S-1 1 d181517ds1.htm FORM S-1 Form S-1
Table of Contents

As filed with the Securities and Exchange Commission on June 1, 2016

Registration No. 333-            

 

 

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

JELD-WEN Holding, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   2430   93-0496342

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification No.)

440 S. Church Street, Suite 400

Charlotte, North Carolina 28202

(704) 378-5700

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

David Stork, Esq.

Senior Vice President and General Counsel

JELD-WEN Holding, Inc.

440 S. Church Street, Suite 400

Charlotte, North Carolina 28202

(704) 378-5700

(Name, address, including zip code, and telephone number including area code, of agent for service)

 

 

Copies of all communications, including communications sent to agent for service, should be sent to:

 

Daniel J. Bursky, Esq.

Mark Hayek, Esq.

Fried, Frank, Harris, Shriver & Jacobson LLP

One New York Plaza

New York, New York 10004

(212) 859-8000

 

Rachel W. Sheridan, Esq.

Latham & Watkins LLP

555 Eleventh Street, NW

Suite 1000

Washington, D.C. 20004

(202) 637-2200

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum
Aggregate

Offering Price(1)(2)

  Amount of
Registration Fee

Common Stock, par value $0.01 per share

  $100,000,000   $10,070

 

 

(1) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
(2) Includes the offering price of common stock that may be purchased by the underwriters upon the exercise of their option to purchase additional shares.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell, and it is not soliciting an offer to buy, these securities in any state where the offer or sale is not permitted.

 

Subject to completion, dated June 1, 2016

PRELIMINARY PROSPECTUS

             Shares

 

 

LOGO

JELD-WEN Holding, Inc.

Common Stock

 

 

This is the initial public offering of the common stock of JELD-WEN Holding, Inc. We are selling              shares of our common stock.

Prior to this offering, there has been no public market for our common stock. The initial public offering price is expected to be between $         and $         per share. We intend to apply to list our common stock on                          under the symbol “            ”.

The underwriters have an option for a period of 30 days to purchase up to              additional shares of our common stock from us.

After the completion of this offering, funds managed by Onex Partners Manager LP and its affiliates will own approximately     % of our common stock (     % if the underwriters exercise their option to purchase additional shares in full). Accordingly, we expect to be a “controlled company” within the meaning of the corporate governance standards of             .

 

 

Investing in our common stock involves risk. See “Risk Factors” beginning on page 16 to read about factors you should consider before buying shares of our common stock.

 

     Per Share      Total  

Price to Public

   $                    $                

Underwriting Discounts and Commissions(1)

   $                    $                

Proceeds, before expenses, to JELD-WEN Holding, Inc.

   $                    $                

 

(1) See “Underwriting” for additional information regarding underwriting compensation.

Delivery of the shares of common stock will be made on or about                     , 2016.

Neither the Securities and Exchange Commission, or “SEC”, nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

Barclays   Citigroup
Credit Suisse   J.P. Morgan

The date of this prospectus is                     , 2016.


Table of Contents

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     16   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     41   

USE OF PROCEEDS

     43   

DIVIDEND POLICY

     44   

CAPITALIZATION

     45   

DILUTION

     47   

SELECTED CONSOLIDATED FINANCIAL DATA

     49   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     53   

BUSINESS

     85   

MANAGEMENT

     102   

EXECUTIVE COMPENSATION

     110   

PRINCIPAL STOCKHOLDERS

     131   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     133   

DESCRIPTION OF CAPITAL STOCK

     139   

DESCRIPTION OF CERTAIN INDEBTEDNESS

     144   

SHARES ELIGIBLE FOR FUTURE SALE

     148   

MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS OF OUR COMMON STOCK

     150   

UNDERWRITING

     155   

LEGAL MATTERS

     162   

EXPERTS

     162   

WHERE YOU CAN FIND MORE INFORMATION

     162   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

You should rely only on the information contained in this prospectus and any free writing prospectus prepared by or on behalf of us that we have referred to you. Neither we nor the underwriters have authorized anyone to provide you with additional or different information. If anyone provides you with additional, different, or inconsistent information, you should not rely on it. Offers to sell, and solicitations of offers to buy, shares of our common stock are being made only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Our business, financial condition, operating results, and prospects may have changed since such date.

No action is being taken in any jurisdiction outside the United States to permit a public offering of common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restriction as to this offering and the distribution of this prospectus applicable to those jurisdictions.

 

 

 

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MARKET AND INDUSTRY DATA

This prospectus includes information and data about the industry in which we compete. We obtained this information from periodic general and industry publications, and surveys and studies conducted by third parties, as well as from our own internal estimates and research. Industry publications, surveys, and studies generally state that the information contained therein has been obtained from sources believed to be reliable. While we believe each of the publications, surveys, and studies is reliable, we have not independently verified any of the data from third-party sources nor have we ascertained the underlying assumptions relied upon therein. In presenting this information, we have made certain assumptions that we believe to be reasonable based on such data and other similar sources and on our knowledge of, and our experience to date in, the markets for the products we manufacture and sell. Market and industry data presented herein is subject to change and may be limited by the availability of raw data, the voluntary nature of the data gathering process, and other limitations. Accordingly, you are cautioned not to place undue reliance on such market and industry data. References herein to our relative position in a market or product category refer to our belief as to our ranking in each specified market or product category based on sales dollars, unless the context otherwise requires. In addition, the discussions herein regarding our various markets are based on how we define the markets for our products, which products may be either part of larger overall markets or markets that include other types of products.

Unless otherwise noted in this prospectus, Freedonia Custom Research, or “Freedonia”, is the source for third-party data regarding market sizes and our position within such markets. The Window and Door Market Share Report for Selected Countries, dated May 18, 2016, or the “Freedonia Report”, which we commissioned in connection with this prospectus, represents data, research opinion, market size, positions within markets, and viewpoints developed on our behalf, in each case based on data for the year ended December 31, 2015, and does not constitute a specific guide to action. In preparing the report, Freedonia used various sources, including publicly available third-party financial statements; government statistical reports; press releases; industry magazines; and interviews with our management as well as manufacturers of related products, manufacturers of competitive products, distributors of related products, and government and trade associations. Market sizes in the Freedonia Report are based on many variables, such as currency exchange rates, raw material costs, and pricing of competitive products, and such variables are subject to wide fluctuations over time. The Freedonia Report speaks as of its final publication date (and not as of the date of this filing), and the opinions expressed in the Freedonia Report are subject to change by Freedonia without notice.

 

 

CERTAIN TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This prospectus includes trademarks, trade names, and service marks owned by us. Our U.S. window and door trademarks include JELD-WEN®, AuraLast®, MiraTEC®, Extira®, LaCANTINATM, KaronaTM, ImpactGard®, JW®, Aurora®, IWP®, and True BLUTM. Our trademarks are either registered or have been used as a common law trademark by us. The trademarks we use outside the United States include the Stegbar®, Regency®, William Russell Doors®, Airlite®, TrendTM, The Perfect FitTM, and Corinthian® marks in Australia, and Swedoor®, Dooria®, DANA®, and Alupan® in Europe. ENERGY STAR® is a registered trademark of the United States Environmental Protection Agency. This prospectus 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 prospectus appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names, and service marks. We do not intend our use of other parties’ trademarks, trade names, or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

 

 

 

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CERTAIN DEFINED TERMS

As used in this prospectus, unless the context otherwise requires, references to:

 

    “ABL Facility” means our $300 million asset-based revolving credit facility, dated as of October 15, 2014 and as amended from time to time, with JWI and JELD-WEN of Canada, Ltd., as borrowers, the guarantors party thereto, a syndicate of lenders, and Wells Fargo Bank, National Association, as administrative agent;

 

    “Adjusted EBITDA” is a supplemental non-GAAP financial measure of operating performance and is not based on any standardized methodology prescribed by GAAP. We define Adjusted EBITDA as net income (loss), as adjusted for the following items: loss (income) from discontinued operations, net of tax; gain (loss) on sale of discontinued operations, net of tax; equity (earnings) loss of non-consolidated entities; income tax (expense) benefit; depreciation and intangible amortization; interest expense, net; impairment and restructuring charges; gain on sale of property and equipment; share-based compensation expense; non-cash foreign exchange transaction/translation income (loss); other non-cash items; other items; and costs related to debt restructuring, debt refinancing, and the Onex Investment. For a discussion of our presentation of Adjusted EBITDA see footnote 2 to the table under the heading “Prospectus Summary—Summary Consolidated Financial Data”;

 

    “Australian Senior Secured Credit Facility” means collectively, our AUD $20 million cash advance facility, our AUD $6 million interchangeable facility for guarantees/letters of credit, our AUD $7 million electronic payaway facility, our AUD $1.5 million asset finance facility, our AUD $600,000 commercial card facility, and our AUD $5 million overdraft facility dated as of October 6, 2015 and amended from time to time, with certain of our Australian subsidiaries, as borrowers, and Australia and New Zealand Banking Group Limited, as lender;

 

    “the Company”, “JELD-WEN”, “we”, “us”, and “our” refer to JELD-WEN Holding, Inc., a Delaware corporation, and its consolidated subsidiaries;

 

    “Class B-1 Common Stock” means shares of our outstanding Class B-1 Common Stock, par value $0.01 per share, all of which will be converted into shares of our common stock immediately prior to the consummation of this offering;

 

    “Corporate Credit Facilities” means collectively, our ABL Facility and our Term Loan Facility;

 

    “Credit Facilities” means collectively, our Corporate Credit Facilities, our Australian Senior Secured Credit Facility, and our Euro Revolving Facility;

 

    “ESOP” means the JELD-WEN, Inc. Employee Stock Ownership and Retirement Plan;

 

    “Euro Revolving Facility” means our €39 million revolving credit facility, dated as of January 30, 2015 and as amended from time to time, with JELD-WEN A/S, as borrower, Danske Bank A/S and Nordea Bank Danmark A/S, as lenders, and Danske Bank A/S, as administrative agent;

 

    “Free Cash Flow” is a supplemental non-GAAP financial measure of operating performance and is not based on any standardized methodology prescribed by GAAP. We define Free Cash Flow as cash flow from operating activities minus (i) purchases of property and equipment and (ii) purchases of intangible assets, each as shown in our consolidated statements of cash flows, plus or minus other discrete items as approved by the Compensation Committee of our board of directors. For a discussion of our presentation of Free Cash Flow see footnote 2 to the second table under the heading “Executive Compensation—Components of Executive Compensation—2015 Management Incentive Plan”;

 

    “GAAP” means generally accepted accounting principles in the United States;

 

    “JWI” means JELD-WEN, Inc., a Delaware corporation that is a direct, wholly-owned subsidiary of JELD-WEN Holding, Inc.;

 

    “Onex” refers to Onex Corporation and its affiliates, including funds managed by an affiliate of Onex Partners Manager LP and/or Onex Corporation, as appropriate;

 

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    “Onex Investment” refers to the October 2011 transaction in which Onex acquired a majority of the combined voting power in the Company through the acquisition of convertible debt and convertible preferred equity;

 

    “Series A Convertible Preferred Stock” means shares of our outstanding Series A-1 Convertible Preferred Stock, par value $0.01 per share, Series A-2 Convertible Preferred Stock, par value $0.01 per share, Series A-3 Convertible Preferred Stock, par value $0.01 per share, and Series A-4 Convertible Preferred Stock, par value $0.01 per share, all of which will be converted into shares of our common stock immediately prior to the consummation of this offering;

 

    “Series B Preferred Stock” means the one outstanding share of our Series B Preferred Stock, par value $0.01 per share, which will be cancelled in its entirety immediately prior to the consummation of this offering upon the conversion of the Series A Convertible Preferred Stock into shares of our common stock;

 

    “Share Recapitalization” means (i) the conversion of all outstanding shares of our Series A Convertible Preferred Stock into              shares of our common stock, the conversion of all Class B-1 Common Stock into              shares of our common stock, and the cancellation of the one outstanding share of our Series B Preferred Stock followed by (ii) a      -for-1 stock split of our common stock; and

 

    “Term Loan Facility” means our term loan facility, dated as of October 15, 2014 with JWI and Onex BP Finance LP, as borrowers, the guarantors party thereto, a syndicate of lenders, and Bank of America, N.A., as administrative agent, under which we initially borrowed $775 million of term loans, as amended on July 1, 2015 in connection with the borrowing of $480 million of incremental term loans, and as amended from time to time. As of March 26, 2016, we had approximately $1,246 million of term loans outstanding under the Term Loan Facility.

 

 

PRESENTATION OF FINANCIAL INFORMATION

We operate on a fiscal calendar year, and each interim period is comprised of two 4-week periods and one 5-week period, with each week ending on a Saturday. Our fiscal year always begins on January 1 and ends on December 31. As a result, our first and fourth quarters may have more or fewer days included than a traditional 91-day fiscal quarter.

Numerical figures included in this prospectus have been subject to rounding adjustments. Accordingly, numerical figures shown as totals in various tables may not be arithmetic aggregations of the figures that precede them. We round certain percentages presented in this prospectus to the nearest whole number. As a result, figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

USE OF NON-GAAP FINANCIAL MEASURES

 

This prospectus contains “non-GAAP measures”, which are financial measures that are not calculated and presented in accordance with GAAP. Specifically, we make use of the non-GAAP financial measures “Free Cash Flow”, “Adjusted EBITDA” and “Adjusted EBITDA margin”. For the definition of Adjusted EBITDA, and a reconciliation to its most directly comparable financial measure presented in accordance with GAAP, see footnote 2 to the table under the heading “Prospectus Summary—Summary Consolidated Financial Data” and footnote 2 to the table under the heading “Selected Consolidated Financial Data”. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues. For the definition of Free Cash Flow, and a reconciliation to its most directly comparable financial measure presented in accordance with GAAP, see footnote 2 to the second table under the heading “Executive Compensation—Components of Executive Compensation—2015 Management Incentive Plan”.

We present Adjusted EBITDA and Adjusted EBITDA margin because we believe they assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding

 

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items that we do not believe are indicative of our core operating performance. Management believes Adjusted EBITDA and Adjusted EBITDA margin are helpful in highlighting trends because they exclude the results of decisions that are outside the control of management, while other measures can differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, and capital investments. We use Free Cash Flow, Adjusted EBITDA, and Adjusted EBITDA margin to measure our financial performance and also to report our results to our board of directors. In addition, we use Adjusted EBITDA as calculated herein for purposes of computing our debt covenants in our Corporate Credit Facilities. Further, our executive incentive compensation is based in part on Adjusted EBITDA and Free Cash Flow. Adjusted EBITDA should not be considered as an alternative to net income (loss) as a measure of financial performance or to cash flows from operations as a liquidity measure; Free Cash Flow should not be considered as an alternative to cash flows from operations as a liquidity measure; and neither non-GAAP metric should be considered as an alternative to any other measure derived in accordance with GAAP.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus. Because this is only a summary, it does not contain all the information that may be important to you. You should read the entire prospectus carefully, especially “Risk Factors”, “Cautionary Note Regarding Forward-Looking Statements”, and our consolidated financial statements and related notes included elsewhere in this prospectus, before deciding to invest in our common stock.

Our Company

We are one of the world’s largest door and window manufacturers, and we hold the #1 position by net revenues in the majority of the countries and markets we serve. We design, produce, and distribute an extensive range of interior and exterior doors, wood, vinyl, and aluminum windows, and related products for use in the new construction and repair and remodeling, or “R&R”, of residential homes and, to a lesser extent, non-residential buildings. We attribute our market leadership to our well-established brands, broad product offering, world-class manufacturing and distribution capabilities, and our long-standing customer relationships. Our goal is to achieve best-in-industry financial performance through the rigorous execution of our strategies to reduce costs and improve quality through the implementation of operational excellence programs, drive profitable organic growth, pursue strategic acquisitions, and develop top talent.

We market our products globally under the JELD-WEN brand, along with several market-leading regional brands such as Swedoor and DANA in Europe and Corinthian, Stegbar, and Trend in Australia. Our customers include wholesale distributors and retailers as well as individual contractors and consumers. As a result, our business is highly diversified by distribution channel, geography, and construction application, as illustrated in the charts below:

 

 

LOGO

 

(1) Percentage of net revenues by construction application is a management estimate based on the end markets into which our customers sell.

As one of the largest door and window companies in the world, we have invested significant capital to build a business platform that we believe is unique among our competitors. We operate 113 manufacturing facilities in 19 countries, located primarily in North America, Europe, and Australia. Our global manufacturing footprint is strategically sized and located to meet the delivery requirements of our customers. For many product lines, our manufacturing processes are vertically integrated, enhancing our range of capabilities, our ability to innovate, and our quality control, as well as providing us with supply chain, transportation, and working capital savings. We believe that our manufacturing network allows us to deliver our broad portfolio of products to a wide range of customers across the globe, improves our customer service, and strengthens our market positions.

 



 

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Our Transformation

We were founded in 1960 by Richard L. Wendt, when he, together with four business partners, bought a millwork plant in Oregon. The subsequent decades were a time of successful expansion and growth as we added different businesses and product categories such as interior doors, exterior steel doors, and vinyl windows. After the Onex Investment, we began the transformation of our business from a family-run operation to a global organization with independent, professional management. The transformation accelerated after 2013 with the hiring of a new senior management team strategically recruited from a number of world-class industrial companies. Our new management team has decades of experience driving operational improvement, innovation, and growth, both organically and through acquisitions. We believe that the collective talent and experience of our team is a distinct competitive advantage. Under the leadership of our senior management team, we are systematically transforming our business through the application of process improvement and management tools focusing on three strategic areas: (i) operational excellence; (ii) profitable organic growth; and (iii) strategic acquisitions.

 

Name    Position   Joined
  JELD-WEN  
   Prior Experience
       

Kirk Hachigian

   Executive Chairman   2014    Cooper Industries plc, GE Lighting, and Bain & Company
       

Mark Beck

   President & Chief Executive Officer   2015    Danaher Corporation and Corning Incorporated
       

L. Brooks Mallard

   Executive Vice President & Chief Financial Officer   2014    TRW Automotive Holdings Corporation, Eaton Corporation plc, Cooper Industries plc, and Thomas & Betts Corporation
       

John Dinger

   Executive Vice President, North America   2015    Eaton Corporation plc and Cooper Industries plc
       

Peter Maxwell

   Executive Vice President, Europe   2015    Eaton Corporation plc and Cooper Industries plc
       

Peter Farmakis

   Executive Vice President, Australasia   2013    Dexion Limited, Ciba Specialty Chemicals Corporation, and Smorgon Steel Group Limited
       

John Linker

   Senior Vice President, Corporate Development   2012    United Technologies Corporation, Goodrich Corporation, and Wells Fargo & Company

Our efforts to date have resulted in significant growth in our profitability. Our Adjusted EBITDA margin has increased by over 500 basis points and our Adjusted EBITDA has grown at a 40.1% compound annual growth rate, or “CAGR”, from the year ended December 31, 2013 through the twelve month period ended March 26, 2016. We are in the early stages of implementing our business transformation and, as a result, we believe we have an opportunity to continue growing our profitability faster than the growth in our end markets.

In the twelve month period ended March 26, 2016, our net revenues were $3.4 billion, our net income was $98.0 million, and our Adjusted EBITDA was $327.1 million. Adjusted EBITDA has increased by $173.9 million, or 113.5%, and net income has increased by $166.4 million from the year ended December 31, 2013 to the twelve month period ended March 26, 2016.

 



 

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Our Products

We provide a broad portfolio of interior and exterior doors, windows, and related products, manufactured from a variety of wood, metal, and composite materials and offered across a full spectrum of price points. In the year ended December 31, 2015, our door sales accounted for 65% of net revenues, our window sales accounted for 24% of net revenues, and our other ancillary products and services accounted for 11% of net revenues.

Doors

We are the #1 residential door provider by net revenues in the majority of our geographic markets. We hold #1 positions in residential doors by net revenues in the United States, Australia, Germany, Switzerland, and Scandinavia (which is comprised of Denmark, Sweden, Norway, and Finland). We hold #2 positions in residential doors by net revenues in Canada, the United Kingdom, and Austria. We offer a full line of residential interior and exterior door products, including patio doors and folding or sliding wall systems. Our non-residential door product offering is concentrated in Europe, where we are the #1 non-residential door provider by net revenues in Germany, Austria, Switzerland, and Scandinavia. In order to meet the style, design, and durability needs of our customers across a broad range of price points, our product portfolio encompasses many types of materials, including wood veneer, composite wood, steel, glass, and fiberglass. We also offer profitable value-add services in all of our markets, including pre-hanging and pre-finishing.

Windows

We hold the #3 position by net revenues in residential windows in the United States and Canada and the #1 position in Australia. We manufacture wood, vinyl, and aluminum windows in North America, wood and aluminum windows in Australia, and wood windows in the United Kingdom. Our window product lines comprise a full range of styles, features, and energy-saving options in order to meet the varied needs of our customers in each of our regional end markets.

Other Ancillary Products and Services

In certain regions, we sell a variety of other products that are ancillary to our door and window offerings, which we do not classify as door or window sales. These products include shower enclosures and wardrobes, moldings, trim board, lumber, cutstock, glass, staircases, hardware and locks, cabinets, and screens. Molded door skins sold to certain third-party manufacturers as well as miscellaneous installation and other services are also included in this category.

Our End Markets

We operate within the global market for residential and non-residential doors and windows with sales spanning 82 countries. While we operate globally, the markets for doors and windows are regionally distinct with suppliers manufacturing finished goods in proximity to their customers. Finished doors and windows are generally bulky, expensive to ship, and, in the case of windows, fragile. Designs and specifications of doors and windows also vary from country to country due to differing construction methods, building codes, certification requirements, and consumer preferences. Customers also demand short delivery times and can require special order customizations. We believe that we are well-positioned to meet the global demands of our customers due to our market leadership, strong brands, broad product line, and strategically located manufacturing and distribution facilities.

 



 

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The table below highlights the breadth of our global operations as of and for the year ended December 31, 2015:

 

     North America   Europe   Australasia
       
% Net Revenues   60%   29%   11%
       
Manufacturing Facilities   45   28   40
       
Key Market Positions(1)  

•    #1 in residential doors in the United States

 

•    #2 in residential doors in Canada

 

•    #3 in residential windows in the United States and Canada

 

•    #1 in residential and non-residential doors in Germany, Switzerland, and Scandinavia

 

•    #1 in non-residential doors and #2 in residential doors in Austria

 

•    #2 in non-residential doors and #3 in residential doors in France

 

•    #2 in residential doors in the United Kingdom

 

•    #1 in residential doors in Australia

 

•    #1 in residential windows in Australia

 

       
Net Revenues by Product Type  

•    Doors (57%)

 

•    Windows (33%)

 

•    Other (10%)

 

•    Doors (92%)

 

•    Windows (3%)

 

•    Other (5%)

 

•    Doors (42%)

 

•    Windows (30%)

 

•    Other (28%)

       
Net Revenues by Construction Application(2)  

•    Residential R&R (52%)

 

•    Residential new construction (46%)

 

•    Non-residential (2%)

 

•    Residential R&R (44%)

 

•    Residential new construction (26%)

 

•    Non-residential (30%)

 

•    Residential R&R (26%)

 

•    Residential new construction (72%)

 

•    Non-residential (2%)

       
Key Brands  

•    JELD-WEN

 

•    CraftMaster

 

•    LaCantina

 

•    Karona

 

•    JELD-WEN

 

•    Swedoor

 

•    DANA

 

•    Dooria

 

•    Kilsgaard

 

•    JELD-WEN

 

•    Stegbar

 

•    Corinthian

 

•    Trend

 

•    Aneeta

 

•    Regency

 

(1) Based on the Freedonia Report. Our market position is based on rankings by net revenues.
(2) Percentage of net revenues by construction application is a management estimate based on the end markets into which our customers sell.

North America

In our North America segment, we primarily compete in the market for residential doors and windows in the United States and Canada. We are the only manufacturer that offers a full line of interior and exterior door and window products, allowing us to offer a more complete solution to our customer base. According to the Freedonia Report, the market for our residential door and window products in the United States and Canada generated approximately $10.8 billion in sales in 2015. We believe that our total market opportunity in North America is significantly larger and includes non-residential applications, other related building products, and

 



 

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value-added services. According to the U.S. Census Bureau, total housing starts in 2014 and 2015 were 1.0 million and 1.1 million units, respectively, significantly below the 20 and 50-year averages of 1.5 million units. According to the Joint Center for Housing Studies, residential R&R spending reached $285.4 billion in 2015, which was an increase of 4.4% from $273.3 billion in 2014. We believe that our leading position in the North American market will enable us to benefit from continued recovery in residential construction activity over the next several years.

Europe

The European market for doors is highly fragmented, and we have the only platform in the industry capable of serving nearly all European countries. In our Europe segment, we primarily compete in the market for residential and non-residential doors in Germany, the United Kingdom, France, Austria, Switzerland, and Scandinavia. According to the Freedonia Report, the market for residential and non-residential door products in these countries generated approximately $3.4 billion in sales in 2015. We believe that our total market opportunity in Europe is significantly larger and includes other European countries, other door product lines, related building products, and value-added services. Although construction activity in Europe has been slower to recover compared to construction activity in North America, new construction and R&R activity is expected to increase across Europe over the next several years.

Australasia

In our Australasia segment, we primarily compete in the market for residential doors and windows in Australia, where we hold the #1 position by net revenues. According to the Freedonia Report, the market for residential door and window products in Australia generated approximately $1.4 billion in sales in 2015. We believe that our total market opportunity in the Australasian region is significantly larger and includes non-residential applications and other countries in the region, as well as other related building products, and value-added services. For example, we also sell a full line of shower enclosures and wardrobes throughout Australia. In 2015, new housing and R&R spend increased 6.1% and 2.7%, respectively, according to Australia’s Housing Industry Association.

Our Business Strategy

We seek to achieve best-in-industry financial performance through the disciplined execution of:

 

    operational excellence programs to improve our profit margins and free cash flow by reducing costs and improving quality;

 

    initiatives to drive profitable organic sales growth, including new product development, investments in our brands and marketing, channel management, and pricing optimization; and

 

    acquisitions to expand our business.

The execution of our strategy is supported and enabled by a relentless focus on talent management. Over the long term, we believe that the implementation of our strategy is largely within our control and is less dependent on external factors. The key elements of our strategy are described further below.

Expand Our Margins and Free Cash Flow Through Operational Excellence

We have identified a substantial opportunity to improve our profitability by building a culture of operational excellence and continuous improvement across all aspects of our business. Historically, we were not centrally managed and had a limited focus on continued cost reduction, operational improvement, and strategic material sourcing. This resulted in profit margins that were lower than our building products peers and far lower than what would typically be expected of a world-class industrial company.

 



 

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Our senior management team has a proven track record of implementing operational excellence programs at some of the world’s leading industrial manufacturing businesses, and we believe the same successes can be realized at JELD-WEN. Key areas of focus of our operational excellence program include:

 

    reducing labor costs, overtime, and waste by optimizing planning and manufacturing processes;

 

    reducing or minimizing increases in material costs through strategic global sourcing and value-added re-engineering of components, in part by leveraging our significant spend and the global nature of our purchases; and

 

    reducing warranty costs by improving quality.

We are in the early stages of implementing our strategic initiatives to develop a culture of operational excellence and continuous improvement. Our initial actions in North America have already helped us to realize higher profit margins over the last two years and we are now beginning to implement the program in Europe and Australasia. We believe that our focus on operational excellence will result in the continued expansion of our profit margins and free cash flow as we systematically transform our business.

Drive Profitable Organic Sales Growth

We seek to deliver profitable organic revenue growth through several strategic initiatives, including new product development, brand and marketing investment, channel management, and continued pricing optimization. These strategic initiatives will drive our sales mix to include more value-added, higher margin products.

 

    New Product Development: Our management team has renewed our focus on innovation and new product development. We believe that leading the market in innovation will enhance demand for our products, increase the rate at which our products are specified into home and non-residential designs, and allow us to sell a higher margin product mix. For example, in North America, we have recently increased our investment in research and development by hiring over 20 engineers, who will work closely with our expanded group of product line managers to identify unmet market needs and develop new products. We have also implemented a rigorous new governance process that prioritizes the most impactful projects and is expected to improve the efficiency and quality of our research and development efforts. We have launched several new North American product lines and line extensions in recent years, such as the Siteline Window, Epic Vue Window, DF Hybrid Window, and the Moda Door collection. In Australia, we recently launched a new Deco contemporary door product line, a new pivot door series, and a wood window line extension. In Europe, we recently launched new steel door product lines that provide enhanced levels of security, safety, and impact resistance. While product specifications and certifications vary from country to country, the global nature of our operations allows us to leverage our global innovation capabilities and share new product designs across our markets.

 

    Brand and Marketing Investment: We recently began to make meaningful investments in new marketing initiatives designed to enhance the positioning of the JELD-WEN family of brands. Our new initiatives include marketing campaigns focused on the distributor, builder, architectural, and consumer communities. At the trade and architect level, we have invested in print media as well as social media, with a focus on our “whole home” offering of doors and windows. At the consumer level, we have recently invested in TV advertising as well as partnerships such as “Dream Home Giveaway” on Home and Garden Television in the United States and the “House Rules” TV show in Australia. Consistent with our efforts to drive operational excellence across all areas of our business, we are implementing research-based analytical tools to help optimize the effectiveness of our marketing efforts. We believe these branding initiatives are educating and building awareness with consumers, architects, and designers, increasing the frequency with which our products are sought after by consumers and specified by builders and architects.

 



 

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    Channel Management: We are implementing initiatives and investing in tools and technology to enhance our relationships with our key customers, make it easier for them to source from JELD-WEN, and support their ability to sell our products in the marketplace. Our recent technology investments are focused on improving the customer experience, including new quoting software, a new “Partners Portal” web interface, and a centralized repository of building information modeling files for architects, which are used to specify our products into architectural drawings. In many cases these initiatives are designed to incentivize our customers to sell our higher margin and value-add products. These incentives help our customers grow their businesses in a profitable manner while also improving our sales volumes and the margin of our product mix. For example, our new True BLU dealer management program groups our North American distribution customers into tiers based on the breadth and sales volume of JELD-WEN door and window products they carry, and provides benefits and rewards to each customer based on their tier classification. The True BLU program provides a strong incentive for distribution customers to increase the number of JELD-WEN products that they sell, providing us with opportunities to further penetrate the market with our more complete solution.

 

    Pricing Optimization: We are focused on profitable growth and will continue to employ a strategic approach to pricing for our products. Pricing discipline is an important element of our effort to improve our profit margins and earn an appropriate return on our invested capital. Over the past two years we have realized meaningful pricing gains by increasing our focus on customer- and product-level profitability in order to improve the profitability of certain underperforming lines of business. In addition, we have changed our historical approach in certain cases of pricing products based on contribution margin targets, to an approach of pricing products based on a fully-loaded cost, which includes the capital we have invested in our manufacturing capacity, research and development capabilities, and brand equity.

Complement Core Earnings Growth With Strategic Acquisitions

Collectively, our senior executive team has acquired and integrated more than 100 companies during their careers. Leveraging this collective experience, we have developed a disciplined governance process for identifying, evaluating, and integrating acquisitions. Our strategy focuses on three types of opportunities:

 

    Market Consolidation Opportunities: The competitive landscape in several of our key markets remains highly fragmented, which creates an opportunity for us to consolidate smaller companies, enhance our market leading positions, and realize synergies through the elimination of duplicate costs. Our recent acquisitions of Dooria in Norway and Trend in Australia are examples of this strategy.

 

    Enhancing Our Product Portfolio: Along with our organic new product development pipeline, we seek to expand our door and window product portfolio by acquiring companies that have developed unique products, technologies, or processes. Our recent acquisitions of Karona (stile and rail doors), LaCantina (folding and sliding wall systems), and Aneeta (sashless windows) are examples of this strategy.

 

    New Markets and Geographies: We believe there are opportunities to expand our company through the acquisition of complementary door and window manufacturers in new geographies as well as providers of product lines and value-added services. While this has not been a major focus in recent years, we expect it to be a key element in our long-term growth.

 



 

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Our Competitive Strengths

Global Industry Leader With Strong Brands

We are one of the world’s largest door and window manufacturers, and we hold the #1 position by net revenues in the majority of the countries and markets we serve. We believe our global scale, along with the power of our well-known brands, creates a sustainable competitive advantage in each of our markets. We market our products globally under the JELD-WEN name along with several other well-known and well-respected regional brands, such as Stegbar and Corinthian in Australia and DANA and Swedoor in Europe. Our recent acquisitions of LaCantina, Karona, Aneeta, Trend, and Dooria have further enhanced our portfolio of strong brand names. Our brands are widely recognized to stand for product quality, innovation, reliability, and service and have received numerous awards and endorsements, including recent recognition from Builder Magazine for brand familiarity, Home Builder Executive Magazine for product innovation, and Professional Builder Magazine for new product introductions.

World-Class Leadership Implementing Lasting Operational Improvements

We have assembled a team of executives from world-class organizations with a track record of driving manufacturing efficiency, cost reduction, product innovation, and profitable growth. Our Chief Executive Officer, Mark Beck, joined our team in 2015 after holding a series of executive management roles with Danaher Corporation and Corning Incorporated, where he had extensive experience leading global organizations, driving growth strategies, and implementing disciplined operational enhancements. Our Executive Chairman, Kirk Hachigian, who joined our team in 2014, was formerly the Chairman and Chief Executive Officer of Cooper Industries after a successful career at General Electric. Most of the members of our senior management team have extensive experience at major global industrial companies, which we believe creates a breadth and depth of operational expertise that is unusual for our industry. Our team has identified and has begun to execute on opportunities for continuous improvement across our platform. These initiatives are focused on manufacturing productivity, channel management, strategic sourcing, pricing discipline, and new product development. Although we remain in the early stages of implementing many of these continuous improvement programs, our efforts already have begun to yield results. Additionally, our leadership team has a proven track record of driving growth through the execution and integration of strategic acquisitions.

Multiple Levers To Grow Earnings

Our leading market positions and brands, world-class management team, and global manufacturing network create multiple opportunities for us to grow our earnings independent of growth in end-market demand. In particular, our management team has identified and is executing on:

 

    operational excellence programs to improve our profit margins and free cash flow by reducing costs and improving quality;

 

    initiatives to drive profitable organic sales growth, including new product development, investments in our brands and marketing, channel management, and pricing optimization; and

 

    acquisitions to expand our business.

 

These actions have begun to lead to significant improvements in our profitability over the last two years, which we expect will continue as such initiatives are implemented across our operations globally and become part of our culture.

Long-Standing Customer Relationships

We have long-established relationships with our customers throughout our end markets, including retail home centers, wholesale distributors, and building product dealers. Our relationships are built upon the strength

 



 

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of our brands, the breadth of our product offering, our focus on customer service, and our commitment to quality and innovation. We believe that we are uniquely positioned to serve our large national and multinational customers, because of the breadth of our global manufacturing and sales network. The majority of our top ten customers have purchased our products for 17 years or more. In many of our key markets, we are the only competitor that can offer our customers a diverse range of multiple door and window product lines, further strengthening our relationships with our largest customers.

Significant Diversification Across End Markets, Channels, and Geographies

We believe that the diversity of our revenue base across end markets, channels, and geographies provides us with significant benefits relative to our competitors. For example, our diversity with respect to construction application provides insulation from specific trends in our end markets. Furthermore, our global platform of 113 manufacturing facilities across 19 countries enables us to serve customers across approximately 82 countries and helps limit our dependence on a specific geographic region. Although we generate approximately half of our net revenues in North America, positioning us for continued growth from the ongoing recovery in the U.S. domestic construction markets, we also generate approximately a third of our net revenues from a diverse set of European markets that we believe are in the earlier stages of recovery.

Broad Global Manufacturing Network, Vertically Integrated In Key Product Lines

We have invested significant capital to build our global network of 113 manufacturing facilities that is unique among our competition in terms of capability, scale, and capacity. The global nature of our operations allows us to leverage key functions across these operations, such as sourcing and engineering. For many product lines, our manufacturing processes are vertically integrated, enhancing our range of capabilities and quality control as well as providing us with supply chain, transportation, and working capital savings. For example, we produce our own molded interior door skins for use in North America, France, and the United Kingdom, where molded doors are the predominant residential interior door type. Our operating platform allows us to deliver our broad portfolio of products to customers across the globe, enhances our ability to innovate, optimizes our cost structure, provides greater value and improved service to our customers, and strengthens our market positions.

Summary Risk Factors

Investing in our common stock involves risks, including risks that may prevent us from achieving our business objectives or that may adversely affect our business, financial condition, results of operations, cash flows, and prospects. You should carefully consider the risks discussed in the section entitled “Risk Factors”, including the following risks, before investing in our common stock:

 

    negative trends in overall business, financial market, and economic conditions, and/or activity levels in our end markets;

 

    our highly competitive business environment;

 

    failure to timely identify or effectively respond to consumer needs, expectations, or trends;

 

    failure to maintain the performance, reliability, quality, and service standards required by our customers;

 

    failure to implement our strategic initiatives;

 

    acquisitions or investments in other businesses that may not be successful;

 

    declines in our relationships with and/or consolidation of our key customers;

 

    increases in interest rates and reduced availability of financing for the purchase of new homes and home construction and improvements;

 

    fluctuations in the prices of raw materials used to manufacture our products;

 



 

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    delays or interruptions in the delivery of raw materials or finished goods;

 

    exchange rate fluctuations;

 

    disruptions in our operations;

 

    security breaches and other cyber security incidents;

 

    increases in labor costs, potential labor disputes, and work stoppages at our facilities;

 

    changes in building codes that could increase the cost of our products or lower the demand for our windows and doors;

 

    compliance costs and liabilities under environmental, health, and safety laws and regulations;

 

    product liability claims, product recalls, or warranty claims;

 

    inability to protect our intellectual property;

 

    loss of key officers or employees;

 

    our current level of indebtedness; and

 

    risks associated with the material weakness that has been identified.

Our Corporate Information

We were incorporated as an Oregon corporation in 1960. On May 31, 2016, we reincorporated as a Delaware corporation. We are a holding company that conducts our operations through our direct and indirect subsidiaries, primarily JELD-WEN, Inc., a Delaware corporation, and its subsidiaries. Our principal executive offices are located at 440 S. Church Street, Suite 400, Charlotte, North Carolina 28202, and our telephone number is (704) 378-5700. We maintain a website on the Internet at http://www.jeld-wen.com. The information contained on, or that can be accessed through, our website is not a part of, and should not be considered as being incorporated by reference into, this prospectus.

Our Sponsor

Following the consummation of this offering, we expect to be a “controlled company” for the purposes of the                          rules.

Onex is one of the oldest and most successful private equity firms. Through its Onex Partners and ONCAP private equity funds, Onex acquires and builds high-quality businesses in partnership with talented management teams. At Onex Credit, Onex manages and invests in leveraged loans, collateralized loan obligations, and other credit securities. Onex has approximately $22.5 billion of assets under management, including $6.0 billion of Onex proprietary capital. With offices in Toronto, New York, New Jersey, and London, Onex invests its capital through its two investing platforms and is the largest limited partner in each of its private equity funds.

Onex has extensive experience investing in leading, global industrial businesses, including in the building products space. Notable examples of Onex’ investments in industrial companies over its 32-year history include Tomkins plc, Allison Transmission Holdings, Inc., SIG Combibloc Group, Husky International Ltd., KraussMaffei Group, Spirit AeroSystems, Inc., and RSI Home Products.

 



 

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The Offering

 

Issuer

JELD-WEN Holding, Inc., a Delaware corporation.

 

Common stock offered by us

             shares (or              shares if the underwriters exercise their option to purchase additional shares in full).

 

Common stock to be outstanding after this offering


             shares (or              shares if the underwriters exercise their option to purchase additional shares in full).

 

Option to purchase additional shares

The underwriters have an option to purchase up to              additional shares from us. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

 

Use of proceeds

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $         million, assuming the shares are offered at $         per share (the midpoint of the price range set forth on the cover page of this prospectus). We intend to use the net proceeds from this offering for general corporate purposes. See “Use of Proceeds”.

 

Dividend policy

We do not expect to pay any dividends on our common stock in the foreseeable future. See “Dividend Policy”.

 

Proposed stock exchange symbol

“            ”.

 

Controlled company

Upon completion of this offering, Onex will continue to own a controlling interest in us. Therefore, we expect to be a “controlled company” within the meaning of the corporate governance standards of                     .

 

Tax Receivable Agreement

We will enter into the Tax Receivable Agreement with stockholders and holders of stock options and restricted stock units immediately prior to the consummation of this offering, which we refer to as our “Pre-IPO Stockholders”, that will provide for the payment by the Company to our Pre-IPO Stockholders of 85% of the amount of tax benefits, if any, that we actually realize (or in some circumstances are deemed to realize) as a result of (i) the Existing Tax Attributes and (ii) certain other tax benefits related to our making payments under the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement”.

 

Risk factors

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 16 of this prospectus for a discussion of factors you should carefully consider before investing in our common stock.

 



 

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Immediately prior to the consummation of this offering, we intend to complete the Share Recapitalization.

Unless otherwise indicated, all information contained in this prospectus:

 

    assumes an initial public offering price of $         per share, which is the midpoint of the price range set forth on the cover page of this prospectus;

 

    gives effect to our amended and restated certificate of incorporation and our amended and restated bylaws, which will be in effect immediately following the consummation of this offering;

 

    assumes the underwriters’ option to purchase additional shares has not be exercised; and

 

    gives effect to the Share Recapitalization.

The number of shares of common stock to be outstanding after this offering excludes:

 

                 shares of common stock issuable upon the exercise of options outstanding under our existing stock incentive plan as of                 , 2016 at a weighted average exercise price of $         per share; and

 

                 shares of common stock reserved for future issuance under our new omnibus incentive plan.

 



 

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Summary Consolidated Financial Data

The following table presents summary consolidated financial data for the periods and at the dates indicated. The summary consolidated financial data as of December 31, 2015 and 2014 and for each of the three years ended December 31, 2015 have been derived from our audited consolidated financial statements included in this prospectus. The summary consolidated financial data as of December 31, 2013 has been derived from our audited consolidated financial statements not included in this prospectus. The summary consolidated financial data as of March 26, 2016 and March 28, 2015 and for each of the three months ended March 26, 2016 and March 28, 2015 have been derived from our unaudited condensed consolidated financial statements included in this prospectus. We have prepared our unaudited condensed consolidated financial statements on the same basis as our audited consolidated financial statements, and our unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments necessary for a fair statement of the operating results and financial condition of the Company for such periods and as of such dates. The results of operations for any interim period are not necessarily indicative of the results that may be expected for the full year. Additionally, our historical results are not necessarily indicative of the results expected for any future period. We have also presented summary unaudited consolidated financial data for the twelve-month period ended March 26, 2016, which presentation does not comply with GAAP. This data has been calculated by adding amounts from our audited consolidated financial statements for the year ended December 31, 2015 to amounts from our unaudited condensed consolidated financial statements for the three months ended March 26, 2016 and subtracting amounts from our unaudited condensed consolidated financial statements for the three months ended March 28, 2015. We have presented this financial data because we believe it provides our investors with useful information to assess our recent performance.

The following information should be read in conjunction with “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business”, and our financial statements and notes included elsewhere in this prospectus.

 

    Twelve
Months
Ended
    Three Months Ended     Year Ended December 31,  
    March 26,
2016
    March 26,
2016
    March 28,
2015
    2015     2014     2013  
    (dollars in thousands, except per share data)  

Net revenues

  $ 3,440,625      $ 796,547      $ 736,982      $ 3,381,060      $ 3,507,206      $ 3,456,539   

Cost of sales

    2,744,809        638,424        608,740        2,715,125        2,919,864        2,946,463   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    695,816        158,123        128,242        665,935        587,342        510,076   

Selling, general and administrative

    525,747        131,592        117,971        512,126        488,477        482,088   

Impairment and restructuring charges

    14,354        2,981        9,969        21,342        38,388        42,004   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    155,715        23,550        302        132,467        60,477        (14,016

Interest expense, net

    (66,487     (17,011     (11,156     (60,632     (69,289     (71,362

Other income (expense)

    10,766        724        4,078        14,120        (50,521     12,323   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before taxes, equity earnings (loss) and discontinued operations

    99,994        7,263        (6,776     85,955        (59,333     (73,055

Income tax (expense) benefit

    (2,920     (2,206     6,149        5,435        (18,942     (1,142
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    97,074        5,057        (627     91,390        (78,275     (74,197

(Loss) income from discontinued operations, net of tax

    (2,174     514        (168     (2,856     (5,387     (5,863

Gain (loss) on sale of discontinued operations, net of tax

    —          —          —          —          —          10,711   

Equity earnings (loss) of non-consolidated entities

    3,142        765        7        2,384        (447     943   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 98,042      $ 6,336      $ (788   $ 90,918      $ (84,109   $ (68,406
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss attributable to common shareholders

    $ (20,070   $ (26,322   $ (290,500   $ (184,143   $ (157,205
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding (basic and diluted)(1)

      1,630,623        1,767,393        1,663,273        1,858,187        1,919,445   

Loss from continuing operations per common share (basic and diluted)

    $ (12.62   $ (14.80   $ (172.97   $ (96.21   $ (84.45
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 



 

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    Twelve
Months
Ended
    Three Months Ended     Year Ended December 31,  
    March 26,
2016
    March 26,
2016
    March 28,
2015
    2015     2014     2013  
    (dollars in thousands, except per share data)  

Other financial data:

     

Capital expenditures

  $ 85,243      $ 20,773      $ 13,217      $ 77,687      $ 70,846      $ 85,689   

Depreciation and amortization

    97,851        25,692        23,037        95,196        100,026        104,650   

Adjusted EBITDA(2)

    327,067        61,156        45,075        310,986        229,849        153,210   

Adjusted EBITDA margin(2)

    9.5     7.7     6.1     9.2     6.6     4.4

Consolidated balance sheet data:

           

Cash, cash equivalents

    $ 43,224      $ 32,490      $ 113,571      $ 105,542      $ 37,666   

Accounts receivable, net

      407,874        390,098        321,079        329,901        357,363   

Inventories

      383,314        378,958        343,736        359,274        391,450   

Total current assets

      867,684        859,335        814,418        840,356        828,109   

Total assets

      2,270,456        2,133,259        2,182,373        2,184,059        2,290,897   

Accounts payable

      218,915        201,448        166,686        179,652        202,621   

Total current liabilities

      543,426        522,362        487,445        524,301        593,938   

Total debt

      1,262,287        848,878        1,260,320        806,228        667,152   

Redeemable convertible preferred stock

      481,937        817,121        481,937        817,121        817,121   

Total stockholders’ (deficit) equity

      (208,838     (259,870     (231,745     (168,826     54,444   

Statement of cash flows data:

     

Net cash flow provided by (used in):

     

Operating activities

  $ 215,827      $ (28,197   $ (71,685   $ 172,339      $ 21,788      $ (49,372

Investing activities

    (187,694     (42,001     (12,759     (158,452     (56,738     13,939   

Financing activities

    (15,994     (777     14,145        (1,072     105,617        34,633   

 

(1) Does not give effect to the Share Recapitalization.

 

(2) In addition to our consolidated financial statements presented in accordance with GAAP, we use Adjusted EBITDA to measure our financial performance. Adjusted EBITDA is a supplemental non-GAAP financial measure of operating performance and is not based on any standardized methodology prescribed by GAAP. Adjusted EBITDA should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities, or other measures determined in accordance with GAAP. Also, Adjusted EBITDA is not necessarily comparable to similarly-titled measures presented by other companies. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues.

We define Adjusted EBITDA as net income (loss), as adjusted for the following items: loss (income) from discontinued operations, net of tax; gain (loss) on sale of discontinued operations, net of tax; equity (earnings) loss of non-consolidated entities; income tax (expense) benefit; depreciation and intangible amortization; interest expense, net; impairment and restructuring charges; gain on sale of property and equipment; share-based compensation expense; non-cash foreign exchange transaction/translation income (loss); other non-cash items; other items; and costs related to debt restructuring, debt refinancing, and the Onex Investment. We use this non-GAAP measure in assessing our performance in addition to net income (loss) determined in accordance with GAAP. We believe Adjusted EBITDA is an important measure to be used in evaluating operating performance because it allows management and investors to better evaluate and compare our core operating results from period to period by removing the impact of our capital structure (net interest income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, other non-operating items, and share-based compensation. Furthermore, the instruments governing our indebtedness use Adjusted EBITDA to measure our compliance with certain limitations and covenants. We reference this non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods. In addition, executive incentive compensation is based in part on Adjusted EBITDA, and we base certain of our forward-looking estimates and budgets on Adjusted EBITDA. We also believe Adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. Other companies may calculate Adjusted EBITDA differently, and, therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

 



 

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The following is a reconciliation of our net income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA:

 

    Twelve
Months
Ended
    Three Months Ended     Year Ended December 31,  
    March 26,
2016
    March 26,
2016
    March 28,
2015
    2015     2014     2013  
    (dollars in this table and the footnotes below in thousands)  

Net income (loss)

  $ 98,042      $ 6,336      $ (788   $ 90,918      $ (84,109   $ (68,406

Adjustments:

           

Loss (income) from discontinued operations, net of tax

    2,174        (514     168        2,856        5,387        5,863   

Gain (loss) on sale of discontinued operations, net of tax

    —          —          —          —          —          (10,711

Equity (earnings) loss of non-consolidated entities

    (3,142     (765     (7     (2,384     447        (943

Income tax expense (benefit)

    2,920        2,206        (6,149     (5,435     18,942        1,142   

Depreciation and amortization

    97,851        25,692        23,037        95,196        100,026        104,650   

Interest expense, net

    66,487        17,011        11,156        60,632        69,289        71,362   

Impairment and restructuring charges(a)

    23,837        2,900        10,094        31,031        38,645        44,413   

Gain on sale of property and equipment

    (4,037     (3,644     (23     (416     (23     (3,039

Share-based compensation expense

    17,618        4,685        2,687        15,620        7,968        5,665   

Non-cash foreign exchange transaction/translation (income) loss

    11,257        4,983        (3,577     2,697        (528     (4,114

Other non-cash items(b)

    1,481        425        85        1,141        2,334        (68

Other items(c)

    12,475        1,830        8,248        18,893        20,278        7,284   

Costs relating to debt restructuring, debt refinancing, and the Onex Investment(d)

    104        11        144        237        51,193        112   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 327,067      $ 61,156      $ 45,075      $ 310,986      $ 229,849      $ 153,210   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Impairment and restructuring charges above include charges of $9,482, $(81), $124, $9,687, $257, and $2,409 relating to inventory and/or the manufacturing of our products that are included in cost of sales in the twelve months ended March 26 2016, three months ended March 26, 2016 and March 28, 2015, and years ended December 31, 2015, 2014, and 2013, respectively, in the accompanying consolidated statements of operations. See Note 25—Impairment and Restructuring Charges in our financial statements for the year ended December 31, 2015 included elsewhere in this prospectus.

 

  (b) Other non-cash items include, among other things, charges relating to inventory of $1,250, $357, $0, $893, $2,496, and $0 in the twelve months ended March 26, 2016, three months ended March 26, 2016 and March 28, 2015, and years ended December 31, 2015, 2014, and 2013, respectively.

 

  (c) Other items include: (i) in the twelve months ended March 26, 2016, (1) $11,446 payment to holders of vested options and restricted shares in connection with the July 2015 dividend described in “Dividend Policy”, (2) $1,825 in acquisition costs, (3) $1,833 of recruitment costs related to the recruitment of executive management employees, and (4) $1,082 of legal costs related to non-core property disposal, partially offset by (5) $5,678 of realized gain on foreign exchange hedges related to an intercompany loan; (ii) in the three months ended March 26, 2016, (1) $868 in acquisition costs, (2) $283 in Dooria plant closure costs, and (3) $212 of tax consulting costs in Europe; (iii) in the three months ended March 28, 2015, (1) $5,750 related to a United Kingdom legal settlement, (2) $1,396 in acquisition costs, and (3) $664 of legal costs associated with non-core property disposal; (iv) in the year ended December 31, 2015, (1) $11,446 payment to holders of vested options and restricted shares in connection with the July 2015 dividend described in “Dividend Policy”, (2) $5,510 related to a United Kingdom legal settlement, (3) $1,825 in acquisition costs, (4) $1,833 of recruitment costs related to the recruitment of executive management employees, and (5) $1,082 of legal costs related to non-core property disposal, partially offset by (6) $5,678 of realized gain on foreign exchange hedges related to an intercompany loan; (v) in the year ended December 31, 2014, (1) $5,000 legal settlement related to our ESOP, (2) $3,657 of legal costs associated with non-core property disposal, (3) $3,443 production ramp-down costs, (4) $2,769 of consulting fees in Europe, and (5) $1,250 of costs related to a prior acquisition; and (vi) in the year ended December 31, 2013, (1) $2,869 of cash costs related to the delayed opening of our new Louisiana facility, (2) $774 of legal costs associated with non-core property disposal, (3) $582 related to the closure of our Marion, North Carolina facility, and (4) $458 of acquisition-related costs.

 

  (d) Included in the year ended December 31, 2014 is a loss on debt extinguishment of $51,036 associated with the refinancing of our 12.25% secured notes.

 



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following factors, as well as other information contained in this prospectus, before deciding to invest in shares of our common stock. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment in our common stock.

Risks Relating to Our Business and Industry

Negative trends in overall business, financial market and economic conditions, and/or activity levels in our end markets may reduce demand for our products, which could have a material adverse effect on our business, financial condition, and results of operations.

Negative trends in overall business, financial market, and economic conditions globally or in the regions where we operate may reduce demand for our doors and windows, which is tied to activity levels in the R&R and new residential and non-residential construction end markets. In particular, the following factors may have a direct impact on our business in the regions where our products are marketed and sold:

 

    the strength of the economy;

 

    employment rates and consumer confidence and spending rates;

 

    the availability and cost of credit;

 

    the amount and type of residential and non-residential construction;

 

    housing sales and home values;

 

    the age of existing home stock, home vacancy rates, and foreclosures;

 

    interest rate fluctuations for our customers and consumers;

 

    volatility in both the debt and equity capital markets;

 

    increases in the cost of raw materials or any shortage in supplies or labor;

 

    the effects of governmental regulation and initiatives to manage economic conditions;

 

    geographical shifts in population and other changes in demographics; and

 

    changes in weather patterns.

The global economy recently endured a significant and prolonged recession that had a substantial negative effect on sales across our end markets. In particular, beginning in mid-2006 and continuing through late-2011, the U.S. residential and non-residential construction industry experienced one of the most severe downturns of the last 40 years. While cyclicality in our new residential and non-residential construction end markets is moderated to a certain extent by R&R activity, much R&R spending is discretionary and can be deferred or postponed entirely when economic conditions are poor. We experienced sales declines in all of our end markets during this recent economic downturn.

Although conditions in the United States have improved in recent years, there can be no assurance that this improvement will be sustained in the near or long-term. Moreover, uncertain economic conditions continue in our Australasia segment and certain jurisdictions in our Europe segment. Negative business, financial market, and economic conditions globally or in the regions where we operate may materially and adversely affect demand for our products, and our business, financial condition, and results of operations could be materially negatively impacted as a result.

 

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We operate in a highly competitive business environment. Failure to compete effectively could cause us to lose market share and/or force us to reduce the prices we charge for our products. This competition could have a material adverse effect on our business, financial condition, and results of operations.

We operate in a highly competitive business environment. Some of our competitors may have greater financial, marketing, and distribution resources and may develop stronger relationships with customers in the markets where we sell our products. Some of our competitors may be less leveraged than we are, providing them with more flexibility to invest in new facilities and processes and also making them better able to withstand adverse economic or industry conditions.

In addition, some of our competitors, regardless of their size or resources, may choose to compete in the marketplace by adopting more aggressive sales policies, including price cuts, or by devoting greater resources to the development, promotion, and sale of their products. This could result in our losing customers and/or market share to these competitors or being forced to reduce the prices at which we sell our products to remain competitive.

As a result of competitive bidding processes, we may have to provide pricing concessions to our significant customers in order for us to keep their business. Reduced pricing would result in lower product margins on sales to those customers. There is no guarantee that a reduction in prices would be offset by sufficient gains in market share and sales volume to those customers.

The loss of, or a reduction in orders from, any significant customers, or decreased pricing of our products, could have a material adverse effect on our business, financial condition, and results of operations.

We may not identify or effectively respond to consumer needs, expectations, or trends in a timely fashion, which could adversely affect our relationship with customers, our reputation, the demand for our brands, products, and services, and our market share.

The quantity, type, and prices of products demanded by consumers and our customers have shifted over time. For example, demand has increased for multi-family housing units such as apartments and condominiums, which typically require fewer of our products, and we are experiencing growth in certain channels for lower price point products. In certain cases, these shifts have negatively impacted our sales and/or our profitability. Also, we must continually anticipate and adapt to the increasing use of technology by our customers. Recent years have seen shifts in consumer preferences and purchasing practices and changes in the business models and strategies of our customers. Consumers are increasingly using the internet and mobile technology to research home improvement products and to inform and provide feedback on their purchasing and ownership experience for these products. Trends towards online purchases could impact our ability to compete as we currently sell a significant portion of our products through retail home centers, wholesale distributors, and building products dealers.

Accordingly, the success of our business depends in part on our ability to maintain strong brands, and identify and respond promptly to evolving trends in demographics, consumer preferences, and expectations and needs, while also managing inventory levels. It is difficult to successfully predict the products and services our customers will demand. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products and acquire or develop the intellectual property necessary to develop new products or improve our existing products. There can be no assurance that the products we develop, even those to which we devote substantial resources, will be successful. While we continue to invest in innovation, brand building, and brand awareness, and intend to increase our investments in these areas in the future, these initiatives may not be successful. Failure to anticipate and successfully react to changing consumer preferences could have a material adverse effect on our business, financial condition, and results of operations.

In addition, our competitors could introduce new or improved products that would replace or reduce demand for our products, or create new proprietary designs and/or changes in manufacturing technologies that may render our products obsolete or too expensive for efficient competition in the marketplace. Our failure to competitively

 

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respond to changing consumer and customer trends, demands, and preferences could cause us to lose market share, which could have a material adverse effect on our business, financial condition, and results of operations.

Failure to maintain the performance, reliability, quality, and service standards required by our customers, or to timely deliver our products, could have a material adverse effect on our business, financial condition, and results of operations.

If our products have performance, reliability, or quality problems, our reputation and brand equity, which we believe is a substantial competitive advantage, could be materially adversely affected. We may also experience increased and unanticipated warranty and service expenses. Furthermore, we manufacture a significant portion of our products based on the specific requirements of our customers, and delays in providing our customers the products and services they specify on a timely basis could result in reduced or canceled orders and delays in the collection of accounts receivable. Additionally, claims from our customers, with or without merit, could result in costly and time-consuming litigation that could require significant time and attention of management and involve significant monetary damages that could have a material adverse effect on our business, financial condition, and results of operations.

We are in the early stages of implementing strategic initiatives. If we fail to implement these initiatives as expected, our business, financial condition, and results of operations could be adversely affected.

Our future financial performance will depend in part on our management’s ability to successfully implement our strategic initiatives. We have implemented many of these initiatives in North America and are beginning to implement them in Europe and Australasia. We cannot assure you that we will be able to continue to successfully implement these initiatives and related strategies throughout the geographic regions in which we operate or be able to continue improving our operating results. Similarly, these initiatives, even if implemented in all of our geographic regions, may not produce similar results. Any failure to successfully implement these initiatives and related strategies could adversely affect our business, financial condition, and results of operations. We may, in addition, decide to alter or discontinue certain aspects of our business strategy at any time.

We may make acquisitions or investments in other businesses which may involve risks or may not be successful.

Generally, we seek to acquire businesses that broaden our existing product lines and service offerings or expand our geographic reach. There can be no assurance that we will be able to identify suitable acquisition candidates or that our acquisitions or investments in other businesses will be successful. These acquisitions or investments in other businesses may also involve risks, many of which may be unpredictable and beyond our control, and which may have a material adverse effect on our business, financial condition, and results of operations, including risks related to:

 

    the nature of the acquired company’s business;

 

    any acquired business performing worse than anticipated;

 

    the potential loss of key employees of the acquired company;

 

    any damage to our reputation as a result of performance or customer satisfaction problems relating to an acquired business;

 

    the failure of our due diligence procedures to detect material issues related to the acquired business, including exposure to legal claims for activities of the acquired business prior to the acquisition;

 

    unexpected liabilities resulting from the acquisition for which we may not be adequately indemnified;

 

    our inability to enforce indemnifications and non-compete agreements;

 

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    the integration of the personnel, operations, technologies, and products of the acquired business, and establishing of internal controls, including the implementation of our enterprise resource planning system, into the acquired company’s operations;

 

    our failure to achieve projected synergies or cost savings;

 

    our inability to establish uniform standards, controls, procedures, and policies;

 

    the diversion of management attention and financial resources; and

 

    any unforeseen management and operational difficulties, particularly if we acquire assets or businesses in new foreign jurisdictions where we have little or no operational experience.

Our inability to achieve the anticipated benefits of acquisitions and other investments could materially and adversely affect our business, financial condition, and results of operations.

In addition, the means by which we finance an acquisition may have a material adverse effect on our business, financial condition, and results of operations, including changes to our equity, debt, and liquidity position. If we issue convertible preferred or common stock to pay for an acquisition, the ownership percentage of our existing shareholders may be diluted. Using our existing cash may reduce our liquidity. Incurring additional debt to fund an acquisition may result in higher debt service and a requirement to comply with additional financial and other covenants, including potential restrictions on future acquisitions and distributions.

A decline in our relationships with our key customers or the amount of products they purchase from us, or a decline in our key customers’ economic condition, could have a material adverse effect on our business, financial condition, and results of operations.

Our business depends on our relationships with our key customers, which consist mainly of wholesale distributors and retail home centers. Our top ten customers together accounted for approximately 44% of our revenues in the year ended December 31, 2015, and our largest customer, The Home Depot, accounted for approximately 19% of our revenues in the year ended December 31, 2015. Although we have established and maintain significant long-term relationships with our key customers, we cannot assure you that all of these relationships will continue or will not diminish. We generally do not enter into long-term contracts with our customers and they generally do not have an obligation to purchase products from us. Accordingly, sales from customers that have accounted for a significant portion of our sales in past periods, individually or as a group, may not continue in future periods, or if continued, may not reach or exceed historical levels in any period. For example, our large customers perform periodic line reviews to assess their product offering, which have, on past occasions, led to loss of business and pricing pressures, and some of our large customers may experience economic difficulties or otherwise default on their obligations to us. Furthermore, our pricing optimization strategy, which requires maintaining pricing discipline in order to improve profit margins, may lead to the loss of certain customers, including key customers, who do not agree to our pricing terms. The loss of, or a diminution in, our relationship with any of our largest customers could lower our sales volumes, which could increase our costs and lower our profitability. This could have a material adverse effect on our business, financial condition, and results of operations.

Certain of our customers may expand through consolidation and internal growth, which may increase their buying power. The increased size of our customers could have a material adverse effect our business, financial condition, and results of operations.

Certain of our important customers are large companies with significant buying power and our customers may expand through consolidation or internal growth. Consolidation could decrease the number of potential significant customers for our products and increase our reliance on key customers. Further, the increased size of our customers could result in our customers seeking more favorable terms, including pricing, for the products that they purchase from us. Accordingly, the increased size of our customers may further limit our ability to maintain or raise prices in the future. This could have a material adverse effect our business, financial condition, and results of operations.

 

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We are subject to the credit risk of our customers.

We are subject to the credit risk of our customers because we provide credit to our customers in the normal course of business. All of our customers are sensitive to economic changes and to the cyclical nature of the building industry. Especially during protracted or severe economic declines and cyclical downturns in the building industry, our customers may be unable to perform on their payment obligations, including their debts to us. Any failure by our customers to meet their obligations to us may have a material adverse effect on our business, financial condition, and results of operations. In addition, we may incur increased expenses related to collections in the future if we find it necessary to take legal action to enforce the contractual obligations of a significant number of our customers.

Increases in interest rates used to finance home construction and improvements, such as mortgage and credit card interest rates, and the reduced availability of financing for the purchase of new homes and home construction and improvements, could have a material adverse impact on our business, financial condition, and results of operations.

Our performance depends in part upon consumers having the ability to access third-party financing for the purchase of new homes and buildings and R&R of existing homes and other buildings. The ability of consumers to finance these purchases is affected by the interest rates available for home mortgages, credit card debt, lines of credit, and other sources of third-party financing. Currently, interest rates in the majority of the regions where we market and sell our products are near historic lows and will likely increase in the future. In December 2015, the U.S. Federal Reserve Board of Governors raised the federal fund rate for the first time in seven years, and is expected to continue to raise the federal fund rate over time. An increase in the federal fund rate could cause an increase in future interest rates applicable to mortgages, credit card debt, and other sources of third-party financing. If interest rates increase and, consequently, the ability of prospective buyers to finance purchases of new homes or home improvement products is adversely affected, our business, financial condition, and results of operations may be materially and adversely affected.

In addition to increased interest rates, the ability of consumers to procure third-party financing is impacted by such factors as new and existing home prices, high unemployment levels, high mortgage delinquency and foreclosure rates, and lower housing turnover. Adverse developments affecting any of these factors could result in the imposition of more restrictive lending standards by financial institutions and reduce the ability of some consumers to finance home purchases or R&R expenditures.

Prices of the raw materials we use to manufacture our products are subject to fluctuations, and we may be unable to pass along to our customers the effects of any price increases.

We use wood, glass, vinyl and other plastics, fiberglass and other composites, aluminum, steel and other metals, as well as hardware and other components to manufacture our products. Materials represented approximately 53% of our cost of sales in the year ended December 31, 2015. Prices for our materials fluctuate for a variety of reasons beyond our control, many of which cannot be anticipated with any degree of reliability. Our most significant raw materials include vinyl extrusions, glass, and aluminum, each of which has been subject to periods of rapid and significant fluctuations in price. The reasons for these fluctuations include, among other things, variable worldwide supply and demand across different industries, speculation in commodities futures, general economic or environmental conditions, labor costs, competition, import duties, tariffs, worldwide currency fluctuations, freight, regulatory costs, and product and process evolutions that impact demand for the same materials.

For example, an increase in oil prices will affect the direct cost of materials derived from petroleum, most particularly vinyl. As another example, many consumers demand certified sustainably harvested wood products as concerns about deforestation have become more prevalent. Certified sustainably harvested wood historically has not been as widely available as non-certified wood, which results in higher prices for sustainably harvested wood. As more consumers demand certified sustainably harvested wood, the price of such wood may increase due to limited supply.

 

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We have short-term supply contracts with certain of our largest suppliers that limit our exposure to short-term fluctuations in prices of our materials, but we are susceptible to longer-term fluctuations in prices. We generally do not hedge against commodity price fluctuations. Significant increases in the prices of raw materials for finished goods, including as a result of significant or protracted material shortages, may be difficult to pass through to customers and may negatively impact our profitability and net revenues. We may attempt to modify products that use certain raw materials, but these changes may not be successful.

Our business may be affected by delays or interruptions in the delivery of raw materials, finished goods, and certain component parts. A supply shortage or delivery chain interruption could have a material adverse effect on our business, financial condition, and results of operations.

We rely upon regular deliveries of raw materials, finished goods, and certain component parts. For certain raw materials that are used in our products, we depend on a single or limited number of suppliers for our materials, and typically do not have long-term contracts with our suppliers. If we are not able to accurately forecast our supply needs, the limited number of suppliers may make it difficult to quickly obtain additional raw materials to respond to shifting or increased demand. In addition, a supply shortage could occur as a result of unanticipated increases in market demand, difficulties in production or delivery, financial difficulties, or catastrophic events in the supply chain. Furthermore, because our products and the components of some of our products are subject to regulation, changes to these regulations could cause delays in delivery of raw materials, finished goods, and certain component parts.

Until we can make acceptable arrangements with alternate suppliers, any interruption or disruption could impact our ability to ship orders on time and could idle some of our manufacturing capability for those products. This could result in a loss of revenues, reduced margins, and damage to our relationships with customers, which could have a material adverse effect on our business, financial condition, and results of operations.

Our business is seasonal and revenue and profit can vary significantly throughout the year, which may adversely impact the timing of our cash flows and limit our liquidity at certain times of the year.

Our business is seasonal, and our net revenues and operating results vary significantly from quarter to quarter based upon the timing of the building season in our markets. Our sales typically follow seasonal new construction and R&R industry patterns. The peak season for home construction and R&R activity in the majority of the geographies where we market and sell our products generally corresponds with the second and third calendar quarters, and therefore our sales volume is typically higher during those quarters. Our first and fourth quarter sales volumes are generally lower due to reduced R&R and new construction activity as a result of less favorable climate conditions in the majority of our geographic end markets. Failure to effectively manage our inventory in anticipation of or in response to seasonal fluctuations could negatively impact our liquidity profile during certain seasonal periods.

Changes in weather patterns, including as a result of global climate change, could significantly affect our financial results or financial condition.

Weather patterns may affect our operating results and our ability to maintain our sales volume throughout the year. Since our customers depend on suitable weather to engage in construction projects, increased frequency or duration of extreme weather conditions could have a material adverse effect on our financial results or financial condition. For example, unseasonably cool weather or extraordinary amounts of rainfall may decrease construction activity, thereby decreasing our sales. Also, we cannot predict the effects that global climate change may have on our business. In addition to changes in weather patterns, it might, for example, reduce the demand for construction, destroy forests (increasing the cost and reducing the availability of wood products used in construction), increase the cost and reduce the availability of raw materials and energy, or lead to new laws and regulations that increase our expenses and reduce our sales.

 

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We are exposed to political, economic, and other risks that arise from operating a multinational business.

We have operations in North America, South America, Europe, Australia, and Asia. In the year ended December 31, 2015, our North America segment accounted for approximately 60% of net revenues, our Europe segment accounted for approximately 29% of net revenues, and our Australasia segment accounted for approximately 11% of our net revenues. Further, certain of our businesses obtain raw materials and finished goods from foreign suppliers. Accordingly, our business is subject to political, economic, and other risks that are inherent in operating in numerous countries.

These risks include:

 

    the difficulty of enforcing agreements and collecting receivables through foreign legal systems;

 

    trade protection measures and import or export licensing requirements;

 

    the imposition of tariffs or other restrictions;

 

    required compliance with a variety of foreign laws and regulations, including the application of foreign labor regulations;

 

    tax rates in foreign countries and the imposition of withholding requirements on foreign earnings;

 

    difficulty in staffing and managing widespread operations; and

 

    changes in general economic and political conditions in countries where we operate.

Our business success depends in part on our ability to anticipate and effectively manage these and other risks. We cannot assure you that these and other factors will not have a material adverse effect on our international operations or ultimately on our global business, financial condition, and results of operations.

Exchange rate fluctuations may impact our business, financial condition, and results of operations.

Our operations expose us to both transaction and translation exchange rate risks. In the year ended December 31, 2015, 49% of our net revenues came from sales outside of the United States, and we anticipate that our operations outside of the United States will continue to represent a significant portion of our net revenues for the foreseeable future. In addition, the nature of our operations often requires that we incur expenses in currencies other than those in which we earn revenue. Because of the mismatch between revenues and expenses, we are exposed to significant currency exchange rate risk and we may not be successful in achieving balances in currencies throughout our operations. In addition, if the effective price of our products were to increase as a result of fluctuations in foreign currency exchange rates, demand for our products could decline, which could adversely affect our business, financial condition, and results of operations. Also, since our financial statements are presented in U.S. dollars, we must translate the financial statements of our foreign subsidiaries and affiliates into U.S. dollars at exchange rates in effect during or at the end of each reporting period, and increases or decreases in the value of the U.S. dollar against other major currencies will affect our reported financial results, including the amount of our outstanding indebtedness. Unfavorable exchange rates had a negative impact on our consolidated net revenues of 8% in the year ended December 31, 2015 as compared to the year ended December 31, 2014. We cannot assure you that fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S. dollar against major currencies, such as the euro, the Australian dollar, the Canadian dollar, or the currencies of large developing countries, would not materially adversely affect our business, financial condition, and results of operations.

A disruption in our operations due to natural disasters or acts of war could have a material adverse effect on our business, financial condition, and results of operations.

We operate facilities worldwide. Many of our facilities are located in areas that are vulnerable to hurricanes, earthquakes, and other natural disasters. In the event that a hurricane, earthquake, natural disaster, fire, or other catastrophic event were to interrupt our operations for any extended period of time, it could delay shipment of merchandise to our customers, damage our reputation, or otherwise have a material adverse effect on our business, financial condition, and results of operations.

 

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In addition, our operations may be interrupted by terrorist attacks or other acts of violence or war. These attacks may directly impact our suppliers’ or customers’ physical facilities. Furthermore, these attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately have a material adverse effect our business, financial condition, and results of operations. The United States has entered into armed conflicts, which could have an impact on our sales and our ability to deliver product to our customers. Political and economic instability in some regions of the world may also negatively impact the global economy and, therefore, our business. The consequences of any of these armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment. More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the worldwide financial markets. They could also result in economic recessions. Any of these occurrences could have a material adverse effect on our business, financial condition, and results of operations.

Manufacturing realignments and cost savings programs may result in a decrease in our short-term earnings.

We continually review our manufacturing operations. Effects of periodic manufacturing realignments and cost savings programs have in the past and could in the future result in a decrease in our short-term earnings until the expected cost reductions are achieved. We also cannot assure you we will achieve all of our cost savings. Such programs may include the consolidation, integration, and upgrading of facilities, functions, systems, and procedures. Such programs involve substantial planning, often require capital investments, and may result in charges for fixed asset impairments or obsolescence and substantial severance costs. Our ability to achieve cost savings and other benefits within expected time frames is subject to many estimates and assumptions. These estimates and assumptions are subject to significant economic, competitive, and other uncertainties, some of which are beyond our control. If these estimates and assumptions are incorrect, if we experience delays, or if other unforeseen events occur, our business, financial condition, and results of operations could be materially and adversely affected.

We are highly dependent on information technology, the disruption of which could significantly impede our ability to do business.

Our operations depend on our network of information technology systems, which are vulnerable to damage from hardware failure, fire, power loss, telecommunications failure, and impacts of terrorism, natural disasters, or other disasters. We rely on our information technology systems to accurately maintain books and records, record transactions, provide information to management and prepare our financial statements. We may not have sufficient redundant operations to cover a loss or failure in a timely manner. Any damage to our information technology systems could cause interruptions to our operations that materially adversely affect our ability to meet customers’ requirements, resulting in an adverse impact to our business, financial condition, and results of operations. Periodically, these systems need to be expanded, updated, or upgraded as our business needs change. We may not be able to successfully implement changes in our information technology systems without experiencing difficulties, which could require significant financial and human resources. Moreover, our increasing dependence on technology may exacerbate this risk.

We anticipate implementing a new Enterprise Resource Planning system in the future as part of our ongoing technology and process improvements. If this new system proves ineffective, we may be unable to timely or accurately prepare financial reports, make payments to our suppliers and employees, or invoice and collect from our customers.

We anticipate implementing a new Enterprise Resource Planning, or “ERP”, system in the future as part of our ongoing technology and process improvements. Any delay in the implementation, or disruption in the upgrade, of this system could adversely affect our ability to timely and accurately report financial information, including the filing of our quarterly or annual reports with the SEC. Such delay or disruption could also impact our ability to timely or accurately make payments to our suppliers and employees, and could also inhibit our ability to invoice and collect from our customers. Data integrity problems or other issues may be discovered which, if not corrected, could impact our business or financial results. In addition, we may experience periodic or

 

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prolonged disruption of our financial functions arising out of this conversion, general use of such systems, other periodic upgrades or updates, or other external factors that are outside of our control. If we encounter unforeseen problems with our financial system or related systems and infrastructure, our business, operations, and financial systems could be adversely affected. We may also need to implement additional systems or transition to other new systems that require new expenditures in order to function effectively as a public company. There can be no assurance that our implementation of additional systems or transition to new systems will be successful, or that such implementation or transition will not present unforeseen costs or demands on our management.

Our systems and IT infrastructure may be subject to security breaches and other cyber security incidents.

We rely on the accuracy, capacity, and security of our IT systems, some of which are managed or hosted by third parties, and the sale of our products may involve the transmission and/or storage of data, including in certain instances customers’ business and personally identifiable information. Thus, maintaining the security of computers, computer networks, and data storage resources is a critical issue for us and our customers, as security breaches could result in vulnerabilities and loss of and/or unauthorized access to confidential information. We may face attempts by experienced hackers, cybercriminals, or others with authorized access to our systems to misappropriate our proprietary information and technology, interrupt our business, and/or gain unauthorized access to confidential information. The reliability and security of our information technology infrastructure and software, and our ability to expand and continually update technologies in response to our changing needs is critical to our business. To the extent that any disruptions or security breaches result in a loss or damage to our data, it could cause harm to our reputation or brand. This could lead some customers to stop purchasing our products and reduce or delay future purchases of our products or use competing products. In addition, we could face enforcement actions by U.S. states, the U.S. federal government, or foreign governments, which could result in fines, penalties, and/or other liabilities and which may cause us to incur legal fees and costs, and/or additional costs associated with responding to the cyberattack. Increased regulation regarding cyber security may increase our costs of compliance, including fines and penalties, as well as costs of cyber security audits. Any of these actions could materially adversely impact our business and results of operations. We do not currently have a specific insurance policy insuring us against losses caused by a cyberattack, however we are considering purchasing such a policy in the future.

We have invested in industry appropriate protections and monitoring practices of our data and information technology to reduce these risks and continue to monitor our systems on an ongoing basis for any current or potential threats. While we have not experienced any material breaches in security in our recent history, there can be no assurance that our efforts will prevent breakdowns or breaches to databases or systems that could have a material adverse effect on our business, financial condition, and results of operations.

Increases in labor costs, potential labor disputes, and work stoppages at our facilities or the facilities of our suppliers could have a material adverse effect on our business, financial condition, and results of operations.

Our financial performance is affected by the availability of qualified personnel and the cost of labor. As of December 31, 2015 (including the employees of Trend, which we acquired in February 2016), we had approximately 20,650 employees worldwide. Approximately 1,160 of our employees in the United States and Canada are unionized workers, and the majority of our workforce in other countries belong to work councils or are otherwise subject to labor agreements. United States and Canadian employees represented by these unions are subject to collective bargaining agreements that are subject to periodic negotiation and renewal. If we are unable to enter into new, satisfactory labor agreements with our unionized employees upon expiration of their agreements, we could experience a significant disruption of our operations, which could cause us to be unable to deliver products to customers on a timely basis. Such disruptions could result in a loss of business and an increase in our operating expenses, which could reduce our net revenues and profit margins. In addition, our non-unionized labor force may become subject to labor union organizing efforts, which could cause us to incur additional labor costs and increase the related risks that we now face.

 

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We believe many of our direct and indirect suppliers also have unionized workforces. Strikes, work stoppages, or slowdowns experienced by suppliers could result in slowdowns or closures of facilities where components of our products are manufactured or delivered. Any interruption in the production or delivery of these components could reduce sales, increase costs, and have a material adverse effect on us.

Changes in building codes and standards (including ENERGY STAR standards) could increase the cost of our products, lower the demand for our windows and doors, or otherwise adversely affect our business.

Our products and markets are subject to extensive and complex local, state, federal, and foreign statutes, ordinances, rules, and regulations. These mandates, including building design and safety and construction standards and zoning requirements, affect the cost, selection, and quality requirements of building components like windows and doors.

These statutes, ordinances, rules, and regulations often provide broad discretion to governmental authorities as to the types and quality specifications of products used in new residential and non-residential construction and home renovations and improvement projects, and different governmental authorities can impose different standards. Compliance with these standards and changes in such statutes, ordinances, rules, and regulations may increase the costs of manufacturing our products or may reduce the demand for certain of our products in the affected geographical areas or product markets. Conversely, a decrease in product safety standards could reduce demand for our more modern products if less expensive alternatives that did not meet higher standards became available for use in that market. All or any of these changes could have a material adverse effect on our business, financial condition, and results of operations.

In addition, in order for our products to obtain the “ENERGY STAR” label, they must meet certain requirements set by the U.S. Environmental Protection Agency, or “EPA”. Changes in the energy efficiency requirements established by the EPA for the ENERGY STAR label could increase our costs, and a lapse in our ability to label our products as such or to comply with the new standards, may have a material adverse effect on our business, financial condition, and results of operations.

Domestic and foreign governmental regulations applicable to general business operations could increase the costs of operating our business and adversely affect our business.

We are subject to a variety of regulations from U.S. federal, state, and local governments, as well as foreign governmental authorities, relating to wage requirements, employee benefits, and other workplace matters. Changes in local minimum or living wage requirements, rights of employees to unionize, healthcare regulations, and other requirements relating to employee benefits could increase our labor costs, which would in turn increase our cost of doing business. In addition, our international operations are subject to laws applicable to foreign operations, trade protection measures, foreign labor relations, differing intellectual property rights, other legal and regulatory constraints, and currency regulations of the countries or regions in which we currently operate or where we may operate in the future. These factors may restrict the sales of, or increase costs of, manufacturing and selling our products.

We may be subject to significant compliance costs as well as liabilities under environmental, health, and safety laws and regulations.

Our past and present operations, assets, and products are subject to extensive environmental laws and regulations at the federal, state, and local level worldwide. These laws regulate, among other things, emissions to air, the discharge or release of materials into the environment, the handling and disposal of wastes, remediation of contaminated sites, worker health and safety, and the impact of products on human health and safety and the environment. Under certain of these laws, liability for contaminated property may be imposed on current or former owners or operators of the property or on parties that generated or arranged for waste sent to the property for disposal. Liability under these laws may be joint and several and may be imposed without regard to fault or the legality of the activity giving rise to the contamination. Notwithstanding our compliance efforts we may still

 

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face material liability, limitations on our operations, fines, or penalties for violations of environmental, health, and safety laws and regulations, including releases of regulated materials and contamination by us or previous occupants at our current or former properties or at offsite disposal locations we use.

The applicable environmental, health, and safety laws and regulations, and any changes to them or in their enforcement, may require us to make material expenditures with respect to ongoing compliance with or remediation under these laws and regulations or require that we modify our products or processes in a manner that increases our costs and/or reduces our profitability. For example, additional pollution control equipment, process changes, or other environmental control measures may be needed at some of our facilities to meet future requirements. In addition, discovery of currently unknown or unanticipated soil or groundwater conditions at our properties could result in significant liabilities and costs. Accordingly, we are unable to predict the exact future costs of compliance with or liability under environmental, health, and safety laws and regulations.

We may be subject to significant compliance costs with respect to legislative and regulatory proposals to restrict emissions of greenhouse gasses, or “GHGs”.

Various legislative, regulatory, and inter-governmental proposals to restrict emissions of greenhouse gasses, or GHGs, such as CO2, are under consideration in governmental legislative bodies and regulators in the jurisdictions where we operate. In particular, the EPA has proposed regulations to reduce GHG emissions from new and existing power plants. These regulations, commonly referred to as the Clean Power Plan, require states to develop strategies to reduce GHG emissions within the states that may include reductions at other sources in addition to electric utilities. Some of our manufacturing facilities operate boilers or other process equipment that emit GHGs. In addition, many nations, including jurisdictions in which we operate, have committed to limiting emissions of GHGs worldwide, most recently through an agreement reached in Paris in December 2015 at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change. The Paris agreement sets out a new process for achieving global GHG reductions. Such regulatory and global initiatives may require us to modify our operating procedures or production levels, incur capital expenditures, change fuel sources, or take other actions that may adversely affect our financial results. However, given the high degree of uncertainty about the ultimate parameters of any such regulatory or global initiative, and because proposals like the Clean Power Plan are currently subject to legal challenges, we cannot predict at this time the ultimate impact of such initiatives on our operations or financial results.

A significant portion of our GHG emissions are from biomass-fired boilers. Biogenic CO2 is generally considered carbon neutral. In November 2014, the EPA released its Framework for Assessing Biogenic CO2 Emissions From Stationary Sources along with an accompanying memo that generally supports carbon neutrality for biomass combustion, but left open the possibility that it may not always be characterized as carbon neutral. This action leaves considerable uncertainty as to the future regulatory treatment of biogenic CO2 and the treatment of such GHG in the states in which we operate. The proposed Clean Power Plan also allows states to determine how biogenic CO2 will be characterized, so we could see state-to-state differences.

Certain of our purchased raw materials, including vinyl and resins derived from petroleum products, are also subject to significant regulation regarding production, processing, and sales. Increasing regulations to reduce GHG emissions are expected to increase energy costs, increase price volatility for petroleum, and reduce petroleum production levels, which in turn could impact the prices of those raw materials. In addition, laws and regulations relating to forestry practices limit the volume and manner of harvesting timber to mitigate environmental impacts such as deforestation, soil erosion, damage to riparian areas, and greenhouse gas levels. The extent of these regulations and related compliance costs has grown in recent years and will increase our materials costs and may increase other aspects of our production costs.

 

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Changes to legislative and regulatory policies that currently promote home ownership may have a material adverse effect on our business, financial condition, and results of operations.

Our markets are also affected by legislative and regulatory policies, such as U.S. tax rules allowing for deductions of mortgage interest and the mandate of government-sponsored entities like Freddie Mac and Fannie Mae to promote home ownership through mortgage guarantees on certain types of home loans. In the United States, as part of a housing reform initiative, proposals have been made at the federal government level to reduce or abolish certain tax benefits relating to home ownership and to dismantle government-sponsored mortgage insurance agencies. Any change to those policies may adversely impact demand for our products and have a material adverse effect on our business, financial condition, and results of operations.

Lack of transparency, threat of fraud, public sector corruption, and other forms of criminal activity involving government officials increases the risk of potential liability under anti-bribery or anti-fraud legislation, including the United States Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar laws and regulations.

We operate manufacturing facilities in 19 countries and sell our products in approximately 82 countries around the world. As a result of these international operations, we may enter from time to time into negotiations and contractual arrangements with parties affiliated with foreign governments and their officials in the ordinary course of business. In connection with these activities, we may be subject to anti-corruption laws in various jurisdictions, including the United States Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act and other anti-bribery laws applicable to jurisdictions where we do business that prohibit improper payments or offers of payments to foreign governments and their officials and political parties for the purpose of obtaining or retaining business, or otherwise receiving discretionary favorable treatment of any kind, and require the maintenance of internal controls to prevent such payments. In particular, we may be held liable for actions taken by agents in foreign countries where we operate, even though such parties are not always subject to our control. We have established anti-bribery policies and procedures and offer several channels for raising concerns in an effort to comply with the laws and regulations applicable to us. However, there can be no assurance that our policies and procedures will effectively prevent us from violating these laws and regulations in every transaction in which we may engage. Any determination that we have violated the FCPA or other anti-bribery laws (whether directly or through acts of others, intentionally or through inadvertence) could result in sanctions that could have a material adverse effect on our business, financial condition, and results of operations.

As we continue to expand our business globally, including through foreign acquisitions, we may have difficulty anticipating and effectively managing these and other risks that our international operations may face, which may adversely impact our business outside of the United States and our financial condition and results of operations. In addition, any acquisition of businesses with operations outside of the United States may exacerbate this risk.

We may be the subject of product liability claims or product recalls and we may not accurately estimate costs related to warranty claims. Expenses associated with product liability claims and lawsuits and related negative publicity or warranty claims in excess of our reserves could have a material adverse effect on our business, financial condition, and results of operations.

Our products are used in a wide variety of residential, non-residential, and architectural applications. We face the risk of exposure to product liability or other claims, including class action lawsuits, in the event our products are alleged to be defective or have resulted in harm to others or to property. We may in the future incur liability if product liability lawsuits against us are successful. Moreover, any such lawsuits, whether or not successful, could result in adverse publicity to us, which could cause our sales to decline materially. In addition, it may be necessary for us to recall defective products, which would also result in adverse publicity, as well as resulting in costs connected to the recall and loss of sales. We maintain insurance coverage to protect us against product liability claims, but that coverage may not be adequate to cover all claims that may arise or we may not be able to maintain adequate insurance coverage in the future at an acceptable cost. Any liability not covered by insurance could have a material adverse effect on our business, financial condition, and results of operations.

 

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In addition, consistent with industry practice, we provide warranties on many of our products and we may experience costs associated with warranty claims if our products have defects in manufacture or design or they do not meet contractual specifications. We estimate our future warranty costs based on historical trends and product sales, but we may fail to accurately estimate those costs and thereby fail to establish adequate warranty reserves for them. If warranty claims exceed our estimates, it may have a material adverse effect on our business, financial condition, and results of operations.

We may be unable to protect our intellectual property, and we may face claims of intellectual property infringement.

We rely on a combination of patent, copyright, trademark, and trade secret laws, as well as confidentiality agreements and other contractual commitments, to protect our intellectual property rights. However, these measures may not be adequate or sufficient. In addition, our competitors may develop similar technologies and know-how without violating our intellectual property rights. Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. The failure to obtain worldwide patent and trademark protection may result in other companies copying and marketing products based on our technologies or under brand or trade names similar to ours outside the jurisdictions in which we are protected. This could impede our growth in existing regions, create confusion among consumers, and result in a greater supply of similar products that could erode prices for our protected products.

Litigation may be necessary to protect our intellectual property rights. Intellectual property litigation can result in substantial costs, could distract our management, and could impinge upon other resources. Our failure to enforce and protect our intellectual property rights may cause us to lose brand recognition and result in a decrease in sales of our products.

Moreover, while we are not aware that any of our products or brands infringes upon the proprietary rights of others, third parties may make such claims in the future. Any infringement claims, regardless of merit, could be time-consuming and result in costly litigation or damages, undermine the exclusivity and value of our brands, decrease sales, or require us to enter into royalty or licensing agreements that may not be on acceptable terms and that could have a material adverse effect on our business, financial condition, and results of operations.

Our business will suffer if certain key officers or employees discontinue employment with us or if we are unable to recruit and retain highly skilled staff at a competitive cost.

The success of our business depends upon the skills, experience, and efforts of our key officers and employees. In recent years, we have hired a large number of key executives who have and will continue to be integral in the continuing transformation of our business. The loss of key personnel could have a material adverse effect on our business, financial condition, and results of operations. We do not maintain key-man life insurance policies on any members of management. Our business also depends on our ability to continue to recruit, train, and retain skilled employees, particularly skilled sales personnel. The loss of the services of any key personnel, or our inability to hire new personnel with the requisite skills, could impair our ability to develop new products or enhance existing products, sell products to our customers or manage our business effectively. Should we lose the services of any member of our senior management team, our board of directors would have to conduct a search for a qualified replacement. This search may be prolonged, and we may not be able to locate and hire a qualified replacement. A significant increase in the wages paid by competing employers could result in a reduction of our qualified labor force, increases in the wage rates that we must pay, or both.

Our pension plan obligations are currently underfunded, and we may have to make significant cash payments to these plans, which would reduce the cash available for our businesses.

While we have closed our U.S. pension plan to new participants and have frozen future benefit accruals for current participants, we continue to have unfunded obligations under that plan. The funded levels of our pension plan depend upon many factors, including returns on invested assets, certain market interest rates, and the discount rate used to determine pension obligations. The projected benefit obligation and unfunded liability

 

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included in our consolidated financial statements as of December 31, 2015 for our U.S. pension plan were approximately $392.5 million and $99.4 million, respectively. Unfavorable returns on the plan assets or unfavorable changes in applicable laws or regulations could materially change the timing and amount of required plan funding, which would reduce the cash available for our operations. In addition, a decrease in the discount rate used to determine pension obligations could increase the estimated value of our pension obligations, which would affect the reported funding status of our pension plans and would require us to increase the amounts of future contributions. Additionally, we have foreign defined benefit plans, some of which continue to be open to new participants. As of December 31, 2015, our foreign defined benefit plans had unfunded pension liabilities of approximately $16.0 million.

Under the Employee Retirement Income Security Act of 1974, as amended, or ERISA, the U.S. Pension Benefit Guaranty Corporation, or the PBGC, also has the authority to terminate an underfunded tax-qualified U.S. pension plan under certain circumstances. In the event our tax-qualified U.S. pension plans were terminated by the PBGC, we could be liable to the PBGC for an amount that exceeds the underfunding disclosed in our consolidated financial statements. In addition, because our U.S. pension plan has unfunded obligations, if we have a substantial cessation of operations at a U.S. facility and, as a result of such cessation of operations an event under ERISA Section 4062(e) is triggered, additional liabilities that exceed the amounts disclosed in our consolidated financial statements could arise, including an obligation for us to provide additional contributions or alternative security for a period of time after such an event occurs. Any such action could have a material adverse effect on our business, financial condition, and results of operations.

Changes in accounting standards and subjective assumptions, estimates, and judgments by management related to complex accounting matters could significantly affect our financial results or financial condition.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, such as revenue recognition, asset impairment, impairment of goodwill and other intangible assets, inventories, lease obligations, self-insurance, tax matters, and litigation, are highly complex and involve many subjective assumptions, estimates, and judgments. Changes in these rules or their interpretation or changes in underlying assumptions, estimates, or judgments could significantly change our reported results.

Risks Relating to our Indebtedness

Our indebtedness could adversely affect our financial flexibility and our competitive position.

We are a highly leveraged company. As of March 26, 2016, we had $1,246.1 million of term loans outstanding under the Term Loan Facility and no revolving borrowings outstanding under the ABL Facility. After giving effect to $35.8 million of letters of credit outstanding under the ABL Facility, we had $172.9 million available for borrowing under the ABL Facility. As of March 26, 2016, we had no borrowings outstanding under the Australian Senior Secured Credit Facility and €2.7 million ($3.0 million) in borrowings outstanding under the Euro Revolving Facility. Based on the amount of indebtedness outstanding on March 26, 2016, the interest rates in effect on such date and assuming that all of the hedging agreements described in “Description of Certain Indebtedness—Interest Rate Swaps” were in effect on January 1, 2016, we estimate our 2016 cash interest expense would be approximately $76.5 million.

Our level of indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness and could have other material consequences, including:

 

    limiting our ability to obtain financing in the future for working capital, capital expenditures, acquisitions, debt service, or other general corporate purposes;

 

    requiring us to use a substantial portion of our available cash flow to service our debt, which will reduce the amount of cash flow available for working capital, capital expenditures, acquisitions, and other general corporate purposes;

 

    increasing our vulnerability to general economic downturns and adverse industry conditions;

 

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    limiting our flexibility in planning for, or reacting to, changes in our business and in our industry in general;

 

    limiting our ability to invest in and develop new products;

 

    placing us at a competitive disadvantage compared to our competitors that are not as highly leveraged, as we may be less capable of responding to adverse economic conditions, general economic downturns, and adverse industry conditions;

 

    restricting the way we conduct our business because of financial and operating covenants in the agreements governing our existing and future indebtedness;

 

    increasing the risk of our failing to satisfy our obligations with respect to borrowings outstanding under our Credit Facilities and/or being able to comply with the financial and operating covenants contained in our debt instruments, which could result in an event of default under the credit agreements governing our Credit Facilities and the agreements governing our other debt that, if not cured or waived, could have a material adverse effect on our business, financial condition, and results of operations; and

 

    increasing our cost of borrowing.

The credit agreements governing our Credit Facilities impose significant operating and financial restrictions on us that may prevent us from capitalizing on business opportunities.

The credit agreements governing our Credit Facilities impose significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:

 

    incur additional indebtedness;

 

    make certain loans or investments or restricted payments, including dividends to our stockholders;

 

    repurchase or redeem capital stock;

 

    engage in transactions with affiliates;

 

    sell certain assets (including stock of subsidiaries) or merge with or into other companies;

 

    guarantee indebtedness; and

 

    create or incur liens.

Under the terms of the ABL Facility, we will at times be required to comply with a specified fixed charge coverage ratio when the amount of certain unrestricted cash balances of the U.S. and Canadian loan parties plus the amount available for borrowing by the U.S. borrowers and Canadian borrowers is less than a specified amount. The Australian Senior Secured Credit Facility and the Euro Revolving Facility also contain financial maintenance covenants. Our ability to meet the specified covenants could be affected by events beyond our control, and our failure to meet these covenants will result in an event of default as defined in the applicable facility.

In addition, our ability to borrow under the ABL Facility is limited by the amount of the borrowing base applicable to U.S. dollar and Canadian dollar borrowings. Any negative impact on the elements of our borrowing base, such as eligible accounts receivable and inventory, will reduce our borrowing capacity under the ABL Facility. Moreover, the ABL Facility provides discretion to the agent bank acting on behalf of the lenders to impose additional requirements on what accounts receivable and inventory may be counted towards the borrowing base availability and to impose other reserves, which could materially impair the amount of borrowings that would otherwise be available to us. There can be no assurance that the agent bank will not impose such reserves or, were it to do so, that the resulting impact of this action would not materially and adversely impair our liquidity.

 

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As a result of these covenants and restrictions, we are limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities or engage in other activities that may be in our long-term best interests. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, we may be unable to obtain waivers from the lenders or amend the covenants.

Our failure to comply with the credit agreements governing our Credit Facilities, including as a result of events beyond our control, could trigger events of default and acceleration of our indebtedness. Defaults under our debt agreements could have a material adverse effect on our business, financial condition, and results of operations.

If there were an event of default under the credit agreements governing our Credit Facilities, or other indebtedness that we may incur, the holders of the defaulted indebtedness could cause all amounts outstanding with respect to that indebtedness to be immediately due and payable. It is likely that our cash flows would not be sufficient to fully repay borrowings under our Credit Facilities, if accelerated upon an event of default. If we are unable to repay, refinance, or restructure our secured debt, the holders of such indebtedness may proceed against the collateral securing that indebtedness.

Furthermore, any event of default or declaration of acceleration under one debt instrument may also result in an event of default under one or more of our other debt instruments. In exacerbated or prolonged circumstances, one or more of these events could result in our bankruptcy or liquidation. Accordingly, any default by us on our debt could have a material adverse effect on our business, financial condition, and results of operations.

We require a significant amount of liquidity to fund our operations, and borrowing has increased our vulnerability to negative unforeseen events.

Our liquidity needs vary throughout the year. If our business experiences materially negative unforeseen events, we may be unable to generate sufficient cash flow from operations to fund our needs or maintain sufficient liquidity to operate and remain in compliance with our debt covenants, which could result in reduced or delayed purchases of raw materials, planned capital expenditures and other investments and adversely affect our financial condition or results of operations. Our ability to borrow under the ABL Facility may be limited due to decreases in the borrowing base as described above.

Despite our current debt levels, we may incur substantially more indebtedness. This could further exacerbate the risks associated with our substantial leverage.

We may incur substantial additional indebtedness in the future. Although the covenants under the credit agreements governing our Credit Facilities provide certain restrictions on our ability to incur additional debt, the terms of such credit agreements permit us to incur significant additional indebtedness. To the extent that we incur additional indebtedness, the risk associated with our substantial indebtedness described above, including our possible inability to service our indebtedness, will increase.

Risks Related to this Offering and Ownership of Our Common Stock

There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity to sell our common stock at prices equal to or greater than the price you paid in this offering.

Prior to this offering, there has not been a public market for our common stock. Although we intend to apply to list our common stock on the                                 , if an active trading market for our common stock does not develop following this offering, you may not be able to sell your shares quickly or above the initial public offering price. The initial public offering price for the shares will be determined by negotiations between us and representatives of the underwriters and may not be indicative of prices that will prevail in the trading market, and the value of our common stock may decrease from the initial public offering price.

 

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The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the initial public offering price.

The trading price of our common stock could be volatile, and you can lose all or part of your investment. The following factors, in addition to other factors described in this “Risk Factors” section and elsewhere in this prospectus, may have a significant impact on the market price of our common stock:

 

    negative trends in global economic conditions and/or activity levels in our end markets;

 

    increases in interest rates used to finance home construction and improvements;

 

    our ability to compete effectively against our competitors;

 

    changes in consumer needs, expectations, or trends;

 

    our ability to maintain our relationships with key customers;

 

    our ability to implement our business strategy;

 

    our ability to complete and integrate new acquisitions;

 

    variations in the prices of raw materials used to manufacture our products;

 

    adverse changes in building codes and standards or governmental regulations applicable to general business operations;

 

    product liability claims or product recalls;

 

    any legal actions in which we may become involved, including disputes relating to our intellectual property;

 

    our ability to recruit and retain highly skilled staff;

 

    actual or anticipated fluctuations in our quarterly or annual operating results;

 

    trading volume of our common stock;

 

    sales of our common stock by us, our executive officers and directors, or our stockholders (including certain affiliates of Onex) in the future; and

 

    general economic and market conditions and overall fluctuations in the U.S. equity markets.

In addition, broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance, and factors beyond our control may cause our stock price to decline rapidly and unexpectedly. Furthermore, the stock market has experienced extreme volatility that, in some cases, has been unrelated or disproportionate to the operating performance of particular companies.

We may be subject to securities litigation, which is expensive and could divert management attention.

Our share price may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations. Any adverse determination in litigation could also subject us to significant liabilities.

Because Onex controls the majority of our common stock, it may control all major corporate decisions and its interests may conflict with the interests of other holders of our common stock.

Upon completion of this offering, Onex will beneficially own approximately              shares of our common stock representing     % of our outstanding common stock (or     % if the underwriters exercise their option to purchase additional shares in full). Accordingly, for so long as Onex continues to hold the majority of our

 

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common stock, Onex will be able to influence or control matters requiring approval by our stockholders and/or our board of directors, including the election of directors and the approval of business combinations or dispositions and other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. The concentration of ownership may have the effect of delaying, preventing, or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and may materially and adversely affect the market price of our common stock. In addition, Onex may in the future own businesses that directly compete with ours. See “Prospectus Summary—Our Sponsor” and “Certain Relationships and Related Party Transactions”.

Our directors who have relationships with Onex may have conflicts of interest with respect to matters involving our Company.

Following this offering, two of our eleven directors will be affiliated with Onex. These persons will have fiduciary duties to both us and Onex. As a result, they may have real or apparent conflicts of interest on matters affecting both us and Onex, which in some circumstances may have interests adverse to ours. Onex is in the business of making or advising on investments in companies and may hold, and may from time to time in the future acquire, interests in, or provide advice to, businesses that directly or indirectly compete with certain portions of our business or that are suppliers or customers of ours. In addition, as a result of Onex’ ownership interest, conflicts of interest could arise with respect to transactions involving business dealings between us and Onex including potential acquisitions of businesses or properties, the issuance of additional securities, the payment of dividends by us, and other matters.

In addition, as described below under “Description of Capital Stock”, our amended and restated certificate of incorporation will provide that the doctrine of “corporate opportunity” will not apply with respect to us, to Onex or certain related parties or any of our directors who are employees of Onex or its affiliates in a manner that would prohibit them from investing in competing businesses or doing business with our customers. To the extent they invest in such other businesses, Onex may have differing interests than our other stockholders.

We are a “controlled company” within the meaning of the rules of the                      and, as a result, will qualify for, and may rely on, exemptions from certain corporate governance requirements.

Following the consummation of this offering, we expect that Onex will continue to own the majority of our outstanding common stock. As a result, we expect to be a “controlled company” within the meaning of the              corporate governance standards. A company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” within the meaning of the rules of the              and may elect not to comply with certain corporate governance requirements of the                     , including:

 

    the requirement that a majority of our board consist of independent directors;

 

    the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

 

    the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

    the requirement for an annual performance evaluation of the nominating and corporate governance committee and compensation committee.

Following this offering, we intend to rely on all of the exemptions listed above. Accordingly, we will not have a majority of independent directors and our nominating and corporate governance and compensation committees will not consist entirely of independent directors. The independence standards are intended to ensure that directors who meet those standards are free of any conflicting interest that could influence their actions as directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the                     .

 

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In addition, on June 20, 2012, the SEC adopted Rule 10C-1 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, to implement provisions of the Dodd-Frank Act pertaining to compensation committee independence and the role and disclosure of compensation consultants and other advisers to the compensation committee. The national securities exchanges have since adopted amendments to their existing listing standards to comply with provisions of Rule 10C-1, and on January 11, 2013, the SEC approved such amendments. The amended listing standards require, among others, that

 

    compensation committees be composed of fully independent directors, as determined pursuant to new and existing independence requirements;

 

    compensation committees be explicitly charged with hiring and overseeing compensation consultants, legal counsel and other committee advisers; and

 

    compensation committees are required to consider, when engaging compensation consultants, legal counsel or other advisers, certain independence factors, including factors that examine the relationship between the consultant or adviser’s employer and us.

As a “controlled company”, we will not be subject to these compensation committee independence requirements.

The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the                     , may strain our resources, increase our costs and distract management, and we may be unable to comply with these requirements in a timely or cost-effective manner.

As a public company, we will be subject to the reporting requirements of the Exchange Act and the corporate governance standards of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and the              and SEC rules and requirements. As a result, we will incur significant legal, regulatory, accounting, investor relations, and other costs that we did not incur as a private company. These requirements may also place a strain on our management, systems, and resources. The Exchange Act requires us to file annual, quarterly, and current reports with respect to our business and financial condition within specified time periods and to prepare proxy statements with respect to our annual meeting of shareholders. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. The              will require that we comply with various corporate governance requirements. To maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting and comply with the Exchange Act and              requirements, significant resources and management oversight will be required. As a public company we will be required to:

 

    create or expand the roles and duties of our board of directors and committees of the board;

 

    institute more formal comprehensive financial reporting and disclosure compliance functions;

 

    supplement our internal accounting and auditing function;

 

    enhance and formalize closing procedures for our accounting periods;

 

    enhance our investor relation function;

 

    establish new or enhanced internal policies, including those relating to disclosure controls and procedures; and

 

    involve and retain to a greater degree outside counsel and accountants in the activities listed above.

These activities may divert management’s attention from revenue producing activities to management and administrative oversight. Any of the foregoing could have a material adverse effect on us and the price of our common stock. In addition, failure to comply with any laws or regulations applicable to us as a public company may result in legal proceedings and/or regulatory investigations.

 

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Material weaknesses in our internal control over financial reporting or our failure to remediate such material weaknesses could result in a violation of Section 404 of the Sarbanes-Oxley Act, or in a material misstatement in our financial statements not being prevented or detected, and could affect investor confidence in the accuracy and completeness of our financial statements, as well as our common stock price.

After this offering, we will be required to comply with Section 404 of the Sarbanes-Oxley Act. Though we will be required to disclose changes made in our internal control over financial reporting on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act (including an auditor attestation on management’s internal controls report) until our second annual report on Form 10-K is filed with the SEC. If we fail to abide by the requirements of Section 404 at the time of our second annual report on Form 10-K, regulatory authorities, such as the SEC, might subject us to sanctions or investigation, and our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal control over financial reporting pursuant to an audit of our controls. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Accordingly, our internal control over financial reporting may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud.

During the preparation of the December 31, 2015 financial statements, we identified material weaknesses in our internal control over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Management determined that it failed to resource the tax department with the appropriate complement of people, skills, and training to adequately perform the controls in place as intended by their design. As a result of these staffing and training issues, we (i) did not operate controls to monitor the accuracy of income tax expense and related balance sheet accounts, including deferred income taxes, and (ii) failed to operate controls to monitor the presentation and disclosure of income taxes. As a result of these material weaknesses, we failed to identify potential misstatements in the calculation of income tax expense and deferred income taxes and the classification of income tax balances as well as support figures included within the income tax disclosures. While the failures did not result in a restatement, management determined that the ineffective controls over income tax accounting constituted material weaknesses and has begun the remediation process.

While we continue to address these material weaknesses and to strengthen our overall internal control over financial reporting, we may discover other material weaknesses going forward that could result in inaccurate reporting of our financial condition or results of operations. In addition, neither our management nor any independent registered public accounting firm has ever performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required. Had we or our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified. Inadequate internal control over financial reporting may cause investors to lose confidence in our reported financial information. Any loss of confidence in the reliability of our financial statements or other negative reaction to our failure to develop timely or adequate disclosure controls and procedures or internal controls could result in a decline in the price of our common stock and may restrict access to the capital markets and may adversely affect the price of our common stock.

Investors purchasing common stock in this offering will experience immediate and substantial dilution.

If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution in the book value of your stock, because the price that you pay will be substantially greater than the net tangible book value per share of the shares you acquire. As a result, you will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. The net tangible deficit per share, calculated as of March 26, 2016 and after giving effect to the offering (assuming an initial public offering

 

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price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus), is $         . Accordingly, investors purchasing common stock in this offering will experience immediate and substantial dilution of $         per share. In addition, we have outstanding options to acquire common stock at prices significantly below the initial public offering price, and when these outstanding options are ultimately exercised, there will be further dilution to investors in this offering. In addition, if the underwriters exercise their option to purchase additional shares, or if we issue additional equity securities in the future, investors purchasing common stock in this offering will experience additional dilution. As a result of this dilution, investors purchasing stock in this offering may receive significantly less than the purchase price paid in this offering in the event of liquidation. For more information, see “Dilution”.

Sales, or the potential sales, of shares of our common stock in the public market by us or our existing stockholders could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market after this offering could materially adversely affect the prevailing market price of our common stock. Upon completion of this offering, we will have              shares of common stock outstanding. Of these securities, the              shares of common stock offered pursuant to this offering will be freely tradable without restriction or further registration under federal securities laws, except to the extent shares are purchased in the offering by our affiliates. The              shares of common stock owned by our officers, directors, and affiliates, as that term is defined in the Securities Act of 1933, as amended, or the Securities Act, are “restricted securities” under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available.

In connection with this offering, we, each of our directors and executive officers, and Onex have entered into lock-up agreements that prevent the sale of shares of our common stock for up to 180 days after the date of this prospectus, subject to waiver by Barclays Capital Inc. and Citigroup Global Markets Inc. Following the expiration of the lock-up period, Onex will have the right, subject to certain conditions, to require us to register the sale of these shares under the federal securities laws. If this right is exercised, holders of all shares subject to a registration rights agreement will be entitled to participate in such registration. By exercising their registration rights, and selling a large number of shares, these holders could cause the prevailing market price of our common stock to decline. Approximately              shares of our common stock will be subject to a registration rights agreement upon completion of this offering. See “Shares Eligible For Future Sale”. In addition, shares issued or issuable upon exercise of options will be eligible for sale from time to time.

If a trading market develops for our common stock, our employees, officers, and directors may elect to sell shares of our common stock in the market. Sales of a substantial number of shares of our common stock in the public market after this offering could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

The ESOP was designed as a tax-qualified retirement plan and employee stock ownership plan under the Code. Under this plan, participants whose employment with us or our subsidiaries is terminated are entitled to receive distributions of accounts held under the ESOP at specified times and in specified forms. In order to fund cash distributions, the ESOP may sell shares of our common stock from time to time. In the years ended December 31, 2015, 2014, and 2013, the ESOP sold approximately $12.1 million, $14.8 million, and $16.1 million, respectively, of our common stock to fund required distributions.

In the future, we may issue securities to raise cash for acquisitions or otherwise. We may also acquire interests in other companies by using a combination of cash and our common stock or just our common stock. We may also issue securities convertible into our common stock. Any of these events may dilute your ownership interest in our company and have an adverse impact on the price of our common stock.

 

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Our management will have broad discretion in the use of the net proceeds from this offering and may allocate the net proceeds from this offering in ways that you and other stockholders may not approve.

Our management will have broad discretion in the use of the net proceeds, including for any of the purposes described in the section entitled “Use of Proceeds”, and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. We intend to use the net proceeds from this offering for general corporate purposes. We may fail to use these funds effectively to yield a significant return, or any return, on any investment of these net proceeds and we cannot assure you that the proceeds will be used in a manner which you and the other investors in this offering would approve. Pending their use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing instruments and U.S. government securities. These investments may not yield a favorable return to our stockholders.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our stock, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. We do not have any control over these analysts and we cannot provide any assurance that analysts will cover us or provide favorable coverage. If any of the analysts who may cover us adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price could decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Because we do not intend to declare cash dividends on our shares of common stock in the foreseeable future, stockholders must rely on appreciation of the value of our common stock for any return on their investment.

We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. In addition, the terms of our Credit Facilities and any future debt agreements may preclude us from paying dividends. As a result, we expect that only appreciation of the price of our common stock, if any, will provide a return to investors in this offering for the foreseeable future.

We will be required to pay our Pre-IPO Stockholders for certain tax benefits to the extent realized by us (or deemed realized by us in the case of a change of control, certain divestitures or certain other events), which amounts are expected to be material and, in some instances, may exceed, and/or be payable in advance of, the tax benefits actually realized by us.

We will enter into a Tax Receivable Agreement with our Pre-IPO Stockholders that will provide for the payment by us to our Pre-IPO Stockholders of 85% of the amount of cash savings, if any, in U.S. federal, state and local and non-U.S. income tax that we and our subsidiaries realize, or in certain circumstances are deemed to realize, as a result of (i) the utilization of certain of our and our subsidiaries’ tax attributes, generally including net operating and capital losses and certain other tax attributes generated in periods prior to this offering, including alternative minimum tax credit carryforwards and research and development credits, or the “Existing Tax Attributes”, and (ii) certain tax benefits attributable to payments made under the Tax Receivable Agreement.

The payment obligations under the Tax Receivable Agreement are our obligations and not obligations of any of our subsidiaries, except that non-U.S. subsidiaries that utilize Existing Tax Attributes will be required to make payments under the Tax Receivable Agreement. The timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors, including the amount, character and timing of our and

 

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our subsidiaries’ taxable income in the future, and our and our subsidiaries’ utilization of the Existing Tax Attributes. Limitations to the use of the Existing Tax Attributes may apply, including, for example, limitations on the use of net operating losses under Section 382 of the Code.

We expect that the payments we will be required to make under the Tax Receivable Agreement will be material. Assuming no material changes in the relevant tax law, no changes to current limitations on our ability to utilize our net operating losses under Section 382 of the Code, and that we and our subsidiaries earn sufficient income to actually realize the full tax benefits subject to the Tax Receivable Agreement, we expect that future payments under the Tax Receivable Agreement will be approximately $         in the aggregate.

A foreign subsidiary may pay a dividend to us in order to fund amounts owed under the Tax Receivable Agreement. Dividends that we receive from a subsidiary that is not a member of our consolidated group for U.S. federal income tax purposes may be taxable to us. In addition, certain transactions could cause us to recognize taxable income (possibly material amounts of income) without a current receipt of cash. Payments under the Tax Receivable Agreement arising from the use of Existing Tax Attributes to offset such taxable income would cause a net reduction in our available cash. For example, transactions giving rise to cancellation of debt income, the accrual of income from original issue discount or deferred payments, a “triggering event” requiring the recapture of dual consolidated losses, or “Subpart F” income would each produce income with no corresponding increase in cash. In these cases, we may use some of the Existing Tax Attributes to offset income from these transactions and, under the Tax Receivable Agreement, would be required to make a payment to our Pre-IPO Stockholders even though we receive no cash from such income.

In addition, the Tax Receivable Agreement provides that upon certain mergers, stock and asset sales, other forms of business combinations or other changes of control subsequent to this offering, the Tax Receivable Agreement will terminate and we will be required to make a payment equal to the present value (at a discount rate of LIBOR plus 1.00%) of anticipated future payments under the Tax Receivable Agreement, which payment would be based on certain assumptions, including those relating to our and our subsidiaries’ future taxable income, and may therefore significantly exceed the actual tax benefits we ultimately realize from our Existing Tax Attributes and those of our subsidiaries. We will have a similar obligation to make a present value accelerated payment based on certain assumptions if we dispose of certain subsidiaries, if we breach any of our material obligations under the Tax Receivable Agreement, or in certain cases, if we substantially utilize our applicable U.S. federal net operating losses, each of which also may result in a payment significantly in excess of the actual tax benefits we ultimately realize from our Existing Tax Attributes and those of our subsidiaries. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity and could have the effect of delaying, deferring or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. Furthermore, our future obligation to make payments under the Tax Receivable Agreement could make us a less attractive target for an acquisition, particularly in the case of an acquirer that cannot use some or all of our Existing Tax Attributes. Additionally, under the terms of the Tax Receivable Agreement, a Pre-IPO Stockholder may be permitted to assign its rights under the agreement without our consent, in which case we may be required to deal with an unrelated counterparty under the agreement.

The Pre-IPO Stockholders will not reimburse us for any payments previously made under the Tax Receivable Agreement if the benefits of any Existing Tax Attributes are subsequently disallowed (although future payments, if any, would be adjusted to the extent possible to reflect the result of such disallowance). As a result, in certain circumstances, payments could be made under the Tax Receivable Agreement in excess of our cash tax savings. To the extent that we are unable to make timely payments under the Tax Receivable Agreement without violating the covenants in our outstanding indebtedness, such payments will be deferred and will accrue interest at a rate of LIBOR plus 3.00% per annum until paid. We will agree under the Tax Receivable Agreement not to incur, and not to permit any of our subsidiaries to incur, any new restrictions that would limit our ability to make payments under such agreement or the ability of our subsidiaries to make payments to us for that purpose. This restriction could make it more difficult or costly for us to refinance our outstanding indebtedness.

 

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While we have performed an analysis under Section 382 of the Code that indicates that this offering and the related transactions should not constitute an “ownership change” as defined in Section 382 of the Code, the technical guidelines in this area are complex and subject to significant judgment and interpretation and the IRS may disagree with our conclusion. With this offering, the related Share Recapitalization, and other transactions affecting the ownership of our stock (of which we may not be aware) that have occurred over the past three years, we may have already triggered an “ownership change” that would result in a limitation on our ability to use the pre-change net operating loss carryforwards to offset U.S. federal taxable income. If that were the case, payments could be made under the Tax Receivable Agreement in excess of our cash tax savings.

If we did not enter into the Tax Receivable Agreement, we would be entitled to realize the full economic benefit of the Existing Tax Attributes, to the extent allowed by Section 382 of the Code. The Tax Receivable Agreement is designed with the objective of causing our annual cash costs attributable to federal income taxes (without regard to our continuing 15% interest in the Existing Tax Attributes) to be the same as we would have paid had we not had the Existing Tax Attributes available to offset our federal taxable income. As a result, stockholders purchasing shares in this offering will not be entitled to the economic benefit of the Existing Tax Attributes that would have been available if the Tax Receivable Agreement were not in effect (except to the extent of our continuing 15% interest in the Existing Tax Attributes).

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Certain Relationships and Related Party Transactions—Tax Receivable Agreement.”

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our amended and restated certificate of incorporation and our amended and restated bylaws that will become effective following the closing of this offering, as well as provisions of the Delaware General Corporation Law, or DGCL, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in which stockholders might otherwise receive a premium for their shares. Among other things, our amended and restated certificate of incorporation and amended and restated bylaws:

 

 

    divide our board of directors into three classes with staggered three-year terms;

 

    limit the ability of stockholders to remove directors only “for cause” if Onex ceases to own more than 50% of the voting power of all our outstanding common stock;

 

    provide that our board of directors is expressly authorized to adopt, alter, or repeal our bylaws;

 

    authorize the issuance of blank check preferred stock that our board of directors could issue to increase the number of outstanding shares and to discourage a takeover attempt;

 

    prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders, if Onex ceases to own more than 50% of the voting power of all our outstanding common stock;

 

    prohibit our stockholders from calling a special meeting of stockholders if Onex ceases to own more than 50% of the voting power of all our outstanding common stock;

 

    establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings; and

 

    require the approval of holders of at least two-thirds of the outstanding shares of common stock to amend our bylaws and certain provisions of our certificate of incorporation if Onex ceases to own more than 50% of the voting power of all our outstanding common stock.

 

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In addition, until Onex no longer owns more than 50% of the voting power of our capital stock, we expect to opt out of Section 203 of the DGCL, which, subject to some exceptions, prohibits business combinations between a Delaware corporation and an interested stockholder, which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that the stockholder became an interested stockholder. After such time, we will be governed by Section 203. Section 203 could have the effect of delaying, deferring or preventing a change in control that our stockholders might consider to be in their best interests. See “Description of Capital Stock”.

These anti-takeover defenses could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take corporate actions other than those you desire.

Our amended and restated certificate of incorporation will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our amended and restated certificate of incorporation will provide, subject to limited exceptions, unless we consent to an alternative forum, that the Court of Chancery of the State of Delaware shall be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the DGCL, our amended and restated certificate of incorporation or our amended and restated bylaws; or any action asserting a claim against us that is governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

Because we are a holding company with no operations of our own, we rely on dividends, distributions, and transfers of funds from our subsidiaries and we could be harmed if such distributions were not made in the future.

We are a holding company that conducts all of our operations through subsidiaries and the majority of our operating income is derived from our subsidiary JWI, our main operating subsidiary. Consequently, we rely on dividends or advances from our subsidiaries. We do not currently expect to declare or pay dividends on our common stock for the foreseeable future; however, to the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends. The ability of such subsidiaries to pay dividends to us is subject to applicable local law and may be limited due to terms of other contractual arrangements, including our indebtedness. Such laws and restrictions would restrict our ability to continue operations. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “might”, “plan”, “potential”, “predict”, “seek”, or “should”, or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, including growth of our various markets, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance contained in this prospectus under the headings “Prospectus Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and “Business” 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 in this prospectus under the headings “Prospectus Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and “Business”, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

 

    negative trends in overall business, financial market and economic conditions, and/or activity levels in our end markets;

 

    our highly competitive business environment;

 

    failure to timely identify or effectively respond to consumer needs, expectations or trends;

 

    failure to maintain the performance, reliability, quality, and service standards required by our customers;

 

    failure to implement our strategic initiatives;

 

    acquisitions or investments in other businesses that may not be successful;

 

    declines in our relationships with and/or consolidation of our key customers;

 

    increases in interest rates and reduced availability of financing for the purchase of new homes and home construction and improvements;

 

    fluctuations in the prices of raw materials used to manufacture our products;

 

    delays or interruptions in the delivery of raw materials or finished goods;

 

    seasonal business and varying revenue and profit;

 

    changes in weather patterns;

 

    political, economic, and other risks that arise from operating a multinational business;

 

    exchange rate fluctuations;

 

    disruptions in our operations;

 

    manufacturing realignments and cost savings programs resulting in a decrease in short-term earnings;

 

    our new Enterprise Resource Planning system that we anticipate implementing in the future proving ineffective;

 

    security breaches and other cyber security incidents;

 

    increases in labor costs, potential labor disputes, and work stoppages at our facilities;

 

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    changes in building codes that could increase the cost of our products or lower the demand for our windows and doors;

 

    compliance costs and liabilities under environmental, health, and safety laws and regulations;

 

    compliance costs with respect to legislative and regulatory proposals to restrict emission of greenhouse gasses;

 

    lack of transparency, threat of fraud, public sector corruption, and other forms of criminal activity involving government officials;

 

    product liability claims, product recalls, or warranty claims;

 

    inability to protect our intellectual property;

 

    loss of key officers or employees;

 

    underfunded pension plan obligations;

 

    our current level of indebtedness;

 

    risks associated with the material weakness that has been identified;

 

    Onex’ control of us; and

 

    other risks and uncertainties, including those listed under “Risk Factors”.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this prospectus are not guarantees of future performance and our actual results of operations, financial condition, and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this prospectus. 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 prospectus, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this prospectus speaks only as of the date of such statement. 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, after the date of this prospectus.

 

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USE OF PROCEEDS

We estimate that the net proceeds to us from our sale of                      shares of common stock in this offering will be approximately $         million, based on the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares of common stock from us is exercised in full, we estimate that we will receive additional net proceeds of approximately $         million.

The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock, and enable access to the public equity markets for us and our stockholders. We intend to use the net proceeds that we receive from this offering for working capital and other general corporate purposes, including sales and marketing activities, general and administrative matters, and capital expenditures. We may also use a portion of the net proceeds to invest in or acquire complementary businesses, products, services, technologies, or other assets.

We currently have no specific plans for the use of the net proceeds that we receive from this offering. Accordingly, we will have broad discretion in using these proceeds. Pending their use as described above, we plan to invest the net proceeds in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit, or direct or guaranteed obligations of the U.S. government.

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $         million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares of common stock sold in this offering, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $         million, assuming an initial public offering price of $         per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. The information discussed above is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

 

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DIVIDEND POLICY

On or about July 31, 2015, we paid an aggregate cash dividend of approximately $84.0 million to holders of record of our common stock and an aggregate cash dividend of approximately $335.2 million to holders of record of our Series A Convertible Preferred Stock, who received payment for preferred dividends accrued from January 1, 2015 through July 31, 2015 as well as a dividend on an as-if-converted-to-common basis based on the original principal amount of the Series A Convertible Preferred Stock investment plus preferred dividends accrued through December 31, 2014. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Lines of Credit and Long-Term Debt—Corporate Credit Facilities” for a discussion of these dividends and other payments made on that date. We have not declared or paid any other cash dividend on our common stock and we do not currently expect to pay any further cash dividends on our common stock for the foreseeable future. Instead, we intend to retain future earnings, if any, for the future operation and expansion of our business and the repayment of debt. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon our results of operations, cash requirements, financial condition, contractual restrictions, restrictions imposed by applicable laws and other factors that our board of directors may deem relevant.

The terms of our Corporate Credit Facilities were amended to permit the cash dividend described above, but the covenants of our existing or future indebtedness may limit our ability to further pay dividends and make distributions to our stockholders. Our business is conducted through our subsidiaries, and dividends from, and cash generated by, our subsidiaries will be our principal sources of cash to repay indebtedness, fund operations and pay any dividends. Accordingly, our ability to pay dividends to our stockholders is dependent on the earnings and distributions of funds from our subsidiaries. See “Description of Certain Indebtedness”.

 

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CAPITALIZATION

The following table sets forth our cash and our consolidated capitalization as of March 26, 2016:

 

    on an actual basis;

 

    on a pro forma basis giving effect to the Share Recapitalization; and

 

    on a pro forma basis as adjusted to give effect to (1) the Share Recapitalization and (2) our issuance and sale of              shares of our common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

You should read the data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and accompanying notes included elsewhere in this prospectus.

 

     As of March 26, 2016  
          Actual           Pro Forma      Pro Forma
  As Adjusted(1)  
 
     (dollars in this table and the footnotes below
in thousands, except share and per share data)
 

Cash and cash equivalents

   $ 43,224       $                    $                
  

 

 

    

 

 

    

 

 

 

Debt:

        

Revolving Credit Facility due 2019

   $ —         $         $     

Euro Revolving Facility due 2019

     2,972         

Australian Senior Secured Credit Facility due 2019

     —           

Initial Term Loans due 2021

     761,115         

Incremental Term Loans due 2022

     476,657         

Other items(2)

     21,543         
  

 

 

    

 

 

    

 

 

 

Total debt

   $ 1,262,287       $         $     

Series A Convertible Preferred Stock, no par value per share; 8,749,999 shares authorized, 3,974,525 shares issued and outstanding actual, 0 shares issued and outstanding pro forma and pro forma as adjusted

     481,937         

Stockholders’ equity(3):

        

Common Stock, no par value per share; 22,379,800 shares authorized, 1,620,850 shares issued and outstanding actual,                  shares issued and outstanding pro forma and                  shares issued and outstanding pro forma as adjusted

     58,249         

Class B-1 Common Stock, no par value per share; 430,200 shares authorized, 7,506 shares issued and outstanding actual, 0 shares issued and outstanding pro forma and pro forma as adjusted

     32,852         

Series B Preferred Stock, no par value per share; 1 share authorized, 1 share issued and outstanding actual, 0 shares issued and outstanding pro forma and pro forma as adjusted

     —           

Additional paid-in capital

     —           

(Accumulated deficit) retained earnings

     (148,613      

Accumulated other comprehensive loss

     (151,326      
  

 

 

    

 

 

    

 

 

 

Total stockholders’ deficit

     (208,838      
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 1,535,386       $         $     
  

 

 

    

 

 

    

 

 

 

 

(1)

Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid-in-capital, total stockholders’ equity and total capitalization by approximately $         million, assuming

 

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  the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares of common stock sold in this offering, as set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, additional paid-in-capital, total stockholders’ equity, and total capitalization by approximately $         million, assuming an initial public offering price of $         per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 

(2) Consists of other debt of $39,084 and unamortized debt costs of $(17,541).

 

(3) The description of our outstanding Series A Convertible Preferred Stock does not give effect to the reclassification of our Series A Convertible Preferred Stock into four separate classes in connection with our conversion from an Oregon corporation into a Delaware corporation, which occurred on May 31, 2016.

 

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DILUTION

If you purchase any of the shares of common stock offered by this prospectus, you will experience dilution to the extent of the difference between the offering price per share of common stock that you pay in this offering and the net tangible book value per share of our common stock immediately after this offering.

Our net tangible book value (deficit) as of March 26, 2016 was $         , or $         per share of common stock. Net tangible book value (deficit) per share is determined by dividing our net tangible book value (deficit), which is total tangible assets less total liabilities, by the aggregate number of shares of common stock outstanding. Tangible assets represent total assets excluding goodwill and other intangible assets. Dilution in net tangible book value (deficit) per share represents the difference between the amount per share paid by purchasers of shares of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock immediately afterwards.

After giving effect to (i) the Share Recapitalization and (ii) our sale of              shares of common stock in this offering at an assumed initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, our pro forma as adjusted net tangible book value at March 26, 2016 would have been approximately $             , or $             per share of our common stock. This represents an immediate increase in net tangible book value (deficit) of $             per share to our existing stockholders and an immediate dilution of $             per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution on a per share basis:

The following tables illustrate this dilution on a per share basis:

 

Assumed initial public offering price per share

      $                

Historical net tangible book value (deficit) per share, after the Share Recapitalization

   $                   
  

 

 

    

Increase per share attributable to this offering

     

Pro forma net tangible book value (deficit) per share after this offering

     
     

 

 

 

Dilution per share to new investors

      $     
     

 

 

 

Each $1.00 increase (decrease) in the assumed initial offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, would affect our net tangible book value after this offering by approximately $             , the net tangible book value per share after this offering by $             per share, and the dilution per common share to new investors by $             per share, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting commissions and discounts and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares of common stock sold in this offering, as set forth on the cover page of this prospectus, would affect our net tangible book value after this offering by approximately $        , the net tangible book value per share after this offering by $             per share, and the dilution per share of common stock to new investors by $             per share, assuming an initial public offering price of $             per share, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting commissions and discounts and estimated offering expenses payable by us.

 

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The following table summarizes, as of March 26, 2016, on an as adjusted basis, the number of shares of common stock purchased or to be purchased from us, the total consideration paid or to be paid to us and the average price per share paid or to be paid by existing stockholders (giving effect to the Share Recapitalization and by new investors purchasing shares of common stock in this offering), before deducting the underwriting commissions and discounts and estimated offering expenses payable by us.

 

     Shares Purchased     Total
Consideration
    Average Price
Per Share
 
     (dollars in thousands, except share and per share data)  
     Number    Percent     Amount      Percent        

Existing stockholders

               $                         $             

New investors

               $                          $            
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

Total

        100   $           100   $            
  

 

  

 

 

   

 

 

    

 

 

   

 

 

 

Each $1.00 increase (decrease) in the assumed initial offering price of $             per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $             , $             , and $             per share, respectively, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each increase (decrease) of 1.0 million shares in the number of shares of common stock sold in this offering, as set forth on the cover page of this prospectus, would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and average price per share paid by all stockholders by $            , $            , and $             per share, respectively, assuming an initial public offering price of $             per share of common stock, the midpoint of the price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise in full their option to purchase              additional shares of our common stock in this offering, the as adjusted net tangible book value per share would be $             per share and the dilution to new investors in this offering would be $         per share. If the underwriters exercise such option in full, the number of shares held by new investors will increase to approximately              shares of our common stock, or approximately     % of the total number of shares of our common stock outstanding after this offering. The number of shares of our common stock to be outstanding immediately following this offering set forth above excludes:

 

                 shares of common stock issuable upon the exercise of options outstanding under our existing stock incentive plan as of                     , 2016 at a weighted average exercise price of $             per share; and

 

                 shares of common stock reserved for future issuance under our new omnibus incentive plan.

To the extent any options are granted and exercised in the future, there may be additional economic dilution to new investors.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

 

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SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents selected consolidated financial data for the periods and at the dates indicated. The selected consolidated financial data as of December 31, 2015 and 2014 and for each of the three years ended December 31, 2015 have been derived from our audited consolidated financial statements included in this prospectus. The selected consolidated financial data as of December 31, 2013 has been derived from our audited consolidated financial statements not included in this prospectus. The selected consolidated financial data as of December 31, 2012 and 2011 and the two years ended December 31, 2012 were derived from our unaudited consolidated financial statements not included in this prospectus. In 2014, we changed our method of accounting for inventory from the LIFO method to the FIFO method and retrospectively adjusted prior periods to apply this new method of accounting; however, the years ended December 31, 2012 and 2011 were not reaudited following such adjustment. The selected consolidated financial data as of March 26, 2016 and March 28, 2015 and for each of the three months ended March 26, 2016 and March 28, 2015 have been derived from our unaudited condensed consolidated financial statements included in this prospectus. We have prepared our unaudited condensed consolidated financial statements on the same basis as our audited consolidated financial statements, and our unaudited condensed consolidated financial statements include, in the opinion of management, all adjustments necessary for a fair statement of the operating results and financial condition of the Company for such periods and as of such dates. The results of operations for any interim period are not necessarily indicative of the results that may be expected for the full year. Additionally, our historical results are not necessarily indicative of the results expected for any future period. Since the year ended December 31, 2011, we have completed several acquisitions. The results of these acquired entities are included in our consolidated statements of comprehensive income (loss) for the periods subsequent to the respective acquisition date. The selected historical consolidated financial data set forth below should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto included elsewhere in this prospectus.

For the three months ended June 27, 2015, we early adopted the Financial Accounting Standards Board Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which resulted in the reclassification of unamortized debt issuance costs in our consolidated balance sheets. See Note 1—Summary of Significant Accounting Policies in our financial statements for the year ended December 31, 2015 included elsewhere in this prospectus. All prior periods presented have been adjusted to apply these new accounting standards and policies retrospectively. Certain prior year balances have been reclassified to conform to the current year’s presentation for the items discussed above. Such reclassifications had no material impact on net revenues, operating income (loss), net income (loss), or net cash from operating activities.

 

 

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    Three Months Ended     Year Ended December 31,  
    March 26,
2016
    March 28,
2015
                               
        2015     2014     2013     2012     2011  
    (dollars in thousands, except share and per share data)  

Net revenues

  $ 796,547      $ 736,982      $ 3,381,060      $ 3,507,206      $ 3,456,539      $ 3,167,856      $ 3,174,145   

Cost of sales

    638,424        608,740        2,715,125        2,919,864        2,946,463        2,606,562        2,650,791   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    158,123        128,242        665,935        587,342        510,076        561,294        523,354   

Selling, general and administrative

    131,592        117,971        512,126        488,477        482,088        504,766        528,707   

Impairment and restructuring charges

    2,981        9,969        21,342        38,388        42,004        38,836        56,487   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    23,550        302        132,467        60,477        (14,016     17,692        (61,840

Interest expense, net

    (17,011     (11,156     (60,632     (69,289     (71,362     (59,534     (140,810

Other income (expense)

    724        4,078        14,120        (50,521     12,323        9,519        (3,521
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before taxes, equity earnings (loss) and discontinued operations

    7,263        (6,776     85,955        (59,333     (73,055     (32,323     (206,171

Income tax (expense) benefit

    (2,206     6,149        5,435        (18,942     (1,142     5,488        (21,264
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    5,057        (627     91,390        (78,275     (74,197     (26,835     (227,435

Income (loss) from discontinued operations, net of tax

    514        (168     (2,856     (5,387     (5,863     1,293        (15,603

Gain (loss) on sale of discontinued operations, net of tax

    —          —          —          —          10,711        (241     5,292   

Equity earnings (loss) of non-consolidated entities

    765        7        2,384        (447     943        (957     (572
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 6,336      $ (788   $ 90,918      $ (84,109   $ (68,406   $ (26,740   $ (238,318
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss attributable to common shareholders

  $ (20,070   $ (26,322   $ (290,500   $ (184,143   $ (157,205   $ (99,575   $ (255,386
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding (basic and diluted)(1)

    1,630,623        1,767,393        1,663,273        1,858,187        1,919,445        2,002,051        2,437,759   

Loss from continuing operations per common share (basic and diluted)

  $ (12.62   $ (14.80   $ (172.97   $ (96.21   $ (84.45   $ (50.26   $ (100.52
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends per common share

    —          —        $ 52.00        —          —          —          —     

Other financial data:

             

Capital expenditures

  $ 20,773      $ 13,217      $ 77,687      $ 70,846      $ 85,689      $ 91,884      $ 36,878   

Depreciation and amortization

    25,692        23,037        95,196        100,026        104,650        92,337        124,420   

Adjusted EBITDA(2)

    61,156        45,075        310,986        229,849        153,210        183,361        152,556   

Consolidated balance sheet data:

             

Cash, cash equivalents

  $ 43,224      $ 32,490      $ 113,571      $ 105,542      $ 37,666      $ 41,826      $ 58,988   

Working capital

    324,258        336,973        326,973        316,055        234,171        99,423        210,180   

Total assets

    2,270,456        2,133,259        2,182,373        2,184,059        2,290,897        2,415,036        2,332,486   

Total current liabilities

    543,426        522,362        487,445        524,301        593,938        741,164        578,086   

Total debt

    1,262,287        848,878        1,260,320        806,228        667,152        670,757        624,045   

Redeemable convertible preferred stock

    481,937        817,121        481,937        817,121        817,121        745,478        695,478   

Total stockholders’ (deficit) equity

    (208,838     (259,870     (231,745     (168,826     54,444        96,411        143,303   

Statement of cash flows data:

             

Net cash flow (used in) provided by:

             

Operating activities

  $ (28,197   $ (71,685   $ 172,339      $ 21,788      $ (49,372   $ 77,850      $ (41,342

Investing activities

    (42,001     (12,759     (158,452     (56,738     13,939        (158,486     4,675   

Financing activities

    (777     14,145        (1,072     105,617        34,633        64,436        13,733   

 

(1) Does not give effect to the Share Recapitalization.

 

(2) In addition to our consolidated financial statements presented in accordance with GAAP, we use Adjusted EBITDA to measure our financial performance. Adjusted EBITDA is a supplemental non-GAAP financial measure of operating performance and is not based on any standardized methodology prescribed by GAAP. Adjusted EBITDA should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities, or other measures determined in accordance with GAAP. Also, Adjusted EBITDA is not necessarily comparable to similarly-titled measures presented by other companies. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues.

We define Adjusted EBITDA as net income (loss), as adjusted for the following items: loss (income) from discontinued operations, net of tax; gain (loss) on sale of discontinued operations, net of tax; equity (earnings) loss of non-consolidated entities; income tax (expense) benefit; depreciation and intangible amortization; interest expense, net; impairment and restructuring charges; gain on sale of property and equipment; share-based compensation expense; non-cash foreign exchange transaction/translation income (loss); other non-cash items; other items; and costs related to debt restructuring, debt refinancing, and the Onex Investment. We use this non-GAAP measure in assessing our performance in addition to net income (loss) determined in accordance with GAAP. We believe Adjusted EBITDA is an important measure to be used in evaluating operating performance because it allows management and investors to better evaluate and compare our core operating results from period to period by removing the impact of our capital structure (net interest

 

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income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, other non-operating items, and share-based compensation. Furthermore, the instruments governing our indebtedness use Adjusted EBITDA to measure our compliance with certain limitations and covenants. We reference this non-GAAP financial measure frequently in our decision-making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods. In addition, executive incentive compensation is based in part on Adjusted EBITDA, and we base certain of our forward-looking estimates and budgets on Adjusted EBITDA. We also believe Adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. Other companies may calculate Adjusted EBITDA differently, and, therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

The following is a reconciliation of our net income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA:

 

    Three Months Ended     Year Ended December 31,  
    March 26,
2016
    March 28,
2015
    2015     2014     2013     2012     2011  
    (dollars in this table and the footnotes below in thousands)  

Net income (loss)

  $ 6,336      $ (788   $ 90,918      $ (84,109   $ (68,406   $ (26,740   $ (238,318

Adjustments:

             

Loss (income) from discontinued operations, net of tax

    (514     168        2,856        5,387        5,863        (1,293     15,603   

Gain (loss) on sale of discontinued operations, net of tax

    —          —          —          —          (10,711     241        (5,292

Equity (earnings) loss of non-consolidated entities

    (765     (7     (2,384     447        (943     957        572   

Income tax expense (benefit)

    2,206        (6,149     (5,435     18,942        1,142        (5,488     21,264   

Depreciation and amortization

    25,692        23,037        95,196        100,026        104,650        92,337        124,420   

Interest expense, net

    17,011        11,156        60,632        69,289        71,362        59,534        140,810   

Impairment and restructuring charges(a)

    2,900        10,094        31,031        38,645        44,413        41,402        59,323   

Gain on sale of property and equipment

    (3,644     (23     (416     (23     (3,039     430        (1,465

Share-based compensation expense

    4,685        2,687        15,620        7,968        5,665        7,485        437   

Non-cash foreign exchange transaction/translation (income) loss

    4,983        (3,577     2,697        (528     (4,114     (1,093     4,269   

Other non-cash items(b)

    425        85        1,141        2,334        (68     2,549        17,614   

Other items(c)

    1,830        8,248        18,893        20,278        7,284        7,418        2,804   

Costs relating to debt restructuring, debt refinancing, and the Onex Investment(d)

    11        144        237        51,193        112        5,622        10,515   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 61,156      $ 45,075      $ 310,986      $ 229,849      $ 153,210      $ 183,361      $ 152,556   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Impairment and restructuring charges above include charges of $(81), $124, $9,687, $257, $2,409, $2,565, and $1,469 relating to inventory and/or the manufacturing of our products that are included in cost of sales in the three months ended March 26, 2016 and March 28, 2015 and years ended December 31, 2015, 2014, 2013, 2012, and 2011, respectively. See Note 25—Impairment and Restructuring Charges in our financial statements for the year ended December 31, 2015 included elsewhere in this prospectus.

 

  (b) Other non-cash items include, among other things, charges relating to inventory of $357, $0, $893, $2,496, $0, $0, and $0 in the three months ended March 26, 2016 and March 28, 2015, and years ended December 31, 2015, 2014, 2013, 2012, and 2011, respectively. Included in the year ended December 31, 2012 is $6,045 of charges related to reserve amounts for service-based employee bonuses for periods prior to 2012, partially offset by a $3,560 gain related to the bargain purchase treatment of our CMI acquisition. Included in the year ended December 31, 2011 is $12,026 of charges related to our ESOP for certain share price adjustments and expenses settled in shares.

 

  (c)

Other items include: (i) in the three months ended March 26, 2016, (1) $868 in acquisition costs, (2) $283 in Dooria plant closure costs, and (3) $212 of tax consulting costs in Europe; (ii) in the three months ended March 28, 2015, (1) $5,750 related to a United Kingdom legal settlement, (2) $1,396 in acquisition costs, and (3) $664 of legal costs associated with non-core property disposal; (iii) in the year ended December 31, 2015, (1) $11,446 payment to holders of vested options and restricted shares in connection with the July 2015 dividend described in “Dividend Policy”, (2) $5,510 related to a United Kingdom legal settlement, (3) $1,825 in acquisition costs, (4) $1,833 of recruitment costs related to the recruitment of executive management employees, and (5) $1,082 of legal costs related to non-core property disposal, partially offset by (6) $5,678 of realized gain on foreign exchange hedges related to an intercompany loan; (iv) in the year ended December 31, 2014, (1) $5,000 legal settlement related to our ESOP plan, (2) $3,657 of legal costs associated with noncore property disposal, (3) $3,443 production ramp-down costs, (4) $2,769 of consulting fees in Europe, and (5) $1,250 of costs related to a prior acquisition; (v) in the year ended December 31, 2013, (1) $2,869 of cash costs related to the delayed opening of our new Louisiana facility, (2) $774 of legal costs associated

 

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  with non-core property disposal, (3) $582 related to the closure of our Marion, North Carolina facility, and (4) $458 of acquisition-related costs; (vi) in the year ended December 31, 2012, (1) $3,621 in acquisition costs, (2) $1,252 of cash costs related to non-restructuring severance of a former executive, and (3) $1,247 of cash costs related to the delayed opening of our new Louisiana facility; and (vii) in the year ended December 31, 2011, (1) cash severance costs of $1,102 related to the reorganization of our sales and marketing function and (2) $1,699 of fees related to the restructuring of our Spanish operation.

 

  (d) Included in the year ended December 31, 2014 is a loss on debt extinguishment of $51,036 associated with the refinancing of our 12.25% secured notes. Included in the year ended December 31, 2012 is $5,277 of fees incurred with SOX implementation. Included in the year ended December 31, 2011 is $5,056 of fees incurred with SOX implementation, $3,546 of costs relating to the refinancing project, and $1,537 of costs related to restructuring activities beginning in 2009.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the section titled “Selected Consolidated Financial Data” and our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from such forward-looking statements. Factors that could cause or contribute to those differences include, but are not limited to, those identified below and those discussed above in the section titled “Risk Factors” included elsewhere in this prospectus.

Overview and Background

We are one of the world’s largest door and window manufacturers, and we hold the #1 position by net revenues in the majority of the countries and markets we serve. We design, produce, and distribute an extensive range of interior and exterior doors, wood, vinyl, and aluminum windows, and related products for use in the new construction, repair, and remodeling of residential homes and, to a lesser extent, non-residential buildings.

We operate 113 manufacturing facilities in 19 countries, located primarily in North America, Europe, and Australia. For many product lines, our manufacturing processes are vertically integrated, enhancing our range of capabilities, our ability to innovate, and our quality control as well as providing supply chain, transportation, and working capital savings.

In October 2011, Onex acquired a majority of the combined voting power in the Company through the acquisition of convertible debt and convertible preferred equity. Onex owns the majority of our common equity on an as-converted basis, and Onex has appointed the majority of our board of directors.

Business Segments

Our business is organized in geographic regions to ensure integration across operations serving common end markets and customers. We have three reportable segments: North America (which includes limited activity in Chile and Peru), Europe, and Australasia. In the year ended December 31, 2015, our North American operations accounted for 60% of net revenues ($2,016 million), our European operations accounted for 29% of net revenues ($996 million), and our Australasian operations accounted for 11% of net revenues ($369 million). In the year ended December 31, 2014, our North American operations accounted for 57% of net revenues ($1,990 million), our European operations accounted for 31% of net revenues ($1,108 million), and our Australasian operations accounted for 12% of net revenues ($409 million). Financial information related to our business segments and geographic locations can be found in Note 20—Segment Information in our financial statements for the year ended December 31, 2015 included elsewhere in this prospectus.

Acquisitions

In October 2012, we acquired CraftMaster Manufacturing Inc., or “CMI”, headquartered in Towanda, Pennsylvania. CMI is a manufacturer and marketer of doors, door facings and exterior composite trim and is now part of our North America segment. The acquisition of CMI expanded our molded door production capacity and product offering in our North America segment.

In August 2015, we acquired Dooria AS, or “Dooria”, headquartered in Oslo, Norway. Dooria offers a complete range of doors, including interior, exterior, and specialty rated doors, in a wide variety of styles and is known for its high quality and innovative door designs and options. Dooria is now part of our Europe segment. The acquisition of Dooria expanded our production capabilities and product offering in the Scandinavian region.

 

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In August 2015, we acquired Aneeta Window Systems Pty. Ltd., or “Aneeta”, headquartered in Melbourne, Australia. Aneeta is an industry leading manufacturer and supplier of sashless windows in Australia and is now part of our Australasia segment. The acquisition of Aneeta expanded our product portfolio to include innovative window system offerings to customers in Australia as well as North America.

In September 2015, we acquired Karona, Inc., or “Karona”, headquartered in Caledonia, Michigan. Karona offers a complete range of specialty stile and rail doors, including interior, exterior, and fire rated doors for both the residential and non-residential markets, and is known for its high quality and technical capabilities. Karona is now part of our North America segment. The acquisition of Karona fit our strategy to expand our capabilities and product offering in the North American specialty stile and rail market.

In October 2015, we acquired certain assets and liabilities of LaCantina Doors, Inc., or “LaCantina”, headquartered in Oceanside, California. LaCantina is a manufacturer of folding and multislide door systems and is now part of our North America segment. The acquisition of LaCantina improved our position in the popular and growing market for wall systems by giving us additional resources, capacity, and a leading brand in this growing segment of the market.

In February 2016, we acquired Trend Windows & Doors Pty. Ltd., or “Trend”, headquartered in Sydney, Australia. Trend is a leading manufacturer of doors and windows in Australia and is now part of our Australasia segment. The acquisition of Trend strengthened our market position in the Australian window market and expanded our product portfolio with new and innovative window designs.

We paid an aggregate of approximately $112 million in cash (net of cash acquired) for the five businesses we acquired in 2015 and 2016, and in the aggregate they generated approximately $225 million of net revenues in the year ended December 31, 2015 on a stand-alone basis.

Factors and Trends Affecting Our Business

Drivers of Net Revenues

The key components of our net revenues include core net revenues (which we define to include the impact of pricing and volume/mix, as discussed further under the heading, “—Product Pricing and Volume/Mix” below), contribution from acquisitions made within the prior twelve months, and the impact of foreign exchange. Since the year ended December 31, 2013, our core net revenue growth was consistently positive with year over year increases of 5%, 3%, and 3% in the three months ended March 26, 2016, and the years ended December 31, 2015 and December 31, 2014, respectively. During these same periods, the impact of our core growth on our net revenues was largely offset by the relative and fluctuating currency values in the geographies in which we operate, which we refer to as the impact of foreign exchange.

Since the year ended December 31, 2013, the individual components driving our core net revenues growth have shifted from growth based largely on increased pricing, to more balanced growth in both pricing and volume/mix. As described below, beginning late in 2013 we changed several aspects of our pricing strategy, which resulted in meaningful pricing benefits in the years ended the year ended December 31, 2014 and 2015. While volume/mix was less favorable in the years ended December 31, 2014 and 2015, we believe we are well positioned to experience improved volume/mix in 2016 due to increased demand for our products, our channel management investments, our brand and marketing initiatives, and our enhanced product offering stemming from recent acquisitions as well as new products we have developed internally. In the three months ended March 26, 2016 compared to the three months ended March 28, 2015, our core growth in net revenues was 5%, comprised of an approximate 3% increase in pricing and an approximate 2% increase in volume/mix. Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, percentage changes in pricing and volume/mix are based on management estimates and are not derived directly from our accounting records. For the same period in North America, our largest segment, our core growth in net revenues was 8%, comprised of an approximate 5% increase in volume/mix and an approximate 3% increase in pricing.

 

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Product Demand

General business, financial market, and economic conditions globally and in the regions where we operate influence overall demand in our end markets and for our products. In particular, the following factors may have a direct impact on demand for our products in the countries and regions where our products are marketed and sold:

 

    the strength of the economy;

 

    employment rates and consumer confidence and spending rates;

 

    the availability and cost of credit;

 

    the amount and type of residential and non-residential construction;

 

    housing sales and home values;

 

    the age of existing home stock, home vacancy rates, and foreclosures;

 

    interest rate fluctuations for our customers and consumers;

 

    increases in the cost of raw materials or any shortage in supplies or labor;

 

    the effects of governmental regulation and initiatives to manage economic conditions;

 

    geographical shifts in population and other changes in demographics; and

 

    changes in weather patterns.

In addition, we seek to drive demand for our products through the implementation of various strategies and initiatives. We believe we can enhance demand for our new and existing products by:

 

    innovating and developing new products and technologies;

 

    investing in branding and marketing strategies, including marketing campaigns in both print and social media, as well as our investments in new training centers and mobile training facilities; and

 

    implementing channel initiatives to enhance our relationships with key customers, including implementing the True BLU dealer management program in North America.

Product Pricing and Volume/Mix

The price and mix of products that we sell are important drivers of our net revenues and net income. Under the heading “—Results of Operations” references to (i) “pricing” refer to the impact of price increases or decreases, as applicable, for particular products between periods and (ii) “volume/mix” refer to the combined impact of both the number of products we sell in a particular period and the types of products sold, in each case, on net revenues and net income. While we operate in a competitive market, pricing discipline is an important element of our strategy to achieve profitable growth through improved margins. Our strategies also include incentivizing our channel partners to sell our higher margin products and a renewed focus on innovation and the development of new technologies, which we believe will increase our sales volumes and the overall profitability of our product mix.

Changes in pricing trends for our products can have a material impact on our operations. During and immediately after the global financial crisis, our net revenues were negatively impacted by decreased demand and an increasingly competitive environment, resulting in unfavorable pricing trends, particularly in the North American door market. Furthermore, prior to our new senior executive team joining the Company, we often pursued a strategy in North America of pricing our products on an incremental contribution margin basis in an effort to grow volumes and generate operating leverage, which often led to competing on price and an inadequate return on our invested capital. In early 2014, our new management team began to strategically change our pricing strategy in several key areas. First, we focused on making strategic pricing decisions based on analysis of

 

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customer and product level profitability to restore profitability to underperforming lines of business. Second, we increased our emphasis on pricing optimization. As a result, our operations during 2014 and 2015 benefited from improved pricing, particularly in North America, where pricing returned to close to pre-crisis levels in some product lines across some market channels. Going forward, if the housing market continues to grow and economic factors remain positive, we believe that we will continue to benefit from a positive pricing environment. However, we do not believe the future benefits will be as significant as the pricing improvements we experienced during the 2013 to 2015 period.

Cost Reduction Initiatives

Prior to the ongoing operational transformation being executed by our new senior executive team, our operations were managed in a decentralized manner with varying degrees of emphasis on cost efficiency and limited focus on continuous improvement or strategic sourcing. Our new management team has a proven track record of implementing operational excellence programs at some of the world’s leading industrial manufacturing businesses, and we believe the same successes can be realized at JELD-WEN. Key areas of focus of our operational excellence program include:

 

    reducing labor, overtime, and waste costs by optimizing manufacturing processes;

 

    reducing or minimizing increases in material costs through strategic global sourcing and value-added re-engineering of components, in part by leveraging our significant spend and the global nature of our purchases; and

 

    reducing warranty costs by improving quality.

We are in the early stages of implementing our strategic iniatives to develop the culture and processes of operational excellence and continuous improvement. These cost reduction initiatives, as well as plant closures and consolidations, headcount reductions, and various initiatives aimed at lowering production and overhead costs may not produce the intended results within the intended timeframe.

Raw Material Costs

Commodities such as vinyl extrusions, glass, aluminum, wood, steel, plastics, fiberglass, and other composites are major components in the production of our products. Changes in the underlying prices of these commodities have a direct impact on the cost of products sold. While we attempt to pass on a substantial portion of such cost increases to our customers, we may not be successful in doing so. In addition, our results of operations for individual quarters may be negatively impacted by a delay between the time of raw material cost increases and a corresponding price increase. Conversely, our results of operations for individual quarters may be positively impacted by a delay between the time of a raw material price decrease and a corresponding competitive pricing decrease.

Working Capital and Seasonality

Working capital levels fluctuate throughout the year and are affected by seasonality of sales of our products and of customer payment patterns. The peak season for home construction and remodeling in our North America and Europe segments, which represent the substantial majority of our revenues, generally corresponds with the second and third calendar quarters, and therefore our sales volume is usually higher during those quarters. Typically, working capital increases at the end of the first quarter and beginning of the second quarter in conjunction with, and in preparation for, our peak season, and working capital decreases starting in the third quarter as inventory levels and accounts receivable decline. Inventories will fluctuate for some raw materials with long delivery lead times, such as steel, as we work through prior shipments and take delivery of new orders.

Foreign Currency Exchange Rates

We report our consolidated financial results in U.S. dollars. Due to our international operations, the weakening or strengthening of foreign currencies against the U.S. dollar can affect our reported operating results

 

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and our cash flows as we translate our foreign subsidiaries’ financial statements from their reporting currencies into U.S. dollars. In the year ended December 31, 2015 compared to the year ended December 31, 2014, the appreciation of the U.S. dollar relative to the reporting currencies of our foreign subsidiaries resulted in lower reported results in such foreign reporting entities. In particular, the exchange rates used to translate our foreign subsidiaries’ financial results in the year ended December 31, 2015 compared to the year ended December 31, 2014 reflected, on average, the U.S. dollar strengthening against the Euro, Australian dollar, and Canadian dollar by 21%, 27%, and 20%, respectively. See “Risk Factors—Risks Relating to Our Business and Industry—Exchange rate fluctuations may impact our business, financial condition, and results of operations” and “—Quantitative and Qualitative Disclosures About Market Risk—Exchange Rate Risk”.

Public Company Costs

As a result of this initial public offering, we will incur additional legal, accounting, board compensation, and other expenses that we did not previously incur, including costs associated with Securities and Exchange Commission, or “SEC”, reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act of 2002, as amended, as well as other rules implemented by the SEC and the national securities exchanges. Our financial statements following this offering will reflect the impact of these expenses.

Borrowings and Refinancings

Amounts outstanding under our prior credit facilities and 12.25% senior secured notes were repaid in October 2014. At such time, we entered into the Corporate Credit Facilities, which bear interest at substantially lower rates than the refinanced debt. In July 2015, we borrowed an additional $480 million under the Corporate Credit Facilities primarily to fund distributions to our shareholders. Accordingly, our results have been impacted by substantial changes in our net interest expense throughout the periods presented. See “—Liquidity and Capital Resources” below.

Components of our Operating Results

Net Revenues

Our net revenues are a function of sales volumes and selling prices, each of which is a function of product mix, and consist primarily of:

 

    sales of a wide variety of interior and exterior doors, including patio doors, for use in residential and non-residential applications, with and without frames, to a broad group of wholesale and retail customers in all of our geographic markets;

 

    sales of a wide variety of windows for both residential and certain non-residential uses, to a broad group of wholesale and retail customers primarily in North America, Australia, and the United Kingdom; and

 

    other sales, including sales of moldings, trim board, cut stock, glass, stairs, hardware and locks, door skins, shower enclosures, wardrobes, window screens, and miscellaneous installation and other services revenue.

Net revenues do not include internal transfers of products between our component manufacturing, product manufacturing and assembly, and distribution facilities.

Cost of Sales

Cost of sales consists primarily of material costs, direct labor and benefit costs, repair and maintenance, utility, rent and warranty expenses, outbound freight, and insurance and benefits, supervision and depreciation tax expenses. Detail for each of these items is provided below.

 

   

Material Costs. The single largest component of cost of sales is material costs, which include raw materials, components and finished goods purchased for use in manufacturing our products or for

 

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resale. Our most significant material costs include glass, wood, wood components, doors, door facings, door parts, hardware, vinyl extrusions, steel, fiberglass, packaging materials, adhesives, resins and other chemicals, core material, and aluminum extrusions. The cost of each of these items is impacted by global supply and demand trends, both within and outside our industry, as well as commodity price fluctuations, conversion costs, energy costs, and transportation costs. See “—Quantitative and Qualitative Disclosures About Market Risk—Raw Materials Risk”.

 

    Direct Labor and Benefit Costs. Direct labor and benefit costs reflect a combination of production hours, average headcount, general wage levels, payroll taxes, and benefits provided to employees. Direct labor and benefit costs include wages, overtime, payroll taxes, and benefits paid to hourly employees at our facilities that are involved in the production and/or distribution of our products. These costs are generally managed by each facility and headcount is adjusted according to overall and seasonal production demand. We run multi-shift operations in many of our facilities to maximize return on assets and utilization. Direct labor and benefit costs fluctuate with headcount, but generally tend to increase with inflation due to increases in wages and health benefit costs.

 

    Repair and Maintenance, Depreciation, Utility, Rent, and Warranty Expenses.

 

    Repairs and maintenance costs consist of equipment and facility maintenance expenses, purchases of maintenance supplies, and the labor costs involved in performing maintenance on our equipment and facilities.

 

    Depreciation includes depreciation expense associated with our production assets and plants.

 

    Rent is predominantly comprised of lease costs for facilities we do not own as well as vehicle fleet and equipment lease costs. Facility leases are typically multi-year and may include increases tied to certain measures of inflation.

 

    Warranty expenses represent all costs related to servicing warranty claims and product issues and are mostly related to our window products sold in the United States and Canada.

 

    Outbound Freight. Outbound freight includes payments to third-party carriers for shipments of orders to our customers, as well as driver, vehicle, and fuel expenses when we deliver orders to customers. The majority of our products are shipped by third-party carriers.

 

    Insurance and Benefits, Supervision, and Tax Expenses.

 

    Insurance and benefit costs are the expenses relating to our insurance programs, health benefits, retirement benefit programs (including the pension plan), and other benefits that are not included in direct labor and benefits costs.

 

    Supervision costs are the wages and bonus expenses related to plant managers. Both insurance and benefits and supervision expenses tend to be influenced by headcount and wage levels.

 

    Tax costs are mostly payroll taxes for employees not included in direct labor and benefit costs, and property taxes. Tax expenses are impacted by changes in tax rates, headcount and wage levels, and the number and value of properties owned.

In addition, an appropriate portion of each of the insurance and benefits, supervision and tax expenses are allocated to selling, general, and administrative expenses.

Selling, general, and administrative expenses

Selling, general, and administrative expenses, or “SG&A”, consist primarily of research and development, sales and marketing, and general and administrative expenses.

Research and Development. Research and development expenses consist primarily of personnel expenses related to research and development, consulting and contractor expenses, tooling and prototype materials, and

 

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overhead costs allocated to such expenses. Substantially all of our research and development expenses are related to developing new products and services and improving our existing products and services. To date, research and development expenses have been expensed as incurred, because the period between achieving technological feasibility and the release of products and services for sale has been short and development costs qualifying for capitalization have been insignificant.

We expect our research and development expenses to increase in absolute dollars as we continue to make significant investments in developing new products and enhancing existing products.

Sales and Marketing. Sales and marketing expenses consist primarily of advertising and marketing promotions of our products and services and related personnel expenses, as well as sales incentives, trade show and event costs, sponsorship costs, consulting and contractor expenses, travel, display expenses, and related amortization. Sales and marketing expenses are generally variable expenses and not fixed expenses. We expect our sales and marketing expenses to increase in absolute dollars as we continue to actively promote our products and services.

General and Administrative. General and administrative expenses consist of personnel expenses for our finance, legal, human resources, and administrative personnel, as well as the costs of professional services, any allocated overhead, information technology, amortization of intangible assets acquired, and other administrative expenses. We expect our general and administrative expenses to increase in absolute dollars due to the anticipated growth of our business and related infrastructure as well as legal, accounting, insurance, investor relations, and other costs associated with becoming a public company.

Impairment and Restructuring Costs

Impairment and restructuring costs consist primarily of all salary-related severance benefits that are accrued and expensed when a restructuring plan has been put into place, the plan has received approval from the appropriate level of management and the benefit is probable and reasonably estimable. In addition to salary-related costs, we incur other restructuring costs when facilities are closed or capacity is realigned within the organization. Upon termination of an employment or commercial contract we record liabilities and expenses pursuant to the terms of the relevant agreement. For non-contractual restructuring activities, liabilities and expenses are measured and recorded at fair value in the period in which they are incurred.

Interest Expense, Net

Interest expense, net relates primarily to interest payments on our then-outstanding credit facilities (and debt securities in 2014). Debt issuance costs related to our indebtedness are included as an offset to long-term debt in the accompanying consolidated balance sheets and are amortized to interest expense over the life of the applicable facility using the effective interest method. See Note 17—Long-Term Debt in our financial statements for the year ended December 31, 2015 included elsewhere in this prospectus.

Other Expense (Income), Net

Other expense (income), net includes profit and losses related to various miscellaneous non-operating expenses.

Income Taxes

Income taxes are recorded using the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to

 

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apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities due to a change in tax rates is recognized in income in the period that includes the date of enactment. A valuation allowance is recorded to reduce deferred tax assets to an amount that is anticipated to be realized on a more likely than not basis. Our consolidated effective income tax rate is primarily the weighted average of federal, state and provincial rates in various countries where we have operations. Our income tax rate is also affected by estimates of our ability to realize tax assets and changes in tax laws. As of December 31, 2015, our federal, state, and foreign net operating loss carryforwards were $1,705.8 million in the aggregate and $205.0 million of such net operating loss carryforwards do not expire. In connection with this initial public offering, we anticipate entering into a Tax Receivable Agreement with our Pre-IPO Stockholders that will provide them with the right to receive 85% of the amount of tax benefits, if any, that we actually realize (or in some circumstances are deemed to realize) as a result of (i) the Existing Tax Attributes and (ii) certain other tax benefits related to our making payments under the Tax Receivable Agreement. See Note 19—Income Taxes in our financial statements for the year ended December 31, 2015 included elsewhere in this prospectus and “Certain Relationships and Related Party Transactions—Tax Receivable Agreement”.

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. All 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.

 

    Three Months Ended     Year Ended December 31,  
    March 26, 2016     March 28, 2015     2015     2014     2013  
    (dollars in thousands)  

Net revenues

  $ 796,547      $ 736,982      $ 3,381,060      $ 3,507,206      $ 3,456,539   

Cost of sales

    638,424        608,740        2,715,125        2,919,864        2,946,463   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    158,123        128,242        665,935        587,342        510,076   

Selling, general and administrative

    131,592        117,971        512,126        488,477        482,088   

Impairment and restructuring charges

    2,981        9,969        21,342        38,388        42,004   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    23,550        302        132,467        60,477        (14,016

Interest expense, net

    (17,011     (11,156     (60,632     (69,289     (71,362

Loss on extinguishment of debt

    —          —          —          (51,036     —     

Other income (expense)

    724        4,078        14,120        515        12,323   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before taxes, equity earnings (loss) and discontinued operations

    7,263        (6,776     85,955        (59,333     (73,055

Income tax (expense) benefit

    (2,206     6,149        5,435        (18,942     (1,142
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    5,057        (627     91,390        (78,275     (74,197

Income (loss) from discontinued operations, net of tax

    514        (168     (2,856     (5,387     (5,863

Gain on sale of discontinued operations, net of tax

    —          —          —          —          10,711   

Equity earnings (loss) of non-consolidated entities

    765        7        2,384        (447     943   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 6,336      $ (788   $ 90,918      $ (84,109   $ (68,406
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

         

Adjusted EBITDA(1)

  $ 61,156      $ 45,075      $ 310,986      $ 229,849      $ 153,210   

Adjusted EBITDA margin(1)

    7.7     6.1     9.2     6.6     4.4

 

(1) Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see footnote 2 to the table under the heading “Selected Consolidated Financial Data”. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues.

 

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Comparison of the Three Months Ended March 26, 2016 and March 28, 2015

 

     Three Months Ended        
     March 26, 2016     March 28, 2015        
    

(dollars in thousands)

       
           % of Net
Revenues
          % of Net
Revenues
    %
Variance
 

Net revenues

   $ 796,547        100.0   $ 736,982        100.0     8.1

Cost of sales

     638,424        80.1     608,740        82.6     4.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     158,123        19.9     128,242        17.4     23.3

Selling, general and administrative

     131,592        16.5     117,971        16.0     11.5

Impairment and restructuring charges

     2,981        0.4     9,969        1.4     -70.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     23,550        3.0     302        0.0     NM   

Interest expense, net

     (17,011     2.1     (11,156     1.5     52.5

Other income

     724        0.1     4,078        0.6     -82.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before taxes, equity earnings (loss) and discontinued operations

     7,263        0.9     (6,776     0.9     NM   

Income tax (expense) benefit

     (2,206     0.3     6,149        0.8     -135.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

     5,057        0.6     (627     0.1     NM   

Income (loss) from discontinued operations, net of tax

     514        0.1     (168     0.0     NM   

Equity earnings of non-consolidated entities

     765        0.1     7        0.0     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 6,336        0.8   $ (788     0.1     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

          

Adjusted EBITDA(1)

   $ 61,156        7.7   $ 45,075        6.1     35.7

 

(1) Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see footnote 2 to the table under the heading “Selected Consolidated Financial Data”.

Consolidated Results

Net Revenues—Net revenues increased $59.6 million, or 8.1%, to $796.5 million in the three months ended March 26, 2016 from $737.0 million in the three months ended March 28, 2015. The increase in net revenues was primarily due to an increase of 5% in core net revenues, comprised of an increase in pricing of approximately 3% and an increase in volume/mix of approximately 2%. Additionally, acquisitions provided a 6% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 3%.

Gross Margin—Gross margin increased $29.9 million, or 23.3%, to $158.1 million in the three months ended March 26, 2016 from $128.2 million in the three months ended March 28, 2015. Gross margin as a percentage of net revenues was 19.9% in the three months ended March 26, 2016 and 17.4% in the three months ended March 28, 2015. The increase in gross margin and gross margin percentage was primarily due to the increase in pricing in all of our segments and savings from cost reduction initiatives related to raw material sourcing, partially offset by the impact of foreign exchange.

SG&A Expense—SG&A expense increased $13.6 million, or 11.5%, to $131.6 million in the three months ended March 26, 2016 from $118.0 million in the three months ended March 28, 2015. This increase was primarily due to investments in marketing and key raw material sourcing initiatives and SG&A expense related to our recently completed acquisitions, partially offset by the impact of foreign exchange.

Impairment and Restructuring Charges—Impairment and restructuring charges decreased $7.0 million, or 70.1%, to $3.0 million in the three months ended March 26, 2016 from $10.0 million in the three months ended March 28, 2015. In the three months ended March 26, 2016, impairment and restructuring charges primarily

 

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consisted of on-going personnel restructuring costs. In the three months ended March 28, 2015, impairment and restructuring charges consisted primarily of $9.8 million in plant and personnel restructuring and severance costs, $8.9 million of which related to plant closures and other restructuring initiatives in France.

Interest Expense, Net—Interest expense, net increased $5.9 million, or 52.5%, to an expense of $17.0 million in the three months ended March 26, 2016 from an expense of $11.2 million in the three months ended March 28, 2015. The increase was primarily due to the incremental interest expense associated with the $480 million of incremental term loans borrowed in July 2015.

Income Taxes—Income tax expense in the three months ended March 26, 2016 was $2.2 million compared to a benefit of $6.1 million in the three months ended March 28, 2015. The effective tax rate in the three months ended March 26, 2016 was 30.4% compared to a negative effective tax rate of 90.7% in the three months ended March 28, 2015. The increase in income tax expense and effective tax rate in the three months ended March 26, 2016 was primarily due to a $7.9 million benefit in the first quarter of 2015 resulting from a settlement with the Internal Revenue Service regarding a former investment in a real estate development project.

Segment Results

 

     Three Months Ended        
     March 26, 2016     March 28, 2015        
     (dollars in thousands)        

Net revenues

         % Variance   

North America

   $ 460,225      $ 420,356        9.5

Europe

     238,549        233,836        2.0

Australasia

     97,773        82,790        18.1
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 796,547      $ 736,982        8.1
  

 

 

   

 

 

   

Percentage of total consolidated net revenues

      

North America

     57.8     57.0  

Europe

     29.9     31.8  

Australasia

     12.3     11.2  
  

 

 

   

 

 

   

Total Consolidated

     100.0     100.0  
  

 

 

   

 

 

   

Adjusted EBITDA(1)

      

North America

   $ 31,699      $ 26,913        17.8

Europe

     24,696        19,189        28.7

Australasia

     8,919        6,900        29.3

Corporate and unallocated costs

     (4,158     (7,927     -47.5
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 61,156      $ 45,075        35.7
  

 

 

   

 

 

   

Adjusted EBITDA as a percentage of segment net revenues

      

North America

     6.9     6.4  

Europe

     10.4     8.2  

Australasia

     9.1     8.3  

Total Consolidated

     7.7     6.1  

 

(1) Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see footnote 2 to the table under the heading “Selected Consolidated Financial Data”.

 

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North America

Net revenues in North America increased $39.9 million, or 9.5%, to $460.2 million in the three months ended March 26, 2016 from $420.4 million in the three months ended March 28, 2015. The increase in net revenues was primarily due to an increase in core net revenues of 8%, comprised of an increase in volume/mix of approximately 5% and an increase in pricing of approximately 3%. Additionally, the acquisitions of Karona and LaCantina provided a 3% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 1%.

Adjusted EBITDA in North America increased $4.8 million, or 17.8%, to $31.7 million in the three months ended March 26, 2016 from $26.9 million in the three months ended March 28, 2015. The increase in Adjusted EBITDA was primarily due to increased pricing and volume/mix partially offset by professional fees associated with our sourcing initiatives and increased marketing and advertising expenses.

Europe

Net revenues in Europe increased $4.7 million, or 2.0%, to $238.5 million in the three months ended March 26, 2016 from $233.8 million in the three months ended March 28, 2015. The increase in net revenues was primarily due to an increase in core net revenues of 1%, comprised of an increase in pricing of approximately 2%, partially offset by a decrease in volume/mix of approximately 1%. Additionally, the acquisition of Dooria provided a 5% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 4%.

Adjusted EBITDA in Europe increased $5.5 million, or 28.7%, to $24.7 million in the three months ended March 26, 2016 from $19.2 million in the three months ended March 28, 2015. The increase in Adjusted EBITDA was primarily due to the increase in pricing and the closure of a facility in France in 2015.

Australasia

Net revenues in Australasia increased $15.0 million, or 18.1%, to $97.8 million in the three months ended March 26, 2016 from $82.8 million in the three months ended March 28, 2015. The increase in net revenues was primarily due to an increase in core net revenues of 2%, comprised primarily of an increase in pricing. Additionally, the acquisitions of Trend and Aneeta provided a 25% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 9%.

Adjusted EBITDA in Australasia increased $2.0 million, or 29.3%, to $8.9 million in the three months ended March 26, 2016 from $6.9 million in the three months ended March 28, 2015. The increase in Adjusted EBITDA was primarily due to the acquisitions of Trend and Aneeta and reduced material costs, partially offset by the decrease in volume/mix and an unfavorable foreign exchange impact.

 

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Comparison of the Year Ended December 31, 2015 to the Year Ended December 31, 2014

 

     Year Ended December 31,        
     2015     2014        
     (dollars in thousands)        
           % of Net Revenues           % of Net Revenues     % Variance  

Net revenues

   $ 3,381,060        100.0   $ 3,507,206        100.0     -3.6

Cost of sales

     2,715,125        80.3     2,919,864        83.3     -7.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     665,935        19.7     587,342        16.7     13.4

Selling, general and administrative

     512,126        15.1     488,477        13.9     4.8

Impairment and restructuring charges

     21,342        0.6     38,388        1.1     -44.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     132,467        3.9     60,477        1.7     119.0

Interest expense, net

     (60,632     1.8     (69,289     2.0     -12.5

Loss on extinguishment of debt

     —          0.0     (51,036     1.5     -100.0

Other income (expense)

     14,120        0.4     515        0     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before taxes, equity earnings (loss) and discontinued operations

     85,955        2.5     (59,333     1.7     NM   

Income tax benefit (expense)

     5,435        0.2     (18,942     0.5     -128.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

     91,390        2.7     (78,275     2.2     NM   

Income (loss) from discontinued operations, net of tax

     (2,856     0.1     (5,387     0.2     -47.0

Equity earnings (loss) of non-consolidated entities

     2,384        0.1     (447     0.0     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 90,918        2.7   $ (84,109     2.4     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

          

Adjusted EBITDA(1)

   $ 310,986        9.2   $ 229,849        6.6     35.3

 

(1) Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see footnote 2 to the table under the heading “Selected Consolidated Financial Data”.

Consolidated Results

Net revenues—Net revenues decreased $126.1 million, or 3.6%, to $3,381.1 million in the year ended December 31, 2015 from $3,507.2 million in the year ended December 31, 2014. The decrease in net revenues was primarily due to an unfavorable foreign exchange impact of 8%, partially offset by a 3% increase in core net revenues, primarily comprised of an increase in pricing. Volume/mix did not have a material impact on net revenues as increased demand in certain markets was offset by the strategic realignment of our customer and product portfolio in North America aimed at driving profitable growth. Additionally, acquisitions provided a 1% increase in net revenues.

Gross Margin—Gross margin increased $78.6 million, or 13.4%, to $665.9 million in the year ended December 31, 2015 from $587.3 million in the year ended December 31, 2014. Gross margin as a percentage of net revenues was 19.7% in the year ended December 31, 2015 and 16.7% in the year ended December 31, 2014. The increase in gross margin and gross margin percentage was primarily due to the increase in pricing in all of our segments, increased volume/mix in Europe and Australasia, and savings from cost reduction initiatives, partially offset by the unfavorable impact of foreign exchange.

 

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SG&A Expense—SG&A expense increased $23.6 million, or 4.8%, to $512.1 million in the year ended December 31, 2015 from $488.5 million in the year ended December 31, 2014. SG&A expense as a percentage of net revenues was 15.1% in the year ended December 31, 2015 and 13.9% in the year ended December 31, 2014. The increases in SG&A expense and SG&A expense percentage were primarily due to our performance-based management incentive compensation, amortization of share-based compensation, a distribution to holders of our stock options related to the July 2015 cash distribution to our shareholders, and a legal settlement related to a former subsidiary, offset by the impact of foreign exchange.

Impairment and Restructuring Charges—Impairment and restructuring charges decreased $17.0 million, or 44.4%, to $21.3 million in the year ended December 31, 2015 from $38.4 million in the year ended December 31, 2014. The charges in the year ended December 31, 2015 consisted of $13.4 million of impairment and restructuring charges in Europe primarily due to the closure of one of our three French manufacturing facilities, $2.0 million of charges related to the consolidation of our fiber door skin designs, and $1.5 million of impairment charges related to a non-core equity investment and related notes receivable. The remaining charges of $4.4 million are primarily related to personnel restructuring. The charges in the year ended December 31, 2014 consisted of $7.1 million of impairment charges primarily related to facility closures, excess real estate, and manufacturing process changes, $13.7 million in severance costs primarily related to executive and other administrative management restructuring, $8.6 million for one-time payments related to the restructuring of our management incentive plan, which was revised to decrease the number of participants, $3.3 million for lease termination and other costs related to the relocation and downsizing of our aviation department, $2.0 million for process reengineering and $3.6 million in other individually immaterial charges across all regions.

Interest Expense, Net—Interest expense, net decreased $8.7 million, or 12.5%, to an expense of $60.6 million in the year ended December 31, 2015 from an expense of $69.3 million in the year ended December 31, 2014. The decrease was primarily due to lower interest rates in the year ended December 31, 2015 on outstanding debt as a result of refinancing certain debt in October 2014, partially offset by interest expense on the incremental term loan borrowings incurred in July 2015.

Loss on Debt Extinguishment—In the year ended December 31, 2014, we redeemed all of our outstanding 12.25% senior secured notes and incurred a loss of $51.0 million as a result of the redemption. The loss consisted of a redemption premium over face value of $28.4 million and the write-off of $22.6 million in unamortized fees associated with our former senior secured credit facility.

Other Income (Expense)—Total other income increased $13.6 million to $14.1 million in the year ended December 31, 2015 from $0.5 million in the year ended December 31, 2014. The increase was primarily due to gains on the settlement of foreign exchange contracts associated with our hedging program.

Income Taxes—Income tax benefit in the year ended December 31, 2015 was $5.4 million compared to an expense of $18.9 million in the year ended December 31, 2014. The effective income tax rate for our continuing operations was (6.3)% and 31.9% in the years ended December 31, 2015 and 2014, respectively. The change in the tax charge for the comparative periods is driven by the benefit from the favorable settlement of various tax matters related to our 2007 and 2008 tax years.

 

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Segment Results

 

     Year Ended December 31,        
     2015     2014        
     (dollars in thousands)        

Net revenues from external customers

         % Variance   

North America

   $ 2,015,715      $ 1,989,621        1.3

Europe

     996,014        1,108,390        -10.1

Australasia

     369,331        409,195        -9.7
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 3,381,060      $ 3,507,206        -3.6
  

 

 

   

 

 

   

Percentage of total consolidated net revenues

      

North America

     59.6     56.7  

Europe

     29.5     31.6  

Australasia

     10.9     11.7  
  

 

 

   

 

 

   

Total Consolidated

     100.0     100.0  
  

 

 

   

 

 

   

Adjusted EBITDA(1)

      

North America

   $ 201,660      $ 114,086        76.8

Europe

     99,540        100,570        -1.0

Australasia

     40,453        40,783        -0.8

Corporate and unallocated costs

     (30,667     (25,590     19.8
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 310,986      $ 229,849        35.3
  

 

 

   

 

 

   

Adjusted EBITDA as a percentage of segment net revenues

      

North America

     10.0     5.7  

Europe

     10.0     9.1  

Australasia

     11.0     10.0  

Total Consolidated

     9.2     6.6  

 

(1) Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see footnote 2 to the table under the heading “Selected Consolidated Financial Data”.

North America

Net revenues in North America increased $26.1 million, or 1.3%, to $2,015.7 million in the year ended December 31, 2015 from $1,989.6 million in the year ended December 31, 2014. The increase in net revenues was primarily due to an increase in core net revenues of 2%, comprised of an increase in pricing of approximately 5%, partially offset by a decrease in volume/mix of approximately 3%. The decrease in volume/mix was primarily a result of the realignment of our customer and product portfolio aimed at driving profitable growth. Additionally, the acquisitions of Karona and LaCantina provided a 1% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 2%.

Adjusted EBITDA in North America increased $87.6 million, or 76.8%, to $201.7 million in the year ended December 31, 2015 from $114.1 million in the year ended December 31, 2014. The increase was primarily due to the increase in pricing and cost reduction initiatives, partially offset by increased investment in channel management and brand and marketing initiatives and the impact of unfavorable foreign exchange.

Europe

Net revenues in Europe decreased $112.4 million, or 10.1%, to $996.0 million in the year ended December 31, 2015 from $1,108.4 million in the year ended December 31, 2014. The decrease in net revenues was primarily due to an unfavorable foreign exchange impact of 16%, partially offset by an increase in core net revenues of 4%, comprised of an increase in volume/mix of approximately 2% and an increase in pricing of approximately 2%. Additionally, the acquisition of Dooria provided a 2% increase in net revenues.

 

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Adjusted EBITDA in Europe decreased $1.0 million, or 1.0%, to $99.5 million in the year ended December 31, 2015 from $100.6 million in the year ended December 31, 2014. The decrease was primarily due to the unfavorable impact of foreign exchange, partially offset by the increase in volume/mix and the increase in pricing.

Australasia

Net revenues in Australasia decreased $39.9 million, or 9.7%, to $369.3 million in the year ended December 31, 2015 from $409.2 million in the year ended December 31, 2014. The decrease in net revenues was primarily due to an unfavorable foreign exchange impact of 18%, partially offset by an increase in core net revenues of 7%, comprised of an increase in volume/mix of approximately 5% and an increase in pricing of approximately 2%. Additionally, the acquisition of Aneeta provided a 1% increase in net revenues.

Adjusted EBITDA in Australasia decreased $0.3 million, or 0.8%, to $40.5 million in the year ended December 31, 2015 from $40.8 million in the year ended December 31, 2014. The decrease in Adjusted EBITDA was primarily due to the unfavorable impact of foreign exchange, partially offset by the increase in volume/mix and the increase in pricing.

Comparison of the Year Ended December 31, 2014 to the Year Ended December 31, 2013

 

     Year Ended December 31,        
     2014     2013        
     (dollars in thousands)        
           % of Net Revenues           % of Net Revenues     % Variance  

Net revenues

   $ 3,507,206        100.0   $ 3,456,539        100.0     1.5

Cost of sales

     2,919,864        83.3     2,946,463        85.2     -0.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     587,342        16.7     510,076        14.8     15.1

Selling, general and administrative

     488,477        13.9     482,088        13.9     1.3

Impairment and restructuring charges

     38,388        1.1     42,004        1.2     -8.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     60,477        1.7     (14,016     0.4     NM   

Interest expense, net

     (69,289     2.0     (71,362     2.1     -2.9

Loss on extinguishment of debt

     (51,036     1.5     —          0.0     NM   

Other income (expense)

     515        0.0     12,323        0.4     -95.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before taxes, equity (loss) earnings (loss) and discontinued operations

     (59,333     1.7     (73,055     2.1     -18.8

Income tax expense

     (18,942     0.5     (1,142     0.0     NM   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations, net of tax

     (78,275     2.2     (74,197     2.1     5.5

Loss from discontinued operations, net of tax

     (5,387     0.2     (5,863     0.2     -8.1

Gain on sale of discontinued operations, net of tax

     —          0.0     10,711        0.3     -100.0

Equity (loss) earnings of non-consolidated entities

     (447     0.0     943        0.0     -147.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ (84,109     2.4   $ (68,406     2.0     23.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

          

Adjusted EBITDA(1)

   $ 229,849        6.6   $ 153,210        4.4     50.0

 

(1) Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see footnote 2 to the table under the heading “Selected Consolidated Financial Data”.

 

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Consolidated Results

Net Revenues—Net revenues increased $50.7 million, or 1.5%, to $3,507.2 million in the year ended December 31, 2014 from $3,456.5 million in the year ended December 31, 2013. The increase in net revenues was primarily due to an increase of 3% in core net revenues, primarily comprised of an increase in pricing. Volume/mix did not have a material impact on net revenues, as increased demand in certain markets was offset by the realignment of our customer and product portfolio and our focus on profitable growth. The increase in core net revenues was partially offset by an unfavorable foreign exchange impact of 1%.

Gross Margin—Gross margin increased $77.3 million, or 15.1%, to $587.3 million in the year ended December 31, 2014 from $510.1 million in the year ended December 31, 2013. Gross margin as a percentage of net revenues was 16.7% in the year ended December 31, 2014 and 14.8% in the year ended December 31, 2013. The increase in gross margin and gross margin percentage was primarily due to the increase in pricing in all of our segments and the increase in volume/mix in Europe and Australasia, partially offset by a decrease in volume/mix in North America and the unfavorable impact of foreign exchange.

SG&A Expense—SG&A expense increased $6.4 million, or 1.3%, to $488.5 million in the year ended December 31, 2014 from $482.1 million in the year ended December 31, 2013. SG&A expense as a percentage of net revenues was 13.9% in the year ended December 31, 2014, unchanged from the prior year. The increase in SG&A expense was primarily due to a charge for a legal settlement related to our ESOP, an increase in the provisions for our performance-based management incentive plan, and an increase in our share-based compensation plan over the prior year, partially offset by the impact of foreign exchange.

Impairment and Restructuring Charges—Impairment and restructuring charges decreased $3.6 million, or 8.6%, to $38.4 million in the year ended December 31, 2014 from $42.0 million in the year ended December 31, 2013. The charges in the year ended December 31, 2014 consisted of $7.1 million of impairment charges primarily related to facility closures, excess real estate and manufacturing process changes, $13.7 million of severance costs related primarily to executive and other administrative management restructuring and $8.6 million for one-time payments related to the restructuring of our management incentive plan which was revised to decrease the number of participants. In addition, in the year ended December 31, 2014, we recorded restructuring charges of $3.3 million for lease termination and other costs related to the relocation and downsizing of our aviation department, $2.0 million for process reengineering, and $3.6 million of other charges. The charges in the year ended December 31, 2013 consisted of $12.2 million of impairments related to facility closures, $12.5 million for settlement of a lawsuit, and $17.3 million of restructuring charges related to various personnel and plant restructuring and severance costs.

Interest Expense, Net—Interest expense, net decreased $2.1 million, or 2.9%, to an expense of $69.3 million in the year ended December 31, 2014 from an expense of $71.4 million in the year ended December 31, 2013. The decrease was primarily due to the refinancing of our 12.25% senior secured notes completed in October 2014.

Loss on Debt Extinguishment—In the year ended December 31, 2014, we redeemed all of outstanding 12.25% senior secured notes and incurred a loss of $51.0 million as a result of the redemption. The loss consisted of a redemption premium over face value of $28.4 million and the write-off of $22.6 million in unamortized fees associated with our former senior secured credit facility.

Other Income (Expense)—Total other income decreased $11.8 million, or 95.8%, to $0.5 million in the year ended December 31, 2014 from $12.3 million in the year ended December 31, 2013. The decrease was primarily due to lower gains on foreign currency hedging transactions, sales of property, plant, and equipment, and sales of discontinued operations.

Income Taxes—Income tax expense in the year ended December 31, 2014 was $18.9 million compared to $1.1 million in the year ended December 31, 2013. The effective income tax rate for our continuing operations

 

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was 31.9% and 1.6% in the years ended December 31, 2014 and 2013, respectively. The primary driver for the effective tax rate fluctuation relates to a significant valuation allowance benefit recorded in the year ended December 31, 2013 of approximately $34.1 million associated with pension movements in other comprehensive income.

Segment Results

 

     Year Ended December 31,        
     2014     2013        
     (dollars in thousands)        
                 % Variance  

Net revenues from external customers

      

North America

   $ 1,989,621      $ 1,974,457        0.8

Europe

     1,108,390        1,071,252        3.5

Australasia

     409,195        410,830        -0.4
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 3,507,206      $ 3,456,539        1.5
  

 

 

   

 

 

   

Percentage of total consolidated net revenues

      

North America

     56.7     57.1  

Europe

     31.6     31.0  

Australasia

     11.7     11.9  
  

 

 

   

 

 

   

Total Consolidated

     100.0     100.0  
  

 

 

   

 

 

   

Adjusted EBITDA(1)

      

North America

   $ 114,086      $ 49,920        128.5

Europe

     100,570        94,102        6.9

Australasia

     40,783        34,222        19.2

Corporate and unallocated costs

     (25,590     (25,034     2.2
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 229,849      $ 153,210        50.0
  

 

 

   

 

 

   

Adjusted EBITDA as a percentage of segment net revenues

      

North America

     5.7     2.5  

Europe

     9.1     8.8  

Australasia

     10.0     8.3  

Total Consolidated

     6.6     4.4  

 

(1) Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see footnote 2 to the table under the heading “Selected Consolidated Financial Data”.

North America

Net revenues in North America increased $15.2 million, or 0.8%, to $1,989.6 million in the year ended December 31, 2014 from $1,974.5 million in the year ended December 31, 2013. The increase in net revenues was primarily due to an increase in core net revenues of 2%, comprised of an increase in pricing of approximately 5%, partially offset by a decrease in volume/mix of approximately 3%. The decrease in volume/mix was a result of the realignment of our customer and product portfolio and our focus on profitable growth. The increase in core net revenues was partially offset by an unfavorable foreign exchange impact of 1%.

Adjusted EBITDA in North America increased $64.2 million, or 128.5%, to $114.1 million in the year ended December 31, 2014 from $49.9 million in the year ended December 31, 2013. The increase was primarily due to the increase in pricing, improved productivity at our manufacturing plants, and a reduction in SG&A expense related to management realignment and headcount reductions.

 

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Europe

Net revenues in Europe increased $37.1 million, or 3.5%, to $1,108.4 million in the year ended December 31, 2014 from $1,071.3 million in the year ended December 31, 2013. The increase in net revenues was primarily due to an increase in core net revenues of 4%, comprised of an increase in volume/mix of approximately 3% and an increase in pricing of approximately 1%. The foreign exchange impact in the period was minimal.

Adjusted EBITDA in Europe increased $6.5 million, or 6.9%, to $100.6 million in the year ended December 31, 2014 from $94.1 million in the year ended December 31, 2013. The increase was primarily due to the increase in volume/mix and pricing, partially offset by increased SG&A expense related to our performance-based management incentive plan and the impact of foreign exchange.

Australasia

Net revenues in Australasia decreased $1.6 million, or 0.4%, to $409.2 million in the year ended December 31, 2014 from $410.8 million in the year ended December 31, 2013. The decrease was primarily due to an unfavorable foreign exchange impact of 7%, partially offset by an increase in core net revenues of 6%, comprised of an increase in volume/mix of approximately 4% and an increase in pricing of approximately 2%.

Adjusted EBITDA in Australasia increased $6.6 million, or 19.2%, to $40.8 million in the year ended December 31, 2014 from $34.2 million in the year ended December 31, 2013. The increase was primarily due to the increase in volume/mix and the increase in pricing, partially offset by unfavorable foreign exchange impact.

 

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Quarterly Results of Operations

The following table sets forth unaudited quarterly consolidated statements of operations data for each of the eight quarterly periods ended March 26, 2016. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements appearing elsewhere in this prospectus and, in our opinion, includes all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the results of operations for these periods. This information should be read in conjunction with our audited consolidated financial statements and related notes appearing elsewhere in the prospectus. These quarterly results are not necessarily indicative of our operating results for a full year or any future period.

 

    Three Months Ended  
    Mar. 26,
2016
    Dec. 31,
2015
    Sep. 26,
2015
    Jun. 27,
2015
    Mar. 28,
2015
    Dec. 31,
2014
    Sep. 27,
2014
    Jun. 28,
2014
    Mar. 29
2014
 
    (dollars in thousands)  

Statements of Operations Data:

                 

Net revenues

  $ 796,547      $ 890,948      $ 874,331      $ 878,799      $ 736,982      $ 893,560      $ 936,215      $ 912,673      $ 764,758   

Cost of sales

    638,424        720,157        690,800        695,428        608,740        730,981        768,357        758,220        662,306   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    158,123        170,791        183,531        183,371        128,242        162,579        167,858        154,453        102,452   

Selling general and administrative

    131,592        142,105        130,380        121,670        117,971        129,017        108,906        126,505        124,049   

Impairment and restructuring charges

    2,981        5,785        2,316        3,272        9,969        5,431        8,288        17,351        7,318   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    23,550        22,901        50,835        58,429        302        28,131        50,664        10,597        (28,915

Interest expense, net

    (17,011     (20,083     (17,917     (11,476     (11,156     (12,781     (19,218     (19,180     (18,110

Other income (expense)

    724        4,141        9,823        (3,922     4,078        (50,040     670        (215     (936
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before taxes, equity earnings (loss) and discontinued operations

    7,263        6,959        42,741        43,031        (6,776     (34,690     32,116        (8,798     (47,961

Income tax (expense) benefit

    (2,206     13,010        (1,160     (12,564     6,149        (3,034     (7,087     (8,863     42   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    5,057        19,969        41,581        30,467        (627     (37,724     25,029        (17,661     (47,919

Income (loss) from discontinued operations, net of tax

    514        (811     (570     (1,307     (168     (570     (4,528     (789     500   

Equity earnings (loss) of non-consolidated entities

    765        1,151        640        586        7        (572     (10     (289     424   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 6,336      $ 20,309      $ 41,651      $ 29,746      $ (788   $ (38,866   $ 20,491      $ (18,739   $ (46,995
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 senior secured term loan facility. Total liquidity, which includes cash and undrawn available revolving credit facilities, totaled $270.7 million as of March 26, 2016, compared to total liquidity of $352.9 million as of December 31, 2015 and $326.7 million as of December 31, 2014. The increase in our total liquidity at December 31, 2015 compared to December 31, 2014 was primarily due to entry into a new European revolving credit facility in January 2015 and higher cash balances, partially offset by a voluntary reduction in the size of our Australian Senior Secured Credit Facility,

 

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slightly lower availability under our ABL Facility, and $86.7 million, net of cash acquired, used to consummate the acquisitions of Dooria, Aneeta, Karona, and LaCantina; provide liquidity for distributions to shareholders; and purchase property and equipment. The decrease in our total liquidity at March 26, 2016 compared to December 31, 2015 was primarily due to the use of cash to fund our seasonal working capital and to fund the acquisition of Trend in February 2016.

Concurrent with the closing of the Onex Investment, we entered into a $300 million revolving credit facility and issued $460 million in aggregate principal amount of 12.25% senior secured notes. We utilized the proceeds from the Onex Investment and the issuance of the senior secured notes in October 2011 to repay in full the amounts owed under our then existing credit facilities, extinguishing those facilities, and to conduct a tender offer for $75 million of our common stock.

In October 2014, we entered into the Corporate Credit Facilities, consisting of a $775 million term loan and a $300 million asset based revolving credit facility. The proceeds from the term loan were primarily used to (i) repay amounts outstanding under, and extinguish, our former revolving credit facility, (ii) redeem all of the outstanding 12.25% senior secured notes at a premium over face value of $28.2 million, and (iii) satisfy our obligation under a guarantee of certain letters of credit supporting an industrial revenue bond. In connection with the debt extinguishment, we expensed unamortized fees of $22.6 million related to our former revolving credit facility and recognized this charge, as well as the $28.4 million in unamortized premium paid to the holders of the 12.25% senior secured notes, as a loss on extinguishment of debt in the consolidated statements of operations. We also incurred $15.4 million of debt issuance costs related to the Corporate Credit Facilities, which is included in other long-term assets in the accompanying consolidated balance sheets and will be amortized to interest expense over the life of the facilities using the effective interest method.

In July 2015, we amended our Term Loan and borrowed an incremental $480 million thereunder. Proceeds from the incremental term loan debt were primarily used to pay distributions to our shareholders, with the balance used or available for acquisitions and general corporate purposes. We incurred $7.9 million of debt issuance costs related to the $480 million of incremental borrowings, which is included as an offset to long-term debt in the accompanying consolidated balance sheets and will be amortized to interest expense over the life of the facility using the effective interest method. See Note 17—Long-Term Debt in our financial statements for the year ended December 31, 2015 included elsewhere in this prospectus.

Based on our current level of operations, the seasonality of our business and anticipated growth, we believe that cash provided by operations and other sources of liquidity, including cash, cash equivalents and borrowings under our ABL Facility, will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments, and debt service requirements for at least the next twelve months.

In the years ended December 31, 2015 and 2014, we had a net change in cash and cash equivalents of $8.0 million and $67.9 million, respectively. The following table summarizes such changes:

Cash Flows

The following table summarizes the changes to our cash flows for the periods presented:

 

     Three Months Ended     Year Ended December 31,  
     March 26, 2016     March 28, 2015     2015     2014     2013  
     (dollars in thousands)  

Cash provided (used in) provided by:

          

Operating activities

   $ (28,197   $ (71,685   $ 172,339      $ 21,788      $ (49,372

Investing activities

     (42,001     (12,759     (158,452     (56,738     13,939   

Financing activities

     (777     14,145        (1,072     105,617        34,633   

Effect of changes in exchange rates on cash and cash equivalents

     628        (2,753     (4,786     (2,791     (3,360
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

   $ (70,347   $ (73,052   $ 8,029      $ 67,876      $ (4,160
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Cash Flow from Operations

Net cash used in operating activities decreased $43.5 million to $28.2 million in the three months ended March 26, 2016 from $71.7 million in the three months ended March 28, 2015. This decrease was primarily due to improved profitability and an increase in accounts payable and accrued expenses.

Net cash provided by operating activities increased $150.6 million to $172.3 million in the year ended December 31, 2015 from $21.8 million in the year ended December 31, 2014. This increase was primarily due to the increase in net income of $175.0 million in the year ended December 31, 2015 over the year ended December 31, 2014 and a decrease in the net change in operating assets and liabilities of $12.4 million, partially offset by a decrease in the amount of non-cash expenses included in net income compared to the year ended December 31, 2014. The decrease in net change in operating assets and liabilities was primarily due to the release of a valuation allowance in France for $16.1 million.

Net cash provided by operating activities increased $71.2 million to $21.8 million in the year ended December 31, 2014 from net cash used in operating activities of $49.4 million in the year ended December 31, 2013. This increase was primarily due to a $44.2 million increase in non-cash expenses included in net income in the year ended December 31, 2014 compared to the year ended December 31, 2013 which included the $22.6 million loss on extinguishment of our 12.25% senior secured notes. In addition, there was a reduction of $29.5 million in the net change in operating assets and liabilities compared to the year ended December 31, 2013 driven by year over year reductions in the level of accounts receivable and inventories, partially offset by an increase in other assets in the year ended December 31, 2014.

Cash Flow from Investing Activities

Net cash used in investing activities increased $29.2 million to $42.0 million in the three months ended March 26, 2016 from $12.8 million in the three months ended March 28, 2015. This increase in cash used in investing activities was primarily due to our acquisition of Trend completed in February 2016 and increased capital expenditures in the three months ended March 26, 2016 compared to the three months ended March 28, 2015.

Net cash used in investing activities increased $101.7 million to $158.5 million in the year ended December 31, 2015 from $56.7 million in the year ended December 31, 2014. This increase was primarily due to the use of $86.7 million of cash, net of the cash acquired, to complete the acquisitions completed in the year ended December 31, 2015 and $6.4 million in additional purchases of property and equipment in the year December 31, 2015 compared to the year ended December 31, 2014.

Net cash used in investing activities increased $70.7 million to $56.7 million in the year ended December 31, 2014 from cash used by investing activities of $13.9 million in the year ended December 31, 2013. The increase in cash used in investing activities was primarily due to a reduction in proceeds from sales of discontinued operations, businesses, and other assets of $91.6 million in the year ended December 31, 2014, partially offset by a $14.8 million reduction in purchases of property, equipment, and intangible assets in the year ended December 31, 2014 compared to the year ended December 31, 2013.

Cash Flow from Financing Activities

Net cash used in financing activities was $0.8 million in the three months ended March 26, 2016 compared to net cash provided by financing activities of $14.1 million in the three months ended March 28, 2015. This decrease was primarily due to lower borrowings under our ABL Facility in the three months ended March 26, 2016 compared to the three months ended March 28, 2015. The higher borrowings under our ABL Facility in the three months ended March 28, 2015 was primarily due to the $32.3 million of share repurchases completed during that period with no such activity occurring in the three months ended March 26, 2016.

 

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Net cash used in financing activities in the year ended December 31, 2015 was $1.1 million and was comprised of $419.2 million of distributions to shareholders, $44.6 million in common stock repurchases, $22.8 million of net short-term and long-term borrowings, and $9.1 million of debt issuance cost payments, partially offset by $477.6 million of net proceeds from the issuance of new debt, $15.1 million of employee and director note repayments, and $2.0 million in common stock issuances.

Net cash provided by financing activities was $105.6 million in the year ended December 31, 2014 and consisted of $790.3 million of net proceeds from the issuance of new debt, $4.5 million of employee and director note repayments, partially offset by $658.7 million of net short-term and long-term borrowings, $15.7 million of debt issuance cost payments, and $14.8 million in common stock repurchases.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Lines of Credit and Long-Term Debt

Corporate Credit Facilities

In October 2014, we entered into the Corporate Credit Facilities, which initially consisted of (i) a term loan facility in an initial principal amount of $775 million, or the “Initial Term Loans”, and (ii) a $300 million asset based revolving credit facility, or the “ABL Facility”. In July 2015, we borrowed $480 million of incremental term loans, or the “Incremental Term Loans”, under the Term Loan Facility and amended our Corporate Credit Facilities to, among other things, permit a distribution of approximately $419 million to holders of our common stock, our Series A Convertible Preferred Stock, and our Class B-1 Common Stock.

As of March 26, 2016, we were in compliance with the terms of the Corporate Credit Facilities.

Term Loan Facility

The offering price of the Initial Term Loans was 99.00% of par and the offering price of the Incremental Term Loans was 99.50% of par. The Initial Term Loans bear interest at LIBOR (subject to a floor of 1.00%) plus a margin of 4.25%. The Incremental Term Loans bear interest at LIBOR (subject to a floor of 1.00%) plus a margin of 3.75% to 4.00% depending on our ratio of net debt to Adjusted EBITDA. We have entered into forward starting interest rate swap agreements in order to effectively change the interest rate on a substantial portion of our Term Loan Facility from a variable rate to a fixed rate. See “—Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk”. The Initial Term Loans and the Incremental Term Loans amortize in nominal quarterly installments equal to 0.25% of the initial aggregate principal amount of the Initial Term Loans and the Incremental Term Loans, respectively. The Term Loan Facility has various non-financial covenants, including restrictions on liens, indebtedness, and dividends, customary representations and warranties, and customary events of defaults and remedies, but has no financial maintenance covenants. The Initial Term Loans mature on October 15, 2021 and the Incremental Term Loans mature on July 1, 2022.

The Term Loan Facility permits us to add one or more incremental term loans up to the sum of: (i) an unlimited amount subject to compliance with a maximum total net first lien leverage ratio test of 4.25:1.00 plus (ii) voluntary prepayments of term loans plus (iii) a fixed amount of $175.0 million, in each case, subject to certain conditions.

 

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ABL Facility

Extensions of credit under the ABL Facility are limited by a borrowing base calculated periodically based on specified percentages of the value of eligible inventory, eligible accounts receivable and certain other assets, subject to certain reserves and other adjustments. The borrowing base for U.S. and Canadian borrowers is calculated separately. U.S. borrowers may borrow up to $255 million under the ABL Facility and Canadian borrowers may borrow up to $45 million under the ABL Facility, in each case subject to periodic adjustments of such sub-limits and applicable borrowing base availability.

Borrowings under the ABL Facility bear interest at LIBOR plus a margin that fluctuates from 1.50% to 2.00% depending on availability under the ABL Facility. We pay an annual commitment fee between 0.25% and 0.375% on the unused portion of the commitments under the ABL Facility. At March 26, 2016, we had $172.9 million available under the ABL Facility. The ABL Facility has a minimum fixed charge coverage ratio that we are obligated to comply with under certain circumstances. The ABL Facility has various non-financial covenants, including restrictions on liens, indebtedness, and dividends, customary representations and warranties, and customary events of defaults and remedies. The ABL Facility matures on October 15, 2019.

The ABL Facility permits us to request increases in the amount of the commitments under the ABL Facility up to an aggregate maximum amount of $100 million, subject to certain conditions.

Australian Senior Secured Credit Facility

In October 2015, JELD-WEN of Australia Pty. Ltd., or “JWA”, amended its credit agreement, or, as amended, the “Australian Senior Secured Credit Facility”, to provide for an AUD $20 million cash advance facility, an AUD $6 million interchangeable facility for guarantees/letters of credit, an AUD $7 million electronic payaway facility, an AUD $1.5 million asset finance facility, an AUD $600,000 commercial card facility, and an AUD $5 million overdraft facility. The Australian Senior Secured Credit Facility matures in June 2019. Loans under the revolving portion of the Australian Senior Secured Credit Facility bear interest at the BBR rate plus a margin of 0.75%, and a commitment fee of 1.15% is also paid on the entire amount of the revolving credit facility. Overdraft balances bear interest at the bank’s reference rate minus a margin of 1.00%, and a commitment fee of 1.15% is paid on the entire amount of the overdraft facility. As of March 26, 2016, we had AUD $2.7 million (or $2.0 million) of guarantees outstanding and AUD $0.1 million (or $0.1 million) of utilization of the commercial card facility, with AUD $37.3 million (or $28.0 million) available under this facility. The agreement requires that JWA maintain certain financial ratios, including a minimum consolidated interest coverage ratio and a maximum ratio of consolidated debt to adjusted EBITDA (as calculated therein) ratio. The Australian Senior Secured Credit Facility has various non-financial covenants, including restrictions on liens, indebtedness, and dividends, customary representations and warranties, and customary events of default and remedies. As of March 26, 2016, we were in compliance with the terms of the Australian Senior Secured Credit Facility.

Euro Revolving Facility

In January 2015, JELD-WEN of Europe B.V. (which was subsequently merged with JELD-WEN A/S, which survived the merger) entered into the Euro Revolving Facility, a €39 million revolving credit facility, which includes an option to increase the commitment by an amount of up to €10 million, with a syndicate of lenders and Danske Bank A/S, as agent. The Euro Revolving Facility matures on January 30, 2019. Loans under the Euro Revolving Facility bear interest at CIBOR, CHR LIBOR, EURIBOR, NIBOR, STIBOR or LIBOR, depending on the currency, plus a margin of 2.5%, and a commitment fee of 1% is also paid on the entire amount of the revolving credit facility calculated on a day-to-day basis. As of March 26, 2016, we had €2.7 million (or $3.0 million) in borrowings and €1.0 million (or $1.1 million) of bank guarantees outstanding and €35.3 million (or $39.4 million) available under this facility. The Euro Revolving Facility requires JELD-WEN A/S to maintain certain financial ratios, including a maximum ratio of senior leverage to adjusted EBITDA (as calculated therein), and a minimum ratio of adjusted EBITDA (as calculated therein) to net finance charges. In addition, the

 

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Euro Revolving Facility has various non-financial covenants including restrictions on liens, indebtedness, and dividends, customary representations and warranties, and customary events of default and remedies. As of March 26, 2016, we were in compliance with the terms of the Euro Revolving Facility.

Mortgage Note

In December 2007, JELD-WEN Danmark A/S entered into thirty-year mortgage notes secured by land and buildings with principal payments beginning in 2018 that will fully amortize the principal by the end of 2037. As of March 26, 2016, we had DKK 208.1 million (or $31.2 million) outstanding thereunder.

Installment Notes

We entered into installment notes representing miscellaneous capitalized equipment lease obligations and a term loan secured by the related equipment with payments through 2021. As of March 26, 2016, we had $3.9 million outstanding thereunder.

Installment Notes for Stock

We entered into installment notes for stock representing amounts due to former or retired employees for repurchases of our stock that are payable over 5 or 10 years depending on the amount with payments through 2020. As of March 26, 2016, we had $3.7 million outstanding thereunder.

Interest Rate Swaps

We have eight outstanding interest rate swap agreements for the purpose of managing our exposure to changes in interest by effectively converting the interest rate on a portion of the Term Loan Facility to a fixed rate. The counterparties for these swap agreements are Royal Bank of Canada, Barclays Bank PLC, and Wells Fargo Bank, N.A. The aggregate notional amount covered under these agreements, which are all forward starting and expire on September 30, 2019, totals approximately $972.0 million as of March 26, 2016. The table below sets forth the period, notional amount and fixed rates for our interest rate swaps:

 

Period

   Notional      Fixed Rate  
     (dollars in thousands)  

September 2015 – September 2019

   $ 273,000         1.997

September 2016 – September 2019

   $ 273,000         2.353

June 2016 – September 2019

   $ 213,000         2.126

December 2016 – September 2019

   $ 213,000         2.281

Each of the swap agreements receives a floating rate based on three month LIBOR and is settled every calendar quarter-end. The effect of these swap agreements is to lock in a fixed rate of interest on the aggregate notional amount hedged of approximately 2.1876% plus the applicable margin paid to lenders over three month LIBOR. At March 26, 2016, the effective rate on the aggregate notional amount hedged (including the applicable margin paid to lenders over three month LIBOR) was approximately 6.3184%. These swaps have been designated as cash flow hedges against variability in future interest rate payments on the Term Loan Facility and are marked to market through consolidated other comprehensive income (loss).

Repaid Long-Term Debt

Former Senior Secured Notes

In October 2011, JWI issued $460 million of senior secured notes. The interest rate on the senior secured notes was 12.25%, with interest payable semi-annually and all principal amounts due on October 15, 2017. All of our outstanding 12.25% senior secured notes were redeemed in October 2014 at a premium over face value of $28.2 million with a portion of the proceeds from the Initial Term Loans. In connection with the extinguishment of the notes, we expensed $28.4 million in unamortized premium paid to the bondholders and bank fees.

 

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Former Senior Secured Credit Facility—United States and Europe

In October 2011, JWI and JELD-WEN of Europe B.V. entered into a senior secured credit agreement for up to $300 million of revolving credit loans with a $75 million sublimit for the issuance of letters of credit and a $100 million sublimit for borrowings by JELD-WEN of Europe B.V. The agreement required us to maintain certain financial ratios, including a minimum consolidated interest coverage ratio and a maximum consolidated total leverage ratio and limited certain investments, restricted payments, asset sales and our ability to incur additional debt and liens. The base interest rate was determined using the highest of the overnight Federal Funds rate plus 0.5%, the Eurodollar rate plus 1.0% or the prime rate with a margin that varied based on our consolidated leverage ratio. Base rate loan margins ranged from 1.5% to 3.0%. Eurodollar based loans had margins ranging from 2.5% to 4.0% with a current margin of 3.0%. In October 2012, JWI and JELD-WEN of Europe B.V. amended and restated the senior secured credit agreement to add a $30 million term loan that bore interest at the Eurodollar rate plus 3.5% or the base rate plus 2.5%. In June 2013, JWI and JELD-WEN of Europe B.V. amended the senior secured credit agreement to add a $70 million term loan and also to provide for certain other amendments. Obligations outstanding under the $70 million term loan bore interest at the Eurodollar rate plus 3.5% or the base rate plus 2.50%, subject to a leverage-based step-down. All amounts outstanding under the former senior secured credit facilities were repaid in October 2014 with a portion of the proceeds from the Initial Term Loans and we expensed unamortized fees of $22.6 million in connection therewith.

Contractual Obligations

The following table summarizes our significant contractual obligations at December 31, 2015:

 

     Payments Due By Period  
     Total      Less Than
1 Year
     1-3 Years      3-5 Years      More Than
5 Years
 
     (dollars in thousands)  
Contractual Obligations(1)               

Long-term debt obligations

   $ 1,282,680       $ 14,708       $ 28,792       $ 29,952       $ 1,209,228   

Capital lease obligations

     4,537         1,886         1,645         1,006         —     

Operating lease obligations

     100,018         30,525         41,890         21,576         6,027   

Purchase obligations(2)

     936         497         439         —           —     

Interest on long-term debt obligations(3)

     403,062         68,254         134,073         131,412         69,323   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals:

   $ 1,791,233       $ 115,870       $ 206,839       $ 183,946       $ 1,284,578   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) In addition to the items included within this table, we also have unfunded pension liabilities totaling $115.4 million and uncertain tax position liabilities of $11.6 million as of December 31, 2015 for which the timing of payment is unknown.

 

(2) Purchase obligations are defined as purchase agreements that are enforceable and legally binding and that specify all significant terms, including quantity, price, and the approximate timing of the transaction. The obligation reflected in the table relates primarily to a sponsorship agreement.

 

(3) Interest on long-term debt obligations is calculated based on debt outstanding and interest rates in effect on December 31, 2015, taking into account scheduled maturities and amortizations and including the impact of our two interest rate swaps that were in effect on that date. Interest on debt denominated in other currencies is calculated based on the exchange rate at December 31, 2015.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of its financial conditions and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management 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, management evaluates its estimates. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the

 

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results of which may differ from these estimates. Our significant accounting policies are fully disclosed in our annual consolidated financial statements included elsewhere in this prospectus. We consider the following policies to be most critical in understanding the judgments that are involved in preparing our consolidated financial statements. For a discussion of new accounting pronouncements that may affect us, refer to Note 1—Summary of Significant Accounting Policies under the heading “Recently Issued Accounting Standards” in our financial statements for the year ended December 31, 2015 included elsewhere in this prospectus.

Revenue Recognition

We recognize revenue when four basic criteria have been met: (i) persuasive evidence of a customer arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered. We recognize revenue based on the invoice price less allowances for sales returns, cash discounts, and other deductions as required under GAAP. Amounts billed for shipping and handling are included in net revenues, while costs incurred for shipping and handling are included in cost of sales. Incentive payments to customers that directly relate to future business are recorded as a reduction of net revenues over the periods during which such future benefits are realized.

Acquisitions

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. If the fair value of the acquired assets exceeds the purchase price the difference is recorded as a bargain purchase in other income (expense). Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. As a result, during the measurement period, which may be up to one year from the acquisition date, material adjustments must be reflected in the comparative consolidated financial statements in the period in which the adjustment amount will be determined. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statements of operations. Newly acquired entities are included in our results from the date of their respective acquisitions.

Allowance for Doubtful Accounts

Substantially all accounts receivable arise from sales to customers in our manufacturing and distribution businesses and are recognized net of offered cash discounts. Credit is extended in the normal course of business under standard industry terms that normally reflect 60 day or less payment terms and do not require collateral. An allowance is recorded based on a variety of factors, including the length of time receivables are past due, the financial health of our customers, unusual macroeconomic conditions and historical experience. If the customer’s financial conditions were to deteriorate resulting in the inability to make payments, additional allowances may need to be recorded which would result in additional expenses being recorded for the period in which such determination was made.

Inventories

Inventories are valued at the lower of cost or market and are determined by the first-in-first-out, or “FIFO”, or average cost methods. We record provisions to write-down obsolete and excess inventory to estimated net realizable value. The process for evaluating obsolete and excess inventory requires us to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be able to be sold in the normal course of business. Accelerating the disposal process or incorrect estimates of future sales potential may cause actual results to differ from the estimates at the time such inventory is disposed or sold.

 

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Intangible Assets

Definite lived intangible assets are amortized on a straight-line basis over their estimated useful lives that typically range from 5 to 40 years. The lives of definite lived intangible assets are reviewed and reduced if necessary whenever changes in their planned use occur. Legal and registration costs related to internally developed patents and trademarks are capitalized and amortized over the lesser of their expected useful life or the legal patent life. The carrying value of intangible assets is reviewed by management to assess the recoverability of the assets when facts and circumstances indicate that the carrying value may not be recoverable.

Long-Lived Assets

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business or a change in utilization of property and equipment.

We group assets to test for impairment at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the assets.

When evaluating long-lived assets and definite lived intangible assets for potential impairment, the first step to review for impairment is to forecast the expected undiscounted cash flows generated from the anticipated use and eventual disposition of the asset. If the expected undiscounted cash flows are less than the carrying value of the asset, then an impairment charge is required to reduce the carrying value of the asset to fair value. If we recognize an impairment loss, the carrying amount of the asset is adjusted to fair value based on the discounted estimated future net cash flows and will be its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated over the remaining useful life of that asset. For an amortizable intangible asset, the new cost basis will be amortized over the remaining useful life of the asset. Our impairment loss calculations require management to apply judgments in estimating future cash flows to determine asset fair values, including forecasting useful lives of the assets and selecting the discount rate that represents the risk inherent in future cash flows.

Goodwill

Goodwill is tested for impairment on an annual basis and between annual tests if indicators of potential impairment exist, using a fair-value-based approach. Current accounting guidance provides an entity the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more likely than not that the fair value of a reporting is greater than its carrying amount, the two-step goodwill impairment test is not required.

If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount (including attributable goodwill). If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill. Fair value of the reporting unit is determined using a discounted cash flow analysis. If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed.

 

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We estimated the fair value of our reporting units using a discounted cash flow model (implied fair value measured on a non-recurring basis using level 3 inputs). Inherent in the development of the discounted cash flow projections are assumptions and estimates of our future revenue growth rates, profit margins, business plans, cost of capital and tax rates. Our judgments with respect to these metrics are based on historical experience, current trends, consultations with external specialists, and other information. Changes in assumptions or estimates used in our goodwill impairment testing could materially affect the determination of the fair value of a reporting unit, and therefore, could eliminate the excess of fair value over carrying value of a reporting unit and, in some cases, could result in impairment. Such changes in assumptions could be caused by items such as a loss of one or more significant customers, decline in the demand for our products due to changing economic conditions or failure to control cost increases above what can be recouped in sale price increases. These types of changes would negatively affect our profits, revenues and growth over the long term and such a decline could significantly affect the fair value assessment of our reporting units and cause our goodwill to become impaired.

As of March 26, 2016, the fair value of our North America, Europe and Australasia reporting units would have to decline by approximately 68%, 51%, and 50%, respectively, to be considered for potential impairment.

Warranty Accrual

Warranty terms range primarily from one year to lifetime on certain window and door components. Warranties are normally limited to replacement or service of defective components for the original customer. Some warranties are transferable to subsequent owners and are generally limited to ten years from the date of manufacture or require pro-rata payments from the customer. A provision for estimated warranty costs is recorded at the time of sale based on historical experience and we periodically adjust these provisions to reflect actual experience.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate both the positive and negative evidence that is relevant in assessing whether we will realize the deferred tax assets. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. Given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next twelve months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of our valuation allowance will no longer be needed. The potential release of the valuation allowance is dependent on our ability to achieve sustained profitable operations from continued execution of our operating strategy. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease in the provision for income taxes for the period the release is recorded. However, we will enter into the Tax Receivable Agreement that will provide for the payment by us to our Pre-IPO Stockholders of 85% of the amount of tax benefits, if any, that we actually realize (or in some circumstances are deemed to realize) as a result of (i) the Existing Tax Attributes and (ii) certain other tax benefits related to our making payments under the Tax Receivable Agreement. See “Certain Relationships and Related Party Transactions—Tax Receivable Agreement”. Therefore, the exact timing and amount of the valuation allowance release and the ultimate impact on our financial statements are subject to change on the basis of the level of profitability that we are able to actually achieve and the terms outlined in the Tax Receivable Agreement.

The tax effects from an uncertain tax position can be recognized in the consolidated financial statements, only if the position is more likely than not to be sustained, based on the technical merits of the position and the

 

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jurisdiction taxes of the Company. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit and the tax related to the position would be due to the entity and not the owners. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority. We apply this accounting standard to all tax positions for which the statute of limitations remains open. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

We file a consolidated federal income tax return in the United States and various states. For financial statement purposes, we calculate the provision for federal income taxes using the separate return method. Certain subsidiaries file separate tax returns in certain countries and states. Any state and foreign income taxes refundable and payable are reported in other current assets and accrued income taxes payable in the consolidated balance sheets. We record interest and penalties on amounts due to tax authorities as a component of income tax expense in the consolidated statements of operations.

Derivative Financial Instruments

We utilize derivative financial instruments to manage interest rate risk associated with our borrowings and foreign currency exposures related to subsidiaries that operate outside the United States and use their local currency as the functional currency. We record all derivative instruments in the consolidated balance sheets at fair value. Changes in a derivative’s fair value are recognized in earnings unless specific hedge criteria are met and we elect hedge accounting prior to entering into the derivative. If a derivative is designated as a fair value hedge, the changes in fair value of both the derivative and the hedged item attributable to the hedged risk are recognized in the results of operations. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in consolidated other comprehensive income (loss) and subsequently classified to the consolidated statements of operations when the hedged item impacts earnings. At the inception of a fair value or cash flow hedge transaction, we formally document the hedge relationship and the risk management objective for undertaking the hedge. In addition, we assess both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging transaction has been highly effective in offsetting changes in fair value or cash flows of the hedged item and whether the derivative is expected to continue to be highly effective. The impact of any ineffectiveness is recognized in our consolidated statements of operations.

Share-based Compensation Plan

We have a share-based compensation plan, which dictates the issuance of common shares and B-1 common shares to employees as compensation through various grants of share instruments. We apply the fair value method of accounting using the Black-Scholes option pricing model to determine the compensation expense for stock appreciation rights. The compensation expense for the Restricted Stock Units awarded is based on the fair value of the restricted stock units at the date of grant. Compensation expense is recorded in the consolidated statements of comprehensive income (loss) and is recognized over the requisite service period. The determination of obligations and compensation expense requires the use of several mathematical and judgmental factors, including stock price, expected volatility, the anticipated life of the option, and estimated risk free rate and the number of shares or share options expected to vest. Any difference in the number of shares or share options that actually vest can affect future compensation expense. Other assumptions are not revised after the original estimate. For stock options granted prior to this offering, we prepared the valuations with the assistance of a third-party valuation firm, utilizing approaches and methodologies consistent with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation and information provided by our management, including historical and projected financial information, prospects and risks, our performance, various corporate documents, capitalization, and economic and financial market conditions. Management, with its third-party valuation firm, also utilized other economic, industry, and market information obtained from other resources considered reliable.

 

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The Black-Scholes option-pricing model requires the use of weighted average assumptions for estimated expected volatility, estimated expected term of stock options, risk-free rate, estimated expected dividend yield, and the fair value of the underlying common stock at the date of grant. Because we do not have sufficient history to estimate the expected volatility of our common stock price, expected volatility is based on a selection of public guideline companies. We estimate the expected term of all stock options based on previous history of exercises. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected dividend yield is 10 percent which is consistent with the preferred stock dividend rate. The fair value of the underlying common stock at the date of grant is discussed below. We estimate forfeitures based on our historical analysis of actual stock option forfeitures. Actual forfeitures are recorded when incurred and estimated forfeitures are reviewed and adjusted at least annually.

Common Stock Valuations

Due to the absence of an active market for our common stock, the fair value of our common stock was determined in good faith by our management, with the assistance and upon the recommendation of management, based on a number of objective and subjective factors consistent with the methodologies outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, referred to as the AICPA Practice Aid.

The key assumptions we used in our valuations to determine the fair value of our common stock on each valuation date included forecasted financial performance, multiples of guideline public companies, and a lack of marketability discount.

Capital Expenditures

We expect that the majority of our capital expenditures will be focused on supporting our cost reduction and efficiency improvement projects, certain growth initiatives, and to a lesser extent, on sustaining our current manufacturing operations. We are subject to health, safety, and environmental regulations that may require us to make capital expenditures to ensure our facilities are compliant with those various regulations.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various types of market risks, including the effects of adverse fluctuations in foreign currency exchange rates, adverse changes in interest rates, and adverse movements in commodity prices for products we use in our manufacturing. To reduce our exposure to these risks, we maintain risk management controls and policies to monitor these risks and take appropriate actions to attempt to mitigate such forms of market risk.

Exchange Rate Risk

We have global operations and therefore enter into transactions denominated in various foreign currencies. To mitigate cross-currency transaction risk, we analyze significant exposures where we have receipts or payments in a currency other than the functional currency of our operations, and from time to time we may strategically enter into short-term foreign currency forward contracts to lock in some or all of the cash flows associated with these transactions. We also are subject to currency translation risk associated with converting our foreign operations’ financial statements into U.S. dollars. We use short-term foreign currency forward contracts and swaps to mitigate the impact of foreign exchange fluctuations on consolidated earnings. We use foreign currency derivative contracts, with a total notional amount as of March 26, 2016 of $35.5 million, in order to manage the effect of exchange fluctuations on forecasted sales, purchases, acquisitions, inventory, capital expenditures, and certain intercompany transactions that are denominated in foreign currencies. We use foreign currency derivative contracts, with a total notional amount as of March 26, 2016 of $56.1 million, to hedge the

 

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effects of translation gains and losses on intercompany loans and interest. We also use foreign currency derivative contracts, with a total notional amount as of March 26, 2016 of $155.8 million, to mitigate the impact to the consolidated earnings of the Company from the effect of the translation of certain subsidiaries’ local currency results into U.S. dollars. We do not use derivative financial instruments for trading or speculative purposes.

Interest Rate Risk

We are subject to interest rate market risk in connection with our long-term debt, which is primarily floating rate. To manage our interest rate risk we enter into interest rate swaps where we deem it appropriate. We do not use financial instruments for trading or other speculative purposes and are not a party to any leveraged derivative instruments. Our net exposure to interest rate risk is based on the difference between outstanding variable rate debt and the notional amount of our designated interest rate swaps. We assess interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate risk attributable to both our outstanding or forecasted debt obligations as well as any offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows.

Our primary interest rate risk is associated with our credit facilities in the United States, Canada, Australia, and Europe. A hypothetical 100 basis point increase in interest rates would result in an additional $16.1 million in interest expense per annum under our credit facilities, assuming fully-drawn utilization of each facility. Accordingly, we entered into forward starting interest rate swap agreements to effectively change the interest rate on a portion of our variable rate Term Loan Facility to a fixed rate. As of December 31, 2015, we had eight outstanding forward starting interest rate swaps that expire in 2019, two of which became effective September 30, 2015, with the remaining interest rate swaps scheduled to become effective on June 30, 2016, September 30, 2016, and December 30, 2016. These eight interest rate swaps hedge $972 million of floating rate date. Accordingly, after giving effect to such interest rate swaps, a hypothetical 100 basis point increase in interest rates would result in an additional $6.6 million in interest expense per annum under our credit facilities, assuming fully-drawn utilization of each facility. All eight interest rate swaps have been designated as cash flow hedges against variability in future interest rate payments on the Term Loan Facility and are marked to market through consolidated other comprehensive income (loss). Gains and losses are realized in other income (loss) at the time of settlement payment from or to the swap counterparty.

By using derivative financial instruments to hedge exposures to changes in interest rates and foreign currency fluctuations, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, we are not exposed to the counterparty’s credit risk in those circumstances. We attempt to minimize counterparty credit risk in derivative instruments by entering into transactions with high-quality counterparties whose credit rating is higher than Aa. Our derivative instruments do not contain credit risk related contingent features.

Raw Materials Risk

Our major raw materials include glass, vinyl extrusions, aluminum, steel, wood, hardware, adhesives, and packaging. Prices of these commodities can fluctuate significantly in response to, among other things, variable worldwide supply and demand across different industries, speculation in commodities futures, general economic or environmental conditions, labor costs, competition, import duties, tariffs, worldwide currency fluctuations, freight, regulatory costs, and product and process evolutions that impact demand for the same materials. Increasing raw material prices directly impact our cost of sales, and our ability to maintain margins depends on implementing price increases in response to increasing raw material costs. The market for our products may or

 

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may not accept price increases, and as such there is no assurance that we can maintain margins in an environment of rising commodity prices. See “Risk Factors—Risks Relating to Our Business and Industry—Prices of the raw materials we use to manufacture our products are subject to fluctuations, and we may be unable to pass along to our customers the effects of any price increases”.

We have not historically used derivatives or similar instruments to hedge commodity price fluctuations. We purchase from multiple, geographically diverse companies in order to mitigate the adverse impact of higher prices for our raw materials. We also maintain other strategies to mitigate the impact of higher raw material, energy, and commodity costs, which typically offset only a portion of the adverse impact.

 

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BUSINESS

Our Company

We are one of the world’s largest door and window manufacturers, and we hold the #1 position by net revenues in the majority of the countries and markets we serve. We design, produce, and distribute an extensive range of interior and exterior doors, wood, vinyl, and aluminum windows, and related products for use in the new construction and R&R of residential homes and, to a lesser extent, non-residential buildings. We attribute our market leadership to our well-established brands, broad product offering, world-class manufacturing and distribution capabilities, and our long-standing customer relationships. Our goal is to achieve best-in-industry financial performance through the rigorous execution of our strategies, to reduce costs and improve quality through the implementation of operational excellence programs, drive profitable organic growth, pursue strategic acquisitions, and develop top talent.

We market our products globally under the JELD-WEN brand, along with several market-leading regional brands such as Swedoor and DANA in Europe and Corinthian, Stegbar, and Trend in Australia. Our customers include wholesale distributors and retailers as well as individual contractors and consumers. As a result, our business is highly diversified by distribution channel, geography, and construction application, as illustrated in the charts below:

 

 

LOGO

 

(1) Percentage of net revenues by construction application is a management estimate based on the end markets into which our customers sell.

We believe our global diversification will continue to support our growth as construction activity across our various end markets continues to expand. This diversification also helps to insulate us against over-dependence on the construction trends of any particular market or region.

As one of the largest door and window companies in the world, we have invested significant capital to build a business platform that we believe is unique among our competitors. We operate 113 manufacturing facilities in 19 countries, located primarily in North America, Europe, and Australia. Our global manufacturing footprint is strategically sized and located to meet the delivery requirements of our customers. For many product lines, our manufacturing processes are vertically integrated, enhancing our range of capabilities, our ability to innovate, and our quality control, as well as providing us with supply chain, transportation, and working capital savings. We believe that our manufacturing network allows us to deliver our broad portfolio of products to a wide range of customers across the globe, improves our customer service, and strengthens our market positions.

Our History

We were founded in 1960 by Richard L. Wendt, when he, together with four business partners, bought a millwork plant in Oregon. The subsequent decades were a time of successful expansion and growth as we added different businesses and product categories such as interior doors, exterior steel doors, and vinyl windows.