JELD-WEN Holding, Inc. — FY 2017 Form 10-K
Reporting period: Year ended December 31, 2017; the filing also reports unaudited quarterly results. JELD-WEN manufactures and distributes doors, windows, and related products globally through North America, Europe, and Australasia.
Financial performance
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Net revenues | $3.764 billion | $3.667 billion |
| Gross margin | $848.2 million; 22.5% | $774.6 million; 21.1% |
| Operating income | $250.1 million; 6.6% | $195.1 million; 5.3% |
| Net income | $10.8 million | $377.2 million |
| Adjusted EBITDA (non-GAAP) | $437.6 million; 11.6% of revenue | $393.7 million; 10.7% |
| Cash from operating activities | $265.8 million | $201.7 million |
| Capital expenditures | $63.0 million | $79.5 million |
| Total debt at year-end | $1.274 billion | $1.620 billion |
FY 2017 revenue grew 2.6%, driven by acquisitions (2%) and favorable foreign exchange (1%); core revenue was flat, as 1% favorable pricing was offset by a 1% decline in volume/mix. Gross margin improved with pricing, cost savings, and acquisitions, partly offset by North American window operational inefficiencies. Net income fell sharply from 2016, which included a substantial tax benefit from valuation-allowance releases. In 2017, tax expense was $138.6 million, including provisional Tax Act effects and other tax-related transactions; the effective tax rate was 95.1%.
Fourth-quarter 2017 revenue was $976.0 million and net loss was $93.7 million. Quarterly results were uneven; the filing does not provide a clear single cause for the quarter’s net loss in the quarterly table.
Segments and material changes
- North America: Revenue increased 0.4% to $2.158 billion; Adjusted EBITDA rose 8.6% to $273.6 million. MMI Door acquisition and pricing/cost savings helped, while volume/mix declined 3%, including weaker retail-channel and window activity.
- Europe: Revenue increased 3.4% to $1.043 billion; Adjusted EBITDA rose 8.4% to $132.9 million, supported by pricing, Mattiovi, cost savings, and additional shipping days.
- Australasia: Revenue increased 10.6% to $563.1 million; Adjusted EBITDA rose 25.5% to $74.7 million, mainly reflecting acquisitions and favorable foreign exchange.
- Cash and cash equivalents were $220.2 million, with an additional $36.1 million of restricted cash. Reported total liquidity was $512.2 million, including $292.0 million of available revolving-facility capacity. Management said available liquidity should support operations, planned investment, and debt service for at least 12 months.
- December refinancing issued $800 million of senior notes, repaid $787.4 million of term loans, and repriced and extended the term loan and ABL facilities. The company recorded a $23.3 million debt-extinguishment loss. Senior notes bear interest at 4.625% and 4.875%, maturing in 2025 and 2027.
Outlook, risks, and unusual items
- No specific consolidated revenue or earnings guidance is provided. Management’s stated priorities include JELD-WEN Excellence Model operational improvements, pricing discipline, product development, and acquisitions. It expected the February 2018 Domoferm acquisition to contribute approximately €110 million of annualized revenue in 2018; A&L Windows was also acquired in February, and ABS was under agreement to be acquired.
- Tax Act accounting remained provisional. The company recorded $21.1 million of deferred-tax remeasurement expense and an $11.3 million deemed-repatriation tax charge, plus a net $65.8 million tax expense related to fourth-quarter transactions. Final estimates could change materially; the company expected to complete its analysis during 2018.
- A jury returned an unfavorable verdict in the Steves & Sons litigation on February 15, 2018, after year-end. The verdict included $12.2 million in past damages and $46.5 million in future lost profits; Clayton Act damages may be trebled, and attorney fees and a possible divestiture claim remain unresolved. JELD-WEN disputed the verdict, planned to appeal, and had not accrued a loss.
- Management concluded that disclosure controls and internal control over financial reporting were ineffective at year-end because material weaknesses in income-tax accounting controls had not operated effectively for a sufficient period. Prior-period financial statements were revised for errors and misclassifications deemed immaterial to previously issued periods.
- Other key exposures include housing and remodeling cyclicality, raw-material and labor costs, customer concentration (Home Depot represented about 17% of 2017 revenue), foreign exchange, leverage, pensions, environmental obligations, and acquisition integration. Onex held about 31% of outstanding shares at year-end.
- Environmental matters include the Towanda, Pennsylvania wood-waste removal obligation, with $11.0 million of bonds posted and a removal deadline of August 2022, and potential unestimated remediation at the Everett, Washington site.
Important facts for investors to verify
- How much of the margin and EBITDA improvement is sustainable and attributable to core operations rather than acquisitions, pricing, currency, or non-GAAP adjustments.
- Final Tax Act accounting and its effect on future cash taxes, deferred-tax assets, and earnings.
- Developments and potential damages, fees, appeal outcomes, and divestiture risk in the Steves & Sons case.
- Progress in remediating tax-control material weaknesses and any further revisions or control findings.
- Debt-service capacity, covenant headroom, and the cash and integration demands of acquisitions.
- Whether North American window inefficiencies, customer concentration, and raw-material cost pressures improve or worsen.