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Item 7. Management’s Discussion and Analysis

2022-02-22 compared with 2021-02-23 · 166 added, 230 removed, 390 unchanged (50% of the section changed)

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Our MD&A is organized as follows:

• Overview and Background.

• Company Overview.

This section provides a general description of our Company and reportable segments, business and industry trends, our key business strategies and background information on other matters discussed in this MD&A.

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This section discusses the accounting policies that we consider important to the evaluation and reporting of our financial condition and results of operations, and whose application requires significant judgments or a complex estimation process.

Overview and Background

We are one of the world’s largest door and window manufacturers, and we hold a leading position by net revenues in the majority of the countries and markets we serve.

Company Overview

We are a leading global provider of windows, doors, wall systems, and other building products.

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

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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.

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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Financial information related to our business segments can be found in Note 14 - Segment Information of our financial statements included elsewhere in this 10-K.

In March 2019, we acquired VPI Quality Windows, Inc., 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.

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.

D&K is part of our Australasia segment.

In March 2018, we acquired the remaining issued and outstanding shares and membership interests of ABS, headquartered in Sacramento, California.

ABS is a premier supplier of value-added services for the millwork industry.

ABS is part of our North America segment.

In February 2018, we acquired A&L, a leading Australian manufacturer of residential aluminum windows and patio doors.

A&L has a network of manufacturing facilities across the eastern seaboard of Australia, which we expect will deliver synergies through operational savings from the implementation of JEM and by leveraging the benefits of our combined supply chain.

A&L is part of our Australasia segment.

In February 2018, we acquired Domoferm, headquartered in Gänserndorf, Austria.

Domoferm is a leading European provider of steel doors, steel door frames, and fire doors for commercial and residential markets with four manufacturing sites in Austria, Germany, and the Czech Republic.

Domoferm is part of our Europe segment.

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.

Acquisitions and Divestitures

During 2021, the Company ceased the appeal process for its litigation with Steves & Sons, Inc.

As a result, we are required to divest the Company’s Towanda, PA operations (“Towanda”).

Assuming customary closing conditions are met and subject to court approval, we believe the divestiture will occur within the next twelve months and qualifies for held for sale accounting and we have reclassified certain assets and liabilities to assets held for sale in the accompanying financial statements.

The results of Towanda will continue to be reported within our North America operations until the divestiture is finalized.

For additional information on the Steves litigation and divestiture, see Note 24 - Commitments and Contingencies of our financial statements included elsewhere in this 10-K.

VPI, headquartered in Spokane, Washington, with operations in Spokane, Washington and Statesville, North Carolina, is part of our North America segment and was acquired for $57.8 million in cash, net of cash acquired.

Factors and Trends Affecting Our Business

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The key components of our net revenues include core net revenues (which we define to include the impact of pricing and volume/mix, as discussed further under the heading, “Product Pricing and Volume/Mix” below), contribution from acquisitions made within the prior twelve months, and the impact of foreign exchange.

Core net revenues reported in our financial statements are impacted by the fluctuating currency values in the geographies in which we operate, which we refer to as the impact of foreign exchange.

Core net revenues reported in our financial statements are impacted by the fluctuating currency values in the geographies in which we operate, which we refer to as the impact from foreign exchange.

Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, percentage changes in pricing are based on management schedules and are not derived directly from our accounting records.

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• interest rate fluctuations for our customers and consumers;

• increases in the cost of raw materials or any shortage in supplies or labor;

• volatility in both debt and equity capital markets;

• increases in the cost of raw materials or any shortage in supplies or labor, including as a result of tariffs or other trade restrictions;

• the effects of governmental regulation and initiatives to manage economic conditions;

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• 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.

• implementing channel initiatives to enhance our relationships with key channel partners and customers, including optimizing growth through rebate programs in North America.

Product Pricing and Volume/Mix

The price and mix of products that we sell are important drivers of our net revenues and net income.

Under the heading “Results of Operations,” references to (i) “pricing” refer to the impact of price increases or decreases, as applicable, for particular products between periods and (ii) “volume/mix” refer to the combined impact of both the number of products we sell in a particular period and the types of products sold, in each case, on net revenues.

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

Under the heading “Results of Operations,” references to (i) “pricing” refer to the impact of price increases or decreases, as applicable, for particular products between periods based on demand and (ii) “volume/mix” refer to the combined impact of both the number of products we sell in a particular period and the types of products sold, in each case, on net revenues.

While we operate in competitive markets, the demand for our innovative products allows us to exercise pricing discipline, which is an important element of our strategy to achieve profitable growth through improved margins.

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.

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We continue to implement our strategic initiatives under JEM to develop the culture and processes of operational excellence and continuous improvement.

These cost reduction initiatives, which include plant closures and consolidations, headcount reductions, and various initiatives aimed at lowering production and overhead costs, may not produce the intended results within the intended timeframe.

These cost reduction initiatives, which include plant closures and consolidations, headcount reductions, and other various initiatives aimed at lowering production and overhead costs, may not produce the intended results within the intended timeframe.

Raw Material Costs

Commodities such as vinyl extrusions, glass, aluminum, wood, steel, plastics, fiberglass, and other composites are major components in the production of our products.

Changes in the underlying prices of these commodities have a direct impact on the cost of products sold.

Changes in the underlying prices of these commodities have a direct impact on the cost of goods sold.

While we attempt to pass on a substantial portion of such cost increases to our customers, we may not be successful in doing so.

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Freight Costs

We incur substantial freight costs to third party logistics providers to transport raw materials and work-in-process inventory to our manufacturing facilities and to deliver finished goods to our customers.

Changes in freight rates and the availability of freight services can have a significant impact on our cost of goods sold.

Freight costs have risen significantly due to a number of factors that have affected the supply and demand of trucking services, including increased regulation, such as data logging of miles, increases in general economic activity, and an aging workforce.

We incur substantial freight and duty costs to third party logistics providers and port authorities to transport raw materials and work-in-process inventory to our manufacturing facilities and to deliver finished goods to our customers.

Changes in freight and duty rates as well as the availability of freight services can have a significant impact on our cost of goods sold.

Freight and duty costs have risen significantly due to a number of factors that have affected the supply and demand of trucking and port services, including increased regulation, such as data logging of miles, increases in general economic activity, labor shortages, and an aging workforce.

We attempt to mitigate some of these cost increases through various internal initiatives and to pass a substantial portion of these increases to our customers;

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Typically, working capital increases at the end of the first quarter and beginning of the second quarter in conjunction with, and in preparation for, our peak season, and working capital decreases starting in the third quarter as inventory levels and accounts receivable decline.

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

Inventories fluctuate as we manage availability in our supply chain due to COVID-19 impacts and for some raw materials with long delivery lead times, such as steel, as we work through prior shipments and take delivery of new orders.

Our working capital balances have been impacted by inflation in the current year due to rising costs in raw materials impacting both inventory and accounts payable as well as higher accounts receivable usages as a result of price realization across our product portfolio.

Foreign Currency Exchange Rates

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dollar can affect our reported operating results and our cash flows as we translate our foreign subsidiaries’ financial statements from their reporting currencies into U.S.

In the year ended December 31, 2020 compared to the year ended December 31, 2019, the depreciation or appreciation of the U.S.

dollar relative to the reporting currencies of our foreign subsidiaries resulted in higher or lower reported results in such foreign reporting entities.

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 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.

The exchange rates used to translate our foreign subsidiaries’ financial results for the year ended December 31, 2021 compared to the year ended December 31, 2020 reflected, on average, the U.S.

dollar weakened against the Australian dollar, Canadian dollar, and Euro by 9%, 7% and 4%, 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.

Components of our Operating Results

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The cost of each of these items is impacted by global supply and demand trends, both within and outside our industry, as well as commodity price fluctuations, conversion costs, energy costs, and transportation costs.

We have and may continue to experience inflation in our material costs, including increased costs for inbound freight, due to supply chain challenges as a result of COVID-19.

The imposition of new tariffs on imports, new trade restrictions, or changes in tariff rates or trade restrictions may further impact material costs.

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To date, research and development expenses have been expensed as incurred, because the period between achieving technological feasibility and the release of products and services for sale has been short and development costs qualifying for capitalization have been insignificant.

We expect our research and development expenses to increase in absolute dollars as we continue to make significant investments in developing new products and enhancing existing products.

We expect our research and development expenses to increase in absolute dollars as we continue to make significant investments in developing new products and enhancing existing products as part of our growth strategy.

Sales and Marketing.

Sales and marketing expenses consist primarily of advertising and marketing promotions of our products and services and related personnel expenses, as well as sales incentives, trade show and event costs, sponsorship costs, consulting and contractor expenses, travel, display expenses, and related amortization.

Sales and marketing expenses are generally variable expenses and not fixed expenses.

Sales and marketing expenses are generally variable expenses.

We expect our sales and marketing expenses to increase in absolute dollars as we continue to actively promote our products and services.

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General and administrative expenses consist of personnel expenses for our finance, legal, human resources, and administrative personnel, as well as the costs of professional services, any allocated overhead, information technology, amortization of intangible assets acquired, and other administrative expenses.

We expect our general and administrative expenses to increase in absolute dollars due to the anticipated growth of our business and related infrastructure as well as legal, accounting, insurance, investor relations, and other costs associated with being a public company.

We expect our general and administrative expenses to increase in absolute dollars to support future growth and the related infrastructure of our business.

Impairment and Restructuring 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 commitment fees and amortization of any original issue discount or debt issuance costs.

Interest expense, net, relates primarily to interest payments on our 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.

For additional details, see Note 11 - Long-Term Debt in our financial statements for the year ended December 31, 2021 included elsewhere in this 10-K .

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, 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.

Other Income, Net

Other income, net, includes profit and losses related to various miscellaneous non-operating expenses primarily relating to pension benefit income and expenses, governmental pandemic assistance reimbursements relating to COVID-19, legal settlement income, insurance reimbursements, loss on extinguishment of debt, 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.

Under this method, deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Under this method, deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to differences between the financial statement

carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

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federal, state, and foreign net operating loss (“NOL”) carryforwards were $1,560.6 million in the aggregate and $96.4 million of such NOL carryforwards do not expire.

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 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.

shareholder to current tax on GILTI earned by certain foreign subsidiaries.

We have elected to account for the impact of GILTI in the period in which it is incurred.

For additional details, see Note 13 - Income Taxes in our financial statements for the year ended December 31, 2021 included elsewhere in this 10-K.

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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.

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

We made, and continue to make, changes to our operations to ensure proper measures are in place for the health and safety of our employees and to satisfy the needs of our customers.

We continue to experience intermittent closures and reduced operating capacity of certain manufacturing facilities, primarily due to local and governmental mandates.

During 2021, we continued to experience increased demand for our products in both residential and remodel channels due to the low residential housing supply, low interest rates, and consumers’ focus on their homes.

In addition, we have and may continue to experience challenges throughout our operations relating to COVID-19, including increased inflation in our supply chain, as well as in raw materials, labor, and freight charges.

We have experienced delays of inbound and outbound deliveries and labor availability issues due to quarantines, site access, and employee absences.

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

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

We define core revenues as revenue excluding the impact of foreign exchange and acquisitions completed in the last twelve months.

Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

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

Net Revenues – Net revenues increased $536.0 million, or 12.7%, to $4,771.7 million in the year ended December 31, 2021 from $4,235.7 million in the year ended December 31, 2020.

The increase was due to an improvement in core revenues of 10% and a positive impact from foreign exchange of 3%.

Core revenues increased due to a 7% benefit from pricing and favorable volume/mix of 3%.

Gross Margin – Gross margin increased $73.4 million, or 8.1%, to $975.3 million in the year ended December 31, 2021 from $901.9 million in the year ended December 31, 2020.

Gross margin as a percentage of net revenues was 20.4% in the year ended December 31, 2021 and 21.3% in the year ended December 31, 2020.

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

The decrease in gross margin percentage was primarily due to the impact of inflation on material costs, freight, and labor compensation in the current period, partially offset by improved pricing, positive manufacturing variances, and favorable volume/mix.

SG&A Expense – SG&A expense increased $2.2 million, or 0.3%, to $704.9 million in the year ended December 31, 2021 from $702.7 million in the year ended December 31, 2020.

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.

The increase in SG&A expense was primarily due to the non-recurrence of certain savings from cost reduction measures implemented in 2020 in response to COVID-19, primarily related to salary and benefits, and the impact of inflation on compensation in the current period, partially offset by reduced variable compensation and litigation related expenses.

Impairment and Restructuring Charges – Impairment and restructuring charges decreased $7.5 million, or 71.8%, to $3.0 million in the year ended December 31, 2021 from $10.5 million in the year ended December 31, 2020.

Charges incurred in 2021 primarily relate to ongoing restructuring projects within our Europe segment and asset impairment charges in North America.

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 19 - Impairment and Restructuring Charges to our consolidated financial statements included in this 10-K.

Interest Expense, Net – Interest expense, net, increased $2.8 million, or 3.7%, to $77.6 million in the year ended December 31, 2021 from $74.8 million in the year ended December 31, 2020.

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.

The increase was primarily due to interest on our Senior Secured Notes issued in May 2020, partially offset by lower interest rates throughout 2021.

Other Income – Other income increased $11.8 million, or 427.0%, to $14.5 million in the year ended December 31, 2021 from $2.8 million in the year ended December 31, 2020.

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.

Other income in the year ended December 31, 2021 primarily consisted of foreign currency gains of $9.9 million and reimbursements from governmental pandemic assistance relating to COVID-19 and insurance and of $3.2 million, partially offset by a loss on sale or disposal of property and equipment of $2.0 million and a loss on extinguishment of debt of $1.3 million.

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 reimbursements from governmental pandemic assistance relating to COVID-19 of $7.4 million, a gain on sale of property and equipment of $4.1 million, and insurance reimbursements of $1.4 million.

Income Taxes – Income tax expense increased $10.5 million, or 41.7%, to $35.5 million in the year ended December 31, 2021 from $25.1 million in the year ended December 31, 2020.

The effective tax rate in the year ended December 31, 2021 was 17.4% compared to 21.5% in the year ended December 31, 2020.

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.

The increase in income tax expense in the year ended December 31, 2021 was primarily due to an increase in income before taxes of $87.7 million, partially offset by a tax benefit from tax credits and GILTI HTE as well as a partial release of U.S.

state valuation allowances.

For more information, refer to Note 13 – Income Taxes to our consolidated financial statements included in this 10-K.

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

Income before taxes, equity earnings and discontinued operations

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 — %

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 %

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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 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.

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.

Gross margins increased due to positive manufacturing variances 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 acquisition 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.

For more information, refer to Note 19 - 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 $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.

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 reimbursements from governmental pandemic assistance relating to COVID-19 of $7.4 million, a gain on sale or disposal of 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 or disposal 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 13 - Income Taxes to our consolidated financial statements included in this 10-K.

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North America

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.

Net revenues in North America increased $300.2 million, or 11.9%, to $2,829.2 million in the year ended December 31, 2021 from $2,529.0 million in the year ended December 31, 2020.

The increase was primarily due to an increase in core revenues of 12%.

Core revenues increased due to an 10% benefit from pricing and favorable volume/mix of 2%.

Adjusted EBITDA in North America increased $36.9 million, or 11.7%, to $352.9 million in the year ended December 31, 2021 from $316.0 million in the year ended December 31, 2020.

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.

The increase was due to favorable pricing, volume growth, and positive manufacturing variances, partially offset by the impact of inflation on material costs, freight, and labor compensation.

Net revenues in Europe increased $164.7 million, or 13.9%, to $1,352.5 million in the year ended December 31, 2021 from $1,187.8 million in the year ended December 31, 2020.

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 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 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.

The increase was primarily due to an increase in core revenue of 9% and a positive impact from foreign exchange of 5%.

Core revenues increased due a 5% benefit from pricing and favorable volume/mix of 4%.

Adjusted EBITDA in Europe decreased $9.1 million, or 6.7%, to $127.3 million in the year ended December 31, 2021 from $136.4 million in the year ended December 31, 2020.

The decrease was primarily due to the impact of inflation on material costs, freight, and labor compensation in the current period, partially offset by favorable pricing and positive manufacturing variances.

Net revenues in Australasia increased $71.1 million, or 13.7%, to $590.0 million in the year ended December 31, 2021 from $518.9 million in the year ended December 31, 2020.

The increase was primarily due to a positive impact from foreign exchange of 9% and an increase in core revenues of 5%.

Core revenues increased due to favorable volume/mix of 3% and a 2% benefit from pricing.

Adjusted EBITDA in Australasia increased $9.0 million, or 14.4%, to $71.4 million in the year ended December 31, 2021 from $62.4 million in the year ended December 31, 2020.

The increase was primarily due to improved volume/mix and positive manufacturing variances, partially offset by the impact of inflation on material costs.

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%.

Corporate and unallocated costs increased in the year ended December 31, 2021 compared to the year ended December 31, 2020 primarily due to the non-recurrence of certain savings from cost reduction measures implemented in 2020 in response to COVID-19, primarily related to salary and benefits, and the impact of inflation as well as increased health benefit costs and software related expenditures, partially offset by reduced variable compensation expenses resulting in a decrease to Adjusted EBITDA of $18.2 million, or 26.6%.

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

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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 decline in core revenues of 1% offset by a 1% increase attributable to the contribution from the acquisition of VPI.

Core revenues decreased due to unfavorable volume/mix of 6%, partially offset by a 5% benefit from pricing.

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, positive manufacturing variances, 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 impact from foreign exchange of 2%, partially offset by a decline in core revenue of 1%.

Core revenues decreased due to unfavorable volume/mix of 2%, partially offset by a 1% benefit from pricing.

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 positive manufacturing variances 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% and unfavorable impacts from foreign exchange of 1%.

Core revenues decreased due to unfavorable volume/mix of 8% and reduced pricing 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 positive manufacturing variances 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

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, Senior Notes, and Senior Secured Notes.

We have historically funded our operations through a combination of cash from operations, draws on our revolving credit facilities, and the issuance of non-revolving debt such as our Term Loan Facility, Senior Notes, and Senior Secured 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, 2021, we had total liquidity (a non-GAAP measure) of $837.8 million, consisting of $395.6 million in unrestricted cash, $425.8 million available for borrowing under the ABL Facility, and AUD 22.6 million ($16.4 million) available for borrowing under the Australia Senior Secured Credit Facility (See Note 11 – Long-Term Debt to our consolidated financial statements for additional details regarding amendments made to the ABL Facility in July 2021), compared to total liquidity of $1,121.5 million as of December 31, 2020.

The decrease in total liquidity was primarily due to cash utilized for share repurchases, higher working capital investment, capital expenditures, and repayments of long-term debt and legal settlements, partially offset by the increase in earnings.

As of December 31, 2021, our cash balances, including $1.3 million of restricted cash, consisted of $46.3 million in the U.S.

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subsidiaries.

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.

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 availability 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.

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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The amount of debt that may be refinanced, repriced, extended, retired, or otherwise modified, if any, will depend on market conditions, trading levels of our debt, our cash position, compliance with debt covenants, and other considerations.

Our affiliates may also purchase our debt from time to time, through open market purchases or other transactions.

In such cases, our debt may not be retired, in which case we would continue to pay interest in accordance with the terms of the debt, and we would continue to reflect the debt as outstanding in our consolidated balance sheets.

Based on hypothetical variable rate debt that would have resulted from drawing each revolving credit facility up to the full commitment amount, a 1.0% decrease in interest rates would have reduced our interest expense by $2.4 million for the year ended December 31, 2020.

A 1.0% increase in interest rates would have increased our interest expense by $7.4 million for the same period.

The impact of these hypothetical changes would have been partially mitigated by interest rate caps and the floors that apply to certain of our debt agreements.

A 1.0% increase in interest rates would have increased our interest expense by $7.5 million in the same period.

The impact of a hypothetical decrease would have been partially mitigated by interest rate floors that apply to certain of our debt agreements.

Contractual Obligations

In addition to our discussion and analysis surrounding our liquidity and capital resources, we have significant contractual obligations and commitments as of December 31, 2021 relating to the following:

• Long-term debt and interest obligations – As of December 31, 2021 our outstanding debt balance was $1,720.9 million.

See Note 11 - Long-Term Debt to our consolidated financial statements for additional details regarding the timing of expected future principal payments.

Interest on long-term debt is calculated based on debt outstanding and interest rates in effect on December 31, 2021, taking into account scheduled maturities and amortization payments.

As of December 31, 2021, we estimate interest payments of $70.3 million due in 2022 and $270.2 million due in 2023 and thereafter.

• Finance and operating lease obligations – As of December 31, 2021, our remaining contractual commitments for finance and operating leases was $250.2 million.

See Note 7 - Leases to our consolidated financial statements for additional details regarding the timing of expected future payments

• Purchase obligations – As of December 31, 2021, we have purchase obligations of $20.8 million due in 2022 and $27.6 million due in 2023 and thereafter.

These purchase obligations are primarily relating to software hosting services and capital expenditures.

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.

Borrowings and Refinancings

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 December 2021, we amended our Australia Senior Secured Credit Facility resulting in reduced borrowing fees and reinstated maintenance financial covenant ratios to pre-pandemic thresholds.

In July 2021, we refinanced our existing Term Loan Facility and ABL Facility by issuing replacement loans that aggregated to $550.0 million in principal amount under the Term Loan Facility and added $100.0 million in potential additional revolving loan capacity to our ABL Facility.

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

businesses in determining our borrowing base on our U.S.

ABL Facility, which increased our availability.

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.

This supplemental facility matured on June 30, 2021 and was not renewed.

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

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

As of December 31, 2021, 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.

See Note 11 - Long-Term Debt to our consolidated financial statements for additional details.

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

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Cash Flow from Operations

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 decreased $180.0 million to $175.7 million in the year ended December 31, 2021 from $355.7 million in the year ended December 31, 2020.

The decrease in cash provided by operating activities was due primarily to increased inventory costs, increased accounts receivable, cash paid for legal settlements, and increased cash taxes, partially offset by increased earnings.

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 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.

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 in 2022 and 2023, legal and environmental matters, and estimated variable compensation.

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 cash used for acquisitions.

Net cash used in investing activities increased $10.4 million to $92.4 million in the year ended December 31, 2021 from $82.0 million in the year ended December 31, 2020 primarily due to a decrease in cash received from the sale of property, plant and equipment.

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 cash used for acquisitions and a reduction in capital expenditures.

Cash Flow from Financing Activities

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.

Net cash used in financing activities was $401.2 million in the year ended December 31, 2021 and consisted primarily of repurchases of our Common Stock of $323.7 million and net debt repayments of $86.1 million.

Net cash provided by financing activities was $207.9 million in the year ended December 31, 2020 and consisted primarily of net 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 was comprised primarily of repurchases of our Common Stock of $20.0 million, partially offset by increased borrowings of $13.1 million.

Holding Company Status

We are a holding company that conducts all of our operations through subsidiaries.

We are a holding company that conducts all of our operations through subsidiaries, and we rely on dividends or advances from our subsidiaries to fund the holding company.

The majority of our operating income is derived from JWI, our main operating subsidiary.

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, Senior Notes, and Senior Secured Notes.

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The amount of our consolidated net assets that were available to be distributed under our credit facilities as of December 31, 2021 was $777.0 million.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Contractual Obligations

The following table summarizes our significant contractual obligations at December 31, 2020:

Payments Due By Period

Total Less Than

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

(dollars in thousands)

Contractual Obligations (1)

Long-term debt obligations $ 1,775,525 $ 64,961 $ 77,460 $ 1,204,669 $ 428,435

Finance lease obligations 6,236 1,950 2,945 1,274 67

Operating lease obligations 258,419 53,958 86,532 55,073 62,856

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 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.

Critical Accounting Policies and Estimates

The following disclosure is provided to supplement the description of our accounting policies contained in Note 1 - Description of Company and Summary of Significant Accounting Policies in our consolidated financial statements.

Our MD&A is based upon our consolidated financial statements, which have been prepared in accordance with GAAP.

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We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which may differ from these estimates.

Our significant accounting policies are fully disclosed in our annual consolidated financial statements included elsewhere in this Form 10-K.

The following discussion highlights the estimates we believe are critical and should be read in conjunction with the consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Revenue Recognition

Revenue is recognized when obligations under the terms of a contract with our customer are satisfied.

Generally, this occurs with the transfer of control of our products or services.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

The taxes we collect concurrent with revenue-producing activities (e.g., sales tax, value added tax, and other taxes) are excluded from revenue.

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

Shipping and handling costs 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.

We do not adjust the promised amount of consideration for the effects of a significant financing component when we expect, at contract inception, that the period between our transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less.

We do not typically include extended payment terms in our contracts with customers.

Incidental items that are immaterial in the context of the contract are recognized as expense.

We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their acquisition date fair values.

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

Intangible Assets

Definite lived intangible assets are amortized on a straight-line basis over their estimated useful lives that typically range from 3 to 40 years.

The lives of definite lived intangible assets are reviewed and reduced if necessary, whenever changes in their planned use occur.

Legal and registration costs related to internally developed patents and trademarks are capitalized and amortized over the lesser of their expected useful life or the legal patent life.

We review the carrying value of intangible assets to assess their recoverability when facts and circumstances indicate that the carrying value may not be recoverable.

Long-Lived Assets

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may not be recoverable.

Recoverability of Long-Lived and Intangible Assets

Long-lived assets, other than goodwill, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of such asset groups may not be recoverable.

Such events or circumstances include, but are not limited to, a significant decrease in the fair value of the underlying business or a change in utilization of property and equipment.

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Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the assets.

When evaluating long-lived assets and definite lived intangible assets for potential impairment, the first step to review for impairment is to forecast the expected undiscounted cash flows generated from the anticipated use and eventual disposition of the asset.

If the expected undiscounted cash flows are less than the carrying value of the asset, then an impairment charge is required to reduce the carrying value of the asset to fair value.

When evaluating long-lived assets and definite lived intangible assets for potential impairment, if a triggering event is identified, we perform an impairment test by reviewing the expected undiscounted cash flows generated from the anticipated use and eventual disposition of the asset group compared to the carrying value of the asset group.

If the expected undiscounted cash flows are less than the carrying value of the asset group, then an impairment charge is required to reduce the carrying value of the asset group to fair value.

If we recognize an impairment loss, the carrying amount of the asset is adjusted to fair value based on the discounted estimated future net cash flows.

For a depreciable long-lived asset, the new cost basis will be depreciated over the remaining useful life of that asset.

For a depreciable long-lived assets, the new cost basis will be depreciated over the remaining useful life of that asset.

For an amortizable intangible asset, the new cost basis will be amortized over the remaining useful life of the asset.

Our impairment loss calculations require management to apply judgments in estimating future cash flows to determine asset fair values, including forecasting useful lives of the assets and selecting the discount rate that represents the risk inherent in future cash flows.

Our impairment loss calculations require management to apply judgments in estimating future cash flows to determine asset fair values, including forecasting useful lives of the assets.

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.

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

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

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, EBITDA margins, and cost of capital.

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

Such changes in assumptions could be caused by items such as a loss of one or more significant customers, decline in the demand for our products due to changing economic conditions, or failure to control cost increases above what can be recouped in sale price increases.

These types of changes would negatively affect our profits, revenues, and growth over the long term and such a decline could significantly affect the fair value assessment of our reporting units and cause our goodwill to become impaired.

These types of changes would negatively affect our profits, revenues, and growth over the long term

and such a decline could significantly affect the fair value assessment of our reporting units and cause our goodwill to become impaired.

As of December 31, 2021, the fair value of our North America, Europe, and Australasia reporting units would have to decline by approximately 32%, 37%, and 12%, 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.

Keeping all other assumptions consistent, an increase in the discount rate of 1% would result in the fair value of a reporting unit over its carrying value of 26%, 31%, and 4% for the North America, Europe, and Australasia reporting units, respectively.

A material change in the fair value or carrying value of our Australasia reporting unit would put the reporting unit at risk of goodwill impairment.

For example, our ability to increase revenue and improve EBITDA 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.

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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

Warranty terms range primarily from one year to lifetime on certain window and door components.

Warranties are normally limited to replacement or service of defective components for the original customer.

Some warranties are transferable to subsequent owners and are generally limited to ten years from the date of manufacture or require pro-rata payments from the customer.

A provision for estimated warranty costs is recorded at the time of sale based on historical experience and we periodically adjust these provisions to reflect actual experience.

Income taxes are accounted for under the asset and liability method.

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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.

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 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.

shareholder to current tax on GILTI earned by certain foreign subsidiaries.

We have elected to account for the impact of GILTI in the period in which it is incurred.

The tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if the position is more likely than not to be sustained, based on the technical merits of the position and the jurisdiction.

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

We have elected to account for the impact of GILTI in the period in which it is incurred.

Contingent Liabilities

Contingent liabilities require significant judgment in estimating potential losses for legal claims.

Contingent liabilities require significant judgment in estimating potential losses for legal and environmental claims.

Each quarter, we review significant new claims and litigation for the probability of an adverse outcome.

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We have share-based compensation plans that provide for compensation to employees through various grants of share-based instruments.

We apply the fair value method of accounting using the Black-Scholes option pricing model to determine the compensation expense for stock appreciation rights.

The compensation expense for RSU awarded is based on the fair value of the RSU at the date of grant.

We apply the fair value method of accounting using the Black-Scholes option-pricing model to determine the compensation expense for stock options.

The compensation expense for RSUs awarded is based on the fair value of the RSU at the date of grant.

Compensation expense is recorded in the consolidated statements of operations and is recognized over the requisite service period.

The determination of obligations and compensation expense requires the use of several mathematical and judgmental factors, including stock price, expected volatility, the anticipated life of the option, estimated risk-free rate, and the number of shares or share options expected to vest.

or share options expected to vest.

Any difference in the number of shares or share options that actually vest can affect future compensation expense.

Other assumptions are not revised after the original estimate.

For stock options granted, we prepare the valuations with the assistance of a third-party valuation firm, utilizing approaches and methodologies consistent with the AICPA Practice Aid.

The Black-Scholes option-pricing model requires the use of weighted average assumptions for estimated expected volatility, estimated expected term of stock options, risk-free rate, estimated expected dividend yield, and the fair value of the underlying common stock at the date of grant.

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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.

For stock options granted, we prepare the valuations with the assistance of a third-party valuation firm, utilizing approaches and methodologies consistent with the AICPA Practice Aid.

For PSUs issued prior to 2021, 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.

For PSUs issued in 2021, the number of PSUs that vest is determined by a payout factor consisting of equally weighted pre-set three year performance targets on return on invested capital (“ROIC”) and TSR.

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.

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The discount rate utilized to calculate the projected benefit obligation at the measurement date for our U.S.

pension plan decreased to 2.55% at December 31, 2020 from 3.31% at December 31, 2019.

pension plan increased to 2.88% at December 31, 2021 from 2.55% at December 31, 2020.

As the discount rate is reduced or increased, the pension and post retirement obligation would increase or decrease, respectively, and future pension and post-retirement expense would increase or decrease, respectively.

Lowering the discount rate by 0.25% would increase the U.S.

pension and post-retirement obligation at December 31, 2020 by approximately $16.4 million and would increase estimated fiscal year 2021 expense by approximately $1.7 million.

pension and post-retirement obligation at December 31, 2021 by approximately $14.9 million and would decrease estimated fiscal year 2022 pension income by approximately $1.7 million.

Increasing the discount rate by 0.25% would decrease the U.S.

pension and post-retirement obligation at December 31, 2020 by approximately $15.6 million and would decrease estimated fiscal year 2021 expense by approximately $1.7 million.

pension and post-retirement obligation at December 31, 2021 by approximately $14.2 million and would increase estimated fiscal year 2022 pension income by approximately $0.7 million.

We determine the expected long-term rate of return on plan assets based on the plan assets’ historical long-term investment performance, current asset allocation, and estimates of future long-term returns by asset class.

Holding all other assumptions constant, a 1% increase or decrease in the assumed rate of return on plan assets would have decreased or increased, respectively, 2020 net periodic pension expense by approximately $3.9 million.

Holding all other assumptions constant, a 1% increase or decrease in the assumed rate of return on plan assets would decrease or increase, respectively, 2022 net periodic pension expense by approximately $4.1 million.

The actuarial assumptions we use in determining our pension benefits may differ materially from actual results because of changing market and economic conditions, higher or lower withdrawal rates, or longer or shorter life spans of participants.

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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