424B4 1 d305299d424b4.htm 424B4 424B4
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Filed Pursuant to Rule 424(b)(4)
Registration Statement No. 333-211761

25,000,000 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 22,272,727 shares of common stock, and the selling stockholders named herein are selling 2,727,273 shares of common stock. The underwriters also have an option to purchase up to 3,750,000 additional shares of common stock from the selling stockholders. We will not receive any of the proceeds from the shares of common stock sold by the selling stockholders.

Prior to this offering, there has been no public market for our common stock. We have received approval to list our common stock on the New York Stock Exchange under the symbol “JELD”.

After the completion of this offering, funds managed by Onex Partners Manager LP and its affiliates will own approximately 63.4% of our common stock (59.9% 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 the New York Stock Exchange.

 

 

Investing in our common stock involves risk. See “Risk Factors” beginning on page 20 to read about factors you should consider before buying shares of our common stock.

 

     Per Share      Total  

Price to public

   $ 23.00       $ 575,000,000   

Underwriting discounts and commissions(1)

   $ 1.4375       $ 35,937,500   

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

   $ 21.5625       $ 480,255,676   

Proceeds, before expenses, to the selling stockholders

   $ 21.5625       $ 58,806,824   

 

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

Delivery of the shares of common stock will be made on or about February 1, 2017.

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

Deutsche Bank Securities

    RBC Capital Markets
BofA Merrill Lynch   Goldman, Sachs & Co.   Wells Fargo Securities
Baird   FBR   SunTrust Robinson Humphrey

The date of this prospectus is January 26, 2017.


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     20   

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     45   

USE OF PROCEEDS

     47   

DIVIDEND POLICY

     48   

CAPITALIZATION

     49   

DILUTION

     52   

SELECTED CONSOLIDATED FINANCIAL DATA

     54   

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

     59   

BUSINESS

     94   

MANAGEMENT

     112   

EXECUTIVE COMPENSATION

     120   

PRINCIPAL AND SELLING STOCKHOLDERS

     145   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     148   

DESCRIPTION OF CAPITAL STOCK

     153   

DESCRIPTION OF CERTAIN INDEBTEDNESS

     158   

SHARES ELIGIBLE FOR FUTURE SALE

     162   

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

     164   

UNDERWRITING

     169   

LEGAL MATTERS

     177   

EXPERTS

     177   

WHERE YOU CAN FIND MORE INFORMATION

     177   

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 you to. Neither we, the selling stockholders 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. 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. 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 17, 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, Aneeta®, Breezway®, 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:

 

    “2016 Dividend Transactions” means (i) the borrowing of an additional $375 million under our Term Loan Facility, (ii) the application of approximately $35 million in cash and borrowings under our ABL Facility for the purposes described in this definition, (iii) payments of approximately $400 million to holders of our outstanding common stock, Series A Convertible Preferred Stock, Class B-1 Common Stock, options, and Restricted Stock Units, or “RSUs”, (collectively, the “2016 Dividend”), (iv) the release of Onex BP Finance LP as a borrower under our Term Loan Facility, (v) the repricing of all of our outstanding term loans and maturity extension of our Initial Term Loans (as defined below) due October 15, 2021 to match the maturity of our 2015 Incremental Term Loans (as defined below) due July 1, 2022, and (vi) the amendment of our Term Loan Facility and ABL Facility in connection with the foregoing. The 2016 Dividend Transactions occurred in November 2016. See “Description of Certain Indebtedness” and “Dividend Policy”;

 

    “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: income (loss) from discontinued operations, net of tax; gain (loss) on sale of discontinued operations, net of tax; equity earnings (loss) of non-consolidated entities; income tax benefit (expense); depreciation and amortization; interest expense, net; impairment and restructuring charges; gain (loss) on sale of property and equipment; share-based compensation expense; non-cash foreign exchange transaction/translation income (loss); other non-cash items; other items; and costs related to debt restructuring, debt refinancing, and the Onex Investment. For a discussion of our presentation of Adjusted EBITDA, see footnote 3 to the table under the heading “Prospectus Summary—Summary Consolidated Financial Data” and footnote 3 to the table under the heading “Selected Consolidated Financial Data”;

 

    “Australia Senior Secured Credit Facility” means collectively, our AUD $18 million cash advance facility, our AUD $8 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 $950,000 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;

 

    “Code” means the U.S. Internal Revenue Code of 1986, as amended;

 

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

 

    “Credit Facilities” means collectively, our Corporate Credit Facilities, our Australia 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;

 

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

 

    “JWHI” means JELD-WEN Holding, Inc., a Delaware corporation, on a stand-alone basis;

 

    “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;

 

    “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 the conversion of all outstanding shares of our Series A Convertible Preferred Stock and 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, which will occur immediately prior to the consummation of this offering. On February 1, 2017, our Series A Convertible Preferred Stock will convert into 64,211,172 shares of our common stock and our Class B-1 Common Stock will convert into 309,404 shares of our common stock; and

 

    “Term Loan Facility” means our term loan facility, dated as of October 15, 2014, with JWI, as borrower, 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 (i) on July 1, 2015 in connection with the borrowing of $480 million of incremental term loans and (ii) on November 1, 2016 in connection with the borrowing of $375 million of incremental term loans, and as further amended from time to time. As of November 1, 2016, we had approximately $1,611.6 million of term loans outstanding under the Term Loan Facility.

 

 

PRESENTATION OF FINANCIAL INFORMATION

Unless otherwise indicated, all financial information contained in this prospectus for all periods presented gives effect to the 11-for-1 stock split of our common stock and Class B-1 Common Stock that was effected on January 3, 2017.

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.

 

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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 “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 3 to the table under the heading “Prospectus Summary—Summary Consolidated Financial Data” and footnote 3 to the table under the heading “Selected Consolidated Financial Data”. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues.

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 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 we operate, and capital investments. We use Adjusted EBITDA and Adjusted EBITDA margin to measure our financial performance and also to report our results to our board of directors. Further, our executive incentive compensation is based in part on Adjusted EBITDA. In addition, we use Adjusted EBITDA as calculated herein for purposes of calculating compliance with our debt covenants in our Corporate Credit Facilities. 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, and should not be considered as an alternative to any other measure derived in accordance with GAAP.

FOREIGN CURRENCY CONVERSION RATES

Amounts reported in Australian Dollars (AUD $) throughout this prospectus are converted to U.S. Dollars at a rate of 0.731 and 0.762 with respect to information as of December 31, 2015 and September 24, 2016, as applicable. Amounts reported in British Pounds (£) throughout this prospectus are converted at a rate of 1.481 and 1.293 with respect to information as of December 31, 2015 and September 24, 2016, as applicable. Amounts reported in Euros (€) throughout this prospectus are converted at a rate of 1.088 and 1.121 with respect to information as of December 31, 2015 and September 24, 2016, as applicable. Amounts reported in Danish Kroner (DKK) throughout this prospectus are converted at a rate of 0.146 and 0.150 with respect to information as of December 31, 2015 and September 24, 2016, as applicable.

CONVERSION OF SERIES A CONVERTIBLE PREFERRED STOCK AND CLASS B-1 COMMON STOCK

Our Series A Convertible Preferred Stock and Class B-1 Common Stock will convert into our common stock immediately prior to the consummation of this offering. On February 1, 2017, our Series A Convertible Preferred Stock will convert into 64,211,172 shares of our common stock and our Class B-1 Common Stock will convert into 309,404 shares of our common stock.

 

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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 115 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 by implementing the JELD-WEN Excellence Model, or “JEM”; (ii) profitable organic growth; and (iii) strategic acquisitions.

 

Name

  

Position

  Joined
  JELD-WEN  
  

Prior Experience

Kirk Hachigian

   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

Laura W. Doerre

   Executive Vice President, General Counsel & Chief Compliance Officer   2016    Nabors Industries Ltd.

John Dinger

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

Peter Maxwell

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

Peter Farmakis

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

John Linker

   Senior Vice President, Corporate Development & Investor Relations   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 580 basis points and our Adjusted EBITDA has grown at a 37.7% compound annual growth rate, or “CAGR”, from the year ended December 31, 2013 through the twelve-month period ended September 24, 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 September 24, 2016, our net revenues were $3.6 billion, our net income was $144.8 million, and our Adjusted EBITDA was $369.2 million. Adjusted EBITDA has increased by $216.0 million, or 141.0%, and net income has increased by $213.2 million from the year ended December 31, 2013 to the twelve-month period ended September 24, 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-added 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(1)   44   28   43
Key Market Positions(2)  

•    #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 doors

 

–    #1 in residential doors in Germany, Switzerland, and Scandinavia

 

–    #2 in residential doors in the United Kingdom and Austria

 

–    #3 in residential doors in France

 

•    #1 in non-residential doors

 

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

 

–    #2 in non-residential doors in France

 

•    #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(3)  

•    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(1)  

•    JELD-WEN

 

•    CraftMaster

 

•    LaCantina

 

•    Karona

 

•    JELD-WEN

 

•    Swedoor

 

•    DANA

 

•    Dooria

 

•    Kilsgaard

 

•    JELD-WEN

 

•    Stegbar

 

•    Corinthian

 

•    Trend

 

•    Aneeta

 

•    Regency

 

•    Breezway

 

(1) As of January 13, 2017.
(2) Based on the Freedonia Report. Our market position is based on rankings by net revenues. Europe segment market position is based on net revenues in Germany, Austria, Switzerland, France, the United Kingdom, and Scandinavia.
(3) Percentage of net revenues by construction application is a management estimate based on the end markets into which our customers sell.

 



 

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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 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 Australasia 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 in Australia 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, such as JEM, 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.

 



 

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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 through our JEM initiative. Historically, we were not centrally managed and had a limited focus on continued cost reduction, operational improvement, and strategic material sourcing. This resulted in profit margins that were lower than our building products peers and far lower than what would typically be expected of a world-class industrial company.

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

 

    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, including JEM, 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 product lines and line extensions in North America in recent years, such as the Siteline window series, 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, a wood window line extension, and the Alumiere aluminum window series. 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, architect, 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 television advertising as well as partnerships such as “Dream Home Giveaway” on

 



 

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HGTV in the United States and the “House Rules” television 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, as well as increasing the frequency with which our products are sought after by consumers and specified by builders and architects.

 

    Channel Management: We are implementing initiatives and investing in tools and technology to enhance our relationships with key customers, make it easier for them to source from JELD-WEN, and support their ability to sell our products in the marketplace. 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-added 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 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 from pricing products based on contribution margin targets to an approach of pricing products based on 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 management team, including our Chairman, 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), Aneeta (sashless windows), and Breezway (louver windows) are examples of this strategy.

 

    New Markets and Geographies: Opportunities also exist to expand our company through the acquisition of complementary door and window manufacturers in new geographies as well as providers of product 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, Dooria, and Breezway 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 Chairman, Kirk Hachigian, who joined our team as interim Chief Executive Officer 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.

 



 

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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 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 115 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 60% 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 one-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 115 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.

Recent Developments

Preliminary Financial Results for the Three Months and Year Ended December 31, 2016

Our financial results for the year ended December 31, 2016 are not yet complete and will not be available until after the completion of this offering. Accordingly, we are presenting below certain preliminary estimated unaudited financial results for the three months and year ended December 31, 2016. Our estimated results contained in this prospectus are forward-looking statements based solely on information available to us as of the date of this prospectus and may differ materially from actual results. Actual results remain subject to the completion of management’s and our audit committee’s reviews and our other financial closing procedures, as well as the completion of the audit of our annual consolidated financial statements. Accordingly, you should not place undue reliance on this preliminary data. Please refer to “Cautionary Note Regarding Forward-Looking Statements”. These preliminary results should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (in particular for our definition of “core net revenues”) and the consolidated financial statements and related notes thereto included elsewhere in this prospectus. For additional information, please see “Risk Factors”.

 



 

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The preliminary estimated unaudited financial results included in this prospectus have been prepared by and are the responsibility of JWHI’s management. Our independent registered public accounting firm, PricewaterhouseCoopers LLP, has not audited, reviewed, compiled, or performed any procedures with respect to the preliminary financial results. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any other form of assurance with respect thereto.

We estimate that consolidated net revenues will be between $3,647 million and $3,687 million for the year ended December 31, 2016 as compared to $3,381.1 million for the year ended December 31, 2015, an increase of between $266 million and $306 million. The increase in consolidated net revenues for the year ended December 31, 2016 was driven by an approximate 6% increase due to acquisitions, an approximate 3% increase in core net revenues and an approximate 1% unfavorable foreign exchange impact. We estimate that consolidated net revenues will be between $953 million and $993 million for the three months ended December 31, 2016 as compared to $890.9 million for the three months ended December 31, 2015, an increase of between $62 million and $102 million. The increase in consolidated net revenues for the three months ended December 31, 2016 was driven by an approximate 5% increase due to acquisitions, an approximate 5% increase in core net revenues and an approximate 1% unfavorable foreign exchange impact.

We estimate that North America net revenues will be between $2,138 million and $2,161 million for the year ended December 31, 2016 as compared to $2,015.7 million for the year ended December 31, 2015, an increase of between $122 million and $145 million. The increase in North America net revenues was driven by an approximate 3% increase due to acquisitions and an approximate 4% increase in core net revenues. We estimate that North America net revenues will be between $558 million and $581 million for the three months ended December 31, 2016 as compared to $527.1 million for the three months ended December 31, 2015, an increase of between $31 million and $54 million. The increase in North America net revenues for the three months ended December 31, 2016 was driven primarily by an approximate 8% increase in core net revenues.

We estimate that Europe net revenues will be between $1,003 million and $1,014 million for the year ended December 31, 2016 as compared to $996.0 million for the year ended December 31, 2015, an increase of between $7 million and $18 million. The increase in Europe net revenues was driven by an approximate 3% increase due to acquisitions, an approximate 1% increase in core net revenues and an approximate 3% unfavorable foreign exchange impact. We estimate that Europe net revenues will be between $251 million and $262 million for the three months ended December 31, 2016 as compared to $268.2 million for the three months ended December 31, 2015, a decrease of between $17 million and $6 million. The decrease in Europe net revenues for the three months ended December 31, 2016 was driven by an approximate 4% unfavorable foreign exchange impact.

We estimate that Australasia net revenues will be between $506 million and $512 million for the year ended December 31, 2016 as compared to $369.3 million for the year ended December 31, 2015, an increase of between $137 million and $143 million. The increase in Australasia net revenues was driven by an approximate 37% increase due to acquisitions, an approximate 2% increase in core net revenues and an approximate 1% unfavorable foreign exchange impact. We estimate that Australasia net revenues will be between $144 million and $150 million for the three months ended December 31, 2016 as compared to $95.6 million for the three months ended December 31, 2015, an increase of between $48 million and $54 million. The increase in Australasia net revenues for the three months ended December 31, 2016 was driven by an approximate 47% increase due to acquisitions, an approximate 2% increase in core net revenues and an approximate 5% favorable foreign exchange impact.

 



 

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The preliminary estimated unaudited financial results disclosed above reflect management’s estimates based solely upon information available as of the date of this prospectus and are not a comprehensive statement of our financial results for the three months or the year ended December 31, 2016. The information presented herein should not be considered a substitute for the financial information to be filed with the SEC in our Annual Report on Form 10-K for the year ended December 31, 2016 once it becomes available. We have no intention or obligation to update the preliminary estimated unaudited financial results in this prospectus prior to filing our Annual Report on Form 10-K for the year ended December 31, 2016.

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, including JEM;

 

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

 

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

 

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

 

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

 

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

 

    exchange rate fluctuations;

 

    disruptions in our operations;

 

    security breaches and other cybersecurity incidents;

 

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

 

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

 

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

 

    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 weaknesses that have been identified.

 



 

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Our Corporate Information

JELD-WEN, Inc. was initially incorporated as an Oregon corporation in 1960 and JELD-WEN Holding, Inc. was initially incorporated as an Oregon corporation in 1999. On May 31, 2016, JELD-WEN Holding, Inc. reincorporated as a Delaware corporation. JELD-WEN Holding, Inc. is a holding company that conducts its operations through its direct and indirect subsidiaries, primarily JELD-WEN, Inc. 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 New York Stock Exchange 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. Through Onex Credit, Onex manages and invests in leveraged loans, collateralized loan obligations, and other credit securities. Onex has approximately $23 billion of assets under management, including $6 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

22,272,727 shares.

 

Common stock offered by the selling stockholders

2,727,273 shares (or 6,477,273 shares if the underwriters exercise their option to purchase additional shares in full).

 

Common stock to be outstanding after this offering


104,881,637 shares.

 

Option to purchase additional shares

The underwriters have an option to purchase up to 3,750,000 additional shares from the selling stockholders. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

 

Use of proceeds

The net proceeds to us from this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $472.8 million. We intend to use our net proceeds from this offering to repay approximately $375 million of indebtedness outstanding under our Term Loan Facility (a portion of which was used to fund the payments made in connection with the 2016 Dividend Transactions), with remaining net proceeds to us to be used for general corporate purposes. We will not receive any proceeds from the sale of shares by the selling stockholders. 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

“JELD”.

 

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 the New York Stock Exchange.

 

Risk factors

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 20 of this prospectus for a discussion of factors you should carefully consider before investing in our common stock.

 



 

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We intend to complete the Share Recapitalization immediately prior to the consummation of this offering.

Unless otherwise indicated, all information contained in this prospectus:

 

    gives effect to the 11-for-1 stock split of our common stock and Class B-1 Common Stock that was effected on January 3, 2017;

 

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

 

    assumes the underwriters’ option to purchase additional shares from the selling stockholders has not been exercised;

 

    gives effect to the Share Recapitalization; and

 

    reflects the conversion of our Series A Convertible Preferred Stock and Class B-1 Common Stock into our common stock on February 1, 2017.

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

 

    7,652,027 shares of common stock issuable upon the exercise of options outstanding under our existing stock incentive plan as of January 13, 2017 at a weighted average exercise price of $12.66 per share;

 

    385,220 shares of common stock issuable upon the settlement of outstanding RSUs; and

 

    7,500,000 shares of common stock reserved for future issuance under the JELD-WEN Holding, Inc. 2017 Omnibus Equity Plan, which includes approximately 727,379 shares in respect of options and RSUs that the Company intends to grant to certain employees (including certain of our named executive officers, see “Executive Compensation—Long-Term Equity Incentives—Equity Awards to NEOs”) in connection with this offering, assuming the average closing price of a share of our common stock during the first five days of trading is equal to the initial public offering price set forth on the cover page of this prospectus. The actual number of shares of common stock that will be subject to such options and RSUs will increase or decrease to the extent the five-day average price per share is lower or higher than the initial public offering price.

 



 

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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 September 24, 2016 and September 26, 2015 and for each of the nine months ended September 24, 2016 and September 26, 2015 have been derived from our unaudited consolidated financial statements included in this prospectus. We have prepared our unaudited consolidated financial statements on the same basis as our audited consolidated financial statements, and our unaudited 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 September 24, 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 consolidated financial statements for the nine months ended September 24, 2016 and subtracting amounts from our unaudited consolidated financial statements for the nine months ended September 26, 2015. We have presented this financial data because we believe it provides our investors with useful information to assess our recent performance.

 



 

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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 related notes thereto included elsewhere in this prospectus.

 

    Twelve
Months
Ended
    Nine Months Ended     Year Ended December 31,  
    September 24,
2016
    September 24,
2016
    September 26,
2015
    2015     2014     2013  
    (dollars in thousands, except share and per share data)  

Net revenues

  $ 3,584,578      $ 2,693,630      $ 2,490,112      $ 3,381,060      $ 3,507,206      $ 3,456,539   

Cost of sales

    2,832,342        2,112,185        1,994,968        2,715,125        2,919,864        2,946,463   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    752,236        581,445        495,144        665,935        587,342        510,076   

Selling, general and administrative

    550,465        408,360        370,021        512,126        488,477        482,088   

Impairment and restructuring charges

    14,830        9,045        15,557        21,342        38,388        42,004   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    186,941        164,040        109,566        132,467        60,477        (14,016

Interest expense, net

    (73,808     (53,725     (40,549     (60,632     (69,289     (71,362

Other income (expense)

    13,101        8,960        9,979        14,120        (50,521     12,323   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    126,234        119,275        78,996        85,955        (59,333     (73,055

Income tax benefit (expense)

    18,643        5,633        (7,575     5,435        (18,942     (1,142
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    144,877        124,908        71,421        91,390        (78,275     (74,197

Loss from discontinued operations, net of tax

    (3,656     (2,845     (2,045     (2,856     (5,387     (5,863

Gain on sale of discontinued operations, net of tax

    —          —          —          —          —          10,711   

Equity earnings (loss) of non-consolidated entities

    3,601        2,450        1,233        2,384        (447     943   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 144,822      $ 124,513      $ 70,609      $ 90,918      $ (84,109   $ (68,406
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

           

Basic

  

  $ 16,298      $ (281,427   $ (290,500   $ (184,143   $ (157,205

Diluted

  

  $ 16,298      $ (281,427   $ (290,500   $ (184,143   $ (157,205

Weighted average common shares outstanding(1)

   

         

Basic

  

    17,965,178        18,448,331        18,296,003        20,440,057        21,113,895   

Diluted

  

    21,156,751        18,448,331        18,296,003        20,440,057        21,113,895   

Income (loss) per common share from continuing operations(1)

   

         

Basic

  

  $ 1.07      $ (15.14   $ (15.72   $ (8.75   $ (7.68

Diluted

  

  $ 0.90      $ (15.14   $ (15.72   $ (8.75   $ (7.68

Pro forma net income (loss) per share attributable to common shareholders(2)

   

         

Basic

  

  $ 1.18        —        $ 0.88        —          —     

Diluted

  

  $ 1.15        —        $ 0.87        —          —     

Pro forma weighted average common shares outstanding(2)

   

         

Basic

  

    105,314,768        —          103,185,385        —          —     

Diluted

  

    108,506,347        —          103,956,416        —          —     

 



 

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    Twelve
Months
Ended
    Nine Months Ended     Year Ended December 31,  
    September 24,
2016
    September 24,
2016
    September 26,
2015
    2015     2014     2013  
    (dollars in thousands, except share and per share data)  

Other financial data:

     

Capital expenditures

  $ 87,278      $ 62,476      $ 52,885      $ 77,687      $ 70,846      $ 85,689   

Depreciation and amortization

    102,921        77,518        69,793        95,196        100,026        104,650   

Adjusted EBITDA(3)

    369,190        291,099        232,895        310,986        229,849        153,210   

Adjusted EBITDA margin(3)

    10.3%        10.8%        9.4%        9.2%        6.6%        4.4%   

Consolidated balance sheet data:

           

Cash and cash equivalents

  

  $ 65,357      $ 79,061      $ 113,571      $ 105,542      $ 37,666   

Accounts receivable, net

  

    492,965        408,926        321,079        329,901        357,363   

Inventories

  

    361,724        383,847        343,736        359,274        391,450   

Total current assets

  

    968,162        936,024        814,418        840,356        828,109   

Total assets

  

    2,435,813        2,227,413        2,182,373        2,184,059        2,290,897   

Accounts payable

  

    216,844        194,721        166,686        179,652        202,621   

Total current liabilities

  

    598,960        554,830        487,445        524,301        593,938   

Total debt

  

    1,272,187        1,271,532        1,260,320        806,228        667,152   

Redeemable convertible preferred stock

  

    458,236        481,937        481,937        817,121        817,121   

Total stockholders’ equity (deficit)

  

    (79,995     (278,797     (231,745     (168,826     54,444   

Statement of cash flows data:

           

Net cash flow provided by (used in):

           

Operating activities

  $ 237,791      $ 110,190      $ 44,738      $ 172,339      $ 21,788      $ (49,372

Investing activities

    (217,036     (141,609     (83,025     (158,452     (56,738     13,939   

Financing activities

    (35,212     (17,426     16,714        (1,072     105,617        34,633   

 

     As of  
     September 24, 2016  
     (dollars in thousands)  
     Actual     Pro
Forma(4)
    Pro Forma
As
Adjusted(5)
 

Pro forma consolidated balance sheet data:

      

Cash and cash equivalents

   $ 65,357      $ 36,182      $ 133,938   

Accounts receivable, net

     492,965        492,965        492,965   

Inventories

     361,724        361,724        361,724   

Total current assets

     968,162        938,987        1,036,743   

Total assets

     2,435,813        2,406,638        2,504,394   

Accounts payable

     216,844        216,844        216,844   

Total current liabilities

     598,960        593,400        593,400   

Total debt

     1,272,187        1,651,104        1,277,042   

Redeemable convertible preferred stock

     458,236        —          —     

Total stockholders’ equity (deficit)

     (79,995     (24,291     447,527   

 

(1) Does not give effect to the 2016 Dividend Transactions or Share Recapitalization.

 

(2) Reflects the 2016 Dividend Transactions and Share Recapitalization. See Note 1 to our financial statements for the year ended December 31, 2015 and Note 1 to our financial statements for the three and nine months ended September 24, 2016 appearing elsewhere in this prospectus for information regarding computation of pro forma basic and diluted net income (loss) per share and pro forma weighted average basic and diluted common shares outstanding.

 

(3) 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.

 



 

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We define Adjusted EBITDA as net income (loss), as adjusted for the following items: income (loss) from discontinued operations, net of tax; gain (loss) on sale of discontinued operations, net of tax; equity earnings (loss) of non-consolidated entities; income tax benefit (expense); depreciation and amortization; interest expense, net; impairment and restructuring charges; gain (loss) on sale of property and equipment; share-based compensation expense; non-cash foreign exchange transaction/translation income (loss); other non-cash items; other items; and costs related to debt restructuring, debt refinancing, and the Onex Investment.

We use this non-GAAP measure in assessing our performance in addition to net income (loss) determined in accordance with GAAP. We believe Adjusted EBITDA is an important measure to be used in evaluating operating performance because it allows management and investors to better evaluate and compare our core operating results from period to period by removing the impact of our capital structure (net interest income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, other non-operating items, and share-based compensation. Furthermore, the instruments governing our indebtedness use Adjusted EBITDA to measure our compliance with certain limitations and covenants. We reference this non-GAAP financial measure frequently in our decision making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods. In addition, executive incentive compensation is based in part on Adjusted EBITDA, and we base certain of our forward-looking estimates and budgets on Adjusted EBITDA.

We also believe Adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Adjusted EBITDA eliminates the effect of certain items on net income and thus has certain limitations. Some of these limitations are: Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; Adjusted EBITDA does not reflect any income tax payments we are required to make; and although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacement. Other companies may calculate Adjusted EBITDA differently, and, therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

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

 

    Twelve
Months
Ended
    Nine Months Ended     Year Ended December 31,  
    September 24,
2016
    September 24,
2016
    September 26,
2015
    2015     2014     2013  
    (dollars in this table and the footnotes below in thousands)  

Net income (loss)

  $ 144,822      $ 124,513      $ 70,609      $ 90,918      $ (84,109   $ (68,406

Adjustments:

           

Loss from discontinued operations, net of tax

    3,656        2,845        2,045        2,856        5,387        5,863   

Gain on sale of discontinued operations, net of tax

    —          —          —          —          —          (10,711

Equity (earnings) loss of non-consolidated entities

    (3,601     (2,450     (1,233     (2,384     447        (943

Income tax (benefit) expense

    (18,643     (5,633     7,575        (5,435     18,942        1,142   

Depreciation and amortization

    102,921        77,518        69,793        95,196        100,026        104,650   

Interest expense, net

    73,808        53,725        40,549        60,632        69,289        71,362   

Impairment and restructuring charges(a)

    27,178        12,122        15,975        31,031        38,645        44,413   

(Gain) loss on sale of property and equipment

    (3,759     (3,270     73        (416     (23     (3,039

Share-based compensation expense

    21,892        14,944        8,672        15,620        7,968        5,665   

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

    14,080        7,168        (4,215     2,697        (528     (4,114

Other non-cash items(b)

    4,117        3,087        111        1,141        2,334        (68

Other items(c)

    2,679        6,519        22,733        18,893        20,278        7,284   

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

    40        11        208        237        51,193        112   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 369,190      $ 291,099      $ 232,895      $ 310,986      $ 229,849      $ 153,210   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a)

Impairment and restructuring charges consist of (i) impairment and restructuring charges that are included in our consolidated statements of operations plus (ii) additional charges of $12,347, $3,078, $417, $9,687, $257, and $2,409 for

 



 

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  the twelve months ended September 24, 2016, nine months ended September 24, 2016 and September 26, 2015, and years ended December 31, 2015, 2014, and 2013, respectively. These additional charges are primarily comprised of non-cash changes in inventory valuation reserves, such as excess and obsolete reserves. For further explanation of impairment and restructuring charges that are included in our consolidated statements of operations, see Note 25—Impairment and Restructuring Charges of Continuing Operations in our financial statements for the year ended December 31, 2015 and Note 16—Impairment and Restructuring Charges in our financial statements for the three months and nine months ended September 24, 2016 included elsewhere in this prospectus.

 

  (b) Other non-cash items include, among other things, (i) $2,550 out-of-period charge for a European warranty liability adjustment for the nine months ended September 24, 2016, (ii) charges of $1,250, $357, $0, $893, $2,496, and $0 for the twelve months ended September 24, 2016, nine months ended September 24, 2016 and September 26, 2015, and years ended December 31, 2015, 2014, and 2013, respectively, relating to (1) the fair value adjustment for inventory acquired as part of the acquisitions referred to in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisitions” and (2) the impact of a change in how we capitalize overhead expenses in our valuation of inventory.

 

  (c) Other items include: (i) in the twelve months ended September 24, 2016, (1) $2,449 of professional fees related to the IPO process, (2) $1,833 of recruitment costs related to the recruitment of executive management employees, (3) $1,633 in acquisition costs, (4) $884 of tax consulting costs in Europe, (5) $353 in Dooria plant closure costs, and (6) $263 of pre-acquisition legal costs related to CMI, partially offset by (7) $5,656 of realized gain on foreign exchange hedges related to an intercompany loan; (ii) in the nine months ended September 24, 2016, (1) $2,449 of professional fees related to the IPO process, (2) $1,542 of acquisition costs, (3) $350 in Dooria plant closure costs, (4) $257 in legal costs associated with disposal of non-core properties, and (5) $250 related to a legal settlement accrual for CMI; (iii) in the nine months ended September 26, 2015, (1) $11,696 of stock compensation, including a $11,446 payment to holders of vested options and RSUs in connection with the July 2015 dividend described in “Dividend Policy”, (2) $5,510 related to a UK legal settlement, (3) $1,733 in acquisition costs, (4) $1,422 of legal costs related to non-core property disposal, (5) $861 in production ramp-down costs, and (6) $431 of legal costs related to our ESOP class action matters; (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 UK 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 class action, (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 Dodson, 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.

 

(4) Reflects the 2016 Dividend Transactions and Share Recapitalization. See Note 1 to our financial statements for the three and nine months ended September 24, 2016 appearing elsewhere in this prospectus for information regarding these pro forma adjustments.

 

(5) Reflects (a) the 2016 Dividend Transactions, (b) the Share Recapitalization, (c) our issuance and sale of 22,272,727 shares of our common stock in this offering at the initial public offering price of $23.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (d) the repayment of approximately $375 million of indebtedness outstanding under our Term Loan Facility with a portion of the net proceeds to us from this offering.

 



 

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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 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 loss of customers and/or market share to these competitors or being forced to reduce the prices at which we sell our products to remain competitive.

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

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

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

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

Accordingly, the success of our business depends in part on our ability to maintain strong brands, and identify and respond promptly to evolving trends in demographics, consumer preferences, and expectations and needs, while also managing inventory levels. It is difficult to successfully predict the products and services our customers will demand. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products and acquire or develop the intellectual 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

 

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our products obsolete or too expensive for efficient competition in the marketplace. Our failure to competitively respond to changing consumer and customer trends, demands, and preferences could cause us to lose market share, which could have a material adverse effect on our business, financial condition, and results of operations.

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

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

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

Our future financial performance depends in part on our management’s ability to successfully implement our strategic initiatives, including JEM. We 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 not performing as well as anticipated;

 

    the potential loss of key employees of the acquired company;

 

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

 

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

 

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

 

    our inability to enforce indemnification and non-compete agreements;

 

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

 

    our failure to achieve projected synergies or cost savings;

 

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

 

    the diversion of management attention and financial resources; and

 

    any unforeseen management or 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’ financial condition, could have a material adverse effect on our business, financial condition, and results of operations.

Our business depends on our relationships with our key customers, which consist mainly of wholesale distributors and retail home centers. Our top ten customers together accounted for approximately 40% of our gross revenues in the year ended December 31, 2015, and our largest customer, The Home Depot, accounted for approximately 15% of our gross 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, certain of our large customers perform periodic line reviews to assess their product offering, which have in the past and may in the future lead to loss of business and pricing pressures. Some of our large customers may also experience economic difficulties or otherwise default on their obligations to us. Furthermore, our pricing optimization strategy, which requires maintaining pricing discipline in order to improve profit margins, has in the past and may in the future lead to the loss of certain customers, including key customers, who do not agree to our pricing terms. The loss of, or a diminution in our relationship with, any of our largest customers could lower our sales volumes, which could increase our costs and lower our profitability. This could have a material adverse effect on our business, financial condition, and results of operations.

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

Certain of our significant customers are large companies with strong buying power, and our customers may expand through consolidation or internal growth. Consolidation could decrease the number of potential significant customers for our products and increase our reliance on key customers. Further, the increased size of our customers could result in our customers seeking more favorable terms, including pricing, for the products that they purchase from us. Accordingly, the increased size of our customers may further limit our ability to

 

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maintain or raise prices in the future. This could have a material adverse effect our business, financial condition, and results of operations.

We are subject to the credit risk of our customers.

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

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. The U.S. Federal Reserve recently raised the federal funds rate for the first time in 10 years in December 2015 and again in December 2016, and has announced its intention to continue to raise the federal funds rate over time. An increase in the federal funds 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 may affect the direct cost of materials derived from petroleum, most particularly vinyl. As another example, many consumers demand certified sustainably harvested wood products

 

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as concerns about deforestation have become more prevalent. Certified sustainably harvested wood historically has not been as widely available as non-certified wood, which results in higher prices for sustainably harvested wood. As more consumers demand certified sustainably harvested wood, the price of such wood may increase due to limited supply.

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

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

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

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

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

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

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

Weather patterns may affect our operating results and our ability to maintain our sales volume throughout the year. Because our customers depend on suitable weather to engage in construction projects, increased frequency or duration of extreme weather conditions could have a material adverse effect on our financial results or financial condition. For example, unseasonably cool weather or extraordinary amounts of rainfall may decrease construction activity, thereby decreasing our sales. Also, we cannot predict the effects that global

 

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climate change may have on our business. In addition to changes in weather patterns, it might, for example, reduce the demand for construction, destroy forests (increasing the cost and reducing the availability of wood products used in construction), and increase the cost and reduce the availability of raw materials and energy. New laws and regulations related to global climate change may also increase our expenses or reduce our sales.

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

We have operations in North America, South America, Europe, Australia, and Asia. In the year ended December 31, 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, including as a result of the impact of the proposed exit of the United Kingdom from the European Union.

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

The vote by the United Kingdom mandating its withdrawal from the European Union could have a material adverse effect on our business, financial condition, and results of operations.

The recent referendum vote by the United Kingdom to exit the European Union, or “Brexit,” has created volatility in the global financial markets. The referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last up to two years after the government of the United Kingdom formally initiates a withdrawal process. The effects of the United Kingdom’s withdrawal from the European Union on the global economy, and on our business in particular, will depend on agreements the United Kingdom makes to retain access to European Union markets both during a transitional period and more permanently. Brexit could impair the ability of our operations in the European Union to transact business in the future in the United Kingdom, as well as the ability of our U.K. operations to transact business in the future in the European Union. If the United Kingdom and the European Union are unable to negotiate acceptable withdrawal terms or if other European Union member states pursue withdrawal, barrier-free access between the United Kingdom and other European Union member states or among the European Economic Area overall could be diminished or eliminated.

Brexit is likely to continue to adversely affect European and worldwide economic conditions, and may contribute to greater instability in the global financial markets. Among other things, Brexit could reduce consumer spending in the United Kingdom and the European Union, which could result in decreased demand for

 

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our products. Similarly, housing sales and home values in the United Kingdom and in the European Union could be negatively impacted and Brexit could also influence foreign currency exchange rates. For the year ended December 31, 2015, we derived 5% of our net revenues from our operations in the United Kingdom, and we have moved our European headquarters to the United Kingdom. As a result, the effects of Brexit could inhibit the growth of our business and have a material adverse effect on our business, financial condition, and results of operations.

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

Our operations expose us to both transaction and translation exchange rate risks. In the year ended December 31, 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, because our financial statements are presented in U.S. dollars, we must translate the financial statements of our foreign subsidiaries and affiliates into U.S. dollars at exchange rates in effect during or at the end of each reporting period, and increases or decreases in the value of the U.S. dollar against other major currencies will affect our reported financial results, including the amount of our outstanding indebtedness. Unfavorable exchange rates had a negative impact of 8% on our consolidated net revenues 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, the British pound, or the currencies of large developing countries, would not materially adversely affect our business, financial condition, and results of operations.

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

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

In addition, our operations may be interrupted by terrorist attacks or other acts of violence or war. These attacks may directly impact our suppliers’ or customers’ physical facilities. Furthermore, these attacks may make travel and the transportation of our supplies and products more difficult and more expensive and ultimately have a material adverse effect 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

 

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

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

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

We 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. This ERP system will provide a standardized method of accounting for, among other things, order entry and inventory and should enhance our ability to implement our strategic initiatives. Any delay in the implementation, or disruption in the upgrade, of this system could adversely affect our ability to timely and accurately report financial information, including the filing of our quarterly or annual reports with the SEC. Such delay or disruption could also impact our ability to timely or accurately make payments to our suppliers and employees, and could also inhibit our ability to invoice and collect from our customers. Data integrity problems or other issues may be discovered which, if not corrected, could impact our business or financial results. In addition, we may experience periodic or prolonged disruption of our financial functions arising out of this conversion, general use of such systems, other periodic upgrades or updates, or other external factors that are outside of our control. If we encounter unforeseen problems with our financial system or related systems and infrastructure, our business, operations, and financial systems could be adversely affected. We may also need to implement additional systems or transition to other new systems that require further expenditures in order to function effectively as a public company. There can be no assurance that our implementation of additional systems or transition to new systems will be successful, or that such implementation or transition will not present unforeseen costs or demands on our management.

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

We rely on the accuracy, capacity, and security of our IT systems, some of which are managed or hosted by third parties, and the sale of our products may involve the transmission and/or storage of data, including in certain instances customers’ business and personally identifiable information. Maintaining the security of

 

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

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

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

Our financial performance is affected by the availability of qualified personnel and the cost of labor. As of September 24, 2016, we had approximately 20,800 employees worldwide, including approximately 10,930 employees in the United States and Canada. Approximately 1,100, or 10%, 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 Canada employees represented by these unions are subject to collective bargaining agreements that are subject to periodic negotiation and renewal. If we are unable to enter into new, satisfactory labor agreements with our unionized employees upon expiration of their agreements, we could experience a significant disruption of our operations, which could cause us to be unable to deliver products to customers on a timely basis. Such disruptions could result in a loss of business and an increase in our operating expenses, which could reduce our net revenues and profit margins. In addition, our non-unionized labor force may become subject to labor union organizing efforts, which could cause us to incur additional labor costs and increase the related risks that we now face.

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

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

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

 

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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, air emissions, the discharge or release of materials into the environment, the handling and disposal of wastes, remediation of contaminated sites, worker health and safety, and the impact of products on human health and safety and the environment. Under certain of these laws, liability for contaminated property may be imposed on current or former owners or operators of the property or on parties that generated or arranged for waste sent to the property for disposal. Liability under these laws may be joint and several and may be imposed without regard to fault or the legality of the activity giving rise to the contamination. Notwithstanding our compliance efforts we may still face material liability, limitations on our operations, fines, or penalties for violations of environmental, health, and safety laws and regulations, including releases of regulated materials and contamination by us or previous occupants at our current or former properties or at offsite disposal locations we use.

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

 

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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, which emit biogenic CO2. 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 individual states in which we operate could determine that biogenic CO2 is not carbon neutral.

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.

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

 

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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.

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

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

We rely on a combination of patent, copyright, trademark, and trade secret laws, as well as confidentiality agreements, nondisclosure agreements, and other contractual commitments, to protect our intellectual property rights. However, these measures may not be adequate or sufficient, and third parties may not always respect these legal protections even if they are aware of them. In addition, our competitors may develop similar technologies and know-how without violating our intellectual property rights. Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. The failure to

 

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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 not fully funded, and we may have to make significant cash payments to these plans, which would reduce the cash available for our businesses.

Although we have closed our U.S. pension plan to new participants and have frozen future benefit accruals for current participants, we continue to have unfunded obligations under that plan. The funded levels of our pension plan depend upon many factors, including returns on invested assets, certain market interest rates, and the discount rate used to determine pension obligations. The projected benefit obligation and unfunded liability included in our consolidated financial statements as of December 31, 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

 

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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.

Our pro forma financial information may not be representative of our future performance.

In preparing the unaudited pro forma consolidated financial information included in this prospectus, we have made adjustments to our historical financial information based upon currently available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the Share Recapitalization and our issuance of shares of common stock in this offering and use of the proceeds to us thereof. The unaudited pro forma consolidated financial information included in this prospectus does not give effect to any events other than those described in the unaudited pro forma consolidated financial information. The estimates and assumptions used in the calculation of the unaudited pro forma consolidated financial information in this prospectus may be materially different from our actual experience.

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 September 24, 2016, we had $1,239.8 million of term loans outstanding under the Term Loan Facility and no revolving borrowings outstanding under the ABL Facility. After giving effect to $50.4 million of letters of credit outstanding under the ABL Facility, we had $211.3 million available for borrowing under the ABL Facility. As of September 24, 2016, we had AUD $34.0 million ($25.9 million) available and no borrowings outstanding under the Australia Senior Secured Credit Facility and €37.9 million ($42.4 million) available, after giving effect to €1.1 million ($1.3 million) of guarantees and letters of credit outstanding, and less than €0.1 million ($0.1 million) in borrowings outstanding under the Euro Revolving Facility. We borrowed an additional $375 million under the Term Loan Facility on November 1, 2016 and we used approximately $35 million in available cash and borrowings under the ABL Facility to fund the payments made in connection with the 2016 Dividend Transactions. Based on the amount of indebtedness outstanding on September 24, 2016, the interest rates in effect on such date, and assuming that all of the hedging agreements that became effective or are scheduled to become effective in 2016 were already in effect on January 1, 2016, we estimate our 2016 cash interest expense would be approximately $73.8 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Lines of Credit and Long-Term Debt—Interest Rate Swaps” for a description of when our various hedging agreements become effective.

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;

 

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

 

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

 

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

 

    limiting our ability to invest in and develop new products;

 

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

 

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

 

    increasing the risk of our failing to satisfy our obligations with respect to borrowings outstanding under our Credit Facilities and/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 Australia 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

 

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borrowing base availability and to impose other reserves, which could materially impair the amount of borrowings that would otherwise be available to us. There can be no assurance that the agent bank will not impose such reserves or, were it to do so, that the resulting impact of this action would not materially and adversely impair our liquidity.

As a result of these covenants and restrictions, we are limited in how we conduct our business, and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities or engage in other activities that may be in our long-term best interests. The terms of any future indebtedness we may incur could include more 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.

 

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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 have received approval to list our common stock on the New York Stock Exchange, 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 has been determined by negotiations between us, the selling stockholders, and representatives of the underwriters and this price 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.

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.

 

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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, after giving effect to the sale of our common stock by us and the selling stockholders, Onex will beneficially own approximately 66,537,969 shares of our common stock representing 63.4% of our outstanding common stock (or 62,787,969 shares of our common stock, representing 59.9% of our outstanding common stock 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 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. Further, for so long as Onex owns at least 5% of our outstanding common stock (calculated on an as-converted, fully diluted basis), Onex has the right to purchase its pro rata portion of the primary shares offered in any future public offering. This right could result in Onex continuing to maintain its majority ownership of our common stock. 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 ten 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 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 New York Stock Exchange 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 New York Stock Exchange corporate governance standards. A company of which more than 50% of the voting

 

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power is held by an individual, a group or another company is a “controlled company” within the meaning of the rules of the New York Stock Exchange and may elect not to comply with certain corporate governance requirements of the New York Stock Exchange, 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 governance and nominating committee and compensation committee.

Following this offering, we intend to rely on certain of the exemptions listed above. Accordingly, we will not have a majority of independent directors and our governance and nominating 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 New York Stock Exchange.

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 New York Stock Exchange, 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 New York Stock Exchange 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

 

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reporting. The New York Stock Exchange 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 New York Stock Exchange 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 relations function;

 

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

 

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

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

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 our 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. During 2015, we restructured how we manage our Europe business, which led to turnover in the accounting staff of our Europe operations. In addition, our tax department had significant turnover during 2015, leaving the department with recently hired personnel who were unfamiliar with our year-end closing process, which resulted in our tax department being unable to complete its standard fiscal year close work in a timely manner. As a result, our staff did not have adequate time to properly review the information provided to our registered public accounting firm as part of the audit. Our registered public accounting firm identified numerous errors in the schedules and disclosures provided to them during the audit process. While such errors were rectified prior to the completion of the 2015 audit, and there were no material misstatements identified in our disclosures or financial statements

 

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subsequent to year-end, management and our registered public accounting firm determined that (i) we did not operate controls to monitor the accuracy of income tax expense and related balance sheet accounts, including deferred income taxes, and (ii) we failed to operate controls to monitor the presentation and disclosure of income taxes. As a result of these material weaknesses, management determined that the ineffective controls over income tax accounting constituted material weaknesses 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 September 24, 2016 and after giving effect to the offering, is $(1.77). Accordingly, investors purchasing common stock in this offering will experience immediate and substantial dilution of $24.77 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 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 104,881,637 shares of common stock outstanding. Of these securities, 25,000,000 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 75,301,697 shares of common stock owned by our executive 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, our executive officers and directors, and our existing stockholders that own approximately 97% of our outstanding common stock (prior to giving effect to this offering), including 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.

 

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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 95% of the shares of our common stock outstanding prior to this offering are subject to a registration rights agreement. See “Shares Eligible For Future Sale”. In addition, shares issued or issuable upon exercise of options and vested RSUs 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.

Our management will have broad discretion in the use of the net proceeds to us 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 to us from our sale of common stock in this offering, 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 to us from this offering to repay $375 million of indebtedness outstanding under our Term Loan Facility, with the balance to be used 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 to us 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.

 

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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.

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 restated certificate of incorporation and our amended and restated bylaws that will become effective immediately prior to the consummation 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 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.

In addition, we have opted 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. At some time in the future, we may again be governed by Section 203. Section 203 could have the effect of delaying, deferring or preventing a change in control that our 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.

 

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Our 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 restated certificate of incorporation will provide, unless we consent to an alternative forum, that the Court of Chancery of the State of Delaware (or, if such court does not have jurisdiction, the Superior Court of the State of Delaware, or, if such other court does not have jurisdiction, the United States District Court for the District of Delaware) shall be the exclusive forum for any claims, including claims on behalf of JWHI, brought by a stockholder (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity or (ii) as to which the DGCL confers jurisdiction upon the Court of Chancery of the State of Delaware. This provision may limit a 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 provision contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

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

We are a holding company that conducts all of our operations through subsidiaries and the majority of our operating income is derived from 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, including JEM;

 

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

 

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

 

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

 

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

 

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

 

    seasonal business and varying revenue and profit;

 

    changes in weather patterns;

 

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

 

    exchange rate fluctuations;

 

    disruptions in our operations;

 

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

 

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

 

    security breaches and other cybersecurity incidents;

 

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

 

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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;

 

    pension plan obligations;

 

    our current level of indebtedness;

 

    risks associated with the material weaknesses that have 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

The net proceeds to us from our sale of 22,272,727 shares of common stock in this offering will be approximately $472.8 million, after deducting underwriting discounts and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of shares of common stock sold by the selling stockholders.

The principal purposes of this offering are to repay indebtedness as described below, increase our capitalization and financial flexibility, create a public market for our common stock, enable access to the public equity markets for us and our stockholders, and increase our visibility in the marketplace. We intend to use the net proceeds that we receive from this offering to repay approximately $375 million of indebtedness outstanding under our Term Loan Facility. We will use remaining net proceeds to us for working capital and other general corporate purposes, including sales and marketing activities, 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 will have broad discretion in using these proceeds. Pending their use as described above, we plan to invest net proceeds to us in short-term, interest-bearing obligations, investment-grade instruments, certificates of deposit, or direct or guaranteed obligations of the U.S. government.

In November 2016, we borrowed an incremental $375 million under our Term Loan Facility. We used the proceeds thereof, together with cash on hand and borrowings under our ABL Facility, to make payments of approximately $400 million to holders of our outstanding common stock, Series A Convertible Preferred Stock, Class B-1 Common Stock, options, and RSUs, as well as to pay related fees and expenses. As of November 1, 2016, our Term Loan Facility bore interest at LIBOR (subject to a floor of 1.00%) plus a margin of 3.75%. The Term Loan Facility matures on July 1, 2022.

 

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DIVIDEND POLICY

In July 2015, we paid an aggregate cash dividend of approximately $84.5 million to holders of our outstanding common stock, approximately $0.4 million to holders of our outstanding Class B-1 Common Stock and approximately $335.2 million to holders of our outstanding Series A Convertible Preferred Stock. The payment to holders of our Series A Convertible Preferred Stock represented payment for (i) preferred dividends accrued from January 1, 2015 through July 31, 2015 and (ii) a dividend on an as-if-converted-to-common basis based on the original principal amount of the Series A Convertible Preferred Stock investment plus preferred dividends accrued through December 31, 2014.

In November 2016, we paid an aggregate cash dividend of approximately $73.8 million to holders of our outstanding common stock, approximately $0.9 million to holders of our outstanding Class B-1 Common Stock, and approximately $307.3 million to holders of our outstanding Series A Convertible Preferred Stock. The payment to holders of our outstanding Series A Convertible Preferred Stock represented payment for (i) preferred dividends accrued from May 31, 2016 through November 3, 2016 and (ii) a dividend on an as-if-converted-to-common basis based on the original principal amount of the Series A Convertible Preferred Stock investment plus preferred dividends accrued through May 30, 2016.

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 in July 2015 and November 2016 to permit the cash dividends 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 (which distributions may be restricted by the terms of our Credit Facilities). See “Description of Certain Indebtedness”.

 

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CAPITALIZATION

The following table sets forth our cash and our consolidated capitalization as of September 24, 2016:

 

    on an actual basis, giving effect to the 11-for-1 stock split of our common stock and Class B-1 Common Stock that was effected on January 3, 2017;

 

    on a pro forma basis, giving effect to (i) the borrowing of an additional $375 million under our Term Loan Facility, net of original issue discount of $0.9 million, (ii) the application of $29.2 million in cash and $13 million of borrowings under our ABL Facility for the purposes of the distributions described in (iii) below and making a $5.6 million payment of accrued interest, (iii) payments of $73.8 million to holders of our outstanding common stock, $307.3 million to holders of our Series A Convertible Preferred Stock, $0.9 million to holders of our Class B-1 Common Stock, $18.8 million to holders of stock options, and $1.7 million to holders of our RSUs, (iv) the repricing of all of our outstanding term loans and maturity extension of our Initial Term Loans due October 15, 2021 to match the maturity of our 2015 Incremental Term Loans due July 1, 2022, (v) the amendment of our Term Loan Facility and ABL Facility and incurrence of $8.1 million of debt issue costs, and (vi) the conversion of all outstanding shares of our Series A Convertible Preferred stock into 64,211,172 shares of our common stock, the cancellation of the one outstanding share of our Series B Preferred Stock, and the conversion of all outstanding shares of our Class B-1 Common Stock into 309,404 shares of our common stock immediately prior to the completion of this offering; and

 

    on a pro forma basis as further adjusted to give effect to (i) our issuance and sale of 22,272,727 shares of our common stock in this offering at the initial public offering price of $23.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, (ii) the repayment of $375 million of indebtedness outstanding under our Term Loan Facility with a portion of the net proceeds to us from this offering and the charge to retained earnings of $0.9 million for the original issue discount associated with that debt, and (iii) the effectiveness of our restated certificate of incorporation.

The pro forma and pro forma as adjusted columns do not give effect to the approximately $3 million amortization payments under the Term Loan Facility made on each of September 30, 2016 and December 30, 2016.

 

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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 September 24, 2016  
          Actual           Pro Forma      Pro Forma
  As Adjusted  
 
     (dollars in this table and the footnotes below
in thousands, except share and per share data)
 

Cash and cash equivalents

   $ 65,357       $ 36,182       $ 133,938   
  

 

 

    

 

 

    

 

 

 

Debt:

        

ABL Facility due 2019

   $ 15,000       $ 28,000       $ 28,000 (1) 

Euro Revolving Facility due 2019

     —           —           —     

Australia Senior Secured Credit Facility due 2019

     —           —           —     

Initial Term Loans due 2021

     757,793         —           —     

Incremental Term Loans due 2022

     474,429         —           —     

Amended Term Loans due 2022

     —           1,606,284         1,232,222   

Other items(2)

     24,965         16,820         16,820   
  

 

 

    

 

 

    

 

 

 

Total debt

   $ 1,272,187       $ 1,651,104       $ 1,277,042   

Series A Convertible Preferred Stock, par value $0.01 per share; 8,749,999 shares authorized, issued and outstanding actual, 0 shares issued and outstanding pro forma and pro forma as adjusted(3)

     458,236         —           —     

Stockholders’ equity:

        

Common Stock, par value $0.01 per share; 900,000,000 shares authorized, 17,842,462 shares issued and outstanding actual, 900,000,000 shares authorized, 82,363,038 shares issued and outstanding pro forma and 900,000,000 shares authorized, 104,635,765 shares issued and outstanding pro forma as adjusted

     178         823         1,046   

Class B-1 Common Stock, par value $0.01 per share; 4,732,200 shares authorized, 126,137 shares issued and outstanding actual, 0 shares issued and outstanding pro forma and pro forma as adjusted

     2         —           —     

Series B Preferred Stock, par value $0.01 per share; 1 share authorized, issued and outstanding actual, 0 shares issued and outstanding pro forma and pro forma as adjusted

     —           —           —     

Preferred Stock, par value $0.01 per share; 0 shares authorized, issued and outstanding actual and pro forma and 90,000,000 shares authorized, 0 shares issued and outstanding pro forma as adjusted

     —           —           —     

Additional paid-in capital(4)

     104,061         179,625         652,158   

Accumulated deficit(5)

     (30,436      (50,939      (51,877

Accumulated other comprehensive loss

     (153,800      (153,800      (153,800
  

 

 

    

 

 

    

 

 

 

Total stockholders’ equity (deficit)

     (79,995      (24,291      447,527   
  

 

 

    

 

 

    

 

 

 

Total capitalization

   $ 1,650,428       $ 1,626,813       $ 1,724,569   
  

 

 

    

 

 

    

 

 

 

 

(1) As of January 13, 2017, there were no borrowings outstanding under the ABL Facility, as all prior amounts outstanding were repaid using available cash.

 

(2) Consists of other debt of $41,073 and unamortized debt costs of $(16,108) actual; and other debt of $41,073 and unamortized debt costs of $(24,253) pro forma and pro forma as adjusted.

 

(3) Consists of: (i) 2,922,634 shares of Series A-1 Convertible Preferred Stock, par value $0.01 per share, 2,922,634 shares authorized, issued and outstanding actual, 0 shares issued and outstanding pro forma and pro forma as adjusted; (ii) 208,760 shares of Series A-2 Convertible Preferred Stock, par value $0.01 per share, 208,760 shares authorized, issued and outstanding actual, 0 shares issued and outstanding pro forma and pro forma as adjusted; and (iii) 843,132 shares of Series A-3 Convertible Preferred Stock, par value $0.01 per share, 843,132 shares authorized, issued and outstanding actual, 0 shares issued and outstanding pro forma and pro forma as adjusted.

The Pro Forma and Pro Forma As Adjusted columns for our Series A Convertible Preferred Stock reflect (i) the $307.3 million payment to holders of our Series A Convertible Preferred Stock associated with the 2016 Dividend Transactions and (ii) the $150.9 million impact related to the conversion of our Series A Convertible Preferred Stock into our common stock as part of the Share Recapitalization (which increased Pro Forma Additional paid-in capital by $150.3 million).

 

(4)

The Pro Forma column for Additional paid-in capital reflects (i) payments of $73.8 million to holders of our common stock and $0.9 million to the holders of our Class B-1 Common Stock associated with the 2016 Dividend Transactions and (ii) a $150.3 million increase in Additional paid-in capital as a result of the conversion of our series A Convertible Preferred Stock

 

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  and Class B-1 Common Stock in connection with the Share Recapitalization. The Pro Forma As Adjusted column for Additional paid-in-capital also reflects our receipt of approximately $472.8 million of net proceeds from this offering.

 

(5) The Pro Forma column for Accumulated deficit reflects $20.5 million of payments to holders of stock options and RSUs as part of the 2016 Dividend Transactions. The Pro Forma As Adjusted column also reflects the write-off of $0.9 million of original issue discount in connection with the repayment of $375 million outstanding under our Term Loan Facility with a portion of the net proceeds to us from this offering.

 

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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 September 24, 2016 was $(713.6) million, or $(40.00) per share of common stock, without taking into account the Share Recapitalization. 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 and Series A Convertible Preferred Stock 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.

The pro forma net tangible book value of our common stock as of September 24, 2016 was $(657.9) million, or $(7.99) per share of our common stock, and represents our historical net tangible book deficit as of September 24, 2016 after giving effect to the Share Recapitalization, resulting in the issuance of 64,520,576 shares of our common stock.

After giving further effect to the sale of 22,272,727 shares of common stock by us in this offering at the initial public offering price of $23.00 per share, after deducting approximately $39.5 million of estimated underwriting discounts and commissions and offering expenses payable by us, our pro forma as adjusted net tangible book deficit as of September 24, 2016 would have been $(185.2) million, or $(1.77) per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $6.22 per share to existing stockholders, and immediate dilution of $24.77 per share to investors participating in this offering. The table below illustrates this per share dilution.

The following table illustrates this dilution on a per share basis:

 

Initial public offering price per share

      $ 23.00   

Historical net tangible book value (deficit) per share as of September 24, 2016

   $ (40.00   

Pro forma increase in net tangible book value (deficit) per share attributable to the Share Recapitalization

     32.01      
  

 

 

    

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

   $ (7.99   

Pro forma increase in net tangible book value (deficit) per share attributable to new investors purchasing common stock in this offering

     6.22      

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

   $ (1.77   
  

 

 

    

Dilution per share to investors in this offering

      $ 24.77   
     

 

 

 

 

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The following table summarizes, as of September 24, 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(1)

     82,363,038         78.7   $ 180,448         26.0   $ 2.19   

New investors

     22,272,727         21.3   $ 512,273         74.0   $ 23.00   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     104,635,765         100   $ 692,721         100   $ 6.62   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

(1) The total consideration and average price per share paid by existing stockholders reflected in the table above is shown net of the distributions we paid in 2015 and 2016, which were treated as a return of capital to existing stockholders. See “Dividend Policy”. Without giving effect to such distributions, the total consideration paid by existing stockholders would have been $981.7 million and the average price per share would have been $11.92.

Sales of shares of our common stock by the selling stockholders in this offering will reduce the percentage of shares of common stock held by existing stockholders to approximately 76% of the total shares outstanding after this offering, and will increase the percentage of shares held by new investors to approximately 24% of the total shares of common stock outstanding after this offering.

After giving effect to the sale of shares in this offering by us and the selling stockholders, if the underwriters’ option to purchase additional shares is exercised in full, our existing stockholders would own approximately 73% and our new investors would own approximately 27% 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:

 

    7,652,027 shares of common stock issuable upon the exercise of options outstanding under our existing stock incentive plan as of January 13, 2017 at a weighted average exercise price of $12.66 per share;

 

    385,220 shares of common stock issuable upon the settlement of outstanding RSUs; and

 

    7,500,000 shares of common stock reserved for future issuance under the JELD-WEN Holding, Inc. 2017 Omnibus Equity Plan, which includes approximately 727,379 shares in respect of options and RSUs that the Company intends to grant to certain employees (including certain of our named executive officers, see “Executive Compensation—Long-Term Equity Incentives—Equity Awards to NEOs”) in connection with this offering, assuming the average closing price of a share of our common stock during the first five days of trading is equal to the initial public offering price set forth on the cover page of this prospectus. The actual number of shares of common stock that will be subject to such options and RSUs will increase or decrease to the extent the five-day average price per share is lower or higher than the initial public offering price.

To the extent any options are granted and exercised in the future, or any RSUs are granted and settled 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 September 24, 2016 and September 26, 2015 and for each of the nine months ended September 24, 2016 and September 26, 2015 have been derived from our unaudited consolidated financial statements included in this prospectus. We have prepared our unaudited consolidated financial statements on the same basis as our audited consolidated financial statements, and our unaudited 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.

During the second quarter of 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 flow provided by (used in) operating activities.

 

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    Nine Months Ended     Year Ended December 31,  
    September 24,
2016
    September 26,
2015
                               
        2015     2014     2013     2012     2011  
    (dollars in thousands, except share and per share data)  

Net revenues

  $ 2,693,630      $ 2,490,112      $ 3,381,060      $ 3,507,206      $ 3,456,539      $ 3,167,856      $ 3,174,145   

Cost of sales

    2,112,185        1,994,968        2,715,125        2,919,864        2,946,463        2,606,562        2,650,791   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    581,445        495,144        665,935        587,342        510,076        561,294        523,354   

Selling, general and administrative

    408,360        370,021        512,126        488,477        482,088        504,766        528,707   

Impairment and restructuring charges

    9,045        15,557        21,342        38,388        42,004        38,836        56,487   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    164,040        109,566        132,467        60,477        (14,016     17,692        (61,840

Interest expense, net

    (53,725     (40,549     (60,632     (69,289     (71,362     (59,534     (140,810

Other income (expense)

    8,960        9,979        14,120        (50,521     12,323        9,519        (3,521
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    119,275        78,996        85,955        (59,333     (73,055     (32,323     (206,171

Income tax benefit (expense)

    5,633        (7,575     5,435        (18,942     (1,142     5,488        (21,264
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    124,908        71,421        91,390        (78,275     (74,197     (26,835     (227,435

(Loss) income from discontinued operations, net of tax

    (2,845     (2,045     (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

    2,450        1,233        2,384        (447     943        (957     (572
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 124,513      $ 70,609      $ 90,918      $ (84,109   $ (68,406   $ (26,740   $ (238,318
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

             

Basic

  $ 16,298      $ (281,427   $ (290,500   $ (184,143   $ (157,205   $ (99,575   $ (255,386

Diluted

  $ 16,298      $ (281,427   $ (290,500   $ (184,143   $ (157,205   $ (99,575   $ (255,386

Weighted average common shares outstanding

             

Basic

    17,965,178        18,448,331        18,296,003        20,440,057        21,113,895        22,022,561        26,815,349   

Diluted

    21,156,751        18,448,331        18,296,003        20,440,057        21,113,895        22,022,561        26,815,349   

Income (loss) per common share from continuing operations(1)

             

Basic

  $ 1.07      $ (15.14   $ (15.72   $ (8.75   $ (7.68   $ (4.57   $ (9.14

Diluted

  $ 0.90      $ (15.14   $ (15.72   $ (8.75   $ (7.68   $ (4.57   $ (9.14

Cash dividends per common share

    —          —        $ 4.73        —          —          —          —     

Pro forma net income(2)

             

Basic

  $ 1.18        —        $ 0.88        —          —          —          —     

Diluted

  $ 1.15        —        $ 0.87        —          —          —          —     

Other financial data:

             

Capital expenditures

  $ 62,476      $ 52,885      $ 77,687      $ 70,846      $ 85,689      $ 91,884      $ 36,878   

Depreciation and amortization

    77,518        69,793        95,196        100,026        104,650        92,337        124,420   

Adjusted EBITDA(3)

    291,099        232,895        310,986        229,849        153,210        183,361        152,556   

Consolidated balance sheet data:

             

Cash and cash equivalents

  $ 65,357      $ 79,061      $ 113,571      $ 105,542      $ 37,666      $ 41,826      $ 58,988   

Working capital

    369,202        381,194        326,973        316,055        234,171        99,423        210,180   

Total assets

    2,435,813        2,227,413        2,182,373        2,184,059        2,290,897        2,415,036        2,332,486   

Total current liabilities

    598,960        554,830        487,445        524,301        593,938        741,164        578,086   

Total debt

    1,272,187        1,271,532        1,260,320        806,228        667,152        670,757        624,045   

Redeemable convertible preferred stock

    458,236        481,937        481,937        817,121        817,121        745,478        695,478   

Total stockholders’ equity (deficit)

    (79,995     (278,797     (231,745     (168,826     54,444        96,411        143,303   

Statement of cash flows data:

             

Net cash flow provided by (used in):

             

Operating activities

  $ 110,190      $ 44,738      $ 172,339      $ 21,788      $ (49,372   $ 77,850      $ (41,342

Investing activities

    (141,609     (83,025     (158,452     (56,738     13,939        (158,486     4,675   

Financing activities

    (17,426     16,714        (1,072     105,617        34,633        64,436        13,733   

 

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     As of  
     September 24, 2016  
     (dollars in thousands)  
     Actual     Pro
Forma (4)
    Pro Forma
As
Adjusted (5)
 

Pro forma consolidated balance sheet data:

      

Cash and cash equivalents

   $ 65,357      $ 36,182      $ 133,938   

Accounts receivable, net

     492,965        492,965        492,965   

Inventories

     361,724        361,724        361,724   

Total current assets

     968,162        938,987        1,036,743   

Total assets

     2,435,813        2,406,638        2,504,394   

Accounts payable

     216,844        216,844        216,844   

Total current liabilities

     598,960        593,400        593,400   

Total debt

     1,272,187        1,651,104        1,277,042   

Redeemable convertible preferred stock

     458,236        —          —     

Total stockholders’ equity (deficit)

     (79,995     (24,291     477,527   

 

(1) Does not give effect to the 2016 Dividend Transactions or Share Recapitalization.

 

(2) Reflects the 2016 Dividend Transactions and Share Recapitalization. See Note 1 to our financial statements for the year ended December 31, 2015 and Note 1 to our financial statements for the three and nine months ended September 24, 2016 appearing elsewhere in this prospectus for information regarding computation of pro forma basic and diluted net income per share and pro forma weighted average basic and diluted common shares outstanding.

 

(3) 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: income (loss) from discontinued operations, net of tax; gain (loss) on sale of discontinued operations, net of tax; equity earnings (loss) of non-consolidated entities; income tax benefit (expense); depreciation and amortization; interest expense, net; impairment and restructuring charges; gain (loss) on sale of property and equipment; share-based compensation expense; non-cash foreign exchange transaction/translation income (loss); other non-cash items; other items; and costs related to debt restructuring, debt refinancing, and the Onex Investment.

We use this non-GAAP measure in assessing our performance in addition to net income (loss) determined in accordance with GAAP. We believe Adjusted EBITDA is an important measure to be used in evaluating operating performance because it allows management and investors to better evaluate and compare our core operating results from period to period by removing the impact of our capital structure (net interest income or expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, other non-operating items, and share-based compensation. Furthermore, the instruments governing our indebtedness use Adjusted EBITDA to measure our compliance with certain limitations and covenants. We reference this non-GAAP financial measure frequently in our decision making because it provides supplemental information that facilitates internal comparisons to the historical operating performance of prior periods. In addition, executive incentive compensation is based in part on Adjusted EBITDA, and we base certain of our forward-looking estimates and budgets on Adjusted EBITDA.

We also believe Adjusted EBITDA is a measure widely used by securities analysts and investors to evaluate the financial performance of our company and other companies. Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Adjusted EBITDA eliminates the effect of certain items on net income and thus has certain limitations. Some of these limitations are: Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; Adjusted EBITDA does not reflect any income tax payments we are required to make and although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacement. Other companies may calculate Adjusted EBITDA differently, and, therefore, our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

 

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

 

    Nine Months Ended     Year Ended December 31,  
    September 24,
2016
    September 26,
2015
    2015     2014     2013     2012     2011  
    (dollars in this table and the footnotes below in thousands)  

Net income (loss)

  $ 124,513      $ 70,609      $ 90,918      $ (84,109   $ (68,406   $ (26,740   $ (238,318

Adjustments:

             

Loss (income) from discontinued operations, net of tax

    2,845        2,045        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

    (2,450     (1,233     (2,384     447        (943     957        572   

Income tax (benefit) expense

    (5,633     7,575        (5,435     18,942        1,142        (5,488     21,264   

Depreciation and amortization

    77,518        69,793        95,196        100,026        104,650        92,337        124,420   

Interest expense, net

    53,725        40,549        60,632        69,289        71,362        59,534        140,810   

Impairment and restructuring charges(a)

    12,122        15,975        31,031        38,645        44,413        41,402        59,323   

(Gain) loss on sale of property and equipment

    (3,270     73        (416     (23     (3,039     430        (1,465

Share-based compensation expense

    14,944        8,672        15,620        7,968        5,665        7,485        437   

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

    7,168        (4,215     2,697        (528     (4,114     (1,093     4,269   

Other non-cash items(b)

    3,087        111        1,141        2,334        (68     2,549        17,614   

Other items(c)

    6,519        22,733        18,893        20,278        7,284        7,418        2,804   

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

    11        208        237        51,193        112        5,622        10,515   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 291,099      $ 232,895      $ 310,986      $ 229,849      $ 153,210      $ 183,361      $ 152,556   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (a) Impairment and restructuring charges consist of (i) impairment and restructuring charges that are included in our consolidated statements of operations plus (ii) additional charges of $3,078, $417, $9,687, $257, $2,409, $2,565, and $1,469 for the nine months ended September 24, 2016 and September 26, 2015 and years ended December 31, 2015, 2014, 2013, 2012, and 2011, respectively. These additional charges are primarily comprised of non-cash changes in inventory valuation reserves, such as excess and obsolete reserves. For further explanation of impairment and restructuring charges that are included in our consolidated statements of operations, see Note 25—Impairment and Restructuring Charges of Continuing Operations in our financial statements for the year ended December 31, 2015 and Note 16—Impairment and Restructuring Charges in our financial statements for the three months and nine months ended September 24, 2016 included elsewhere in this prospectus.

 

  (b) Other non-cash items include, among other things, (i) $2,550 out-of-period charge for a European warranty liability adjustment for the nine months ended September 24, 2016, (ii) charges of $357, $0, $893, $2,496, $0, $0, and $0 for the nine months ended September 24, 2016 and September 26, 2015, and years ended December 31, 2015, 2014, 2013, 2012, and 2011, respectively, relating to (1) the fair value adjustment for inventory acquired as part of the acquisitions referred to in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisitions” and (2) the impact of a change in how we capitalize overhead expenses in our valuation of inventory. In addition, other non-cash items include charges of $6,045 in the year ending December 31, 2012 relating to reserve amounts for service-based employee bonuses for periods prior to 2012, which are partially offset by a $3,560 gain related to the bargain purchase treatment of our CMI acquisition. Further, other non-cash items include charges of $12,026 in the year ended December 31, 2011 relating to certain share price adjustments and expenses settled in shares with our ESOP.

 

  (c)

Other items include: (i) in the nine months ended September 24, 2016, (1) $2,449 of professional fees related to the IPO process, (2) $1,542 of acquisition costs, (3) $350 in Dooria plant closure costs, (4) $257 in legal costs associated with disposal of non-core properties, and (5) $250 related to a legal settlement accrual for CMI; (ii) in the nine months ended September 26, 2015, (1) $11,696 of stock compensation, including a $11,446 payment to holders of vested options and RSUs in connection with the July 2015 dividend described in “Dividend Policy”, (2) $5,510 related to a UK legal settlement, (3) $1,733 in acquisition costs, (4) $1,422 of legal costs related to non-core property disposal, (5) $861 in production ramp-down costs, and (6) $431 of legal costs related to our ESOP class action matters; (iii) in the year ended

 

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  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 UK 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 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 debt refinancing, and $1,537 of costs related to restructuring activities beginning in 2009.

 

(4) Reflects the 2016 Dividend Transactions and Share Recapitalization. See Note 1 to our financial statements for the three and nine months ended September 24, 2016 appearing elsewhere in this prospectus for information regarding these pro forma adjustments.

 

(5) Reflects (a) the 2016 Dividend Transactions, (b) the Share Recapitalization, (c) our issuance and sale of 22,272,727 shares of our common stock in this offering at the initial public offering price of $ 23.00 per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us, and (d) the repayment of $375 million of indebtedness outstanding under our Term Loan Facility with a portion of the net proceeds of this offering and the charge to retained earnings of $0.9 million for the original issue discount associated with that debt.

 

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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 and repair and remodeling of residential homes and, to a lesser extent, non-residential buildings.

We operate 115 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 America operations accounted for 60% of net revenues ($2,016 million), our Europe operations accounted for 29% of net revenues ($996 million), and our Australasia operations accounted for 11% of net revenues ($369 million). In the year ended December 31, 2014, our North America operations accounted for 57% of net revenues ($1,990 million), our Europe operations accounted for 31% of net revenues ($1,108 million), and our Australasia 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.

In August 2016, we acquired the shares of Arcpac Building Products Limited, which includes its primary operating subsidiary Breezway Australia Pty Limited, or “Breezway”, headquartered in Brisbane, Australia. Breezway is a manufacturer of louvre window systems for the residential and commercial window markets. Breezway’s primary sales market is Australia and it also maintains a presence in Malaysia and Hawaii. The acquisition of Breezway is expected to strengthen our position in the Australian window market and expand our product portfolio with new and innovative window designs as well as other complementary products.

We paid an aggregate of approximately $172 million in cash (net of cash acquired) for the six businesses we acquired in 2015 and 2016, and in the aggregate they generated approximately $254 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 period over period increases of 2%, 3%, and 3% in the nine months ended September 24, 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 positive volume/mix for the year ended December 31, 2016 due to increased demand for

 

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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 nine months ended September 24, 2016 compared to the nine months ended September 26, 2015, our core growth in net revenues was 2%, comprised of an approximate 2% increase in pricing while our volume/mix was flat. Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, percentage changes in pricing are based on management schedules and are not derived directly from our accounting records. For the same period in North America, our largest segment, our core growth in net revenues was 3%, comprised of an approximate 1% increase in volume/mix and an approximate 2% increase in pricing.

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.

 

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Changes in pricing trends for our products can have a material impact on our operations. During and immediately after the 2008 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 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 initiatives, including JEM, to develop the culture and processes of operational excellence and continuous improvement. These cost reduction initiatives, as well as plant closures and consolidations, headcount reductions, and various initiatives aimed at lowering production and overhead costs, may not produce the intended results within the intended timeframe.

Raw Material Costs

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

Working Capital and Seasonality

Working capital, which is defined as accounts receivable plus inventory less accounts payable, fluctuates throughout the year and is affected by seasonality of sales of our products and of customer payment patterns. The

 

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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 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 and November 2016, we borrowed an additional $480 million and $375 million of term loans under the Corporate Credit Facilities primarily to fund distributions to our shareholders. We intend to use a portion of the net proceeds to us hereunder to repay $375 million of borrowings under the Term Loan Facility. Accordingly, our results have been and will be impacted by substantial changes in our net interest expense throughout the periods presented and in the future. See “—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

 

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

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

Cost of Sales

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

 

    Material Costs. The single largest component of cost of sales is material costs, which include raw materials, components and finished goods purchased for use in manufacturing our products or for resale. Our most significant material costs include glass, wood, wood components, doors, door facings, door parts, hardware, vinyl extrusions, steel, fiberglass, packaging materials, adhesives, resins and other chemicals, core material, and aluminum extrusions. The cost of each of these items is impacted by global supply and demand trends, both within and outside our industry, as well as commodity price fluctuations, conversion costs, energy costs, and transportation costs. See “—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.

 

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    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 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 and Note 9—Notes Payable and Long-Term Debt in our financial statements for the three and nine months ended September 24, 2016 included elsewhere in this prospectus.

 

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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 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. See Note 19—Income Taxes in our financial statements for the year ended December 31, 2015 included elsewhere in this prospectus.

 

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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.

 

    Nine Months Ended     Year Ended December 31,  
    September 24, 2016     September 26, 2015     2015     2014     2013  
    (dollars in thousands)  

Net revenues

  $ 2,693,630      $ 2,490,112      $ 3,381,060      $ 3,507,206      $ 3,456,539   

Cost of sales

    2,112,185        1,994,968        2,715,125        2,919,864        2,946,463   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    581,445        495,144        665,935        587,342        510,076   

Selling, general and administrative

    408,360        370,021        512,126        488,477        482,088   

Impairment and restructuring charges

    9,045        15,557        21,342        38,388        42,004   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    164,040        109,566        132,467        60,477        (14,016

Interest expense, net

    (53,725     (40,549     (60,632     (69,289     (71,362

Loss on extinguishment of debt

    —          —          —          (51,036     —     

Other income

    8,960        9,979        14,120        515        12,323   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    119,275        78,996        85,955        (59,333     (73,055

Income tax (expense) benefit

    5,633        (7,575     5,435        (18,942     (1,142
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    124,908        71,421        91,390        (78,275     (74,197

Loss from discontinued operations, net of tax

    (2,845     (2,045     (2,856     (5,387     (5,863

Gain on sale of discontinued operations, net of tax

    —          —          —          —          10,711   

Equity earnings (loss) of non-consolidated entities

    2,450        1,233        2,384        (447     943   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 124,513      $ 70,609      $ 90,918      $ (84,109   $ (68,406
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

         

Adjusted EBITDA(1)

  $ 291,099      $ 232,895      $ 310,986      $ 229,849      $ 153,210   

Adjusted EBITDA margin(1)

    10.8%        9.4%        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 3 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 Nine Months Ended September 24, 2016 and September 26, 2015

Consolidated Results

 

     Nine Months Ended        
     September 24, 2016     September 26, 2015        
     (dollars in thousands)        
           % of Net
Revenues
          % of Net
Revenues
   

%

Variance

 

Net revenues

   $ 2,693,630        100.0   $ 2,490,112        100.0     8.2

Cost of sales

     2,112,185        78.4     1,994,968        80.1     5.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     581,445        21.6     495,144        19.9     17.4

Selling, general and administrative

     408,360        15.2     370,021        14.9     10.4

Impairment and restructuring charges

     9,045        0.3     15,557        0.6     -41.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     164,040        6.1     109,566        4.4     49.7

Interest expense, net

     (53,725     -2.0     (40,549     -1.6     32.5

Other income

     8,960        0.3     9,979        0.4     -10.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes, equity earnings and discontinued operations

     119,275        4.4     78,996        3.2     51.0

Income tax benefit (expense)

     5,633        0.2     (7,575     -0.3     -174.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of tax

     124,908        4.6     71,421        2.9     74.9

Loss from discontinued operations, net of tax

     (2,845     -0.1     (2,045     -0.1     39.1

Equity in earnings of non-consolidated entities

     2,450        0.1     1,233        0.0     98.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 124,513        4.6   $ 70,609        2.8     76.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Revenues—Net revenues increased $203.5 million, or 8.2%, to $2,693.6 million in the nine months ended September 24, 2016 from $2,490.1 million in the nine months ended September 26, 2015. The increase in net revenues was primarily due to a 7% increase associated with our recent acquisitions described under the heading “Acquisitions” above. Our core net revenues increased 2%, comprised primarily of an increase in pricing as a result of implementing our pricing optimization strategy. These increases were partially offset by an unfavorable foreign exchange impact of 1%.

Gross Margin—Gross margin increased $86.3 million, or 17.4%, to $581.4 million in the nine months ended September 24, 2016 from $495.1 million in the nine months ended September 26, 2015. Gross margin as a percentage of net revenues was 21.6% in the nine months ended September 24, 2016 and 19.9% in the nine months ended September 26, 2015. The increases in gross margin and gross margin percentage were due to acquisitions, price increases, and improved productivity, partially offset by the weakening of the British Pound, Canadian dollar and the Australian dollar in the current period which resulted in an unfavorable translation impact of $4.0 million.

SG&A Expense—SG&A expense increased $38.3 million, or 10.4%, to $408.3 million in the nine months ended September 24, 2016 from $370.0 million in the nine months ended September 26, 2015. SG&A expense as a percentage of net revenues was 15.2% for the nine months ended September 24, 2016 and 14.9% for the nine months ended September 26, 2015. The increases in SG&A expense and SG&A expense percentage were primarily due to investments in marketing and key sourcing initiatives and SG&A from our recently completed acquisitions, partially offset by the weakening of the British Pound, Canadian dollar and the Australian dollar in the current period which resulted in a favorable translation impact of $4.7 million.

Impairment and Restructuring Charges—Impairment and restructuring charges decreased $6.5 million, or 41.9%, to $9.1 million in the nine months ended September 24, 2016 from $15.6 million in the nine months ended September 26, 2015. The charges in the nine months ended September 24, 2016 consisted primarily of

 

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ongoing personnel and plant closure costs of approximately $8.1 million as well as a $1.0 million impairment charge related to a held-for-sale building in Europe. The charges for the nine months ended September 26, 2015 consisted of $13.9 million for various plant and personnel restructuring and severance costs, a $1.5 million impairment charge related to an equity investment and related note receivable, and $0.2 million of asset impairment charges.

Interest Expense, Net—Interest expense, net increased $13.2 million, or 32.5%, to an expense of $53.7 million in the nine months ended September 24, 2016 from an expense of $40.5 million in the nine months ended September 26, 2015. The increase was primarily due to the full period impact of the incremental interest expense associated with the $480 million of incremental term loans borrowed in July 2015.

Income Taxes—Income tax benefit in the nine months ended September 24, 2016 was $5.6 million, compared to an expense of $7.6 million in the nine months ended September 26, 2015. The effective tax rate in the nine months ended September 24, 2016 was (4.7)% compared to an effective tax rate of 9.6% in the nine months ended September 26, 2015. The increased tax benefit of $13.2 million was due primarily to the net release of our valuation allowance of $29.4 million offset by an increase in tax expense of $3.3 million attributable to the earnings mix in the nine months ended September 24, 2016, compared to a prior period income tax benefit of $12.9 million attributable to a favorable federal audit adjustment.

Segment Results

 

     Nine Months Ended        
     September 24, 2016     September 26, 2015        
    

(dollars in thousands)

       
            % of Net
Revenues
          % of Net
Revenues
   

%

Variance

 

Net revenues from external customers

           

North America

     $1,579,885         58.7   $ 1,488,570        59.8     6.1

Europe

     752,199         27.9     727,824        29.2     3.3

Australasia

     361,546         13.4     273,718        11.0     32.1
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 2,693,630         100.0   $ 2,490,112        100.0     8.2
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
           

Adjusted EBITDA(1)

           

North America

     $ 185,692         $ 158,755          17.0

Europe

     90,417           71,628          26.2

Australasia

     40,246           29,951          34.4

Corporate and unallocated costs

     (25,256)           (27,439       -8.0
  

 

 

      

 

 

     

 

 

 

Total Consolidated

   $ 291,099         $ 232,895          25.0
  

 

 

      

 

 

     

 

 

 
           

Adjusted EBITDA as a percentage of

           

segment net revenues

           

North America

     11.8%           10.7    

Europe

     12.0%           9.8    

Australasia

     11.1%           10.9    

Total Consolidated

     10.8%           9.4    

 

(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 3 to the table under the heading “Selected Consolidated Financial Data”.

North America

Net revenues in North America increased $91.3 million, or 6.1%, to $1,579.9 million in the nine months ended September 24, 2016 from $1,488.6 million in the nine months ended September 26, 2015. The increase in

 

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net revenues was primarily due to an increase in core net revenues of 3%, comprised of an increase in volume/mix of approximately 1% and an increase in pricing of approximately 2%. The increase in volume/mix was the result of increased demand for our products driven by our profitable growth initiatives. The increase in pricing was the result of implementing our pricing optimization strategy. Additionally, the acquisitions of Karona and LaCantina provided a 4% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 1%.

Adjusted EBITDA in North America increased $26.9 million, or 17.0%, to $185.7 million in the nine months ended September 24, 2016 from $158.8 million in the nine months ended September 26, 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 $24.4 million, or 3.3%, to $752.2 million in the nine months ended September 24, 2016 from $727.8 million in the nine months ended September 26, 2015. The increase in net revenues was primarily due to an increase in core net revenues of 1%, comprised of an increase in pricing of approximately 2%, partially offset by a decrease in volume/mix of approximately 1%. The increase in pricing was the result of implementing our pricing optimization strategy. The decrease in volume/mix was primarily a result of the realignment of our customer and product portfolio aimed at driving profitable growth. Additionally, the acquisition of Dooria provided a 4% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 2%.

Adjusted EBITDA in Europe increased $18.8 million, or 26.2%, to $90.4 million in the nine months ended September 24, 2016 from $71.6 million in the nine months ended September 26, 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 $87.8 million, or 32.1%, to $361.5 million in the nine months ended September 24, 2016 from $273.7 million in the nine months ended September 26, 2015. The increase in net revenues was primarily due to an increase in core net revenues of 1%, comprised primarily of an increase in pricing. The increase in pricing was the result of implementing our pricing optimization strategy. Volume/mix was flat in the nine months ended September 24, 2016 as organic growth in certain regions was offset by economic weakness in Western Australia. Additionally, the acquisitions of Trend and Aneeta provided a 34% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 3%.

Adjusted EBITDA in Australasia increased $10.3 million, or 34.4%, to $40.3 million in the nine months ended September 24, 2016 from $30.0 million in the nine months ended September 26, 2015. The increase in Adjusted EBITDA was primarily due to the acquisitions of Trend and Aneeta and reduced material costs, partially offset by an unfavorable foreign exchange impact.

 

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

Consolidated Results

 

     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 3 to the table under the heading “Selected Consolidated Financial Data”.

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. The increase in pricing was the result of implementing our pricing optimization strategy. 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 reduction in tax expense of $24.4 million for the year ended December 31, 2015 was driven by an $86.2 million benefit from changes in valuation allowances in several countries as a result of improvements in our operating results in such countries, a significant improvement in our domestic results, and an $8.3 million benefit from the favorable settlement of various tax matters related to our 2007 and 2008 tax years, partially offset by a charge of $11.6 million for uncertain tax positions related to changes in how we run our business in Europe, a $4.0 million charge related to nontaxable/nondeductible items stemming from purchase accounting adjustments, and various other charges totaling $3.6 million.

 

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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 3 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 increase in pricing was the result of implementing our pricing optimization strategy. The decrease in volume/mix was primarily a result of the realignment of our customer and product portfolio aimed at driving profitable growth. Additionally, the 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%. The increase in volume/mix was the result of increased demand for our products driven by

 

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our profitable growth initiatives. The increase in pricing was the result of implementing our pricing optimization strategy. Additionally, the acquisition of Dooria provided a 2% increase in net revenues.

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%. The increase in volume/mix was the result of increased demand for our products driven by our profitable growth initiatives. The increase in pricing was the result of implementing our pricing optimization strategy. Additionally, the 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.

 

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

Consolidated Results

 

     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 3 to the table under the heading “Selected Consolidated Financial Data”.

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. The increase in pricing was the result of implementing our pricing optimization strategy. 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.

 

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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 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 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 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 benefit recorded in the year ended December 31, 2013 of approximately $34.1 million which reduced the effective rate in that year. This benefit was associated with a reduction in pension liabilities (income) classified in other comprehensive income. Under the exception of ASC 740-20-45-7, where a Company has a full valuation allowance, current year losses in continuing operations and net income in other comprehensive income, the tax charge associated with the net income in other comprehensive income is to be recorded as a component of the tax provision for continuing operations. In addition, there was a reduction in expense related to a year-over-year decline in our foreign sourced dividends of $5.3 million, offset by an increase in favorable IRS adjustments of $5.3 million.

 

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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 3 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 increase in pricing was the result of implementing our pricing optimization strategy. The decrease in volume/mix was primarily a result of the realignment of our customer and product portfolio aimed at driving profitable growth. 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.

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

 

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approximately 3% and an increase in pricing of approximately 1%. The increase in volume/mix was the result of increased demand for our products driven by our profitable growth initiatives. The increase in pricing was the result of implementing our pricing optimization strategy. 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%. The increase in volume/mix was the result of increased demand for our products driven by our profitable growth initiatives. The increase in pricing was the result of implementing our pricing optimization strategy.

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 eleven quarterly periods ended September 24, 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  
    Sep. 24,
2016
    Jun. 25,
2016
    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

  $ 932,475      $ 964,608      $ 796,547      $ 890,948      $ 874,331      $ 878,799      $ 736,982      $ 893,560      $ 936,215      $ 912,673      $ 764,758   

Cost of sales

    721,887        751,874        638,424        720,157        690,800        695,428        608,740        730,981        768,357        758,220        662,306   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    210,588        212,734        158,123        170,791        183,531        183,371        128,242        162,579        167,858        154,453        102,452   

Selling general and administrative

    135,910        140,858        131,592        142,105        130,380        121,670        117,971        129,017        108,906        126,505        124,049   

Impairment and restructuring charges

    3,945        2,119        2,981        5,785        2,316        3,272        9,969        5,431        8,288        17,351        7,318   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    70,733        69,757        23,550        22,901        50,835        58,429        302        28,131        50,664        10,597        (28,915

Interest expense, net

    (18,547     (18,167     (17,011     (20,083     (17,917     (11,476     (11,156     (12,781     (19,218     (19,180     (18,110

Other income (expense)

    7,731        505        724        4,141        9,823        (3,922     4,078        (50,040     670        (215     (936
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    59,917        52,095        7,263        6,959        42,741        43,031        (6,776     (34,690     32,116        (8,798     (47,961

Income tax benefit (expense)

    (14,358     22,197        (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

    45,559        74,292        5,057        19,969        41,581        30,467        (627     (37,724     25,029        (17,661     (47,919

(Loss) income from discontinued operations, net of tax

    (2,741     (618     514        (811     (570     (1,307     (168     (570     (4,528     (789     500   

Equity earnings (loss) of non-consolidated entities

    1,198        487        765        1,151        640        586        7        (572     (10     (289     424