NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Description of Company and Summary of Significant Accounting Policies
Nature of Business – JELD-WEN Holding, Inc., along with its subsidiaries, is a vertically integrated global manufacturer and distributor of windows and doors that derives substantially all of its revenues from the sale of its door and window products. Unless otherwise specified or the context otherwise requires, all references in these notes to “JELD-WEN,” “we,” “us,” “our,” or the “Company” are to JELD-WEN Holding, Inc. and its subsidiaries.
We have facilities located in the U.S., Canada, Europe, Australia, Asia, Mexico, and South America. Our products are marketed primarily under the JELD-WEN brand name in the U.S. and Canada and under JELD-WEN and a variety of acquired brand names in Europe, Australia and Asia.
Our revenues are affected by the level of new housing starts and remodeling activity in each of our markets. Our sales typically follow seasonal new construction and repair and remodeling industry patterns. The peak season for home construction and remodeling in many of our markets generally corresponds with the second and third calendar quarters, and therefore, sales volume is typically higher during those quarters. Our first and fourth quarter sales volumes are generally lower due to reduced repair and remodeling activity and reduced activity in the building and construction industry as a result of colder and more inclement weather in certain of our geographic end markets.
Basis of Presentation – Certain prior year amounts have been reclassified to conform to current year presentation. The consolidated balance sheets, statements of operations and statements of cash flows have been revised to reflect the correction of certain errors and other accumulated misstatements as described in Note 32 - Revision of Prior Period Financial Statements. We do not believe the errors corrected were material to our previously issued financial statements.
All U.S. dollar and other currency amounts, except per share amounts, are presented in thousands unless otherwise noted.
Ownership – On October 3, 2011, Onex invested $700.0 million in return for shares of our Series A Convertible Preferred Stock. Concurrent with the investment, Onex provided $171.0 million in the form of a convertible bridge loan due in April 2013. In October 2012, Onex invested an additional $49.8 million in return for additional shares of our Series A Convertible Preferred Stock to fund an acquisition. In April 2013, the $71.6 million outstanding balance of the convertible bridge loan was converted into additional shares of our Series A Convertible Preferred Stock. In March 2014, Onex purchased $65.8 million in common stock from another investor. As part of the IPO, Onex sold 6,477,273 shares of our Common Stock. In May 2017 and November 2017, Onex sold a total of 15,693,139 and 14,211,736 shares of our Common Stock, respectively, in secondary offerings. We did not receive any proceeds from the shares of Common Stock sold by Onex, in any offering. As of December 31, 2019, Onex owned approximately 32.6% of the outstanding shares of our Common Stock.
Stock Split – On January 3, 2017, our shareholders approved amendments to our then-existing certificate of incorporation increasing the authorized number of shares and effecting an 11-for-1 stock split of our then-outstanding common stock and Class B-1 Common Stock. Accordingly, all share and per share amounts for all periods presented in these consolidated financial statements and notes thereto have been adjusted to reflect this stock split.
Stock Conversion and Initial Public Offering – Prior to the IPO, we had the authority to issue up to 8,750,000 shares of preferred stock, par value of $0.01, of which 8,749,999 shares were designated as Series A Convertible Preferred Stock and one share was designated as Series B Preferred Stock. Series A Convertible Preferred Stock consisted of 2,922,634 shares of Series A-1 Stock, 208,760 shares of Series A-2 Stock, 843,132 shares of Series A-3 Stock, and 4,775,473 shares of Series A-4 Stock.
On February 1, 2017, immediately prior to the closing of our IPO, the outstanding shares of our Series A Convertible Preferred Stock and all accumulated and unpaid dividends converted into 64,211,172 shares of our Common Stock, and all of the outstanding shares of our Class B-1 Common Stock converted into 309,404 shares of our Common Stock. In addition, the one outstanding share of our Series B Preferred Stock was canceled. We filed our Charter with the Secretary of State of the State of Delaware, and our Bylaws became effective, each as contemplated by the registration statement we filed as part of our IPO. The Charter, among other things, provided that our authorized capital stock consists of 900,000,000 shares of Common Stock, par value $0.01 per share and 90,000,000 shares of preferred stock, par value $0.01 per share.
On February 1, 2017, we closed our IPO and received $472.4 million in proceeds, net of underwriting discounts, fees and commissions and $7.9 million of offering expenses from the issuance of 22,272,727 shares of our Common Stock.
Share Repurchases – In April 2018, our Board of Directors authorized the repurchase of up to $250.0 million of our Common Stock through December 2019. Share repurchases are recorded on their trade date and reduce shareholders’ equity and increase accounts payable. Repurchased shares are retired, and the excess of the repurchase price over the par value of the shares is charged to retained earnings. During the years ended December 31, 2019 and December 31,
2018, we repurchased 1,192,419 and 5,287,964 shares, respectively, of our common stock for aggregate consideration of $20.0 million and $125.0 million, respectively.
On November 4, 2019, the Board of Directors authorized an increase to the remaining authorization under the share repurchase program to a total of $175.0 million with no expiration date. As of December 31, 2019, $175.0 million was remaining under the repurchase authorization.
Fiscal Year – We operate on a fiscal calendar year, and each interim quarter 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.
Use of Estimates – The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and related notes. Significant items that are subject to such estimates and assumptions include, but are not limited to, long-lived assets including goodwill and other intangible assets, employee benefit obligations, income tax uncertainties, contingent assets and liabilities, provisions for bad debt, inventory, warranty liabilities, legal claims, valuation of derivatives, environmental remediation and claims relating to self-insurance. Actual results could differ due to the uncertainty inherent in the nature of these estimates.
Segment Reporting – Our reportable segments are organized and managed principally by geographic region: North America, Europe and Australasia. We report all other business activities in Corporate and unallocated costs. In addition to similar economic characteristics, we also consider the following factors in determining the reportable segments: the nature of business activities, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, the discrete financial information regularly reviewed by the chief operating decision maker, and information presented to the Board of Directors and investors. No segments have been aggregated for our presentation.
Acquisitions – We apply the provisions of FASB ASC Topic 805, Business Combinations, in the accounting for our acquisitions. It requires us to recognize separately from goodwill the assets acquired and the liabilities assumed, at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, our estimates are inherently uncertain and subject to refinement. 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 reporting period in which the adjustment amount is 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 in the current period in our consolidated statements of operations.
For a given acquisition, we may identify certain pre-acquisition contingencies as of the acquisition date and may extend our review and evaluation of these pre-acquisition contingencies throughout the measurement period in order to obtain sufficient information to assess whether we include these contingencies as a part of the fair value estimates of assets acquired and liabilities assumed and, if so, to determine their estimated amounts.
If we cannot reasonably determine the fair value of a pre-acquisition contingency (non-income tax related) by the end of the measurement period, we will recognize an asset or a liability for such pre-acquisition contingency if: (a) it is probable that an asset existed or a liability had been incurred at the acquisition date and (b) the amount of the asset or liability can be reasonably estimated. Subsequent to the measurement period, changes in our estimates of such contingencies will affect earnings and could have a material effect on our results of operations and financial position.
In addition, uncertain tax positions and tax related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. We re-evaluate these items quarterly based upon facts and circumstances that existed as of the acquisition date. Subsequent to the measurement period or our final determination of the tax allowance’s or contingency’s estimated value, whichever comes first, changes to these uncertain tax positions and tax related valuation allowances will affect our provision for income taxes in our consolidated statements of operations and could have a material impact on our results of operations and financial position.
Cash and Cash Equivalents – We consider all highly-liquid investments purchased with an original or remaining maturity at the date of purchase of three months or less to be cash equivalents. Our cash management system is designed to maintain zero bank balances at certain banks. Checks written and not presented to these banks for payment are reflected as book overdrafts and are a component of accounts payable.
Restricted Cash – Restricted cash consists primarily cash held in escrow due to timing and cash required to meet certain bank guarantees and projected self-insurance obligations. New funding is generated from employees’ portion of contributions and is added to the deposit account weekly as claims are paid.
Accounts Receivable – Accounts receivable are recorded at their net realizable value. Our customers are primarily retailers, distributors and contractors. As of December 31, 2019, one customer accounted for 17.6% of the consolidated accounts receivable balance. As of December 31, 2018, one customer accounted for 16.0% of the consolidated accounts receivable balance. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We estimate the allowance for doubtful accounts 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 financial condition of a customer deteriorates or other circumstances occur that result in an impairment of a customer’s ability to make payments, we record additional allowances as needed. We write off uncollectible trade accounts receivable against the allowance for doubtful accounts when collection efforts have been exhausted and/or any legal action taken by us has concluded.
Inventories – Inventories in the accompanying consolidated balance sheets are valued at the lower of cost or net realizable value and are determined by the first-in, first-out (“FIFO”) or average cost methods. We record provisions to write-down obsolete and excess inventory to its estimated net realizable value. The process for evaluating obsolete and excess inventory requires us to evaluate historical inventory usage and expected future production needs. Accelerating the disposal process or incorrect estimates may cause actual results to differ from the estimates at the time such inventory is disposed or sold. We classify certain inventories that are available for sale directly to external customers or used in the manufacturing of a finished good within raw materials.
Notes Receivable – Notes receivable are recorded at their net realizable value. The balance consists primarily of installment notes and affiliate notes. The allowance for doubtful notes is based upon historical loss trends and specific reviews of delinquent notes. We write off uncollectible note receivables against the allowance for doubtful accounts when collection efforts have been exhausted and/or any legal action taken by us has been concluded. Current maturities and interest, net of short-term allowance are reported as other current assets.
Customer Displays – Customer displays include all costs to manufacture, ship and install the displays of our products in retail store locations. Capitalized display costs are included in other assets and are amortized over the life of the product lines, typically 3 to 4 years. Related amortization is included in SG&A expense in the accompanying consolidated statements of operations and was $8.7 million in 2019, $9.0 million in 2018, and $8.6 million in 2017.
Cloud Computing Arrangements –We capitalize qualified cloud computing implementation costs associated with the application development stage and subsequently amortize these costs over the term of the hosting agreement and stated renewal period, if it is reasonably certain we will renew. Capitalized costs are included in other assets on the consolidated balance sheet and amortization is included in SG&A expense in the accompanying consolidated statement of operations.
Property and Equipment – Property and equipment are recorded at cost. The cost of major additions and betterments are capitalized and depreciated using the straight-line method over their estimated useful lives. Replacements, maintenance and repairs that do not improve or extend the useful lives of the related assets or adapt the property to a new or different use are expensed as incurred. Interest over the construction period is capitalized as a component of cost of constructed assets. Upon sale or retirement of property or equipment, cost and related accumulated depreciation are removed from the accounts and any gain or loss is charged to income.
Leasehold improvements are amortized over the shorter of the useful life of the improvement, the lease term, or the life of the building. Depreciation is generally provided over the following estimated useful service lives:
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Land improvements
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10 - 20 years
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Buildings
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15 - 45 years
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Machinery and equipment
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3 - 20 years
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Intangible Assets –Intangible assets are accounted for in accordance with ASC 350, Intangibles – Goodwill and Other. Definite lived intangible assets are amortized based on the pattern of economic benefit over the following estimated useful lives:
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Trademarks and trade names
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3 - 40 years
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Software
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1 - 15 years
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Licenses and rights
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2 - 14 years
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Customer relationships
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1 - 16 years
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Patents
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3 - 25 years
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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. Cost and accumulated amortization are removed from the accounts in the period that an intangible asset becomes fully amortized. 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. The recoverability test requires us to first compare undiscounted cash flows expected to be generated by that definite lived intangible asset or asset group to its carrying amount. If the carrying amounts of the definite lived intangible assets are not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent that the carrying amount exceeds its fair value. Fair value is determined through various valuation techniques.
Our valuation of identifiable intangible assets acquired is based on information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value. We do not amortize our indefinite-lived intangible assets, but test for impairment annually, or when indications of potential impairment exist. For intangible assets other than goodwill, if the carrying value exceeds the fair value, we recognize an impairment loss in an amount equal to the excess. No material impairments were identified during fiscal years 2019, 2018 and 2017.
We capitalize certain qualified internal use software costs during the application development stage and subsequently amortize these costs over the estimated useful life of the asset. Costs incurred during the preliminary project stage and post-implementation operation stage are expensed as incurred.
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. The first step in an impairment review 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. Long-lived assets currently available for sale and expected to be sold within one year are classified as held for sale in other current assets.
Leases – We lease certain warehouses, distribution centers, office space, land, vehicles and equipment. We determine if an arrangement is a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Amounts associated with operating leases are included in operating lease assets (“ROU assets”), net, accrued expense and other current liabilities and noncurrent operating lease liability in our consolidated balance sheet. Amounts associated with finance leases are included in property and equipment, net, current maturities of long-term debt and long-term debt in our consolidated balance sheet.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
If the leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate for operating leases that commenced in the period is determined by using the prior quarter end’s incremental borrowing rates.
Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we combine lease and nonlease components.
Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more, and the exercise of lease renewal options under these leases is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Goodwill – Goodwill is tested for impairment on an annual basis and between annual tests if indicators of potential impairment exist, using a fair-value-based approach. Current accounting guidance provides an entity the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test. If this is the case, the two-step goodwill impairment test is required. If it is more-likely-than-not that the fair value of a reporting unit 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 derived from a review of our expected revenue and terminal growth rates, profit margins, and cost of capital. 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.
We have completed the required annual testing of goodwill for impairment for all reporting units and have determined that goodwill was not impaired in any years presented.
Deferred Revenue – We record deferred revenue when we collect pre-payments from customers for performance obligations we expect to fulfill through future performance of a service or delivery of a product. We classify our deferred revenue based on our estimate as to when we expect to satisfy the related performance obligations. Current deferred revenues are typically included in accrued expenses and other current liabilities in the accompanying consolidated balance sheets.
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.
Restructuring – Costs to exit or restructure certain activities of an acquired company or our internal operations are accounted for as one-time termination and exit costs as required by the provisions of FASB ASC 420, Exit or Disposal Cost Obligations, and are accounted for separately from any business combination. A liability for costs associated with an exit or disposal activity is recognized and measured at its fair value in our consolidated statements of operations in the period in which the liability is incurred. When estimating the fair value of restructuring activities, assumptions are applied, which can differ materially from actual results. This may require us to revise our initial estimates which may materially affect our results of operations and financial position in the period the revision is made.
Derivative Financial Instruments – Derivative financial instruments are used to manage interest rate risk associated with our borrowings and foreign currency exposures related to transactions denominated in currencies other than the U.S. dollar, or in the case of our non-U.S. companies, transactions denominated in a currency other than their functional currency. We record all derivative instruments in the consolidated balance sheets at fair value. Changes in a derivative’s fair value are recognized in earnings unless specific hedge criteria are met, and we elect hedge accounting prior to entering into the derivative. If a derivative is designated as a fair value hedge, the changes in fair value of both the derivative and the hedged item attributable to the hedged risk are recognized in the results of operations. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in consolidated other comprehensive income (loss) and subsequently classified to the consolidated statements of operations when the hedged item impacts earnings. At the inception of a fair value or cash flow hedge transaction, we formally document the hedge relationship and the risk management objective for undertaking the hedge. In addition, we assess both at inception of the fair value or cash flow
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.
Revenue Recognition – Revenue is recognized when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs with the transfer of control of our products or services. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. The taxes we collect concurrent with revenue-producing activities (e.g., sales tax, value added tax, and other taxes) are excluded from revenue. Incentive payments to customers that directly relate to future business are recorded as a reduction of net revenues over the periods benefited.
Shipping and handling costs and the related expenses are reported as fulfillment revenues and expenses for all customers. Therefore, all shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in cost of sales. The expected costs associated with our base warranties and field service actions continue to be recognized as expense when the products are sold (see Note 14 - Warranty Liability). Since payment is due at or shortly after the point of sale, the contract asset is classified as a receivable.
We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less. We do not typically include extended payment terms in our contracts with customers. Incidental items that are immaterial in the context of the contract are recognized as expense.
We disaggregate revenues based on geographical location. See Note 18 - Segment Information for further information on disaggregated revenue.
Shipping Costs – Shipping costs charged to customers are included in net revenues. The cost of shipping is included in cost of sales.
Advertising Costs – All costs of advertising our products and services are charged to expense as incurred. Advertising and promotion expenses included in SG&A expenses were $40.0 million in 2019, $43.4 million in 2018 and $48.5 million in 2017.
Interest Expense and Extinguishment of Debt Costs – We record debt extinguishment costs separately from interest expense within other (income) expense in the consolidated statements of operations.
Foreign Currency Translation and Adjustments – Typically, our foreign subsidiaries maintain their accounting records in their local currency. All of the assets and liabilities of these subsidiaries (including long-term assets, such as goodwill) are converted to U.S. dollars at the exchange rate in effect at the balance sheet date, income and expense accounts are translated at average rates for the period, and shareholder’s equity accounts are translated at historical rates. The effects of translating financial statements of foreign operations into our reporting currency are recognized as a cumulative translation adjustment in consolidated other comprehensive income (loss). This balance is net of tax, where applicable.
The effects of translating financial statements of foreign operations in which the U.S. dollar is their functional currency are included in the consolidated statements of operations. The effects of translating intercompany debt are recorded in the consolidated statements of operations unless the debt is of a long-term investment nature in which case gains and losses are recorded in consolidated other comprehensive income (loss).
Foreign currency transaction gains or losses are credited or charged to income as incurred.
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. 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 taxes of the Company. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit and the tax related to the position would be due to the entity and not the owners. For tax positions meeting the more likely than not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement
with the relevant tax authority. We apply this accounting standard to all tax positions for which the statute of limitations remains open. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
The Tax Act passed in December 2017 had significant effects on our financial statements. In accordance with Staff Accounting Bulletin No. 118 issued by the SEC in December 2017 immediately following the passage of the Tax Act, we made provisional estimates for certain direct and indirect effects of the Tax Act based on information available to us at that time. In the fourth quarter of 2018, we completed our accounting for all of the enactment-date income tax effects of the Tax Act and recorded adjustments as a component of income tax expense from continuing operations. The Tax Act subjects a U.S. shareholder to current tax on GILTI earned by certain foreign subsidiaries. We have elected to account for the impact of GILTI in the period in which it is incurred.
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 U.S. federal, 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 recorded a non-current U.S. receivable of $0.8 million at December 31, 2018 related to the one-time deemed repatriation tax liability, which is included in other assets in the accompanying consolidated balance sheet. We do not have any non-current taxes receivable or payable at December 31, 2019.
We record interest and penalties on amounts due to tax authorities as a component of income tax expense (benefit) in the consolidated statements of operations.
Contingent Liabilities – Contingent liabilities arising from claims, assessments, litigation, fines, penalties, and other sources require significant judgment in determining the probability of loss and the amount of the potential loss. Each quarter, we review significant new claims and litigation for the probability of an adverse outcome. Estimates are recorded as liabilities when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Disclosure is required when there is a reasonable possibility that the ultimate loss will materially exceed the recorded provision. Contingent liabilities are often resolved over long time periods. Estimating probable losses requires analysis of multiple forecasts that often depend on judgments about potential actions by third parties such as regulators, and the estimated loss can change materially as individual claims develop. Legal costs incurred in connection with loss contingencies are expensed as incurred.
Employee Retirement and Pension Benefits – We have a defined benefit plan available to certain U.S. hourly employees and several other defined benefit plans located outside of the U.S. that are country specific. The most significant of these plans is in the U.S. which is no longer open to new employees. Amounts relating to these plans are recorded based on actuarial calculations, which use various assumptions, such as discount rates and expected return on assets. See Note 29 - Employee Retirement and Pension Benefits.
Factoring Arrangements – Our ABS subsidiary, acquired in March 2018, has entered into factoring agreements with a U.S.-based financial institution under which it can elect to sell certain of its accounts receivable under non-recourse agreements. These transactions are treated as a sale and are accounted for as a reduction in accounts receivable because the agreements transfer effective control over and risk of non-collection to the factor. Thus, cash proceeds from these arrangements are reflected as operating activities, including the change of accounts receivable on our statement of cash flows each period. We do not service any factored accounts after the factoring has occurred and do not have any servicing assets or liabilities. We utilize factoring arrangements as part of our financing to manage working capital. The aggregate gross amount factored under these arrangements was $74.5 million and $56.3 million for the year ended December 31, 2019 and December 31, 2018, respectively. The cost of factoring is reflected in the accompanying consolidated statements of operations as interest expense with other financing costs and was $0.5 million and $0.4 million for the year ended December 31, 2019 and December 31, 2018, respectively.
Recently Adopted Accounting Standards – In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which clarifies the accounting treatment for implementation costs for cloud computing arrangements (hosting arrangements) that are service contracts with the requirement for capitalizing implementation costs incurred to develop or acquire internal-use-software. We early adopted this standard in the first quarter of 2019 on a prospective basis. The adoption did not have a material impact to the consolidated financial statements or related disclosures.
In June 2018, the FASB issued ASU No. 2018-07 - Compensation - Stock Compensation (Topic 718) Improvements to Non-employee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under ASU No. 2018-07, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. We adopted this standard in the
first quarter of 2019, and the adoption did not have an impact on our consolidated financial statements or related disclosures.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income (loss) to retained earnings for stranded tax effects resulting from the Tax Act. We have chosen not to make any reclassifications under this standard.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The targeted amendments help simplify certain aspects of hedge accounting and result in a more accurate portrayal of the economics of an entity’s risk management activities in its financial statements. For cash flow and net investment hedges as of the adoption date, the guidance requires a modified retrospective approach. In October 2018, the FASB issued ASU No. 2018-16, ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, which adds the overnight index swap rate (OIS) based on the secured overnight financing rate as a fifth U.S. benchmark interest rate. We adopted this standard in the first quarter of 2019, and it did not have an impact on our consolidated financial statements or related disclosures.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) Section A - Leases: Amendments to the FASB Accounting Standards Codification. The standard requires lessees to recognize the assets and liabilities arising from leases on the balance sheet and retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. We adopted this standard in the first quarter of 2019 including the practical expedients outlined in ASU No. 2018-01, Leases (Topic 842) Land Easement Practical Expedient for transition to ASC 842, the additional transition method and election to combine lease and nonlease components for real estate leases outlined in ASU No. 2018-11, Leases (Topic 842) Targeted Improvements, and the accounting policy election outlined in ASU No. 2018-20, Leases (Topic 842) Narrow-scope Improvements for Lessors. The adoption of the standard has had a significant impact on our consolidated balance sheet due to the recognition of approximately $200 million of lease liabilities with corresponding right-of-use assets for operating leases. Additionally, we recognized a $0.8 million cumulative effect adjustment credit, net of tax, to retained earnings. The adjustment to retained earnings was driven by a build-to-suit capital lease that transitioned to an operating lease under the new standard. The deferred tax impact on adoption was immaterial.
Recent Accounting Standards Not Yet Adopted – In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which removes certain exceptions to the general principles of ASC 740, including, but not limited to, accounting relating to intraperiod tax allocations, deferred tax liabilities related to outside basis differences, and year to date losses in interim periods. This guidance is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. We are currently assessing the impact of this ASU on our consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which adds, modifies and clarifies several disclosure requirements for employers that sponsor defined benefit pension or other post retirement plans. This guidance is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. We are currently assessing the effect that this ASU will have on our disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. To simplify the measurement of goodwill impairments, this ASU eliminates Step 2 from the goodwill impairment test, which required the calculation of the implied fair value of goodwill. Instead, under the amendments in this ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The guidance will be effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost and adds an impairment model that is based on expected losses rather than incurred losses. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to (Topic 326), Financial Instruments-Credit Losses, (Topic 815), Derivatives and Hedging, and (Topic 825), Financial Instruments, to clarify and address certain items related to the amendments of ASU No. 2016-13. This guidance is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. We have evaluated the impact of this ASU, which will primarily
impact our allowance for doubtful accounts, and based on our analysis of customer historical credit and collections data and determined the impact is not expected to be material to our consolidated financial statements or disclosures.
Note 2. Acquisitions
In March 2019, we acquired VPI Quality Windows, Inc (“VPI”). VPI is a leading manufacturer of vinyl windows, specializing in customized solutions for mid-rise multi-family, industrial, hospitality and commercial projects, primarily in the western U.S. VPI is located in Spokane, Washington and is a part of our North America segment.
The preliminary fair values of the assets and liabilities acquired of this acquisition are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
Preliminary Allocation
|
|
Measurement Period Adjustment
|
|
Revised Preliminary Allocation
|
|
Fair value of identifiable assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
$
|
11,417
|
|
|
$
|
(420
|
)
|
|
$
|
10,997
|
|
|
Inventories
|
2,555
|
|
|
(141
|
)
|
|
2,414
|
|
|
Other current assets
|
261
|
|
|
40
|
|
|
301
|
|
|
Property and equipment
|
3,166
|
|
|
176
|
|
|
3,342
|
|
|
Identifiable intangible assets
|
17,702
|
|
|
5,735
|
|
|
23,437
|
|
|
Operating lease assets
|
3,739
|
|
|
—
|
|
|
3,739
|
|
|
Goodwill
|
26,553
|
|
|
(3,053
|
)
|
|
23,500
|
|
|
Other assets
|
10
|
|
|
—
|
|
|
10
|
|
|
Total assets
|
$
|
65,403
|
|
|
$
|
2,337
|
|
|
$
|
67,740
|
|
|
Accounts payable
|
2,629
|
|
|
—
|
|
|
2,629
|
|
|
Other current liabilities
|
1,875
|
|
|
522
|
|
|
2,397
|
|
|
Operating lease liability
|
3,413
|
|
|
—
|
|
|
3,413
|
|
|
Other liabilities
|
—
|
|
|
1,502
|
|
|
1,502
|
|
|
Total liabilities
|
$
|
7,917
|
|
|
$
|
2,024
|
|
|
$
|
9,941
|
|
|
Purchase price:
|
|
|
|
|
|
|
Cash consideration, net of cash acquired
|
$
|
57,486
|
|
|
$
|
313
|
|
|
$
|
57,799
|
|
The revised preliminary goodwill of $23.5 million, calculated as the excess of the purchase price over the fair value of net assets, represents operational efficiencies and sales synergies, and the full amount is expected to be tax-deductible. The intangible assets include customer relationships and tradenames and will be amortized over an estimated weighted average amortization period of 8 years. Total 2019 net revenues and net loss, excluding retention bonuses disclosed below, relating to VPI since the date of acquisition were $46.6 million and $0.8 million, respectively.
Acquisition-related costs are expensed as incurred and are included in selling, general and administrative expense in our accompanying consolidated statements of operations. We incurred acquisition-related costs of $0.4 million during the year ended December 31, 2019. Prior to our purchase of VPI, certain employees held employment agreements including retention bonuses with service requirements extending into the post-acquisition period. As agreed with the former owners, the retention bonuses were prepaid at the acquisition date and any repayments of the retention bonuses under the terms of the employment agreements will accrue to the benefit of the former owners. The cash used to pay the retention bonuses was excluded from our determination of purchase price. In 2019, we expensed the post-acquisition value of these retention bonuses as acquisition-related cost totaling $7.1 million, which are included in SG&A expense in our consolidated statements of operations for the year ended December 31, 2019.
During 2018, we completed four acquisitions. The fair values of the assets and liabilities acquired of the completed acquisitions are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
Preliminary Allocation
|
|
Measurement Period Adjustment
|
|
Final Allocation
|
|
Fair value of identifiable assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
$
|
58,714
|
|
|
$
|
(2,079
|
)
|
|
$
|
56,635
|
|
|
Inventories
|
97,305
|
|
|
(8,069
|
)
|
|
89,236
|
|
|
Other current assets
|
14,910
|
|
|
(6,137
|
)
|
|
8,773
|
|
|
Property and equipment
|
53,128
|
|
|
26,170
|
|
|
79,298
|
|
|
Identifiable intangible assets
|
70,057
|
|
|
(1,363
|
)
|
|
68,694
|
|
|
Goodwill
|
64,950
|
|
|
(4,330
|
)
|
|
60,620
|
|
|
Other assets
|
7,283
|
|
|
(3,528
|
)
|
|
3,755
|
|
|
Total assets
|
$
|
366,347
|
|
|
$
|
664
|
|
|
$
|
367,011
|
|
|
Accounts payable
|
29,512
|
|
|
(6,097
|
)
|
|
23,415
|
|
|
Current maturities of long-term debt
|
17,278
|
|
|
803
|
|
|
18,081
|
|
|
Other current liabilities
|
27,595
|
|
|
4,496
|
|
|
32,091
|
|
|
Long-term debt
|
47,369
|
|
|
5,129
|
|
|
52,498
|
|
|
Other liabilities
|
17,551
|
|
|
(2,353
|
)
|
|
15,198
|
|
|
Total liabilities
|
$
|
139,305
|
|
|
$
|
1,978
|
|
|
$
|
141,283
|
|
|
Purchase price:
|
|
|
|
|
|
|
Cash consideration, net of cash acquired
|
$
|
169,002
|
|
|
$
|
(1,314
|
)
|
|
$
|
167,688
|
|
|
Contingent consideration
|
3,898
|
|
|
—
|
|
|
3,898
|
|
|
Gain on previously held shares
|
20,767
|
|
|
—
|
|
|
20,767
|
|
|
Existing investment in acquired entity
|
33,483
|
|
|
—
|
|
|
33,483
|
|
|
Non-cash consideration related to acquired intercompany balances
|
(108
|
)
|
|
—
|
|
|
(108
|
)
|
|
Total consideration, net of cash acquired
|
$
|
227,042
|
|
|
$
|
(1,314
|
)
|
|
$
|
225,728
|
|
Goodwill of $60.6 million, calculated as the excess of the purchase price over the fair value of net assets, represents operational efficiencies and sales synergies, and no amount is expected to be tax-deductible. The intangible assets include customer relationships, tradenames, patents and software and will be amortized over a weighted average amortization period of 16 years. Acquisition-related costs of $8.1 million were expensed as incurred and are included in SG&A expense in our accompanying consolidated statements of operations for the year ended December 31, 2018. The purchase price allocation was considered complete for the Domoferm, A&L, ABS and D&K acquisitions as of March 30, 2019.
The contingent consideration relating to the A&L acquisition was based on underlying business performance through June 2018 and was paid in the third quarter of 2018 in the amount of $3.7 million. The gain on previously held shares relates to the remeasurement of our existing 50% ownership interest to fair value for one of the recent acquisitions.
During the second and third quarters of 2017, we completed three acquisitions for total consideration of approximately $131.7 million, net of cash acquired, with $46.7 million of the purchase price allocated to intangible assets. The intangible assets included tradenames, software, and customer relationships and are being amortized over an estimated weighted average amortization period of 18 years. Goodwill is the excess of the purchase price over the fair value of net assets acquired in business combinations and was $25.1 million for these acquisitions with $14.2 million expected to be tax-deductible. There were $1.8 million of acquisition-related costs included in SG&A expense in the accompanying consolidated statements of operations for the year ended December 31, 2017. In 2017, the measurement period adjustment reduced the preliminary allocation of goodwill by $23.6 million and increased the preliminary allocation of property and equipment, intangible assets, and cash consideration, net of cash acquired by $16.7 million, $16.3 million and $7.7 million, respectively, with the remaining preliminary allocation changes related to other working capital accounts. In 2018, the measurement period adjustment increased the preliminary allocation of goodwill by $0.9 million with the offset primarily to working capital accounts. The purchase price allocation was considered completed within the appropriate remeasurement period for all three acquisitions.
We evaluated these acquisitions quantitatively and qualitatively and determined them to be insignificant both individually and in the aggregate. Therefore, certain pro forma disclosures under ASC 805-10-50 have been omitted.
The results of the acquisitions are included in our consolidated financial statements from the date of their acquisition.
Note 3. Accounts Receivable
We sell our manufactured products to a large number of customers, primarily in the residential housing construction and remodel sectors, broadly dispersed across many domestic and foreign geographic regions. We perform ongoing credit evaluations of our customers to minimize credit risk. We do not usually require collateral for accounts receivable but will require advance payment, guarantees, a security interest in the products sold to a customer, and/or letters of credit in certain situations. Customer accounts receivable converted to notes receivable are primarily collateralized by inventory or other collateral. One window and door customer from our North America segment represents 14.6%, 14.2% , and 16.8% of net revenues in 2019, 2018, and 2017, respectively.
The following is a roll forward of our allowance for doubtful accounts as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Balance as of January 1,
|
$
|
(6,227
|
)
|
|
$
|
(4,468
|
)
|
|
$
|
(3,763
|
)
|
|
Acquisitions (Note 2)
|
(235
|
)
|
|
(1,668
|
)
|
|
(268
|
)
|
|
Additions charged to expense
|
(961
|
)
|
|
(2,769
|
)
|
|
(1,731
|
)
|
|
Deductions
|
1,407
|
|
|
2,301
|
|
|
1,662
|
|
|
Currency translation
|
49
|
|
|
377
|
|
|
(368
|
)
|
|
Balance at period end
|
$
|
(5,967
|
)
|
|
$
|
(6,227
|
)
|
|
$
|
(4,468
|
)
|
The prior period information has been revised. Please refer to Note 32 - Revision of Prior Period Financial Statements.
Note 4. Inventories
Inventories are stated at the lower of cost or net realizable value. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
December 31,
2019
|
|
December 31,
2018
|
|
Raw materials
|
$
|
372,289
|
|
|
$
|
370,124
|
|
|
Work in process
|
38,432
|
|
|
39,127
|
|
|
Finished goods
|
94,357
|
|
|
99,248
|
|
|
Total inventories
|
$
|
505,078
|
|
|
$
|
508,499
|
|
The prior period information has been revised. Please refer to Note 32 - Revision of Prior Period Financial Statements.
Note 5. Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
December 31, 2019
|
|
December 31, 2018
|
|
Prepaid assets
|
$
|
27,992
|
|
|
$
|
29,840
|
|
|
Refundable income taxes
|
9,034
|
|
|
10,524
|
|
|
Fair value of derivative instruments (Note 26)
|
1,372
|
|
|
8,234
|
|
|
Other
|
164
|
|
|
76
|
|
|
Total other current assets
|
$
|
38,562
|
|
|
$
|
48,674
|
|
The prior period information has been revised. Please refer to Note 32 - Revision of Prior Period Financial Statements.
Note 6. Property and Equipment, Net
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
Land improvements
|
$
|
34,211
|
|
|
$
|
34,060
|
|
|
Buildings
|
502,315
|
|
|
501,659
|
|
|
Machinery and equipment
|
1,369,174
|
|
|
1,306,555
|
|
|
Total depreciable assets
|
1,905,700
|
|
|
1,842,274
|
|
|
Accumulated depreciation
|
(1,188,209
|
)
|
|
(1,138,898
|
)
|
|
|
717,491
|
|
|
703,376
|
|
|
Land
|
69,262
|
|
|
69,188
|
|
|
Construction in progress
|
77,622
|
|
|
70,839
|
|
|
Total property and equipment, net
|
$
|
864,375
|
|
|
$
|
843,403
|
|
In the fourth quarter of 2019, we placed in service a newly constructed plant and corresponding machinery and equipment located within our Australasia segment.
In November 2016, we entered into a 17-year, non-cancelable build-to-suit arrangement for a corporate headquarters facility in Charlotte, North Carolina that was accounted for under the previously effective build-to-suit guidance contained in ASC840, Leases. Since we were involved in the construction of structural improvements prior to the commencement of the lease and took some level of construction risk, we were considered the accounting owner of the assets and land during the construction period. Further, since certain terms of the lease did not meet normal sale-leaseback criteria under ASC 840, Leases, we were considered the accounting owner after the construction period. In 2018, we recorded $20.0 million of build-to-suit assets included in property and equipment, net, and set up a corresponding financial obligation of $20.4 million included within long-term debt. In addition, in 2018, we received a tenant improvement allowance, increasing long-term debt by $4.2 million. Under current recently adopted guidance, ASC 842, Leases, this lease was reclassified as an operating lease and is now reflected within our operating lease balances included within Note 9 - Leases and is no longer reflected in our 2019 property and equipment, net, or long-term debt on the accompanying consolidated balance sheet.
We monitor all property and equipment for any indicators of potential impairment. We recorded impairment charges of $3.7 million, $1.1 million, and $1.5 million during the years ended December 31, 2019, 2018, and 2017 respectively.
The effect on our carrying value of property and equipment due to currency translations for foreign assets was a decrease of $2.0 million and $23.1 million for the years ended December 31, 2019 and 2018, respectively.
Depreciation expense was recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Cost of sales
|
$
|
84,449
|
|
|
$
|
85,357
|
|
|
$
|
78,975
|
|
|
Selling, general and administrative
|
9,882
|
|
|
8,699
|
|
|
7,835
|
|
|
Total depreciation expense
|
$
|
94,331
|
|
|
$
|
94,056
|
|
|
$
|
86,810
|
|
Note 7. Goodwill
The following table summarizes the changes in goodwill by reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Total
Reportable
Segments
|
|
Balance as of December 31, 2017
|
$
|
201,560
|
|
|
$
|
268,162
|
|
|
$
|
79,341
|
|
|
$
|
549,063
|
|
|
Acquisitions
|
17,645
|
|
|
30,167
|
|
|
17,138
|
|
|
64,950
|
|
|
Acquisition remeasurements
|
4,881
|
|
|
(3,317
|
)
|
|
(5,227
|
)
|
|
(3,663
|
)
|
|
Currency translation
|
(524
|
)
|
|
(15,324
|
)
|
|
(8,560
|
)
|
|
(24,408
|
)
|
|
Balance as of December 31, 2018
|
$
|
223,562
|
|
|
$
|
279,688
|
|
|
$
|
82,692
|
|
|
$
|
585,942
|
|
|
Acquisitions - preliminary allocation
|
26,553
|
|
|
—
|
|
|
—
|
|
|
26,553
|
|
|
Acquisition remeasurements
|
(1,535
|
)
|
|
—
|
|
|
(1,248
|
)
|
|
(2,783
|
)
|
|
Sale of business unit
|
(1,343
|
)
|
|
—
|
|
|
—
|
|
|
(1,343
|
)
|
|
Currency translation
|
265
|
|
|
(5,776
|
)
|
|
(358
|
)
|
|
(5,869
|
)
|
|
Balance as of December 31, 2019
|
$
|
247,502
|
|
|
$
|
273,912
|
|
|
$
|
81,086
|
|
|
$
|
602,500
|
|
We have recorded impairments in prior periods related to the divestiture of certain operations. Cumulative impairments of goodwill totaled $1.6 million at December 31, 2019, 2018 and 2017.
In accordance with current accounting guidance, we identified three reporting units for the purpose of conducting our goodwill impairment review. In determining our reportable units, we considered (i) whether an operating segment or a component of an operating segment was a business, (ii) whether discrete financial information was available, and (iii) whether the financial information is regularly reviewed by management of the operating segment. We performed our annual impairment assessment during the beginning of the December fiscal month of 2019. The excess of the fair value of our reporting units over their respective carrying values for the three reporting units exceeded 33%. No impairment loss was recorded in 2019, 2018 or 2017.
Note 8. Intangible Assets, Net
Changes in the carrying amount of intangible assets were as follows for the periods indicated:
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
Balance as of December 31, 2017
|
$
|
166,313
|
|
|
Acquisitions
|
70,057
|
|
|
Acquisition remeasurements
|
(1,363
|
)
|
|
Additions, (net of $172 write-offs)
|
24,553
|
|
|
Amortization
|
(22,208
|
)
|
|
Currency translation
|
(11,799
|
)
|
|
Balance as of December 31, 2018
|
$
|
225,553
|
|
|
Acquisitions
|
17,702
|
|
|
Acquisition remeasurements
|
5,735
|
|
|
Additions, (net of $112 write-offs)
|
33,796
|
|
|
Amortization
|
(30,956
|
)
|
|
Currency translation
|
(1,503
|
)
|
|
Balance as of December 31, 2019
|
$
|
250,327
|
|
The cost and accumulated amortization values of our intangible assets were as follows as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
(amounts in thousands)
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Book Value
|
|
Customer relationships and agreements
|
$
|
151,540
|
|
|
$
|
(57,326
|
)
|
|
$
|
94,214
|
|
|
Software
|
92,821
|
|
|
(18,222
|
)
|
|
74,599
|
|
|
Trademarks and trade names
|
58,088
|
|
|
(7,512
|
)
|
|
50,576
|
|
|
Patents, licenses and rights
|
45,392
|
|
|
(14,454
|
)
|
|
30,938
|
|
|
Total amortizable intangibles
|
$
|
347,841
|
|
|
$
|
(97,514
|
)
|
|
$
|
250,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
(amounts in thousands)
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Book Value
|
|
Customer relationships and agreements
|
$
|
134,999
|
|
|
$
|
(45,418
|
)
|
|
$
|
89,581
|
|
|
Software
|
62,147
|
|
|
(14,053
|
)
|
|
48,094
|
|
|
Trademarks and trade names
|
57,513
|
|
|
(5,050
|
)
|
|
52,463
|
|
|
Patents, licenses and rights
|
47,804
|
|
|
(12,389
|
)
|
|
35,415
|
|
|
Total amortizable intangibles
|
$
|
302,463
|
|
|
$
|
(76,910
|
)
|
|
$
|
225,553
|
|
We have capitalized a total of $60.2 million related to the application development stage of our global ERP system implementation, including $31.8 million during the year ended December 31, 2019. As of December 31, 2019, we have placed $52.0 million in service and began amortizing the cost of our global ERP system over its estimated useful life of 15 years.
Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Intangible assets that become fully amortized are removed from the accounts in the period that they become fully amortized. Amortization expense was recorded as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Amortization expense
|
$
|
30,956
|
|
|
$
|
22,208
|
|
|
$
|
15,896
|
|
Estimated future amortization expense:
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
2020
|
$
|
28,054
|
|
|
2021
|
27,406
|
|
|
2022
|
26,393
|
|
|
2023
|
23,246
|
|
|
2024
|
22,220
|
|
|
Thereafter
|
123,008
|
|
|
|
$
|
250,327
|
|
Note 9. Leases
We lease certain warehouses, distribution centers, office space, land, vehicles and equipment. We determine if an arrangement is a lease at inception. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. Amounts associated with operating leases are included in operating lease assets (“ROU assets”), net, accrued expense and other current liabilities and noncurrent operating lease liability in our consolidated balance sheet. Amounts associated with finance leases are included in property and equipment, net, current maturities of long-term debt and long-term debt in our consolidated balance sheet.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.
If the leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate for operating leases that commenced in the period is determined by using the prior quarter end’s incremental borrowing rates.
Leases with an initial term of 12 months or less are not recorded on the balance sheet, and we recognize lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, we combine lease and nonlease components.
Certain leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or more, and the exercise of lease renewal options under these leases is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Lease ROU assets and liabilities at December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
Balance Sheet Location
|
|
December 31,
2019
|
|
Assets:
|
|
|
|
|
Operating
|
Operating lease assets, net
|
|
$
|
202,053
|
|
|
Finance
|
Property and equipment, net (1)
|
|
4,045
|
|
|
Total lease assets
|
|
$
|
206,098
|
|
|
Liabilities:
|
|
|
|
|
Current:
|
|
|
|
|
Operating
|
Accrued expense and other current liabilities
|
|
$
|
45,254
|
|
|
Finance
|
Current maturities of long-term debt
|
|
1,280
|
|
|
Noncurrent:
|
|
|
|
|
Operating
|
Operating lease liability
|
|
164,026
|
|
|
Finance
|
Long-term debt
|
|
2,820
|
|
|
Total lease liability
|
|
$
|
213,380
|
|
|
|
|
|
(1)
|
Finance lease assets are recorded net of accumulated depreciation of $1.5 million as of December 31, 2019.
|
During the year ended December 31, 2019, we obtained $28.6 million in right-of-use assets in exchange for operating lease liabilities, primarily relating to manufacturing equipment. In December 2019, we entered into a 10 year operating lease for a replacement corporate airplane with an ROU asset of $11.7 million.
The components of lease expense for the year ended December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
Operating
|
$
|
54,535
|
|
|
Short term
|
11,543
|
|
|
Variable
|
3,806
|
|
|
Low value
|
1,738
|
|
|
Finance
|
90
|
|
|
Total lease costs
|
$
|
71,712
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
Weighted average remaining lease terms (years):
|
|
|
Operating
|
6.7
|
|
Finance
|
3.7
|
|
Weighted average discount rate:
|
|
|
Operating
|
4.7%
|
|
Finance
|
4.4%
|
Future minimum lease payment obligations under operating and capital leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
(amounts in thousands)
|
Operating Leases (1)
|
|
Finance Leases
|
|
Total
|
|
2020
|
$
|
53,894
|
|
|
$
|
1,451
|
|
|
$
|
55,345
|
|
|
2021
|
43,854
|
|
|
1,143
|
|
|
44,997
|
|
|
2022
|
35,945
|
|
|
783
|
|
|
36,728
|
|
|
2023
|
30,014
|
|
|
699
|
|
|
30,713
|
|
|
2024
|
23,630
|
|
|
428
|
|
|
24,058
|
|
|
Thereafter
|
59,244
|
|
|
—
|
|
|
59,244
|
|
|
Total lease payments
|
246,581
|
|
|
4,504
|
|
|
251,085
|
|
|
Less: Interest
|
37,301
|
|
|
404
|
|
|
37,705
|
|
|
Present value of lease liability
|
$
|
209,280
|
|
|
$
|
4,100
|
|
|
$
|
213,380
|
|
|
|
|
|
(1)
|
Operating lease payments include $15.4 million related to options to extend lease terms that are reasonably certain of being exercised.
|
Disclosures related to period prior to adoption of the Standard
Operating lease rent expense was $63.7 million and $50 million during the years ended December 31, 2018 and 2017 respectively.
Future minimum lease payment obligations under operating and capital leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
(amounts in thousands)
|
Operating Leases
|
|
Capital Leases (1)
|
|
Total
|
|
2019
|
$
|
49,128
|
|
|
$
|
862
|
|
|
$
|
49,990
|
|
|
2020
|
43,794
|
|
|
826
|
|
|
44,620
|
|
|
2021
|
30,885
|
|
|
561
|
|
|
31,446
|
|
|
2022
|
24,020
|
|
|
237
|
|
|
24,257
|
|
|
2023
|
19,352
|
|
|
225
|
|
|
19,577
|
|
|
Thereafter
|
33,943
|
|
|
23,968
|
|
|
57,911
|
|
|
Total future minimum lease payment obligations
|
$
|
201,122
|
|
|
$
|
26,679
|
|
|
$
|
227,801
|
|
(1) As of December 31, 2018, capital leases included maturities of approximately $24.5 million related to a build-to-suit lease that transitioned to an operating lease under the new leasing standard.
Note 10. Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
Customer displays
|
$
|
11,213
|
|
|
$
|
15,069
|
|
|
Deposits
|
6,440
|
|
|
6,627
|
|
|
Cloud computing arrangements
|
6,374
|
|
|
—
|
|
|
Long-term notes receivable
|
4,614
|
|
|
4,902
|
|
|
Overfunded pension benefit obligation
|
2,015
|
|
|
1,517
|
|
|
Other prepaid expenses
|
1,896
|
|
|
5,331
|
|
|
Debt issuance costs on unused portion of revolver facility
|
1,472
|
|
|
1,552
|
|
|
Other long-term accounts receivable
|
563
|
|
|
762
|
|
|
Other long-term assets
|
375
|
|
|
366
|
|
|
Long-term taxes receivable
|
—
|
|
|
800
|
|
|
Total other assets
|
$
|
34,962
|
|
|
$
|
36,926
|
|
Domestic debt issuance costs associated with revolving credit facilities are capitalized and amortized according to the effective interest rate method over the life of the new debt agreements. Non-cash additions are disclosed in Note 30 - Supplemental Cash Flow Information.
Customer displays are amortized over the life of the product line and $8.7 million, $9.0 million and $8.6 million of amortization is included in total depreciation and amortization in SG&A expense for the years ended December 31, 2019, 2018 and 2017, respectively.
In 2019, we adopted ASU 2018-15, as outlined in Note 1- Summary of Significant Accounting Policies, and began capitalizing qualified cloud computing costs. Cloud computing arrangements are expensed over the term of the hosting arrangement plus the renewal period, if reasonably certain. We have capitalized a total of $7.0 million relating to cloud computing arrangements.
The prior period information has been revised. Please refer to Note 32 - Revision of Prior Period Financial Statements.
Note 11. Investments
As of December 31, 2019 and December 31, 2018, our investments consist of six investments accounted for under the cost method.
As of December 31, 2017, our equity investments consisted of a 50% owned investment. During the first quarter of 2018, we purchased the remaining outstanding shares of that entity, and we recognized a gain of $20.8 million on the previously held shares. This investment is now eliminated in consolidation.
A summary of our equity and cost method investments, which are included in other assets in the accompanying consolidated balance sheets, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
Equity
|
|
Cost
|
|
Total
|
|
Ending balance, December 31, 2017
|
$
|
32,745
|
|
|
$
|
442
|
|
|
$
|
33,187
|
|
|
Equity earnings
|
738
|
|
|
—
|
|
|
738
|
|
|
Acquired equity method investment
|
(33,483
|
)
|
|
—
|
|
|
(33,483
|
)
|
|
Other
|
—
|
|
|
(76
|
)
|
|
(76
|
)
|
|
Ending balance, December 31, 2018
|
$
|
—
|
|
|
$
|
366
|
|
|
$
|
366
|
|
|
Additions
|
—
|
|
|
16
|
|
|
16
|
|
|
Other
|
—
|
|
|
(13
|
)
|
|
(13
|
)
|
|
Ending balance, December 31, 2019
|
$
|
—
|
|
|
$
|
369
|
|
|
$
|
369
|
|
Loans or advances to affiliates were fully impaired as of December 31, 2019 and December 31, 2018.
The combined results of operations for the equity method investment as of December 31 is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Net sales
|
$
|
—
|
|
|
$
|
91,234
|
|
|
$
|
354,964
|
|
|
Gross profit
|
—
|
|
|
18,261
|
|
|
74,399
|
|
|
Net income
|
—
|
|
|
1,752
|
|
|
6,870
|
|
|
Adjustment for profit (loss) in inventory
|
—
|
|
|
(138
|
)
|
|
204
|
|
|
Net income attributable to Company
|
—
|
|
|
738
|
|
|
3,639
|
|
Sales to affiliates totaled $16.5 million and $59.3 million in 2018 and 2017, respectively, and purchases from affiliates totaled $1.0 million and $4.0 million for 2018 and 2017, respectively.
No impairments were recorded during fiscal years 2019, 2018, or 2017.
Note 12. Accrued Payroll and Benefits
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
Accrued vacation
|
$
|
46,746
|
|
|
$
|
48,976
|
|
|
Accrued payroll and commissions
|
23,854
|
|
|
23,746
|
|
|
Accrued bonuses
|
11,101
|
|
|
11,035
|
|
|
Accrued payroll taxes
|
11,372
|
|
|
11,214
|
|
|
Other accrued benefits
|
8,633
|
|
|
10,325
|
|
|
Non-U.S. defined contributions and other accrued benefits
|
7,680
|
|
|
9,722
|
|
|
Total accrued payroll and benefits
|
$
|
109,386
|
|
|
$
|
115,018
|
|
The prior period information has been revised. Please refer to Note 32 - Revision of Prior Period Financial Statements.
Note 13. Accrued Expenses and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
Current portion of legal claims provision
|
$
|
79,332
|
|
|
$
|
79,356
|
|
|
Accrued sales and advertising rebates
|
67,250
|
|
|
68,755
|
|
|
Current portion of operating lease liability (Note 9)
|
45,254
|
|
|
—
|
|
|
Accrued expenses
|
27,993
|
|
|
28,261
|
|
|
Non-income related taxes
|
23,178
|
|
|
21,643
|
|
|
Current portion of warranty liability (Note 14)
|
21,054
|
|
|
20,529
|
|
|
Current portion of accrued claim costs relating to self-insurance programs
|
12,312
|
|
|
12,319
|
|
|
Current portion of deferred revenue
|
7,986
|
|
|
9,896
|
|
|
Current portion of restructuring accrual (Note 23)
|
6,051
|
|
|
6,635
|
|
|
Current portion of derivative liability (Note 26)
|
4,068
|
|
|
1,161
|
|
|
Accrued interest payable
|
2,126
|
|
|
2,016
|
|
|
Current portion of accrued income taxes payable
|
1,999
|
|
|
1,739
|
|
|
Total accrued expenses and other current liabilities
|
$
|
298,603
|
|
|
$
|
252,310
|
|
In the table above, the legal claims provision balances relate primarily to the $76.5 million litigation contingency associated with the ongoing antitrust litigation with Steves & Sons, Inc. For further information regarding this litigation, see Note 28 - Commitments and Contingencies.
The accrued sales and advertising rebates, accrued interest payable, and non-income related taxes can fluctuate significantly period over period due to timing of payments.
The prior period information has been revised. Please refer to Note 32 - Revision of Prior Period Financial Statements.
Note 14. Warranty Liability
Warranty terms vary from one year to lifetime on certain window and door components. Warranties are normally limited to servicing or replacing defective components for the original customer. Product defects arising within six months of sale are classified as manufacturing defects and are not included in the current period expense below. Some warranties are transferable to subsequent owners and are either limited to 10 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 is periodically adjusted to reflect actual experience.
An analysis of our warranty liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Balance as of January 1
|
$
|
46,468
|
|
|
$
|
46,256
|
|
|
$
|
45,398
|
|
|
Current period expense
|
20,853
|
|
|
21,822
|
|
|
17,674
|
|
|
Liabilities assumed due to acquisition
|
2,104
|
|
|
1,550
|
|
|
95
|
|
|
Experience adjustments
|
1,890
|
|
|
1,227
|
|
|
(614
|
)
|
|
Payments
|
(21,818
|
)
|
|
(23,410
|
)
|
|
(17,255
|
)
|
|
Currency translation
|
219
|
|
|
(977
|
)
|
|
958
|
|
|
Balance at period end
|
49,716
|
|
|
46,468
|
|
|
46,256
|
|
|
Current portion
|
(21,054
|
)
|
|
(20,529
|
)
|
|
(19,547
|
)
|
|
Long-term portion
|
$
|
28,662
|
|
|
$
|
25,939
|
|
|
$
|
26,709
|
|
The most significant component of our warranty liability is in the North America segment, which totaled $44.3 million at December 31, 2019, after discounting future estimated cash flows at rates between 0.76% and 4.75%. Without discounting, the liability would have been higher by approximately $3.0 million.
Note 15. Long-Term Debt
Our long-term debt, net of original issue discount and unamortized debt issuance costs, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
December 31,
2019
|
|
December 31,
2018
|
|
(amounts in thousands)
|
Interest Rate
|
|
|
|
Senior notes
|
4.63% - 4.88%
|
|
$
|
800,000
|
|
|
$
|
800,000
|
|
|
Term loans
|
1.30% - 3.94%
|
|
591,153
|
|
|
474,058
|
|
|
Finance leases and other financing arrangements
|
1.90% - 6.00%
|
|
108,613
|
|
|
98,914
|
|
|
Mortgage notes
|
1.65%
|
|
28,175
|
|
|
30,375
|
|
|
Revolving credit facilities
|
—%
|
|
—
|
|
|
85,000
|
|
|
Installment notes for stock
|
4.75%
|
|
205
|
|
|
962
|
|
|
Unamortized debt issuance costs and original issue discount
|
|
(10,774
|
)
|
|
(11,417
|
)
|
|
|
|
|
1,517,372
|
|
|
1,477,892
|
|
|
Current maturities of long-term debt
|
|
(65,846
|
)
|
|
(54,930
|
)
|
|
Long-term debt
|
|
$
|
1,451,526
|
|
|
$
|
1,422,962
|
|
|
|
|
|
|
|
|
|
|
Maturities by year:
|
|
|
|
2020
|
|
$
|
65,846
|
|
|
2021
|
|
27,085
|
|
|
2022
|
|
17,461
|
|
|
2023
|
|
15,067
|
|
|
2024
|
|
573,822
|
|
|
Thereafter
|
|
818,091
|
|
|
|
|
$
|
1,517,372
|
|
Summaries of our significant changes to outstanding debt agreements as of December 31, 2019 are as follows:
Senior Notes
In December 2017, we issued $800.0 million of unsecured Senior Notes in two tranches: $400.0 million bearing interest at 4.63% and maturing in December 2025, and $400.0 million bearing interest at 4.88% and maturing in December 2027 in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act. Each tranche was issued at par. Interest is payable semiannually in arrears each June and December through maturity. Debt issuance costs incurred in 2017 of $11.7 million are being amortized to interest expense over the life of the notes using the effective interest method.
Term Loans
U.S. Facility - In February 2017, we prepaid $375.0 million of outstanding principal with a portion of the proceeds from our IPO. As a result, we recorded a proportional write-off of $5.2 million of unamortized debt issuance costs and $0.9 million of original issue discount to interest expense.
In March 2017, we amended the facility to reduce the interest rate and remove the cap on the amount of cash used in the calculation of net debt. The offering price of the amended term loans was par. Pursuant to this amendment, certain lenders converted their aggregate commitments, along with an additional commitment advanced by a replacement lender. We incurred $1.1 million of debt issuance costs in 2017 related to this amendment, which are being amortized to interest expense over the life of the notes using the effective interest method.
In December 2017, along with the issuance of the Senior Notes, we re-priced and amended the facility and repaid $787.4 million of outstanding borrowings with the net proceeds from the Senior Notes, which resulted in a principal balance of $440.0 million. In connection with the debt extinguishment, we expensed the related unamortized original discount of $5.9 million, unamortized debt issuance costs of $15.4 million, and bank fees of $1.7 million as a loss on extinguishment of debt within other (income) expense in our consolidated statements of operations. These re-priced term loans were offered at par and bear interest at the further reduced rate of LIBOR (subject to a floor of 0.00%) plus a margin of 1.75% to 2.00%, determined by our corporate credit ratings. This compares favorably to the previous rate of LIBOR (subject to a floor of 1.00%) plus a margin of 2.75% to 3.00%, determined by our net leverage ratio, under the prior amendment. This amendment also modified other terms and provisions, including providing for additional covenant flexibility and additional capacity under the facility, removing the quarterly required repayments of 0.25% of the aggregate principal balance, and conforming to certain terms and provisions of the Senior Notes. The facility is essentially secured by the same collateral and guaranteed by the same guarantors as it was under each of the prior amendments, and we incurred $0.7 million of debt issuance costs related to this amendment, which are being amortized to interest expense over the life of the facility using the effective interest method.
In February 2019, we purchased interest rate caps in order to effectively fix a 3.0% per annum ceiling on the LIBOR component of an aggregate $150 million of our term loans. The caps became effective March 29, 2019 and expire December 31, 2021.
In September 2019, we amended the Term Loan Facility to provide for an incremental aggregate principal amount of $125.0 million and used the proceeds primarily to repay $115.0 million of outstanding borrowings under the ABL Facility. The proceeds were net of the original issue discount of 0.5%, or $0.6 million, as well as $0.6 million in fees and expenses associated with the debt issuance. This amendment requires that approximately $1.4 million of the aggregate principal amount be repaid quarterly until the maturity date. There were no other changes to key terms and the facility maintains its original maturity date in December 2024. At December 31, 2019, the outstanding principal balance, net of original issue discount, was $555.0 million.
Australia Facility - In February 2018, we amended the Australia Senior Secured Credit Facility to include an additional AUD 55 million floating rate term loan facility with a base rate of BBSY plus a margin ranging from 1.00% to 1.10%. We paid a quarterly line fee of 1.25% per annum on the facility commitment. The facility is secured by guarantees of JWA.
In June 2019, we reallocated AUD 5.0 million from the term loan commitment to the interchangeable commitment of the Australia Senior Secured Credit Facility. The amended AUD 50.0 million floating rate term loan facility bears interest at a base rate of BBSY plus a margin ranging from 1.00% to 1.10%, includes a line fee of 1.25% on the commitment amount, and matures in February 2023. This facility had an outstanding principal balance of $35.0 million as of December 31, 2019.
Both the term loan and non-term loan portions of the Australia Senior Secured Credit Facility are secured by guarantees of JWA and its subsidiaries, fixed and floating charges on the assets of 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 consolidated debt to EBITDA ratio. The agreement limits dividends and repayments of intercompany loans where the JWA group is the borrower and limits acquisitions without the bank’s consent.
Other Acquired Facilities - In 2018, we acquired a $11.6 million term loan facility associated with our ABS acquisition, as well as $9.6 million in various term loan facilities associated with our Domoferm acquisition. In December 2018, we terminated the ABS facility having repaid all outstanding borrowings. As of December 31, 2019, we had $0.6 million outstanding under the remaining Domoferm term loan facilities.
Revolving Credit Facilities
ABL Facility - In December 2017, along with the offering of the Senior Notes and repricing of the Term Loan Facility, we amended our ABL Facility, which had a total of $300 million in U.S. and Canadian revolving credit commitments. The facility will mature in December 2022, extended from October 2019, and bears interest primarily at LIBOR (subject to a floor of 0.00%) plus a margin of 1.25% to 1.75%, determined by availability. This compares favorably to the rate of LIBOR (subject to a floor of 0.00%) plus a margin of 1.50% to 2.00% under the previous amendment. Extensions of credit are limited by a borrowing base calculated based on specified percentages of the value of eligible accounts receivable and inventory, subject to certain reserves and other adjustments. We pay a fee of 0.25% on the unused portion of the commitments. 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. This amendment also made certain adjustments to the borrowing base and modified other terms and provisions, including providing for additional covenant flexibility, and conforming to certain terms and provisions of the Senior Notes and Term Loan Facility. In connection with the amendment to the ABL Facility, we expensed $0.2 million of unamortized loan fees as a loss on extinguishment of debt within other (income) expense in our consolidated statements of operations.
In December 2018, we amended the ABL Facility, providing for an increase of $100 million to a total of $400 million in U.S. and Canadian revolving credit commitments. The maturity date remains unchanged. In December 2019, we amended our ABL facility to reflect current banking regulatory requirements, which do not have a financial impact. As of December 31, 2019, we had no outstanding borrowings, $35.5 million in letters of credit and $313.1 million available under the ABL Facility.
Australia Senior Secured Credit Facility - In February 2018, we amended the Australia Senior Secured Credit Facility to provide for an AUD 15.0 million floating rate revolving loan facility, an AUD 12.0 million interchangeable facility for guarantees and letters of credit, an AUD 7.0 million electronic payaway facility, an AUD 2.5 million asset finance facility, an AUD 1.0 million commercial card facility and an AUD 5.0 million.
In June 2019, we further amended the Australia Senior Secured Credit Facility, reallocating availability from the Australia Term Loan Facility and collapsing the floating rate revolving loan facility into a AUD 35.0 million interchangable facility to be used for guarantees, asset financing, and loans of 12 months or less bearing interest at BBSY plus a margin of 1.10% and a line fee of 0.50%, compared to BBSY plus a margin of 0.75% and a line fee of 1.15% on the revolving facility limit under the previous amendment. The non-term loan portion of the Australia Senior Secured Credit Facility no longer has a set maturity date but is instead subject to an annual review. As of December 31, 2019, we had AUD 21.9 million ($15.4 million) available under this facility. Overdraft balances bear interest at the bank’s reference rate minus a margin of 1.00%, and a line fee of 1.15% is paid on the overdraft facility limit.
Euro Revolving Facility - In January 2019, we allowed our €39 million Euro Revolving Facility to expire due to operating cash generation in Europe as well as expenses and restrictions associated with the facility.
At December 31, 2019, we had combined borrowing availability of $328.5 million under our revolving credit facilities.
Mortgage Notes – In December 2007, we entered into thirty-year mortgage notes secured by land and buildings with principal payments which began in 2018. At December 31, 2019, we had DKK 187.8 million (or $28.2 million) outstanding under these notes.
Finance leases and other financing arrangements – In addition to finance leases, we include insurance premium financing arrangements and loans secured by equipment in this category. At December 31, 2019, we had $108.6 million outstanding in this category, with maturities ranging from 2020 to 2026. At December 31, 2018, this category included a $24.5 million build-to-suit capital lease that was reclassified as an operating lease under the recently issued leasing standards and is no longer reflected in long-term debt as of January 1, 2019 (Note 9 - Leases). Increases in this category during 2019 were primarily due to additional equipment financing.
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 10 years depending on the amount, with payments through 2020. As of December 31, 2019, we had $0.2 million outstanding under these notes.
As of December 31, 2019, we were in compliance with the terms of all of our credit facilities.
Note 16. Deferred Credits and Other Liabilities
Included in deferred credits and other liabilities is the long-term portion of the following liabilities as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
Warranty liability (Note 14)
|
$
|
28,662
|
|
|
$
|
25,939
|
|
|
Uncertain tax positions (Note 17)
|
20,234
|
|
|
18,951
|
|
|
Workers' compensation claims accrual
|
14,604
|
|
|
14,977
|
|
|
Other liabilities
|
3,190
|
|
|
9,626
|
|
|
Restructuring accrual (Note 23)
|
992
|
|
|
2,005
|
|
|
Over-market lease liabilities
|
—
|
|
|
1,126
|
|
|
Deferred income
|
—
|
|
|
69
|
|
|
Total deferred credits and other liabilities
|
$
|
67,682
|
|
|
$
|
72,693
|
|
At December 31, 2018, the over-market lease liabilities related to our Melton operations in the U.K. Under recently adopted guidance, ASC 842, Leases, this lease is now reflected within our operating lease asset, net balance included within Note 9 - Leases.
Note 17. Income Taxes
Income (loss) before taxes, equity earnings was comprised of the following for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Domestic (loss) income
|
$
|
(784
|
)
|
|
$
|
192
|
|
|
$
|
(7,346
|
)
|
|
Foreign income
|
120,829
|
|
|
130,919
|
|
|
149,647
|
|
|
Total income before taxes, equity earnings
|
$
|
120,045
|
|
|
$
|
131,111
|
|
|
$
|
142,301
|
|
Our foreign income is primarily driven by our subsidiaries in Australia, Canada and the U.K. The statutory tax rates are 30%, 27% and 19% respectively.
Significant components of the provision for income taxes are as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Federal
|
$
|
5,037
|
|
|
$
|
(9,760
|
)
|
|
$
|
11,699
|
|
|
State
|
935
|
|
|
764
|
|
|
667
|
|
|
Foreign
|
29,264
|
|
|
34,742
|
|
|
29,228
|
|
|
Current taxes
|
35,236
|
|
|
25,746
|
|
|
41,594
|
|
|
|
|
|
|
|
|
|
Federal
|
11,771
|
|
|
(24,445
|
)
|
|
60,618
|
|
|
State
|
6,620
|
|
|
(12,760
|
)
|
|
27,241
|
|
|
Foreign
|
3,447
|
|
|
1,401
|
|
|
8,365
|
|
|
Deferred taxes
|
21,838
|
|
|
(35,804
|
)
|
|
96,224
|
|
|
Total provision (benefit) for income taxes
|
$
|
57,074
|
|
|
$
|
(10,058
|
)
|
|
$
|
137,818
|
|
On December 22, 2017, the Tax Act was enacted in the U.S. The specific provisions of the Tax Act had both direct and indirect impacts on our 2017 and 2018 results and may continue to materially affect our financial results in the future as regulations continue to be finalized. The direct impacts recorded as provisional estimates in 2017 were due primarily to the change in the U.S. corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017 and the one-time deemed repatriation tax. As a result of the lowering of the U.S. federal tax rate, we revalued our net deferred tax
assets in the U.S. reflecting the lower expected benefit in the U.S. in the future. This revaluation resulted in an estimated additional tax expense of approximately $21.1 million. Our provisional estimate of the one-time deemed repatriation tax, which effectively subjected the Company’s net aggregate historic foreign earnings to taxation in the U.S., resulted in a further tax charge of $11.3 million. During the fourth quarter of 2017, the Company undertook certain transactions which premised the repatriation of certain earnings from foreign subsidiaries. While these transactions were not undertaken as a direct result of tax reform, the U.S. tax implications were heavily impacted due to the timing of the transactions and the measurement dates as outlined in the Tax Act. We recorded a provisional estimate of the effects of certain steps completed in 2017 as well as further steps premised to be completed in 2018 which would have retroactive effect into 2017 resulting in a net increase to tax expense of $65.8 million related to these transactions and their impacts under the Tax Act.
As of December 31, 2018, we completed our accounting for the income tax effects of the Tax Act as of the enactment date. As further discussed below, we recognized a tax benefit of $40.2 million in 2018 which effectively reduced the net charges recorded at December 31, 2017. These adjustments were accounted for as a component of income tax expense from continuing operations. The specific adjustments recorded were (i) an increase to the tax expense recorded related to the revaluation of our net deferred tax assets from $21.1 million to $55.3 million resulting in an additional charge to 2018 earnings of $34.2 million, (ii) a reduction of the estimate of the one-time deemed repatriation tax from $11.3 million to zero resulting in a tax benefit recorded in 2018 earnings of $11.3 million, (iii) a reduction of the additional tax expense recorded related to the premised repatriation of funds from foreign subsidiaries from $65.8 million to $2.7 million resulting in a tax benefit recorded in 2018 earnings of $63.1 million.
The completion of the Company’s accounting for the enactment of the Tax Act reflects, among other things, (i) the issuance of guidance by the U.S. Treasury regarding provisions of the Tax Act, (ii) certain elections and accounting policy decisions pursuant to the Tax Act, (iii) adjustments to historic foreign earnings and profits or the associated tax credit pools which are significant factors in the calculation of the repatriation tax, and (iv) changes in interpretations and assumptions that we have made. We note that final guidance and regulations surrounding the implementation of all provisions in the Tax Act have not been issued to date. This guidance, once issued, may materially affect our conclusions regarding the net related effects of the Tax Act on our financial statements.
The Tax Act subjects a U.S. shareholder to current U.S. tax on GILTI earned by certain foreign subsidiaries. GILTI had a material effect on our effective tax rate in 2019 and 2018 and will likely continue to have such an effect in future periods. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-Taxed Income, states that we are permitted to make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or provide for the tax expense related to such income in the year the tax is incurred. We have elected to account for the impact of GILTI in the period in which it is incurred.
The significant components of deferred income tax expense attributed to income from continuing operations for the year ended December 31, 2019, were increases to the valuation allowances for deferred tax assets, primarily in the U.S. The significant components of the deferred income tax benefit attributed to income from continuing operations for the year ended December 31, 2018, were the adjustments related to the provisional amounts of the income tax effects of the Tax Act and the additional release of valuation allowances, primarily in the U.S. The significant components of the deferred income tax expense attributed to income from continuing operations for the year ended December 31, 2017, were the revaluation of our U.S. deferred tax assets under the Tax Act and the increases in valuation allowances for deferred tax assets, primarily in the U.S.
Reconciliation of the U.S. federal statutory income tax rate to our effective tax rate is as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
(amounts in thousands)
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Statutory rate
|
$
|
25,209
|
|
|
21.0
|
|
$
|
27,515
|
|
|
21.0
|
|
$
|
49,805
|
|
|
35.0
|
|
State income tax, net of federal benefit
|
3,180
|
|
|
2.6
|
|
(1,207
|
)
|
|
(0.9)
|
|
(4,784
|
)
|
|
(3.4)
|
|
Foreign source dividends and deemed inclusions
|
10,797
|
|
|
9.0
|
|
16,295
|
|
|
12.4
|
|
86,119
|
|
|
60.5
|
|
Valuation allowance
|
10,144
|
|
|
8.4
|
|
(85,876
|
)
|
|
(65.5)
|
|
98,156
|
|
|
69.0
|
|
Nondeductible expenses
|
1,276
|
|
|
1.1
|
|
1,097
|
|
|
0.8
|
|
1,950
|
|
|
1.4
|
|
Acquisition of ABS
|
—
|
|
|
—
|
|
(10,189
|
)
|
|
(7.8)
|
|
—
|
|
|
—
|
|
Equity based compensation
|
2,526
|
|
|
2.1
|
|
54
|
|
|
—
|
|
(12,718
|
)
|
|
(8.9)
|
|
Deferred benefit on acquisitions
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
(6,201
|
)
|
|
(4.4)
|
|
Foreign tax rate differential
|
1,964
|
|
|
1.6
|
|
3,557
|
|
|
2.7
|
|
(17,536
|
)
|
|
(12.3)
|
|
Tax rate differences and credits
|
(1,867
|
)
|
|
(1.5)
|
|
96,231
|
|
|
73.4
|
|
(91,109
|
)
|
|
(64.0)
|
|
Uncertain tax positions
|
1,604
|
|
|
1.3
|
|
5,443
|
|
|
4.2
|
|
736
|
|
|
0.5
|
|
IRS audit adjustments
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
(699
|
)
|
|
(0.5)
|
|
Termination of hedge accounting
|
4,533
|
|
|
3.8
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
U.S. Tax Reform
|
—
|
|
|
—
|
|
(62,836
|
)
|
|
(47.9)
|
|
32,414
|
|
|
22.8
|
|
Disposition of subsidiary
|
(2,384
|
)
|
|
(2.0)
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
Other
|
92
|
|
|
0.1
|
|
(142
|
)
|
|
(0.1)
|
|
1,685
|
|
|
1.1
|
|
Effective rate for continuing operations
|
$
|
57,074
|
|
|
47.5%
|
|
$
|
(10,058
|
)
|
|
(7.7)%
|
|
$
|
137,818
|
|
|
96.8%
|
In 2019, we recorded tax expense of $4.5 million upon the termination of hedge accounting to relieve the disproportionate tax effect previously in Accumulated Other Comprehensive Income. The tax benefit arising from the disposition of our subsidiary, CMD, is $2.4 million and included in the “Disposition of subsidiary” line in the reconciliation of tax expense table above.
In 2018, we recorded a tax benefit of $40.2 million to revise the provisional estimates recorded under the Tax Act. The “U.S. Tax Reform” line in the reconciliation of tax expense above totals $62.8 million and is comprised of tax benefit of $11.3 million for the reduction of the estimated one-time deemed repatriation tax, tax benefit of $85.7 million attributed to the restoration of the Company’s net operating losses, offset by tax expense of $34.2 million for the revaluation of our deferred tax assets. The remaining tax expense is comprised of: additional tax expense of $97.6 million for the reduction of foreign tax credits included in “Tax rate differences and credits”, offset by tax benefit of $75.0 million included above as “Valuation allowance”.
In 2018, we recorded a benefit of $10.2 million related to certain tax effects of ABS transitioning to a wholly-owned subsidiary and the tax effects of the gain recognized on the acquisition.
For the year ended December 31, 2017, we recorded provisional estimates of the items directly impacted by the Tax Act within the “U.S. Tax Reform” line in the reconciliation of tax expense above. The tax charge of $32.4 million is comprised of (i) the repricing our U.S. deferred tax balances of $21.1 million from 35% to 21%, and (ii) one-time deemed repatriation tax of $11.3 million. As previously, discussed, certain other transactions undertaken by the Company in the fourth quarter of 2017 were indirectly impacted by the Tax Act and the measurement periods as outlined therein. The provisional estimates of the following amounts are included in the Company’s tax expense for 2018: additional tax expense of $85.5 million included as “Foreign Source Dividends”, a tax benefit of $90.8 million included as “Tax rate differences and credits”, and additional tax expense of $71.1 million included as “Valuation allowance” above.
In 2017, we recorded a benefit of $0.7 million as a result of favorable audit settlements in the U.S., which allowed the use of tax attributes that previously had a valuation allowance reserve.
We recorded a tax benefit of $6.2 million primarily relating to the change in disposition for certain intellectual property in the “Deferred benefit on acquisitions” line and a corresponding tax charge in the same amount in the “Valuation allowance” line, resulting in no impact to the effective rate for continuing operations in 2017. We did not incur or recognize tax expense or benefit associated with these categories in 2019 or 2018.
Deferred income taxes are provided for the temporary differences between the financial reporting basis and tax basis of our assets, liabilities and operating loss carryforwards. Significant deferred tax assets and liabilities are as follows as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
Net operating loss and tax credit carryforwards
|
$
|
199,889
|
|
|
$
|
216,563
|
|
|
Operating lease liabilities
|
54,448
|
|
|
—
|
|
|
Employee benefits and compensation
|
47,760
|
|
|
50,665
|
|
|
Accrued liabilities and other
|
38,300
|
|
|
38,764
|
|
|
Inventory
|
5,842
|
|
|
5,923
|
|
|
Investments and marketable securities
|
2,768
|
|
|
473
|
|
|
Allowance for doubtful accounts and notes receivable
|
1,641
|
|
|
1,573
|
|
|
Deferred credits
|
194
|
|
|
635
|
|
|
Gross deferred tax assets
|
350,842
|
|
|
314,596
|
|
|
Valuation allowance
|
(67,664
|
)
|
|
(57,571
|
)
|
|
Deferred tax assets
|
283,178
|
|
|
257,025
|
|
|
Depreciation and amortization
|
(55,994
|
)
|
|
(58,441
|
)
|
|
Operating lease assets
|
(52,635
|
)
|
|
—
|
|
|
Deferred tax liabilities
|
(108,629
|
)
|
|
(58,441
|
)
|
|
Net deferred tax assets
|
$
|
174,549
|
|
|
$
|
198,584
|
|
|
Balance sheet presentation:
|
|
|
|
|
Long-term assets
|
$
|
183,837
|
|
|
$
|
209,062
|
|
|
Long-term liabilities
|
(9,288
|
)
|
|
(10,478
|
)
|
|
Net deferred tax assets
|
$
|
174,549
|
|
|
$
|
198,584
|
|
Valuation Allowance – The realization of deferred tax assets is based on historical tax positions and estimates of future taxable income. We evaluate both the positive and negative evidence that we believe 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 portion of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those temporary differences are deductible. We consider the scheduled reversal of deferred tax liabilities (including the effect of available carryback and carryforward periods), and projected taxable income in making this assessment. To fully utilize the NOL and tax credits carryforwards, we will need to generate sufficient future taxable income in each respective jurisdiction before the expiration of the deferred tax assets governed by the applicable tax code.
Our valuation allowance was $67.7 million as of December 31, 2019, which represents an increase of $10.1 million from December 31, 2018 and was allocated to continuing operations. The increase in the valuation allowance primarily relates to the following: (i) an increase of $3.9 million due to expiring foreign tax credits, (ii) an increase of $3.6 million for state net operating losses ("NOL") and credits due to the impact of forecasted taxable income in the carry-forward period, (iii) an increase of $1.8 million for our Chilean subsidiary, and (iv) other changes to existing valuation allowances totaling approximately $0.8 million for changes in current year earnings for certain other subsidiaries and foreign exchange.
Our valuation allowance was $57.6 million as of December 31, 2018, which represents a decrease of $87.1 million from December 31, 2017 and was allocated to continuing operations. The decrease in the valuation allowance primarily related to the following: (i) a decrease of $75.0 million relating to the Company’s finalization of the accounting for the effects of the Tax Act, (ii) a decrease of $2.2 million due to expiring foreign tax credits, (iii) a decrease of $8.3 million for state NOL and credits due to the impact of increases in forecasted taxable income in the carry-forward period, and (iv) and other changes to existing valuation allowances totaling approximately $1.6 million for changes in the current year earnings for certain other subsidiaries and foreign exchange.
The following is the activity in our valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Balance as of January 1,
|
$
|
(57,571
|
)
|
|
$
|
(144,701
|
)
|
|
$
|
(40,118
|
)
|
|
Valuation allowances established
|
(2,001
|
)
|
|
(260
|
)
|
|
—
|
|
|
Changes to existing valuation allowances
|
(8,043
|
)
|
|
85,828
|
|
|
(105,453
|
)
|
|
Release of valuation allowances
|
—
|
|
|
—
|
|
|
2,006
|
|
|
Currency translation
|
(49
|
)
|
|
1,562
|
|
|
(1,136
|
)
|
|
Balance as of December 31,
|
$
|
(67,664
|
)
|
|
$
|
(57,571
|
)
|
|
$
|
(144,701
|
)
|
Loss Carryforwards – We reduced our income tax payments by utilizing NOL carryforwards of $208.0 million in 2019, $163.7 million in 2018 and $18.6 million in 2017. At December 31, 2019, our federal, state and foreign NOL carryforwards totaled $1,300.8 million, of which $87.0 million does not expire and the remainder expires as follows:
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
2020
|
$
|
3,517
|
|
|
2021
|
14,079
|
|
|
2022
|
16,074
|
|
|
2023
|
26,845
|
|
|
Thereafter
|
1,153,300
|
|
|
Total loss carryforwards
|
$
|
1,213,815
|
|
We utilized approximately $146.2 million of NOL carryforwards in the US in 2018; however, the deferred tax asset related to these NOLs actually increased due to the restoration of certain loss carryforwards upon the finalization of the accounting for effects of the Tax Act. We have previously revised the total amount of NOLs utilized in 2017 to reflect the reduced income recognized under the Tax Act. At December 31, 2019, our capital loss carryforwards totaled $20.4 million, which are all foreign and do not expire.
Section 382 Net Operating Loss Limitation – On November 20, 2017 and October 3, 2011, we had a change in ownership pursuant to Section 382 of the Internal Revenue Code of 1986 as amended (“Code”). Under this provision of the Code, the utilization of any of our NOL or tax credit carryforwards, incurred prior to the date of ownership change, may be limited. Analyses of the respective limits for each ownership change indicated no reason to believe the annual limitation would impair our ability to utilize our NOL carryforward or net tax credit carryforwards as provided. We have concluded the limitation under Section 382 should not prevent us from fully utilizing these historical NOLs.
Tax Credit Carryforwards – Our tax credit carryforwards expire as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
EZ Credit
|
|
R & E credit
|
|
Foreign Tax Credit
|
|
Work Opportunity & Welfare to Work Credit
|
|
State Investment Tax Credits
|
|
Tip Credit
|
|
TOTAL
|
|
2020
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12,975
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
12,977
|
|
|
2021
|
—
|
|
|
—
|
|
|
14,990
|
|
|
—
|
|
|
26
|
|
|
—
|
|
|
15,016
|
|
|
2022
|
—
|
|
|
—
|
|
|
1,061
|
|
|
—
|
|
|
11
|
|
|
—
|
|
|
1,072
|
|
|
2023
|
—
|
|
|
—
|
|
|
5,735
|
|
|
—
|
|
|
1,656
|
|
|
—
|
|
|
7,391
|
|
|
2024
|
—
|
|
|
—
|
|
|
3,514
|
|
|
—
|
|
|
84
|
|
|
—
|
|
|
3,598
|
|
|
Thereafter
|
68
|
|
|
9,047
|
|
|
8,801
|
|
|
6,696
|
|
|
86
|
|
|
102
|
|
|
24,800
|
|
|
|
$
|
68
|
|
|
$
|
9,047
|
|
|
$
|
47,076
|
|
|
$
|
6,696
|
|
|
$
|
1,865
|
|
|
$
|
102
|
|
|
$
|
64,854
|
|
Earnings of Foreign Subsidiaries – Historically, the Company has not provided for US tax impacts of any unremitted earnings of its foreign subsidiaries. The Tax Act made significant changes to the taxation of undistributed foreign earnings, including that all previously untaxed earnings and profits of our controlled foreign corporations be subjected to a one-time deemed repatriation tax in 2017. In its final analysis of the effects of the Tax Act, the Company provided for US income taxes on approximately $121.0 million of earnings of our foreign subsidiaries deemed to be repatriated. Beginning in 2018, the Tax Act provides for a 100% dividends received deduction for untaxed earnings received from most foreign corporations. The repatriation tax substantially eliminated the basis difference that existed previously for purposes of ASC
Topic 740. Although dividend income is now generally exempt from U.S. federal income tax in the hands of U.S. corporate shareholders, the guidance of ASC 740-30 still applies to account for the tax consequences of outside basis differences and other tax impacts of investments in non-U.S. subsidiaries. Although likely not subject to U.S. federal taxation, there are limited other taxes that could continue to apply such as foreign income and withholding as well as certain state taxes.
The Company routinely evaluates its indefinite reversal assertion on the outside basis difference in non-U.S. subsidiaries that allows the nonrecognition of associated deferred taxes. As of December 31, 2019, the Company has not recorded deferred tax liabilities or assets for the outside basis difference in any foreign subsidiary. We have concluded that a majority of the unremitted earnings of our foreign subsidiaries are indefinitely reinvested, with certain minor exceptions that do not have an associated tax cost. We hold a combined book-over-tax outside basis difference of $217.5 million in our investment in foreign subsidiaries and may incur up to $7.6 million of local country income and withholding taxes in case of distribution of unremitted earnings.
Dual-Rate Jurisdiction – Estonia taxes the corporate profits of resident corporations at different rates depending upon whether the profits are distributed. The undistributed profits of resident corporations are exempt from taxation while any distributed profits are subject to a 20% corporate income tax rate. The liability for the tax on distributed profits is recorded as an income tax expense in the period in which a dividend is declared. The amount of retained earnings at December 31, 2019 and 2018 for our Estonia subsidiary, which, if distributed, would be subject to this tax was $69.2 million and $68.1 million, respectively. During 2017, Latvia enacted a similar system in which an entity’s local earnings are not subject to tax until distributed. The amount of retained earnings at December 31, 2019 and 2018 for our Latvian subsidiary which, if distributed, would be subject to a 20% corporate income tax rate is $21.4 million and $19.9 million, respectively.
Tax Payments and Balances – We made tax payments of $32.1 million in 2019, $49.7 million in 2018 and $29.0 million in 2017 primarily for foreign liabilities. We received tax refunds of $5.6 million in 2019, $3.3 million in 2018, and $6.5 million in 2017 and the primary jurisdictions for which refunds were received in the current year are Australia, Austria and the U.S. We recorded global receivables for refunds of $9.0 million at December 31, 2019 and $10.5 million at December 31, 2018, which is included in other current assets on the accompanying consolidated balance sheets. We recorded foreign payables for taxes of $2.0 million at December 31, 2019 and $1.7 million at December 31, 2018, which is included in accrued income taxes payable in the accompanying consolidated balance sheets. We recorded a non-current U.S. receivable of $0.8 million at December 31, 2018, which is included in other assets in the accompanying consolidated balance sheets. We do not have any non-current taxes receivable or payable as of December 31, 2019.
Accounting for Uncertain Tax Positions – A reconciliation of the beginning and ending amounts of unrecognized tax benefits excluding interest and penalties is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Balance as of January 1,
|
$
|
18,951
|
|
|
$
|
14,519
|
|
|
$
|
12,054
|
|
|
Increase for tax positions taken during the prior period
|
197
|
|
|
2,620
|
|
|
252
|
|
|
Decrease for settlements with taxing authorities
|
(126
|
)
|
|
(157
|
)
|
|
(788
|
)
|
|
(Decrease) increase for tax positions taken during the current period
|
(96
|
)
|
|
300
|
|
|
107
|
|
|
Currency translation
|
(318
|
)
|
|
(707
|
)
|
|
1,626
|
|
|
Balance at period end - unrecognized tax benefit
|
18,607
|
|
|
16,575
|
|
|
13,251
|
|
|
Accrued interest and penalties
|
1,627
|
|
|
2,376
|
|
|
1,268
|
|
|
|
$
|
20,234
|
|
|
$
|
18,951
|
|
|
$
|
14,519
|
|
Unrecognized tax benefits were $18.6 million, $16.6 million and $13.3 million at December 31, 2019, 2018 and 2017, respectively. The changes during the current period relate to the establishment of an uncertain tax positions for certain tax examinations offset by currency translation during the period. Interest and penalties related to uncertain tax positions are reported as a component of tax expense and included in the total uncertain tax position balance within deferred credits and other liabilities in the accompanying consolidated balance sheets.
A significant portion of our uncertain tax positions relates to the implementation of the Capacity Management Agreements within the European business (“CMA”) which took place in January 1, 2015. The CMA changed the manner in which we manage our manufacturing capacity and the distribution and sale of our products in Europe. The reorganization of our Europe segment was part of our review of our operations structure and management that began in 2014 and resulted in changes in taxable income for certain of our subsidiaries within that reportable segment. Effective January 1, 2015, our subsidiary JELD-WEN U.K. Limited (the “Managing Subsidiary”) entered into an agreement (the “Managing Agreement”) with several of our other subsidiaries in Europe (collectively, the “Operating Subsidiaries”). The Managing Agreement provides that the Managing Subsidiary will receive a fee from the Operating Subsidiaries in exchange for performing
various management and decision-making services for the Operating Subsidiaries. As a result, the Managing Agreement shifts certain risks (and correlated benefits) from the Operating Subsidiaries to the Managing Subsidiary. In exchange, the Managing Subsidiary guarantees a specific return to each Operating Subsidiary on a before interest and taxes basis, commensurate with such Operating Subsidiary’s functions and risk profile. While there is no impact on the consolidated reporting of the Europe segment due to the Managing Agreement, there may be changes in taxable income of the Operating Subsidiaries. Therefore, we have reserved for a potential loss resulting from such uncertainty.
Included in the balance of unrecognized tax benefits as of December 31, 2019, 2018, and 2017, are $18.6 million, $16.6 million, and $13.3 million respectively, of tax benefits that, if recognized, would affect the effective tax rate. We cannot reasonably estimate the conclusion of certain non-US income tax examinations and its outcome at this time.
We operate in multiple foreign tax jurisdictions and are generally open to examination for tax years 2015 and forward. In the U.S., we are open to examination at the federal level for tax years 2013 and forward and at state and local jurisdictions for tax years 2014 and forward. We are under examination in Austria, the Czech Republic, Denmark, Germany, Indonesia, Latvia, Switzerland, and the United Kingdom for tax years 2011 through 2017, and generally remain open to examination for other non-US jurisdictions for tax years 2013 forward.
Note 18. Segment Information
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 determined that we have three reportable segments, organized and managed principally by geographic region. Our reportable segments are North America, Europe and Australasia. We report all other business activities in Corporate and unallocated costs. Factors considered in determining the three reportable segments include the nature of business activities, the management structure accountable directly to the CODM, the discrete financial information available and the information regularly reviewed by the CODM. Management reviews net revenues and Adjusted EBITDA to evaluate segment performance and allocate resources. 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.
The following tables set forth certain information relating to our segments’ operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Total Operating
Segments
|
|
Corporate
and
Unallocated
Costs
|
|
Total
Consolidated
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
2,535,810
|
|
|
$
|
1,178,589
|
|
|
$
|
585,341
|
|
|
$
|
4,299,740
|
|
|
$
|
—
|
|
|
$
|
4,299,740
|
|
|
Intersegment net revenues
|
(1,474
|
)
|
|
(148
|
)
|
|
(8,357
|
)
|
|
(9,979
|
)
|
|
—
|
|
|
(9,979
|
)
|
|
Net revenues from external customers
|
$
|
2,534,336
|
|
|
$
|
1,178,441
|
|
|
$
|
576,984
|
|
|
$
|
4,289,761
|
|
|
$
|
—
|
|
|
$
|
4,289,761
|
|
|
Depreciation and amortization
|
$
|
81,905
|
|
|
$
|
28,944
|
|
|
$
|
17,787
|
|
|
$
|
128,636
|
|
|
$
|
5,333
|
|
|
$
|
133,969
|
|
|
Impairment and restructuring charges
|
7,301
|
|
|
6,182
|
|
|
7,111
|
|
|
20,594
|
|
|
957
|
|
|
21,551
|
|
|
Adjusted EBITDA
|
267,335
|
|
|
116,193
|
|
|
74,484
|
|
|
458,012
|
|
|
(42,974
|
)
|
|
415,038
|
|
|
Capital expenditures
|
46,799
|
|
|
23,611
|
|
|
32,619
|
|
|
103,029
|
|
|
33,163
|
|
|
136,192
|
|
|
Segment assets
|
$
|
1,530,135
|
|
|
$
|
974,076
|
|
|
$
|
510,845
|
|
|
$
|
3,015,056
|
|
|
$
|
366,276
|
|
|
$
|
3,381,332
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
2,462,914
|
|
|
$
|
1,216,204
|
|
|
$
|
681,160
|
|
|
$
|
4,360,278
|
|
|
$
|
—
|
|
|
$
|
4,360,278
|
|
|
Intersegment net revenues
|
(1,281
|
)
|
|
(905
|
)
|
|
(11,245
|
)
|
|
(13,431
|
)
|
|
—
|
|
|
(13,431
|
)
|
|
Net revenues from external customers
|
$
|
2,461,633
|
|
|
$
|
1,215,299
|
|
|
$
|
669,915
|
|
|
$
|
4,346,847
|
|
|
$
|
—
|
|
|
$
|
4,346,847
|
|
|
Depreciation and amortization
|
$
|
71,945
|
|
|
$
|
31,132
|
|
|
$
|
17,730
|
|
|
$
|
120,807
|
|
|
$
|
4,293
|
|
|
$
|
125,100
|
|
|
Impairment and restructuring charges
|
4,933
|
|
|
6,111
|
|
|
7,170
|
|
|
18,214
|
|
|
(886
|
)
|
|
17,328
|
|
|
Adjusted EBITDA
|
279,526
|
|
|
122,810
|
|
|
90,885
|
|
|
493,221
|
|
|
(34,003
|
)
|
|
459,218
|
|
|
Capital expenditures
|
57,805
|
|
|
25,369
|
|
|
12,146
|
|
|
95,320
|
|
|
23,380
|
|
|
118,700
|
|
|
Segment assets
|
$
|
1,355,101
|
|
|
$
|
898,901
|
|
|
$
|
482,493
|
|
|
$
|
2,736,495
|
|
|
$
|
311,030
|
|
|
$
|
3,047,525
|
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
2,159,919
|
|
|
$
|
1,045,036
|
|
|
$
|
572,518
|
|
|
$
|
3,777,473
|
|
|
$
|
—
|
|
|
$
|
3,777,473
|
|
|
Intersegment net revenues
|
(2,021
|
)
|
|
(2,269
|
)
|
|
(9,434
|
)
|
|
(13,724
|
)
|
|
—
|
|
|
(13,724
|
)
|
|
Net revenues from external customers
|
$
|
2,157,898
|
|
|
$
|
1,042,767
|
|
|
$
|
563,084
|
|
|
$
|
3,763,749
|
|
|
$
|
—
|
|
|
$
|
3,763,749
|
|
|
Depreciation and amortization
|
$
|
66,990
|
|
|
$
|
27,979
|
|
|
$
|
13,248
|
|
|
$
|
108,217
|
|
|
$
|
3,056
|
|
|
$
|
111,273
|
|
|
Impairment and restructuring charges
|
8,471
|
|
|
3,592
|
|
|
(49
|
)
|
|
12,014
|
|
|
1,042
|
|
|
13,056
|
|
|
Adjusted EBITDA
|
273,192
|
|
|
131,200
|
|
|
74,386
|
|
|
478,778
|
|
|
(43,616
|
)
|
|
435,162
|
|
|
Capital expenditures
|
34,769
|
|
|
14,889
|
|
|
6,019
|
|
|
55,677
|
|
|
7,372
|
|
|
63,049
|
|
|
Segment assets
|
$
|
1,206,849
|
|
|
$
|
918,048
|
|
|
$
|
447,734
|
|
|
$
|
2,572,631
|
|
|
$
|
287,446
|
|
|
$
|
2,860,077
|
|
Reconciliations of net income to Adjusted EBITDA are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Net income
|
$
|
62,971
|
|
|
$
|
141,907
|
|
|
$
|
8,122
|
|
|
Equity earnings of non-consolidated entities
|
—
|
|
|
(738
|
)
|
|
(3,639
|
)
|
|
Income tax expense
|
57,074
|
|
|
(10,058
|
)
|
|
137,818
|
|
|
Depreciation and amortization
|
133,969
|
|
|
125,100
|
|
|
111,273
|
|
|
Interest expense, net (1)
|
71,778
|
|
|
70,818
|
|
|
79,034
|
|
|
Impairment and restructuring charges(2)
|
22,748
|
|
|
17,328
|
|
|
13,057
|
|
|
Gain on previously held shares of equity investment
|
—
|
|
|
(20,767
|
)
|
|
—
|
|
|
Loss (gain) on sale of property and equipment
|
1,959
|
|
|
144
|
|
|
(299
|
)
|
|
Share-based compensation expense
|
13,315
|
|
|
15,052
|
|
|
19,785
|
|
|
Non-cash foreign exchange transaction/translation (income) loss
|
3,438
|
|
|
(1,267
|
)
|
|
(1,178
|
)
|
|
Other items (3)
|
47,482
|
|
|
117,546
|
|
|
47,000
|
|
|
Other non-cash items (4)
|
304
|
|
|
3,859
|
|
|
526
|
|
|
Costs relating to debt restructuring and debt refinancing (5)
|
—
|
|
|
294
|
|
|
23,663
|
|
|
Adjusted EBITDA
|
$
|
415,038
|
|
|
$
|
459,218
|
|
|
$
|
435,162
|
|
|
|
|
|
(1)
|
Interest expense for the year ended December 31, 2017 includes $6,097 related to the write-off of a portion of the unamortized debt issuance costs and original issue discount associated with the Term Loan Facility.
|
|
|
|
|
(2)
|
Impairment and restructuring charges consist of (i) impairment and restructuring charges that are included in our consolidated statements of operations plus (ii) additional charges relating to inventory and/or manufacturing of our products that are included in cost of sales in the accompanying consolidated statements of operations in the amount of $1,197, $0, and $1 for the years ended December 31, 2019, 2018, and 2017, respectively. For further explanation of impairment and restructuring charges that are included in our consolidated statements of operations, see Note 24 - Impairment and Restructuring Charges in our financial statements.
|
|
|
|
|
(3)
|
Other non-recurring items not core to ongoing business activity include: (i) in the year ended December 31, 2019 (1) $19,147 in facility closure and consolidation costs related to our facility footprint rationalization program, (2) $14,963 in acquisition and integration costs including $7,077 related to purchase price structured by the former owners as retention payments for key employees of a recent acquisition, (3) $12,860 in legal cost and professional fees relating primarily to litigation, (4) $(3,053) of realized gains on hedges of intercompany notes, (5) $1,998 in other miscellaneous costs, (6) $731 in equity compensation to employees in our Australasia region, and (7) $725 in costs related to the departure of former executives.; (ii) in the year ended December 31, 2018, (1) $76,500 in litigation contingency accruals, (2) $26,529 in legal and professional fees relating primarily to litigation, (3) $10,324 in acquisition and integration costs, (4) $(5,396) of realized gains on hedges of intercompany notes, (4) $3,856 in costs related to the departure of former executives, (5) $2,901 in entity consolidation and reorganization costs, (6) $2,347 in miscellaneous costs, and (7) $485 in stock compensation payroll taxes; (iii) in the year ended December 31, 2017, (1) $34,178 in legal costs, (2) $4,176 in realized loss on hedges relating to intercompany notes, (3) $3,484 in acquisition and integration costs, (4) $(2,247) gain on settlement of contract escrow, (5) $2,202 in secondary offering costs, (6) $754 in tax consulting fee, (7) $678 in legal entity consolidation costs, (8) $649 in stock compensation payroll taxes, and (9) $578 in facility ramp down cost.
|
|
|
|
|
(4)
|
Other non-cash items include: (i) derivative losses of $235 in the year ended December 31, 2019; (ii) charges of $3,740 for the fair value of inventory acquired as part of our Domoferm acquisitions in the year ended December 31, 2018; and (iii) charges of $439 for the fair value adjustment to the inventory acquired as part of our Mattiovi acquisition in the year ended December 31, 2017.
|
|
|
|
|
(5)
|
Included in the year ended December 31, 2017 is a loss on debt extinguishment of $23,262 associated with the refinancing of our term loan.
|
Net revenues by locality are as follows for the years ended December 31,:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Net revenues by location of external customer
|
|
|
|
|
|
|
Canada
|
$
|
187,095
|
|
|
$
|
201,134
|
|
|
$
|
219,877
|
|
|
U.S.
|
2,327,186
|
|
|
2,228,748
|
|
|
1,904,754
|
|
|
South America (including Mexico)
|
29,637
|
|
|
34,422
|
|
|
35,280
|
|
|
Europe
|
1,195,207
|
|
|
1,239,732
|
|
|
1,063,344
|
|
|
Australia
|
544,140
|
|
|
634,976
|
|
|
530,521
|
|
|
Africa and other
|
6,496
|
|
|
7,835
|
|
|
9,973
|
|
|
Total
|
$
|
4,289,761
|
|
|
$
|
4,346,847
|
|
|
$
|
3,763,749
|
|
Geographic information regarding property, plant, and equipment which exceed 10% of consolidated property, plant, and equipment used in continuing operations is as follows for the years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
North America:
|
|
|
|
|
|
|
U.S.
|
$
|
485,278
|
|
|
$
|
459,506
|
|
|
$
|
402,338
|
|
|
Other
|
28,096
|
|
|
24,911
|
|
|
25,876
|
|
|
|
513,374
|
|
|
484,417
|
|
|
428,214
|
|
|
|
|
|
|
|
|
|
Europe
|
181,390
|
|
|
181,038
|
|
|
153,492
|
|
|
|
|
|
|
|
|
|
Australasia:
|
|
|
|
|
|
|
Australia
|
115,335
|
|
|
113,922
|
|
|
118,568
|
|
|
Other
|
28,786
|
|
|
10,297
|
|
|
7,818
|
|
|
|
144,121
|
|
|
124,219
|
|
|
126,386
|
|
|
Corporate:
|
|
|
|
|
|
|
U.S.
|
25,490
|
|
|
53,729
|
|
|
48,619
|
|
|
Total property and equipment, net
|
$
|
864,375
|
|
|
$
|
843,403
|
|
|
$
|
756,711
|
|
The prior period information has been revised and reclassified to conform with current period presentation. Please refer to Note 32 - Revision of Prior Period Financial Statements.
Note 19. Series A Convertible Preferred Shares
Prior to the IPO, we had the authority to issue up to 8,750,000 shares of preferred stock, par value of $0.01, of which 8,749,999 shares were designated as Series A Convertible Preferred Stock and one share was designated as Series B Preferred Stock. Series A Convertible Preferred Stock consisted of 2,922,634 shares of Series A-1 Stock, 208,760 shares of Series A-2 Stock, 843,132 shares of Series A-3 Stock, and 4,775,473 shares of Series A-4 Stock. At December 31, 2016, all of the authorized shares of Series A-1, Series A-2, and Series A-3 Stock and one Series B Stock were issued and outstanding.
Immediately prior to the closing of our IPO, the outstanding shares and accumulated and unpaid dividends of the Series A Convertible Preferred Stock converted into 64,211,172 common shares by applying the applicable conversion rates as prescribed in our then-existing certificate of incorporation.
Dividend - Prior to converting to common stock, the Series A Stock had a preferred annual dividend of 10% per annum on the Equity Constant, with the Equity Constant being $21.77 for dividends accruing prior to April 30, 2013. The cumulative dividends accrued continually and compounded annually at the rate of 10% whether or not they had been declared and whether or not there were funds available for the payment.
In October of 2016, the Board of Directors authorized $256.3 million in distributions to the holders of the 3,974,525 shares of Series A Stock (62,645,538 as-converted common shares) through participation in the $4.09 per share of Common Stock
distribution (see Note 20 - Capital Stock). The Board of Directors authorized an additional distribution of $51.0 million to holders of Series A Stock representing dividends accruing between May 31, 2016 and November 3, 2016. Total distributions paid to holders of our Series A Stock were $306.7 million and were paid on or about November 3, 2016. Cumulative unpaid dividends were approximately $390.6 million at December 31, 2016. The Series A Stock and cumulative unpaid dividends converted into 64,211,172 shares of our common stock on February 1, 2017.
Note 20. Capital Stock
On February 1, 2017, immediately prior to the closing of the IPO, the Company filed its Charter with the Secretary of State of the State of Delaware, and the Company’s Bylaws became effective, each as contemplated by the registration statement we filed in connection with our IPO. The Charter, among other things, provides that the Company’s authorized capital stock consists of 900,000,000 shares of Common Stock, par value $0.01 per share and 90,000,000 shares of preferred stock, par value $0.01 per share.
Preferred Stock - Our Board of Directors is authorized to issue Preferred Stock from time to time in one or more series and with such rights, privileges, and preferences as the Board of Directors shall from time to time determine. We have not issued any shares of preferred stock.
Common Stock - On January 3, 2017, our pre-IPO charter was amended authorizing us to issue 904,732,200 shares of Common Stock, with a par value of $0.01 per share, of which 900,000,000 shares were designated Common Stock and 4,732,200 shares were designated as Class B-1 Common Stock. Each share of Common Stock (whether Common Stock or Class B-1 Common Stock) had the same rights, privileges, interest and attributes and was subject to the same limitations as every other share treating the Class B-1 Common Stock on an as-converted basis. Each share of Class B-1 Common Stock was convertible at the option of the holder into shares of Common Stock at the same ratio on the date of conversion as a share of Series A-1 Stock would have been convertible on such date of conversion, assuming that no cash dividends had been paid on the Series A-1 Stock (or its predecessor security) since the date of initial issuance. Immediately prior to the closing of our IPO, all of the outstanding shares of Class B-1 Common Stock were converted into 309,404 shares of Common Stock.
Common Stock includes the basis of shares outstanding plus amounts recorded as additional paid-in capital. Shares outstanding exclude the shares issued to the Employee Benefit Trust that are considered similar to treasury shares and total 193,941 shares at both December 31, 2019 and December 31, 2018 with a total original issuance value of $12.4 million.
On February 1, 2017, we closed our IPO and received $480.3 million in proceeds, net of underwriting discounts and commissions. Costs associated with our initial public offering of $7.9 million, including $5.9 million of capitalized costs were charged to equity upon completion of the IPO.
In April 2018, our Board of Directors authorized the repurchase of up to $250.0 million of our Common Stock through December 2019. Share repurchases are recorded on their trade date and reduce shareholders’ equity and increase accounts payable. Repurchased shares are retired, and the excess of the repurchase price over the par value of the shares is charged to retained earnings. During the years ended December 31, 2019 and December 31, 2018, we repurchased 1,192,419 and 5,287,964 shares, respectively, of our Common Stock for aggregate consideration of $20.0 million and $125.0 million, respectively.
On November 4, 2019, the Board of Directors authorized an increase to the remaining authorization under the share repurchase program to a total of $175.0 million with no expiration date. As of December 31, 2019, $175.0 million was remaining under the repurchase authorization.
Note 21. Earnings Per Share
Basic earnings per share is calculated by dividing net earnings by the weighted average shares outstanding during the period, without consideration for Common Stock equivalents. Diluted net earnings per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common share equivalents outstanding for the period, determined using the treasury-stock method. Common Stock options, unvested Common Restricted Stock Units and unvested Common Performance Share Units are considered to be Common Stock equivalents included in the calculation of diluted net income (loss) per share.
The basic and diluted income (loss) per share calculations are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands, except share and per share amounts)
|
2019
|
|
2018
|
|
2017
|
|
Earnings per share basic:
|
|
|
|
|
|
|
Income from continuing operations
|
$
|
62,971
|
|
|
$
|
141,169
|
|
|
$
|
4,483
|
|
|
Equity earnings of non-consolidated entities
|
—
|
|
|
738
|
|
|
3,639
|
|
|
Net Income
|
$
|
62,971
|
|
|
$
|
141,907
|
|
|
8,122
|
|
|
Undeclared Series A Convertible Preferred Stock dividends
|
—
|
|
|
—
|
|
|
(10,462
|
)
|
|
Net income (loss) attributable to common shareholders
|
$
|
62,971
|
|
|
$
|
141,907
|
|
|
$
|
(2,340
|
)
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of Common Stock basic
|
100,618,105
|
|
|
104,530,572
|
|
|
97,460,676
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - basic
|
$
|
0.63
|
|
|
$
|
1.36
|
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands, except share and per share amounts)
|
2019
|
|
2018
|
|
2017
|
|
Earnings per share diluted:
|
|
|
|
|
|
|
Net income (loss) - attributable to common shareholders
|
$
|
62,971
|
|
|
$
|
141,907
|
|
|
$
|
(2,340
|
)
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of Common Stock basic
|
100,618,105
|
|
|
104,530,572
|
|
|
97,460,676
|
|
|
Restricted stock units, performance share units and options to purchase Common Stock
|
846,220
|
|
|
1,830,085
|
|
|
—
|
|
|
Weighted average outstanding shares of Common Stock diluted
|
101,464,325
|
|
|
106,360,657
|
|
|
97,460,676
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - diluted
|
$
|
0.62
|
|
|
$
|
1.33
|
|
|
$
|
(0.02
|
)
|
The following table provides the securities that could potentially dilute basic earnings per share in the future, but were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Common Stock options
|
1,657,437
|
|
1,019,930
|
|
545,693
|
|
Restricted stock units
|
50,113
|
|
87,720
|
|
537
|
|
Performance share units
|
9,704
|
|
84,809
|
|
—
|
The prior period information has been revised. Please refer to Note 32 - Revision of Prior Period Financial Statements.
Note 22. Stock Compensation
Prior to the IPO, our Amended and Restated Stock Incentive Plan, (the “Stock Incentive Plan”), allowed us to offer common options, B-1 common options and common RSUs for the benefit of our employees, affiliate employees and key non-employees. Under the Stock Incentive Plan, we could award up to an aggregate of 2,761,000 common shares and 4,732,200 B-1 common shares. The Stock Incentive Plan provided for accelerated vesting of awards upon the occurrence of certain events. Through December 31, 2016, we issued 5,156,976 options and 385,220 RSUs under the Stock Incentive Plan.
In connection with our IPO, the Board adopted, and our shareholders approved, the JELD-WEN Holding, Inc. 2017 Omnibus Equity Plan, (the “Omnibus Equity Plan”). Under the Omnibus Equity Plan, equity awards may be made in respect of 7,500,000 shares of our Common Stock and may be granted in the form of options, restricted stock, RSUs, stock appreciation rights, dividend equivalent rights, share awards and performance-based awards (including performance share units and performance-based restricted stock).
Share-based compensation expense included in SG&A expenses totaled $13.3 million, $15.1 million, and $19.8 million in 2019, 2018, and 2017, respectively. We recognized a windfall tax benefit of $12.7 million in 2017, which included a benefit of $14.1 million in the U.S., offset by disallowances in our foreign subsidiaries of $1.4 million. There were no material related tax benefits for the years 2019 or 2018. As of December 31, 2019, there was $24.2 million of total
unrecognized compensation expense related to non-vested share-based compensation arrangements. This cost is expected to be recognized over the remaining weighted-average vesting period of 2.0 years.
Stock Options – Generally, stock option awards vest ratably each year on the anniversary date over a 3 to 5-year period, have an exercise term of 10 years, and any vested options must be exercised within 90 days of the employee leaving the Company. The compensation cost of option awards is charged to expense based upon the graded-vesting method over the vesting periods applicable to the option awards. The graded-vesting method provides for vesting of portions of the overall awards at interim dates and results in greater expense in earlier years than the straight-line method.
When options are granted, we calculate the fair value of common and Class B-1 Common Stock options using multiple Black-Scholes option valuation models. Expected volatilities are based upon a selection of public guideline companies. The risk-free rate was based upon U.S. Treasury rates.
Key assumptions used in the valuation models were as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
Expected volatility
|
37.90% - 40.02%
|
|
34.81% - 39.68%
|
|
37.36% - 42.83%
|
|
Expected dividend yield rate
|
0.00%
|
|
0.00%
|
|
0.00%
|
|
Weighted average term (in years)
|
5.50 - 6.50
|
|
5.50 - 6.50
|
|
5.50 - 6.50
|
|
Weighted average grant date fair value
|
$8.32
|
|
$12.98
|
|
$11.51
|
|
Risk free rate
|
1.79% - 2.50%
|
|
2.04% - 2.96%
|
|
1.83% - 2.19%
|
The following table represents stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Aggregate Intrinsic Value (millions)
|
|
Weighted Average Remaining Contract Term in Years
|
|
Outstanding as of January 1, 2017
|
5,156,976
|
|
$
|
20.40
|
|
|
|
|
|
|
Issued upon conversion of class B-1 Common Stock
|
2,494,553
|
|
11.13
|
|
|
|
|
|
|
Granted
|
505,122
|
|
27.78
|
|
|
|
|
|
|
Exercised
|
(2,781,055)
|
|
11.67
|
|
|
|
|
|
|
Forfeited
|
(448,928)
|
|
15.01
|
|
|
|
|
|
|
Balance as of December 31, 2017
|
4,926,668
|
|
$
|
14.56
|
|
|
|
|
|
|
Granted
|
838,912
|
|
32.16
|
|
|
|
|
|
|
Exercised
|
(1,548,484)
|
|
13.79
|
|
|
|
|
|
|
Forfeited
|
(884,391)
|
|
18.8
|
|
|
|
|
|
|
Balance as of December 31, 2018
|
3,332,705
|
|
$
|
18.22
|
|
|
|
|
|
|
Granted
|
443,170
|
|
20.94
|
|
|
|
|
|
|
Exercised
|
(641,706)
|
|
10.56
|
|
|
|
|
|
|
Forfeited
|
(301,370)
|
|
26.07
|
|
|
|
|
|
|
Balance as of December 31, 2019
|
2,832,799
|
|
$
|
19.55
|
|
|
$
|
17.0
|
|
|
5.9
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2019
|
1,755,821
|
|
$
|
16.47
|
|
|
$
|
14.6
|
|
|
4.6
|
RSUs – RSUs are subject to the continued service of the recipient through the vesting date, which is generally 12 to 60 months from issuance. Once vested, the recipient will receive one share of Common Stock for each restricted stock unit. Prior to the IPO, the grant-date fair value per share used for RSUs was determined using the aggregate value of our common equity, as determined by a third-party valuation firm, as of the most recent calendar quarter-end and applying a 10% discount based upon reflecting the differential economic rights and preferences of the Preferred or the ESOP common shares relative to the common shares, with that amount rounded down to the nearest whole percent. After the IPO, the grant-date fair value per share used for RSUs was determined using the closing price of our Common Stock on the NYSE on the date of the grant. We apply this grant-date fair value per share to the total number of shares that we anticipate will fully vest and amortize the fair value to compensation expense over the vesting period using the straight-line method. In February 2018, we granted 314,267 RSUs to our then Chairman of the Board and interim CEO which vested daily through
the first anniversary of the date of grant, subject to continuous employment. On June 30, 2018, 208,364 RSUs were forfeited at the end of his interim service.
The following table represents RSU activity:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant-Date Fair Value Per Share
|
|
Outstanding as of January 1, 2017
|
385,220
|
|
$
|
22.00
|
|
|
Granted
|
365,972
|
|
28.89
|
|
|
Vested
|
(175,110)
|
|
18.40
|
|
|
Forfeited
|
(13,714)
|
|
26.02
|
|
|
Balance as of December 31, 2017
|
562,368
|
|
$
|
27.51
|
|
|
Granted
|
766,927
|
|
29.14
|
|
|
Vested
|
(124,560)
|
|
25.21
|
|
|
Forfeited
|
(530,867)
|
|
29.69
|
|
|
Balance as of December 31, 2018
|
673,868
|
|
$
|
28.07
|
|
|
Granted
|
952,801
|
|
20.07
|
|
|
Vested
|
(232,666)
|
|
30.08
|
|
|
Forfeited
|
(154,498)
|
|
23.38
|
|
|
Balance as of December 31, 2019
|
1,239,505
|
|
$
|
22.13
|
|
PSUs – In 2018 and 2019, we issued PSUs pursuant to the Omnibus Equity Plan. The PSUs are subject to continued employment of the recipient through the vesting date, which is on the third anniversary of the grant. Once vested, the recipient will receive one share of Common Stock for each vested PSU.
The number of PSUs that vest is determined by a payout factor consisting of equally weighted performance measures of Adjusted EBITDA and free cash flow and is adjusted based upon a market condition measured by our relative total shareholder return (“TSR”) as compared to the TSR of the Russell 3000 index. The fair value of the award is estimated using a Monte Carlo simulation approach in a risk-neutral framework to model future stock price movements based on historical volatility, risk free rates of return and correlation matrix.
The following table represents PSU activity for the awarded shares at target performance measures:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant-Date Fair Value Per Share
|
|
Outstanding as of January 1, 2018
|
—
|
|
$
|
—
|
|
|
Granted
|
193,763
|
|
31.60
|
|
|
Forfeited
|
(19,093)
|
|
33.31
|
|
|
Balance as of December 31, 2018
|
174,670
|
|
$
|
31.41
|
|
|
Granted
|
401,935
|
|
22.21
|
|
|
Forfeited
|
(65,832)
|
|
25.24
|
|
|
Balance as of December 31, 2019
|
510,773
|
|
$
|
24.97
|
|
Note 23. Impairment and Restructuring Charges
During 2019, 2018 and 2017, we engaged in restructuring activities intended to improve productivity, operating margins, and working capital levels. Restructuring costs primarily relate to workforce reductions, repositioning of management structure and costs associated with plant consolidations and closures.
Asset impairment charges were recorded in addition to our restructuring costs. In 2019, the asset impairment charges were primarily related to ROU assets held by operations impacted by restructuring. During 2018 and 2017, lease costs were recorded within other exit costs in the tables below in accordance with effective restructuring and leasing guidance during those time periods.
The following table summarizes the restructuring charges for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Corporate
and
Unallocated
Costs
|
|
Total
Consolidated
|
|
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
3,595
|
|
|
$
|
5,391
|
|
|
$
|
3,542
|
|
|
$
|
1,012
|
|
|
$
|
13,540
|
|
|
Other exit costs
|
(220
|
)
|
|
634
|
|
|
1,027
|
|
|
(55
|
)
|
|
1,386
|
|
|
Total restructuring costs
|
3,375
|
|
|
6,025
|
|
|
4,569
|
|
|
957
|
|
|
14,926
|
|
|
Impairments
|
3,926
|
|
|
157
|
|
|
2,542
|
|
|
—
|
|
|
6,625
|
|
|
Total impairment and restructuring charges
|
$
|
7,301
|
|
|
$
|
6,182
|
|
|
$
|
7,111
|
|
|
$
|
957
|
|
|
$
|
21,551
|
|
|
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
2,779
|
|
|
$
|
5,877
|
|
|
$
|
2,884
|
|
|
$
|
226
|
|
|
$
|
11,766
|
|
|
Other exit costs
|
1,460
|
|
|
256
|
|
|
4,286
|
|
|
(1,670
|
)
|
|
4,332
|
|
|
Total restructuring costs
|
4,239
|
|
|
6,133
|
|
|
7,170
|
|
|
(1,444
|
)
|
|
16,098
|
|
|
Impairments
|
694
|
|
|
(22
|
)
|
|
—
|
|
|
558
|
|
|
1,230
|
|
|
Total impairment and restructuring charges
|
$
|
4,933
|
|
|
$
|
6,111
|
|
|
$
|
7,170
|
|
|
$
|
(886
|
)
|
|
$
|
17,328
|
|
|
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
6,829
|
|
|
$
|
1,915
|
|
|
$
|
91
|
|
|
$
|
657
|
|
|
$
|
9,492
|
|
|
Other exit costs
|
1,634
|
|
|
206
|
|
|
(140
|
)
|
|
385
|
|
|
2,085
|
|
|
Total restructuring costs
|
8,463
|
|
|
2,121
|
|
|
(49
|
)
|
|
1,042
|
|
|
11,577
|
|
|
Impairments
|
8
|
|
|
1,471
|
|
|
—
|
|
|
—
|
|
|
1,479
|
|
|
Total impairment and restructuring charges
|
$
|
8,471
|
|
|
$
|
3,592
|
|
|
$
|
(49
|
)
|
|
$
|
1,042
|
|
|
$
|
13,056
|
|
Short-term restructuring accruals are recorded in accrued expenses and totaled $6.1 million and $6.6 million as of December 31, 2019 and December 31, 2018, respectively. Long-term restructuring accruals are recorded in deferred credits and other liabilities and totaled $1.0 million and $2.0 million as of December 31, 2019 and December 31, 2018, respectively.
The following is a summary of the restructuring accruals recorded and charges incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
Beginning
Accrual
Balance
|
|
Additions
Charged to
Expense
|
|
Payments
or
Utilization
|
|
Ending
Accrual
Balance
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
5,352
|
|
|
$
|
13,540
|
|
|
$
|
(13,578
|
)
|
|
$
|
5,314
|
|
|
Other exit costs
|
3,287
|
|
|
1,386
|
|
|
(2,944
|
)
|
|
1,729
|
|
|
Total
|
$
|
8,639
|
|
|
$
|
14,926
|
|
|
$
|
(16,522
|
)
|
|
$
|
7,043
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
7,232
|
|
|
$
|
11,766
|
|
|
$
|
(13,646
|
)
|
|
$
|
5,352
|
|
|
Other exit costs
|
3,807
|
|
|
4,332
|
|
|
(4,852
|
)
|
|
3,287
|
|
|
Total
|
$
|
11,039
|
|
|
$
|
16,098
|
|
|
$
|
(18,498
|
)
|
|
$
|
8,639
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
836
|
|
|
$
|
9,492
|
|
|
$
|
(3,096
|
)
|
|
$
|
7,232
|
|
|
Other exit costs
|
4,183
|
|
|
2,085
|
|
|
(2,461
|
)
|
|
3,807
|
|
|
Total
|
$
|
5,019
|
|
|
$
|
11,577
|
|
|
$
|
(5,557
|
)
|
|
$
|
11,039
|
|
The prior period information has been reclassified to conform to current period presentation.
Note 24. Interest Expense
Interest expense is net of capitalized interest. Capitalized interest incurred during the construction phase of significant property and equipment additions totaled $2.5 million, $1.8 million, and $0.9 million in 2019, 2018, and 2017, respectively. We made interest payments of $71.2 million, $68.9 million, and $66.1 million in 2019, 2018 and 2017, respectively. Interest expense also includes amortization of debt issuance costs that are amortized using the effective interest method and amortization of original issue discounts.
Note 25. Other (Income) Expense
The table below summarizes the amounts included in other (income) expense in the accompanying consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Pension benefit expense
|
$
|
10,738
|
|
|
$
|
6,975
|
|
|
$
|
12,616
|
|
|
Foreign currency (gain) loss
|
(7,361
|
)
|
|
(11,258
|
)
|
|
11,429
|
|
|
Legal settlement income
|
(1,247
|
)
|
|
(7,541
|
)
|
|
(2,456
|
)
|
|
Gain on sale of business
|
(2,814
|
)
|
|
—
|
|
|
—
|
|
|
Other items
|
(725
|
)
|
|
(2,296
|
)
|
|
(2,482
|
)
|
|
Gain on previously held shares of an equity investment
|
—
|
|
|
(20,767
|
)
|
|
—
|
|
|
Loss on debt extinguishment
|
—
|
|
|
—
|
|
|
23,262
|
|
|
Settlement of contract escrow
|
—
|
|
|
—
|
|
|
(2,247
|
)
|
|
Total other (income) expense
|
$
|
(1,409
|
)
|
|
$
|
(34,887
|
)
|
|
$
|
40,122
|
|
The gain on previously held shares of an equity investment relates to an equity method investment that was remeasured on the date we acquired the company in 2018.
The prior period information has been revised and reclassified to conform to current period presentation. Please refer to Note 32 - Revision of Prior Period Financial Statements.
Note 26. Derivative Financial Instruments
All derivatives are recorded as assets or liabilities in the consolidated balance sheets at their respective fair values. For derivatives that qualify for hedge accounting, changes in the fair value related to the effective portion of the hedge are recognized in earnings at the same time as either the change in fair value of the underlying hedged item or the effect of the hedged item’s exposure to the variability of cash flows. Changes in fair value related to the ineffective portion of the hedge are recognized immediately in earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting, or fail to meet the criteria, thereafter, are also recognized in the consolidated statements of operations. See Note 27 - Fair Value of Financial Instruments for additional information on the fair value of our derivative assets and liabilities.
Foreign currency derivatives – We are exposed to the impact of foreign currency fluctuations in certain countries in which we operate. In most of these countries, the exposure to foreign currency movements is limited because the operating revenues and expenses of our business units are substantially denominated in the local currency. To the extent borrowings, sales, purchases or other transactions are not executed in the local currency of the operating unit, we are exposed to foreign currency risk. To mitigate the exposure, we enter into a variety of foreign currency derivative contracts, such as forward contracts, option collars, and cross-currency hedges. We use foreign currency derivative contracts, with a total notional amount of $91.6 million, 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 of $29.5 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 of $116.5 million, to mitigate the impact to the consolidated earnings of the Company from the effect of the translation of certain subsidiaries’ local currency results into U.S. dollars. We do not use derivative financial instruments for trading or speculative purposes. We have not elected hedge accounting for any foreign currency derivative contracts. We record mark-to-market changes in the values of these derivatives in other (income) expense. We recorded mark-to-market losses of $9.8 million in the year ended December 31, 2019, gains of $7.8 million in the year ended December 31, 2018, and losses of $6.3 million in the year ended December 31, 2017.
Interest rate derivatives – We are exposed to interest rate risk in connection with our variable rate long-term debt and partially mitigate this risk through interest rate derivatives such as swaps and caps. In conjunction with the December 2017
refinancing of the Term Loan Facility (see Note 15 - Long-Term Debt), we terminated all of the interest rate swaps which had outstanding notional amounts aggregating to $914.3 million and recorded a loss on termination of $3.6 million in consolidated other comprehensive income (loss), which was being amortized as interest expense over the pre-termination life of the interest rate swaps. As of December 31, 2019, the loss on termination has been fully amortized. The unamortized, pre-tax balance of this loss recorded in consolidated other comprehensive income (loss) was $1.3 million and $3.4 million at December 31, 2018 and 2017, respectively.
The interest rate swap agreements were designated as cash flow hedges and, prior to their termination in December 2017, effectively changed the LIBOR-based portion of the interest rate (or “base rate”) on a portion of the debt outstanding under our Term Loan Facility to the weighted average fixed rates. For the period of December 2016 to December 2017, the weighted average rate was 2.188%, on a notional value of $914,250.
We recorded interest expense deriving from the amortization of the loss on termination of interest rate swaps of $1.3 million, $2.1 million and $8.9 million during the years ended December 31, 2019, 2018 and 2017, respectively.
During the first quarter of 2019, we entered into two interest rate cap contracts against three-month U.S.-dollar LIBOR, each with a cap rate of 3.00%. These caps have a combined notional amount of $150.0 million, were effective as of March 2019, and terminate in December 2021. We have not elected hedge accounting and have recorded insignificant mark-to-market adjustments in the year ended December 31, 2019.
The fair values of derivative instruments held are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
(amounts in thousands)
|
Balance Sheet Location
|
|
December 31,
2019
|
|
December 31,
2018
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward contracts
|
Other current assets
|
|
$
|
1,372
|
|
|
$
|
8,234
|
|
|
Interest rate cap contracts
|
Other assets
|
|
6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives liabilities
|
|
(amounts in thousands)
|
Balance Sheet Location
|
|
December 31,
2019
|
|
December 31,
2018
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward contracts
|
Accrued expenses and other current liabilities
|
|
$
|
4,068
|
|
|
$
|
1,161
|
|
Note 27. Fair Value of Financial Instruments
We record financial assets and liabilities at fair value based on FASB guidance related to fair value measurements. The guidance requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Three levels of inputs may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Quoted market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 – Unobservable inputs that are not corroborated by market data.
The recorded carrying amounts and fair values of these instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
(amounts in thousands)
|
Carrying Amount
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets measured at NAV (1)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative assets, recorded in other current assets
|
1,372
|
|
|
1,372
|
|
|
—
|
|
|
1,372
|
|
|
—
|
|
|
—
|
|
|
Derivative assets, recorded in other assets
|
6
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
Pension plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
8,787
|
|
|
8,787
|
|
|
—
|
|
|
8,787
|
|
|
—
|
|
|
—
|
|
|
U.S. Government and agency obligations
|
25,206
|
|
|
25,206
|
|
|
25,206
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Corporate and foreign bonds
|
104,430
|
|
|
104,430
|
|
|
—
|
|
|
104,430
|
|
|
—
|
|
|
—
|
|
|
Equity securities
|
28,249
|
|
|
28,249
|
|
|
28,249
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Mutual funds
|
70,230
|
|
|
70,230
|
|
|
—
|
|
|
70,230
|
|
|
—
|
|
|
—
|
|
|
Common and collective funds
|
132,600
|
|
|
132,600
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
132,600
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes
|
$
|
800,000
|
|
|
$
|
823,500
|
|
|
$
|
—
|
|
|
$
|
823,500
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Term loans
|
591,153
|
|
|
593,932
|
|
|
—
|
|
|
593,932
|
|
|
—
|
|
|
—
|
|
|
Derivative liabilities, recorded in accrued expenses and deferred credits
|
4,068
|
|
|
4,068
|
|
|
—
|
|
|
4,068
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
(amounts in thousands)
|
Carrying Amount
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Assets measured at NAV (1)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
30
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
30
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative assets, recorded in other current assets
|
8,234
|
|
|
8,234
|
|
|
—
|
|
|
8,234
|
|
|
—
|
|
|
—
|
|
|
Pension plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and short-term investments
|
7,254
|
|
|
7,254
|
|
|
—
|
|
|
7,254
|
|
|
—
|
|
|
—
|
|
|
U.S. Government and agency obligations
|
24,622
|
|
|
24,622
|
|
|
24,622
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Corporate and foreign bonds
|
90,490
|
|
|
90,490
|
|
|
—
|
|
|
90,490
|
|
|
—
|
|
|
—
|
|
|
Equity securities
|
22,378
|
|
|
22,378
|
|
|
22,378
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Mutual funds
|
60,099
|
|
|
60,099
|
|
|
—
|
|
|
60,099
|
|
|
—
|
|
|
—
|
|
|
Common and collective funds
|
110,596
|
|
|
110,596
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
110,596
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes, recorded in long-term debt
|
$
|
800,000
|
|
|
$
|
692,000
|
|
|
$
|
—
|
|
|
$
|
692,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Term loans, recorded in long-term debt and current maturities of long-term debt
|
474,058
|
|
|
455,545
|
|
|
—
|
|
|
455,545
|
|
|
—
|
|
|
—
|
|
|
Derivative liabilities, recorded in accrued expenses and deferred credits
|
1,161
|
|
|
1,161
|
|
|
—
|
|
|
1,161
|
|
|
—
|
|
|
—
|
|
|
|
|
|
(1)
|
Certain pension assets that are measured at fair value using the NAV per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. These include investments in large cap equity and commingled real estate funds. Redemption of these funds is not subject to restriction.
|
Derivative assets and liabilities reported in level 2 include foreign currency and interest rate cap contracts. See Note 26- Derivative Financial Instruments for additional information about our derivative assets and liabilities.
The non-financial assets that are measured at fair value on a non-recurring basis are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
(amounts in thousands)
|
Carrying Value
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Losses
|
|
Closed operations
|
$
|
988
|
|
|
$
|
988
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
988
|
|
|
$
|
1,586
|
|
|
Total
|
$
|
988
|
|
|
$
|
988
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
988
|
|
|
$
|
1,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
(amounts in thousands)
|
Carrying Value
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Losses
|
|
Continuing operations
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48
|
|
|
$
|
175
|
|
|
Total
|
$
|
48
|
|
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48
|
|
|
$
|
175
|
|
Note 28. Commitments and Contingencies
Litigation – We are involved in various legal proceedings, claims, and government audits arising in the ordinary course of business. We record our best estimate of a loss when the loss is considered probable and the amount of such loss can be reasonably estimated. Legal judgments and estimated settlements have been included in accrued expenses in the accompanying consolidated balance sheets. When a loss is probable and there is a range of estimated loss with no best estimate within the range, we record the minimum estimated liability related to the lawsuit or claim. As additional information becomes available, we assess the potential liability related to pending litigation and claims and revise our accruals, if necessary. Because of uncertainties related to the resolution of lawsuits and claims, the ultimate outcome may differ materially from our estimates.
In the opinion of management and based on the liability accruals provided, other than as described below, as of December 31, 2019, there are no current proceedings or litigation matters involving the Company or its property that we believe would have a material adverse effect on our consolidated financial position or cash flows, although they could have a material adverse effect on our operating results for a particular reporting period.
Steves & Sons, Inc. vs JELD-WEN – We sell molded door skins to certain customers pursuant to long-term contracts, and these customers in turn use the molded door skins to manufacture interior doors and compete directly against us in the marketplace. We gave notice of termination of one of these contracts and, on June 29, 2016, the counterparty to the agreement, Steves and Sons, Inc. (“Steves”) filed a claim against JWI in the U.S. District Court for the Eastern District of Virginia, Richmond Division (“Eastern District of Virginia”). The complaint alleged that our acquisition of CMI, a competitor in the molded door skins market, together with subsequent price increases and other alleged acts and omissions, violated antitrust laws, and constituted a breach of contract and breach of warranty. Specifically, the complaint alleged that our acquisition of CMI substantially lessened competition in the molded door skins market. The complaint sought declaratory relief, ordinary and treble damages, and injunctive relief, including divestiture of certain assets acquired in the CMI acquisition.
In February 2018, a jury in the Eastern District of Virginia returned a verdict that was unfavorable to JWI with respect to Steves’ claims that our acquisition of CMI violated Section 7 of the Clayton Act and found that JWI breached the supply agreement between the parties. The verdict awarded Steves $12.2 million for past damages under both the Clayton Act and breach of contract claims and $46.5 million in future lost profits under the Clayton Act claim.
On March 13, 2019, the presiding judge entered an Amended Final Judgment Order awarding $36.5 million in past damages under the Clayton Act (representing a trebling of the jury’s verdict) and granting divestiture of CMI, subject to appeal. The judgment also conditionally awarded damages in the event the judgment is overturned on appeal. Specifically, the court awarded $139.4 million as future antitrust damages in the event the divestiture order is overturned on appeal and $9.9 million as past contract damages in the event both the divestiture and antitrust claims are overturned on appeal.
JELD-WEN filed a supersedeas bond and notice of appeal of the judgment, which is scheduled for hearing by the Fourth Circuit Court of Appeals in May 2020.
On April 12, 2019, the plaintiffs filed a petition requesting an award of their fees and a bill of costs seeking $28.4 million in attorneys’ fees and $1.7 million in costs. That petition remains pending and subject to further appeal. On November 19, 2019, the presiding judge entered an order for further relief awarding Steves an additional $7.1 million in damages for pricing differences from the date of the underlying jury verdict through May 31, 2019. We have also appealed that ruling.
We continue to believe that Steves’ claims lack merit, Steves’ damages calculations are speculative and excessive, and Steves is not entitled in any event to the extraordinary remedy of divestiture of CMI. We believe that multiple pretrial and
trial rulings were erroneous and improperly limited the Company’s defenses, and that the judgment in accordance with the verdict was improper for several reasons under applicable law. However, based upon the rulings described above, the Company has recorded charges of $78.6 million associated with these matters. The judgment, if ultimately upheld after exhaustion of our appellate remedies, could have a material adverse effect on our financial position, operating results, or cash flows, particularly for the reporting period in which a loss is recorded. Because the operations acquired from CMI have been fully integrated into the Company’s operations, divestiture of those operations would be difficult if not impossible and, therefore, it is not possible to estimate the cost of any final divestiture order or the extent to which such an order would have a material adverse effect on our financial position, operating results or cash flows.
During the course of the proceedings in the Eastern District of Virginia, we discovered certain facts that led us to conclude that Steves, its principals and certain former employees of the Company had misappropriated Company trade secrets, violated the terms of various agreements between the Company and those parties, and violated other laws. On May 11, 2018, a jury in the Eastern District of Virginia returned a verdict on our trade secrets claims against Steves and awarded damages in the amount of $1.2 million. The presiding judge entered a judgment in our favor for those damages and the entire amount has been paid by Steves. On August 16, 2019, the presiding judge granted Steves’ request for an injunction, prohibiting us from pursuing certain claims against individual defendants pending in Bexar County, Texas. These claims have been stayed pending appeal.
Cambridge Retirement System v. JELD-WEN Holding, Inc., et al. – On February 19, 2020, Cambridge Retirement System filed a putative class action lawsuit in the U.S. District Court for the Eastern District of Virginia against the Company, current and former Company executives and various Onex-related entities alleging violations of Section 10(b) and Rule 10b-5 of the Exchange Act, as well as violations of Section 20(a) of the Exchange Act against the individual defendants and Onex-related entities. The lawsuit seeks compensatory damages, equitable relief and an award of attorneys’ fees and costs. The Company has not yet been served with the complaint but has reviewed the allegations. The Company believes the claims lack merit and intends to vigorously defend against the action. Because the lawsuit is in the very initial stages, no assessment as to the likelihood or range of any potential adverse outcome can be made at this time.
In Re: Interior Molded Doors Antitrust Litigation – On October 19, 2018, Grubb Lumber Company, on behalf of itself and others similarly situated, filed a putative class action lawsuit against us and one of our competitors in the doors market, Masonite Corporation (“Masonite”), in the Eastern District of Virginia. We subsequently received additional complaints from and on behalf of direct and indirect purchasers of interior molded doors. The suits have been consolidated into two separate actions, a Direct Purchaser Action and an Indirect Purchaser Action. The suits allege that Masonite and we violated Section 1 of the Sherman Act, and in the Indirect Purchaser Action, related state law antitrust and consumer protection laws, by engaging in a scheme to artificially raise, fix, maintain or stabilize the prices of interior molded doors in the United States. The complaints seek unquantified ordinary and treble damages, declaratory relief, interest, costs and attorneys’ fees. The Company believes the claims lack merit and intends to vigorously defend against the actions. On September 18, 2019, the court denied the defendants’ motions to dismiss the lawsuits in their entirety and granted the defendants’ motions to dismiss various state law claims and to limit all claims to a four-year statute of limitations. As a result, the plaintiffs’ damages period is limited to the four-year period between 2014 and 2018. At this early stage of the proceedings, we are unable to conclude that a loss is probable or to estimate the potential magnitude of any loss in the matters, although a loss could have a material adverse effect on our operating results, consolidated financial position or cash flows.
Self-Insured Risk – We self-insure substantially all of our domestic business liability risks including general liability, product liability, warranty, personal injury, auto liability, workers’ compensation and employee medical benefits. Excess insurance policies from independent insurance companies generally cover exposures between $3.0 million and $250.0 million for domestic product liability risk and exposures between $0.5 million and $250.0 million for auto, general liability, personal injury and workers’ compensation. We have no stop-gap coverage on claims covered by our self-insured domestic employee medical plan and are responsible for all claims thereunder. We estimate our provision for self-insured losses based upon an evaluation of current claim exposure and historical loss experience. Actual self-insurance losses may vary significantly from these estimates. At December 31, 2019 and December 31, 2018, our accrued liability for self-insured risks was $76.6 million and $73.8 million, respectively.
Indemnifications – At December 31, 2019, we had commitments related to certain representations made in contracts for the purchase or sale of businesses or property. These representations primarily relate to past actions such as responsibility for transfer taxes if they should be claimed, and the adequacy of recorded liabilities, warranty matters, employment benefit plans, income tax matters or environmental exposures. These guarantees or indemnification responsibilities typically expire within one to three years. We are not aware of any material amounts claimed or expected to be claimed under these indemnities. From time to time and in limited geographic areas, we have entered into agreements for the sale of our products to certain customers that provide additional indemnifications for liabilities arising from construction or product defects. We cannot estimate the potential magnitude of such exposures, but to the extent specific liabilities have been
identified related to product sales, liabilities have been provided in the warranty accrual in the accompanying consolidated balance sheets.
Performance Bonds and Letters of Credit – At times, we are required to provide letters of credit, surety bonds or guarantees to customers, vendors and others. Stand-by letters of credit are provided to certain customers and counterparties in the ordinary course of business as credit support for contractual performance guarantees, advanced payments received from customers and future funding commitments. During 2019, we filed bonds in the amount of $47.7 million related to the Steves and Sons legal proceeding. The outstanding performance bonds and stand-by letters of credit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
December 31,
2019
|
|
December 31,
2018
|
|
Self-insurance workers’ compensation
|
$
|
23,638
|
|
|
$
|
22,312
|
|
|
Legal
|
48,561
|
|
|
861
|
|
|
Liability and other insurance
|
16,678
|
|
|
18,988
|
|
|
Environmental
|
8,186
|
|
|
14,552
|
|
|
Other
|
5,864
|
|
|
10,009
|
|
|
Total outstanding performance bonds and stand-by letters of credit
|
$
|
102,927
|
|
|
$
|
66,722
|
|
Prior period balances in the table above have been reclassified to conform to current period presentation.
Environmental Contingencies – We periodically incur environmental liabilities associated with remediating our current and former manufacturing sites as well as penalties for not complying with environmental rules and regulations. We record a liability for remediation costs when it is probable that we will be responsible for such costs and the costs can be reasonably estimated. These environmental liabilities are estimated based on current available facts and current laws and regulations. Accordingly, it is likely that adjustments to the estimated liabilities will be necessary as additional information becomes available. Short-term environmental liabilities and settlements are recorded in accrued expenses in the accompanying consolidated balance sheets and totaled $0.7 million and $0.5 million as of December 31, 2019 and December 31, 2018, respectively. Long-term environmental liabilities are recorded in deferred credits and other liabilities in the accompanying consolidated balance sheets. No long-term environmental liabilities were recorded at either December 31, 2019 or December 31, 2018.
Everett, Washington WADOE Action – In 2008, we entered into an Agreed Order with the WADOE to assess historic environmental contamination and remediation feasibility at our former manufacturing site in Everett, Washington. As part of this agreement, we also agreed to develop a CAP, arising from the feasibility assessment. We are currently working with WADOE to finalize our RI/FS (Remedial Investigation and Feasibility Study), and, once final, we will develop the CAP. We estimate the remaining cost to complete our RI/FS and develop the CAP at $0.5 million, which we have fully accrued. However, because we cannot at this time reasonably estimate the cost associated with any remedial actions we would be required to undertake, we have not provided accruals for any remedial action in our accompanying consolidated financial statements.
Towanda, Pennsylvania Consent Order – In 2015, we entered into a COA with the PaDEP to remove a pile of wood fiber waste from our site in Towanda, Pennsylvania, which we acquired in connection with our acquisition of CMI in 2013, by using it as fuel for a boiler at that site. The COA replaced a 1995 Consent Decree between CMI’s predecessor Masonite, Inc. and PaDEP. Under the COA, we are required to achieve certain periodic removal objectives and ultimately remove the entire pile by August 31, 2022. There are currently $2.3 million in bonds posted in connection with these obligations. If we are unable to remove this pile by August 31, 2022, then the bonds will be forfeited, and we may be subject to penalties by PaDEP. We currently anticipate meeting all applicable removal deadlines; however, if our operations at this site decrease and we burn less fuel than currently anticipated, we may not be able to meet such deadlines.
Employee Stock Ownership Plan – We have historically provided cash to our U.S. ESOP in order to fund required distributions to participants through the repurchase of shares of our Common Stock. Following our February 2017 IPO, the value of a share of Common Stock held through the ESOP is now based on our public share price. We do not anticipate that we will fund future distributions.
Purchase Obligations - As of December 31, 2019, we have purchase obligations of $9.0 million due in 2020 and $3.9 million due in 2021-2024. These purchase obligations are primarily relating to raw materials purchase agreements and software hosting services. 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.
Note 29. Employee Retirement and Pension Benefits
U.S. Defined Benefit Pension Plan
Certain U.S. hourly employees participate in our defined benefit pension plan. The plan is not open to new employees.
Beginning in 2017, we moved from utilizing a weighted average discount rate, which was derived from the yield curve used to measure the pension benefit obligation at the beginning of the period, to a spot rate yield curve to estimate the pension benefit obligation and net periodic benefits costs. The change in estimate provides a more accurate measurement of service and interest cost by applying the spot rate that could be used to settle each projected cash flow individually.
The components of net periodic benefit cost are summarized as follows for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
|
|
Components of pension benefit expense - U.S. benefit plan
|
2019
|
|
2018
|
|
2017
|
|
Service cost
|
$
|
4,890
|
|
|
$
|
4,170
|
|
|
$
|
3,870
|
|
|
Interest cost
|
14,861
|
|
|
13,180
|
|
|
13,371
|
|
|
Expected return on plan assets
|
(18,622
|
)
|
|
(20,769
|
)
|
|
(17,940
|
)
|
|
Amortization of net actuarial pension loss
|
8,919
|
|
|
9,314
|
|
|
12,680
|
|
|
Pension benefit expense
|
$
|
10,048
|
|
|
$
|
5,895
|
|
|
$
|
11,981
|
|
|
|
|
|
|
|
|
|
Discount rate used to determine benefit costs
|
4.27%
|
|
3.47%
|
|
3.94%
|
|
Expected long-term rate of return on assets
|
6.25%
|
|
6.25%
|
|
6.25%
|
|
Compensation increase rate
|
N/A
|
|
N/A
|
|
N/A
|
In October 2019, the Society of Actuaries released the PRI-2012 Mortality Tables (update to RP-2014 mortality tables), which were adopted in 2019 and represent our best estimate of future experience for the base mortality table. The Society of Actuaries has released annual updates to the mortality improvement projection scale that was first released in 2014, with the most recent annual update being Scale MP-2019. We adopted the use of Scale MP-2019 as of December 31, 2019 as it represents our best estimate of future mortality improvement projection experience as of the measurement date.
We developed the discount rate based on the plan’s expected benefit payments using the Willis Towers Watson RATE:Link 10:90 Yield Curve. Based on this analysis, we selected a 3.31% discount rate for our projected benefit obligation. As the discount rate is reduced or increased, the pension obligation would increase or decrease, respectively, and future pension expense would increase or decrease, respectively.
Pension benefit expense from amortization of net actuarial pension loss is estimated to be $7.2 million in 2020.
We maintain policies for investment of pension plan assets. The policies set forth stated objectives and a structure for managing assets, which includes various asset classes and investment management styles that, in the aggregate, are expected to produce a sufficient level of diversification and investment return over time and provide for the availability of funds for benefits as they become due. The policies also provide guidelines for each investment portfolio that control the level of risk assumed in the portfolio and ensure that assets are managed in accordance with stated objectives. The plan invests primarily in publicly traded equity and debt securities as directed by the plan’s investment committee. The pension plan’s expected return assumption is based on the weighted average aggregate long-term expected returns of various actively managed asset classes corresponding to the plan’s asset allocation. We have selected an expected return on plan assets based on a historical analysis of rates of return, our investment mix, market conditions and other factors. The fair value of plan assets increased in 2019 due primarily to investment returns and contributions in excess of our benefit payments and decreased in 2018 due primarily to investment losses and benefit payments in excess of our discretionary contributions.
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Change in fair value of plan assets - U.S. benefit plan
|
2019
|
|
2018
|
|
Balance as of January 1,
|
$
|
302,763
|
|
|
$
|
339,751
|
|
|
Actual return on plan assets
|
69,767
|
|
|
(20,466
|
)
|
|
Company contribution
|
7,760
|
|
|
4,125
|
|
|
Benefits paid
|
(16,751
|
)
|
|
(15,965
|
)
|
|
Administrative expenses paid
|
(4,962
|
)
|
|
(4,682
|
)
|
|
Balance at period end
|
$
|
358,577
|
|
|
$
|
302,763
|
|
The plan’s investments as of December 31 are summarized below:
|
|
|
|
|
|
|
|
|
% of Plan Assets
|
|
Summary of plan investments - U.S. benefit plan
|
2019
|
|
2018
|
|
Equity securities
|
7.9
|
|
7.4
|
|
Debt securities
|
36.1
|
|
38.0
|
|
Other
|
56.0
|
|
54.6
|
|
|
100.0
|
|
100.0
|
The plan’s projected benefit obligation is determined by using weighted-average assumptions made on December 31, of each year as summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Change in projected benefit obligation - U.S. benefit plan
|
2019
|
|
2018
|
|
Balance as of January 1,
|
$
|
383,936
|
|
|
$
|
435,696
|
|
|
Service cost
|
4,890
|
|
|
4,170
|
|
|
Interest cost
|
14,861
|
|
|
13,180
|
|
|
Actuarial loss
|
51,434
|
|
|
(48,463
|
)
|
|
Benefits paid
|
(16,751
|
)
|
|
(15,965
|
)
|
|
Administrative expenses paid
|
(4,962
|
)
|
|
(4,682
|
)
|
|
Balance at period end
|
$
|
433,408
|
|
|
$
|
383,936
|
|
|
Discount rate
|
3.31%
|
|
4.27%
|
|
Compensation increase rate
|
N/A
|
|
N/A
|
As of December 31, 2019, the plan’s estimated benefit payments for the next ten years are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
2020
|
$
|
19,444
|
|
|
2021
|
19,284
|
|
|
2022
|
20,040
|
|
|
2023
|
20,687
|
|
|
2024
|
21,329
|
|
|
2025-2029
|
112,907
|
|
The company made cash contributions to the plan of $7.8 million and $4.1 million for the year ended December 31, 2019 and 2018, respectively. During fiscal year 2020, we expect to make cash contributions to the plan of approximately $8.1 million.
The plan’s accumulated benefit obligation of $433.4 million is determined by taking the projected benefit obligation and removing the impact of the assumed compensation increases. The plan’s funded status as of December 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Unfunded pension liability - U.S. benefit plan
|
2019
|
|
2018
|
|
Projected benefit obligation at end of period
|
$
|
433,408
|
|
|
$
|
383,936
|
|
|
Fair value of plan assets at end of period
|
(358,577
|
)
|
|
(302,763
|
)
|
|
Unfunded pension liability
|
$
|
74,831
|
|
|
$
|
81,173
|
|
Net actuarial pension losses are recorded in consolidated other comprehensive income (loss) for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
|
|
Accumulated other comprehensive (income) loss - U.S. benefit plan
|
2019
|
|
2018
|
|
2017
|
|
Net actuarial pension loss beginning of period
|
$
|
96,090
|
|
|
$
|
112,632
|
|
|
$
|
127,982
|
|
|
Amortization of net actuarial loss
|
(8,919
|
)
|
|
(9,314
|
)
|
|
(12,680
|
)
|
|
Net loss (gain) occurring during year
|
288
|
|
|
(7,228
|
)
|
|
(2,670
|
)
|
|
Net actuarial pension loss at end of period
|
87,459
|
|
|
96,090
|
|
|
112,632
|
|
|
Tax benefit
|
(3,145
|
)
|
|
(5,344
|
)
|
|
(9,583
|
)
|
|
Net actuarial pension loss at end of period, net of tax
|
$
|
84,314
|
|
|
$
|
90,746
|
|
|
$
|
103,049
|
|
Non-U.S. Defined Benefit Plans – We have several other defined benefit plans located outside the U.S. that are country specific. Some of these plans remain open to participants and others are closed. The expenses related to these plans are recorded in the consolidated statements of operations and are determined by using weighted-average assumptions made on January 1 of each year as summarized below for the years ended December 31.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
|
|
Components of pension benefit expense - Non-U.S. benefit plans
|
2019
|
|
2018
|
|
2017
|
|
Service cost
|
$
|
2,386
|
|
|
$
|
2,070
|
|
|
$
|
1,668
|
|
|
Interest cost
|
1,398
|
|
|
1,417
|
|
|
1,272
|
|
|
Expected return on plan assets
|
(589
|
)
|
|
(833
|
)
|
|
(700
|
)
|
|
Amortization of net actuarial pension loss
|
225
|
|
|
189
|
|
|
145
|
|
|
Pension benefit expense
|
$
|
3,420
|
|
|
$
|
2,843
|
|
|
$
|
2,385
|
|
|
|
|
|
|
|
|
|
Discount rate
|
0.6% - 8.5%
|
|
0.2% - 9.0%
|
|
0.8% - 7.2%
|
|
Expected long-term rate of return on assets
|
0.0% - 5.8%
|
|
0.0% - 5.3%
|
|
0.0% - 5.7%
|
|
Compensation increase rate
|
0.5% - 7.0%
|
|
0.5% - 7.0%
|
|
0.5% - 7.0%
|
Non-U.S. pension benefit expenses from amortization of net actuarial pension losses are estimated to be $0.4 million in 2020.
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Change in fair value of plan assets - Non-U.S. benefit plans
|
2019
|
|
2018
|
|
Balance as of January 1,
|
$
|
12,676
|
|
|
$
|
15,994
|
|
|
Actual return on plan assets
|
1,398
|
|
|
(33
|
)
|
|
Company contribution
|
236
|
|
|
250
|
|
|
Benefits paid
|
(3,272
|
)
|
|
(2,046
|
)
|
|
Administrative expenses paid
|
(21
|
)
|
|
(25
|
)
|
|
Cumulative translation adjustment
|
(93
|
)
|
|
(1,464
|
)
|
|
Balance at period end
|
$
|
10,924
|
|
|
$
|
12,676
|
|
The investments of the non-U.S. plans as of December 31 are summarized below:
|
|
|
|
|
|
|
|
|
% of Plan Assets
|
|
Summary of plan investments - Non-U.S. benefit plans
|
2019
|
|
2018
|
|
Equity securities
|
45.8
|
|
48.4
|
|
Debt securities
|
20.7
|
|
20.8
|
|
Other
|
33.5
|
|
30.8
|
|
|
100.0
|
|
100.0
|
The projected benefit obligation for the non-U.S. plans is determined by using weighted-average assumptions made on December 31, of each year as summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Change in projected benefit obligation - Non-U.S. benefit plans
|
2019
|
|
2018
|
|
Balance as of January 1,
|
$
|
42,803
|
|
|
$
|
41,406
|
|
|
Pension obligation acquired
|
—
|
|
|
4,891
|
|
|
Service cost
|
2,655
|
|
|
2,242
|
|
|
Interest cost
|
1,405
|
|
|
956
|
|
|
Actuarial loss
|
6,084
|
|
|
776
|
|
|
Benefits paid
|
(5,240
|
)
|
|
(4,481
|
)
|
|
Administrative expenses paid
|
(21
|
)
|
|
(25
|
)
|
|
Cumulative translation adjustment
|
21
|
|
|
(2,962
|
)
|
|
Balance at period end
|
$
|
47,707
|
|
|
$
|
42,803
|
|
|
|
|
|
|
|
Discount rate
|
0.6% - 8.5%
|
|
0.2% - 9.0%
|
|
Compensation increase rate
|
0.5% - 7.0%
|
|
0.5% - 7.0%
|
As of December 31, 2019, the estimated benefit payments for the non-U.S. plans over the next ten years are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
2020
|
$
|
3,012
|
|
|
2021
|
2,696
|
|
|
2022
|
2,540
|
|
|
2023
|
2,789
|
|
|
2024
|
3,694
|
|
|
2025-2029
|
14,437
|
|
The accumulated benefit obligations of $39.5 million for the non-U.S. plans are determined by taking the projected benefit obligation and removing the impact of the assumed compensation increases. We expect to contribute $13.7 million to the non-U.S. plans in 2020.
The funded status of these plans as of December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Unfunded pension liability - Non-U.S. benefit plans
|
2019
|
|
2018
|
|
Projected benefit obligation at end of period
|
$
|
47,707
|
|
|
$
|
42,803
|
|
|
Fair value of plan assets at end of period
|
(10,924
|
)
|
|
(12,676
|
)
|
|
Net pension liability
|
$
|
36,783
|
|
|
$
|
30,127
|
|
|
|
|
|
|
|
Long-term unfunded pension liability
|
$
|
33,106
|
|
|
$
|
26,349
|
|
|
Current portion
|
5,605
|
|
|
5,295
|
|
|
Total unfunded pension liability
|
$
|
38,711
|
|
|
$
|
31,644
|
|
|
|
|
|
|
|
Total overfunded pension liability
|
$
|
1,928
|
|
|
$
|
1,517
|
|
The current portion of the unfunded pension liability is recorded in accrued payroll and benefits in the accompanying consolidated balance sheets and is equal to the expected employer contributions in the following year. The overfunded pension liability is recorded in long-term other assets in the accompanying consolidated balance sheets.
Net actuarial pension losses are recorded in consolidated other comprehensive income (loss) for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) - Non-U.S. benefit plans
|
2019
|
|
2018
|
|
2017
|
|
Net actuarial pension loss beginning of period
|
$
|
7,450
|
|
|
$
|
7,359
|
|
|
$
|
6,781
|
|
|
Amortization of net actuarial loss
|
(553
|
)
|
|
(1,442
|
)
|
|
(149
|
)
|
|
Net gain occurring during year
|
5,232
|
|
|
1,462
|
|
|
742
|
|
|
Cumulative translation adjustment
|
108
|
|
|
71
|
|
|
(15
|
)
|
|
Net actuarial pension loss at end of period
|
12,237
|
|
|
7,450
|
|
|
7,359
|
|
|
Tax benefit
|
(2,958
|
)
|
|
(1,911
|
)
|
|
(1,886
|
)
|
|
Net actuarial pension loss at end of period, net of tax
|
$
|
9,279
|
|
|
$
|
5,539
|
|
|
$
|
5,473
|
|
Other Defined Contribution Plans –We have several other defined contribution plans located outside the U.S. that are country specific. Other plans that are characteristically defined contribution plans have accrued liabilities of $1.3 million and $2.6 million, respectively, at December 31, 2019 and December 31, 2018. The total compensation expense for non-U.S. defined contribution plans was $24.6 million in 2019, $27.0 million in 2018, and $23.8 million in 2017.
Note 30. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Cash Operating Activities:
|
|
|
|
|
|
|
Operating leases
|
$
|
55,141
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Finance leases
|
131
|
|
|
—
|
|
|
—
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
55,272
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Cash Investing Activities:
|
|
|
|
|
|
|
Issuances of notes receivable
|
$
|
(58
|
)
|
|
$
|
(77
|
)
|
|
$
|
(61
|
)
|
|
Cash received on notes receivable
|
469
|
|
|
351
|
|
|
2,052
|
|
|
Change in notes receivable
|
$
|
411
|
|
|
$
|
274
|
|
|
$
|
1,991
|
|
|
|
|
|
|
|
|
|
Non-cash Investing Activities:
|
|
|
|
|
|
|
Property, equipment and intangibles purchased in accounts payable
|
$
|
10,439
|
|
|
$
|
6,961
|
|
|
$
|
15,099
|
|
|
Property, equipment and intangibles purchased for debt
|
40,323
|
|
|
32,262
|
|
|
791
|
|
|
Notes receivable and accrued interest from employees and directors settled with return of JWH stock
|
—
|
|
|
—
|
|
|
183
|
|
|
Customer accounts receivable converted to notes receivable
|
565
|
|
|
110
|
|
|
393
|
|
|
|
|
|
|
|
|
|
Cash Financing Activities:
|
|
|
|
|
|
|
Proceeds from issuance of new debt, net of discount
|
$
|
124,375
|
|
|
$
|
38,823
|
|
|
$
|
1,240,000
|
|
|
Borrowings on long-term debt
|
3,249
|
|
|
104,419
|
|
|
5,334
|
|
|
Payments of long-term debt
|
(113,859
|
)
|
|
(72,422
|
)
|
|
(1,618,641
|
)
|
|
Payments of debt issuance and extinguishment costs, including underwriting fees
|
(664
|
)
|
|
(352
|
)
|
|
(16,358
|
)
|
|
Change in long-term debt
|
$
|
13,101
|
|
|
$
|
70,468
|
|
|
$
|
(389,665
|
)
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of finance lease liabilities
|
$
|
917
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Non-cash Financing Activities:
|
|
|
|
|
|
|
Prepaid insurance funded through short-term debt borrowings
|
$
|
4,948
|
|
|
$
|
2,757
|
|
|
$
|
2,662
|
|
|
Prepaid ERP costs funded through short-term debt borrowings
|
3,919
|
|
|
—
|
|
|
—
|
|
|
Shares surrendered for tax obligations for employee share-based transactions in accrued liabilities
|
469
|
|
|
7
|
|
|
569
|
|
|
Accounts payable converted to installment notes
|
757
|
|
|
12,886
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other Supplemental Cash Flow Information:
|
|
|
|
|
|
|
Cash taxes paid, net of refunds
|
$
|
26,656
|
|
|
$
|
46,295
|
|
|
$
|
22,532
|
|
|
Cash interest paid
|
71,181
|
|
|
68,892
|
|
|
66,060
|
|
Note 31. Related Party Transactions
Sale of subsidiary – In May 2019, we sold Creative Media Development, Inc. “CMD”, a subsidiary, which was part of our North America segment, for $6.5 million. A minority shareholder of the buying group also serves on our Board of Directors. The impact of this sale was a gain of $2.8 million in the year ended December 31, 2019 included within other expense (income) in the consolidated statement of operations. Included in the Stock Purchase Agreement for CMD, we agreed to use CMD for certain advertising services totaling $7.0 million between 2019 and 2023. As of December 31, 2019, the remaining balance is $4.1 million, which is included within our disclosures regarding purchase obligations. At December 31, 2019, there is no amount due from the related party. This sale did not have a material impact on our results of operations.
Acquired lease – As part our acquisition of VPI, we assumed operating leases on two buildings. The leases are with a former shareholder of VPI, are at market rates and resulted in an operating lease asset of $3.6 million as of the opening balance sheet. One of the leases was modified in August 2019, which increased the value to $3.9 million at December 31, 2019.
Note 32. Revision of Prior Period Financial Statements
During the quarter ended June 29, 2019, we identified errors relating to accounting for fulfillment costs associated with our installation contracts at one of our European business units. This resulted in errors in accounts receivable, net, other current assets, and accrued expenses and other current liabilities. The effect of these errors was to overstate accounts receivable, net, other current assets and understate accrued expenses and other current liabilities, cost of sales and SG&A expense for the years ended December 31, 2016, 2017 and 2018, including the related quarterly periods contained therein, and the three-months ended March 30, 2019.
Using the guidance in ASC Topic 250, Accounting Changes and Error Corrections, ASC Topic 250-S99-1, Assessing Materiality, and ASC Topic 250-S99-2, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated whether our previously issued consolidated financial statements were materially misstated due to these errors and other accumulated misstatements. Based upon our evaluation of both quantitative and qualitative factors, we believe that the effects of these errors and other accumulated misstatements were not material individually or in the aggregate to any previously reported quarterly or annual period.
We have revised the prior period financial statements included in this filing to reflect the correction of these errors and other accumulated misstatements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended
|
|
|
December 31, 2017
|
|
(amounts in thousands, except per share data)
|
As Reported
|
|
Correction
|
|
As Revised
|
|
Consolidated Statement of Operations:
|
|
|
|
|
|
|
Cost of sales
|
$
|
2,914,327
|
|
|
$
|
1,905
|
|
|
$
|
2,916,232
|
|
|
Gross margin
|
$
|
849,422
|
|
|
$
|
(1,905
|
)
|
|
$
|
847,517
|
|
|
Selling, general and administrative
|
$
|
572,458
|
|
|
$
|
546
|
|
|
$
|
573,004
|
|
|
Operating income (loss)
|
$
|
263,908
|
|
|
$
|
(2,451
|
)
|
|
$
|
261,457
|
|
|
Other (income) expense
|
$
|
15,857
|
|
|
$
|
1,003
|
|
|
$
|
16,860
|
|
|
Income before taxes, equity earnings and discontinued operations
|
$
|
145,755
|
|
|
$
|
(3,454
|
)
|
|
$
|
142,301
|
|
|
Income tax expense (benefit)
|
$
|
138,603
|
|
|
$
|
(785
|
)
|
|
$
|
137,818
|
|
|
Income from continuing operations, net of tax
|
$
|
7,152
|
|
|
$
|
(2,669
|
)
|
|
$
|
4,483
|
|
|
Net income
|
$
|
10,791
|
|
|
$
|
(2,669
|
)
|
|
$
|
8,122
|
|
|
Net income (loss) attributable to common shareholders
|
$
|
329
|
|
|
$
|
(2,669
|
)
|
|
$
|
(2,340
|
)
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares:
|
|
|
|
|
|
|
Basic
|
97,460,676
|
|
|
—
|
|
|
97,460,676
|
|
|
Diluted
|
101,462,135
|
|
|
(4,001,459
|
)
|
|
97,460,676
|
|
|
Income (loss) per share from continuing operations:
|
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
Diluted
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
Basic
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
Diluted
|
$
|
—
|
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
(amounts in thousands)
|
As Reported
|
|
Correction
|
|
As Revised
|
|
Consolidated Balance Sheet:
|
|
|
|
|
|
|
Accounts receivable, net
|
$
|
471,655
|
|
|
$
|
188
|
|
|
$
|
471,843
|
|
|
Inventories
|
$
|
513,238
|
|
|
$
|
(4,739
|
)
|
|
$
|
508,499
|
|
|
Other current assets
|
$
|
48,961
|
|
|
$
|
(287
|
)
|
|
$
|
48,674
|
|
|
Total current assets
|
$
|
1,151,477
|
|
|
$
|
(4,838
|
)
|
|
$
|
1,146,639
|
|
|
Deferred tax assets
|
$
|
207,065
|
|
|
$
|
1,997
|
|
|
$
|
209,062
|
|
|
Other assets
|
$
|
37,615
|
|
|
$
|
(689
|
)
|
|
$
|
36,926
|
|
|
Total assets
|
$
|
3,051,055
|
|
|
$
|
(3,530
|
)
|
|
$
|
3,047,525
|
|
|
Accounts payable
|
$
|
250,281
|
|
|
$
|
(303
|
)
|
|
$
|
249,978
|
|
|
Accrued payroll and benefits
|
$
|
114,784
|
|
|
$
|
234
|
|
|
$
|
115,018
|
|
|
Accrued expenses and other current liabilities
|
$
|
250,274
|
|
|
$
|
2,036
|
|
|
$
|
252,310
|
|
|
Total current liabilities
|
$
|
670,269
|
|
|
$
|
1,967
|
|
|
$
|
672,236
|
|
|
Deferred credits and other liabilities(1)
|
$
|
72,038
|
|
|
$
|
672
|
|
|
$
|
72,710
|
|
|
Deferred tax liabilities
|
$
|
10,457
|
|
|
$
|
21
|
|
|
$
|
10,478
|
|
|
Total liabilities
|
$
|
2,283,248
|
|
|
$
|
2,660
|
|
|
$
|
2,285,908
|
|
|
Retained earnings
|
$
|
253,041
|
|
|
$
|
(6,208
|
)
|
|
$
|
246,833
|
|
|
Accumulated other comprehensive loss
|
$
|
(144,823
|
)
|
|
$
|
18
|
|
|
$
|
(144,805
|
)
|
|
Total shareholders' equity attributable to common shareholders
|
$
|
767,824
|
|
|
$
|
(6,190
|
)
|
|
$
|
761,634
|
|
|
Total shareholders' equity(1)
|
$
|
767,807
|
|
|
$
|
(6,190
|
)
|
|
$
|
761,617
|
|
|
Total liabilities and shareholders’ equity
|
$
|
3,051,055
|
|
|
$
|
(3,530
|
)
|
|
$
|
3,047,525
|
|
|
|
|
|
(1)
|
Non-controlling interest of $17 at December 31, 2018 has been reclassified to Deferred credits and other liabilities to conform to the current year’s presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended
|
|
|
December 31, 2018
|
|
(amounts in thousands, except per share data)
|
As Reported
|
|
Correction
|
|
As Revised
|
|
Consolidated Statement of Operations:
|
|
|
|
|
|
|
Net revenues
|
$
|
4,346,703
|
|
|
$
|
144
|
|
|
$
|
4,346,847
|
|
|
Cost of sales
|
$
|
3,422,969
|
|
|
$
|
5,342
|
|
|
$
|
3,428,311
|
|
|
Gross margin
|
$
|
923,734
|
|
|
$
|
(5,198
|
)
|
|
$
|
918,536
|
|
|
Selling, general and administrative
|
$
|
733,748
|
|
|
$
|
418
|
|
|
$
|
734,166
|
|
|
Operating income (loss)
|
$
|
172,658
|
|
|
$
|
(5,616
|
)
|
|
$
|
167,042
|
|
|
Other (income) expense(1)
|
$
|
(12,970
|
)
|
|
$
|
(1,063
|
)
|
|
$
|
(14,033
|
)
|
|
Income before taxes and equity earnings
|
$
|
135,577
|
|
|
$
|
(4,553
|
)
|
|
$
|
131,024
|
|
|
Income tax expense (benefit)
|
$
|
(7,958
|
)
|
|
$
|
(2,100
|
)
|
|
$
|
(10,058
|
)
|
|
Income from continuing operations, net of tax
|
$
|
143,535
|
|
|
$
|
(2,453
|
)
|
|
$
|
141,082
|
|
|
Net income
|
$
|
144,273
|
|
|
$
|
(2,453
|
)
|
|
$
|
141,820
|
|
|
Net income (loss) attributable to common shareholders(1)
|
$
|
144,360
|
|
|
$
|
(2,453
|
)
|
|
$
|
141,907
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares:
|
|
|
|
|
|
|
Basic
|
104,530,572
|
|
|
—
|
|
|
104,530,572
|
|
|
Diluted
|
106,360,657
|
|
|
—
|
|
|
106,360,657
|
|
|
Income (loss) per share from continuing operations:
|
|
|
|
|
|
|
Basic
|
$
|
1.38
|
|
|
$
|
(0.02
|
)
|
|
$
|
1.36
|
|
|
Diluted
|
$
|
1.36
|
|
|
$
|
(0.03
|
)
|
|
$
|
1.33
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
Basic
|
$
|
1.38
|
|
|
$
|
(0.02
|
)
|
|
$
|
1.36
|
|
|
Diluted
|
$
|
1.36
|
|
|
$
|
(0.03
|
)
|
|
$
|
1.33
|
|
|
|
|
|
(1)
|
Non-controlling interest of $87 for the twelve months ended December 31, 2018 has been reclassified to Other (income) expense to conform to the current year’s presentation.
|
Consolidated Statement of Cash Flow
The errors did not impact the subtotals for cash flows from operating activities, investing activities, or financing activities for any of the periods affected.
Reconciliation of pre-tax net income (loss) to Note 18 - Segment Information, Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended
|
|
|
December 31, 2017
|
|
(amounts in thousands)
|
As Reported
|
|
Correction
|
|
As Revised
|
|
Net income
|
$
|
10,791
|
|
|
$
|
(2,669
|
)
|
|
$
|
8,122
|
|
|
Income tax (benefit) expense
|
$
|
138,603
|
|
|
$
|
(785
|
)
|
|
$
|
137,818
|
|
|
Non-cash foreign exchange transaction/translation (income) loss
|
$
|
(2,181
|
)
|
|
$
|
1,003
|
|
|
$
|
(1,178
|
)
|
|
Adjusted EBITDA
|
$
|
437,613
|
|
|
$
|
(2,451
|
)
|
|
$
|
435,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended
|
|
|
December 31, 2018
|
|
(amounts in thousands)
|
As Reported
|
|
Correction
|
|
As Revised
|
|
Net income
|
$
|
144,273
|
|
|
$
|
(2,453
|
)
|
|
$
|
141,820
|
|
|
Income tax (benefit) expense
|
$
|
(7,958
|
)
|
|
$
|
(2,100
|
)
|
|
$
|
(10,058
|
)
|
|
Non-cash foreign exchange transaction/translation (income) loss
|
$
|
8
|
|
|
$
|
(1,275
|
)
|
|
$
|
(1,267
|
)
|
|
Other items
|
$
|
117,933
|
|
|
$
|
(300
|
)
|
|
$
|
117,633
|
|
|
Adjusted EBITDA
|
$
|
465,346
|
|
|
$
|
(6,128
|
)
|
|
$
|
459,218
|
|
Segment Information: Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended
|
|
|
December 31, 2017
|
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Total Operating
Segments
|
|
Corporate
and
Unallocated
Costs
|
|
Total
Consolidated
|
|
As Reported
|
$
|
273,594
|
|
|
$
|
132,929
|
|
|
$
|
74,706
|
|
|
$
|
481,229
|
|
|
$
|
(43,616
|
)
|
|
$
|
437,613
|
|
|
Correction
|
(402
|
)
|
|
(1,729
|
)
|
|
(320
|
)
|
|
(2,451
|
)
|
|
—
|
|
|
(2,451
|
)
|
|
As Revised
|
$
|
273,192
|
|
|
$
|
131,200
|
|
|
$
|
74,386
|
|
|
$
|
478,778
|
|
|
$
|
(43,616
|
)
|
|
$
|
435,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve months ended
|
|
|
December 31, 2018
|
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Total Operating
Segments
|
|
Corporate
and
Unallocated
Costs
|
|
Total
Consolidated
|
|
As Reported
|
$
|
278,975
|
|
|
$
|
129,202
|
|
|
$
|
91,172
|
|
|
$
|
499,349
|
|
|
$
|
(34,003
|
)
|
|
$
|
465,346
|
|
|
Correction
|
551
|
|
|
(6,392
|
)
|
|
(287
|
)
|
|
(6,128
|
)
|
|
—
|
|
|
(6,128
|
)
|
|
As Revised
|
$
|
279,526
|
|
|
$
|
122,810
|
|
|
$
|
90,885
|
|
|
$
|
493,221
|
|
|
$
|
(34,003
|
)
|
|
$
|
459,218
|
|
Note 33. Quarterly Financial Data (unaudited)
Summarized quarterly financial data for the years ended December 31, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Mar. 30,
2019(1)(2)
|
|
Jun. 29,
2019(2)
|
|
Sep. 28,
2019
|
|
Dec. 31,
2019
|
|
|
(dollars in thousands)
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
1,010,260
|
|
|
$
|
1,118,987
|
|
|
$
|
1,091,953
|
|
|
$
|
1,068,561
|
|
|
Gross margin
|
208,129
|
|
|
240,219
|
|
|
223,785
|
|
|
200,406
|
|
|
Operating income
|
40,310
|
|
|
57,900
|
|
|
54,426
|
|
|
37,778
|
|
|
Income before taxes and equity earnings
|
26,126
|
|
|
34,537
|
|
|
39,542
|
|
|
19,840
|
|
|
Net income
|
15,777
|
|
|
22,356
|
|
|
17,042
|
|
|
7,796
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
$
|
0.16
|
|
|
$
|
0.22
|
|
|
$
|
0.17
|
|
|
$
|
0.08
|
|
|
Net income per share diluted
|
$
|
0.16
|
|
|
$
|
0.22
|
|
|
$
|
0.17
|
|
|
$
|
0.08
|
|
|
|
|
|
(1)
|
We plan to revise the three months ended March 30, 2019 in connection with future filings. Refer to Note 32 - Revision of Prior Period Financial Statements.
|
|
|
|
|
(2)
|
The prior period information has been reclassified to conform to current period presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended(1)(2)
|
|
|
Mar. 31,
2018
|
|
Jun. 30,
2018
|
|
Sep. 29,
2018
|
|
Dec. 31,
2018
|
|
|
(dollars in thousands)
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
Net revenues
|
$
|
946,165
|
|
|
$
|
1,172,465
|
|
|
$
|
1,136,478
|
|
|
$
|
1,091,739
|
|
|
Gross margin
|
204,586
|
|
|
248,102
|
|
|
241,475
|
|
|
224,373
|
|
|
Operating income
|
36,730
|
|
|
70,264
|
|
|
7,293
|
|
|
52,755
|
|
|
Income before taxes and equity earnings
|
35,538
|
|
|
57,449
|
|
|
(3,049
|
)
|
|
41,173
|
|
|
Net income
|
40,404
|
|
|
34,776
|
|
|
28,637
|
|
|
38,090
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic
|
$
|
0.38
|
|
|
$
|
0.33
|
|
|
$
|
0.27
|
|
|
$
|
0.37
|
|
|
Net income per share diluted
|
$
|
0.37
|
|
|
$
|
0.32
|
|
|
$
|
0.27
|
|
|
$
|
0.37
|
|
|
|
|
|
(1)
|
We have revised the prior period information for the three months ended March 31, 2018, June 30, 2018, September 29, 2018 and December 31, 2018 to reflect the correction of errors and other accumulated misstatements disclosed in Note 32 - Revision of Prior Period Financial Statements.
|
|
|
|
|
(2)
|
The prior period information has been reclassified to conform to current period presentation.
|
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF JELD-WEN HOLDING, INC.
Parent Company Information
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(amounts in thousands, except share and per share data)
|
|
2019
|
|
2018
|
|
2017
|
|
Selling, general and administrative
|
|
$
|
15,397
|
|
|
$
|
15,924
|
|
|
$
|
23,457
|
|
|
Equity in earnings of subsidiaries
|
|
77,950
|
|
|
157,429
|
|
|
31,191
|
|
|
Other (income) expense
|
|
|
|
|
|
|
|
Interest income
|
|
(32
|
)
|
|
(36
|
)
|
|
(35
|
)
|
|
Interest expense
|
|
12
|
|
|
45
|
|
|
73
|
|
|
Other
|
|
(398
|
)
|
|
(411
|
)
|
|
(426
|
)
|
|
Income before taxes
|
|
62,971
|
|
|
141,907
|
|
|
8,122
|
|
|
Income tax (benefit) expense
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net income
|
|
$
|
62,971
|
|
|
$
|
141,907
|
|
|
$
|
8,122
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss):
|
|
|
|
|
|
|
|
Net income
|
|
$
|
62,971
|
|
|
$
|
141,907
|
|
|
$
|
8,122
|
|
|
Other comprehensive (loss) income, net of tax
|
|
|
|
|
|
|
|
Equity in comprehensive (loss) income of subsidiaries
|
|
(6,470
|
)
|
|
(50,312
|
)
|
|
102,689
|
|
|
Total other comprehensive (loss) income, net of tax
|
|
(6,470
|
)
|
|
(50,312
|
)
|
|
102,689
|
|
|
Total comprehensive income
|
|
$
|
56,501
|
|
|
$
|
91,595
|
|
|
$
|
110,811
|
|
See accompanying notes to the Condensed Financial Information
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF JELD-WEN HOLDING, INC.
Parent Company Information
CONDENSED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands, except share and per share data)
|
|
December 31, 2019
|
|
December 31, 2018
|
|
ASSETS
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,818
|
|
|
$
|
2,289
|
|
|
Receivable from subsidiaries
|
|
—
|
|
|
1,000
|
|
|
Other current assets
|
|
10
|
|
|
20
|
|
|
Total current assets
|
|
4,828
|
|
|
3,309
|
|
|
Property and equipment, net
|
|
3,074
|
|
|
3,202
|
|
|
Investment in subsidiaries
|
|
959,001
|
|
|
903,504
|
|
|
Long-term notes receivable
|
|
35
|
|
|
147
|
|
|
Total assets
|
|
$
|
966,938
|
|
|
$
|
910,162
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
Accounts payable
|
|
$
|
510
|
|
|
$
|
37
|
|
|
Current payable to subsidiaries
|
|
2,431
|
|
|
2,649
|
|
|
Accrued expenses and other current liabilities
|
|
430
|
|
|
75
|
|
|
Notes payable and current maturities of long-term debt
|
|
205
|
|
|
757
|
|
|
Total current liabilities
|
|
3,576
|
|
|
3,518
|
|
|
Long-term debt
|
|
—
|
|
|
205
|
|
|
Total liabilities
|
|
3,576
|
|
|
3,723
|
|
|
Commitments and contingencies (Note 5)
|
|
|
|
|
|
Shareholders’ equity
|
|
|
|
|
|
Common Stock: 900,000,000 shares authorized, par value $0.01 per share, 100,668,003 shares outstanding as of December 31, 2019; 900,000,000 shares authorized, par value $0.01 per share, 101,310,862 shares outstanding as of December 31, 2018
|
|
1,007
|
|
|
1,013
|
|
|
Additional paid-in capital
|
|
671,772
|
|
|
658,593
|
|
|
Retained earnings
|
|
290,583
|
|
|
246,833
|
|
|
Total shareholders’ equity
|
|
963,362
|
|
|
906,439
|
|
|
Total liabilities, convertible preferred shares, and shareholders’ equity
|
|
$
|
966,938
|
|
|
$
|
910,162
|
|
See accompanying notes to the Condensed Financial Information
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF JELD-WEN HOLDING, INC.
Parent Company Information
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
(amounts in thousands)
|
|
2019
|
|
2018
|
|
2017
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net income
|
|
$
|
62,971
|
|
|
$
|
141,907
|
|
|
$
|
8,122
|
|
|
Adjustments to reconcile net income to cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
128
|
|
|
161
|
|
|
139
|
|
|
Income from subsidiaries investment
|
|
(77,950
|
)
|
|
(157,429
|
)
|
|
(31,191
|
)
|
|
Other items, net
|
|
436
|
|
|
538
|
|
|
191
|
|
|
Stock-based compensation
|
|
13,315
|
|
|
15,052
|
|
|
19,785
|
|
|
Net change in operating assets and liabilities, net of effect of acquisitions:
|
|
|
|
|
|
|
|
Receivables and payables from subsidiaries
|
|
19,564
|
|
|
123,366
|
|
|
(24,020
|
)
|
|
Other assets
|
|
10
|
|
|
(5
|
)
|
|
(15
|
)
|
|
Accounts payable and accrued expenses
|
|
829
|
|
|
(859
|
)
|
|
(882
|
)
|
|
Net cash (used in) provided by operating activities
|
|
19,303
|
|
|
122,731
|
|
|
(27,871
|
)
|
|
INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Additional Investment in subsidiaries
|
|
—
|
|
|
—
|
|
|
(480,306
|
)
|
|
Cash received on notes receivable
|
|
—
|
|
|
—
|
|
|
17
|
|
|
Proceeds from sales of subsidiaries' shares
|
|
—
|
|
|
—
|
|
|
30,181
|
|
|
Distribution received from subsidiaries
|
|
2,000
|
|
|
1,500
|
|
|
1,000
|
|
|
Net cash provided by (used in) investing activities
|
|
2,000
|
|
|
1,500
|
|
|
(449,108
|
)
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Payments of long-term debt
|
|
(757
|
)
|
|
(982
|
)
|
|
(861
|
)
|
|
Employee note repayments
|
|
—
|
|
|
39
|
|
|
26
|
|
|
Common stock issued for exercise of options
|
|
1,977
|
|
|
201
|
|
|
1,029
|
|
|
Common stock repurchased
|
|
(19,994
|
)
|
|
(125,030
|
)
|
|
—
|
|
|
Proceeds from sale of common stock, net of underwriting fees and commissions
|
|
—
|
|
|
—
|
|
|
480,306
|
|
|
Payments associated with initial public offering
|
|
—
|
|
|
—
|
|
|
(2,066
|
)
|
|
Net cash (used in) provided by financing activities
|
|
(18,774
|
)
|
|
(125,772
|
)
|
|
478,434
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
2,529
|
|
|
(1,541
|
)
|
|
1,455
|
|
|
Cash, cash equivalents and restricted cash, beginning
|
|
2,289
|
|
|
3,830
|
|
|
2,375
|
|
|
Cash, cash equivalents and restricted cash, ending
|
|
$
|
4,818
|
|
|
$
|
2,289
|
|
|
$
|
3,830
|
|
See accompanying notes to the Condensed Financial Information
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF JELD-WEN HOLDING, INC.
Parent Company Information
NOTES TO CONDENSED FINANCIAL INFORMATION
Note 1. Description of Company and Summary of Significant Accounting Policies
Accounting policies adopted in the preparation of this condensed parent company only financial information are the same as those adopted in the consolidated financial statements and described in Note 1 - Description of Company and Summary of Significant Accounting Policies, of the consolidated financial statements included in this Form 10-K.
Nature of Business – JELD-WEN Holding, Inc., (the “Parent Company”) (a Delaware corporation) was formed by Onex Partners III LP to effect the acquisition of JELD-WEN, Inc. and had no activities prior to the acquisition of JELD-WEN, Inc. on October 3, 2011. The Parent Company is a holding company with no material operations of its own that conducts substantially all of its activities through its direct subsidiary, JELD-WEN Inc. and its subsidiaries.
The accompanying condensed parent-only financial information includes the accounts of the Parent Company and, on an equity basis, its direct and indirect subsidiaries and affiliates. Accordingly, these condensed financial statements have been presented on a “parent-only” basis. Under a parent-only presentation, the Parent Company’s investments in subsidiaries are presented under the equity method of accounting. These parent-only financial statements should be read in conjunction with the JELD-WEN Holding, Inc. and subsidiaries consolidated financial statements included elsewhere herein.
The condensed parent-only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of the subsidiaries of the Company exceed 25% of the consolidated net assets of the Company. The ability of the Company’s operating subsidiaries to pay dividends may be restricted due to the terms of the subsidiaries’ financing arrangements (see Note 15 - Long-Term Debt to the consolidated financial statements).
Property and Equipment – Property and equipment is recorded at cost. The cost of major additions and betterments are capitalized and depreciated using the straight-line method over their estimated useful lives while replacements, maintenance and repairs that do not improve or extend the useful lives of the related assets or adapt the property to a new or different use are expensed as incurred.
Depreciation is generally provided over the following estimated useful service lives:
Note 2. Property and Equipment, Net
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
Buildings
|
$
|
3,632
|
|
|
$
|
3,632
|
|
|
Total depreciable assets
|
3,632
|
|
|
3,632
|
|
|
Accumulated depreciation
|
(558
|
)
|
|
(430
|
)
|
|
Total property and equipment, net
|
$
|
3,074
|
|
|
$
|
3,202
|
|
Depreciation expense was $0.1 million in the years ended December 31, 2019, $0.2 million in the year ended 2018, and $0.1 million in the year ended 2017.
Note 3. Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019 Year-end Effective Interest Rate
|
|
2019
|
|
2018
|
|
Installment notes for stock
|
4.75%
|
|
$
|
205
|
|
|
$
|
962
|
|
|
Current maturities of long-term debt
|
|
(205
|
)
|
|
(757
|
)
|
|
Long-term debt
|
|
$
|
—
|
|
|
$
|
205
|
|
|
|
|
|
|
|
|
|
|
Maturities by year:
|
|
|
|
2020
|
|
$
|
205
|
|
|
2021
|
|
—
|
|
|
2022
|
|
—
|
|
|
2023
|
|
—
|
|
|
2024
|
|
—
|
|
|
Thereafter
|
|
—
|
|
|
|
|
$
|
205
|
|
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 10 years depending on the amount with payments through 2020. As of December 31, 2019, we had $0.2 million outstanding under these notes.
Note 4. Stock Compensation
For discussion of stock compensation expense of the Parent Company and its subsidiaries, see Note 22 - Stock Compensation, to the consolidated financial statements.
Note 5. Commitments and Contingencies
For discussion of the commitments and contingencies of the subsidiaries of the Parent Company see Note 28 - Commitments and Contingencies, to the consolidated financial statements.
Note 6. Supplemental Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
2019
|
|
2018
|
|
2017
|
|
Non-cash Investing Activities:
|
|
|
|
|
|
|
Notes receivable and accrued interest from employees and directors settled with return of JWH stock
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
183
|
|
|
Dividend from subsidiary settled with payable to subsidiary
|
22,090
|
|
|
132,295
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Non-cash Financing Activities:
|
|
|
|
|
|
|
Shares surrendered for tax obligations for employee share-based transactions in accrued liabilities
|
$
|
469
|
|
|
$
|
7
|
|
|
$
|
569
|
|
|
Costs associated with initial public offering formerly capitalized in prepaid expenses
|
—
|
|
|
—
|
|
|
5,857
|
|