre-tax restructuring expenses and other closure costs of approximately $17.2 million, which included $1.1 million of capital expenditures. The primary expenses incurred were accelerated depreciation and amortization, equipment relocation costs, and restructuring severance costs. We incurred approximately $2.8 million of expense in the three months ended September 30, 2023.
Note 17. Held for Sale
During 2021, the Company ceased the appeal process for its litigation with Steves & Sons, Inc. (“Steves”) further described in Note 21 - Commitments and Contingencies. As a result, we are required to divest the Company’s Towanda, PA operations (“Towanda”). As of September 30, 2023 and December 31, 2022, the assets and liabilities associated with the sale of Towanda qualify as held for sale. Since the Company will continue manufacturing door skins for its internal needs, the divestiture decision did not represent a strategic shift thereby precluding the divestiture as qualifying as a discontinued operation. We will continue to report the Towanda results within our North America operations until the divestiture is finalized.
In addition to the Towanda net assets, we own property in Australia with an insignificant value, which is also classified as held for sale in the accompanying consolidated balance sheet as of September 30, 2023.
The assets and liabilities included within the summary below are expected to be disposed of within the next twelve months and are included in assets held for sale and liabilities held for sale in the accompanying consolidated balance sheets.
| (amounts in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Assets | |||||||||||
| Inventory | $ | $ | |||||||||
| Other current assets | |||||||||||
| Property and equipment | |||||||||||
| Intangible assets | |||||||||||
| Goodwill | |||||||||||
| Operating lease assets | |||||||||||
| Assets held for sale | $ | $ | |||||||||
| Liabilities | |||||||||||
| Accrued payroll and benefits | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current maturities of long term debt | |||||||||||
| Operating lease liability | |||||||||||
| Liabilities held for sale | $ | $ | |||||||||
30
Note 18. Other (Income), Net
The table below summarizes the amounts included in other (income), net in the accompanying consolidated statements of operations:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | September 30, 2023 | September 24, 2022 | |||||||||||||||||||||||||
| JW Australia Transition Services Agreement cost recovery | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||
| Income from short-term investments and forward contracts related to the JW Australia divestiture | ( | ( | |||||||||||||||||||||||||||
| Pension expense (gain) | ( | ( | |||||||||||||||||||||||||||
| Recovery of cost from interest received on impaired notes | ( | ( | ( | ( | |||||||||||||||||||||||||
Governmental assistance(1) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Foreign currency gains, net | ( | ( | ( | ( | |||||||||||||||||||||||||
| Insurance reimbursement | ( | ( | ( | ||||||||||||||||||||||||||
| Other items, net | ( | ( | ( | ( | |||||||||||||||||||||||||
| Total other income, net | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||||||||
(1)Governmental assistance consists primarily of energy subsidies received by our European businesses.
Note 19. Derivative Financial Instruments
Foreign currency derivatives – As a multinational corporation, we are exposed to the impact of foreign currency fluctuations. 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 most of the countries in which we operate, 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 mitigate the exposure, we may enter into a variety of foreign currency derivative contracts. To manage the effect of exchange fluctuations on forecasted sales, purchases, acquisitions, capital expenditures, and certain intercompany transactions that are denominated in foreign currencies, we have foreign currency derivative contracts with a total notional amount of $90.6 million as of September 30, 2023. We also are subject to currency translation risk associated with converting our foreign operations’ financial statements into U.S. dollars. 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 have foreign currency derivative contracts with a total notional amount of $53.0 million as of September 30, 2023. We do not use derivative financial instruments for trading or speculative purposes. With the exception of the AUD/USD forward contracts entered into on April 18, 2023 described below, as of September 30, 2023, we have not elected hedge accounting for any foreign currency derivative contracts. We record mark-to-market changes in the values of these derivatives in other income, net. We recorded mark-to-market gains of $0.4 million and $0.5 million relating to foreign currency derivatives during the three and nine months ended September 30, 2023, respectively. We recorded mark-to-market losses of $4.3 million and mark-to-market gains of $6.1 million relating to foreign currency derivatives during the three and nine months ended September 24, 2022, respectively.
On April 18, 2023 we entered into forward contracts to sell a total of AUD 420.0 million and receive USD at exchange rates ranging from 0.6751 USD to 0.6759 USD to 1.0 AUD to mitigate the impact of the Australian dollar currency fluctuations on our net investment in JELD-WEN Australia Pty. Ltd. We designated the forward contracts as net investment hedges. The contracts matured during the three months ended September 30, 2023 and the gain, net of forward points, was included in the gain on the sale of JW Australia. The net proceeds are included in the proceeds (payments) related to the sale of JW Australia within our consolidated statements of cash flows. No portion of these contracts were deemed ineffective during the three and nine months ended September 30, 2023.
Interest rate derivatives – We are exposed to interest rate risk in connection with our variable rate long-term debt and we partially mitigate this risk through interest rate derivatives such as swaps and caps. In May 2020, we entered into interest rate swap agreements to manage this risk. The interest rate swap agreements have outstanding notional amounts aggregating to $370.0 million and mature in December 2023. Initially, the agreements had a weighted average fixed rate of 0.395 % swapped against one-month USD LIBOR floored at 0.00 %. In June 2023, we amended the agreements to replace LIBOR with a Term SOFR based rate. The amended agreements have a weighted average fixed rate of 0.317 % swapped against one-month USD-SOFR CME Term floored at (0.10 )%. All other terms and conditions were unchanged. The
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interest rate swap agreements are designated as cash flow hedges and effectively fix the interest rate on a corresponding portion of the aggregate debt outstanding under our Term Loan Facility.
No portion of these interest rate contracts were deemed ineffective during the three and nine months ended September 30, 2023. We recorded of $0.1 million and $1.1 million during the three and nine months ended September 30, 2023, respectively, and $4.8 million and $17.1 million during the three and six months ended September 24, 2022, respectively, in other comprehensive income. We reclassified gains of $4.6 million and $12.7 million previously recorded in other comprehensive income to interest income during the three and nine months ended September 30, 2023, respectively. We reclassified gains of $1.6 million and $1.7 million previously recorded in other comprehensive income to interest income during the three and nine months ended September 24, 2022, respectively.
As of September 30, 2023, approximately $4.6 million is expected to be reclassified to interest income until the instruments mature in December 2023.
Other derivative instruments – From time to time, we may enter into other types of derivative instruments immaterial to the business. Unless otherwise disclosed, these instruments are not designated as hedging instruments and mark-to-market adjustments are recorded in the statement of operations each period.
The fair values of derivative instruments held are as follows:
| Derivative assets | |||||||||||||||||
| (amounts in thousands) | Balance Sheet Location | September 30, 2023 | December 31, 2022 | ||||||||||||||
| Derivatives designated as hedging instruments: | |||||||||||||||||
| Interest rate contracts | Other current assets | $ | $ | ||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Foreign currency forward contracts | Other current assets | $ | $ | ||||||||||||||
| Other derivative instruments | Other current assets | ||||||||||||||||
| Derivative liabilities | |||||||||||||||||
| (amounts in thousands) | Balance Sheet Location | September 30, 2023 | December 31, 2022 | ||||||||||||||
| Derivatives not designated as hedging instruments: | |||||||||||||||||
| Foreign currency forward contracts | Accrued expenses and other current liabilities | $ | $ | ||||||||||||||
| Other derivative instruments | Accrued expenses and other current liabilities | $ | |||||||||||||||
Note 20. Fair Value of Financial Instruments
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. Three levels of inputs may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Quoted market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 – Unobservable inputs that are not corroborated by market data.
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The recorded carrying amounts and fair values of these instruments were as follows:
| September 30, 2023 | |||||||||||||||||||||||||||||||||||
| (amounts in thousands) | Carrying Amount | Total Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Deferred compensation plan assets, recorded in other assets | |||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
Debt, recorded in long-term debt and current maturities of long-term debt | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| (amounts in thousands) | Carrying Amount | Total Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||
| Cash equivalents | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Deferred compensation plan assets, recorded in other assets | |||||||||||||||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||||||||
Debt, recorded in long-term debt and current maturities of long-term debt | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
Derivative assets and liabilities reported in level 2 primarily include foreign currency derivative contracts and interest rate swap agreements. See Note 19- Derivative Financial Instruments for additional information about our derivative assets and liabilities.
Deferred compensation plan assets reported in level 2 consist of mutual funds.
There are no material non-financial assets or liabilities as of September 30, 2023 or December 31, 2022.
Note 21. Commitments and Contingencies
Litigation – 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 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 reassess the potential liability 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.
Other than the matters described below, there were no proceedings or litigation matters involving the Company or its property as of September 30, 2023 that we believe would 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, Inc. vs JELD-WEN, Inc. – 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 gave 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 (the “Eastern District of Virginia”). The complaint alleged that our acquisition of CMI, a competitor in the molded door skins market, together with subsequent price increases and other alleged acts and omissions, violated antitrust laws, and constituted a breach of contract and breach of warranty. Specifically, the complaint alleged that our acquisition of CMI substantially lessened competition in the molded door skins market. The complaint sought
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declaratory relief, ordinary and treble damages, and injunctive relief, including divestiture of certain assets acquired in the CMI acquisition.
In February 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, found that JWI breached the supply agreement between the parties (the “Original Action”). The verdict awarded Steves $12.2 million for past damages under both the Clayton Act and breach of contract claims and $46.5 million in future lost profits under the Clayton Act claim.
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. On May 11, 2018, a jury in the Eastern District of Virginia returned a verdict on our trade secrets claims against Steves and awarded damages in the amount of $1.2 million. The presiding judge entered a judgment in our favor for those damages, and the entire amount has been paid by Steves. On August 16, 2019, the presiding judge granted Steves’ request for an injunction, prohibiting us from pursuing certain claims against individual defendants pending in Bexar County, Texas (the “Steves Texas Trade Secret Theft Action”). On September 11, 2019, JELD-WEN filed a notice of appeal of the Eastern District of Virginia’s injunction to the Fourth Circuit Court of Appeals (the “Fourth Circuit”).
On March 13, 2019, the presiding judge entered an Amended Final Judgment Order in the Original Action, awarding $36.5 million in past damages under the Clayton Act (representing a trebling of the jury’s verdict) and granted divestiture of certain assets acquired in the CMI acquisition, subject to appeal. The judgment also conditionally awarded damages in the event the judgment was overturned on appeal. Specifically, the court awarded $139.4 million as future antitrust damages in the event the divestiture order was overturned on appeal and $9.9 million as past contract damages in the event both the divestiture and antitrust claims were overturned on appeal.
On April 12, 2019, Steves filed a petition requesting an award of its fees and a bill of costs, seeking $28.4 million in attorneys’ fees and $1.7 million in costs in connection with the Original Action. On November 19, 2019, the presiding judge entered an order for further relief awarding Steves an additional $7.1 million in damages for pricing differences from the date of the underlying jury verdict through May 31, 2019 (the “Pricing Action”). We also appealed that ruling. On April 14, 2020, Steves filed a motion for further supplemental relief for pricing differences from the date of the prior order and going forward through the end of the parties’ current supply agreement (the “Future Pricing Action”). We opposed that request for further relief.
JELD-WEN filed a supersedeas bond and notice of appeal of the judgment, which was heard by the Fourth Circuit on May 29, 2020. On February 18, 2021, the Fourth Circuit issued its decision on appeal in the Original Action, affirming the Amended Final Judgment Order in part and vacating and remanding in part. The Fourth Circuit vacated the Eastern District of Virginia’s alternative $139.4 million lost-profits award, holding that award was premature because Steves has not suffered the purported injury on which its claim for future lost profits rests. The Fourth Circuit also vacated the Eastern District of Virginia’s judgment for Sam Steves, Edward Steves, and John Pierce on JELD-WEN’s trade secrets claims. The Fourth Circuit affirmed the Eastern District of Virginia’s finding of antitrust injury and its award of $36.5 million in past antitrust damages. It also affirmed the Eastern District of Virginia’s divestiture order, while clarifying that JELD-WEN retains the right to challenge the terms of any divestiture, including whether a sale to any particular buyer will serve the public interest, and made clear that the Eastern District of Virginia may need to revisit its divestiture order if the special master who has been appointed by the presiding judge cannot locate a satisfactory buyer. JELD-WEN then filed a motion for rehearing en banc with the Fourth Circuit that was denied on March 22, 2021.
Following a thorough review, and consistent with our practice, we concluded that it is in the best interest of the Company and its stakeholders to move forward with the divestiture of Towanda and certain related assets. Although the Company did not seek Supreme Court review of the Fourth Circuit’s February 18, 2021 decision, the Company retains the legal right to challenge the divestiture process and the final divestiture order. We made estimates related to the divestiture in the preparation of our financial statements; however, there can be no guarantee that the divestiture will be consummated. The divestiture process is ongoing, and the special master is overseeing this process. Although the Company has decided to divest, we continue to believe that Steves’ claims lacked merit and that it was not entitled to the extraordinary remedy of divestiture. We continue to believe that the judgment in accordance with the verdict was improper under applicable law.
During the pendency of the Original Action, on February 14, 2020, Steves filed a complaint and motion for preliminary injunction in the Eastern District of Virginia alleging that we breached the long-term supply agreement between the parties, including, among other claims, by incorrectly calculating the allocation of door skins owed to Steves (the “Allocation Action”). Steves sought an additional allotment of door skins and damages for violation of antitrust laws, tortious interference, and breach of contract. On April 10, 2020, the presiding judge granted Steves’ motion for preliminary injunction, and the parties settled the issues underlying the preliminary injunction on April 30, 2020 and the Company reserved the right to appeal the ruling in the Fourth Circuit. The Company believed all the claims lacked merit and moved to dismiss the antitrust and tortious interference claims.
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On June 2, 2020, we entered into a settlement agreement with Steves to resolve the Pricing Action, the Future Pricing Action, and the Allocation Action. As a result of the settlement, Steves filed a notice of satisfaction of judgment in the Pricing Action, withdrew its Future Pricing Action with prejudice, and filed a stipulated dismissal with prejudice in the Allocation Action. The Company also withdrew its appeal of the Pricing Action. The parties agreed to bear their own respective attorneys’ fees and costs in these actions. In partial consideration of the settlement, JWI and Steves entered into an amended supply agreement satisfactory to both parties that, by its terms, ended on September 10, 2021. This settlement had no effect on the Original Action between the parties except to agree that certain specific terms of the Amended Final Judgment Order in the Original Action would apply to the amended supply agreement during the pendency of the appeal of the Original Action. On April 2, 2021, JWI and Steves filed a stipulation regarding the amended supply agreement in the Original Action, stating that regardless of whether the case remains on appeal as of September 10, 2021, and absent further order of the court, the amended supply agreement would be extended until the divestiture of Towanda and certain related assets is complete and Steves’ new supply agreement with the company that acquires Towanda is in effect.
We continue to believe the claims in the settled actions lacked merit and made no admission of liability in these matters.
On October 7, 2021, we entered into a settlement agreement with Steves to resolve the following: (i) Steves’ past and any future claims for attorneys’ fees, expenses, and costs in connection with the Original Action, except that Steves and JWI each reserved the right to seek attorneys’ fees arising out of any challenge of the divestiture process or the final divestiture order; (ii) the Steves Texas Trade Secret Theft Action and the related Fourth Circuit appeal of the Eastern District of Virginia’s injunction in the Original Action; (iii) the past damages award in the Original Action; and (iv) any and all claims and counterclaims, known or unknown, that were asserted or could have been asserted against each other from the beginning of time through the date of the settlement agreement. As a result of the settlement, the parties filed a stipulated notice of satisfaction of the past antitrust damages judgment and a stipulated notice of settlement of Steves’ claim for attorneys’ fees, expenses, and costs against JWI in the Original Action, and Steves filed a notice of withdrawal of its motion for attorneys’ fees and expenses and bill of costs in the Original Action. The Company also filed a notice of dismissal with prejudice and agreed to take no judgment in the Steves Texas Trade Secret Theft Action, and the parties filed a joint agreement for dismissal of the injunction appeal in the Fourth Circuit. On November 3, 2021, we paid $66.4 million to Steves under the settlement agreement.
Cambridge Retirement System v. JELD-WEN Holding, Inc., et al. – On February 19, 2020, Cambridge Retirement System filed a putative class action lawsuit in the Eastern District of Virginia against the Company, current and former Company executives, and various Onex-related entities alleging violations of Section 10(b) and Rule 10b-5 of the Exchange Act, as well as violations of Section 20(a) of the Exchange Act against the individual defendants and Onex-related entities (“Cambridge”). The lawsuit sought compensatory damages, equitable relief, and an award of attorneys’ fees and costs. On May 8, 2020, the Public Employees Retirement System of Mississippi and the Plumbers and Pipefitters National Pension Fund were named as co-lead plaintiffs and filed an amended complaint on June 22, 2020.
On April 20, 2021, the parties reached an agreement in principle to resolve this securities class action. The agreement contemplated a full release of claims through the date of preliminary court approval of the settlement in exchange for a payment of $39.5 million, primarily funded by the Company’s D&O insurance carriers, except $5.0 million which was provisionally funded by the Company and remains subject to dispute with insurance carriers. On November 22, 2021, the Court granted final approval of the settlement agreement. The deadline to appeal the entry of the final approval order and judgment was December 22, 2021, and no party or class member filed an appeal. The Company continues to believe that the plaintiffs’ claims lacked merit and has denied any liability or wrongdoing for the claims made against the Company.
In re JELD-WEN Holding, Inc. Derivative Litigation – On February 2, 2021, Jason Aldridge, on behalf of the Company, filed a derivative action in the U.S. District Court for the District of Delaware against certain current and former executives and directors of the Company, alleging that the individual defendants breached their fiduciary duties by allowing the wrongful acts alleged in the Steves and Cambridge actions, as well as violations of Section 14(a) and 20(a) of the Exchange Act, unjust enrichment, and waste of corporate assets among other allegations (the “Aldridge Action”). The lawsuit sought compensatory damages, equitable relief, and an award of attorneys’ fees and costs. The plaintiff filed an amended complaint on May 10, 2021.
On June 21, 2021, prior to a response from the Company in the Aldridge Action, Shieta Black and the Board of Trustees of the City of Miami General Employees’ & Sanitation Employees’ Retirement Trust, on behalf of the Company, filed a derivative action in the U.S. District Court for the District of Delaware against certain current and former executives and directors of the Company and Onex Corporation (“Onex”), alleging that the defendants breached their fiduciary duties by allowing the wrongful acts alleged in the Steves and Cambridge actions, as well as insider trading, and unjust enrichment among other allegations (the “Black Action”). The lawsuit sought compensatory damages, corporate governance reforms, restitution, equitable relief, and an award of attorneys’ fees and costs. The court granted the Black and Aldridge plaintiffs in motion to consolidate the lawsuits on July 16, 2021.
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On June 20, 2022, the parties entered into a settlement agreement of the consolidated matters, which was approved by the Court on approval of the December 20, 2022, and the cases were dismissed with prejudice. As part of the settlement, the Company, as putative plaintiff, received approximately $10.5 million after attorneys’ fees and costs were deducted in January 2023.
In re Interior Molded Doors Antitrust Litigation – On October 19, 2018, Grubb Lumber Company, on behalf of itself and others similarly situated, filed a putative class action lawsuit against us and one of our competitors in the doors market, Masonite Corporation (“Masonite”), in the Eastern District of Virginia. We subsequently received additional complaints from and on behalf of direct and indirect purchasers of interior molded doors. The suits were consolidated into two separate actions, a Direct Purchaser Action and an Indirect Purchaser Action. The suits alleged that Masonite and JELD-WEN violated Section 1 of the Sherman Act, and in the Indirect Purchaser Action, related state law antitrust and consumer protection laws, by engaging in a scheme to artificially raise, fix, maintain, or stabilize the prices of interior molded doors in the United States. The complaints sought ordinary and treble damages, declaratory relief, interest, costs, and attorneys’ fees.
On August 31, 2020, JELD-WEN and Masonite entered into a settlement agreement with the putative Direct Purchaser
class to resolve the Direct Purchaser Action. Each defendant agreed to pay a total of $30.8 million to the named plaintiffs and the settlement class in exchange for a full release of claims through the date of preliminary approval of the revised settlement, which the court granted on February 5, 2021. In addition, on September 4, 2020, JELD-WEN and Masonite entered into a separate settlement agreement with the putative Indirect Purchaser class to resolve the Indirect Purchaser Action. Each defendant agreed to pay $9.75 million to the named plaintiffs and the settlement class in exchange for a full release of claims through the execution date of the settlement agreement. The final fairness hearing in the Direct Purchaser Action was held on June 2, 2021, and the court entered a final approval order and judgment on June 3, 2021. On June 17, 2021, the Company made the settlement payment to the named plaintiffs and the settlement class in the Direct Purchaser Action. The deadline to appeal the entry of the final approval order and judgment was July 7, 2021, and no party or class member filed an appeal. The final fairness hearing in the Indirect Purchaser Action was held on July 26, 2021 and the court issued a final approval order and judgment on July 27, 2021. On August 10, 2021, the Company made the settlement payment to the named plaintiffs and the settlement class in the Indirect Purchaser Action. The deadline to appeal the entry of the final approval order and judgment was August 26, 2021, and no party or class member filed an appeal. The Company continues to believe that the plaintiffs’ claims lacked merit and has denied any liability or wrongdoing for the claims made against the Company.
Canadian Antitrust Litigation – On May 15, 2020, Développement Émeraude Inc., on behalf of itself and others similarly situated, filed a putative class action lawsuit against the Company and Masonite in the Superior Court of the Province of Quebec, Canada, which was served on us on September 18, 2020 (“the Quebec Action”). The putative class consists of any person in Canada who, since October 2012, purchased one or more interior molded doors from the Company or Masonite. The suit alleges an illegal conspiracy between the Company and Masonite to agree on prices, the distribution of market shares and/or the production levels of interior molded doors and that the plaintiffs suffered damages in that they were charged and paid higher prices for interior molded doors than they would have had to pay but for the alleged anti-competitive conduct. The plaintiffs are seeking compensatory and punitive damages, attorneys’ fees and costs. On September 9, 2020, Kate O’Leary Swinkels, on behalf of herself and others similarly situated, filed a putative class action against the Company and Masonite in the Federal Court of Canada, which was served on us on September 29, 2020 (the “Federal Court Action”). The Federal Court Action makes substantially similar allegations to the Quebec Action and the putative class is represented by the same counsel. In February 2021, the plaintiff in the Federal Court Action issued a proposed Amended Statement of Claim that replaced the named plaintiff, Kate O’Leary Swinkels, with David Regan. The plaintiff has sought a stay of the Quebec Action while the Federal Court Action proceeds. We anticipate a hearing on the certification of the Federal Court Action in 2023. The Company believes both the Quebec Action and the Federal Court Action lack merit and intends to vigorously defend against them. On July 14, 2023, the Company entered into a preliminary agreement with class counsel to resolve both actions for an immaterial amount, which the Company recorded in the second quarter of 2023. The proposed settlement remains subject to final documentation and court approval. The Company continues to believe the plaintiffs’ claims lack merit and denies any liability or wrongdoing for the claims made against the Company.
We have evaluated the claims against us and recorded provisions based on management’s judgment about the probable outcome of the litigation and have included our estimates in accrued expenses in the accompanying balance sheets. See Note 8 - Accrued Expenses and Other Current Liabilities. While we expect a favorable resolution to these matters, the dispute resolution process could be lengthy, and if the plaintiffs were to prevail completely or substantially in the respective matters described above, such an outcome could have a material adverse effect on our operating results, consolidated financial position, or cash flows.
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 $5.0 million and $200.0
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million for domestic product liability risk and exposures between $3.0 million and $200.0 million for auto, general liability, personal injury, and workers’ compensation. We have no stop loss insurance covering our self-insured 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 September 30, 2023 and December 31, 2022, our accrued liability for self-insured risks was $87.3 million and $89.0 million, respectively.
Indemnifications – At September 30, 2023, we had commitments related to certain representations made in contracts for sale of businesses or property, including the divestiture of JW Australia. Our indemnity obligations under the relevant agreements may be limited in terms of time, amount or scope. 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. As it relates to certain income tax related liabilities, the relevant agreements may not provide any cap for such liabilities, and the period in which we would be liable would lapse upon expiration of the statute of limitation for assessment of the underlying taxes. Because of the conditional nature of these obligations and the unique facts and circumstances involved in each particular agreement, we are unable to reasonably estimate the potential maximum exposure associated with these items. 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 extent specific liabilities have been identified related to product sales, liabilities have been provided in the warranty accrual in the accompanying consolidated balance sheets.
Other Financing Arrangements – At times we are required to provide letters of credit, surety bonds, or guarantees to meet various performance, legal, warranty, environmental, workers compensation, licensing, utility, and governmental requirements. 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 stated values of these letters of credit agreements, surety bonds, and guarantees were $64.2 million at September 30, 2023 and $60.0 million at December 31, 2022, respectively.
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 current 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 in the accompanying consolidated balance sheets and totaled $0.4 million at September 30, 2023 and $0.5 million at December 31, 2022. Long-term environmental liabilities are recorded in in the accompanying consolidated balance sheets and totaled $11.5 million and $11.8 million at September 30, 2023 and December 31, 2022, respectively.
Everett, Washington WADOE Action – In 2007, we were identified by the WADOE as a PLP with respect to our former manufacturing site in Everett, Washington. In 2008, we entered into an Agreed Order with the WADOE to assess historic environmental contamination and remediation feasibility at the site. As part of the order, we agreed to develop a CAP, arising from the feasibility assessment. In December 2020, we submitted to the WADOE a draft feasibility assessment with an array of remedial alternatives, which we considered substantially complete. During 2021, several comment rounds were completed as well as the identification of the Port of Everett and W&W Everett Investment LLC as additional PLPs, with respect to this matter with each PLP being jointly and severally liable for the cleanup costs. The WADOE received the final feasibility assessment on December 31, 2021, containing various remedial alternatives with its preferred remedial alternatives totaling $23.4 million. Based on this study, we have determined our range of possible outcomes to be $11.8 million to $33.4 million. On March 1, 2022, we delivered a draft CAP to the WADOE consistent with its preferred alternatives, and on May 16, 2022, we received the WADOE’s initial comments on the draft CAP. On June 13, 2022, we responded to the WADOE’s comments, and on October 19, 2022, the WADOE identified Wick Family Properties as another PLP. On December 19, 2022, the WADOE provided the draft CAP to the Company and other PLPs. After further negotiation, the final CAP will ultimately be formalized in an Agreed Order or Consent Decree with the WADOE, the Company, and the other PLPs. We have made provisions within our financial statements within the range of possible outcomes; however, the contents and cost of the final CAP and allocation of the responsibility between the identified PLPs could vary materially from our estimates.
Towanda, Pennsylvania Consent Order – In December 2020, 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 2012, by using it as fuel for a boiler at that site. The COA replaced a 2018 Consent Decree between the Company and
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Note 22. Supplemental Cash Flow Information
| Nine Months Ended | |||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | |||||||||||||||
| Cash Operating Activities: | |||||||||||||||||
| Operating leases | $ | $ | |||||||||||||||
| Interest payments on financing lease obligations | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | $ | $ | |||||||||||||||
| Cash Investing Activities: | |||||||||||||||||
| Purchases of securities for deferred compensation plan | $ | ( | $ | ( | |||||||||||||
| Sale of securities for deferred compensation plan | |||||||||||||||||
| Change in securities for deferred compensation plan | $ | ( | $ | ( | |||||||||||||
| Non-cash Investing Activities: | |||||||||||||||||
| Property, equipment, and intangibles purchased in accounts payable | $ | $ | |||||||||||||||
| Property, equipment, and intangibles purchased with debt | |||||||||||||||||
Customer accounts receivable converted to notes receivable | |||||||||||||||||
| Cash Financing Activities: | |||||||||||||||||
Borrowings on long-term debt | |||||||||||||||||
Payments of long-term debt | ( | ( | |||||||||||||||
| Payments of debt extinguishment costs | ( | ||||||||||||||||
Change in long-term debt | $ | ( | $ | ||||||||||||||
Cash paid for amounts included in the measurement of finance lease liabilities | $ | $ | |||||||||||||||
| Non-cash Financing Activities: | |||||||||||||||||
Prepaid insurance funded through short-term debt borrowings | $ | $ | |||||||||||||||
Shares surrendered for tax obligations for employee share-based transactions in accrued liabilities | $ | $ | |||||||||||||||
Accounts payable converted to installment notes | |||||||||||||||||
| Other Supplemental Cash Flow Information: | |||||||||||||||||
Cash taxes paid, net of refunds | $ | $ | |||||||||||||||
Cash interest paid | |||||||||||||||||
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Item 2 - 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 the “Forward-Looking Statements” section above for a discussion of the uncertainties, risks and assumptions associated with these statements. This discussion should be read in conjunction with our unaudited financial statements and related notes thereto and the other disclosures contained elsewhere in this Form 10-Q, and our audited financial statements and related notes and MD&A included in our 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 in our Form 10-K and Form 10-Q, and included elsewhere in this Form 10-Q.
This MD&A is a supplement to our unaudited financial statements and notes thereto included elsewhere in this Form 10-Q and is provided to enhance your understanding of our results of operations and financial condition. Our discussion of results of operations is presented in millions throughout the MD&A and due to rounding may not sum or calculate precisely to the totals and percentages provided in the tables. Our MD&A is organized as follows:
•Overview. This section provides a general description of our Company and reportable segments.
•Consolidated Results of Operations and Operating Results by Business Segment. This section provides our analysis and outlook for the significant line items on our consolidated statements of operations, as well as other information that we deem meaningful to an understanding of our results of operations on both a consolidated basis and a business segment basis.
•Liquidity and Capital Resources. This section contains an overview of our financing arrangements and provides an analysis of trends and uncertainties affecting liquidity, cash requirements for our business, and sources and uses of our cash.
•Critical Accounting Policies and Estimates. This section discusses the accounting policies that we consider important to the evaluation and reporting of our financial condition and results of operations, and whose application requires significant judgments or a complex estimation process.
Company Overview
We are a leading global provider of windows, doors, wall systems, and other building products. We design, produce, and distribute an extensive range of interior and exterior doors, wood, vinyl, and aluminum windows, and related products for use in the new construction, R&R of residential homes, and, to a lesser extent, non-residential buildings.
Our continuing operations include manufacturing and distribution facilities in 16 countries, located in North America and Europe. For many product lines, our manufacturing processes are vertically integrated, enhancing our range of capabilities, our ability to innovate, and our quality control as well as providing supply chain, transportation, and working capital savings.
Business Segments
Our business is organized in geographic regions to ensure integration across operations serving common end markets and customers. We have two reportable segments in our continuing operations: North America and Europe. Financial information related to our business segments can be found in Note 12 - Segment Information of our financial statements included elsewhere in this Form 10-Q.
Results of Operations
The tables in this section summarize key components of our results of operations for the periods indicated, both in U.S. dollars and as a percentage of our net revenues. Certain percentages presented in this section have been rounded to the nearest whole number. Accordingly, totals may not equal the sum of the line items in the tables below.
We present several financial metrics in “Core” terms, such as Core Revenue, which excludes the impact of foreign exchange, acquisitions and divestitures completed in the last twelve months. We believe Core Revenue assists management, investors, and analysts in understanding the organic performance of the operations.
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Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 24, 2022
| Three Months Ended | |||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | ||||||||||||||||||||||
| (amounts in thousands) | % of Net Revenues | % of Net Revenues | |||||||||||||||||||||
| Net revenues | $ | 1,076,980 | 100.0 | % | $ | 1,140,025 | 100.0 | % | |||||||||||||||
| Cost of sales | 853,384 | 79.2 | % | 933,636 | 81.9 | % | |||||||||||||||||
| Gross margin | 223,596 | 20.8 | % | 206,389 | 18.1 | % | |||||||||||||||||
| Selling, general and administrative | 162,820 | 15.1 | % | 162,208 | 14.2 | % | |||||||||||||||||
| Goodwill impairment | — | — | % | 54,885 | 4.8 | % | |||||||||||||||||
| Restructuring and asset related charges | 12,698 | 1.2 | % | 6,552 | 0.6 | % | |||||||||||||||||
| Operating income (loss) | 48,078 | 4.5 | % | (17,256) | (1.5) | % | |||||||||||||||||
| Interest expense, net | 16,737 | 1.6 | % | 21,273 | 1.9 | % | |||||||||||||||||
Loss on extinguishment of debt | 6,487 | 0.2 | % | — | 0.0 | % | |||||||||||||||||
| Other income, net | (9,453) | (0.9) | % | (5,180) | (0.5) | % | |||||||||||||||||
| Income (loss) from continuing operations before taxes | 34,307 | 3.2 | % | (33,349) | (2.9) | % | |||||||||||||||||
| Income tax expense | 17,399 | 1.6 | % | 11,715 | 1.0 | % | |||||||||||||||||
| Income (loss) from continuing operations, net of tax | 16,908 | 1.6 | % | (45,064) | (4.0) | % | |||||||||||||||||
| Gain on sale of discontinued operations, net of tax | 26,076 | 2.4 | % | — | — | % | |||||||||||||||||
| Income from discontinued operations, net of tax | 801 | 0.1 | % | 11,872 | 1.0 | % | |||||||||||||||||
| Net income (loss) | $ | 43,785 | 4.1 | % | $ | (33,192) | (2.9) | % | |||||||||||||||
Consolidated Results
Net Revenues – Net revenues decreased $63.0 million, or 5.5%, to $1,077.0 million in the three months ended September 30, 2023 from $1,140.0 million in the three months ended September 24, 2022. The decrease was driven by a Core Revenue decrease of 7%, partially offset by a 1% positive foreign exchange impact. Core Revenues decreased due to a reduction in volume/mix of 10%, partially offset by a 3% benefit from price realization.
Gross Margin – Gross margin increased $17.2 million, or 8.3%, to $223.6 million in the three months ended September 30, 2023 from $206.4 million in the three months ended September 24, 2022. Gross margin as a percentage of net revenues was 20.8% in the three months ended September 30, 2023 and 18.1% in the three months ended September 24, 2022. The increase in gross margin percentage was due primarily to favorable price/cost.
SG&A Expense – SG&A expense increased $0.6 million, or 0.4%, to $162.8 million in the three months ended September 30, 2023 from $162.2 million in the three months ended September 24, 2022. SG&A expense as a percentage of net revenues increased to 15.1% in the three months ended September 30, 2023 from 14.2% in the three months ended September 24, 2022. The increase in SG&A expense and SG&A as a percentage of net revenues was primarily due to accelerated amortization of an ERP system that we intend to not utilize upon completion of the JW Australia Transition Services Agreement period, partially offset by net gains on property and equipment sales.
Restructuring and Asset Related Charges – Restructuring and asset related charges of $12.7 million in the three months ended September 30, 2023 relate to transformation initiatives, cost savings, and footprint rationalization activities in our North America and Europe segments. The restructuring charges in our North America segment primarily relate to charges incurred to close certain manufacturing facilities. For more information, refer to Note 16 - Restructuring and Asset Related Charges in our unaudited consolidated financial statements included in this Form 10-Q.
Interest Expense, Net – Interest expense, net, decreased $4.5 million, or 21.3%, to $16.7 million in the three months ended September 30, 2023 from $21.3 million in the three months ended September 24, 2022. The decrease was primarily due to the redemption of all $250.0 million of our 6.25% Senior Secured Notes and $200.0 million of our 4.63% Senior Notes during the three months ended September 30, 2023, higher interest income from interest rate derivatives, and decreased borrowings on our Revolving Credit Facilities, partially offset by an increase to the cost of borrowing on our variable rate Term Loan Facility.
Loss on Extinguishment of Debt – The $6.5 million loss on extinguishment of debt is related to the redemption of our Senior Secured Notes and partial redemption of our Senior notes during the three months ended September 30, 2023. Refer to Note 10. - Long-Term Debt in our unaudited consolidated financial statements included in this Form 10-Q.
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Other Income, Net – Other income, net increased $4.3 million or 82.5% to $9.5 million in the three months ended September 30, 2023 from $5.2 million in the three months ended September 24, 2022. Other income, net in the three months ended September 30, 2023 primarily consisted of recovery of the JW Australia transition services costs incurred of $4.0 million and income from short-term investments and forward contracts related to the JW Australia divestiture of $3.1 million. Other income, net in the three months ended September 24, 2022 primarily consisted of insurance reimbursements of $1.5 million and pension gain of $1.4 million. Refer to Note 18 - Other (Income), Net for the remaining components of other income (loss), net.
Income Taxes – Income tax expense was $17.4 million and $11.7 million in the three months ended September 30, 2023 and September 24, 2022, respectively. The effective tax rate in the three months ended September 30, 2023 was 50.7% compared to (35.1)% in the three months ended September 24, 2022. The effective tax rate in the three months ended September 30, 2023 increased primarily due to $7.0 million of income tax expense from the net impact of discrete items, primarily resulting from increases in valuation allowances and increases in uncertain tax position reserves. The negative effective tax rate in the three months ended September 24, 2022 was primarily due to the $54.9 million goodwill impairment. For more information, refer to Note 11 - Income Taxes to our unaudited consolidated financial statements included in this Form 10-Q.
Gain on Sale of Discontinued Operations – The $26.1 million gain on sale of discontinued operations is related to the July 2, 2023 sale of JW Australia. Refer to Note 2 - Discontinued Operations to our unaudited consolidated financial statements included in this Form 10-Q.
Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 24, 2022
| Nine Months Ended | |||||||||||||||||||||||
| September 30, 2023 | September 24, 2022 | ||||||||||||||||||||||
| (amounts in thousands) | % of Net Revenues | % of Net Revenues | |||||||||||||||||||||
| Net revenues | $ | 3,283,269 | 100.0 | % | $ | 3,364,794 | 100.0 | % | |||||||||||||||
| Cost of sales | 2,642,331 | 80.5 | % | 2,780,125 | 82.6 | % | |||||||||||||||||
| Gross margin | 640,938 | 19.5 | % | 584,669 | 17.4 | % | |||||||||||||||||
| Selling, general and administrative | 478,060 | 14.6 | % | 482,249 | 14.3 | % | |||||||||||||||||
| Goodwill impairment | — | — | % | 54,885 | 1.6 | % | |||||||||||||||||
| Restructuring and asset related charges | 28,776 | 0.9 | % | 11,796 | 0.4 | % | |||||||||||||||||
| Operating income | 134,102 | 4.1 | % | 35,739 | 1.1 | % | |||||||||||||||||
| Interest expense, net | 59,083 | 1.8 | % | 59,794 | 1.8 | % | |||||||||||||||||
Loss on extinguishment of debt | 6,487 | 0.2 | % | — | 0.0 | % | |||||||||||||||||
| Other income, net | (10,981) | (0.3) | % | (31,334) | (0.9) | % | |||||||||||||||||
| Income from continuing operations before taxes | 79,513 | 2.4 | % | 7,279 | 0.2 | % | |||||||||||||||||
| Income tax expense | 31,638 | 1.0 | % | 20,960 | 0.6 | % | |||||||||||||||||
| Income (loss) from continuing operations, net of tax | 47,875 | 1.5 | % | (13,681) | (0.4) | % | |||||||||||||||||
| Gain on sale of discontinued operations, net of tax | 26,076 | 0.8 | % | — | — | % | |||||||||||||||||
| Income from discontinued operations, net of tax | 23,249 | 0.7 | % | 25,787 | 0.8 | % | |||||||||||||||||
| Net income | $ | 97,200 | 3.0 | % | $ | 12,106 | 0.4 | % | |||||||||||||||
Consolidated Results
Net Revenues – Net revenues decreased $81.5 million, or 2.4%, to $3,283.3 million in the nine months ended September 30, 2023 from $3,364.8 million in the nine months ended September 24, 2022. Core Revenues decreased 2% due to an 8% decrease in volume/mix, partially offset by a 6% benefit from price realization.
Gross Margin – Gross margin increased $56.3 million, or 9.6%, to $640.9 million in the nine months ended September 30, 2023 from $584.7 million in the nine months ended September 24, 2022. Gross margin as a percentage of net revenues was 19.5% in the nine months ended September 30, 2023 and 17.4% in the nine months ended September 24, 2022. The increase in gross margin percentage was due primarily to the favorable price/cost, partially offset by accelerated depreciation in North America from reviews of equipment capacity optimization.
SG&A Expense – SG&A expense decreased $4.2 million, or 0.9%, to $478.1 million in the nine months ended September 30, 2023 from $482.2 million in the nine months ended September 24, 2022. SG&A expense as a percentage of net revenues increased to 14.6% in the nine months ended September 30, 2023 from 14.3% in the nine months ended September 24, 2022. The decrease in SG&A expense was primarily due to decreased labor expenses driven by a reduction in headcount, lower bad debt expense in our
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North America segment due to improved collections, and gains on property and equipment sales, partially offset by increased performance-based variable compensation expenses.
Restructuring and Asset Related Charges – Restructuring and asset related charges of $28.8 million in the nine months ended September 30, 2023 relate to transformation initiatives, cost savings, and footprint rationalization activities in our North America and Europe segments. The restructuring charges in our North America segment primarily relate to charges incurred to close certain manufacturing facilities. For more information, refer to Note 16 - Restructuring and Asset Related Charges to our unaudited consolidated financial statements included in this Form 10-Q.
Interest Expense, Net – Interest expense, net, decreased $0.7 million, or 1.2%, to $59.1 million in the nine months ended September 30, 2023 from $59.8 million in the nine months ended September 24, 2022. The decrease was primarily due to higher interest income from interest rate derivatives, the redemption of our Senior Secured Notes and partial redemption of our Senior notes and decreased borrowings on our Revolving Credit Facilities during the nine months ended September 30, 2023, partially offset by an increase to the cost of borrowing on our variable rate Term Loan Facility.
Loss on Extinguishment of Debt – The $6.5 million loss on extinguishment of debt is related to the redemption of our Senior Secured Notes and partial redemption of our Senior notes during the nine months ended September 30, 2023. Refer to Note 10. - Long-Term Debt to our unaudited consolidated financial statements included in this Form 10-Q.
Other Income, Net – Other income, net decreased $20.4 million, or 65.0%, to $11.0 million in the nine months ended September 30, 2023 from $31.3 million in the nine months ended September 24, 2022. Other income, net in the nine months ended September 30, 2023 primarily consisted of recovery of the JW Australia transition services costs incurred of $4.0 million and income from short-term investments and forward contracts related to the JW Australia divestiture of $3.1 million, the recovery of cost from interest received on impaired notes of $3.0 million, foreign currency gains of $2.3 million and reimbursements from insurance of $1.2 million, partially offset by pension expense of $5.0 million. Other income, net in the nine months ended September 24, 2022 primarily consisted of the recovery of cost from interest received on impaired notes of $14.0 million, insurance reimbursements of $6.3 million, pension income of $4.5 million and foreign currency gains of $4.4 million. Refer to Note 18 - Other (Income), Net for the remaining components of other income, net.
Income Taxes – Income tax expense was $31.6 million and $21.0 million in the nine months ended September 30, 2023 and September 24, 2022, respectively. The effective tax rate in the nine months ended September 30, 2023 was 39.8% compared to 288.0% in the nine months ended September 24, 2022. The effective tax rate in the nine months ended September 30, 2023 decreased primarily due to the impacts of the $54.9 million goodwill impairment recorded in the nine months ended September 24, 2022. For more information, refer to Note 11 - Income Taxes to our unaudited consolidated financial statements included in this Form 10-Q.
Gain on Sale of Discontinued Operations – The $26.1 million gain on sale of discontinued operations is related to the July 2, 2023 sale of JW Australia. Refer to Note 2 - Discontinued Operations to our unaudited consolidated financial statements included in this Form 10-Q.
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Segment Results
We report our segment information in the same way management internally organizes the business in assessing performance and making decisions regarding allocation of resources in accordance with ASC 280-10 - Segment Reporting. We define Adjusted EBITDA from continuing operations as income (loss) from continuing operations, net of tax, adjusted for the following items: income tax expense (benefit); depreciation and amortization; interest expense, net; and certain special items consisting of non-recurring legal and professional expenses and settlements; goodwill impairment; restructuring and asset related charges; other facility closure, consolidation, and other related costs and adjustments; M&A related costs; loss on extinguishment of debt; share-based compensation expense; non-cash foreign exchange transaction/translation (income) loss; and other special items. This non-GAAP financial measure should be viewed in addition to, and not as a substitute for, the Company’s reported results prepared in accordance with GAAP.
We have two reportable segments in our continuing operations, organized and managed principally by geographic region: North America and Europe. We report all other business activities in Corporate and unallocated costs.
Reconciliations of net income to Adjusted EBITDA from continuing operations for our segments’ operations are as follows:
| Three Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (amounts in thousands) | North America | Europe | Total Operating Segments | Corporate and Unallocated Costs | Total Consolidated | ||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | 40,469 | $ | 10,672 | $ | 51,141 | $ | (34,233) | $ | 16,908 | |||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 27,412 | 5,974 | 33,386 | (15,987) | 17,399 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization(1) | 17,128 | 7,482 | 24,610 | 6,341 | 30,951 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 604 | 147 | 751 | 15,986 | 16,737 | ||||||||||||||||||||||||||||||||||||||||||
Special items:(2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses and settlements | 802 | 1,264 | 2,066 | 5,335 | 7,401 | ||||||||||||||||||||||||||||||||||||||||||
| Restructuring and asset related charges | 11,890 | 838 | 12,728 | (30) | 12,698 | ||||||||||||||||||||||||||||||||||||||||||
| Other facility closure, consolidation, and related costs and adjustments | (7) | 88 | 81 | — | 81 | ||||||||||||||||||||||||||||||||||||||||||
| M&A related costs | 84 | — | 84 | 1,118 | 1,202 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss (gain) on sale of property and equipment | 748 | (4,791) | (4,043) | 3 | (4,040) | ||||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | 6,487 | 6,487 | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 914 | 455 | 1,369 | 2,013 | 3,382 | ||||||||||||||||||||||||||||||||||||||||||
| Non-cash foreign exchange transaction/translation loss (income) | 131 | 2,343 | 2,474 | (2,203) | 271 | ||||||||||||||||||||||||||||||||||||||||||
| Other special items | (213) | (21) | (234) | (3,502) | (3,736) | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | 99,962 | $ | 24,451 | $ | 124,413 | $ | (18,672) | $ | 105,741 | |||||||||||||||||||||||||||||||||||||
(1)Corporate and Unallocated depreciation and amortization expense includes software accelerated amortization of $3.5 million for an ERP system that will not be utilized upon completion of the JW Australia Transition Services Agreement period.
(2)For the definitions of the Special items listed above, refer to Note 12 - Segment Information in our unaudited consolidated financial statements included in this Form 10-Q.
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| Three Months Ended September 24, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| (amounts in thousands) | North America | Europe | Total Operating Segments | Corporate and Unallocated Costs | Total Consolidated | ||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | 80,983 | $ | (53,685) | $ | 27,298 | $ | (72,362) | $ | (45,064) | |||||||||||||||||||||||||||||||||||||
Income tax expense (benefit)(1) | 1,624 | (5,857) | (4,233) | 15,948 | 11,715 | ||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 17,568 | 7,208 | 24,776 | 3,150 | 27,926 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 1,152 | 1,653 | 2,805 | 18,468 | 21,273 | ||||||||||||||||||||||||||||||||||||||||||
Special items:(2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses and settlements | 2 | 594 | 596 | 1,900 | 2,496 | ||||||||||||||||||||||||||||||||||||||||||
| Goodwill impairment | — | 54,885 | 54,885 | — | 54,885 | ||||||||||||||||||||||||||||||||||||||||||
| Restructuring and asset related charges | 814 | 3,411 | 4,225 | 2,327 | 6,552 | ||||||||||||||||||||||||||||||||||||||||||
| Other facility closure, consolidation, and related costs and adjustments | 2,394 | 6,665 | 9,059 | — | 9,059 | ||||||||||||||||||||||||||||||||||||||||||
| M&A related costs | 143 | — | 143 | 2,825 | 2,968 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss (gain) on sale of property and equipment | 87 | (10) | 77 | — | 77 | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense (income) | 1,042 | 627 | 1,669 | (2,427) | (758) | ||||||||||||||||||||||||||||||||||||||||||
| Non-cash foreign exchange transaction/translation (income) loss | (59) | 6,269 | 6,210 | (3,431) | 2,779 | ||||||||||||||||||||||||||||||||||||||||||
| Other special items | (459) | (3,674) | (4,133) | 4,746 | 613 | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | 105,291 | $ | 18,086 | $ | 123,377 | $ | (28,856) | $ | 94,521 | |||||||||||||||||||||||||||||||||||||
(1)Income tax expense in Corporate and unallocated costs includes the tax impact of U.S. Operations.
(2)For the definitions of the Special items listed above, refer to Note 12 - Segment Information in our unaudited consolidated financial statements included in this Form 10-Q.
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| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (amounts in thousands) | North America | Europe | Total Operating Segments | Corporate and Unallocated Costs | Total Consolidated | ||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | 126,987 | $ | 28,627 | $ | 155,614 | $ | (107,739) | $ | 47,875 | |||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 63,072 | 10,469 | 73,541 | (41,903) | 31,638 | ||||||||||||||||||||||||||||||||||||||||||
Depreciation and amortization(1) | 62,625 | 22,414 | 85,039 | 12,469 | 97,508 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 4,188 | 692 | 4,880 | 54,203 | 59,083 | ||||||||||||||||||||||||||||||||||||||||||
Special items:(2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses and settlements | 804 | 3,720 | 4,524 | 9,085 | 13,609 | ||||||||||||||||||||||||||||||||||||||||||
| Restructuring and asset-related charges | 25,360 | 2,620 | 27,980 | 796 | 28,776 | ||||||||||||||||||||||||||||||||||||||||||
| Other facility closure, consolidation, and related costs and adjustments | (5) | 2,704 | 2,699 | — | 2,699 | ||||||||||||||||||||||||||||||||||||||||||
| M&A related costs | 651 | — | 651 | 4,520 | 5,171 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss (gain) on sale of property and equipment | 1,132 | (5,088) | (3,956) | 3 | (3,953) | ||||||||||||||||||||||||||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | 6,487 | 6,487 | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 3,366 | 1,438 | 4,804 | 7,451 | 12,255 | ||||||||||||||||||||||||||||||||||||||||||
| Non-cash foreign exchange transaction/translation (income) loss | (168) | 1,192 | 1,024 | (1,921) | (897) | ||||||||||||||||||||||||||||||||||||||||||
| Other special items | (34) | (2,838) | (2,872) | (3,450) | (6,322) | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | 287,978 | $ | 65,950 | $ | 353,928 | $ | (59,999) | $ | 293,929 | |||||||||||||||||||||||||||||||||||||
(1)North America depreciation and amortization expense includes accelerated depreciation of $9.1 million from reviews of equipment capacity optimization. Corporate and Unallocated depreciation and amortization expense includes software accelerated amortization of $3.5 million for an ERP system that we intend to not utilize upon completion of the JW Australia Transition Services Agreement period.
(2)For the definitions of the Special items listed above, refer to Note 12 - Segment Information in our unaudited consolidated financial statements included in this Form 10-Q.
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| Nine Months Ended September 24, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| (amounts in thousands) | North America | Europe | Total Operating Segments | Corporate and Unallocated Costs | Total Consolidated | ||||||||||||||||||||||||||||||||||||||||||
| Income (loss) from continuing operations, net of tax | $ | 188,882 | $ | (51,189) | $ | 137,693 | $ | (151,374) | $ | (13,681) | |||||||||||||||||||||||||||||||||||||
Income tax expense (benefit)(1) | 4,629 | (1,331) | 3,298 | 17,662 | 20,960 | ||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 51,116 | 22,703 | 73,819 | 9,445 | 83,264 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense, net | 3,070 | 5,512 | 8,582 | 51,212 | 59,794 | ||||||||||||||||||||||||||||||||||||||||||
Special items:(2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses and settlements | 2 | 594 | 596 | 4,409 | 5,005 | ||||||||||||||||||||||||||||||||||||||||||
| Goodwill impairment | — | 54,885 | 54,885 | — | 54,885 | ||||||||||||||||||||||||||||||||||||||||||
| Restructuring and asset-related charges | 5,565 | 3,945 | 9,510 | 2,286 | 11,796 | ||||||||||||||||||||||||||||||||||||||||||
| Other facility closure, consolidation, and related costs and adjustments | 2,394 | 11,876 | 14,270 | — | 14,270 | ||||||||||||||||||||||||||||||||||||||||||
| M&A related costs | 431 | — | 431 | 8,304 | 8,735 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss (gain) on sale of property and equipment | 239 | 65 | 304 | (3) | 301 | ||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense | 3,099 | 1,921 | 5,020 | 4,730 | 9,750 | ||||||||||||||||||||||||||||||||||||||||||
| Non-cash foreign exchange transaction/translation loss | 348 | 2,071 | 2,419 | 7,320 | 9,739 | ||||||||||||||||||||||||||||||||||||||||||
| Other special items | 6,073 | 1,772 | 7,845 | (1,849) | 5,996 | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA from continuing operations | $ | 265,848 | $ | 52,824 | $ | 318,672 | $ | (47,858) | $ | 270,814 | |||||||||||||||||||||||||||||||||||||
(1)Income tax expense in Corporate and unallocated costs includes the tax impact of U.S. Operations.
(2)For the definitions of the Special items listed above, refer to Note 12 - Segment Information in our unaudited consolidated financial statements included in this Form 10-Q.
47
Comparison of the Three Months Ended September 30, 2023 to the Three Months Ended September 24, 2022
| Three Months Ended | ||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | ||||||||||||||||||
| Net revenues from external customers | % Variance | |||||||||||||||||||
| North America | $ | 790,285 | $ | 835,134 | (5.4) | % | ||||||||||||||
| Europe | 286,695 | 304,891 | (6.0) | % | ||||||||||||||||
| Total Consolidated | $ | 1,076,980 | $ | 1,140,025 | (5.5) | % | ||||||||||||||
| Percentage of total consolidated net revenues | ||||||||||||||||||||
| North America | 73.4 | % | 73.3 | % | ||||||||||||||||
| Europe | 26.6 | % | 26.7 | % | ||||||||||||||||
| Total Consolidated | 100.0 | % | 100.0 | % | ||||||||||||||||
Adjusted EBITDA from continuing operations (1) | ||||||||||||||||||||
| North America | $ | 99,962 | $ | 105,291 | (5.1) | % | ||||||||||||||
| Europe | 24,451 | 18,086 | 35.2 | % | ||||||||||||||||
| Corporate and unallocated costs | (18,672) | (28,856) | (35.3) | % | ||||||||||||||||
| Total Consolidated | $ | 105,741 | $ | 94,521 | 11.9 | % | ||||||||||||||
| Adjusted EBITDA from continuing operations as a percentage of segment net revenues | ||||||||||||||||||||
| North America | 12.6 | % | 12.6 | % | ||||||||||||||||
| Europe | 8.5 | % | 5.9 | % | ||||||||||||||||
| Total Consolidated | 9.8 | % | 8.3 | % | ||||||||||||||||
(1)Adjusted EBITDA from continuing operations is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA from continuing operations, see Note 12 - Segment Information in our unaudited consolidated financial statements.
North America
Net revenues in North America decreased $44.8 million, or 5.4%, to $790.3 million in the three months ended September 30, 2023 from $835.1 million in the three months ended September 24, 2022. The decrease was due to a decrease in Core Revenues of 5%. Core Revenues decreased primarily due to unfavorable volume/mix of 7% driven by weakened market demand, partially offset by a 2% benefit from price realization.
Adjusted EBITDA from continuing operations in North America decreased $5.3 million to $100.0 million, or 5.1%, in the three months ended September 30, 2023 from $105.3 million in the three months ended September 24, 2022. The decrease was primarily due to unfavorable volume/mix and higher other expenses, partially offset by favorable price/cost and improved productivity. The increase in other expenses was driven by increased performance-based variable compensation, increased pension expense, and the impact of inflation on labor expenses during the three months ended September 30, 2023 compared to the same period last year.
Europe
Net revenues in Europe decreased $18.2 million, or 6.0%, to $286.7 million in the three months ended September 30, 2023 from $304.9 million in the three months ended September 24, 2022. The decrease was primarily due to a decrease in Core Revenues of 11%. Core Revenues decreased due to unfavorable volume/mix of 17% primarily due to market softness across the region, partially offset by a 6% benefit from price realization.
Adjusted EBITDA from continuing operations in Europe increased $6.4 million, or 35.2%, to $24.5 million in the three months ended September 30, 2023 from $18.1 million in the three months ended September 24, 2022. The increase was primarily due to favorable productivity and positive price/cost, partially offset by unfavorable volume/mix.
Corporate and unallocated costs
Corporate and unallocated costs decreased by $10.2 million, or 35.3%, to $18.7 million in the three months ended September 30, 2023 from $28.9 million in the three months ended September 24, 2022. The decrease was primarily due a reduction in professional fees not associated with strategic transformation initiatives, decreased labor expense driven by reduced headcount, and the recovery of JW Australia transition services costs incurred, partially offset by losses on foreign exchange transactions in the current period compared to gains in the same period last year.
48
Comparison of the Nine Months Ended September 30, 2023 to the Nine Months Ended September 24, 2022
| Nine Months Ended | ||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | ||||||||||||||||||
| Net revenues from external customers | % Variance | |||||||||||||||||||
| North America | $ | 2,375,430 | $ | 2,396,584 | (0.9) | % | ||||||||||||||
| Europe | 907,839 | 968,210 | (6.2) | % | ||||||||||||||||
| Total Consolidated | $ | 3,283,269 | $ | 3,364,794 | (2.4) | % | ||||||||||||||
| Percentage of total consolidated net revenues | ||||||||||||||||||||
| North America | 72.3 | % | 71.2 | % | ||||||||||||||||
| Europe | 27.7 | % | 28.8 | % | ||||||||||||||||
| Total Consolidated | 100.0 | % | 100.0 | % | ||||||||||||||||
Adjusted EBITDA from continuing operations (1) | ||||||||||||||||||||
| North America | $ | 287,978 | $ | 265,848 | 8.3 | % | ||||||||||||||
| Europe | 65,950 | 52,824 | 24.8 | % | ||||||||||||||||
| Corporate and unallocated costs | (59,999) | (47,858) | 25.4 | % | ||||||||||||||||
| Total Consolidated | $ | 293,929 | $ | 270,814 | 8.5 | % | ||||||||||||||
| Adjusted EBITDA from continuing operations as a percentage of segment net revenues | ||||||||||||||||||||
| North America | 12.1 | % | 11.1 | % | ||||||||||||||||
| Europe | 7.3 | % | 5.5 | % | ||||||||||||||||
| Total Consolidated | 9.0 | % | 8.0 | % | ||||||||||||||||
(1)Adjusted EBITDA from continuing operations is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA from continuing operations, see Note 12 - Segment Information in our unaudited consolidated financial statements.
North America
Net revenues in North America decreased $21.2 million, or 0.9%, to $2,375.4 million in the nine months ended September 30, 2023 from $2,396.6 million in the nine months ended September 24, 2022. The decrease was driven by a 1% adverse foreign exchange impact. Core Revenues remained flat due to a 6% benefit from price realization, offset by unfavorable volume/mix of 6%. The unfavorable volume/mix was driven by weakened market demand, partially offset by increased market share.
Adjusted EBITDA from continuing operations in North America increased $22.1 million to $288.0 million, or 8.3 %, in the nine months ended September 30, 2023 from $265.8 million in the nine months ended September 24, 2022. The increase was primarily due to favorable price/cost, partially offset by unfavorable volume/mix and higher other expenses. The increase in other expenses was driven by increased performance-based variable compensation, higher pension expense, and the impact of inflation on labor expenses, partially offset by a reduction in bad debt expense due to improved collections.
Europe
Net revenues in Europe decreased $60.4 million, or 6.2%, to $907.8 million in the nine months ended September 30, 2023 from $968.2 million in the nine months ended September 24, 2022. The decrease was primarily due to a decrease in Core Revenues of 6%. Core Revenues decreased due to unfavorable volume/mix of 14% primarily due to market softness across the region, partially offset by an 8% benefit from price realization.
Adjusted EBITDA from continuing operations in Europe increased $13.1 million, or 24.8%, to $66.0 million in the nine months ended September 30, 2023 from $52.8 million in the nine months ended September 24, 2022. The increase was primarily due to favorable productivity and positive price/cost, partially offset by unfavorable volume/mix.
Corporate and unallocated costs
Corporate and unallocated costs increased by $12.1 million, or 25.4%, to $60.0 million in the nine months ended September 30, 2023, from $47.9 million in the nine months ended September 24, 2022. The increase in cost is primarily due to losses on foreign exchange transactions in the current period compared to gains in the same period last year and a reduction in the recovery of cost from interest received on impaired notes, partially offset by lower labor costs and the recovery of the JW Australia transition services costs incurred.
49
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, Senior Notes, and Senior Secured Notes. We place a strong emphasis on cash flow generation, which includes an operating discipline focused on working capital management. Working capital fluctuates throughout the year and is impacted by inflation, the seasonality of our sales, customer payment patterns, supply availability, and the translation of the balance sheets of our foreign operations into the U.S. dollar. Typically, working capital increases at the end of the first quarter and beginning of the second quarter in conjunction with, and in preparation for, the peak season for home construction and remodeling in our North America and Europe segments, and decreases starting in the fourth quarter as inventory levels and accounts receivable decline. Inventories fluctuate for raw materials with long delivery lead times, such as steel, as we work through prior shipments and take delivery of new orders.
As of September 30, 2023, we had total liquidity (a non-GAAP measure) of $692.6 million, consisting of $239.2 million in unrestricted cash, $453.4 million available for borrowing under the ABL Facility, compared to total liquidity of $575.2 million as of December 31, 2022 (on a continuing operations basis and excluding JW Australia). The increase in total liquidity was primarily due to both higher cash balances and lower borrowings on our ABL Facility at September 30, 2023 compared to December 31, 2022.
As of September 30, 2023, our cash balances, including $0.7 million of restricted cash, consisted of $44.4 million in the U.S. and $195.5 million in non-U.S. subsidiaries. During the fiscal year ended December 31, 2022, the Company repatriated $132.8 million from non-U.S. subsidiaries and repaid a portion of the outstanding ABL Facility. Based on our current and forecasted level of operations and seasonality of our business, we believe that cash provided by operations and other sources of liquidity, including cash, cash equivalents, and availability 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, repriced, 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.
We may, from time to time, seek to retire or purchase our outstanding debt through cash purchases and/or exchanges for equity or debt, in open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will be on such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Based on hypothetical variable rate debt that would have resulted from drawing each revolving credit facility up to the full commitment amount, a 1.0% decrease in interest rates would have reduced our interest expense by $1.8 million in the three months ended September 30, 2023. A 1.0% increase in interest rates would have increased our interest expense by $1.8 million in the same period. In certain instances, the impact of a hypothetical decrease would have been partially mitigated by interest rate floors that apply to certain of our debt agreements.
Borrowings and Refinancings
In July 2021, we refinanced our existing Term Loan Facility and ABL Facility by issuing replacement loans that aggregated to $550.0 million in principal amount under the Term Loan Facility and added $100.0 million in potential additional revolving loan capacity to our ABL Facility.
As of September 30, 2023, we were in compliance with the terms of all of our Credit Facilities and the indentures governing the Senior Notes.
Our results have been and will continue to be impacted by substantial changes in our net interest expense throughout the periods presented and into the future. See Note 10. - Long-Term Debt to our consolidated financial statements for additional details.
50
Cash Flows (1)
The following table summarizes the changes to our cash flows for the periods presented:
| Nine Months Ended | ||||||||||||||||||||
| (amounts in thousands) | September 30, 2023 | September 24, 2022 | ||||||||||||||||||
| Cash provided by (used in): | ||||||||||||||||||||
| Operating activities | $ | 272,983 | $ | (73,426) | ||||||||||||||||
| Investing activities | 298,843 | (42,726) | ||||||||||||||||||
| Financing activities | (550,753) | (47,858) | ||||||||||||||||||
Effect of changes in exchange rates on cash and cash equivalents | (2,035) | (31,732) | ||||||||||||||||||
| Net change in cash and cash equivalents | $ | 19,038 | $ | (195,742) | ||||||||||||||||
(1) Cash flow information is inclusive of cash flows from JW Australia as discontinued operations through the divestiture date of July 2, 2023.
Cash Flow from Operations
Net cash provided by (used in) operating activities improved to a $273.0 million source of cash in the nine months ended September 30, 2023 compared to a $73.4 million use of cash in the nine months ended September 24, 2022. The increase in cash provided by operating activities was primarily due to a $374.7 million improvement in net cash provided by our working capital accounts (accounts receivable, net, inventory, and accounts payable). Cash flow provided by Inventory was $221.8 million favorable compared to the nine months ended September 24, 2022, primarily driven by demand planning that drove lower inventory days on hand, which mitigated inflation on raw materials. Cash flow used in Accounts receivable, net of $116.4 million was favorable in the nine months ended September 30, 2023 compared to the nine months ended September 24, 2022, which was primarily due to decreased sales, partially offset by slightly deteriorated days sales outstanding. Cash flow provided by Accounts payable was $36.5 million favorable compared to the nine months ended September 24, 2022, which was primarily due to inflation on purchases, partially offset by demand planning that drove moderated purchasing.
Cash Flow from Investing Activities
Net cash provided by (used in) investing activities improved to a $298.8 million source of cash in the nine months ended September 30, 2023 compared to a $42.7 million use of cash in the nine months ended September 24, 2022, primarily driven by $367.5 million proceeds (payments) related to the sale of JW Australia, partially offset by an increase in capital expenditures of $22.9 million and a decrease in cash received from the recovery of cost from interest received on impaired notes of $11.0 million.
Cash Flow from Financing Activities
Net cash used in financing activities increased $502.9 million to $550.8 million in the nine months ended September 30, 2023 compared to $47.9 million in the nine months ended September 24, 2022, primarily due to net payments of long-term debt and debt extinguishment costs of $549.3 million in the nine months ended September 30, 2023 compared to net borrowings of $84.8 million in the nine months ended September 24, 2022, partially offset by the non-recurrence of repurchases of our Common Stock of $132.0 million in the nine months ended September 24, 2022.
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 described in Note 1 - Summary of Significant Accounting Policies to the consolidated financial statements presented in our 10-K. Our critical accounting policies and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Form 10-K. Our significant and critical accounting policies have not changed significantly since our Form 10-K was filed.
51
Holding Company Status
We are a holding company that conducts all of our operations through subsidiaries, and we rely on dividends or advances from our subsidiaries to fund the holding company. The majority of our operating income is derived from JWI, our main operating subsidiary. 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, Senior Notes, and Senior Secured Notes.
The amount of our consolidated net assets that were available to be distributed under our Credit Facilities as of September 30, 2023 was $824.1 million.
Item 3 - 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, changes in interest rates, and 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. Our market risks have not changed significantly from those disclosed in the Form 10-K.
Item 4 - Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), which are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, including this Report, are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Company under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer (“CEO”) and principal financial officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, including the Company’s CEO and CFO, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this Report and, based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control 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 ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Information relating to this item is included within Note 21 - Commitments and Contingencies of our unaudited financial statements included elsewhere in this Form 10-Q.
Item 1A - Risk Factors
There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K included in Part I Item 1A - Risk Factors for the year ended December 31, 2022.
Item 5 - Other Information
(c) During the three months ended September 30, 2023, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company adopted terminated
52
Item 6 - Exhibits
| Exhibit No. | Exhibit Description | Form | File No. | Exhibit | Filing Date | |||||||||||||||
| 3.1 | 8-K | 001-38000 | 3.1 | May 4, 2022 | ||||||||||||||||
| 3.2 | 8-K | 001-38000 | 3.2 | May 4, 2022 | ||||||||||||||||
| 31.1* | ||||||||||||||||||||
| 31.2* | ||||||||||||||||||||
| 32.1* | ||||||||||||||||||||
| 101.INS* | XBRL Instance Document-the instance document does not appear in this Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||||||||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document. | |||||||||||||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||||||||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||||||||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||||||||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||||||||||||||
| 104* | Cover page Interactive Data file (formatted as Inline XBRL and contained in Exhibit 101). | |||||||||||||||||||
| * | Filed herewith | |||||||||||||||||||
53
SIGNATURE
Pursuant to the requirements 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.
| JELD-WEN HOLDING, INC. | |||||
| (Registrant) | |||||
| By: | /s/ Julie Albrecht | ||||
| Julie Albrecht | |||||
| Executive Vice President and Chief Financial Officer | |||||
Date: November 7, 2023
54
Exhibit 31.1
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, William J. Christensen, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal period ended September 30, 2023 of JELD-WEN Holding, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2023
/s/ William J. Christensen
William J. Christensen
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION OF PERIODIC REPORT UNDER SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Julie Albrecht, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the fiscal period ended September 30, 2023 of JELD-WEN Holding, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 7, 2023
/s/ Julie Albrecht
Julie Albrecht
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. §1350, we, the undersigned officers of JELD-WEN Holding, Inc. (the “Company”), do hereby certify that the Company's Quarterly Report on Form 10-Q for the fiscal period ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 7, 2023
/s/ William J. Christensen
William J. Christensen
Chief Executive Officer
William J. Christensen
Chief Executive Officer
(Principal Executive Officer)
/s/ Julie Albrecht
Julie Albrecht
Julie Albrecht
Executive Vice President and Chief Financial Officer (Principal Financial Officer)
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.