What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-02-23 compared with 2020-02-24 · 191 added, 207 removed, 429 unchanged (48% of the section changed)

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We design, produce, and distribute an extensive range of interior and exterior doors, wood, vinyl, and aluminum windows, and related products for use in the new construction, R&R of residential homes, and, to a lesser extent, non-residential buildings.

We operate manufacturing and distribution facilities in approximately 20 countries, located primarily in North America, Europe, and Australia.

For many product lines, our manufacturing processes are vertically integrated, enhancing our range of

capabilities, our ability to innovate, and our quality control as well as providing supply chain, transportation, and working capital savings.

We operate manufacturing and distribution facilities in 19 countries, located primarily in North America, Europe, and Australia.

For many product lines, our manufacturing processes are vertically integrated, enhancing our range of capabilities, our ability to innovate, and our quality control as well as providing supply chain, transportation, and working capital savings.

In October 2011, certain funds managed by affiliates of Onex acquired a majority of the combined voting power in the Company through the acquisition of convertible debt and convertible preferred equity.

In February 2017, we closed on the IPO of 28.75 million shares of our common stock at a public offering price of $23.00, resulting in net proceeds to us of $472.4 million after deducting underwriters’ discounts and commissions and other offering expenses.

We used a portion of the net proceeds from the IPO to repay $375.0 million of indebtedness outstanding under our Term Loan Facility and used the remaining net proceeds for working capital and other general corporate purposes, including sales and marketing activities, general and administrative matters, capital expenditures, and to invest in or acquire complementary businesses, products, services, technologies, or other assets.

In May and November 2017, we completed secondary public offerings of 16.1 million and 14.4 million shares, respectively, of our Common Stock, substantially all of which were owned by Onex.

After the Onex investment, we began the transformation of our business from a family-run operation to a global organization with independent, professional management.

The transformation accelerated after 2013 with the hiring of a new senior management team strategically recruited from a number of world-class industrial companies.

Our current management team has extensive experience driving operational improvement, innovation, and growth, both organically and through acquisitions.

As of December 31, 2020, Onex owned approximately 33% of our outstanding shares of Common Stock.

In February 2017, we completed an initial public offering of our Common Stock on the New York Stock Exchange under the symbol “JELD”.

Business Segments

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We have three reportable segments:

North America (which includes limited activity in Chile), Europe, and Australasia.

North America, Europe, and Australasia.

Financial information related to our business segments can be found in Note 16 - Segment Information of our financial statements included elsewhere in this 10-K.

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VPI is located in Spokane, Washington.

VPI is now part of our North America segment.

We paid approximately $57.8 million in cash (net of cash acquired) for the acquisition of VPI.

VPI is part of our North America segment.

We paid $57.8 million in cash, net of cash acquired, for the acquisition of VPI.

In April 2018, we acquired the assets of D&K, a long-standing supplier of cavity sliders to our Corinthian Doors business.

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Domoferm is part of our Europe segment.

In August 2017, we acquired the Kolder Group, headquartered in Smithfield, Australia.

Kolder is a leading Australian provider of shower enclosures, closet systems, and related building products, with leading positions in both the commercial and residential markets.

Kolder is part of our Australasia segment.

The acquisition significantly enhances our existing Australian capabilities in glass shower enclosures and built-in closet systems and supports our strategy to build leadership positions in attractive markets.

In August 2017, we acquired MMI Door, headquartered in Sterling Heights, Michigan.

MMI Door is a leading provider of doors and related value-added services in the Midwest region of the U.S.

and is part of our North America segment.

The acquisition complements our North America door business and allows us to improve service offerings and lead times to our channel partners.

In June 2017, we acquired Mattiovi, headquartered in Finland.

Mattiovi is a leading manufacturer of interior doors and door frames in Finland and is part of our Europe segment.

The acquisition enhances our market position in the Nordic region, increases our product offering, and also provides us with additional door frame capacity to support growth in the region.

We paid an aggregate of approximately $ 356.8 million in cash (net of cash acquired) for the 2017, 2018, and 2019 acquisitions.

In addition, we assumed debt of approximately $70.6 million associated with our 2018 acquired companies.

We assumed no debt in our 2017 or 2019 acquisitions.

For additional information on our acquisition activity, see Note 2 - Acquisitions to our consolidated financial statements.

We paid an aggregate of approximately $229.2 million in cash, including contingent consideration, (net of cash acquired) for the 2019 and 2018 acquisitions.

In addition, we assumed no debt in our 2019 acquisition and we assumed debt of approximately $70.6 million associated with our 2018 acquired companies.

For additional information on our acquisition activity, see Note 2 - Acquisitions of our financial statements included elsewhere in this 10-K.

Factors and Trends Affecting Our Business

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• innovating and developing new products and technologies;

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

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

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

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While we operate in competitive markets, pricing discipline is an important element of our strategy to achieve profitable growth through improved margins.

Our strategies also include incentivizing our channel partners to sell our higher margin products, and we believe a renewed focus on innovation and the development of new technologies will increase our sales volumes and the overall profitability of our product mix.

Our strategy also includes incentivizing our channel partners to sell our higher margin products, and we believe a renewed focus on innovation and the development of new technologies will increase our sales volumes and the overall profitability of our product mix.

Cost Reduction Initiatives

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In particular, the exchange rates used to translate our foreign subsidiaries’ financial results for the year ended December 31, 2020 compared to the year ended December 31, 2019 reflected, on average, the U.S.

dollar strengthened against the Euro, Australian dollar, and Canadian dollar by 6%, 8%, and 3%, respectively.

See Item 1A- Risk Factors - Risks Relating to Our Business and Industry, Item 1A- Risk Factors - Exchange

rate fluctuations may impact our business, financial condition, and results of operations, and Item 7A- Quantitative and Qualitative Disclosures About Market Risk- Exchange Rate Risk.

Public Company Costs

As a public company, we incur additional legal, accounting, board compensation, and other expenses that we did not previously incur, including costs associated with SEC reporting and corporate governance requirements, and other requirements associated with operating as a public company.

These requirements include compliance with the Sarbanes-Oxley Act as well as other rules implemented by the SEC and the national securities exchanges.

Our financial statements following our IPO reflect the impact of these expenses.

dollar strengthened against both the Australian dollar and Canadian dollar by 1% and weakened against the Euro by 2%.

See Item 1A- Risk Factors - Risks Relating to Our Business and Industry, Item 1A- Risk Factors - Exchange rate fluctuations may impact our business, financial condition, and results of operations, and Item 7A- Quantitative and Qualitative Disclosures About Market Risk- Exchange Rate Risk.

Components of our Operating Results

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Cost of Sales

Cost of sales consists primarily of material costs, direct labor and benefit costs, including payroll taxes, repair and maintenance, depreciation, utility, rent and warranty expenses, outbound freight, and insurance and benefits, supervision and tax expenses.

Detail for each of these items is provided below.

Cost of sales consists primarily of material costs, direct labor and benefit costs, including payroll taxes, repair and maintenance, depreciation, utility, rent and warranty expenses, outbound freight, insurance and benefits, supervision and tax expenses.

Material Costs.

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Interest Expense, Net

Interest expense, net relates primarily to interest payments on our then-outstanding credit facilities (and debt securities) as well as amortization of any original issue discount or debt issuance costs.

Interest expense, net relates primarily to interest payments on our then-outstanding credit facilities and debt securities, as well as commitment fees and amortization of any original issue discount or debt issuance costs.

Debt issuance costs are included as an offset to long-term debt in the accompanying consolidated balance sheets and are amortized to interest expense over the life of the applicable facility using the effective interest method.

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Other Income (Expense), Net

Other income (expense), net includes profit and losses related to various miscellaneous non-operating expenses primarily relating to pension benefit expenses, gain on previously held shares of an equity investment, loss on extinguishment of debt, and certain foreign currency related gains and losses.

Other income (expense), net includes profit and losses related to various miscellaneous non-operating expenses primarily relating to pension benefit expenses, governmental pandemic assistance reimbursements relating to COVID-19, gain on previously held shares of an equity investment, legal settlement income, insurance reimbursements, gains and losses on sale of business units, property, and equipment, and certain foreign currency related gains and losses, including from our hedging activities used to mitigate foreign exchange impacts.

Income taxes are recorded using the asset and liability method of accounting for income taxes.

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federal, state, and foreign net operating loss (“NOL”) carryforwards were $1,428.9 million in the aggregate and $94.1 million of such NOL carryforwards do not expire.

The Tax Act passed in December 2017 had significant effects on our financial statements.

The Tax Act passed in December 2017 continues to have significant effects on our financial statements primarily through Treasury regulations, whether proposed or final, which continue to be issued in relation to specific provisions of the Tax Act.

In accordance with Staff Accounting Bulletin #118 issued by the SEC in December 2017 immediately following the passage of the Tax Act, we made provisional estimates for certain direct and indirect effects of the Tax Act for the year ended December 31, 2017.

In the fourth quarter of 2018, we completed our accounting for all of the enactment-date income tax effects of the Tax Act and included any adjustments as a component of income tax expense from continuing operations.

In the fourth quarter of 2018, we completed our accounting for the enactment-date income tax effects of the Tax Act and included any adjustments as a component of income tax expense from continuing operations.

The Tax Act subjects a U.S.

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For additional details, see Note 15 - Income Taxes in our financial statements for the year ended December 31, 2020 included elsewhere in this 10-K.

Significant Developments

In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic.

In the following weeks, global restrictions, including stay at home and similar orders, were implemented in a significant number of regions in which we operate.

During the second and third quarters of 2020, we experienced intermittent closures of certain manufacturing facilities due to local and governmental mandates, with disruptions occurring primarily in April and May.

Customer demand and revenue were consistent with our expectations during April and May with high-teens percentage declines from the prior year, however, they improved through the last half of the second quarter and continued to improve throughout the second half of 2020.

We have modified our manufacturing facilities and procedures, based on recommended public health guidelines, to ensure the health and well-being of our employees.

During 2020, we recognized approximately $7.4 million relating to governmental pandemic assistance programs, which are primarily related to reimbursements for additional costs incurred as a result of the outbreak of COVID-19.

We have continued to monitor our liquidity throughout 2020 and increased liquidity compared to the prior year, primarily as a result of issuing $250.0 million of Senior Secured Notes during the second quarter, adding additional collateral to increase our borrowing base and availability under the ABL Facility, and the impact of cost savings measures.

We have taken measures to reduce discretionary spending including, for example, restricted travel, implemented hiring freezes for non-essential positions, delayed merit increases, and suspended all non-critical spending, such as marketing and discretionary projects.

In addition, during the second quarter, we implemented actions to reduce salary costs globally, including our executive leadership team and Board of Directors elected to reduce their second quarter compensation by 25%, and implemented short-term employee furloughs throughout our Company.

During the third and fourth quarters, we reversed certain salary cost cutting initiatives to those negatively impacted.

Further, to maintain sufficient levels of cash and liquidity, we are deferring tax payments where permitted through COVID-19 related government subsidy programs and are actively monitoring our accounts receivable for customers with elevated credit risk.

We are monitoring the situation closely and, if necessary, will relax cost saving measures or implement additional measures as appropriate.

The scope and nature of impacts from COVID-19, most of which are beyond our control, continue to evolve, and the outcome is uncertain.

The ultimate effects of the COVID-19 pandemic on us and the end markets we service, is highly uncertain and will depend on future developments.

Such effects could exist for an extended period even after the pandemic ends.

Results of Operations

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Accordingly, totals may not equal the sum of the line items in the tables below.

The results have been revised to reflect the correction of certain errors and other accumulated misstatements as described in Note 32 - Revision of Prior Period Financial Statements.

Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019

December 31, 2019

December 31, 2018

(amounts in thousands)

December 31, 2020 December 31, 2019

(amounts in thousands) % of Net

Revenues % of Net

Net revenues $ 4,235,677 100.0 % $ 4,289,761 100.0 %

Cost of sales 3,333,770 78.7 % 3,417,222 79.7 %

Gross margin 901,907 21.3 % 872,539 20.3 %

Selling, general and administrative 702,715 16.6 % 660,574 15.4 %

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Interest expense, net 74,800 1.8 % 71,778 1.7 %

Income before taxes and equity earnings

Income tax expense (benefit)

Income from continuing operations, net of tax

Equity earnings of non-consolidated entities

Other income (2,752) (0.1) % (1,409) — %

Income before taxes

116,675 2.8 % 120,045 2.8 %

Income tax expense 25,089 0.6 % 57,074 1.3 %

Net income $ 91,586 2.2 % $ 62,971 1.5 %

Consolidated Results

Net Revenues – Net revenues decreased $54.1 million, or 1.3%, to $4,235.7 million in the year ended December 31, 2020 from $4,289.8 million in the year ended December 31, 2019.

The decrease was due to unfavorable foreign exchange impact of 3% and a decline in core revenue of 2% , partially offset by a 4% contribution from acquisitions.

Core revenue decline consisted of a 4% decrease in volume/mix, offset by a 2% increase in price.

Gross Margin – Gross margin decreased $46.0 million , or 5.0% , to $872.5 million in the year ended December 31, 2019 from $918.5 million in the year ended December 31, 2018 .

The decrease was driven by a decline in core revenue of 2% consisting of a 5% decline in volume/mix, partially offset by a 3% pricing benefit.

Gross Margin – Gross margin increased $29.4 million, or 3.4%, to $901.9 million in the year ended December 31, 2020 from $872.5 million in the year ended December 31, 2019.

Gross margin as a percentage of net revenues was 21.3% in the year ended December 31, 2020 and 20.3% in the year ended December 31, 2019.

The decrease in gross margin and gross margin percentage was due to increased costs related to manufacturing inefficiencies in North America and unfavorable volume/mix within North America and Australasia, partially offset by favorable pricing.

SG&A Expense – SG&A expense decreased $73.6 million , or 10.0% , to $660.6 million in the year ended December 31, 2019 from $734.2 million in the year ended December 31, 2018 .

SG&A expense as a percentage of net revenues was 15.4% for the year ended December 31, 2019 and 16.9% for the year ended December 31, 2018 .

The decrease in SG&A expense was primarily due to a decrease of litigation contingency accruals of $76.5 million and reduction of acquisition and integration costs.

Impairment and Restructuring Charges – Impairment and restructuring charges increased $4.2 million , or 24.4% , to $21.6 million in the year ended December 31, 2019 from $17.3 million in the year ended December 31, 2018 .

The 2019 charges consisted primarily of plant consolidations in our North America and Australasia segments as well as severance costs across all segments and corporate.

The 2018 charges consisted primarily of personnel restructuring costs in our North America, Europe, and Australasia segments, as well as plant consolidations in our North America and Australasia segments.

For more information, refer to Note 23 - Impairment and Restructuring Charges .

Gross margins increased due to sourcing savings and improved pricing, partially offset by unfavorable volume/mix and the effect of inflation on labor compensation.

SG&A Expense – SG&A expense increased $42.1 million, or 6.4%, to $702.7 million in the year ended December 31, 2020 from $660.6 million in the year ended December 31, 2019.

The increase in SG&A expense was primarily due to increased legal expenses, primarily relating to litigation and environmental accruals and fees, and estimated variable compensation, partially offset by reductions in spending relating to sales, marketing and travel as a result of cost saving measures implemented in response to COVID-19, and the non-recurrence of aquisition costs recorded in 2019.

Impairment and Restructuring Charges – Impairment and restructuring charges decreased $11.1 million, or 51.4%, to $10.5 million in the year ended December 31, 2020 from $21.6 million in the year ended December 31, 2019.

Charges incurred in 2020 primarily related to severance charges for ongoing restructuring projects across all segments as well as impairment charges primarily related to capitalized costs of certain ERP modules due to delays in implementation and uncertainty of their future use.

Charges incurred in 2019 primarily related to plant consolidations in our North America and Australasia segments resulting in impairments of ROU assets and property and equipment as well as severance costs across all segments and corporate.

For more information, refer to Note 20 - Impairment and Restructuring Charges to our consolidated financial statements included in this 10-K.

Interest Expense, Net – Interest expense, net, increased $3.0 million, or 4.2%, to $74.8 million in the year ended December 31, 2020 from $71.8 million in the year ended December 31, 2019.

The increase was primarily due to increased borrowings during 2019.

Other Income – Other income decreased $33.5 million , to income of $1.4 million in the year ended December 31, 2019 from income of $34.9 million in the year ended December 31, 2018 .

The other income in the year ended December 31, 2019 was primarily due to foreign currency gains of $7.4 million , a gain on sale of business of $2.8 million and legal settlement income of $1.2 million , partially offset by pension expense of $10.7 million .

Other income in the year ended December 31, 2018 was primarily due to a fair value adjustment of $20.8 million associated with our acquisition of the remaining shares outstanding of an equity investment, legal settlement income of $7.5 million and foreign currency gains of $11.3 million , partially offset by pension expense of $7.0 million .

Income Taxes – Income tax expense in the year ended December 31, 2019 was $57.1 million , compared to tax benefit of $10.1 million in the year ended December 31, 2018 .

The effective tax rate in the year ended December 31, 2019 was an expense of 47.5% compared to a benefit of 7.7% in the year ended December 31, 2018 .

The 2019 tax expense was primarily due to the increases in valuation allowances associated with net operating losses and certain credits of $10.1 million and $4.5 million for the reclassification of an other comprehensive income balance as income tax expense to relieve the disproportionate tax effects associated with the termination of hedge accounting.

The 2018 tax benefit was primarily due to the $40.2 million of deferred tax benefit related to finalizing our provisional estimates connected to the Tax Act, $19.6 million of deferred tax benefit related to the Steves litigation, and $10.2 million of benefit related to our investment in ABS, offset by tax expense of $5.4M million for a net increase to uncertain positions including interest, as well as tax expense associated with strong business results of our foreign subsidiaries such as Australia, Canada, and UK.

The effective tax rate for both periods includes the impact of the GILTI tax.

The increase was primarily due to interest on our Senior Secured Notes issued in May 2020, partially offset by reduced borrowings and interest rates under our revolving credit facilities and a lower cost of borrowing on our Term Loan Facility.

Other Income – Other income increased $1.3 million, or 95.3%, to $2.8 million in the year ended December 31, 2020 from $1.4 million in the year ended December 31, 2019.

The other income in the year ended December 31, 2020 primarily consisted of foreign currency losses of $11.9 million and pension expense of $1.6 million, offset by $7.4 million for cash received as a result of governmental pandemic assistance reimbursements relating to COVID-19, a gain on sale of business units, property and equipment of $4.1 million, and an insurance reimbursement of $1.4 million.

Other income in the year ended December 31, 2019 was primarily due to foreign currency gains of $7.4 million, a gain on the sale of business units, property and equipment of $1.5 million, and legal settlement income of $1.2 million, partially offset by pension expense of $10.7 million.

Income Taxes – Income tax expense decreased $32.0 million, or 56.0%, to $25.1 million in the year ended December 31, 2020 from $57.1 million in the year ended December 31, 2019.

The effective tax rate in the year ended December 31, 2020 was 21.5% compared to 47.5% in the year ended December 31, 2019.

The decrease in income tax expense in 2020 was primarily due to a tax benefit recorded in 2020 as a result of the HTE election and related planning, which resulted in a decrease in the U.S.

valuation allowance, partially offset by tax expense related to a reduction in U.S.

foreign tax credit carryforwards and additional state tax expense related expenses.

For more information, refer to Note 15 – Income Taxes to our consolidated financial statements included in this 10-K.

Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018

December 31, 2018

December 31, 2017

(dollars in thousands)

December 31, 2019 December 31, 2018

(dollars in thousands) % of Net

Revenues % of Net

Net revenues $ 4,289,761 100.0 % $ 4,346,847 100.0 %

Cost of sales 3,417,222 79.7 % 3,428,311 78.9 %

Gross margin 872,539 20.3 % 918,536 21.1 %

Selling, general and administrative 660,574 15.4 % 734,166 16.9 %

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Interest expense, net 71,778 1.7 % 70,818 1.6 %

Other (income) expense

Other income (1,409) — % (34,887) (0.8) %

Income before taxes, equity earnings and discontinued operations

Income tax (benefit) expense

120,045 2.8 % 131,111 3.0 %

Income tax expense (benefit) 57,074 1.3 % (10,058) (0.2) %

Income from continuing operations, net of tax

62,971 1.5 % 141,169 3.2 %

Equity earnings of non-consolidated entities

— — % 738 — %

Net income $ 62,971 1.5 % $ 141,907 3.3 %

Consolidated Results

Net Revenues —Net revenues increased $ 583.1 million , or 15.5% , to $4,346.8 million in the year ended December 31, 2018 from $3,763.7 million in the year ended December 31, 2017 .

The increase was due to a 15% contribution from recent acquisitions and a 1% increase in core revenue growth.

Core growth included a 2% increase in price, partially offset by a 1% decrease in volume.

Gross Margin —Gross margin increased $71.0 million , or 8.4% , to $918.5 million in the year ended December 31, 2018 from $847.5 million in the year ended December 31, 2017 .

Net Revenues – Net revenues decreased $57.1 million, or 1.3%, to $4,289.8 million in the year ended December 31, 2019 from $4,346.8 million in the year ended December 31, 2018.

The decrease was due to unfavorable foreign exchange impact of 3% and a decline in core revenue of 2%, partially offset by a 4% contribution from acquisitions.

Core revenue decline consisted of a 4% decrease in volume/mix, offset by a 2% increase in price.

Gross Margin – Gross margin decreased $46.0 million, or 5.0%, to $872.5 million in the year ended December 31, 2019 from $918.5 million in the year ended December 31, 2018.

Gross margin as a percentage of net revenues was 20.3% in the year ended December 31, 2019 and 21.1% in the year ended December 31, 2018.

The increase in gross margin was due to favorable pricing and contribution from our recent acquisitions, partially offset by material and freight inflation.

The decrease in gross margin as a percentage of sales was due primarily to the dilutive impact of our acquisitions, material and freight inflation, and operational inefficiencies due to lower volumes and favorable mix, partially offset by price.

SG&A Expense —SG&A expense increased $161.2 million , or 28.1% , to $734.2 million in the year ended December 31, 2018 from $573.0 million in the year ended December 31, 2017 .

The decrease in gross margin percentage was due to increased costs related to manufacturing inefficiencies in North America and unfavorable volume/mix within North America and Australasia, partially offset by favorable pricing.

SG&A Expense —SG&A expense decreased $73.6 million, or 10.0%, to $660.6 million in the year ended December 31, 2019 from $734.2 million in the year ended December 31, 2018.

SG&A expense as a percentage of net revenues was 15.4% for the year ended December 31, 2019 and 16.9% for the year ended December 31, 2018.

The increase in SG&A expense was primarily due to a litigation contingency accrual of $76.5 million, SG&A associated with our acquisitions, and increased professional fees.

Excluding the impact of the litigation contingency accrual and SGA associated with our acquisitions, SG&A would have been $589.7 million or 15.3% of net revenues on a comparative basis to 2017.

The decrease in SG&A expense was primarily due to a decrease of litigation contingency accruals of $76.5 million and reduction of acquisition and integration costs.

Impairment and Restructuring Charges —Impairment and restructuring charges increased $4.2 million, or 24.4%, to $21.6 million in the year ended December 31, 2019 from $17.3 million in the year ended December 31, 2018.

Charges incurred in 2019 primarily related to plant consolidations in our North America and Australasia segments resulting in impairments of ROU assets and

property and equipment as well as severance costs across all segments and corporate.

The 2018 charges consisted primarily of personnel restructuring costs in our North America, Europe and Australasia segments as well as plant consolidations in our North America and Australasia segments.

The 2017 charges consisted primarily of a reduction in workforce in our North American segment as well as ongoing restructuring costs in our Europe segment.

Interest Expense, Net —Interest expense, net decreased $8.2 million , or 10.4% , to an expense of $70.8 million in the year ended December 31, 2018 from an expense of $79.0 million in the year ended December 31, 2017 .

The decrease was primarily due to additional interest expense incurred in 2017 resulting from the write-offs of a portion of the unamortized debt issuance costs and original issue discount totaling approximately $6.1 million in connection with the repayment of $375.0 million of outstanding term loans with proceeds from our IPO and higher pre-IPO debt levels.

Other (Income) Expense – Other (income) expense increased $75.0 million , to income of $34.9 million in the year ended December 31, 2018 from expense of $40.1 million in the year ended December 31, 2017 .

The Other income in the year ended December 31, 2018 was primarily due to a fair value adjustment of $20.8 million associated with our acquisition of the remaining shares outstanding of an equity investment, foreign currency gains of $11.3 million , and legal settlement income of $7.5 million , partially offset by pension expense of $7.0 million .

Other expense in the year ended December 31, 2017 primarily consisted of a loss on extinguishment of debt of $23.3 million associated with our Term Loan, pension expense of $12.6 million , and foreign currency losses of $11.4 million , partially offset by a beneficial contract settlement of $2.2 million and legal settlement income of $2.5 million .

Income Taxes – Income tax benefit in the year ended December 31, 2018 was $10.1 million , compared to an expense of $137.8 million in the year ended December 31, 2017 .

The effective tax rate in the year ended December 31, 2018 was a benefit of 7.7% compared to an expense of 96.8% in the year ended December 31, 2017.

The 2018 tax benefit of $10.1 million was primarily due to the $40.2 million of deferred tax benefit related to finalizing our provisional estimates connected to the Tax Act, $19.6 million of deferred tax benefit related to the Steves’ litigation, and $10.2 million of benefit related to our investment in ABS, offset by tax expense of $5.4 million for a net increase to uncertain tax positions including interest, as well as tax expense associated with strong business results of our foreign subsidiaries such as Australia, Canada, and UK.

The effective tax rate for the year ended December 31, 2018 includes the impact of the new GILTI tax.

As discussed above, we have elected to account for the impact of GILTI in the period in which it is incurred.

Tax expense for the year ended December 31, 2017 included a provisional estimate of the change in the U.S.

corporate income tax rate from 35% to 21% and the one-time deemed repatriation tax.

As a result of the lowering of the U.S.

federal tax rate, we revalued our net deferred tax assets in the U.S.

reflecting the lower expected benefit in the U.S.

in the future.

This estimate of the revaluation resulted in additional non-cash tax expense totaling approximately $21.1 million.

The provisional estimate of the one-time deemed repatriation tax, which effectively subjected the Company’s net aggregate historic foreign earnings to taxation in the U.S., resulted in a further tax charge of $11.3 million.

While this repatriation tax is measured as of December 31, 2017, taxpayers are permitted to pay the tax over an 8-year period which resulted in an increase to our non-current liabilities.

During the fourth quarter of 2017, the Company undertook certain transactions which premised the repatriation of certain earnings from foreign subsidiaries.

While these transactions were not undertaken as a direct result of tax reform, the U.S.

tax implications were heavily impacted due to the timing of the transactions and the measurement dates as outlined in the Tax Act.

We recorded a provisional estimate of the effects of these transactions resulting in a net increase to tax expense of $65.8 million related to these transactions and their impacts under the Tax Act.

For more information, refer to Note 20 - Impairment and Restructuring Charges to our consolidated financial statements included in this 10-K.

Interest Expense, Net —Interest expense, net, increased $1.0 million, or 1.4%, to $71.8 million in the year ended December 31, 2019 from $70.8 million in the year ended December 31, 2018.

The increase was primarily due to increased borrowings during 2019.

Other Income – Other income decreased $33.5 million, to income of $1.4 million in the year ended December 31, 2019 from $34.9 million in the year ended December 31, 2018.

Other income in the year ended December 31, 2018 was primarily due to a fair value adjustment of $20.8 million associated with our acquisition of the remaining shares outstanding of an equity investment, foreign currency gains of $11.3 million, and legal settlement income of $7.5 million, partially offset by pension expense of $7.0 million.

Income Taxes – Income tax expense in the year ended December 31, 2019 was $57.1 million, compared to a benefit of $10.1 million in the year ended December 31, 2018.

The effective tax rate in the year ended December 31, 2019 was an expense of 47.5% compared to (7.7)% in the year ended December 31, 2018.

The increase in income tax expense in 2019 was primarily driven by increases in valuation allowances as compared to the benefit for changes in the provisional estimates recorded under the Tax Act and our acquisition of ABS in 2018.

For more information, refer to Note 15 – Income Taxes to our consolidated financial statements included in this 10-K.

Segment Results

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Comparison of the Year Ended December 31, 2020 to the Year Ended December 31, 2019

(amounts in thousands)

December 31, 2019

December 31, 2018

Net revenues from external customers

(amounts in thousands) December 31, 2020 December 31, 2019

Net revenues from external customers % Variance

North America $ 2,528,993 $ 2,534,336 (0.2) %

Europe 1,187,777 1,178,441 0.8 %

Australasia 518,907 576,984 (10.1) %

Total Consolidated $ 4,235,677 $ 4,289,761 (1.3) %

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North America 59.7 % 59.1 %

Europe 28.0 % 27.5 %

Australasia 12.3 % 13.4 %

Total Consolidated 100.0 % 100.0 %

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North America $ 315,952 $ 267,335 18.2 %

Europe 136,363 116,193 17.4 %

Australasia 62,449 74,484 (16.2) %

Corporate and unallocated costs (68,350) (42,974) 59.0 %

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North America 12.5 % 10.5 %

Europe 11.5 % 9.9 %

Australasia 12.0 % 12.9 %

Total Consolidated 10.5 % 9.7 %

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North America

Net revenues in North America increased $72.7 million , or 3.0% , to $2,534.3 million in the year ended December 31, 2019 from $2,461.6 million in the year ended December 31, 2018.

The increase was primarily due to a 5% increase attributable to the acquisitions of ABS and VPI, partially offset by a 2% decrease in core revenues.

Core revenue decline included a 5% decrease in volume/mix, offset by a 3% increase in price.

Adjusted EBITDA in North America decreased $12.2 million , or 4.4% , to $267.3 million in the year ended December 31, 2019 from $279.5 million in the year ended December 31, 2018.

The decrease was primarily due to lower core volumes, the non-recurrence of proceeds of a 2018 legal settlement of $7.5 million , and increased costs related to operating inefficiencies, partially offset by favorable pricing and the contributions from our ABS and VPI acquisitions.

Net revenues in Europe decreased $36.9 million , or 3.0% , to $1,178.4 million in the year ended December 31, 2019 from $1,215.3 million in the year ended December 31, 2018.

The decrease was primarily due to an unfavorable foreign exchange impact of 6% , partially offset by a 2% increase attributable to the acquisition of Domoferm and core revenue growth of 1% , which included a 2% increase in price offset by a decrease in volume/mix.

Adjusted EBITDA in Europe decreased $6.6 million , or 5.4% , to $116.2 million in the year ended December 31, 2019 from $122.8 million in the year ended December 31, 2018.

The decrease was primarily due to the impact of unfavorable foreign exchange, unfavorable revenue mix, and higher SG&A costs, partially offset by improved productivity and favorable pricing.

Net revenues in North America decreased $5.3 million, or 0.2%, to $2,529.0 million in the year ended December 31, 2020 from $2,534.3 million in the year ended December 31, 2019.

The decrease was primarily due to a reduction in core revenues of 1%, consisting of a decrease in volume/mix of 6%, offset by a pricing benefit of 5%, and a 1% increase attributable to the contribution from the acquisition of VPI.

Adjusted EBITDA in North America increased $48.6 million, or 18.2%, to $316.0 million in the year ended December 31, 2020 from $267.3 million in the year ended December 31, 2019.

The increase was due to favorable pricing, lower material costs, reduced marketing and travel expenses, and contributions from our VPI acquisition, partially offset by unfavorable revenue mix and the effect of inflation on labor compensation.

Net revenues in Europe increased $9.3 million, or 0.8%, to $1,187.8 million in the year ended December 31, 2020 from $1,178.4 million in the year ended December 31, 2019.

The increase was primarily due to a favorable foreign exchange impacts of 2%, partially offset by a decrease in core revenue of 1%, consisting of a decrease in volume/mix of 2%, offset by a pricing benefit of 1%.

Adjusted EBITDA in Europe increased $20.2 million, or 17.4%, to $136.4 million in the year ended December 31, 2020 from $116.2 million in the year ended December 31, 2019.

The increase was primarily due to labor and material cost savings and favorable pricing, partially offset by unfavorable revenue mix and the effect of inflation on labor compensation.

Net revenues in Australasia decreased $58.1 million, or 10.1%, to $518.9 million in the year ended December 31, 2020 from $577.0 million in the year ended December 31, 2019.

The decrease was due primarily to a decrease in core revenues of 10% and unfavorable foreign exchange rates of 6% , partially offset by a 2% increase attributable to the acquisition of A&L.

The decrease was primarily due to a reduction in core revenues of 9%, consisting of a decrease in volume/mix of 8% and reduced pricing of 1%, as well as adverse foreign exchange impacts of 1%.

Adjusted EBITDA in Australasia decreased $12.0 million, or 16.2%, to $62.4 million in the year ended December 31, 2020 from $74.5 million in the year ended December 31, 2019.

The decrease was primarily due to lower volumes from market headwinds and unfavorable mix, partially offset by improved productivity and reduced SG&A.

The decrease was primarily due to lower volumes from market headwinds and adverse pricing, partially offset by labor cost savings and reductions in spending relating to sales, marketing, travel, and salaries as a result of cost saving measures implemented in response to COVID-19.

Corporate and unallocated costs

Corporate and unallocated costs increased in the year ended December 31, 2020 compared to the year ended December 31, 2019 primarily due to increased variable compensation and the impact of foreign exchange hedges, resulting in a decrease to Adjusted EBITDA of $25.4 million, or 59.0%.

Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018

(dollars in thousands)

December 31, 2018

December 31, 2017

Net revenues from external customers

(dollars in thousands) December 31, 2019 December 31, 2018

Net revenues from external customers % Variance

North America $ 2,534,336 $ 2,461,633 3.0 %

Europe 1,178,441 1,215,299 (3.0) %

Australasia 576,984 669,915 (13.9) %

Total Consolidated $ 4,289,761 $ 4,346,847 (1.3) %

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North America 59.1 % 56.6 %

Europe 27.5 % 28.0 %

Australasia 13.4 % 15.4 %

Total Consolidated 100.0 % 100.0 %

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North America $ 267,335 $ 279,526 (4.4) %

Europe 116,193 122,810 (5.4) %

Australasia 74,484 90,885 (18.0) %

Corporate and Unallocated costs (42,974) (34,003) 26.4 %

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North America 10.5 % 11.4 %

Europe 9.9 % 10.1 %

Australasia 12.9 % 13.6 %

Total Consolidated 9.7 % 10.6 %

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Net revenues in North America increased $72.7 million, or 3.0%, to $2,534.3 million in the year ended December 31, 2019 from $2,461.6 million in the year ended December 31, 2018.

The increase was primarily due to a 14% increase attributable to the acquisitions of MMI Door and ABS.

Adjusted EBITDA in North America increased $6.3 million , or 2.3% , to $279.5 million in the year ended December 31, 2018 from $273.2 million in the year ended December 31, 2017 .

The increase was primarily due to the MMI Door and ABS acquisitions partially offset by the impact of a lag in pricing to offset inflation in material and freight and lower core volumes and mix shift to lower margin products.

Net revenues in Europe increased $172.5 million , or 16.5% , to $1,215.3 million in the year ended December 31, 2018 from $1,042.8 million in the year ended December 31, 2017 .

The increase was primarily due to a 13% increase attributable to the acquisitions of Mattiovi and Domoferm, core revenue growth of 1%, and a favorable foreign exchange impact of 3%.

The increase was primarily due to a 5% increase attributable to the acquisitions of ABS and VPI, partially offset by a 2% decrease in core revenues.

Core revenue decline included a 5% decrease in volume/mix, offset by a 3% increase in price.

Adjusted EBITDA in North America decreased $12.2 million, or 4.4%, to $267.3 million in the year ended December 31, 2019 from $279.5 million in the year ended December 31, 2018.

The decrease was primarily due to lower core volumes, the non-recurrence of proceeds of a 2018 legal settlement of $7.5 million, and increased costs related to operating inefficiencies, partially offset by favorable pricing and the contributions from our ABS and VPI acquisitions.

Net revenues in Europe decreased $36.9 million, or 3.0%, to $1,178.4 million in the year ended December 31, 2019 from $1,215.3 million in the year ended December 31, 2018.

The decrease was primarily due to an unfavorable foreign exchange impact of 6%, partially offset by a 2% increase attributable to the acquisition of Domoferm and core revenue growth of 1%, which included a 2% increase in price offset by a decrease in volume/mix.

Adjusted EBITDA in Europe decreased $6.6 million, or 5.4%, to $116.2 million in the year ended December 31, 2019 from $122.8 million in the year ended December 31, 2018.

The decrease was primarily due to inflation, unfavorable product mix, partially offset by favorable pricing and our acquisitions of Mattiovi and Domoferm.

Net revenues in Australasia increased $106.8 million , or 19.0% , to $669.9 million in the year ended December 31, 2018 from $563.1 million in the year ended December 31, 2017 .

The increase was due primarily to a 20% increase attributable to the acquisitions of Kolder and A&L, core revenue growth of 2%, consisting of an increase in volume/mix of 1% and favorable pricing of 1%, offset by unfavorable foreign exchange rates of 3%.

Adjusted EBITDA in Australasia increased $16.5 million , or 22.2% , to $90.9 million in the year ended December 31, 2018 from $74.4 million in the year ended December 31, 2017 .

The increase in Adjusted EBITDA was primarily due to the acquisitions of Kolder and A&L and pricing initiatives, partially offset by material inflation.

The decrease was primarily due to the impact of unfavorable foreign exchange, unfavorable revenue mix, and higher SG&A costs, partially offset by improved productivity and favorable pricing.

Net revenues in Australasia decreased $92.9 million, or 13.9%, to $577.0 million in the year ended December 31, 2019 from $669.9 million in the year ended December 31, 2018.

The decrease was due primarily to a decrease in core revenues of 10% and unfavorable foreign exchange rates of 6%, partially offset by a 2% increase attributable to the acquisition of A&L.

Adjusted EBITDA in Australasia decreased $16.4 million, or 18.0%, to $74.5 million in the year ended December 31, 2019 from $90.9 million in the year ended December 31, 2018.

The decrease was primarily due to lower volumes from market headwinds and unfavorable mix, partially offset by improved productivity and reduced SG&A.

Liquidity and Capital Resources

We have historically funded our operations through a combination of cash from operations, draws on our revolving credit facilities, factoring agreements, and the issuance of non-revolving debt such as our Term Loan Facility and Senior Notes.

Working capital, which we define as accounts receivable plus inventory less accounts payable, fluctuates throughout the year and is affected by the seasonality of sales of our products, customer payment patterns, and the translation of the balance sheets of our foreign operations into the U.S.

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Inventories fluctuate for raw materials with long delivery lead times, such as steel, as we work through prior shipments and take delivery of new orders.

As of December 31, 2019 , we had total liquidity (a non-GAAP measure) of $554.5 million , which included $226.0 million in unrestricted cash, $313.1 million available for borrowing under the ABL Facility, and AUD 21.9 million ( $15.4 million USD) available for borrowing under the Australia Senior Secured Credit Facility.

This compares to total liquidity of $380.2 million as of December 31, 2018 .

The increase was primarily due to higher unrestricted cash balances and increased revolving credit facility availability deriving from the repayment of ABL Facility borrowings with proceeds from an incremental Term Loan facility borrowing transacted in September 2019, partially offset by the expiration of the Euro Revolving Credit Facility.

As of December 31, 2020, our cash balances, including $0.8 million of restricted cash, consisted of $383.0 million in the U.S.

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subsidiaries.

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

In May 2020, we issued $250.0 million in Senior Secured Notes, the proceeds of which were used to repay the outstanding balance under our ABL Facility with the remainder to be used for general corporate purposes.

In addition, we increased the borrowing base and availability under our ABL Facility by $40.1 million with the accounts receivable and inventory of certain recently acquired U.S.

businesses and amended our Australia Senior Credit Facility to add AUD 30.0 million of additional revolving loan capacity.

Although there is uncertainty surrounding the anticipated impact of the COVID-19 pandemic on our operating results and liquidity, based on our current level of operations, the seasonality of our business and anticipated growth, we believe that cash provided by operations and other sources of liquidity, including cash, cash equivalents and borrowings under our revolving credit facilities, will provide adequate liquidity for ongoing operations, planned capital expenditures and other investments, and debt service requirements for at least the next twelve months.

As of December 31, 2020, we had total liquidity (a non-GAAP measure) of $1,121.5 million, consisting of $735.8 million in unrestricted cash, $346.0 million available for borrowing under the ABL Facility, and AUD 51.6 million ($39.7 million) available for borrowing under the Australia Senior Secured Credit Facility, compared to total liquidity of $554.5 million as of December 31, 2019.

The increase in total liquidity was primarily due to the May 2020 Senior Secured Notes issuance, increasing the borrowing base and availability under our ABL Facility, additional capacity under our Australia Senior Credit Facility, and cash provided by operations.

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

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Borrowings and Refinancings

In December 2017, we issued $800.0 million of unsecured Senior Notes, repriced and amended the Term Loan Facility, and repaid $787.4 million of outstanding term loan borrowings with the net proceeds from the Senior Notes.

The December 2017 refinancing transactions reduced our overall interest rates and modified other terms and provisions, including providing for additional covenant flexibility and additional capacity under the Term Loan Facility.

In the fourth quarter of 2020, we began to include the accounts receivable and inventory balances of certain recently acquired U.S.

businesses in determining our availability, which expanded our borrowing base on our U.S.

ABL Facility.

In May 2020, we issued $250.0 million of Senior Secured Notes, the proceeds of which were used to repay the outstanding balance under our ABL Facility with the remainder to be used for general corporate purposes.

In addition, we amended our Australia Senior Credit Facility to add AUD 30.0 million of additional revolving loan capacity.

In December 2019, we amended our ABL facility to reflect current banking regulatory requirements, which did not have a financial impact.

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 to repay $115.0 million of outstanding borrowings under the ABL 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.

In December 2018, we amended the ABL Facility, providing for a $100.0 million increase in the U.S.

revolving credit commitments.

In December 2019, we amended our ABL facility to reflect current banking regulatory requirements, which do not have a financial impact.

In February 2018, we amended the Australia Senior Secured Credit Facility to include an additional AUD 55.0 million floating rate term loan 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.

As of December 31, 2019 , we were in compliance with the terms of all of our Credit Facilities.

Our results have been and will continue to be impacted by substantial changes in our net interest expense throughout the periods presented and in the future.

As of December 31, 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.

Our results have been and will continue to be impacted by substantial changes in our net interest expense throughout the periods presented and into the future.

See Note 13 - Long-Term Debt in our consolidated financial statements for additional details.

Factoring arrangements

Our ABS subsidiary, acquired in March 2018, has entered into factoring agreements with a U.S.-based financial institution under which it can elect to sell certain of its accounts receivable under non-recourse agreements.

These transactions are treated as a sale and are accounted for as a reduction in accounts receivable because the agreements transfer effective control over and risk of non-collection to the factor.

Thus, cash proceeds from these arrangements are reflected as operating activities, including the change of accounts receivable on our statement of cash flows each period.

We do not service any factored accounts after the factoring has occurred and do not have any servicing assets or liabilities.

We utilize factoring arrangements as part of our financing to manage working capital.

The aggregate gross amount factored under these arrangements was $74.5 million and $56.3 million for the year ended December 31, 2019 and December 31, 2018 , respectively.

The cost of factoring is reflected in the accompanying consolidated statements of operations as interest expense with other financing costs and was $0.5 million and $0.4 million for the year ended December 31, 2019 and December 31, 2018 , respectively.

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

(amounts in thousands)

(amounts in thousands) December 31, 2020 December 31, 2019 December 31, 2018

Cash provided by (used in):

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Effect of changes in exchange rates on cash and cash equivalents

25,157 903 (6,648)

Net change in cash and cash equivalents $ 506,718 $ 112,253 $ (138,611)

Cash Flow from Operations

Net cash provided by operating activities increased $83.1 million to $302.7 million in the year ended December 31, 2019 from $219.7 million in net cash provided by operating activities in the year ended December 31, 2018 .

Net cash provided by operating activities increased $52.9 million to $355.7 million in the year ended December 31, 2020 from $302.7 million in the year ended December 31, 2019.

The increase in cash provided by operating activities was due primarily to increases in accruals for the deferral of payroll taxes, including $20.9 million as a result of the CARES Act, which will be paid equally over the subsequent two years, legal and environmental matters, and estimated variable compensation.

Net cash provided by operating activities increased $83.1 million to $302.7 million in the year ended December 31, 2019 from $219.7 million in the year ended December 31, 2018.

The increase in cash provided by operating activities was due primarily to improvement in working capital as a result of optimization of vendor payment terms, lower inventory balances due to reduced core revenue volumes, and reduced cash taxes.

Net cash provided by operating activities decreased $46.1 million to $219.7 million in the year ended December 31, 2018 from $265.8 million in the year ended December 31, 2017 .

The decrease in cash provided by operating activities resulted primarily from increased accounts receivable due to increased sales volume and changes in terms with customers, increases in inventory associated with our recent acquisitions and stock build program and to ensure adequate raw material availability, and a decrease in accounts payable.

Cash Flow from Investing Activities

Net cash used in investing activities decreased $102.9 million to $82.0 million in the year ended December 31, 2020 from $184.9 million in the year ended December 31, 2019 primarily due to a decrease in the cash used for acquisitions and a reduction in capital expenditures.

Net cash used in investing activities decreased $99.2 million to $184.9 million in the year ended December 31, 2019 from $284.1 million in the year ended December 31, 2018.

The decrease was primarily due to a decrease in the cash used for acquisitions.

Net cash used in investing activities increased $94.3 million to $284.1 million in the year ended December 31,

2018 from $189.8 million in the year ended December 31, 2017 .

The increase was primarily due to cash used for acquisitions and capital expenditures compared to the prior year.

The decrease was primarily due to a decrease in cash used for acquisitions.

Cash Flow from Financing Activities

Net cash used in financing activities was $6.4 million in the year ended December 31, 2019 and was comprised primarily of repurchases of our Common Stock of $20.0 million , offset by increased borrowings of $13.1 million .

Net cash used in financing activities was $67.5 million in the year ended December 31, 2018 and comprised primarily of repurchases of our Common Stock of $125.0 million and payments to tax authorities of $9.5 million , offset by increased borrowings of $70.5 million .

Net cash provided by financing activities was $64.1 million in the year ended December 31, 2017 and was comprised primarily of proceeds from the IPO of $480.3 million , of which $375.0 million of proceeds were used to partially repay outstanding debt.

Net cash provided by financing activities was $207.9 million in the year ended December 31, 2020 and consisted primarily of increased borrowings of $210.9 million, partially offset by repurchases of our Common Stock of $5.0 million.

Net cash used in financing activities was $6.4 million in the year ended December 31, 2019 and consisted primarily of repurchases of our Common Stock of $20.0 million, partially offset by increased borrowings of $13.1 million.

Net cash used in financing activities in the year ended December 31, 2018 was $67.5 million and was comprised primarily of repurchases of our Common Stock of $125.0 million and payments to tax authorities of $9.5 million, partially offset by increased borrowings of $70.5 million.

Holding Company Status

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Consequently, we rely on dividends or advances from our subsidiaries.

The ability of our subsidiaries to pay dividends to us is subject to applicable local law and may be limited due to the terms of other contractual arrangements, including our Credit Facilities and the Senior Notes.

The Australia Senior Secured Credit Facility also contain restrictions on dividends that limit the amount of cash that the obligors under these facilities can distribute to JWI.

The Australia Senior Secured Credit Facility also contains restrictions on dividends that limit the amount of cash that the obligors under these facilities can distribute to JWI.

Obligors under the Australia Senior Secured Credit Facility may pay dividends only to the extent they do not exceed 80% of after tax net profits (with a one-year carryforward of unused amounts) and only while no default is continuing under such agreement.

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Payments Due By Period

Total Less Than

1 Year 1-3 Years 3-5 Years More Than

(dollars in thousands)

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Purchase obligations (2)

31,538 9,885 20,291 1,362 —

Interest on long-term debt obligations (3)

359,479 69,401 136,405 112,421 41,252

$ 2,431,197 $ 200,155 $ 323,633 $ 1,374,799 $ 532,610

____________________________

(1) Not included in the table above are our unfunded pension liabilities totaling $121.3 million and uncertain tax position liabilities of $21.8 million as of December 31, 2020, for which the timing of payment is unknown.

(2) Purchase obligations are defined as purchase agreements that are enforceable and legally binding and that specify all significant terms, including quantity, price, and the approximate timing of the transaction.

The obligations reflected in the table relates primarily to raw materials purchase agreements, costs associated with enterprise solutions implementations, sales and marketing, and software hosting services.

The obligations reflected in the table primarily relate to raw materials purchase agreements, costs associated with enterprise solutions implementations, sales and marketing, and software hosting services.

(3) Interest on long-term debt obligations is calculated based on debt outstanding and interest rates in effect on December 31, 2020, taking into account scheduled maturities and amortization payments.

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Incentive payments to customers that directly relate to future business are recorded as a reduction of net revenues over the periods benefited.

Shipping and handling costs and the related expenses are reported as fulfillment revenues and expenses for all customers.

Therefore all shipping and handling costs associated with outbound freight are accounted for as fulfillment costs and are included in cost of sales.

The expected costs associated with our base warranties and field service actions continue to be recognized as expense when the products are sold (see Note 14 - Warranty Liabilities ).

Shipping and handling costs are treated as fulfillment costs and are not considered a separate performance obligation.

Shipping and handling costs charged to customers and the related expenses are reported in revenues and cost of sales for all customers.

The expected costs associated with our base warranties and field service actions continue to be recognized as expense when the products are sold (see Note 12 - Warranty Liability ).

Since payment is due at or shortly after the point of sale, the contract asset is classified as a receivable.

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Newly acquired entities are included in our results from the date of their respective acquisitions.

Allowance for Doubtful Accounts

Substantially all accounts receivable arise from sales to customers in our manufacturing and distribution businesses and are recognized net of offered cash discounts.

Credit is extended in the normal course of business under standard industry terms that normally reflect 60 day or less payment terms and do not require collateral.

An allowance is recorded based on a variety of factors, including the length of time receivables are past due, the financial health of our customers, unusual macroeconomic conditions and historical experience.

If the customer’s financial conditions were to deteriorate resulting in the inability to make payments, additional allowances may need to be recorded which would result in additional expenses being recorded for the period in which such determination was made.

Inventories are valued at the lower of cost or market or net realizable value and are determined by the FIFO or average cost methods.

We record provisions to write-down obsolete and excess inventory to estimated net realizable value.

The process for evaluating obsolete and excess inventory requires us to evaluate historical inventory usage and future production needs.

Accelerating the disposal process or incorrect estimates may cause actual results to differ from the estimates at the time such inventory is disposed or sold.

Intangible Assets

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Goodwill is tested for impairment on an annual basis during the fourth quarter and between annual tests if indicators of potential impairment exist, using a fair-value-based approach.

Current accounting guidance provides an entity the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount prior to performing the two-step goodwill impairment test.

If this is the case, the two-step goodwill impairment test is required.

If it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, the two-step goodwill impairment test is not required.

If the two-step goodwill impairment test is required, first, the fair value of the reporting unit is compared with its carrying amount (including attributable goodwill).

If the fair value of the reporting unit exceeds its carrying amount, step two does not need to be performed.

If the fair value of the reporting unit is less than its carrying amount, an indication of goodwill impairment exists for the reporting unit and the entity must perform step two of the impairment test (measurement).

Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill.

The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation and the residual fair value after this allocation is the implied fair value of the reporting unit goodwill.

Fair value of the reporting unit is determined using a discounted cash flow analysis.

Current accounting guidance provides an entity the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is impaired.

If we do not perform a qualitative assessment, or if we determine that it is more likely than not that the fair value of the reporting unit exceeds its carrying amount, we calculate the estimated fair value of the reporting unit.

We estimated the fair value of our reporting units using a discounted cash flow model (implied fair value measured on a non-recurring basis using level 3 inputs).

Inherent in the development of the discounted cash flow projections are assumptions and estimates of our future revenue and terminal growth rates, profit margins, and cost of capital.

Our judgments with respect to these metrics are based on historical experience, current trends, consultations with external specialists, and other information.

Inherent in the development of the discounted cash flow projections are assumptions and estimates derived from a review of our expected revenue and terminal growth rates, profit margins, and cost of capital.

Changes in assumptions or estimates used in our goodwill impairment testing could materially affect the determination of the fair value of a reporting unit, and therefore, could eliminate the excess of fair value over carrying value of a reporting unit and, in some cases, could result in impairment.

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As of December 31, 2020, the fair value of our North America, Europe, and Australasia reporting units would have to decline by approximately 52%, 37%, and 20%, respectively, to be considered for potential impairment.

As the carrying value and fair value of the Australasia reporting unit are closely aligned, a material change in the fair value or carrying value would put the reporting unit at risk of goodwill impairment.

For example, our ability to realize synergies, revenue growth, and increased margins are key assumptions in our projections of revenue, earnings and cash flows.

If our actual experience in future years falls significantly below our current projections, the fair value of the reporting unit could be negatively impacted.

Similarly, an increase in interest rates would lower our discounted cash flows and negatively impact the fair value of the reporting unit.

We believe our projections and assumptions are reasonable, but it is possible they could change, impacting our fair value estimate, or the carrying value could change.

Warranty Accrual

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A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

This projected realization is directly related to our future projections of the performance of our business and management’s planning initiatives at any point in time.

This projected realization is directly related to our future projections of the performance of our business and

management’s planning initiatives at any point in time.

As a result, valuation allowances are subject to change as proven business trends and planning initiatives develop.

The Tax Act passed in December 2017 had significant effects on our financial statements.

In accordance with Staff Accounting Bulletin No.118 issued by the SEC in December 2017 immediately following the passage of the Tax Act, we made provisional estimates for certain direct and indirect effects of the Tax Act based on information available to us for the year ended December 31, 2017.

In the fourth quarter of 2018, we completed our accounting for all the enactment-date income tax effects of the Tax Act and recorded any adjustments as a component of income tax expense from continuing operations.

In the fourth quarter of 2018, we completed our accounting for the enactment-date income tax effects of the Tax Act and recorded any adjustments as a component of income tax expense from continuing operations.

The Tax Act subjects a U.S.

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federal, state and foreign income taxes refundable and payable are reported in other current assets and other current liabilities in the consolidated balance sheets as of December 31, 2020 and December 31, 2019.

We recorded a non-current U.S.

receivable of $0.8 million at December 31, 2018 related to the one-time deemed repatriation tax liability, which is included in other assets in the accompanying consolidated balance sheet.

We do not have any non-current taxes receivable or payable at December 31, 2019.

We record interest and penalties on amounts due to tax authorities as a component of income tax expense in the consolidated statements of operations.

Derivative Financial Instruments

We utilize derivative financial instruments to manage foreign currency exposures related to subsidiaries that operate outside the U.S.

and use their local currency as the functional currency.

We record all derivative instruments in the consolidated balance sheets at fair value.

Changes in a derivative’s fair value are recognized in earnings unless specific hedge criteria are met, and we elect hedge accounting prior to entering into the derivative.

If a derivative is designated as a fair value hedge, the changes in fair value of both the derivative and the hedged item attributable to the hedged risk are recognized in the results of operations.

If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in consolidated other comprehensive income (loss) and subsequently classified to the consolidated statements of operations when the hedged item impacts earnings.

At the inception of a fair value or cash flow hedge transaction, we formally document the hedge relationship and the risk management objective for undertaking the hedge.

In addition, we assess both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging transaction has been highly effective in offsetting changes in fair value or cash flows of the hedged item and whether the derivative is expected to continue to be highly effective.

The impact of any ineffectiveness is recognized in our consolidated statements of operations.

Contingent Liabilities

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The expected dividend yield rate is 0% which is consistent with the expected dividends to be paid on common stock.

The number of PSUs that vest is determined by a payout factor consisting of equally weighted performance measures of Adjusted EBITDA and free cash flow, each as reported over the applicable three year performance period and is adjusted based upon a market condition measured by our relative total shareholder return (“TSR”) over the applicable three year performance period as compared to the TSR of the Russell 3000 index.

The fair value of the award is estimated using a Monte Carlo simulation approach in a risk-neutral framework to model future stock price movements based on historical volatility, risk free rates of return, and correlation matrix.

We estimate forfeitures based on our historical analysis of actual stock option forfeitures.

23 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis