FORWARD-LOOKING STATEMENTS In addition to historical information, this 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, which are subject to the "safe harbor" created by those sections. All statements, other than statements of historical facts, included in this 10-Q are forward-looking statements. You can generally identify forward-looking statements by our use of forward-looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "seek," or "should," or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, including growth of our various markets, and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, including the impact of COVID-19, the outcome of legal proceeding, or future events or performance contained under the heading Item 2- Management's Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed under the headings Item 1A- Risk Factors in our annual report on Form 10-K and Item 1A- Risk Factors and Item 2- Management's Discussion and Analysis of Financial Condition and Results of Operations in this 10-Q may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include: •negative trends in overall business, financial market and economic conditions, and/or activity levels in our end markets; •our highly competitive business environment; •failure to timely identify or effectively respond to consumer needs, expectations, or trends; •failure to maintain the performance, reliability, quality, and service standards required by our customers; •failure to successfully implement our strategic initiatives, including JEM; •acquisitions or investments in other businesses that may not be successful; •adverse outcome of pending or future litigation; •declines in our relationships with and/or consolidation of our key customers; •increases in interest rates and reduced availability of financing for the purchase of new homes and home construction and improvements; •fluctuations in the prices of raw materials used to manufacture our products; •delays or interruptions in the delivery of raw materials or finished goods; •seasonal business with varying revenue and profit; •changes in weather patterns; •political, regulatory, economic, and other risks, including pandemics, such as COVID-19, 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 Enterprise Resource Planning system that we are currently implementing proving ineffective; •security breaches and other cybersecurity incidents; •increases in labor costs, potential labor disputes, and work stoppages at our facilities; •changes in building codes that could increase the cost of our products or lower the demand for our windows and doors; •compliance costs and liabilities under environmental, health, and safety laws and regulations; 30 -------------------------------------------------------------------------------- Back to top •compliance costs with respect to legislative and regulatory proposals to restrict emission of GHGs; •lack of transparency, threat of fraud, public sector corruption, and other forms of criminal activity involving government officials; •product liability claims, product recalls, or warranty claims; •inability to protect our intellectual property; •loss of key officers or employees; •pension plan obligations; •our current level of indebtedness; •risks associated with any material weaknesses in our internal controls; •the extent of Onex's control of us; and •other risks and uncertainties, including those listed under Item 1A- Risk Factors in our 10-K. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this 10-Q are not guarantees of future performance and our actual results of operations, financial condition, and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained herein. In addition, even if our results of operations, financial condition, and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this 10-Q, they may not be predictive of results or developments in future periods. Any forward-looking statement in this 10-Q speaks only as of the date of this 10-Q or as of the date such statement was made. We do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Unless the context requires otherwise, references in this 10-Q to "we," "us," "our," "the Company," or "JELD-WEN" meanJELD-WEN Holding, Inc. , together with our consolidated subsidiaries where the context requires, including our wholly owned subsidiary JWI. This discussion should be read in conjunction with our historical financial statements and related notes thereto and the other disclosures contained elsewhere in this 10-Q. The results of operations for the periods reflected herein are not necessarily indicative of results that may be expected for future periods, and our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those listed under Item 1A- Risk Factors in our annual report on Form 10-K and Item 1A - Risk Factors in this 10-Q and included elsewhere in this 10-Q. This MD&A is a supplement to our financial statements and notes thereto included elsewhere in this 10-Q and is provided to enhance your understanding of our results of operations and financial condition. Our discussion of results of operations is presented in millions throughout the MD&A and due to rounding may not sum or calculate precisely to the totals and percentages provided in the tables. Our MD&A is organized as follows: •Overview and Background. This section provides a general description of our Company and reportable segments, business and industry trends, our key business strategies and background information on other matters discussed in this MD&A. •Consolidated Results of Operations and Operating Results by Business Segment. This section provides our analysis and outlook for the significant line items on our consolidated statements of operations, as well as other information that we deem meaningful to an understanding of our results of operations on both a consolidated basis and a business segment basis. •Liquidity and Capital Resources. This section contains an overview of our financing arrangements and provides an analysis of trends and uncertainties affecting liquidity, cash requirements for our business, and sources and uses of our cash. •Critical Accounting Policies and Estimates. This section discusses the accounting policies that we consider important to the evaluation and reporting of our financial condition and results of operations, and whose application requires significant judgments or a complex estimation process. 31 -------------------------------------------------------------------------------- Back to top Overview and Background We are a leading global provider of windows, doors, wall systems, and building products. We design, produce, and distribute an extensive range of interior and exterior doors, wood, vinyl, and aluminum windows, and related products for use in the new construction, R&R of residential homes, and, to a lesser extent, non-residential buildings. We operate manufacturing and distribution facilities in 19 countries, located primarily inNorth America ,Europe , andAustralia . 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 ,Europe , andAustralasia . Financial information related to our business segments can be found in Note 11 - Segment Information of our financial statements included elsewhere in this 10-Q. Significant Developments InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a global pandemic. In the following weeks, global restrictions, including stay at home and similar orders, were implemented in a significant number of countries in which we operate. We made, and continue to make, changes to our operations to ensure proper measures are in place for the health and safety of our employees and to satisfy the needs of our customers. We continue to experience increased demand for our products in both residential and remodel channels due to the low residential housing supply, low interest rates, and consumers' focus on their homes. As a result of the increased demand for our products, we have and may continue to see increased inflation in our supply chain, including raw materials and freight charges, as well as the availability of labor due to the pandemic. Results of Operations The tables in this section summarize key components of our results of operations for the periods indicated, both inU.S. dollars and as a percentage of our net revenues. Certain percentages presented in this section have been rounded to the nearest whole number. Accordingly, totals may not equal the sum of the line items in the tables below. We define core revenue as revenue excluding the impact of foreign exchange and acquisitions completed in the last twelve months. Comparison of the Three Months EndedMarch 27, 2021 to the Three Months EndedMarch 28, 2020 Three Months Ended March 27, 2021 March 28, 2020 % of Net % of Net (amounts in thousands) Revenues Revenues Net revenues$ 1,092,383 100.0 %$ 979,187 100.0 % Cost of sales 856,444 78.4 % 784,818 80.1 % Gross margin 235,939 21.6 % 194,369 19.9 % Selling, general and administrative 191,554 17.5 % 172,584 17.6 % Impairment and restructuring charges 927 0.1 % 6,545 0.7 % Operating income 43,458 4.0 % 15,240 1.6 % Interest expense, net 18,455 1.7 % 16,604 1.7 % Other income (10,841) (1.0) % (2,331) (0.2) % Income before taxes 35,844 3.3 % 967 0.1 % Income tax expense 10,359 0.9 % 1,197 0.1 % Net income (loss)$ 25,485 2.3 % $ (230) - % Consolidated Results Net Revenues - Net revenues increased$113.2 million , or 11.6%, to$1,092.4 million in the three months endedMarch 27, 2021 from$979.2 million in the three months endedMarch 28, 2020 . The increase was due to an improvement in core revenues of 6%, consisting of a 4% benefit from pricing and favorable volume/mix of 2%, as well as a 5% positive impact from foreign exchange. 32 -------------------------------------------------------------------------------- Back to top Gross Margin - Gross margin increased$41.6 million , or 21.4%, to$235.9 million in the three months endedMarch 27, 2021 from$194.4 million in the three months endedMarch 28, 2020 . Gross margin as a percentage of net revenues was 21.6% in the three months endedMarch 27, 2021 and 19.9% in the three months endedMarch 28, 2020 . The increase in gross margin percentage was due to improved pricing, lower material usage, and improved labor efficiency, partially offset by increased freight charges and the effect of inflation on labor compensation. SG&A Expense - SG&A expense increased$19.0 million , or 11.0%, to$191.6 million for the three months endedMarch 27, 2021 from$172.6 million in the three months endedMarch 28, 2020 . SG&A expense as a percentage of net revenues decreased to 17.5% for the three months endedMarch 27, 2021 from 17.6% for the three months endedMarch 28, 2020 . The increase in SG&A expense was primarily due to increased legal expenses, primarily relating to litigation, and increased salary and benefit charges, primarily relating to non-cash compensation and variable compensation charges, partially offset by reductions in spending relating to sales, marketing, and travel, as a result of cost saving measures implemented in response to COVID-19. Impairment and Restructuring Charges - Impairment and restructuring charges decreased$5.6 million , or 85.8%, to$0.9 million in the three months endedMarch 27, 2021 from$6.5 million in the three months endedMarch 28, 2020 . The decrease in impairment and restructuring charges was primarily due to reduced restructuring efforts across all segments during the first quarter of 2021 as compared to the first quarter of 2020 and the non-recurrence of impairment charges in 2020 related to capitalized costs of certain ERP modules due to delays in implementation and uncertainty of their future use. Interest Expense, Net - Interest expense, net increased$1.9 million , or 11.1%, to$18.5 million in the three months endedMarch 27, 2021 from$16.6 million in the three months endedMarch 28, 2020 . The increase was primarily due to interest on our Senior Secured Notes issued inMay 2020 , partially offset by lower interest rates applicable to variable rate debt. Other Income - Other income increased$8.5 million , or 365.1%, to$10.8 million in the three months endedMarch 27, 2021 from$2.3 million in the three months endedMarch 28, 2020 . Other income in the three months endedMarch 27, 2021 consisted primarily of foreign currency gains of$9.2 million and a gain on sale of property and equipment of$0.9 million . Other income in the three months endedMarch 28, 2020 primarily consisted of foreign currency gains of$2.3 million and a gain on sale of property and equipment of$2.1 million , partially offset by pension expense of$2.8 million . Income Taxes - Income tax expense increased$9.2 million , or 765.4%, to$10.4 million in the three months endedMarch 27, 2021 from$1.2 million in the three months endedMarch 28, 2020 . The effective tax rate in the three months endedMarch 27, 2021 was 28.9% compared to 123.8% in the three months endedMarch 28, 2020 . The effective tax rate for the three months endedMarch 27, 2021 andMarch 28, 2020 was impacted by the GILTI provisions of the Tax Act. The increase in tax expense of$9.2 million in the current period was primarily driven by an increase in income before taxes of$34.9 million , partially offset by a decrease in discrete tax impacts in the current period, compared to the three months endedMarch 28, 2020 . 33
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Back to top Segment Results We report our segment information in the same way management internally organizes the business in assessing performance and making decisions regarding allocation of resources in accordance with ASC 280-10- Segment Reporting. We have determined that we have three reportable segments, organized and managed principally by geographic region. Our reportable segments areNorth America ,Europe , andAustralasia . We report all other business activities in Corporate and unallocated costs. We define Adjusted EBITDA as net income (loss), adjusted for the following items: loss from discontinued operations, net of tax; equity earnings of non-consolidated entities; income tax (benefit) expense; depreciation and amortization; interest expense, net; impairment and restructuring charges; gain on previously held shares of equity investment; (gain) loss on sale of property and equipment; share-based compensation expense; non-cash foreign exchange transaction/translation (income) loss; other non-cash items; other items; and costs related to debt restructuring and debt refinancing. For additional information on segment Adjusted EBITDA, see Note 11 - Segment Information to our consolidated financial statements included in this 10-Q. Comparison of the Three Months EndedMarch 27, 2021 to the Three Months Ended
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