Item 7A - Quantitative and Qualitative Disclosures About Market Risk
−Removed: We are exposed to various types of market risks, including the effects of adverse fluctuations in foreign currency exchange rates, adverse changes in interest rates, and adverse movements in commodity prices for products we use in our manufacturing.
−Removed: To reduce our exposure to these risks, we maintain risk management controls and policies to monitor these risks and take appropriate actions to attempt to mitigate such forms of market risk.
+Added: We are exposed to risk that our earnings, cash flows and equity could be adversely impacted by changes in foreign exchange rates, interest rates and commodity prices.
+Added: We maintain risk management controls and policies to monitor these risks and take appropriate risk mitigation actions.
+Added: We use certain derivative instruments, when available on a cost-effective basis, to hedge our underlying economic exposures.
+Added: For additional information on our financial instruments and hedging strategies, See Note 23 – Derivative Financial Instruments of our consolidated financial statements for the year ended December 31, 2023 included elsewhere in this Form 10-K.
Exchange Rate Risk
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We also are subject to currency translation risk associated with converting our foreign operations’ financial statements into U.S.
−Removed: Exchange rates had a negative impact of 5% on our consolidated net revenues in the year ended December 31, 2022 as compared to a positive impact of 3% in the year ended December 31, 2021.
−Removed: We cannot assure you that fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S.
−Removed: dollar against major currencies, such as the Euro, the Australian dollar, the Canadian dollar, the British pound, or the currencies of large developing countries, would not materially adversely affect our business, financial condition, and results of operations.
+Added: The exchange rates used to translate our foreign subsidiaries’ financial results for the year ended December 31, 2023 compared to the year ended December 31, 2022 reflected, on average, the U.S.
+Added: dollar strengthened against the Canadian dollar 4% and weakened against the Euro by 3%, respectively.
+Added: Exchange rates had a nominal impact on our consolidated net revenues and Adjusted EBITDA from continuing operations, respectively, in the year ended December 31, 2023 as compared to an adverse impact of (4%) and of (3%) on our consolidated net revenues and Adjusted EBITDA from continuing operations, respectively, in the year ended December 31, 2022.
+Added: We cannot be certain that fluctuations in foreign currency exchange rates, particularly the strengthening of the U.S.
+Added: dollar against major currencies, such as the Euro, the Canadian dollar, the British pound, or the currencies of large developing countries, would not materially adversely affect our business, financial condition, and results of operations.
We use short-term foreign currency forward contracts to mitigate the impact of foreign exchange fluctuations on consolidated earnings.
−Removed: As of December 31, 2022, we held foreign currency derivative contracts, with a total notional amount of $80.0 million in order to manage the effect of exchange fluctuations on forecasted sales, purchases, acquisitions, and capital expenditures and certain intercompany transactions that are denominated in foreign currencies.
+Added: As of December 31, 2023, we held foreign currency derivative contracts, with a total notional amount of $95.9 million in order to manage the effect of exchange fluctuations on forecasted sales, purchases, acquisitions, capital expenditures and certain intercompany transactions that are denominated in foreign currencies.
+Added: We have foreign currency derivative contracts, with a total notional amount of $140.1 million, to manage the risks of foreign currency gains and losses on intercompany loans and interest.
We also used foreign currency derivative contracts, with a total notional amount of $28.9 million as of December 31, 2023, to mitigate the impact to the consolidated earnings of the Company from the effect of the translation of certain subsidiaries’ local currency results into U.S.
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We are exposed to interest rate market risk in connection with our long-term debt, some of which is based upon floating interest rates.
−Removed: To manage our interest rate risk, we may enter into interest rate derivatives, such as interest rate swaps or caps when we deem it to be appropriate.
−Removed: We do not use financial instruments for trading or other speculative purposes and are not a party to any leveraged derivative instruments.
+Added: To manage our interest rate risk, we may enter into interest rate derivatives, such as interest rate swaps, caps, or collars when we deem it to be appropriate.
+Added: We do not use derivative financial instruments for trading or other speculative purposes and are not a party to any leveraged derivative instruments.
Our net exposure to interest rate risk would primarily be based on the difference between outstanding variable rate debt and the notional amount of any interest rate derivatives.
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We monitor interest rate risk attributable to our outstanding debt obligations, involving the use of analytical techniques to determine the potential impact of interest rate volatility on future interest payments.
−Removed: In 2021, ICE Benchmark Administration Limited (IBA) confirmed it would cease publication of the one-week and two-month USD LIBOR tenors immediately following the LIBOR publication on December 31, 2021, and the remaining USD LIBOR tenors immediately following the LIBOR publication on June 30, 2023.
−Removed: As a result, we may incur incremental interest expense depending on the new standard determined.
−Removed: We have elected certain optional expedients provided by ASC Topic 848 Reference Rate Reform in order to mitigate the risk of dedesignation of our hedged interest rate swaps, which could result in an increase in interest expense.
−Removed: At this time, we have elected to continue the method of assessing effectiveness as documented in the original hedge documentation and apply the practical expedients related to probability to assume that the reference rate on the hypothetical derivative matches the reference rate on the hedging instrument.
−Removed: We plan to evaluate the remaining expedients for adoption, as applicable, when contracts are modified.
−Removed: Although our ABL Facility agreement and Term Loan Facility agreement contain provisions intended to address the anticipated unavailability of LIBOR, we may need to amend these and other contracts to accommodate any replacement rate.
−Removed: The potential effect of any such event on our cost of capital cannot yet be determined but we do not expect it to have a material impact on our consolidated financial condition, results of operations, or cash flows.
Raw Materials Risk
−Removed: Our major raw materials include glass, vinyl extrusions, aluminum, steel, wood, hardware, adhesives, and packaging.
−Removed: Prices of these commodities can fluctuate significantly in response to, among other things, variable worldwide supply and demand across different industries, speculation in commodities futures, general economic or environmental conditions, labor costs, competition, import duties, tariffs, worldwide currency fluctuations, freight, regulatory costs, and product and process evolutions that impact demand for the same materials.
+Added: Our major raw materials include wood, wood composites, wood components, steel, glass, internally produced door skins, fiberglass compound, hardware, petroleum-based products such as resin and binders, as well as aluminum and vinyl extrusions.
+Added: Prices of these materials can fluctuate significantly in response to, among other things, variable worldwide supply and demand across different industries, speculation in commodities futures, general economic or environmental conditions, labor costs, competition, import duties, tariffs, worldwide currency fluctuations, freight, regulatory costs, and product and process evolutions that impact demand for the same materials.
Increasing raw material prices directly impact our cost of sales and our ability to maintain margins depends on implementing price increases in response to increasing raw material costs.
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See Item 1A- Risk Factors - Prices and availability of the raw materials we use to manufacture our products are subject to fluctuations and we may be unable to pass along to our customers the effects of any price increases.
−Removed: Generally, we do not use derivatives or similar instruments to hedge commodity price fluctuations, but may from time to time.
We purchase from multiple geographically diverse companies to mitigate the adverse impact of higher prices for our raw materials.
+Added: Also, from time to time, we enter into derivatives to hedge commodity price fluctuations that are immaterial to the consolidated financial statements.
+Added: For more information about our derivative asset and liabilities, refer to Note 23 - Derivative Financial Instruments of our audited consolidated financial statements included in this Form 10-K.
We also maintain other strategies to mitigate the impact of higher raw material, energy, and commodity costs, which typically offset only a portion of the adverse impact.
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