424B4 1 d391688d424b4.htm 424B4 424B4
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Filed pursuant to Rule 424(b)(4)
Registration Statement No. 333-217994

 

14,000,000 Shares

 

 

LOGO

JELD-WEN Holding, Inc.

Common Stock

 

 

The selling shareholders identified in this prospectus, which include investment funds managed by Onex Partners Manager LP and its affiliates, or “Onex”, are offering 14,000,000 shares of common stock of JELD-WEN Holding, Inc. The underwriters also have an option to purchase up to 2,100,000 shares of our common stock in this offering from Onex. We will not receive any of the proceeds from the shares of common stock sold by the selling shareholders.

Our common stock is listed on the New York Stock Exchange under the symbol “JELD”. The last reported sale price of our common stock on May 24, 2017 was $31.21 per share.

After the completion of this offering, investment funds managed by Onex will own approximately 46.9% of our common stock (or 44.9% if the underwriters’ option to purchase additional shares of common stock from Onex is exercised in full). Upon completion of this offering, it is expected that Onex will cease to own a majority of our common stock. Accordingly, upon completion of this offering we expect that we will cease to be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange and we will, subject to certain transition periods permitted by New York Stock Exchange rules, no longer rely on exemptions from corporate governance requirements that are available to controlled companies.

 

 

Investing in our common stock involves risk. See “Risk Factors” beginning on page 17 to read about factors you should consider before buying shares of our common stock.

 

     Per Share      Total  

Price to public

   $ 30.75            $ 430,500,000  

Underwriting discounts and commissions(1)

   $ 1.07625      $ 15,067,500  

Proceeds, before expenses, to the selling shareholders

   $ 29.67375      $ 415,432,500  

 

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

Delivery of the shares of common stock will be made on or about May 31, 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. LLC   Wells Fargo Securities
Baird   FBR   SunTrust Robinson Humphrey

The date of this prospectus is May 24, 2017.


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page  

PROSPECTUS SUMMARY

     1  

RISK FACTORS

     17  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     42  

USE OF PROCEEDS

     44  

PRICE RANGE OF OUR COMMON STOCK

     45  

DIVIDEND POLICY

     46  

CAPITALIZATION

     47  

SELECTED CONSOLIDATED FINANCIAL DATA

     48  

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

     52  

BUSINESS

     87  

MANAGEMENT

     106  

EXECUTIVE COMPENSATION

     114  

PRINCIPAL AND SELLING SHAREHOLDERS

     133  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     136  

DESCRIPTION OF CAPITAL STOCK

     141  

DESCRIPTION OF CERTAIN INDEBTEDNESS

     146  

SHARES ELIGIBLE FOR FUTURE SALE

     150  

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

     153  

UNDERWRITING

     158  

LEGAL MATTERS

     166  

EXPERTS

     166  

INCORPORATION BY REFERENCE

     166  

WHERE YOU CAN FIND MORE INFORMATION

     167  

You should rely only on the information contained or incorporated by reference 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 shareholders 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 or incorporated by reference 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 9, 2017, 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, 2016, 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 U.S. 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 then-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 (as defined below). For a discussion of our presentation of Adjusted EBITDA, see footnote 1 to the table under the heading “Prospectus Summary—Summary Consolidated Financial Data” and footnote 1 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 Class B-1 Common Stock, par value $0.01 per share, all of which were converted into shares of our common stock immediately prior to our IPO (as defined below);

 

    “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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    “E.U.” means the European Union;

 

    “GAAP” means generally accepted accounting principles in the U.S.;

 

    “IPO” means the initial public offering of 22,272,727 shares of our common stock by us, together with 6,477,273 shares of our common stock offered by Onex, completed on February 1, 2017;

 

    “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 Series A-1 Convertible Preferred Stock, par value $0.01 per share, Series A-2 Convertible Preferred Stock, par value $0.01 per share, Series A-3 Convertible Preferred Stock, par value $0.01 per share, and Series A-4 Convertible Preferred Stock, par value $0.01 per share, all of which were converted into shares of our common stock immediately prior to the consummation our IPO;

 

    “Series B Preferred Stock” means the one share of our Series B Preferred Stock, par value $0.01 per share, which was cancelled in its entirety immediately prior to the consummation of our IPO;

 

    “Stock Incentive Plan” means our Amended and Restated Stock Incentive Plan;

 

    “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, (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, and (iii) on March 7, 2017, in connection with reducing the interest rate applicable to all outstanding term loans. As of April 1, 2017, we had approximately $1,226.7 million of term loans outstanding under the Term Loan Facility;

 

    “U.K.” means the United Kingdom; and

 

    “U.S.” means the United States of America.

 

 

PRESENTATION OF FINANCIAL INFORMATION AND SHARE INFORMATION

Unless otherwise indicated, all financial information contained or incorporated by reference in this prospectus for all periods presented gives effect to (i) the 11-for-1 stock split of our common stock and our Class B-1 Common Stock that was effected on January 3, 2017 and (ii) the conversion of all outstanding shares of our Series A Convertible Preferred Stock and Class B-1 Common Stock into our common stock, and the cancellation of the one outstanding share of our Series B Preferred Stock, all of which occurred immediately prior to the consummation of our IPO. Unless otherwise indicated, all information contained or incorporated by reference in this prospectus further assumes that the underwriters’ option to purchase additional shares has not been exercised.

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.

 

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Numerical figures included or incorporated by reference 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 or incorporated by reference in this prospectus to the nearest whole number. As a result, figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

USE OF NON-GAAP FINANCIAL MEASURES

This prospectus contains “non-GAAP measures”, which are financial measures that are not calculated and presented in accordance with GAAP. Specifically, we make use of the non-GAAP financial measures “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 1 to the table under the heading “Prospectus Summary—Summary Consolidated Financial Data” and footnote 1 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 0.722 and 0.763 with respect to information as of December 31, 2016 and April 1, 2017, as applicable. Amounts reported in British Pounds (£) throughout this prospectus are converted at a rate of 1.237 and 1.245 with respect to information as of December 31, 2016 and April 1, 2017, as applicable. Amounts reported in Euros (€) throughout this prospectus are converted at a rate of 1.054 and 1.067 with respect to information as of December 31, 2016 and April 1, 2017, as applicable. Amounts reported in Danish Kroner (DKK) throughout this prospectus are converted at a rate of 0.142 and 0.144 with respect to information as of December 31, 2016 and April 1, 2017, as applicable.

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere or incorporated by reference 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 incorporated by reference 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 approximately 670 basis points and our Adjusted EBITDA has grown at a 35.7% compound annual growth rate, or “CAGR”, from the year ended December 31, 2013 through the twelve-month period ended April 1, 2017. 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.

 



 

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In the twelve-month period ended April 1, 2017, our net revenues were $3.7 billion, our net income was $372.0 million, and our Adjusted EBITDA was $413.5 million. Adjusted EBITDA has increased by $260.3 million, or 169.9%, and net income has increased by $440.4 million from the year ended December 31, 2013 to the twelve-month period ended April 1, 2017.

On February 1, 2017, we closed an initial public offering of 28,750,000 shares of our common stock at a public offering price of $23.00 per share. We sold 22,272,727 shares in our IPO and we received $472.7 million in proceeds, net of underwriting discounts, fees and commissions. In addition, Onex sold 6,477,273 shares of our common stock from which we did not receive any proceeds. We used a portion of the net proceeds to us from the offering to repay $375 million of indebtedness outstanding under our Term Loan Facility, and have used and will use the 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.

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, 2016, our door sales accounted for 67% of net revenues, our window sales accounted for 24% of net revenues, and our other ancillary products and services accounted for 9% of net revenues.

Doors

We are 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 U.S., Australia, Germany, Switzerland, Austria, and Scandinavia (which is comprised of Denmark, Sweden, Norway, and Finland). We hold #2 positions in residential doors by net revenues in Canada and the U.K. 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 U.S. and the #1 position in Australia and Canada. We manufacture wood, vinyl, and aluminum windows in North America, wood and aluminum windows in Australia, and wood windows in the U.K. Our window product lines comprise a full range of styles, features, and energy-saving options in order to meet the varied needs of our customers in each of our regional end markets.

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.

 



 

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Our End Markets

We operate within the global market for residential and non-residential doors and windows with sales spanning 76 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.

The table below highlights the breadth of our global operations as of and for the year ended December 31, 2016:

 

   

North America

 

Europe

 

Australasia

% Net Revenues   59%   27%   14%
Manufacturing Facilities(1)   44   28   43
Key Market Positions(2)  

•     #1 in residential doors in the U.S.

 

•     #2 in residential doors in Canada

 

•     #3 in residential windows in the U.S.

 

•     #1 in residential windows in Canada

 

•     #1 in residential doors

 

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

 

–    #2 in residential doors in the U.K.

 

–    #3 in residential doors in France

 

•     #1 in non-residential doors

 

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

 

–    #3 in non-residential doors in France

 

•     #1 in residential doors in Australia

 

•     #1 in residential windows in Australia

Net Revenues by Product

Type

 

•     Doors (59%)

 

•     Windows (32%)

 

•     Other (9%)

 

•     Doors (95%)

 

•     Windows (2%)

 

•     Other (3%)

 

•     Doors (41%)

 

•     Windows (36%)

 

•     Other (23%)

Net Revenues by Construction Application(3)  

•     Residential R&R (54%)

 

•     Residential new construction (45%)

 

•     Non-residential (1%)

 

•     Residential R&R (37%)

 

•     Residential new construction (29%)

 

•     Non-residential (34%)

 

•     Residential R&R (25%)

 

•     Residential new construction (73%)

 

•     Non-residential (2%)

Key Brands(1)  

•     JELD-WEN

 

•     CraftMaster

 

•     LaCantina

 

•     Karona

 

•     JELD-WEN

 

•     Swedoor

 

•     DANA

 

•     Dooria

 

•     Alupan

 

•     JELD-WEN

 

•     Stegbar

 

•     Corinthian

 

•     Trend

 

•     Aneeta

 

•     Regency

 

•     Breezway

 

(1) As of April 30, 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 U.K., 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 U.S. and Canada. We are the only manufacturer that offers a full line of interior and exterior door and window products, allowing us to offer a more complete solution to our customer base. We believe that our total market opportunity in North America also includes non-residential applications, other related building products, and value-added services. We believe that our leading position in the North American market will enable us to benefit from continued market 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 U.K., France, Austria, Switzerland, and Scandinavia. We believe that our total market opportunity in Europe also includes other European countries, other door product lines, related building products, and value-added services. Although 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. We believe that our total market opportunity in the Australasia region also includes non-residential applications and other countries in the region, as well as other related building products, and value-added services. For example, we also sell a full line of shower enclosures and wardrobes throughout Australia.

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.

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.

 



 

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

 

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

 

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

 

    reducing warranty costs by improving quality.

We are in the early stages of implementing our strategic initiatives, including JEM, to develop a culture of operational excellence and continuous improvement. Our initial actions have already helped us to realize higher profit margins in all three reporting segments. 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 HGTV in the U.S. 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.

 



 

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    Channel Management: We are implementing initiatives and investing in tools and technology to enhance our relationships with key customers, make it easier for them to source from JELD-WEN, and support their ability to sell our products in the marketplace. 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 three 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 three years, which we expect will continue as such initiatives are implemented across our operations globally and become part of our culture.

Long-Standing Customer Relationships

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

 



 

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

Significant Diversification Across End Markets, Channels, and Geographies

We believe that the diversity of our revenue base across end markets, channels, and geographies provides us with significant benefits relative to our competitors. For example, our diversity with respect to construction application provides insulation from specific trends in our end markets. Furthermore, our global platform of 115 manufacturing facilities across 19 countries enables us to serve customers across approximately 76 countries and helps limit our dependence on a specific geographic region. Although we generate approximately 59% 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 U.K., where molded doors are the predominant residential interior door type. Our operating platform allows us to deliver our broad portfolio of products to customers across the globe, enhances our ability to innovate, optimizes our cost structure, provides greater value and improved service to our customers, and strengthens our market positions.

Summary Risk Factors

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

 

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

 

    our highly competitive business environment;

 

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

 

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

 

    failure to implement our strategic initiatives, 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;

 



 

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    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.

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

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 $24 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 the selling shareholders

14,000,000 shares (or 16,100,000 shares if the underwriters exercise their option to purchase additional shares in full).

 

Common stock outstanding (as of May 18, 2017)

104,992,226 shares.

 

Option to purchase additional shares

The underwriters have an option to purchase up to 2,100,000 additional shares from Onex. The underwriters can exercise this option at any time within 30 days from the date of this prospectus.

 

Use of proceeds

The selling shareholders will receive all of the net proceeds from this offering. We will not receive any proceeds from the sale of shares by the selling shareholders. See “Use of Proceeds”.

 

Dividend policy

We have no current plans to pay any dividends on our common stock in the foreseeable future. See “Dividend Policy”.

 

Listing

Our common stock is listed on the New York Stock Exchange under the symbol “JELD”.

 

Loss of “controlled company” status

Upon completion of this offering, it is expected that Onex will cease to own a majority of our common stock. Accordingly, upon completion of this offering we expect that we will cease to be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange and we will, subject to certain transition periods permitted by New York Stock Exchange rules, no longer rely on exemptions from corporate governance requirements that are available to controlled companies.

 

Risk factors

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 17 of this prospectus for a discussion of factors you should carefully consider before investing in our common stock.

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

 

    8,005,695 shares of common stock issuable upon the exercise of options outstanding under our Stock Incentive Plan and JELD-WEN Holding, Inc. 2017 Omnibus Equity Plan as of May 18, 2017 at a weighted average exercise price of $13.72 per share;

 

    495,322 shares of common stock issuable upon the settlement of outstanding RSUs; and

 

    6,843,103 shares of common stock reserved for future issuance under the JELD-WEN Holding, Inc. 2017 Omnibus Equity Plan.

 



 

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Summary Consolidated Financial Data

The following table presents summary consolidated financial data for the periods and at the dates indicated. The summary consolidated financial data as of December 31, 2016 and 2015 and for each of the three years ended December 31, 2016 have been derived from our audited consolidated financial statements incorporated by reference in this prospectus. The summary consolidated financial data as of December 31, 2014 has been derived from our audited consolidated financial statements not incorporated by reference in this prospectus. The summary consolidated financial data as of April 1, 2017 and March 26, 2016 and for each of the three months ended April 1, 2017 and March 26, 2016 have been derived from our unaudited consolidated financial statements incorporated by reference in this prospectus. The results for the three months ended March 26, 2016 and the year ended December 31, 2016 have been revised to reflect the correction of certain errors and other accumulated misstatements as described in Note 25—Revision of Prior Period Financial Statements in our unaudited consolidated financial statements for the three months ended April 1, 2017 incorporated by reference 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 April 1, 2017, 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, 2016 to amounts from our unaudited consolidated financial statements for the three months ended April 1, 2017 and subtracting amounts from our unaudited consolidated financial statements for the three months ended March 26, 2016. 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 summary consolidated financial data set forth below should be read in conjunction with, and are qualified by reference to “Capitalization”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Business”, and our consolidated financial statements and related notes thereto incorporated by reference in this prospectus.

 

    Twelve
Months
Ended
    Three Months Ended     Year Ended December 31,  
    April 1,
2017
    April 1,
2017
    March 26,
2016
    2016     2015     2014  
    (dollars in thousands, except share and per share data)  

Net revenues

  $ 3,718,039     $ 847,787     $ 796,547     $ 3,666,799     $ 3,381,060     $ 3,507,206  

Cost of sales

    2,890,602       661,816       638,424       2,867,210       2,715,125       2,919,864  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    827,437       185,971       158,123       799,589       665,935       587,342  

Selling, general and administrative

    605,744       147,079       131,992       590,657       512,126       488,477  

Impairment and restructuring charges

    12,068       1,202       2,981       13,847       21,342       38,388  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    209,625       37,690       23,150       195,085       132,467       60,477  

Interest expense, net

    (87,471     (26,892     (17,011     (77,590     (60,632     (69,289

Other income (expense)

    9,502       (2,599     724       12,825       14,120       (50,521
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    131,656       8,199       6,863       130,320       85,955       (59,333

Income tax benefit (expense)

    240,646       (2,252     (2,097     240,801       5,435       (18,942
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    372,302       5,947       4,766       371,121       91,390       (78,275

Loss from discontinued operations, net of tax

    (3,838     —         514       (3,324     (2,856     (5,387

Equity earnings (loss) of non-consolidated entities

    3,507       481       765       3,791       2,384       (447
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 371,971     $ 6,428     $ 6,045     $ 371,588     $ 90,918     $ (84,109
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common shareholders

           

Basic

    $ (4,034   $ (20,361   $ (25,059   $ (290,500   $ (184,143

Diluted

    $ (4,034   $ (20,361   $ (25,059   $ (290,500   $ (184,143

Weighted average common shares outstanding

           

Basic

      74,295,248       17,936,853       17,992,879       18,296,003       20,440,057  

Diluted

      74,295,248       17,936,853       17,992,879       18,296,003       20,440,057  

Income (loss) per common share from continuing operations

           

Basic

    $ (0.05   $ (1.16   $ (1.21   $ (15.72   $ (8.75

Diluted

    $ (0.05   $ (1.16   $ (1.21   $ (15.72   $ (8.75

 



 

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    Twelve
Months
Ended
    Three Months Ended     Year Ended December 31,  
    April 1,
2017
    April 1,
2017
    March 26,
2016
    2016     2015     2014  
    (dollars in thousands, except share and per share data)  

Other financial data:

           

Capital expenditures

  $ 68,526     $ 9,802     $ 20,773     $ 79,497     $ 77,687     $ 70,846  

Depreciation and amortization

    109,365       27,062       25,692       107,995       95,196       100,026  

Adjusted EBITDA(1)

    413,488       80,962       61,156       393,682       310,986       229,849  

Adjusted EBITDA margin(1)

    11.1     9.5     7.7     10.7     9.2     6.6

Consolidated balance sheet data:

           

Cash and cash equivalents

 

  $ 185,505     $ 43,224     $ 102,701     $ 113,571     $ 105,542  

Accounts receivable, net

 

    439,096       407,874       407,170       321,079       329,901  

Inventories

 

    365,744       383,314       334,634       343,736       359,274  

Total current assets

 

    1,018,793       867,684       875,360       814,418       840,356  

Total assets

 

    2,677,850       2,270,456       2,530,079       2,182,373       2,184,059  

Accounts payable

 

    212,560       218,915       188,906       166,686       179,652  

Total current liabilities

 

    519,166       543,317       512,832       487,445       524,301  

Total debt

 

    1,245,775       1,262,287       1,620,035       1,260,320       806,228  

Redeemable convertible preferred stock

 

    —         481,937       150,957       481,937       817,121  

Total shareholders’ equity (deficit)

 

    714,744       (208,729     55,999       (231,745     (168,826

Statement of cash flows data:

           

Net cash flow provided by (used in):

           

Operating activities

  $ 220,295     $ (9,485   $ (28,197   $ 201,583     $ 172,339     $ 21,788  

Investing activities

    (122,517     (7,736     (42,001     (156,782     (158,452     (56,738

Financing activities

    47,083       98,307       (777     (52,001     (1,072     105,617  

 

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

We define Adjusted EBITDA as net income (loss), 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.

 



 

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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
    Three Months
Ended
    Year Ended December 31,  
    April 1,
2017
    April 1,
2017
    March 26,
2016
    2016     2015     2014  
    (dollars in this table and the footnotes below in thousands)  

Net income (loss)

  $ 371,971     $ 6,428     $ 6,045     $ 371,588     $ 90,918     $ (84,109

Adjustments:

           

Loss (income) from discontinued operations, net of tax

    3,838       —         (514     3,324       2,856       5,387  

Equity (earnings) loss of non-consolidated entities

    (3,507     (481     (765     (3,791     (2,384     447  

Income tax (benefit) expense

    (240,646     2,252       2,097       (240,801     (5,435     18,942  

Depreciation and amortization

    109,365       27,062       25,692       107,995       95,196       100,026  

Interest expense, net

    87,471       26,892       17,011       77,590       60,632       69,289  

Impairment and restructuring charges(a)

    16,633       1,180       2,900       18,353       31,031       38,645  

(Gain) loss on sale of property and equipment

    326       (43     (3,644     (3,275     (416     (23

Share-based compensation expense

    22,823       5,444       5,085       22,464       15,620       7,968  

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

    5,111       4,360       4,983       5,734       2,697       (528

Other non-cash items(b)

    2,419       1       425       2,843       1,141       2,334  

Other items(c)

    36,342       7,587       1,830       30,585       18,893       20,278  

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

    1,342       280       11       1,073       237       51,193  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 413,488     $ 80,962     $ 61,156     $ 393,682     $ 310,986     $ 229,849  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (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 $4,565, $(22), $(81), $4,506, $9,687, $257 for the twelve months ended April 1, 2017, three months ended April 1, 2017 and March 26, 2016, and years ended December 31, 2016, 2015 and 2014, 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, 2016 and Note 16—Impairment and Restructuring Charges in our financial statements for the three months ended April 1, 2017, each incorporated by reference in this prospectus.

 

  (b)

Other non-cash items include, among other things, (i) in the twelve months ended April 1, 2017, charges of $2,153 for an out-of-period European warranty liability adjustment; (ii) in the three months ended March 26, 2016, charges of $357 relating to (a) 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 (b) the impact of a change in how we capitalize overhead expenses in our valuation of inventory; (iii) in the year ended December 31, 2016, (1) charges of $357 relating to (a) 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 (b) the impact of a change in how we capitalize overhead expenses in our valuation of inventory and (2) charges of $2,153 for the out-of-period European warranty liability adjustment; (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,

 



 

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  partially offset by (6) $5,678 of realized gain on foreign exchange hedges related to an intercompany loan; and (v) 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.

 

  (c) Other items include: (i) in the twelve months ended April 1, 2017, (1) a $20,695 payment to the holders of vested options and restricted shares in connection with the November 2016 dividend, (2) $7,985 in legal costs, (3) $(2,247) gain on settlement of contract escrow, (4) $4,069 of professional fees related to our IPO, (5) $897 of recruitment costs related to the recruitment of executive management employees, (6) $825 of acquisition costs, (7) $530 in legal costs associated with the disposition of non-core properties, (8) $507 of dividend payout related costs, and (9) $273 related to a legal settlement accrual for CMI; (ii) in the three months ended April 1, 2017, (1) $7,996 in legal costs, (2) $(2,247) gain on settlement of contract escrow, (3) $498 in facility shut down costs, and (4) $348 in IPO costs; (iii) in the three months ended March 26, 2016, (1) $868 in acquisition costs, (2) $294 in Dooria plant closure costs, and (3) $212 of tax consulting costs in Europe; (iv) in the year ended December 31, 2016, (1) $20,695 payment to holders of vested options and restricted shares in connection with the November 2016 dividend, (2) $3,721 of professional fees related to the IPO of our common stock, (3) $1,626 of acquisition costs, (4) $584 in legal costs associated with disposition of non-core properties, (5) $507 of dividend payout related costs, (6) $500 of recruitment costs related to the recruitment of executive management employees, (7) $450 in legal costs, (8) $346 in Dooria plant closure costs, and (9) $265 related to a legal settlement accrual for CMI; (v) 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 U.K. legal settlement, (3) $1,825 in acquisition costs, (4) $1,833 of recruitment costs related to the recruitment of executive management employees, and (5) $1,082 of legal costs related to non-core property disposal, partially offset by (6) $5,678 of realized gain on foreign exchange hedges related to an intercompany loan; and (vi) 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.

 

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

 



 

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following factors, as well as other information contained or incorporated by reference 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 U.S. have improved in recent years, there can be no assurance that this improvement will be sustained in the near or long-term. Moreover, uncertain economic conditions continue in our Australasia segment and certain countries in our Europe segment. Negative business, financial market, and economic conditions globally or in the regions where we operate may materially and adversely affect demand for our products, and our business, financial condition, and results of operations could be materially negatively impacted as a result.

 

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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 for us to keep their business. Reduced pricing would result in lower product margins on sales to those customers. There is no guarantee that a reduction in prices would be offset by sufficient gains in market share and sales volume to those customers.

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

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

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

Accordingly, the success of our business depends in part on our ability to maintain strong brands, and identify and respond promptly to evolving trends in demographics, consumer preferences, and expectations and needs, while also managing inventory levels. It is difficult to successfully predict the products and services our customers will demand. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products and acquire or develop the intellectual 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 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 and operational difficulties, particularly if we acquire assets or businesses in new foreign jurisdictions where we have little or no operational experience.

In furtherance of our strategy of growth through acquisitions, we routinely review and conduct investigations of potential acquisitions, some of which may be material. When we believe a favorable opportunity exists, we seek to enter into discussions with targets or sellers regarding the possibility of such acquisitions. At any given time, we may be in discussions with one or more counterparties. There can be no assurances that any such negotiations will lead to definitive agreements, or if such agreements are reached, that any transactions would be consummated.

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

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

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

Our business depends on our relationships with our key customers, which consist mainly of wholesale distributors and retail home centers. Our top ten customers together accounted for approximately 37% of our gross revenues in the year ended December 31, 2016, and our largest customer, The Home Depot, accounted for approximately 17% of our gross revenues in the year ended December 31, 2016. 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.

 

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

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

We are subject to the credit risk of our customers.

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

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

Our performance depends in part upon consumers having the ability to access third-party financing for the purchase of new homes and buildings and R&R of existing homes and other buildings. The ability of consumers to finance these purchases is affected by the interest rates available for home mortgages, credit card debt, home equity or other lines of credit, and other sources of third-party financing. 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 raised the federal funds rate for the first time in 10 years in December 2015 and again in both December 2016 and March 2017, and has announced its intention to raise the federal funds rate at least twice more in 2017. An increase in the federal funds or bank’s prime rates could cause an increase in future interest rates applicable to mortgages, credit card debt, and other sources of third-party financing. If interest rates 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 51% of our cost of sales in the year ended December 31, 2016. Prices for our materials fluctuate

 

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for a variety of reasons beyond our control, many of which cannot be anticipated with any degree of reliability. Our most significant raw materials include vinyl extrusions, glass, and aluminum, each of which has been subject to periods of rapid and significant fluctuations in price. The reasons for these fluctuations include, among other things, variable worldwide supply and demand across different industries, speculation in commodities futures, general economic or environmental conditions, labor costs, competition, import duties, tariffs, worldwide currency fluctuations, freight, regulatory costs, and product and process evolutions that impact demand for the same materials.

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

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

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

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

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.

 

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

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

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

We have operations in North America, South America, Europe, Australia, and Asia. In the year ended December 31, 2016, our North America segment accounted for approximately 59% of net revenues, our Europe segment accounted for approximately 27% of net revenues, and our Australasia segment accounted for approximately 14% 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 planned withdrawal of the U.K. from the E.U.

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

The notice given by the U.K. of its intent to withdraw from the E.U. could have a material adverse effect on our business, financial condition, and results of operations.

The recent notification by the U.K. of its intent to exit the E.U., or “Brexit”, has created volatility in the global financial markets. The terms of the withdrawal are subject to a negotiation period that could last up to two years after the government of the U.K. formally initiated the withdrawal process in March 2017. The effects of the U.K.’s withdrawal from the E.U. on the global economy, and on our business in particular, will depend on agreements the U.K. makes to retain access to E.U. markets both during a transitional period and more permanently. Brexit could impair the ability of our operations in the E.U. to transact business in the future in the U.K., as well as the ability of our U.K. operations to transact business in the future in the E.U. If the U.K. and the E.U. are unable to negotiate acceptable withdrawal terms or if other E.U. member states pursue withdrawal, barrier-free access between the U.K. and other E.U. member states or among the European Economic Area overall could be diminished or eliminated.

 

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Volatility associated with Brexit could continue to adversely affect European and worldwide economic conditions, and may contribute to greater instability in the global financial markets. Among other things, Brexit could reduce consumer spending in the U.K. and the E.U., which could result in decreased demand for our products. Similarly, housing sales and home values in the U.K. and in the E.U. could be negatively impacted and Brexit could also influence foreign currency exchange rates. For the year ended December 31, 2016, we derived 4% of our net revenues from our operations in the U.K., and we have moved our Europe headquarters to the U.K. As a result, the effects of Brexit could inhibit the growth of our business and have a material adverse effect on our business, financial condition, and results of operations.

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

Our operations expose us to both transaction and translation exchange rate risks. In the year ended December 31, 2016, 48% of our net revenues came from sales outside of the U.S., and we anticipate that our operations outside of the U.S. will continue to represent a significant portion of our net revenues for the foreseeable future. In addition, the nature of our operations often requires that we incur expenses in currencies other than those in which we earn revenue. Because of the mismatch between revenues and expenses, we are exposed to significant currency exchange rate risk and we may not be successful in achieving balances in currencies throughout our operations. In addition, if the effective price of our products were to increase as a result of fluctuations in foreign currency exchange rates, demand for our products could decline, which could adversely affect our business, financial condition, and results of operations. Also, because our financial statements are presented in U.S. dollars, we must translate the financial statements of our foreign subsidiaries and affiliates into U.S. dollars at exchange rates in effect during or at the end of each reporting period, and increases or decreases in the value of the U.S. dollar against other major currencies will affect our reported financial results, including the amount of our outstanding indebtedness. Unfavorable exchange rates had a negative impact of 1% on our consolidated net revenues in the year ended December 31, 2016 as compared to the year ended December 31, 2015. 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 U.S. has entered into armed conflicts, which could have an impact on our sales and our ability to deliver product to our customers. Political and economic instability in some regions of the world may also negatively impact the global economy and, therefore, our business. The consequences of any of these armed conflicts are unpredictable, and we may not be able to foresee events that could have an adverse effect on our business or your investment. More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in the worldwide financial markets. They could also result in economic recessions. Any of these occurrences could have a material adverse effect on our business, financial condition, and results of operations.

 

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

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

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

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

We are implementing a new Enterprise Resource Planning system 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 are implementing a new Enterprise Resource Planning, or “ERP”, system as part of our ongoing technology and process improvements. This ERP system will provide a standardized method of accounting for, among other things, order entry and inventory and should enhance our ability to implement our strategic initiatives. Any delay in the implementation, or disruption in the upgrade, of this system could adversely affect our ability to timely and accurately report financial information, including the filing of our quarterly or annual reports with the SEC. Such delay or disruption could also impact our ability to timely or accurately make payments to our suppliers and employees, and could also inhibit our ability to invoice and collect from our customers. Data integrity problems or other issues may be discovered which, 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.

 

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

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

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

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

Our financial performance is affected by the availability of qualified personnel and the cost of labor. As of December 31, 2016, we had approximately 20,600 employees worldwide, including approximately 10,100 employees in the U.S. and Canada. Approximately 1,100, or 11%, of our employees in the U.S. and Canada are unionized workers, and the majority of our workforce in other countries belong to work councils or are otherwise subject to labor agreements. U.S. and Canada employees represented by these unions are subject to collective bargaining agreements that are subject to periodic negotiation and renewal. If we are unable to enter into new, satisfactory labor agreements with our unionized employees upon expiration of their agreements, we could experience a significant disruption of our operations, which could cause us to be unable to deliver products to customers on a timely basis. Such disruptions could result in a loss of business and an increase in our operating expenses, which could reduce our net revenues and profit margins. In addition, our non-unionized labor force may become subject to labor union organizing efforts, which could cause us to incur additional labor costs and increase the related risks that we now face.

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

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

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

 

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

In addition, in order for our products to obtain the “ENERGY STAR” certification, they must meet certain requirements set by the 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.

The elimination of the ENERGY STAR program could lower the demand for our products or otherwise adversely affect our business.

Many of our products comply with the federal government’s ENERGY STAR program. We believe that labeling our products with the ENERGY STAR label gives us a competitive advantage as compared to competing products that are not labeled as ENERGY STAR products. The current U.S. administration has recently proposed discontinuing the use of ENERGY STAR program. Eliminating the ENERGY STAR program could neutralize our competitive advantage for ENERGY STAR compliant products and result in 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

 

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

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

Various legislative, regulatory, and inter-governmental proposals to restrict emissions of GHGs, such as 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. The regulations applicable to existing power plants, 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. More than two dozen states as well as industry and labor groups challenged the Clean Power Plan in the D.C. Circuit Court of Appeals. On February 9, 2016, the U.S. Supreme Court stayed the Clean Power Plan pending disposition of the legal challenges. In addition, on March 28, 2017, President Trump signed an executive order directing the EPA to review the Clean Power Plan and related rules and, if appropriate, initiate a rulemaking to rescind or revise the rules consistent with the stated policy of promoting clean and safe development of the nation’s energy resources, while at the same time avoiding regulatory burdens that unnecessarily encumber energy production. On April 28, 2017, the D.C. Circuit Court of Appeals issued an order holding the case in abeyance for 60 days and directing both sides to submit briefs that address whether the court should keep the case on hold or close it and remand the issue to the EPA. Many nations, including jurisdictions in which we operate, have also committed to limiting emissions of GHGs worldwide, most prominently through an agreement reached in Paris in December 2015 at the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change. The Paris agreement sets out a new process for achieving global GHG reductions. Since some of our manufacturing facilities operate boilers or other process equipment that emit GHGs, such regulatory and global initiatives may require us to modify our operating procedures or production levels, incur capital expenditures, change fuel sources, or take other actions that may adversely affect our financial results. However, given the high degree of uncertainty about the ultimate parameters of any such regulatory or global initiative, and because proposals like the Clean Power Plan are currently subject to legal challenges and reconsideration, we cannot predict at this time the ultimate impact of such initiatives on our operations or financial results.

A significant portion of our GHG emissions are from biomass-fired boilers, which emit biogenic 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. As originally proposed, the Clean Power Plan would also allow 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.

 

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

Our markets are also affected by legislative and regulatory policies, such as U.S. tax rules allowing for deductions of mortgage interest and the mandate of government-sponsored entities like Freddie Mac and Fannie Mae to promote home ownership through mortgage guarantees on certain types of home loans. In the U.S., 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.

Changes in legislation, regulation and government policy, including as a result of U.S. presidential and congressional elections, may have a material adverse effect on our business in the future.

The recent presidential and congressional elections in the United States could result in significant changes in, and uncertainty with respect to, legislation, regulation and government policy. While it is not possible to predict whether and when any such changes will occur, changes at the local, state or federal level could significantly impact our business. Specific legislative and regulatory proposals discussed during and after the election that could have a material impact on us include, but are not limited to, infrastructure renewal programs; changes to immigration policy; modifications to international trade policy, including withdrawing from trade agreements; and changes to financial legislation and public company reporting requirements.

In addition, U.S. lawmakers are evaluating proposals for substantial changes to U.S. fiscal and tax policies, which could include comprehensive tax reform. A variety of tax reform proposals that would significantly impact U.S. taxation of corporations are under consideration, including reductions in the U.S. corporate tax rate, repeal of the corporate alternative minimum tax, introduction of a capital expense deduction, the elimination of the interest deduction and changes to the international tax system, including the adoption of a territorial tax system, the introduction of a border adjustment tax, taxes on imports, and proposals to permit repatriation of offshore earnings at a reduced rate. Although a reduction in the U.S. corporate tax rate may lower our tax provision expense in future periods, it may also significantly decrease the value of our deferred tax assets, including the value of our deferred tax assets related to our substantial net operating loss, or “NOL”, carryforwards, which would result in a reduction of net income in the period in which the change is enacted. For instance, as of December 31, 2016, the deferred tax asset associated with our U.S. federal NOL carryforwards was $284.8 million. See Note 19—Income Taxes in our financial statements for the year ended December 31, 2016 incorporated by reference in this prospectus.

We are currently unable to predict whether policy change discussions will meaningfully change existing legislative and regulatory environments relevant for our business. To the extent that such changes have a negative impact on us, including as a result of related uncertainty, these changes may materially and adversely impact our business, financial condition, cash flows 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 U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar laws and regulations.

We operate manufacturing facilities in 19 countries and sell our products in approximately 76 countries around the world. As a result of the international nature of our operations, we may enter from time to time into negotiations and contractual arrangements with parties affiliated with foreign governments and their officials in the ordinary course of business. In connection with these activities, we may be subject to anti-corruption laws in various jurisdictions, including the U.S. Foreign Corrupt Practices Act, or the FCPA, the U.K. Bribery Act and other anti-bribery laws applicable to jurisdictions where we do business 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

 

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by agents in foreign countries where we operate, even though such parties are not always subject to our control. We have established anti-bribery policies and procedures and offer several channels for raising concerns in an effort to comply with the laws and regulations applicable to us. However, there can be no assurance that our policies and procedures will effectively prevent us from violating these laws and regulations in every transaction in which we may engage. Any determination that we have violated the FCPA or other anti-bribery laws (whether directly or through acts of others, intentionally or through inadvertence) could result in sanctions that could have a material adverse effect on our business, financial condition, and results of operations.

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

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

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

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

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

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

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

 

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

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, 2016 for our U.S. pension plan were approximately $405.3 million and $109.3 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, 2016, our foreign defined benefit plans had unfunded pension liabilities of approximately $16.7 million.

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

 

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

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

Risks Relating to our Indebtedness

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

We are a highly leveraged company. As of April 1, 2017, we had $1,226.7 million of term loans outstanding under the Term Loan Facility and no revolving borrowings outstanding under the ABL Facility. After giving effect to $37.1 million of letters of credit outstanding under the ABL Facility, as of April 1, 2017, we had $208.6 million available for borrowing under the ABL Facility. As of April 1, 2017, we had AUD $18.0 million ($13.7 million) available and no borrowings outstanding under the Australia Senior Secured Credit Facility and €38.0 million ($40.6 million) available, after giving effect to €1.0 million ($1.0 million) of guarantees and letters of credit outstanding, and no borrowings outstanding under the Euro Revolving Facility. 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 interest rate hedging agreements, including notional amounts, average fixed rates, and expiration dates.

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, share repurchases and dividends, debt service, or other general corporate purposes;

 

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

 

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

 

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

 

    limiting our ability to invest in and develop new products;

 

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

 

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

 

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

 

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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 shareholders;

 

    repurchase or redeem capital stock;

 

    make acquisitions;

 

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

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

 

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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 or derivative contracts. In exacerbated or prolonged circumstances, one or more of these events could result in our bankruptcy or liquidation. Accordingly, any default by us on our debt could have a material adverse effect on our business, financial condition, and results of operations.

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

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

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

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

Risks Relating to this Offering and Ownership of Our Common Stock

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 price you paid.

Our common stock has only been listed for public trading since January 27, 2017. Since that date, the price of our common stock, as reported by the New York Stock Exchange, has ranged from a low of $24.95 on January 27, 2017 to a high of $34.40 on April 26, 2017. The trading price of our common stock may be volatile. Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as other general economic, market or political conditions, could reduce the market price of our common shares in spite of our operating performance. 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;

 

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    product liability claims or product recalls;

 

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

 

    our ability to recruit and retain highly skilled staff;

 

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

 

    trading volume of our common stock;

 

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

 

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

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

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

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

Because Onex will own a substantial portion of our common stock following this offering, it may continue to influence 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 the selling shareholders, Onex will beneficially own approximately 49,194,830 shares of our common stock representing 46.9% of our outstanding common stock (or 47,094,830 shares of our common stock, representing 44.9% of our outstanding common stock if the underwriters exercise their option to purchase additional shares in full). Although we will no longer be a controlled company following the completion of this offering, Onex will continue to be able to influence matters requiring approval by our shareholders and/or our board of directors, including the election of directors and the approval of business combinations or dispositions and other extraordinary transactions. They may also have interests that differ from 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 shareholders of an opportunity to receive a premium for their common stock as part of a sale of our company and may materially and adversely affect the market price of our common stock. In addition, Onex may in the future own businesses that directly compete with ours. Further, for so long as Onex owns at least 5% of our outstanding 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 a substantial 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.

Two of our ten directors are affiliated with Onex. These persons have fiduciary duties to both us and Onex. As a result, they may have real or apparent conflicts of interest on matters affecting both us and Onex, which in

 

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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 provides that the doctrine of “corporate opportunity” will not apply with respect to us, to Onex or certain related parties or any of our directors who are employees of Onex or its affiliates in a manner that would prohibit them from investing in competing businesses or doing business with our customers. To the extent they invest in such other businesses, Onex may have differing interests than our other shareholders.

We expect that upon completion of this offering, we will no longer be a “controlled company” within the meaning of the rules of the New York Stock Exchange. However, even if we are no longer a “controlled company,” we will continue to qualify for, and may rely on, exemptions from certain corporate governance requirements that would otherwise provide protection to our shareholders during a one-year transition period.

Upon completion of this offering, it is expected that Onex will cease to own a majority of our common stock. Accordingly, upon completion of this offering we expect that we will cease to be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange and we will, subject to certain transition periods permitted by New York Stock Exchange rules, no longer rely on exemptions from corporate governance requirements that are available to controlled companies. As a result, we will be required to have at least one independent director on each of our governance and nominating committee and compensation committee upon completion of this offering, a majority of independent directors on those committees within 90 days after the completion of this offering, and fully independent governance and nominating committee and compensation committee within one year after the completion of this offering. We will also be required to have a majority independent board of directors within one year after the completion of this offering and to perform an annual performance evaluation of our governance and nominating and compensation committees. Prior to this offering, our board of directors has determined that none of the three members of our governance and nominating committee, one of the three members of our compensation committee, three of the four members of our audit committee and four of the ten members of our board of directors are independent for purposes of the New York Stock Exchange corporate governance standards.

In addition, on June 20, 2012, the SEC adopted Rule 10C-1 under the Securities Exchange Act of 1934, as amended (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.

We will be subject to these governance and nominating committee and compensation committee independence requirements following the completion of this offering as we will no longer qualify as a “controlled company”.

 

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

 

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

 

    institute more formal comprehensive financial reporting and disclosure compliance functions;

 

    supplement our internal accounting and auditing function;

 

    enhance and formalize closing procedures for our accounting periods;

 

    enhance our investor relations function;

 

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

 

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

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

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

As a public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act. We will be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act with our Form 10-K for the fiscal year ending December 31, 2017 and to include an auditor attestation on management’s internal controls report with our Form 10-K for the fiscal year ending December 31, 2018. If we fail to abide by the requirements of Section 404, regulatory authorities, such as the SEC, might subject us to sanctions or investigation, and our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal control over financial reporting pursuant to an audit of our controls. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. Accordingly, our internal control over financial reporting may not prevent or detect misstatements because of their inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud.

 

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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 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.

Future sales, or the perception of future sales, of shares of our common stock in the public market by us or our existing shareholders could cause our stock price to fall.

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. As of May 18, 2017, we had 104,992,226 shares of common stock outstanding. Of these securities, all of the 28,750,000 shares sold in our IPO are, and all of the 14,000,000 shares of common stock offered hereby 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 59,014,514 shares of common stock owned (after giving effect to this offering) 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, our directors, the selling shareholders (including Onex) and certain existing shareholders (that together own approximately 66% of our outstanding common stock, prior to giving effect to this offering), have entered into lock-up agreements that prevent the sale of shares of our common stock for 90 days after the date of this prospectus, subject to waiver by Barclays Capital Inc. and Citigroup Global Markets Inc. In addition, in connection with our IPO, we, our executive officers and directors, and shareholders that owned approximately 97% of our outstanding common stock (prior to giving effect to the IPO and this offering), including Onex, entered into lock-up agreements that prevent the sale of shares of our common stock until July 26, 2017. The representatives of the underwriters of our IPO have waived such IPO

 

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lock-up agreements to permit the filing of this registration statement and are expected to waive the IPO lock-up agreements to permit the sale of our common stock in this offering by the selling shareholders (which may include directors and officers of the Company). Onex, as well as the shareholders owning a majority of the shares (other than shares owned by Onex) that are subject to the Registration Rights Agreement (as defined below), each have the right, subject to certain conditions (and such lock-up agreements), to require us to register the sale of shares owned by such persons under the federal securities laws. If this right is exercised, existing holders of all shares subject to the 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 67% of the shares of our common stock outstanding prior to this offering are subject to the Registration Rights Agreement. See “Shares Eligible For Future Sale” and “Certain Relationships and Related Party Transactions—Registration Rights Agreement”. In addition, shares issued or issuable upon exercise of options and vested RSUs will be eligible for sale from time to time or, if not subject to the lock-up agreements described above, will be eligible for sale immediately following exercise of such options, except that any shares held by our affiliates, as that term is defined in the Securities Act, may be sold only in compliance with limitations described in “Shares Eligible for Future Sale”.

Our employees, officers, and directors may elect to sell shares of our common stock in the public market. Sales of a substantial number of shares of our common stock in the public market 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 and the JELD-WEN, Inc. KSOP, or “KSOP”, are designed as a tax-qualified retirement plans and employee stock ownership plans under the Code. Participants whose employment with us or our subsidiaries is terminated are entitled to receive distributions of accounts held under the ESOP and KSOP at specified times and in specified forms. In addition, each plan permits diversification of the Company’s common stock held in participants’ accounts at specified times. In order to fund cash distributions and diversifications, the ESOP and KSOP may sell shares of our common stock from time to time. In the years ended December 31, 2016, 2015, and 2014, the ESOP sold approximately $0, $12.1 million, and $14.8 million, respectively, of our common stock to fund required distributions. We do not expect to purchase any further shares from the ESOP or the KSOP because we expect that the ESOP and KSOP may sell shares in the open market to fund distributions and diversifications. The first diversification window under the terms of the KSOP opened ninety days after the date of our IPO, with subsequent diversification windows occurring quarterly. Diversification elections made during the first window resulted in the sale of 244,172 shares by the administrator of the KSOP in May 2017. Annual distributions under the terms of the ESOP typically occur in the second quarter and, for 2017, are expected to occur in the third quarter. As of April 30, 2017, the ESOP and KSOP owned approximately 3.8% of our common stock.

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

If securities or industry analysts cease publishing research or reports about us, our business, or our market, or if they adversely change their recommendations or publish negative reports regarding our business or our stock, our stock price and trading volume could decline.

The trading market for our common stock 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 have no current plans to pay cash dividends on our shares of common stock, shareholders must rely on appreciation of the value of our common stock for any return on their investment.

We currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and have no current plans to declare or pay any cash dividends in the foreseeable future. In addition, the terms of our Credit Facilities 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 shareholders, and may prevent attempts by our shareholders to replace or remove our current management.

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

 

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

 

    limit the ability of shareholders to remove directors only “for cause” 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 shareholder action by written consent, which requires all shareholder actions to be taken at a meeting of our shareholders if Onex ceases to own more than 50% of the voting power of all our outstanding common stock;

 

    prohibit our shareholders from calling a special meeting of shareholders 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 shareholders at shareholder meetings; and

 

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

Upon completion of this offering, it is expected that Onex will own approximately 46.9% of our outstanding common stock (or 44.9% if the underwriters’ option to purchase additional shares of common stock from Onex is exercised in full). Therefore, as a result of this offering, provisions of our restated certificate of incorporation and amended and restated bylaws that apply when Onex owns less than 50% of the voting power of all of our outstanding stock will apply as described above.

We have also opted out of Section 203 of the DGCL, which, subject to some exceptions, prohibits business combinations between a Delaware corporation and an interested shareholder, which is generally defined as a shareholder who becomes a beneficial owner of 15% or more of a Delaware corporation’s voting stock for a three-year period following the date that the shareholder became an interested shareholder. At some time in the future, we may again be governed by Section 203. Section 203 could have the effect of delaying, deferring or preventing a change in control that our shareholders might consider to be in their best interests. See “Description of Capital Stock”.

 

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

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

Our restated certificate of incorporation provides, unless we consent to an alternative forum, that the Court of Chancery of the State of Delaware (or, if such court does not have jurisdiction, the Superior Court of the State of Delaware, or, if such other court does not have jurisdiction, the U.S. District Court for the District of Delaware) shall be the exclusive forum for any claims, including claims on behalf of JWHI, brought by a shareholder (i) that are based upon a violation of a duty by a current or former director or officer or shareholder in such capacity or (ii) as to which the DGCL confers jurisdiction upon the Court of Chancery of the State of Delaware. This provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the provision contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition.

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

We are a holding company that conducts all of our operations through subsidiaries and the majority of our operating income is derived from our subsidiary JWI, our main operating subsidiary. Consequently, we rely on dividends or advances from our subsidiaries. We have no current plans to declare or pay dividends on our common stock for the foreseeable future; however, to the extent that we determine in the future to pay dividends on our common stock, none of our subsidiaries will be obligated to make funds available to us for the payment of dividends. The ability of such subsidiaries to pay dividends to us is subject to applicable local law and may be limited due to terms of other contractual arrangements, including our indebtedness. Such laws and restrictions would restrict our ability to continue operations. In addition, Delaware law may impose requirements that may restrict our ability to pay dividends to holders of our common stock.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated by reference in this prospectus contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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”, and in the documents incorporated by reference herein, 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;

 

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    security breaches and other cybersecurity incidents;

 

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

 

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

 

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

 

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

 

    the extent of 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 or incorporated by reference 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 or incorporated by reference 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 or incorporated by reference 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 or the documents incorporated by reference herein speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this prospectus.

 

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USE OF PROCEEDS

We will not receive any of the proceeds from the sale of the shares of common stock being sold in this offering. All of the shares, including from any exercise by the underwriters of their option to purchase additional shares, are being sold by the selling shareholders. See “Principal and Selling Shareholders”. All proceeds from the sale of these shares, net of underwriters’ discounts and commissions, will be received by the selling shareholders. The selling shareholders will bear the underwriters’ discounts and commissions attributable to their sale of shares, and we will bear the remaining expenses in connection with this offering, including, but not limited to, printing fees, legal expenses and accounting fees.

 

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PRICE RANGE OF OUR COMMON STOCK

Our common stock has been listed on the New York Stock Exchange under the symbol “JELD” since January 27, 2017. The following table sets forth, for the periods indicated, the high and low sale prices in dollars on the New York Stock Exchange for our common stock with respect to the periods indicated.

 

     High      Low  

January 27, 2017 through April 1, 2017

   $ 33.42      $ 24.95  

For the quarter ending July 1, 2017 (through May 24, 2017)

   $ 34.40      $ 30.58  

On May 24, 2017, the last reported sale price for our common stock on the New York Stock Exchange was $31.21 per share. As of May 19, 2017, there were approximately 334 shareholders of record of our common stock. These figures do not reflect the beneficial ownership or shares held in nominee name, nor do they include holders of any restricted stock units.

 

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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 shareholders. Our business is conducted through our subsidiaries and dividends from, and cash generated by, our subsidiaries will be our principal sources of cash to repay indebtedness, fund operations, and pay any dividends. Accordingly, our ability to pay dividends to our shareholders is dependent on the earnings and distributions of funds from our subsidiaries (which distributions may be restricted by the terms of our 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 April 1, 2017. 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 or incorporated by reference in this prospectus.

 

     Actual  
     (dollars in this table and
the footnotes below
in thousands, except share
and per share data)
 

Cash and cash equivalents

   $ 185,505  
  

 

 

 

Debt:

  

ABL Facility due 2019

   $ —    

Euro Revolving Facility due 2019

     —    

Australia Senior Secured Credit Facility due 2019

     —    

Amended Term Loans due 2022

     1,226,695  

Other items(1)

     19,080  
  

 

 

 

Total debt

   $ 1,245,775  

Shareholders’ equity:

  

Common Stock, par value $0.01 per share; 900,000,000 shares authorized, 104,744,087 shares issued and outstanding

     1,047  

Preferred Stock, par value $0.01 per share; 90,000,000 shares authorized, 0 shares issued and outstanding

     —    

Additional paid-in capital

     665,334  

Accumulated deficit

     223,702  

Accumulated other comprehensive loss

     (175,339
  

 

 

 

Total shareholders’ equity (deficit)

     714,744  
  

 

 

 

Total capitalization

   $ 1,960,519  
  

 

 

 

 

(1) Consists of other debt of $37,182 and unamortized debt costs of $18,102.

 

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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, 2016 and 2015 and for each of the three years ended December 31, 2016 have been derived from our audited consolidated financial statements incorporated by reference in this prospectus. The selected consolidated financial data as of December 31, 2014 and 2013 and for the year ended December 31, 2013 have been derived from our audited consolidated financial statements not incorporated by reference in this prospectus. The selected consolidated financial data as of and for the year ended December 31, 2012 were derived from our unaudited consolidated financial statements not included or incorporated by reference 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 year ended December 31, 2012 was not reaudited following such adjustment. The selected consolidated financial data as of April 1, 2017 and March 26, 2016 and for each of the three months ended April 1, 2017 and March 26, 2016 have been derived from our unaudited consolidated financial statements incorporated by reference in this prospectus. The results for the three months ended March 26, 2016 and the year ended December 31, 2016 have been revised to reflect the correction of certain errors and other accumulated misstatements as described in Note 25—Revision of Prior Period Financial Statements in our unaudited consolidated financial statements for the three months ended April 1, 2017 incorporated by reference 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, 2012, 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”, “Capitalization”, and our consolidated financial statements and related notes thereto included elsewhere or incorporated by reference 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, 2016 incorporated by reference 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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    Three Months Ended     Year Ended December 31,  
    April 1,
2017
    March 26,
2016
                               
        2016     2015     2014     2013     2012  
    (dollars in thousands, except share and per share data)  

Net revenues

  $ 847,787     $ 796,547     $ 3,666,799     $ 3,381,060     $ 3,507,206     $ 3,456,539     $ 3,167,856  

Cost of sales

    661,816       638,424       2,867,210       2,715,125       2,919,864       2,946,463       2,606,562  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    185,971       158,123       799,589       665,935       587,342       510,076       561,294  

Selling, general and administrative

    147,079       131,992       590,657       512,126       488,477       482,088       504,766  

Impairment and restructuring charges

    1,202       2,981       13,847       21,342       38,388       42,004       38,836  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    37,690       23,150       195,085       132,467       60,477       (14,016     17,692  

Interest expense, net

    (26,892     (17,011     (77,590     (60,632     (69,289     (71,362     (59,534

Other income (expense)

    (2,599     724       12,825       14,120       (50,521     12,323       9,519  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    8,199       6,863       130,320       85,955       (59,333     (73,055     (32,323

Income tax benefit (expense)

    (2,252     (2,097     240,801       5,435       (18,942     (1,142     5,488  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    5,947       4,766       371,121       91,390       (78,275     (74,197     (26,835

Equity earnings (loss) of non-consolidated entities

    481       765       3,791       2,384       (447     943       (957

(Loss) income from discontinued operations, net of tax

    —         514       (3,324     (2,856     (5,387     (5,863     1,293  

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

    —         —         —         —         —         10,711       (241
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 6,428     $ 6,045     $ 371,588     $ 90,918     $ (84,109   $ (68,406   $ (26,740
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common shareholders

             

Basic

  $ (4,034   $ (20,361   $ (25,059   $ (290,500   $ (184,143   $ (157,205   $ (99,575

Diluted

  $ (4,034   $ (20,361   $ (25,059   $ (290,500   $ (184,143   $ (157,205   $ (99,575

Weighted average common shares outstanding

             

Basic

    74,295,248       17,936,853       17,992,879       18,296,003       20,440,057       21,113,895       22,022,561  

Diluted

    74,295,248       17,936,853       17,992,879       18,296,003       20,440,057       21,113,895       22,022,561  

Loss per common share from continuing operations

             

Basic

  $ (0.05   $ (1.16   $ (1.21   $ (15.72   $ (8.75   $ (7.68   $ (4.57

Diluted

  $ (0.05   $ (1.16   $ (1.21   $ (15.72   $ (8.75   $ (7.68   $ (4.57

Cash dividends per common share

    —         —         4.09     $ 4.73       —         —         —    

Other financial data:

             

Capital expenditures

  $ 9,802     $ 20,773     $ 79,497     $ 77,687     $ 70,846     $ 85,689     $ 91,884  

Depreciation and amortization

    27,062       25,692       107,995       95,196       100,026       104,650       92,337  

Adjusted EBITDA(1)

    80,962       61,156       393,682       310,986       229,849       153,210       183,361  

Consolidated balance sheet data:

             

Cash and cash equivalents

  $ 185,505     $ 43,224     $ 102,701     $ 113,571     $ 105,542     $ 37,666     $ 41,826  

Working capital

    499,627       324,258       362,528       326,973       316,055       234,171       99,423  

Total assets

    2,677,850       2,270,456       2,530,079       2,182,373       2,184,059       2,290,897       2,415,036  

Total current liabilities

    519,166       543,317       512,832       487,445       524,301       593,938       741,164  

Total debt

    1,245,775       1,262,287       1,620,035       1,260,320       806,228       667,152       670,757  

Redeemable convertible preferred
stock

    —         481,937       150,957       481,937       817,121       817,121       745,478  

Total shareholders’ equity (deficit)

    714,744       (208,729     55,999       (231,745     (168,826     54,444       96,411  

Consolidated statement of cash flows data:

             

Net cash flow provided by (used in):

             

Operating activities

  $ (9,485   $ (28,197   $ 201,583     $ 172,339     $ 21,788     $ (49,372   $ 77,850  

Investing activities

    (7,736     (42,001     (156,782     (158,452     (56,738     13,939       (158,486

Financing activities

    98,307       (777     (52,001     (1,072     105,617       34,633       64,436  

 

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

We define Adjusted EBITDA as net income (loss), 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);

 

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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:

 

    Three Months Ended     Year Ended December 31,  
    April 1,
2017
    March 26,
2016
    2016     2015     2014     2013     2012  
    (dollars in this table and the footnotes below in thousands)  

Net income (loss)

  $ 6,428     $ 6,045     $ 371,588     $ 90,918     $ (84,109   $ (68,406   $ (26,740

Adjustments:

             

Loss (income) from discontinued operations, net of tax

    —         (514     3,324       2,856       5,387       5,863       (1,293

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

    —         —         —         —         —         (10,711     241  

Equity (earnings) loss of non-consolidated entities

    (481     (765     (3,791     (2,384     447       (943     957  

Income tax (benefit) expense

    2,252       2,097       (240,801     (5,435     18,942       1,142       (5,488

Depreciation and amortization

    27,062       25,692       107,995       95,196       100,026       104,650       92,337  

Interest expense, net

    26,892       17,011       77,590       60,632       69,289       71,362       59,534  

Impairment and restructuring charges(a)

    1,180       2,900       18,353       31,031       38,645       44,413       41,402  

(Gain) loss on sale of property and equipment

    (43     (3,644     (3,275     (416     (23     (3,039     430  

Share-based compensation expense

    5,444       5,085       22,464       15,620       7,968       5,665       7,485  

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

    4,360       4,983       5,734       2,697       (528     (4,114     (1,093

Other non-cash items(b)

    1       425       2,843       1,141       2,334       (68     2,549  

Other items(c)

    7,587       1,830       30,585       18,893       20,278       7,284       7,418  

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

    280       11       1,073       237       51,193       112       5,622  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $ 80,962     $ 61,156     $ 393,682     $ 310,986     $ 229,849     $ 153,210     $ 183,361  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  (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 $(22), $(81), $4,506, $9,687, $257, $2,409, and $2,565 for the three months ended April 1, 2017 and March 26, 2016 and years ended December 31, 2016, 2015, 2014, 2013, and 2012, 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, 2016 and Note 16—Impairment and Restructuring Charges in our financial statements for the three months ended April 1, 2017, each incorporated by reference in this prospectus.

 

  (b) Other non-cash items include, among other things, (i) charges of $1, $357, $357, $893, $2,496, $0, and $0 for the three months ended April 1, 2017 and March 26, 2016, and years ended December 31, 2016, 2015, 2014, 2013, and 2012, respectively, relating to (1) the fair value adjustment for inventory acquired as part of the acquisitions referred to in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Acquisitions” and (2) the impact of a change in how we capitalize overhead expenses in our valuation of inventory. In addition, other non-cash items include charges of $2,153 for the out-of-period European warranty liability adjustment in the year ending December 31, 2016 and $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.

 

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  (c) Other items include: (i) in the three months ended April 1, 2017, (1) $7,996 in legal costs, (2) $(2,247) gain on settlement of contract escrow, (3) $498 in facility shut down costs, and (4) $348 in IPO costs;(ii) in the three months ended March 26, 2016, (1) $868 in acquisition costs, (2) $294 in Dooria plant closure costs, and (3) $212 of tax consulting costs in Europe; (iii) in the year ended December 31, 2016, (1) $20,695 payment to holders of vested options and restricted shares in connection with the November 2016 dividend, (2) $3,721 of professional fees related to the IPO of our common stock, (3) $1,626 of acquisition costs, (4) $584 in legal costs associated with disposition of non-core properties, (5) $507 of dividend payout related costs, (6) $500 of recruitment costs related to the recruitment of executive management employees, (7) $450 in legal costs, (8) $346 in Dooria plant closure costs, and (9) $265 related to a legal settlement accrual for CMI; (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 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; (vi) in the year ended December 31, 2013, (1) $2,869 of cash costs related to the delayed opening of our new Louisiana facility, (2) $774 of legal costs associated with non-core property disposal, (3) $582 related to the closure of our Marion, North Carolina facility, and (4) $458 of acquisition-related costs; and (vii) 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.

 

  (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.

 

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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 incorporated by reference 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.

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, 2016, our North America operations accounted for 59% of net revenues ($2,149 million), our Europe operations accounted for 27% of net revenues ($1,009 million), and our Australasia operations accounted for 14% of net revenues ($509 million). 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). 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, 2016 incorporated by reference 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 Scandinavia region.

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.

 

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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 louver window systems for the residential and commercial window markets. Breezway’s primary sales market is Australia and it also maintains a presence in Malaysia and Hawaii. The acquisition of Breezway is expected to strengthen our position in the Australian window market and expand our product portfolio with new and innovative window designs as well as other complementary products.

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 standalone 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, 2014, our core net revenue growth was consistently positive with period over period increases of 3% in each of the three years ended December 31, 2016, December 31, 2015 and December 31, 2014 and 6% in the three months ended April 1, 2017. During these same periods, the impact of our core growth on our net revenues was partially 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. During 2016, pricing moderated to a more normalized level of 2%. In the three months ended April 1, 2017 compared to the three months ended March 26, 2016, our core growth in net revenues was 6%, comprised of an approximate 2% increase in pricing while our volume/mix was 4%. 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.

 

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Product Demand

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

 

    the strength of the economy;

 

    employment rates and consumer confidence and spending rates;

 

    the availability and cost of credit;

 

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

 

    housing sales and home values;

 

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

 

    interest rate fluctuations for our customers and consumers;

 

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

 

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

 

    geographical shifts in population and other changes in demographics; and

 

    changes in weather patterns.

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

 

    innovating and developing new products and technologies;

 

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

 

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

Product Pricing and Volume/Mix

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

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

 

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

Cost Reduction Initiatives

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

 

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

 

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

 

    reducing warranty costs by improving quality.

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

Raw Material Costs

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

Working Capital and Seasonality

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

 

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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, 2016 compared to the year ended December 31, 2015, 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 for the year ended December 31, 2016 compared to the year ended December 31, 2015 reflected, on average, the U.S. dollar strengthening against the Euro, Australian dollar, and Canadian dollar by less than 1%, 1%, and 4%, 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 our IPO, we will incur additional legal, accounting, board compensation, and other expenses that we did not previously incur, including costs associated with SEC, reporting and corporate governance requirements. These requirements include compliance with the Sarbanes-Oxley Act of 2002, as amended, as well as other rules implemented by the SEC and the national securities exchanges. Our financial statements following our IPO reflect the impact of these expenses.

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, respectively, under the Corporate Credit Facilities primarily to fund distributions to our shareholders. On February 6, 2017, we repaid $375 million under our Corporate Credit Facilities. On March 7, 2017, we further amended the Term Loan Facility to reduce the interest rate applicable to all outstanding terms loans. 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 U.K.; and

 

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

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

 

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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 U.S. and Canada.

 

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

 

    Insurance and Benefits, Supervision, and Tax Expenses.

 

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

 

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

 

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

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

 

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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, 2016 and Note 9—Notes Payable and Long-Term Debt in our financial statements for the three months ended April 1, 2017, each incorporated by reference in this prospectus.

Other Income (Expense), Net

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

 

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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. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. We record interest related to unrecognized tax benefits in income tax expense. As of December 31, 2016, our federal, state, and foreign NOL carryforwards were $1,566.1 million in the aggregate and $6.0 million of such NOL carryforwards do not expire. See Note 19—Income Taxes in our financial statements for the year ended December 31, 2016 incorporated by reference in this prospectus.

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. The results for the three months ended March 26, 2016 and the year ended December 31, 2016 have been revised to reflect the correction of certain errors and other accumulated misstatements as described in Note 25—Revision of Prior Period Financial Statements in our financial statements for the three months ended April 1, 2017 incorporated by reference in this prospectus.

 

    Three Months Ended     Year Ended December 31,  
    April 1,
2017
    March 26,
2016
    2016     2015     2014  
    (dollars in thousands)  

Net revenues

  $ 847,787     $ 796,547     $ 3,666,799     $ 3,381,060     $ 3,507,206  

Cost of sales

    661,816       638,424       2,867,210       2,715,125       2,919,864  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    185,971       158,123       799,589       665,935       587,342  

Selling, general and administrative

    147,079       131,992       590,657       512,126       488,477  

Impairment and restructuring charges

    1,202       2,981       13,847       21,342       38,388  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    37,690       23,150       195,085       132,467       60,477  

Interest expense, net

    (26,892     (17,011     (77,590     (60,632     (69,289

Loss on extinguishment of debt

    —         —         —         —         (51,036

Other income (expense)

    (2,599     724       12,825       14,120       515  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    8,199       6,863       130,320       85,955       (59,333

Income tax (expense) benefit

    (2,252     (2,097     240,801       5,435       (18,942
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    5,947       4,766       371,121       91,390       (78,275

Gain (loss) from discontinued operations, net of tax

    —         514       (3,324     (2,856     (5,387

Equity earnings (loss) of non-consolidated entities

    481       765       3,791       2,384       (447
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 6,428     $ 6,045     $ 371,588     $ 90,918     $ (84,109
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

         

Adjusted EBITDA(1)

  $ 80,962     $ 61,156     $ 393,682     $ 310,986     $ 229,849  

Adjusted EBITDA margin(1)

    9.5%       7.7%       10.7%       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 1 to the table under the heading “Selected Consolidated Financial Data”. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net revenues.

 

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Comparison of the Three Months Ended April 1, 2017 to the Three Months Ended March 26, 2016

 

     Three Months Ended        
     April 1, 2017     March 26, 2016        
     (dollars in thousands)        
           % of Net
Revenues
          % of Net
Revenues
    %
Variance
 

Net revenues

   $ 847,787       100.0   $ 796,547       100.0     6.4

Cost of sales

     661,816       78.1     638,424       80.1     3.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     185,971       21.9     158,123       19.9     17.6

Selling, general and administrative

     147,079       17.3     131,992       16.6     11.4

Impairment and restructuring charges

     1,202       0.1     2,981       0.4     -59.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     37,690       4.4     23,150       2.9     62.8

Interest expense, net

     (26,892     -3.2     (17,011     -2.1     58.1

Other income (expense)

     (2,599     -0.3     724       0.1     -459.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes, equity earnings and discontinued operations

     8,199       1.0     6,863       0.9     19.5

Income tax benefit

     (2,252     -0.3     (2,097     -0.3     7.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of tax

     5,947       0.7     4,766       0.6     24.8

Loss from discontinued operations, net of tax

     —         0     514       0.1     -100.0

Equity earnings of non-consolidated entities

     481       0.1     765       0.1     -37.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 6,428       0.8   $ 6,045       0.8     6.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

          

Adjusted EBITDA(1)

   $ 80,962       9.5   $ 61,156       7.7     32.4

 

(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 1 to the table under the heading “Summary Consolidated Financial Data”.

Consolidated Results

Net Revenues—Net revenues increased $51.2 million, or 6.4%, to $847.8 million in the three months ended April 1, 2017 from $796.5 million in the three months ended March 26, 2016. The increase in net revenues was primarily due to an increase in core revenues of 6% as well as a 1% increase associated with our recent acquisitions in our Australasia segment. Our core net revenues increased primarily as a result of increased shipping days in the quarter and positive pricing. These increases were partially offset by an unfavorable foreign exchange impact of 1%.

Gross Margin—Gross margin increased $27.8 million, or 17.6%, to $186.0 million in the three months ended April 1, 2017 from $158.1 million in the three months ended March 26, 2016. Gross margin as a percentage of net revenues was 21.9% in the three months ended April 1, 2017 and 19.9% in the three months ended March 26, 2016. The increases in gross margin and gross margin percentage were due to profitable core growth, acquisitions, price increases, and cost reduction initiatives, partially offset by the weakening of the British pound and the Euro compared to prior year, which resulted in an unfavorable impact of foreign exchange.

SG&A Expense—SG&A expense increased $15.1 million, or 11.4%, to $147.1 million in the three months ended April 1, 2017 from $132.0 million in the three months ended March 26, 2016. SG&A expense as a percentage of net revenues was 17.3% for the three months ended April 1, 2017 and 16.6% for the three months ended March 26, 2016. The increases in SG&A expense and SG&A expense percentage were primarily due to increased professional fees as well as costs associated with our IPO process, SG&A expense associated with our recent acquisitions, and increased wages including stock compensation, partially offset by favorable impact of foreign exchange.

 

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Impairment and Restructuring Charges—Impairment and restructuring charges decreased $1.8 million, or 59.7%, to $1.2 million in the three months ended April 1, 2017 from $3.0 million in the three months ended March 26, 2016. The charges in the three months ended April 1, 2017 consisted primarily of ongoing restructuring costs in our Europe segment. The charges for the three months ended March 26, 2016 consisted primarily of ongoing personnel restructuring in our North America segment.

Interest Expense, Net—Interest expense, net increased $9.9 million, or 58.1%, to $26.9 million in the three months ended April 1, 2017 from $17.0 million in the three months ended March 26, 2016. The increase was primarily due to additional interest expense resulting from the write-off of a portion of the unamortized debt issuance costs and original issue discount totaling approximately $7.0 million in connection with the repayment of $375 million of incremental term loans with proceeds from our IPO. In addition, interest expense increased due to higher long-term debt levels for the first month of the period as a result of the borrowing of $375 million of incremental term loans, partially offset by lower applicable margins resulting from the 2017 term loan amendment, which became effective in March 2017.

Income Taxes—Income tax expense in the three months ended April 1, 2017 was $2.3 million, compared to $2.1 million in the three months ended March 26, 2016. The effective tax rate in the three months ended April 1, 2017 was 27.5% compared to an effective tax rate of 30.6% in the three months ended March 26, 2016.

Segment Results

 

     Three Months Ended        
     April 1, 2017     March 26, 2016        
     (dollars in thousands)     % Variance  

Net revenues from external customers

      

North America

   $ 484,097     $ 460,225       5.2

Europe

     242,322       238,549       1.6

Australasia

     121,368       97,773       24.1
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 847,787     $ 796,547       6.4
  

 

 

   

 

 

   

Percentage of total consolidated net revenues

      

North America

     57.1     57.8  

Europe

     28.6     29.9  

Australasia

     14.3     12.3  
  

 

 

   

 

 

   

Total Consolidated

     100.0     100.0  
  

 

 

   

 

 

   

Adjusted EBITDA(1)

      

North America

   $ 50,178     $ 31,699       58.3

Europe

     27,205       24,696       10.2

Australasia

     13,249       8,919       48.5

Corporate and unallocated costs

     (9,670     (4,458     132.6
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 80,962     $ 61,156       32.4
  

 

 

   

 

 

   

Adjusted EBITDA as a percentage of segment net revenues

      

North America

     10.4     6.9  

Europe

     11.2     10.4  

Australasia

     10.9     9.1  

Total Consolidated

     9.5     7.7  

 

(1) Adjusted EBITDA is a financial measure that is not calculated in accordance with GAAP. For a discussion of our presentation of Adjusted EBITDA, see Note 11—Segment Information in our financial statements for the three months ended April 1, 2017 incorporated by reference in this prospectus.

 

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North America

Net revenues in North America increased $23.9 million, or 5.2%, to $484.1 million in the three months ended April 1, 2017 from $460.2 million in the three months ended March 26, 2016. The increase in net revenues was primarily due to an increase in core net revenues of 5%, comprised of increases in volume/mix of 3% and pricing of 2%. The increase in volume/mix was primarily the result of additional shipping days in the current period and increased demand for our products driven by our profitable growth initiatives compared to the same period in the prior year. The increase in pricing was the result of implementing our pricing optimization strategy.

Adjusted EBITDA in North America increased $18.5 million, or 58.3%, to $50.2 million in the three months ended April 1, 2017 from $31.7 million in the three months ended March 26, 2016. The increase in Adjusted EBITDA was primarily due to increased volume due to the additional shipping days, pricing and productivity initiatives partially offset by labor costs associated with key productivity initiatives and increased marketing and advertising expenses compared to the same period in the prior year.

Europe

Net revenues in Europe increased $3.8 million, or 1.6%, to $242.3 million in the three months ended April 1, 2017 from $238.5 million in the three months ended March 26, 2016. The increase in net revenues was primarily due to an increase in core net revenues of 6%, comprised of an increase in volume/mix of approximately 5%, and an increase in pricing of approximately 1%. The increase in volume was due to additional shipping days in the current period and pricing as a result of implementing our pricing optimization strategy. These increases were partially offset by an unfavorable foreign exchange impact of 4%.

Adjusted EBITDA in Europe increased $2.5 million, or 10.2%, to $27.2 million in the three months ended April 1, 2017 from $24.7 million in the three months ended March 26, 2016. The increase in Adjusted EBITDA was primarily due to the increase in pricing, the closure of a facility in France in 2015, and productivity initiatives.

Australasia

Net revenues in Australasia increased $23.6 million, or 24.1%, to $121.4 million in the three months ended April 1, 2017 from $97.8 million in the three months ended March 26, 2016. The increase in net revenues was primarily due to an increase in core net revenues of 7%, comprised primarily of an increase in volume/mix of 6% and an increase in pricing of 1%. The increase in volume was due to additional shipping days in the current period and pricing as a result of implementing our pricing optimization strategy. Additionally, the acquisitions of Trend and Breezway provided a 12% increase in net revenues as well as foreign exchange impact of 5%.

Adjusted EBITDA in Australasia increased $4.3 million, or 48.5%, to $13.2 million in the three months ended April 1, 2017 from $8.9 million in the three months ended March 26, 2016. The increase in Adjusted EBITDA was primarily due to the acquisitions of Trend and Breezway as well as the additional shipping days in the current period, our pricing initiatives, and favorable foreign exchange impact.

 

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Comparison of the Year Ended December 31, 2016 to the Year Ended December 31, 2015

Consolidated Results

 

     Year Ended December 31,        
     2016     2015        
     (dollars in thousands)        
           % of Net Revenues           % of Net Revenues     % Variance  

Net revenues

   $ 3,666,799       100.0   $ 3,381,060       100.0     8.5

Cost of sales

     2,867,210       78.2     2,715,125       80.3     5.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

     799,589       21.8     665,935       19.7     20.1

Selling, general and administrative

     590,657       16.1     512,126       15.1     15.1

Impairment and restructuring charges

     13,847       0.4     21,342       0.6     -35.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     195,085       5.3     132,467       3.9     48.5

Interest expense, net

     (77,590     2.1     (60,632     1.8     28.0

Other income

     12,825       0.3     14,120       0     -9.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before taxes, equity earnings and discontinued operations

     130,320       3.6     85,955       2.5     53.5

Income tax benefit

     240,801       6.6     5,435       0.2     NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations, net of tax

     371,121       10.2     91,390       2.7     NM  

Loss from discontinued operations, net of tax

     (3,324     0.1     (2,856     0.1     16.4

Equity earnings of non-consolidated entities

     3,791       0.1     2,384       0.1     36.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 371,588       10.2   $ 90,918       2.7     NM  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other financial data:

          

Adjusted EBITDA(1)

   $ 393,682       10.7   $ 310,986       9.2     26.7

 

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

Net Revenues—Net revenues increased $285.7 million, or 8.5%, to $3,666.8 million in the year ended December 31, 2016 from $3,381.1 million in the year ended December 31, 2015. The increase in net revenues was primarily attributable to a 7% increase associated with our recent acquisitions described under the heading “Acquisitions” above. Our core net revenues increased 3%, comprised of an increase in pricing as a result of implementing our pricing optimization strategy and volume/mix. These increases were partially offset by an unfavorable foreign exchange impact of 1%.

Gross Margin—Gross margin increased $133.7 million, or 20.1%, to $799.6 million in the year ended December 31, 2016 from $665.9 million in the year ended December 31, 2015. Gross margin as a percentage of net revenues was 21.8% in the year ended December 31, 2016 and 19.7% in the year ended December 31, 2015. The increases in gross margin and gross margin percentage were due to acquisitions, price increases, and cost reduction initiatives, partially offset by the weakening of the British pound, Canadian dollar and the Australian dollar in the current period which resulted in an unfavorable translation impact of $3.7 million.

SG&A Expense—SG&A expense increased $78.6 million, or 15.3%, to $590.7 million in the year ended December 31, 2016 from $512.1 million in the year ended December 31, 2015. SG&A expense as a percentage

 

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of net revenues was 16.1% for the year ended December 31, 2016 and 15.1% for the year ended December 31, 2015. The increases in SG&A expense and SG&A expense percentage were primarily due to SG&A expense associated with our recent acquisitions, share based compensation expense and other payments related to the 2016 Dividend Transactions, and professional fees related to the IPO process. Partially offsetting these increases was a favorable translation impact of $5.8 million due to the weakening of the British pound, Canadian dollar and the Australian dollar in the current period.

Impairment and Restructuring Charges—Impairment and restructuring charges decreased $7.5 million, or 35.1%, to $13.8 million in the year ended December 31, 2016 from $21.3 million in the year ended December 31, 2015. The charges in the year ended December 31, 2016 consisted primarily of $6.2 million for restructuring and plant closures of recent acquisitions, $5.5 million for various personnel restructuring and severance costs and $2.1 million of other impairment and restructuring charges. The charges for the year ended December 31, 2015 consisted primarily of $13.4 million of impairment and restructuring charges in Europe primarily due to the closure of one of our three French manufacturing facilities, $2.0 million of charges related to the consolidation of our fiber door skin designs, and $1.5 million of impairment charges related to a non-core equity investment and related notes receivable. The remaining charges of $4.4 million are primarily related to personnel restructuring.

Interest Expense, Net—Interest expense, net increased $17.0 million, or 28.0%, to an expense of $77.6 million in the year ended December 31, 2016 from an expense of $60.6 million in the year ended December 31, 2015. The increase was primarily due to the full period impact of the incremental interest expense associated with the $480 million and $375 million of incremental term loans borrowed in July 2015 and November 2016, respectively.

Income Taxes—Income tax benefit in the year ended December 31, 2016 was $240.8 million, compared to a benefit of $5.4 million in the year ended December 31, 2015. The effective tax rate in the year ended December 31, 2016 was (170.9)% compared to an effective tax rate of (6.3)% in the year ended December 31, 2015. The increased tax benefit of $235.4 million was due primarily to a release of a valuation allowance in the U.S. and U.K. totaling $272.3 million in the year ended December 31, 2016 compared to a $19.6 million release of certain foreign subsidiaries’ valuation allowance in the year ended December 31, 2015. This increase in benefit was offset by an increase in current tax expense of $6.2 million attributable to the earnings mix.

 

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Segment Results

 

     Year Ended December 31,        
     2016     2015        
     (dollars in thousands)     % Variance  

Net revenues from external customers

      

North America

   $ 2,149,168     $ 2,015,715       6.6

Europe

     1,008,729       996,014       1.3

Australasia

     508,902       369,331       37.8
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 3,666,799     $ 3,381,060       8.5
  

 

 

   

 

 

   

Percentage of total consolidated net revenues

      

North America

     58.6     59.6  

Europe

     27.5     29.5  

Australasia

     13.9     10.9  
  

 

 

   

 

 

   

Total Consolidated

     100.0     100.0  
  

 

 

   

 

 

   

Adjusted EBITDA(1)

      

North America

   $ 251,831     $ 201,660       24.9

Europe

     122,574       99,540       23.1

Australasia

     59,519       40,453       47.1

Corporate and unallocated costs

     (40,242     (30,667     31.2
  

 

 

   

 

 

   

 

 

 

Total Consolidated

   $ 393,682     $ 310,986       26.6
  

 

 

   

 

 

   

Adjusted EBITDA as a percentage of segment net revenues

      

North America

     11.7     10.0  

Europe

     12.2     10.0  

Australasia

     11.7     11.0  

Total Consolidated

     10.7     9.2  

 

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

North America

Net revenues in North America increased $133.5 million, or 6.6%, to $2,149.2 million in the year ended December 31, 2016 from $2,015.7 million in the year ended December 31, 2015. The increase in net revenues was primarily due to an increase in core net revenues of 5%, comprised of increases in volume/mix of 3% and pricing of 2%. The increase in volume/mix was the result of increased demand for our products driven by our profitable growth initiatives. The increase in pricing was the result of implementing our pricing optimization strategy. Additionally, the acquisitions of Karona and LaCantina provided a 2% increase in net revenues.

Adjusted EBITDA in North America increased $50.2 million, or 24.9%, to $251.8 million in the year ended December 31, 2016 from $201.7 million in the year ended December 31, 2015. The increase in Adjusted EBITDA was primarily due to increased pricing and productivity initiatives partially offset by labor costs associated with key productivity initiatives and increased marketing and advertising expenses.

Europe

Net revenues in Europe increased $12.7 million, or 1.3%, to $1,008.7 million in the year ended December 31, 2016 from $996.0 million in the year ended December 31, 2015. The increase in net revenues was primarily due to an increase in core net revenues of 1%, comprised of an increase in pricing of approximately 2%, partially offset by a decrease in volume/mix of approximately 1%. The increase in pricing was the result of implementing our pricing optimization strategy. The decrease in volume/mix was primarily a result of the

 

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realignment of our customer and product portfolio aimed at driving profitable growth. Additionally, the acquisition of Dooria provided a 3% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 3%.

Adjusted EBITDA in Europe increased $23.0 million, or 23.1%, to $122.6 million in the year ended December 31, 2016 from $99.5 million in the year ended December 31, 2015. The increase in Adjusted EBITDA was primarily due to the increase in pricing, the closure of a facility in France in 2015, and productivity initiatives.

Australasia

Net revenues in Australasia increased $139.6 million, or 37.8%, to $508.9 million in the year ended December 31, 2016 from $369.3 million in the year ended December 31, 2015. The increase in net revenues was primarily due to an increase in core net revenues of 2%, comprised primarily of an increase in pricing. The increase in pricing was the result of implementing our pricing optimization strategy. Volume/mix was flat in the twelve months ended December 31, 2016 as organic growth in certain regions was offset by economic weakness in Western Australia. Additionally, the acquisitions of Trend, Aneeta, and Breezway provided a 37% increase in net revenues. These increases were partially offset by an unfavorable foreign exchange impact of 1%.

Adjusted EBITDA in Australasia increased $19.1 million, or 47.1%, to $59.5 million in the year ended December 31, 2016 from $40.5 million in the year ended December 31, 2015. The increase in Adjusted EBITDA was primarily due to the acquisitions of Trend, Aneeta, and Breezway and pricing initiatives, partially offset by the decrease in volume/mix and an unfavorable foreign exchange impact.

 

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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  

Equity earnings (loss) of non-consolidated entities

     2,384       0.1     (447     0.0     NM  

Income (loss) from discontinued operations, net of tax

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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 1 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 1 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

 

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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 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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Quarterly Results of Operations

The following table sets forth unaudited quarterly consolidated statements of operations data for each of the nine quarterly periods ended April 1, 2017. The information for each of these quarters has been prepared on the same basis as the audited annual consolidated financial statements incorporated by reference 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 incorporated by reference 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  
    Apr. 1,
2017
    Dec. 31,
2016
    Sep. 24,
2016
    Jun. 25,
2016
    Mar. 26,
2016
    Dec. 31,
2015
    Sep. 26,
2015
    Jun. 27,
2015
    Mar. 28,
2015
 

Statements of Operations Data:

                 

Net revenues

  $ 847,787     $ 973,169     $ 932,475     $ 964,608     $ 796,547     $ 890,948     $ 874,331     $ 878,799     $ 736,982  

Cost of sales

    661,816       754,628       721,701       752,457       638,424       720,157       690,800       695,428       608,740  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin

    185,971       218,541       210,774       212,151       158,123       170,791       183,531       183,371       128,242  

Selling general and administrative

    147,079       182,694       134,909       141,062       131,992       142,105       130,380       121,670       117,971  

Impairment and restructuring charges

    1,202       4,802       3,945       2,119       2,981       5,785       2,316       3,272       9,969  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    37,690       31,045       71,920       68,970       23,150       22,901       50,835       58,429       302  

Interest expense, net

    (26,892     (23,865     (18,547     (18,167     (17,011     (20,083     (17,917     (11,476     (11,156

Other income (expense)

    (2,599     3,865       7,731       505       724       4,141       9,823       (3,922     4,078  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

    8,199       11,045       61,104       51,308       6,863       6,959       42,741       43,031       (6,776

Income tax benefit (expense)

    (2,252     240,662       (13,477     15,713       (2,097     13,010       (1,160     (12,564     6,149  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations, net of tax

    5,947       251,707       47,627       67,021       4,766       19,969       41,581       30,467       (627

(Loss) income from discontinued operations, net of tax

    —         (479     (2,741     (618     514       (811     (570     (1,307     (168

Equity earnings (loss) of non-consolidated entities

    481       1,341       1,198       487       765       1,151       640       586       7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 6,428     $ 252,569     $ 46,084     $ 66,890     $ 6,045     $ 20,309     $ 41,651     $ 29,746     $ (788
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liquidity and Capital Resources

Overview

We have historically funded our operations through a combination of cash from operations, draws on our revolving credit facilities, and the issuance of non-revolving debt such as our Term Loan Facility. As April 1, 2017, we had total liquidity of $448.4 million, which included $185.5 million in cash, $208.6 million available for borrowing under the ABL Facility, AUD $18.0 million ($13.7 million) available for borrowing under the Australia Senior Secured Credit Facility, and €38.0 million ($40.6 million) available for borrowing under the Euro Revolving Facility. This compares to total liquidity of $381.9 million as of December 31, 2016 and $352.9 million as of December 31, 2015. The increase in our total liquidity at December 31, 2016 compared to December 31, 2015 was primarily due to higher availability under our North American revolving credit facility, partially offset by lower cash balances. The increase in our total liquidity at April 1, 2017 compared to December 31, 2016 was primarily due to higher cash levels resulting from the retained portion of net proceeds of $472.7 million from the IPO.

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

 

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

In July 2015, we amended our Term Loan Facility and borrowed an incremental $480 million of incremental term loans, or the “2015 Incremental Term Loans”. The proceeds were primarily used to make payments of approximately $431 million to holders of our then-outstanding common stock, Series A Convertible Preferred Stock, Class B-1 Common Stock, options, and RSUs. We incurred $7.9 million of debt issuance costs related to the $480 million of incremental borrowings, which is included as an offset to long-term debt in the accompanying consolidated balance sheets and will be amortized to interest expense over the life of the facility using the effective interest method. See Note 17—Long-Term Debt in our financial statements for the year ended December 31, 2016 incorporated by reference in this prospectus.

In November 2016, we increased borrowings under our existing Term Loan Facility and amended certain of its terms in the 2016 Term Loan Amendment (as defined below). We borrowed an incremental $375 million and refinanced the previously outstanding principal loan amount of $1,236.6 million for a consolidated total of $1,611.6 million in principal amount of 2016 Term Loans. The proceeds from the incremental term loan borrowing, along with cash on hand, were used to fund a distribution to shareholders and holders of equity awards (see Note 21—Convertible Preferred Shares in our financial statements for the year ended December 31, 2016 incorporated by reference in this prospectus). The offering price of the incremental term loan debt was 99.75% of par. The 2016 Term Loans bore interest at LIBOR (subject to a floor of 1.00%) plus a margin of up to 3.75%, depending on our net leverage ratio. We incurred $8.1 million of debt issuance costs related to the 2016 Term Loan Amendment, which is included as an offset to long-term debt in the accompanying consolidated balance sheets. In connection with and using a portion of the proceeds from the IPO, we prepaid $375 million of the 2016 Term Loans on February 6, 2017.

In March 2017, we further amended the Term Loan Facility in the 2017 Term Loan Amendment (as defined below) to reduce the interest rate applicable to our outstanding terms loans. The offering price of the Amended Term Loans was par. The Amended Term Loans bear interest at LIBOR (subject to a floor of 1.00%) plus a margin of 2.75% to 3.50% depending on our ratio of net debt to Adjusted EBITDA, and require quarterly principal repayment beginning in March 2017. We incurred $1.1 million of debt issuance costs related to the 2017 Term Loan Amendment.

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

In the years ended December 31, 2016 and 2015, we had a net change in cash and cash equivalents of $10.9 million and $8.0 million, respectively.

We may, from time to time, refinance, reprice, extend, retire or otherwise modify our outstanding debt to lower our interest payments, reduce our debt or otherwise improve our financial position. These actions may

 

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include repricing amendments, extensions, and/or opportunistic refinancing of debt. The amount of debt that may be refinanced, repriced, extended, retired or otherwise modified, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants and other considerations. Our affiliates may also purchase our debt from time to time, through open market purchases or other transactions. In such cases, our debt may not be retired, in which case we would continue to pay interest in accordance with the terms of the debt, and we would continue to reflect the debt as outstanding in our consolidated balance sheets.

Cash Flows

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

 

     Three Months Ended     Year Ended December 31,  
     April 1,
2017
    March 26,
2016
    2016     2015     2014  
     (dollars in thousands)  

Cash provided by (used in):

          

Operating activities

   $ (9,485   $ (28,197   $ 201,583     $ 172,339     $ 21,788  

Investing activities

     (7,736     (42,001     (156,782     (158,452     (56,738

Financing activities

     98,307       (777     (52,001     (1,072     105,617  

Effect of changes in exchange rates on cash and cash equivalents

     1,718       628       (3,670     (4,786     (2,791
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change in cash and cash equivalents

   $ 82,804     $ (70,347   $ 10,870     $ 8,029     $ 67,876  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash Flow from Operations

Net cash used in operating activities decreased $18.7 million to $9.5 million in the three months ended April 1, 2017 from $28.2 million used in operations in the three months ended March 26, 2016. This decrease was primarily due to improved profitability, and changes in working capital.

Net cash provided by operating activities increased $29.3 million to $201.6 million in the year ended December 31, 2016 from $172.3 million provided by operations in the year ended December 31, 2015. This increase was primarily due to improved profitability, reductions in cash contributions to the U.S. pension plan and changes in working capital.

Net cash provided by operating activities increased $150.5 million to $172.3 million in the year ended December 31, 2015 from $21.8 million in the year ended December 31, 2014. This increase was primarily due to increased net income of $175.0 million in the year ended December 31, 2015 over the year ended December 31, 2014 partially offset by increased working capital usage and a decrease in non-cash expenses included in net income compared to the year ended December 31, 2014.

Cash Flow from Investing Activities

Net cash used in investing activities decreased $34.3 million to $7.7 million in the three months ended April 1, 2017 from $42.0 million in the three months ended March 26, 2016. The decrease was primarily due to prior year acquisitions of $25.7 million as well as a decrease in capital expenditures.

Net cash used in investing activities decreased $1.7 million to $156.8 million in the year ended December 31, 2016 from $158.5 million in the year ended December 31, 2015. The decrease was primarily due to an increase in sales of business units, property and equipment, partially offset by decreased capital expenditures.

 

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Net cash used in investing activities increased $101.8 million to $158.5 million in the year ended December 31, 2015 from $56.7 million in the year ended December 31, 2014. This increase was primarily due to the use of $86.7 million of cash, net of the cash acquired, to complete the acquisitions completed in the year ended December 31, 2015 and $6.4 million in additional purchases of property and equipment in the year ended December 31, 2015 compared to the year ended December 31, 2014.

Cash Flow from Financing Activities

Net cash provided by financing activities was $98.3 million in the three months ended April 1, 2017 and was comprised primarily of proceeds from the IPO of $480.3 million of which $375.0 million of proceeds were used to paydown outstanding debt.

Net cash used in financing activities in the three months ended March 26, 2016 was $0.8 million and was comprised primarily of $1.0 million of short-term and long-term borrowings, partially offset by $0.2 million in common stock issuances.

Net cash used in financing activities was $52.0 million in the year ended December 31, 2016 and was comprised primarily of $404.2 million of distributions to shareholders, $17.0 million in payments of short-term and long-term borrowings, and $8.1 million of debt issuance cost payments, partially offset by $374.1 million of net proceeds from the issuance of new debt and $2.3 million of employee and director note repayments.

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

As of April 1, 2017, our cash balances consisted of $88.5 million in the U.S. and $97.0 million in non-U.S. subsidiaries. We believe that our operations in the U.S. will be able to fund the majority of our near term cash requirements using cash flow from operations within the U.S. and availability under the ABL Facility.

Holding Company Status

We are a holding company that conducts all of our operations through subsidiaries. The majority of our operating income is derived from JWI, our main operating subsidiary. Consequently, we rely on dividends or advances from our subsidiaries. The ability of our subsidiaries to pay dividends to us is subject to applicable local law and may be limited due to the terms of other contractual arrangements, including our Credit Facilities.

The Euro Revolving Facility and Australia Senior Secured Credit Facility contain restrictions on dividends that limit the amount of cash that the obligors under these facilities can distribute to us. Obligors under the Euro Revolving Facility may pay dividends only out of available cash flow and only while no default is continuing under such agreement. Obligors under the Australia Senior Secured Credit Facility may pay dividends only to the extent they do not exceed 80% of after tax net profits (with a one-year carryforward of unused amounts) and only while no default is continuing under such agreement. The amount of our consolidated net assets that were available to be distributed under these financing arrangements as of April 1, 2017 was $900.7 million. For further information regarding the Euro Revolving Facility and the Australia Senior Secured Credit Facility, see “Description of Certain Indebtedness—Euro Revolving Facility” and “Description of Certain Indebtedness—Australia Senior Secured Credit Facility”.

Off-Balance Sheet Arrangements

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

 

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Lines of Credit and Long-Term Debt

Corporate Credit Facilities

In October 2014, we entered into the Corporate Credit Facilities, which initially consisted of (i) $775 million in Initial Term Loans and (ii) a $300 million asset based revolving credit facility, or the “ABL Facility”. In July 2015, we borrowed $480 million in 2015 Incremental Term Loans under the Term Loan Facility and amended our Corporate Credit Facilities to, among other things, permit a distribution of approximately $420 million to holders of our then-outstanding common stock, our Series A Convertible Preferred Stock, and our Class B-1 Common Stock. In November 2016, we borrowed $375 million under our Term Loan Facility. In connection therewith, we amended the Term Loan Facility (the “2016 Term Loan Amendment”) to, among other things, (i) permit a $400 million distribution, (ii) reduce the interest rate on the Initial Term Loans, and (iii) conform the terms (including providing for a maturity date of July 1, 2022) of all outstanding term loans (namely, the Initial Term Loans, the 2015 Incremental Term Loans and the additional $375 million of term loans referred to above) under the Term Loan Facility (such term loans, after giving effect to such amendments, the “2016 Term Loans”). We incurred $8.1 million of debt issuance costs related to this amendment. In February 2017, we prepaid $375 million of outstanding principal under our Term Loan Facility and recorded interest expense of approximately $7.0 million due to the write-off of a portion of the original issue discount and unamortized debt issuance costs associated with the Term Loan Facility. In March 2017, we further amended the Term Loan Facility (the “2017 Term Loan Amendment”) to reduce the interest rate applicable to all outstanding terms loans (such reduced rate term loans, the “Amended Term Loans”). We incurred $1.1 million of debt issuance costs related to the 2017 Term Loan Amendment. As of April 1, 2017, we had approximately $1,226.7 million of term loans outstanding under the Term Loan Facility.

As of April 1, 2017, we were in compliance with the terms of the Corporate Credit Facilities.

Term Loan Facility

The offering price of the Amended Term Loans was par. The Amended Term Loans bear interest at the higher of LIBOR (subject to a floor of 1.00%) plus a margin of 2.75% to 3.00% depending on our ratio of net debt to Adjusted EBITDA, or an alternate base rate (subject to a floor of 2.00%) plus a margin of 1.75% to 2.00% depending on our ratio of net debt to Adjusted EBITDA. We have entered into forward starting interest rate swap agreements in order to effectively change the interest rate on a substantial portion of our Term Loan Facility from a variable rate to a fixed rate. See “—Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk”. The Amended Term Loans amortize in nominal quarterly installments equal to 0.25% of the initial aggregate principal amount of the Amended Term Loans. The Term Loan Facility has various non-financial covenants, including restrictions on liens, indebtedness, and dividends, customary representations and warranties, and customary events of defaults and remedies, but has no financial maintenance covenants. The Amended Term Loans mature on July 1, 2022.

The offering price of the Initial Term Loans was 99.00% of par, the offering price of the 2015 Incremental Term Loans was 99.50% of par, and the offering price of the 2016 Term Loans was 99.75% of par. Prior to the 2016 Term Loan Amendment, the Initial Term Loans bore interest at LIBOR (subject to a floor of 1.00%) plus a margin of 4.25%. Prior to the 2016 Term Loan Amendment, the 2015 Incremental Term Loans bore interest at LIBOR (subject to a floor of 1.00%) plus a margin of 3.75% to 4.00% depending on our ratio of net debt to Adjusted EBITDA. Prior to the 2017 Term Loan Amendment, the 2016 Term Loans bore interest at LIBOR (subject to a floor of 1.00%) plus a margin of 3.50% to 3.75% depending on our ratio of net debt to Adjusted EBITDA.

The Term Loan Facility permits us to add one or more incremental term loans up to the sum of: (i) an unlimited amount subject to compliance with a maximum total net first lien leverage ratio test of 4.35:1.00 plus (ii) voluntary prepayments of term loans plus (iii) a fixed amount of $285.0 million, in each case, subject to certain conditions.

 

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ABL Facility

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

Borrowings under the ABL Facility bear interest primarily at LIBOR plus a margin that fluctuates from 1.50% to 2.00% depending on availability under the ABL Facility, although we may also borrow at other base rates plus a margin. We pay an annual commitment fee between 0.25% and 0.375% on the unused portion of the commitments under the ABL Facility. As of April 1, 2017, we had $208.6 million available under the ABL Facility. The ABL Facility has a minimum fixed charge coverage ratio that we are obligated to comply with under certain circumstances. The ABL Facility has various non-financial covenants, including restrictions on liens, indebtedness, and dividends, customary representations and warranties, and customary events of defaults and remedies. The ABL Facility matures on October 15, 2019.

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

Australia Senior Secured Credit Facility

In October 2015, JELD-WEN of Australia Pty. Ltd., or “JWA”, amended the Australia Senior Secured Credit Facility to provide for an AUD $20 million cash advance facility, an AUD $6 million interchangeable facility for guarantees/letters of credit, an AUD $7 million electronic payaway facility, an AUD $1.5 million asset finance facility, an AUD $600,000 commercial card facility, and an AUD $5 million overdraft facility. In January 2016, the Australia Senior Secured Credit Facility was further amended to reduce the cash advance facility to AUD $18 million, and increase the interchangeable facility for guarantees/letters of credit to AUD $8 million. In addition, the commercial card facility was increased to AUD $950,000. In September 2016, JWA further amended and extended the Australia Senior Secured Credit Facility, to provide for an AUD $18 million floating rate revolving loan facility, an AUD $5 million overdraft line of credit, and an $8 million AUD interchangeable facility for guarantees/letters of credit. The Australia Senior Secured Credit Facility matures in June 2019. At April 1, 2017, there were no borrowings under the revolving loan facility and the overdraft line of credit. Loans under the revolving portion of the Australia Senior Secured Credit Facility bear interest at the BBR rate plus a margin of 0.75%, and a line fee of 1.15% is also paid on the revolving facility limit. Overdraft balances bear interest at the bank’s reference rate minus a margin of 1.00%, and a commitment fee of 1.15% is paid on the overdraft facility limit. At April 1, 2017, we had $13.7 million available under the revolving loan facility and $3.8 million available under the overdraft line of credit. The credit facility is secured by guarantees of the subsidiaries of JWA, fixed and floating charges on the assets of the JWA group, and mortgages on certain real properties owned by the JWA group. The agreement requires that JWA maintain certain financial ratios, including a minimum consolidated interest coverage ratio and a maximum ratio of consolidated debt to adjusted EBITDA (as calculated therein) ratio. The Australia Senior Secured Credit Facility limits dividends and repayments of intercompany loans where the JWA group is the borrower and limits acquisitions without the bank’s consent. As of April 1, 2017, we were in compliance with the terms of the Australia Senior Secured Credit Facility.

Euro Revolving Facility

In January 2015, JELD-WEN of Europe B.V. (which was subsequently merged with JELD-WEN A/S, which survived the merger) entered into the Euro Revolving Facility, a €39 million revolving credit facility, which includes an option to increase the commitment by an amount of up to €10 million, with a syndicate of

 

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lenders and Danske Bank A/S, as agent. The Euro Revolving Facility matures on January 30, 2019. Loans under the Euro Revolving Facility bear interest at CIBOR, CHF LIBOR, EURIBOR, NIBOR, STIBOR or LIBOR (subject to a floor of 0.00%), depending on the currency, plus a margin of 2.5%, and a commitment fee of 1% is also paid on the unutilized amount of the revolving credit facility calculated on a day-to-day basis. As of April 1, 2017, we had no borrowings and €1.0 million (or $1.0 million) of bank guarantees and letters of credit outstanding, and €38.0 million (or $40.6 million) available under this facility. The Euro Revolving Facility requires JELD-WEN A/S to maintain certain financial ratios, including a maximum ratio of senior leverage to adjusted EBITDA (as calculated therein), and a minimum ratio of adjusted EBITDA (as calculated therein) to net finance charges. In addition, the Euro Revolving Facility has various non-financial covenants including restrictions on liens, indebtedness, and dividends, customary representations and warranties, and customary events of default and remedies. As of April 1, 2017, we were in compliance with the terms of the Euro Revolving Facility.

Mortgage Note

In December 2007, JELD-WEN Danmark A/S entered into thirty-year mortgage notes secured by land and buildings with principal payments beginning in 2018 that will fully amortize the principal by the end of 2037. As of April 1, 2017, we had DKK 208.1 million (or $29.9 million) outstanding under these notes.

Installment Notes

We entered into installment notes representing insurance premium financing, miscellaneous capitalized equipment lease obligations, and a term loan secured by the related equipment with payments through 2022. As of April 1, 2017, we had $4.9 million outstanding under these notes.

Installment Notes for Stock

We entered into installment notes for stock representing amounts due to former or retired employees for repurchases of our stock that are payable over 5 or 10 years depending on the amount with payments through 2020. As of April 1, 2017, we had $2.3 million outstanding under these notes.

Interest Rate Swaps

We have eight outstanding interest rate swap agreements for the purpose of managing our exposure to changes in interest by effectively converting the interest rate on a portion of the Term Loan Facility to a fixed rate. Two such agreements became effective on September 30, 2015, two on June 30, 2016, two on September 30, 2016, and two on December 30, 2016. For additional information on interest rate swaps, see “—Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk”. The counterparties for these swap agreements are Royal Bank of Canada, Barclays Bank PLC, and Wells Fargo Bank, N.A. The aggregate notional amount covered under these agreements, which all expire on September 30, 2019, totals $914.3 million as of April 1, 2017. The table below sets forth the period, notional amount and fixed rates for our interest rate swaps:

 

                          Period    Notional      Fixed Rate  
     (dollars in thousands)  

September 2015 – September 2019

   $ 244,125        1.997

June 2016 – September 2019

   $ 213,000        2.126

September 2016 – September 2019

   $ 244,125        2.353

December 2016 – September 2019

   $ 213,000        2.281

Each of the swap agreements receives a floating rate based on three-month LIBOR and is settled every calendar quarter-end. The effect of these swap agreements is to lock in a fixed rate of interest on the aggregate

 

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notional amount hedged of approximately 2.188% as of April 1, 2017, plus the applicable margin paid to lenders over three-month LIBOR. At April 1, 2017, the effective rate on the aggregate notional amount hedged (including the applicable margin paid to lenders over three-month LIBOR) was approximately 5.188%. These swaps have been designated as cash flow hedges against variability in future interest rate payments on the Term Loan Facility and are marked to market through consolidated other comprehensive income (loss).

A hypothetical increase or decrease in interest rates of 1.0% (based on variable rate debt if revolving credit facilities were fully drawn and taking into account the eight interest rate swaps that were in effect on April 1, 2017) would have increased or decreased our interest expense by $1.8 million for the three months ended April 1, 2017. A hypothetical increase or decrease in interest rates of 1.0% (based on variable rate debt if revolving credit facilities were fully drawn and taking into account the eight interest rate swaps that were in effect on March 26, 2016) would have increased or decreased our interest expense by $3.3 million for the three months ended March 26, 2016.

Repaid Long-Term Debt

Former Senior Secured Notes

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

Former Senior Secured Credit Facility—U.S. and Europe

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

 

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Contractual Obligations

The following table summarizes our significant contractual obligations at December 31, 2016 and does not give effect to the February 6, 2017 prepayment of $375 million of term loans or the 2017 Term Loan Amendment:

 

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

Long-term debt obligations

   $ 1,645,349      $ 17,639      $ 37,599      $ 35,510      $ 1,554,601  

Capital lease obligations

     5,880        2,399        2,374        1,088        19  

Operating lease obligations

     184,343        34,979        52,326        42,398        54,640  

Purchase obligations(2)

     439        439        —          —          —    

Interest on long-term debt obligations(3)(4)

     449,498        88,649        171,891        149,992        38,966  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Totals:

   $ 2,285,509      $ 144,105      $ 264,190      $ 228,988      $ 1,648,226  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Not included in the table above are our unfunded pension liabilities totaling $126.0 million and uncertain tax position liabilities of $12.1 million as of December 31, 2016, for which the timing of payment is unknown.

 

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

 

(3) Interest on long-term debt obligations is calculated based on debt outstanding and interest rates in effect on December 31, 2016, taking into account scheduled maturities and amortizations and including the impact of our eight interest rate swaps that were in effect on that date. See “Lines of Credit and Long-Term Debt—Interest Rate Swaps” for a description of when such swap agreements became effective. Interest on debt denominated in other currencies is calculated based on the exchange rate at December 31, 2016.

 

(4) After giving effect to the February 6, 2017 prepayment of $375 million of term loans and the 2017 Term Loan Amendment, but otherwise assuming long-term debt obligations outstanding on December 31, 2016, interest on long-term debt obligations would have been $298,486, $61,186, $116,964, $94,990 and $25,347, respectively, for each of the periods disclosed above.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which may differ from these estimates. Our significant accounting policies are fully disclosed in our annual consolidated financial statements incorporated by reference in this prospectus. The following discussion highlights the estimates we believe are critical and should be read in conjunction with our consolidated financial statements for the year ended December 31, 2016 incorporated by reference in this prospectus.

Revenue Recognition

We recognize revenue when four basic criteria have been met: (i) persuasive evidence of a customer arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) product delivery has occurred or services have been rendered. We recognize revenue based on the invoice price less allowances for sales returns, cash discounts, and other deductions as required under GAAP. Amounts billed for shipping and handling are included in net revenues, while costs incurred for shipping and handling are

 

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included in cost of sales. Incentive payments to customers that directly relate to future business are recorded as a reduction of net revenues over the periods during which such future benefits are realized.

Acquisitions

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

Allowance for Doubtful Accounts

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

Inventories

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

Intangible Assets

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

Long-Lived Assets

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

 

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

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

Goodwill

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

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

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

As of April 1, 2017, the fair value of our North America, Europe and Australasia reporting units would have to decline by approximately 73%, 61%, and 44%, respectively, to be considered for potential impairment.

 

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Warranty Accrual

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

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. We evaluate both the positive and negative evidence that is relevant in assessing whether we will realize the deferred tax assets. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. Given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next twelve months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of our valuation allowance will no longer be needed. The potential release of the valuation allowance is dependent on our ability to achieve sustained profitable operations from continued execution of our operating strategy. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease in the provision for income taxes for the period the release is recorded. Therefore, the exact timing and amount of the valuation allowance release and the ultimate impact on our financial statements are subject to change on the basis of the level of profitability that we are able to actually achieve.

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

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

Derivative Financial Instruments

We utilize derivative financial instruments to manage interest rate risk associated with our borrowings and foreign currency exposures related to subsidiaries that operate outside the U.S. and use their local currency as the functional currency. We record all derivative instruments in the consolidated balance sheets at fair value. Changes in a derivative’s fair value are recognized in earnings unless specific hedge criteria are met and we elect

 

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hedge accounting prior to entering into the derivative. If a derivative is designated as a fair value hedge, the changes in fair value of both the derivative and the hedged item attributable to the hedged risk are recognized in the results of operations. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in consolidated other comprehensive income (loss) and subsequently classified to the consolidated statements of operations when the hedged item impacts earnings. At the inception of a fair value or cash flow hedge transaction, we formally document the hedge relationship and the risk management objective for undertaking the hedge. In addition, we assess both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging transaction has been highly effective in offsetting changes in fair value or cash flows of the hedged item and whether the derivative is expected to continue to be highly effective. The impact of any ineffectiveness is recognized in our consolidated statements of operations.

Share-based Compensation Plan

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

The Black-Scholes option-pricing model requires the use of weighted average assumptions for estimated expected volatility, estimated expected term of stock options, risk-free rate, estimated expected dividend yield, and the fair value of the underlying common stock at the date of grant. Because we do not have sufficient history following our IPO to estimate the expected volatility of our common stock price, expected volatility is based on a selection of public guideline companies. We estimate the expected term of all stock options based on previous history of exercises. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the stock option. The expected dividend yield rate is 0.00% which is consistent with the expected dividends to be paid on common stock. The fair value of the underlying common stock at the date of grant is discussed below. We estimate forfeitures based on our historical analysis of actual stock option forfeitures. Actual forfeitures are recorded when incurred and estimated forfeitures are reviewed and adjusted at least annually.

Common Stock Valuations

Prior to our IPO, due to the absence of an active market for our common stock, the fair value of our common stock was determined in good faith by our Board, with the assistance and upon the recommendation of management, based on a number of objective and subjective factors consistent with the methodologies outlined in the AICPA Practice Aid.

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

 

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Following the IPO, such assumptions will not be necessary to determine the value of our common stock which now trades on the New York Stock Exchange.

Employee Retirement and Pension Benefits

The obligations under our defined benefit pension plans are calculated using actuarial models and methods. The most critical assumption and estimate used in the actuarial calculations is the discount rate for determining the current value of benefit obligations. Other assumptions and estimates used in determining benefit obligations and plan expenses include expected return on plan assets, inflation rates, and demographic factors such as retirement age, mortality, and turnover. These assumptions and estimates are evaluated periodically and are updated accordingly to reflect our actual experience and expectations.

The discount rate used to determine the benefit obligations was computed through a projected benefit cash flow model. This approach determines the discount rate as the rate that equates the present value of the cash flows (determined using that single rate) to the present value of the cash flows where each cash flow’s present value is determined using the spot rates from the November 30, 2015 Citigroup Liability Discount Curve.

The discount rate utilized to calculate the projected benefit obligation at the measurement date for our U.S. pension plan decreased to 4.00% at December 31, 2016 from 4.25% at December 31, 2015. As the discount rate is reduced or increased, the pension and post retirement obligation would increase or decrease, respectively, and future pension and post-retirement expense would increase or decrease, respectively. Lowering the discount rate by 0.25% would increase the pension and post-retirement obligation at December 31, 2016 by approximately $14.4 million and would increase estimated fiscal year 2017 expense by approximately $1.3 million. Increasing the discount rate by 0.25% would decrease the pension and post-retirement obligation at December 31, 2016 by approximately $13.6 million and would decrease estimated fiscal year 2017 expense by approximately $1.2 million.

We determine the expected long-term rate of return on plan assets based on the plan assets’ historical long-term investment performance, current asset allocation, and estimates of future long-term returns by asset class. Holding all other assumptions constant, a 1% increase or decrease in the assumed rate of return on plan assets would have decreased or increased, respectively, 2016 net periodic pension expense by approximately $2.9 million.

The actuarial assumptions we use in determining our pension benefits may differ materially from actual results because of changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants. While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions might materially affect our financial position or results of operations.

Capital Expenditures

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

Quantitative and Qualitative Disclosures About Market Risk

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

 

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Exchange Rate Risk

We have global operations and therefore enter into transactions denominated in various foreign currencies. To mitigate cross-currency transaction risk, we analyze significant forecast exposures where we expect receipts or payments in a currency other than the functional currency of our operations, and from time to time we may strategically enter into short-term foreign currency forward contracts to lock in some or all of the cash flows associated with these transactions. We also are subject to currency translation risk associated with converting our foreign operations’ financial statements into U.S. dollars. We use short-term foreign currency forward contracts and swaps to mitigate the impact of foreign exchange fluctuations on consolidated earnings. We use foreign currency derivative contracts, with a total notional amount as of April 1, 2017 of $80.1 million, in order to manage the effect of exchange fluctuations on forecasted sales, purchases, acquisitions, inventory and capital expenditures and certain intercompany transactions that are denominated in foreign currencies. We use foreign currency derivative contracts, with a total notional amount as of April 1, 2017 of $72.5 million, to hedge the effects of translation gains and losses on intercompany loans and interest. We also use foreign currency derivative contracts, with a total notional amount as of April 1, 2017 of $174.2 million, to mitigate the impact to our consolidated earnings from the effect of the translation of certain subsidiaries’ local currency results into U.S. dollars. We do not use derivative financial instruments for trading or speculative purposes.

Interest Rate Risk

We are subject to interest rate market risk in connection with our long-term debt, which is primarily floating rate. To manage our interest rate risk we enter into interest rate swaps where we deem it appropriate. We do not use financial instruments for trading or other speculative purposes and are not a party to any leveraged derivative instruments. Our net exposure to interest rate risk is based on the difference between outstanding variable rate debt and the notional amount of our designated interest rate swaps. We assess interest rate risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We maintain risk management control systems to monitor interest rate risk attributable to both our outstanding or forecasted debt obligations as well as any offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on our future cash flows.

Our primary interest rate risk is associated with our credit facilities in the U.S., Canada, Australia, and Europe. A hypothetical 100 basis point increase in interest rates would result in an additional $20.2 million in interest expense per annum under our credit facilities, assuming fully-drawn utilization of each facility. Accordingly, we entered into forward starting interest rate swap agreements to effectively change the interest rate on a portion of our variable rate Term Loan Facility to a fixed rate. As of December 31, 2016 we had eight outstanding forward starting interest rate swaps that expire in 2019, two of which became effective September 30, 2015, two of which became effective on June 30, 2016, two of which became effective on September 30, 2016, and two of which became effective on December 30, 2016. These eight interest rate swaps hedge $914.3 million of floating rate debt. Accordingly, after giving effect to such interest rate swaps, a hypothetical 100 basis point increase in interest rates would result in an additional $11.0 million in interest expense per annum under our credit facilities, assuming fully-drawn utilization of each facility. All eight interest rate swaps have been designated as cash flow hedges against variability in future interest rate payments on the Term Loan Facility and are marked to market through consolidated other comprehensive income (loss). Gains and losses are realized in other income (loss) at the time of settlement payment from or to the swap counterparty.

By using derivative financial instruments to hedge exposures to changes in interest rates and foreign currency fluctuations, we are exposed to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. When the fair value of a derivative contract is negative, we owe the counterparty and, therefore, we are not exposed to the counterparty’s credit risk in those circumstances. We attempt to minimize counterparty credit risk in derivative instruments by entering into transactions with high-

 

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quality counterparties whose credit rating is at least A. Our derivative instruments do not contain credit risk related contingent features.

Raw Materials Risk

Our major raw materials include glass, vinyl extrusions, aluminum, steel, wood, hardware, adhesives, and packaging. Prices of these commodities can fluctuate significantly in response to, among other things, variable worldwide supply and demand across different industries, speculation in commodities futures, general economic or environmental conditions, labor costs, competition, import duties, tariffs, worldwide currency fluctuations, freight, regulatory costs, and product and process evolutions that impact demand for the same materials. Increasing raw material prices directly impact our cost of sales, and our ability to maintain margins depends on implementing price increases in response to increasing raw material costs. The market for our products may or may not accept price increases, and as such there is no assurance that we can maintain margins in an environment of rising commodity prices. See “Risk Factors—Risks Relating to Our Business and Industry—Prices of the raw materials we use to manufacture our products are subject to fluctuations, and we may be unable to pass along to our customers the effects of any price increases”.

We have not historically used derivatives or similar instruments to hedge commodity price fluctuations. We purchase from multiple, geographically diverse companies in order to mitigate the adverse impact of higher prices for our raw materials. We also maintain other strategies to mitigate the impact of higher raw material, energy, and commodity costs, which typically offset only a portion of the adverse impact.

 

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BUSINESS

Our Company

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

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

 

LOGO

 

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

We believe our global diversification will continue to support our growth as construction activity across our various end markets continues to expand. This diversification also helps to insulate us against over-dependence on the construction trends of any particular market or region.

As one of the largest door and window companies in the world, we have invested significant capital to build a business platform that we believe is unique among our competitors. We operate 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.

Our History

We were founded in 1960 by Richard L. Wendt, when he, together with four business partners, bought a millwork plant in Oregon. The subsequent decades were a time of successful expansion and growth as we added different businesses and product categories such as interior doors, exterior steel doors, and vinyl windows. Our first overseas acquisition was Norma Doors in Spain in 1992 and since then we acquired or established numerous businesses in Europe, Australia, Asia, Canada, Mexico, and Chile, making us a truly global company.

 

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In October 2011, Onex acquired a majority of JELD-WEN’s voting interests. The initial investment was made in two tranches: (i) an investment in our convertible preferred stock representing an ownership stake of approximately 58%, and (ii) convertible notes redeemable within 18 months with proceeds from the operations and sale of certain non-core assets (comprised of real estate, service businesses, and other assets not related to door and window manufacturing). In April 2013, the outstanding balance of our convertible notes was converted into additional shares of convertible preferred stock. Subsequent to the initial investment, Onex made two follow-on investments. In 2012, Onex invested $50.0 million to fund a portion of the purchase price of our acquisition of CMI in exchange for additional shares of convertible preferred stock. In 2014, Onex also acquired common stock from an existing common shareholder.

On February 1, 2017, we closed an initial public offering of 28,750,000 shares of our common stock at a public offering price of $23.00 per share. We sold 22,272,727 shares in our IPO and we received $472.7 million in proceeds, net of underwriting discounts, fees and commissions. In addition, Onex sold 6,477,273 shares of our common stock from which we did not receive any proceeds. We used a portion of the net proceeds to us from the offering to repay $375 million of indebtedness outstanding under our Term Loan Facility, and have used and will use the 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. After completion of the IPO, Onex owned 59.9% of our outstanding common stock, and upon completion of this offering, it is expected that Onex will own approximately 46.9% of our outstanding common stock (or 44.9% if the underwriters’ option to purchase additional shares of common stock from Onex is exercised in full).

 

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Our Transformation

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 JEM; (ii) profitable organic growth; and (iii) strategic acquisitions. Together with our relentless focus on talent development, we are streamlining our operations, enhancing our manufacturing productivity and quality, leveraging our global sourcing capabilities, aligning our channel management strategies, investing in our brands, driving new product innovations, optimizing our pricing strategy, and executing on 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 approximately 670 basis points and our Adjusted EBITDA has grown at a 35.7% CAGR, from the year ended December 31, 2013 through the twelve-month period ended April 1, 2017. We are in the early stages of implementing our business transformation and, as a result, we believe we have an opportunity to continue growing ou