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, and Mexico. 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 September 26, 2020 and for the three and nine months ended September 26, 2020 and September 28, 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 and nine months ended September 26, 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.
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, assumptions, and allocations 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. The aggregate gross amount factored under these arrangements was $62.7 million and $57.4 million for the nine months ended September 26, 2020 and September 28, 2019, respectively. The cost of factoring is reflected in the accompanying unaudited consolidated statements of operations as interest expense and was $0.1 million and $0.1 million for the three months ended September 26, 2020 and September 28, 2019, respectively, and $0.2 million and $0.4 million for the nine months ended September 26, 2020 and September 28, 2019, respectively.
COVID 19 – The CARES Act includes measures to assist companies in response to the COVID-19 pandemic. These measures include a provision that allows employers to defer the remittance of the employer portion of the social security tax. The deferred employment tax must be paid over two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. Through the nine months ended September 26, 2020, the Company deferred $12.7 million of the employer portion of social security tax, which is included in deferred credits and other liabilities in the consolidated balance sheet. The $12.7 million deferral is included in other items, net in our consolidated statements of cash flows. The impact of the CARES Act in prospective periods may differ from our estimate as of September 26, 2020 due to changes in interpretations and assumptions, guidance that may be issued, and actions we may take in respect to the CARES Act. The CARES Act is highly detailed and we will continue to assess the impact that various provisions will have on our business.
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 August 2020, the FASB issued ASU No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and embedded conversion features that could be recognized separately from the primary contract. The guidance also enhances disclosure requirements for convertible instruments and simplifies the diluted net income per share calculation in certain aspects. The guidance is effective for fiscal years beginning after December 15, 2021. We are currently assessing the effect that this ASU on our consolidated financial statements and disclosures.
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. In May 2020, we elected the expedient within ASC 848 which allows us to assume that our hedged interest payments are probable of occurring regardless of any expected modifications in their terms related to reference rate return. In addition, ASC 848 allows for the option to change the method of assessing effectiveness upon a chance in critical terms of the derivative or the hedged transactions and upon the end of relief under ASC 848. At this time, we have elected to continue the method of assessing effectiveness as documented in the original hedge documentation and apply the practical expedient so that the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument. We plan to evaluate the remaining expedients for adoption, as applicable, when contracts are modified. Refer to Note 19 - Derivative Financial Instruments for additional disclosure information relating to our hedging activity.
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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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:
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|
|
|
|
|
|
|
|
|
|
Cash consideration, net of cash acquired
|
$
|
57,486
|
|
|
$
|
313
|
|
|
$
|
57,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
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|
|
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 SG&A expense in our accompanying unaudited consolidated statements of operations. We incurred no acquisition-related costs during the three months ended September 28, 2019 and $0.4 million during the nine months ended September 28, 2019, respectively. 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 accompanying unaudited consolidated statements of operations for the nine months ended September 28, 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 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 September 26, 2020 and December 31, 2019, we had an allowance for doubtful accounts of $13.2 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.
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|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
September 26, 2020
|
|
December 31, 2019
|
|
Raw materials
|
$
|
372,456
|
|
|
$
|
372,289
|
|
|
Work in process
|
36,359
|
|
|
38,432
|
|
|
Finished goods
|
101,134
|
|
|
94,357
|
|
|
Total inventories
|
$
|
509,949
|
|
|
$
|
505,078
|
|
Note 5. Property and Equipment, Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
September 26, 2020
|
|
December 31, 2019
|
|
Property and equipment
|
$
|
2,073,623
|
|
|
$
|
2,052,584
|
|
|
Accumulated depreciation
|
(1,232,588)
|
|
|
(1,188,209)
|
|
|
Total property and equipment, net
|
$
|
841,035
|
|
|
$
|
864,375
|
|
We monitor all property and equipment for any indicators of potential impairment. We recorded impairment charges of $0.6 million and $2.1 million during the three and nine months ended September 26, 2020. We recorded impairment charges of $1.4 million and $2.8 million during the three and nine months ended September 28, 2019, respectively.
Depreciation expense was recorded as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
(amounts in thousands)
|
September 26, 2020
|
|
September 28, 2019
|
|
September 26, 2020
|
|
September 28, 2019
|
|
|
|
Cost of sales
|
$
|
22,242
|
|
|
$
|
21,382
|
|
|
$
|
65,767
|
|
|
$
|
62,798
|
|
|
|
|
Selling, general and administrative
|
2,586
|
|
|
2,408
|
|
|
7,254
|
|
|
7,342
|
|
|
|
|
Total depreciation expense
|
$
|
24,828
|
|
|
$
|
23,790
|
|
|
$
|
73,021
|
|
|
$
|
70,140
|
|
|
|
Note 6. Goodwill
The following table summarizes the changes in goodwill by reportable segment:
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Total
Reportable
Segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1
|
$
|
247,502
|
|
|
$
|
273,912
|
|
|
$
|
81,086
|
|
|
$
|
602,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation
|
(145)
|
|
|
10,880
|
|
|
537
|
|
|
11,272
|
|
|
Balance at end of period
|
$
|
247,357
|
|
|
$
|
284,792
|
|
|
$
|
81,623
|
|
|
$
|
613,772
|
|
Note 7. Intangible Assets, Net
The cost and accumulated amortization values of our intangible assets were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 26, 2020
|
|
(amounts in thousands)
|
Cost
|
|
Accumulated
Amortization
|
|
Net
Book Value
|
|
Customer relationships and agreements
|
$
|
149,598
|
|
|
$
|
(62,659)
|
|
|
$
|
86,939
|
|
|
Software
|
102,961
|
|
|
(23,002)
|
|
|
79,959
|
|
|
Trademarks and trade names
|
57,881
|
|
|
(8,801)
|
|
|
49,080
|
|
|
Patents, licenses and rights
|
45,442
|
|
|
(17,741)
|
|
|
27,701
|
|
|
Total amortizable intangibles
|
$
|
355,882
|
|
|
$
|
(112,203)
|
|
|
$
|
243,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Through September 26, 2020, we have capitalized software costs of $70.5 million related to the application development stage of our global ERP system implementation, including $13.6 million during the nine months ended September 26, 2020. As of September 26, 2020, we have placed $52.0 million in service and are amortizing the cost of our global ERP system over its estimated useful life. In the third quarter 2020, we reduced the estimated useful life of our initial ERP instance from 15 years to 10 years to align with our current plans for our future global ERP system. 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:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
(amounts in thousands)
|
September 26, 2020
|
|
September 28, 2019
|
|
September 26, 2020
|
|
September 28, 2019
|
|
|
|
Amortization expense
|
$
|
7,098
|
|
|
$
|
8,764
|
|
|
$
|
20,345
|
|
|
$
|
23,557
|
|
|
|
Note 8. Other Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
September 26,
2020
|
|
December 31,
2019
|
|
Cloud computing arrangements
|
$
|
10,651
|
|
|
$
|
6,374
|
|
|
Deposits
|
6,270
|
|
|
6,440
|
|
|
Customer displays
|
5,055
|
|
|
11,213
|
|
|
Long-term notes and accounts receivable
|
5,838
|
|
|
5,177
|
|
|
Overfunded pension benefit obligation
|
2,164
|
|
|
2,015
|
|
|
Debt issuance costs on unused portion of revolver facility
|
1,103
|
|
|
1,472
|
|
|
|
|
|
|
|
Other long-term assets
|
393
|
|
|
375
|
|
|
Other prepaid expenses
|
384
|
|
|
1,896
|
|
|
Total other assets
|
$
|
31,858
|
|
|
$
|
34,962
|
|
The prior period information has been reclassified to conform with current period presentation.
Note 9. Accrued Expenses and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
September 26,
2020
|
|
December 31, 2019
|
|
Legal claims provision
|
$
|
106,175
|
|
|
$
|
79,332
|
|
|
Accrued sales and advertising rebates
|
82,311
|
|
|
67,250
|
|
|
Current portion of operating lease liability
|
43,999
|
|
|
45,254
|
|
|
Non-income related taxes
|
41,692
|
|
|
23,178
|
|
|
Accrued expenses
|
26,351
|
|
|
27,993
|
|
|
Current portion of warranty liability (Note 10)
|
20,763
|
|
|
21,054
|
|
|
Accrued interest payable
|
18,225
|
|
|
2,126
|
|
|
Current portion of accrued income taxes payable
|
17,455
|
|
|
1,999
|
|
|
Deferred revenue
|
12,399
|
|
|
7,986
|
|
|
Current portion of accrued claim costs relating to self-insurance programs
|
10,931
|
|
|
12,312
|
|
|
Current portion of derivative liability (Note 19)
|
3,679
|
|
|
4,068
|
|
|
Current portion of restructuring accrual (Note 17)
|
1,463
|
|
|
6,051
|
|
|
|
|
|
|
|
Total accrued expenses and other current liabilities
|
$
|
385,443
|
|
|
$
|
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.
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)
|
September 26, 2020
|
|
September 28, 2019
|
|
|
|
Balance as of January 1
|
$
|
49,716
|
|
|
$
|
46,468
|
|
|
|
|
Current period expense
|
16,793
|
|
|
15,180
|
|
|
|
|
Liabilities assumed due to acquisition
|
—
|
|
|
79
|
|
|
|
|
Experience adjustments
|
1,831
|
|
|
1,090
|
|
|
|
|
Payments
|
(17,162)
|
|
|
(15,937)
|
|
|
|
|
Currency translation
|
(145)
|
|
|
(68)
|
|
|
|
|
Balance at period end
|
51,033
|
|
|
46,812
|
|
|
|
|
Current portion
|
(20,763)
|
|
|
(20,035)
|
|
|
|
|
Long-term portion
|
$
|
30,270
|
|
|
$
|
26,777
|
|
|
|
The most significant component of our warranty liability is in the North America segment, which totaled $45.3 million at September 26, 2020, after discounting future estimated cash flows at rates between 0.69% and 4.75%. Without discounting, the liability would have been higher by approximately $2.6 million.
Note 11. Long-Term Debt
Our long-term debt, net of original issue discount and unamortized debt issuance costs, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 26, 2020
|
|
September 26, 2020
|
|
December 31, 2019
|
|
(amounts in thousands)
|
Interest Rate
|
|
|
|
Senior Secured Notes and Senior Notes
|
4.63% - 6.25%
|
|
$
|
1,050,000
|
|
|
$
|
800,000
|
|
|
Term loans
|
1.30% - 2.16%
|
|
588,507
|
|
|
591,153
|
|
|
Finance leases and other financing arrangements
|
1.25% - 5.95%
|
|
114,656
|
|
|
108,613
|
|
|
Mortgage notes
|
1.65%
|
|
28,191
|
|
|
28,175
|
|
|
|
|
|
|
|
|
|
Installment notes for stock
|
—%
|
|
—
|
|
|
205
|
|
|
Total Debt
|
|
1,781,354
|
|
|
1,528,146
|
|
|
Unamortized debt issuance costs and original issue discount
|
|
(14,001)
|
|
|
(10,774)
|
|
|
Current maturities of long-term debt
|
|
(68,485)
|
|
|
(65,846)
|
|
|
Long-term debt
|
|
$
|
1,698,868
|
|
|
$
|
1,451,526
|
|
Summaries of our significant changes to outstanding debt agreements as of September 26, 2020 are as follows:
Senior Secured Notes and Senior Notes
In May 2020, we issued $250.0 million of Senior Secured Notes bearing interest at 6.25% and maturing in May 2025 in a private placement for resale to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The proceeds were net of fees and expenses associated with debt issuance, including an underwriting fee of 1.25%. Interest is payable semiannually, in arrears, each May and November through maturity, beginning November 2020.
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 $150.0 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 September 26, 2020, the outstanding principal balance, net of original issue discount, was $552.2 million.
In May 2020, we entered into interest rate swap agreements with a weighted average fixed rate of 0.395% paid against one-month LIBOR floored at 0.00% with outstanding notional amounts aggregating to $370.0 million corresponding to that amount of the debt outstanding under our Term Loan Facility. The interest rate swap agreements are designated as cash flow hedges of a portion of the interest obligations on our Term Loan Facility borrowings and mature in December 2023. See Note 19-Derivative Financial Instruments for additional information on our derivative assets and liabilities.
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 AUD 50.0 million ($35.3 million) as of September 26, 2020.
Revolving Credit Facilities
ABL Facility - In December 2019, we amended our ABL facility to reflect current banking regulatory requirements, which did 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 significant impact of the COVID-19 pandemic on global financial markets and economies. In May 2020, we utilized a portion of the proceeds received from our issuance of the $250.0 million of Senior Secured Notes to repay the outstanding balance on our ABL Facility. As of September 26, 2020, we had no outstanding borrowings, $38.2 million in letters of credit and $310.4 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 an AUD 35.0 million interchangeable facility to be used for guarantees, asset financing, and loans of 12 months or less. In May 2020, we amended this facility to relax certain financial covenants and provide for a supplemental 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 maturing on June 30, 2021. The facility may be used only if and when the AUD 35.0 million interchangeable facility is fully utilized. As of September 26, 2020, we had AUD 30.0 million ($21.2 million) available under this facility. 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. 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 September 26, 2020, we had AUD 21.9 million ($15.4 million) available under this facility.
At September 26, 2020, we had combined borrowing availability of $347.0 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 September 26, 2020, we had DKK 180.0 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 September 26, 2020, we had $114.7 million outstanding in this category, with maturities ranging from 2020 to 2027.
As of September 26, 2020, we were in compliance with the terms of all of our credit facilities and the indentures governing the Senior Notes and Senior Secured Notes.
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 ongoing developments released through the date hereof and determined that they have no impact on our tax accounts for the nine months ended September 26, 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 was 38.5% and 36.3% for the three and nine months ended September 26, 2020, respectively, compared to 56.9% and 44.9% for the three and nine months ended September 28, 2019, respectively. In accordance with ASC 740-270, we recorded tax expense of $16.0 million and $27.6 million from operations in the three and nine months ended September 26, 2020, respectively, compared to a tax expense of $22.5 million and $45.0 million for the corresponding periods ended September 28, 2019, 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 U.S. 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, our estimated annual effective tax rate may be affected.
The impact of significant discrete items is separately recognized in the quarter in which they occur. The tax benefit for discrete items included in the tax provision for continuing operations for the three months ended September 26, 2020 was $0.8 million compared to $6.2 million of tax expense for the three months ended September 28, 2019, respectively. The discrete amounts for the three months ended September 26, 2020 were comprised primarily of tax benefit of $0.5 million attributed to certain return-to-provision adjustments primarily in the U.S. and $0.6 million attributed to the deferred tax impact of tax rate increases, partially offset by a tax expense of $0.3 million attributable to current period interest expense on uncertain tax positions. The discrete amounts for the three months ended September 28, 2019 were comprised primarily of $4.5 million related to the reclassification of stranded tax effect attributable to termination of hedge accounting for the maturity of interest rate swaps within OCI to income tax expense, $0.6 million related to certain return-to-provision adjustments for various entities for tax filings in the period, $0.4 million attributable to current period interest expense on uncertain tax positions, and $0.4 million related to French tax rate changes. The tax benefit related to discrete items included in the tax provision for continuing operations for the nine months ended September 26, 2020 was $2.9 million compared to tax expense of $9.1 million for the nine months ended September 28, 2019. The discrete amounts for the nine months ended September 26, 2020 were comprised primarily of tax benefit of $3.9 million attributed to the expiration of the statute of limitations on certain tax years in Estonia, $0.5 million for certain return-to-provision adjustments primarily in the U.S., and $0.3 million for the deferred tax impact of tax rate changes, partially offset by $1.4 million of current period interest expense on uncertain tax positions and $0.4 million for shortfalls arising from share-based compensation exercises and forfeitures. The discrete amounts for the nine months ended September 28, 2019 were comprised primarily of $4.5 million related to the reclassification of stranded tax effect attributable to termination of hedge accounting for the maturity of interest rate swaps within OCI to income tax expense, a tax expense of $1.2 million related to shortfalls recognized from exercises and forfeitures from share-based compensation awards, $1.1 million related to return-to-provision adjustments for various entities for tax filings in the period, $1.0 million related to the establishment of a valuation allowance for a Chilean subsidiary, $0.9 million attributable to current period interest expense on uncertain tax positions, and $0.4 million related to French tax rate changes.
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 without regard to accrued interest of $15.9 million and $16.2 million as of September 26, 2020 and December 31, 2019, respectively.
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 items; other non-cash 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 September 26, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
662,917
|
|
|
$
|
311,218
|
|
|
$
|
142,004
|
|
|
$
|
1,116,139
|
|
|
$
|
—
|
|
|
$
|
1,116,139
|
|
|
Intersegment net revenues
|
(227)
|
|
|
(245)
|
|
|
(2,801)
|
|
|
(3,273)
|
|
|
—
|
|
|
(3,273)
|
|
|
Net revenues from external customers
|
$
|
662,690
|
|
|
$
|
310,973
|
|
|
$
|
139,203
|
|
|
$
|
1,112,866
|
|
|
$
|
—
|
|
|
$
|
1,112,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment and restructuring charges
|
$
|
1,020
|
|
|
$
|
506
|
|
|
$
|
(174)
|
|
|
$
|
1,352
|
|
|
$
|
(33)
|
|
|
$
|
1,319
|
|
|
Adjusted EBITDA
|
$
|
92,411
|
|
|
$
|
39,970
|
|
|
$
|
18,494
|
|
|
$
|
150,875
|
|
|
$
|
(20,125)
|
|
|
$
|
130,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
658,705
|
|
|
$
|
287,703
|
|
|
$
|
148,281
|
|
|
$
|
1,094,689
|
|
|
$
|
—
|
|
|
$
|
1,094,689
|
|
|
Intersegment net revenues
|
(268)
|
|
|
(13)
|
|
|
(2,455)
|
|
|
(2,736)
|
|
|
—
|
|
|
(2,736)
|
|
|
Net revenues from external customers
|
$
|
658,437
|
|
|
$
|
287,690
|
|
|
$
|
145,826
|
|
|
$
|
1,091,953
|
|
|
$
|
—
|
|
|
$
|
1,091,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment and restructuring charges
|
$
|
1,133
|
|
|
$
|
2,258
|
|
|
$
|
4,513
|
|
|
$
|
7,904
|
|
|
$
|
31
|
|
|
$
|
7,935
|
|
|
Adjusted EBITDA
|
$
|
66,671
|
|
|
$
|
30,184
|
|
|
$
|
20,343
|
|
|
$
|
117,198
|
|
|
$
|
(8,250)
|
|
|
$
|
108,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Total Operating
Segments
|
|
Corporate
and
Unallocated
Costs
|
|
Total
Consolidated
|
|
Nine Months Ended September 26, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
1,858,310
|
|
|
$
|
855,198
|
|
|
$
|
379,693
|
|
|
$
|
3,093,201
|
|
|
$
|
—
|
|
|
$
|
3,093,201
|
|
|
Intersegment net revenues
|
(771)
|
|
|
(1,208)
|
|
|
(6,823)
|
|
|
(8,802)
|
|
|
—
|
|
|
(8,802)
|
|
|
Net revenues from external customers
|
$
|
1,857,539
|
|
|
$
|
853,990
|
|
|
$
|
372,870
|
|
|
$
|
3,084,399
|
|
|
$
|
—
|
|
|
$
|
3,084,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment and restructuring charges
|
$
|
3,229
|
|
|
$
|
2,660
|
|
|
$
|
923
|
|
|
$
|
6,812
|
|
|
$
|
3,318
|
|
|
$
|
10,130
|
|
|
Adjusted EBITDA
|
$
|
232,516
|
|
|
$
|
91,650
|
|
|
$
|
42,454
|
|
|
$
|
366,620
|
|
|
$
|
(35,644)
|
|
|
$
|
330,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
$
|
1,893,273
|
|
|
$
|
888,174
|
|
|
$
|
447,004
|
|
|
$
|
3,228,451
|
|
|
$
|
—
|
|
|
$
|
3,228,451
|
|
|
Intersegment net revenues
|
(1,358)
|
|
|
(133)
|
|
|
(5,760)
|
|
|
(7,251)
|
|
|
—
|
|
|
(7,251)
|
|
|
Net revenues from external customers
|
$
|
1,891,915
|
|
|
$
|
888,041
|
|
|
$
|
441,244
|
|
|
$
|
3,221,200
|
|
|
$
|
—
|
|
|
$
|
3,221,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment and restructuring charges
|
$
|
5,281
|
|
|
$
|
4,210
|
|
|
$
|
6,932
|
|
|
$
|
16,423
|
|
|
$
|
965
|
|
|
$
|
17,388
|
|
|
Adjusted EBITDA
|
$
|
206,985
|
|
|
$
|
86,810
|
|
|
$
|
57,981
|
|
|
$
|
351,776
|
|
|
$
|
(25,968)
|
|
|
$
|
325,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliations of net income to Adjusted EBITDA are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
(amounts in thousands)
|
September 26, 2020
|
|
September 28, 2019
|
|
September 26, 2020
|
|
September 28, 2019
|
|
|
|
Net income
|
$
|
25,480
|
|
|
$
|
17,042
|
|
|
$
|
48,347
|
|
|
$
|
55,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
15,969
|
|
|
22,500
|
|
|
27,569
|
|
|
45,030
|
|
|
|
|
Depreciation and amortization
|
33,538
|
|
|
34,921
|
|
|
99,755
|
|
|
99,749
|
|
|
|
|
Interest expense, net
|
18,784
|
|
|
17,571
|
|
|
54,464
|
|
|
53,719
|
|
|
|
|
Impairment and restructuring charges(1)
|
1,355
|
|
|
8,217
|
|
|
10,393
|
|
|
18,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on sale of property and equipment
|
(287)
|
|
|
1
|
|
|
(2,697)
|
|
|
1,081
|
|
|
|
|
Share-based compensation expense
|
2,767
|
|
|
4,108
|
|
|
11,662
|
|
|
10,585
|
|
|
|
|
Non-cash foreign exchange transaction/translation (income) loss
|
2,963
|
|
|
(182)
|
|
|
10,558
|
|
|
3,615
|
|
|
|
|
Other items (2)
|
30,181
|
|
|
4,770
|
|
|
70,755
|
|
|
37,586
|
|
|
|
|
Costs relating to debt restructuring and debt refinancing
|
—
|
|
|
—
|
|
|
170
|
|
|
—
|
|
|
|
|
Other non-cash items (3)
|
—
|
|
|
—
|
|
|
—
|
|
|
734
|
|
|
|
|
Adjusted EBITDA
|
$
|
130,750
|
|
|
$
|
108,948
|
|
|
$
|
330,976
|
|
|
$
|
325,808
|
|
|
|
(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 $36 and $282 for the three months ended September 26, 2020 and September 28, 2019, respectively, and $263 and $1,146 for the nine months ended September 26, 2020 and September 28, 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 September 26, 2020 (1) $27,760 in legal costs and professional expenses relating primarily to litigation, (2) $1,289 in facility closure, consolidation, and startup costs, and (3) $1,142 of realized losses on hedges of intercompany notes; (ii) in the three months ended September 28, 2019 (1) $3,599 in legal costs and professional expenses relating primarily to litigation, (2) ($3,021) of realized gains on hedges of intercompany notes, (3) $2,557 in facility closure, consolidation, and startup costs, and (4) $1,435 in acquisition and integration costs; (iii) in the nine months ended September 26, 2020 (1) $62,460 in legal costs and professional expenses relating primarily to litigation, (2) $5,366 in facility closure, consolidation, and startup costs, (3) $1,235 in one-time lease termination charges, and (4) $1,142 of realized losses on hedges of intercompany notes; (iv) in the nine months ended September 28, 2019 (1) $15,708 in facility closure, consolidation, and startup costs, (2) $13,432 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) $9,887 in legal costs and professional expenses relating primarily to litigation, (4) ($3,053) of realized gains on hedges of intercompany notes, (5) $987 in miscellaneous costs, and (6) $625 in costs related to departure of former executives.
(3)Other non-cash items include $734 in the nine months ended September 28, 2019 for inventory adjustments.
The prior period information has been reclassified to conform with current period presentation.
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 September 26, 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 September 26, 2020, $170.0 million was remaining under the repurchase authorization.
We did not repurchase shares during the three months ended September 26, 2020 or September 28, 2019. During the nine months ended September 26, 2020 and September 28, 2019, we repurchased 265,589 and 1,192,419 shares of our Common Stock, respectively, at an average price per share of $18.83 and $16.77, respectively.
Note 15. Earnings Per Share
The basic and diluted income per share calculations were determined based on the following share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
|
September 26, 2020
|
|
September 28, 2019
|
|
September 26, 2020
|
|
September 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding shares of Common Stock basic
|
100,609,593
|
|
|
100,572,016
|
|
|
100,587,734
|
|
|
100,615,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units, performance share units, and options to purchase Common Stock
|
1,169,359
|
|
|
809,960
|
|
|
853,229
|
|
|
804,764
|
|
|
|
|
Weighted average outstanding shares of Common Stock diluted
|
101,778,952
|
|
|
101,381,976
|
|
|
101,440,963
|
|
|
101,419,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 per share as their inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
|
September 26, 2020
|
|
September 28, 2019
|
|
September 26, 2020
|
|
September 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock options
|
1,707,245
|
|
|
1,678,874
|
|
|
1,800,778
|
|
|
1,711,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
419,097
|
|
|
40,707
|
|
|
396,631
|
|
|
201,254
|
|
|
|
|
Performance share units
|
270,827
|
|
|
11,525
|
|
|
306,526
|
|
|
299,856
|
|
|
|
Note 16. Stock Compensation
The activity under our incentive plans for the periods presented are reflected in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
September 26, 2020
|
|
September 28, 2019
|
|
|
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Options granted
|
—
|
|
|
$
|
—
|
|
|
18,226
|
|
|
$
|
20.88
|
|
|
Options canceled
|
43,179
|
|
|
$
|
27.73
|
|
|
68,940
|
|
|
$
|
25.79
|
|
|
Options exercised
|
97,150
|
|
|
$
|
11.75
|
|
|
72,667
|
|
|
$
|
12.25
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
RSUs granted
|
169,288
|
|
|
$
|
16.48
|
|
|
260,219
|
|
|
$
|
18.08
|
|
|
|
|
|
|
|
|
|
|
|
PSUs granted
|
—
|
|
|
$
|
—
|
|
|
14,367
|
|
|
$
|
22.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
September 26, 2020
|
|
September 28, 2019
|
|
|
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Shares
|
|
Weighted Average Exercise Price Per Share
|
|
Options granted
|
407,607
|
|
|
$
|
24.30
|
|
|
443,170
|
|
|
$
|
20.94
|
|
|
Options canceled
|
159,354
|
|
|
$
|
26.51
|
|
|
238,142
|
|
|
$
|
26.36
|
|
|
Options exercised
|
201,530
|
|
|
$
|
11.68
|
|
|
459,724
|
|
|
$
|
9.44
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
RSUs granted
|
856,203
|
|
|
$
|
19.59
|
|
|
914,207
|
|
|
$
|
20.02
|
|
|
|
|
|
|
|
|
|
|
|
PSUs granted
|
311,275
|
|
|
$
|
25.50
|
|
|
401,935
|
|
|
$
|
22.21
|
|
Stock-based compensation expense was $2.8 million and $11.7 million for the three and nine months ended September 26, 2020, respectively, and $4.2 million and $10.6 million for the three and nine months ended September 28, 2019, respectively. As of September 26, 2020, we had $33.7 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 1.97 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 nine months ended September 26, 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 and nine months ended September 28, 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 September 26, 2020
|
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
569
|
|
|
$
|
445
|
|
|
$
|
359
|
|
|
$
|
—
|
|
|
$
|
1,373
|
|
|
Other exit costs
|
—
|
|
|
2
|
|
|
(623)
|
|
|
(33)
|
|
|
(654)
|
|
|
Total restructuring costs
|
569
|
|
|
447
|
|
|
(264)
|
|
|
(33)
|
|
|
719
|
|
|
Impairments
|
451
|
|
|
59
|
|
|
90
|
|
|
—
|
|
|
600
|
|
|
Total impairment and restructuring charges
|
$
|
1,020
|
|
|
$
|
506
|
|
|
$
|
(174)
|
|
|
$
|
(33)
|
|
|
$
|
1,319
|
|
|
Three Months Ended September 28, 2019
|
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
6
|
|
|
$
|
2,022
|
|
|
$
|
1,726
|
|
|
$
|
44
|
|
|
$
|
3,798
|
|
|
Other exit costs
|
16
|
|
|
236
|
|
|
814
|
|
|
(13)
|
|
|
1,053
|
|
|
Total restructuring costs
|
22
|
|
|
2,258
|
|
|
2,540
|
|
|
31
|
|
|
4,851
|
|
|
Impairments
|
1,111
|
|
|
—
|
|
|
1,973
|
|
|
—
|
|
|
3,084
|
|
|
Total impairment and restructuring charges
|
$
|
1,133
|
|
|
$
|
2,258
|
|
|
$
|
4,513
|
|
|
$
|
31
|
|
|
$
|
7,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
North
America
|
|
Europe
|
|
Australasia
|
|
Corporate
and
Unallocated
Costs
|
|
Total
Consolidated
|
|
Nine Months Ended September 26, 2020
|
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
2,022
|
|
|
$
|
1,471
|
|
|
$
|
542
|
|
|
$
|
(10)
|
|
|
$
|
4,025
|
|
|
Other exit costs
|
(1)
|
|
|
235
|
|
|
227
|
|
|
(31)
|
|
|
430
|
|
|
Total restructuring costs
|
2,021
|
|
|
1,706
|
|
|
769
|
|
|
(41)
|
|
|
4,455
|
|
|
Impairments
|
1,208
|
|
|
954
|
|
|
154
|
|
|
3,359
|
|
|
5,675
|
|
|
Total impairment and restructuring charges
|
$
|
3,229
|
|
|
$
|
2,660
|
|
|
$
|
923
|
|
|
$
|
3,318
|
|
|
$
|
10,130
|
|
|
Nine Months Ended September 28, 2019
|
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
2,166
|
|
|
$
|
3,693
|
|
|
$
|
3,262
|
|
|
$
|
1,005
|
|
|
$
|
10,126
|
|
|
Other exit costs
|
50
|
|
|
356
|
|
|
1,227
|
|
|
(40)
|
|
|
1,593
|
|
|
Total restructuring costs
|
2,216
|
|
|
4,049
|
|
|
4,489
|
|
|
965
|
|
|
11,719
|
|
|
Impairments
|
3,065
|
|
|
161
|
|
|
2,443
|
|
|
—
|
|
|
5,669
|
|
|
Total impairment and restructuring charges
|
$
|
5,281
|
|
|
$
|
4,210
|
|
|
$
|
6,932
|
|
|
$
|
965
|
|
|
$
|
17,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term restructuring accruals are recorded in accrued expenses and totaled $1.5 million and $6.1 million as of September 26, 2020 and December 31, 2019, respectively. Long-term restructuring accruals are recorded in deferred credits and other liabilities and totaled $0.2 million and $1.0 million as of September 26, 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
|
|
September 26, 2020
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
5,314
|
|
|
$
|
4,025
|
|
|
$
|
(8,023)
|
|
|
$
|
1,316
|
|
|
Other exit costs
|
1,729
|
|
|
430
|
|
|
(1,814)
|
|
|
345
|
|
|
Total
|
$
|
7,043
|
|
|
$
|
4,455
|
|
|
$
|
(9,837)
|
|
|
$
|
1,661
|
|
|
September 28, 2019
|
|
|
|
|
|
|
|
|
Severance costs
|
$
|
5,353
|
|
|
$
|
10,126
|
|
|
$
|
(11,067)
|
|
|
$
|
4,412
|
|
|
Other exit costs
|
3,287
|
|
|
1,593
|
|
|
(2,009)
|
|
|
2,871
|
|
|
Total
|
$
|
8,640
|
|
|
$
|
11,719
|
|
|
$
|
(13,076)
|
|
|
$
|
7,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 18. Other Expense (Income)
The table below summarizes the amounts included in other expense (income) in the accompanying unaudited consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
(amounts in thousands)
|
September 26, 2020
|
|
September 28, 2019
|
|
September 26, 2020
|
|
September 28, 2019
|
|
|
|
Foreign currency losses (gains)
|
$
|
4,316
|
|
|
$
|
(5,374)
|
|
|
$
|
8,390
|
|
|
$
|
(5,195)
|
|
|
|
|
Governmental pandemic assistance reimbursement
|
(1,493)
|
|
|
—
|
|
|
(7,374)
|
|
|
—
|
|
|
|
|
Insurance reimbursement
|
(1,257)
|
|
|
—
|
|
|
(1,257)
|
|
|
—
|
|
|
|
|
Pension expense
|
344
|
|
|
2,726
|
|
|
975
|
|
|
8,126
|
|
|
|
|
(Gain) loss on sale of business units, property, and equipment
|
(287)
|
|
|
240
|
|
|
(2,697)
|
|
|
(1,551)
|
|
|
|
|
Other items
|
(244)
|
|
|
(279)
|
|
|
(1,487)
|
|
|
(1,421)
|
|
|
|
|
Legal settlement income
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,247)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense (income)
|
$
|
1,379
|
|
|
$
|
(2,687)
|
|
|
$
|
(3,450)
|
|
|
$
|
(1,288)
|
|
|
|
Governmental pandemic assistance reimbursement for the three and nine months ended September 26, 2020 primarily consisted of cash received from governmental pandemic assistance programs within our North America and Europe segments as a result of COVID-19.
The prior period information has been reclassified to conform to current period presentation.
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, we assess, both at inception and on an ongoing basis, whether the derivative financial instrument is highly effective in offsetting cash flows of the hedged item and whether it is probable that the hedged forecasted transaction will occur. Changes in the fair value related to the derivatives considered highly effective are initially recorded in accumulated other comprehensive income and 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 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. 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 have foreign currency derivative contracts with a total notional amount of $105.5 million. We have foreign currency derivative contracts, with a total notional amount of $24.0 million, to hedge the effects of translation gains and losses on intercompany loans and interest. 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 have foreign currency derivative contracts with a total notional amount of $97.8 million. 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 $0.2 million and gains of $3.0 million in the three and nine months ended September 26, 2020, respectively, and gains of $0.1 million and losses of $2.7 million in the three and nine months ended September 28, 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 May 2020, we entered into interest rate swap agreements to manage this risk. The interest rate swaps have outstanding notional amounts aggregating to $370.0 million and mature in December 2023 with a weighted average fixed rate of 0.395% paid against one-month LIBOR floored at 0.00%. The interest rate swap agreements are designated as cash flow hedges and will effectively change the base rate on a corresponding portion of the aggregate debt outstanding under our Term Loan Facility.
No portion of these interest rate contracts were deemed ineffective during the three and nine months ended September 26, 2020. We recorded a cumulative pre-tax mark-to-market loss of $0.5 million and $2.2 million, offset by a cumulative tax benefit of $0.2 million and $0.6 million in consolidated other comprehensive income during the three and nine months ended September 26, 2020, respectively. We reclassified $0.2 million previously recorded in other comprehensive income to interest expense and $0.1 million as a benefit to income tax expense. These reclassifications of interest rate hedge adjustments resulted in a $0.1 million decrease in net income during the three and nine months ended September 26, 2020, respectively.
As of September 26, 2020, approximately $0.9 million is expected to be reclassified to interest expense over the next 12 months.
The derivative agreements with our swap counterparties contain a provision whereby we could be declared in default on our derivative obligations if we either default or, in certain cases, are capable of being declared in default of any of our indebtedness greater than specified thresholds. These agreements also contain a provision where we could be declared in default subsequent to a merger or restructuring type event if the creditworthiness of the resulting entity is materially weaker.
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 and nine months ended September 26, 2020 and September 28, 2019.
In conjunction with the December 2017 refinancing of the Term Loan Facility, 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 and $1.3 million during the three and nine months ended September 28, 2019.
The fair values of derivative instruments held are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
(amounts in thousands)
|
Balance Sheet Location
|
|
September 26, 2020
|
|
December 31, 2019
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward contracts
|
Other current assets
|
|
$
|
3,097
|
|
|
$
|
1,372
|
|
|
Interest rate cap contracts
|
Other assets
|
|
$
|
—
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives liabilities
|
|
(amounts in thousands)
|
Balance Sheet Location
|
|
September 26, 2020
|
|
December 31, 2019
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
Interest rate contracts
|
Accrued expenses and other current liabilities
|
|
$
|
809
|
|
|
$
|
—
|
|
|
Interest rate contracts
|
Deferred credits and other liabilities
|
|
$
|
1,213
|
|
|
$
|
—
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
Foreign currency forward contracts
|
Accrued expenses and other current liabilities
|
|
$
|
2,870
|
|
|
$
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 26, 2020
|
|
(amounts in thousands)
|
Carrying Amount
|
|
Total
Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
325,121
|
|
|
$
|
325,121
|
|
|
$
|
—
|
|
|
$
|
325,121
|
|
|
$
|
—
|
|
|
|
|
Derivative assets, recorded in other current assets
|
3,097
|
|
|
3,097
|
|
|
—
|
|
|
3,097
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, recorded in long-term debt and current maturities of long-term debt
|
$
|
1,781,354
|
|
|
$
|
1,791,474
|
|
|
$
|
—
|
|
|
$
|
1,791,474
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, recorded in accrued expenses and other current liabilities
|
3,679
|
|
|
3,679
|
|
|
—
|
|
|
3,679
|
|
|
—
|
|
|
|
|
Derivative liabilities, recorded in deferred credits and other liabilities
|
1,213
|
|
|
1,213
|
|
|
—
|
|
|
1,213
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
—
|
|
|
|
|
Derivative assets, recorded in other assets
|
6
|
|
|
6
|
|
|
—
|
|
|
6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt, recorded in long-term debt and current maturities of long-term debt
|
$
|
1,528,146
|
|
|
$
|
1,554,425
|
|
|
$
|
—
|
|
|
$
|
1,554,425
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, recorded in accrued expenses and other current assets
|
4,068
|
|
|
4,068
|
|
|
—
|
|
|
4,068
|
|
|
—
|
|
|
|
Derivative assets and liabilities reported in level 2 include foreign currency and interest rate contracts. See Note 19- Derivative Financial Instruments for additional information about our derivative assets and liabilities.
There are no material non-financial assets or liabilities as of September 26, 2020 or December 31, 2019.
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 September 26, 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, Inc. – 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 “Original Action”). 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 was heard by the Fourth Circuit Court of Appeals on May 29, 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 in connection with the Original Action. 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 (the “Pricing Action”). We 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 and going forward through the end of the parties’ current supply agreement. We opposed that request for further relief (the “Future Pricing Action”).
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 (the “Steves Texas Trade Secret Theft Action”). 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 (the “Allocation Action”). Steves sought 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, 2020 and reserved the right to appeal the ruling in the Fourth Circuit Court of Appeals. The Company believed all the claims lacked merit and moved to dismiss the antitrust and tortious interference claims.
On June 2, 2020, we entered into a settlement agreement with Steves to resolve the Pricing Action, the Future Pricing Action, and the Allocation Action. As a result of the settlement, Steves filed a notice of satisfaction of judgment in the Pricing Action, withdrew its Future Pricing Action with prejudice, and filed a stipulated dismissal with prejudice in the Allocation Action. The Company also withdrew its appeal of the Pricing Action. The parties agreed to bear their own respective attorneys’ fees and costs in these actions. In partial consideration of the settlement, JWI and Steves entered into an amended supply agreement satisfactory to both parties that ends on September 10, 2021. This settlement has no effect on the Original Action between the parties that is currently on appeal in the Fourth Circuit except to agree that certain specific terms of the Amended Final Judgment Order in the Original Action will apply to the amended supply agreement during the pendency of the appeal of the Original Action, nor does this settlement have any effect on the Steves Texas Trade Secret Theft Action, which remains on appeal in the Fourth Circuit. We continue to believe the claims in the settled actions lacked merit and made no admission of liability in these matters.
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. On May 8, 2020, the Public Employees Retirement System of Mississippi and the Plumbers and Pipefitters National Pension Fund were named as co-lead plaintiffs and filed an amended complaint on June 22, 2020. We filed a motion to dismiss the amended complaint on July 29, 2020, which was denied on October 26, 2020. Trial in this matter is currently set for May 24, 2021.
In Re: Interior Molded Doors Antitrust Litigation – On October 19, 2018, Grubb Lumber Company, on behalf of itself and other 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 were consolidated into two separate actions, a Direct Purchaser Action and an Indirect Purchaser Action. The suits allege that Masonite and JELD-WEN 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 sought ordinary and treble damages, declaratory relief, interest, costs and attorneys’ fees.
The Company believes the claims lack merit and vigorously defended against the actions. On September 18, 2019, the court granted in part and denied in part the defendants’ motions to dismiss the lawsuits, dismissing various state law claims and limiting plaintiffs’ damages claims to a four-year period (from 2014-2018) under the applicable statute of limitations. Together with Masonite, we filed motions to oppose class certification in both the Direct Purchaser and Indirect Purchaser Actions on May 19, 2020.
On August 31, 2020, JELD-WEN and Masonite entered into a settlement agreement to resolve the Direct Purchaser Action. In exchange for a full release of claims through the date of preliminary court approval of the settlement, each defendant agreed to pay $28.0 million to the named plaintiffs and the settlement class. In addition, on September 4, 2020, JELD-WEN and Masonite entered into a separate settlement agreement to resolve the Indirect Purchaser Action. Each defendant agreed to pay $9.75 million to the named plaintiffs and the settlement class in exchange for a full release of claims through the execution date of the settlement agreement. The court entered a minute order preliminarily approving the settlements on October 8, 2020 and set March 16, 2021 as the date for the final fairness hearing. The Company continues to believe that the plaintiffs’ claims lack merit and has denied any liability or wrongdoing for the claims made against the Company. The settlement agreements remain subject to final court approval and other conditions.
Canadian Antitrust Litigation – On May 15, 2020, Développement Émeraude Inc., on behalf of itself and others similarly situated, filed a putative class action lawsuit against us and Masonite in the Superior Court of the Province of Quebec, Canada, which was served on us on September 18, 2020 (“the Quebec Action”). The putative class consists of any person in Canada who, since October 2012, purchased one or more interior molded doors from us or Masonite. The suit alleges an illegal conspiracy between us and Masonite to agree on prices, the distribution of market shares and/or the production levels of interior molded doors and that the plaintiffs suffered damages in that they were charged and paid higher prices for interior molded doors than they would have had to pay but for the alleged anti-competitive conduct. The plaintiffs are seeking compensatory and punitive damages, attorneys’ fees and costs. On September 9, Kate O’Leary Swinkels, on behalf of herself and others similarly situated, filed a putative class action against JELD-WEN and Masonite in federal court in the province of Ontario, which was served on us on September 29, 2020 (the “Ontario Action”). The Ontario Action makes substantially similar allegations to the Quebec Action and the putative class is represented by the same counsel. The Company believes both the Quebec Action and the Ontario Action lack merit and intends to vigorously defend against them.
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 $200.0 million for domestic product liability risk and exposures between $0.5 million and $200.0 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 September 26, 2020 and December 31, 2019, our accrued liability for self-insured risks was $78.3 million and $76.6 million, respectively.
Indemnifications – At September 26, 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’ legal proceeding which were subsequently reduced to $40.0 million. The outstanding performance bonds and stand-by letters of credit were as follows:
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|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
September 26, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
Self-insurance workers’ compensation
|
$
|
24,688
|
|
|
$
|
23,638
|
|
|
Legal
|
40,861
|
|
|
48,561
|
|
|
Liability and other insurance
|
18,208
|
|
|
16,678
|
|
|
Environmental
|
8,286
|
|
|
8,186
|
|
|
Other
|
7,010
|
|
|
5,864
|
|
|
Total outstanding performance bonds and stand-by letters of credit
|
$
|
99,053
|
|
|
$
|
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 September 26, 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 September 26, 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 first quarter of 2021, 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:
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|
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|
Three Months Ended
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|
Nine Months Ended
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
September 26, 2020
|
|
September 28, 2019
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|
September 26, 2020
|
|
September 28, 2019
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|
|
|
Components of pension benefit expense - U.S. benefit plan:
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|
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|
|
|
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|
Administrative cost
|
$
|
775
|
|
|
$
|
1,250
|
|
|
$
|
2,325
|
|
|
$
|
3,750
|
|
|
|
|
Interest cost
|
3,050
|
|
|
3,725
|
|
|
9,150
|
|
|
11,175
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|
|
|
|
Expected return on plan assets
|
(5,475)
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|
|
(4,650)
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|
|
(16,425)
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|
|
(13,950)
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|
|
|
|
Amortization of net actuarial pension loss
|
1,725
|
|
|
2,225
|
|
|
5,175
|
|
|
6,675
|
|
|
|
|
Pension benefit expense
|
$
|
75
|
|
|
$
|
2,550
|
|
|
$
|
225
|
|
|
$
|
7,650
|
|
|
|
During the three and nine months ended September 26, 2020, we made required contributions to our U.S. defined benefit pension plan or “Plan”, of $1.1 million and $2.7 million, respectively, and voluntary contributions of $1.7 million. During
the three and nine months ended September 28, 2019, we made required contributions to the Plan of $3.1 million and $6.1 million, respectively, and voluntary contributions of $0.1 million. We have no additional required contributions for the Plan in 2020.
During the three months ended June 27, 2020, we elected to utilize the alternative method when calculating the Pension Benefit Guarantee Corporation premiums for 2020 and the succeeding 4 years, rather than the standard method utilized during the previous 5 years, resulting in a reduction to pension benefit expenses in the nine month period ending September 26, 2020.
Note 23. Supplemental Cash Flow Information
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|
|
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|
|
|
|
|
|
Nine Months Ended
|
|
|
|
(amounts in thousands)
|
September 26, 2020
|
|
September 28, 2019
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|
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|
|
Cash Operating Activities:
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|
|
|
|
|
|
Operating leases
|
$
|
43,115
|
|
|
$
|
41,812
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|
|
|
|
Finance leases
|
141
|
|
|
86
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|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
$
|
43,256
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|
|
$
|
41,898
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|
|
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|
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|
|
Non-cash Investing Activities:
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|
|
|
|
|
|
Property, equipment and intangibles purchased in accounts payable
|
$
|
2,844
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|
|
$
|
7,657
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|
|
|
|
Property, equipment and intangibles purchased for debt
|
13,571
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|
|
29,813
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|
|
|
|
|
|
|
|
|
|
|
Customer accounts receivable converted to notes receivable
|
820
|
|
|
538
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Financing Activities:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Proceeds from issuance of new debt
|
$
|
250,000
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|
|
$
|
124,375
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|
|
|
|
Borrowings on long-term debt
|
893
|
|
|
6,282
|
|
|
|
|
Payments of long-term debt
|
(24,668)
|
|
|
(104,954)
|
|
|
|
|
Payments of debt issuance and extinguishment costs, including underwriting fees
|
(4,583)
|
|
|
(635)
|
|
|
|
|
Change in long-term debt
|
$
|
221,642
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|
|
$
|
25,068
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|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of finance lease liabilities
|
$
|
1,167
|
|
|
$
|
597
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash Financing Activities:
|
|
|
|
|
|
|
Debt issuance costs deducted from long-term debt borrowings in accounts payable
|
$
|
250
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid insurance funded through short-term debt borrowings
|
10,785
|
|
|
4,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid ERP costs funded through short-term debt borrowings
|
—
|
|
|
1,430
|
|
|
|
|
Shares surrendered for tax obligations for employee share-based transactions in accrued liabilities
|
178
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable converted to installment notes
|
914
|
|
|
757
|
|
|
|
|
|
|
|
|
|
|
|
Other Supplemental Cash Flow Information:
|
|
|
|
|
|
|
Cash taxes paid, net of refunds
|
$
|
14,197
|
|
|
$
|
21,026
|
|
|
|
|
Cash interest paid
|
37,457
|
|
|
38,832
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
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 September 26, 2020, the remaining balance is $1.9 million. At September 26, 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 – In conjunction with our acquisition of VPI, we assumed operating leases on two buildings with a former shareholder of VPI and current employee. The leases 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. At September 26, 2020, the operating lease asset is $3.6 million.
