This MD&A contains forward-looking statements that involve risks and
uncertainties. Please see "Forward-Looking Statements" in Item 1- Business and
Item 1A- Risk Factors in this Form 10-K for a discussion of the uncertainties,
risks and assumptions associated with these statements. This discussion should
be read in conjunction with our historical financial statements and related
notes thereto and the other disclosures contained elsewhere in this Form 10-K.
The results of operations for the periods reflected herein are not necessarily
indicative of results that may be expected for future periods, and our actual
results may differ materially from those discussed in the forward-looking
statements as a result of various factors, including but not limited to those
listed under Item 1A- Risk Factors and included elsewhere in this Form 10-K.
This MD&A is a supplement to our financial statements and notes thereto included
elsewhere in this 10-K and is provided to enhance your understanding of our
results of operations and financial condition. Our discussion of results of
operations is presented in millions throughout the MD&A and due to rounding may
not sum or calculate precisely to the totals and percentages provided in the
tables. Our MD&A is organized as follows:
•            Overview and Background. 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.


•            Consolidated Results of Operations and Operating Results by Business
             Segment. This section provides our analysis and outlook for the
             significant line items on our consolidated statements of

operations,


             as well as other information that we deem meaningful to an
             understanding of our results of operations on both a 

consolidated


             basis and a business segment basis.


•            Liquidity and Capital Resources. This section contains an overview
             of our financing arrangements and provides an analysis of

trends and


             uncertainties affecting liquidity, cash requirements for our
             business and sources and uses of our cash.


•            Critical Accounting Policies and Estimates. 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. We design, produce and distribute an extensive range of interior and
exterior doors, wood, vinyl and aluminum windows, and related products for use
in the new construction, R&R of residential homes and, to a lesser extent,
non-residential buildings.
We operate manufacturing and distribution facilities in approximately 20
countries, located primarily in North America, Europe, and Australia. For many
product lines, our manufacturing processes are vertically integrated, enhancing
our range of

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capabilities, our ability to innovate, and our quality control as well as
providing supply chain, transportation, and working capital savings.
In October 2011, certain funds managed by affiliates of Onex acquired a majority
of the combined voting power in the Company through the acquisition of
convertible debt and convertible preferred equity.
In February 2017, we closed on the IPO of 28.75 million shares of our common
stock at a public offering price of $23.00, resulting in net proceeds to us of
$472.4 million after deducting underwriters' discounts and commissions and other
offering expenses. We used a portion of the net proceeds from the IPO to repay
$375.0 million of indebtedness outstanding under our Term Loan Facility and used
the remaining net proceeds for working capital and other general corporate
purposes, including sales and marketing activities, general and administrative
matters, capital expenditures, and to invest in or acquire complementary
businesses, products, services, technologies, or other assets.
In May and November 2017, we completed secondary public offerings of 16.1
million and 14.4 million shares, respectively, of our Common Stock,
substantially all of which were owned by Onex.
As of December 31, 2019, Onex owned approximately 32.6% of our outstanding
shares of Common Stock.

Business Segments
Our business is organized in geographic regions to ensure integration across
operations serving common end markets and customers. We have three reportable
segments: North America (which includes limited activity in Chile), Europe, and
Australasia. Financial information related to our business segments can be found
in Note 18 - Segment Information of our financial statements included elsewhere
in this 10-K.
Acquisitions
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 now part of our North America
segment. We paid approximately $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.
In August 2017, we acquired the Kolder Group, headquartered in Smithfield,
Australia. Kolder is a leading Australian provider of shower enclosures, closet
systems, and related building products, with leading positions in both the
commercial and residential markets. Kolder is part of our Australasia segment.
The acquisition significantly enhances our existing Australian capabilities in
glass shower enclosures and built-in closet systems and supports our strategy to
build leadership positions in attractive markets.
In August 2017, we acquired MMI Door, headquartered in Sterling Heights,
Michigan. MMI Door is a leading provider of doors and related value-added
services in the Midwest region of the U.S. and is part of our North America
segment. The acquisition complements our North America door business and allows
us to improve service offerings and lead times to our channel partners.
In June 2017, we acquired Mattiovi, headquartered in Finland. Mattiovi is a
leading manufacturer of interior doors and door frames in Finland and is part of
our Europe segment. The acquisition enhances our market position in the Nordic
region, increases our product offering, and also provides us with additional
door frame capacity to support growth in the region.

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We paid an aggregate of approximately $356.8 million in cash (net of cash
acquired) for the 2017, 2018, and 2019 acquisitions. In addition, we assumed
debt of approximately $70.6 million associated with our 2018 acquired companies.
We assumed no debt in our 2017 or 2019 acquisitions.
For additional information on our acquisition activity, see Note 2 -
Acquisitions to our consolidated financial statements.
Factors and Trends Affecting Our Business
Components of Net Revenues
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. 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.
Product Demand
General business, financial market, and economic conditions globally and in the
regions where we operate influence overall demand in our end markets and for our
products. In particular, the following factors may have a direct impact on
demand for our products in the countries and regions where our products are
marketed and sold:
• the strength of the economy;


• employment rates and consumer confidence and spending rates;

• the availability and cost of credit;

• the amount and type of residential and non-residential construction;

• housing sales and home values;

• the age of existing home stock, home vacancy rates, and foreclosures;

• interest rate fluctuations for our customers and consumers;




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


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

• geographical shifts in population and other changes in demographics; and

• changes in weather patterns.




In addition, we seek to drive demand for our products through the implementation
of various strategies and initiatives. We believe we can enhance demand for our
new and existing products by:
• innovating and developing new products and technologies;


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


•            implementing channel initiatives to enhance our

relationships with


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

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Cost Reduction Initiatives
Prior to the ongoing operational transformation being executed by our senior
executive team, our operations were managed in a decentralized manner with
varying degrees of emphasis on cost efficiency and limited focus on continuous
improvement or strategic sourcing. Our senior management team has a proven track
record of implementing operational excellence programs at some of the world's
leading industrial manufacturing businesses, and we believe the same successes
can be realized at JELD-WEN. Key areas of focus of our operational excellence
and footprint rationalization programs include:
•            reducing labor, overtime, and waste costs by reducing 

facility count


             while optimizing manufacturing capacity and improving planning and
             manufacturing processes;


•            reducing or minimizing increases in material costs through strategic
             global sourcing and value-added re-engineering of components, in
             part by leveraging our significant spend and the global nature of
             our purchases;

• reducing warranty costs by improving quality; and




•            a JEM-enabled facility rationalization and modernization 

initiative


             that will reduce overhead costs and complexity, while

increasing our


             overall capacity and improving our service levels.


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.
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. While we attempt to pass on a substantial
portion of such cost increases to our customers, we may not be successful in
doing so. In addition, our results of operations for individual quarters may be
negatively impacted by a delay between the time of raw material cost increases
and a corresponding price increase. Conversely, our results of operations for
individual quarters may be positively impacted by a delay between the time of a
raw material price decrease and a corresponding competitive pricing decrease.
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 attempt to mitigate some
of these cost increases through various internal initiatives and to pass a
substantial portion of these increases to our customers; however, we may not
realize the intended results within the intended timeframe.
Working Capital and Seasonality
Working capital, which is defined as accounts receivable plus inventory less
accounts payable, fluctuates throughout the year and is affected by seasonality
of sales of our products and of customer payment patterns. The peak season for
home construction and remodeling in our North America and Europe segments, which
represent the substantial majority of our revenues, generally corresponds with
the second and third calendar quarters, and therefore our sales volume is
usually higher during those quarters. 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.
Foreign Currency Exchange Rates
We report our consolidated financial results in U.S. dollars. Due to our
international operations, the weakening or strengthening of foreign currencies
against the U.S. 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. dollars. In the year ended December 31, 2019
compared to the year ended December 31, 2018, 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, 2019
compared to the year ended December 31, 2018 reflected, on average, the U.S.
dollar strengthened against the Euro, Australian dollar, and Canadian dollar by
6%, 8%, and 3%, respectively. See Item 1A- Risk Factors- Risks Relating to Our
Business and Industry, Item 1A- Risk Factors- Exchange

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rate fluctuations may impact our business, financial condition, and results of
operations, and Item 7A- Quantitative and Qualitative Disclosures About Market
Risk- Exchange Rate Risk.
Public Company Costs
As a public company, we incur additional legal, accounting, board compensation,
and other expenses that we did not previously incur, including costs associated
with SEC reporting and corporate governance requirements, and other requirements
associated with operating as a public company. These requirements include
compliance with the Sarbanes-Oxley Act as well as other rules implemented by the
SEC and the national securities exchanges. Our financial statements following
our IPO reflect the impact of these expenses.
Components of our Operating Results
Net Revenues
Our net revenues are a function of sales volumes and selling prices, each of
which is a function of product mix, and consist primarily of:
•            sales of a wide variety of interior and exterior doors, 

including


             patio doors, for use in residential and non-residential
             applications, with and without frames, to a broad group of 

wholesale


             and retail customers in all of our geographic markets;


•            sales of a wide variety of windows for both residential and certain
             non-residential uses, to a broad group of wholesale and retail
             customers primarily in North America, Australia, and the U.K.; and


•            other sales, including sales of moldings, trim board,

cut-stock,


             glass, stairs, hardware and locks, door skins, shower

enclosures,


             wardrobes, window screens, and miscellaneous installation and other
             services revenue.


Net revenues do not include internal transfers of products between our component
manufacturing, product manufacturing and assembly, and distribution facilities.
Cost of Sales
Cost of sales consists primarily of material costs, direct labor and benefit
costs, including payroll taxes, repair and maintenance, depreciation, utility,
rent and warranty expenses, outbound freight, and insurance and benefits,
supervision and tax expenses. Detail for each of these items is provided below.
•            Material Costs. The single largest component of cost of sales is
             material costs, which include raw materials, components and finished
             goods purchased for use in manufacturing our products or for resale.
             Our most significant material costs include glass, wood, wood
             components, doors, door facings, door parts, hardware, vinyl
             extrusions, steel, fiberglass, packaging materials, adhesives,
             resins and other chemicals, core material, and aluminum

extrusions.


             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. The imposition of new tariffs on

imports, new


             trade restrictions, or changes in tariff rates or trade

restrictions


             may further impact material costs. See Item 7A- Quantitative and
             Qualitative Disclosures About Market Risk- Raw Materials Risk.


•            Direct Labor and Benefit Costs. Direct labor and benefit costs
             reflect a combination of production hours, average headcount,
             general wage levels, payroll taxes, and benefits provided to
             employees. Direct labor and benefit costs include wages, overtime,
             payroll taxes, and benefits paid to hourly employees at our
             facilities that are involved in the production and/or

distribution


             of our products. These costs are generally managed by each facility
             and headcount is adjusted according to overall and seasonal
             production demand. We run multi-shift operations in many of our
             facilities to maximize return on assets and utilization. Direct
             labor and benefit costs fluctuate with headcount, but

generally tend


             to increase with inflation due to increases in wages and health
             benefit costs.


• Repair and Maintenance, Depreciation, Utility, Rent, and Warranty Expenses.


•               Repairs and maintenance costs consist of equipment and facility
                maintenance expenses, purchases of maintenance supplies, and the
                labor costs involved in performing maintenance on our equipment
                and facilities.


•               Depreciation includes depreciation expense associated with our
                production assets and plants.


•               Rent is predominantly comprised of lease costs for

facilities we


                do not own as well as vehicle fleet and equipment lease costs.
                Facility leases are typically multi-year and may include
                increases tied to certain measures of inflation.



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•               Warranty expenses represent all costs related to servicing
                warranty claims and product issues and are mostly related to our
                window and door products sold in the U.S. and Canada.


•            Outbound Freight. Outbound freight includes payments to third-party
             carriers for shipments of orders to our customers, as well as
             driver, vehicle, and fuel expenses when we deliver orders to
             customers. The majority of our products are shipped by third-party
             carriers.

• Insurance and Benefits, Supervision, and Tax Expenses.




•               Insurance and benefit costs are the expenses relating to our
                insurance programs, health benefits, retirement benefit programs
                (including the pension plan), and other benefits that are not
                included in direct labor and benefits costs.


•               Supervision costs are the wages and bonus expenses

related to


                plant managers. Both insurance and benefits and supervision
                expenses tend to be influenced by headcount and wage levels.



•               Tax costs are mostly payroll taxes for employees not included in

                direct labor and benefit costs, and property taxes. Tax expenses
                are impacted by changes in tax rates, headcount and wage levels,
                and the number and value of properties owned.


In addition, an appropriate portion of each of the insurance and benefits,
supervision and tax expenses are allocated to SG&A expenses.
Selling, general, and administrative expenses
SG&A expenses consist primarily of research and development, sales and
marketing, and general and administrative expenses.
Research and Development. Research and development expenses consist primarily of
personnel expenses related to research and development, consulting and
contractor expenses, tooling and prototype materials, and overhead costs
allocated to such expenses. Substantially all of our research and development
expenses are related to developing new products and services and improving our
existing products and services. 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.
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. We expect our sales and marketing expenses to
increase in absolute dollars as we continue to actively promote our products and
services.
General and Administrative. 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.
Impairment and Restructuring Costs
Impairment and restructuring costs consist primarily of all salary-related
severance benefits that are accrued and expensed when a restructuring plan has
been put into place, the plan has received approval from the appropriate level
of management and the benefit is probable and reasonably estimable. In addition
to salary-related costs, we incur other restructuring costs when facilities are
closed or capacity is realigned within the organization. Upon termination of an
employment or commercial contract we record liabilities and expenses pursuant to
the terms of the relevant agreement. For non-contractual restructuring
activities, liabilities and expenses are measured and recorded at fair value in
the period in which they are incurred.

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Interest Expense, Net
Interest expense, net relates primarily to interest payments on our
then-outstanding credit facilities (and debt securities) as well as amortization
of any original issue discount or debt issuance costs. 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
15 - Long-Term Debt in our financial statements for the year ended December 31,
2019 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, gain on previously held shares of an equity investment, loss on
extinguishment of debt, and certain foreign currency related gains and losses.
Income Taxes
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. 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. The
effect on deferred tax assets and liabilities due to a change in tax rates is
recognized in income in the period that includes the date of enactment. We
recognize the effect of income tax positions only if those positions are more
likely than not of being sustained. Recognized income tax positions are measured
at the largest amount that is greater than 50% likely of being realized. Changes
in recognition or measurement are reflected in the period in which the change in
judgment occurs. We record interest related to unrecognized tax benefits in
income tax expense. As of December 31, 2019, our U.S. federal, state, and
foreign net operating loss ("NOL") carryforwards were $1,300.8 million in the
aggregate and $87.0 million of such NOL carryforwards do not expire.
The Tax Act passed in December 2017 had significant effects on our financial
statements. In accordance with Staff Accounting Bulletin #118 issued by the SEC
in December 2017 immediately following the passage of the Tax Act, we made
provisional estimates for certain direct and indirect effects of the Tax Act for
the year ended December 31, 2017. In the fourth quarter of 2018, we completed
our accounting for all of the enactment-date income tax effects of the Tax Act
and included any adjustments as a component of income tax expense from
continuing operations. 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 17 - Income Taxes in our financial statements for the year ended
December 31, 2019 included elsewhere in this 10-K.
Results of Operations
The tables in this section summarize key components of our results of operations
for the periods indicated, both in U.S. dollars and as a percentage of our net
revenues. Certain percentages presented in this section have been rounded to the
nearest whole number. Accordingly, totals may not equal the sum of the line
items in the tables below. The results have been revised to reflect the
correction of certain errors and other accumulated misstatements as described in
Note 32 - Revision of Prior Period Financial Statements.

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Comparison of the Year Ended December 31, 2019 to the Year Ended December 31,
2018
                                                                Year Ended
                                             December 31, 2019             December 31, 2018
                                                         % of Net                     % of Net
(amounts in thousands)                                   Revenues                      Revenues
Net revenues                            $ 4,289,761        100.0  %   $ 4,346,847         100.0  %
Cost of sales                             3,417,222         79.7  %     3,428,311          78.9  %
Gross margin                                872,539         20.3  %       918,536          21.1  %
Selling, general and administrative         660,574         15.4  %       734,166          16.9  %
Impairment and restructuring charges         21,551          0.5  %        17,328           0.4  %
Operating income                            190,414          4.4  %       167,042           3.8  %
Interest expense, net                        71,778          1.7  %        70,818           1.6  %
Other income                                 (1,409 )          -  %      

(34,887 ) (0.8 )% Income before taxes and equity earnings 120,045 2.8 % 131,111

           3.0  %
Income tax expense (benefit)                 57,074          1.3  %       (10,058 )        (0.2 )%
Income from continuing operations, net
of tax                                       62,971          1.5  %       141,169           3.2  %
Equity earnings of non-consolidated
entities                                          -            -  %           738             -  %
Net income                              $    62,971          1.5  %   $   141,907           3.3  %


Consolidated Results
Net Revenues - Net revenues decreased $57.1 million, or 1.3%, to $4,289.8
million in the year ended December 31, 2019 from $4,346.8 million in the year
ended December 31, 2018. The decrease was due to unfavorable foreign exchange
impact of 3% and a decline in core revenue of 2%, partially offset by a 4%
contribution from acquisitions. Core revenue decline consisted of a 4% decrease
in volume/mix, offset by a 2% increase in price.
Gross Margin - Gross margin decreased $46.0 million, or 5.0%, to $872.5 million
in the year ended December 31, 2019 from $918.5 million in the year ended
December 31, 2018. Gross margin as a percentage of net revenues was 20.3% in the
year ended December 31, 2019 and 21.1% in the year ended December 31, 2018. The
decrease in gross margin and gross margin percentage was due to increased costs
related to manufacturing inefficiencies in North America and unfavorable
volume/mix within North America and Australasia, partially offset by favorable
pricing.
SG&A Expense - SG&A expense decreased $73.6 million, or 10.0%, to $660.6 million
in the year ended December 31, 2019 from $734.2 million in the year ended
December 31, 2018. SG&A expense as a percentage of net revenues was 15.4% for
the year ended December 31, 2019 and 16.9% for the year ended December 31, 2018.
The decrease in SG&A expense was primarily due to a decrease of litigation
contingency accruals of $76.5 million and reduction of acquisition and
integration costs.
Impairment and Restructuring Charges - Impairment and restructuring charges
increased $4.2 million, or 24.4%, to $21.6 million in the year ended
December 31, 2019 from $17.3 million in the year ended December 31, 2018. The
2019 charges consisted primarily of plant consolidations in our North America
and Australasia segments as well as severance costs across all segments and
corporate. The 2018 charges consisted primarily of personnel restructuring costs
in our North America, Europe, and Australasia segments, as well as plant
consolidations in our North America and Australasia segments. For more
information, refer to Note 23 - Impairment and Restructuring Charges.
Interest Expense, Net - Interest expense, net, increased $1.0 million, or 1.4%,
to $71.8 million in the year ended December 31, 2019 from $70.8 million in the
year ended December 31, 2018. The increase was primarily due to increased
borrowings during 2019.
Other Income - Other income decreased $33.5 million, to income of $1.4 million
in the year ended December 31, 2019 from income of $34.9 million in the year
ended December 31, 2018. The other income in the year ended December 31, 2019
was primarily due to foreign currency gains of $7.4 million, a gain on sale of
business of $2.8 million and legal settlement income of $1.2 million, partially
offset by pension expense of $10.7 million. Other income in the year ended
December 31, 2018 was primarily due to a fair value adjustment of $20.8 million
associated with our acquisition of the remaining shares outstanding of an equity
investment, legal settlement income of $7.5 million and foreign currency gains
of $11.3 million, partially offset by pension expense of $7.0 million.

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Income Taxes - Income tax expense in the year ended December 31, 2019 was $57.1
million, compared to tax benefit of $10.1 million in the year ended December 31,
2018. The effective tax rate in the year ended December 31, 2019 was an expense
of 47.5% compared to a benefit of 7.7% in the year ended December 31, 2018. The
2019 tax expense was primarily due to the increases in valuation allowances
associated with net operating losses and certain credits of $10.1 million and
$4.5 million for the reclassification of an other comprehensive income balance
as income tax expense to relieve the disproportionate tax effects associated
with the termination of hedge accounting. The 2018 tax benefit was primarily due
to the $40.2 million of deferred tax benefit related to finalizing our
provisional estimates connected to the Tax Act, $19.6 million of deferred tax
benefit related to the Steves litigation, and $10.2 million of benefit related
to our investment in ABS, offset by tax expense of $5.4M million for a net
increase to uncertain positions including interest, as well as tax expense
associated with strong business results of our foreign subsidiaries such as
Australia, Canada, and UK. The effective tax rate for both periods includes the
impact of the GILTI tax.
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31,
2017
                                          December 31, 2018              December 31, 2017
                                                      % of Net                      % of Net
(dollars in thousands)                                 Revenues                      Revenues
Net revenues                         $ 4,346,847         100.0  %   $ 3,763,749          100.0 %
Cost of sales                          3,428,311          78.9  %     2,916,232           77.5 %
Gross margin                             918,536          21.1  %       847,517           22.5 %

Selling, general and administrative 734,166 16.9 % 573,004

           15.2 %
Impairment and restructuring charges      17,328           0.4  %        13,056            0.3 %
Operating income                         167,042           3.8  %       261,457            6.9 %
Interest expense, net                     70,818           1.6  %        79,034            2.1 %
Other (income) expense                   (34,887 )        (0.8 )%        40,122            1.1 %
Income before taxes, equity earnings     131,111           3.0  %       142,301            3.8 %
and discontinued operations
Income tax (benefit) expense             (10,058 )        (0.2 )%       137,818            3.7 %
Income from continuing operations,
net of tax                               141,169           3.2  %         4,483            0.1 %
Equity earnings of non-consolidated
entities                                     738             -  %         3,639            0.1 %
Net income                           $   141,907           3.3  %   $     8,122            0.2 %


Consolidated Results
Net Revenues-Net revenues increased $583.1 million, or 15.5%, to $4,346.8
million in the year ended December 31, 2018 from $3,763.7 million in the year
ended December 31, 2017. The increase was due to a 15% contribution from recent
acquisitions and a 1% increase in core revenue growth. Core growth included a 2%
increase in price, partially offset by a 1% decrease in volume.
Gross Margin-Gross margin increased $71.0 million, or 8.4%, to $918.5 million in
the year ended December 31, 2018 from $847.5 million in the year ended
December 31, 2017. Gross margin as a percentage of net revenues was 21.1% in the
year ended December 31, 2018 and 22.5% in the year ended December 31, 2017. The
increase in gross margin was due to favorable pricing and contribution from our
recent acquisitions, partially offset by material and freight inflation. The
decrease in gross margin as a percentage of sales was due primarily to the
dilutive impact of our acquisitions, material and freight inflation, and
operational inefficiencies due to lower volumes and favorable mix, partially
offset by price.
SG&A Expense-SG&A expense increased $161.2 million, or 28.1%, to $734.2 million
in the year ended December 31, 2018 from $573.0 million in the year ended
December 31, 2017. SG&A expense as a percentage of net revenues was 16.9% for
the year ended December 31, 2018 and 15.2% for the year ended December 31, 2017.
The increase in SG&A expense was primarily due to a litigation contingency
accrual of $76.5 million, SG&A associated with our acquisitions, and increased
professional fees. Excluding the impact of the litigation contingency accrual
and SGA associated with our acquisitions, SG&A would have been $589.7 million or
15.3% of net revenues on a comparative basis to 2017.
Impairment and Restructuring Charges-Impairment and restructuring charges
increased $4.3 million, or 32.7%, to $17.3 million in the year ended
December 31, 2018 from $13.1 million in the year ended December 31, 2017. The
2018 charges consisted primarily of personnel restructuring costs in our North
America, Europe and Australasia segments as well as plant consolidations in our
North America and Australasia segments. The 2017 charges consisted primarily of
a reduction in workforce in our North American segment as well as ongoing
restructuring costs in our Europe segment.

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Interest Expense, Net-Interest expense, net decreased $8.2 million, or 10.4%, to
an expense of $70.8 million in the year ended December 31, 2018 from an expense
of $79.0 million in the year ended December 31, 2017. The decrease was primarily
due to additional interest expense incurred in 2017 resulting from the
write-offs of a portion of the unamortized debt issuance costs and original
issue discount totaling approximately $6.1 million in connection with the
repayment of $375.0 million of outstanding term loans with proceeds from our IPO
and higher pre-IPO debt levels.
Other (Income) Expense - Other (income) expense increased $75.0 million, to
income of $34.9 million in the year ended December 31, 2018 from expense of
$40.1 million in the year ended December 31, 2017. The Other income in the year
ended December 31, 2018 was primarily due to a fair value adjustment of $20.8
million associated with our acquisition of the remaining shares outstanding of
an equity investment, foreign currency gains of $11.3 million, and legal
settlement income of $7.5 million, partially offset by pension expense of $7.0
million. Other expense in the year ended December 31, 2017 primarily consisted
of a loss on extinguishment of debt of $23.3 million associated with our Term
Loan, pension expense of $12.6 million, and foreign currency losses of $11.4
million, partially offset by a beneficial contract settlement of $2.2 million
and legal settlement income of $2.5 million.
Income Taxes - Income tax benefit in the year ended December 31, 2018 was $10.1
million, compared to an expense of $137.8 million in the year ended December 31,
2017. The effective tax rate in the year ended December 31, 2018 was a benefit
of 7.7% compared to an expense of 96.8% in the year ended December 31, 2017. The
2018 tax benefit of $10.1 million was primarily due to the $40.2 million of
deferred tax benefit related to finalizing our provisional estimates connected
to the Tax Act, $19.6 million of deferred tax benefit related to the Steves'
litigation, and $10.2 million of benefit related to our investment in ABS,
offset by tax expense of $5.4 million for a net increase to uncertain tax
positions including interest, as well as tax expense associated with strong
business results of our foreign subsidiaries such as Australia, Canada, and UK.
The effective tax rate for the year ended December 31, 2018 includes the impact
of the new GILTI tax. As discussed above, we have elected to account for the
impact of GILTI in the period in which it is incurred.
Tax expense for the year ended December 31, 2017 included a provisional estimate
of the change in the U.S. corporate income tax rate from 35% to 21% and the
one-time deemed repatriation tax. As a result of the lowering of the U.S.
federal tax rate, we revalued our net deferred tax assets in the U.S. reflecting
the lower expected benefit in the U.S. in the future. This estimate of the
revaluation resulted in additional non-cash tax expense totaling approximately
$21.1 million. The provisional estimate of the one-time deemed repatriation tax,
which effectively subjected the Company's net aggregate historic foreign
earnings to taxation in the U.S., resulted in a further tax charge of $11.3
million. While this repatriation tax is measured as of December 31, 2017,
taxpayers are permitted to pay the tax over an 8-year period which resulted in
an increase to our non-current liabilities. During the fourth quarter of 2017,
the Company undertook certain transactions which premised the repatriation of
certain earnings from foreign subsidiaries. While these transactions were not
undertaken as a direct result of tax reform, the U.S. tax implications were
heavily impacted due to the timing of the transactions and the measurement dates
as outlined in the Tax Act. We recorded a provisional estimate of the effects of
these transactions resulting in a net increase to tax expense of $65.8 million
related to these transactions and their impacts under the Tax Act.
Segment Results
We report our segment information in the same way management internally
organizes the business in assessing performance and making decisions regarding
allocation of resources in accordance with ASC 280-10- Segment Reporting. We
have determined that we have three reportable segments, organized and managed
principally by geographic region. Our reportable segments are North America,
Europe and Australasia. We report all other business activities in Corporate and
unallocated costs. We define Adjusted EBITDA as net income (loss), adjusted for
the following items: loss from discontinued operations, net of tax; equity
earnings of non-consolidated entities; income tax (benefit) expense;
depreciation and amortization; interest expense, net; impairment and
restructuring charges; gain on previously held shares of equity investment;
(gain) loss on sale of property and equipment; share-based compensation expense;
non-cash foreign exchange transaction/translation (income) loss; other non-cash
items; other items; and costs related to debt restructuring and debt
refinancing. For additional information on segment Adjusted EBITDA, see Note 18
- Segment Information to our consolidated financial statements included in this
10-K.

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Comparison of the Year Ended December 31, 2019 to the Year Ended December 31,
2018
                                                                  Year Ended
(amounts in thousands)                              December 31, 2019     December 31, 2018
Net revenues from external customers                                                           % Variance
North America                                      $       2,534,336     $       2,461,633          3.0  %
Europe                                                     1,178,441             1,215,299        (3.0)  %
Australasia                                                  576,984               669,915       (13.9)  %
Total Consolidated                                 $       4,289,761     $       4,346,847        (1.3)  %
Percentage of total consolidated net revenues
North America                                                   59.1 %                56.6 %
Europe                                                          27.5 %                28.0 %
Australasia                                                     13.4 %                15.4 %
Total Consolidated                                             100.0 %               100.0 %
Adjusted EBITDA(1)
North America                                      $         267,335     $         279,526        (4.4)  %
Europe                                                       116,193               122,810        (5.4)  %
Australasia                                                   74,484                90,885       (18.0)  %
Corporate and unallocated costs                              (42,974 )             (34,003 )       26.4  %
Total Consolidated                                 $         415,038     $         459,218        (9.6)  %
Adjusted EBITDA as a percentage of segment net
revenues
North America                                                   10.5 %                11.4 %
Europe                                                           9.9 %                10.1 %
Australasia                                                     12.9 %                13.6 %
Total Consolidated                                               9.7 %                10.6 %



(1)          Adjusted EBITDA is a financial measure that is not calculated in
             accordance with GAAP. For a discussion of our presentation of
             Adjusted EBITDA, see Note 18 - Segment Information in our
             consolidated financial statements.


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.
Europe
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.
Australasia
Net revenues in Australasia decreased $92.9 million, or 13.9%, to $577.0 million
in the year ended December 31, 2019 from $669.9 million in the year ended
December 31, 2018. The decrease was due primarily to a decrease in core revenues
of 10% and unfavorable foreign exchange rates of 6%, partially offset by a 2%
increase attributable to the acquisition of A&L.

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Adjusted EBITDA in Australasia decreased $16.4 million, or 18.0%, to $74.5
million in the year ended December 31, 2019 from $90.9 million in the year ended
December 31, 2018. The decrease was primarily due to lower volumes from market
headwinds and unfavorable mix, partially offset by improved productivity and
reduced SG&A.
Comparison of the Year Ended December 31, 2018 to the Year Ended December 31,
2017
                                                                Year Ended
(dollars in thousands)                            December 31, 2018     December 31, 2017
Net revenues from external customers                                                          % Variance
North America                                    $       2,461,633     $       2,157,898          14.1  %
Europe                                                   1,215,299             1,042,767          16.5  %
Australasia                                                669,915               563,084          19.0  %
Total Consolidated                               $       4,346,847     $       3,763,749          15.5  %
Percentage of total consolidated net revenues
North America                                                 56.6 %                57.3 %
Europe                                                        28.0 %                27.7 %
Australasia                                                   15.4 %                15.0 %
Total Consolidated                                           100.0 %               100.0 %
Adjusted EBITDA(1)
North America                                    $         279,526     $         273,192           2.3  %
Europe                                                     122,810               131,200          -6.4  %
Australasia                                                 90,885                74,386          22.2  %
Corporate and Unallocated costs                            (34,003 )             (43,616 )       -22.0  %
Total Consolidated                               $         459,218     $         435,162           5.5  %
Adjusted EBITDA as a percentage of segment net
revenues
North America                                                 11.4 %                12.7 %
Europe                                                        10.1 %                12.6 %
Australasia                                                   13.6 %                13.2 %
Total Consolidated                                            10.6 %                11.6 %



(1)    Adjusted EBITDA is a financial measure that is not calculated in

accordance with GAAP. For a discussion of our presentation of Adjusted

EBITDA, see Note 18 - Segment Information in our consolidated financial


       statements.



North America
Net revenues in North America increased $303.7 million, or 14.1%, to $2,461.6
million in the year ended December 31, 2018 from $2,157.9 million in the year
ended December 31, 2017. The increase was primarily due to a 14% increase
attributable to the acquisitions of MMI Door and ABS.
Adjusted EBITDA in North America increased $6.3 million, or 2.3%, to $279.5
million in the year ended December 31, 2018 from $273.2 million in the year
ended December 31, 2017. The increase was primarily due to the MMI Door and ABS
acquisitions partially offset by the impact of a lag in pricing to offset
inflation in material and freight and lower core volumes and mix shift to lower
margin products.
Europe
Net revenues in Europe increased $172.5 million, or 16.5%, to $1,215.3 million
in the year ended December 31, 2018 from $1,042.8 million in the year ended
December 31, 2017. The increase was primarily due to a 13% increase attributable
to the acquisitions of Mattiovi and Domoferm, core revenue growth of 1%, and a
favorable foreign exchange impact of 3%.
Adjusted EBITDA in Europe decreased $8.4 million, or 6.4%, to $122.8 million in
the year ended December 31, 2018 from $131.2 million in the year ended
December 31, 2017. The decrease was primarily due to inflation, unfavorable
product mix, partially offset by favorable pricing and our acquisitions of
Mattiovi and Domoferm.

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Australasia


Net revenues in Australasia increased $106.8 million, or 19.0%, to $669.9
million in the year ended December 31, 2018 from $563.1 million in the year
ended December 31, 2017. The increase was due primarily to a 20% increase
attributable to the acquisitions of Kolder and A&L, core revenue growth of 2%,
consisting of an increase in volume/mix of 1% and favorable pricing of 1%,
offset by unfavorable foreign exchange rates of 3%.
Adjusted EBITDA in Australasia increased $16.5 million, or 22.2%, to $90.9
million in the year ended December 31, 2018 from $74.4 million in the year ended
December 31, 2017. The increase in Adjusted EBITDA was primarily due to the
acquisitions of Kolder and A&L and pricing initiatives, partially offset by
material inflation.
Liquidity and Capital Resources
Overview
We have historically funded our operations through a combination of cash from
operations, draws on our revolving credit facilities, factoring agreements, and
the issuance of non-revolving debt such as our Term Loan Facility and Senior
Notes. Working capital, which we define as accounts receivable plus inventory
less accounts payable, fluctuates throughout the year and is affected by the
seasonality of sales of our products, customer payment patterns, and the
translation of the balance sheets of our foreign operations into the U.S.
dollar. Typically, working capital increases at the end of the first quarter and
beginning of the second quarter in conjunction with, and in preparation for, the
peak season for home construction and remodeling in our North America and Europe
segments, which represent the substantial majority of our revenues, and
decreases starting in the fourth quarter as inventory levels and accounts
receivable decline. Inventories fluctuate for raw materials with long delivery
lead times, such as steel, as we work through prior shipments and take delivery
of new orders.
As of December 31, 2019, we had total liquidity (a non-GAAP measure) of $554.5
million, which included $226.0 million in unrestricted cash, $313.1 million
available for borrowing under the ABL Facility, and AUD 21.9 million ($15.4
million USD) available for borrowing under the Australia Senior Secured Credit
Facility. This compares to total liquidity of $380.2 million as of December 31,
2018. The increase was primarily due to higher unrestricted cash balances and
increased revolving credit facility availability deriving from the repayment of
ABL Facility borrowings with proceeds from an incremental Term Loan facility
borrowing transacted in September 2019, partially offset by the expiration of
the Euro Revolving Credit Facility.
As of December 31, 2019, our cash balances, including $3.9 million of restricted
cash, consisted of $54.7 million in the U.S. and $175.2 million in non-U.S.
subsidiaries. Based on our current level of operations, the seasonality of our
business and anticipated growth, we believe that cash provided by operations and
other sources of liquidity, including cash, cash equivalents and borrowings
under our revolving credit facilities, will provide adequate liquidity for
ongoing operations, planned capital expenditures and other investments, and debt
service requirements for at least the next twelve months.
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. These actions may include repricing
amendments, extensions, and/or opportunistic refinancing of debt. 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 $10.7 million for
the year ended December 31, 2019. A 1.0% increase in interest rates would have
increased our interest expense by $11.0 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.
Borrowings and Refinancings
In December 2017, we issued $800.0 million of unsecured Senior Notes, repriced
and amended the Term Loan Facility, and repaid $787.4 million of outstanding
term loan borrowings with the net proceeds from the Senior Notes. The December
2017 refinancing transactions reduced our overall interest rates and modified
other terms and provisions, including providing for additional covenant
flexibility and additional capacity under the Term Loan Facility. In December
2018, we amended the ABL Facility, providing for a $100.0 million increase in
the U.S. revolving credit commitments. In December 2019, we amended our ABL
facility to reflect current banking regulatory requirements, which do not have a
financial impact.
In September 2019, we amended the Term Loan Facility to provide for an
incremental aggregate principal amount of $125.0 million and used the proceeds
to repay $115.0 million of outstanding borrowings under the ABL Facility.

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In February 2018, we amended the Australia Senior Secured Credit Facility to
include an additional AUD 55.0 million floating rate term loan facility. In June
2019, we reallocated AUD 5.0 million from the term loan commitment to the
interchangeable commitment of the Australia Senior Secured Credit Facility.
As of December 31, 2019, we were in compliance with the terms of all of our
Credit Facilities.
Our results have been and will continue to be impacted by substantial changes in
our net interest expense throughout the periods presented and in the future. See
Note 15 - Long-Term Debt in our consolidated financial statements for additional
details.
Factoring arrangements
Our ABS subsidiary, acquired in March 2018, has entered into factoring
agreements with a U.S.-based financial institution under which it can elect to
sell certain of its accounts receivable under non-recourse agreements. These
transactions are treated as a sale and are accounted for as a reduction in
accounts receivable because the agreements transfer effective control over and
risk of non-collection to the factor. Thus, cash proceeds from these
arrangements are reflected as operating activities, including the change of
accounts receivable on our statement of cash flows each period. We do not
service any factored accounts after the factoring has occurred and do not have
any servicing assets or liabilities. We utilize factoring arrangements as part
of our financing to manage working capital. The aggregate gross amount factored
under these arrangements was $74.5 million and $56.3 million for the year ended
December 31, 2019 and December 31, 2018, respectively. The cost of factoring is
reflected in the accompanying consolidated statements of operations as interest
expense with other financing costs and was $0.5 million and $0.4 million for the
year ended December 31, 2019 and December 31, 2018, respectively.
Cash Flows
The following table summarizes the changes to our cash flows for the periods
presented:
                                                                     Year Ended
                                                  December 31,      December 31,      December 31,
(amounts in thousands)                                2019              2018              2017
Cash provided by (used in):
Operating activities                             $     302,709     $     219,653     $     265,793
Investing activities                                  (184,948 )        (284,141 )        (189,793 )
Financing activities                                    (6,411 )         (67,475 )          64,090
Effect of changes in exchange rates on cash
and cash equivalents                                       903            

(6,648 ) 12,692 Net change in cash and cash equivalents $ 112,253 $ (138,611 ) $ 152,782





Cash Flow from Operations
Net cash provided by operating activities increased $83.1 million to $302.7
million in the year ended December 31, 2019 from $219.7 million in net cash
provided by operating activities in the year ended December 31, 2018. The
increase in cash provided by operating activities was due primarily to
improvement in working capital as a result of optimization of vendor payment
terms, lower inventory balances due to reduced core revenue volumes, and reduced
cash taxes.
Net cash provided by operating activities decreased $46.1 million to $219.7
million in the year ended December 31, 2018 from $265.8 million in the year
ended December 31, 2017. The decrease in cash provided by operating activities
resulted primarily from increased accounts receivable due to increased sales
volume and changes in terms with customers, increases in inventory associated
with our recent acquisitions and stock build program and to ensure adequate raw
material availability, and a decrease in accounts payable.
Cash Flow from Investing Activities
Net cash used in investing activities decreased $99.2 million to $184.9 million
in the year ended December 31, 2019 from $284.1 million in the year ended
December 31, 2018. The decrease was primarily due to a decrease in the cash used
for acquisitions.
Net cash used in investing activities increased $94.3 million to $284.1 million
in the year ended December 31,
2018 from $189.8 million in the year ended December 31, 2017. The increase was
primarily due to cash used for acquisitions and capital expenditures compared to
the prior year.

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Cash Flow from Financing Activities
Net cash used in financing activities was $6.4 million in the year ended
December 31, 2019 and was comprised primarily of repurchases of our Common Stock
of $20.0 million, offset by increased borrowings of $13.1 million.
Net cash used in financing activities was $67.5 million in the year ended
December 31, 2018 and comprised primarily of repurchases of our Common Stock of
$125.0 million and payments to tax authorities of $9.5 million, offset by
increased borrowings of $70.5 million.
Net cash provided by financing activities was $64.1 million in the year ended
December 31, 2017 and was comprised primarily of proceeds from the IPO of $480.3
million, of which $375.0 million of proceeds were used to partially repay
outstanding debt.
Holding Company Status
We are a holding company that conducts all of our operations through
subsidiaries. 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 and the Senior Notes.
The Australia Senior Secured Credit Facility also contain restrictions on
dividends that limit the amount of cash that the obligors under these facilities
can distribute to JWI. Obligors under the Australia Senior Secured Credit
Facility may pay dividends only to the extent they do not exceed 80% of after
tax net profits (with a one-year carryforward of unused amounts) and only while
no default is continuing under such agreement. For further information regarding
the Australia Senior Secured Credit Facility, see Note 15 - Long-Term Debt in
our consolidated financial statements.
The amount of our consolidated net assets that were available to be distributed
under our credit facilities as of December 31, 2019 was $551.3 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, 2019:
                                                         Payments Due By Period
                                                Less Than                                       More Than
                                  Total          1 Year         1-3 Years       3-5 Years        5 Years
                                                         (dollars in thousands)
Contractual Obligations(1)
Long-term debt obligations    $ 1,513,272     $    64,562     $    42,864     $   587,754     $   818,092
Finance lease obligations           4,504           1,451           1,926           1,127               -

Operating lease obligations 246,581 53,894 79,799

        53,644          59,244
Purchase obligations(2)            12,949           8,977           2,964             950              58
Interest on long-term debt
obligations(3)                    386,086          63,171         123,946         119,582          79,387
Totals:                       $ 2,163,392     $   192,055     $   251,499     $   763,057     $   956,781

____________________________

(1) Not included in the table above are our unfunded pension liabilities

totaling $113.5 million and uncertain tax position liabilities of $20.2


       million as of December 31, 2019, for which the timing of payment is
       unknown.


(2)    Purchase obligations are defined as purchase agreements that are

enforceable and legally binding and that specify all significant terms,

including quantity, price, and the approximate timing of the transaction.

The obligations reflected in the table relates primarily to raw materials


       purchase agreements, costs associated with enterprise solutions
       implementations, sales and marketing, and software hosting services.


(3)    Interest on long-term debt obligations is calculated based on debt

outstanding and interest rates in effect on December 31, 2019, taking into


       account scheduled maturities and amortization payments.



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Critical Accounting Policies and Estimates
Our MD&A is based upon our consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, we
evaluate our estimates. 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 and the related expenses are reported as fulfillment
revenues and expenses for all customers. Therefore all shipping and handling
costs associated with outbound freight are accounted for as fulfillment costs
and are included in cost of sales. The expected costs associated with our base
warranties and field service actions continue to be recognized as expense when
the products are sold (see Note 14 - Warranty Liabilities). 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.
Acquisitions
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. Goodwill as of the acquisition date is measured as
the excess of consideration transferred over the net of the acquisition date
fair values of the assets acquired and the liabilities assumed. If the fair
value of the acquired assets exceeds the purchase price the difference is
recorded as a bargain purchase in other income (expense). Such valuations
require us to make significant estimates and assumptions, especially with
respect to intangible assets. As a result, during the measurement period, which
may be up to one year from the acquisition date, material adjustments must be
reflected in the comparative consolidated financial statements in the period in
which the adjustment amount will be determined. Upon the conclusion of the
measurement period or final determination of the values of assets acquired or
liabilities assumed, whichever comes first, any subsequent adjustments are
recorded to our consolidated statements of operations. Newly acquired entities
are included in our results from the date of their respective acquisitions.
Allowance for Doubtful Accounts
Substantially all accounts receivable arise from sales to customers in our
manufacturing and distribution businesses and are recognized net of offered cash
discounts. Credit is extended in the normal course of business under standard
industry terms that normally reflect 60 day or less payment terms and do not
require collateral. An allowance is recorded based on a variety of factors,
including the length of time receivables are past due, the financial health of
our customers, unusual macroeconomic conditions and historical experience. If
the customer's financial conditions were to deteriorate resulting in the
inability to make payments, additional allowances may need to be recorded which
would result in additional expenses being recorded for the period in which such
determination was made.
Inventories
Inventories are valued at the lower of cost or market or net realizable value
and are determined by the FIFO or average cost methods. We record provisions to
write-down obsolete and excess inventory to estimated net realizable value. The
process for evaluating obsolete and excess inventory requires us to evaluate
historical inventory usage and future production needs. Accelerating the
disposal process or incorrect estimates may cause actual results to differ from
the estimates at the time such inventory is disposed or sold.

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Intangible Assets
Definite lived intangible assets are amortized on a straight-line basis over
their estimated useful lives that typically range from 1 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. 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.
We group assets to test for impairment at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other
groups of assets and liabilities. 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. 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 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.
Goodwill
Goodwill is tested for impairment on an annual basis during the fourth quarter
and between annual tests if indicators of potential impairment exist, using a
fair-value-based approach. Current accounting guidance provides an entity the
option to perform a qualitative assessment to determine whether it is more
likely than not that the fair value of a reporting unit is less than its
carrying amount prior to performing the two-step goodwill impairment test. If
this is the case, the two-step goodwill impairment test is required. If it is
more likely than not that the fair value of a reporting unit is greater than its
carrying amount, the two-step goodwill impairment test is not required.
If the two-step goodwill impairment test is required, first, the fair value of
the reporting unit is compared with its carrying amount (including attributable
goodwill). If the fair value of the reporting unit exceeds its carrying amount,
step two does not need to be performed. If the fair value of the reporting unit
is less than its carrying amount, an indication of goodwill impairment exists
for the reporting unit and the entity must perform step two of the impairment
test (measurement). Under step two, an impairment loss is recognized for any
excess of the carrying amount of the reporting unit's goodwill over the implied
fair value of that goodwill. The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit in a manner similar to a
purchase price allocation and the residual fair value after this allocation is
the implied fair value of the reporting unit goodwill. Fair value of the
reporting unit is determined using a discounted cash flow analysis.
We estimated the fair value of our reporting units using a discounted cash flow
model (implied fair value measured on a non-recurring basis using level 3
inputs). Inherent in the development of the discounted cash flow projections are
assumptions and estimates of our future revenue and terminal growth rates,
profit margins, and cost of capital. Our judgments with respect to these metrics
are based on historical experience, current trends, consultations with external
specialists, and other information. 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.
As of December 31, 2019, the fair value of our North America, Europe and
Australasia reporting units would have to decline by approximately 42%, 33% and
40%, respectively, to be considered for potential impairment.

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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
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. 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. The effect on the deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. We evaluate both the positive and negative evidence that is relevant in
assessing whether we will realize the deferred tax assets. 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. As a result, valuation allowances are subject
to change as proven business trends and planning initiatives develop.
The Tax Act passed in December 2017 had significant effects on our financial
statements. In accordance with Staff Accounting Bulletin No.118 issued by the
SEC in December 2017 immediately following the passage of the Tax Act, we made
provisional estimates for certain direct and indirect effects of the Tax Act
based on information available to us for the year ended December 31, 2017. In
the fourth quarter of 2018, we completed our accounting for all the
enactment-date income tax effects of the Tax Act and recorded any adjustments as
a component of income tax expense from continuing operations. 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. We recognize the financial statement benefit of a tax position
only after determining that the relevant tax authority would more likely than
not sustain the position following an audit and the tax related to the position
would be due to the entity and not the owners. For tax positions meeting the
more likely than not threshold, the amount recognized in the consolidated
financial statements is the largest benefit that has a greater than 50 percent
likelihood of being realized, upon ultimate settlement with the relevant tax
authority. We apply this accounting standard to all tax positions for which the
statute of limitations remains open. Changes in recognition or measurement are
reflected in the period in which the change in judgment occurs.
We file a consolidated federal income tax return in the U.S. and various states.
For financial statement purposes, we calculate the provision for federal income
taxes using the separate return method. Certain subsidiaries file separate tax
returns in certain countries and states. Any U.S. federal, state and foreign
income taxes refundable and payable are reported in other current assets and
other current liabilities in the consolidated balance sheets as of December 31,
2019 and December 31, 2018. We recorded a non-current U.S. receivable of $0.8
million at December 31, 2018 related to the one-time deemed repatriation tax
liability, which is included in other assets in the accompanying consolidated
balance sheet. We do not have any non-current taxes receivable or payable at
December 31, 2019. We record interest and penalties on amounts due to tax
authorities as a component of income tax expense in the consolidated statements
of operations.
Derivative Financial Instruments
We utilize derivative financial instruments to manage foreign currency exposures
related to subsidiaries that operate outside the U.S. and use their local
currency as the functional currency. We record all derivative instruments in the
consolidated balance sheets at fair value. Changes in a derivative's fair value
are recognized in earnings unless specific hedge criteria are met, and we elect
hedge accounting prior to entering into the derivative. If a derivative is
designated as a fair value hedge, the changes in fair value of both the
derivative and the hedged item attributable to the hedged risk are recognized in
the results of operations. If the derivative is designated as a cash flow hedge,
changes in the fair value of the derivative are recorded in consolidated other
comprehensive income (loss) and subsequently classified to the consolidated
statements of operations when the hedged item impacts earnings. At the inception
of a fair value or cash flow hedge transaction, we formally document the hedge
relationship and the risk management objective for undertaking the hedge. In
addition, we assess both at inception of the hedge and on an ongoing basis,
whether the derivative in the hedging transaction has been highly effective in
offsetting changes in fair value or cash flows of the hedged item and whether
the derivative is expected to continue to be highly effective. The impact of any
ineffectiveness is recognized in our consolidated statements of operations.

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Contingent Liabilities
Contingent liabilities require significant judgment in estimating potential
losses for legal claims. Each quarter, we review significant new claims and
litigation for the probability of an adverse outcome. Estimates are recorded as
liabilities when it is probable that a liability has been incurred and the
amount of the loss is reasonably estimable. Disclosure is required when there is
a reasonable possibility that the ultimate loss will materially exceed the
recorded provision. Contingent liabilities are often resolved over long time
periods. Estimating probable losses requires analysis of multiple forecasts that
often depend on judgments about potential actions by third parties such as
regulators, and the estimated loss can change materially as individual claims
develop.
Share-based Compensation Plan
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. 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. 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. We estimate the expected
term of all stock options based on previous history of exercises. The risk-free
rate is based on the U.S. Treasury yield curve in effect at the time of grant
for the expected term of the stock option. The expected dividend yield rate is
0.00% which is consistent with the expected dividends to be paid on common
stock. We estimate forfeitures based on our historical analysis of actual stock
option forfeitures. Actual forfeitures are recorded when incurred and estimated
forfeitures are reviewed and adjusted at least annually.
Employee Retirement and Pension Benefits
The obligations under our defined benefit pension plans are calculated using
actuarial models and methods. The most critical assumption and estimate used in
the actuarial calculations is the discount rate for determining the current
value of benefit obligations. Other assumptions and estimates used in
determining benefit obligations and plan expenses include expected return on
plan assets, inflation rates, and demographic factors such as retirement age,
mortality, and turnover. These assumptions and estimates are evaluated
periodically and are updated accordingly to reflect our actual experience and
expectations.
The discount rate used to determine the benefit obligations was computed through
a projected benefit cash flow model. This approach determines the discount rate
as the rate that equates the present value of the cash flows (determined using
that single rate) to the present value of the cash flows where each cash flows'
present value is determined using the spot rates from the Willis Towers Watson
RATE: Link 10:90 Yield Curve.
The discount rate utilized to calculate the projected benefit obligation at the
measurement date for our U.S. pension plan decreased to 3.31% at December 31,
2019 from 4.27% at December 31, 2018. 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, 2019 by
approximately $14.6 million and would increase estimated fiscal year 2019
expense by approximately $1.5 million. Increasing the discount rate by 0.25%
would decrease the U.S. pension and post-retirement obligation at December 31,
2019 by approximately $13.8 million and would decrease estimated fiscal year
2019 expense by approximately $1.3 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, 2019 net
periodic pension expense by approximately $3.5 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. While we believe that the assumptions used are appropriate,
differences in actual experience or changes in assumptions might materially
affect our financial position or results of operations.

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Capital Expenditures
We expect that the majority of our capital expenditures will be focused on
supporting our cost reduction and efficiency improvement projects, certain
growth initiatives, and to a lesser extent, on sustaining our current
manufacturing operations. We are subject to health, safety, and environmental
regulations that may require us to make capital expenditures to ensure our
facilities are compliant with those various regulations.
Item 7A - Quantitative and Qualitative Disclosures About Market Risk
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. 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.
Exchange Rate Risk
We have global operations and therefore enter into transactions denominated in
various foreign currencies. To mitigate cross-currency transaction risk, we
analyze significant forecast exposures where we expect receipts or payments in a
currency other than the functional currency of our operations, and from time to
time we may strategically enter into short-term foreign currency forward
contracts to lock in some or all of the cash flows associated with these
transactions. We also are subject to currency translation risk associated with
converting our foreign operations' financial statements into U.S. dollars. We
use short-term foreign currency forward contracts and hedges to mitigate the
impact of foreign exchange fluctuations on consolidated earnings. We use foreign
currency derivative contracts, with a total notional amount of $91.6 million as
of December 31, 2019, in order to manage the effect of exchange fluctuations on
forecasted sales, purchases, acquisitions, inventory and capital expenditures
and certain intercompany transactions that are denominated in foreign
currencies. We use foreign currency derivative contracts, with a total notional
amount of $29.5 million, to hedge the effects of translation gains and losses on
intercompany loans and interest. We also use foreign currency derivative
contracts, with a total notional amount of $116.5 million, to mitigate the
impact to the consolidated earnings of the Company from the effect of the
translation of certain subsidiaries' local currency results into U.S. dollars.
We do not use derivative financial instruments for trading or speculative
purposes.
By using derivative financial instruments to hedge exposures to foreign currency
fluctuations, we are exposed to credit risk and market risk. Credit risk is the
failure of the counterparty to perform under the terms of the derivative
contract. When the fair value of a derivative contract is positive, the
counterparty owes us, which creates credit risk for us. When the fair value of a
derivative contract is negative, we owe the counterparty and, therefore, we are
not exposed to the counterparty's credit risk in those circumstances. We attempt
to minimize counterparty credit risk in derivative instruments by entering into
transactions with high-quality counterparties whose credit rating is at least
upper-medium investment grade. Our derivative instruments do not contain credit
risk related contingent features.
Interest Rate Risk
We are subject to interest rate market risk in connection with our long-term
debt, some of which is based upon floating interest rates. 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. We do not use
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 that are
in-the-money. We assess interest rate risk by continually identifying and
monitoring changes in interest rate exposures that may adversely impact expected
future cash flows and by evaluating hedging opportunities. We maintain risk
management control systems to monitor interest rate risk attributable to both
our outstanding and forecasted debt obligations as well as any offsetting hedge
positions. The risk management control systems involve the use of analytical
techniques, including cash flow sensitivity analysis, to estimate the expected
impact of changes in interest rates on our future cash flows.
The U.K's Financial Conduct Authority has announced the intent to phase out the
use of LIBOR by the end of 2021. Prior to LIBOR being discontinued, we will need
to renegotiate the terms of certain of our credit agreements which reference
LIBOR as a benchmark in determining the interest rate. As a result, we may incur
incremental interest expense depending on the new standard determined. The
potential effect of any such event on our cost of capital cannot yet be
determined and we are still assessing the impact on our consolidated financial
condition, results of operations, and cash flows.
Raw Materials Risk
Our major raw materials include glass, vinyl extrusions, aluminum, steel, wood,
hardware, adhesives, and packaging. 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,

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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. The market for our products may or
may not accept price increases, and as such, there is no assurance that we can
maintain margins in an environment of rising commodity prices. 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.
We have not historically used derivatives or similar instruments to hedge
commodity price fluctuations. We purchase from multiple geographically diverse
companies to mitigate the adverse impact of higher prices for our raw materials.
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.
Item 8 - Financial Statements
See Index to Consolidated Financial Statement beginning on page F-1 of the Form
10-K.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 9A - Controls and Procedures
Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")), which are designed to ensure that information required to
be disclosed by the Company in reports that it files or submits under the
Exchange Act, including this Report, are recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms. These
disclosure controls and procedures include controls and procedures designed to
ensure that information required to be disclosed by the Company under the
Exchange Act is accumulated and communicated to the Company's management,
including its principal executive officer ("CEO") and principal financial
officer ("CFO"), as appropriate to allow timely decisions regarding required
disclosure. The Company's management, including the Company's CEO and CFO,
conducted an evaluation of the effectiveness of the Company's disclosure
controls and procedures as of the end of the period covered by this Report and,
based on that evaluation, the CEO and CFO concluded that the Company's
disclosure controls and procedures were not effective as of December 31, 2019
because of the material weaknesses in our internal control over financial
reporting described below.
Management's Report on Internal Control over Financial Reporting
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Exchange Act Rules 13a-15(f) and 15d-15(f).
The Company carried out an evaluation under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
Company's internal control over financial reporting. The Company's management
used the framework in Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations (COSO) to perform this evaluation. Based
on this evaluation, management has concluded that we did not maintain effective
internal control over financial reporting as of December 31, 2019, due to the
material weaknesses identified below.
A material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely basis. As previously
reported in our Annual Report on Form 10-K for the year ended December 31, 2018,
management determined that we did not maintain a sufficient complement of
personnel in our Europe operations with the appropriate level of knowledge,
experience and training in internal control over financial reporting
commensurate with our financial reporting requirements to allow for the
consistent execution of control activities. Further, monitoring controls
maintained at the Europe operations and corporate levels did not operate with a
sufficient degree of precision to provide for the appropriate level of oversight
of activities related to our internal control over financial reporting. These
material weaknesses contributed to the following additional material weaknesses
in that we did not design and maintain effective controls within certain of our
Europe operations related to the review and approval of customer pricing, the
review and approval of manual journal entries, and the reconciliation of
subsidiary ledger financial information used in the consolidated financial
statements. Specifically, we did not design and maintain controls to ensure (i)
the review and approval of the initial set-up, and subsequent
changes/modifications, of customer pricing related

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to revenue arrangements; (ii) that journal entries were properly prepared with
sufficient supporting documentation, were reviewed and approved to ensure
accuracy and completeness of the journal entries, and were reviewed by an
appropriate individual separate from the preparer of such journal entry; and
(iii) the subsidiary financial information used in the preparation of the
consolidated financial statements agreed to the financial information recorded
in the subsidiary ledger, and to the extent there were differences, that they
were appropriately validated.
These material weaknesses resulted in the revision of the Company's consolidated
financial statements for the years ended December 31, 2016, 2017 and 2018 and
each of the interim periods of 2018 and the first quarter of 2019. Additionally,
these material weaknesses could result in a misstatement of substantially all
account balances or disclosures within the European operations that would result
in a material misstatement to the annual or interim consolidated financial
statements that would not be prevented or detected.
Management has excluded from its assessment of the Company's internal control
over financial reporting as of December 31, 2019 certain elements of the
internal control over financial reporting of VPI Quality Windows, Inc., which is
a wholly-owned subsidiary of the Company that was acquired by the Company in
2019. Subsequent to the acquisition of each entity, certain elements of the
acquired business's internal control over financial reporting and related
functions, processes and systems were integrated into the Company's existing
internal control over financial reporting and related functions, processes and
systems. Those elements of the acquired business's internal control over
financial reporting that were not integrated have been excluded from
management's assessment of the effectiveness of internal control over financial
reporting as of December 31, 2019. The excluded elements represent approximately
0.6% of consolidated total assets and 1.1% of consolidated net revenues as of
and for the year ended December 31, 2019.
The effectiveness of our internal control over financial reporting as of
December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report appearing under
"Item 8. Financial Statements and Supplementary Data".
Remediation Plan for Previously Identified Material Weaknesses as of December
31, 2019
In order to address the material weaknesses described in the Company's 2018
Annual Report on Form 10-K, the Company's management implemented a remediation
plan to address the control deficiencies that led to the material weaknesses
identified above. The remediation plan includes the following:
•      Enhance and supplement the finance team in Europe by increasing the number

of roles, reassigning responsibilities, and adding additional resources

with an appropriate level of knowledge and experience in internal control


       over financial reporting commensurate with the financial reporting
       complexities of the organization;

• Enhance the tone, communication and overall awareness of the importance of


       internal control over financial reporting from executive management;


•      Evaluate corporate and segment monitoring controls to ensure they are

designed and operating at the appropriate level of precision required to

support risk mitigation;

• Implement enhancements to the design of our customer pricing controls in

Europe;




• Implement enhancements to the design of our journal entry controls in Europe;


•      Implement enhancements to the design of our controls related to the
       reconciliation of subsidiary ledger financial information used in the
       consolidated financial statements;

• Strengthen procedures and set guidelines for documentation of controls


       throughout our domestic and international locations for consistency of
       application;


•      Institute additional training programs that occur on a regular basis

related to internal control over financial reporting for our world-wide


       finance and accounting personnel.



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During the period ended December 31, 2019, we executed the remediation plan above by: • hiring additional personnel in Europe with knowledge and experience in

internal control over financial reporting; however, due to contractual

notice periods within Europe (typically three to six months), many of the

individuals retained were not available until the fourth quarter of 2019;

• conducted quarterly in-person training sessions on internal controls over


       financial reporting, monitoring controls, complex accounting topics,
       account reconciliations and journal entry controls in Europe;


•      implemented enhancements to closing processes that included the

centralization of certain tasks, development of manuals and standardized

templates to enhance the evidence supporting the local teams' execution of

internal control over financial reporting; and

• developed a global accounting manual to provide guidance on critical

accounting policies and procedural outlines for their implementation.




Based on the actions taken to date, while management believes that it now has
the requisite personnel to consistently operate the controls as designed,
additional controls may need to be designed and implemented as part of the
remediation plan, especially with respect to pricing. Additionally, for controls
that were newly designed and implemented in 2019, management determined that a
sustained period of operating effectiveness is required to conclude that the
controls are operating effectively. Accordingly, the material weaknesses
described have not been remediated as of December 31, 2019.
Changes in Internal Control over Financial Reporting
Except for the remediation efforts described above under the caption
"Remediation Plan for Previously Identified Material Weaknesses," there were no
changes in our internal control over financial reporting (as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
Company's most recently completed quarter ended December 31, 2019 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

                                       65

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