NOTES TO UNAUDITED 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 – The accompanying unaudited consolidated financial statements as of March 28, 2020 and for the three months ended March 28, 2020 and March 30, 2019, respectively, have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the SEC. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the Company’s financial position for the periods presented. The results for the three months ended March 28, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, or any other period. The accompanying consolidated balance sheet as of December 31, 2019 was derived from audited financial statements included in the Company’s Form 10-K. The accompanying consolidated financial statements do not include all of the information and footnotes required by GAAP for annual financial statements. Accordingly, they should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.
Certain prior year amounts have been reclassified to conform to current year presentation. The consolidated 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 25 - 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.
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.
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 $17.9 million and $19.0 million for the three months ended March 28,
2020 and March 30, 2019, respectively. The cost of factoring is reflected in the accompanying unaudited consolidated statements of operations as interest expense with other financing costs and was $0.1 million and $0.2 million for the three months ended March 28, 2020 and March 30, 2019, respectively.
Recently Adopted Accounting Standards – 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. We adopted this standard in the first quarter of 2020 and the adoption did not have an impact on our unaudited consolidated financial statements as of the date of adoption.
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. We adopted this standard in the first quarter of 2020 using the modified retrospective approach, which primarily impacted our allowance for doubtful accounts as a result of our analysis of customer historical credit and collections data. Additionally, we recognized a $5.7 million cumulative effect adjustment, net of tax, to retained earnings, which includes a $7.6 million increase to the allowance for doubtful accounts and a $1.9 million net impact to deferred tax assets.
Recent Accounting Standards Not Yet Adopted – In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. We are currently assessing the impact of this ASU on our consolidated financial statements and disclosures.
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.
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 fair values of the assets and liabilities acquired of this acquisition are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
Preliminary Allocation
|
|
Measurement Period Adjustment
|
|
Final 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 final 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. Acquisition-related costs are expensed as incurred and are included in selling, general and administrative expense in our accompanying unaudited consolidated statements of operations. We incurred acquisition-related costs of $0.2 million during the three months ended March 30, 2019. The purchase price allocation was considered complete as of March 28, 2020.
We evaluated this acquisition quantitatively and qualitatively and determined it to be insignificant. Therefore, certain pro forma disclosures under ASC 805-10-50 have been omitted.
The results of this acquisition are included in our unaudited consolidated financial statements from the date of 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 assess the credit risk relating to our accounts receivable based on quantitative and qualitative factors, primarily historical credit collections within each region where we have operations. 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.
As of January 1, 2020, we adopted ASC 326 - Measurement of Credit Losses on Financial Instruments on a modified retrospective basis, which increased the allowance for doubtful accounts by $7.6 million on the date of adoption.
At March 28, 2020 and December 31, 2019, we had an allowance for doubtful accounts of $13.0 million and $6.0 million, respectively.
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)
|
March 28,
2020
|
|
December 31,
2019
|
Raw materials
|
$
|
367,321
|
|
|
$
|
372,289
|
|
Work in process
|
37,371
|
|
|
38,432
|
|
Finished goods
|
119,330
|
|
|
94,357
|
|
Total inventories
|
$
|
524,022
|
|
|
$
|
505,078
|
|
Note 5. Property and Equipment, Net
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
March 28,
2020
|
|
December 31,
2019
|
Property and equipment
|
$
|
1,999,308
|
|
|
$
|
2,052,584
|
|
Accumulated depreciation
|
(1,169,578
|
)
|
|
(1,188,209
|
)
|
Total property and equipment, net
|
$
|
829,730
|
|
|
$
|
864,375
|
|
We monitor all property and equipment for any indicators of potential impairment and recorded impairment charges of $0.9 million and $0.9 million during the three months ended March 28, 2020 and March 30, 2019, respectively.
Depreciation expense was recorded as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(amounts in thousands)
|
March 28,
2020
|
|
March 30,
2019
|
Cost of sales
|
$
|
21,741
|
|
|
$
|
20,669
|
|
Selling, general and administrative
|
2,629
|
|
|
2,407
|
|
Total depreciation expense
|
$
|
24,370
|
|
|
$
|
23,076
|
|
Note 6. 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 January 1
|
$
|
247,502
|
|
|
$
|
273,912
|
|
|
$
|
81,086
|
|
|
$
|
602,500
|
|
Currency translation
|
(448
|
)
|
|
(4,552
|
)
|
|
(10,457
|
)
|
|
(15,457
|
)
|
Balance at end of period
|
$
|
247,054
|
|
|
$
|
269,360
|
|
|
$
|
70,629
|
|
|
$
|
587,043
|
|
Note 7. Intangible Assets, Net
The cost and accumulated amortization values of our intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
(amounts in thousands)
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Book Value
|
Customer relationships and agreements
|
$
|
148,025
|
|
|
$
|
(59,049
|
)
|
|
$
|
88,976
|
|
Software
|
94,244
|
|
|
(19,645
|
)
|
|
74,599
|
|
Trademarks and trade names
|
54,613
|
|
|
(7,729
|
)
|
|
46,884
|
|
Patents, licenses and rights
|
40,710
|
|
|
(13,936
|
)
|
|
26,774
|
|
Total amortizable intangibles
|
$
|
337,592
|
|
|
$
|
(100,359
|
)
|
|
$
|
237,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
At March 28, 2020, we have capitalized software costs of $62.3 million related to the application development stage of our global ERP system implementation, including $5.4 million during the three months ended March 28, 2020. As of March 28, 2020, we have placed $52.0 million in service and are amortizing the cost of our global ERP system over its estimated useful life of 15 years. In March 2020, we impaired $3.4 million of capitalized software due to delays in implementation of certain ERP modules and the uncertainty of its future.
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:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(amounts in thousands)
|
March 28, 2020
|
|
March 30, 2019
|
Amortization expense
|
$
|
6,603
|
|
|
$
|
5,663
|
|
Note 8. Other Assets
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
March 28, 2020
|
|
December 31, 2019
|
Cloud computing arrangements
|
$
|
8,688
|
|
|
$
|
6,374
|
|
Customer displays
|
8,526
|
|
|
11,213
|
|
Deposits
|
6,270
|
|
|
6,440
|
|
Long-term notes receivable
|
4,549
|
|
|
4,614
|
|
Overfunded pension benefit obligation
|
1,784
|
|
|
2,015
|
|
Other prepaid expenses
|
1,319
|
|
|
1,896
|
|
Debt issuance costs on unused portion of revolver facility
|
1,014
|
|
|
1,472
|
|
Other long-term accounts receivable
|
634
|
|
|
563
|
|
Other long-term assets
|
355
|
|
|
375
|
|
Total other assets
|
$
|
33,139
|
|
|
$
|
34,962
|
|
Note 9. Accrued Expenses and Other Current Liabilities
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
March 28, 2020
|
|
December 31, 2019
|
Current portion of legal claims provision
|
$
|
83,093
|
|
|
$
|
79,332
|
|
Accrued sales and advertising rebates
|
50,255
|
|
|
67,250
|
|
Current portion of operating lease liability
|
42,860
|
|
|
45,254
|
|
Non-income related taxes
|
22,523
|
|
|
23,178
|
|
Accrued expenses
|
22,470
|
|
|
27,993
|
|
Current portion of warranty liability (Note 10)
|
20,397
|
|
|
21,054
|
|
Accrued interest payable
|
16,790
|
|
|
2,126
|
|
Current portion of accrued claim costs relating to self-insurance programs
|
11,894
|
|
|
12,312
|
|
Current portion of deferred revenue
|
8,581
|
|
|
7,986
|
|
Current portion of restructuring accrual (Note 17)
|
4,946
|
|
|
6,051
|
|
Current portion of derivative liability (Note 19)
|
1,667
|
|
|
4,068
|
|
Current portion of accrued income taxes payable
|
1,845
|
|
|
1,999
|
|
Total accrued expenses and other current liabilities
|
$
|
287,321
|
|
|
$
|
298,603
|
|
The legal claims provision relates primarily to contingencies associated with the ongoing legal matters disclosed in Note 21 - 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 25 - Revision of Prior Period Financial Statements.
Note 10. 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)
|
March 28, 2020
|
|
March 30, 2019
|
Balance as of January 1
|
$
|
49,716
|
|
|
$
|
46,468
|
|
Current period expense
|
4,668
|
|
|
4,344
|
|
Liabilities assumed due to acquisition
|
—
|
|
|
79
|
|
Experience adjustments
|
1,902
|
|
|
904
|
|
Payments
|
(6,476
|
)
|
|
(5,602
|
)
|
Currency translation
|
(756
|
)
|
|
106
|
|
Balance at period end
|
49,054
|
|
|
46,299
|
|
Current portion
|
(20,397
|
)
|
|
(20,272
|
)
|
Long-term portion
|
$
|
28,657
|
|
|
$
|
26,027
|
|
The most significant component of our warranty liability is in the North America segment, which totaled $44.4 million at March 28, 2020, 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 11. Long-Term Debt
Our long-term debt, net of original issue discount and unamortized debt issuance costs, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
|
March 28,
2020
|
|
December 31,
2019
|
(amounts in thousands)
|
Interest Rate
|
|
|
Senior notes
|
4.63% - 4.88%
|
|
$
|
800,000
|
|
|
$
|
800,000
|
|
Term loans
|
1.30% - 3.94%
|
|
586,446
|
|
|
591,153
|
|
Finance leases and other financing arrangements
|
1.90% - 6.00%
|
|
108,759
|
|
|
108,613
|
|
Mortgage notes
|
1.65%
|
|
27,361
|
|
|
28,175
|
|
Revolving credit facilities
|
2.25% -2.55%
|
|
100,000
|
|
|
—
|
|
Installment notes for stock
|
—%
|
|
—
|
|
|
205
|
|
Unamortized debt issuance costs and original issue discount
|
|
(10,711
|
)
|
|
(10,774
|
)
|
|
|
|
1,611,855
|
|
|
1,517,372
|
|
Current maturities of long-term debt
|
|
(64,740
|
)
|
|
(65,846
|
)
|
Long-term debt
|
|
$
|
1,547,115
|
|
|
$
|
1,451,526
|
|
Summaries of our significant changes to outstanding debt agreements as of March 28, 2020 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.
Term Loans
U.S. Facility - 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 March 28, 2020, the outstanding principal balance, net of original issue discount, was $555.0 million.
Australia Facility - 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 $30.3 million as of March 28, 2020.
Revolving Credit Facilities
ABL Facility - In December 2019, we amended our ABL facility to reflect current banking regulatory requirements, which do not have a financial impact. In March 2020, we drew $100.0 million under our ABL Facility as a precautionary measure to ensure funding of our seasonal working capital cash requirements given the recent significant impact on global financial markets and economies as a result of the COVID-19 pandemic. As of March 28, 2020, we had $100.0 million in borrowings, $35.6 million in letters of credit and $204.0 million available under the ABL Facility.
Australia Senior Secured Credit Facility - In June 2019, we 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 interchangeable 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 March 28, 2020, we had AUD 21.3 million ($12.9 million) available under this facility.
At March 28, 2020, we had combined borrowing availability of $216.9 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 March 28, 2020, we had DKK 185.2 million (or $27.4 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 March 28, 2020, we had $108.8 million outstanding in this category, with maturities ranging from 2020 to 2027.
As of March 28, 2020, we were in compliance with the terms of all of our credit facilities.
Note 12. Income Taxes
The Company has completed its accounting for the income tax effects of the Tax Act. Although the measurement period has effectively ended, additional guidance and regulations continue to be released or finalized. We have considered these ongoing developments and determined that they have no impact on our tax accounts for the three months ended March 28, 2020. Final guidance, once issued, may materially affect our conclusions regarding the net related effects of the Tax Act on our unaudited consolidated financial statements. Until then, management will continue to monitor and work with its tax advisors to interpret any guidance issued.
The effective income tax rate for continuing operations 123.8% for the three months ended March 28, 2020 compared to 39.6% for the three months ended March 30, 2019. In accordance with ASC 740-270, we recorded tax expense of $1.2 million and $10.3 million from continuing operations for the three months ended March 28, 2020 and March 30, 2019, respectively, by applying an estimated annual effective tax rate to our year-to-date income for includable entities during the respective periods. Our estimated annual effective tax rate for both years includes the impact of the tax on GILTI. The application of the estimated annual effective tax rate in interim periods may result in a significant variation in the customary relationship between income tax expense and pretax accounting income due to the seasonality of our global business. Entities that are currently generating losses and for which there is a full valuation allowance are excluded from the worldwide effective tax rate calculation and are calculated separately. The estimated annual effective tax rate for the current year is materially impacted by changes in management’s judgment regarding the realizability of deferred tax assets. Due to the ongoing financial and operational impacts on our business arising from COVID-19 focused in the current year, our ability to realize certain tax benefits related primarily to US foreign tax credits has been impacted. As such, management believes that our existing valuation allowance against these credits as well as our net operating losses at the state level will likely increase through the year as events occur. In accordance with guidance, we have factored the predicted increases as of the balance sheet date into our estimated annual effective tax rate for the current year. To the extent that actual results and/or events differ from our predicted results, we may continue to see effects on our estimated annual effective tax rate.
The impact of significant discrete items is separately recognized in the quarter in which they occur. The tax expense related to discrete items included in the tax provision for continuing operations for the three months ended March 28, 2020 and March 30, 2019 was $0.8 million and $1.3 million, respectively. The discrete tax expense of $0.8 million for the three months ended March 28, 2020 was attributable to current period interest expense on uncertain tax positions. The discrete tax expense for the three months ended March 30, 2019 was comprised primarily of $1.1 million of tax expense related to the shortfall recognized from exercises and forfeitures from share-based compensation awards and $0.4 million attributable to current period interest expense on uncertain tax positions, offset by $0.2 million for other matters.
Under ASC 740-10, we provide for uncertain tax positions and the related interest expense by adjusting unrecognized tax benefits and accrued interest accordingly. We recognize potential interest and penalties related to unrecognized tax benefits in income tax expense. We had unrecognized tax benefits of $19.8 million and $20.2 million as of March 28, 2020 and December 31, 2019, respectively.
The prior period information has been revised. Please refer to Note 25 - Revision of Prior Period Financial Statements.
Note 13. 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
|
Three Months Ended March 28, 2020
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
587,048
|
|
|
$
|
281,807
|
|
|
$
|
112,972
|
|
|
$
|
981,827
|
|
|
$
|
—
|
|
|
$
|
981,827
|
|
Intersegment net revenues
|
(312
|
)
|
|
(314
|
)
|
|
(2,014
|
)
|
|
(2,640
|
)
|
|
—
|
|
|
(2,640
|
)
|
Net revenues from external customers
|
$
|
586,736
|
|
|
$
|
281,493
|
|
|
$
|
110,958
|
|
|
$
|
979,187
|
|
|
$
|
—
|
|
|
$
|
979,187
|
|
Impairment and restructuring charges
|
943
|
|
|
2,001
|
|
|
264
|
|
|
3,208
|
|
|
3,337
|
|
|
6,545
|
|
Adjusted EBITDA
|
48,990
|
|
|
23,326
|
|
|
8,725
|
|
|
81,041
|
|
|
(6,533
|
)
|
|
74,508
|
|
Three Months Ended March 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
565,701
|
|
|
$
|
299,993
|
|
|
$
|
146,520
|
|
|
$
|
1,012,214
|
|
|
$
|
—
|
|
|
$
|
1,012,214
|
|
Intersegment net revenues
|
(596
|
)
|
|
(27
|
)
|
|
(1,331
|
)
|
|
(1,954
|
)
|
|
—
|
|
|
(1,954
|
)
|
Net revenues from external customers
|
$
|
565,105
|
|
|
$
|
299,966
|
|
|
$
|
145,189
|
|
|
$
|
1,010,260
|
|
|
$
|
—
|
|
|
$
|
1,010,260
|
|
Impairment and restructuring charges
|
1,958
|
|
|
1,309
|
|
|
465
|
|
|
3,732
|
|
|
(13
|
)
|
|
3,719
|
|
Adjusted EBITDA
|
52,796
|
|
|
27,638
|
|
|
16,380
|
|
|
96,814
|
|
|
(7,536
|
)
|
|
89,278
|
|
Reconciliations of net income (loss) to Adjusted EBITDA are as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(amounts in thousands)
|
March 28, 2020
|
|
March 30, 2019
|
Net income (loss)
|
$
|
(230
|
)
|
|
$
|
15,777
|
|
Income tax expense
|
1,197
|
|
|
10,349
|
|
Depreciation and amortization
|
33,446
|
|
|
30,898
|
|
Interest expense, net
|
16,604
|
|
|
17,656
|
|
Impairment and restructuring charges(1)
|
6,695
|
|
|
4,103
|
|
(Gain) loss on sale of property and equipment
|
(2,073
|
)
|
|
512
|
|
Share-based compensation expense
|
3,733
|
|
|
2,596
|
|
Non-cash foreign exchange transaction/translation (income) loss
|
(1,189
|
)
|
|
(3,686
|
)
|
Other items (2)
|
16,325
|
|
|
10,408
|
|
Other non-cash items
|
—
|
|
|
665
|
|
Adjusted EBITDA
|
$
|
74,508
|
|
|
$
|
89,278
|
|
|
|
(1)
|
Impairment and restructuring charges consist of (i) impairment and restructuring charges that are included in our consolidated unaudited 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 unaudited consolidated statements of operations in the amount of $150 and $384 for the three months ended March 28, 2020 and March 30, 2019, respectively. For further explanation of impairment and restructuring charges that are included in our consolidated statements of operations, see Note 17 - Impairment and Restructuring Charges in our financial statements.
|
|
|
(2)
|
Other non-recurring items not core to ongoing business activity include: (i) in the three months ended March 28, 2020 (1) $11,706 in legal costs and professional expenses relating primarily to litigation, (2) $3,110 in facility closure and consolidation costs related to our facility footprint rationalization program, and (3) $1,235 in one-time lease termination charges; and (ii) in the three months ended March 30, 2019, (1) $4,827 in facility closure and consolidation costs related to our facility footprint rationalization program, (2) $2,934 in acquisition and integration costs, and (3) $1,648 in legal costs and professional expenses relating primarily to litigation.
|
The prior period information has been revised and reclassified to conform with current period presentation. Please refer to Note 25 - Revision of Prior Period Financial Statements.
Note 14. Capital Stock
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 - 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 March 28, 2020 and December 31, 2019 with a total original issuance value of $12.4 million.
We record share repurchases 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.
In April 2018, our Board of Directors authorized the repurchase of up to $250.0 million of our Common Stock through December 2019.
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 March 28, 2020, $170.0 million was remaining under the repurchase authorization.
During the three months ended March 28, 2020 and March 30, 2019, we repurchased 265,589 and 939,798 shares, respectively, of our Common Stock for aggregate consideration of $5.0 million and $15.0 million, respectively.
Note 15. Earnings Per Share
The basic and diluted income (loss) per share calculations were determined based on the following share data:
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 28, 2020
|
|
March 30, 2019
|
Weighted average outstanding shares of Common Stock basic
|
100,646,850
|
|
|
100,643,509
|
|
Restricted stock units, performance share units and options to purchase Common Stock
|
—
|
|
|
817,784
|
|
Weighted average outstanding shares of Common Stock diluted
|
100,646,850
|
|
|
101,461,293
|
|
For the three months ended March 28, 2020, we had net losses from operations. As a result, no potentially dilutive securities were included in the denominator for computing diluted loss per share as their inclusion would be anti-dilutive.
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 income (loss) per share as their inclusion would be anti-dilutive:
|
|
|
|
|
|
Three Months Ended
|
|
March 28, 2020
|
|
March 30, 2019
|
Common Stock options
|
2,170,131
|
|
1,685,101
|
Restricted stock units
|
670,493
|
|
449,547
|
Performance share units
|
206,263
|
|
147,552
|
Note 16. Stock Compensation
The activity under our incentive plans for the periods presented are reflected in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 28, 2020
|
|
March 30, 2019
|
|
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Shares
|
|
Weighted Average Exercise Price Per Share
|
Options granted
|
400,994
|
|
|
$
|
24.54
|
|
|
424,944
|
|
|
$
|
20.94
|
|
Options canceled
|
41,489
|
|
|
$
|
25.15
|
|
|
108,337
|
|
|
$
|
23.81
|
|
Options exercised
|
95,438
|
|
|
$
|
11.89
|
|
|
203,545
|
|
|
$
|
7.80
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average Grant Date Fair Value
|
|
Shares
|
|
|
Weighted Average Grant Date Fair Value
|
RSUs granted
|
701,727
|
|
|
$
|
18.67
|
|
|
573,815
|
|
|
$
|
20.94
|
|
PSUs granted
|
305,100
|
|
|
$
|
25.50
|
|
|
387,568
|
|
|
$
|
20.94
|
|
Stock-based compensation expense was $3.7 million and $2.6 million for the three months ended March 28, 2020 and March 30, 2019, respectively. As of March 28, 2020, we had $42.2 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 2.32 years.
Note 17. Impairment and Restructuring Charges
During 2020 and 2019, 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 the three months ended March 28, 2020, impairment charges primarily related to capitalized costs of certain ERP modules due to delays in implementation and uncertainty of their future use. In the three months ended March 30, 2019, impairment charges were primarily related to ROU assets and property and equipment held by operations impacted by restructuring.
The following table summarizes the restructuring charges for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Corporate
and
Unallocated
Costs
|
|
Total
Consolidated
|
Three Months Ended March 28, 2020
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
944
|
|
|
$
|
911
|
|
|
$
|
47
|
|
|
$
|
(10
|
)
|
|
$
|
1,892
|
|
Other exit costs
|
(1
|
)
|
|
195
|
|
|
217
|
|
|
(12
|
)
|
|
399
|
|
Total restructuring costs
|
943
|
|
|
1,106
|
|
|
264
|
|
|
(22
|
)
|
|
2,291
|
|
Impairments
|
—
|
|
|
895
|
|
|
—
|
|
|
3,359
|
|
|
4,254
|
|
Total impairment and restructuring charges
|
$
|
943
|
|
|
$
|
2,001
|
|
|
$
|
264
|
|
|
$
|
3,337
|
|
|
$
|
6,545
|
|
Three Months Ended March 30, 2019
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
531
|
|
|
$
|
1,148
|
|
|
$
|
199
|
|
|
$
|
—
|
|
|
$
|
1,878
|
|
Other exit costs
|
(4
|
)
|
|
—
|
|
|
224
|
|
|
(13
|
)
|
|
207
|
|
Total restructuring costs
|
527
|
|
|
1,148
|
|
|
423
|
|
|
(13
|
)
|
|
2,085
|
|
Impairments
|
1,431
|
|
|
161
|
|
|
42
|
|
|
—
|
|
|
1,634
|
|
Total impairment and restructuring charges
|
$
|
1,958
|
|
|
$
|
1,309
|
|
|
$
|
465
|
|
|
$
|
(13
|
)
|
|
$
|
3,719
|
|
Short-term restructuring accruals are recorded in accrued expenses and totaled $4.9 million and $6.1 million as of March 28, 2020 and December 31, 2019, respectively. Long-term restructuring accruals are recorded in deferred credits and other liabilities and totaled $0.8 million and $1.0 million as of March 28, 2020 and December 31, 2019, 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
|
March 28, 2020
|
|
|
|
|
|
|
|
Severance costs
|
$
|
5,314
|
|
|
$
|
1,892
|
|
|
$
|
(3,450
|
)
|
|
$
|
3,756
|
|
Other exit costs
|
1,729
|
|
|
399
|
|
|
(156
|
)
|
|
1,972
|
|
Total
|
$
|
7,043
|
|
|
$
|
2,291
|
|
|
$
|
(3,606
|
)
|
|
$
|
5,728
|
|
March 30, 2019
|
|
|
|
|
|
|
|
Severance costs
|
$
|
5,353
|
|
|
$
|
1,878
|
|
|
$
|
(4,003
|
)
|
|
$
|
3,228
|
|
Other exit costs
|
3,287
|
|
|
207
|
|
|
(411
|
)
|
|
3,083
|
|
Total
|
$
|
8,640
|
|
|
$
|
2,085
|
|
|
$
|
(4,414
|
)
|
|
$
|
6,311
|
|
The prior period information has been reclassified to conform to current period presentation.
Note 18. Other (Income) Expense
The table below summarizes the amounts included in other (income) expense in the accompanying unaudited consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(amounts in thousands)
|
March 28, 2020
|
|
March 30, 2019
|
Pension benefit expense
|
$
|
2,787
|
|
|
$
|
2,748
|
|
Foreign currency gain
|
(2,250
|
)
|
|
(5,295
|
)
|
(Gain) loss on sale of business units, property, and equipment
|
(2,073
|
)
|
|
582
|
|
Other income items
|
(795
|
)
|
|
(260
|
)
|
Legal settlement income
|
—
|
|
|
(1,247
|
)
|
Total other income
|
$
|
(2,331
|
)
|
|
$
|
(3,472
|
)
|
The prior period information has been revised and reclassified to conform to current period presentation. Please refer to Note 25 - Revision of Prior Period Financial Statements.
Note 19. 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 20 - 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 $111.6 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 $30.0 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 $112.1 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 gain of $15.8 million and loss of $3.3 million in the three months ended March 28, 2020 and March 30, 2019, respectively.
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 11 - 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. We recorded interest expense deriving from the amortization of the loss on termination of interest rate swaps of $0.4 million during the three months ended March 30, 2019.
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 three months ended March 28, 2020 and March 30, 2019.
The fair values of derivative instruments held are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
(amounts in thousands)
|
Balance Sheet Location
|
|
March 28,
2020
|
|
December 31,
2019
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign currency forward contracts
|
Other current assets
|
|
$
|
14,612
|
|
|
$
|
1,372
|
|
Interest rate cap contracts
|
Other assets
|
|
—
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives liabilities
|
(amounts in thousands)
|
Balance Sheet Location
|
|
March 28,
2020
|
|
December 31,
2019
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
Foreign currency forward contracts
|
Accrued expenses and other current liabilities
|
|
$
|
1,667
|
|
|
$
|
4,068
|
|
Note 20. 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
(amounts in thousands)
|
Carrying Amount
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
70,011
|
|
|
$
|
70,011
|
|
|
$
|
—
|
|
|
$
|
70,011
|
|
|
$
|
—
|
|
Derivative assets, recorded in other current assets
|
14,612
|
|
|
14,612
|
|
|
—
|
|
|
14,612
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Senior notes
|
$
|
800,000
|
|
|
$
|
709,000
|
|
|
$
|
—
|
|
|
$
|
709,000
|
|
|
$
|
—
|
|
Term loans
|
586,445
|
|
|
517,000
|
|
|
—
|
|
|
517,000
|
|
|
—
|
|
Derivative liabilities, recorded in accrued expenses and deferred credits
|
1,667
|
|
|
1,667
|
|
|
—
|
|
|
1,667
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
(amounts in thousands)
|
Carrying Amount
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
|
|
Derivative assets, recorded in other current assets
|
1,372
|
|
|
1,372
|
|
|
—
|
|
|
1,372
|
|
|
—
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Senior notes, recorded in long-term debt
|
$
|
800,000
|
|
|
$
|
823,500
|
|
|
$
|
—
|
|
|
$
|
823,500
|
|
|
$
|
—
|
|
Term loans, recorded in long-term debt and current maturities of long-term debt
|
591,153
|
|
|
593,932
|
|
|
—
|
|
|
593,932
|
|
|
—
|
|
Derivative liabilities, recorded in accrued expenses and deferred credits
|
4,068
|
|
|
4,068
|
|
|
—
|
|
|
4,068
|
|
|
—
|
|
Derivative assets and liabilities reported in level 2 include foreign currency and interest rate cap contracts. See Note 19- 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2020
|
(amounts in thousands)
|
Carrying Value
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Losses
|
Continuing operations
|
$
|
341
|
|
|
$
|
341
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
341
|
|
|
$
|
895
|
|
Total
|
$
|
341
|
|
|
$
|
341
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
341
|
|
|
$
|
895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
Note 21. 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. 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 reassess the potential liability 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.
Other than the matters described below, as of March 28, 2020, 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, but could be rescheduled to a later date due to the COVID-19 pandemic.
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. On April 14, 2020, Steves filed a motion for further supplemental relief for pricing differences from the date of the prior order through the present. We are in the process of reviewing that new motion and are in the process of filing a responsive pleading. No hearing date on the new motion has been set.
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. 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 or a payment is required. 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.
Separately, on February 14, 2020, Steves filed a complaint and motion for preliminary injunction in the U.S. District Court for the Eastern District of Virginia, Richmond Division, alleging that we breached the long-term supply agreement between the parties, among other claims, including by incorrectly calculating the allocation of door skins owed to Steves. Steves is seeking an additional allotment of door skins and damages for violation of antitrust laws, tortious interference, and breach of contract. On April 10, 2020, the presiding judge granted Steves’ motion for preliminary injunction and the parties settled the issues underlying the preliminary injunction on April 30, but reserved the right to appeal the ruling in the Fourth Circuit Court of Appeals. The Company believes all the claims lack merit and has moved to dismiss the antitrust and tortious interference claims. A trial on this matter is currently expected in July 2020.
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 believes the claims lack merit and intends to vigorously defend against the action.
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. Trial in the two matters has been set for January 2021.
We have evaluated the claims against us and recorded provisions based on management’s judgment about the probable outcome of the litigation and have included our estimates in accrued expenses in the accompanying balance sheets. See Note 9 - Accrued Expenses and Other Current Liabilities. While we expect a favorable resolution to these matters, the dispute resolution process could be lengthy, and if the plaintiffs were to prevail completely or substantially in the respective matters described above, such an outcome 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 loss insurance covering our self-insured 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 March 28, 2020 and December 31, 2019, our accrued liability for self-insured risks was $74.9 million and $76.6 million, respectively.
Indemnifications – At March 28, 2020, 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)
|
March 28,
2020
|
|
December 31,
2019
|
Self-insurance workers’ compensation
|
$
|
23,638
|
|
|
$
|
23,638
|
|
Legal
|
48,561
|
|
|
48,561
|
|
Liability and other insurance
|
16,678
|
|
|
16,678
|
|
Environmental
|
8,286
|
|
|
8,186
|
|
Other
|
6,504
|
|
|
5,864
|
|
Total outstanding performance bonds and stand-by letters of credit
|
$
|
103,667
|
|
|
$
|
102,927
|
|
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 at both March 28, 2020 and December 31, 2019. 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 March 28, 2020 or December 31, 2019.
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 Corrective Action Plan (“CAP”), arising from the feasibility assessment. We are currently working with WADOE to finalize our Remedial Investigation and Feasibility Study (“RI/FS”), and, on April 30, 2020, we provided the WADOE with our revised draft RI/FS. The WADOE will review our RI/FS and provide a public comment period, potentially in the second quarter of 2020, before we can develop the CAP. However, at this time, we cannot reasonably estimate the cost associated with any remedial actions we will be required to undertake under the CAP; therefore, 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.
Note 22. 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. Pension expense, as recorded in the accompanying unaudited consolidated statements of operations, is determined by using spot rate assumptions made on January 1 of each year as summarized below:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(amounts in thousands)
|
March 28,
2020
|
|
March 30,
2019
|
Components of pension benefit expense - U.S. benefit plan:
|
|
|
|
Administrative cost
|
$
|
1,250
|
|
|
$
|
1,250
|
|
Interest cost
|
3,725
|
|
|
3,725
|
|
Expected return on plan assets
|
(4,650
|
)
|
|
(4,650
|
)
|
Amortization of net actuarial pension loss
|
2,225
|
|
|
2,225
|
|
Pension benefit expense
|
$
|
2,550
|
|
|
$
|
2,550
|
|
During the three months ended March 28, 2020, we made required contributions to our U.S. defined benefit pension plan or (“the Plan”) of $1.6 million. During the three months ended March 30, 2019, we made required contributions to the Plan of $1.4 million. We did not make any voluntary contributions during any of the periods described above. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act ( the“Act”) was enacted. In conjunction with the CARES Act, companies were provided relief for defined benefit pension plans, which allows for the deferral of the remaining $6.5 million of minimum contributions for 2020.
Note 23. Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(amounts in thousands)
|
March 28, 2020
|
|
March 30, 2019
|
Cash Operating Activities:
|
|
|
|
Operating leases
|
$
|
14,337
|
|
|
$
|
13,453
|
|
Finance leases
|
47
|
|
|
12
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
14,384
|
|
|
$
|
13,465
|
|
|
|
|
|
Non-cash Investing Activities:
|
|
|
|
Property, equipment and intangibles purchased in accounts payable
|
$
|
3,012
|
|
|
$
|
8,130
|
|
Property, equipment and intangibles purchased for debt
|
4,010
|
|
|
9,683
|
|
Customer accounts receivable converted to notes receivable
|
—
|
|
|
66
|
|
|
|
|
|
Cash Financing Activities:
|
|
|
|
Borrowings on long-term debt
|
100,075
|
|
|
115,027
|
|
Payments of long-term debt
|
(5,080
|
)
|
|
(7,706
|
)
|
Change in long-term debt
|
$
|
94,995
|
|
|
$
|
107,321
|
|
|
|
|
|
Cash paid for amounts included in the measurement of finance lease liabilities
|
$
|
328
|
|
|
$
|
52
|
|
|
|
|
|
Non-cash Financing Activities:
|
|
|
|
Prepaid insurance funded through short-term debt borrowings
|
$
|
—
|
|
|
$
|
1,189
|
|
Prepaid ERP costs funded through short-term debt borrowings
|
—
|
|
|
1,430
|
|
Shares surrendered for tax obligations for employee share-based transactions in accrued liabilities
|
—
|
|
|
30
|
|
Accounts payable converted to installment notes
|
914
|
|
|
286
|
|
|
|
|
|
Other Supplemental Cash Flow Information:
|
|
|
|
Cash taxes paid, net of refunds
|
$
|
5,767
|
|
|
$
|
5,881
|
|
Cash interest paid
|
1,837
|
|
|
7,902
|
|
Leased assets obtained in exchange for new finance lease liabilities
|
544
|
|
|
16
|
|
Leased assets obtained in exchange for new operating lease liabilities
|
6,339
|
|
|
4,886
|
|
Note 24. 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, resulting in a gain of $2.8 million in the second quarter of 2019. A minority shareholder of the buying group also serves on our Board of Directors. Under 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 March 28, 2020, the remaining balance is $3.5 million. At March 28, 2020, 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 and current employee, 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 by $0.6 million. The operating lease asset is $3.8 million at March 28, 2020.
Note 25. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 30, 2019
|
(amounts in thousands, except per share data)
|
As Reported
|
|
Correction
|
|
As Revised
|
Consolidated Statement of Operations:
|
|
|
|
|
|
Net revenues
|
$
|
1,010,906
|
|
|
$
|
(646
|
)
|
|
$
|
1,010,260
|
|
Cost of sales
|
$
|
802,458
|
|
|
$
|
(327
|
)
|
|
$
|
802,131
|
|
Gross margin
|
$
|
208,448
|
|
|
$
|
(319
|
)
|
|
$
|
208,129
|
|
Selling, general and administrative
|
$
|
163,378
|
|
|
$
|
722
|
|
|
$
|
164,100
|
|
Operating income (loss)
|
$
|
41,351
|
|
|
$
|
(1,041
|
)
|
|
$
|
40,310
|
|
Other (income) expense(1)
|
$
|
(3,195
|
)
|
|
$
|
(261
|
)
|
|
$
|
(3,456
|
)
|
Income before taxes and equity earnings
|
$
|
26,890
|
|
|
$
|
(780
|
)
|
|
$
|
26,110
|
|
Income tax expense (benefit)
|
$
|
10,337
|
|
|
$
|
12
|
|
|
$
|
10,349
|
|
Income from continuing operations, net of tax
|
$
|
16,553
|
|
|
$
|
(792
|
)
|
|
$
|
15,761
|
|
Net income (loss)
|
$
|
16,553
|
|
|
$
|
(792
|
)
|
|
$
|
15,761
|
|
Net income (loss) attributable to common shareholders
|
$
|
16,569
|
|
|
$
|
(792
|
)
|
|
$
|
15,777
|
|
|
|
(1)
|
Non-controlling interest of $16 for the three months ended March 30, 2019 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.
Reconciliation of pre-tax net income (loss) to Note 13 - Segment Information, Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
March 30, 2019
|
(amounts in thousands)
|
As Reported
|
|
Correction
|
|
As Revised
|
Net income (loss)
|
$
|
16,553
|
|
|
$
|
(792
|
)
|
|
$
|
15,761
|
|
Income tax expense
|
$
|
10,337
|
|
|
$
|
12
|
|
|
$
|
10,349
|
|
Non-cash foreign exchange transaction/translation (income) loss
|
$
|
(3,425
|
)
|
|
$
|
(261
|
)
|
|
$
|
(3,686
|
)
|
Other items
|
$
|
11,683
|
|
|
$
|
(280
|
)
|
|
$
|
11,403
|
|
Adjusted EBITDA
|
$
|
90,599
|
|
|
$
|
(1,321
|
)
|
|
$
|
89,278
|
|
Segment Information: Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
March 30, 2019
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Total Operating
Segments
|
|
Corporate
and
Unallocated
Costs
|
|
Total
Consolidated
|
As Reported
|
$
|
53,540
|
|
|
$
|
28,169
|
|
|
$
|
16,426
|
|
|
$
|
98,135
|
|
|
$
|
(7,536
|
)
|
|
$
|
90,599
|
|
Correction
|
(744
|
)
|
|
(531
|
)
|
|
(46
|
)
|
|
(1,321
|
)
|
|
—
|
|
|
(1,321
|
)
|
As Revised
|
$
|
52,796
|
|
|
$
|
27,638
|
|
|
$
|
16,380
|
|
|
$
|
96,814
|
|
|
$
|
(7,536
|
)
|
|
$
|
89,278
|
|
Note 26. Subsequent Events
On May 1, 2020, we amended the Australia Senior Secured Credit Facility to relax certain financial covenants and provide for an AUD 30.0 million floating rate revolving loan facility to be used for loans bearing interest at BBSY plus a margin of 1.10%, and a line fee of 0.90%, and matures on June 30, 2021. The facility may be used only when the AUD 35.0 million interchangeable facility is fully utilized. In addition, the AUD 35.0 million interchangeable facility was renewed with relaxed financial maintenance covenants to at least June 30, 2021 and its line fee increased to 0.70%, compared to a line fee of 0.50% under the previous amendment.
On May 4, 2020, we closed on our issuance of $250.0 million of senior secured notes bearing interest at 6.25% and maturing in May 2025 in a private placement exempt from registration under the Securities Act. The proceeds were net of fees and expenses associated with debt issuance and an underwriters’ discount of 1.25%, or approximately $3.1 million. Interest is payable semiannually, in arrears, each May and November through maturity, beginning November 2020.